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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549





FORM 10-K

|           |  |                                                                                     
|---------- |  | ------------------------------------------------------------------------------------
|(Mark One)
|[X]        |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2003

OR

|     |  |                                                                               
|---- |  | ------------------------------------------------------------------------------
|[  ] |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIESACT OF 1934

For the transition period from  to Commission File Number 1-14705

ALLIED WASTE INDUSTRIES, INC.*

(Exact name of registrant as specified in its charter)


|                                                                        |  |                                                
|----------------------------------------------------------------------- |  | -----------------------------------------------
|Delaware
(State or other jurisdiction of incorporation or organization) |  | 88-0228636
(IRS Employer Identification Number)

|                                                                                                         |  |                 
|-------------------------------------------------------------------------------------------------------- |  | ----------------
|15880 North Greenway-Hayden Loop, Suite 100
Scottsdale, Arizona
(Address of principal executive offices) |  | 85260
(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             |  | Name of each exchange on which registered
|Common Stock, $.01 par value    |  | New York Stock Exchange                  
|Preferred Stock Purchase Rights |  | 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.
Yes    [X]    No
 [  ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K.x

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).
Yes    [X]    No
 [  ]

The aggregate market value of the registrants voting stock held by nonaffiliates of the registrant was $2,136,926,157 as of June 27, 2003.

The
number of shares of the registrants common stock, $.01 par value, outstanding at February 27, 2004 was 320,503,016.

The registrants proxy statement is to be filed in connection with the registrants 2004 annual meeting of stockholders.



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|                                              |  |                              |  |                                  
|--------------------------------------------- |  | ---------------------------- |  | ---------------------------------
|*Exact Name of Co-registrants(1)              |  | Jurisdiction ofIncorporation |  | I.R.S. EmployerIdentification No.
|BFI Energy Systems of Boston, Inc.            |  | Massachusetts                |  | 76-0167159                       
|BFI Services Group, Inc.                      |  | California                   |  | 95-1656668                       
|BFI Trans River (LP), Inc.                    |  | Delaware                     |  | 76-0293886                       
|BFI Energy Systems of Plymouth, Inc.          |  | Delaware                     |  | 76-0167171                       
|Browning-Ferris Industries Europe, Inc.       |  | Delaware                     |  | 76-0293920                       
|Browning-Ferris Industries Asia Pacific, Inc. |  | Delaware                     |  | 76-0020147                       
|Consolidated Processing, Inc.                 |  | Illinois                     |  | 36-3130146                       

|    |  |                                                                                                                                                      
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------
|(1) |  | The address for each of the co-registrants is c/o
Allied Waste Industries, Inc., 15880 N. Greenway-Hayden Loop,
Suite 100, Scottsdale, Arizona 85260.



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TABLE OF CONTENTS



|                               |                                                                                                         |                                                  |  |  |  |  |  | 
|------------------------------ | ------------------------------------------------------------------------------------------------------- | ------------------------------------------------ |  |  |  |  |  | 
|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                            
|                               | Item 9A. Controls and Procedures                                                                       
|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 and Related Stockholder Matters
|                               | Item 13. Certain Relationships and Related Transactions                                                
|                               | Item 14. Principal Accountant Fees and Services                                                        
|PART IV                       
|                               | Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K                               
|Report of Independent Auditors
|                               |                                                                                                         | CONSOLIDATED BALANCE SHEETS                     
|                               |                                                                                                         | CONSOLIDATED STATEMENTS OF OPERATIONS           
|                               |                                                                                                         | CONSOLIDATED STATEMENTS OF STOCKHOLDERS DEFICIT
|                               |                                                                                                         | CONSOLIDATED STATEMENTS OF CASH FLOWS           
|                               |                                                                                                         | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS      
|                               |                                                                                                         | Financial Statement Schedules                   
|Signatures                    
|EX-10.58                      
|EX-10.59                      
|EX-10.60                      
|EX-10.61                      
|EX-12.1                       
|EX-14                         
|EX-21                         
|Ex-23.01                      
|EX-31.1                       
|EX-31.2                       
|EX-32                         

TABLE OF CONTENTS

|         |  |                                                                                       |  |    
|-------- |  | ------------------------------------------------------------------------------------- |  | ---
|PART I   |  |                                                                                       |  |    
|Item 1.  |  | Business                                                                              |  | 3  
|Item 2.  |  | Properties                                                                            |  | 11 
|Item 3.  |  | Legal Proceedings                                                                     |  | 12 
|Item 4.  |  | Submission of Matters to a Vote of Security Holders                                   |  | 13 
|PART II  |  |                                                                                       |  |    
|Item 5.  |  | Market Price and Dividends on the Common Stock and Related Stockholder Matters        |  | 14 
|Item 6.  |  | Selected Financial Data                                                               |  | 15 
|Item 7.  |  | Managements Discussion and Analysis of Financial Condition and Results of Operations |  | 18 
|Item 7A. |  | Quantitative and Qualitative Disclosures About Market Risk                            |  | 63 
|Item 8.  |  | Financial Statements and Supplementary Data                                           |  | 64 
|Item 9.  |  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure  |  | 132
|Item 9A  |  | Controls and Procedures                                                               |  | 132
|PART III |  |                                                                                       |  |    
|Item 10. |  | Directors and Executive Officers of the Registrant                                    |  | 133
|Item 11. |  | Executive Compensation                                                                |  | 137
|Item 12. |  | Security Ownership of Certain Beneficial Owners and Management                        |  | 143
|Item 13. |  | Certain Relationships and Related Transactions                                        |  | 145
|Item 14. |  | Principal Accountant Fees and Services                                                |  | 148
|PART IV  |  |                                                                                       |  |    
|Item 15. |  | Exhibits, Financial Statement Schedules and Reports on Form 8-K                       |  | 149
|         |  | Signatures                                                                            |  | 277

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Unless the context requires otherwise, reference in this Form 10-K
to Allied, we, us and our, refer to Allied Waste
Industries, Inc. and its consolidated subsidiaries.

PART I

Item 1.Business

Overview

We are the second largest, non-hazardous solid waste management
company in the United States. The non-hazardous solid waste
industry in the United States generates approximately $42 billion
of annual revenue from publicly-traded companies, municipalities
and privately-held companies. Publicly-traded companies generate
approximately 49% of the revenues, while municipalities and
private companies generate the remaining revenues. Presently, the three largest publicly-traded
companies in the waste management industry in the United States
generate over 90% of the public company revenues.

We provide collection, transfer, recycling and disposal services
for approximately 10 million residential, commercial and
industrial customers. We serve our customers through a network of
313 collection companies, 165 transfer stations, 166 active
landfills and 57 recycling facilities in 110 major markets within
37 states. We operate only in the United States and Puerto Rico.
We operate as a vertically integrated company which entails
picking up waste from businesses and residences and disposing of
that waste in our own landfills to the extent that it is
economically beneficial (referred to as internalization). This
allows us greater stability in and control over the waste flow
into our landfills and, therefore, greater control over the cash
flow stability in our business.

We utilize a decentralized operating model, with centralized
control functions and management oversight. Centralized control
activities include operating standards, best practices, risk
management, and regulatory compliance. Because the waste
collection and disposal business is a very local business,
operations and opportunities differ in each of our markets. By
utilizing a decentralized operating model, the day-to-day
operating decisions are made locally, close to the customer.
Augmenting this we utilize operating standards and the sharing of
best practices across the company. We believe that this model
allows us to maximize the growth and development opportunities in
each market in which we operate and has largely contributed to our
ability to operate the business efficiently, while maintaining
effective controls over our operations and administrative matters,
including financial reporting and risk management.

We were incorporated in Delaware in
1989. We have grown the
company from a revenue base of $35 million in 1992 to over $5
billion in 2003 through a series of acquisitions highlighted by
the $1.5 billion acquisition of the solid waste assets of Laidlaw
in 1996 and the $9.6 billion acquisition of Browning-Ferris
Industries, Inc. (BFI) in 1999. We have, and continue to acquire
smaller companies within the waste industry that either provide
additional infrastructure, such as landfills and transfer stations
in existing markets, or tuck into our existing collection
companies and enhance our internalization and profitability in a
market. Since 2001, we have funded the acquisition of companies
through the proceeds from divestitures of our own assets that were
not operating in a manner consistent with our business model.

Our current business objectives are to focus on internal growth
and generate cash flow to repay debt. We reported revenues of
approximately $5.2 billion for the years ended December 31, 2003
and 2002. During the years ended December 31, 2003 and 2002, we
generated operating cash flows of approximately $783.9 million and
$976.6 million, and reinvested approximately $491.8 million and
$536.3 million of capital into the business, respectively,
primarily for trucks, containers and landfill development. During
2003, we reduced our debt balance by $648 million to $8.2 billion
and increased our cash balance by $265 million through operating
cash flows of $783.9 million, the issuance of equity generating
approximately $428 million and the divestiture of operations (net
of acquisitions) generating approximately $250 million in net
proceeds.

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General information about us can be found at
www.alliedwaste.com. Our annual report on Form
10-K, quarterly reports on Form 10-Q and current
reports on Form 8-K, as well as any amendments to
those reports, are available free of charge
through our website as soon as reasonably
practicable after we file them with, or furnish
them to, the Securities and Exchange Commission
(SEC).

Business Strategy

Our business strategy is aimed at maximizing operating cash flows to reinvest
in our business and to continue to pay down debt. The components of this
strategy include: (1) operating vertically integrated, non-hazardous solid
waste service businesses with a high rate of waste internalization (which is
the process of transferring to and disposing of waste we collect at our own
landfills); (2) managing our 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 and effective administrative systems and controls to support
on-going operations and future growth.

Vertical Integration and Internalization.Vertical integration has
been and continues to be the key element of our business strategy.
The fundamental objective of the vertical integration business
model is to control the waste stream from the point of collection
through disposal, thereby optimizing the economics of the waste
stream by achieving a high rate of waste internalization. As of
December 31, 2003, approximately 72% of the waste that our
collection companies pick up is disposed of at our landfills.
Additionally, approximately 48% of the waste that is disposed of
at our landfills comes from our collection companies. This means
that on average, each day we open our landfills, we expect that
almost half of the volume received will be delivered by our own
trucks.

Across the country 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 assets that provide or improve the
infrastructure for a vertically integrated market and to increase
the density of our collection routes. We also may divest of
operations in markets in which over the long-term we cannot
successfully build a vertically integrated structure. 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 72% at the end
of 2003 and 71% at the end of 2002.

Focus on Customer Service Excellence.Decentralized operations and
local management characterize our operations-oriented business
strategy. Historically, we have successfully focused our
management development activities on recruiting and retaining
operating managers with extensive industry and local market
experiences. Our senior operating management each average over 25
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. The
focus on customer services is supported by investing in and
maintaining a quality asset base and providing training programs
that maximize our operational excellence.

Internal Development and Incremental Acquisitions.Our focus is on
achieving a sustainable rate of long-term growth and efficiently
operating our assets. We intend to increase revenues by
increasing collection and disposal volumes. We also intend to
increase revenue by increasing the rates we charge for the
services we provide. We intend to supplement this internal growth
with acquisitions of operating assets in existing markets, such as
landfills and transfer stations, and tuck-in acquisitions of
privately owned solid waste collection and disposal operations. We
are continuously evaluating our existing operating assets to
determine if we are maximizing our market density and
internalization. To the extent certain operating assets are not
performing at efficient levels, we may examine opportunities to
provide greater efficiencies through tuck-in acquisitions or
ultimately determine to divest of such assets and reallocate
resources to other markets. We also intend to examine
opportunities when government entities privatize the operation of
all or part of their solid waste systems. In addition, we seek to
maintain broad domestic geographic diversification in our
operations through market development initiatives.

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Maintaining Financial Capacity and Infrastructure for Future
Growth.We seek to implement our business strategy by maintaining
sufficient financial capacity and effective administrative systems
and controls. Our operating cash flows have historically been
sufficient to fund our debt service, working capital and capital
expenditure requirements, and we maintain revolving line of credit
capacity which has been sufficient to handle seasonal and other
peak spending requirements. Cash flows in excess of current year
debt maturities have been applied to future maturities.

Our system of internal controls is implemented through clear
policies and procedures and appropriate delegation of authority
and segregation of responsibility. Our company policies establish
a philosophy of conducting operations in a responsible and ethical
manner, including the manner in which we handle operations that
impact the surrounding environment. Senior management is
committed to establishing and fostering an environment of
integrity and ethical conduct. Our comprehensive internal audit
function assists management in the oversight and evaluation of the
effectiveness of the system of internal controls. Our system of
internal controls are reviewed, modified and improved as changes
occur in business conditions and our operations.

Operations

Our revenue mix (based on net revenues) for 2003 was approximately
$3.9 billion collection, $633.4 million landfill, $400.6 million
transfer, $194.8 million recycling and $124.5 million other. No
one customer has individually accounted for more than 1% of our
consolidated revenue in any of the last three years.

Collection. Collection operations involve collecting and
transporting non-hazardous waste from the point of generation to
the site of disposal, which may be a transfer station or a
landfill. Fees relating to collection services are based on
collection frequency, type of equipment furnished (if any),
special handling needs, the type and volume or weight of the waste
collected, the distance traveled to the transfer station or
disposal facility and the cost of disposal, as well as general
competitive and prevailing local economic conditions. We have
approximately 13,500 collection vehicles and perform the majority
of vehicle maintenance at our own maintenance facilities.
Depending on the customer being served, we generally provide solid
waste collection under the following four service lines:



| |  |  | Commercial.We provide containerized non-hazardous solid
waste disposal services to a wide variety of commercial and
industrial customers. Commercial revenue represents
approximately 35% of our collection revenue. We provide
customers with containers that are designed to be lifted
mechanically and emptied into a collection vehicles
compaction hopper. Our commercial containers generally range
in size from one to eight cubic yards. Commercial contract
terms generally range from 1 to 3 years and commonly have
renewal options.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Residential.We perform residential collection services
under individual monthly subscriptions directly to
households or under exclusive contracts with municipal
governments that allow us to service all or a portion of the
homes in the municipalities at established rates. Municipal
contracts generally have a term of 3 to 5 years and commonly
have renewal options. 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 29% of our collection revenue,
approximately 43% of which is subscription revenue and
approximately 57% of which is municipal revenue. Prior to
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. 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. We generally provide
small containers to our customers that are lifted either
mechanically or manually and emptied into the collection
vehicle. The collection vehicle will collect the waste from
many customers before traveling to a transfer station or
landfill for disposal.

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| |  |  | Roll-off.Roll-off revenue represents approximately 31% of
our collection revenue. We provide roll-off collection
services to a wide variety of commercial and industrial
customers as well as residential customers. We provide
customers with containers that are designed to be lifted
mechanically and loaded onto the collection vehicle. Our
roll-off containers generally range in size from 20 to 40
cubic yards. The collection vehicle returns to the transfer
station or landfill after pulling the container from each
customer. Contracts for roll-off containers may provide for
temporary (such as the removal of waste from a construction
site) or ongoing services.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Recycling.Recycling collection revenue represents
approximately 5% of our total collection revenue. Recycling
collection services include curbside collection of
recyclable materials for residential customers and
commercial and industrial collection of recyclable
materials. We generally charge recycling fees based on the
service sought by the customer. The customer pays for the
cost of removing, sorting and transferring recyclable
materials downstream in the recycling process. The
collection vehicle will collect the waste from many
customers before traveling to a material recovery facility
to deliver the recyclables.                                     

Transfer Stations. A transfer station is a facility where solid
waste collected by third-party and company-owned vehicles is
consolidated 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 over long distances 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, the cost of disposal and
general competitive and economic condition. We believe that as
increased regulations and public pressure restrict the development
of landfills in urban and suburban areas, transfer stations will
continue to 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, most of which are promulgated under Subtitle D of the
Resource Conservation and Recovery Act (RCRA). Operating
procedures include excavation of earth, 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. Approximately
48% of our landfill volume is delivered by our collection
vehicles. Approximately one-third of our landfill volumes are
under contracts with third-party collection companies with an
average duration from one to five years. This adds to the
stability of our business.

Recycling  Commodity.We receive mixed waste materials at a
materials recovery facility, which is often integrated into, or
contiguous to, a transfer or collection operation. At the
facility, we sort, separate, accumulate, bind or place in a
container and ready for transport materials such as paper,
cardboard, plastic, aluminum and other metals. We also engage in
organic materials recycling and/or disposal. Cardboard and
various grades of paper represented approximately 76% of our
processed recyclable product in 2003. The purchaser of the
recyclables generally pays for the sorted materials based on
fluctuating spot-market prices. We seek to mitigate exposure to
fluctuating commodity prices by entering into contractual
agreements that set a minimum sales price on the recyclables and
when possible passing through profit or loss from the sale of
recyclables to customers.

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Organization, Marketing and Sales

Our management philosophy utilizes decentralized operating management, with
centralized compliance, regulatory and financial controls. We believe that
this model allows us to maximize the growth and development opportunities in
each of our markets and has largely contributed to our ability to operate the
business efficiently, while maintaining effective controls and standards over
our operations and administrative matters, including financial reporting.
Since the waste collection and disposal business is a very local business,
operations and opportunities differ in each of our markets. By utilizing
decentralized operating management with standards for best practices, we strive
to standardize the common practices across the company, while maintaining the
day-to-day operating decisions at the local level, which is closest to the
customer.

We implement this philosophy by organizing our operations into a corporate,
area, region and district infrastructure. Our four geographic areas are:
Eastern, Southern, Central and Western. (See Note 17 to our consolidated
financial statements included under Item 8 of this Form 10-K for a summary of
revenues, profitability and total assets of our four geographic area operating
segments.) The geographic areas are further divided into a total of twelve
regions. Consistent with the vertical integration business model, each region
is organized into several operating districts and each district contains a
group of specific business units with individual 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. This organization structure
provides our field operators the ability and flexibility to manage
profitability within their respective geographic area, while providing guidance
and resources to the local management.

Corporate and area management establish long-term business plans, outline
business and financial goals, implement policies and procedures and evaluate
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 business goals and
objectives. District management is responsible for market planning and
development, oversight and coordination of the local markets, and building and
maintaining vital community relationships. Business unit management is
responsible for operational and local market execution in accordance with
business plans and compliance with policies and procedures.

The area level of the organization is responsible for, among other things, goal
setting, oversight of the execution of corporate-wide initiatives and
communication of results and trends within their respective geographic
operating segment. The area staff consists primarily of an area vice
president, an area controller, a project development manager responsible for
future landfill and transfer station development, and a market development
representative responsible for acquisitions. Each area has three regions under
its management.

The regions are responsible for, among other things, implementation and
compliance of corporate-wide policies and initiatives, business unit reviews
and analysis, personnel development and training and for providing functional
expertise. All region managers and most district managers have responsibility
for all phases of the vertical integration model including collection,
transfer, recycling and disposal. The region staff consist primarily of a
regional vice president, regional controller, regional operations manager,
regional finance manager, sales manager, engineer, safety manager, human
resource manager, materials marketing manager and accounting and information
systems support staff. Region offices are typically located in a district
facility in order to reduce overhead costs and to promote a close working
relationship between the region management, district and business unit
personnel. Each region has approximately 5 districts under its management.

The district consists of a group of specific business units. A business unit
consists of individual site operations, known as divisions, usually operating
as a vertically integrated operation within a common marketplace. A division
is generally comprised of a single operating unit, such as a collection
facility, transfer station or a landfill. Districts range in size from
approximately $30 million to $200 million in revenue.

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The districts are responsible for maximizing the use of company assets, pricing
and market guidance, developing market plans, sales optimization and state
government affairs. The districts consist primarily of a district manager,
district controller, and assistant district controller.

The business units are responsible for the execution of the business plans,
coordinating divisions within markets, developing and maintaining customer
relationships, landfill site construction, employee safety and training and
local government affairs. The business units consist primarily of a general
manager, division controller, operations manager, sales manager and maintenance
manager.

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.

We also have municipal marketing representatives 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 representatives organize and handle bids for renewal and new
municipal contracts in their service area.

In addition to base salary, we compensate area, 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 earnings and cash flow goals in the managers geographic area of
responsibility, as well as the achievement of overall company goals.

We believe in financial responsibility and reporting at the operating level and
as a result, consolidate over 700 financial statements, inclusive of balance
sheets, which extend to areas, regions, districts and divisions.

As a result of the divestiture activity in 2003 and in an effort to continue to
align our operating structure in a manner that is consistent with optimal waste
flow, we revised the territorial lines that define our four geographic areas
effective January 1, 2004. The total number of areas, regions and districts
did not change.

Employees

At December 31, 2003, we employed approximately 26,000 employees of whom
approximately 25,000 were full-time employees. Approximately 4,000 of the
full-time employees were employed in clerical, administrative, and sales
positions; approximately 2,500 in management; and the remaining in collection,
disposal, transfer station and other operations. Approximately 25% of our
employees are covered by collective bargaining agreements. We have
not historically experienced any significant work stoppages. We currently have
no disputes or bargaining circumstances that could cause significant
disruptions in our business.

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 operational flexibility. We compete on the basis of price and
the quality of our services. We also compete with the use of alternatives to
landfill disposal because of certain 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.

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We encounter competition in our landfill business on the basis of geographic location, quality of
operations and alternatives to landfill disposal, such as recycling and incineration. Further, most
of the states in which we operate landfills require counties and municipalities to formulate
comprehensive plans to reduce the volume of solid waste deposited in landfills through waste
planning, composting and recycling or other programs. Some state and local governments mandate waste
reduction at the source and prohibit the disposal of certain types of wastes, such as yard wastes,
at landfills.

Environmental and Other Regulations

We are subject to extensive and evolving environmental laws and regulations administered by the
Environmental Protection Agency (the EPA) and various other federal, state and local environmental,
zoning, health and safety agencies. 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 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.

Our operations are subject to extensive regulation, principally under the following federal statutes:

The Resource Conservation and Recovery Act of 1976, as amended (RCRA).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.

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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 impose 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 are being implemented by the states after the EPA
approves the individual states program. These guidelines, combined with the new permitting programs
established under the Clean Air Act subject solid waste landfills to significant permitting
requirements and, in some instances, require installation of gas recovery systems to reduce
emissions to allowable limits. EPA also regulates the emission of hazardous air pollutants from
municipal landfills, and has promulgated regulations that require measures to monitor and reduce
such emissions.

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.

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.

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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
enacted laws that require counties to adopt comprehensive plans to reduce, through waste planning,
composting and recycling or other programs, the volume of solid waste deposited in landfills. 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 commercial general liability, automobile liability, workers compensation, employers
liability, directors and officers liability, pollution legal liability, and other coverages we
believe are customary in the industry. We maintain high deductible programs under commercial
general liability, automobile liability and workers compensation insurance with varying deductible
thresholds up to $3 million. We do not expect the impact of any known casualty, property or
environmental claims to be material to our consolidated liquidity, financial position or results of
operations.

We are required to provide approximately $2.8 billion of financial assurances to governmental
agencies and commercial entities under applicable environmental regulations relating to our landfill
operations and collection contracts and financial guarantee bonds for self-insurance. We satisfy the
financial assurance requirements by providing performance bonds, letters of credit, insurance
policies or trust deposits. We expect no material increase in financial assurance obligations
although the mix of financial assurance instruments may change.

Corporate Governance

Our corporate governance program reflects our commitment to integrity and high ethical standards in
conducting our business. We are committed to rigorously and diligently exercising our oversight
responsibilities throughout the company, managing our affairs consistent with the highest principles
of business ethics and the corporate governance requirements of federal law, the SEC and the New
York Stock Exchange.

The charters of our audit, management development/compensation and governance committees, our corporate
governance guidelines and code of ethics for executive and senior financial officers are available
in print to any stockholder who requests them. This information is also available on our website.

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 105,000 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 conducting operations. At December 31, 2003, we owned or
operated 313 collection companies, 165 transfer stations, 166 active solid waste landfills and 57
recycling facilities within 37 states. Our active solid waste landfills aggregated to approximately
76,158 total acres, including approximately 25,174 permitted acres. We believe that our property
and equipment are adequate for our current needs.

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Item 3.Legal Proceedings

We are involved in routine litigation that arises in the ordinary
course of business. We believe that costs of settlements or judgments
arising from routine litigation will not have a material adverse effect
on our consolidated liquidity, financial position or results of
operations. Currently, we are a party to proceedings with the IRS and in Texas State Courts. For a discussion of
these proceedings, see Notes 14 and 15 to our consolidated financial
statements.

We are subject to federal, state and
local environmental laws and regulations. Due to the nature
of our business we are often a party to judicial or administrative
proceedings involving governmental authorities and other interested
parties related to environmental regulations. At December 31, 2003, we
were a party to two pending environmental enforcement matters where
potential monetary sanctions are reasonably likely to exceed $100,000.
We believe that these matters will not have a material adverse effect
on our consolidated financial statements.

On October 30, 2003, the Solid Waste Commission of Westchester County,
New York issued a Notice of Hearing to Suburban Carting Corporation and
Metro Enviro LLC alleging violations of county laws and seeking a
penalty of $446,000 for the unauthorized acceptance of industrial
wastes at two of our subsidiaries transfer stations. These same
underlying facts had previously been the subject of an investigation by
the New York State Department of Environmental Conservation that
resulted in the entry of a consent order and payment of a $60,000 fine.

On December 10, 2003, our wholly owned subsidiary, the New Morgan
Landfill Company, Inc. (NMLC), entered into a Consent Order and
Agreement with the Pennsylvania Department of Environmental Protection
to resolve several Notices of Violation that it had received between
April and November of 2003 for odor violations at the Conestoga
Landfill in Morgantown, Pennsylvania. The Consent Order reduced the
average daily volume of waste that may be accepted at the landfill,
requires implementation of a revised odor control plan, and assessed a
civil penalty of $142,500. NMLC has paid the assessed penalty and has
submitted the revised odor control plan to the State.

On March 11, 2004, our wholly-owned
subsidiary, Greenridge Reclamation, LLC, received a proposed Consent
Assessment of Civil Penalty from the Pennsylvania Department of
Environmental Protection seeking to assess a civil penalty of
$274,000 to resolve several alleged odor and other environmental
violations under the Pennsylvania Solid Waste Management Act that
occurred between January 2003 and February 2004 at its landfill in
Scottdale, Pennsylvania.

Other than the foregoing matters, at December 31, 2003, we were not
involved in any such proceedings where we reasonably believe sanctions
imposed by governmental authorities will exceed $100,000, or a claim
for damages greater than 10% of our current assets, 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.

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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 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, 2003 of
approximately $337.4 million represents the most probable outcome of
these contingent matters. We do not expect that adjustments to
estimates, which may be 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. For more information about our potential environmental
liabilities see Note 8 to our consolidated financial statements.

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

On December 18, 2003, a special meeting of our stockholders was held at which we
submitted to a vote of our stockholders a proposal to approve the issuance of up
to 110.5 million shares of our common stock in exchange for the outstanding shares
of our Series A Senior Convertible Preferred Stock pursuant to an Exchange
Agreement dated July 31, 2003, between the Company and holders of the Series A
Convertible Preferred Stock. The results of the vote were as follows:

|                  |  |  |             | 
|----------------- |  |  | ----------- | 
|Affirmative votes |  |  | 221,131,157 | 
|Against           |  |  | 10,867,748  | 
|Abstentions       |  |  | 1,076,455   | 

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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 closing sales prices per share for
the periods indicated were as follows:

|                              |  |      |       |     |  |   |       | 
|----------------------------- |  | ---- | ----- | --- |  | - | ----- | 
|                              |  | High |       | Low
|                              |  |      |       |    
|Year Ended December 31, 2002: |  |      |       |     |  |   |       | 
|First Quarter                 |  | $    | 14.43 |     |  | $ | 9.95  | 
|Second Quarter                |  |      | 12.58 |     |  |   | 9.60  | 
|Third Quarter                 |  |      | 8.95  |     |  |   | 6.21  | 
|Fourth Quarter                |  |      | 11.22 |     |  |   | 5.80  | 
|                             
|                             
|                             
|                             
|                             
|                             
|                             
|                             
|                             
|                             
|                             
|                             
|Year Ended December 31, 2003: |  |      |       |     |  |   |       | 
|First Quarter                 |  | $    | 11.10 |     |  | $ | 7.75  | 
|Second Quarter                |  |      | 11.16 |     |  |   | 7.85  | 
|Third Quarter                 |  |      | 12.55 |     |  |   | 10.12 | 
|Fourth Quarter                |  |      | 13.99 |     |  |   | 10.32 | 

On February 27, 2004, the closing
sales price of our common stock was $12.63.
The number of holders of record of our common stock at
February 27, 2004, was
approximately 647.

Dividend Policy

We have not paid dividends on our common stock and are currently prohibited by
the terms of our loan agreements from paying any dividends except as required
to the Series C Mandatory Convertible Preferred Stock holders. For more
detail discussion on these loan agreements, see Note 5 to our consolidated
financial statements.

Recent Sales of Unregistered
Securities

In November 2003, we issued
$350.0 million of 6.50% senior notes due 2010 in a private
placement under Rule 144A of the Securities Act of 1933.

Equity Compensation Plan Information

Information required to be included
about our equity compensation is reported in this Form 10-K
under the heading Equity Compensation Plan Information as of
Fiscal Year-End under Item 12, Security Ownership of Certain Beneficial Owners
and Management and Related Stockholder Matters.

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Item 6.Selected Financial Data

The selected financial data presented below are derived from our historical
consolidated financial statements. Our consolidated financial
statements as of December 31, 2003, 2002 and 2001 and for each of the four years
in the period ended December 31, 2003 have been audited by
PricewaterhouseCoopers LLP, independent accountants. Our consolidated
financial statements as of December 31, 2000 and 1999 and for the year ended December 31, 1999, prior to the reclassifications described in Notes 1, 2 and 5 below, were audited by Arthur Andersen LLP, independent accountants. The 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 related notes included elsewhere
in this Form 10-K. (Amounts are in millions, except per share amounts and percentages.)

|                                                                                             |                                 |   |                                 |         |      |   |         |         |      |   |          |         |   |   |         |         |  |   |         |       |  
|-------------------------------------------------------------------------------------------- | ------------------------------- | - | ------------------------------- | ------- | ---- | - | ------- | ------- | ---- | - | -------- | ------- | - | - | ------- | ------- |  | - | ------- | ----- | -
|                                                                                             |                                 |   | For the Year Ended December 31,
|                                                                                             |                                 |   |                                
|                                                                                             |                                 |   | 2003                            |         | 2002 |   | 2001    |         | 2000 |   | 1999 (9)
|                                                                                             |                                 |   |                                 |         |      |   |         |         |      |   |         
|Statement of Operations Data(1):                                                             |                                 |   |                                 |         |      |   |         |         |      |   |          |         |   |   |         |         |  |   |         |      
|Revenues                                                                                     |                                 | $ | 5,247.7                         |         |      | $ | 5,190.8 |         |      | $ | 5,231.4  |         |   | $ | 5,360.0 |         |  | $ | 3,146.9 |      
|Cost of operations (2)                                                                       |                                 |   | 3,190.1                         |         |      |   | 3,039.1 |         |      |   | 2,964.2  |         |   |   | 3,132.2 |         |  |   | 2,227.6 |      
|Selling, general and
administrative expenses (2)                                             |                                 |   | 476.9                           |         |      |   | 462.7   |         |      |   | 434.7    |         |   |   | 409.4   |         |  |   | 392.4   |      
|Depreciation and amortization                                                                |                                 |   | 546.0                           |         |      |   | 478.5   |         |      |   | 448.8    |         |   |   | 433.8   |         |  |   | 264.7   |      
|Goodwill amortization (3)                                                                    |                                 |   |                                |         |      |   |        |         |      |   | 226.7    |         |   |   | 223.2   |         |  |   | 110.7   |      
|Non-cash (gain) loss on
divestiture of assets (4)                                            |                                 |   |                                |         |      |   | (9.3    | )       |      |   | 107.0    |         |   |   | 26.5    |         |  |   |        |      
|                                                                                             |                                 |   |                                 |         |      |   |         |         |      |   |          |         |   |   |         |         |  |   |         |      
|                                                                                             | Operating income                |   |                                 | 1,034.7 |      |   |         | 1,219.8 |      |   |          | 1,050.0 |   |   |         | 1,134.9 |  |   |         | 151.5 |  
|Equity in earnings of
unconsolidated affiliates                                              |                                 |   |                                |         |      |   |        |         |      |   | (14.1    | )       |   |   | (50.8   | )       |  |   | (20.8   | )    
|Interest expense and other(5)                                                                |                                 |   | 832.9                           |         |      |   | 854.0   |         |      |   | 866.1    |         |   |   | 892.1   |         |  |   | 436.8   |      
|                                                                                             |                                 |   |                                 |         |      |   |         |         |      |   |          |         |   |   |         |         |  |   |         |      
|Income (loss) before income
taxes                                                            |                                 |   | 201.8                           |         |      |   | 365.8   |         |      |   | 198.0    |         |   |   | 293.6   |         |  |   | (264.5  | )    
|Income tax expense (benefit)                                                                 |                                 |   | 88.7                            |         |      |   | 165.6   |         |      |   | 162.4    |         |   |   | 202.9   |         |  |   | (23.5   | )    
|Minority interest                                                                            |                                 |   | 1.9                             |         |      |   | 1.9     |         |      |   | 3.7      |         |   |   | 6.0     |         |  |   | 2.8     |      
|                                                                                             |                                 |   |                                 |         |      |   |         |         |      |   |          |         |   |   |         |         |  |   |         |      
|Income (loss) from continuing
operations                                                     |                                 | $ | 111.2                           |         |      | $ | 198.3   |         |      | $ | 31.9     |         |   | $ | 84.7    |         |  | $ | (243.8  | )    
|                                                                                             |                                 |   |                                 |         |      |   |         |         |      |   |          |         |   |   |         |         |  |   |         |      
|Basic EPS:                                                                                   |                                 |   |                                 |         |      |   |         |         |      |   |          |         |   |   |         |         |  |   |         |      
|Continuing operations (6)                                                                    |                                 | $ | (2.36                           | )       |      | $ | 0.63    |         |      | $ | (0.21    | )       |   | $ | 0.09    |         |  | $ | (1.45   | )    
|                                                                                             |                                 |   |                                 |         |      |   |         |         |      |   |          |         |   |   |         |         |  |   |         |      
|Weighted average common
shares                                                               |                                 |   | 203.8                           |         |      |   | 190.2   |         |      |   | 189.6    |         |   |   | 188.8   |         |  |   | 187.8   |      
|                                                                                             |                                 |   |                                 |         |      |   |         |         |      |   |          |         |   |   |         |         |  |   |         |      
|Diluted EPS:                                                                                 |                                 |   |                                 |         |      |   |         |         |      |   |          |         |   |   |         |         |  |   |         |      
|Continuing operations (6)                                                                    |                                 | $ | (2.36                           | )       |      | $ | 0.62    |         |      | $ | (0.21    | )       |   | $ | 0.08    |         |  | $ | (1.45   | )    
|                                                                                             |                                 |   |                                 |         |      |   |         |         |      |   |          |         |   |   |         |         |  |   |         |      
|Weighted average common and
common equivalent shares                                         |                                 |   | 203.8                           |         |      |   | 193.5   |         |      |   | 189.6    |         |   |   | 191.1   |         |  |   | 187.8   |      
|                                                                                             |                                 |   |                                 |         |      |   |         |         |      |   |          |         |   |   |         |         |  |   |         |      
|Pro forma amounts, assuming the
change in accounting principle is
applied retroactively (7): |                                 |   |                                 |         |      |   |         |         |      |   |          |         |   |   |         |         |  |   |         |      
|Income (loss) from continuing
operations                                                     |                                 |   |                                 |         |      | $ | 186.3   |         |      | $ | 20.1     |         |   | $ | 74.1    |         |  | $ | (252.8  | )    
|                                                                                             | Basic income(loss) per share    |   |                                 |         |      |   |         | 0.57    |      |   |          | (0.28   | ) |   |         | 0.03    |  |   |         | (1.49 | )
|                                                                                             | Diluted income (loss) per share |   |                                 |         |      |   |         | 0.56    |      |   |          | (0.28   | ) |   |         | 0.03    |  |   |         | (1.49 | )

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|                                                                                                        |  |                                 |          |      |  |      |          |      |  |          |          |   |  |   |          |   |  |   |          |  
|------------------------------------------------------------------------------------------------------- |  | ------------------------------- | -------- | ---- |  | ---- | -------- | ---- |  | -------- | -------- | - |  | - | -------- | - |  | - | -------- | -
|                                                                                                        |  | For the Year Ended December 31,
|                                                                                                        |  |                                
|                                                                                                        |  | 2003                            |          | 2002 |  | 2001 |          | 2000 |  | 1999 (9)
|                                                                                                        |  |                                 |          |      |  |      |          |      |  |         
|Statement of Cash Flows Data(1):                                                                        |  |                                 |          |      |  |      |          |      |  |          |          |   |  |   |          |   |  |   |          |  
|Cash flows from operating activities                                                                    |  | $                               | 783.9    |      |  | $    | 976.6    |      |  | $        | 847.6    |   |  | $ | 692.2    |   |  | $ | 466.8    |  
|Cash flows used for investing
activities (including asset
purchases and sales, and capital
expenditure) |  |                                 | (248.4   | )    |  |      | (519.5   | )    |  |          | (432.3   | ) |  |   | (196.4   | ) |  |   | (7,394.7 | )
|Cash flows provided by (used for)
financing activities (including debt
repayments)                      |  |                                 | (285.7   | )    |  |      | (487.5   | )    |  |          | (434.4   | ) |  |   | (592.7   | ) |  |   | 7,055.2  |  
|Cash provided by (used for)
discontinued operations                                                     |  |                                 | 15.5     |      |  |      | 52.2     |      |  |          | 57.5     |   |  |   | 96.7     |   |  |   | (47.3    | )
|                                                                                                       
|                                                                                                       
|                                                                                                       
|                                                                                                       
|                                                                                                       
|                                                                                                       
|                                                                                                       
|                                                                                                       
|                                                                                                       
|                                                                                                       
|                                                                                                       
|                                                                                                       
|Balance Sheet Data(1):                                                                                  |  |                                 |          |      |  |      |          |      |  |          |          |   |  |   |          |   |  |   |          |  
|Cash and cash equivalents                                                                               |  | $                               | 444.7    |      |  | $    | 179.4    |      |  | $        | 157.6    |   |  | $ | 119.2    |   |  | $ | 119.4    |  
|Working capital (deficit)                                                                               |  |                                 | (282.2   | )    |  |      | (377.7   | )    |  |          | (245.4   | ) |  |   | (344.7   | ) |  |   | (399.1   | )
|Property and equipment, net                                                                             |  |                                 | 4,018.9  |      |  |      | 4,005.7  |      |  |          | 3,927.5  |   |  |   | 3,781.8  |   |  |   | 3,643.7  |  
|Goodwill, net                                                                                           |  |                                 | 8,313.0  |      |  |      | 8,530.4  |      |  |          | 8,556.9  |   |  |   | 8,717.4  |   |  |   | 8,238.9  |  
|Total assets                                                                                            |  |                                 | 13,860.9 |      |  |      | 13,928.9 |      |  |          | 14,347.1 |   |  |   | 14,513.6 |   |  |   | 14,963.1 |  
|Total debt                                                                                              |  |                                 | 8,234.1  |      |  |      | 8,882.2  |      |  |          | 9,259.6  |   |  |   | 9,649.1  |   |  |   | 10,243.2 |  
|Series A preferred stock (8)                                                                            |  |                                 |         |      |  |      | 1,246.9  |      |  |          | 1,169.0  |   |  |   | 1,096.0  |   |  |   | 1,027.8  |  
|Stockholders equity (8)                                                                                |  |                                 | 2,517.7  |      |  |      | 689.1    |      |  |          | 585.8    |   |  |   | 671.6    |   |  |   | 611.8    |  
|Total debt to total capitalization
(including preferred stock)                                          |  |                                 | 77       | %    |  |      | 82       | %    |  |          | 84       | % |  |   | 85       | % |  |   | 85       | %

16



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##### 



|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) |  | During 2003, we sold or held for sale certain operations that met the
criteria for reporting discontinued operations. The selected
financial data for all prior periods have been reclassified to include
these operations as discontinued operations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|(2) |  | During the years ended December 31, 2001, 2000 and 1999, we incurred
costs related to acquisitions that are included in cost of operations
of approximately $10.4 million, $87.6 million and $416.9 million and
that are included in selling general and administrative expenses of
approximately $17.4 million, $13.3 million and $172.0 million,
respectively. These amounts had previously been reflected as a
separate line item titled Acquisition related and unusual costs.
These costs primarily related to environmental related matters,
litigation liabilities, risk management liabilities, loss contract
provisions, transition costs and transaction costs. The costs

discussed above were predominantly in connection with the July 30,
1999 acquisition of BFI.
|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|(3) |  | In accordance with Statement of Financial Accounting Standards
(SFAS) No. 142,
Goodwill and Other Intangible Assets(SFAS 142), amortization of
goodwill ceased on January 1, 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|(4) |  | The non-cash (gain) loss on divestiture of assets relate to
divestitures of certain operations that were not operating in a manner
consistent with our business model. These divestitures are not
included in discontinued operations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|(5) |  | Effective January 1, 2003, we adopted SFAS No. 145 (SFAS 145), Rescission of FASB Statements No.
4, 44 and 64, Amendment of FASB Statement No. 13, and Technical
Corrections. Previously, extraordinary losses as a result of the
write-off of deferred debt issuance costs and other costs incurred in
connection with the early extinguishments of debt were properly
classified as extraordinary. As a result of the adoption of SFAS 145,
these expenses are now classified in interest expense and other. The
pre-tax amounts reclassified were $16.8 million, $28.1 million, $21.9
million and $5.3 million for the years ended December 31, 2002, 2001,
2000 and 1999, respectively.                                                                                       
|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|(6) |  | During December 2003, the Series A Senior Convertible Preferred Stock
was exchanged for common stock. In connection with the exchange, we
recorded a reduction to net income available to common shareholders of
$496.6 million for the fair value of the incremental shares of common
stock issued to the holders of the preferred stock over the amount the
holders would have received under the original conversion provisions.                                                                                                                                                                                                                                                                                                                                               
|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|(7) |  | Pro forma amounts give effect to the change in our method of
accounting for landfill retirement obligations upon adoption of
SFAS No. 143, Accounting for Asset
Retirement Obligations(SFAS 143) on January 1, 2003, as if the
provisions of SFAS 143 had been applied retroactively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|(8) |  | In December 2003, all of the Series A Preferred Stock was exchanged
for 110.5 million shares of shares of common stock.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|(9) |  | Results of operations for the year ended December 31, 1999 include the
results of operations of BFI from the acquisition date of July 30,
1999 through year end.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  

17



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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. Please
note that unless otherwise specifically indicated, discussion of our results
relate to our continuing operations.

Executive Summary

Our business is characterized by a very stable customer base resulting in
consistent cash flow generation. We provide a very basic, industrial-type
service to our customers that is essential to their needs. Competition is
driven by local economic and demographic factors as well as fluctuations in capacity utilization, in both the collection and landfill
business. We believe capacity utilization tends to ultimately impact pricing
for our services through the economics of supply and demand. The order of
magnitude for year over year price and volume changes over the past
three years
has been less than three percent to both the positive and negative. Customer service
levels industry-wide are very high since the collection
customer has a very low tolerance for poor service.

Our operating costs are largely predictable, commensurate with the stability of
our customer base. Labor costs are the most significant at approximately
one-third of our total operating costs, consistent with our extensive workforce. The direct cost of disposing of waste at third-party sites is
approximately 16% of our total operating costs. Direct disposal costs excludes
the disposal costs associated with the 72% of our collected waste which is
disposed of at our own facilities; the costs thereof are included in each of
the other landfill related operating cost line items. Repairs and maintenance expense is
approximately 13% of our total operating costs and each of transportation,
vehicle operating and safety and insurance range from approximately 5% to 10%
of our total operating costs. Our selling, general and administrative costs
are also largely predictable since salaries and management incentive compensation
represents approximately 59% of our selling, general and administrative costs.

We spend a large amount of capital to support the ongoing operations of our
business. In 2003, we incurred $492 million in capital expenditures, including
$310 million to support and sustain the landfill and transfer business and $182
million to reinvest in the collection business. Landfills are highly
engineered, sophisticated facilities similar to civil works. Each year we
spend capital at our 166 active landfills to ensure sufficient capacity to
receive the waste volume we handle. In addition, we have approximately 13,500
collection vehicles and over 100,000 containers to serve our collection customers. They endure rough conditions
each day and must be routinely replaced. That said, we have a certain amount
of flexibility as to when and how we spend capital on these assets without
materially impeding operations.

Cash flows in our business are for the most part predictable as a result of the
nature of our customer base, operating costs and capital spending. As a
result, our business is conducive to servicing a significant level of
indebtedness.
Knowing this, we have incurred debt to acquire the assets we own. We paid
cash to acquire existing cash flow. This financial model will allow us over
time to transfer the enterprise value of the company from debt holders to
shareholders as we use our cash flow to repay debt. We, of course, need to prudently manage our debt depending on
the varying economic and capital market conditions to avoid unnecessary risk.
Over the next four to five years, if you consider our average cash flow
generation of the last three years, we may approach a point where our credit
ratios would allow us to avail the company of the economic benefits of a
crossover investment grade company. As this occurs, we believe two things will
happen. First, the cost of debt and interest expense will decline.
Second, we will have the opportunity to choose the best use of our excess cash
flow: further repay debt, pay a dividend, repurchase stock or reinvest in
growing the size of our company. If opportunities arise to accelerate the
de-leveraging process, we may take advantage of them as long as the
opportunities have a positive effect on cash flows.

18



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##### 



Results of operations. During
2003, we experienced a decline in operating earnings
primarily attributable to pricing pressures driven by the continued economic
slowdown. We believe that reduced volume growth industry-wide, since the start
of the economic downturn in 2001, has caused pressure on our average per unit
price. Competition, driven to some extent by excess capacity, has moved prices
for services lower. Economic pressures have made it difficult over the past
couple of years, including 2003, to recover with pricing, the increases in
costs caused by normal inflation and increases in medical, property and
casualty insurance and financial assurance costs in excess of inflation. This
has caused a decrease in operating margin.

Recent economic data has indicated upward trends and recovery in the economy.
Historically, we believe the waste industry has lagged in seeing the
improvement in operating results from an economic recovery. During 2003, we
began to see improvement in both pricing and volume growth. However,
consistent with our industry, we have not seen significant improvements and
have not fully regained the ability to recover increases in operating costs to
improve operating margins. We believe that a sustained economic recovery could
drive greater volume growth, increase capacity utilization and therefore
positively effect average per unit pricing. We anticipate that costs will
continue to increase from normal inflation. In addition, we currently expect
our insurance and financial assurance costs to continue to increase at a rate in excess
of inflation. Over the next several years, we will continue to
look internally for cost reduction opportunities to offset these cost
increases.

Financing activities. We are committed to reducing debt. In 2003, in addition
to generating strong operating cash flows, we successfully executed a plan to
refinance our credit facility, raise equity and sell assets to improve
liquidity reduce and extend debt maturities and increase cash flow. As a result of good market
conditions for non-investment grade issuers, we were able to exceed this plan by further
extending maturities and improving cash flow. During 2003, 2002 and 2001, we
experienced the impact of the general economic downturn in a reduction to
earnings, however, we were able to generate $292 million, $440 million and $350
million, respectively, an average of $360 million, of cash flow from operations
to repay debt after funding capital expenditures. In 2003, through the
execution of financing transactions and debt repayments, we have continued to
de-lever the company as evidenced by the reduction in our debt to total
capitalization from 82.1% at the end of 2002 to 76.6% at the end of 2003.
Liquidity has improved through the increase in capacity available under our revolving credit facility and extended
debt maturities, among other actions. We continue to focus on maximizing cash
flow to repay debt and to seek opportunities to create additional cash flow
through the reduction in interest cost. During 2004, we may continue to
address opportunities in the capital markets that enable us to extend some of
our larger debt maturities and reduce future interest costs.

General

Revenues.Our revenues result primarily from fees charged to customers for
waste collection, transfer, recycling and disposal services. We consider our
core business to be our collection, transfer and landfill operations. We also
generate revenue from the sale of recycled commodities. We record revenue as
services are provided, including instances where services are billed in advance
of the service being provided. The following table shows our total reported
revenues by service line.

19



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##### 



Revenues by Service Line (in millions):

|                      |              |                  |         |                         |         |      |         |         |         |   |         |         |         | 
|--------------------- | ------------ | ---------------- | ------- | ----------------------- | ------- | ---- | ------- | ------- | ------- | - | ------- | ------- | ------- | 
|                      |              |                  |         | Year Ended December 31,
|                      |              |                  |         |                        
|                      |              |                  |         | 2003                    |         | 2002 |         | 2001   
|                      |              |                  |         |                         |         |      |         |        
|Collection            |              |                  |         |                         |         |      |         |         |         |   |         |        
|                      | Residential  |                  | $       | 1,132.8                 |         |      | $       | 1,112.9 |         |   | $       | 1,090.2 |        
|                      | Commercial   |                  |         | 1,373.8                 |         |      |         | 1,397.6 |         |   |         | 1,392.3 |        
|                      | Roll-off (1) |                  |         | 1,185.6                 |         |      |         | 1,203.4 |         |   |         | 1,245.1 |        
|                      | Recycling    |                  |         | 202.2                   |         |      |         | 204.0   |         |   |         | 201.6   |        
|                      |              |                  |         |                         |         |      |         |         |         |   |         |         |        
|                      |              | Total Collection |         |                         | 3,894.4 |      |         |         | 3,917.9 |   |         |         | 3,929.2 | 
|Disposal              |              |                  |         |                         |         |      |         |         |         |   |         |        
|                      | Landfill (2) |                  |         | 633.4                   |         |      |         | 586.3   |         |   |         | 608.4   |        
|                      | Transfer     |                  |         | 400.6                   |         |      |         | 384.7   |         |   |         | 374.6   |        
|                      |              |                  |         |                         |         |      |         |         |         |   |         |         |        
|                      |              | Total Disposal   |         |                         | 1,034.0 |      |         |         | 971.0   |   |         |         | 983.0   | 
|                      |              |                  |         |                         |         |      |         |         |         |   |         |        
|Recycling - Commodity |              |                  | 194.8   |                         |         |      | 165.8   |         |         |   | 154.3   |        
|                      |              |                  |         |                         |         |      |         |         |         |   |         |        
|Other                 |              |                  | 124.5   |                         |         |      | 136.1   |         |         |   | 164.9   |        
|                      |              |                  |         |                         |         |      |         |         |         |   |         |         |        
|Total Revenues        |              | $                | 5,247.7 |                         |         | $    | 5,190.8 |         |         | $ | 5,231.4 |        
|                      |              |                  |         |                         |         |      |         |         |         |   |         |         |        

|    |  |                                                                                                                                                                                                                                                                               
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) |  | Consists of revenue generated from commercial, industrial and residential customers from waste collected in roll-off containers that are loaded onto collection vehicles.
Roll-off containers are generally uncovered containers that range in size from 20 to 40 cubic yards.
|(2) |  | Landfill revenues
are presented net of landfill taxes.                                                                                                                                                                                                                        

We have organized our operations into four geographic areas. Our operations are not concentrated in any one geographic area. Our area, region and district management teams focus on
developing local markets in which we can achieve the greatest level of internalization and operating efficiency. As a result, we may chose to not operate in a market where our business
objectives cannot be met. At December 31, 2003, we had operations in 110 major markets in 37 states. We operate only in the United States and Puerto Rico. The following table shows our
revenues by geographic area in total and as a percentage of total revenues.

Revenues by Area(1) (in millions, except percentages):

|               |  |                          |         |      |  |      |       |   |  |   |         |  |  |  |       |   |  |   |         |  |  |  |       |  
|-------------- |  | ------------------------ | ------- | ---- |  | ---- | ----- | - |  | - | ------- |  |  |  | ----- | - |  | - | ------- |  |  |  | ----- | -
|               |  | Years Ended December 31,
|               |  |                         
|               |  | 2003                     |         | 2002 |  | 2001
|               |  |                          |         |      |  |     
|Eastern        |  | $                        | 1,431.1 |      |  |      | 27.3  | % |  | $ | 1,443.1 |  |  |  | 27.9  | % |  | $ | 1,497.3 |  |  |  | 28.6  | %
|Southern       |  |                          | 1,126.6 |      |  |      | 21.4  |   |  |   | 1,139.1 |  |  |  | 21.9  |   |  |   | 1,168.8 |  |  |  | 22.3  |  
|Central        |  |                          | 1,420.0 |      |  |      | 27.1  |   |  |   | 1,398.5 |  |  |  | 26.9  |   |  |   | 1,381.5 |  |  |  | 26.4  |  
|Western        |  |                          | 1,231.5 |      |  |      | 23.5  |   |  |   | 1,180.8 |  |  |  | 22.7  |   |  |   | 1,144.2 |  |  |  | 21.9  |  
|Other (2)      |  |                          | 38.5    |      |  |      | 0.7   |   |  |   | 29.3    |  |  |  | 0.6   |   |  |   | 39.6    |  |  |  | 0.8   |  
|               |  |                          |         |      |  |      |       |   |  |   |         |  |  |  |       |   |  |   |         |  |  |  |       |  
|Total
revenues |  | $                        | 5,247.7 |      |  |      | 100.0 | % |  | $ | 5,190.8 |  |  |  | 100.0 | % |  | $ | 5,231.4 |  |  |  | 100.0 | %
|               |  |                          |         |      |  |      |       |   |  |   |         |  |  |  |       |   |  |   |         |  |  |  |       |  

|    |  |                                                                                                 
|--- |  | ------------------------------------------------------------------------------------------------
|(1) |  | See discussion in Note 17 to our consolidated financial statements.                             
|   
|(2) |  | Amounts relate primarily to our subsidiaries which provide services throughout the organization.

20



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##### 



Operating Expenses. Cost of operations includes expenses related to labor, costs to dispose of waste at third-party disposal facilities, repairs and
maintenance, costs of independent haulers transporting our waste to the disposal site, vehicle operating costs including fuel, landfill operating
costs, safety and insurance, and other operating costs such as equipment and facility rent, utilities, environmental compliance and remediation.
Landfill operating costs consists of landfill taxes, host community fees, landfill royalty payments, landfill site maintenance and other equipment
operating expenses and increases in the accruals for estimated
capping, closure and post-closure monitoring expenses. Reimbursement
from third parties, primarily insurance carriers, relating to
environmental and remedial costs are included in costs of operations
as an offset to environmental expenses. In addition, gains or losses
on sale of assets used in our operations are included in cost of operations. The following table provides the components of our operating costs as a
percentage of our total operating costs:

|                         |  |                         |       |      |  |      |       |   |  |  |       |  
|------------------------ |  | ----------------------- | ----- | ---- |  | ---- | ----- | - |  |  | ----- | -
|                         |  | Year Ended December 31,
|                         |  |                        
|                         |  | 2003                    |       | 2002 |  | 2001
|                         |  |                         |       |      |  |     
|Labor (1)                |  |                         | 32.7  | %    |  |      | 33.4  | % |  |  | 33.4  | %
|Disposal                 |  |                         | 16.2  |      |  |      | 17.0  |   |  |  | 18.0  |  
|Repairs and maintenance  |  |                         | 12.8  |      |  |      | 13.0  |   |  |  | 13.0  |  
|Transportation           |  |                         | 8.6   |      |  |      | 8.4   |   |  |  | 8.1   |  
|Vehicle operating        |  |                         | 6.5   |      |  |      | 6.6   |   |  |  | 6.8   |  
|Landfill operating costs |  |                         | 7.8   |      |  |      | 7.5   |   |  |  | 7.1   |  
|Safety and insurance     |  |                         | 5.2   |      |  |      | 4.9   |   |  |  | 4.3   |  
|Other (2)                |  |                         | 10.2  |      |  |      | 9.2   |   |  |  | 9.3   |  
|                         |  |                         |       |      |  |      |       |   |  |  |       |  
|                         |  |                         | 100.0 | %    |  |      | 100.0 | % |  |  | 100.0 | %
|                         |  |                         |       |      |  |      |       |   |  |  |       |  

(1) Includes health and welfare benefits and incentive compensation.

(2) Primarily includes
subcontractor costs, (gain)/loss on sale of assets, environmental
expense and related recoveries and equipment and facility rent.

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. The following table provides the components of our selling, general and administrative
costs as a percentage of our total selling, general and administrative costs:

|                                |  |                         |       |      |  |      |       |   |  |  |       |  
|------------------------------- |  | ----------------------- | ----- | ---- |  | ---- | ----- | - |  |  | ----- | -
|                                |  | Year Ended December 31,
|                                |  |                        
|                                |  | 2003                    |       | 2002 |  | 2001
|                                |  |                         |       |      |  |     
|Salaries (1)                    |  |                         | 59.2  | %    |  |      | 57.4  | % |  |  | 57.1  | %
|Rent and office costs           |  |                         | 8.8   |      |  |      | 9.6   |   |  |  | 10.6  |  
|Professional fees               |  |                         | 8.1   |      |  |      | 8.7   |   |  |  | 6.4   |  
|Provision for doubtful accounts |  |                         | 4.9   |      |  |      | 3.7   |   |  |  | 5.2   |  
|Other (2)                       |  |                         | 19.0  |      |  |      | 20.6  |   |  |  | 20.7  |  
|                                |  |                         |       |      |  |      |       |   |  |  |       |  
|                                |  |                         | 100.0 | %    |  |      | 100.0 | % |  |  | 100.0 | %
|                                |  |                         |       |      |  |      |       |   |  |  |       |  

(1) Includes health and welfare benefits and incentive compensation.

(2) 
Primarily includes advertising and promotion, director and officer insurance, employee relocation and bank charges.

Depreciation and amortization includes depreciation of fixed assets and amortization costs associated with the acquisition, development and
retirement 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 (3-15 years), containers and compactors (5-10 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. In accordance with SFAS No. 142, Goodwill and Other Intangible Assets(SFAS 142),
goodwill amortization ceased after December 31, 2001.

21



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##### 



Results of Operations

The following table sets forth our results of operations and percentage relationship that the various items bear to revenues for the
periods indicated (in millions, except percentages).

Statement of Operations Data:

|                                                                |                                                    |   |                         |         |      |  |       |      |    |   |         |         |  |  |       |      |   |   |         |         |   |  |       |      |   
|--------------------------------------------------------------- | -------------------------------------------------- | - | ----------------------- | ------- | ---- |  | ----- | ---- | -- | - | ------- | ------- |  |  | ----- | ---- | - | - | ------- | ------- | - |  | ----- | ---- | --
|                                                                |                                                    |   | Year Ended December 31,
|                                                                |                                                    |   |                        
|                                                                |                                                    |   | 2003                    |         | 2002 |  | 2001 
|                                                                |                                                    |   |                         |         |      |  |      
|Revenues                                                        |                                                    | $ | 5,247.7                 |         |      |  | 100.0 | %    |    | $ | 5,190.8 |         |  |  | 100.0 | %    |   | $ | 5,231.4 |         |   |  | 100.0 | %   
|Cost of operations                                              |                                                    |   | 3,190.1                 |         |      |  | 60.8  |      |    |   | 3,039.1 |         |  |  | 58.6  |      |   |   | 2,964.2 |         |   |  | 56.7  |     
|Selling, general and
administrative
expenses                    |                                                    |   | 476.9                   |         |      |  | 9.1   |      |    |   | 462.7   |         |  |  | 8.9   |      |   |   | 434.7   |         |   |  | 8.3   |     
|Depreciation and
amortization                                   |                                                    |   | 546.0                   |         |      |  | 10.4  |      |    |   | 478.5   |         |  |  | 9.2   |      |   |   | 448.8   |         |   |  | 8.6   |     
|Goodwill
amortization                                           |                                                    |   |                        |         |      |  |      |      |    |   |        |         |  |  |      |      |   |   | 226.7   |         |   |  | 4.3   |     
|Non-cash (gain) loss
on divestiture of
assets                   |                                                    |   |                        |         |      |  |      |      |    |   | (9.3    | )       |  |  | (0.2  | )    |   |   | 107.0   |         |   |  | 2.0   |     
|                                                                |                                                    |   |                         |         |      |  |       |      |    |   |         |         |  |  |       |      |   |   |         |         |   |  |       |     
|                                                                | Operating income                                   |   |                         | 1,034.7 |      |  |       | 19.7 |    |   |         | 1,219.8 |  |  |       | 23.5 |   |   |         | 1,050.0 |   |  |       | 20.1 |   
|Equity in earnings of
unconsolidated
affiliates                 |                                                    |   |                        |         |      |  |      |      |    |   |        |         |  |  |      |      |   |   | (14.1   | )       |   |  | (0.3  | )   
|Interest expense
and other                                      |                                                    |   | 832.9                   |         |      |  | 15.9  |      |    |   | 854.0   |         |  |  | 16.5  |      |   |   | 866.1   |         |   |  | 16.6  |     
|                                                                |                                                    |   |                         |         |      |  |       |      |    |   |         |         |  |  |       |      |   |   |         |         |   |  |       |     
|                                                                | Income before
income taxes                         |   |                         | 201.8   |      |  |       | 3.8  |    |   |         | 365.8   |  |  |       | 7.0  |   |   |         | 198.0   |   |  |       | 3.8  |   
|Income tax expense                                              |                                                    |   | 88.7                    |         |      |  | 1.7   |      |    |   | 165.6   |         |  |  | 3.2   |      |   |   | 162.4   |         |   |  | 3.1   |     
|Minority interest                                               |                                                    |   | 1.9                     |         |      |  | 0.0   |      |    |   | 1.9     |         |  |  | 0.0   |      |   |   | 3.7     |         |   |  | 0.1   |     
|                                                                |                                                    |   |                         |         |      |  |       |      |    |   |         |         |  |  |       |      |   |   |         |         |   |  |       |     
|                                                                | Income from
continuing
operations                  |   |                         | 111.2   |      |  |       | 2.1  |    |   |         | 198.3   |  |  |       | 3.8  |   |   |         | 31.9    |   |  |       | 0.6  |   
|Discontinued
operations, net                                    |                                                    |   | (11.5                   | )       |      |  | (0.2  | )    |    |   | 16.8    |         |  |  | 0.3   |      |   |   | 26.6    |         |   |  | 0.5   |     
|Cumulative effect of
change in
accounting principle,
net of tax |                                                    |   | 29.0                    |         |      |  | 0.6   |      |    |   |        |         |  |  |      |      |   |   |        |         |   |  |      |     
|                                                                |                                                    |   |                         |         |      |  |       |      |    |   |         |         |  |  |       |      |   |   |         |         |   |  |       |     
|                                                                | Net income                                         |   |                         | 128.7   |      |  |       | 2.5  |    |   |         | 215.1   |  |  |       | 4.1  |   |   |         | 58.5    |   |  |       | 1.1  |   
|Dividends on
preferred stock                                    |                                                    |   | (95.6                   | )       |      |  | (1.8  | )    |    |   | (77.9   | )       |  |  | (1.5  | )    |   |   | (73.0   | )       |   |  | (1.4  | )   
|Non-cash
conversion of
preferred stock                          |                                                    |   | (496.6                  | )       |      |  | (9.5  | )    |    |   |        |         |  |  |      |      |   |   |        |         |   |  |      |     
|                                                                |                                                    |   |                         |         |      |  |       |      |    |   |         |         |  |  |       |      |   |   |         |         |   |  |       |     
|                                                                | Net income (loss)
available to
common
shareholders |   | $                       | (463.5  | )    |  |       | (8.8 | )% |   | $       | 137.2   |  |  |       | 2.6  | % |   | $       | (14.5   | ) |  |       | (0.3 | )%
|                                                                |                                                    |   |                         |         |      |  |       |      |    |   |         |         |  |  |       |      |   |   |         |         |   |  |       |     

22



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##### 



Years Ended December 31, 2003 and 2002

Revenues. Revenues increased
1.1% in 2003. Following is a summary of the change in revenues (in millions):

|                                         |                                             |   |       |       |  
|---------------------------------------- | ------------------------------------------- | - | ----- | ----- | -
|                                         |                                             |   |       |       |  
|Reported revenues in 2002                |                                             | $ | 5,191 |      
|Core business (1)                        |                                             |   |       |      
|                                         | Decrease from average per unit price change |   |       | (8    | )
|                                         | Increase from volume change                 |   |       | 83    |  
|Net
divested revenues(2)                 |                                             |   | (35   | )    
|Increase in commodity and other revenues |                                             |   | 17    |      
|                                         |                                             |   |       |       |  
|                                         | Reported revenues in 2003                   |   | $     | 5,248 |  
|                                         |                                             |   |       |       |  



|(1) |  | Core business represents revenues
from collection, transfer and landfill services on a same store basis.
|--- |  | --------------------------------------------------------------------------------------------------------
|(2) |  | Excludes amounts reclassified to discontinued
operations.                                               

Overall, during 2003, we have continued to experience pricing pressures
as a result of general economic conditions. Landfill revenues
increased as a result of a 6% increase in landfill
volumes, and a slight increase in per unit pricing for
2003 when compared to 2002. Revenue from the collection businesses
remained fairly consistent from 2002 to 2003 with volumes and per unit
pricing remaining flat. Commodity revenues increased by $34 million in
2003 compared to 2002 primarily due to an increase in the average per unit
price received for old corrugated cardboard and various grades of paper, our primary commodities and an increase in processing
fees associated with a recycling contract, offset by a decline in
commodity volume primarily due to the sale or closure of processing
facilities. Additionally, we experienced a decrease in other revenues
of $17 million due to an increase in landfill taxes and a decrease in other
non-core revenues.

Cost of Operations. Cost of operations increased by 5.0% in 2003. The
increase is primarily attributable to (i) inflationary increases in all
costs, (ii) incremental increases in costs associated with increased
volumes (such as transportation, host fees and landfill operating costs) and (iii)
increases in insurance and financial assurance costs in excess of
inflation rates. These cost increases were partially offset by a
reduction of $26 million in capping, closure and post-closure provision
as a result of a change in accounting upon our adoption of SFAS 143 and
a reduction in other operating expenses from the change in reversals of acquisition
related accruals of $4 million.

Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased by 3.1% in 2003. The increase is
primarily due to normal inflationary increases in costs (primarily labor
related), an increase in pension expense in excess of inflationary
increases and an increase in bad debt expense. The increase in pension
expense is primarily attributable to the overall decline in the market
value of our pension assets in 2002 and 2001 and the decrease in the
expected long-term rate of return from 2002 to 2003. These cost
increases were partially offset by a reduction in other expense from the
reversals of acquisition related accruals of $4.2 million that we
determined were no longer necessary.

Depreciation and Amortization.Depreciation and amortization expense
increased by 14.1% in 2003. The increase is primarily attributable to an
increase in landfill amortization. The adoption of SFAS 143 changed our
accounting for landfills and resulted in an increase in landfill assets
to be amortized and increased landfill volumes, both of which caused the
increase in landfill amortization.

23



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##### 



Interest Expense and Other. Interest expense and other decreased by 2.5% in 2003. Following are the components of interest expense and other (in millions):

|                             |                                                                                                     |                            |   |                                 |       |      |   |       |       | 
|---------------------------- | --------------------------------------------------------------------------------------------------- | -------------------------- | - | ------------------------------- | ----- | ---- | - | ----- | ----- | 
|                             |                                                                                                     |                            |   | For the Year Ended December 31,
|                             |                                                                                                     |                            |   |                                
|                             |                                                                                                     |                            |   | 2003                            |       | 2002
|                             |                                                                                                     |                            |   |                                 |       |     
|Interest Expense and Other  |                                                                                                     |                            |   |                                 |       |      |   |      
|                             | Interest expense, gross                                                                             |                            | $ | 691.2                           |       |      | $ | 735.0 |      
|                             | Cash settlement on non-hedge accounting interest rate swap
contracts                                |                            |   | 50.8                            |       |      |   | 59.6  |      
|                             | Interest income                                                                                     |                            |   | (3.4                            | )     |      |   | (4.8  | )    
|                             | Interest capitalized for development projects                                                       |                            |   | (15.7                           | )     |      |   | (20.6 | )    
|                             | Accretion of debt and amortization of debt issuance costs                                           |                            |   | 31.8                            |       |      |   | 43.2  |      
|                             | Non-cash gain on non-hedge accounting interest rate
swap contracts                                  |                            |   | (48.1                           | )     |      |   | (2.4  | )    
|                             | Amortization of accumulated other comprehensive loss
for de-designated interest rate swap contracts |                            |   | 23.1                            |       |      |   | 35.4  |      
|                             | Costs incurred to early extinguish debt                                                             |                            |   | 108.1                           |       |      |   | 16.8  |      
|                             | Interest expense allocated to discontinued operations                                               |                            |   | (4.9                            | )     |      |   | (8.2  | )    
|                             |                                                                                                     |                            |   |                                 |       |      |   |      
|                             |                                                                                                     | Interest expense and other |   | $                               | 832.9 |      |   | $     | 854.0 | 
|                             |                                                                                                     |                            |   |                                 |       |      |   |      

The decrease in gross interest expense is attributable primarily to the repayment of debt from our continued de-leveraging strategy. During 2003, we decreased
our debt balance by $648.1 million, causing a decrease in overall interest costs. At December 31, 2003, approximately 96% of our debt was fixed, 76% directly through
a fixed coupon and 20% through interest rate swap contracts. The decrease in cash settlements on non-hedge accounting interest rate swap contracts is the
result of interest swap contracts maturing.

The change in non-cash gain on non-hedge accounting interest rate swap contracts is due to changes in the market value of the underlying interest rate swap
contract driven by both changes in prevailing interest rates and the remaining term of the interest rate swap contract. The decrease in amortization of
accumulated other comprehensive loss for de-designated interest rate swap contracts is attributable to de-designated interest rate swap contracts that matured
during 2003.

Costs incurred to retire debt prior to maturity in 2003 include (i) $53.8 million for the write-off of deferred financing costs and other costs for the
refinancing of our credit facility and (ii) $53.4 million in premiums paid and other costs for the open market repurchase of $506.1 million of 10% senior
subordinated notes during 2003.

Discontinued Operations.During 2003, we determined that some of the operations we have divested or are planning to divest of as part of
our divestiture plan announced earlier in 2003 were discontinued operations. The operations discontinued during 2003 include operations
in:



| |  |  | South Carolina, Georgia and Colorado sold at the end of second quarter,                               
| | - |  | ------------------------------------------------------------------------------------------------------
|
| |  |  | New Jersey sold in the third quarter,                                                                 
|
| |  |  | South Florida sold at the beginning of fourth quarter,                                                
|
| |  |  | North and Central Florida sold at the end of fourth quarter or held for sale at December 31, 2003, and
|
| |  |  | North Virginia sold at the end of fourth quarter.                                                     

Discontinued operations in 2003
included a net after tax loss of approximately $29.0 million
($28.8 million pretax) for the write-down of assets to fair value
at the time the assets were determined to be held for sale, net of gains recorded for assets sold for which proceeds exceeded book value.

Cumulative Effect of Change in Accounting Principle. Upon adoption of SFAS 143, we recorded a cumulative effect of change in accounting principle of $29.0
million, net of income tax expense of $19.4 million.

24



---



##### 



Dividends on Preferred Stock.Dividends on preferred stock increased by 22.8% in 2003. Dividends increased because in April 2003 we issued Series C Mandatory
Convertible Preferred Stock with 6.25% dividends payable in cash. Dividends for both 2003 and 2002 reflect a 6.5% dividend on the liquidation preference of
our Series A Senior Convertible Preferred Stock. During 2003 and
2002, in lieu of paying cash dividends on the Series A Senior
Convertible Preferred Stock,
the liquidation preference of the preferred stock increased
by the amount of accrued but unpaid dividends. In December 2003, we completed the exchange of the
Series A Preferred Stock to common stock, which included the cumulative dividends that had been accrued.

Non-cash Conversion of Preferred Stock.During December 2003, the Series A Senior Convertible Preferred Stock was exchanged for common stock. In connection
with the exchange, we recorded a reduction to net income available to
common shareholders of $496.6 million for the fair value (using
a stock price on the date of conversion of $13.50)
of the 36.8 million incremental shares of common stock issued to the holders of the preferred stock over the amount the holders would have received under the
original conversion provisions.

Years Ended December 31, 2002 and 2001

Revenues. Revenues decreased by 0.8% in 2002. Following is a summary of the change in revenues (in millions):

|                                         |                                             |   |       |       |  
|---------------------------------------- | ------------------------------------------- | - | ----- | ----- | -
|Reported
revenues in 2001                |                                             | $ | 5,231 |      
|Core business (1)                        |                                             |   |       |      
|                                         | Decrease
from average per unit price change |   |       | (71   | )
|                                         | Increase
from volume change                 |   |       | 46    |  
|Net
acquired revenues(2)                 |                                             |   | 15    |      
|Decrease
in commodity and other revenues |                                             |   | (30   | )    
|                                         |                                             |   |       |       |  
|                                         | Reported
revenues in 2002                   |   | $     | 5,191 |  
|                                         |                                             |   |       |       |  



| | (1) |  | Core business represents revenues
from collection, transfer and landfill services on a same store basis.
| | --- |  | --------------------------------------------------------------------------------------------------------
|
| | (2) |  | Excludes amounts reclassified to discontinued operations.                                               

During 2002, pricing pressures were primarily experienced in the landfill, roll-off and commercial collection businesses. The residential collection business
remained fairly constant. Landfill volumes increased by 4.0%, partially offset by 2.0% decrease in landfill pricing when compared to 2001. Commodity revenues
increased as a result of increases in the average price per ton, while volumes remained fairly constant when comparing 2002 to 2001.

Cost of Operations. Cost of operations increased by 2.5% in 2002. The 2001 costs of operations included $10.4 million of BFI transition costs. These costs
are not recurring costs of ongoing operations since they primarily related to the BFI transitional employees. There were no BFI transition costs expensed
during 2002. The remaining increase in cost of operations in 2002 of 2.9% is attributable to an increase in overall operating costs from normal inflation that
we have not been able to recover due to pricing pressures. In addition, our annual medical, property and casualty insurance costs increased in excess of normal
inflationary increases.

Selling, General and Administrative Expenses. Selling, general and administrative expenses increased by 6.4% in 2002. Included in selling, general and
administrative expenses were $17.4 million of BFI transition costs for the year ended December 31, 2001. These costs are not recurring costs of ongoing
operations and primarily related to the billing system conversion associated with the acquisition of BFI. There were no BFI transition costs expensed during
2002. The increase in the remaining selling, general and administrative expenses was 10.9%, which is attributable to increased costs associated with the field
infrastructure expansion and higher professional fees.

Depreciation and Amortization.Depreciation and amortization increased by 6.6% in 2002. The increase was primarily attributable to an increase in landfill
volumes and increased capital expenditures.

25



---



##### 



Goodwill Amortization.Effective January 1, 2002, we discontinued the amortization of our goodwill upon the adoption of SFAS 142.

Non-Cash (Gain) Loss on Divestiture of Assets.As part of our ongoing review of operations and our goal of having a self-funding market
development program, we sell operations from time to time. In October 2002, we sold certain collection operations for net proceeds of
approximately $77.5 million and reflected a gain of approximately $9.3 million ($8.2 million loss on an after-tax basis). The proceeds
were used to repay debt and were subsequently redeployed to purchase assets in other markets.

During February 2001, we sold certain operations 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 initially to repay
debt and subsequently redeployed to purchase other assets in other markets.

Equity in Earnings of Unconsolidated Affiliates. On April 30, 2002, we completed the exchange of our minority interest in the
four Ref-Fuel facilities for the 99% interest in our equipment purchasing subsidiaries owned by subsidiaries of American
Ref-Fuel Company LLC. We no longer have any interest in the Ref-Fuel entities and we own 100% of the equipment purchasing
subsidiaries. During 2001, we reported approximately $23.2 million in revenues, $3.5 million in operating income and $14.1
million of equity earnings from American Ref-Fuel.

Interest Expense and Other. Interest expense and other decreased by 1.4% in 2002. Following are the components of interest expense and other (in
millions):

|                            |                                                                                                     |                            |   |                                 |       |      |   |       |       | 
|--------------------------- | --------------------------------------------------------------------------------------------------- | -------------------------- | - | ------------------------------- | ----- | ---- | - | ----- | ----- | 
|                            |                                                                                                     |                            |   | For the Year Ended December 31,
|                            |                                                                                                     |                            |   |                                
|                            |                                                                                                     |                            |   | 2002                            |       | 2001
|                            |                                                                                                     |                            |   |                                 |       |     
|Interest Expense and Other |                                                                                                     |                            |   |                                 |       |      |   |      
|                            | Interest expense, gross                                                                             |                            | $ | 735.0                           |       |      | $ | 856.7 |      
|                            | Cash settlement of de-designated interest rate swap
contracts                                       |                            |   | 59.6                            |       |      |   |      |      
|                            | Interest income                                                                                     |                            |   | (4.8                            | )     |      |   | (6.1  | )    
|                            | Interest capitalized for development projects                                                       |                            |   | (20.6                           | )     |      |   | (45.7 | )    
|                            | Accretion of debt and amortization of debt issuance
costs                                           |                            |   | 43.2                            |       |      |   | 42.7  |      
|                            | Non-cash gain on de-designated interest rate swap
contracts                                         |                            |   | (2.4                            | )     |      |   |      |      
|                            | Amortization of accumulated other comprehensive loss
for de-designated interest rate swap contracts |                            |   | 35.4                            |       |      |   |      |      
|                            | Costs incurred to early extinguish debt                                                             |                            |   | 16.8                            |       |      |   | 28.1  |      
|                            | Interest expense allocated to discontinued operations                                               |                            |   | (8.2                            | )     |      |   | (9.6  | )    
|                            |                                                                                                     |                            |   |                                 |       |      |   |       |      
|                            |                                                                                                     | Interest expense and other |   | $                               | 854.0 |      |   | $     | 866.1 | 
|                            |                                                                                                     |                            |   |                                 |       |      |   |       |      

The 7.2% decrease in gross interest expense and cash settlements of de-designated interest rate swap contracts is attributable primarily to the
repayment of debt from our continued de-leveraging strategy, partially offset by a reduction in the amount of interest we capitalized. We reduced our
debt balance by $377.5 million in 2002. At December 31, 2002, approximately 98% of our debt was fixed, 72% directly through a fixed coupon, and 26%
through interest rate swap agreements.

On December 31, 2001, certain interest rate swap contracts were de-designated as accounting hedges. The non-cash gain on de-designated interest rate
swap contracts reflects the change in market value of the underlying interest rate swap contract driven by both prevailing interest rates and the
remaining term of the interest rate swap contract. Prior to de-designation, the changes in market value were recorded as a component of equity in
accumulated other comprehensive income. The amortization of accumulated other comprehensive income for de-designated interest rate swap contracts
represents the amortization of the cumulative amount of net market value remaining in equity at the time of de-designation.

26



---



##### 



Costs incurred to early extinguish debt are driven by the amount, terms, nature, frequency and timing of debt extinguishments. The total costs
incurred to early extinguish debt are dependent on the specific facts and circumstances of the individual transactions.

Income Taxes. Our effective tax rate was 45.5% in 2002 and 83.6% in 2001. The effective income tax rate of 2002 deviates from the federal statutory
rate of 35% primarily due to state income taxes. The effective income tax rate in 2001 deviated from the federal statutory rate primarily due to the
non-deductibility of the amortization related to $6.5 billion of goodwill recorded in connection with the acquisition of BFI.

Dividends on Preferred Stock.Dividends on preferred stock increased in 2002 as a result of 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

During 2003, we generated operating cash flows of $783.9 million, of which
we reinvested $491.8 million of capital into the business. We reduced our debt balance by $648 million to $8.2 billion and increased
our cash balance by $265 million through operating cash flows, the issuance of equity of $428 million and the divestiture of operations (net of
acquisitions) for proceeds of $250 million. During 2003, we completed various refinancing transactions and debt repayments, which combined with the
effect of $1.4 billion of interest rate swap contracts maturing
in 2004, will reduce our annual interest cost by over
$100 million in 2004 compared to 2003. Additionally, the
completed refinancing transactions extended the maturity of over
$2 billion of debt which would have come due over the next five years. Furthermore, we completed the exchange of the
Series A Senior Convertible Preferred Stock for common stock in December 2003, which eliminated approximately $90 million of future annual dividend
payments that were due to begin in July 2004. In addition, in January
2004, we used $320 million of our ending cash balance to retire outstanding debt.

We meet operational liquidity needs with operating cash flow. Our primary liquidity and capital needs are capital expenditures for vehicles,
containers and landfill development, debt service costs, scheduled debt maturities and capping, closure, post-closure and environmental expenditures.
We have historically generated stable operating cash flows.

When we cannot meet our liquidity
needs with operating cash flow, we meet those needs with borrowings under our revolving credit facility. At December 31,
2003, we had no amounts drawn under our revolving credit facility. We have a $1.5 billion commitment until 2008 under our
revolving credit facility, which we believe is adequate to meet our
liquidity needs. At December 31, 2003, we had $637 million in letters
of credit drawn on the revolving credit facility, leaving $863 million
of availability. Additionally, we have a $200 million commitment until 2008 under
our institutional letter of credit facility to supplement our revolving credit facility to meet letter of credit requirements.

We continuously seek opportunities to increase our cash flow through either improving cash flow from operations or reducing our interest cost.
Historically we have used bank financings and capital markets transactions to meet our refinancing requirements. We have not historically experienced
difficulty in obtaining financing or refinancing existing debt. We expect to continue to seek such opportunities in the future to the extent such
opportunities are available to us.

27



---



##### 



Our cash flows from operating, investing and financing activities for the last three years were as follows (in millions):

|                                                                                                    |                                                                  |   |                          |        |      |   |          |        |   |   |          |        |  
|--------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------- | - | ------------------------ | ------ | ---- | - | -------- | ------ | - | - | -------- | ------ | -
|                                                                                                    |                                                                  |   | Years Ended December 31,
|                                                                                                    |                                                                  |   |                         
|                                                                                                    |                                                                  |   | 2003                     |        | 2002 |   | 2001    
|                                                                                                    |                                                                  |   |                          |        |      |   |         
|Operating Activities:                                                                               |                                                                  |   |                          |        |      |   |          |        |   |   |          |       
|Net income                                                                                          |                                                                  | $ | 128.7                    |        |      | $ | 215.1    |        |   | $ | 58.5     |       
|Discontinued operations, net of tax                                                                 |                                                                  |   | 11.5                     |        |      |   | (16.8    | )      |   |   | (26.6    | )     
|Non-cash (gain) loss on divestiture of
assets                                                       |                                                                  |   |                         |        |      |   | (9.3     | )      |   |   | 107.0    |       
|Non-cash
expenses (1)                                                                               |                                                                  |   | 692.8                    |        |      |   | 688.9    |        |   |   | 891.1    |       
|Gain on sale of fixed assets                                                                        |                                                                  |   |                         |        |      |   | (5.8     | )      |   |   | (13.5    | )     
|Non-cash gain on non-hedge accounting
interest rate swap contracts                                  |                                                                  |   | (48.1                    | )      |      |   | (2.4     | )      |   |   |         |       
|Amortization of accumulated other
comprehensive loss for de-designated
interest rate swap contracts |                                                                  |   | 23.1                     |        |      |   | 35.4     |        |   |   |         |       
|Changes in working capital                                                                          |                                                                  |   | 6.7                      |        |      |   | 105.7    |        |   |   | (140.3   | )     
|Capping, closure, post-closure and
environmental expenditures,
net of provision and accretion       |                                                                  |   | (30.8                    | )      |      |   | (34.2    | )      |   |   | (28.6    | )     
|                                                                                                    |                                                                  |   |                          |        |      |   |          |        |   |   |          |       
|                                                                                                    | Cash provided by operating activities from
continuing operations |   |                          | 783.9  |      |   |          | 976.6  |   |   |          | 847.6  |  
|                                                                                                    |                                                                  |   |                          |        |      |   |          |        |   |   |          |       
|Investing Activities:                                                                               |                                                                  |   |                          |        |      |   |          |        |   |   |          |       
|Proceeds from divestitures (cost of
acquisitions), net of cash divested/acquired(2)                 |                                                                  |   | 250.0                    |        |      |   | 31.2     |        |   |   | 110.4    |       
|Accruals for acquisition price and
severance costs                                                  |                                                                  |   |                         |        |      |   |         |        |   |   | (1.7     | )     
|Proceeds from sale of fixed assets                                                                  |                                                                  |   | 17.5                     |        |      |   | 28.6     |        |   |   | 29.3     |       
|Capital expenditures, excluding acquisitions                                                        |                                                                  |   | (491.8                   | )      |      |   | (536.3   | )      |   |   | (497.9   | )     
|Capitalized interest                                                                                |                                                                  |   | (15.7                    | )      |      |   | (20.6    | )      |   |   | (45.7    | )     
|Change in deferred acquisition costs,
notes receivable and other                                    |                                                                  |   | (8.4                     | )      |      |   | (22.4    | )      |   |   | (26.7    | )     
|                                                                                                    |                                                                  |   |                          |        |      |   |          |        |   |   |          |       
|                                                                                                    | Cash used for investing activities from
continuing operations    |   |                          | (248.4 | )    |   |          | (519.5 | ) |   |          | (432.3 | )
|                                                                                                    |                                                                  |   |                          |        |      |   |          |        |   |   |          |       
|Financing Activities:                                                                               |                                                                  |   |                          |        |      |   |          |        |   |   |          |       
|Net proceeds from sale of Series C
Preferred Stock                                                  |                                                                  |   | 333.1                    |        |      |   |         |        |   |   |         |       
|Proceeds from long-term debt, net of
issuance costs                                                 |                                                                  |   | 3,037.1                  |        |      |   | 1,044.3  |        |   |   | 2,755.8  |       
|Repayments of long-term debt                                                                        |                                                                  |   | (3,754.6                 | )      |      |   | (1,447.5 | )      |   |   | (3,196.6 | )     
|Payment of Series C Preferred Stock dividends                                                       |                                                                  |   | (10.2                    | )      |      |   |         |        |   |   |         |       
|Change in disbursement account                                                                      |                                                                  |   | 10.5                     |        |      |   | (87.1    | )      |   |   |         |       
|Net proceeds from sale of common stock,
exercise of stock options and other                         |                                                                  |   | 98.4                     |        |      |   | 2.8      |        |   |   | 6.4      |       
|                                                                                                    |                                                                  |   |                          |        |      |   |          |        |   |   |          |       
|                                                                                                    | Cash used for financing activities from
continuing operations    |   |                          | (285.7 | )    |   |          | (487.5 | ) |   |          | (434.4 | )
|                                                                                                    |                                                                  |   |                          |        |      |   |          |        |   |   |          |       
|Cash provided by discontinued operations                                                            |                                                                  |   | 15.5                     |        |      |   | 52.2     |        |   |   | 57.5     |       
|                                                                                                    |                                                                  |   |                          |        |      |   |          |        |   |   |          |       
|Increase in cash and cash equivalents                                                               |                                                                  | $ | 265.3                    |        |      | $ | 21.8     |        |   | $ | 38.4     |       
|                                                                                                    |                                                                  |   |                          |        |      |   |          |        |   |   |          |       



|(1) |  | Consists principally of provisions for depreciation and amortization, allowance for doubtful
accounts, accretion of debt and amortization of debt issuance costs, write-off of deferred
debt issuance costs, non-cash reduction in acquisition accruals, deferred income taxes,
undistributed earnings of equity investments and cumulative effect of change in accounting
principle, net of tax.                                                                                                                                                                                                                                                                                                                                                                                                  
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | During 2003, we acquired solid waste operations, representing approximately $42.1 million
($39.3 million net of intercompany eliminations) in annual revenues and sold operations
representing approximately $353.3 million ($338.6 million net of intercompany eliminations) in
annual revenues. During 2002, we acquired solid waste operations representing approximately
$28.3 million in annual revenues and sold operations representing approximately $70.1 million
($69.3 million, net of intercompany eliminations) in annual revenues. During 2001, we
acquired solid waste operations, representing approximately $150.4 million in annual revenues,
and sold operations representing approximately $153.9 million ($146.6 million net of
intercompany eliminations) in annual revenues.

28



---



##### 



Cash provided by continuing operations decreased by 19.7% in 2003. The decrease in cash provided by continuing operations when comparing 2003 to 2002 is primarily due to a reduction in
earnings, variability in working capital and the payment of approximately $46.9 million of costs associated with refinancing activities. The variability in working capital is primarily due to
an increase in accounts receivable, partially offset by decreases in expenditures for acquisition related accruals.

Following is a summary of the primary sources and uses of cash during 2003
(in millions):

|                                                     |  |   |         | 
|---------------------------------------------------- |  | - | ------- | 
|Sources of cash                                     
|                                                    
|Cash from continuing operations                      |  | $ | 783.9   | 
|Proceeds from issuance of common and preferred stock |  |   | 427.5   | 
|Net proceeds from acquisitions and divestitures      |  |   | 250.0   | 
|Proceeds from the sale of fixed assets               |  |   | 17.5    | 
|                                                     |  |   |         | 
|Total                                                |  | $ | 1,478.9 | 
|                                                     |  |   |         | 

|                                      |  |   |         | 
|------------------------------------- |  | - | ------- | 
|Uses of cash                         
|                                     
|Capital expenditures                  |  | $ | 491.8   | 
|Debt repayments                       |  |   | 648.1   | 
|Increase in cash balance              |  |   | 265.3   | 
|Payment of cash dividends             |  |   | 10.2    | 
|Other non-operating net cash outflows |  |   | 63.5    | 
|                                      |  |   |         | 
|Total                                 |  | $ | 1,478.9 | 
|                                      |  |   |         | 

Following is a summary of the primary sources and uses of cash during 2002 (in millions):

|                                                |  |   |         | 
|----------------------------------------------- |  | - | ------- | 
|Sources of cash                                
|                                               
|Cash from continuing operations                 |  | $ | 976.6   | 
|Net proceeds from acquisitions and divestitures |  |   | 31.2    | 
|Proceeds from the sale of fixed assets          |  |   | 28.6    | 
|                                                |  |   |         | 
|Total                                           |  | $ | 1,036.4 | 
|                                                |  |   |         | 

|                                                     |  |   |         | 
|---------------------------------------------------- |  | - | ------- | 
|Uses of cash                                        
|                                                    
|Capital expenditures                                 |  | $ | 536.3   | 
|Debt repayments                                      |  |   | 377.5   | 
|Fund outstanding amounts in our disbursement account |  |   | 87.1    | 
|Increase in cash balance                             |  |   | 21.8    | 
|Other non-operating net cash outflows                |  |   | 13.7    | 
|                                                     |  |   |         | 
|Total                                                |  | $ | 1,036.4 | 
|                                                     |  |   |         | 

Capital Expenditures.In addition to funding our operational working capital and debt reduction needs, we are committed to investing capital in our asset base. Our capital expenditures are primarily for the
construction and build out of our landfills, for the trucks and containers used by our collection operations and heavy equipment used in both our collection and landfill operations.

Following is a summary of capital expenditures for the years ended December 31, (in millions):

|                                       |                                                    |   |       |       |      |   |       |       |   |   |       |       |  
|-------------------------------------- | -------------------------------------------------- | - | ----- | ----- | ---- | - | ----- | ----- | - | - | ----- | ----- | -
|                                       |                                                    |   | 2003  |       | 2002 |   | 2001 
|                                       |                                                    |   |       |       |      |   |      
|Trucks, containers and heavy equipment |                                                    | $ | 231.2 |       |      | $ | 289.6 |       |   | $ | 271.1 |      
|Landfill development                   |                                                    |   | 219.1 |       |      |   | 207.1 |       |   |   | 181.9 |      
|Other (1)                              |                                                    |   | 41.5  |       |      |   | 39.6  |       |   |   | 44.9  |      
|                                       |                                                    |   |       |       |      |   |       |       |   |   |       |      
|                                       | Total capital expenditures, excluding acquisitions |   | $     | 491.8 |      |   | $     | 536.3 |   |   | $     | 497.9 |  
|                                       |                                                    |   |       |       |      |   |       |       |   |   |       |      
|                                       | Capital
expenditures as a % of revenues            |   |       | 9.4   | %    |   |       | 10.3  | % |   |       | 9.5   | %
|                                       |                                                    |   |       |       |      |   |       |       |   |   |       |      



|(1) |  | Includes land and improvements, land held for permitting as landfills, buildings and improvements, and furniture and office equipment.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------

29



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##### 



Significant Financing Events in 2003

Our objective to reduce our debt level and extend maturities under our 1999 Credit Facility was successfully met through the completion of the financing plan that we
launched at the end of March 2003. The financing plan included the issuance of equity and debt and the refinancing of our credit facility as follows:



| |  |  | issuance of 12 million shares in $.01 par value common stock for net proceeds of approximately $94 million;                                                                                                                                                                                                           
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | issuance of 6.9 million shares in 6.25% 3-year Series C Mandatory Convertible Preferred Stock at a par value of $0.10 and issued at $50 per share for net
proceeds of approximately $333 million;                                                                                                                     
|
| |  |  | issuance of $450 million in 7.875% senior notes due 2013 for net proceeds of approximately $440 million;                                                                                                                                                                                                              
|
| |  |  | issuance of approximately $150 million of receivables secured loan under an on-balance sheet accounts receivable securitization program; and                                                                                                                                                                          
|
| |  |  | refinancing of our 1999 Credit Facility with a $1.5 billion revolving credit facility due 2008 at LIBOR plus 3.00% (the 2003 Revolver), a $1.2 billion term loan
due 2010 at LIBOR plus 3.25% and a $200 million institutional letter of credit facility at LIBOR plus 3.25% (collectively, the 2003 Credit Facility).

The refinancing of the 1999 Credit Facility decreased debt maturities for the next 5 years by over $2 billion
and increased available liquidity by approximately $400 million. The proceeds from the transactions listed
above were used to repay term loans outstanding under the 1999 Credit Facility.

During August 2003, we amended our 2003 Credit Facility allowing us to exchange our Series A Preferred Stock for common stock as
described below. In addition, the amendment increased our financial flexibility by permitting us to incur an additional $250
million of term loan indebtedness (Term Loan C), an additional $350 million of senior secured indebtedness and $400 million of
senior unsecured indebtedness, for the purpose of retiring portions of our outstanding senior subordinated indebtedness through
optional redemption, public tender offer or open market repurchases.

During the third quarter of 2003, we funded the $250 million Term Loan C (due 2010) under the 2003 Credit
Facility and used the proceeds to repurchase a portion of our senior subordinated notes in the same amount of
principal. In connection with these repurchases, we paid premiums of approximately $23.8 million.

During November 2003, we issued $350 million of 6.50% senior secured notes due 2010 and used approximately $256.1 million of the proceeds in 2003 to repurchase a
portion of our senior subordinated notes. In connection with these repurchases, we paid premiums of approximately $23.1 million.

During November 2003, we completed a second amendment to our 2003 Credit Facility to reduce the interest rate for the Term Loan B, Term Loan C and institutional letter
of credit facility to LIBOR plus 275 basis points. In addition to re-pricing the term loan facilities, we favorably revised financial covenants to provide greater
operating flexibility.

The transactions completed
during the second half of 2003 discussed above reduced our annual interest
cost by $40 million.

30



---



##### 



2004 Financing Transactions

The following transactions were completed during January 2004:

We repaid our $225 million 7.875% senior notes due 2004 on January 2, 2004 with our cash balance at December 31, 2003 that was generated from cash flow from operations
and divestiture proceeds.

We issued $400 million of 5.75% senior notes due 2011 and $425 million of 6.125% senior notes due 2014 in a private placement under Rule 144A of the Securities Act of
1933. We will use the proceeds from the sale of these notes to redeem $825 million of our 7.875% senior notes due 2009 at a redemption price of 103.9375%. Upon the completion of the redemption, this
transaction will extend the maturity of $825 million from 2009 to 2011 and 2014 and reduce interest costs by approximately $14 million annually.

We repurchased $93.9 million of our 10% senior subordinated notes using the remaining proceeds from the $350 million senior secured notes issued in November 2003 and
paid premiums of approximately $8.2 million related to these repurchases.

Financing Plan

We are a highly leveraged company with $8.2 billion of outstanding debt at December 31, 2003. The vast majority of our debt was incurred to acquire
solid waste companies during the past 10 years. We incurred and
assumed over $11 billion of debt to acquire BFI in 1999. Since the
acquisition of BFI, we have repaid almost
$3.0 billion of debt with cash flow from operations, asset sales
and the issuance of equity. We intend to continue to reduce our debt
balance until we reach
credit ratios that we believe will allow us to benefit from an investment grade-like cost of capital. We believe those benefits will be realized
when the following ratios approach the indicated ranges:



| |  |  | Debt to EBITDA between 3.5:1 and 3.0:1                      
| | - |  | ------------------------------------------------------------
|
| |  |  | EBITDA to Interest between 3.0:1
and 3.5:1                  
|
| |  |  | Debt to Book Value Market
Capitalization between 60% and
65%

We are unable to predict or forecast which debt rating will be assigned by the rating agencies, or when new ratings will be assigned by them. We
believe that as we move towards these ratios, when compared to today, we will have additional opportunities to reduce our cost of capital, provide
opportunities to increase liquidity, and allow more flexibility in deciding the most appropriate use of our cash flow.

Between now and then, we will continue to maximize operating cash flows to facilitate repayment of our scheduled debt maturities and
opportunistically reduce interest costs through refinancing transactions to the extent economically beneficial. On average over the last three years,
we have generated $360 million of annual cash flow from operations after funding capital expenditures. Because of the stability of our cash flows,
we believe that over the next three years we should generate a
similar average amount of annual cash flow from operations after funding capital expenditures to be used to repay debt. We may from time to time seek to retire outstanding debt through repurchases and/or exchanges for other
securities, in open market purchases, privately negotiated transactions or otherwise. In the future, we expect to continue to acquire operations
that strengthen existing markets and increase vertical integration. In addition, we will continue to evaluate the performance and divest of
operations that do not maximize operating efficiencies.

31



---



##### 



The following is our debt maturity
schedule at December 31, 2002 compared to our pro forma debt
maturity schedule at December 31, 2003, which considers the
financing transactions completed in 2003, the repayment of $225 million senior notes on January 2, 2004,
the issuance of $825 million in senior notes during January 2004, the anticipated redemption of $825 million of senior notes in February 2004, and the repurchase of $94
million of senior subordinated notes in January 2004 (in millions):

|              |  |              |         |              |  |   |         |  
|------------- |  | ------------ | ------- | ------------ |  | - | ------- | -
|              |  | Pro Forma    |         | Actual      
|              |  | December 31, |         | December 31,
|              |  | 2003         |         | 2002        
|              |  |              |         |             
|2003          |  | $            |        |              |  | $ | 163.5   |  
|2004          |  |              | 24.6    |              |  |   | 603.8   |  
|2005          |  |              | 102.7   |              |  |   | 609.4   |  
|2006          |  |              | 626.1   |              |  |   | 1,276.0 |  
|2007          |  |              | 19.5    |              |  |   | 805.9   |  
|2008          |  |              | 1,675.9 |              |  |   | 1,511.5 |  
|2009          |  |              | 1,468.4 |              |  |   | 2,875.4 |  
|Thereafter    |  |              | 4,086.9 |              |  |   | 1,130.3 |  
|Discount, net |  |              | (88.9   | )            |  |   | (93.6   | )
|              |  |              |         |              |  |   |         |  
|Total         |  | $            | 7,915.2 |              |  | $ | 8,882.2 |  
|              |  |              |         |              |  |   |         |  

We anticipate meeting our debt repayment requirements in 2004 through 2007 through cash flows from operations. We will continue to seek opportunities to extend our
maturities in 2008 and 2009 with actions that are economically beneficial. We believe we have several alternatives available to us that will allow us to extend
maturities of our debt portfolio or retire debt. The potential
alternatives include continued application of cash flow from operations, asset sales and capital markets transactions. Capital markets transactions could include issuance of debt with longer-term maturities, issuance of equity, or a combination of both.
There is no assurance that in the future we will be able to
consummate transactions in the capital markets on commercially
reasonable terms or at all, sell assets or generate $360 million
of average annual cash flows to repay debt.

We currently have a shelf registration
statement with the SEC that would allow us to issue various
securities up to $760 million as market conditions permit.

Contractual Obligations and Commitments

Following is a summary of our debt structure and the associated interest cost (in millions, except percentages):

|                          |  |                   |         |                   |  |                  |       |              |  |                   |       |                  |  |   |         |  |  |  |       |      |  |   |       | 
|------------------------- |  | ----------------- | ------- | ----------------- |  | ---------------- | ----- | ------------ |  | ----------------- | ----- | ---------------- |  | - | ------- |  |  |  | ----- | ---- |  | - | ----- | 
|                          |  | December 31, 2003 |         | December 31, 2002
|                          |  |                   |         |                  
|                          |  | Ending            |         | Effective         |  | Annual           |       | Ending       |  | Effective         |       | Annual          
|Debt Instrument           |  | Debt Balance      |         | Interest
Rate (1) |  | Interest Expense |       | Debt Balance |  | Interest
Rate (1) |       | Interest Expense
|                          |  |                   |         |                   |  |                  |       |              |  |                   |       |                 
|Revolving
credit facility |  | $                 |        |                   |  |                  | 5.41  | %(2)         |  | $                 | 14.0  |                  |  | $ |        |  |  |  | 5.97  | %(2) |  | $ | 10.1  | 
|Term
loans                |  |                   | 1,435.0 |                   |  |                  | 9.36  | %            |  |                   | 157.8 |                  |  |   | 2,375.1 |  |  |  | 9.01  | %    |  |   | 256.3 | 
|Senior notes              |  |                   | 4,826.5 |                   |  |                  | 8.45  | %            |  |                   | 380.0 |                  |  |   | 4,176.7 |  |  |  | 8.44  | %    |  |   | 333.1 | 
|Senior subordinated notes |  |                   | 1,497.4 |                   |  |                  | 10.22 | %            |  |                   | 195.3 |                  |  |   | 2,005.6 |  |  |  | 10.22 | %    |  |   | 204.4 | 
|Receivables secured loan  |  |                   | 146.3   |                   |  |                  | 1.68  | %            |  |                   | 2.4   |                  |  |   |        |  |  |  |      | %    |  |   |      | 
|Other                     |  |                   | 328.9   |                   |  |                  | 6.88  | %            |  |                   | 24.3  |                  |  |   | 324.8   |  |  |  | 7.43  | %    |  |   | 33.9  | 
|                          |  |                   |         |                   |  |                  |       |              |  |                   |       |                  |  |   |         |  |  |  |       |      |  |   |       | 
|Total                     |  | $                 | 8,234.1 |                   |  |                  | 8.96  | %            |  | $                 | 773.8 |                  |  | $ | 8,882.2 |  |  |  | 8.88  | %    |  | $ | 837.8 | 
|                          |  |                   |         |                   |  |                  |       |              |  |                   |       |                  |  |   |         |  |  |  |       |      |  |   |       | 



| |  | (1) Includes the effect of interest rate swap contracts and amortization of debt issuance costs and premiums or discounts.
| |  | --------------------------------------------------------------------------------------------------------------------------
|
| |  | (2) Reflects weighted average interest rate.                                                                              

32



---



##### 



At December 31, 2003, we had $444.7 of cash on the balance sheet that by January 31, 2004, approximately $320 million has been used to repay January 2004 debt
maturities and complete open market repurchases of our 10% senior subordinated notes.

We increased available liquidity through the refinancing of our credit facility during 2003. Prior to the refinancing, we had a revolver capacity commitment of
$1.3 billion. At December 31, 2003, we had a revolver capacity commitment of $1.5 billion with no amounts drawn and $636.6 million of letters of credit
outstanding under our 2003 Revolver. We had aggregate availability under the 2003 Revolver of approximately $863.4 million for working capital, letters of credit,
acquisitions and other general corporate purposes.
In addition, we had $200 million of commitment under an institutional letter of credit facility which was all
used for letters of credit at December 31, 2003.

The following table provides additional maturity detail of our long-term debt obligations at
December 31, 2003 (in millions):

|                                     |  |      |       |      |  |      |       |      |  |      |       |            |  |       |      |  |  |   |         |   |  |   |         |   |  |   |         |  
|------------------------------------ |  | ---- | ----- | ---- |  | ---- | ----- | ---- |  | ---- | ----- | ---------- |  | ----- | ---- |  |  | - | ------- | - |  | - | ------- | - |  | - | ------- | -
|Debt                                 |  | 2004 |       | 2005 |  | 2006 |       | 2007 |  | 2008 |       | Thereafter |  | Total
|                                     |  |      |       |      |  |      |       |      |  |      |       |            |  |      
|Revolving credit facility            |  | $    |      |      |  | $    |      |      |  | $    |      |            |  | $     |     |  |  | $ |        |   |  | $ |        |   |  | $ |        |  
|Term Loan B due 2010                 |  |      | 15.0  |      |  |      | 15.0  |      |  |      | 15.0  |            |  |       | 15.0 |  |  |   | 15.0    |   |  |   | 1,110.0 |   |  |   | 1,185.0 |  
|Term Loan C due 2010                 |  |      | 3.1   |      |  |      | 3.1   |      |  |      | 3.1   |            |  |       | 3.1  |  |  |   | 3.1     |   |  |   | 234.5   |   |  |   | 250.0   |  
|Receivables secured loan             |  |      |      |      |  |      |      |      |  |      |      |            |  |       |     |  |  |   | 146.3   |   |  |   |        |   |  |   | 146.3   |  
|7.375%
Senior notes (1)              |  |      | 225.0 |      |  |      |      |      |  |      |      |            |  |       |     |  |  |   |        |   |  |   |        |   |  |   | 225.0   |  
|7.875% BFI Senior notes              |  |      |      |      |  |      | 69.5  |      |  |      |      |            |  |       |     |  |  |   |        |   |  |   |        |   |  |   | 69.5    |  
|7.625% Senior notes                  |  |      |      |      |  |      |      |      |  |      | 600.0 |            |  |       |     |  |  |   |        |   |  |   |        |   |  |   | 600.0   |  
|8.875% Senior notes                  |  |      |      |      |  |      |      |      |  |      |      |            |  |       |     |  |  |   | 600.0   |   |  |   |        |   |  |   | 600.0   |  
|8.50% Senior notes                   |  |      |      |      |  |      |      |      |  |      |      |            |  |       |     |  |  |   | 750.0   |   |  |   |        |   |  |   | 750.0   |  
|6.375% BFI Senior notes              |  |      |      |      |  |      |      |      |  |      |      |            |  |       |     |  |  |   | 161.2   |   |  |   |        |   |  |   | 161.2   |  
|7.875%
Senior notes due 2009 (2)     |  |      |      |      |  |      |      |      |  |      |      |            |  |       |     |  |  |   |        |   |  |   | 875.0   |   |  |   | 875.0   |  
|7.875% Senior notes due 2013         |  |      |      |      |  |      |      |      |  |      |      |            |  |       |     |  |  |   |        |   |  |   | 450.0   |   |  |   | 450.0   |  
|6.50% Senior notes due 2010          |  |      |      |      |  |      |      |      |  |      |      |            |  |       |     |  |  |   |        |   |  |   | 350.0   |   |  |   | 350.0   |  
|10.00% Senior sub notes
due 2009 (3) |  |      |      |      |  |      |      |      |  |      |      |            |  |       |     |  |  |   |        |   |  |   | 1,493.9 |   |  |   | 1,493.9 |  
|9.25% Senior notes due 2012          |  |      |      |      |  |      |      |      |  |      |      |            |  |       |     |  |  |   |        |   |  |   | 375.0   |   |  |   | 375.0   |  
|9.25% BFI debentures due 2021        |  |      |      |      |  |      |      |      |  |      |      |            |  |       |     |  |  |   |        |   |  |   | 99.5    |   |  |   | 99.5    |  
|7.40% BFI debentures due 2035        |  |      |      |      |  |      |      |      |  |      |      |            |  |       |     |  |  |   |        |   |  |   | 360.0   |   |  |   | 360.0   |  
|Other debt                           |  |      | 6.5   |      |  |      | 15.1  |      |  |      | 8.0   |            |  |       | 1.4  |  |  |   | 0.3     |   |  |   | 301.3   |   |  |   | 332.6   |  
|                                     |  |      |       |      |  |      |       |      |  |      |       |            |  |       |      |  |  |   |         |   |  |   |         |   |  |   |         |  
|Total principal due                  |  |      | 249.6 |      |  |      | 102.7 |      |  |      | 626.1 |            |  |       | 19.5 |  |  |   | 1,675.9 |   |  |   | 5,649.2 |   |  |   | 8,323.0 |  
|Discount, net                        |  |      |      |      |  |      | (0.8  | )    |  |      |      |            |  |       |     |  |  |   | (12.8   | ) |  |   | (75.3   | ) |  |   | (88.9   | )
|                                     |  |      |       |      |  |      |       |      |  |      |       |            |  |       |      |  |  |   |         |   |  |   |         |   |  |   |         |  
|Total debt balance                   |  | $    | 249.6 |      |  | $    | 101.9 |      |  | $    | 626.1 |            |  | $     | 19.5 |  |  | $ | 1,663.1 |   |  | $ | 5,573.9 |   |  | $ | 8,234.1 |  
|                                     |  |      |       |      |  |      |       |      |  |      |       |            |  |       |      |  |  |   |         |   |  |   |         |   |  |   |         |  



|(1) |  | On January 2, 2004, we repaid our $225 million 7-3/8% senior notes due 2004 with available cash.                                                                                                                                                                                                                                                           
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | During January 2004, we issued $400 million of 5.75% senior notes due 2011 and $425 million of 6.125% senior notes due 2014 in a private placement under Rule
144A of the Securities Act of 1933. We intend to use the proceeds from the issuance of these notes to redeem $825 million of 7.875% senior notes due 2009 at
a redemption price of 103.9375%.
|   
|(3) |  | During January 2004, we repurchased approximately $93.9 million of our 10% senior subordinated notes due 2009 through open market repurchases with the
remaining proceeds from our $350 million 6.5% senior notes due 2010 issued in November 2003.                                                                                                        

33



---



##### 



The following table outlines what we regard as our material, fixed,
non-cancelable contractual cash obligations, their payment dates and
expirations.  Amounts related to operating leases and purchase obligations
are not reflected at December 31, 2003 in our consolidated financial statements
and will be recorded as appropriate in future periods.  This table excludes
certain obligations that we have reflected on our consolidated balance sheet,
such as pension obligations, for which we do not expect to have cash
funding requirements and excludes amounts related to environmental
liabilities and contingencies for which the timing of payments is not
determinable.

|                                              |                  |      |                                    |       |  |      |       |       |  |      |       |            |  |       |       |      |  |   |         |      |  |   |         |       |  |   |          |         | 
|--------------------------------------------- | ---------------- | ---- | ---------------------------------- | ----- |  | ---- | ----- | ----- |  | ---- | ----- | ---------- |  | ----- | ----- | ---- |  | - | ------- | ---- |  | - | ------- | ----- |  | - | -------- | ------- | 
|                                              |                  |      | Payments Due by Year (in millions)
|                                              |                  |      |                                   
|Contractual Obligations                       |                  | 2004 |                                    | 2005  |  | 2006 |       | 2007  |  | 2008 |       | Thereafter |  | Total
|                                              |                  |      |                                    |       |  |      |       |       |  |      |       |            |  |      
|Recorded
obligations:                         |                  |      |                                    |       |  |      |       |       |  |      |       |            |  |       |       |      |  |   |         |      |  |   |         |       |  |   |          |        
|Long-term
debt (1)                            |                  | $    | 247.1                              |       |  | $    | 101.4 |       |  | $    | 625.6 |            |  | $     | 19.1  |      |  | $ | 1,675.4 |      |  | $ | 5,641.2 |       |  | $ | 8,309.8  |        
|Capital lease
obligations                     |                  |      | 3.7                                |       |  |      | 2.2   |       |  |      | 1.3   |            |  |       | 1.2   |      |  |   | 1.1     |      |  |   | 12.4    |       |  |   | 21.9     |        
|Capping,
closure and post-closure obligations |                  |      | 69.0                               |       |  |      | 68.7  |       |  |      | 70.7  |            |  |       | 69.6  |      |  |   | 63.9    |      |  |   | 2,422.2 |       |  |   | 2,764.1  |        
|Other long-term
liabilities                   |                  |      |                                   |       |  |      | 63.2  |       |  |      | 41.9  |            |  |       | 31.4  |      |  |   | 23.9    |      |  |   | 145.1   |       |  |   | 305.5    |        
|Unrecorded
obligations:                       |                  |      |                                    |       |  |      |       |       |  |      |       |            |  |       |       |      |  |   |         |      |  |   |         |       |  |   |          |        
|Operating leases                              |                  |      | 28.1                               |       |  |      | 23.9  |       |  |      | 20.8  |            |  |       | 15.8  |      |  |   | 14.3    |      |  |   | 42.4    |       |  |   | 145.3    |        
|Purchase
Obligations: (2)                     |                  |      |                                    |       |  |      |       |       |  |      |       |            |  |       |       |      |  |   |         |      |  |   |         |       |  |   |          |        
|                                              | Disposal Related |      |                                    | 103.6 |  |      |       | 106.0 |  |      |       | 79.3       |  |       |       | 73.7 |  |   |         | 69.0 |  |   |         | 674.6 |  |   |          | 1,106.2 | 
|                                              | Other            |      |                                    | 97.7  |  |      |       | 19.3  |  |      |       | 4.3        |  |       |       | 3.9  |  |   |         | 0.6  |  |   |         | 5.8   |  |   |          | 131.6   | 
|                                              |                  |      |                                    |       |  |      |       |       |  |      |       |            |  |       |       |      |  |   |         |      |  |   |         |       |  |   |          |        
|Total cash
contractual
obligations            |                  | $    | 549.2                              |       |  | $    | 384.7 |       |  | $    | 843.9 |            |  | $     | 214.7 |      |  | $ | 1,848.2 |      |  | $ | 8,943.7 |       |  | $ | 12,784.4 |        
|                                              |                  |      |                                    |       |  |      |       |       |  |      |       |            |  |       |       |      |  |   |         |      |  |   |         |       |  |   |          |        



|(1) |  | Amount represents principal due and excludes discounts, premiums and principal due on capital leases.                                                                                                                                                                                                                         
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Purchase obligations consist primarily of (i) disposal related agreements which include fixed or minimum royalty and host agreements and
take-or-pay and put-or-pay disposal agreements, and (ii) other obligations including a fuel contract agreement, committed capital expenditures,
and consulting services arrangements.

34



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##### 



Debt Covenants.Our 2003 Credit Facility and the indentures relating to our senior subordinated notes and our senior notes contain financial covenants and restrictions on
our ability to complete acquisitions, pay dividends, incur indebtedness, make investments and take certain other corporate actions.

Under the 2003 Credit Facility, we are subject to the following financial covenants:

Minimum Interest Coverage:

|                   |  |                    |  |            |       |  |  | 
|------------------ |  | ------------------ |  | ---------- | ----- |  |  | 
|From the           |  | Through the        |  | EBITDA(1)/
|Quarter Ending     |  | Quarter Ending     |  | Interest  
|                   |  |                    |  |           
|March 31, 2003     |  | September 30, 2003 |  |            | 1.90x | 
|December 31, 2003  |  | June 30, 2004      |  |            | 1.85x | 
|September 30, 2004 |  | September 30, 2004 |  |            | 1.90x | 
|December 31, 2004  |  | March 31, 2005     |  |            | 1.95x | 
|June 30, 2005      |  | September 30, 2005 |  |            | 2.00x | 
|December 31, 2005  |  | December 31, 2005  |  |            | 2.10x | 
|March 31, 2006     |  | June 30, 2006      |  |            | 2.15x | 
|September 30, 2006 |  | September 30, 2006 |  |            | 2.20x | 
|December 31, 2006  |  | December 31, 2006  |  |            | 2.30x | 
|March 31, 2007     |  | March 31, 2007     |  |            | 2.40x | 
|June 30, 2007      |  | June 30, 2007      |  |            | 2.45x | 
|September 30, 2007 |  | March 31, 2008     |  |            | 2.50x | 
|June 30, 2008      |  | June 30, 2008      |  |            | 2.60x | 
|September 30, 2008 |  | September 30, 2008 |  |            | 2.70x | 
|December 31, 2008  |  | Thereafter         |  |            | 2.75x | 

Maximum Leverage:

|                   |  |                    |  |             |       |  |  | 
|------------------ |  | ------------------ |  | ----------- | ----- |  |  | 
|From the           |  | Through the        |  | Total Debt/
|Quarter Ending     |  | Quarter Ending     |  | EBITDA (1) 
|                   |  |                    |  |            
|March 31, 2003     |  | June 30, 2005      |  |             | 5.75x | 
|September 30, 2005 |  | December 31, 2005  |  |             | 5.50x | 
|March 31, 2006     |  | June 30, 2006      |  |             | 5.25x | 
|September 30, 2006 |  | September 30, 2006 |  |             | 5.00x | 
|December 31, 2006  |  | December 31, 2006  |  |             | 4.75x | 
|March 31, 2007     |  | December 31, 2007  |  |             | 4.50x | 
|March 31, 2008     |  | June 30, 2008      |  |             | 4.25x | 
|September 30, 2008 |  | Thereafter         |  |             | 4.00x | 

At December 31, 2003, we were in compliance with all financial covenants under our 2003 Credit Facility and our indentures. At December 31, 2003, Total Debt/EBITDA(1) ratio, as defined by the 2003 Credit
Facility, was 5.08:1 and our EBITDA(1)/Interest ratio was 2.09:1. We are not subject to any minimum net worth covenants and we have no credit rating triggers.

|    | 
|--- | 
|(1) | 

Failure to comply with the financial covenants under our 2003 Credit Facility would constitute default under the credit agreement and would allow the lenders under the 2003 Credit Facility to accelerate the
maturity of all indebtedness under the credit agreement. In addition, maturity acceleration on the 2003 Credit Facility constitutes an event of default under our other debt instruments, including our senior
notes and our senior subordinated notes and, therefore, these would also be subject to acceleration of maturity. If such acceleration of maturities of indebtedness were to occur, we would not have sufficient
liquidity available to repay the indebtedness. We would likely have to seek an amendment under the 2003 Credit Facility for relief from the financial covenants or repay the debt with proceeds from the
issuance of new debt or equity, and/or assets sales, if necessary. We may be unable to amend the 2003 Credit Facility or raise sufficient capital to repay such obligations in the event the maturities are
accelerated.

35



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Prepayments. Under our 2003 Credit Facility, we must repay a portion of our borrowings annually (prior to the stated maturity) if we generate cash flow in excess of specified levels. To make
these payments, if required, we may have to use the 2003 Revolver 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. Cash flow available to repay debt in excess of the
current years maturities will be applied to future maturities. In addition, we are required to make prepayments on the 2003 Credit Facility upon completion of certain transactions as defined in
the Credit Facility, including asset sales and issuances of debt or equity securities.

Financial Assurances.We are required to provide financial assurances to governmental agencies under applicable environmental regulations relating to our
landfill operations for capping, closure and post-closure costs, and performance under certain collection, landfill and transfer station contracts. We satisfy
the financial assurance requirements by providing performance bonds, letters of credit, insurance policies or trust deposits. The amount of the financial
assurance requirement is determined by the applicable state environmental regulations, which vary by state. The financial assurance requirements for capping,
closure and post-closure costs can either be for costs associated with a portion of the landfill or the entire landfill. Generally, states will require a
third-party engineering specialist to determine the estimated capping, closure and post-closure costs that is used to determine the required amount of financial
assurance for a landfill. The amount of financial assurances required can, and generally will, differ from the obligation determined and recorded under GAAP.

Additionally, we are required to provide financial assurance for our insurance program and collateral required for certain performance obligations. We do not
expect a material increase in financial assurance obligations during 2004, although the mix of financial assurance instruments may change.

At December 31, 2003, we had the following financial assurance instruments (in millions):

|                      |  |                   |         |             |  |               |       |                |  |       |       |  |  |   |       |  |  |   |         | 
|--------------------- |  | ----------------- | ------- | ----------- |  | ------------- | ----- | -------------- |  | ----- | ----- |  |  | - | ----- |  |  | - | ------- | 
|                      |  | Landfill Closure/ |         | Contract    |  | Risk/Casualty |       | Collateral for |  |       |       | 
|                      |  | Post-Closure      |         | Performance |  | Insurance     |       | Obligations    |  | Total
|                      |  |                   |         |             |  |               |       |                |  |      
|Insurance policies    |  | $                 | 903.8   |             |  | $             |      |                |  | $     |      |  |  | $ |      |  |  | $ | 903.8   | 
|Surety bonds          |  |                   | 388.5   |             |  |               | 549.9 |                |  |       |      |  |  |   |      |  |  |   | 938.4   | 
|Trust deposits        |  |                   | 75.0    |             |  |               |      |                |  |       |      |  |  |   |      |  |  |   | 75.0    | 
|Letters of credit (1) |  |                   | 403.5   |             |  |               | 48.1  |                |  |       | 262.0 |  |  |   | 123.0 |  |  |   | 836.6   | 
|                      |  |                   |         |             |  |               |       |                |  |       |       |  |  |   |       |  |  |   |         | 
|Total                 |  | $                 | 1,770.8 |             |  | $             | 598.0 |                |  | $     | 262.0 |  |  | $ | 123.0 |  |  | $ | 2,753.8 | 
|                      |  |                   |         |             |  |               |       |                |  |       |       |  |  |   |       |  |  |   |         | 



|(1) |  | These amounts are
issued under the 2003
Revolver and the
institutional letter of
credit facility under our
2003 Credit Facility.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------

These financial assurance instruments are issued in the normal course of business and are not debt of the company. Since we
currently have no liability for these financial assurance instruments, they are not reflected in the accompanying consolidated
balance sheets. The underlying obligations of the financial assurance instruments would be valued and recorded in the consolidated
balance sheets if it is probable that we would be unable to perform our obligations under the financial assurance contracts. We do
not expect this to occur.

36



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Exchange of Series A Senior Convertible Preferred Stock

On December 18, 2003, we completed the exchange of the Series A Preferred Stock
outstanding for 110.5 million shares of our common stock. The Series A
Preferred Stock had a stated value of $1.327 billion at December 18, 2003, the
exchange date, which represented the original issuance amount plus cumulative
accrued and unpaid dividends. No additional common shares were issued for the
increase in liquidation preference from July 31, 2003, the date we reached
agreement on the exchange transaction with the holders of the Series A
Preferred Stock, through the exchange date. Upon completion of the exchange
transaction, our outstanding shares on a fully diluted basis increased to
approximately 350 million shares. As a result of the exchange, approximately
$90 million in future annual dividend payments due to begin July 2004 have been
eliminated.

The terms of the exchange were approved by a special committee
of disinterested directors of our Board of Directors and was approved by the full
Board of Directors. The special committee was advised by an
independent financial advisor, in connection with this transaction. The completion of this transaction was
subject to certain approvals, including approval by our shareholders. We
obtained shareholder approval at a special meeting of the shareholders on
December 18, 2003. Under the terms of the exchange agreement, the holders of
the Series A Preferred Stock are restricted from selling the shares of common
stock they receive for one year from the exchange date.

Due to the change in the original conversion terms, we were required to
quantify the accounting effect of the change in conversion terms and reduce net
income available to common shareholders by the corresponding amount.
Accordingly, we recorded a non-cash conversion charge of $496.6 million, which
is reflected as a reduction to net income available to common shareholders, but
has no effect on total stockholders equity because an offsetting amount is
recorded to additional paid-in capital. The non-cash conversion charge is
calculated as the market value of the shares of our common stock issued in
excess of the shares of common stock that the holders of the Series A Preferred
Stock could have converted into under the original terms of the Series A
Preferred Stock.

Off-Balance Sheet Financing

We have no off-balance sheet debt or similar obligations, other than financial
assurance instruments discussed above which are not classified as debt. 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 do not guarantee any third party debt.

37



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##### 



Interest Rate Swap Portfolio

Consistent with our risk management policy, we have entered into interest rate swap agreements for the purpose of
hedging variability of interest expense and interest payments on our long-term variable rate bank debt and
maintaining a mix of fixed and floating rate debt. Our strategy is to use interest rate swap contracts when such
transactions will serve to reduce our aggregate exposure and meet the objectives of our risk management policy. These
contracts are not entered into for trading purposes. Our risk management policy requires that we evaluate the credit
of our counter parties and that we monitor counter party exposure. At December 31, 2003, counter parties for 79% of
our interest rate swap portfolio were rated Aa3. The counter party for the remaining 21% is rated A1 or Aa2.

Our interest rate swap portfolio continues to fix 98% 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. In addition, we have 5% of our fixed rate interest payment obligations at variable interest rates
through interest rate swap agreements providing us a mix of fixed and variable rate debt. 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, 2003, approximately 96% of our debt was fixed, 76% directly, and 20% through interest
rate swap agreements. The average interest rate paid under swap contracts at December 31, 2003 was 5.69% compared to
LIBOR of 1.15% at December 31, 2003.

In accordance with SFAS No. 133, Accounting for Derivative and Hedging
Activitiesas amended by SFAS No. 138, Accounting for Certain Derivative and
Hedging Activities, a portion of our interest rate swap portfolio was de-designated for hedge accounting purposes at
December 31, 2001. Certain of these contracts remain in place and continue to protect us from cash flow variability.
At the time debt obligations are repaid prior to maturity, we may or may not terminate interest rate swap contracts
depending on the reflective economic considerations.

The following table outlines our interest rate swap contract roll-off schedule as of December 31, 2003 (in
millions):

|        |  |                          |         |                   |  |       |       |  |  |   |         | 
|------- |  | ------------------------ | ------- | ----------------- |  | ----- | ----- |  |  | - | ------- | 
|        |  | Contract Notional Amount |         |                   |  |      
|        |  |                          |         |                   |  |      
|        |  | Floating to Fixed        |         | Fixed to Floating |  | Total
|        |  |                          |         |                   |  |      
|2004(1) |  | $                        | 1,400.0 |                   |  | $     |      |  |  | $ | 1,400.0 | 
|2005    |  |                          | 250.0   |                   |  |       |      |  |  |   | 250.0   | 
|2006    |  |                          |        |                   |  |       |      |  |  |   |        | 
|2007    |  |                          |        |                   |  |       |      |  |  |   |        | 
|2008    |  |                          |        |                   |  |       | 75.0  |  |  |   | 75.0    | 
|2009    |  |                          |        |                   |  |       | 275.0 |  |  |   | 275.0   | 
|        |  |                          |         |                   |  |       |       |  |  |   |         | 
|Total   |  | $                        | 1,650.0 |                   |  | $     | 350.0 |  |  | $ | 2,000.0 | 
|        |  |                          |         |                   |  |       |       |  |  |   |         | 

|    |  |                                                                                                                                                                                                                              
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) |  | These interest rate swap contracts
will roll-off in 2004 as follows: $250.0 million in the first
quarter; $750.0 million in the second quarter,
$150.0 million in the third quarter and $250.0 million in the
fourth quarter.

Based on the current maturity schedule of our
interest rate swap contracts, our current debt balance and assuming
the interest rate swap contracts are not replaced,
we expect that at the end of 2004 we will have approximately 79% of our debt at fixed interest rates.

38



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Contingencies

We are currently under examination by
various state and federal taxing
authorities for certain tax years,
including federal income tax audits for
calendar years 1998 through 2002. A
federal income tax audit for BFIs tax
years ended September 30, 1996 through
July 30, 1999 is complete with the
exception of the matter discussed below.

Prior to our acquisition of BFI on July 30, 1999, BFI
operating companies, as part of a risk management
initiative to effectively manage and reduce costs
associated with certain liabilities, contributed assets
and existing environmental and self-insurance liabilities
to six fully consolidated BFI risk management companies
(RMCs) in exchange for stock representing a minority
ownership interest in the RMCs. Subsequently, on July 9,
1999, the BFI operating companies sold that stock in the
RMCs to third parties at fair market value which resulted
in a capital loss of approximately $900 million for tax
purposes, calculated as the excess of the tax basis
the stock over the cash proceeds received. The capital
loss was claimed in the BFI tax return for the period
from October 1, 1998 to July 30, 1999. On January 18,
2001, the IRS designated this type of transaction and
other similar transactions as a potentially abusive tax
shelter under IRS regulations.

During 2002, the IRS proposed the
disallowance of all of this capital loss. The primary argument advanced by the IRS
for disallowing the capital loss was that
the tax basis of the stock of the RMCs
received by the BFI operating companies
was required to be reduced by the amount
of liabilities assumed by the RMCs even
though such liabilities were contingent.
Under the Internal Revenue Service (IRS) view, there was no capital
loss on the sale of the stock since the
tax basis of the stock should have
approximately equaled the proceeds
received. We protested the disallowance
to the Appeals Office of the IRS in
August 2002.

If the proposed disallowance is upheld,
we estimate it could have a potential
total cash impact of up to $310 million
plus accrued interest through December
31, 2003 of approximately $46 million
($28 million net of tax benefit). We
also received a notification from the IRS
proposing a penalty of 40% of the
additional income tax resulting from the
disallowance. Because of several
meritorious defenses, we believe the
successful assertion of penalties is
unlikely.

If we are unable to resolve this matter
with the Appeals Office of the IRS, we
would expect to receive a notice of tax
deficiency from the IRS. Upon receiving
the notice, we would have the following
options:



| | 1. |  | File a petition for
redetermination in Tax Court within
90 days. In this case, payments
would not be required until the Tax
Court renders its decision.                                                                                                                                                                                                       
| | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | 2. |  | Wait to receive a statement of
amount due from the IRS and pay the
amount due. The amount due would
be based on the portion of the
capital loss claimed during the BFI
tax years ended September 30, 1996
through July 30, 1999. Additional
amounts will be owed as the audits
of the Companys tax returns for
calendar years 1999 and forward are
completed.
|
| | 3. |  | Pay the amount due as outlined
in option 2 above, except, after
paying the amount due, take
appropriate steps to institute a
suit in Federal District Court or
the Federal Claims Court for a
refund of the amounts paid.                                                                                                                                     

The timing of any payments for any
related state tax deficiencies will
generally follow closely after the timing
of any federal payments. Furthermore, at
any point in time under any of the
options outlined above, we can attempt to
reach a settlement agreement with the
IRS.

If we are unable to resolve this matter
with the Appeals Office of the IRS, a
decision would be made at that time as to
which of the above options would be
pursued. In any case, we continue to
believe our position is well supported
and we will vigorously contest the
disallowance. An unfavorable result
should have minimal impact on our
consolidated results of operations as the
tax and interest impact of a disallowance
have been fully reserved on our
consolidated balance sheet.

39



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##### 



In the normal course of conducting our
landfill operations, we are involved in
legal and administrative proceedings
relating to the process of obtaining and
defending the permits that allow us to
operate our landfills. In June 1999,
neighboring parties and the county
drainage district filed a lawsuit seeking
to prevent BFI from obtaining a vertical
elevation expansion permit at one of our
landfills in Texas. In 2001, the
expansion permit was granted. The
parties opposing the expansion permit
continued to pursue their efforts in
preventing the expansion permit. In
December 2003, a judgment issued by a
District Court in Texas, effectively
revoked the expansion permit that was
granted by the State of Texas in 2001 and
would require us to operate the landfill
according to a prior permit granted in
1988. We plan to vigorously defend this
expansion in the State Court of Appeals
and believe that the merits of our
position will prevail. Operationally, we
are in the process of obtaining bonding
that will allow us to continue to operate
the landfill as usual during the period
of appeals, which may continue two years
or longer. If the appeal is not
successful, the landfill may become
impaired, we may incur costs to relocate
waste to another landfill and this matter
could result in a charge of up to $25
million to our consolidated statement of
operations.

We enter into contracts in the normal
course of business that include
indemnification clauses.
Indemnifications relating to known
liabilities are recorded in the
consolidated financial statements based
on our best estimate of required future
payments. Certain of these
indemnifications relate to contingent
events or occurrences, such as the
imposition of additional taxes due to a
change in the tax law or adverse
interpretation of the tax law, and
indemnifications made in divestiture
agreements where we indemnify the buyer
for liabilities that may become known in
the future but that relate to our
activities prior to the divestiture. As
of December 31, 2003, we estimate the
contingent obligations associated with
these indemnifications to be de minimus.

Subtitle D and other regulations that
apply to the non-hazardous solid 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.

Related Party Transactions

In connection with the
divestiture of our North
and Central Florida
operations for proceeds
of approximately $120
million in an
arms-length transaction,
we terminated a
consulting and
non-compete agreement
with a former member of
senior management. In
connection with the
termination of these
agreements we amended the
terms of stock options
held by the former member
of senior management and
recorded a non-cash
charge of approximately
$2.0 million.

For a description of other related party transactions, see Note 16 to our
consolidated financial statements included herein.

Accounting for Stock Options Granted to Employees

We currently account for our stock-based compensation using the intrinsic value method
prescribed by Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees(APB 25) as amended. Pursuant to APB 25, we recognize no compensation cost for
our stock option grants to employees because the number of shares potentially issuable
and the exercise price, which is equal to the fair market value of the underlying stock
on the date of grant, is fixed.

The Financial Accounting Standards Board (FASB) is currently considering the issue of
expensing stock options. The FASB has not issued final rules as of yet. Given the
uncertainty of the final rules, management believes at this time that the best approach
is to await the final FASB rules before making any change.

40



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##### 



Were we to recognize compensation expense based on
the fair value of stock options granted, as
provided for under SFAS No. 123, Accounting for Stock
Based Compensation, we would have recognized
compensation expense net of tax of $9.5 million,
$13.6 million and $16.1 million, or $.05, $.07 and
$.09 per diluted share, for the year ended December
31, 2003, 2002 and 2001, respectively.

Critical Accounting Judgments and Estimates

The preparation of financial statements in conformity with generally accepted
accounting principles requires estimates and assumptions that affect the
reported amounts of assets and liabilities, revenues and expenses, and related
disclosures of contingent assets and liabilities in the consolidated financial
statements. The SEC has defined a companys most critical accounting policies
as those that are most important to the portrayal of the companys financial
condition and results of operations that require managements most difficult,
subjective or complex judgments, often as a result of the need to make
estimates of matters that are inherently uncertain. These judgments and
estimates often involve future events. Based on this definition, we have
identified the critical accounting policies and judgments addressed below. In
addition, management has discussed these accounting policies and judgments with
the Audit Committee of our Board of Directors. No one geographic operating
segment has a more significant concentration of the critical accounting
policies and judgments addressed below. Although we believe that our estimates
and assumptions are reasonable, they are based upon information available at
the time they are made. Actual results may differ significantly from estimates
under different assumptions or conditions. The following critical accounting
judgments and estimates are based on our accounting practices in effect during
2003.

We have noted examples of the residual accounting and business risks inherent
for these areas that you should be aware of and for you to consider. Residual
accounting and business risk is defined as the inherent risk that remains after
the application of our policies and processes and is generally outside of our
control.

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|                    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |  |                        
|------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -----------------------
|Accounting          |  | Accounting Policy and Process                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |  | Residual Accounting and
|Area                |  | Use of Estimates                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |  | Business Risk          
|                    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |  |                        
|Landfill accounting |  | On January 1, 2003, we adopted SFAS 143, which
outlines standards for accounting for our landfill
retirement obligations, which we have historically referred
to as closure and post-closure.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |  |                        
|                    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |  |                        
|                    |  | Upon adoption, SFAS 143 required a cumulative change in
accounting principle for landfill obligations retroactive
to the date of the inception of the landfill, including the
creation of a related landfill asset, net of accumulated
amortization. The cumulative effect of adoption represents
the difference between the amount of our landfill related
assets and liabilities calculated under SFAS 143 and the
balances previously reported. Liabilities retained from
divested landfills that were historically accounted for in
closure and post-closure liabilities were reclassified to
other long-term obligations because they were not within
the scope of SFAS 143. Additionally, methane gas collection
systems are no longer included in closure and post-closure
cost estimates, but instead are now included in the
landfill development asset and the cost of financial
assurance instruments are no longer accrued as part of the
post-closure liability, but rather expensed as incurred. |  |                        
|                    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |  |                        
|                    |  | At January 1, 2003, we recorded a cumulative effect of a
change in accounting principle gain of approximately $29.0
million, net of tax. In addition, we recorded a decrease in
our capping, closure and post-closure liabilities of
approximately $100.4 million, an increase in other
long-term obligations of approximately $26.9 million, and a
decrease in our net landfill assets of approximately $25.1
million.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |  |                        
|                    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |  |                        
|                    |  | Our landfill investments fall into two categories, each of
which require accounting judgments and estimates.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |  |                        

| |  |   |                                                                                                                                | 
| |  | - | ------------------------------------------------------------------------------------------------------------------------------ | 
| |  |  | Landfill development asset and related
amortization.                                                                           | 
|
| |  |  | Landfill retirement asset resulting from recording our
capping, closure and post-closure liabilities and
related amortization. | 

| |  |                                                                                                                                                                                                                              |  | 
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | 
| |  | We use the life cycle accounting method for landfills and
the related capping, closure and post-closure liabilities.
In life cycle accounting, all capitalizable costs to
acquire, develop and retire a site are recorded to |  | 

42



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##### 



|                                                    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|--------------------------------------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Accounting                                          |  | Accounting Policy and Process                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |  | Residual Accounting and                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|Area                                                |  | Use of Estimates                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |  | Business Risk                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|                                                    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|                                                    |  | amortization expense based upon the consumption of disposal
capacity. The cost of the assets and liabilities related to
landfills is driven by the technical design that is
developed by a third party consultant and approved by a
regulatory agency. The technical design includes the
construction, capping and closure specifications, the types
and quantities of materials required and determination of
the landfill capacity. Estimates of future landfill
disposal capacity are updated periodically (generally
annually) based on third party aerial surveys. |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|                                                    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|Landfill
development asset
and related
amortization |  | 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.
Studies performed by third
parties could be inaccurate which
could result in the revocation of
a permit. Conditions could exist
that were not identified in the
study which make the location not
feasible for a landfill and could
result in the revocation of a
permit. Revocation of a permit
could materially impair the
recorded value of the landfill
asset.
|                                                    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|                                                    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |  | Actions by neighboring parties,
private citizen groups or others
to oppose our efforts to obtain
permits could result in
revocation or suspension of a
permit which could adversely
impact the economic viability of
the landfill and could materially
impair the recorded value of the
landfill.                                                                                                                                                                                                                                                                
|                                                    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|                                                    |  | 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                                                                                                                                                                                                                                                        |  | 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.                                                                                                                                                                                                                                                                                                                                                                       

43



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##### 



|           |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |  |                                                                                                                                                                                                                                                                                                                                                        
|---------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Accounting |  | Accounting Policy and Process                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |  | Residual Accounting and                                                                                                                                                                                                                                                                                                                                
|Area       |  | Use of Estimates                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |  | Business Risk                                                                                                                                                                                                                                                                                                                                          
|           |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |  |                                                                                                                                                                                                                                                                                                                                                        
|           |  | 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
approval of the technical design, the regulatory
agencies issue permits to develop and operate the
landfill.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |  | Technical design requirements, as
approved, may need modifications
at some future point in time.
Third party designs could be
inaccurate and could result in
increased construction costs or
difficulty in obtaining a permit.                                                                                                                         
|           |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |  |                                                                                                                                                                                                                                                                                                                                                        
|           |  | 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 collection systems
and monitoring probes, installation of
groundwater monitoring wells, construction of
leachate management facilities and other costs
associated with the development of the site. We
review the adequacy of our cost estimates used in
the annual update of the above costs by comparing
estimated costs with third party bids or
contractual arrangements, review changes in year
over year cost estimates for reasonableness, and
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. |  | Actual future costs of
construction materials and third
party labor could differ from the
costs we have estimated because
of the impact from general
economic conditions on the
availability of the required
materials and labor. Technical
designs could be altered due to
unexpected operating conditions,
regulatory changes or legislative
changes.
|           |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |  |                                                                                                                                                                                                                                                                                                                                                        
|           |  | Landfill Development Asset Amortization
In order to match the amortization of the
landfill asset with the revenue generated by the
landfill operations, we amortize the landfill
development asset over its operating life on a
per-ton basis as waste is accepted                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |  | Increases and decreases in our
cost estimates and changes in
disposal capacity will normally
result in a change in our
amortization rates on a                                                                                                                                                                                                         

44



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##### 



|           |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |  |                                                                                                                                                                                                          
|---------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Accounting |  | Accounting Policy and Process                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |  | Residual Accounting and                                                                                                                                                                                  
|Area       |  | Use of Estimates                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |  | Business Risk                                                                                                                                                                                            
|           |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |  |                                                                                                                                                                                                          
|           |  | 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 amortization expense. |  | prospective basis. An unexpected
significant increase in estimated
costs or reduction in disposal
capacity could effect the ongoing
economic viability of the
landfill and result in an asset
impairment.
|           |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |  |                                                                                                                                                                                                          
|           |  | 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. We have
secured significant landfill assets through
business acquisitions 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 development costs and remaining disposal
capacity for each landfill. 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.                                                                                                                            |  |                                                                                                                                                                                                          

|                                              |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |  |                                                                                                                                                                                                                                                          
|--------------------------------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Capping, closure
and post-closure
liabilities |  | We have two types of retirement obligations
related to landfills: (1) capping and (2)
closure and post-closure monitoring.                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |  |                                                                                                                                                                                                                                                          
|                                              |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |  |                                                                                                                                                                                                                                                          
|                                              |  | Landfill Capping
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. Capping activities primarily
include installation of liners, drainage,
compacted soil layers and topsoil over areas of a
landfill where total disposal capacity has been
consumed and waste is no longer being received.
There are multiple capping activities that occur
over the operating life of the landfill. |  | Changes in legislative or
regulatory requirements including
changes in capping, closure
activities or post-closure
monitoring activities, types and
quantities of materials used, or
term of post-closure care could
cause changes in our cost
estimates.

45



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##### 



|           |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|---------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Accounting |  | Accounting Policy and Process                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |  | Residual Accounting and                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|Area       |  | Use of Estimates                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |  | Business Risk                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|           |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|           |  | Closure and Post-Closure Monitoring
Closure costs are any costs incurred after a site
stops receiving waste but prior to being
certified as closed and enters its post-closure
monitoring period. 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 may extend for 30
years. Post-closure requirements generally
include maintenance of the site and monitoring
the methane gas collection systems and
groundwater systems, and other activities that
occur after the site has ceased accepting waste.
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.                                                      |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|           |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|           |  | Landfill Retirement, Obligation Asset Amortization
Under SFAS 143, there are five accounting
processes: (1) a retirement obligation is
recorded for the present value of the estimated
capping, closure and post-closure costs as the
liability for such costs is incurred (capping
costs are accrued for each specific capping
event, whereas, closure and post-closure costs
are accrued over the operating life of the
landfill); (2) a retirement obligation asset is
recorded, in addition to the landfill development
asset, for the same value as the retirement
obligation liability; (3) the projected total
capping, closure and post-closure assets to be
recorded over the life of the landfill are
amortized to amortization expense as disposal
capacity is consumed; (4) the liability recorded
is accreted to reflect the passage of time; and
(5) actual cash expenditures are charged against
the recorded liability as they are incurred. |  | Actual timing of disposal
capacity utilization could differ
from projected timing, causing
differences in timing of when
amortization and accretion
expense is recognized for
capping, closure and post-closure
liabilities. 
Changes in future inflation rate
projections could impact our
actual future costs and our total
liability.
Changes in our capital structure
could result in changes to the
credit-adjusted risk-free rate
used to discount the liabilities,
which could cause changes in our
recorded liabilities and expense.



| |  | For
each landfill, the following according processes are applied:
| |  | -----------------------------------------------------------------
| |  | (1)(2)                                                           

46



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##### 



|           |  |                               |  |                         |  |                                                                                                                                                                                                                                                                                                                                                                       |  |                                                                                                                                                                                                      
|---------- |  | ----------------------------- |  | ----------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Accounting |  | Accounting Policy and Process |  | Residual Accounting and
|Area       |  | Use of Estimates              |  | Business Risk          
|           |  |                               |  |                        
|           |  |                               |  |                         |  | adjusted risk-free rate of 9.0% was
used to present value the total future costs.                                                                                                                                                                                                                                                                                     |  | unanticipated increases or
decreases in expense.                                                                                                                                                     
|           |  |                               |  |                         |  |                                                                                                                                                                                                                                                                                                                                                                       |  |                                                                                                                                                                                                      
|           |  |                               |  | (3)                     |  | The present value of the remaining
capping costs for a specific capping event
and the remaining closure and post-closure
costs for the landfill are accrued as
retirement obligations as the liability for
capping, closure and post-closure monitoring
are incurred on a per ton basis. This
liability is incurred as disposal capacity
is consumed at the landfill. |  |                                                                                                                                                                                                      
|           |  |                               |  |                         |  |                                                                                                                                                                                                                                                                                                                                                                       |  |                                                                                                                                                                                                      
|           |  |                               |  | (4)                     |  | A corresponding retirement obligation
asset is recorded for the same value as the
additions to the retirement obligation
liability as disposal capacity is consumed.
The total landfill asset is comprised of the
landfill development asset and the
retirement obligation asset.                                                                                     |  |                                                                                                                                                                                                      
|           |  |                               |  |                         |  |                                                                                                                                                                                                                                                                                                                                                                       |  |                                                                                                                                                                                                      
|           |  |                               |  | (5)                     |  | Using our projected waste flow into the
capping events and the landfill and the
projected total capping and closure and
post-closure assets, we develop a per ton
rate that is used to record amortization
expense as waste is received at the landfill.                                                                                                              |  |                                                                                                                                                                                                      
|           |  |                               |  |                         |  |                                                                                                                                                                                                                                                                                                                                                                       |  |                                                                                                                                                                                                      
|           |  |                               |  | (6)
(7)                 |  | The retirement obligation is increased
each year to reflect to passage of time by
accreting the balance at the same
credit-adjusted risk-free rate that was used
to discount the projected costs. This
accretion expense is charged to cost of
operations.Actual cash expenditures reduce the
asset retirement obligation liability as
they are incurred.             |  | Rates could change in the future
based on the evaluation of new
facts and circumstances relating
to landfill closure design,
post-closure monitoring
requirements, or the inflation or discount rate.

|                  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                    |  |                                                                                                                                                                                                                                                                            
|----------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                  |  | Estimate Updates
On an annual basis, we update the estimate of
future capping, closure and post-closure costs
and estimates of future disposal capacity for
each landfill. Revisions in estimates of our
costs are treated prospectively for our operating
landfills but are recorded immediately in results
of operations for full incurred capping events
and closed landfills since the associated
disposal capacity has already been consumed. |  |                                                                                                                                                                                                                                                                            
|                  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                    |  |                                                                                                                                                                                                                                                                            
|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
probable expansion disposal capacity in our
remaining disposal capacity estimates, which
relates to additional disposal capacity being
sought through means of an expansion. Probable
expansion disposal capacity has not                                |  | We may be unsuccessful in
obtaining permits for probable
expansion disposal capacity
because of the failure to obtain
the final local, state or federal
permit or due to other unknown
reasons. If we are unsuccessful
in obtaining permits for probable
expansion disposal

47



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##### 



|                                   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |  |                                                                                                                                                                                                                                                                                                                                                         
|---------------------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Accounting                         |  | Accounting Policy and Process                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |  | Residual Accounting and                                                                                                                                                                                                                                                                                                                                 
|Area                               |  | Use of Estimates                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |  | Business Risk                                                                                                                                                                                                                                                                                                                                           
|                                   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |  |                                                                                                                                                                                                                                                                                                                                                         
|                                   |  | 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
probable expansion 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). |  | capacity, or
the disposal capacity for which
we obtain approvals is less than
what was estimated, both costs
and disposal capacity will
change, which will generally
increase the rates we charge for landfill amortization and
capping, closure and post-closure
accruals. An unexpected decrease
in disposal capacity could cause an asset impairment.
|                                   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |  |                                                                                                                                                                                                                                                                                                                                                         
|                                   |  | 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |  |                                                                                                                                                                                                                                                                                                                                                         
|                                   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |  |                                                                                                                                                                                                                                                                                                                                                         
|                                   |  | 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 capping, closure and post-closure rates, we
include the incremental costs to develop,
construct, close and monitor the related probable
expansion disposal capacity.                                                                                                                                                         |  |                                                                                                                                                                                                                                                                                                                                                         
|                                   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |  |                                                                                                                                                                                                                                                                                                                                                         
|Non-recurring
acquisition
accruals |  | 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, which
represents fair value. Assumed liabilities as
well as liabilities resulting directly from the
completion of the acquisition are considered in
the net assets acquired and resulting purchase
price 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 to restructuring and                                                                                                                                                                                                                                                                                                                                                                               |  | Additional liabilities may exist
related to the acquired
operations that have not been
identified.                                                                                                                                                                                                                                                      

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|                          |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                             
|------------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Accounting                |  | Accounting Policy and Process                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |  | Residual Accounting and                                                                                                                                                                                                                                                                                                                                                                                                                     
|Area                      |  | Use of Estimates                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |  | Business Risk                                                                                                                                                                                                                                                                                                                                                                                                                               
|                          |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                             
|                          |  | abandonment activities, are accrued through a
charge to expense. 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
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 an expense 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, 2003 and 2002, we had
approximately $154.1 million and $200.9 million,
respectively, of non-recurring acquisition
accruals remaining on our balance sheet,
consisting primarily of loss contracts,
litigation and compliance, and risk management
and insurance liabilities associated with the
acquisition of BFI. Cash paid against
non-recurring acquisition accruals, including
severance, in 2003 was $41.5 million and $88.7
million in 2002.                                                                                                                                                                                                                                                                                                   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                             
|                          |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                             
|Environmental
liabilities |  | Nature of Liabilities
Liabilities arise from contamination existing at
our landfills or at third-party landfills that we
(or a predecessor company) have delivered or
transported waste to 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                                                            |  | 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.
Actual amounts could differ from
the estimated liability as a
result of changes in estimated

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|           |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |  |                                                                                                                                                                                                                          
|---------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Accounting |  | Accounting Policy and Process                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |  | Residual Accounting and                                                                                                                                                                                                  
|Area       |  | Use of Estimates                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |  | Business Risk                                                                                                                                                                                                            
|           |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |  |                                                                                                                                                                                                                          
|           |  | reasonably estimable. The majority
of our environmental liabilities are liabilities
that we assumed in connection with an
acquisition. Any increases in the assumed
accruals for environmental liabilities from the
amounts recorded by the predecessor are charged
to operating expense. If the liabilities arise
through the normal course of business, the
accruals are also charged to operating expense.                                                                                                                                                                                                               |  | future litigation costs to pursue
the matter to ultimate resolution
including both legal and remedial
costs.
An unanticipated environmental
liability that arises could
result in a material charge to
operating expense.
|           |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |  |                                                                                                                                                                                                                          
|           |  | 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 to operating income 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, 2003
and 2002 of approximately $337.4 million and
$365.1 million, respectively, represents the most
probable outcome of these contingent matters.
Cash paid for environmental matters during 2003
and 2002 was $24.9 million and $27.8 million,
respectively.                                                                                                                                                                                                                                                           |  |                                                                                                                                                                                                                          
|           |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |  |                                                                                                                                                                                                                          
|           |  | 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 capping, closure
and post-closure could result in approximately
$20 million of additional liability. Due to the
nature of these matters, the cash flow impact
would not be immediate and would most likely be
over a period greater than five years. |  |                                                                                                                                                                                                                          

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|                                             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |  |                                                                                                                                                                                                                                                                                                                                                                                                                                 
|-------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Accounting                                   |  | Accounting Policy and Process                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |  | Residual Accounting and                                                                                                                                                                                                                                                                                                                                                                                                         
|Area                                         |  | Use of Estimates                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |  | Business Risk                                                                                                                                                                                                                                                                                                                                                                                                                   
|                                             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |  |                                                                                                                                                                                                                                                                                                                                                                                                                                 
|Self-insurance
liabilities and
related costs |  | We maintain high deductibles for commercial
general liability, automobile liability, and
workers compensation insurance and are fully
self-insured for employee group health claims.
Deductible levels are between $1 million and $3
million. The retained or non-insured portion of
the liability for unpaid claims and associated
expenses, including incurred but not reported
losses, is reflected in our balance sheet as an
accrued liability. The liability for unpaid
claims and associated expenses for commercial
general liability, automobile liability and
workers compensation is actuarially determined
by a third-party actuary. We use a third-party
administrator 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 for the most
part by our past claims experience factor, which
considers both the frequency and settlement
amount of claims. |  | Incident rates, including
frequency and severity, could
increase or decrease during a
year causing our current and
future actuarially determined
obligations to increase or
decrease.
The costs to discharge our
obligations, including legal
costs and health care costs,
could increase or decrease
causing current and/or prior
estimates of our self-insurance
liability to change.                                         
|                                             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |  |                                                                                                                                                                                                                                                                                                                                                                                                                                 
|                                             |  | As of December 31, 2003 and 2002, we had
approximately $193.5 million and $146.2 million
of self-insurance liabilities on our balance
sheet. Cash paid for self-insurance claims
during 2003 and 2002 was $210.0 million and
$191.4 million, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |  |                                                                                                                                                                                                                                                                                                                                                                                                                                 
|                                             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |  |                                                                                                                                                                                                                                                                                                                                                                                                                                 
|Loss Contingencies                           |  | We are subject to various legal proceedings and
claims, the outcomes of which are subject to
significant uncertainty. We determine whether to
disclose and accrue for loss contingencies based
on an assessment of whether the risk of loss is
remote, reasonably possible or probable and can be
reasonably estimated. We analyze our litigation
and regulatory matters based on available
information to assess potential liability.
Managements assessment is developed in
consultation with the Companys outside counsel
and other advisors and is based on an analysis of
possible outcomes under various strategies.                                                                                                                                                                                                                                                                                                                                                                                                         |  | Actual costs can vary from
estimates for a variety of
reasons. For example, the costs
from settlement of claims and
litigation can vary from
estimates based on differing
interpretations of laws, opinions
on culpability and assessments on
the amount of damages.                                                                                                                                                            
|                                             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |  |                                                                                                                                                                                                                                                                                                                                                                                                                                 
|                                             |  | Generally, we record losses related to
contingencies in cost of operations or selling,
general and administrative expenses, depending on
the nature of the underlying transaction leading
to the loss contingency.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |  | Loss contingency assumptions
involve judgments that are
inherently subjective and
generally involve business matters that are by nature
unpredictable. If a loss
contingency results in an
adverse judgment or is settled
for significant amounts, it
could have a material adverse
effect on our results of
operations, cash flows and
financial position in the period
or periods in which such
judgment or settlement occurs.

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|                                           |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|------------------------------------------ |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Accounting                                 |  | Accounting Policy and Process                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |  | Residual Accounting and                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|Area                                       |  | Use of Estimates                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |  | Business Risk                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|                                           |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|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,
payment performance factors, historical trends
and other information. In general, we reserve 50%
of receivables outstanding 90 to 120 days and
100% of those outstanding over 120 days. We also
review specific outstanding accounts 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 and require
adjustments to our allowance for
doubtful accounts.                                                                                                                                                                                                                                                                                                                                      
|                                           |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|Asset Impairment                           |  | Valuation Methodology
We evaluate our long-lived 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. 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 exceeds 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. |  | 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.Our most significant asset
impairment exposure, other than
goodwill (see discussion below)
is our investment in landfills.
A reduction in our estimated
disposal capacity as a result of
unanticipated events could
trigger an impairment charge.
|                                           |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|Goodwill
Impairment                        |  | Valuation Methodology
We evaluate goodwill for impairment based on fair
value of each geographic operating segment. Our
geographic operating segment is an aggregate of
several vertically integrated businesses with
similar operational characteristics. We estimate
fair value based on net cash flows discounted
using an estimated weighted-average cost of
capital of                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |  | The estimated fair value could
change as there are future
changes in our capital structure,
cost of debt, interest rates,
ability to perform at levels that
were forecasted, actual capital
expenditure levels, or our market
capitalization. For                                                                                                                                                                                                                                                              

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|             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |  |                                                                                                                                                                                                                                                                                                                                                                  
|------------ |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Accounting   |  | Accounting Policy and Process                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |  | Residual Accounting and                                                                                                                                                                                                                                                                                                                                          
|Area         |  | Use of Estimates                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |  | Business Risk                                                                                                                                                                                                                                                                                                                                                    
|             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |  |                                                                                                                                                                                                                                                                                                                                                                  
|             |  | approximately 6.7%. In addition,
consideration is also given to an earnings
multiple approach, enterprise value and overall
company market capitalization to evaluate the
reasonableness of our discounted cash flows.Evaluation Criteria
Annually, we test realizability of goodwill. In
addition, we test goodwill for recoverability
between annual evaluations whenever events or
changes in circumstances indicate that the
carrying amounts may not be recoverable.
Examples of such events could include a
significant adverse change in legal factors,
liquidity or in the business climate, an adverse
action or assessment by a regulator,
unanticipated competition, loss of key personnel,
or new circumstances that would cause an
expectation that it is more likely than not that
we would sell or otherwise dispose of an
operating segment or a significant portion of a
geographic operating segment. |  | example, a
reduction in long-term growth
assumptions could reduce the
estimated fair value to below
carrying value, which would
trigger an impairment charge.
Similarly, an increase in our
weighted average cost of capital
could trigger an impairment
charge.                                                                                                 
|             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |  |                                                                                                                                                                                                                                                                                                                                                                  
|             |  | Recognition Criteria
We recognize an impairment if the net book value exceeds the fair
value as determined using discounted future cash flows on a geographic operating segment basis                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |  | In the past, we have incurred
non-cash losses on sales of
assets driven primarily by the
goodwill allocated to the assets
divested. If similar divestiture decisions are made in the future,
we could incur additional
non-cash losses on asset sales.
A divestiture of any individual
asset below the geographic
operating segment level could
result in a loss.
|             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |  |                                                                                                                                                                                                                                                                                                                                                                  
|             |  | At the time of a divestiture of an individual
business unit within a geographic operating
segment, goodwill is allocated to that business
unit and a gain or loss on disposal is derived.
Subsequently, the remaining goodwill in the
geographic operating segment from which the
assets were divested is re-evaluated for
impairment, which could also result in an
additional loss.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |  |                                                                                                                                                                                                                                                                                                                                                                  
|             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |  |                                                                                                                                                                                                                                                                                                                                                                  
|             |  | Summary
At December 31, 2003 and 2002, we had $8.3
billion and $8.5 billion, respectively, of
goodwill recorded. Upon adoption of SFAS 142 at
January 1, 2002, we had no impairment of
goodwill. In addition, at December 31, 2003 and
2002, there was no impairment of goodwill upon
completion of our annual evaluation of goodwill
recoverability.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |  |                                                                                                                                                                                                                                                                                                                                                                  
|             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |  |                                                                                                                                                                                                                                                                                                                                                                  
|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                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |  | 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                                                                                                                                                                   

53



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|                              |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|----------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Accounting                    |  | Accounting Policy and Process                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |  | Residual Accounting and                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|Area                          |  | Use of Estimates                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |  | Business Risk                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|                              |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|Defined Benefit
Pension Plans |  | 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.

We provide a valuation allowance for deferred tax
assets (including net operating loss and capital
loss carryforwards) when it is more likely than
not that we will not be able to realize the
future deduction giving rise to the deferred tax
asset.

We record liabilities for actual or expected
probable tax adjustments proposed by tax
authorities at the federal and state level.

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. At December 31, 2003,
approximately $6.0 billion of non-deductible
goodwill remains on our balance sheet.

Income tax expense is recorded on an interim
basis based on the expected annual effective tax
rate. The annual effective tax rate is
determined using estimated full year earnings,
non-deductible items and tax credits that are
anticipated to be utilized.
Summary
As of December 31, 2003, net operating loss and
minimum tax credit carryforwards with an after
tax benefit totaling $349 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.
Recognition Criteria
Our defined benefit retirement plan was assumed
in connection with the acquisition of BFI. The
benefits of approximately 97% of the plan
participants were frozen upon acquisition.
The benefit obligation and associated income or
expense is actuarially determined by an
independent third party based on actuarial
assumptions we believe are reasonable. We use a
third party to administer the plan and maintain
certain data that is provided to the |  | 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. Changes in estimated
realizability of deferred tax
assets could result in additional
income tax expense.
We are currently under examination by various state and
federal taxing authorities for
certain tax years. The Internal
Revenue Code and Income Tax Regulations are a complex set of
rules that we are required to
interpret and apply to our
transactions. Positions taken in
tax years under examination are
subject to challenge.
Accordingly, we may have exposure
for additional tax liabilities arising from these audits if any
positions taken are disallowed by
the taxing authorities. (See
Note 14 of our consolidated
financial statements included
herein.)Actual income tax rates can vary
from period to period as a result
of differences between estimated
and actual earnings,
non-deductible items and tax
credit utilization. An increase
or decrease in the tax rate could
have a material impact on our
results of operations.

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|           |  |                                                                                                                                                                                                                                                                                                                                                                                                                                    |  |                                                                                                                                                                                                                                           
|---------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Accounting |  | Accounting Policy and Process                                                                                                                                                                                                                                                                                                                                                                                                      |  | Residual Accounting and                                                                                                                                                                                                                   
|Area       |  | Use of Estimates                                                                                                                                                                                                                                                                                                                                                                                                                   |  | Business Risk                                                                                                                                                                                                                             
|           |  |                                                                                                                                                                                                                                                                                                                                                                                                                                    |  |                                                                                                                                                                                                                                           
|           |  | actuary. The
plan assets are managed by a third party that is
unaffiliated to our actuary. We recognize in our
financial statements an accrued liability (or a
prepaid pension expense), for the difference
between the cost to satisfy our pension
obligation and the investment income earned or
contributions to the plan. Pension income or
expense is recorded to selling, general and
administrative expense.                |  |                                                                                                                                                                                                                                           
|           |  |                                                                                                                                                                                                                                                                                                                                                                                                                                    |  |                                                                                                                                                                                                                                           
|           |  | Our funding policy is to make annual
contributions to the pension plan as determined
to be required by the plans actuary and to meet
the minimum requirements of ERISA. No
contributions were required during the last three
years. No contributions are anticipated for 2004.                                                                                                                                                    |  |                                                                                                                                                                                                                                           
|           |  |                                                                                                                                                                                                                                                                                                                                                                                                                                    |  |                                                                                                                                                                                                                                           
|           |  | The plans policy is to invest the plans assets
as determined by our Benefits Committee. At
December 31, 2003, of the total plan assets of
$317.4 million, approximately 39% was invested in
fixed income bond funds and approximately 61% in
equity funds.
  Assumptions
The assumptions used in the actuarial determined
funded status are as follows: (weighted average
assumptions as of our measurement date, September
30): |  | Changes in our investment mix and
performance of the equity and
bond markets and of fund managers
could impact the amount of pension income or expense
recorded, the funded status of
the plan and the need for future
cash contributions.

| |                                       |  |      |      |      |  |  |      |   | 
| | ------------------------------------- |  | ---- | ---- | ---- |  |  | ---- | - | 
| |                                       |  | 2003 |      | 2002 | 
| |                                       |  |      |      |      | 
| | Discount rate                         |  |      | 6.25 | %    |  |  | 6.75 | % | 
| | Expected return
on plan assets        |  |      | 9.00 | %    |  |  | 9.50 | % | 
| | Average rate of
compensation
increase |  |      | 4.00 | %    |  |  | 4.00 | % | 

| |  |                                                                                                                                                                                                                                                                                                                                                                                              |  |                                                                                                                                                                                  
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Our discount rate represents the yield on high
quality (AAA) bonds at which our obligation could
be settled. Our discount rate is based on a
review of the current rate of long-term bonds
which have durations that are equivalent to our
obligations under the plan.                                                                                                                       |  | Our discount rate is sensitive to
changes in market based interest
rates. A decrease in the
discount rate will increase the
liability and decrease the funded
status of the plan.
| |  |                                                                                                                                                                                                                                                                                                                                                                                              |  |                                                                                                                                                                                  
| |  | The expected return on our plan assets represents
a long-term view of returns based on our current
asset mix. In developing our expected rate of
return assumption, we evaluated an analysis of
long-term expected and historical actual returns
on the plan assets from our investment managers
which gave consideration to our asset mix and
anticipated length of obligation of our plan. |  | If actual return on plan assets
varies from the expected returns,
the fair value of the plan assets
will differ from our projections.                                            
| |  |                                                                                                                                                                                                                                                                                                                                                                                              |  |                                                                                                                                                                                  

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|           |  |                                                                                                                                                                                                                                                                          |  |                                                                                                                                                                                                                                                                                                                                                   
|---------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Accounting |  | Accounting Policy and Process                                                                                                                                                                                                                                            |  | Residual Accounting and                                                                                                                                                                                                                                                                                                                           
|Area       |  | Use of Estimates                                                                                                                                                                                                                                                         |  | Business Risk                                                                                                                                                                                                                                                                                                                                     
|           |  |                                                                                                                                                                                                                                                                          |  |                                                                                                                                                                                                                                                                                                                                                   
|           |  | The average rate of compensation increase applies only to the portion
of the plan that is not frozen.
Less than 3% of the plan
participants continue to earn
benefits. This rate reflects our
expectations of average pay
increases over the period benefits
are earned. |  | Changes in our key assumptions could
cause changes in our assets,
liabilities and income or expense
recorded. For example, a decrease in
the discount rate would result in a greater benefits obligation and more
pension expense in future periods.
A lower expected return on assets
would also increase the amount of
pension expense recorded.
|           |  | We annually review our actual asset
allocation, discount rate, expected
rate of return and other actuarial
assumptions and adjust them as
deemed necessary.                                                                                                              |  |                                                                                                                                                                                                                                                                                                                                                   

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New Accounting Standards

For a description of the new accounting standards that affect us, see Note 1 to our consolidated
financial statements included herein.

Disclosure Regarding Forward Looking Statements

This Form 10-K includes forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934 (Forward
Looking Statements).All statements, other than statements of historical fact included in this report,
are Forward Looking Statements. Although we believe that the expectations reflected in such Forward
Looking Statements are reasonable, we can give no assurance that such expectations will prove to be
correct. Generally, these Forward Looking Statements include, among others, statements regarding:



| |  |  | our business plans or strategies, projected or anticipated benefits or other consequences of
such plans or strategies, including our market-specific acquisitions
and divestitures;                                      
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | our ability to obtain financing,
refinance existing debt, reduce interest cost, accelerate our
de-leveraging process, and to extend our larger debt materials in
2008 and 2009;                                          
|
| |  |  | the adequacy of our operating cash
flow and revolving credit facility to make payments on our indebtedness and fund other liquidity
needs;                                                                               
|
| |  |  | our expectation of the amounts we will spend on capital expenditures, closure,
post-closure and remediation expenditures related to landfill operations in 2004;                                                         
|
| |  |  | our ability to generate cash flows
from operations after funding capital expenditures at similar level
as what we generated over the last three years;                                                                   
|
| |  |  | our ability at the end of 2004 to
have 77% of our debt at fixed interest rates;                                                                                                                                          
|
| |  |  | our ability to increase revenue growth and internal growth by increasing volumes collected and
disposed and by increasing the rates for the services we provide;                                                         
|
| |  |  | our ability to pay cash dividends in the future;                                                                                                                                                                         
|
| |  |  | our expectation that we may become
an investment grade company in the future;                                                                                                                                            
|
| |  |  | our ability to achieve credit
ratios that would allow us to receive benefits of a crossover
investment grade company and/or investment grade-like cost of capital;                                                       
|
| |  |  | our estimates of future expenses, including amortization expense;                                                                                                                                                        
|
| |  |  | our ability to achieve cost
reductions in the future;                                                                                                                                                                    
|
| |  |  | our estimates of future annual
interest cost reductions;                                                                                                                                                                 
|
| |  |  | our ability to perform our
obligations under financial assurance contracts and our expectation
that financial assurance contracts will not materially increase;                                                          
|
| |  |  | underlying assumptions including internal growth as well as general economic and financial
market conditions;                                                                                                            
|
| |  |  | our expectation that our casualty, property or environmental claims or other contingencies will
not have a material effect on our operations;                                                                            
|
| |  |  | our estimate of federal and state income taxes and penalties required to be paid if we do not
prevail in our appeal of the IRS disallowance of capital losses
related to BFI; and                                       
|
| |  |  | our belief that the costs of settlements or judgments arising from litigation and the effects
of settlements or judgments on our consolidated liquidity, financial position or results of
operation will not be material.
|

All phases of our operations are subject to a number of uncertainties, risks and other influences, many
of which are outside of our control and any one of which, or a combination of which, could materially
affect the results of our operations. Important factors that could cause actual results to differ
materially from our expectations are discussed below. These risks and uncertainties include, without
limitation:



| | Our significant leverage may make it difficult for us to service our debt and operate our business.We have had and will likely continue to
have a substantial amount of outstanding indebtedness with significant debt service requirements. At December 31, 2003, our consolidated debt
was approximately $8.2 billion and our debt to total capitalization was 76.6%. The degree to which we are leveraged could have important
consequences. For example, it could:
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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| |  |  | 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 internal growth through working capital and 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 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.          

We and our subsidiaries may be able to incur substantial additional indebtedness in the future. As of December 31, 2003, our debt agreements
permit us to incur substantial additional indebtedness under various financial ratio tests. As of December 31, 2003, we had no cash draws
outstanding under our $1.5 billion revolving credit facility. As of such date, we had $636.6 million in letters of credit drawn on the
revolving credit facility that support financial assurance purposes, leaving $863.4 million of availability.

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 payments 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 2003 Credit
Facility will be adequate to meet our liquidity needs for the
foreseeable future.
We cannot assure you that our business will generate sufficient cash flow from operations, or that future borrowings will be available to us
under our 2003 Credit Facility in an amount sufficient to enable us to pay our indebtedness or to fund other liquidity needs.

We may be unable to refinance our indebtedness.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 2003 Credit Facility, on commercially reasonable terms or
at all. We may also need to refinance our senior notes, our senior subordinated notes and/or other indebtedness to pay the principal amounts
due at maturity. There can be no assurance that we will be able to obtain sufficient funds to enable us to repay or refinance our debt
obligations on commercially reasonable terms or at all.

Covenants in our credit facility, our indentures and the instruments governing our other indebtedness may limit our ability to operate our
business.Our 2003 Credit Facility, and certain of the agreements governing our other indebtedness contain covenants that restrict our ability
to make distributions or other payments to our investors and creditors unless we satisfy certain financial tests or other criteria. 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. 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 our credit facility and other debt agreements and the
debt, together with accrued interest, could then be declared immediately due and payable. If we default under our 2003 Credit Facility, the
lenders could cause all of our outstanding debt obligations under such credit facility to become due and payable, require us to apply all of
our cash to repay the indebtedness under such credit facility 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 2003 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 2003 Credit Facility
or agreements governing our other indebtedness could lead to an acceleration of debt under our other debt instruments that contain cross
acceleration or cross-default provisions. Our ability to comply with these provisions of our 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.

We compete with large companies and municipalities that may have greater financial and operational resources. We also compete with the use of
alternatives to landfill disposal in part because of state requirements to reduce landfill disposal and we cannot assure you that we will
continue to operate our landfills at currently estimated volumes.The non-hazardous waste collection and disposal industry is highly
competitive. We compete with large companies and municipalities which may have greater financial and operational resources. 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, because of state requirements
to reduce landfill disposal and we cannot ensure that our landfills will continue to operate at currently estimated volumes. Further, most of
the states or municipalities in which we operate landfills require counties and municipalities to formulate comprehensive plans to reduce the
volume of solid waste deposited in landfills through waste planning, composting and recycling or other programs. Some state and local
governments mandate waste reduction at the source and prohibit the disposal of certain types of wastes, such as yard wastes, at landfills.
These actions may reduce the volume of waste going to landfills in
certain areas. If this occurs, there can be no assurances that we will be able to
operate our landfills at their current estimated volumes or charge current prices for landfill disposal services due to the decrease in demand
for services.

If we are unable to execute our business strategy, our waste disposal expenses could increase significantly.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 of collected waste at
landfills operated by our competitors or haul the waste long distances at a higher cost to another of our landfills, either of which could
significantly increase our waste disposal expenses.

We may be unable to obtain
required permits or to expand existing permitted capacity.There can be no assurance 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 and other
political pressures. Our 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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The solid waste industry is a capital-intensive industry that may consume cash from our operations and borrowings.Our ability to remain
competitive, grow and expand operations largely depends on our cash flow from operations and access to capital. We spent approximately $567
million in combination for our capital expenditures and landfill capping, closure, and post and remediation expenditures during 2003, and we
expect to spend approximately $680 million for these purposes in 2004. If we undertake more acquisitions or further expand our operations, the
amount we expend on capital, capping, closure, and post-closure and
remediation expenditures will increase. Acquisitions may increase our
capital requirements because acquisitions may require sizable amounts of capital and competition with other solid waste companies that have a
similar acquisition strategy may increase costs. Increases in expenditures may result in low levels of working capital or require us to finance
working capital deficits. We intend to continue to fund our cash needs through cash flow from operations and borrowings under our 2003 Credit
Facility, if necessary. However, we may require additional equity and/or debt financing for debt repayment obligations, to fund our operations
and/or to growth our business.

Our cash needs will increase if the expenditures for closure and post-closure monitoring increase above the reserves recorded for these costs.
Expenditures for these costs may increase as a result of any federal, state or local government regulatory action, including changes in closing
or monitoring activities, types and quantities of materials used or the period of required post-closure monitoring. 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 may not be able to obtain necessary financial assurances.We are required to provide financial
assurances to governmental agencies under applicable environmental regulations relating to our landfill
operations and collection contracts. In addition, we are required to provide financial assurances for
our self insurance program. We satisfy the financial assurances requirements by providing performance
bonds, letters of credit, insurance policies or trust deposits. As of December 31, 2003, we have not
experienced difficulty in obtaining the financial assurances that we need and we do not have any
indications that we will not have continued availability of these types of instruments. However, we
cannot make any assurances that the level of financial assurance that we are required to provide will
be available in the future.

Changes in interest rates may effect our results of operations.At December 31, 2003, approximately 96% of our debt was fixed, 76% directly
and 20% through interest rate swap agreements. The amount of this swap contract portfolio was $2.0 billion. For certain interest rate swap
agreements, we record non-cash mark to market gains and losses based on changes in future yield curves to the statement of operations. Changes
in the yield curves could result in additional non-cash losses being recorded in the statement of operations.

U.S. economic conditions may have an adverse impact on our operating performance and results of operations.Our business is affected by general
economic conditions. Weakness in the U.S. economy has had a negative effect on our operating results, including decreases in revenues and
operating cash flows. Additionally, as is expected in a down-cycle economic environment, we have experienced the negative effects of increased
competitive pricing pressure and customer turnover. If economic conditions continue to deteriorate or fail to recover, we will continue to
experience pressure on 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 current economic conditions or worsening economic conditions or a
prolonged or recurring recession will not have a significant adverse impact on our operating results. Additionally, there can be no assurance
that an improvement in economic conditions will result in an immediate, if at all, positive improvement in our operating results.

We may be affected by adverse 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.

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Loss of key executives and failure to attract qualified management could limit our growth and negatively impact our operations.We depend
highly upon our senior management team. We will continue to depend on 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 have a material adverse
effect on our operations and financial condition.

We are subject to costly environmental regulations and environmental litigation.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 these regulatory requirements is costly. Government laws and regulations often require us 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 laws and regulations. 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 our permits and
licenses may be modified or revoked. 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 some 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 jurisdictions 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.

We may have potential environmental liabilities that are greater than our insurance coverage.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.

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We may have additional hazardous substances liability.We are a potentially responsible party at many sites under the CERCLA and analogous
state laws. CERCLA provides for the remediation of contaminated facilities and imposes 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 the facility. 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.

There may be 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, which may never
be consummated, resulting in a potential charge to earnings.

We are subject to examination by various federal and state taxing authorities.We are currently under examination by various federal and state
taxing authorities for certain tax years. Any material disagreement with a taxing authorities could result in large cash expenditures and
adversely affect our operating results and financial condition. A federal income tax audit for the calendar years 1998 through 2002 is
ongoing. A federal income tax audit for BFIs tax years ended September 30, 1996 through July 30, 1999, is completed with the exception of the
following matter. During 2002, the IRS proposed the disallowance of a capital loss included in BFIs July 30, 1999 tax return. If such
disallowance is upheld, we estimate it could have a potential total cash impact of up to $310 million plus accrued interest through December
31, 2003 of approximately $46 million ($28 million net of tax benefit). We also received a notification from the IRS proposing a penalty of
40% of the additional income tax resulting from the disallowance.

We believe that the resolution of this matter may entail efforts over several years. An unfavorable result of this matter could require future
potential cash expenditures that could have a material negative effect on our financial condition.

Fluctuations in commodity prices could affect our operating results.As part of our recycling services, we process recyclable materials such
as paper, cardboard, plastics, aluminum and other metals for sale to third parties, generally at current market prices. All of these materials
are subject to significant price fluctuations, which are driven by general market conditions. These price fluctuations may affect our future
operating income and cash flows.

We may be subject to work stoppages, which could increase our operating costs and disrupt our operations.As of December 31, 2003,
approximately 25% of our workforce was represented by various local labor unions. If our unionized workers were to engage in a strike, work
stoppage or other slowdown in the future, we could experience a significant disruption of our operations and an increase in our operating
costs, which could have a material adverse effect on us. In addition, if a greater percentage of our work force becomes unionized, our
business and financial results could be materially adversely affected.

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We are required to make accounting estimates and judgments in the ordinary course of business. The accounting estimates and judgments we must make in the ordinary
course of business affect the reported amounts of our assets and liabilities at the date of the financial statements and the reported amounts of our operating results
during the periods presented as described under Critical Accounting Judgments and Estimates above. Additionally, we are required to interpret the accounting rules
in existence as of the date of the financial statements when the accounting rules are not specific to a particular event or transaction. If the underlying estimates
are ultimately proved to be incorrect, or if auditors or regulators subsequently interpret our application of accounting rules differently, subsequent adjustments
could have a material adverse effect on our operating results for the period or periods in which the change is identified. Additionally, subsequent adjustments could
require us to restate our financial statements. Restating our
financial statements could result in a material change in our stock price.

The adoption of new accounting
standards or interpretations could adversely impact our results of
operations.  Our implementation of new accounting
rules and interpretations or compliance with changes in the existing
accounting rules could adversely affect our balance sheet or results
of operations, or cause unanticipated fluctuations in our results of
operations in future periods.

Inflation and Prevailing Economic Conditions

Our objective is to be able to implement price increases sufficient to offset most cost increases resulting from inflation. However, competitive factors
have and may continue to require us to absorb cost increases resulting from inflation. As a result, we have been unable to implement price increases
sufficient to offset cost increases resulting from inflation. 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 are unable to determine the future impact of a sustained economic
slowdown.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

We are subject to interest rate risk on our variable rate long-term debt. To reduce 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. During 2003, 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. In
addition, during 2003 we entered into interest rate swap contracts that convert fixed rate debt to variable
interest rates to effectively manage the percentage of our debt portfolio that is fixed rate terms. Under these
transactions, we are required to pay variable rates on notional amounts of principal to counter-parties. The
counter-parties, in turn, paid to us the fixed rates of interest on
the same notional amount of principal.
Increases or decreases in short-term market rates did not materially impact earnings and cash flow in 2003 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, 2003:

|              |         |          |  |                               |  |             |      |          |  |                    |  |  |       |       |  |             |      |  
|------------- | ------- | -------- |  | ----------------------------- |  | ----------- | ---- | -------- |  | ------------------ |  |  | ----- | ----- |  | ----------- | ---- | -
|              |         |          |  |                               |  |             |      |          |  |                    |  |  |       |       |  | Fair Market
|Notional      |         |          |  |                               |  |             |      |          |  |                    |  |  |       | Value
|Principal     |         |          |  | Interest                      |  | Underlying  |      | Interest |  | Asset/(Liability) 
|(in millions) |         | Maturity |  | Paid                          |  | Obligations |      | Received |  | (in millions)     
|              |         |          |  |                               |  |             |      |          |  |                   
|$             | 350.0   |          |  | November 2008 - November 2009 |  |             | 3.88 | %        |  | Senior Notes       |  |  | 6.50  | %     |  | $           | 0.9  |  
|              |         |          |  |                               |  |             |      |          |  |                    |  |  |       |       |  |             |      |  
|              |         |          |  |                               |  |             |      |          |  | Credit Agreement   |  |  |       |       |  |             |      |  
|$             | 1,650.0 |          |  | March 2004  March 2005       |  |             | 6.08 | %        |  | Term Loan Facility |  |  | Libor |       |  | ($          | 47.4 | )

At December 31, 2003, with 96% of our debt fixed either directly or through interest rate swap
agreements, we have $378 million of floating rate debt. If interest rates increased by 100
basis points, annualized interest expense would increase by $3.8 million ($2.3 million after
tax). This analysis does not reflect the effect that declining interest rates would have on
other items, such as new borrowings nor the favorable impact they would have on interest expense
and cash payments for interest. Accordingly, any changes in interest rates would have a
minimal impact on our net income. See Notes 5 and 6 to our Consolidated Financial Statements in
this Form 10-K for additional information regarding how we manage interest rate risk.

63



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##### 



Item 8. Financial Statements and Supplementary Data

Report of Independent Auditors.

Consolidated Balance Sheets as of December 31, 2003 and 2002.

Consolidated Statements of Operations for each of the Three Years in the Period
Ended December 31, 2003.

Consolidated Statements of Stockholders Equity for the Three Years Ended
December 31, 2003.

Consolidated
Statements of Cash Flows for each of the Three Years in the Period Ended December 31, 2003.

Notes to Consolidated Financial Statements.

64



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##### 



Report of Independent Auditors

To the Board of Directors and Shareholders of
Allied Waste Industries, Inc.:

In our opinion, the consolidated financial statements listed in the
accompanying index present fairly, in all material respects, the financial
position of Allied Waste Industries, Inc. and its subsidiaries at December 31,
2003 and 2002, and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 2003 in conformity
with accounting principles generally accepted in the United States of America.
In addition, in our opinion, the financial statement schedule included in Item
15 of Part IV of this Form 10-K presents fairly, in all material respects, the
information set forth therein when read in conjunction with the related
consolidated financial statements. These financial statements and financial
statement schedule are the responsibility of the Companys management; our
responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audits. We conducted our audits of
these statements in accordance with auditing standards generally accepted in
the United States of America, which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.

As discussed in Note 8 to the consolidated financial statements, the Company
changed its method of accounting for obligations associated with the retirement
of long-lived tangible assets and the associated asset retirement costs as of
January 1, 2003; as discussed in Note 3 to the consolidated financial
statements, the Company changed its method of accounting for goodwill and other
intangible assets as of January 1, 2002; and as discussed in Note 1 to the
consolidated financial statements, the Company changed its method of accounting
for derivative instruments and hedging activities as of January 1, 2001.

PRICEWATERHOUSECOOPERS LLP

Phoenix, Arizona
February 4, 2004

65



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##### 



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

|                                                                                                                                                                          |                                                                                                           |   |              |          |      |   |         |          | 
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------- | - | ------------ | -------- | ---- | - | ------- | -------- | 
|                                                                                                                                                                          |                                                                                                           |   | December 31,
|                                                                                                                                                                          |                                                                                                           |   |             
|                                                                                                                                                                          |                                                                                                           |   | 2003         |          | 2002
|                                                                                                                                                                          |                                                                                                           |   |              |          |     
|ASSETS                                                                                                                                                                    |                                                                                                           |   |              |          |      |   |         |         
|Current Assets                                                                                                                                                           |                                                                                                           |   |              |          |      |   |         |         
|Cash and cash equivalents                                                                                                                                                 |                                                                                                           | $ | 444.7        |          |      | $ | 179.4   |         
|Accounts receivable, net of allowance of $22.4 and $22.3                                                                                                                  |                                                                                                           |   | 651.3        |          |      |   | 652.1   |         
|Prepaid and other current assets                                                                                                                                          |                                                                                                           |   | 108.8        |          |      |   | 136.2   |         
|Deferred income taxes, net                                                                                                                                                |                                                                                                           |   | 80.8         |          |      |   | 104.4   |         
|                                                                                                                                                                          |                                                                                                           |   |              |          |      |   |         |         
|                                                                                                                                                                          | Total current assets                                                                                      |   |              | 1,285.6  |      |   |         | 1,072.1  | 
|Property and equipment, net                                                                                                                                               |                                                                                                           |   | 4,018.9      |          |      |   | 4,005.7 |         
|Goodwill                                                                                                                                                                  |                                                                                                           |   | 8,313.0      |          |      |   | 8,530.4 |         
|Other assets, net                                                                                                                                                         |                                                                                                           |   | 243.4        |          |      |   | 320.7   |         
|                                                                                                                                                                          |                                                                                                           |   |              |          |      |   |         |         
|                                                                                                                                                                          | Total assets                                                                                              |   | $            | 13,860.9 |      |   | $       | 13,928.9 | 
|                                                                                                                                                                          |                                                                                                           |   |              |          |      |   |         |         
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                                      |                                                                                                           |   |              |          |      |   |         |         
|Current Liabilities                                                                                                                                                      |                                                                                                           |   |              |          |      |   |         |         
|Current portion of long-term debt                                                                                                                                         |                                                                                                           | $ | 249.6        |          |      | $ | 163.5   |         
|Accounts payable                                                                                                                                                          |                                                                                                           |   | 477.5        |          |      |   | 414.0   |         
|Current portion of accrued capping, closure, post-closure and
environmental costs                                                                                         |                                                                                                           |   | 95.2         |          |      |   | 95.3    |         
|Accrued interest                                                                                                                                                          |                                                                                                           |   | 174.1        |          |      |   | 182.0   |         
|Other accrued liabilities                                                                                                                                                 |                                                                                                           |   | 352.6        |          |      |   | 379.3   |         
|Unearned revenue                                                                                                                                                          |                                                                                                           |   | 218.8        |          |      |   | 215.7   |         
|                                                                                                                                                                          |                                                                                                           |   |              |          |      |   |         |         
|                                                                                                                                                                          | Total current liabilities                                                                                 |   |              | 1,567.8  |      |   |         | 1,449.8  | 
|Long-term debt, less current portion                                                                                                                                      |                                                                                                           |   | 7,984.5      |          |      |   | 8,718.7 |         
|Deferred income taxes                                                                                                                                                     |                                                                                                           |   | 128.5        |          |      |   | 51.4    |         
|Accrued capping, closure, post-closure and environmental costs,
less current portion                                                                                      |                                                                                                           |   | 790.1        |          |      |   | 864.0   |         
|Other long-term obligations                                                                                                                                               |                                                                                                           |   | 872.3        |          |      |   | 909.0   |         
|Commitments and contingencies                                                                                                                                             |                                                                                                           |   |              |          |      |   |         |         
|Series A senior convertible preferred stock, 1.0 million shares
authorized, issued and outstanding, liquidation
preference of $1,247 per share                            |                                                                                                           |   |             |          |      |   | 1,246.9 |         
|Stockholders Equity                                                                                                                                                     |                                                                                                           |   |              |          |      |   |         |         
|Series C senior mandatory convertible preferred stock,
$0.10 par value, 6.9 million shares authorized, issued and
outstanding, liquidation preference of $50.00 per share |                                                                                                           |   | 333.1        |          |      |   |        |         
|Common stock; $0.01 par value; 525 million authorized shares;
320.1 million and 196.2 million shares issued and outstanding                                               |                                                                                                           |   | 3.2          |          |      |   | 2.0     |         
|Additional paid-in capital                                                                                                                                                |                                                                                                           |   | 2,318.5      |          |      |   | 989.6   |         
|Accumulated other comprehensive loss                                                                                                                                      |                                                                                                           |   | (94.5        | )        |      |   | (131.2  | )       
|Retained deficit                                                                                                                                                          |                                                                                                           |   | (42.6        | )        |      |   | (171.3  | )       
|                                                                                                                                                                          |                                                                                                           |   |              |          |      |   |         |         
|                                                                                                                                                                          | Total stockholders equity                                                                                |   |              | 2,517.7  |      |   |         | 689.1    | 
|                                                                                                                                                                          |                                                                                                           |   |              |          |      |   |         |         
|                                                                                                                                                                          | Total liabilities and stockholders equity                                                                |   | $            | 13,860.9 |      |   | $       | 13,928.9 | 
|                                                                                                                                                                          |                                                                                                           |   |              |          |      |   |         |         
|                                                                                                                                                                          | The accompanying Notes to Consolidated Financial Statements are an integral part of these balance
sheets.

66



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##### 



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

|                                                                                                                                                                                       |                                                                                                       |   |                          |         |      |   |         |         |  |   |         |         |  
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------- | - | ------------------------ | ------- | ---- | - | ------- | ------- |  | - | ------- | ------- | -
|                                                                                                                                                                                       |                                                                                                       |   | Years Ended December 31,
|                                                                                                                                                                                       |                                                                                                       |   |                         
|                                                                                                                                                                                       |                                                                                                       |   | 2003                     |         | 2002 |   | 2001   
|                                                                                                                                                                                       |                                                                                                       |   |                          |         |      |   |        
|Revenues                                                                                                                                                                               |                                                                                                       | $ | 5,247.7                  |         |      | $ | 5,190.8 |         |  | $ | 5,231.4 |        
|Cost of operations                                                                                                                                                                     |                                                                                                       |   | 3,190.1                  |         |      |   | 3,039.1 |         |  |   | 2,964.2 |        
|Selling, general and administrative expenses                                                                                                                                           |                                                                                                       |   | 476.9                    |         |      |   | 462.7   |         |  |   | 434.7   |        
|Depreciation and amortization                                                                                                                                                          |                                                                                                       |   | 546.0                    |         |      |   | 478.5   |         |  |   | 448.8   |        
|Goodwill amortization                                                                                                                                                                  |                                                                                                       |   |                         |         |      |   |        |         |  |   | 226.7   |        
|Non-cash (gain) loss on divestiture of assets                                                                                                                                          |                                                                                                       |   |                         |         |      |   | (9.3    | )       |  |   | 107.0   |        
|                                                                                                                                                                                       |                                                                                                       |   |                          |         |      |   |         |         |  |   |         |        
|                                                                                                                                                                                       | Operating income                                                                                      |   |                          | 1,034.7 |      |   |         | 1,219.8 |  |   |         | 1,050.0 |  
|Equity in earnings of unconsolidated affiliates                                                                                                                                        |                                                                                                       |   |                         |         |      |   |        |         |  |   | (14.1   | )      
|Interest expense and other                                                                                                                                                             |                                                                                                       |   | 832.9                    |         |      |   | 854.0   |         |  |   | 866.1   |        
|                                                                                                                                                                                       |                                                                                                       |   |                          |         |      |   |         |         |  |   |         |        
|                                                                                                                                                                                       | Income before income taxes                                                                            |   |                          | 201.8   |      |   |         | 365.8   |  |   |         | 198.0   |  
|Income tax expense                                                                                                                                                                     |                                                                                                       |   | 88.7                     |         |      |   | 165.6   |         |  |   | 162.4   |        
|Minority interest                                                                                                                                                                      |                                                                                                       |   | 1.9                      |         |      |   | 1.9     |         |  |   | 3.7     |        
|                                                                                                                                                                                       |                                                                                                       |   |                          |         |      |   |         |         |  |   |         |        
|                                                                                                                                                                                       | Income from continuing operations                                                                     |   |                          | 111.2   |      |   |         | 198.3   |  |   |         | 31.9    |  
|Income (loss) from discontinued operations, net of tax                                                                                                                                 |                                                                                                       |   | (11.5                    | )       |      |   | 16.8    |         |  |   | 26.6    |        
|Cumulative effect of change in accounting principle,
net of tax                                                                                                                        |                                                                                                       |   | 29.0                     |         |      |   |        |         |  |   |        |        
|                                                                                                                                                                                       |                                                                                                       |   |                          |         |      |   |         |         |  |   |         |        
|                                                                                                                                                                                       | Net income                                                                                            |   |                          | 128.7   |      |   |         | 215.1   |  |   |         | 58.5    |  
|Dividends on preferred stock                                                                                                                                                           |                                                                                                       |   | (95.6                    | )       |      |   | (77.9   | )       |  |   | (73.0   | )      
|Non-cash conversion of Series A Preferred Stock                                                                                                                                        |                                                                                                       |   | (496.6                   | )       |      |   |        |         |  |   |        |        
|                                                                                                                                                                                       |                                                                                                       |   |                          |         |      |   |         |         |  |   |         |        
|                                                                                                                                                                                       | Net income (loss) available to common shareholders                                                    |   | $                        | (463.5  | )    |   | $       | 137.2   |  |   | $       | (14.5   | )
|                                                                                                                                                                                       |                                                                                                       |   |                          |         |      |   |         |         |  |   |         |        
|Basic EPS:                                                                                                                                                                             |                                                                                                       |   |                          |         |      |   |         |         |  |   |         |        
|Continuing operations                                                                                                                                                                  |                                                                                                       | $ | (2.36                    | )       |      | $ | 0.63    |         |  | $ | (0.21   | )      
|Discontinued operations                                                                                                                                                                |                                                                                                       |   | (0.05                    | )       |      |   | 0.09    |         |  |   | 0.14    |        
|Cumulative effect of change in accounting principle                                                                                                                                    |                                                                                                       |   | 0.14                     |         |      |   |        |         |  |   |        |        
|                                                                                                                                                                                       |                                                                                                       |   |                          |         |      |   |         |         |  |   |         |        
|                                                                                                                                                                                       | Net income (loss) available to common shareholders                                                    |   | $                        | (2.27   | )    |   | $       | 0.72    |  |   | $       | (0.07   | )
|                                                                                                                                                                                       |                                                                                                       |   |                          |         |      |   |         |         |  |   |         |        
|Weighted average common shares                                                                                                                                                         |                                                                                                       |   | 203.8                    |         |      |   | 190.2   |         |  |   | 189.6   |        
|                                                                                                                                                                                       |                                                                                                       |   |                          |         |      |   |         |         |  |   |         |        
|Diluted EPS:                                                                                                                                                                           |                                                                                                       |   |                          |         |      |   |         |         |  |   |         |        
|Continuing operations                                                                                                                                                                  |                                                                                                       | $ | (2.36                    | )       |      | $ | 0.62    |         |  | $ | (0.21   | )      
|Discontinued operations                                                                                                                                                                |                                                                                                       |   | (0.05                    | )       |      |   | 0.09    |         |  |   | 0.14    |        
|Cumulative effect of change in accounting principle                                                                                                                                    |                                                                                                       |   | 0.14                     |         |      |   |        |         |  |   |        |        
|                                                                                                                                                                                       |                                                                                                       |   |                          |         |      |   |         |         |  |   |         |        
|                                                                                                                                                                                       | Net income (loss) available to common shareholders                                                    |   | $                        | (2.27   | )    |   | $       | 0.71    |  |   | $       | (0.07   | )
|                                                                                                                                                                                       |                                                                                                       |   |                          |         |      |   |         |         |  |   |         |        
|Weighted average common and common equivalent
shares                                                                                                                                   |                                                                                                       |   | 203.8                    |         |      |   | 193.5   |         |  |   | 189.6   |        
|                                                                                                                                                                                       |                                                                                                       |   |                          |         |      |   |         |         |  |   |         |        
|Pro forma amounts, assuming the change in accounting
principle is applied retroactively and excluding the cumulative
effect of change in accounting principle in the year of adoption: |                                                                                                       |   |                          |         |      |   |         |         |  |   |         |        
|                                                                                                                                                                                       | Net income (loss) available to common shareholders                                                    |   | $                        | (492.5  | )    |   | $       | 125.2   |  |   | $       | (26.3   | )
|                                                                                                                                                                                       |                                                                                                       |   |                          |         |      |   |         |         |  |   |         |        
|                                                                                                                                                                                       | Basic net income (loss) per share                                                                     |   | $                        | (2.42   | )    |   | $       | 0.66    |  |   | $       | (0.14   | )
|                                                                                                                                                                                       |                                                                                                       |   |                          |         |      |   |         |         |  |   |         |        
|                                                                                                                                                                                       | Diluted net income (loss) per share                                                                   |   | $                        | (2.42   | )    |   | $       | 0.65    |  |   | $       | (0.14   | )
|                                                                                                                                                                                       |                                                                                                       |   |                          |         |      |   |         |         |  |   |         |        
|                                                                                                                                                                                       | The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.

67



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##### 



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

|                                |                                                                   |                                                          |   |           |   |        |     |         |   |               |         |             |   |               |        |              |       |       |        |                |   |   |       |       |       |   |       |               |       |  
|------------------------------- | ----------------------------------------------------------------- | -------------------------------------------------------- | - | --------- | - | ------ | --- | ------- | - | ------------- | ------- | ----------- | - | ------------- | ------ | ------------ | ----- | ----- | ------ | -------------- | - | - | ----- | ----- | ----- | - | ----- | ------------- | ----- | -
|                                |                                                                   |                                                          |   |           |   |        |     |         |   |               |         |             |   |               |        |              |       |       |        |                |   |   |       |       |       |   |       | Comprehensive
|                                |                                                                   |                                                          |   |           |   |        |     |         |   |               |         |             |   |               |        |              |       |       |        |                |   |   |       |       |       |   |       | Income (Loss)
|                                |                                                                   |                                                          |   | Series C  |   |        |     |         |   | Additional    |         | Accumulated |   |               |        |              |       | Total |        | for the Twelve
|                                |                                                                   |                                                          |   | Preferred |   | Common |     | Paid-In |   | Comprehensive |         | Retained    |   | Stockholders |        | Months Ended
|                                |                                                                   |                                                          |   | Stock     |   | Stock  |     | Capital |   | Loss          |         | Deficit     |   | Equity        |        | December 31,
|                                |                                                                   |                                                          |   |           |   |        |     |         |   |               |         |             |   |               |        |             
|Balance as of
December 31, 2000 |                                                                   | $                                                        |  |           |   | $      | 2.0 |         |   | $             | 1,114.5 |             |   | $             |       |              |       | $     | (444.9 | )              |   | $ | 671.6 |       |       | $ | 124.4 |              
|                                |                                                                   |                                                          |   |           |   |        |     |         |   |               |         |             |   |               |        |              |       |       |        |                |   |   |       |       |       |   |       |              
|                                | Common stock
issued, net                                          |                                                          |   |          |   |        |     |        |   |               |         | 5.5         |   |               |        |             |       |       |        |               |   |   |       | 5.5   |       |   |       |               |      
|                                | Stock options, net                                                |                                                          |   |          |   |        |     |        |   |               |         | 8.3         |   |               |        |             |       |       |        |               |   |   |       | 8.3   |       |   |       |               |      
|                                | Dividends declared
on Series A senior
convertible
preferred stock |                                                          |   |          |   |        |     |        |   |               |         | (73.0       | ) |               |        |             |       |       |        |               |   |   |       | (73.0 | )     |   |      
|                                | Net income                                                        |                                                          |   |          |   |        |     |        |   |               |         |            |   |               |        |             |       |       |        | 58.5           |   |   |       | 58.5  |       |   | $     | 58.5          |      
|                                | Other
comprehensive
loss, net of tax:                             |                                                          |   |           |   |        |     |         |   |               |         |             |   |               |        |              |       |       |        |                |   |   |       |       |       |   |       |               |      
|                                |                                                                   | Cumulative effect
of change in
accounting
principle      |   |           |  |        |     |         |  |               |         |             |  |               |        |              | (45.2 | )     |        |                |  |   |       |       | (45.2 | ) |       |               | (45.2 | )
|                                |                                                                   | Net loss deferred
on hedging
derivatives                 |   |           |  |        |     |         |  |               |         |             |  |               |        |              | (89.2 | )     |        |                |  |   |       |       | (89.2 | ) |       |               | (89.2 | )
|                                |                                                                   | Net loss on
hedging
derivatives
reclassified to
earnings |   |           |  |        |     |         |  |               |         |             |  |               |        |              | 49.3  |       |        |                |  |   |       |       | 49.3  |   |       |               | 49.3  |  
|                                |                                                                   |                                                          |   |           |   |        |     |         |   |               |         |             |   |               |        |              |       |       |        |                |   |   |       |       |       |   |       |              
|Balance as of
December 31, 2001 |                                                                   | $                                                        |  |           |   | $      | 2.0 |         |   | $             | 1,055.3 |             |   | $             | (85.1  | )            |       | $     | (386.4 | )              |   | $ | 585.8 |       |       | $ | (26.6 | )            
|                                |                                                                   |                                                          |   |           |   |        |     |         |   |               |         |             |   |               |        |              |       |       |        |                |   |   |       |       |       |   |       |              
|                                | Common stock
issued, net                                          |                                                          |   |          |   |        |     |        |   |               |         | 6.6         |   |               |        |             |       |       |        |               |   |   |       | 6.6   |       |   |       |               |      
|                                | Stock options, net                                                |                                                          |   |          |   |        |     |        |   |               |         | 5.6         |   |               |        |             |       |       |        |               |   |   |       | 5.6   |       |   |       |               |      
|                                | Dividends declared
on Series A senior
convertible
preferred stock |                                                          |   |          |   |        |     |        |   |               |         | (77.9       | ) |               |        |             |       |       |        |               |   |   |       | (77.9 | )     |   |       |               |      
|                                | Net income                                                        |                                                          |   |          |   |        |     |        |   |               |         |            |   |               |        |             |       |       |        | 215.1          |   |   |       | 215.1 |       |   | $     | 215.1         |      
|                                | Other
comprehensive
income, net of
tax:                           |                                                          |   |           |   |        |     |         |   |               |         |             |   |               |        |              |       |       |        |                |   |   |       |       |       |   |       |               |      
|                                |                                                                   | Net gain deferred
on hedging
derivatives                 |   |           |  |        |     |         |  |               |         |             |  |               |        |              | 7.4   |       |        |                |  |   |       |       | 7.4   |   |       |               | 7.4   |  
|                                |                                                                   | Net loss on
hedging
derivatives
reclassified to
earnings |   |           |  |        |     |         |  |               |         |             |  |               |        |              | 21.3  |       |        |                |  |   |       |       | 21.3  |   |       |               | 21.3  |  
|                                |                                                                   | Minimum pension
liability
adjustment                     |   |           |  |        |     |         |  |               |         |             |  |               |        |              | (74.8 | )     |        |                |  |   |       |       | (74.8 | ) |       |               | (74.8 | )
|                                |                                                                   |                                                          |   |           |   |        |     |         |   |               |         |             |   |               |        |              |       |       |        |                |   |   |       |       |       |   |       |              
|Balance as of
December 31, 2002 |                                                                   | $                                                        |  |           |   | $      | 2.0 |         |   | $             | 989.6   |             |   | $             | (131.2 | )            |       | $     | (171.3 | )              |   | $ | 689.1 |       |       | $ | 169.0 |              
|                                |                                                                   |                                                          |   |           |   |        |     |         |   |               |         |             |   |               |        |              |       |       |        |                |   |   |       |       |       |   |       |              

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

68



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##### 



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

|                                |                                                                   |                                                          |       |           |   |        |     |         |   |               |         |             |   |               |       |              |      |       |       |            |   |   |         |         |      |   |       |                   |      | 
|------------------------------- | ----------------------------------------------------------------- | -------------------------------------------------------- | ----- | --------- | - | ------ | --- | ------- | - | ------------- | ------- | ----------- | - | ------------- | ----- | ------------ | ---- | ----- | ----- | ---------- | - | - | ------- | ------- | ---- | - | ----- | ----------------- | ---- | 
|                                |                                                                   |                                                          |       |           |   |        |     |         |   |               |         |             |   |               |       |              |      |       |       |            |   |   |         |         |      |   |       | Comprehensive    
|                                |                                                                   |                                                          |       |           |   |        |     |         |   |               |         |             |   |               |       |              |      |       |       |            |   |   |         |         |      |   |       | Income (Loss) for
|                                |                                                                   |                                                          |       | Series C  |   |        |     |         |   | Additional    |         | Accumulated |   |               |       |              |      | Total |       | the Twelve
|                                |                                                                   |                                                          |       | Preferred |   | Common |     | Paid-In |   | Comprehensive |         | Retained    |   | Stockholders |       | Months Ended
|                                |                                                                   |                                                          |       | Stock     |   | Stock  |     | Capital |   | Loss          |         | Deficit     |   | Equity        |       | December 31,
|                                |                                                                   |                                                          |       |           |   |        |     |         |   |               |         |             |   |               |       |             
|                                | Common stock
issued, net                                          |                                                          |       |          |   |        |     | 1.2     |   |               |         | 1,415.8     |   |               |       |             |      |       |       |           |   |   |         | 1,417.0 |      |   |       |                   |     
|                                | Stock options,
net                                                |                                                          |       |          |   |        |     |        |   |               |         | 8.7         |   |               |       |             |      |       |       |           |   |   |         | 8.7     |      |   |       |                   |     
|                                | Dividends
declared
on Series A
senior
convertible
preferred stock |                                                          |       |          |   |        |     |        |   |               |         | (80.0       | ) |               |       |             |      |       |       |           |   |   |         | (80.0   | )    |   |       |                   |     
|                                | Issuance of Series
C mandatory
convertible
preferred stock        |                                                          |       | 333.1     |   |        |     |        |   |               |         |            |   |               |       |             |      |       |       |           |   |   |         | 333.1   |      |   |       |                   |     
|                                | Dividends paid on
Series C
mandatory
convertible
preferred stock  |                                                          |       |          |   |        |     |        |   |               |         | (15.6       | ) |               |       |             |      |       |       |           |   |   |         | (15.6   | )    |   |       |                   |     
|                                | Net income                                                        |                                                          |       |          |   |        |     |        |   |               |         |            |   |               |       |             |      |       |       | 128.7      |   |   |         | 128.7   |      |   | $     | 128.7             |     
|                                | Other
comprehensive
income, net of
tax:                           |                                                          |       |           |   |        |     |         |   |               |         |             |   |               |       |              |      |       |       |            |   |   |         |         |      |   |       |                   |     
|                                |                                                                   | Net gain
deferred
on hedging
derivatives                 |       |           |  |        |     |         |  |               |         |             |  |               |       |              | 18.8 |       |       |            |  |   |         |         | 18.8 |   |       |                   | 18.8 | 
|                                |                                                                   | Net loss on
hedging
derivatives
reclassified to
earnings |       |           |  |        |     |         |  |               |         |             |  |               |       |              | 13.9 |       |       |            |  |   |         |         | 13.9 |   |       |                   | 13.9 | 
|                                |                                                                   | Minimum
pension
liability
adjustment                     |       |           |  |        |     |         |  |               |         |             |  |               |       |              | 4.0  |       |       |            |  |   |         |         | 4.0  |   |       |                   | 4.0  | 
|                                |                                                                   |                                                          |       |           |   |        |     |         |   |               |         |             |   |               |       |              |      |       |       |            |   |   |         |         |      |   |       |                   |     
|Balance as of
December 31,
2003 |                                                                   | $                                                        | 333.1 |           |   | $      | 3.2 |         |   | $             | 2,318.5 |             |   | $             | (94.5 | )            |      | $     | (42.6 | )          |   | $ | 2,517.7 |         |      | $ | 165.4 |                  
|                                |                                                                   |                                                          |       |           |   |        |     |         |   |               |         |             |   |               |       |              |      |       |       |            |   |   |         |         |      |   |       |                   |     

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

69



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##### 



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

|                                                                                                         |                                                                                                     |   |                          |          |      |   |        |          |   |   |        |          |  
|-------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------- | - | ------------------------ | -------- | ---- | - | ------ | -------- | - | - | ------ | -------- | -
|                                                                                                         |                                                                                                     |   | Years Ended December 31,
|                                                                                                         |                                                                                                     |   |                         
|                                                                                                         |                                                                                                     |   | 2003                     |          | 2002 |   | 2001  
|                                                                                                         |                                                                                                     |   |                          |          |      |   |       
|Operating activities                                                                                    |                                                                                                     |   |                          |          |      |   |        |          |   |   |        |         
|Net income                                                                                               |                                                                                                     | $ | 128.7                    |          |      | $ | 215.1  |          |   | $ | 58.5   |         
|Discontinued operations, net of tax                                                                      |                                                                                                     |   | 11.5                     |          |      |   | (16.8  | )        |   |   | (26.6  | )       
|Adjustments to reconcile net income to cash provided by operating
activities from continuing operations |                                                                                                     |   |                          |          |      |   |        |          |   |   |        |         
|Provisions for:                                                                                          |                                                                                                     |   |                          |          |      |   |        |          |   |   |        |         
|                                                                                                         | Depreciation and amortization                                                                       |   |                          | 546.0    |      |   |        | 478.5    |   |   |        | 675.5    |  
|                                                                                                         | Non-cash (gain) loss on divestiture of assets                                                       |   |                          |         |      |   |        | (9.3     | ) |   |        | 107.0    |  
|                                                                                                         | Undistributed earnings of equity investment in unconsolidated
affiliates                            |   |                          |         |      |   |        |         |   |   |        | (14.1    | )
|                                                                                                         | Doubtful accounts                                                                                   |   |                          | 23.6     |      |   |        | 17.0     |   |   |        | 22.5     |  
|                                                                                                         | Accretion of debt and amortization of debt issuance costs                                           |   |                          | 31.8     |      |   |        | 43.2     |   |   |        | 42.7     |  
|                                                                                                         | Deferred income tax                                                                                 |   |                          | 70.6     |      |   |        | 147.1    |   |   |        | 141.1    |  
|                                                                                                         | Gain on sale of fixed assets                                                                        |   |                          |         |      |   |        | (5.8     | ) |   |        | (13.5    | )
|                                                                                                         | Non-cash reduction in acquisition accruals                                                          |   |                          | (11.2    | )    |   |        | (10.7    | ) |   |        |         |  
|                                                                                                         | Non-cash gain on non-hedge accounting interest rate swap
contracts                                  |   |                          | (48.1    | )    |   |        | (2.4     | ) |   |        |         |  
|                                                                                                         | Amortization of accumulated other comprehensive loss for
de-designated interest rate swap contracts |   |                          | 23.1     |      |   |        | 35.4     |   |   |        |         |  
|                                                                                                         | Write-off of deferred debt issuance costs                                                           |   |                          | 61.0     |      |   |        | 13.8     |   |   |        | 23.4     |  
|                                                                                                         | Cumulative effect of change in accounting principle, net of tax                                     |   |                          | (29.0    | )    |   |        |         |   |   |        |         |  
|Change in operating assets and liabilities, excluding the effects
of purchase acquisitions              |                                                                                                     |   |                          |          |      |   |        |          |   |   |        |         
|                                                                                                         | Accounts receivable, prepaid expenses, and other assets                                             |   |                          | (24.3    | )    |   |        | 45.1     |   |   |        | (8.8     | )
|                                                                                                         | Accounts payable, accrued liabilities, unearned revenue,
stock option tax benefits and other        |   |                          | 31.0     |      |   |        | 60.6     |   |   |        | (131.5   | )
|                                                                                                         | Capping, closure and post-closure provision and accretion                                           |   |                          | 44.3     |      |   |        | 70.5     |   |   |        | 67.0     |  
|                                                                                                         | Capping, closure, post-closure and environmental
expenditures                                       |   |                          | (75.1    | )    |   |        | (104.7   | ) |   |        | (95.6    | )
|                                                                                                         |                                                                                                     |   |                          |          |      |   |        |          |   |   |        |         
|Cash provided by operating activities from continuing operations                                         |                                                                                                     |   | 783.9                    |          |      |   | 976.6  |          |   |   | 847.6  |         
|                                                                                                         |                                                                                                     |   |                          |          |      |   |        |          |   |   |        |         
|Investing activities                                                                                    |                                                                                                     |   |                          |          |      |   |        |          |   |   |        |         
|                                                                                                         | Cost of acquisitions, net of cash acquired                                                          |   |                          | (63.4    | )    |   |        | (51.4    | ) |   |        | (249.5   | )
|                                                                                                         | Proceeds from divestitures, net of cash divested                                                    |   |                          | 313.4    |      |   |        | 82.6     |   |   |        | 359.9    |  
|                                                                                                         | Accruals for acquisition price and severance costs                                                  |   |                          |         |      |   |        |         |   |   |        | (1.7     | )
|                                                                                                         | Proceeds from sale of fixed assets                                                                  |   |                          | 17.5     |      |   |        | 28.6     |   |   |        | 29.3     |  
|                                                                                                         | Capital expenditures, excluding acquisitions                                                        |   |                          | (491.8   | )    |   |        | (536.3   | ) |   |        | (497.9   | )
|                                                                                                         | Capitalized interest                                                                                |   |                          | (15.7    | )    |   |        | (20.6    | ) |   |        | (45.7    | )
|                                                                                                         | Change in deferred acquisition costs, notes receivable and
other                                    |   |                          | (8.4     | )    |   |        | (22.4    | ) |   |        | (26.7    | )
|                                                                                                         |                                                                                                     |   |                          |          |      |   |        |          |   |   |        |         
|Cash used for investing activities from continuing operations                                            |                                                                                                     |   | (248.4                   | )        |      |   | (519.5 | )        |   |   | (432.3 | )       
|                                                                                                         |                                                                                                     |   |                          |          |      |   |        |          |   |   |        |         
|Financing activities                                                                                    |                                                                                                     |   |                          |          |      |   |        |          |   |   |        |         
|                                                                                                         | Net proceeds from sale of Series C Preferred Stock                                                  |   |                          | 333.1    |      |   |        |         |   |   |        |         |  
|                                                                                                         | Proceeds from long-term debt, net of issuance costs                                                 |   |                          | 3,037.1  |      |   |        | 1,044.3  |   |   |        | 2,755.8  |  
|                                                                                                         | Repayments of long-term debt                                                                        |   |                          | (3,754.6 | )    |   |        | (1,447.5 | ) |   |        | (3,196.6 | )
|                                                                                                         | Payments of Series C Preferred Stock dividends                                                      |   |                          | (10.2    | )    |   |        |         |   |   |        |         |  
|                                                                                                         | Change in disbursement account                                                                      |   |                          | 10.5     |      |   |        | (87.1    | ) |   |        |         |  
|                                                                                                         | Net proceeds from sale of common stock, exercise of
stock options and other                         |   |                          | 98.4     |      |   |        | 2.8      |   |   |        | 6.4      |  
|                                                                                                         |                                                                                                     |   |                          |          |      |   |        |          |   |   |        |         
|Cash used for financing activities from continuing operations                                            |                                                                                                     |   | (285.7                   | )        |      |   | (487.5 | )        |   |   | (434.4 | )       
|                                                                                                         |                                                                                                     |   |                          |          |      |   |        |          |   |   |        |         
|Cash provided by discontinued operations                                                                 |                                                                                                     |   | 15.5                     |          |      |   | 52.2   |          |   |   | 57.5   |         
|                                                                                                         |                                                                                                     |   |                          |          |      |   |        |          |   |   |        |         
|Increase in cash and cash equivalents                                                                    |                                                                                                     |   | 265.3                    |          |      |   | 21.8   |          |   |   | 38.4   |         
|Cash and cash equivalents, beginning of year                                                             |                                                                                                     |   | 179.4                    |          |      |   | 157.6  |          |   |   | 119.2  |         
|                                                                                                         |                                                                                                     |   |                          |          |      |   |        |          |   |   |        |         
|Cash and cash equivalents, end of year                                                                   |                                                                                                     | $ | 444.7                    |          |      | $ | 179.4  |          |   | $ | 157.6  |         
|                                                                                                         |                                                                                                     |   |                          |          |      |   |        |          |   |   |        |         

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

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##### 



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 37 states geographically identified as the Central, Eastern, Southern
and Western areas of the United States.

Principles of consolidation and presentation 

The consolidated financial statements include the accounts of Allied
and its subsidiaries. All significant intercompany accounts and
transactions are eliminated in consolidation.

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

Discontinued operations 

During 2003, we determined that certain operations that were divested or held for sale as part of our divestiture
plan that was launched in early 2003 were discontinued operations. As of December 31, 2003, we have sold operations
in South Carolina, Georgia, Colorado, New Jersey, Virginia and Florida and have received net proceeds of $250.0 million which
was used to repay debt. In addition, at December 31, 2003, we held for sale certain operations in Florida for which
we expect net proceeds of $42.2 million to be used to repay debt. Prior period results of these operations have been
reclassified to discontinued operations.

The accompanying consolidated financial statements and notes reflect the results of operations,
financial position and cash flows of these operations as discontinued operations. Following is a
summary of the assets held for sale and discontinued operations on the consolidated balance sheet (in
millions):

|                            |                   |   |              |      |      |   |      |       | 
|--------------------------- | ----------------- | - | ------------ | ---- | ---- | - | ---- | ----- | 
|                            |                   |   | December 31,
|                            |                   |   |             
|                            |                   |   | 2003         |      | 2002
|                            |                   |   |              |      |     
|Accounts receivable, net    |                   | $ | 4.1          |      |      | $ | 35.5 |      
|Other current assets        |                   |   | 2.4          |      |      |   | 4.2  |      
|Property and equipment, net |                   |   | 9.2          |      |      |   | 75.7 |      
|Other long-term assets      |                   |   | 28.6         |      |      |   | 11.8 |      
|                            |                   |   |              |      |      |   |      |      
|                            | Total assets      |   | $            | 44.3 |      |   | $    | 127.2 | 
|                            |                   |   |              |      |      |   |      |      
|Current liabilities         |                   | $ | 3.8          |      |      | $ | 36.8 |      
|Other long-term liabilities |                   |   |             |      |      |   | 0.6  |      
|                            |                   |   |              |      |      |   |      |      
|                            | Total liabilities |   | $            | 3.8  |      |   | $    | 37.4  | 
|                            |                   |   |              |      |      |   |      |      

Amounts related to assets held for sale on the balance sheet are included in other current assets, other long-term assets, other accrued
liabilities and other long-term obligations. Excluded from the balances at December 31, 2003 are amounts related to the operations that
were sold prior to December 31, 2003.

71



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##### 



ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Results of operations for the discontinued operations were as follows (in millions):

|                                                                |  |                                 |       |      |  |      |       |  |  |   |       | 
|--------------------------------------------------------------- |  | ------------------------------- | ----- | ---- |  | ---- | ----- |  |  | - | ----- | 
|                                                                |  | For the Year Ended December 31,
|                                                                |  |                                
|                                                                |  | 2003                            |       | 2002 |  | 2001
|                                                                |  |                                 |       |      |  |     
|Revenues                                                        |  | $                               | 252.7 |      |  | $    | 326.5 |  |  | $ | 333.9 | 
|                                                                |  |                                 |       |      |  |      |       |  |  |   |       | 
|Income before tax                                               |  | $                               | 28.8  |      |  | $    | 28.0  |  |  | $ | 44.0  | 
|Loss on divestiture                                             |  |                                 | (28.8 | )    |  |      |      |  |  |   |      | 
|Income tax expense                                              |  |                                 | 11.7  |      |  |      | 11.2  |  |  |   | 17.4  | 
|Cumulative effect of change in
accounting principle, net of tax |  |                                 | 0.2   |      |  |      |      |  |  |   |      | 
|                                                                |  |                                 |       |      |  |      |       |  |  |   |       | 
|Discontinued operations, net of tax                             |  | $                               | (11.5 | )    |  | $    | 16.8  |  |  | $ | 26.6  | 
|                                                                |  |                                 |       |      |  |      |       |  |  |   |       | 

The assets divested or held for sale, including goodwill, were adjusted to the lower of carrying value or fair value. Fair value was based on the actual
or anticipated sales price. Included in the results for discontinued operations for the year ended December 31, 2003 is a loss of approximately $28.8
million ($29.0 million, net of tax) reflecting the adjustment to fair value for these operations. Included in the pre-tax loss was approximately $172.8
million of goodwill that was allocated to the divestitures, net of gains recorded for assets sold for which proceeds exceeded book value. A portion of
the goodwill allocated to the operations sold was non-deductible for tax purposes. In addition, certain of the operations divested or held for sale were
sold pursuant to a stock sale agreement. We had additional tax basis
in the stock of these operations, which previously could not be
recognized under SFAS No. 109,
Accounting for Income Taxes. The divestitures and expected utilization of the resulting
capital loss for tax purposes allowed us to record a tax benefit that partially offset the impact of the non-deductible goodwill.

In accordance with Emerging Issues Task Force (EITF) Issue No. 87-24, Allocation of Interest to Discontinued Operations, we allocate interest to
discontinued operations based on a ratio of net assets to be sold or sold to the sum of consolidated net assets plus consolidated debt. We do not
allocate interest on debt that is directly attributable to other operations outside of the discontinued operations. For the year ended December 31, 2003,
2002 and 2001, we allocated $4.9 million, $8.2 million and $9.5 million, respectively, of interest expense to discontinued operations.

Cash and cash equivalents 

We use a cash management system under which our book balance reflects a credit for our primary disbursement account.
This amount represents uncleared checks which have not been presented to our bank. Our funds are transferred as checks
are presented. At December 31, 2003 and 2002, the book credit balance of $70.5 million and $60.0 million, respectively,
in our primary disbursement account was reported in accounts payable. We consider 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. Concentrations of credit risk with respect to trade
receivables are limited due to the large number of customers comprising our customer base.

72



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##### 



ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Allowance for doubtful accounts 

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, payment
performance factors, historical trends and other information. In general, we
reserve 50% of those receivables outstanding 90 to 120 days and 100% of those
outstanding over 120 days. We also review outstanding balances on an account
specific basis and fully reserve the receivable prior to 120 days if information
becomes available indicating we will not receive payment. Our reserve is
evaluated and revised on a monthly basis. The allowance as of December 31, 2003
and 2002 for our continuing operations was approximately $22.4 million and $22.3
million, respectively.

Other assets 

The following table shows the balances included in other assets as of December 31 (in millions):

|                                                              |  |      |       |      |  |   |       | 
|------------------------------------------------------------- |  | ---- | ----- | ---- |  | - | ----- | 
|                                                              |  | 2003 |       | 2002
|                                                              |  |      |       |     
|Deferred financing costs                                      |  | $    | 103.5 |      |  | $ | 137.4 | 
|Landfill closure deposits                                     |  |      | 28.1  |      |  |   | 27.3  | 
|Deferred contract costs                                       |  |      | 4.4   |      |  |   | 6.6   | 
|Assets held for sale and discontinued operations (see Note 1) |  |      | 37.8  |      |  |   | 87.5  | 
|Other                                                         |  |      | 69.6  |      |  |   | 61.9  | 
|                                                              |  |      |       |      |  |   |       | 
|Total                                                         |  | $    | 243.4 |      |  | $ | 320.7 | 
|                                                              |  |      |       |      |  |   |       | 

Upon funding of debt offerings, financing costs are capitalized and amortized using the effective interest method over the term of the related
debt. Financing costs that are deferred represent transaction costs directly attributable to obtaining financings. In 2003 and 2002, we wrote
off $61.0 million, and $13.8 million, respectively, in deferred financing costs in connection with the repayment of debt before its maturity
date.

Deferred contract costs are certain direct and incremental costs related to long-term revenue producing contracts. Deferred contract costs are
recognized as operating expense over the period of benefit and are periodically reviewed for realization.

Other accrued liabilities 

At December 31, 2003 and 2002, respectively, other accrued liabilities include the current portion of non-recurring acquisition accruals of
approximately $18.1 million and $55.0 million, accrued payroll of $74.6 million and $64.6 million, accrued income taxes payable of approximately
$18.1 million and $23.3 million, accrued insurance of approximately $84.4 million and $77.7 million, and other miscellaneous current liabilities.

Accrued capping, closure and post-closure costs 

Accrued capping, closure and post-closure costs represent an estimate of the present value of the future obligation incurred associated with
capping, closure and post-closure monitoring of non-hazardous solid waste landfills we currently own and/or operate. Site specific capping,
closure and post-closure engineering cost estimates are prepared annually for landfills owned and/or operated by us for which we are responsible
for capping, closure and post-closure. The present value of estimated future costs are accrued on a per unit basis as landfill disposal capacity
is consumed. 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. Changes in estimates for closed landfill sites
and fully incurred capping projects are recognized when determined.

73



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##### 



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 receipt is 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, Environmental Remediation Liabilities.

Self-Insurance 

We maintain high deductibles for commercial general liability, automobile liability and workers compensation insurance
and are fully self-insured for employee group health claims. Deductible levels are between $1 million and $3 million.
The deductible portion of the general, automobile and workers compensation liability for unpaid claims and associated
expenses, including claims incurred but not reported, is determined using actuarial valuations provided by an independent
third party. We use a third party administrator to track and evaluate actual claims experience for consistency of data
used in the annual actuarial valuation. We estimate our liability for incurred but not reported employee health claims
based on our most recent experience with claims paid. Our self-insurance liabilities are recorded on an undiscounted
basis.

The following tables show the activity and balances related to accrued self-insurance for the year ended December 31, (in
millions):

|                                     |  |          |        |          |  |   |        |  
|------------------------------------ |  | -------- | ------ | -------- |  | - | ------ | -
|                                     |  | 2003 (1) |        | 2002 (1)
|                                     |  |          |        |         
|Balance at beginning of year         |  | $        | 146.2  |          |  | $ | 88.1   |  
|Expense incurred                     |  |          | 257.3  |          |  |   | 249.5  |  
|Claims paid for current year program |  |          | (176.0 | )        |  |   | (168.1 | )
|Claims paid for prior years program |  |          | (34.0  | )        |  |   | (23.3  | )
|                                     |  |          |        |          |  |   |        |  
|Balance at end of year               |  | $        | 193.5  |          |  | $ | 146.2  |  
|                                     |  |          |        |          |  |   |        |  



|(1) |  | Amounts exclude premium related balances, expenses and payments.
|--- |  | ----------------------------------------------------------------

Other long-term obligations 

At December 31, 2003 and 2002, respectively, other long-term obligations include the minority interest in consolidated
subsidiaries of $8.3 million and $4.6 million, the non-current portion of non-recurring acquisition accruals of $136.0
million and $145.9 million, derivative liabilities for interest rate swap contracts of $46.5 million and $125.7 million
(see Note 6), net pension liability of $15.1 million and $16.5 million (see Note 9), self-insurance obligation of $115.5
million and $73.1 million, accruals for contingencies of $462.5 million and $458.5 million and other obligations of $88.4
million and $84.7 million.

Contingent liabilities 

We determine whether to disclose and
accrue for contingent liabilities based on an assessment of
whether the risk of loss is remote, reasonably possible or probable
and can be reasonably estimated in accordance with
SFAS No. 5, Accounting for Contingencies. We provide
for expenses associated with contingent liabilities when such amounts
are probable and can be reasonably estimated. We are subject to
various legal proceedings, claims and regulator matters, the outcomes
of which are subject to significant uncertainty. We analyze our
litigation and regulatory matters based on available information to
assess the potential liability. Managements assessment is developed
in consultation with outside counsel and other advisors and is based
on an analysis of possible outcomes under various strategies.

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 and others.

74



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##### 



ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 fixed 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
No. 133, Accounting
for Derivatives Instruments and Hedging Activities
(SFAS 133), as amended by SFAS No. 138,
Accounting for Certain Derivative Instruments and Hedging Activities. See Note
6 on Derivative Instruments and Hedging Activities.

Non-recurring acquisition accruals 

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 expense in the period in which the acquisition is
completed. Any subsequent changes to these estimates are also charged to
expense in the same line item as the original charge was recorded. At December
31, 2003 and 2002, we had approximately $154.1 million and $200.9 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 Browning-Ferris Industries, Inc. (BFI). Expenditures against non-recurring acquisition accruals, including
severance costs in 2003 and 2002 were $41.5 million and $88.7 million,
respectively.

Non-cash (gain) loss on divestiture of assets 

In October 2002, we sold collection
operations for net proceeds of
approximately $77.5 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 $68.2
million at the time of the sale.
In connection with the sale we
recorded a non-cash gain of
approximately $9.3 million ($8.2
million loss, net of income tax
expense). Approximately $45
million of the carrying value of
the assets sold was goodwill of
which approximately 76% was
non-deductible for tax purposes.
Revenues and net operating income
of the sold operations represented
approximately 1% of our
consolidated revenue and net
operating income for the period
prior to the sale during 2002.

In February 2001, we sold assets of
non-integrated operations with a
carrying value of approximately
$160 million in the Northeast
region for approximately $53
million. In connection with this
sale, we recorded a non-cash loss
of approximately $107 million ($65
million, net of income tax
benefit).

The assets were held for use and
were not previously impaired based
on the criteria and analysis under
SFAS No. 144, Accounting for the
Impairment or Disposal of
Long-Lived Assets (SFAS 144).

75



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##### 



ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Interest expense and other

Interest expense and other includes interest paid to third parties for our debt obligations
(net of amounts capitalized), cash settlement on interest rate swap contracts, interest
income, accretion of debt and amortization of debt issuance costs, costs incurred to early
extinguish debt, non-cash gain or loss on non-hedge accounting interest rate swap contracts
and the amortization of accumulated other comprehensive loss for de-designated interest rate
swap contracts.

Interest expense capitalized

We capitalize interest in connection with the construction of our landfill assets. Actual acquisition permitting and construction costs incurred related to landfill assets under active
development qualify for interest capitalization. Interest capitalization ceases when the construction of a landfill asset is complete and available for use.

During the years ended December 31, 2003, 2002 and 2001, we incurred gross interest expense
(including payments under interest rate swap contracts) of $742.0 million, $794.6 million and
$856.7 million of which $15.7 million, $20.6 million and $45.7 million was capitalized.

Statements of cash flows

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

|                           |                                                 |  |      |       |      |  |      |       |   |  |   |       |    
|-------------------------- | ----------------------------------------------- |  | ---- | ----- | ---- |  | ---- | ----- | - |  | - | ----- | ---
|                           |                                                 |  | 2003 |       | 2002 |  | 2001
|                           |                                                 |  |      |       |      |  |     
|Supplemental Disclosures - |                                                 |  |      |       |      |  |      |       |   |  |   |      
|                           | Interest paid (net of amounts capitalized)      |  | $    | 726.8 |      |  | $    | 780.5 |   |  | $ | 774.9 | (1)
|                           | Income taxes paid, net of (refunds)             |  |      | 40.0  |      |  |      | (7.4  | ) |  |   | 55.9  |    
|Non-Cash Transactions -    |                                                 |  |      |       |      |  |      |       |   |  |   |      
|                           | Debt incurred or assumed in acquisitions        |  | $    | 3.0   |      |  | $    |      |   |  | $ | 2.1   |    
|                           | Liabilities incurred or assumed in acquisitions |  |      | 13.9  |      |  |      | 6.0   |   |  |   | 176.6 |    
|                           | Capital lease obligations incurred              |  |      | 7.2   |      |  |      | 6.7   |   |  |   |      |    
|                           | Dividends on preferred stock                    |  |      | 80.0  |      |  |      | 77.9  |   |  |   | 73.0  |    
|                           | Conversion of Series A Preferred Stock          |  |      | 496.6 |      |  |      |      |   |  |   |      |    



|(1) |  | Cash interest includes the receipt of $27.2 million related to the unwind of a fair value interest rate swap.
|--- |  | -------------------------------------------------------------------------------------------------------------

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.
Although we believe that our estimates and assumptions are reasonable, they are based upon information presently available. Actual results may differ significantly from the estimates.

76



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##### 



ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 No. 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, 2003 using available market information and valuation
methodologies. Considerable judgment is required in interpreting market data to develop the estimates of fair value. Accordingly, our estimates of fair value
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).

Business combinations 

All acquisitions in 2003, 2002, and 2001 were accounted for under the purchase method and are
reflected in our results of operations since the effective date of the acquisition. Under 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, 2003:

|                                  |  |      |      |      |  |      |      |  |  |   |       | 
|--------------------------------- |  | ---- | ---- | ---- |  | ---- | ---- |  |  | - | ----- | 
|                                  |  | 2003 |      | 2002 |  | 2001
|                                  |  |      |      |      |  |     
|Number of businesses acquired     |  |      | 17   |      |  |      | 13   |  |  |   | 53    | 
|Total consideration (in millions) |  | $    | 60.5 |      |  | $    | 55.4 |  |  | $ | 264.4 | 

The pro forma effect of these acquisitions were not material.

Stock-based compensation plans

We account for our stock-based
compensation plans under Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees(APB 25) and the related interpretations, for which no compensation cost is recorded in 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 No.
123, Accounting for Stock-Based Compensation(SFAS 123), as amended by SFAS No. 148, Accounting for Stock-Based Compensation 
Transition and Disclosure, 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.

77



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##### 



ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

If we applied the recognition provisions of SFAS 123 using the Black-Scholes option-pricing model, the resulting pro forma net income (loss) available to
common shareholders, and pro forma net income (loss) available to common shareholders per share is as follows (in millions, except per share data):

|                                                                                                     |  |   |                                  |       |      |   |       |      |  |   |       |       |  
|---------------------------------------------------------------------------------------------------- |  | - | -------------------------------- | ----- | ---- | - | ----- | ---- |  | - | ----- | ----- | -
|                                                                                                     |  |   | For the Years Ended December 31,
|                                                                                                     |  |   |                                 
|                                                                                                     |  |   | 2003                             |       | 2002 |   | 2001 
|                                                                                                     |  |   |                                  |       |      |   |      
|Net income (loss) available to common
shareholders, as reported                                      |  | $ | (463.5                           | )     |      | $ | 137.2 |      |  | $ | (14.5 | )    
|Total stock-based
employee compensation
expense determined under
fair value based method, net of tax |  |   | (9.5                             | )     |      |   | (13.6 | )    |  |   | (16.1 | )    
|                                                                                                     |  |   |                                  |       |      |   |       |      |  |   |       |      
|Net income (loss) available to common
shareholders, pro forma                                        |  | $ | (473.0                           | )     |      | $ | 123.6 |      |  | $ | (30.6 | )    
|                                                                                                     |  |   |                                  |       |      |   |       |      |  |   |       |      
|Basic earnings (loss) per share:  As
reported                                                        |  | $ | (2.27                            | )     |      | $ | 0.72  |      |  | $ | (0.07 | )    
|Pro forma                                                                                            |  |   |                                  | (2.32 | )    |   |       | 0.65 |  |   |       | (0.16 | )
|                                                                                                    
|Diluted earnings (loss) per share: As
reported                                                       |  | $ | (2.27                            | )     |      | $ | 0.71  |      |  | $ | (0.07 | )    
|Pro forma                                                                                            |  |   |                                  | (2.32 | )    |   |       | 0.64 |  |   |       | (0.16 | )

During the last three years, we have recorded no compensation expense for stock options granted to employees.

Additionally, see Note 12 for other disclosures with respect to stock compensation.

In accordance with the SFAS 123, 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,
|                        |  |                                 
|                        |  | 2003                             |     | 2002    |  | 2001   
|                        |  |                                  |     |         |  |        
|Risk free interest rate |  |                                  | 2.7 | %       |  |         | 2.6 | % |  |  | 5.0 | %
|Expected life           |  | 4 years                          |     | 4 years |  | 5 years
|Dividend rate           |  |                                  | 0   | %       |  |         | 0   | % |  |  | 0   | %
|Expected volatility     |  |                                  | 62  | %       |  |         | 66  | % |  |  | 60  | %

78



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##### 



ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Recently adopted accounting pronouncements 

The Financial Accounting Standards Board (FASB) issued SFAS No. 143,
Accounting for Asset Retirement Obligations(SFAS 143) in June 2001,
which outlines standards for accounting for obligations associated
with the retirement of long-lived tangible assets. The standard was
effective January 1, 2003 and impacts the accounting for landfill
retirement obligations, which we have historically referred to as
closure and post-closure. The adoption of the standard had no impact
on our cash requirements. See Note 8 for additional discussion.

In April 2002, the FASB issued SFAS No. 145, Rescission of FASB Statements 4, 44
and 64, amendment of FASB Statement 13, and Technical Corrections(SFAS 145), which
among other things, restricts the classification of gains and losses from
extinguishment of debt as extraordinary, therefore, certain debt extinguishment
gains and losses will no longer be classified as extraordinary. We adopted SFAS 145
effective January 1, 2003. As a result of the adoption of SFAS 145, gains and
losses on future debt extinguishments, if any, will generally be recorded in
interest expense and other. Extraordinary losses of $10.1 million and $17.0
million as previously reported, net of tax for the years ended December 31, 2002
and 2001, respectively, were reclassified on a pre-tax basis to interest expense
and other to conform to the requirements under SFAS 145. During 2003, we recorded
approximately $108.1 million, pretax to interest expense and other for the
write-off of deferred debt issuance cost and premiums paid in connection with the
completion of our financing plan and the open market repurchases of senior
subordinated notes. These amounts would have been recorded as extraordinary loss
prior to the adoption of SFAS 145.

In July 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with
Exit or Disposal Activities(SFAS 146), which prescribes the financial accounting
and reporting for costs associated with exit or disposal activities such as:
contract terminations, consolidation of facilities and termination benefits to
involuntarily terminated employees. SFAS 146 excludes from its scope exit and
disposal activities that are in connection with a business combination and those
activities to which SFAS 143 and 144, are applicable. Under SFAS 146, certain costs
associated with exit and disposal activities are to be recognized as liabilities at
the time they meet the definition of a liability (as defined in FASB Concepts
Statement 6) as opposed to at the time to which a plan is committed. SFAS 146 is
effective for exit and disposal activities that are initiated after December 31,
2002. We adopted SFAS 146 on January 1, 2003. At the time of adoption, SFAS 146
had no impact on our consolidated financial statements.

In November 2002, the FASB issued FASB Interpretation No. 45, Guarantors Accounting and
Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of
Others(FIN 45). FIN 45 expands on the accounting guidance of Statements 5, 57, and 107 and
incorporates without change the provisions of FASB Interpretation 34, which is being
superceded. FIN 45 elaborates on the existing disclosure requirements for most guarantees,
including loan guarantees such as standby letters of credit. It also clarifies that at the
time a company issues a guarantee, the company must recognize an initial liability for the
fair value, or market value, of the obligations it assumes under that guarantee and must
disclose that information in its interim and annual financial statements. We adopted the
disclosure requirements of FIN 45 as of December 31, 2002. Effective January 1, 2003, we
adopted the recognition requirements of FIN 45 for any guarantees entered in or modified
subsequent to January 1, 2003. At the time of adoption, FIN 45 had no impact on our
consolidated financial statements.

79



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##### 



ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In January 2003, the FASB issued FASB Interpretation No. 46, Consolidation of
Variable Interest Entities(FIN 46), which requires unconsolidated variable
interest entities to be consolidated by their primary beneficiaries. In
October 2003, the FASB issued FASB Staff Position (FSP) 46-6, Effective Date of
FASB Interpretation No. 46, Consolidation of Variable Interest Entities (VIE)
which delays the effective date of FIN 46 to December 15, 2003 for certain
VIEs. FIN 46 did not have a material impact on our consolidated financial
statements.

In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial
Instruments with Characteristics of Both Liabilities and Equity (SFAS 150).
SFAS 150 establishes standards for classifying and measuring certain
financial instruments with characteristics of both liabilities and equity.
SFAS 150 is effective for financial instruments entered into or modified after
May 31, 2003, and otherwise is effective at the beginning of the first interim
period beginning after June 15, 2003. In November 2003, the FASB issued a FSP
delaying the effective date for certain instruments and entities. SFAS 150 had
no impact on our consolidated financial statements.

In December 2003, the FASB issued SFAS
No. 132R, Employers
Disclosures about Pensions and Other Postretirement Benefits -
An Amendment of FASB Statements No. 87, 88, and 106 (SFAS
132R), which revised employers disclosures about pension
plans and other postretirement benefit plans. SFAS 132R did
not change the measurement or recognition of pension and other
postretirement benefit plans. SFAS 132R requires additional
disclosures about assets, obligations, cash flows, and net
periodic benefit cost of defined benefit pension plans and
other postretirement benefit plans. SFAS 132R is effective
for financial statements issued after December 15, 2003. The
additional disclosures required by SFAS 132R have been
provided in Note 9.



|2. |  | 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 (3-15
years), containers and compactors (5-10
years) and furniture and office equipment
(3-8 years). We do not assume a residual
value on our depreciable assets. In
accordance with SFAS 144, 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 EITF
Issue No. 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.

80



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##### 



ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 example, under certain circumstances, the replacement of vehicle transmissions or engine
rebuilds are capitalized whereas repairs to vehicle brakes are expensed. For the years ended December 31, 2003, 2002 and 2001, maintenance and repair
expenses charged to cost of operations were $409.3 million, $396.6 million and $386.7 million, respectively. When property is retired or sold, the
related cost and accumulated depreciation are removed from the accounts and any resulting gain or loss is recognized in cost of operations. For the
years ended December 31, 2003, 2002 and 2001, we recognized net pre-tax gains on the disposal of fixed assets of $234,000, $5.8 million and $13.5
million, respectively.

The following tables show the activity and balances related to property and equipment from December 31, 2001 through December 31, 2003 (in millions):

|                                      |  |                        |         |           |  |             |       |              |  |           |        |               |  |           |       |            |  |   |       |   |  |   |         | 
|------------------------------------- |  | ---------------------- | ------- | --------- |  | ----------- | ----- | ------------ |  | --------- | ------ | ------------- |  | --------- | ----- | ---------- |  | - | ----- | - |  | - | ------- | 
|                                      |  | Property and Equipment
|                                      |  |                       
|                                      |  | Balance at             |         |           |  |             |       |              |  |           |        | Acquisitions, |  | Transfers |       | Balance at
|                                      |  | Dec. 31,               |         | Capital   |  | Sales and   |       | Net of       |  | and       |        | Dec. 31,     
|                                      |  | 2002                   |         | Additions |  | Retirements |       | Divestitures |  | Other
(1) |        | 2003         
|                                      |  |                        |         |           |  |             |       |              |  |           |        |              
|Land and
improvements                 |  | $                      | 427.1   |           |  | $           | 9.8   |              |  | $         | (4.0   | )             |  | $         | (1.3  | )          |  | $ | (7.3  | ) |  | $ | 424.3   | 
|Land held for permitting
as landfills |  |                        | 114.4   |           |  |             | 12.1  |              |  |           |       |               |  |           | 0.4   |            |  |   | (25.2 | ) |  |   | 101.7   | 
|Landfills                             |  |                        | 2,531.3 |           |  |             | 207.0 |              |  |           |       |               |  |           | 41.2  |            |  |   | 524.9 |   |  |   | 3,304.4 | 
|Buildings and
improvements            |  |                        | 441.3   |           |  |             | 28.1  |              |  |           | (5.6   | )             |  |           | (3.4  | )          |  |   | 5.9   |   |  |   | 466.3   | 
|Vehicles and
equipment                |  |                        | 1,669.8 |           |  |             | 177.7 |              |  |           | (82.0  | )             |  |           | (19.3 | )          |  |   | 1.2   |   |  |   | 1,747.4 | 
|Containers and
compactors             |  |                        | 751.9   |           |  |             | 53.5  |              |  |           | (9.6   | )             |  |           | (9.8  | )          |  |   | 1.7   |   |  |   | 787.7   | 
|Furniture and office
equipment        |  |                        | 43.2    |           |  |             | 3.6   |              |  |           | (2.6   | )             |  |           | (0.3  | )          |  |   |      |   |  |   | 43.9    | 
|                                      |  |                        |         |           |  |             |       |              |  |           |        |               |  |           |       |            |  |   |       |   |  |   |         | 
|Total                                 |  | $                      | 5,979.0 |           |  | $           | 491.8 |              |  | $         | (103.8 | )             |  | $         | 7.5   |            |  | $ | 501.2 |   |  | $ | 6,875.7 | 
|                                      |  |                        |         |           |  |             |       |              |  |           |        |               |  |           |       |            |  |   |       |   |  |   |         | 

|                               |  |                                           |          |              |  |              |        |              |  |               |       |           |  |            |      |  |  |   |        |   |  |   |          |  
|------------------------------ |  | ----------------------------------------- | -------- | ------------ |  | ------------ | ------ | ------------ |  | ------------- | ----- | --------- |  | ---------- | ---- |  |  | - | ------ | - |  | - | -------- | -
|                               |  | Accumulated Depreciation and Amortization
|                               |  |                                          
|                               |  |                                           |          |              |  | Depreciation |        |              |  |               |       |           |  |            |      |  |  |   |        |   |  |  
|                               |  | Balance at                                |          | and          |  |              |        |              |  | Acquisitions, |       | Transfers |  | Balance at
|                               |  | Dec. 31,                                  |          | Amortization |  | Sales and    |        | Net of       |  | and           |       | Dec. 31, 
|                               |  | 2002                                      |          | Expense      |  | Retirements  |        | Divestitures |  | Other
(1)     |       | 2003     
|                               |  |                                           |          |              |  |              |        |              |  |               |       |          
|Land and
improvements          |  | $                                         | (17.2    | )            |  | $            | (4.6   | )            |  | $             | 0.5   |           |  | $          | 0.1  |  |  | $ | (0.2   | ) |  | $ | (21.4    | )
|Landfills                      |  |                                           | (657.8   | )            |  |              | (243.4 | )            |  |               |      |           |  |            |     |  |  |   | (436.7 | ) |  |   | (1,337.9 | )
|Buildings and
improvements     |  |                                           | (87.5    | )            |  |              | (21.5  | )            |  |               | 2.0   |           |  |            | 1.0  |  |  |   | 0.4    |   |  |   | (105.6   | )
|Vehicles and
equipment         |  |                                           | (803.0   | )            |  |              | (188.8 | )            |  |               | 72.7  |           |  |            | 10.2 |  |  |   | (2.0   | ) |  |   | (910.9   | )
|Containers and
compactors      |  |                                           | (381.1   | )            |  |              | (85.1  | )            |  |               | 8.7   |           |  |            | 7.0  |  |  |   | (0.8   | ) |  |   | (451.3   | )
|Furniture and office
equipment |  |                                           | (26.7    | )            |  |              | (5.6   | )            |  |               | 2.4   |           |  |            | 0.2  |  |  |   |       |   |  |   | (29.7    | )
|                               |  |                                           |          |              |  |              |        |              |  |               |       |           |  |            |      |  |  |   |        |   |  |   |          |  
|Total                          |  | $                                         | (1,973.3 | )            |  | $            | (549.0 | )            |  | $             | 86.3  |           |  | $          | 18.5 |  |  | $ | (439.3 | ) |  | $ | (2,856.8 | )
|                               |  |                                           |          |              |  |              |        |              |  |               |       |           |  |            |      |  |  |   |        |   |  |   |          |  
|Property and
equipment, net    |  | $                                         | 4,005.7  |              |  | $            | (57.2  | )            |  | $             | (17.5 | )         |  | $          | 26.0 |  |  | $ | 61.9   |   |  | $ | 4,018.9  |  
|                               |  |                                           |          |              |  |              |        |              |  |               |       |           |  |            |      |  |  |   |        |   |  |   |          |  



|(1) |  | Relates primarily to (i) the impact of adoption of SFAS 143 recorded as a cumulative effect of change in accounting principle which was an increase to the gross landfill asset and
accumulated amortization for landfills of $409.5 million and $434.6 million, respectively, (ii) increases in our landfill retirement obligation asset for additional capping, closure and
post-closure costs (see Note 8) and (iii) purchase accounting adjustments during the allocation period.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

81



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##### 



ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

|                                      |  |                        |         |           |  |             |       |              |  |           |       |               |  |           |       |            |  |   |       |   |  |   |         | 
|------------------------------------- |  | ---------------------- | ------- | --------- |  | ----------- | ----- | ------------ |  | --------- | ----- | ------------- |  | --------- | ----- | ---------- |  | - | ----- | - |  | - | ------- | 
|                                      |  | Property and Equipment
|                                      |  |                       
|                                      |  | Balance at             |         |           |  |             |       |              |  |           |       | Acquisitions, |  | Transfers |       | Balance at
|                                      |  | Dec. 31,               |         | Capital   |  | Sales and   |       | Net of       |  | and       |       | Dec. 31,     
|                                      |  | 2001                   |         | Additions |  | Retirements |       | Divestitures |  | Other
(1) |       | 2002         
|                                      |  |                        |         |           |  |             |       |              |  |           |       |              
|Land and
improvements                 |  | $                      | 416.2   |           |  | $           | 12.8  |              |  | $         | (6.0  | )             |  | $         | 0.5   |            |  | $ | 3.6   |   |  | $ | 427.1   | 
|Land held for
permitting as
landfills |  |                        | 131.4   |           |  |             | 8.8   |              |  |           | (0.2  | )             |  |           |      |            |  |   | (25.6 | ) |  |   | 114.4   | 
|Landfills                             |  |                        | 2,267.3 |           |  |             | 198.2 |              |  |           |      |               |  |           | 16.1  |            |  |   | 49.7  |   |  |   | 2,531.3 | 
|Buildings and
improvements            |  |                        | 429.8   |           |  |             | 22.9  |              |  |           | (10.4 | )             |  |           | (0.9  | )          |  |   | (0.1  | ) |  |   | 441.3   | 
|Vehicles and
equipment                |  |                        | 1,499.9 |           |  |             | 225.5 |              |  |           | (47.2 | )             |  |           | (13.5 | )          |  |   | 5.1   |   |  |   | 1,669.8 | 
|Containers and
compactors             |  |                        | 701.3   |           |  |             | 64.1  |              |  |           | (7.1  | )             |  |           | (6.9  | )          |  |   | 0.5   |   |  |   | 751.9   | 
|Furniture and office
equipment        |  |                        | 41.2    |           |  |             | 4.0   |              |  |           | (2.6  | )             |  |           | (0.1  | )          |  |   | 0.7   |   |  |   | 43.2    | 
|                                      |  |                        |         |           |  |             |       |              |  |           |       |               |  |           |       |            |  |   |       |   |  |   |         | 
|Total                                 |  | $                      | 5,487.1 |           |  | $           | 536.3 |              |  | $         | (73.5 | )             |  | $         | (4.8  | )          |  | $ | 33.9  |   |  | $ | 5,979.0 | 
|                                      |  |                        |         |           |  |             |       |              |  |           |       |               |  |           |       |            |  |   |       |   |  |   |         | 

|                               |  |                                           |          |              |  |              |        |              |  |               |       |           |  |            |      |  |  |   |      |   |  |   |          |  
|------------------------------ |  | ----------------------------------------- | -------- | ------------ |  | ------------ | ------ | ------------ |  | ------------- | ----- | --------- |  | ---------- | ---- |  |  | - | ---- | - |  | - | -------- | -
|                               |  | Accumulated Depreciation and Amortization
|                               |  |                                          
|                               |  |                                           |          |              |  | Depreciation |        |              |  |               |       |           |  |            |      |  |  |   |      |   |  |  
|                               |  | Balance at                                |          | and          |  |              |        |              |  | Acquisitions, |       | Transfers |  | Balance at
|                               |  | Dec. 31,                                  |          | Amortization |  | Sales and    |        | Net of       |  | and           |       | Dec. 31, 
|                               |  | 2001                                      |          | Expense      |  | Retirements  |        | Divestitures |  | Other
(1)     |       | 2002     
|                               |  |                                           |          |              |  |              |        |              |  |               |       |          
|Land and
improvements          |  | $                                         | (13.3    | )            |  | $            | (4.3   | )            |  | $             | 0.4   |           |  | $          | 0.1  |  |  | $ | (0.1 | ) |  | $ | (17.2    | )
|Landfills                      |  |                                           | (493.9   | )            |  |              | (163.4 | )            |  |               |      |           |  |            |     |  |  |   | (0.5 | ) |  |   | (657.8   | )
|Buildings and
improvements     |  |                                           | (68.8    | )            |  |              | (20.9  | )            |  |               | 2.8   |           |  |            | 0.4  |  |  |   | (1.0 | ) |  |   | (87.5    | )
|Vehicles and
equipment         |  |                                           | (656.2   | )            |  |              | (194.5 | )            |  |               | 37.0  |           |  |            | 10.7 |  |  |   |     |   |  |   | (803.0   | )
|Containers and
compactors      |  |                                           | (304.0   | )            |  |              | (88.5  | )            |  |               | 6.4   |           |  |            | 5.5  |  |  |   | (0.5 | ) |  |   | (381.1   | )
|Furniture and office
equipment |  |                                           | (23.5    | )            |  |              | (5.7   | )            |  |               | 2.5   |           |  |            | 0.2  |  |  |   | (0.2 | ) |  |   | (26.7    | )
|                               |  |                                           |          |              |  |              |        |              |  |               |       |           |  |            |      |  |  |   |      |   |  |   |          |  
|Total                          |  | $                                         | (1,559.7 | )            |  | $            | (477.3 | )            |  | $             | 49.1  |           |  | $          | 16.9 |  |  | $ | (2.3 | ) |  | $ | (1,973.3 | )
|                               |  |                                           |          |              |  |              |        |              |  |               |       |           |  |            |      |  |  |   |      |   |  |   |          |  
|Property and
equipment, net    |  | $                                         | 3,927.4  |              |  | $            | 59.0   |              |  | $             | (24.4 | )         |  | $          | 12.1 |  |  | $ | 31.6 |   |  | $ | 4,005.7  |  
|                               |  |                                           |          |              |  |              |        |              |  |               |       |           |  |            |      |  |  |   |      |   |  |   |          |  

(1) Relates primarily to (i) amounts transferred between land held for permitting as landfills and landfills resulting from classifying additional disposal capacity as probable
expansion, (ii) capitalized interest, (iii) capitalized leases and (iv) purchase accounting adjustments during the allocation period.

82



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##### 



ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

3.     Goodwill and Intangible Assets

In accordance with SFAS No. 142, Goodwill and Other
Intangible Assets(SFAS 142), we do not amortize
goodwill. Instead we perform an annual assessment of
goodwill impairment by applying a fair value based test
to each of our reporting units, which we define as our
four geographic operating segments. We completed our
annual assessment of goodwill as of December 31, 2003 and
no impairment was recorded.We may conduct an impairment
test of goodwill more frequently than annually under
certain conditions. For example, a significant adverse
change in liquidity or the business environment,
unanticipated competition, a significant adverse action
by a regulator or a disposal of a significant portion of
an operating segment could prompt an impairment test
between annual assessments.

We evaluate goodwill for impairment based on fair value
of each geographic operating segment. The calculation of
fair value is subject to judgments and estimates. We
estimate fair value based on net cash flows discounted
using a weighted-average cost of capital of approximately
6.7%. In addition, we consider an earnings multiple
approach, enterprise value, and overall company market
capitalization to evaluate the reasonableness of our
discounted cash flows. The estimated fair value could
change if there were future changes in our capital
structure, cost of debt, interest rates, capital
expenditure levels, ability to perform at levels that
were forecasted or a permanent change to the market
capitalization of our company.

Our geographic operating segment level is an aggregate of
several vertically integrated businesses with similar
operational characteristics. A divestiture of any
individual asset below the geographic operating segment
level could result in a loss. At the time of a
divestiture of an individual business within a geographic
operating segment, goodwill is allocated to that business
and a gain or loss on disposal is derived. Subsequently,
the remaining goodwill in the geographic operating
segment that the assets were divested from would be
re-evaluated for realizability, which could result in an
additional loss being recognized.

During 2003, we have sold or held for sale certain
operations in all four geographic operating segments.
During 2003, we allocated approximately $240.5 million of
goodwill related to these operations, of which $28.6
million relates to the assets held for sale at December
31, 2003. The remaining goodwill in these geographic
operating segments was subsequently evaluated for
realizability and we concluded there was no impairment.
We have incurred non-cash losses on sales of assets when
we believed that re-deployment of the proceeds from the
sale of such assets could reduce debt or improve
operations and was economically beneficial. If we decide
to sell additional assets in the future, we could incur
additional non-cash losses on asset sales.

83



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##### 



ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

We adopted SFAS 142 effective January 1, 2002. For the year ended December 31, 2001, net income available to common shareholders adjusted to exclude goodwill amortization expense was $190.5 million. Basic earnings per share
adjusted to exclude goodwill amortization was $1.09 and $1.06 on a
fully diluted basis for the same period.
The following table shows the activity and balances related to goodwill from December 31, 2001 through December 31, 2003 (in millions):

|              |  |               |         |              |  |              |      |                |  |      |        |   |  |   |       |               |  |   |         | 
|------------- |  | ------------- | ------- | ------------ |  | ------------ | ---- | -------------- |  | ---- | ------ | - |  | - | ----- | ------------- |  | - | ------- | 
|              |  | Balance as of |         |              |  |              |      |                |  |      |        |   |  |   |       | Balance as of
|              |  | December 31,  |         |              |  |              |      |                |  |      |        |   |  |   |       | December 31, 
|              |  | 2002          |         | Acquisitions |  | Divestitures |      | Adjustments(1) |  | 2003
|              |  |               |         |              |  |              |      |                |  |     
|Western Area  |  | $             | 1,420.8 |              |  | $            | 2.2  |                |  | $    | (23.5  | ) |  | $ | 0.1   |               |  | $ | 1,399.6 | 
|Central Area  |  |               | 1,904.8 |              |  |              | 8.7  |                |  |      | (2.3   | ) |  |   | (0.3  | )             |  |   | 1,910.9 | 
|Eastern Area  |  |               | 2,453.7 |              |  |              | 0.2  |                |  |      | (71.8  | ) |  |   | 2.5   |               |  |   | 2,384.6 | 
|Southern Area |  |               | 2,751.1 |              |  |              | 8.2  |                |  |      | (114.4 | ) |  |   | (27.0 | )             |  |   | 2,617.9 | 
|              |  |               |         |              |  |              |      |                |  |      |        |   |  |   |       |               |  |   |         | 
|Total         |  | $             | 8,530.4 |              |  | $            | 19.3 |                |  | $    | (212.0 | ) |  | $ | (24.7 | )             |  | $ | 8,313.0 | 
|              |  |               |         |              |  |              |      |                |  |      |        |   |  |   |       |               |  |   |         | 

|              |  |               |         |              |  |              |      |                |  |      |       |   |  |   |      |               |  |   |         | 
|------------- |  | ------------- | ------- | ------------ |  | ------------ | ---- | -------------- |  | ---- | ----- | - |  | - | ---- | ------------- |  | - | ------- | 
|              |  | Balance as of |         |              |  |              |      |                |  |      |       |   |  |   |      | Balance as of
|              |  | December 31,  |         |              |  |              |      |                |  |      |       |   |  |   |      | December 31, 
|              |  | 2001          |         | Acquisitions |  | Divestitures |      | Adjustments(1) |  | 2002
|              |  |               |         |              |  |              |      |                |  |     
|Western Area  |  | $             | 1,423.6 |              |  | $            | 7.1  |                |  | $    | (1.1  | ) |  | $ | (8.8 | )             |  | $ | 1,420.8 | 
|Central Area  |  |               | 1,900.2 |              |  |              | 12.6 |                |  |      | (7.9  | ) |  |   | (0.1 | )             |  |   | 1,904.8 | 
|Eastern Area  |  |               | 2,449.3 |              |  |              | 5.1  |                |  |      | (1.4  | ) |  |   | 0.7  |               |  |   | 2,453.7 | 
|Southern Area |  |               | 2,783.8 |              |  |              | 1.8  |                |  |      | (36.8 | ) |  |   | 2.3  |               |  |   | 2,751.1 | 
|              |  |               |         |              |  |              |      |                |  |      |       |   |  |   |      |               |  |   |         | 
|Total         |  | $             | 8,556.9 |              |  | $            | 26.6 |                |  | $    | (47.2 | ) |  | $ | (5.9 | )             |  | $ | 8,530.4 | 
|              |  |               |         |              |  |              |      |                |  |      |       |   |  |   |      |               |  |   |         | 



| | (1) | Amounts primarily relate to
write-off of goodwill in connection with assets held for sale
accounting and purchase accounting adjustments during the allocation
period.
In addition, we have other amortizable intangible assets that consist primarily of the following at December 31, 2003 (in millions):
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                       |       |   |          |      |              |   |          |     |     |   |     |     | 
|---------------------- | ----- | - | -------- | ---- | ------------ | - | -------- | --- | --- | - | --- | --- | 
|                       |       |   | Gross    |      |              |   |          |     | Net
|                       |       |   | Carrying |      | Accumulated  |   | Carrying
|                       |       |   | Value    |      | Amortization |   | Value   
|                       |       |   |          |      |              |   |         
|Non-compete agreements |       | $ | 12.2     |      |              | $ | 8.6      |     |     | $ | 3.6 |    
|Other                  |       |   | 1.6      |      |              |   | 0.2      |     |     |   | 1.4 |    
|                       |       |   |          |      |              |   |          |     |     |   |     |    
|                       | Total |   | $        | 13.8 |              |   | $        | 8.8 |     |   | $   | 5.0 | 
|                       |       |   |          |      |              |   |          |     |     |   |     |    

Amortization expense for the three years ended December 31, 2003 was $1.9 million, $2.5 million and $3.0 million, respectively. Based upon the amortizable assets recorded in the balance sheet
at December 31, 2003, amortization expense for each of the next five years is estimated to be declining from $2.0 million to $0.2 million.

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
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. During the year ended 2001, we reported approximately
$23 million in revenues, $3 million in operating income and $14 million of equity earnings from American Ref-Fuel.

84



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##### 



ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

At December 31, 2001, our equity
investment in the four remaining
Ref-Fuel facilities was approximately
$180 million. In connection with the
modification of the ownership
structure, we had an option to
exchange our minority interest in the
four Ref-Fuel facilities for the 99%
interest in our equipment purchasing
subsidiaries owned by subsidiaries of
American Ref-Fuel Company LLC. At
December 31, 2001, the minority
interest that represented the outside
ownership interests in our equipment
purchasing subsidiaries was
approximately $180 million. We
exercised the exchange option and
completed the exchange on April 30,
2002. We no longer have any interest
in the Ref-Fuel entities and we own
100% of the equipment purchasing
subsidiaries.

The assets, liabilities and operations of the equipment
purchasing subsidiaries have been and continue to be
fully consolidated. The equipment purchasing
subsidiaries were established to purchase fixed assets,
including vehicles, equipment, containers and
compactors, to be used in our operations.

We used the equity method of accounting for investments
in unconsolidated subsidiaries over which we exercised
significant influence. The Summarized Statement of
Operations Data presented in the table below indicate
amounts related to the following equity investees in
which we exercised significant influence through a 50%
ownership interest during January through April 2001:
American Ref-Fuel Company of Hempstead, American
Ref-Fuel Company of Essex, American Ref-Fuel Company of
Southeastern Connecticut, and American Ref-Fuel Company
of Niagara, LP.

Summarized Combined Statement of Operations Data
(in millions)

|                 |  |              |       | 
|---------------- |  | ------------ | ----- | 
|                 |  | For the     
|                 |  | Year Ended  
|                 |  | December 31,
|                 |  | 2001(1)     
|                 |  |             
|Total revenue    |  | $            | 250.0 | 
|Operating income |  |              | 116.8 | 
|Net income       |  |              | 59.4  | 



|(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.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------

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.

85



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##### 



ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

5.     Long-term Debt

Long-term debt at December 31, 2003 and 2002 consists of the amounts listed in the following table. The effective interest rate includes our
interest cost incurred, the effect of interest rate swap contracts, amortization of deferred debt issuance cost and the amortization or accretion
of discounts or premiums. (in millions, except percentages)

|                                                                                                                                                                                                                                  |  |                 |         |                         |  |      |         |      |  |  |       |    |  |  |       |   
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------- | ------- | ----------------------- |  | ---- | ------- | ---- |  |  | ----- | -- |  |  | ----- | --
|                                                                                                                                                                                                                                  |  | Debt Balance at |         | Effective Interest Rate
|                                                                                                                                                                                                                                  |  |                 |         |                        
|                                                                                                                                                                                                                                  |  | 2003            |         | 2002                    |  | 2003 |         | 2002
|                                                                                                                                                                                                                                  |  |                 |         |                         |  |      |         |     
|Revolving credit facility                                                                                                                                                                                                         |  | $               |        |                         |  | $    |        |      |  |  | 5.41  | %* |  |  | 5.97  | %*
|Tranche A term loan facility                                                                                                                                                                                                      |  |                 |        |                         |  |      | 899.1   |      |  |  |      |    |  |  | 9.09  |   
|Tranche B term loan facility                                                                                                                                                                                                      |  |                 |        |                         |  |      | 670.9   |      |  |  |      |    |  |  | 8.38  |   
|Tranche C term loan facility                                                                                                                                                                                                      |  |                 |        |                         |  |      | 805.1   |      |  |  |      |    |  |  | 9.46  |   
|2003 Term loan B                                                                                                                                                                                                                  |  |                 | 1,185.0 |                         |  |      |        |      |  |  | 9.83  |    |  |  |      |   
|2003 Term loan C                                                                                                                                                                                                                  |  |                 | 250.0   |                         |  |      |        |      |  |  | 7.81  |    |  |  |      |   
|Receivables secured loan                                                                                                                                                                                                          |  |                 | 146.3   |                         |  |      |        |      |  |  | 1.68  |    |  |  |      |   
|Senior notes, interest at 6.50                                                                                                                                                                                                    |  |                 | 350.0   |                         |  |      |        |      |  |  | 4.51  |    |  |  |      |   
|Senior notes, interest at 7.88                                                                                                                                                                                                    |  |                 | 874.1   |                         |  |      | 873.9   |      |  |  | 8.13  |    |  |  | 8.13  |   
|Senior notes, interest at 7.63                                                                                                                                                                                                    |  |                 | 600.0   |                         |  |      | 600.0   |      |  |  | 7.99  |    |  |  | 7.99  |   
|Senior notes, interest at 7.38                                                                                                                                                                                                    |  |                 | 225.0   |                         |  |      | 224.9   |      |  |  | 7.90  |    |  |  | 7.90  |   
|Senior notes, interest at 8.88                                                                                                                                                                                                    |  |                 | 600.0   |                         |  |      | 600.0   |      |  |  | 9.16  |    |  |  | 9.16  |   
|Senior notes, interest at 8.50                                                                                                                                                                                                    |  |                 | 750.0   |                         |  |      | 750.0   |      |  |  | 8.77  |    |  |  | 8.77  |   
|Senior notes, interest at 9.25                                                                                                                                                                                                    |  |                 | 377.1   |                         |  |      | 377.4   |      |  |  | 9.39  |    |  |  | 9.39  |   
|Senior notes, interest at 7.88                                                                                                                                                                                                    |  |                 | 450.0   |                         |  |      |        |      |  |  | 8.05  |    |  |  |      |   
|Debentures, interest at 7.40                                                                                                                                                                                                      |  |                 | 287.6   |                         |  |      | 285.3   |      |  |  | 8.03  |    |  |  | 8.03  |   
|Senior notes, interest at 6.10                                                                                                                                                                                                    |  |                 |        |                         |  |      | 156.5   |      |  |  |      |    |  |  | 8.34  |   
|Senior notes, interest at 6.38                                                                                                                                                                                                    |  |                 | 148.4   |                         |  |      | 145.2   |      |  |  | 8.34  |    |  |  | 8.34  |   
|Debentures, interest at 9.25                                                                                                                                                                                                      |  |                 | 95.6    |                         |  |      | 95.4    |      |  |  | 9.48  |    |  |  | 9.48  |   
|Senior notes, interest at 7.88                                                                                                                                                                                                    |  |                 | 68.7    |                         |  |      | 68.1    |      |  |  | 8.77  |    |  |  | 8.77  |   
|Solid waste revenue bond obligations, principal
payable through 2031                                                                                                                                                              |  |                 | 306.2   |                         |  |      | 307.3   |      |  |  | 6.12  |    |  |  | 6.10  |   
|Senior subordinated notes, interest at 10.00                                                                                                                                                                                      |  |                 | 1,497.4 |                         |  |      | 2,005.6 |      |  |  | 10.22 |    |  |  | 10.22 |   
|Notes payable to banks, finance companies, and
individuals, interest rates of 0.7% to 30.0%, and
principal payable through 2021 secured by
vehicles, equipment, real estate, accounts
receivable or stock of certain subsidiaries |  |                 | 8.2     |                         |  |      | 6.7     |      |  |  | 6.93  | *  |  |  | 7.05  | * 
|Obligations under capital leases of vehicles and
equipment                                                                                                                                                                        |  |                 | 13.2    |                         |  |      | 9.0     |      |  |  | 8.76  | *  |  |  | 9.97  | * 
|Notes payable to individuals and a commercial
company, interest rates of 8.0% to 9.5%,
principal
payable through 2007, unsecured                                                                                                  |  |                 | 1.3     |                         |  |      | 1.8     |      |  |  | 8.45  | *  |  |  | 8.43  | * 
|                                                                                                                                                                                                                                  |  |                 |         |                         |  |      |         |      |  |  |       |    |  |  |       |   
|                                                                                                                                                                                                                                  |  |                 | 8,234.1 |                         |  |      | 8,882.2 |      |  |  |       |    |  |  |       |   
|Less: Current portion                                                                                                                                                                                                             |  |                 | 249.6   |                         |  |      | 163.5   |      |  |  |       |    |  |  |       |   
|                                                                                                                                                                                                                                  |  |                 |         |                         |  |      |         |      |  |  |       |    |  |  |       |   
|                                                                                                                                                                                                                                  |  | $               | 7,984.5 |                         |  | $    | 8,718.7 |      |  |  |       |    |  |  |       |   
|                                                                                                                                                                                                                                  |  |                 |         |                         |  |      |         |      |  |  |       |    |  |  |       |   

*     reflects weighted average interest rate

86



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##### 



ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Completion of financing plan 

In April, 2003, we completed a multifaceted
financing plan that allowed us to refinance
our 1999 Credit Facility. The financing plan
included issuance of a receivables secured
loan, common stock, mandatory convertible
preferred stock and senior notes, along with
the refinancing of the 1999 Credit Facility,
discussed below. The common stock, mandatory
convertible preferred stock and $450 million
of senior notes were issued under our shelf
registration statement. The aggregate net
proceeds of approximately $867 million from
the issuance of the common stock, preferred
stock and $450 million of senior notes were
used to reduce borrowings under the tranche
A, B and C term loans under our 1999 Credit
Facility on a pro-rata basis. In connection
with the completion of the financing plan, we
recorded a charge to interest expense and
other of approximately $52.1 million related
to the write-off of deferred and other costs.

Bank credit facility 

On April 29, 2003, we
refinanced our 1999
Credit Facility, which
consisted of a $1.291
billion revolving
credit facility, due
2005 and $2.226 billion
in funded, amortizing
senior secured term
loans with varying
maturity dates through
2007, with a $2.9
billion senior secured
credit facility (the
2003 Credit Facility)
that includes a $1.5
billion revolver due
January 2008 (the 2003
Revolver), a $1.2
billion term loan with
final maturity in
January 2010 (the 2003
Term Loan B), and a
$200 million
institutional letter of
credit facility. In
addition, the 2003
Credit Facility allows
us to establish an
incremental term loan
in an amount up to $250
million and an
additional
institutional letter of
credit facility in an
amount up to $500
million. Of the $1.5
billion available under
the 2003 Revolver, the
entire amount may be
used to support the
issuance of letters of
credit.

The 2003 Credit
Facility bears interest
at (a) an Alternative
Base Rate, or (b)
Adjusted LIBOR, both
terms defined in the
2003 Credit Facility,
plus, in either case,
an applicable margin
based on our leverage
ratio. Proceeds from
the 2003 Credit
Facility may be used
for working capital and
other general corporate
purposes, including
acquisitions.

In August 2003, we amended our 2003 Credit Facility to permit
the Series A Preferred Stock exchange transaction (see Note
10). In addition, the amendment increased our operating
flexibility by permitting us to incur an additional $250
million of term loan indebtedness, an additional $350 million
of senior secured indebtedness and $400 million of senior
unsecured indebtedness, for the purpose of retiring portions
of our outstanding senior subordinated indebtedness through
optional redemption, public tender offer or open market
repurchases.

During the third quarter of 2003, we funded a new $250 million
Term Loan C due 2010 under the 2003 Credit Facility and used
the proceeds to repurchase a portion of our senior
subordinated notes in the same amount of principal. In
connection with these repurchases, we paid premiums of
approximately $23.8 million which are recorded in interest
expense and other.

In November 2003, we completed a second amendment to our 2003
Credit Facility to reduce the interest rate for the Term Loan
B, Term Loan C and institutional letter of credit facility to
LIBOR plus 275 basis points. In addition to re-pricing the
term loan facilities, we favorably revised financial covenants
under the 2003 Credit Facility to provide greater operating
flexibility.

At December 31, 2003, we had approximately $637 million in
letters of credit outstanding under the 2003 Revolver and $200
million in letters of credit outstanding under the
institutional letter of credit facility. In addition, at
December 31, 2003, we had approximately $863 million available
under the 2003 Revolver.

87



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##### 



ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

We are required to make prepayments on the 2003
Credit Facility upon completion of certain
transactions as defined in the 2003 Credit
Facility, including asset sales and issuances of
debt securities. Proceeds from these transactions
are to be applied pursuant to the 2003 Credit
Facility. We are also required to make
prepayments on the 2003 Credit Facility for 50% of
any excess cash flows from operations, as defined.

Senior notes and debentures 

In November 2003, we issued $350 million of 6.50%
senior notes due 2010, in a private placement
under Rule 144A of the Securities Act of 1933.
These senior notes have a make-whole call
provision that is exercisable at any time at a
stated redemption price. Interest is payable
semi-annually on February 15th and
August 15th
beginning on August 15, 2004. We used proceeds of
approximately $256.1 million to repurchase a
portion of our senior subordinated notes. In
connection with these repurchases, we paid
premiums of approximately $23.1 million. During
January 2004, we repurchased $93.9 million of our
senior subordinated notes using the remaining
proceeds from the senior notes and paid premiums
of approximately $8.2 million related to the 2004
repurchases.

On April 9, 2003, we issued $450 million of 7.875%
senior notes due 2013 for net proceeds of
approximately $440 million. The senior notes have
a no call provision until 2008. Interest is
payable April 1st and October 1st of each year
beginning in October 2003.

In November 2002, we issued $375.0 million of 9.25% senior notes due 2012 (the
2002 Senior Notes). The 2002 Senior Notes were issued at a premium of $2.4
million. These senior notes have a no call provision until 2007. Interest is
payable semi-annually on March 1 and September 1. We used the net proceeds of
$370.6 million from the sale of these notes to repay term loans under the 1999
Credit Facility prior to maturity.

In August 2002, we repaid the 2001 subsidiaries
line of credit prior to its maturity in 2006 with
cash from operations and borrowings under the
revolver portion of the 1999 Credit Facility. In
connection with this repayment, we paid a
prepayment penalty of $3.2 million.

During 2001, we issued $750 million of 8.50% senior notes, due
2008 and $600 million of 8.875% senior notes, due 2008 (together
the 2001 Senior Notes). Interest on the 2001 Senior Notes is
payable semi-annually on June 1 and September 1.

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
EITF Issue No. 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, 2003, the remaining unamortized
net discount related to the debt securities of BFI was $93.7
million.

The 6.10% senior notes, 6.375% senior notes and 9.25% debentures
assumed from BFI are not redeemable prior to maturity and are not
subject to any sinking fund. In January 2003, the 6.10% senior
notes were repaid upon maturity with cash flow from operations and
application of our ending cash balance.
The 7.40% debentures assumed from BFI 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.

88



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##### 



ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In December 1998, we 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).
Interest accrued on the 1998 Senior Notes is payable
semi-annually on January 1 and July 1. The $225
million 7.375% senior notes due 2004 were repaid in
January 2004.

Receivables secured loan 

In April 2003, we entered into an accounts receivable securitization program with a financial
institution that allows us to borrow up to $175 million on a revolving basis under a loan
agreement secured by receivables. The borrowings are secured by our accounts receivable that
are owned by a wholly-owned and fully consolidated subsidiary. This
subsidiary is a separate corporate entity whose assets, or collateral
securing the borrowings, are available first to satisfy the claims of
the subsidiarys creditors. Under SFAS No. 140, Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities - a Replacement
of FASB Statement 125, the securitization program is accounted
for as a secured
borrowing with a pledge of collateral. The receivables and debt obligation remain on our
consolidated balance sheet. At December 31, 2003, we had outstanding borrowings under this
program of $146.3 million. The borrowings under this program bear interest at the financial
institutions commercial paper rate plus an applicable spread and interest is payable monthly.
There is also a fee on the undrawn portion of the $175 million available for borrowing. The
loan agreement has a one year term with a three year liquidity facility, however, we intend to
extend the agreement annually. If we are unable to renew annually, we have the intent and
ability to refinance these borrowings through the 2003 Revolver of the 2003 Credit Facility.
Accordingly, the loan has been classified as long-term.

Senior subordinated notes 

In July 1999, we issued $2.0 billion of senior subordinated notes (the 1999 Notes)
that mature in 2009. 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.

During 2003, we repaid $506.1 million of our senior subordinated notes prior to
maturity through open market repurchases. In connection with these repurchases, we
paid premiums of approximately $46.9 million and wrote-off deferred financing costs
of $6.4 million to interest expense and other.

Future maturities of long term debt

Aggregate future scheduled maturities of long-term debt as of December
31, 2003 are as follows (in millions):

|                |  |   |         |  
|--------------- |  | - | ------- | -
|Maturity        |  |   |         |  
|                |  |   |         |  
|2004            |  | $ | 249.6   |  
|2005            |  |   | 102.7   |  
|2006            |  |   | 626.1   |  
|2007            |  |   | 19.5    |  
|2008            |  |   | 1,675.9 |  
|Thereafter      |  |   | 5,649.2 |  
|                |  |   |         |  
|Gross Principal |  |   | 8,323.0 |  
|Discount, net   |  |   | (88.9   | )
|                |  |   |         |  
|Total Debt      |  | $ | 8,234.1 |  
|                |  |   |         |  

89



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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, 2003 (in millions):

|           |  |           |      |          |  |       |     |  |  |   |      | 
|---------- |  | --------- | ---- | -------- |  | ----- | --- |  |  | - | ---- | 
|Maturity   |  | Principal |      | Interest |  | Total
|           |  |           |      |          |  |      
|2004       |  | $         | 2.5  |          |  | $     | 1.2 |  |  | $ | 3.7  | 
|2005       |  |           | 1.3  |          |  |       | 0.9 |  |  |   | 2.2  | 
|2006       |  |           | 0.5  |          |  |       | 0.8 |  |  |   | 1.3  | 
|2007       |  |           | 0.4  |          |  |       | 0.8 |  |  |   | 1.2  | 
|2008       |  |           | 0.4  |          |  |       | 0.7 |  |  |   | 1.1  | 
|Thereafter |  |           | 8.1  |          |  |       | 4.3 |  |  |   | 12.4 | 
|           |  |           |      |          |  |       |     |  |  |   |      | 
|           |  | $         | 13.2 |          |  | $     | 8.7 |  |  | $ | 21.9 | 
|           |  |           |      |          |  |       |     |  |  |   |      | 

Fair value of debt and interest rate protection agreements

The fair value of our debt and interest rate swap contracts 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 swap contracts 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 millions, except percentages):

|                       |                     |                                   |  |              |         |               |  |              |         |               |  |   |         |   |  |   |         |  
|---------------------- | ------------------- | --------------------------------- |  | ------------ | ------- | ------------- |  | ------------ | ------- | ------------- |  | - | ------- | - |  | - | ------- | -
|                       |                     |                                   |  | Balance at   |         | Fair Value at |  | Balance at   |         | Fair Value at
|                       |                     |                                   |  | December 31, |         | December 31,  |  | December 31, |         | December 31, 
|                       |                     |                                   |  | 2003         |         | 2003          |  | 2002         |         | 2002         
|                       |                     |                                   |  |              |         |               |  |              |         |              
|Long-Term Debt         |                     |                                   |  |              |         |               |  |              |         |               |  |   |         |   |  |  
|                       | Fixed Rate Debt:    |                                   |  |              |         |               |  |              |         |               |  |   |         |   |  |   |        
|                       |                     | Principal amount                  |  | $            | 6,556.0 |               |  | $            | 7,079.8 |               |  | $ | 6,410.3 |   |  | $ | 6,350.2 |  
|                       |                     | Weighted average
interest rate    |  |              | 8.52    | %             |  |              |         |               |  |   | 8.73    | % |  |   |         |  
|                       | Variable Rate Debt: |                                   |  |              |         |               |  |              |         |               |  |   |         |   |  |   |        
|                       |                     | Principal amount                  |  | $            | 1,678.1 |               |  | $            | 1,690.7 |               |  | $ | 2,471.9 |   |  | $ | 2,441.0 |  
|                       |                     | Weighted average
interest rate(1) |  |              | 3.58    | %             |  |              |         |               |  |   | 4.14    | % |  |   |         |  
|Interest Rate Swaps(2) |                     |                                   |  |              |         |               |  |              |         |               |  |   |         |   |  |  
|                       | Non-Cancelable:     |                                   |  |              |         |               |  |              |         |               |  |   |         |   |  |   |        
|                       |                     | Notional amount                   |  | $            | 2,000.0 |               |  | $            | (46.5   | )             |  | $ | 2,300.0 |   |  | $ | (125.7  | )
|                       |                     | Weighted average
interest rate    |  |              | 5.69    | %             |  |              |         |               |  |   | 6.06    | % |  |   |         |  



|(1) |  | Reflects the rate in effect as of December 31, 2003 and 2002 before the effects of swaps and includes all applicable margins. Actual future
rates may vary.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Amount includes our fixed to floating and floating to fixed interest rate swap contracts. See Note 6 for additional discussion.                            

90



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##### 



ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Debt covenants

Under the 2003 Credit Facility, we are subject to the following financial covenants:

Minimum Interest Coverage:

|                   |  |                     |  |           
|------------------ |  | ------------------- |  | ----------
|From the           |  | Through the Quarter |  | EBITDA(1)/
|Quarter Ending     |  | Ending              |  | Interest  
|                   |  |                     |  |           
|March 31, 2003     |  | September 30, 2003  |  | 1.90x     
|December 31, 2003  |  | June 30, 2004       |  | 1.85x     
|September 30, 2004 |  | September 30, 2004  |  | 1.90x     
|December 31, 2004  |  | March 31, 2005      |  | 1.95x     
|June 30, 2005      |  | September 30, 2005  |  | 2.00x     
|December 31, 2005  |  | December 31, 2005   |  | 2.10x     
|March 31, 2006     |  | June 30, 2006       |  | 2.15x     
|September 30, 2006 |  | September 30, 2006  |  | 2.20x     
|December 31, 2006  |  | December 31, 2006   |  | 2.30x     
|March 31, 2007     |  | March 31, 2007      |  | 2.40x     
|June 30, 2007      |  | June 30, 2007       |  | 2.45x     
|September 30, 2007 |  | March 31, 2008      |  | 2.50x     
|June 30, 2008      |  | June 30, 2008       |  | 2.60x     
|September 30, 2008 |  | September 30, 2008  |  | 2.70x     

Maximum Leverage:

|                   |  |                     |  |            
|------------------ |  | ------------------- |  | -----------
|From the           |  | Through the Quarter |  | Total Debt/
|Quarter Ending     |  | Ending              |  | EBITDA(1)  
|                   |  |                     |  |            
|March 31, 2003     |  | June 30, 2005       |  | 5.75x      
|September 30, 2005 |  | December 31, 2005   |  | 5.50x      
|March 31, 2006     |  | June 30, 2006       |  | 5.25x      
|September 30, 2006 |  | September 30, 2006  |  | 5.00x      
|December 31, 2006  |  | December 31, 2006   |  | 4.75x      
|March 31, 2007     |  | December 31, 2007   |  | 4.50x      
|March 31, 2008     |  | June 30, 2008       |  | 4.25x      
|September 30, 2008 |  | Thereafter          |  | 4.00x      

At December 31, 2003, we were in compliance with all financial covenants under our 2003
Credit Facility. At December 31, 2003, Total
Debt/EBITDA(1) ratio, as defined by the 2003
Credit Facility, was 5.08:1 and our EBITDA(1)/Interest ratio was 2.09:1. We are not
subject to any minimum net worth covenants.



(1) EBITDA used for covenants is calculated in accordance with the definition in our credit facility agreement (Exhibit 10.1 to our Form 10-Q for
the quarter ended March 31, 2003). In this context, EBITDA is used solely to provide information on the extent to which we are in compliance
with debt covenants.


In addition, the 2003 Credit Facility restricts us from making certain types of payments, including dividend payments on our common and preferred
stock. However, we are able to pay cash dividends on the Series C Preferred Stock.

The 1998 Senior Notes, the 1999 Notes, the 2001 Senior
Notes, the 2002 Senior Notes and the 2003 Senior Notes
contain certain financial 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, 2003, we were in
compliance with all applicable covenants.

91



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##### 



ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Guarantees 

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,
the 2002 Senior Notes, the 2003 Senior Notes and the 2003 Credit Facility
through unconditional guarantees issued by current and future subsidiaries. At
December 31, 2003, the maximum potential amount of future payments under the
guarantees is the outstanding amount of the debt identified above and the amount
for letters of credit issued under the credit facility. In accordance with FIN
45, the guarantees are not recorded in our consolidated financial statements as
they represent parent-subsidiary guarantees. We do not guarantee any third party
debt.

Collateral 

Our 2003 Credit Facility, 2003 Senior Notes, 2002 Senior Notes, 2001 Senior
Notes, 1998 Senior Notes and $690 million of senior notes assumed from BFI are
secured by substantially all of BFI and certain other Allied subsidiaries and a
security interest in the assets of BFI, its domestic subsidiaries and certain
other Allied subsidiaries. In accordance with the Securities and Exchange
Commission (SEC) Rule 3-16 of Regulation
S-X, separate financial statements for BFI are presented under Item 15 of our
Annual Report on Form 10-K for the year ended December 31, 2003. Following is a
summary of the balance sheets for BFI and the other Allied subsidiaries that
serve as collateral as of December 31, 2003 (in millions):

|                                                |                                      |     |         |               |   |          |              |         |  |   |         |         | 
|----------------------------------------------- | ------------------------------------ | --- | ------- | ------------- | - | -------- | ------------ | ------- |  | - | ------- | ------- | 
|                                                |                                      |     |         |               |   |          | Other Allied |         |  |   |        
|                                                |                                      | BFI |         | Collateral(2) |   | Combined
|                                                |                                      |     |         |               |   |          |             
|Condensed
Balance Sheet(1):                     |                                      |     |         |               |   |         
|                                                | Current assets                       |     | $       | 166.2         |   |          | $            | 176.7   |  |   | $       | 342.9   | 
|                                                | Property and equipment, net          |     |         | 917.8         |   |          |              | 657.1   |  |   |         | 1,574.9 | 
|                                                | Goodwill, net                        |     |         | 3,630.4       |   |          |              | 2,861.3 |  |   |         | 6,491.7 | 
|                                                | Other assets, net                    |     |         | 137.0         |   |          |              | 5.1     |  |   |         | 142.1   | 
|                                                |                                      |     |         |               |   |          |              |         |  |   |         |         | 
|Total assets                                    |                                      | $   | 4,851.4 |               |   | $        | 3,700.2      |         |  | $ | 8,551.6 |        
|                                                |                                      |     |         |               |   |          |              |         |  |   |         |         | 
|                                                | Current liabilities                  |     | $       | 492.0         |   |          | $            | 219.2   |  |   | $       | 711.2   | 
|                                                | Long-term debt, less
current portion |     |         | 6,282.8       |   |          |              | 7.9     |  |   |         | 6,290.7 | 
|                                                | Other long-term obligations          |     |         | 792.6         |   |          |              | 18.9    |  |   |         | 811.5   | 
|                                                | Due
from (to) parent                 |     |         | (1,323.5      | ) |          |              | 1,945.0 |  |   |         | 621.5   | 
|                                                | Total stockholders equity           |     |         | (1,392.5      | ) |          |              | 1,509.2 |  |   |         | 116.7   | 
|                                                |                                      |     |         |               |   |          |              |         |  |   |         |         | 
|Total liabilities and
stockholders liabilities |                                      | $   | 4,851.4 |               |   | $        | 3,700.2      |         |  | $ | 8,551.6 |        
|                                                |                                      |     |         |               |   |          |              |         |  |   |         |         | 

(1) All transactions between BFI and the Other Allied collateral have been eliminated.

(2) Amounts do not include
income tax provision which would be an allocation from Allied and
reflected in Due to Parent.

6.     Derivative Instruments and Hedging Activities

Our risk management policy requires 75% of our total debt to be fixed, either directly or effectively through interest
rate swap contracts. At December 31, 2003, approximately 96% of our debt was fixed, 76% directly, and 20% through
interest rate swap contracts. Our interest rate swap portfolio continues to fix 98% of our variable rate interest
payment obligation, protecting us from cash flow variations arising from changes in short term interest rates. We
believe it is important to have a mix of fixed and floating rate debt to provide financing flexibility. Approximately
5% of our fixed rate debt is at variable rates through the use of fixed to floating interest rate swap
contracts, providing more balance of fixed and variable rate debt. At December 31, 2003, the notional value of our
interest rate swap contracts was $2.0 billion maturing as follows: $1.4 billion during 2004, $250.0 million during
2005, $75.0 million during 2008 and $275.0 million during 2009.

92



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##### 



ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Consistent with our
risk management
policy, we have
entered into
interest rate swap
agreements for the
purpose of hedging
variability of
interest expense and
interest payments on
our long-term
variable rate bank
debt and maintaining
a mix of fixed and
floating rate debt.
Our strategy is to
use interest rate

swap contracts when
such transactions
will serve to reduce
our aggregate
exposure and meet
the objectives of
our risk management
policy. These
contracts are not
entered into for
trading purposes.
Our risk management
policy requires that
we evaluate the
credit of our
counter-parties and
that we monitor
counter party
exposure. At
December 31, 2003,
counter parties for
79% of our interest
rate swap portfolio
were rated Aa3. The
counter-party for
the remaining 21% is
rated A1 or Aa2.

At December 31, 2003, a liability of $46.5 million is
included in the consolidated balance sheets in other
long-term obligations reflecting the fair market value of
our entire interest rate swap portfolio on that date. The
liability will fluctuate with market interest rates but will
reduce to zero over the terms of each of our interest rate
swap contracts. Approximately $34.0 million of the
liability at December 31, 2003 relates to contracts maturing
within 12 months. Fair value variations over the life of
the interest rate swap contracts arise from changes in
forecasted interest rates and the time value of money.
On December 31, 2001, we de-designated $1.5 billion of
notional amount interest rate swap contracts due to the
possibility that future interest rate payments on the
underlying variable rate debt may cease prior to the
expiration of the related interest rate swap contracts.
There were no de-designated interest rate swap contracts
prior to December 31, 2001. No additional interest rate
swap contracts were de-designated after 2001.

Designated interest rate swap
contracts 

At December 31, 2003, we had designated interest rate swap contracts (floating
to fixed rate) with a notional amount of $725 million and a fair value
liability of $32.3 million. Our designated cash flow interest rate swap
contracts are effective as hedges of our variable rate debt. 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 achieving 100% effectiveness. If significant terms do not match
we will assess any ineffectiveness and any ineffectiveness is immediately
recorded in interest expense in our statement of operations.

Changes in fair value of our designated interest rate swap contracts are
reflected in accumulated other comprehensive income (AOCI). At December 31,
2003, a loss of approximately $32.0 million ($19.5 million, net of tax) is
included in AOCI.

Expense or income related to swap settlements are recorded in interest expense
for the related variable rate debt over the term of the agreements.

Non-hedge accounting interest rate swap contracts 

We have certain interest rate swap contracts that we have elected not to apply
hedge accounting to under SFAS 133. We have elected to not apply hedge
accounting to allow us to have flexibility to repay debt prior to maturity and
to refinance debt when economically feasible. Following is a description of
the accounting for these interest rate swap contracts.

De-designated interest rate swap
contracts.At December 31, 2003, we had
de-designated interest rate swap
contracts (floating to fixed rate) with
a notional amount of $925 million and a
fair value liability of $15.1 million.
Settlement payments and periodic changes
in market values of our de-designated
interest rate swap contracts are
recorded as a gain or loss on derivative
contracts included in interest expense
and other in our statement of
operations. We recorded $47.1 million
and $2.4 million of net gain related to
changes in market values and $51.9
million and $59.6 million of settlement
costs during the year ended December 31,
2003 and 2002, respectively.

93



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##### 



ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

When interest rate swap hedging relationships are de-designated or terminated,
any accumulated gains or losses in AOCI at the time of de-designation are
isolated and amortized over the remaining original hedged interest payment. For
contracts de-designated, the total amount of loss in AOCI at December 31, 2001
was approximately $65.2 million ($39.5 million, net of tax), $29.8 million
($18.1 million, net of tax) at December 31, 2002 and $6.7 million ($4.3 million,
net of tax) remains in AOCI at December 31, 2003. For the year ended December
31, 2003 and 2002, we recorded $23.1 million and $35.4 million, respectively, of
amortization expense related to the accumulated losses in AOCI for interest rate
swap contracts that were de-designated at December 31, 2001. In 2004, we expect
to record approximately $6.7 million of amortization expense related to the
accumulated losses in AOCI for the de-designated swap contracts. The
amortization expense is recorded in interest expense and other.

Fair Value Interest Rate Swap Contracts.We utilize fair value interest rate
swap contracts (fixed rate to floating rate) to achieve our targeted mix of
fixed and floating rate debt. At December 31, 2003, we had fair value interest
rate swap contracts with a notional amount of $350 million and a derivative fair
value asset of $0.9 million. Settlement payments and periodic changes in market
values of our fair value interest rate swap contracts are recorded as a gain or
loss on derivative contracts included in interest expense and other in our
statement of operations.

We recorded $0.9 million of net gain related to changes in market values and
received settlements of $1.1 million during the year ended December 31, 2003.
No amounts were recorded in 2002 and 2001.

7.     Accumulated Other Comprehensive Loss

The components of the ending balances of accumulated other comprehensive loss,
as reflected in stockholders equity are shown as follows (in millions):

|                                                                                            |  |              |       |              |  |   |        |  
|------------------------------------------------------------------------------------------- |  | ------------ | ----- | ------------ |  | - | ------ | -
|                                                                                            |  | December 31, |       | December 31,
|                                                                                            |  | 2003         |       | 2002        
|                                                                                            |  |              |       |             
|Minimum pension liability adjustment, net of taxes of $47.2 and
$49.8                       |  | $            | (70.7 | )            |  | $ | (74.8  | )
|Interest rate swap contracts designated,
unrealized loss, net of taxes of $12.5 and $25.1   |  |              | (19.5 | )            |  |   | (38.3  | )
|Interest rate swap contracts de-designated,
unrealized loss, net of taxes of $2.4 and $11.7 |  |              | (4.3  | )            |  |   | (18.1  | )
|                                                                                            |  |              |       |              |  |   |        |  
|Accumulated other comprehensive loss                                                        |  | $            | (94.5 | )            |  | $ | (131.2 | )
|                                                                                            |  |              |       |              |  |   |        |  

8.     Landfill Accounting

Change in accounting principle

Effective January 1, 2003, we adopted SFAS 143 which outlines standards for accounting for our landfill retirement obligations that
have historically been referred to as closure and post-closure. SFAS 143 does not change the basic accounting principles that the
waste industry has historically followed for accounting for these types of obligations. In general, the industry has followed the
accounting practice of recognizing a liability on the balance sheet and related expense as waste is disposed at the landfill to
match operating costs with revenues. The industry refers to this practice as life-cycle accounting. The principle elements of

life-cycle accounting are still being followed.

94



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##### 



ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The new rules are a refinement to our industry practices and have caused
a change in the mechanics of calculating landfill retirement obligations
and the classification of where amounts are recorded in the financial
statements. Landfill retirement obligations are no longer accrued
through a provision to cost of operations, but rather by an increase to
landfill assets. Liabilities retained from divested landfills that were
historically accounted for in closure and post-closure liabilities were
reclassified to other long-term obligations because they were not within
the scope of SFAS 143. In addition, in accordance with SFAS 143, we
changed the classification of certain costs related to capping, closure
and post-closure obligations to other accounts. The most significant
change in classification is that we now record the costs for methane gas
collection systems in the landfill development assets. Further, the cost
of financial assurance instruments are no longer accrued as part of the
post-closure liability, but rather are expensed as incurred.
Following are the key changes from our prior accounting practices:

|             |  |                                                                                                                                                                                                                |  |                                                                                                                                                                                                                                                                                                                                    
|------------ |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Definitions: |  | Prior Practice                                                                                                                                                                                                 |  | Effective January 1, 2003                                                                                                                                                                                                                                                                                                          
|             |  |                                                                                                                                                                                                                |  |                                                                                                                                                                                                                                                                                                                                    
|Capping      |  | Capping is included
in the closure
liability.                                                                                                                                                                  |  | Capping is identified as
its own discrete,
separate liability.
Capping primarily
includes installation of
liners, drainage,
compacted soil layers
and topsoil over areas
of a landfill where
total airspace has been
consumed and waste is no
longer being received.
Capping activities occur
throughout the life of
the landfill. 
|             |  |                                                                                                                                                                                                                |  |                                                                                                                                                                                                                                                                                                                                    
|Closure      |  | Closure primarily
includes the
application of
capping materials,
the construction of
methane gas
collection systems
and costs incurred
after a site stops
receiving waste but
prior to being
certified closed. |  | Costs for capping
activities are no longer
considered a cost of
closure, but instead are
a separately
identifiable liability.
Costs for methane gas
collection system
installation are no
longer considered a cost
of closure, but instead
are now considered a
development cost of our
landfill assets (i.e.
capital expenditure).
|             |  |                                                                                                                                                                                                                |  |                                                                                                                                                                                                                                                                                                                                    
|Post-Closure |  | Post-closure
primarily includes
groundwater
sampling, gas
systems operations
and maintenance,
leachate disposal
and the cost of
financial assurance
instruments after
the landfill has
been certified
closed.  |  | The cost of financial
assurance instruments
are no longer accrued as
part of the post-closure
liability. Such costs
are expensed as
incurred.                                                                                                                                                                                      

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##### 



ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

|                                                     |  |                                                                                                                                                                                                                                                            |  |                                                                                                                                                                                                                                                                                  
|---------------------------------------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Recognition of Liability:                            |  | Prior Practice                                                                                                                                                                                                                                             |  | Effective January 1, 2003                                                                                                                                                                                                                                                        
|                                                     |  |                                                                                                                                                                                                                                                            |  |                                                                                                                                                                                                                                                                                  
|Financial Assurance                                  |  | The cost of financial
assurance instruments that
are required to be in
place during the
post-closure monitoring
period are accrued over
the life of the landfill
as part of the
post-closure liability.                                                    |  | The cost of financial
assurance instruments is
a period expense that is
not accrued as part of
the post-closure
liability. The cost of
financial assurance
instruments is
considered in the
determination of the
credit-adjusted risk
free rate used for
discounting liabilities.
|                                                     |  |                                                                                                                                                                                                                                                            |  |                                                                                                                                                                                                                                                                                  
|Methane Gas
     Collection System
     Installation |  | All gas system costs are
accrued over the life of
landfill as part of the
closure liability.                                                                                                                                                               |  | The costs for methane
gas collection systems
are recorded as a
landfill development
asset when pur-chased
(capital expenditure).                                                                                                                                                 
|                                                     |  |                                                                                                                                                                                                                                                            |  |                                                                                                                                                                                                                                                                                  
|Capping                                              |  | Capping costs are accrued
as part of the closure
liability over the life of
the landfill.                                                                                                                                                                  |  | The discounted cash flow associated with
each capping event is recorded to the
accrued liability (balance sheet) with a
corresponding increase to the landfill
asset (balance sheet) as tons are
consumed for that capping event.                                                
|                                                     |  |                                                                                                                                                                                                                                                            |  |                                                                                                                                                                                                                                                                                  
|Closure and
Post-Closure                             |  | The discounted cash flow
associated with closure and
post-closure is recorded to
the accrued liability
(balance sheet) with a
corresponding charge to the
cost of operations
(statement of operations)
as tons are consumed over
the life of the landfill. |  | The discounted cash flow associated with
closure and post-closure is recorded to
the accrued liability (balance sheet)
with a corresponding increase to the
landfill asset (balance sheet) as tons
are consumed over the life of the
landfill.                                   
|                                                     |  |                                                                                                                                                                                                                                                            |  |                                                                                                                                                                                                                                                                                  
|Discount Rate                                        |  | Risk-free rate (7.0% in 2002).                                                                                                                                                                                                                             |  | 2003 credit-adjusted risk-free rate
(9.0%).                                                                                                                                                                                                                                      
|                                                     |  |                                                                                                                                                                                                                                                            |  |                                                                                                                                                                                                                                                                                  
|Cost Estimates                                       |  | Costs are estimated for the
period of performance.
Capping, closure and
post-closure activities are
predominantly performed by
third-parties and a small
portion performed by
Allied.                                                                      |  | Costs are estimated for the period of
performance utilizing estimates that a
third-party would charge if they were
to manage and perform all capping,
closure and post-closure activities.                                                                                       
|                                                     |  |                                                                                                                                                                                                                                                            |  |                                                                                                                                                                                                                                                                                  
|Inflation                                            |  | Cost is inflated to period
of performance (2.5%).                                                                                                                                                                                                          |  | No change.                                                                                                                                                                                                                                                                       

96



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##### 



ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

|                                 |  |                                                                                                                                                     |  |                                                                                                                                                                     
|-------------------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Statement of Operations
Expense: |  | Prior Practice                                                                                                                                      |  | Effective January 1, 2003                                                                                                                                           
|                                 |  |                                                                                                                                                     |  |                                                                                                                                                                     
|Liability Accrual                |  | Cost of operations
is charged at the
same amount accrued
to the liability.                                                                          |  | The liability is no
longer accrued through a
charge to cost of
operations.                                                                                          
|                                 |  |                                                                                                                                                     |  |                                                                                                                                                                     
|Landfill Asset
     Amortization |  | The total cost of
landfill
development is
amortized over the
total capacity of
the landfill as
tons are consumed.                                   |  | The total cost of the
landfill development
plus the recorded and
future costs for
capping, closure and
post-closure are
amortized as tons are
consumed.             
|                                 |  |                                                                                                                                                     |  |                                                                                                                                                                     
|Accretion                        |  | Liability is
accreted at
risk-free rate
(7.0% in 2002)
using the effective
interest method and
accretion expense
is recorded in cost
of operations. |  | Liability is accreted at
the 2003 credit-adjusted
risk-free rate (9.0%)
using the effective
interest method and
accretion expense is
recorded in cost of
operations.

97



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##### 



ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Upon adoption, SFAS 143 required a cumulative change in accounting for landfill obligations retroactive to the date the landfill operations
commenced or the date the asset was acquired. To do this, SFAS 143 required the creation of the related landfill asset, net of accumulated
amortization and an adjustment to the capping, closure and post-closure liabilities for cumulative accretion.

At January 1, 2003, we recorded a cumulative effect of a change in accounting principle of a net gain of approximately $29.0 million (net of
income tax expense of $19.4 million). In addition, we recorded a decrease in our capping, closure and post-closure liabilities of
approximately $100.4 million, an increase in other long-term obligations of approximately $26.9 million, and a decrease in our net landfill
assets of approximately $25.1 million.

Following is a summary of the balance sheet changes for landfill assets and capping, closure and post-closure liabilities at January 1, 2003 (in
millions):

|                                               |  |              |         |        |  |      |        |            |  |   |          |  
|---------------------------------------------- |  | ------------ | ------- | ------ |  | ---- | ------ | ---------- |  | - | -------- | -
|                                               |  | Balance at   |         |        |  |      |        | Balance at
|                                               |  | December
31, |         |        |  |      |        | January 1,
|                                               |  | 2002         |         | Change |  | 2003
|                                               |  |              |         |        |  |     
|Landfill assets                                |  | $            | 2,531.4 |        |  | $    | 409.5  |            |  | $ | 2,940.9  |  
|Accumulated amortization                       |  |              | (657.9  | )      |  |      | (434.6 | )          |  |   | (1,092.5 | )
|                                               |  |              |         |        |  |      |        |            |  |   |          |  
|Net landfill assets                            |  | $            | 1,873.5 |        |  | $    | (25.1  | )          |  | $ | 1,848.4  |  
|                                               |  |              |         |        |  |      |        |            |  |   |          |  
|Capping, closure, and
post-closure liabilities |  | $            | 594.2   |        |  | $    | (100.4 | )          |  | $ | 493.8    |  
|                                               |  |              |         |        |  |      |        |            |  |   |          |  

The pro forma liability for capping, closure and post-closure obligations as of December 31, 2002, 2001 and 2000 would
have been $493.3 million, $439.7 million and $392.3 million, respectively.

Landfill accounting 

We have a network of 166 owned or operated active landfills with a net book value of approximately $2.0 billion at
December 31, 2003. 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 38 years. In addition, we own or have
responsibility for 111 closed landfills. During 2003, we acquired 3 landfills and divested 4 landfills.

We use a life-cycle accounting method for landfills and the related capping, closure and post-closure liabilities. This
method applies the costs to be capitalized associated with acquiring, developing, closing and monitoring the landfills
over the associated landfill capacity and associated consumption.

Specifically, we record landfill retirement obligations at fair value as a
liability with a corresponding increase to the landfill asset as tons are
disposed. The amortizable landfill asset includes (i) landfill development
costs incurred, (ii) landfill development costs expected to be incurred over the
life of the landfill, (iii) the recorded capping, closure and post-closure
liabilities and (iv) the present value of cost estimates for future capping,
closure and post-closure costs. We amortize the landfill asset over the total
capacity of the landfill as volume is consumed during the life of the landfill
with one exception. The exception applies to capping costs for which both the
recognition of the liability and the amortization of these costs is based
instead on the costs and capacity of the specific capping event.

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) and capping, closure and post-closure cost estimates for each landfill. Additionally, future capacity
estimates (sometimes referred to as airspace) are updated annually using aerial surveys of each landfill to estimate utilized
disposal capacity and remaining disposal capacity. The overall cost and capacity estimates are reviewed and approved by senior
operations management annually.

98



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##### 



ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Landfill assets 

We use the units of production method for purposes of calculating the amortization rate at each landfill. This methodology divides the remaining costs (including any unamortized amounts recorded)
associated with acquiring, permitting and developing the entire landfill plus the present value of the total remaining costs for specific capping events, closure and post-closure by the total
remaining disposal capacity of that landfill (except for capping costs, which are divided by the total remaining capacity of the specific capping event). The resulting per unit amortization rates
are applied to each unit disposed at the landfill and are recorded as expense for that period. We expensed approximately $243.4 million, or an average of $3.17 per ton consumed, related to landfill
amortization during the year ended December 31, 2003. Landfill amortization expense for the year ended December 31, 2002 and 2001 would have been $209.6 million and $195.4 million or an average of
$2.89 and $2.76 per ton consumed if we had been accounting for landfill retirement obligations under SFAS 143 since January 1, 2001. The following is a rollforward of our investment in our landfill
assets excluding land held for permitting as landfills (in millions):

|                |  |                  |      |             |  |              |       |              |  |          |      |      |  |              |        |                   |  |  |      |  |  |   |         | 
|--------------- |  | ---------------- | ---- | ----------- |  | ------------ | ----- | ------------ |  | -------- | ---- | ---- |  | ------------ | ------ | ----------------- |  |  | ---- |  |  | - | ------- | 
|                |  | Net Book Value   |      |             |  |              |       | Capping,     |  |          |      |      |  |              |        |                   |  |  |      | 
|Net Book Value  |  | of Landfills     |      | Landfill    |  | Closure and  |       |              |  |          |      |      |  |              |        | Net Book Value at
|at December 31, |  | Acquired, net of |      | Development |  | Post Closure |       | Landfill     |  |          |      |      |  | December 31,
|2002            |  | Divestitures     |      | Costs       |  | Costs        |       | Amortization |  | Other(1) |      | 2003
|                |  |                  |      |             |  |              |       |              |  |          |      |     
|$1,873.5        |  |                  | 41.2 |             |  |              | 222.8 |              |  |          | 42.9 |      |  |              | (243.4 | )                 |  |  | 29.5 |  |  | $ | 1,966.5 | 



(1)
Includes the cumulative effect of the change in accounting principle upon the adoption of SFAS 143 which decreased the net landfill asset by $25.1 million, offset by
increases for amounts transferred from land or land held for permitting as landfills to landfill (for projects that have met the criteria for probable expansion during 2003).


Costs associated with developing the landfill include direct costs such as excavation, liners, leachate collection systems, methane gas collection system installation, engineering and legal fees,
and capitalized interest. Estimated total future development costs for our 166 active landfills at December 31, 2003 was approximately $3.9 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 2.6 billion tons, as of December 31, 2003. We classify this
total disposal capacity as either permitted (having received the final permit from the governing authorities) or probable expansion. Probable expansion 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 requirements to
classify disposal capacity as probable expansion 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 life-cycle cost of the landfill and reflected in the calculation of the amortization rate and the rate
at which capping, closure and post-closure is accrued. At December 31, 2003, we had 1.9 billion tons of permitted disposal capacity, and at 34 of our
landfills, 615.4 million tons of probable expansion disposal capacity.

99



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##### 



ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table reflects disposal capacity activity for active landfills we owned or operated for the twelve months ended December 31, 2003 (disposal capacity in millions of tons):

|                                                  |  |           |         |           |  |           |     |           |  |          |       |           |  |  |    |   |  |  |         |       |  |  |     | 
|------------------------------------------------- |  | --------- | ------- | --------- |  | --------- | --- | --------- |  | -------- | ----- | --------- |  |  | -- | - |  |  | ------- | ----- |  |  | --- | 
|                                                  |  |           |         |           |  |           |     |           |  | Probable |       |           |  |  |    |   |  |  |         | Total
|                                                  |  | Permitted |         | Number    |  | Expansion |     | Number    |  | Total    |       | Number   
|                                                  |  | Disposal  |         | Of        |  | Disposal  |     | of        |  | Disposal |       | of       
|                                                  |  | Capacity  |         | Landfills |  | Capacity  |     | Landfills |  | Capacity |       | Landfills
|                                                  |  |           |         |           |  |           |     |           |  |          |       |          
|Balance as of
December 31, 2002                   |  |           | 1,925.9 |           |  |           | 165 |           |  |          | 580.1 |           |  |  | 35 |   |  |  | 2,506.0 |       |  |  | 165 | 
|Acquisitions,
divestitures and
closures           |  |           | 22.3    |           |  |           | 1   |           |  |          | 16.0  |           |  |  | 1  |   |  |  | 38.3    |       |  |  | 1   | 
|Additions to probable
expansion disposal
capacity |  |           |        |           |  |           |    |           |  |          | 69.1  |           |  |  | 4  |   |  |  | 69.1    |       |  |  |    | 
|Additions to permitted
disposal capacity          |  |           | 70.9    |           |  |           |    |           |  |          | (44.3 | )         |  |  | (6 | ) |  |  | 26.6    |       |  |  |    | 
|Disposal capacity
consumed                        |  |           | (76.8   | )         |  |           |    |           |  |          |      |           |  |  |   |   |  |  | (76.8   | )     |  |  |    | 
|Changes in engineering
estimates                  |  |           | (4.9    | )         |  |           |    |           |  |          | (5.4  | )         |  |  |   |   |  |  | (10.3   | )     |  |  |    | 
|                                                  |  |           |         |           |  |           |     |           |  |          |       |           |  |  |    |   |  |  |         |       |  |  |     | 
|Balance as of
December 31, 2003                   |  |           | 1,937.4 |           |  |           | 166 |           |  |          | 615.5 |           |  |  | 34 |   |  |  | 2,552.9 |       |  |  | 166 | 
|                                                  |  |           |         |           |  |           |     |           |  |          |       |           |  |  |    |   |  |  |         |       |  |  |     | 

We, together with our engineering and legal consultants, continually monitor the progress of obtaining local, state and federal approval for each of our 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 capping, closure and post-closure costs are removed from the landfill amortization base, and rates are adjusted prospectively. In
addition, any value assigned to probable expansion capacity is 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:

|               |  |                      |     |                      |  |                 |     |                  |  |  |     |  |  |  |     |  
|-------------- |  | -------------------- | --- | -------------------- |  | --------------- | --- | ---------------- |  |  | --- |  |  |  | --- | -
|               |  | At December 31, 2003 |     | At December 31, 2002
|               |  |                      |     |                     
|               |  | Number of Sites      |     | Percent of Total     |  | Number of Sites |     | Percent of Total
|               |  |                      |     |                      |  |                 |     |                 
|0 to 5 years   |  |                      | 27  |                      |  |                 | 16  | %                |  |  | 26  |  |  |  | 16  | %
|5 to 10 years  |  |                      | 12  |                      |  |                 | 7   |                  |  |  | 17  |  |  |  | 11  |  
|10 to 20 years |  |                      | 37  |                      |  |                 | 22  |                  |  |  | 30  |  |  |  | 18  |  
|20 to 40 years |  |                      | 44  |                      |  |                 | 27  |                  |  |  | 42  |  |  |  | 25  |  
|40+ years      |  |                      | 46  |                      |  |                 | 28  |                  |  |  | 50  |  |  |  | 30  |  
|               |  |                      |     |                      |  |                 |     |                  |  |  |     |  |  |  |     |  
|Total          |  |                      | 166 |                      |  |                 | 100 | %                |  |  | 165 |  |  |  | 100 | %
|               |  |                      |     |                      |  |                 |     |                  |  |  |     |  |  |  |     |  

Capping, closure and post-closure

In addition to our portfolio of 166 active landfills, we own or have responsibility for 111 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, capping activities include the installation of compacted clay, geosynthetic liners, drainage channels, compacted soil layers
and vegetative soil barriers over areas of a landfill where total airspace has been consumed and waste is no longer being received. Capping activities occur throughout the life of the landfill.

100



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##### 



ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Closure costs are those costs incurred after a landfill
site stops receiving waste, but prior to being certified
as closed. 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 may
extend 30 years. Post-closure requirements generally
include maintenance and operational costs of the site
and monitoring the methane gas collection systems and
groundwater systems, among other post-closure
activities. Estimated costs for capping, closure and
post-closure as required under Subtitle D regulations
are compiled and updated annually for each landfill by
local and regional company engineers. Daily maintenance
activities, such as leachate disposal, methane gas and
groundwater monitoring and maintenance, and mowing and
fertilizing capped areas, incurred during the operating
life of the landfill are expensed as incurred. The
following table is a summary of the capping, closure and
post-closure costs (in millions):

|                                                                            |                                                                                   |  |              |         | 
|--------------------------------------------------------------------------- | --------------------------------------------------------------------------------- |  | ------------ | ------- | 
|                                                                            |                                                                                   |  | December 31,
|                                                                            |                                                                                   |  | 2003        
|                                                                            |                                                                                   |  |             
|Discounted Capping, Closure and Post-Closure Liability Recorded :           |                                                                                   |  |              |        
|                                                                            | Current Portion                                                                   |  | $            | 69.0    | 
|                                                                            | Non-Current Portion                                                               |  |              | 478.9   | 
|                                                                            |                                                                                   |  |              |        
|                                                                            | Total                                                                             |  | $            | 547.9   | 
|                                                                            |                                                                                   |  |              |        
|Estimated Remaining Capping, Closure and Post-Closure Costs to be
Expended: |                                                                                   |  |              |        
|                                                                            | 2004                                                                              |  | $            | 69.0    | 
|                                                                            | 2005                                                                              |  |              | 68.7    | 
|                                                                            | 2006                                                                              |  |              | 70.7    | 
|                                                                            | 2007                                                                              |  |              | 69.6    | 
|                                                                            | 2008                                                                              |  |              | 63.9    | 
|                                                                            | Thereafter                                                                        |  |              | 2,422.2 | 
|                                                                            |                                                                                   |  |              |        
|                                                                            | Remaining Undiscounted Capping, Closure and Post-Closure Costs
to be Expended     |  | $            | 2,764.1 | 
|                                                                            |                                                                                   |  |              |        
|                                                                            | Total Remaining Discounted Capping, Closure and Post-Closure Costs
to be Expended |  | $            | 921.2   | 
|                                                                            |                                                                                   |  |              |        

SFAS 143 requires landfill obligations to be recorded at fair value. Quoted market prices in active markets are the best
evidence of fair value. Since quoted market prices for landfill retirement obligations are not available to determine fair
value, we use discounted cash flows of capping, closure and post-closure cost estimates to approximate fair value. The
cost estimates are prepared by our local management and third-party engineers based on the applicable local, state and
federal regulations and site specific permit requirements and are intended to approximate fair value.

Capping, closure and post-closure costs are estimated for the period of performance utilizing estimates a third party would
charge (including profit margins) to perform those activities in full compliance with Subtitle D. If we perform the
capping, closure and post-closure activities internally, the difference between amounts accrued, based upon third party
cost estimates (including profit margins) and our actual cost incurred is recognized as a component of cost of operations
in the period earned. An estimate of fair value should include the price that marketplace participants are able to receive
for bearing the uncertainties in cash flows. However, when utilizing discounted cash flows, reliable estimates of market
risk premiums may not be obtainable. In our industry, there is no market that exists for selling the responsibility for
capping, closure and post-closure independent of selling the entire landfill. Accordingly, we believe that it is not
possible to develop a methodology to reliably estimate a market risk premium and have excluded a market risk premium from
our determination of expected cash flows for capping, closure and post-closure liability.

101



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##### 



ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

We discount our capping,
closure and post-closure
costs using our
credit-adjusted, risk-free
rate (of 9% in 2003). The
credit-adjusted, risk-free
rate is based on the
risk-free interest rate on
obligations of similar
maturity adjusted for our
own credit rating. Changes
in our credit-adjusted,
risk-free rate do not
change recorded
liabilities, but
subsequently recognized
obligations are measured
using the revised
credit-adjusted, risk-free
rate.

Accretion expense is
necessary to increase the
accrued capping, closure
and post-closure accrual
balance to its future, or
undiscounted, value. To
accomplish this, we accrete
our capping, closure and
post-closure accrual
balance using the
credit-adjusted, risk-free
rate (of 9% in 2003) and
charge this accretion as an
operating expense in that
period. Accretion expense
on recorded landfill
liabilities is recorded to
cost of operations from the
time the liability is
recognized until the costs
are paid.

We charged approximately
$44.3 million, or an
average of $0.58 per ton
consumed, related to
accretion of the capping,
closure and post-closure
liabilities during the year
ended December 31, 2003.
Accretion expense for the
year ended December 31,
2002 and 2001 would have
been $42.1 million and
$37.6 million or an average
of $0.58 and $0.53 per ton
consumed if we would have
been accounting for
capping, closure and
post-closure obligations
under SFAS 143 since
January 1, 2001. Changes
in estimates of costs or
disposal capacity are
treated on a prospective
basis for operating
landfills and are recorded
immediately in results of
operations for fully
incurred capping events and
closed landfills.

Environmental costs -

We engage independent environmental consulting firms to assist us in
conducting environmental assessments of existing landfills or other
properties, and in connection with companies acquired from third
parties.

We cannot determine with precision the ultimate amounts for
environmental liabilities. We make estimates of our potential
liabilities in consultation with our independent environmental
engineers and legal counsel. These estimates 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.

Our ultimate liabilities for environmental matters may differ from the
estimates used in our assessment to date. We periodically evaluate the
recorded liabilities 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,
2003 and 2002 of approximately $337.4 million and $365.1 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, 2003 or
December 31, 2002. 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 capping,
closure and post-closure could result in approximately $20 million of
additional liability.

102



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##### 



ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table shows the activity and balances related to environmental accruals and for capping, closure and post-closure accruals related to open and closed landfills from December 31, 2000 through December
31, 2003 (in millions):

|                                                            |  |            |         |            |  |            |      |          |  |          |      |            |  |   |       |   |  |   |         | 
|----------------------------------------------------------- |  | ---------- | ------- | ---------- |  | ---------- | ---- | -------- |  | -------- | ---- | ---------- |  | - | ----- | - |  | - | ------- | 
|                                                            |  | Balance at |         | Charges to |  | Other      |      |          |  |          |      | Balance at
|                                                            |  | 12/31/00   |         | Expense    |  | Charges(1) |      | Payments |  | 12/31/01
|                                                            |  |            |         |            |  |            |      |          |  |         
|Environmental accruals                                      |  | $          | 432.5   |            |  | $          |     |          |  | $        | (0.7 | )          |  | $ | (36.4 | ) |  | $ | 395.4   | 
|Open landfills capping, closure
and post-closure accruals   |  |            | 323.9   |            |  |            | 50.9 |          |  |          | (3.4 | )          |  |   | (28.3 | ) |  |   | 343.1   | 
|Closed landfills capping, closure
and post-closure accruals |  |            | 277.1   |            |  |            | 16.1 |          |  |          | 3.5  |            |  |   | (30.9 | ) |  |   | 265.8   | 
|                                                            |  |            |         |            |  |            |      |          |  |          |      |            |  |   |       |   |  |   |         | 
|Total                                                       |  | $          | 1,033.5 |            |  | $          | 67.0 |          |  | $        | (0.6 | )          |  | $ | (95.6 | ) |  | $ | 1,004.3 | 
|                                                            |  |            |         |            |  |            |      |          |  |          |      |            |  |   |       |   |  |   |         | 

|                                                            |  |            |         |            |  |            |      |          |  |          |       |            |  |   |        |   |  |   |       | 
|----------------------------------------------------------- |  | ---------- | ------- | ---------- |  | ---------- | ---- | -------- |  | -------- | ----- | ---------- |  | - | ------ | - |  | - | ----- | 
|                                                            |  | Balance at |         | Charges to |  | Other      |      |          |  |          |       | Balance at
|                                                            |  | 12/31/01   |         | Expense    |  | Charges(1) |      | Payments |  | 12/31/02
|                                                            |  |            |         |            |  |            |      |          |  |         
|Environmental accruals                                      |  | $          | 395.4   |            |  | $          |     |          |  | $        | (2.5  | )          |  | $ | (27.8  | ) |  | $ | 365.1 | 
|Open landfills capping, closure
and post-closure accruals   |  |            | 343.1   |            |  |            | 54.7 |          |  |          | (14.9 | )          |  |   | (46.7  | ) |  |   | 336.2 | 
|Closed landfills capping, closure
and post-closure accruals |  |            | 265.8   |            |  |            | 15.8 |          |  |          | 6.6   |            |  |   | (30.2  | ) |  |   | 258.0 | 
|                                                            |  |            |         |            |  |            |      |          |  |          |       |            |  |   |        |   |  |   |       | 
|Total                                                       |  | $          | 1,004.3 |            |  | $          | 70.5 |          |  | $        | (10.8 | )          |  | $ | (104.7 | ) |  | $ | 959.3 | 
|                                                            |  |            |         |            |  |            |      |          |  |          |       |            |  |   |        |   |  |   |       | 

|                                                            |  |            |       |            |  |            |      |          |  |          |       |            |  |   |       |   |  |   |       | 
|----------------------------------------------------------- |  | ---------- | ----- | ---------- |  | ---------- | ---- | -------- |  | -------- | ----- | ---------- |  | - | ----- | - |  | - | ----- | 
|                                                            |  | Balance at |       | Charges to |  | Other      |      |          |  |          |       | Balance at
|                                                            |  | 12/31/02   |       | Expense    |  | Charges(1) |      | Payments |  | 12/31/03
|                                                            |  |            |       |            |  |            |      |          |  |         
|Environmental accruals                                      |  | $          | 365.1 |            |  | $          |     |          |  | $        | (2.8  | )          |  | $ | (24.9 | ) |  | $ | 337.4 | 
|Open landfills capping, closure
and post-closure accruals   |  |            | 336.2 |            |  |            | 28.0 |          |  |          | 31.3  |            |  |   | (19.1 | ) |  |   | 376.4 | 
|Closed landfills capping, closure
and post-closure accruals |  |            | 258.0 |            |  |            | 16.3 |          |  |          | (71.7 | )          |  |   | (31.1 | ) |  |   | 171.5 | 
|                                                            |  |            |       |            |  |            |      |          |  |          |       |            |  |   |       |   |  |   |       | 
|Total                                                       |  | $          | 959.3 |            |  | $          | 44.3 |          |  | $        | (43.2 | )          |  | $ | (75.1 | ) |  | $ | 885.3 | 
|                                                            |  |            |       |            |  |            |      |          |  |          |       |            |  |   |       |   |  |   |       | 



|(1) |  | Amounts consist primarily of liabilities related to acquired and divested companies, the cumulative effect of change in accounting principle for the adoption of SFAS 143 and the
recognition of amounts accrued for capping, closure and post-closure liability to landfill asset during the period.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

103



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##### 



ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

9.     Employee Benefit Plans

Defined Benefit Pension Plans -

We have one qualified defined benefit retirement plan as a result of the BFI
acquisition. This plan covers certain BFI employees in the United States,
including some employees subject to collective bargaining agreements.

During 2002, 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, Inc. (San Mateo Pension Plan) were merged into one
plan. However, benefits continue to be determined under each of the two
separate benefit structures. The BFI Pension Plan was amended on July 30, 1999
to freeze future credited service, but interest credits continue to accrue.
Certain participants continued to receive 2% annual service credits
through a portion of the 2003 plan year, in addition to interest credits, pursuant to collective
bargaining agreements. The benefits not frozen under this plan are based on
years of service and the employees compensation.

The San Mateo Pension Plan covers substantially all employees at this location,
but excludes employees who are covered under collective bargaining agreements
under which benefits have been the subject of good faith bargaining. 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. The San Mateo Pension Plan was amended in July 2003
to provide unreduced benefits, under certain circumstances, to participants who
retire on or after January 1, 2004, at or after a special early retirement
date.

Our general funding policy for each pension plan is to make annual
contributions to the plan as determined to be required by the plans actuary
and as required by ERISA. No contributions were required during 2003, 2002, or
2001. No contributions are anticipated for 2004.

Actuarial valuation reports were
prepared as of the measurement dates of September 30, 2003 and 2002, and used as permitted by SFAS 132R, for
disclosures included in the tables below (in millions, except percentages):

104



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##### 



ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table provides a reconciliation of the changes in the plans benefit obligations and the fair value of plan assets for the twelve
month period ended September 30:

|                                                    |  |      |       |      |  |   |       |  
|--------------------------------------------------- |  | ---- | ----- | ---- |  | - | ----- | -
|                                                    |  | 2003 |       | 2002
|                                                    |  |      |       |     
|Projected benefit obligation at beginning of period |  | $    | 299.2 |      |  | $ | 269.6 |  
|Service cost                                        |  |      | 0.9   |      |  |   | 0.9   |  
|Interest cost                                       |  |      | 19.9  |      |  |   | 19.3  |  
|Amendment costs                                     |  |      | 3.8   |      |  |   | 0.2   |  
|Actuarial loss                                      |  |      | 28.0  |      |  |   | 22.3  |  
|Benefits paid                                       |  |      | (11.8 | )    |  |   | (13.1 | )
|                                                    |  |      |       |      |  |   |       |  
|Projected benefit obligation at end of period       |  | $    | 340.0 |      |  | $ | 299.2 |  
|                                                    |  |      |       |      |  |   |       |  
|Fair value of plan assets at beginning of period    |  | $    | 277.6 |      |  | $ | 305.4 |  
|Actual return on plan assets                        |  |      | 51.6  |      |  |   | (14.7 | )
|Benefits paid                                       |  |      | (11.8 | )    |  |   | (13.1 | )
|                                                    |  |      |       |      |  |   |       |  
|Fair value of plan assets at end of period          |  | $    | 317.4 |      |  | $ | 277.6 |  
|                                                    |  |      |       |      |  |   |       |  
|Funded Status                                       |  | $    | (22.6 | )    |  | $ | (21.5 | )
|Unrecognized net actuarial loss                     |  |      | 123.5 |      |  |   | 129.6 |  
|Unrecognized prior service cost                     |  |      | 3.5   |      |  |   | 0.1   |  
|                                                    |  |      |       |      |  |   |       |  
|Prepaid pension asset                               |  | $    | 104.4 |      |  | $ | 108.2 |  
|                                                    |  |      |       |      |  |   |       |  

The following table provides the amounts recognized in the consolidated balance sheets as of December 31:

|                                                        |  |      |        |      |  |   |        |  
|------------------------------------------------------- |  | ---- | ------ | ---- |  | - | ------ | -
|                                                        |  | 2003 |        | 2002
|                                                        |  |      |        |     
|Prepaid pension asset                                   |  | $    | 104.9  |      |  | $ | 108.2  |  
|Accrued benefit liability                               |  |      | (121.8 | )    |  |   | (124.7 | )
|                                                        |  |      |        |      |  |   |        |  
|Net pension liability                                   |  |      | (16.9  | )    |  |   | (16.5  | )
|Intangible assets                                       |  |      | 3.3    |      |  |   | 0.1    |  
|Accumulated other comprehensive loss
before tax benefit |  |      | 118.0  |      |  |   | 124.6  |  
|                                                        |  |      |        |      |  |   |        |  
|Net amount recognized                                   |  | $    | 104.4  |      |  | $ | 108.2  |  
|                                                        |  |      |        |      |  |   |        |  

The accumulated benefit obligation for our defined benefit pension plan was $334.3 million and $294.2 million at December 31, 2003 and 2002, respectively. The primary
difference between the projected benefit obligation and the accumulated benefit obligation is that the projected benefit obligation includes assumptions about future
compensation levels and the accumulated benefit obligation does not.

The following table provides the components of net periodic benefit cost (income) for the years ended December 31:

|                                     |  |      |       |      |  |      |       |   |  |   |       |  
|------------------------------------ |  | ---- | ----- | ---- |  | ---- | ----- | - |  | - | ----- | -
|                                     |  | 2003 |       | 2002 |  | 2001
|                                     |  |      |       |      |  |     
|Service cost                         |  | $    | 0.9   |      |  | $    | 0.9   |   |  | $ | 0.8   |  
|Interest cost                        |  |      | 19.9  |      |  |      | 19.3  |   |  |   | 17.7  |  
|Expected return on plan assets       |  |      | (25.8 | )    |  |      | (30.4 | ) |  |   | (35.4 | )
|Recognized net actuarial (gain) loss |  |      | 8.3   |      |  |      | 2.0   |   |  |   | (0.2  | )
|Amortization of prior service cost   |  |      | 0.5   |      |  |      |      |   |  |   |      |  
|                                     |  |      |       |      |  |      |       |   |  |   |       |  
|Net periodic benefit cost (income)   |  | $    | 3.8   |      |  | $    | (8.2  | ) |  | $ | (17.1 | )
|                                     |  |      |       |      |  |      |       |   |  |   |       |  

105



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##### 



ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table provides additional information regarding our pension plan for the years ended December 31:

|                                                                                                    |  |      |      |      |  |      |       |    |  |   |       |   
|--------------------------------------------------------------------------------------------------- |  | ---- | ---- | ---- |  | ---- | ----- | -- |  | - | ----- | --
|                                                                                                    |  | 2003 |      | 2002 |  | 2001
|                                                                                                    |  |      |      |      |  |     
|Increase (decrease) in minimum pension
liability included in other comprehensive
income, net of tax |  | $    | (4.0 | )    |  | $    | 74.8  |    |  | $ |      |   
|Actual return on plan assets                                                                        |  | $    | 51.6 |      |  | $    | (14.7 | )  |  | $ | (33.4 | ) 
|Actual return on plan assets (%)                                                                    |  |      | 19.0 | %    |  |      | (4.8  | )% |  |   | (9.4  | )%

The assumptions used in the measurement of our benefit obligations for the current year and net periodic cost for the following year are shown in the following table (weighted average
assumptions as of September 30):

|                                      |  |      |      |      |  |      |      |   |  |  |      |  
|------------------------------------- |  | ---- | ---- | ---- |  | ---- | ---- | - |  |  | ---- | -
|                                      |  | 2003 |      | 2002 |  | 2001
|                                      |  |      |      |      |  |     
|Discount rate                         |  |      | 6.25 | %    |  |      | 6.75 | % |  |  | 7.25 | %
|Average rate of compensation increase |  |      | 4.00 | %    |  |      | 4.00 | % |  |  | 4.00 | %
|Expected return on plan assets        |  |      | 9.00 | %    |  |      | 9.50 | % |  |  | 9.75 | %

We determine the expected long-term rate of return by averaging the expected earnings for the target asset portfolio. In developing our expected rate of return assumption, we evaluate an
analysis of historical actual performance and long-term return projections from our investment managers, which gives consideration to our asset mix and anticipated length of obligation of our
plan.

We employ a total return investment approach whereby a mix of equities and fixed income investments are used to maximize the long-term return of plan assets for a prudent level of risk. The
intent of this strategy is to minimize plan expenses by outperforming plan liabilities over the long run. Risk tolerance is established through careful consideration of plan liabilities, plan
funded status, and corporate financial condition. The investment portfolio contains a diversified blend of equity and fixed income investments. Furthermore, equity investments are diversified
across U.S and non-U.S. stocks as well as growth, value, and small and large capitalizations. Derivatives may be used to gain market exposure in an efficient and timely manner; however,
derivatives may not be used to leverage the portfolio beyond the market value of the underlying investments. Historically, we have not invested in derivative instruments in our investment
portfolio. Investment risk is measured and monitored on an ongoing basis through annual liability measurements, periodic asset/liability studies, and quarterly investment portfolio reviews.

The following table summarizes our plan asset allocation at September 2003 and 2002, target allocation for 2004, and expected long-term rate of return by asset category for calendar year 2003:

|                  |       |  |                   |     |      |  |                              |     |                    |  |    |     |   |  |      |     |  
|----------------- | ----- |  | ----------------- | --- | ---- |  | ---------------------------- | --- | ------------------ |  | -- | --- | - |  | ---- | --- | -
|                  |       |  |                   |     |      |  | Percentage of plan assets at |     | Weighted average  
|                  |       |  |                   |     |      |  | September 30,                |     | expected long-term
|                  |       |  | Target allocation |     |      |  | rate of return for          
|                  |       |  | 2004              |     | 2003 |  | 2002                         |     | calendar year 2003
|                  |       |  |                   |     |      |  |                              |     |                   
|Equity securities |       |  | 60                | %   |      |  | 61                           | %   |                    |  | 56 | %   |   |  | 10.6 | %  
|Debt securities   |       |  | 40                | %   |      |  | 39                           | %   |                    |  | 44 | %   |   |  | 6.2  | %  
|                  |       |  |                   |     |      |  |                              |     |                    |  |    |     |   |  |      |    
|                  | Total |  |                   | 100 | %    |  |                              | 100 | %                  |  |    | 100 | % |  |      | 9.5 | %
|                  |       |  |                   |     |      |  |                              |     |                    |  |    |     |   |  |      |    

106



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##### 



ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table provides the benefit
payments made during 2003 and 2002 and
estimated future benefit payments:

|                           |  |   |      | 
|-------------------------- |  | - | ---- | 
|Benefit payments:          |  |   |      | 
|2002                       |  | $ | 13.1 | 
|2003                       |  | $ | 11.8 | 
|Estimated future payments: |  |   |      | 
|2004                       |  | $ | 10.6 | 
|2005                       |  |   | 10.9 | 
|2006                       |  |   | 11.4 | 
|2007                       |  |   | 11.6 | 
|2008                       |  |   | 12.2 | 
|Years 2009 - 2013          |  |   | 68.8 | 

401k Plan 

We sponsor 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 under collective
bargaining agreements where benefits have been the subject of
good faith bargaining. Eligible employees may contribute up to
25% 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. We match in cash 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. Our matching contributions
totaled $9.4 million, $9.4 million, and $9.5 million for fiscal
years 2003, 2002, and 2001, respectively.

Long-Term Incentive Plan 

Effective January 1, 2003, the Management
Development/Compensation Committee of the Board of Directors
granted new long-term performance incentive awards to key member
of management for the fiscal 2003-2004 and 2003-2005 performance
periods. Such awards are intended to provide continuing emphasis
on specified performance goals that the Management
Development/Compensation Committee considers to be important
contributors to long-term stockholder value.

The awards are payable only if we achieve specified performance
goals. The performance goals set by the Management
Development/Compensation Committee may be based upon the metrics
reflecting one or more of the following business measurements:
earnings, cash flow, revenues, financial return ratios, debt
reduction, risk management, customer satisfaction, and total
stockholder returns, any of which may be measured either in
absolute terms or as compared with another company or companies
or with prior periods. Under certain circumstances, the
Management Development/Compensation Committee has the discretion
to adjust the performance goals that are set for a performance
period.

We record an accrual for the award to be paid in the period
earned based on anticipated achievement of the performance goals.
All awards are forfeited if the participant voluntarily
terminates employment or is discharged for cause. Participants
may be given the opportunity to elect to receive some or all of
any payment in the form of shares of our common stock.

107



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##### 



ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

10.     Preferred Stock

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 were 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 had the number of votes equal
to the number of shares of common stock then issuable upon conversion.
Shareholders of Preferred Stock were entitled to cumulative quarterly dividends
in an amount equal to the greater of (i) the Preferred Stock share of common
stock dividends paid based on the number of shares of common stock then
issuable upon conversion or (ii) the stated rate of 6.5% per annum of the sum
of the liquidation preference plus accrued but unpaid dividends for prior
quarters. We were restricted from the payment under our Credit Facility.
Beginning July 30, 2004, the stated dividend rate on the Preferred Stock would
increase to 12% per annum for any dividends that are not paid in cash. If
dividends were not paid in cash, the liquidation preference of the Preferred
Stock increased by any accrued and unpaid dividends.

The Preferred Stock had a redemption
price of its then liquidation
preference per share, together with any
accrued and unpaid dividends.
Redemption of the Preferred Stock was
at our option in whole, but not in
part, at any time on or after July 30,
2004. We had 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 were represented by members of the board and
are also holders of common stock, had 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 were 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 issuance through December 18, 2003, approximately $326.9 million or
$327 per share had been added to the liquidation preference of the preferred
stock for accrued but unpaid dividends.

On December 18, 2003, we completed the exchange of the
Series A Preferred Stock outstanding for 110.5 million
shares of our common stock. The Series A Preferred Stock
had a stated value of $1.327 billion at December 18, 2003,
the exchange date, which represented the original issuance
amount plus cumulative accrued and unpaid dividends. Upon
completion of the exchange transaction our outstanding
shares on a fully diluted basis increased to approximately
350 million shares. As a result of the exchange,
approximately $90 million in future annual dividend payments
due to begin July 2004 have been eliminated.

The terms of the exchange was approved by a special committee
of disinterested directors of our Board of
Directors and was approved by the full Board of Directors.
The Special Committee was advised by an independent financial advisor
in connection with this transaction. The completion of this
transaction was subject to certain approvals, including
approval by our shareholders. We obtained shareholder
approval at a special meeting of the shareholders held on
December 18, 2003. Under the terms of the exchange
agreement, the holders of the Series A Preferred Stock are
restricted from selling the shares of common stock they
receive for one year from the exchange date.

108



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##### 



ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Due to the change in the original conversion terms, we are required to quantify the accounting effect of the change in conversion terms and reduce
net income available to common shareholders by the corresponding amount. Accordingly, we recorded a non-cash conversion charge of $496.6 million,
which is reflected as a reduction to net income available to common shareholders, but has no effect on total stockholders equity because offsetting
amounts are recorded to additional paid-in capital. The non-cash conversion charge was calculated as the market value of the shares of our common
stock issued in excess of the shares of common stock that the holders of the Series A Preferred Stock could have converted into under the original
terms of the Series A Preferred Stock. The market value is based on the closing price of our common stock on the date shareholder approval was
obtained.

Mandatory Convertible Preferred Stock 

On April 9, 2003, we issued 6.9 million shares of Series C Mandatory Convertible Preferred Stock (Series C Preferred Stock), par value $0.10 at
$50 per share, through a public offering for net proceeds of approximately $333 million. The Series C Preferred Stock has a dividend rate of
6.25%. The Series C Preferred Stock is mandatorily convertible on April 1, 2006. On the conversion date, each share of Series C Preferred
Stock will automatically convert into shares of common stock based on the following conversion table:

|                                |  |                  |        | 
|------------------------------- |  | ---------------- | ------ | 
|Applicable Market Value         |  |                  |        | 
|of Common Shares                |  | Conversion Rate 
|                                |  |                 
|Less than or equal to $8.30     |  |                  | 6.02:1 | 
|Between $8.30 and $10.13        |  | 6.02:1 to 4.94:1
|Equal to or greater than $10.13 |  |                  | 4.94:1 | 

The Series C Preferred Stock is convertible into common stock at any time prior to April 1, 2006 at the option of the holder at a conversion rate of 4.94.
Any time prior to April 1, 2006, the Series C Preferred Stock can be required to be converted at our option if the closing price of our common stock is
greater than $15.20 for 20 days within a 30-day consecutive period. If the conversion is required by us, we are required to pay the present value of the
remaining dividend payments through April 1, 2006.

11.     Stockholders Equity

We had 525 million shares of Allied common stock authorized at December 31, 2003. The par value of these shares are $0.01. An increase in the number of
authorized shares of Allied from 300 million to 525 million shares was approved by the stockholders in January 2003.

On April 9, 2003, we issued 12,048,193 shares of common stock, par value $0.01, through a public offering for net proceeds of approximately $94 million. On
December 18, 2003, we issued 110.5 million shares of common stock in exchange for all of the outstanding Series A Preferred Stock.

The following table shows the activity and balances related to our common stock, net of 0.6 million treasury shares in 2003, 2002 and 2001 for the year ended
December 31, (in millions):

|                                     |  |      |       |      |  |      |       |   |  |  |       |  
|------------------------------------ |  | ---- | ----- | ---- |  | ---- | ----- | - |  |  | ----- | -
|                                     |  | 2003 |       | 2002 |  | 2001
|                                     |  |      |       |      |  |     
|Balance at beginning of year         |  |      | 196.2 |      |  |      | 196.2 |   |  |  | 196.1 |  
|Common stock issued, net             |  |      | 122.6 |      |  |      | (0.3  | ) |  |  | (0.6  | )
|Stock options and warrants exercised |  |      | 1.3   |      |  |      | 0.3   |   |  |  | 0.7   |  
|                                     |  |      |       |      |  |      |       |   |  |  |       |  
|Balance at end of year               |  |      | 320.1 |      |  |      | 196.2 |   |  |  | 196.2 |  
|                                     |  |      |       |      |  |      |       |   |  |  |       |  

109



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##### 



ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Warrants to purchase common stock

Warrants to purchase common shares at December 31, 2003 and 2002 are summarized as follows:

|                         |  |      |   |      |  |   |         | 
|------------------------ |  | ---- | - | ---- |  | - | ------- | 
|                         |  | 2003 |   | 2002
|                         |  |      |   |     
|Number of shares         |  |      |  |      |  |   | 347,827 | 
|Purchase price per share |  |      |  |      |  | $ | 4.60    | 
|Expiration dates         |  |      |  |      |  |   | 2003    | 

12.     Stock Plans

Stock options 

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. The 1991 Plan limits the maximum number of shares that may be granted to not more than 10.5% of the number of fully diluted shares of common
stock on the date of grant of an award. The 1991 plan also limits awards in the form of restricted stock, stock bonuses, performance awards and
phantom stock 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 1991 Plan to 500,000 per year. An additional maximum number of shares of 2,000,000 common shares may be granted
under the 1994 Plan. After taking into account previously granted awards, awards covering approximately 13,297,714 shares of common
stock were available under the Plans. The Management Development/Compensation Committee of the Board of Directors generally determines the exercise
price, term and other conditions applicable to each option granted. Options granted under the Plans typically vest over 3 years and expire ten years
from the grant date.

The 1994 Amended and Restated Non-Employee Director Stock Option Plan provides for the grant of non-qualified options to each non-employee member of
the Board of Directors 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 to non-employee directors are fully vested and exercisable on
the date of grant and expire ten years from the grant date.

A summary of the status of our stock option plans at December 31, 2003, 2002 and 2001 and for the years then ended is presented
in the table and narrative below:

|                                       |  |                          |            |       |  |          |       |       |  |         |            |          |  |   |       |  |  |          |            |   |  |   |       | 
|-------------------------------------- |  | ------------------------ | ---------- | ----- |  | -------- | ----- | ----- |  | ------- | ---------- | -------- |  | - | ----- |  |  | -------- | ---------- | - |  | - | ----- | 
|                                       |  | Years Ended December 31,
|                                       |  |                         
|                                       |  | 2003                     |            | 2002  |  | 2001    
|                                       |  |                          |            |       |  |         
|                                       |  |                          |            |       |  | Weighted |       |       |  |         |            | Weighted |  |   |       |  |  | Weighted
|                                       |  |                          |            |       |  | Average  |       |       |  |         |            | Average  |  |   |       |  |  | Average 
|                                       |  |                          |            |       |  | Exercise |       |       |  |         |            | Exercise |  |   |       |  |  | Exercise
|                                       |  | Options                  |            | Price |  | Options  |       | Price |  | Options |            | Price   
|                                       |  |                          |            |       |  |          |       |       |  |         |            |         
|Options outstanding,
beginning of year |  |                          | 19,760,058 |       |  | $        | 12.20 |       |  |         | 16,720,682 |          |  | $ | 12.77 |  |  |          | 15,451,642 |   |  | $ | 12.82 | 
|Options granted                        |  |                          | 3,037,250  |       |  |          | 11.39 |       |  |         | 4,559,750  |          |  |   | 10.50 |  |  |          | 2,401,250  |   |  |   | 13.41 | 
|Options exercised                      |  |                          | (1,080,647 | )     |  |          | 6.76  |       |  |         | (337,582   | )        |  |   | 8.40  |  |  |          | (690,969   | ) |  |   | 9.52  | 
|Options forfeited
or expired           |  |                          | (1,711,851 | )     |  |          | 12.65 |       |  |         | (1,182,792 | )        |  |   | 14.88 |  |  |          | (441,241   | ) |  |   | 14.45 | 
|                                       |  |                          |            |       |  |          |       |       |  |         |            |          |  |   |       |  |  |          |            |   |  |   |       | 
|Options outstanding,
end of year       |  |                          | 20,004,810 |       |  |          | 12.33 |       |  |         | 19,760,058 |          |  |   | 12.20 |  |  |          | 16,720,682 |   |  |   | 12.77 | 
|                                       |  |                          |            |       |  |          |       |       |  |         |            |          |  |   |       |  |  |          |            |   |  |   |       | 
|Options exercisable,
end of year       |  |                          | 13,898,143 |       |  |          | 12.70 |       |  |         | 12,243,724 |          |  |   | 14.17 |  |  |          | 10,031,008 |   |  |   | 14.57 | 
|                                       |  |                          |            |       |  |          |       |       |  |         |            |          |  |   |       |  |  |          |            |   |  |   |       | 

110



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##### 



ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The weighted average fair value of options granted were $5.72, $5.53, and $7.35
for the three years ended December 31, 2003. 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 following tables summarize information about stock options outstanding at
December 31, 2003, which are fully vested, partially vested and non-vested:

Fully Vested:

Options Outstanding and Exercisable

---

|                         |  |             |           |                |  |                |  |          |       |  |  | 
|------------------------ |  | ----------- | --------- | -------------- |  | -------------- |  | -------- | ----- |  |  | 
|                         |  |             |           |                |  | Weighted       |  | Weighted
|                         |  | Number      |           | Average        |  | Average       
|Range of Exercise Prices |  | Outstanding |           | Remaining Life |  | Exercise Price
|                         |  |             |           |                |  |               
|$4.27 - $8.83            |  |             | 1,656,129 |                |  | 4 years        |  | $        | 6.25  | 
|$9.50 - $12.25           |  |             | 2,771,764 |                |  | 3 years        |  | $        | 9.89  | 
|$12.92 - $21.97          |  |             | 6,790,985 |                |  | 5 years        |  | $        | 15.53 | 
|$22.84 - $27.27          |  |             | 130,349   |                |  | 5 years        |  | $        | 26.25 | 

Partially Vested:

Options Outstanding

---

|                         |  |             |           |                |  |                |  |          |       |  |  | 
|------------------------ |  | ----------- | --------- | -------------- |  | -------------- |  | -------- | ----- |  |  | 
|                         |  |             |           |                |  | Weighted       |  | Weighted
|                         |  | Number      |           | Average        |  | Average       
|Range of Exercise Prices |  | Outstanding |           | Remaining Life |  | Exercise Price
|                         |  |             |           |                |  |               
|$9.63 - $11.57           |  |             | 3,872,000 |                |  | 9 years        |  | $        | 10.37 | 
|$12.92 - $15.00          |  |             | 1,802,500 |                |  | 8 years        |  | $        | 13.17 | 
|$16.37 - $16.92          |  |             | 45,000    |                |  | 8 years        |  | $        | 16.74 | 

Options Exercisable

---

|                         |  |             |           |                |  |                |  |          |       |  |  | 
|------------------------ |  | ----------- | --------- | -------------- |  | -------------- |  | -------- | ----- |  |  | 
|                         |  |             |           |                |  | Weighted       |  | Weighted
|                         |  | Number      |           | Average        |  | Average       
|Range of Exercise Prices |  | Outstanding |           | Remaining Life |  | Exercise Price
|                         |  |             |           |                |  |               
|$9.63 - $11.57           |  |             | 1,363,583 |                |  | 9 years        |  | $        | 10.33 | 
|$12.92 - $15.00          |  |             | 1,155,333 |                |  | 8 years        |  | $        | 13.15 | 
|$16.37 - $16.92          |  |             | 30,000    |                |  | 8 years        |  | $        | 16.74 | 

Non Vested:

Options Outstanding

---

|                         |  |             |           |                |  |                |  |          |       |  |  | 
|------------------------ |  | ----------- | --------- | -------------- |  | -------------- |  | -------- | ----- |  |  | 
|                         |  |             |           |                |  | Weighted       |  | Weighted
|                         |  | Number      |           | Average        |  | Average       
|Range of Exercise Prices |  | Outstanding |           | Remaining Life |  | Exercise Price
|                         |  |             |           |                |  |               
|$9.03 - $10.32           |  |             | 726,167   |                |  | 10 years       |  | $        | 9.14  | 
|$11.57 - $12.94          |  |             | 2,209,916 |                |  | 10 years       |  | $        | 12.27 | 

111



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##### 



ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Stockholder rights plan 

On July 28, 2003 the Board of Directors adopted an amendment
to its Stockholders Rights Plan to change the termination
date of the plan to July 28, 2003.

In May 2000, our Board of Directors adopted a Stockholder
Rights Plan (the Plan). The Plan provided 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
would trade with the common stock and Preferred Stock and
would 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 would not be
exercisable until certain events occur. The rights were
exercisable only under certain circumstances.

Restricted stock 

Under the terms of the Allied Waste Industries, Inc. Amended
and Restated 1991 Incentive Stock Plan, the Management
Development/Compensation 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 forfeiture until the individual becomes
vested. The Management Development/Compensation 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 becomes partially
vested after 6 years (20% at year 6 and 20% each year
thereafter until fully vested at year 10), but may become
partially or fully vested sooner if certain performance
goals are met or if certain events happen. Generally, if the
individual terminates employment prior to vesting, the
unvested shares are forfeited.

Under the terms of the PARSAP, an individual 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.

112



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##### 



ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Vesting also may be accelerated if certain events occur. If an
individuals employment is terminated due to disability or death, any
unvested PARSAP shares become fully vested at that time.
If the individuals employment is terminated after December 31, 2004,
either by the company 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.

Any unvested PARSAP shares will become
fully vested in the case of a change in control.
A PARSAP participant may also be entitled to receive a gross-up payment for excise and income taxes under Section 280G
of the Internal Revenue Code, under circumstances where a change in
control occurs in combination with certain set market prices per share
of stock.

During 2000, the Management Development/Compensation Committee
approved grants of approximately 7.0 million shares of restricted
stock to key members of management under the PARSAP. The weighted
average grant-date fair value of shares granted during 2000 was $6.05.
At December 31, 2003, 1.6 million shares, with a grant-date fair value
of $5.88 have been forfeited. At December 31, 2003 we have $18.3
million of deferred compensation related to this plan. None of the
shares are vested at December 31, 2003.

In February 2004, the Management Development/Compensation
Committee approved an amendment to the PARSAP agreements,
effective July 1, 2004, that provides for individuals to
become partially vested after four years (one-seventh
after four years and one-seventh each year thereafter
until fully vested after ten years).

During 2003, the Management Development/Compensation
Committee approved grants of approximately 0.4 million
restricted stock units to key members of management.
These restricted stock units cannot be sold or
transferred until they are fully vested. The
restricted stock units vests over a period of three
years, at the end of which they can be converted into
Allieds common stock. The restricted stock units are
subject to forfeiture until they are fully vested. The
weighted-average grant date fair value of the restricted
stock units granted during 2003 was $12.27. At December
31, 2003, none of the restricted stock units were vested
and we had approximately $4.4 million in deferred
compensation related to these awards.

113



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##### 



ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

13.     Net Income Per Common Share

Net income per common share is calculated by dividing net income, 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 millions, except per share data):

|                                                                                   |  |                                  |        |      |  |      |       |  |  |   |       |  
|---------------------------------------------------------------------------------- |  | -------------------------------- | ------ | ---- |  | ---- | ----- |  |  | - | ----- | -
|                                                                                   |  | For the Years Ended December 31,
|                                                                                   |  |                                 
|                                                                                   |  | 2003                             |        | 2002 |  | 2001
|                                                                                   |  |                                  |        |      |  |     
|Basic earnings per share computation:                                              |  |                                  |        |      |  |      |       |  |  |   |       |  
|Income from continuing operations                                                  |  | $                                | 111.2  |      |  | $    | 198.3 |  |  | $ | 31.9  |  
|Less: dividends on preferred stock                                                 |  |                                  | 95.6   |      |  |      | 77.9  |  |  |   | 73.0  |  
|Less: non-cash conversion of Series A Preferred Stock                              |  |                                  | 496.6  |      |  |      |      |  |  |   |      |  
|                                                                                   |  |                                  |        |      |  |      |       |  |  |   |       |  
|Income (loss) from continuing operations available to common shareholders          |  | $                                | (481.0 | )    |  | $    | 120.4 |  |  | $ | (41.1 | )
|                                                                                   |  |                                  |        |      |  |      |       |  |  |   |       |  
|Weighted average common shares outstanding                                         |  |                                  | 203.8  |      |  |      | 190.2 |  |  |   | 189.6 |  
|                                                                                   |  |                                  |        |      |  |      |       |  |  |   |       |  
|Basic earnings (loss) per share from continuing
operations                         |  | $                                | (2.36  | )    |  | $    | 0.63  |  |  | $ | (0.21 | )
|                                                                                   |  |                                  |        |      |  |      |       |  |  |   |       |  
|Diluted earnings per share computation:                                            |  |                                  |        |      |  |      |       |  |  |   |       |  
|Income from continuing operations                                                  |  | $                                | 111.2  |      |  | $    | 198.3 |  |  | $ | 31.9  |  
|Less: dividends on preferred stock                                                 |  |                                  | 95.6   |      |  |      | 77.9  |  |  |   | 73.0  |  
|Less: non-cash conversion of Series A Preferred Stock                              |  |                                  | 496.6  |      |  |      |      |  |  |   |      |  
|                                                                                   |  |                                  |        |      |  |      |       |  |  |   |       |  
|Income (loss) from continuing operations available to common shareholders          |  | $                                | (481.0 | )    |  | $    | 120.4 |  |  | $ | (41.1 | )
|                                                                                   |  |                                  |        |      |  |      |       |  |  |   |       |  
|Weighted average common shares outstanding                                         |  |                                  | 203.8  |      |  |      | 190.2 |  |  |   | 189.6 |  
|Dilutive effect of stock, stock options, warrants and
contingently issuable shares |  |                                  |       |      |  |      | 3.3   |  |  |   |      |  
|                                                                                   |  |                                  |        |      |  |      |       |  |  |   |       |  
|Weighted average common and common equivalent
shares outstanding                   |  |                                  | 203.8  |      |  |      | 193.5 |  |  |   | 189.6 |  
|                                                                                   |  |                                  |        |      |  |      |       |  |  |   |       |  
|Diluted earnings (loss) per share from continuing
operations                       |  | $                                | (2.36  | )    |  | $    | 0.62  |  |  | $ | (0.21 | )
|                                                                                   |  |                                  |        |      |  |      |       |  |  |   |       |  

In calculating earnings per share, we have not assumed conversion of the following securities into common shares since the effects
of those conversions would not be dilutive (in millions):

|                         |  |                                  |      |      |  |      |      |  |  |  |      | 
|------------------------ |  | -------------------------------- | ---- | ---- |  | ---- | ---- |  |  |  | ---- | 
|                         |  | For the Years Ended December 31,
|                         |  |                                 
|                         |  | 2003                             |      | 2002 |  | 2001
|                         |  |                                  |      |      |  |     
|Series A Preferred Stock |  |                                  | 68.5 |      |  |      | 66.5 |  |  |  | 62.4 | 
|Series C Preferred Stock |  |                                  | 24.8 |      |  |      |     |  |  |  |     | 
|Stock options            |  |                                  | 11.7 |      |  |      | 14.6 |  |  |  | 2.8  | 

114



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##### 



ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

14.     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.

We have federal net operating losses of $631 million, with an estimated tax effect of $221 million, available at December 31, 2003. 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, 2003 that we expect will generate future tax savings of approximately $119 million. The state net operating losses will
expire at various times between 2004 and 2023 if not used. We have established a valuation allowance of $92 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 $9 million as of December 31, 2003, which are not subject to expiration.

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. The valuation allowance at December 31, 2003 includes approximately $17 million related to the BFI acquisition, the subsequent reduction of which would result in an adjustment to goodwill.

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

|                                |  |                         |      |      |  |      |       |   |  |   |       | 
|------------------------------- |  | ----------------------- | ---- | ---- |  | ---- | ----- | - |  | - | ----- | 
|                                |  | Year Ended December 31,
|                                |  |                        
|                                |  | 2003                    |      | 2002 |  | 2001
|                                |  |                         |      |      |  |     
|Current tax provision (benefit) |  | $                       | 18.1 |      |  | $    | (0.1  | ) |  | $ | 21.3  | 
|Deferred provision              |  |                         | 70.6 |      |  |      | 165.7 |   |  |   | 141.1 | 
|                                |  |                         |      |      |  |      |       |   |  |   |       | 
|Total                           |  | $                       | 88.7 |      |  | $    | 165.6 |   |  | $ | 162.4 | 
|                                |  |                         |      |      |  |      |       |   |  |   |       | 

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

|                                                                    |  |                         |      |      |  |      |      |   |  |  |      |  
|------------------------------------------------------------------- |  | ----------------------- | ---- | ---- |  | ---- | ---- | - |  |  | ---- | -
|                                                                    |  | Year Ended December 31,
|                                                                    |  |                        
|                                                                    |  | 2003                    |      | 2002 |  | 2001
|                                                                    |  |                         |      |      |  |     
|Federal statutory tax rate                                          |  |                         | 35.0 | %    |  |      | 35.0 | % |  |  | 35.0 | %
|Consolidated state taxes, net of federal benefit                    |  |                         | 6.0  |      |  |      | 6.1  |   |  |  | 9.6  |  
|Amortization of goodwill (1)                                        |  |                         |     |      |  |      |     |   |  |  | 31.0 |  
|Non-deductible write-off of goodwill and business
combination costs |  |                         | 0.2  |      |  |      | 3.3  |   |  |  | 2.0  |  
|Other permanent differences                                         |  |                         | 3.2  |      |  |      | 1.1  |   |  |  | 6.0  |  
|                                                                    |  |                         |      |      |  |      |      |   |  |  |      |  
|Effective tax rate                                                  |  |                         | 44.4 | %    |  |      | 45.5 | % |  |  | 83.6 | %
|                                                                    |  |                         |      |      |  |      |      |   |  |  |      |  

(1)  In connection with various acquisitions, we recorded goodwill that was non-deductible goodwill for income tax purposes.

115



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##### 



ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

|                                                                                                           |  |              |        |      |  |   |        |  
|---------------------------------------------------------------------------------------------------------- |  | ------------ | ------ | ---- |  | - | ------ | -
|                                                                                                           |  | December 31,
|                                                                                                           |  |             
|                                                                                                           |  | 2003         |        | 2002
|                                                                                                           |  |              |        |     
|Deferred tax liability relating primarily to basis differences in
landfills, fixed assets and other assets |  | $            | (612.9 | )    |  | $ | (417.1 | )
|                                                                                                           |  |              |        |      |  |   |        |  
|Deferred Tax Assets Relating To:                                                                           |  |              |        |      |  |   |        |  
|Environmental, capping, closure and post-closure reserves                                                  |  |              | 238.6  |      |  |   | 264.8  |  
|Other reserves                                                                                             |  |              | 69.3   |      |  |   | 126.6  |  
|Net operating loss, capital loss, foreign tax credit, and minimum
tax credit carryforwards                 |  |              | 349.0  |      |  |   | 196.0  |  
|Valuation allowance                                                                                        |  |              | (91.7  | )    |  |   | (117.3 | )
|                                                                                                           |  |              |        |      |  |   |        |  
|Total deferred tax asset                                                                                   |  |              | 565.2  |      |  |   | 470.1  |  
|                                                                                                           |  |              |        |      |  |   |        |  
|Net deferred tax asset (liability)                                                                         |  | $            | (47.7  | )    |  | $ | 53.0   |  
|                                                                                                           |  |              |        |      |  |   |        |  

Deferred income taxes have not been provided as of December 31, 2003 and 2002, on approximately $31
million and $36 million, respectively, of undistributed earnings of Puerto Rican affiliates, which are
considered to be permanently reinvested. A determination of the U.S. income and foreign withholding
taxes, if these earnings were remitted as dividends, is not practicable.

We are currently under examination by various state and federal taxing authorities for certain tax
years, including federal income tax audits for calendar years 1998 through 2002. A federal income tax
audit for BFIs tax years ended September 30, 1996 through July 30, 1999 is complete with the
exception of the matter discussed below.

Prior to our acquisition of BFI on July 30, 1999, BFI operating companies, as part of a risk
management initiative to effectively manage and reduce costs associated with certain liabilities,
contributed assets and existing environmental and self-insurance liabilities to six fully consolidated
BFI risk management companies (RMCs) in exchange for stock representing a minority ownership interest
in the RMCs. Subsequently, on July 9, 1999, the BFI operating companies sold that stock in the RMCs
to third parties at fair market value which resulted in a capital loss of approximately $900 million
for tax purposes, calculated as the excess of the tax basis of the stock over the cash proceeds
received. The capital loss was claimed in the BFI tax return for the period from October 1, 1998 to
July 30, 1999. On January 18, 2001, the IRS designated this type of transaction and other similar
transactions as a potentially abusive tax shelter under the IRS regulations.

During 2002, the IRS proposed the disallowance of all of this capital loss. The primary argument
advanced by the IRS for disallowing the capital loss was that the tax basis of the stock of the RMCs
received by the BFI operating companies was required to be reduced by the amount of liabilities
assumed by the RMCs even though such liabilities were contingent. Under the IRS view, there was no
capital loss on the sale of the stock since the tax basis of the stock should have approximately
equaled the proceeds received. We protested the disallowance to the Appeals Office of the IRS in
August 2002.

116



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##### 



ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

If the proposed
disallowance is upheld,
we estimate it could have
a potential total cash
impact of up to $310
million plus accrued
interest through December
31, 2003 of approximately
$46 million ($28 million
net of tax benefit). We
also received a
notification from the IRS
proposing a penalty of
40% of the additional
income tax resulting from
the disallowance.
Because of several
meritorious defenses, we
believe the successful
assertion of penalties is
unlikely.

If we are unable to resolve this matter with
the Appeals Office of the IRS, we would
expect to receive a notice of tax deficiency
from the IRS. Upon receiving the notice, we
would have the following options:



| | 1. |  | File a petition for
redetermination in Tax Court
within 90 days. In this case,
payments would not be required
until the Tax Court renders its
decision.                                                                                                                                                                                                       
| | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | 2. |  | Wait to receive a statement of
amount due from the IRS and pay
the amount due. The amount due
would be based on the portion of
the capital loss claimed during
the BFI tax years ended September
30, 1996 through July 30, 1999.
Additional amounts will be owed
as the audits of the Companys
tax returns for calendar years
1999 and forward are completed.
|
| | 3. |  | Pay the amount due as outlined
in option 2 above, except, after
paying the amount due, take
appropriate steps to institute a
suit in Federal District Court or
the Federal Claims Court for a
refund of the amounts paid.                                                                                                                                     

The timing of any payments for any related
state tax deficiencies will generally follow
closely after the timing of any federal
payments. Furthermore, at any point in time
under any of the options outlined above, we
can attempt to reach a settlement agreement
with the IRS.

If we are unable to resolve this matter with
the Appeals Office of the IRS, a decision
would be made at that time as to which of the
above options would be pursued. In any case,
we continue to believe our position is well
supported and we will vigorously contest the
disallowance. An unfavorable result should
have minimal impact on our consolidated
results of operations as the tax and interest
impact of a disallowance have been fully
reserved on our consolidated balance sheet.

15.     Commitments and Contingencies

Litigation 

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 can
reasonably be estimated. We expect that matters in process at December 31,
2003, 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.

117



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##### 



ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In the normal course of conducting our landfill operations, we
are involved in legal and administrative proceedings relating to
the process of obtaining and defending the permits that allow us
to operate our landfills. In June 1999, neighboring parties and
the county drainage district filed a lawsuit seeking to prevent
BFI from obtaining a vertical elevation expansion permit at one
of our landfills in Texas. In 2001, the expansion permit was
granted. The parties opposing the expansion permit continued to
pursue their efforts in preventing the expansion permit. In
December 2003, a judgment issued by a District Court in Texas,
effectively revoked the expansion permit that was granted by the
State of Texas in 2001 and would require us to operate the
landfill according to a prior permit granted in 1988. We plan to
vigorously defend this expansion in the State Court of Appeals
and believe that the merits of our position will prevail.
Operationally, we are in the process of obtaining bonding that
will allow us to continue to operate the landfill as usual during
the period of appeals, which may continue two years or longer.
If the appeal is not successful, the landfill may become impaired
and we may incur costs to relocate waste to another landfill and
this matter could result in a charge of up to $25 million to our
consolidated statement of operations.

Royalties 

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. Royalties are expensed as tonnage
is disposed of in the landfill.

Lease agreements 

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 as of December
31, 2003 are as follows (in millions):

|           |  |   |      | 
|---------- |  | - | ---- | 
|2004       |  | $ | 28.1 | 
|2005       |  |   | 23.9 | 
|2006       |  |   | 20.8 | 
|2007       |  |   | 15.8 | 
|2008       |  |   | 14.3 | 
|Thereafter |  |   | 42.4 | 

Rental expense under such operating leases was approximately
$24.8 million, $25.9 million and $20.1 million for each of the
three years ended December 31, 2003, respectively.

Employment agreements 

We have entered into employment agreements with certain of our
executive officers for periods up to three years. Under these
agreements, in some circumstances, we may be 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. Additionally, under certain circumstances, including
a change in control, as defined in the employment agreements, we
have agreed to pay severance amounts equal to a multiple of
defined compensation. If a termination occurs in conjunction with
a change in control as defined in the employment agreements, we
are 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.

118



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##### 



ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

During 2003 and 2004, the Management Development/Compensation Committee approved amendments to certain existing employment agreements to provide that if an executives
employment is terminated under certain circumstances, the executive may be entitled to continued medical, dental and/or vision coverage, continued vesting in his PARSAP awards
and continued vesting and exercisability of the executives stock options, and continued coverage under our directors and officers liability insurance, among other matters.
In addition, certain executives may be entitled to retirement payments under a supplemental executive retirement plan.

Financial assurances 

We are required to provide financial assurances to governmental agencies under applicable environmental regulations relating to our landfill operations for closure and
post-closure costs and performance under certain collection, landfill and transfer station contracts. We satisfy the financial assurance requirements by providing performance
bonds, letters of credit, insurance policies or trust deposits. Additionally, we are required to provide financial assurances for our insurance program and collateral required
for certain performance obligations. During 2004, we expect no material increase in financial assurance obligations.

At December 31, 2003 we had the following financial assurance instruments (in millions):

|                      |  |              |         |             |  |               |       |                |  |       |       |  |  |   |       |  |  |   |         | 
|--------------------- |  | ------------ | ------- | ----------- |  | ------------- | ----- | -------------- |  | ----- | ----- |  |  | - | ----- |  |  | - | ------- | 
|                      |  | Landfill     |         |             |  |               |       |                |  |       |       |  |  |   |       |  |  |  
|                      |  | Closure/     |         | Contract    |  | Risk/Casualty |       | Collateral for |  |       |       | 
|                      |  | Post-Closure |         | Performance |  | Insurance     |       | Obligations    |  | Total
|                      |  |              |         |             |  |               |       |                |  |      
|Insurance Policies    |  | $            | 903.8   |             |  | $             |      |                |  | $     |      |  |  | $ |      |  |  | $ | 903.8   | 
|Surety Bonds          |  |              | 388.5   |             |  |               | 549.9 |                |  |       |      |  |  |   |      |  |  |   | 938.4   | 
|Trust Deposits        |  |              | 75.0    |             |  |               |      |                |  |       |      |  |  |   |      |  |  |   | 75.0    | 
|Letters of Credit (1) |  |              | 403.5   |             |  |               | 48.1  |                |  |       | 262.0 |  |  |   | 123.0 |  |  |   | 836.6   | 
|                      |  |              |         |             |  |               |       |                |  |       |       |  |  |   |       |  |  |   |         | 
|Total                 |  | $            | 1,770.8 |             |  | $             | 598.0 |                |  | $     | 262.0 |  |  | $ | 123.0 |  |  | $ | 2,753.8 | 
|                      |  |              |         |             |  |               |       |                |  |       |       |  |  |   |       |  |  |   |         | 



|(1) |  | At December 31, 2003
these amounts were issued
under the 2003 Revolver and
the institutional letter of
credit facility under our 2003
Credit Facility.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------

These financial instruments are issued in the normal course of business and are not debt of the company. Since we currently have no liability for these financial assurance
instruments, they are not reflected in the accompanying consolidated balance sheets. The underlying obligations of the financial assurance instruments would be valued and
recorded in the consolidated balance sheets if it is probable that we would be unable to perform our obligations under the financial assurance contracts. We do not expect this
to occur.

Off-balance sheet arrangements 

We have no off-balance sheet debt or similar obligations, other than financial assurance instruments
discussed above which are not debt. 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 do not guarantee any third party debt.

Guarantees 

We enter into contracts in the normal course of business that include indemnification clauses. Indemnifications relating to known liabilities are
recorded in the consolidated financial statements based on our best estimate of required future payments. Certain of these indemnifications relate to
contingent events or occurrences, such as the imposition of additional taxes due to a change in the tax law or adverse interpretation of the tax law, and
indemnifications made in divestiture agreements where we indemnify the buyer for liabilities that may become known in the future but that relate to our
activities prior to the divestiture. As of December 31, 2003, we estimate the contingent obligations associated with these indemnifications to be
de minimus.

119



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##### 



ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

We have entered into agreements to guarantee to property owners the value of certain property that is
adjacent to landfills. These agreements have varying terms over varying periods. Prior to December 31,
2002, liabilities associated with these guarantees have been accounted for in accordance with SFAS No. 5,
Accounting for Contingencies,in the consolidated financial statements. Agreements modified or entered
into subsequent to December 31, 2002 are accounted for in accordance with FIN 45 and were not significant
in 2003.

16.     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. At
December 31, 2003 and 2002, respectively, employee loans of $3.0 million and $9.3 million were outstanding
to current or former employees.

In April 2003, our Senior Vice President, General Counsel repaid a $215,000 loan from the Company. The
loan was made in August 2000.

In February 2003, our Vice Chairman
repaid a $3.3 million loan from the Company. The loan was made in July
2001, pursuant to a relocation agreement and was secured by real estate. Interest on the loan was at the
applicable federal rate.

During November 2002, our Chief Executive Officer repaid a $2.3 million loan from the Company by tendering
232,390 shares of our common stock at the market price. The loan was made in 1996 for the purpose of
acquiring 246,154 shares of Allied Waste common stock at the market price at that time.

In addition to the above amounts, in December 2002, we extended a note receivable in the amount of $2.2
million due from a former board member from a maturity date of December 31, 2002 to December 31, 2004.
Interest on the loan is accruing at the applicable federal rate.

17.     Segment Reporting

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 operating income before depreciation and amortization. Operating income
before depreciation and amortization is not a measure of operating income, operating performance or
liquidity under GAAP and may not be comparable to similarly titled measures reported by other companies.
Consistent with our decentralized operating structure, management of the company uses operating income
before depreciation and amortization in the evaluation of field operating performance as it represents
operational cash flows and is a profit measure of components that are within the control of the operating
units. 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).

120



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##### 



ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

We manage our operations through four geographic operating segments: Eastern, Southern, Central and Western. Each area is responsible for managing several vertically
integrated operations, which are comprised of regions. Results by segment have been restated for previous periods to reflect a change in organizational structure that
was effective January 1, 2002. The tables below reflect certain information relating to our continuing operations of our geographic operating segments for the years
ended December 31, 2003, 2002 and 2001(in millions):

|                                                      |  |         |         |          |  |         |         |         |  |       |         |  |  |   |         |  |  |   |          | 
|----------------------------------------------------- |  | ------- | ------- | -------- |  | ------- | ------- | ------- |  | ----- | ------- |  |  | - | ------- |  |  | - | -------- | 
|                                                      |  | Eastern |         | Southern |  | Central |         | Western |  | Total
|                                                      |  |         |         |          |  |         |         |         |  |      
|2003:                                                 |  |         |         |          |  |         |         |         |  |       |         |  |  |   |         |  |  |   |          | 
|Revenues                                              |  | $       | 1,431.1 |          |  | $       | 1,126.6 |         |  | $     | 1,420.0 |  |  | $ | 1,231.5 |  |  | $ | 5,209.2  | 
|Operating income before
depreciation and amortization |  |         | 401.3   |          |  |         | 399.1   |         |  |       | 469.5   |  |  |   | 435.8   |  |  |   | 1,705.7  | 
|Depreciation and amortization                         |  |         | 130.6   |          |  |         | 131.7   |         |  |       | 174.0   |  |  |   | 101.4   |  |  |   | 537.7    | 
|Total assets                                          |  |         | 3,815.7 |          |  |         | 3,534.1 |         |  |       | 3,283.3 |  |  |   | 2,745.2 |  |  |   | 13,378.3 | 
|Capital expenditures                                  |  |         | 111.1   |          |  |         | 106.1   |         |  |       | 148.1   |  |  |   | 118.0   |  |  |   | 483.3    | 
|2002:                                                 |  |         |         |          |  |         |         |         |  |       |         |  |  |   |         |  |  |   |          | 
|Revenues                                              |  | $       | 1,443.1 |          |  | $       | 1,139.1 |         |  | $     | 1,398.5 |  |  | $ | 1,180.8 |  |  | $ | 5,161.5  | 
|Operating income before
depreciation and amortization |  |         | 421.5   |          |  |         | 429.9   |         |  |       | 505.5   |  |  |   | 417.5   |  |  |   | 1,774.4  | 
|Depreciation and amortization                         |  |         | 119.2   |          |  |         | 111.4   |         |  |       | 150.1   |  |  |   | 89.2    |  |  |   | 469.9    | 
|Total assets                                          |  |         | 3,515.4 |          |  |         | 3,741.3 |         |  |       | 3,221.8 |  |  |   | 2,592.2 |  |  |   | 13,070.7 | 
|Capital expenditures                                  |  |         | 113.0   |          |  |         | 127.3   |         |  |       | 169.8   |  |  |   | 122.3   |  |  |   | 532.4    | 
|2001:                                                 |  |         |         |          |  |         |         |         |  |       |         |  |  |   |         |  |  |   |          | 
|Revenues                                              |  | $       | 1,497.3 |          |  | $       | 1,168.8 |         |  | $     | 1,381.5 |  |  | $ | 1,144.2 |  |  | $ | 5,191.8  | 
|Operating income before
depreciation and amortization |  |         | 465.6   |          |  |         | 484.0   |         |  |       | 524.1   |  |  |   | 438.8   |  |  |   | 1,912.5  | 
|Depreciation and amortization                         |  |         | 185.3   |          |  |         | 161.2   |         |  |       | 195.1   |  |  |   | 126.5   |  |  |   | 668.1    | 
|Total assets                                          |  |         | 3,873.6 |          |  |         | 3,272.7 |         |  |       | 3,466.6 |  |  |   | 2,859.1 |  |  |   | 13,472.0 | 
|Capital expenditures                                  |  |         | 112.4   |          |  |         | 117.4   |         |  |       | 157.3   |  |  |   | 101.5   |  |  |   | 488.6    | 

Reconciliation of reportable segment primary measure of
profitability to income from continuing operations before income taxes and minority interest (in
millions):

|                                                                                    |                                                                             |   |                          |       |      |   |         |       |  |   |         |       | 
|----------------------------------------------------------------------------------- | --------------------------------------------------------------------------- | - | ------------------------ | ----- | ---- | - | ------- | ----- |  | - | ------- | ----- | 
|                                                                                    |                                                                             |   | Years Ended December 31,
|                                                                                    |                                                                             |   |                         
|                                                                                    |                                                                             |   | 2003                     |       | 2002 |   | 2001   
|                                                                                    |                                                                             |   |                          |       |      |   |        
|Total operating income before depreciation and
amortization for reportable segments |                                                                             | $ | 1,705.7                  |       |      | $ | 1,774.4 |       |  | $ | 1,912.5 |      
|Other (1)                                                                           |                                                                             |   | (125.0                   | )     |      |   | (85.4   | )     |  |   | (80.0   | )    
|Depreciation and amortization                                                       |                                                                             |   | 546.0                    |       |      |   | 478.5   |       |  |   | 675.5   |      
|Non-cash (gain) loss on divestiture of assets                                       |                                                                             |   |                         |       |      |   | (9.3    | )     |  |   | 107.0   |      
|Equity in earnings of unconsolidated affiliates                                     |                                                                             |   |                         |       |      |   |        |       |  |   | (14.1   | )    
|Interest expense and other                                                          |                                                                             |   | 832.9                    |       |      |   | 854.0   |       |  |   | 866.1   |      
|                                                                                    |                                                                             |   |                          |       |      |   |         |       |  |   |         |      
|                                                                                    | Income from continuing operations before
income taxes and minority interest |   | $                        | 201.8 |      |   | $       | 365.8 |  |   | $       | 198.0 | 
|                                                                                    |                                                                             |   |                          |       |      |   |         |       |  |   |         |      



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

121



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##### 



ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Reconciliation of reportable segment revenues, depreciation and amortization, capital expenditures and total assets to the consolidated financial statements (in millions):

|                               |  |                              |         |              |  |              |       |         |  |       |       |  |  |   |          | 
|------------------------------ |  | ---------------------------- | ------- | ------------ |  | ------------ | ----- | ------- |  | ----- | ----- |  |  | - | -------- | 
|                               |  | Year Ended December 31, 2003
|                               |  |                             
|                               |  |                              |         |              |  | Depreciation |       |         |  |       |       |  |  |  
|                               |  |                              |         |              |  | and          |       | Capital |  | Total
|                               |  | Revenues                     |         | Amortization |  | Expenditures |       | Assets 
|                               |  |                              |         |              |  |              |       |        
|For reportable segments        |  | $                            | 5,209.2 |              |  | $            | 537.7 |         |  | $     | 483.3 |  |  | $ | 13,378.3 | 
|Other (1)                      |  |                              | 38.5    |              |  |              | 8.3   |         |  |       | 8.5   |  |  |   | 482.6    | 
|                               |  |                              |         |              |  |              |       |         |  |       |       |  |  |   |          | 
|Total per financial statements |  | $                            | 5,247.7 |              |  | $            | 546.0 |         |  | $     | 491.8 |  |  | $ | 13,860.9 | 
|                               |  |                              |         |              |  |              |       |         |  |       |       |  |  |   |          | 

|                               |  |                              |         |              |  |              |       |         |  |       |       |  |  |   |          | 
|------------------------------ |  | ---------------------------- | ------- | ------------ |  | ------------ | ----- | ------- |  | ----- | ----- |  |  | - | -------- | 
|                               |  | Year Ended December 31, 2002
|                               |  |                             
|                               |  |                              |         |              |  | Depreciation |       |         |  |       |       |  |  |  
|                               |  |                              |         |              |  | and          |       | Capital |  | Total
|                               |  | Revenues                     |         | Amortization |  | Expenditures |       | Assets 
|                               |  |                              |         |              |  |              |       |        
|For reportable segments        |  | $                            | 5,161.5 |              |  | $            | 469.9 |         |  | $     | 532.4 |  |  | $ | 13,070.7 | 
|Other (1)                      |  |                              | 29.3    |              |  |              | 8.6   |         |  |       | 3.9   |  |  |   | 858.2    | 
|                               |  |                              |         |              |  |              |       |         |  |       |       |  |  |   |          | 
|Total per financial statements |  | $                            | 5,190.8 |              |  | $            | 478.5 |         |  | $     | 536.3 |  |  | $ | 13,928.9 | 
|                               |  |                              |         |              |  |              |       |         |  |       |       |  |  |   |          | 

|                               |  |                              |         |              |  |              |       |         |  |       |       |  |  |   |          | 
|------------------------------ |  | ---------------------------- | ------- | ------------ |  | ------------ | ----- | ------- |  | ----- | ----- |  |  | - | -------- | 
|                               |  | Year Ended December 31, 2001
|                               |  |                             
|                               |  |                              |         |              |  | Depreciation |       |         |  |       |       |  |  |  
|                               |  |                              |         |              |  | and          |       | Capital |  | Total
|                               |  | Revenues                     |         | Amortization |  | Expenditures |       | Assets 
|                               |  |                              |         |              |  |              |       |        
|For reportable segments        |  | $                            | 5,191.8 |              |  | $            | 668.1 |         |  | $     | 488.6 |  |  | $ | 13,472.0 | 
|Other (1)                      |  |                              | 39.6    |              |  |              | 7.4   |         |  |       | 9.3   |  |  |   | 875.1    | 
|                               |  |                              |         |              |  |              |       |         |  |       |       |  |  |   |          | 
|Total per financial statements |  | $                            | 5,231.4 |              |  | $            | 675.5 |         |  | $     | 497.9 |  |  | $ | 14,347.1 | 
|                               |  |                              |         |              |  |              |       |         |  |       |       |  |  |   |          | 



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

As a result of the divestiture activity in 2003 and in an effort to continue to align our operating structure in a manner that is consistent
with optimal waste flow, we revised the territorial lines that define our four geographic areas effective January 1, 2004. The total number
of areas, regions and districts did not change.

Amounts and percentages of our total revenue from continuing operations attributable to services provided (in millions):

|                      |              |                  |         |         |                         |   |         |         |         |   |         |         |         |  | 
|--------------------- | ------------ | ---------------- | ------- | ------- | ----------------------- | - | ------- | ------- | ------- | - | ------- | ------- | ------- |  | 
|                      |              |                  |         |         | Year Ended December 31,
|                      |              |                  |         |         |                        
|                      |              |                  |         |         | 2003                    |   | 2002    |         | 2001   
|                      |              |                  |         |         |                         |   |         |         |        
|Collection            |              |                  |         |         |                         |   |         |         |         |   |         |        
|                      | Residential  |                  | $       | 1,132.8 |                         |   | $       | 1,112.9 |         |   | $       | 1,090.2 |        
|                      | Commercial   |                  |         | 1,373.8 |                         |   |         | 1,397.6 |         |   |         | 1,392.3 |        
|                      | Roll-off (1) |                  |         | 1,185.6 |                         |   |         | 1,203.4 |         |   |         | 1,245.1 |        
|                      | Recycling    |                  |         | 202.2   |                         |   |         | 204.0   |         |   |         | 201.6   |        
|                      |              |                  |         |         |                         |   |         |         |         |   |         |         |        
|                      |              | Total Collection |         |         | 3,894.4                 |   |         |         | 3,917.9 |   |         |         | 3,929.2 | 
|Disposal              |              |                  |         |         |                         |   |         |         |         |   |         |        
|                      | Landfill     |                  |         | 633.4   |                         |   |         | 586.3   |         |   |         | 608.4   |        
|                      | Transfer     |                  |         | 400.6   |                         |   |         | 384.7   |         |   |         | 374.6   |        
|                      |              |                  |         |         |                         |   |         |         |         |   |         |         |        
|                      |              | Total Disposal   |         |         | 1,034.0                 |   |         |         | 971.0   |   |         |         | 983.0   | 
|Recycling - Commodity |              |                  | 194.8   |         |                         |   | 165.8   |         |         |   | 154.3   |        
|Other                 |              |                  | 124.5   |         |                         |   | 136.1   |         |         |   | 164.9   |        
|                      |              |                  |         |         |                         |   |         |         |         |   |         |         |        
|Total Revenues        |              | $                | 5,247.7 |         |                         | $ | 5,190.8 |         |         | $ | 5,231.4 |        
|                      |              |                  |         |         |                         |   |         |         |         |   |         |         |        



| |  | (1) Consists of revenue generated from commercial, industrial and residential customers from waste collected in roll-off containers that are loaded onto collection vehicles. Roll-off containers are generally uncovered containers
that range in size from 20 to 40 cubic yards.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

122



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##### 



ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The revenues, operating income before depreciation and amortization, depreciation and amortization, capital
expenditures and total assets reported as discontinued operations up to the divestiture date in 2003 by
geographic area are as follows (in millions):

|                                                      |  |         |       |          |  |         |       |         |  |       |   |  |  |   |      |  |  |   |       | 
|----------------------------------------------------- |  | ------- | ----- | -------- |  | ------- | ----- | ------- |  | ----- | - |  |  | - | ---- |  |  | - | ----- | 
|                                                      |  | Eastern |       | Southern |  | Central |       | Western |  | Total
|                                                      |  |         |       |          |  |         |       |         |  |      
|2003:                                                 |  |         |       |          |  |         |       |         |  |       |   |  |  |   |      |  |  |   |       | 
|Revenues                                              |  | $       | 84.2  |          |  | $       | 162.1 |         |  | $     |  |  |  | $ | 6.4  |  |  | $ | 252.7 | 
|Operating income before
depreciation and amortization |  |         | 20.3  |          |  |         | 25.3  |         |  |       |  |  |  |   | 1.7  |  |  |   | 47.3  | 
|Depreciation and amortization                         |  |         | 4.6   |          |  |         | 8.5   |         |  |       |  |  |  |   | 0.5  |  |  |   | 13.6  | 
|Total assets                                          |  |         |      |          |  |         | 44.3  |         |  |       |  |  |  |   |     |  |  |   | 44.3  | 
|Capital expenditures                                  |  |         | 2.1   |          |  |         | 6.4   |         |  |       |  |  |  |   |     |  |  |   | 8.5   | 
|2002:                                                 |  |         |       |          |  |         |       |         |  |       |   |  |  |   |      |  |  |   |       | 
|Revenues                                              |  | $       | 117.2 |          |  | $       | 195.9 |         |  | $     |  |  |  | $ | 13.4 |  |  | $ | 326.5 | 
|Operating income before
depreciation and amortization |  |         | 16.0  |          |  |         | 35.5  |         |  |       |  |  |  |   | 2.7  |  |  |   | 54.2  | 
|Depreciation and amortization                         |  |         | 6.3   |          |  |         | 10.7  |         |  |       |  |  |  |   | 1.0  |  |  |   | 18.0  | 
|Total assets                                          |  |         | 47.4  |          |  |         | 72.9  |         |  |       |  |  |  |   | 6.9  |  |  |   | 127.2 | 
|Capital expenditures                                  |  |         | 3.1   |          |  |         | 2.3   |         |  |       |  |  |  |   | 0.6  |  |  |   | 6.0   | 
|2001:                                                 |  |         |       |          |  |         |       |         |  |       |   |  |  |   |      |  |  |   |       | 
|Revenues                                              |  | $       | 117.4 |          |  | $       | 202.2 |         |  | $     |  |  |  | $ | 14.3 |  |  | $ | 333.9 | 
|Operating income before
depreciation and amortization |  |         | 25.5  |          |  |         | 41.8  |         |  |       |  |  |  |   | 3.7  |  |  |   | 71.0  | 
|Depreciation and amortization                         |  |         | 6.8   |          |  |         | 9.9   |         |  |       |  |  |  |   | 0.8  |  |  |   | 17.5  | 
|Total assets                                          |  |         | 56.7  |          |  |         | 88.8  |         |  |       |  |  |  |   | 6.1  |  |  |   | 151.6 | 
|Capital expenditures                                  |  |         | 0.9   |          |  |         | 2.0   |         |  |       |  |  |  |   | 0.1  |  |  |   | 3.0   | 

123



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##### 



ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

18.     Selected Quarterly Financial Data (unaudited)

The following tables summarize the unaudited consolidated quarterly results of operations as reported for 2003 and 2002. These results differ from previously reported
financial information to incorporate the following:



| |  |  | to reclassify the results of operations for certain assets which we sold or were held for sale as of December 31, 2003 that met the criteria for discontinued
operations in accordance with SFAS 144, and                                                                                                     
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | the adoption of SFAS 145 effective January 1, 2003 which requires the reclassification of the write-off of deferred debt issuance costs and other costs incurred in
connection with the early extinguishments of debt that were previously properly classified as extraordinary to interest expense and other.

|                                                                           |                                          |         |         |         |        |         |         |            |        |   |         |      |  |   |         |       |  
|-------------------------------------------------------------------------- | ---------------------------------------- | ------- | ------- | ------- | ------ | ------- | ------- | ---------- | ------ | - | ------- | ---- |  | - | ------- | ----- | -
|                                                                           |                                          |         | First   |         | Second |         | Third   |            | Fourth
|(in millions, except per share amounts)                                    |                                          | Quarter |         | Quarter |        | Quarter |         | Quarter(1)
|                                                                           |                                          |         |         |         |        |         |         |           
|2003                                                                       |                                          |         |         |         |        |         |         |            |        |   |         |      |  |   |         |      
|Revenues                                                                   |                                          | $       | 1,231.1 |         |        | $       | 1,342.5 |            |        | $ | 1,361.6 |      |  | $ | 1,312.5 |      
|Income from continuing operations                                          |                                          |         | 27.5    |         |        |         | 19.1    |            |        |   | 48.5    |      |  |   | 16.1    |      
|Net income (loss) available to common
shareholders                         |                                          |         | 42.2    |         |        |         | 5.6     |            |        |   | 11.9    |      |  |   | (523.2  | )    
|Basic earnings (loss) per common share available
to common shareholders:   |                                          |         |         |         |        |         |         |            |        |   |         |      |  |   |         |      
|                                                                           | Income (loss) from continuing operations |         |         | 0.04    |        |         |         | (0.03      | )      |   |         | 0.11 |  |   |         | (2.29 | )
|                                                                           | Net income (loss)                        |         |         | 0.22    |        |         |         | 0.03       |        |   |         | 0.06 |  |   |         | (2.38 | )
|Diluted earnings (loss) per common share
available to common shareholders: |                                          |         |         |         |        |         |         |            |        |   |         |      |  |   |         |      
|                                                                           | Income (loss) from continuing
operations |         |         | 0.04    |        |         |         | (0.03      | )      |   |         | 0.11 |  |   |         | (2.29 | )
|                                                                           | Net income (loss)                        |         |         | 0.22    |        |         |         | 0.03       |        |   |         | 0.06 |  |   |         | (2.38 | )
|2002                                                                       |                                          |         |         |         |        |         |         |            |        |   |         |      |  |   |         |      
|Revenues                                                                   |                                          | $       | 1,234.1 |         |        | $       | 1,320.2 |            |        | $ | 1,346.3 |      |  | $ | 1,290.2 |      
|Income from continuing operations                                          |                                          |         | 45.6    |         |        |         | 48.3    |            |        |   | 56.9    |      |  |   | 47.5    |      
|Net income available to common shareholders                                |                                          |         | 32.3    |         |        |         | 34.0    |            |        |   | 37.3    |      |  |   | 33.6    |      
|Basic earnings per common share available to common
shareholders:          |                                          |         |         |         |        |         |         |            |        |   |         |      |  |   |         |      
|                                                                           | Income from continuing operations        |         |         | 0.14    |        |         |         | 0.15       |        |   |         | 0.20 |  |   |         | 0.15  |  
|                                                                           | Net income                               |         |         | 0.17    |        |         |         | 0.18       |        |   |         | 0.20 |  |   |         | 0.18  |  
|Diluted earnings per common share available to common
shareholders:        |                                          |         |         |         |        |         |         |            |        |   |         |      |  |   |         |      
|                                                                           | Income from continuing operations        |         |         | 0.14    |        |         |         | 0.15       |        |   |         | 0.19 |  |   |         | 0.14  |  
|                                                                           | Net income                               |         |         | 0.17    |        |         |         | 0.18       |        |   |         | 0.19 |  |   |         | 0.17  |  



(1) We reduced net income available to shareholders by $496.6 million for
the non-cash conversion of the Series A Preferred Stock (see Note 10 for additional discussion).


124



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##### 



ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

19.     Condensed Consolidating Financial Statements

The 1998 Senior Notes, 1999 Notes,
2001 Senior Notes, 2002 Senior Notes and 2003 Senior Notes issued by
Allied Waste North America, Inc. (Allied NA) (our wholly owned subsidiary) and certain debt of BFI (all of which are 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, 2003 and 2002 and the related Condensed Consolidating Statements of Operations and Cash Flows for the years ended
December 31, 2003, 2002 and 2001 of Allied Waste Industries,
Inc. (Parent), Allied NA (Issuer), the guarantor subsidiaries
(Guarantors) and the subsidiaries which are not guarantors
(Non-guarantors). In accordance with the SECs Rule 3-10 of
Regulation S-X, separate financial statements for each of the
entities that constitute the non wholly-owned guarantors are
presented under Item 15 of our Annual Report on Form 10-K
for the year ended December 31, 2003.

CONDENSED CONSOLIDATING BALANCE
SHEETS
(in millions)

|                                                       |                                            |   |                   |         |        |   |              |          |                 |   |                |          |              |   |              |         |  |   |        |       |  |   |           |           |   |   |         |          | 
|------------------------------------------------------ | ------------------------------------------ | - | ----------------- | ------- | ------ | - | ------------ | -------- | --------------- | - | -------------- | -------- | ------------ | - | ------------ | ------- |  | - | ------ | ----- |  | - | --------- | --------- | - | - | ------- | -------- | 
|                                                       |                                            |   | December 31, 2003
|                                                       |                                            |   |                  
|                                                       |                                            |   |                   |         |        |   | Guarantors   |          |                 |   |                |          |             
|                                                       |                                            |   | Parent            |         | Issuer |   | Wholly-Owned |          | NonWholly-Owned |   | Non-Guarantors |          | Eliminations |   | Consolidated
|                                                       |                                            |   |                   |         |        |   |              |          |                 |   |                |          |              |   |             
|ASSETS                                                 |                                            |   |                   |         |        |   |              |          |                 |   |                |          |              |   |              |         |  |   |        |       |  |   |           |           |   |   |         |         
|Current Assets                                        |                                            |   |                   |         |        |   |              |          |                 |   |                |          |              |   |              |         |  |   |        |       |  |   |           |           |   |   |         |         
|Cash and cash
equivalents                              |                                            | $ | 0.1               |         |        | $ | 3.2          |          |                 | $ | 439.0          |          |              | $ | 0.2          |         |  | $ | 2.2    |       |  | $ |          |           |   | $ | 444.7   |         
|Accounts receivable, net                               |                                            |   |                  |         |        |   |             |          |                 |   | 552.6          |          |              |   |             |         |  |   | 98.7   |       |  |   |          |           |   |   | 651.3   |         
|Prepaid and other current
assets                       |                                            |   |                  |         |        |   | 0.1          |          |                 |   | 74.4           |          |              |   | 37.6         |         |  |   | 34.3   |       |  |   | (37.6     | )         |   |   | 108.8   |         
|Deferred income taxes, net                             |                                            |   |                  |         |        |   |             |          |                 |   | 74.9           |          |              |   |             |         |  |   | 5.9    |       |  |   |          |           |   |   | 80.8    |         
|                                                       |                                            |   |                   |         |        |   |              |          |                 |   |                |          |              |   |              |         |  |   |        |       |  |   |           |           |   |   |         |         
|                                                       | Total current assets                       |   |                   | 0.1     |        |   |              | 3.3      |                 |   |                | 1,140.9  |              |   |              | 37.8    |  |   |        | 141.1 |  |   |           | (37.6     | ) |   |         | 1,285.6  | 
|Property and equipment,
net                            |                                            |   |                  |         |        |   |             |          |                 |   | 3,994.1        |          |              |   |             |         |  |   | 24.8   |       |  |   |          |           |   |   | 4,018.9 |         
|Goodwill, net                                          |                                            |   |                  |         |        |   |             |          |                 |   | 8,240.6        |          |              |   |             |         |  |   | 72.4   |       |  |   |          |           |   |   | 8,313.0 |         
|Investment in subsidiaries                             |                                            |   | 2,974.4           |         |        |   | 13,682.9     |          |                 |   | 353.4          |          |              |   |             |         |  |   |       |       |  |   | (17,010.7 | )         |   |   |        |         
|Other assets, net                                      |                                            |   |                  |         |        |   | 112.2        |          |                 |   | 62.5           |          |              |   | 998.2        |         |  |   | 155.7  |       |  |   | (1,085.2  | )         |   |   | 243.4   |         
|                                                       |                                            |   |                   |         |        |   |              |          |                 |   |                |          |              |   |              |         |  |   |        |       |  |   |           |           |   |   |         |         
|                                                       | Total assets                               |   | $                 | 2,974.5 |        |   | $            | 13,798.4 |                 |   | $              | 13,791.5 |              |   | $            | 1,036.0 |  |   | $      | 394.0 |  |   | $         | (18,133.5 | ) |   | $       | 13,860.9 | 
|                                                       |                                            |   |                   |         |        |   |              |          |                 |   |                |          |              |   |              |         |  |   |        |       |  |   |           |           |   |   |         |         
|LIABILITIES AND STOCKHOLDERS EQUITY                   |                                            |   |                   |         |        |   |              |          |                 |   |                |          |              |   |              |         |  |   |        |       |  |   |           |           |   |   |         |         
|Current Liabilities                                   |                                            |   |                   |         |        |   |              |          |                 |   |                |          |              |   |              |         |  |   |        |       |  |   |           |           |   |   |         |         
|Current portion of long-
term debt                     |                                            | $ |                  |         |        | $ | 243.2        |          |                 | $ | 6.4            |          |              | $ |             |         |  | $ |       |       |  | $ |          |           |   | $ | 249.6   |         
|Accounts payable                                       |                                            |   |                  |         |        |   | 0.3          |          |                 |   | 471.7          |          |              |   |             |         |  |   | 5.5    |       |  |   |          |           |   |   | 477.5   |         
|Accrued closure, post-
closure and
environmental costs |                                            |   |                  |         |        |   |             |          |                 |   | 20.1           |          |              |   | 75.1         |         |  |   |       |       |  |   |          |           |   |   | 95.2    |         
|Accrued interest                                       |                                            |   |                  |         |        |   | 153.5        |          |                 |   | 58.0           |          |              |   |             |         |  |   | 0.2    |       |  |   | (37.6     | )         |   |   | 174.1   |         
|Other accrued liabilities                              |                                            |   | 58.8              |         |        |   | 18.9         |          |                 |   | 86.1           |          |              |   | 8.6          |         |  |   | 180.2  |       |  |   |          |           |   |   | 352.6   |         
|Unearned revenue                                       |                                            |   |                  |         |        |   |             |          |                 |   | 215.5          |          |              |   |             |         |  |   | 3.3    |       |  |   |          |           |   |   | 218.8   |         
|                                                       |                                            |   |                   |         |        |   |              |          |                 |   |                |          |              |   |              |         |  |   |        |       |  |   |           |           |   |   |         |         
|                                                       | Total current liabilities                  |   |                   | 58.8    |        |   |              | 415.9    |                 |   |                | 857.8    |              |   |              | 83.7    |  |   |        | 189.2 |  |   |           | (37.6     | ) |   |         | 1,567.8  | 
|Long-term debt, less
current portion                   |                                            |   |                  |         |        |   | 6,915.5      |          |                 |   | 922.7          |          |              |   |             |         |  |   | 146.3  |       |  |   |          |           |   |   | 7,984.5 |         
|Deferred income taxes                                  |                                            |   |                  |         |        |   |             |          |                 |   | 138.3          |          |              |   |             |         |  |   | (9.8   | )     |  |   |          |           |   |   | 128.5   |         
|Accrued closure, post-
closure and
environmental costs |                                            |   |                  |         |        |   |             |          |                 |   | 328.0          |          |              |   | 459.3        |         |  |   | 2.8    |       |  |   |          |           |   |   | 790.1   |         
|Due to/(from) parent                                   |                                            |   | 381.6             |         |        |   | 3,470.5      |          |                 |   | (3,682.6       | )        |              |   | 108.7        |         |  |   | (278.2 | )     |  |   |          |           |   |   |        |         
|Other long-term
obligations                            |                                            |   | 16.4              |         |        |   | 46.5         |          |                 |   | 1,815.1        |          |              |   | 36.1         |         |  |   | 48.6   |       |  |   | (1,090.4  | )         |   |   | 872.3   |         
|Commitments and
contingencies                          |                                            |   |                   |         |        |   |              |          |                 |   |                |          |              |   |              |         |  |   |        |       |  |   |           |           |   |   |         |         
|Stockholders Equity                                   |                                            |   | 2,517.7           |         |        |   | 2,950.0      |          |                 |   | 13,412.2       |          |              |   | 348.2        |         |  |   | 295.1  |       |  |   | (17,005.5 | )         |   |   | 2,517.7 |         
|                                                       |                                            |   |                   |         |        |   |              |          |                 |   |                |          |              |   |              |         |  |   |        |       |  |   |           |           |   |   |         |         
|                                                       | Total liabilities and
stockholders equity |   | $                 | 2,974.5 |        |   | $            | 13,798.4 |                 |   | $              | 13,791.5 |              |   | $            | 1,036.0 |  |   | $      | 394.0 |  |   | $         | (18,133.5 | ) |   | $       | 13,860.9 | 
|                                                       |                                            |   |                   |         |        |   |              |          |                 |   |                |          |              |   |              |         |  |   |        |       |  |   |           |           |   |   |         |         

125



---



##### 



ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATING BALANCE SHEETS
(in millions)

|                                                      |                                            |   |                   |         |        |   |              |          |                  |   |                |          |              |   |              |         |  |   |       |       |  |   |           |           |   |   |         |          | 
|----------------------------------------------------- | ------------------------------------------ | - | ----------------- | ------- | ------ | - | ------------ | -------- | ---------------- | - | -------------- | -------- | ------------ | - | ------------ | ------- |  | - | ----- | ----- |  | - | --------- | --------- | - | - | ------- | -------- | 
|                                                      |                                            |   | December 31, 2002
|                                                      |                                            |   |                  
|                                                      |                                            |   |                   |         |        |   | Guarantors   |          |                  |   |                |          |             
|                                                      |                                            |   | Parent            |         | Issuer |   | Wholly-Owned |          | Non-Wholly-Owned |   | Non-Guarantors |          | Eliminations |   | Consolidated
|                                                      |                                            |   |                   |         |        |   |              |          |                  |   |                |          |              |   |             
|ASSETS                                                |                                            |   |                   |         |        |   |              |          |                  |   |                |          |              |   |              |         |  |   |       |       |  |   |           |           |   |   |         |         
|Current Assets                                       |                                            |   |                   |         |        |   |              |          |                  |   |                |          |              |   |              |         |  |   |       |       |  |   |           |           |   |   |         |         
|Cash and cash
equivalents                             |                                            | $ | 0.1               |         |        | $ | 5.4          |          |                  | $ | 171.4          |          |              | $ | 0.9          |         |  | $ | 1.6   |       |  | $ |          |           |   | $ | 179.4   |         
|Accounts receivable, net                              |                                            |   |                  |         |        |   |             |          |                  |   | 639.9          |          |              |   |             |         |  |   | 12.2  |       |  |   |          |           |   |   | 652.1   |         
|Prepaid and other current
assets                      |                                            |   |                  |         |        |   |             |          |                  |   | 98.7           |          |              |   | 37.6         |         |  |   | 37.5  |       |  |   | (37.6     | )         |   |   | 136.2   |         
|Deferred income taxes, net                            |                                            |   |                  |         |        |   |             |          |                  |   | 100.2          |          |              |   |             |         |  |   | 4.2   |       |  |   |          |           |   |   | 104.4   |         
|                                                      |                                            |   |                   |         |        |   |              |          |                  |   |                |          |              |   |              |         |  |   |       |       |  |   |           |           |   |   |         |         
|                                                      | Total current assets                       |   |                   | 0.1     |        |   |              | 5.4      |                  |   |                | 1,010.2  |              |   |              | 38.5    |  |   |       | 55.5  |  |   |           | (37.6     | ) |   |         | 1,072.1  | 
|Property and equipment,
net                           |                                            |   |                  |         |        |   |             |          |                  |   | 3,985.5        |          |              |   |             |         |  |   | 20.2  |       |  |   |          |           |   |   | 4,005.7 |         
|Goodwill, net                                         |                                            |   |                  |         |        |   |             |          |                  |   | 8,458.0        |          |              |   |             |         |  |   | 72.4  |       |  |   |          |           |   |   | 8,530.4 |         
|Investment in subsidiaries                            |                                            |   | 3,510.7           |         |        |   | 12,527.3     |          |                  |   | 278.6          |          |              |   |             |         |  |   |      |       |  |   | (16,316.6 | )         |   |   |        |         
|Other assets, net                                     |                                            |   |                  |         |        |   | 146.7        |          |                  |   | 158.7          |          |              |   | 998.3        |         |  |   | 113.7 |       |  |   | (1,096.7  | )         |   |   | 320.7   |         
|                                                      |                                            |   |                   |         |        |   |              |          |                  |   |                |          |              |   |              |         |  |   |       |       |  |   |           |           |   |   |         |         
|                                                      | Total assets                               |   | $                 | 3,510.8 |        |   | $            | 12,679.4 |                  |   | $              | 13,891.0 |              |   | $            | 1,036.8 |  |   | $     | 261.8 |  |   | $         | (17,450.9 | ) |   | $       | 13,928.9 | 
|                                                      |                                            |   |                   |         |        |   |              |          |                  |   |                |          |              |   |              |         |  |   |       |       |  |   |           |           |   |   |         |         
|LIABILITIES AND STOCKHOLDERS EQUITY                  |                                            |   |                   |         |        |   |              |          |                  |   |                |          |              |   |              |         |  |   |       |       |  |   |           |           |   |   |         |         
|Current Liabilities                                  |                                            |   |                   |         |        |   |              |          |                  |   |                |          |              |   |              |         |  |   |       |       |  |   |           |           |   |   |         |         
|Current portion of long-
term debt                    |                                            | $ |                  |         |        | $ |             |          |                  | $ | 163.5          |          |              | $ |             |         |  | $ |      |       |  | $ |          |           |   | $ | 163.5   |         
|Accounts payable                                      |                                            |   |                  |         |        |   | 0.8          |          |                  |   | 408.6          |          |              |   |             |         |  |   | 4.6   |       |  |   |          |           |   |   | 414.0   |         
|Accrued closure, post-closure and
environmental costs |                                            |   |                  |         |        |   |             |          |                  |   | 50.7           |          |              |   | 44.6         |         |  |   |      |       |  |   |          |           |   |   | 95.3    |         
|Accrued interest                                      |                                            |   |                  |         |        |   | 157.2        |          |                  |   | 62.4           |          |              |   |             |         |  |   |      |       |  |   | (37.6     | )         |   |   | 182.0   |         
|Other accrued liabilities                             |                                            |   | 50.4              |         |        |   |             |          |                  |   | 173.5          |          |              |   | 16.1         |         |  |   | 139.3 |       |  |   |          |           |   |   | 379.3   |         
|Unearned revenue                                      |                                            |   |                  |         |        |   |             |          |                  |   | 213.3          |          |              |   |             |         |  |   | 2.4   |       |  |   |          |           |   |   | 215.7   |         
|                                                      |                                            |   |                   |         |        |   |              |          |                  |   |                |          |              |   |              |         |  |   |       |       |  |   |           |           |   |   |         |         
|                                                      | Total current liabilities                  |   |                   | 50.4    |        |   |              | 158.0    |                  |   |                | 1,072.0  |              |   |              | 60.7    |  |   |       | 146.3 |  |   |           | (37.6     | ) |   |         | 1,449.8  | 
|Long-term debt, less
current portion                  |                                            |   |                  |         |        |   | 7,807.0      |          |                  |   | 911.7          |          |              |   |             |         |  |   |      |       |  |   |          |           |   |   | 8,718.7 |         
|Deferred income taxes                                 |                                            |   |                  |         |        |   |             |          |                  |   | 61.3           |          |              |   |             |         |  |   | (9.9  | )     |  |   |          |           |   |   | 51.4    |         
|Accrued closure, post-closure and
environmental costs |                                            |   |                  |         |        |   |             |          |                  |   | 313.0          |          |              |   | 548.4        |         |  |   | 2.6   |       |  |   |          |           |   |   | 864.0   |         
|Due to/(from) parent                                  |                                            |   | 1,509.2           |         |        |   | 1,103.5      |          |                  |   | (2,674.3       | )        |              |   | 119.6        |         |  |   | (58.0 | )     |  |   |          |           |   |   |        |         
|Other long-term obligations                           |                                            |   | 15.2              |         |        |   | 125.8        |          |                  |   | 1,835.2        |          |              |   | 34.0         |         |  |   |      |       |  |   | (1,101.2  | )         |   |   | 909.0   |         
|Commitments and
contingencies                         |                                            |   |                   |         |        |   |              |          |                  |   |                |          |              |   |              |         |  |   |       |       |  |   |           |           |   |   |         |         
|Series A Senior
Convertible
Preferred Stock           |                                            |   | 1,246.9           |         |        |   |             |          |                  |   |               |          |              |   |             |         |  |   |      |       |  |   |          |           |   |   | 1,246.9 |         
|Stockholders Equity                                  |                                            |   | 689.1             |         |        |   | 3,485.1      |          |                  |   | 12,372.1       |          |              |   | 274.1        |         |  |   | 180.8 |       |  |   | (16,312.1 | )         |   |   | 689.1   |         
|                                                      |                                            |   |                   |         |        |   |              |          |                  |   |                |          |              |   |              |         |  |   |       |       |  |   |           |           |   |   |         |         
|                                                      | Total liabilities and
stockholders equity |   | $                 | 3,510.8 |        |   | $            | 12,679.4 |                  |   | $              | 13,891.0 |              |   | $            | 1,036.8 |  |   | $     | 261.8 |  |   | $         | (17,450.9 | ) |   | $       | 13,928.9 | 
|                                                      |                                            |   |                   |         |        |   |              |          |                  |   |                |          |              |   |              |         |  |   |       |       |  |   |           |           |   |   |         |         

126



---



##### 



ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
(in millions)

|                                                    |                                                    |   |                              |        |        |   |              |        |                  |   |                |         |              |   |              |        |  |   |       |      |  |   |        |        |   |   |         |         |  
|--------------------------------------------------- | -------------------------------------------------- | - | ---------------------------- | ------ | ------ | - | ------------ | ------ | ---------------- | - | -------------- | ------- | ------------ | - | ------------ | ------ |  | - | ----- | ---- |  | - | ------ | ------ | - | - | ------- | ------- | -
|                                                    |                                                    |   | Year Ended December 31, 2003
|                                                    |                                                    |   |                             
|                                                    |                                                    |   |                              |        |        |   | Guarantors   |        |                  |   |                |         |             
|                                                    |                                                    |   | Parent                       |        | Issuer |   | Wholly-Owned |        | Non-Wholly-Owned |   | Non-Guarantors |         | Eliminations |   | Consolidated
|                                                    |                                                    |   |                              |        |        |   |              |        |                  |   |                |         |              |   |             
|Revenues                                            |                                                    | $ |                             |        |        | $ |             |        |                  | $ | 5,037.0        |         |              | $ |             |        |  | $ | 210.7 |      |  | $ |       |        |   | $ | 5,247.7 |        
|Cost of operations                                  |                                                    |   |                             |        |        |   | (0.1         | )      |                  |   | 3,005.0        |         |              |   | 24.3         |        |  |   | 160.9 |      |  |   |       |        |   |   | 3,190.1 |        
|Selling, general and
administrative expenses        |                                                    |   | 16.5                         |        |        |   |             |        |                  |   | 446.0          |         |              |   | 0.6          |        |  |   | 13.8  |      |  |   |       |        |   |   | 476.9   |        
|Depreciation and amortization                       |                                                    |   |                             |        |        |   |             |        |                  |   | 541.4          |         |              |   |             |        |  |   | 4.6   |      |  |   |       |        |   |   | 546.0   |        
|                                                    |                                                    |   |                              |        |        |   |              |        |                  |   |                |         |              |   |              |        |  |   |       |      |  |   |        |        |   |   |         |        
|                                                    | Operating (loss) income                            |   |                              | (16.5  | )      |   |              | 0.1    |                  |   |                | 1,044.6 |              |   |              | (24.9) |  |   |       | 31.4 |  |   |        |       |   |   |         | 1,034.7 |  
|Equity in earnings of subsidiaries                  |                                                    |   | (95.0                        | )      |        |   | (563.0       | )      |                  |   | (62.7          | )       |              |   |             |        |  |   |      |      |  |   | 720.7  |        |   |   |        |        
|Interest expense (income)
and other                 |                                                    |   | 1.2                          |        |        |   | 757.0        |        |                  |   | 81.8           |         |              |   |             |        |  |   | (7.1  | )    |  |   |       |        |   |   | 832.9   |        
|Intercompany interest
expense (income)              |                                                    |   | (69.7                        | )      |        |   | 22.9         |        |                  |   | 126.1          |         |              |   | (71.5        | )      |  |   | (7.8  | )    |  |   |       |        |   |   |        |        
|Management fees                                     |                                                    |   | (5.0                         | )      |        |   |             |        |                  |   | 4.0            |         |              |   |             |        |  |   | 1.0   |      |  |   |       |        |   |   |        |        
|                                                    |                                                    |   |                              |        |        |   |              |        |                  |   |                |         |              |   |              |        |  |   |       |      |  |   |        |        |   |   |         |        
|                                                    | Income (loss) before income
taxes                  |   |                              | 152.0  |        |   |              | (216.8 | )                |   |                | 895.4   |              |   |              | 46.6   |  |   |       | 45.3 |  |   |        | (720.7 | ) |   |         | 201.8   |  
|Income tax expense (benefit)                        |                                                    |   | 23.3                         |        |        |   | (311.9       | )      |                  |   | 341.0          |         |              |   | 18.6         |        |  |   | 17.7  |      |  |   |       |        |   |   | 88.7    |        
|Minority interest                                   |                                                    |   |                             |        |        |   |             |        |                  |   | 1.2            |         |              |   |             |        |  |   | 0.7   |      |  |   |       |        |   |   | 1.9     |        
|                                                    |                                                    |   |                              |        |        |   |              |        |                  |   |                |         |              |   |              |        |  |   |       |      |  |   |        |        |   |   |         |        
|Net income from continuing
operations               |                                                    |   | 128.7                        |        |        |   | 95.1         |        |                  |   | 553.2          |         |              |   | 28.0         |        |  |   | 26.9  |      |  |   | (720.7 | )      |   |   | 111.2   |        
|Discontinued operations,
net of tax                 |                                                    |   |                             |        |        |   |             |        |                  |   | (11.5          | )       |              |   |              |        |  |   |      |      |  |   |       |        |   |   | (11.5   | )      
|Cumulative effect of accounting
change, net of tax  |                                                    |   | 29.0                         |        |        |   |             |        |                  |   | (6.3           | )       |              |   | 35.3         |        |  |   |      |      |  |   | (29.0  | )      |   |   | 29.0    |        
|                                                    |                                                    |   |                              |        |        |   |              |        |                  |   |                |         |              |   |              |        |  |   |       |      |  |   |        |        |   |   |         |        
|                                                    | Net income                                         |   |                              | 157.7  |        |   |              | 95.1   |                  |   |                | 535.4   |              |   |              | 63.3   |  |   |       | 26.9 |  |   |        | (749.7 | ) |   |         | 128.7   |  
|Dividends on preferred stock                        |                                                    |   | (95.6                        | )      |        |   |             |        |                  |   |               |         |              |   |             |        |  |   |      |      |  |   |       |        |   |   | (95.6   | )      
|Non-cash conversion of Series A
Preferred
Stock     |                                                    |   | (496.6                       | )      |        |   |             |        |                  |   |               |         |              |   |             |        |  |   |      |      |  |   |       |        |   |   | (496.6  | )      
|Changes in redemption value of Class B common stock |                                                    |   |                             |        |        |   |             |        |                  |   |               |         |              |   | (0.6         | )      |  |   |      |      |  |   | 0.6    |        |   |   |        |        
|                                                    |                                                    |   |                              |        |        |   |              |        |                  |   |                |         |              |   |              |        |  |   |       |      |  |   |        |        |   |   |         |        
|                                                    | Net income (loss) available to
common shareholders |   | $                            | (434.5 | )      |   | $            | 95.1   |                  |   | $              | 535.4   |              |   | $            | 62.7   |  |   | $     | 26.9 |  |   | $      | (749.1 | ) |   | $       | (463.5  | )
|                                                    |                                                    |   |                              |        |        |   |              |        |                  |   |                |         |              |   |              |        |  |   |       |      |  |   |        |        |   |   |         |        

|                                                    |                                             |   |                              |       |        |   |              |        |                  |   |                |         |              |   |              |       |   |   |       |      |  |   |       |        |   |   |         |         | 
|--------------------------------------------------- | ------------------------------------------- | - | ---------------------------- | ----- | ------ | - | ------------ | ------ | ---------------- | - | -------------- | ------- | ------------ | - | ------------ | ----- | - | - | ----- | ---- |  | - | ----- | ------ | - | - | ------- | ------- | 
|                                                    |                                             |   | Year Ended December 31, 2002
|                                                    |                                             |   |                             
|                                                    |                                             |   |                              |       |        |   | Guarantors   |        |                  |   |                |         |             
|                                                    |                                             |   | Parent                       |       | Issuer |   | Wholly-Owned |        | Non-Wholly-Owned |   | Non-Guarantors |         | Eliminations |   | Consolidated
|                                                    |                                             |   |                              |       |        |   |              |        |                  |   |                |         |              |   |             
|Revenues                                            |                                             | $ |                             |       |        | $ |             |        |                  | $ | 4,982.6        |         |              | $ |             |       |   | $ | 208.2 |      |  | $ |      |        |   | $ | 5,190.8 |        
|Cost of operations                                  |                                             |   |                             |       |        |   |             |        |                  |   | 2,844.6        |         |              |   | 43.4         |       |   |   | 151.1 |      |  |   |      |        |   |   | 3,039.1 |        
|Selling, general and
administrative expenses        |                                             |   | 11.9                         |       |        |   | 0.5          |        |                  |   | 442.1          |         |              |   | 0.7          |       |   |   | 7.5   |      |  |   |      |        |   |   | 462.7   |        
|Depreciation and amortization                       |                                             |   |                             |       |        |   |             |        |                  |   | 463.9          |         |              |   |             |       |   |   | 14.6  |      |  |   |      |        |   |   | 478.5   |        
|Non-cash gain on divestiture of
assets              |                                             |   |                             |       |        |   |             |        |                  |   | (9.3           | )       |              |   |             |       |   |   |      |      |  |   |      |        |   |   | (9.3    | )      
|                                                    |                                             |   |                              |       |        |   |              |        |                  |   |                |         |              |   |              |       |   |   |       |      |  |   |       |        |   |   |         |        
|                                                    | Operating (loss) income                     |   |                              | (11.9 | )      |   |              | (0.5   | )                |   |                | 1,241.3 |              |   |              | (44.1 | ) |   |       | 35.0 |  |   |       |       |   |   |         | 1,219.8 | 
|Equity in earnings of subsidiaries                  |                                             |   | (187.6                       | )     |        |   | (620.1       | )      |                  |   | (18.6          | )       |              |   |             |       |   |   |      |      |  |   | 826.3 |        |   |   |        |        
|Interest expense (income)
and other                 |                                             |   | 1.6                          |       |        |   | 751.7        |        |                  |   | 106.6          |         |              |   |             |       |   |   | (5.9  | )    |  |   |      |        |   |   | 854.0   |        
|Intercompany interest
expense (income)              |                                             |   | (56.0                        | )     |        |   | (24.0        | )      |                  |   | 150.6          |         |              |   | (71.9        | )     |   |   | 1.3   |      |  |   |      |        |   |   |        |        
|Management fees                                     |                                             |   | (5.0                         | )     |        |   |             |        |                  |   | 4.0            |         |              |   |             |       |   |   | 1.0   |      |  |   |      |        |   |   |        |        
|                                                    |                                             |   |                              |       |        |   |              |        |                  |   |                |         |              |   |              |       |   |   |       |      |  |   |       |        |   |   |         |        
|                                                    | Income (loss) before income
taxes           |   |                              | 235.1 |        |   |              | (108.1 | )                |   |                | 998.7   |              |   |              | 27.8  |   |   |       | 38.6 |  |   |       | (826.3 | ) |   |         | 365.8   | 
|Income tax expense (benefit)                        |                                             |   | 20.0                         |       |        |   | (291.3       | )      |                  |   | 408.8          |         |              |   | 11.1         |       |   |   | 17.0  |      |  |   |      |        |   |   | 165.6   |        
|Minority interest                                   |                                             |   |                             |       |        |   |             |        |                  |   | 1.9            |         |              |   |             |       |   |   |      |      |  |   |      |        |   |   | 1.9     |        
|                                                    |                                             |   |                              |       |        |   |              |        |                  |   |                |         |              |   |              |       |   |   |       |      |  |   |       |        |   |   |         |        
|                                                    | Net income from continuing
operations       |   |                              | 215.1 |        |   |              | 183.2  |                  |   |                | 588.0   |              |   |              | 16.7  |   |   |       | 21.6 |  |   |       | (826.3 | ) |   |         | 198.3   | 
|Discontinued operations,
net of tax                 |                                             |   |                             |       |        |   |             |        |                  |   | 16.8           |         |              |   |             |       |   |   |      |      |  |   |      |        |   |   | 16.8    |        
|                                                    |                                             |   |                              |       |        |   |              |        |                  |   |                |         |              |   |              |       |   |   |       |      |  |   |       |        |   |   |         |        
|                                                    | Net income                                  |   |                              | 215.1 |        |   |              | 183.2  |                  |   |                | 604.8   |              |   |              | 16.7  |   |   |       | 21.6 |  |   |       | (826.3 | ) |   |         | 215.1   | 
|Dividends on preferred stock                        |                                             |   | (77.9                        | )     |        |   |             |        |                  |   |               |         |              |   |             |       |   |   |      |      |  |   |      |        |   |   | (77.9   | )      
|Changes in redemption value of Class B common stock |                                             |   |                             |       |        |   |             |        |                  |   |               |         |              |   | 1.9          |       |   |   |      |      |  |   | (1.9  | )      |   |   |        |        
|                                                    |                                             |   |                              |       |        |   |              |        |                  |   |                |         |              |   |              |       |   |   |       |      |  |   |       |        |   |   |         |        
|                                                    | Net income available to
common shareholders |   | $                            | 137.2 |        |   | $            | 183.2  |                  |   | $              | 604.8   |              |   | $            | 18.6  |   |   | $     | 21.6 |  |   | $     | (828.2 | ) |   | $       | 137.2   | 
|                                                    |                                             |   |                              |       |        |   |              |        |                  |   |                |         |              |   |              |       |   |   |       |      |  |   |       |        |   |   |         |        

127



---



##### 



ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
(in millions)

|                                                    |                                                    |   |                              |       |        |   |              |        |                  |   |                |         |              |   |              |       |   |   |       |      |  |   |       |        |   |   |         |         |  
|--------------------------------------------------- | -------------------------------------------------- | - | ---------------------------- | ----- | ------ | - | ------------ | ------ | ---------------- | - | -------------- | ------- | ------------ | - | ------------ | ----- | - | - | ----- | ---- |  | - | ----- | ------ | - | - | ------- | ------- | -
|                                                    |                                                    |   | Year Ended December 31, 2001
|                                                    |                                                    |   |                             
|                                                    |                                                    |   |                              |       |        |   | Guarantors   |        |                  |   |                |         |             
|                                                    |                                                    |   | Parent                       |       | Issuer |   | Wholly-Owned |        | Non-Wholly-Owned |   | Non-Guarantors |         | Eliminations |   | Consolidated
|                                                    |                                                    |   |                              |       |        |   |              |        |                  |   |                |         |              |   |             
|Revenues                                            |                                                    | $ |                             |       |        | $ |             |        |                  | $ | 5,029.3        |         |              | $ |             |       |   | $ | 202.1 |      |  | $ |      |        |   | $ | 5,231.4 |        
|Cost of operations                                  |                                                    |   |                             |       |        |   |             |        |                  |   | 2,819.6        |         |              |   | 18.4         |       |   |   | 126.2 |      |  |   |      |        |   |   | 2,964.2 |        
|Selling, general and
administrative expenses        |                                                    |   | 10.9                         |       |        |   |             |        |                  |   | 417.1          |         |              |   | 0.7          |       |   |   | 6.0   |      |  |   |      |        |   |   | 434.7   |        
|Depreciation and amortization                       |                                                    |   |                             |       |        |   |             |        |                  |   | 433.9          |         |              |   |             |       |   |   | 14.9  |      |  |   |      |        |   |   | 448.8   |        
|Goodwill amortization                               |                                                    |   |                             |       |        |   |             |        |                  |   | 224.6          |         |              |   |             |       |   |   | 2.1   |      |  |   |      |        |   |   | 226.7   |        
|Non-cash loss on divestiture of
assets              |                                                    |   |                             |       |        |   |             |        |                  |   | 107.0          |         |              |   |             |       |   |   |      |      |  |   |      |        |   |   | 107.0   |        
|                                                    |                                                    |   |                              |       |        |   |              |        |                  |   |                |         |              |   |              |       |   |   |       |      |  |   |       |        |   |   |         |        
|                                                    | Operating (loss) income                            |   |                              | (10.9 | )      |   |              |       |                  |   |                | 1,027.1 |              |   |              | (19.1 | ) |   |       | 52.9 |  |   |       |       |   |   |         | 1,050.0 |  
|Equity in earnings of
unconsolidated affiliates     |                                                    |   |                             |       |        |   |             |        |                  |   | (14.1          | )       |              |   |             |       |   |   |      |      |  |   |      |        |   |   | (14.1   | )      
|Equity in earnings of
subsidiaries                  |                                                    |   | (15.9                        | )     |        |   | (455.9       | )      |                  |   | (28.2          | )       |              |   |             |       |   |   |      |      |  |   | 500.0 |        |   |   |        |        
|Interest expense and other                          |                                                    |   | 0.3                          |       |        |   | 775.6        |        |                  |   | 87.7           |         |              |   |             |       |   |   | 2.5   |      |  |   |      |        |   |   | 866.1   |        
|Intercompany interest
expense (income)              |                                                    |   | (78.8                        | )     |        |   | (38.1        | )      |                  |   | 188.9          |         |              |   | (73.1        | )     |   |   | 1.1   |      |  |   |      |        |   |   |        |        
|Management fees                                     |                                                    |   | (5.0                         | )     |        |   |             |        |                  |   | 4.3            |         |              |   |             |       |   |   | 0.7   |      |  |   |      |        |   |   |        |        
|                                                    |                                                    |   |                              |       |        |   |              |        |                  |   |                |         |              |   |              |       |   |   |       |      |  |   |       |        |   |   |         |        
|                                                    | Income (loss) before income
taxes                  |   |                              | 88.5  |        |   |              | (281.6 | )                |   |                | 788.5   |              |   |              | 54.0  |   |   |       | 48.6 |  |   |       | (500.0 | ) |   |         | 198.0   |  
|Income tax expense (benefit)                        |                                                    |   | 30.0                         |       |        |   | (291.3       | )      |                  |   | 383.6          |         |              |   | 21.6         |       |   |   | 18.5  |      |  |   |      |        |   |   | 162.4   |        
|Minority interest                                   |                                                    |   |                             |       |        |   |             |        |                  |   | 3.7            |         |              |   |             |       |   |   |      |      |  |   |      |        |   |   | 3.7     |        
|                                                    |                                                    |   |                              |       |        |   |              |        |                  |   |                |         |              |   |              |       |   |   |       |      |  |   |       |        |   |   |         |        
|                                                    | Net income from
continuing operations              |   |                              | 58.5  |        |   |              | 9.7    |                  |   |                | 401.2   |              |   |              | 32.4  |   |   |       | 30.1 |  |   |       | (500.0 | ) |   |         | 31.9    |  
|Discontinued operations,
net of tax                 |                                                    |   |                             |       |        |   |             |        |                  |   | 26.6           |         |              |   |             |       |   |   |      |      |  |   |      |        |   |   | 26.6    |        
|                                                    |                                                    |   |                              |       |        |   |              |        |                  |   |                |         |              |   |              |       |   |   |       |      |  |   |       |        |   |   |         |        
|                                                    | Net income                                         |   |                              | 58.5  |        |   |              | 9.7    |                  |   |                | 427.8   |              |   |              | 32.4  |   |   |       | 30.1 |  |   |       | (500.0 | ) |   |         | 58.5    |  
|Dividends on preferred stock                        |                                                    |   | (73.0                        | )     |        |   |             |        |                  |   |               |         |              |   |             |       |   |   |      |      |  |   |      |        |   |   | (73.0   | )      
|Changes in redemption value of Class B common stock |                                                    |   |                             |       |        |   |             |        |                  |   |               |         |              |   | (4.2         | )     |   |   |      |      |  |   | 4.2   |        |   |   |        |        
|                                                    |                                                    |   |                              |       |        |   |              |        |                  |   |                |         |              |   |              |       |   |   |       |      |  |   |       |        |   |   |         |        
|                                                    | Net income (loss) available to
common shareholders |   | $                            | (14.5 | )      |   | $            | 9.7    |                  |   | $              | 427.8   |              |   | $            | 28.2  |   |   | $     | 30.1 |  |   | $     | (495.8 | ) |   | $       | (14.5   | )
|                                                    |                                                    |   |                              |       |        |   |              |        |                  |   |                |         |              |   |              |       |   |   |       |      |  |   |       |        |   |   |         |        

128



---



##### 



ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
(in millions)

|                                                                            |                                                                                 |   |                              |        |        |   |              |          |                  |   |                |        |              |   |              |       |   |   |       |        |   |   |   |   |  |   |        |          |  
|--------------------------------------------------------------------------- | ------------------------------------------------------------------------------- | - | ---------------------------- | ------ | ------ | - | ------------ | -------- | ---------------- | - | -------------- | ------ | ------------ | - | ------------ | ----- | - | - | ----- | ------ | - | - | - | - |  | - | ------ | -------- | -
|                                                                            |                                                                                 |   | Year Ended December 31, 2003
|                                                                            |                                                                                 |   |                             
|                                                                            |                                                                                 |   |                              |        |        |   | Guarantors   |          |                  |   |                |        |             
|                                                                            |                                                                                 |   | Parent                       |        | Issuer |   | Wholly-Owned |          | Non-Wholly-Owned |   | Non-Guarantors |        | Eliminations |   | Consolidated
|                                                                            |                                                                                 |   |                              |        |        |   |              |          |                  |   |                |        |              |   |             
|Cash provided by (used for)
operating activities from
continuing operations |                                                                                 | $ | (98.5                        | )      |        | $ | (575.1       | )        |                  | $ | 1,350.8        |        |              | $ | 10.2         |       |   | $ | 96.5  |        |   | $ |  |   |  | $ | 783.9  |         
|Investing activities                                                       |                                                                                 |   |                              |        |        |   |              |          |                  |   |                |        |              |   |              |       |   |   |       |        |   |   |   |   |  |   |        |         
|                                                                            | Proceed from divestitures
(cost of acquisitions), net of
cash divested/acquired |   |                              |       |        |   |              |         |                  |   |                | 250.0  |              |   |              |      |   |   |       |       |   |   |   |  |  |   |        | 250.0    |  
|                                                                            | Proceeds from sale of fixed
assets                                              |   |                              |       |        |   |              |         |                  |   |                | 17.5   |              |   |              |      |   |   |       |       |   |   |   |  |  |   |        | 17.5     |  
|                                                                            | Capital expenditures, excluding
acquisitions                                    |   |                              |       |        |   |              |         |                  |   |                | (483.7 | )            |   |              |      |   |   |       | (8.1   | ) |   |   |  |  |   |        | (491.8   | )
|                                                                            | Capitalized interest                                                            |   |                              |       |        |   |              |         |                  |   |                | (15.7  | )            |   |              |      |   |   |       |       |   |   |   |  |  |   |        | (15.7    | )
|                                                                            | Change in deferred acquisitions
costs, notes receivable and
other               |   |                              |       |        |   |              |         |                  |   |                | (8.4   | )            |   |              |      |   |   |       |       |   |   |   |  |  |   |        | (8.4     | )
|                                                                            |                                                                                 |   |                              |        |        |   |              |          |                  |   |                |        |              |   |              |       |   |   |       |        |   |   |   |   |  |   |        |         
|Cash used for investing activities
from continuing operations               |                                                                                 |   |                             |        |        |   |             |          |                  |   | (240.3         | )      |              |   |             |       |   |   | (8.1  | )      |   |   |  |   |  |   | (248.4 | )       
|                                                                            |                                                                                 |   |                              |        |        |   |              |          |                  |   |                |        |              |   |              |       |   |   |       |        |   |   |   |   |  |   |        |         
|Financing activities                                                       |                                                                                 |   |                              |        |        |   |              |          |                  |   |                |        |              |   |              |       |   |   |       |        |   |   |   |   |  |   |        |         
|                                                                            | Net proceeds from sale of
Series C Preferred Stock                              |   |                              | 333.1  |        |   |              |         |                  |   |                |       |              |   |              |      |   |   |       |       |   |   |   |  |  |   |        | 333.1    |  
|                                                                            | Proceeds from long-term debt,
net of issuance costs                             |   |                              |       |        |   |              | 2,870.9  |                  |   |                |       |              |   |              |      |   |   |       | 166.2  |   |   |   |  |  |   |        | 3,037.1  |  
|                                                                            | Repayments of long-term debt                                                    |   |                              |       |        |   |              | (3,570.7 | )                |   |                | (164.0 | )            |   |              |      |   |   |       | (19.9  | ) |   |   |  |  |   |        | (3,754.6 | )
|                                                                            | Payments of Series C
Preferred Stock cash dividend                              |   |                              | (10.2  | )      |   |              |         |                  |   |                |       |              |   |              |      |   |   |       |       |   |   |   |  |  |   |        | (10.2    | )
|                                                                            | Change in disbursement
account                                                  |   |                              |       |        |   |              |         |                  |   |                | 10.5   |              |   |              |      |   |   |       |       |   |   |   |  |  |   |        | 10.5     |  
|                                                                            | Net proceeds from sale of
common stock, exercise of
stock options and other     |   |                              | 98.4   |        |   |              |         |                  |   |                |       |              |   |              |      |   |   |       |       |   |   |   |  |  |   |        | 98.4     |  
|                                                                            | Intercompany between issuer
and subsidiary                                      |   |                              | (322.8 | )      |   |              | 1,272.7  |                  |   |                | (704.9 | )            |   |              | (10.9 | ) |   |       | (234.1 | ) |   |   |  |  |   |        |         |  
|                                                                            |                                                                                 |   |                              |        |        |   |              |          |                  |   |                |        |              |   |              |       |   |   |       |        |   |   |   |   |  |   |        |         
|Cash (used for) provided by
financing activities from
continuing operations |                                                                                 |   | 98.5                         |        |        |   | 572.9        |          |                  |   | (858.4         | )      |              |   | (10.9        | )     |   |   | (87.8 | )      |   |   |  |   |  |   | (285.7 | )       
|                                                                            |                                                                                 |   |                              |        |        |   |              |          |                  |   |                |        |              |   |              |       |   |   |       |        |   |   |   |   |  |   |        |         
|Cash provided by discontinued
operations                                    |                                                                                 |   |                             |        |        |   |             |          |                  |   | 15.5           |        |              |   |             |       |   |   |      |        |   |   |  |   |  |   | 15.5   |         
|                                                                            |                                                                                 |   |                              |        |        |   |              |          |                  |   |                |        |              |   |              |       |   |   |       |        |   |   |   |   |  |   |        |         
|Increase (decrease) in cash and
cash equivalents                            |                                                                                 |   |                             |        |        |   | (2.2         | )        |                  |   | 267.6          |        |              |   | (0.7         | )     |   |   | 0.6   |        |   |   |  |   |  |   | 265.3  |         
|Cash and cash equivalents,
beginning of year                                |                                                                                 |   | 0.1                          |        |        |   | 5.4          |          |                  |   | 171.4          |        |              |   | 0.9          |       |   |   | 1.6   |        |   |   |  |   |  |   | 179.4  |         
|                                                                            |                                                                                 |   |                              |        |        |   |              |          |                  |   |                |        |              |   |              |       |   |   |       |        |   |   |   |   |  |   |        |         
|Cash and cash equivalents,
end of year                                      |                                                                                 | $ | 0.1                          |        |        | $ | 3.2          |          |                  | $ | 439.0          |        |              | $ | 0.2          |       |   | $ | 2.2   |        |   | $ |  |   |  | $ | 444.7  |         
|                                                                            |                                                                                 |   |                              |        |        |   |              |          |                  |   |                |        |              |   |              |       |   |   |       |        |   |   |   |   |  |   |        |         

129



---



##### 



ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
(in millions)

|                                                                            |                                                                                  |   |                              |     |        |   |              |          |                  |   |                |        |              |   |              |      |  |   |       |        |   |   |   |   |  |   |        |          |  
|--------------------------------------------------------------------------- | -------------------------------------------------------------------------------- | - | ---------------------------- | --- | ------ | - | ------------ | -------- | ---------------- | - | -------------- | ------ | ------------ | - | ------------ | ---- |  | - | ----- | ------ | - | - | - | - |  | - | ------ | -------- | -
|                                                                            |                                                                                  |   | Year Ended December 31, 2002
|                                                                            |                                                                                  |   |                             
|                                                                            |                                                                                  |   |                              |     |        |   | Guarantors   |          |                  |   |                |        |             
|                                                                            |                                                                                  |   | Parent                       |     | Issuer |   | Wholly-Owned |          | Non-Wholly-Owned |   | Non-Guarantors |        | Eliminations |   | Consolidated
|                                                                            |                                                                                  |   |                              |     |        |   |              |          |                  |   |                |        |              |   |             
|Cash provided by (used for)
operating activities from
continuing operations |                                                                                  | $ | (2.8                         | )   |        | $ | 104.0        |          |                  | $ | 864.2          |        |              | $ | (19.6        | )    |  | $ | 30.8  |        |   | $ |  |   |  | $ | 976.6  |         
|Investing activities                                                       |                                                                                  |   |                              |     |        |   |              |          |                  |   |                |        |              |   |              |      |  |   |       |        |   |   |   |   |  |   |        |         
|                                                                            | Proceeds from divestitures (cost
of acquisitions), net of cash
divested/acquired |   |                              |    |        |   |              |         |                  |   |                | 31.2   |              |   |              |     |  |   |       |       |   |   |   |  |  |   |        | 31.2     |  
|                                                                            | Capital expenditures, excluding
acquisitions                                     |   |                              |    |        |   |              |         |                  |   |                | (338.1 | )            |   |              |     |  |   |       | (198.2 | ) |   |   |  |  |   |        | (536.3   | )
|                                                                            | Capitalized interest                                                             |   |                              |    |        |   |              |         |                  |   |                | (20.6  | )            |   |              |     |  |   |       |       |   |   |   |  |  |   |        | (20.6    | )
|                                                                            | Proceeds from sale of fixed
assets                                               |   |                              |    |        |   |              |         |                  |   |                | 27.2   |              |   |              |     |  |   |       | 1.4    |   |   |   |  |  |   |        | 28.6     |  
|                                                                            | Change in deferred acquisition
costs, notes receivable and
other                 |   |                              |    |        |   |              |         |                  |   |                | (22.4  | )            |   |              |     |  |   |       |       |   |   |   |  |  |   |        | (22.4    | )
|                                                                            |                                                                                  |   |                              |     |        |   |              |          |                  |   |                |        |              |   |              |      |  |   |       |        |   |   |   |   |  |   |        |         
|                                                                            | Cash
used for investing activities
from continuing operations                    |   |                              |    |        |   |              |         |                  |   |                | (322.7 | )            |   |              |     |  |   |       | (196.8 | ) |   |   |  |  |   |        | (519.5   | )
|                                                                            |                                                                                  |   |                              |     |        |   |              |          |                  |   |                |        |              |   |              |      |  |   |       |        |   |   |   |   |  |   |        |         
|Financing activities                                                       |                                                                                  |   |                              |     |        |   |              |          |                  |   |                |        |              |   |              |      |  |   |       |        |   |   |   |   |  |   |        |         
|                                                                            | Net proceeds from sale of
common stock, exercise of
stock options and other      |   |                              | 2.8 |        |   |              |         |                  |   |                |       |              |   |              |     |  |   |       |       |   |   |   |  |  |   |        | 2.8      |  
|                                                                            | Change in disbursement
account                                                   |   |                              |    |        |   |              |         |                  |   |                | (87.1  | )            |   |              |     |  |   |       |       |   |   |   |  |  |   |        | (87.1    | )
|                                                                            | Proceeds from long-term debt,
net of issuance costs                              |   |                              |    |        |   |              | 861.7    |                  |   |                | (10.1  | )            |   |              |     |  |   |       | 192.7  |   |   |   |  |  |   |        | 1,044.3  |  
|                                                                            | Repayments of long-term debt                                                     |   |                              |    |        |   |              | (1,167.7 | )                |   |                | (267.8 | )            |   |              |     |  |   |       | (12.0  | ) |   |   |  |  |   |        | (1,447.5 | )
|                                                                            | Intercompany between issuer
and subsidiary                                       |   |                              |    |        |   |              | 198.5    |                  |   |                | (170.0 | )            |   |              | 18.7 |  |   |       | (47.2  | ) |   |   |  |  |   |        |         |  
|                                                                            |                                                                                  |   |                              |     |        |   |              |          |                  |   |                |        |              |   |              |      |  |   |       |        |   |   |   |   |  |   |        |         
|Cash provided by (used for)
financing activities from
continuing operations |                                                                                  |   | 2.8                          |     |        |   | (107.5       | )        |                  |   | (535.0         | )      |              |   | 18.7         |      |  |   | 133.5 |        |   |   |  |   |  |   | (487.5 | )       
|                                                                            |                                                                                  |   |                              |     |        |   |              |          |                  |   |                |        |              |   |              |      |  |   |       |        |   |   |   |   |  |   |        |         
|Cash provided by discontinued
operations                                    |                                                                                  |   |                             |     |        |   |             |          |                  |   | 52.2           |        |              |   |             |      |  |   |      |        |   |   |  |   |  |   | 52.2   |         
|                                                                            |                                                                                  |   |                              |     |        |   |              |          |                  |   |                |        |              |   |              |      |  |   |       |        |   |   |   |   |  |   |        |         
|Increase (decrease) in cash and
cash equivalents                            |                                                                                  |   |                             |     |        |   | (3.5         | )        |                  |   | 58.7           |        |              |   | (0.9         | )    |  |   | (32.5 | )      |   |   |  |   |  |   | 21.8   |         
|Cash and cash equivalents,
beginning of year                                |                                                                                  |   | 0.1                          |     |        |   | 8.9          |          |                  |   | 112.7          |        |              |   | 1.8          |      |  |   | 34.1  |        |   |   |  |   |  |   | 157.6  |         
|                                                                            |                                                                                  |   |                              |     |        |   |              |          |                  |   |                |        |              |   |              |      |  |   |       |        |   |   |   |   |  |   |        |         
|Cash and cash equivalents,
end of year                                      |                                                                                  | $ | 0.1                          |     |        | $ | 5.4          |          |                  | $ | 171.4          |        |              | $ | 0.9          |      |  | $ | 1.6   |        |   | $ |  |   |  | $ | 179.4  |         
|                                                                            |                                                                                  |   |                              |     |        |   |              |          |                  |   |                |        |              |   |              |      |  |   |       |        |   |   |   |   |  |   |        |         

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ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
(in millions)

|                                                                            |                                                                                  |   |                              |     |        |   |              |          |                  |   |                |          |              |   |              |      |  |   |       |        |   |   |   |   |  |   |        |          |  
|--------------------------------------------------------------------------- | -------------------------------------------------------------------------------- | - | ---------------------------- | --- | ------ | - | ------------ | -------- | ---------------- | - | -------------- | -------- | ------------ | - | ------------ | ---- |  | - | ----- | ------ | - | - | - | - |  | - | ------ | -------- | -
|                                                                            |                                                                                  |   | Year Ended December 31, 2001
|                                                                            |                                                                                  |   |                             
|                                                                            |                                                                                  |   |                              |     |        |   | Guarantors   |          |                  |   |                |          |             
|                                                                            |                                                                                  |   | Parent                       |     | Issuer |   | Wholly-Owned |          | Non-Wholly-Owned |   | Non-Guarantors |          | Eliminations |   | Consolidated
|                                                                            |                                                                                  |   |                              |     |        |   |              |          |                  |   |                |          |              |   |             
|Cash provided by (used for) operating
activities from continuing operations |                                                                                  | $ | (7.2                         | )   |        | $ | (553.9       | )        |                  | $ | 1,398.1        |          |              | $ | (24.7        | )    |  | $ | 35.3  |        |   | $ |  |   |  | $ | 847.6  |         
|Investing activities                                                       |                                                                                  |   |                              |     |        |   |              |          |                  |   |                |          |              |   |              |      |  |   |       |        |   |   |   |   |  |   |        |         
|                                                                            | Proceeds from divestitures (cost
of acquisitions), net of cash
divested/acquired |   |                              |    |        |   |              |         |                  |   |                | 110.4    |              |   |              |     |  |   |       |       |   |   |   |  |  |   |        | 110.4    |  
|                                                                            | Accruals for acquisition price and
severance costs                               |   |                              |    |        |   |              |         |                  |   |                | (1.7     | )            |   |              |     |  |   |       |       |   |   |   |  |  |   |        | (1.7     | )
|                                                                            | Capital expenditures, excluding
acquisitions                                     |   |                              |    |        |   |              |         |                  |   |                | (272.2   | )            |   |              |     |  |   |       | (225.7 | ) |   |   |  |  |   |        | (497.9   | )
|                                                                            | Capitalized interest                                                             |   |                              |    |        |   |              |         |                  |   |                | (45.7    | )            |   |              |     |  |   |       |       |   |   |   |  |  |   |        | (45.7    | )
|                                                                            | Proceeds from sale of fixed assets                                               |   |                              |    |        |   |              |         |                  |   |                | 29.1     |              |   |              |     |  |   |       | 0.2    |   |   |   |  |  |   |        | 29.3     |  
|                                                                            | Change in deferred acquisition
costs, notes receivable and
other                 |   |                              |    |        |   |              |         |                  |   |                | (28.0    | )            |   |              |     |  |   |       | 1.3    |   |   |   |  |  |   |        | (26.7    | )
|                                                                            |                                                                                  |   |                              |     |        |   |              |          |                  |   |                |          |              |   |              |      |  |   |       |        |   |   |   |   |  |   |        |         
|                                                                            | Cash used for investing activities
from
continuing operations                    |   |                              |    |        |   |              |         |                  |   |                | (208.1   | )            |   |              |     |  |   |       | (224.2 | ) |   |   |  |  |   |        | (432.3   | )
|                                                                            |                                                                                  |   |                              |     |        |   |              |          |                  |   |                |          |              |   |              |      |  |   |       |        |   |   |   |   |  |   |        |         
|Financing activities                                                       |                                                                                  |   |                              |     |        |   |              |          |                  |   |                |          |              |   |              |      |  |   |       |        |   |   |   |   |  |   |        |         
|                                                                            | Net proceeds from sale of common
stock, exercise of stock options
and other      |   |                              | 6.4 |        |   |              |         |                  |   |                |         |              |   |              |     |  |   |       |       |   |   |   |  |  |   |        | 6.4      |  
|                                                                            | Proceeds from long-term debt,
net of issuance costs                              |   |                              |    |        |   |              | 2,729.0  |                  |   |                | (42.2    | )            |   |              |     |  |   |       | 69.0   |   |   |   |  |  |   |        | 2,755.8  |  
|                                                                            | Repayments of long-term debt                                                     |   |                              |    |        |   |              | (3,180.4 | )                |   |                | (13.1    | )            |   |              |     |  |   |       | (3.1   | ) |   |   |  |  |   |        | (3,196.6 | )
|                                                                            | Intercompany between issuer and
subsidiaries                                     |   |                              |    |        |   |              | 1,011.5  |                  |   |                | (1,193.3 | )            |   |              | 25.3 |  |   |       | 156.5  |   |   |   |  |  |   |        |         |  
|                                                                            |                                                                                  |   |                              |     |        |   |              |          |                  |   |                |          |              |   |              |      |  |   |       |        |   |   |   |   |  |   |        |         
|Cash provided by (used in) financing
activities from continuing operations  |                                                                                  |   | 6.4                          |     |        |   | 560.1        |          |                  |   | (1,248.6       | )        |              |   | 25.3         |      |  |   | 222.4 |        |   |   |  |   |  |   | (434.4 | )       
|                                                                            |                                                                                  |   |                              |     |        |   |              |          |                  |   |                |          |              |   |              |      |  |   |       |        |   |   |   |   |  |   |        |         
|Cash provided by discontinued
operations                                    |                                                                                  |   |                             |     |        |   |             |          |                  |   | 57.5           |          |              |   |             |      |  |   |      |        |   |   |  |   |  |   | 57.5   |         
|                                                                            |                                                                                  |   |                              |     |        |   |              |          |                  |   |                |          |              |   |              |      |  |   |       |        |   |   |   |   |  |   |        |         
|Increase (decrease) in cash and
cash equivalents                            |                                                                                  |   | (0.8                         | )   |        |   | 6.2          |          |                  |   | (1.1           | )        |              |   | 0.6          |      |  |   | 33.5  |        |   |   |  |   |  |   | 38.4   |         
|Cash and cash equivalents,
beginning of year                                |                                                                                  |   | 0.9                          |     |        |   | 2.7          |          |                  |   | 113.8          |          |              |   | 1.2          |      |  |   | 0.6   |        |   |   |  |   |  |   | 119.2  |         
|                                                                            |                                                                                  |   |                              |     |        |   |              |          |                  |   |                |          |              |   |              |      |  |   |       |        |   |   |   |   |  |   |        |         
|Cash and cash equivalents,
end of year                                      |                                                                                  | $ | 0.1                          |     |        | $ | 8.9          |          |                  | $ | 112.7          |          |              | $ | 1.8          |      |  | $ | 34.1  |        |   | $ |  |   |  | $ | 157.6  |         
|                                                                            |                                                                                  |   |                              |     |        |   |              |          |                  |   |                |          |              |   |              |      |  |   |       |        |   |   |   |   |  |   |        |         

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ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

20.     Subsequent Events

In January 2004, we issued $400 million of 5.75% senior notes due 2011 and $425 million of
6.125% senior notes due 2014 in a private placement under Rule 144A of the Securities Act of
1933. We will use the proceeds from the sale of these notes to redeem $825 million of our 7.875%
senior notes due 2009 at a redemption price of 103.9375%. We will initiate the registration of
these notes with the SEC under the Securities Act of 1933 as soon as it is practical.

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

Not applicable.

Item 9A.Controls and Procedures

Evaluation of Disclosure Controls
and Procedures.
We maintain disclosure controls and procedures and internal controls designed to
ensure that information required to be disclosed in our filings under the Securities
Exchange Act of 1934 is recorded, processed, evaluated, summarized and reported
accurately within the time periods specified in the Securities and Exchange
Commissions (SEC) rules and forms. As of the end of the period covered by this
report, an evaluation was performed under the supervision and with the
participation of management, including the Chief Executive Officer (CEO)
and Chief Financial Officer (CFO), of the effectiveness of the design and
operation of our disclosure controls and procedures (pursuant to Exchange
Act Rule 13a-15).  Based upon this evaluation, the CEO and CFO concluded
that our disclosure controls and procedures are effective, with the exception
described below.  The conclusions of the CEO and CFO from this evaluation were
communicated to the Audit Committee.

Changes in Internal Control over
Financial Reporting.  There were no changes in our internal control over
financial reporting that occurred during our last fiscal quarter that have
materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting.

In the ordinary course of business, we engage in
a variety of acquisition and divestiture transactions, in which we buy and sell
assets or stock.  In early 2004, senior management determined that the contracts
related to an August 2003 acquisition and divestiture transaction with Waste
Industries USA, Inc. reflected pricing that exceeded our original transaction
terms.  As a result, management adjusted the purchase price downward
by $4 million on both the acquisition and divestiture transactions, and made
corresponding accounting adjustments to the value of the assets as recorded on
our third quarter financial statements.  This adjustment had no net impact on
our cash flows, but resulted in a negative impact of approximately
$1 million as reflected in our previously reported fourth quarter earnings.
Following a review of similar acquisition and divestiture transactions in 2001, 2002 and 2003, management
determined that this was an isolated incident and no additional
adjustments were necessary.  We plan to discuss
these matters with the SEC staff.  During the first quarter of 2004, we have
made improvements to our internal business controls as they relate to acquisition and
divestiture transaction approvals.

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PART III

Item 10.Directors and Executive Officers of the Registrant

Directors

Information about each member of our Board of Directors is set forth below:

|                      |  |                                                                           |  |     |    |       |  |  |      | 
|--------------------- |  | ------------------------------------------------------------------------- |  | --- | -- | ----- |  |  | ---- | 
|Director Name         |  | Position Held                                                             |  | Age |    | Since
|                      |  |                                                                           |  |     |    |      
|Thomas H. Van Weelden |  | Chairman of the Board of Directors,
Chief Executive Officer and President |  |     | 49 |       |  |  | 1992 | 
|Robert M. Agate       |  | Director                                                                  |  |     | 67 |       |  |  | 2000 | 
|Leon D. Black         |  | Director                                                                  |  |     | 52 |       |  |  | 2000 | 
|James W. Crownover    |  | Director                                                                  |  |     | 60 |       |  |  | 2002 | 
|Michael S. Gross      |  | Director                                                                  |  |     | 42 |       |  |  | 1997 | 
|Dennis R. Hendrix     |  | Director                                                                  |  |     | 64 |       |  |  | 1997 | 
|J. Tomilson Hill      |  | Director                                                                  |  |     | 55 |       |  |  | 2002 | 
|Lawrence V. Jackson   |  | Director                                                                  |  |     | 50 |       |  |  | 2003 | 
|Nolan Lehmann         |  | Director                                                                  |  |     | 59 |       |  |  | 1990 | 
|Howard A. Lipson      |  | Director                                                                  |  |     | 40 |       |  |  | 1997 | 
|Antony P. Ressler     |  | Director                                                                  |  |     | 43 |       |  |  | 1997 | 
|Warren B. Rudman      |  | Director                                                                  |  |     | 73 |       |  |  | 1997 | 

Thomas H. Van Weelden joined Allied in
January 1992 as its Vice President - Development, and was promoted to President and Chief Operating Officer in December 1992. Mr. Van Weelden was promoted to Chief
Executive Officer in July 1997 and was appointed Chairman of the Board of Directors in December 1998. Mr. Van Weelden re-assumed the position of President in October 2001. He was first elected a Director in
March 1992.

Robert M. Agate has served as a Director since May 2000. Mr. Agate also serves on the Board of Directors of the Timberland Company. Prior to that, Mr. Agate was a Senior Executive Vice President of the
Colgate-Palmolive Company (Colgate). Mr. Agate joined Colgate in 1961 as an Assistant Accountant in the United Kingdom. Over the course of his career, Mr. Agate has served as the Chief Financial Officer of
Colgate operations in India, Malaysia, the United Kingdom and Australia. Later he served as Controller of the European Division and Controller of the Kendall Company (a subsidiary of Colgate). In 1984, Mr.
Agate was promoted to Vice President and Corporate Controller of Colgate and in 1987 he was promoted to Chief Financial Officer. Mr. Agate retired from Colgate in 1996. Mr. Agate has been a United Kingdom
chartered accountant since 1958.

Leon D. Black has served as a Director since May 2000. Mr. Black is one of the founding principals of Apollo Advisors, L.P. (Apollo), which, together with its affiliates, acts as the managing general partner
of the Apollo Investment Funds, private securities investment funds that hold investments in Allied. Mr. Black is also a Director of AMC Entertainment, Inc., Sequa Industries, Inc., Sirius Satellite Radio,
Inc., United Rentals, Inc., and Wyndham International, Inc. He also serves as a trustee of The Museum of Modern Art, Mount Sinai-NYU Medical Center, Lincoln Center for the Performing Arts, The Metropolitan
Museum of Art, The Jewish Museum, Prep for Prep, The Asia Society and Dartmouth College. Mr. Black is the brother-in-law of Mr. Ressler who also serves as an Allied Director.

James W. Crownover has served as a Director since December 2002. Mr. Crownover completed a 30-year career with McKinsey & Company, Inc. (McKinsey) when he retired in 1998. He headed the firms Southwest
practice for many years, and also co-headed the firms worldwide energy practice. In addition, he served as a member of McKinseys Board of Directors. Mr. Crownover is a graduate of Rice University and
received a Masters of Business Administration degree from Stanford Graduate School of Business. He is a member of the Boards of Directors of Unocal Corporation, Great Lakes Chemical Corporation, and
Weingarten Realty Investors. He is also a Board Member of Rice University, St. Johns School, Houston Grand Opera and the Houston United Way.

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Michael S. Gross has served as a Director since May 1997. Mr. Gross is one of the founding principals of Apollo, which, together with its affiliates, acts as the managing general partner of the Apollo
Investment Funds, private securities investment funds that holds investments in Allied. Mr. Gross is also a Director of Pacer International, Inc., SAKS Inc., SkyTerra Communications, Inc., and United Rentals,
Inc. Mr. Gross is also the Chairman of the Board of Mt. Sinai Childrens Center Foundation, is a trustee of the Trinity School, and is a member of the Corporate Advisory Board for the University of Michigan
Business School.

Dennis R. Hendrix has served as a Director since July 1997 and was appointed Lead Director in December 2002. From November 1990 until his retirement in April 1997, he served as Chairman of the Board of
Directors of PanEnergy Corp. (PanEnergy) and as PanEnergys Chief Executive Officer from November 1990 until April 1995. Mr. Hendrix was President and Chief Executive Officer of Texas Eastern Corporation
from 1986 to 1989. Mr. Hendrix also serves as a Director of Newfield Exploration Company and Grant Prideco, Inc..

J. Tomilson Hill has served as a Director since January 2002. Mr. Hill has held the position of Senior Managing Director of The Blackstone Group L.P. (Blackstone) since 1993, and is currently Vice Chairman and
Senior Managing Director of Blackstone and President and Chief Executive Officer of Blackstone Alternative Asset Management. Blackstone holds investments in Allied. He is a member of the Council of Foreign
Relations, where he chairs the Investment Subcommittee of the Finance and Budget Committee, is Vice Chairman of the Board of Directors of Lincoln Center Theater, and trustee of the Nightingale-Bamford School
and Milton Academy. Mr. Hill is also a member of the Board of Directors of the Smithsonians Hirshhorn Museum and Sculpture Garden where he serves as Vice Chairman.

Lawrence V. Jackson has served as a Director since January 2003. Mr. Jackson has been President of Dollar General Corporation since September 2003. Previously, Mr. Jackson served as Senior Vice
President-Supply Operations for Safeway, Inc., from 1997 to 2003 and worked for PepsiCo, Inc. from 1981 to 1997 in various senior positions for PepsiCo Food Systems. He is a graduate of Harvard University and
the Harvard Business School, where he earned a Masters of Business Administration degree in Marketing. Mr. Jackson also serves as a Director of Radio Shack Corporation and Parsons Corporation.

Nolan Lehmann has served as a Director since October 1990. From 1983 to the present, Mr. Lehmann has served as President of Equus Capital Management Corporation, a registered investment advisor, and from 1991
to the present, he has been President and a Director of Equus II Incorporated, a registered public investment company whose stock is traded on the New York Stock Exchange. Mr. Lehmann is a director of Child
Advocates of Harris County and also serves as a Director of several private corporations. Mr. Lehmann is a certified public accountant.

Howard A. Lipson has served as a Director since May 1997. Mr. Lipson currently serves as Senior Managing Director of Blackstone, which he joined in 1988. Prior to joining Blackstone, Mr. Lipson was a member of
the Mergers and Acquisition Group of Salomon Brothers, Inc.
Mr. Lipson is also a director of Universal Orlando, MegaBloks, Columbia House, and is a member of the Advisory Committee of
Graham Packaging Company.

Antony P. Ressler has served as a
Director since May 1997. Mr. Ressler co-founded Ares Management,
L.P. (together with its affiliates Ares) in 1997, the
general partner of the Ares Funds, including Ares Leveraged
Investment Funds I-VIII private securities investment funds
focused primarily on bank loans and high yield securities and the
Ares Corporate Opportunities Fund (ACOF) a private equity
fund focused on making control oriented equity investments in
undercapitalized middle market companies. He also co-founded Apollo
in 1990, general partner of the Apollo Investment Funds, private
investment funds focused primarily on making control oriented equity
investments. Prior to 1990, Mr. Ressler served as a Senior Vice
President in the High Yield Bond Department of Drexel Burnham Lambert
Incorporated, with responsibility for the New Issue/Syndicate Desk.
Mr. Ressler also serves on the board of directors for Samsonite
Corporation. Mr. Ressler is on the Board of Directors of the
Alliance for Student Achievement and a member of the Board of
Trustees of the Center for Early Education. Mr. Ressler is also one of
the founding members of the Board of the Painted Turtle Camp, the
Southern California chapter of The Hole in the Wall Gang Camps.
Mr. Ressler is the brother-in-law of Mr. Black who also
serves as an Allied Director.

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Warren B. Rudman has served as a Director since July 1997. Mr. Rudman is Of Counsel at the law firm of Paul, Weiss, Rifkind, Wharton and Garrison LLP where he was a partner from 1993 through 2002. From 1980
until 1992, Mr. Rudman served as a United States Senator from New Hampshire. While in the Senate, Mr. Rudman was Chairman and Vice Chairman of the Ethics Committee and also served on the Appropriations
Committee, the Intelligence Committee, the Governmental Affairs Committee and was Vice Chair of the Senate Iran-Contra Committee. He is also a Director of the Chubb Corporation, Collins & Aikman, Boston
Scientific, several funds of the Dreyfus Corporation and is the Lead Director of Raytheon Company. Mr. Rudman has served as Chairman of the Presidents Foreign Intelligence Advisory Board, is Co-Chair of the
Concord Coalition, and also serves on the Board of the Council on Foreign Relations, and the Senior Advisory Committee of the Institute of Politics of the Kennedy School of Government.

Messrs. Black, Gross, Hill, Lipson and Ressler were elected under a provision of the Amended and Restated Shareholders Agreement. See Certain Relationships and Related Transactions under Item 13.

Executive Officers

Our executive officers serve at the pleasure of the Board of Directors and are subject to annual appointment by the Board of Directors at its first meeting following the annual meeting of stockholders.
Following is a list of all of our executive officers, and biographical information about our officers follows the table:

|                      |  |     |    |               |  |                                                                          
|--------------------- |  | --- | -- | ------------- |  | -------------------------------------------------------------------------
|Name                  |  | Age |    | Position Held
|                      |  |     |    |              
|Thomas H. Van Weelden |  |     | 49 |               |  | Chairman of the Board of Directors, Chief Executive Officer and President
|Thomas W. Ryan        |  |     | 57 |               |  | Executive Vice President and Vice Chairman                               
|Donald W. Slager      |  |     | 41 |               |  | Executive Vice President and Chief Operating Officer                     
|Peter S. Hathaway     |  |     | 48 |               |  | Executive Vice President and Chief Financial Officer                     
|Steven M. Helm        |  |     | 55 |               |  | Senior Vice President, General Counsel and Corporate Secretary           

For biographical information about Mr. Van Weelden see Directors.

Thomas W. Ryan was elected Executive Vice President and Vice Chairman in June 2003 and previously served the company as Chief Financial Officer from August 2000 to June 2003. Prior to joining Allied, Mr. Ryan
served as Executive Vice President and CFO of Federal-Mogul Corporation, a manufacturer and distributor of vehicular and industrial components until March 2000. He was the Vice-President and CFO for Tenneco
Automotive for two years beginning in 1995. From 1985 through 1995, Mr. Ryan was Vice President, Treasurer and Controller of A.O. Smith Corporation, and from 1973 through 1985, held various senior financial
positions at American Motors (Jeep) Corporation.

Donald W. Slager has served as Executive Vice President and Chief Operating Officer since June 2003 and as Senior Vice President, Operations of Allied from December 2001 to June 2003. Previously, Mr. Slager
served as Vice President  Operations from February 1998 to December 2001, Assistant Vice President  Operations from June 1997 to February 1998 and Regional Vice President of the West Region from June 1996 to
June 1997. Mr. Slager also served as District Manager for the Chicago Metro District from 1992 to 1996. Before Allieds acquisition of National Waste Services in 1992, he served at National Waste Services as
General Manager from 1990 to 1992 and in other management positions with the company since 1985.

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Peter S. Hathaway has served as Executive Vice President and Chief Financial Officer since June 2003. Previously, Mr. Hathaway served as Senior Vice President, Finance from August 2000 to June 2003, Chief
Accounting Officer from February 1995 to January 2001, and as a Vice President from May 1996 to August 2000. From May 1996 through April 1997, Mr. Hathaway also served as Treasurer. From September 1991
through February 1995, he was employed by BFI as Controller and Finance Director for certain Italian operations and held responsibilities for the acquisition, reorganization and integration, controller, and
financing functions. From 1979 through September 1991, Mr. Hathaway served in the audit division of Arthur Andersen LLP in Colorado, Italy and Connecticut, most recently in the position of Senior Manager.

Steven M. Helm has served as Senior Vice President, General Counsel, and Corporate Secretary since June 2003. Previously, Mr. Helm served as Vice President, Legal and Corporate Counsel from May 1996 to June
2003. Mr. Helm joined Allied in July 1995 as Corporate Counsel. Prior to joining Allied, Mr. Helm was a partner with the law firm of Dukes, Martin, Helm and Ryan Ltd. in Illinois from 1978 to July 1995.

Audit Committee

The Audit Committee is established in
accordance with Section 3(a)(58) of the Securities Exchange Act of 1934 (the Exchange Act) and operates under a written charter that has been adopted by the Board of
Directors. The Audit Committee assists the Board of Directors in its oversight of our financial reporting process and consists of Robert M. Agate, Chairman of the Audit Committee, James W. Crownover, Dennis
R. Hendrix and Nolan Lehmann.

Audit Committee Financial Expert

The Board of Directors has determined
that Robert M. Agate, Chairman of the Audit Committee, qualifies as an audit committee financial expert under the Securities and Exchange Commissions (SEC)
definition. Mr. Agate is also independent as that term is defined in Item 7(d)(3)(iv) of Schedule 14A under the Exchange Act. Additionally, the Board of Directors has also determined that other members of the
Audit Committee also satisfy the criteria adopted by the SEC for an audit committee financial expert. All Audit Committee members possess the required level of financial literacy and at least one member meets
the current standard of requisite financial management expertise as required by the NYSE.

Code of Ethics

We have adopted a Code of Ethics for our executive and senior financial officers, violations of which are required to be reported to the Audit Committee. The Code of Ethics is filed as Exhibit 14 to this Form
10-K and is posted on our website, www.alliedwaste.com.

Shareholder Director Recommendation Policy

The Governance Committee will consider director candidates recommended by shareholders. Written recommendations must include (1) the shareholders name, address, and relationship to the nominee, (2) the
number of shares held by the shareholder, with the understanding that the number of shares held must be at least 2% or more of the outstanding shares of Allied and have been held by the shareholder for one
year or more, (3) a written statement from the shareholder and a statement from the nominee, consenting to be named as a candidate and, if nominated and elected, to serve as a director, and (4) contact,
biographical and business experience information regarding the nominee. A shareholder recommendation for a director candidate is not the same as a shareholder nomination for a director as provided for in our
by-laws.

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Shareholder-recommended director candidates are evaluated on the same basis as all other candidates. In determining whether to nominate a candidate for director, the Governance Committee will consider the
candidates business experience and judgment, diversity, business and functional skills, integrity, financial literacy, time, other board appointments, public policy and government experience and degree of
independence from management. The Governance Committee also will consider the current needs for the Board. The Governance Committee may, in its discretion, interview any shareholder-recommended director
candidate before recommending him or her for nomination to the Board.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our executive officers and directors, and persons who own more than 10% of a registered class of our equity securities, to file
reports of ownership and changes of ownership with the Securities and Exchange Commission. Executive officers, directors and greater than 10% stockholders are required to furnish us with copies of all Section
16(a) reports they file.

Based solely on a review of the forms we have received or prepared, we believe that during the year ended December 31, 2003, all filing requirements applicable to the directors, executive officers and greater
than 10% stockholders were timely met.

Item 11.Executive Compensation

Summary of Executive Compensation. The following table provides summary information about compensation paid to or earned during the fiscal years ended December 31, 2003, 2002 and 2001 for our Chief
Executive Officer and for each of the four other most highly compensated executive officers serving at the end of the fiscal year ended December 31, 2003 (the Named Executive Officers):

|                      |                          |                                 |      |                     |      |              |           |                 |           |          |         |         |   |                 |        |              |        |       |   |                        |   |            |         |            |   |   |           |         |         | 
|--------------------- | ------------------------ | ------------------------------- | ---- | ------------------- | ---- | ------------ | --------- | --------------- | --------- | -------- | ------- | ------- | - | --------------- | ------ | ------------ | ------ | ----- | - | ---------------------- | - | ---------- | ------- | ---------- | - | - | --------- | ------- | ------- | 
|                      |                          |                                 |      |                     |      |              |           |                 |           |          |         |         |   |                 |        |              |        |       |   | Long-Term Compensation |   |            |         |           
|                      |                          |                                 |      | Annual Compensation |      | Awards       |           |                 |           |         
|                      |                          |                                 |      |                     |      |              |           |                 |           |          |         |         |   |                
|                      |                          |                                 |      |                     |      |              |           |                 |           |          |         |         |   |                 |        |              |        |       |   |                        |   |            |         | Securities |   |   |           |        
|                      |                          |                                 |      |                     |      |              |           |                 |           |          |         |         |   |                 |        |              |        |       |   | Restricted             |   | Underlying |         |            |   |  
|                      |                          |                                 |      |                     |      |              |           |                 |           |          |         |         |   |                 |        | Other Annual |        | Stock |   | Options/               |   | All Other 
|Name and Position     |                          | Year                            |      | Salary(1)           |      | Bonus (1)(2) |           | Compensation(3) |           | Award(4) |         | SARs(#) |   | Compensation(5)
|                      |                          |                                 |      |                     |      |              |           |                 |           |          |         |         |   |                
|Thomas H. Van Weelden |                          |                                 | 2003 |                     |      | $            | 1,226,300 |                 |           | $        | 367,890 |         |   | $               | 92,310 |              |        |       |  |                        |   |            |        |            |   | $ | 1,078,559 |        
|                      | Chairman of the Board of |                                 |      | 2002                |      |              |           | 1,202,255       |           |          |         | 196,500 |   |                 |        | 246,386      |        |       |   |                       |   |            |         | 225,000    |   |   |           | 265,612 |        
|                      |                          | Directors, Chief                |      |                     | 2001 |              |           |                 | 1,202,255 |          |         |         |  |                 |        |              | 42,622 |       |   |                        |  |            |         |            |  |   |           |         | 152,572 | 
|                      |                          | Executive Officer and
President |      |                     |      |              |           |                 |           |          |         |         |   |                 |        |              |        |       |   |                        |   |            |         |            |   |   |           |         |         | 
|Thomas W. Ryan        |                          |                                 | 2003 |                     |      |              | 571,990   |                 |           |          | 172,508 |         |   |                 | 32,522 |              |        |       |  |                        |   |            |        |            |   |   | 117,360   |        
|                      | Executive Vice President |                                 |      | 2002                |      |              |           | 563,750         |           |          |         | 140,937 |   |                 |        | 39,540       |        |       |   |                       |   |            |         | 75,000     |   |   |           | 5,107   |        
|                      | and Vice Chairman        |                                 |      | 2001                |      |              |           | 563,750         |           |          |         |        |   |                 |        | 10,515       |        |       |   |                       |   |            |         |           |   |   |           | 89,622  |        
|Donald W. Slager      |                          |                                 | 2003 |                     |      |              | 587,356   |                 |           |          | 210,000 |         |   |                 | 56,641 |              |        |       |  |                        |   |            | 150,000 |            |   |   | 55,171    |        
|                      | Executive Vice President |                                 |      | 2002                |      |              |           | 461,250         |           |          |         | 115,250 |   |                 |        | 31,906       |        |       |   |                       |   |            |         | 75,000     |   |   |           | 26,091  |        
|                      | and Chief Operating      |                                 |      | 2001                |      |              |           | 461,250         |           |          |         |        |   |                 |        | 20,972       |        |       |   |                       |   |            |         |           |   |   |           | 26,535  |        
|                      | Officer                  |                                 |      |                     |      |              |           |                 |           |          |         |         |   |                 |        |              |        |       |   |                        |   |            |         |            |   |   |           |         |        
|Peter S. Hathaway     |                          |                                 | 2003 |                     |      |              | 495,254   |                 |           |          | 157,500 |         |   |                 | 24,130 |              |        |       |  |                        |   |            | 100,000 |            |   |   |          |        
|                      | Executive Vice President |                                 |      | 2002                |      |              |           | 425,250         |           |          |         | 57,625  |   |                 |        | 21,159       |        |       |   |                       |   |            |         | 60,000     |   |   |           |        |        
|                      | and Chief Financial      |                                 |      | 2001                |      |              |           | 425,250         |           |          |         |        |   |                 |        | 15,384       |        |       |   |                       |   |            |         |           |   |   |           |        |        
|                      | Officer                  |                                 |      |                     |      |              |           |                 |           |          |         |         |   |                 |        |              |        |       |   |                        |   |            |         |            |   |   |           |         |        
|Steven M. Helm        |                          |                                 | 2003 |                     |      |              | 405,593   |                 |           |          | 122,324 |         |   |                 | 26,749 |              |        |       |  |                        |   |            |        |            |   |   |          |        
|                      | Senior Vice President,   |                                 |      | 2002                |      |              |           | 399,750         |           |          |         | 99,938  |   |                 |        | 27,905       |        |       |   |                       |   |            |         | 40,000     |   |   |           | 13,603  |        
|                      | General Counsel          |                                 |      | 2001                |      |              |           | 399,750         |           |          |         |        |   |                 |        | 14,164       |        |       |   |                       |   |            |         |           |   |   |           |        |        
|                      | and Corporate Secretary  |                                 |      |                     |      |              |           |                 |           |          |         |         |   |                 |        |              |        |       |   |                        |   |            |         |            |   |   |           |         |        



|(1) |  | A portion of Mr. Van Weeldens salary and bonus as reported above has been contributed to charitable organizations in lieu of payment to Mr. Van Weelden.                                                                
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | The 2003 bonus has been calculated and included as 2003 bonus, however, this amount will not be paid until 2004. The 2002 bonus was calculated and paid in 2003 and is being included in
the year in which it was earned.

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|(3) |  | For Mr. Van Weelden, the
amounts include $61,598, $105,476 and $114,241 for costs incurred in connection with the personal use of our aircraft during 2003, 2002 and 2001, respectively. For Mr. Slager, the 2003 amount includes $35,584 for costs incurred in connection
with the personal use of our aircraft. The remaining amounts for all of the executive officers include other perquisites and personal benefits such as automobile allowance, personal use of our aircraft, club dues, relocation reimbursement, and income tax and planning
services that did not exceed, in the aggregate for the individual officers, the minimum reportable amount.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | In addition to the compensation discussed in the table above, the Chief Executive Officer and the Named Executive Officers earned equity compensation under a long-term incentive plan. See Long-Term Incentive Plan  Awards in Last Fiscal Year.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   
|(4) |  | Restricted stock was issued during April 2000 at a price of $5.875 for Messrs. Van Weelden, Slager, Hathaway, and Helm and during July 2000 at a price of $9.625 for Messrs. Ryan and Hathaway. The value of the restricted stock at December 31, 2003, based on a closing
price of $13.88 per share of the common stock, was
$22.2 million, $3.5 million, $4.7 million, $4.7 million and $2.9 million for Messrs. Van Weelden, Ryan, Slager, Hathaway, and Helm, who hold 1,600,000 shares, 250,000 shares, 340,000 shares, 340,000 shares, and 212,000
shares, respectively. Under the terms of the restricted stock
agreements the individuals become partially vested after six years (20% after six years and 20% each year thereafter until fully vested after ten years). None of the shares were vested as of December 31, 2003. In February 2004, the Management
Development/Compensation Committee approved the amendment of the restricted stock agreements, effective July 1, 2004, to provide that the individuals become partially vested after four years (one-seventh after four years and one-seventh each year thereafter until fully
vested after ten years). In addition, the Management
Development/Compensation Committee in February 2004 approved the
issuance of 50,000, 41,667, 20,000, 25,000 and 13,333 restricted
stock units to Messrs. Van Weelden, Slager, Ryan, Hathaway and Helm,
respectively, which vest over a three year period.
|   
|(5) |  | For Mr. Van Weelden, the 2003 and 2002 amounts include $1,078,559 and $129,342, respectively, for the value realized from the exercise of stock options issued by us. Amounts consist of interest forgiven annually by us related to loans made in 1996 to Mr. Van Weelden
of $136,270 in 2002 and $152,572 in 2001. For Mr. Ryan, the 2003, 2002 and 2001 amounts represent reimbursement of certain relocation expenses paid by us. For Mr. Slager, the 2003 amount includes $29,080 for the value realized from the exercise of stock options issued by
us. Amounts for 2003, 2002 and 2001 for Mr. Slager consists of
principal amounts forgiven of $26,091, $26,091 and $26,535, respectively, related to a loan made in 1996. Mr. Helms amount for 2002 includes interest forgiven annually by us in the amount of $13,603 related
to a loan made in August 2000 that was repaid in 2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

Option Grants in Last Fiscal Year. The following table provides information with respect to options granted to the Chief Executive Officer and to each of the Named Executive Officers during the fiscal year ended December 31, 2003 under our 1991 Incentive Stock Plan, the
1993 Incentive Stock Plan, and the 1994 Incentive Stock Plan (individually, the 1991 Plan, the 1993 Plan, and the 1994 Plan, and collectively, the Incentive Stock Plan):

|                      |                                                                           |                |              |                |                  |             |             |      |            |    |      |     |                                  |  |                             |  |  |   |         |  |  |   |           |  | 
|--------------------- | ------------------------------------------------------------------------- | -------------- | ------------ | -------------- | ---------------- | ----------- | ----------- | ---- | ---------- | -- | ---- | --- | -------------------------------- |  | --------------------------- |  |  | - | ------- |  |  | - | --------- |  | 
|                      |                                                                           |                |              |                |                  |             |             |      |            |    |      |     |                                  |  | Potential                  
|                      |                                                                           |                | Number of    |                | Percent of Total |             |             |      |            |    |      |     |                                  |  | Realizable Value at Assumed
|                      |                                                                           |                | Securities   |                | Options/SARs     |             |             |      |            |    |      |     |                                  |  | Annual Rates of Stock Price
|                      |                                                                           |                | Underlying   |                | Granted          |             | Exercise or |      |            |    |      |     | Appreciation for Option Term (2)
|                      |                                                                           |                | Options/SARs |                | to Employees     |             | Base Price  |      | Expiration |    |     
|Name and Position     |                                                                           | Granted (#)(1) |              | in Fiscal Year |                  | (Per Share) |             | Date |            | 5% |      | 10%
|                      |                                                                           |                |              |                |                  |             |             |      |            |    |      |    
|Thomas H. Van Weelden |                                                                           |                |             |                |                  |             |            | %    |            | $  |     |     |                                  |  |                            |  |  | $ |        |  |  | $ |          | 
|                      | Chairman of the Board of
Directors, Chief
Executive Officer and
President |                |              |                |                  |             |             |      |            |    |      |     |                                  |  |                             |  |  |   |         |  |  |   |           |  | 
|Thomas W. Ryan        |                                                                           |                |             |                |                  |             |            | %    |            |    |     |     |                                  |  |                            |  |  |   |        |  |  |   |          | 
|                      | Executive Vice President
and Vice Chairman                                |                |              |                |                  |             |             |      |            |    |      |     |                                  |  |                             |  |  |   |         |  |  |   |           |  | 
|Donald W. Slager      |                                                                           |                | 150,000      |                |                  |             | 5           | %    |            |    | 9.03 |     |                                  |  | 5/22/13                     |  |  |   | 962,155 |  |  |   | 2,510,047 | 
|                      | Executive Vice President
and Chief Operating
Officer                      |                |              |                |                  |             |             |      |            |    |      |     |                                  |  |                             |  |  |   |         |  |  |   |           |  | 
|Peter S. Hathaway     |                                                                           |                | 100,000      |                |                  |             | 4           | %    |            |    | 9.03 |     |                                  |  | 5/22/13                     |  |  |   | 641,436 |  |  |   | 1,673,364 | 
|                      | Executive Vice President
and Chief Financial
Officer                      |                |              |                |                  |             |             |      |            |    |      |     |                                  |  |                             |  |  |   |         |  |  |   |           |  | 
|Steven M. Helm        |                                                                           |                |             |                |                  |             |            | %    |            |    |     |     |                                  |  |                            |  |  |   |        |  |  |   |          | 
|                      | Senior Vice President,
General Counsel
and Corporate Secretary            |                |              |                |                  |             |             |      |            |    |      |     |                                  |  |                             |  |  |   |         |  |  |   |           |  | 



|(1) |  | Options granted under any of the Incentive Stock Plans become immediately exercisable on the occurrence of a change in control (as defined in the Incentive Stock Plans). These options vest over a period of three years.                                                                                                                                                                                                                                                                                                                         
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Potential gains are net of the exercise price, but before taxes associated with the exercise. Amounts represent hypothetical gains that could be achieved for the respective options if exercised at the end of the option term. The assumed 5% and 10% stock price appreciation rates
are provided in accordance with the rules of the SEC and do not represent our estimate or projection of the future price of our Common Stock. Actual gains, if any, on stock option exercises will depend upon the future market prices of our Common Stock.

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| |  | Aggregated Option Exercises in Last Fiscal Year and Fiscal Year Ended Option Values. The following table provides information with respect to options exercised during the fiscal year ended December 31, 2003 by the Chief Executive Officer and each of the other Named
Executive Officers:
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                      |  |              |         |          |  |             |           |                        |  |                          |           |                      |  |  |         |  |  |   |           |  |  |   |         | 
|--------------------- |  | ------------ | ------- | -------- |  | ----------- | --------- | ---------------------- |  | ------------------------ | --------- | -------------------- |  |  | ------- |  |  | - | --------- |  |  | - | ------- | 
|                      |  |              |         |          |  |             |           |                        |  | Number of                |           | Value of Unexercised
|                      |  |              |         |          |  |             |           |                        |  | Securities Underlying    |           | In-the-Money        
|                      |  |              |         |          |  |             |           |                        |  | Unexercised Options/SARs |           | Options/SARs at     
|                      |  | Shares       |         |          |  |             |           | At Fiscal Year-End (#) |  | Fiscal Year-End (1)     
|                      |  | Acquired on  |         | Value    |  |             |           |                       
|Name                  |  | Exercise (#) |         | Realized |  | Exercisable |           | Unexercisable          |  | Exercisable              |           | Unexercisable       
|                      |  |              |         |          |  |             |           |                        |  |                          |           |                     
|Thomas H. Van Weelden |  |              | 166,419 |          |  | $           | 1,078,559 |                        |  |                          | 1,985,000 |                      |  |  | 150,000 |  |  | $ | 6,862,352 |  |  | $ | 534,000 | 
|Thomas W. Ryan        |  |              |        |          |  |             |          |                        |  |                          | 156,250   |                      |  |  | 93,750  |  |  |   | 647,469   |  |  |   | 364,156 | 
|Donald W. Slager      |  |              | 4,767   |          |  |             | 29,080    |                        |  |                          | 441,333   |                      |  |  | 200,000 |  |  |   | 852,689   |  |  |   | 905,500 | 
|Peter S. Hathaway     |  |              |        |          |  |             |          |                        |  |                          | 445,000   |                      |  |  | 140,000 |  |  |   | 974,657   |  |  |   | 627,400 | 
|Steven M. Helm        |  |              |        |          |  |             |          |                        |  |                          | 428,333   |                      |  |  | 26,667  |  |  |   | 1,109,694 |  |  |   | 94,935  | 



|(1) |  | Calculated by multiplying the number of shares underlying outstanding in-the-money options by the difference between the closing sales price of the Common Stock on December 31, 2003 ($13.88 per share) and the exercise price, which ranges between $4.27 and $13.31
per share. Options are in-the-money if the fair market value of the underlying Common Stock exceeds the exercise price of the option.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Long-Term Incentive Plan  Awards in Last Fiscal Year.The following table provides certain information with respect to awards under our Long-Term Incentive Plan (LTIP) during the fiscal year ended December 31, 2003 to the Chief Executive Officer and other Named
Executive Officers:
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                      |  |                   |   |                            |  |                                      |  |         |         |                                   |  |   |         |  |  |   |           |  |  | 
|--------------------- |  | ----------------- | - | -------------------------- |  | ------------------------------------ |  | ------- | ------- | --------------------------------- |  | - | ------- |  |  | - | --------- |  |  | 
|                      |  |                   |   |                            |  |                                      |  |         |         | Estimated Future Payouts         
|                      |  |                   |   |                            |  |                                      |  |         |         | Under Non-Stock Price-Based Plans
|                      |  | Number of Shares, |   | Performance or Other       |  |                                     
|                      |  | Units or Other    |   | Period Until Maturation or |  | Threshold                            |  | Target  |         | Maximum                          
|Name                  |  | Rights (#)        |   | Payout (1)                 |  | ($) (2)                              |  | ($) (3) |         | ($) (4)                          
|                      |  |                   |   |                            |  |                                      |  |         |         |                                  
|Thomas H. Van Weelden |  |                   |  |                            |  | January 1, 2003 to December 31, 2004 |  | $       | 106,656 |                                   |  | $ | 533,280 |  |  | $ | 1,066,560 | 
|                      |  |                   |  |                            |  | January 1, 2003 to December 31, 2005 |  |         | 160,000 |                                   |  |   | 800,000 |  |  |   | 1,600,000 | 
|Thomas W. Ryan        |  |                   |  |                            |  | January 1, 2003 to December 31, 2004 |  |         | 69,993  |                                   |  |   | 349,965 |  |  |   | 699,930   | 
|                      |  |                   |  |                            |  | January 1, 2003 to December 31, 2005 |  |         | 105,000 |                                   |  |   | 525,000 |  |  |   | 1,050,000 | 
|Donald W. Slager      |  |                   |  |                            |  | January 1, 2003 to December 31, 2004 |  |         | 66,660  |                                   |  |   | 333,300 |  |  |   | 666,600   | 
|                      |  |                   |  |                            |  | January 1, 2003 to December 31, 2005 |  |         | 100,000 |                                   |  |   | 500,000 |  |  |   | 1,000,000 | 
|Peter S. Hathaway     |  |                   |  |                            |  | January 1, 2003 to December 31, 2004 |  |         | 63,327  |                                   |  |   | 316,635 |  |  |   | 633,270   | 
|                      |  |                   |  |                            |  | January 1, 2003 to December 31, 2005 |  |         | 95,000  |                                   |  |   | 475,000 |  |  |   | 950,000   | 
|Steven M. Helm        |  |                   |  |                            |  | January 1, 2003 to December 31, 2004 |  |         | 53,328  |                                   |  |   | 266,640 |  |  |   | 533,280   | 
|                      |  |                   |  |                            |  | January 1, 2003 to December 31, 2005 |  |         | 80,000  |                                   |  |   | 400,000 |  |  |   | 800,000   | 



| | (1) | The plan establishes potential future payouts based on performance cycles. The initial 2-year cycle is from January 1, 2003 to December 31, 2004, the first 3-year cycle is from January 1, 2003 to December 31, 2005 and the next 3-year cycle is from January 1, 2004
to December 31, 2006.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (2) | The threshold payout is 20% of the target award, if the specified minimum performance goals are satisfied.                                                                                                                                                                                   
|
| | (3) | The target payout is 100% of the target award, if the specified target performance goals are satisfied.                                                                                                                                                                                      
|
| | (4) | The maximum payout is 200% of the target award, if the specified stretch performance goals are satisfied.                                                                                                                                                                                    

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In December 2002, the Management Development/Compensation
Committee granted long-term performance incentive awards to 48 key
members of management, including the Chief Executive Officer and
the Named Executive Officers shown above, for the fiscal 2003-2004
and 2003-2005 performance periods. In February 2004, the
Management Development/Compensation Committee granted new
long-term incentive awards to 54 members of management, including
the Chief Executive Officer and the Named Executive Officers shown
above, for the fiscal 2004-2006 performance period. These awards
are intended to provide continuing emphasis on specified
performance goals that the Management Development/Compensation
Committee considers to be important contributors to long-term
stockholder value.

As in the case of our bonus plan, the performance goals set by the
Management Development/Compensation Committee for the LTIP may be
based upon the metrics reflecting one or more of the following
business measurements: earnings, cash flow, revenues, financial
return ratios, debt reduction, risk management, customer
satisfaction, and total stockholder returns, any of which may be
measured either in absolute terms or as compared with another
company or companies or with prior periods. The performance goals for
each of the performance cycles currently underway relate to the
achievement of certain EBITDA and debt reduction goals attributable
normal operating activities. The Management Development/Compensation
Committee believe that these performance goals are aligned with the
long-term shareholder value creation goals of increasing operating
performance and reducing balance sheet leverage.

The awards are payable only if we achieve specified levels of (1)
EBITDA (earnings before interest, depreciation, taxes, and
amortization) compound annual growth, and (2) annual net debt
reduction, in each case during (a) the two-year performance period
beginning January 1, 2003 and ending December 31, 2004, (b) the
three-year performance period beginning January 1, 2003 and ending
December 31, 2005, and (c) the three-year performance period
beginning January 1, 2004 and ending December 31, 2006, as
applicable. The EBITDA compound annual growth goal is weighted
60% and the annual net debt reduction goal is weighted 40%. The
Management Development/Compensation Committee will have discretion
to adjust the performance goals for one or more affected cycles if
a major acquisition, divestiture, or other extraordinary event
results in a significant impact on our ability to achieve such
goals.

Actual results between the threshold and target or the target and
maximum will be interpolated to calculate the actual payout. No
award will be earned with respect to a goal if performance does
not meet the threshold performance level for such goal. The
EBITDA and debt reduction goals are independent, however, and a
partial award can be attained even if one threshold is missed.
Pro rata awards based on whole months of active participation and
based on actual results will be paid at the end of the performance
period if an executives employment terminates due to death,
disability or retirement. All awards will be forfeited if the
executive voluntarily terminates employment or is discharged for
cause. Participants may be given the opportunity to elect to
receive some or all of any payment in the form of shares of our
Common Stock.

140



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##### 



Employment Agreements. We have employment agreements with our
Chief Executive Officer and each of the other Named Executive
Officers. Mr. Van Weeldens employment agreement provides a base
salary of $1,226,300 and a primary term from January 1, 2000 to
January 1, 2003, and is automatically extended after each year of
employment such that at any given time the remaining term of the
agreement is three years. The employment agreements of Messrs.
Ryan, Slager, Hathaway and Helm provide for base salaries in 2003
ranging from $405,593 to $571,990 and a primary term which expired
in 2002 (except in the case of Mr. Ryan) that is automatically
extended after each year of employment such that at any given time
the remaining term of the agreement is two years. The term of Mr.
Ryans employment agreement ends December 31, 2005. If an
employment agreement is terminated by an employee for Good Reason
or by us without Cause (as defined in the employment agreement),
we are 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
employment agreement is terminated by an employee for Good Reason
or by us without Cause and a Change in Control (as defined in the
employment agreement) has occurred within the two years preceding
or occurs within one year following the date of termination, we
are 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.

In the case of Mr. Ryan, if his employment agreement is terminated
for Good Reason or by us without Cause, we are obligated to pay an
amount equal to two times the sum of Mr. Ryans base salary and
targeted annual incentive compensation for the year in which the
termination occurs. In the event of the termination for Good
Reason or without Cause occurs and a change in control (as
defined), we are obligated to pay an amount equal to three times
the sum of Mr. Ryans base salary and targeted annual incentive
compensation.

In February 2004, the Management Development/Compensation
Committee approved amendments to the employment agreements for
Messrs. Van Weelden, Slager, Hathaway and Helm, effective January
1, 2004, to substantially conform their employment agreements to
Mr. Ryans current employment agreement, except that in the event
the executives employment agreement is terminated for good
reason or by us without cause, we are obligated to pay an amount
equal to three times the sum of the executives base salary and
targeted annual incentive compensation for the year in which the
termination occurs. In addition, the Management
Development/Compensation Committee approved a provision in the
employment agreements for Messrs. Van Weelden, Ryan, Slager,
Hathaway and Helm for a partial gross-up for excise
taxes under Section 280G of the Internal Revenue Code provided
that the stock price equals or exceeds an established threshold
($18.00 in 2004), in
connection with the cash payments made in the event of a
termination of their agreements for Good Reason or without Cause
in connection with a change in control.

Supplemental Executive Retirement Plan. Under our Supplemental
Executive Retirement Plan (SERP), which was adopted by the Board
of Directors effective August 1, 2003, we will pay retirement
benefits to certain executives employed by us.
Executives that participate in the SERP are selected by the Board of Directors.
To qualify for retirement payments under the SERP, upon bona fide
retirement from Allied (a) the executive must have completed at
least 5 to 20 years of service with Allied (as specified in the executives employment
agreement), (b) the executive must be at least 55 years old, and
(c) the sum of the executives age and years of service with
Allied must equal at least 63.

Executives who meet these requirements will be entitled to maximum
retirement payments for each year during the ten years following
retirement in an amount equal to 60% of his or her average base
salary during the three consecutive full calendar years of
employment immediately preceding the date of retirement.
For purposes of the SERP, years of service include all whole years
of employment with Allied and with any entity acquired by us,
beginning with the executives initial date of employment with
Allied or the acquired entity. In the event of the executives
death prior to the payment of all of the retirement payments under
the SERP, the balance of the payments will be made to the
executives surviving spouse or to any other beneficiary named by
the executive.

141



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##### 



Pursuant to his Executive Employment Agreement, which became
effective August 1, 2003, Thomas W. Ryan was the only Named
Executive Officer selected by the Board of Directors to
participate in the SERP during 2003. In February 2004, the Board
of Directors approved new employment agreements for Messrs. Van
Weelden, Slager, Hathaway, and Helm, under which those Named
Executive Officers were selected by the Board of Directors to
participate in the SERP.

The following table shows the annual retirement benefit payable to
a participating executive based on the executives compensation as
provided under the SERP. The benefits shown below are not subject
to reduction for Social Security benefits.

|                 |  |                                 |          | 
|---------------- |  | ------------------------------- | -------- | 
|Final Average    |  | Annual Retirement Benefit After
|Compensation (1) |  | Required Years of Service(2)   
|                 |  |                                
|$400,000         |  |                                 | $240,000 | 
|600,000          |  |                                 | 360,000  | 
|800,000          |  |                                 | 480,000  | 
|1,000,000        |  |                                 | 600,000  | 
|1,200,000        |  |                                 | 720,000  | 
|1,400,000        |  |                                 | 840,000  | 



|(1) |  | Final average compensation is the average base salary for the three
consecutive full calendar years immediately preceding the date of retirement.                                                                                                                                                                                                                                                                       
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | This column represents the maximum benefits payable under the SERP
assuming retirement at age 60. The required years of service for the maximum
benefit for Messrs. Van Weelden, Ryan, Slager, Hathaway and Helm are 20, 5, 20,
13, and 9, respectively. As of December 31, 2003, Messrs. Van Weelden, Ryan,
Slager, Hathaway and Helm had 28, 3, 18, 12 and 8 years of service,
respectively, for purposes of the SERP.

Compensation of Directors

We currently pay each non-employee Director a cash fee of $40,000 annually. In
2003, we paid each non-employee Director $2,000 for each regular and special
meeting of the Board of Directors attended in person; $2,000 for each Committee
meeting attended in person, and $1,000 for each meeting (Board or Committee,
regular or special) attended by telephone. In addition, travel expenses are
reimbursed, as appropriate. Employee Directors do not receive additional
compensation for service on the Board of Directors or its committees.

Under the 1994 Non-Employee Director Stock Option Plan (Director Plan), each
Director may elect to have his cash fees converted into shares of Common Stock
at the market price of the stock on the last day of the quarter for which the
fees are paid. The Director Plan also entitles each non-employee Director to
receive an option to purchase 25,000 shares of Common Stock on his initial
election to the Board and an option to purchase 10,000 shares on each date he
is re-elected by the shareholders. Employee Directors do not receive additional
compensation for their services as directors and are not eligible to
participate in the Director Plan. Employee Directors are eligible to
participate in our Incentive Stock Plans.

142



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##### 



Item 12.Security
Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The following table sets forth certain information, derived from filings with the Securities and Exchange Commission and other
public information, regarding the beneficial ownership of our Common
Stock at February 17, 2004 by: (i) each person who is known by
us to beneficially own more than 5% of the outstanding shares of Common Stock, (ii) each of our current Directors and executive
officers named in the Summary of Executive Compensation Table, and (iii) all current Directors and executive officers as a group.
Except as otherwise indicated below and subject to applicable community property laws, each owner has sole voting and sole
investment powers with respect to the stock listed.

|                                                                                                                                                                                     |                                                                                                     |                 |                  |  |  |  |       |            |  |  |      |   | 
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | --------------------------------------------------------------------------------------------------- | --------------- | ---------------- |  |  |  | ----- | ---------- |  |  | ---- | - | 
|                                                                                                                                                                                     |                                                                                                     |                 | Common           |  |  |  |       |            |  |  |     
|                                                                                                                                                                                     |                                                                                                     |                 | Stock and Common |  |  |  |       |            |  |  |     
|                                                                                                                                                                                     |                                                                                                     |                 | Stock            |  |  |  |       |            |  |  |     
|Name of Person or Identity of Group(1)                                                                                                                                               |                                                                                                     | Equivalents (2) |                  |  |  |  |       | Percentage
|                                                                                                                                                                                     |                                                                                                     |                 |                  |  |  |  |       |           
|Apollo Investment Fund III, L.P.
Apollo Overseas Partners III, L.P.
Apollo (U.K.) Partners III, L.P.
Apollo Investment Fund IV, L.P.
Apollo Overseas Partners IV, L.P.
Apollo/AW LLC |                                                                                                     |                 | 65,739,579       |  |  |  | (3)(4 | )          |  |  | 20.5 | %
|                                                                                                                                                                                     | c/o Apollo Advisors, II, L.P.10250 Constellation Blvd. Suite 2900
Los Angeles, CA 90067             |                 |                  |  |  |  |       |            |  |  |      |   | 
|Blackstone Capital Partners II and III Merchant Banking
Fund L.P.
Blackstone Offshore Capital Partners II and III L.P.
Blackstone Family Investment Partnership II and III L.P.      |                                                                                                     |                 | 47,906,868       |  |  |  | (3)(5 | )          |  |  | 14.9 | %
|                                                                                                                                                                                     | c/o Blackstone Management Associates II L.L.C.
345 Park Avenue, 31st Floor
New York, New York 10154
|Capital Research and Management Company
333 South Hope Street
Los Angeles, CA 90071                                                                                                  |                                                                                                     |                 | 31,108,880       |  |  |  | (6    | )          |  |  | 9.7  | %
|Thomas H. Van Weelden                                                                                                                                                                |                                                                                                     |                 | 4,422,629        |  |  |  | (7    | )          |  |  | 1.4  | %
|Robert M. Agate                                                                                                                                                                      |                                                                                                     |                 | 78,598           |  |  |  | (8    | )          |  |  | *    |  
|Leon D. Black                                                                                                                                                                        |                                                                                                     |                 | 65,809,595       |  |  |  | (9    | )          |  |  | 17.0 | %
|James W. Crownover                                                                                                                                                                   |                                                                                                     |                 | 47,000           |  |  |  | (10   | )          |  |  | *    |  
|Michael S. Gross                                                                                                                                                                     |                                                                                                     |                 | 65,846,180       |  |  |  | (9    | )          |  |  | 20.5 | %
|Dennis R. Hendrix                                                                                                                                                                    |                                                                                                     |                 | 121,539          |  |  |  | (11   | )          |  |  | *    |  
|J. Tomilson Hill                                                                                                                                                                     |                                                                                                     |                 | 47,926,868       |  |  |  | (12   | )          |  |  | 13.0 | %
|Lawrence V. Jackson                                                                                                                                                                  |                                                                                                     |                 | 31,397           |  |  |  | (13   | )          |  |  | *    |  
|Nolan Lehmann                                                                                                                                                                        |                                                                                                     |                 | 155,633          |  |  |  | (14   | )          |  |  | *    |  
|Howard A. Lipson                                                                                                                                                                     |                                                                                                     |                 | 47,991,868       |  |  |  | (12   | )          |  |  | 15.0 | %
|Antony P. Ressler                                                                                                                                                                    |                                                                                                     |                 | 65,849,816       |  |  |  | (9    | )          |  |  | 17.0 | %
|Warren B. Rudman                                                                                                                                                                     |                                                                                                     |                 | 105,219          |  |  |  | (11   | )          |  |  | *    |  
|Peter S. Hathaway                                                                                                                                                                    |                                                                                                     |                 | 786,250          |  |  |  | (15   | )          |  |  | *    |  
|Steven M. Helm                                                                                                                                                                       |                                                                                                     |                 | 640,833          |  |  |  | (16   | )          |  |  | *    |  
|Thomas W. Ryan                                                                                                                                                                       |                                                                                                     |                 | 408,250          |  |  |  | (17   | )          |  |  | *    |  
|Donald W. Slager                                                                                                                                                                     |                                                                                                     |                 | 782,633          |  |  |  | (18   | )          |  |  | *    |  
|All Directors and executive officers as a group (16
persons),(4), (5) and (7)-(18)                                                                                                   |                                                                                                     |                 | 121,618,282      |  |  |  |       |            |  |  | 37.3 | %



| |  | * Does not exceed one percent.
| |  | ------------------------------

143



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##### 





|(1)  |  | Unless otherwise indicated, the address of each person or group listed above is 15880
North Greenway-Hayden Loop, Suite 100, Scottsdale, Arizona 85260.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|---- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    
|(2)  |  | Includes shares of Common Stock
that may be acquired upon the exercise of options within 60 days, shares of restricted stock, that are currently vested or will vest
within 60 days and shares of Common Stock issuable upon conversion of our Series C Preferred Stock.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|    
|(3)  |  | Each of these entities is a party
to the Third Amended and Restated Shareholders Agreement. This
agreement grants the Apollo/Blackstone Investors, as defined in the
agreement, rights to representation on our Board of Directors and
governs the voting of all shares of our Common Stock beneficially
owned by each of Apollo and Blackstone, along with Credit Suisse
First Boston (11 Madison Avenue, New York, NY 10010) and
Greenwich Stockholders (c/o Greenwich Street Investments II,
LLC, 550 Campus Drive, Florham, NJ 07932). The agreement is
described in more detail under Item 13 (Certain Relationships and Related Transactions).                                                                                                                                                                                                                                                                                                                                 
|    
|(4)  |  | This total represents shares held by Apollo Investment Fund III, LP (25,461,653
shares, representing 38%), Apollo Overseas Partners III, LP (1,672,338 shares,
representing 2%), Apollo (UK) Partners III, LP (1,035,588 shares, representing 2%), Apollo
Investment Fund IV, LP (31,401,337 shares, representing 48%), Apollo Overseas Partners IV,
LP (1,748,663 shares, representing 3%), and Apollo/AW LLC (4,420,000 shares, representing
7%), (collectively, the Apollo Investors). Apollo Advisors II, LP, Apollo Advisors IV,
LP and/or Apollo Management, LP (and together with affiliated investment managers, Apollo
Advisors) which serves as general partner and/or manager for each of the Apollo
Investors, each of which is affiliated with one another. Messrs. Black, Gross, and Ressler
are principals of Apollo Advisors and each disclaims beneficial ownership of the indicated
shares.                                                                         
|    
|(5)  |  | This total represents shares held by Blackstone Management Associates II L.L.C.
(Blackstone Associates) which serves as general partner for each of Blackstone Capital
Partners II Merchant Banking Fund L.P. (6,611,545 shares, representing 14%), Blackstone
Offshore Capital Partners II L.P. (1,962,386 shares, representing 4%), Blackstone Family
Investment Partnership II L.P. (657,937 shares, representing 1%), Blackstone Capital
Partners III Merchant Banking Fund L.P. (30,668,235 shares, representing 64%), and
Blackstone Offshore Capital Partners III L.P. (5,686,265 shares, representing 12%) and
Blackstone Family Investment Partnership III L.P. (2,320,500 shares, representing 5%)
(collectively, the Blackstone Investors). Messrs. Lipson and Hill are Managing Directors
of Blackstone Associates and each disclaims beneficial ownership of the shares owned by
the Blackstone Investors.                                                               
|    
|(6)  |  | Includes 28,940,200 shares of
Common Stock that Capital Research and Management Company claims sole dispositional power over in its capacity as investment advisor to various investment companies and 1,778,400 shares of common stock issuable upon the
assumed conversion of Series C Mandatory
Convertible Preferred Stock that is convertible into Common Stock at any time prior to
April 1, 2006 at the option of the holder at a conversion rate of 4.94 shares of Common
Stock per share of Series C Preferred Stock. Based on the
Schedule 13G/A filed with the
Securities and Exchange Commission by the Capital Research and Management Company on
February 13, 2004 and other public information.                                                                                                                                                                                                                                                                        
|    
|(7)  |  | Includes 1,985,000 shares of Common Stock that may be acquired on the exercise of
options and 1,600,000 unvested shares of restricted stock. Includes 460,000 shares of
Common Stock subject to a prepaid variable share forward agreement (the Forward Sale
Agreement), pursuant to which Mr. Van Weeldon will deliver on November 21, 2005, part or
all of such shares of Common Stock (or, at Mr. Van Weeldons option, the cash equivalent
of such shares) as determined by a formula set forth in the Forward Sale Agreement. Mr.
Van Weeldon also has an amount entered into a pledge agreement under which he pledged
460,000 shares of Common Stock to secure his obligations under the Forward Sale Agreement.
Unless there is a default under the Forward Sale Agreement, Mr. Van Weeldon retains all
voting rights with respect to such shares, and therefore retains beneficial ownership of
such shares, until they are delivered pursuant to the Forward Sale Agreement.
|    
|(8)  |  | Includes 55,000 shares of Common Stock that may be acquired on the exercise of options.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    
|(9)  |  | This total includes (i) 65,739,579 shares beneficially owned by the Apollo Investors,
and (ii) 85,000, 85,000 and 55,000 shares that may be acquired on the exercise of options
by each of Messrs. Gross, Ressler and Black, respectively. Each of Messrs, Gross, Ressler
and Black disclaim beneficial ownership of shares owned by Apollo.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|    
|(10) |  | Includes 35,000 shares of Common Stock that may be acquired on the exercise of options.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    
|(11) |  | Includes 85,000 shares of Common Stock that may be acquired on the exercise of
options.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    
|(12) |  | Includes (i) 47,906,868 shares beneficially owned by the Blackstone Investors, and
(ii) 85,000 and 20,000 shares that may be acquired on the exercise of options by Messrs.
Lipson and Hill, respectively. Each of Messrs. Lipson and Hill disclaim beneficial
ownership of Blackstone.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    
|(13) |  | Includes 25,000 shares of Common Stock that may be acquired on the exercise of
options.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    
|(14) |  | Includes 90,000 shares of Common Stock that may be acquired on the exercise of
options.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    
|(15) |  | Includes 445,000 shares of Common Stock that may be acquired on the exercise of
options and 340,000 unvested shares of restricted stock.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|    
|(16) |  | Includes 428,333 shares of Common Stock that may be acquired on the exercise of
options and 212,000 unvested shares of restricted stock.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|    
|(17) |  | Includes 156,250 shares of Common Stock that may be acquired on the exercise of
options and 250,000 unvested shares of restricted stock.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|    
|(18) |  | Includes 441,333 shares of Common Stock that may be acquired on the exercise of
options and 340,000 unvested shares of restricted stock.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              

144



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##### 



Equity Compensation Plan Information as of Fiscal Year-End

We maintain the Incentive Stock Plans and the Director Plan. The Incentive Stock Plans provide for the
grant of non-qualified stock options, incentive stock options, shares of restricted stock, shares of
phantom stock and stock bonuses.

The following table gives information as of the fiscal year ended December 31, 2003 about compensation
plans under which our equity securities are authorized for issuances which includes the 1991 Plan, the 1993
Plan, the 1994 Plan and the Director Plan.

|                                                           |  |                            |            |                      |  |                              |       |  |  |                      |            | 
|---------------------------------------------------------- |  | -------------------------- | ---------- | -------------------- |  | ---------------------------- | ----- |  |  | -------------------- | ---------- | 
|                                                           |  | (a)                        |            | (b)                  |  | (c)                         
|                                                           |  |                            |            |                      |  |                              |       |  |  | Number of securities
|                                                           |  |                            |            |                      |  | remaining available for     
|                                                           |  | Number of securities to be |            | Weighted-average     |  | future issuance under equity
|                                                           |  | issued upon exercise of    |            | exercise price of    |  | compensation plans          
|                                                           |  | outstanding options,       |            | outstanding options, |  | (excluding securities       
|Plan category                                              |  | warrants and rights (2)    |            | warrants and rights  |  | reflected in column (a))    
|                                                           |  |                            |            |                      |  |                             
|Equity compensation plans approved by
security holders (1) |  |                            | 26,404,476 |                      |  | $                            | 10.90 |  |  |                      | 13,297,714 | 
|Equity compensation plans not approved by
security holders |  |                            |           |                      |  |                              |      |  |  |                      |           | 
|                                                           |  |                            |            |                      |  |                              |       |  |  |                      |            | 
|Total                                                      |  |                            | 26,404,476 |                      |  | $                            | 10.90 |  |  |                      | 13,297,714 | 
|                                                           |  |                            |            |                      |  |                              |       |  |  |                      |            | 



|(1) |  | Issued under the Incentive Stock Plans and the Director Plan. The 1991 Plan limits the
maximum number of shares that may be granted to not more than 10.5% of the number of
fully diluted shares of common stock on the date of an award. The 1991 plan also limits
awards in the form of restricted stock, stock bonuses, performance awards and phantom
stock 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
1991 Plan to 500,000 per year. An additional maximum number of shares of 2,000,000
common shares may be granted under the 1994 Plan.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | There are 210,070 stock options outstanding under the American Disposal Services, Inc.
1996 Stock Option Plan (American Disposal Plan) which were assumed as part of the
merger of American Disposal and us in October 1998. These stock options are held by 71
former employees and consultants of American Disposal, and are exercisable for 346,615
shares of our Common Stock (after giving effect to the exchange ratio provided in the
merger). These options have a weighted average exercise price of $20.17 per share. No
further awards will be made under the American Disposal Plan. Statistics regarding the
assumed options are not included in the above table.

Item 13.Certain Relationships and Related Transactions

We enter into transactions with related parties only with the approval of a majority of the independent and
disinterested members of the Board. Such transactions are entered into only on terms we believe to be
comparable to or better than those that would be available from unaffiliated parties, with the exception of
items that are intended to be additional compensation. All of the loans, made by us, including loans which
have been repaid, were approved by the Board of Directors prior to the adoption of the Sarbanes-Oxley Act,
in full compliance with our loan policies. All loan repayments were complete in accordance with our loan
policies and in compliance with the Sarbanes-Oxley Act.

On July 16, 2001, we entered into a relocation loan in the amount of $3.3 million secured by real estate in
Arizona pursuant to a Relocation Agreement and promissory note that was due not later than July 15, 2006
with Thomas W. Ryan, Vice Chairman and Executive Vice President. Interest on the loan accrued at the
applicable federal rate. Pursuant to the 2002 Relocation Services Agreement between Allied and a third
party relocation company, the relocation company appraised and purchased, on January 7, 2003, Mr. Ryans
former residence in Michigan at fair market value as determined by two independent appraisers. We paid
real estate commission, carrying charges, reimbursement for loss on
the sale of real estate and other costs totaling $1.1 million of which a total of $71,530
was reported as imputed income to Mr. Ryan. In addition, we paid a tax gross-up in the amount of $45,830
to Mr. Ryan. In February 2003, Mr. Ryan used the proceeds of the sale and other funds to pay, the full
outstanding balance of his loan in the amount of $3,514,641.

145



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##### 



Donald W. Slager, our Executive Vice President and Chief Operating Officer, received a relocation loan from
us in the amount of $150,000 in connection with his employment agreement dated April 8, 1996. The term of
the loan is ten years, with 10% of the original principal balance forgiven by us each year and no interest
accruing on the outstanding balance during Mr. Slagers employment with us. The forgiveness of the loan
and the applicable imputed interest are reported annually as a component of Mr. Slagers compensation.

Steven M. Helm, our Senior Vice President, General Counsel and Corporate Secretary, had a loan from us
pursuant to a promissory note dated August 30, 2000 that was due not later than August 30, 2005. Interest
on the loan was at the applicable federal rate and was reported annually as a component of Mr. Helms
compensation. The outstanding balance of Mr. Helms loan, in the amount of $215,000, was paid in full in
April 2003.

James G. Van Weelden, a brother of Thomas H. Van Weelden, was employed by us in 2003 as an Area Vice
President and received $545,125 in employment compensation for the year ended December 31, 2003, which is
consistent with the compensation paid to other Area Vice Presidents. Mr. Van Weelden was promoted to the
position of Vice President, Market Planning and Development in February 2004.

Thomas H. Van Weelden, Chairman of the Board, Chief Executive Officer, and President, together with a trust
in which members of Thomas H. Van Weeldens immediate family are beneficiaries, and James G. Van Weelden,
receive annual royalty payments from us in connection with two landfills, one in Newton County, Indiana and
the other in Hoopeston, Illinois, that were previously owned by Messrs. Van Weelden and sold in 1989 to
Environmental Development Corp. (EDC). In July 1992, we acquired EDC and assumed the obligation to make
the royalty payments to Messrs. Van Weelden and the trust. These royalty payments are determined based on
various factors, including the volume of the solid waste deposited in the landfills each year, and are
payable for so long as deposits continue to be made at the landfill. During 2003, we paid $337,442,
$197,451, and $19,988 to Thomas H. Van Weelden, James G. Van Weelden, and Thomas H. Van Weeldens family
trust, respectively.

Roger A. Ramsey, former Chief Executive Officer and Chairman of the Board, retired from the Board in
December 2002. At that time we extended the term of his outstanding stock options which Mr. Ramsey
received as our employee and Director of Allied and they continue to vest and remain exercisable until
December 2004. Mr. Ramsey has a loan of $2.2 million from us pursuant to a promissory note that bears
interest at a rate of 6.625% per year, the due date for which was extended, in December 2002, from December
31, 2002 to December 31, 2004. We also maintain a Supplemental Retirement Plan for Mr. Ramsey, which
provides for the payment of a monthly benefit (expressed in the form of a joint and 100% survivor life
annuity) in the amount of $25,000 per month. Upon the request of Mr. Ramsey, and with our consent, the
benefit may be paid on any other date, and in any other form (including a lump sum) which is the actuarial
equivalent of the joint and survivor form. To facilitate the funding of its obligations under the Plan, we
implemented a Supplemental Retirement Trust (Trust), of which a national bank is the current trustee. The
Trust is to become irrevocable in the event of a Change of Control (as defined in the Trust) of the
company.

On December 18, 2003, we completed the exchange of all of the Series A Preferred Stock outstanding for
110.5 million shares of our common stock. Apollo Advisors II, L.P. and Blackstone Capital Partners II
Merchant Bank Fund L.P., including affiliated or related persons, (collectively, the Apollo/Blackstone
Investors) owned 79% of the Series A Preferred Stock.

Our Shareholder Agreement with the Apollo/Blackstone Investors includes various agreements with the
Apollo/Blackstone Investors relating to their original investment in us in 1997 and their investment in
connection with the acquisition of BFI in 1999. These agreements, among other things, grant the
Apollo/Blackstone Investors rights to representation on the Board and to register under the Securities Act
of 1933 the offer and sale of the securities of Allied they hold, and also govern the voting of these
company securities. Following is a summary of the Third Amended and Restated Shareholders Agreement dated
December 18, 2003:

146



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##### 



We are party to the Third Amended and Restated Shareholders Agreement, dated as of December 18, 2003 (the
Shareholders Agreement),with the Apollo/Blackstone Investors and (ii) certain other shareholders
(together with the Apollo/Blackstone Investors, the Shareholders). The Shareholders Agreement amended
and restated the Shareholders Agreement that was entered into with the Shareholders at the time they
acquired their shares of Series A Preferred Stock and became effective at the time of the exchange of 110.5
million shares of common stock for the shares of Series A Preferred Stock . Under this Shareholder
Agreement we have agreed, until the earlier to occur of July 31, 2009 or the date upon which the
Apollo/Blackstone Investors own, collectively, less than 10% of the sum of the shares of common stock they
acquired from TPG Partners, L.P., TPG Parallel, L.P. and Laidlaw Transportation, Inc. and the 87,295,000
shares of the common stock issued in connection with the Exchange (collectively, the Apollo/Blackstone
Shares), to nominate and support the election to the Board of Directors of certain individuals (the
Shareholder Designees) designated by the Apollo/ Blackstone Investors. For so long as the Apollo/
Blackstone Investors beneficially own: (i) 80% or more of the Apollo/Blackstone Shares, they shall be
entitled to designate five Shareholder Designees; (ii) 60% or more but less than 80% of the
Apollo/Blackstone Shares, they shall be entitled to designate four Shareholder Designees; (iii) 40% or more
but less than 60% of the Apollo/ Blackstone Shares, they shall be entitled to designate three Shareholder
Designees; (iv) 20% or more but less than 40% of the Apollo/Blackstone Shares, they shall be entitled to
designate two Shareholder Designees; and (v) 10% or more but less than 20% of the Apollo/Blackstone Shares,
they shall be entitled to designate one Shareholder Designee; provided, that if, at any time as a result of
our issuance of voting securities, the Apollo/Blackstone Investors beneficially own 9% or less of the
total voting power of voting securities then outstanding, the Apollo/Blackstone Investors shall only be
entitled to designate at most three Shareholder Designees. Currently, Messrs. Black, Gross, Hill, Ressler
and Lipson are the Shareholder Designees designated by the Apollo/Blackstone Investors.

In the Shareholders Agreement, we agreed to: (i) limit the number of our executive officers that serve on
the Board of Directors to two; and (ii) nominate persons to the remaining positions on the Board of
Directors who are recommended by the Governance Committee and are not our employees, officers or outside
counsel or partners, employees, directors, officers, affiliates or associates of any Apollo/Blackstone
Investors (the Unaffiliated Directors). Unaffiliated Directors shall be nominated only upon the approval
of a majority vote of the Governance Committee, which will consist of not more than four Directors, at
least two or whom shall be Shareholder Designees, or such lesser number of Shareholder Designees as then
serves on the Board of Directors. If the Apollo/Blackstone Investors beneficially own less than 50% of the
Apollo/Blackstone Shares, the Governance Committee shall contain only one member who is a Shareholder
Designee.

In the Shareholders Agreement, the Shareholders agreed that, generally until the earlier to occur of July
31, 2009 or the date upon which the Apollo/Blackstone Investors own, collectively, voting securities of the
Company which represent less than 10% of the total voting power of all of our voting securities on a fully
diluted basis, the Shareholders will vote all voting securities beneficially owned by such persons to elect
the individuals nominated to the Board of Directors in accordance with the provisions of the Shareholders
Agreement, to vote all their shares as recommended by a majority of the entire Board of Directors in
connection with mergers, business combinations and other similar extraordinary transactions, and otherwise
to vote as they wish.

The Shareholders continue to be subject to the same standstill and restriction on dispositions provisions
that were contained in the previous shareholders agreement. In addition, the Shareholders Agreement
prohibits the Shareholders from disposing of the 110.5 million shares of common stock they received in the
exchange until December 18, 2004. At the time of the exchange, we entered into a registration rights
agreement with the holders of the Series A Preferred Stock, which provides that the shares of common stock
received in the exchange transaction may be included in any registration of securities requested by the
holders of the Series A Preferred Stock. In addition, we have agreed that these holders may request a
shelf registration of their shares at any time after December 18, 2004.

147



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##### 



Item 14.Principal Accountant Fees and Services

A summary of the services billed by PricewaterhouseCoopers LLP for the 2003 calendar
year and from June 21, 2002 (the date they were engaged) through December 31, 2002 are
as follows (in thousands):

|                       |  |      |         |      |  |   |         | 
|---------------------- |  | ---- | ------- | ---- |  | - | ------- | 
|                       |  | 2003 |         | 2002
|                       |  |      |         |     
|Audit Fees (1)         |  | $    | 1,874.4 |      |  | $ | 1,804.1 | 
|Audit-Related Fees (2) |  | $    | 842.3   |      |  | $ | 17.8    | 
|Tax Fees (3)           |  | $    | 31.0    |      |  | $ |        | 
|All Other Fees         |  | $    |        |      |  | $ |        | 



|(1) |  | Relates to services for the annual financial statement audits included in our
Form 10-K for Allied Waste Industries, Inc. and Browning-Ferris Industries, Inc.,
quarterly reviews for the financial statements included in our Form 10-Q, other
financial statement audits that were required by SEC rules, reviews of registration
statements and other SEC filings and procedures performed for comfort letters issued
to underwriters in connection with capital market transactions.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Includes financial statement audits required by municipal contracts and in
connection with divestiture transactions, and agreed upon procedures for municipal
contracts.                                                                                                                                                                                                                                                                                                                
|   
|(3) |  | Fees were incurred for research and advice on a tax matter.                                                                                                                                                                                                                                                                                                                                                                                                                             

The Audit Committees policy is to pre-approve all audit and permissible audit-related
services provided by the independent auditors. The Audit Committee will consider
annually for pre-approval a list of specific services and categories of services,
including audit and audit-related services, for the upcoming or current fiscal year.
All non-audit services are approved by the Audit Committee in advance on a
case-by-case basis. Any service that is not included in the approved list of services
or that does not fit within the definition of a pre-approved service is required to be
presented separately to the Audit Committee for consideration at its next regular
meeting or, if earlier consideration is required, by other means of communication.

148



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##### 



PART IV

Item 15.Exhibits, Financial Statement Schedules and Reports on Form 8-K

Financial Statement Schedules -

Schedule II  Valuation and Qualifying Accounts (in millions):

|                                |  |          |      |         |  |            |      |             |  |          |      |   |  |         |       |   |  |   |      | 
|------------------------------- |  | -------- | ---- | ------- |  | ---------- | ---- | ----------- |  | -------- | ---- | - |  | ------- | ----- | - |  | - | ---- | 
|                                |  | Balance  |      | Charges |  |            |      |             |  |          |      |   |  | Balance
|                                |  | at       |      | to      |  | Other      |      | Write-offs/ |  | at      
|                                |  | 12/31/00 |      | Expense |  | Charges(1) |      | Payments    |  | 12/31/01
|                                |  |          |      |         |  |            |      |             |  |         
|Allowance for doubtful
accounts |  | $        | 41.7 |         |  | $          | 22.5 |             |  | $        | (8.8 | ) |  | $       | (25.2 | ) |  | $ | 30.2 | 
|Severance and termination
costs |  |          | 4.4  |         |  |            | 3.8  |             |  |          | 0.1  |   |  |         | (4.2  | ) |  |   | 4.1  | 
|Restructuring costs             |  |          | 6.0  |         |  |            | 8.0  |             |  |          | 2.2  |   |  |         | (2.9  | ) |  |   | 13.3 | 

|                                |  |          |      |         |  |            |      |             |  |          |      |   |  |         |       |   |  |   |      | 
|------------------------------- |  | -------- | ---- | ------- |  | ---------- | ---- | ----------- |  | -------- | ---- | - |  | ------- | ----- | - |  | - | ---- | 
|                                |  | Balance  |      | Charges |  |            |      |             |  |          |      |   |  | Balance
|                                |  | at       |      | to      |  | Other      |      | Write-offs/ |  | at      
|                                |  | 12/31/01 |      | Expense |  | Charges(1) |      | Payments    |  | 12/31/02
|                                |  |          |      |         |  |            |      |             |  |         
|Allowance for doubtful
accounts |  | $        | 30.2 |         |  | $          | 17.0 |             |  | $        | (3.7 | ) |  | $       | (21.2 | ) |  | $ | 22.3 | 
|Severance and termination
costs |  |          | 4.1  |         |  |            |     |             |  |          |     |   |  |         | (2.1  | ) |  |   | 2.0  | 
|Restructuring costs             |  |          | 13.3 |         |  |            |     |             |  |          | (3.1 | ) |  |         | (6.9  | ) |  |   | 3.3  | 

|                                |  |          |      |         |  |            |      |             |  |          |     |  |  |         |       |   |  |   |      | 
|------------------------------- |  | -------- | ---- | ------- |  | ---------- | ---- | ----------- |  | -------- | --- |  |  | ------- | ----- | - |  | - | ---- | 
|                                |  | Balance  |      | Charges |  |            |      |             |  |          |     |  |  | Balance
|                                |  | at       |      | to      |  | Other      |      | Write-offs/ |  | at      
|                                |  | 12/31/02 |      | Expense |  | Charges(1) |      | Payments    |  | 12/31/03
|                                |  |          |      |         |  |            |      |             |  |         
|Allowance for doubtful
accounts |  | $        | 22.3 |         |  | $          | 23.6 |             |  | $        | 0.1 |  |  | $       | (23.6 | ) |  | $ | 22.4 | 
|Severance and termination
costs |  |          | 2.0  |         |  |            |     |             |  |          |    |  |  |         | (1.4  | ) |  |   | 0.6  | 
|Restructuring costs             |  |          | 3.3  |         |  |            |     |             |  |          | 0.3 |  |  |         | (1.3  | ) |  |   | 2.3  | 



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

Valuation and qualifying accounts not included above have been shown in Notes 1, 8 and 14
of our financial statements included in Part II Item 8 of this Form 10-K.

149



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##### 



BROWNING-FERRIS INDUSTRIES, INC.

Financial Statements of
Browning-Ferris Industries, Inc.

Following are the stand-alone
financial statements for our wholly-owned subsidiary, Browning-Ferris
Industries, Inc. (BFI). We are required to provide these financial
statements under the Securities and Exchange Commissions (SEC)
Rule 3-16 of Regulation S-X.
The stock of
substantially all of BFI, along with certain of our other
wholly-owned subsidiaries, collateralizes
certain of our outstanding debt obligations. In Note 5 of our
consolidated financial statements,
included under Item 8 of this Form 10-K, we have provided information on both
BFI and the other Allied subsidiaries that serve as collateral, both
on an individual and combined basis. As of
December 31, 2003, the book value of the assets of the combined
entities whose stock serves as
collateral was approximately $8.6 billion, of which
$6.2 billion was BFI and the remaining amount was other Allied
subsidiaries.

150



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##### 



|                                                                                                        
|--------------------------------------------------------------------------------------------------------
|Financial Statements and Supplementary Data                                                             
|Report
of Independent Auditors.                                                                         
|Consolidated Balance Sheets as of December 31, 2003 and 2002.                                           
|Consolidated Statements of Operations for each of the Three Years in the Period Ended
December 31, 2003.
|Consolidated Statements of Stockholders Deficit for the Three Years Ended December 31,
2003.           
|Consolidated
Statements of Cash Flows for each of the Three Years in the Period Ended December 31, 2003.
|Notes to Consolidated Financial Statements.                                                             
|Financial Statement Schedule.                                                                           

151



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##### 



Report of Independent Auditors

To the Board of Directors and Shareholders of
Allied Waste Industries, Inc.:

In our opinion, the consolidated financial statements listed in the
accompanying index present fairly, in all material respects, the financial
position of Browning-Ferris Industries, Inc. (the Company), a wholly-owned
subsidiary of Allied Waste Industries, Inc. and its subsidiaries at December
31, 2003 and 2002, and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 2003 in conformity
with accounting principles generally accepted in the United States of America.
In addition, in our opinion, the financial statement schedule listed in the
accompanying index presents fairly, in all material respects, the information
set forth therein when read in conjunction with the related consolidated
financial statements. These financial statements and financial statement
schedule are the responsibility of the Companys management; our responsibility
is to express an opinion on these financial statements and financial statement
schedule based on our audits. We conducted our audits of these statements in
accordance with auditing standards generally accepted in the United States of
America, which 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, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.

As discussed in Note 1 to the
consolidated financial statements, the Company has restated its
consolidated financial statements as of December 31, 2002 and for
each of the two years in the period ended December 31, 2002 to reflect
a different reporting entity.

As discussed in Note 8 to the consolidated financial statements, the Company
changed its method of accounting for obligations associated with the retirement
of long-lived tangible assets and the associated asset retirement costs as of
January 1, 2003; as discussed in Note 3 to the consolidated financial
statements, the Company changed its method of accounting for goodwill and other
intangible assets as of January 1, 2002; and as discussed in Note 1 to the
consolidated financial statements, the Company changed its method of accounting
for derivative instruments and hedging activities as of January 1, 2001.

PRICEWATERHOUSECOOPERS LLP

Phoenix, Arizona
March 5, 2004

152



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##### 



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

|                                                                                     |                                             |   |              |          |      |   |          |          |  
|------------------------------------------------------------------------------------ | ------------------------------------------- | - | ------------ | -------- | ---- | - | -------- | -------- | -
|                                                                                     |                                             |   | December 31,
|                                                                                     |                                             |   |             
|                                                                                     |                                             |   | 2003         |          | 2002
|                                                                                     |                                             |   |              |          |     
|ASSETS                                                                               |                                             |   |              |          |      |   |          |         
|Current Assets                                                                      |                                             |   |              |          |      |   |          |         
|Cash and cash equivalents                                                            |                                             | $ | 6.5          |          |      | $ | 7.6      |         
|Accounts receivable, net of allowance of $7.5 and
$7.2                               |                                             |   | 129.7        |          |      |   | 177.1    |         
|Prepaid and other current assets                                                     |                                             |   | 30.0         |          |      |   | 43.4     |         
|                                                                                     |                                             |   |              |          |      |   |          |         
|                                                                                     | Total current assets                        |   |              | 166.2    |      |   |          | 228.1    |  
|Property and equipment, net                                                          |                                             |   | 917.8        |          |      |   | 896.4    |         
|Goodwill                                                                             |                                             |   | 3,630.4      |          |      |   | 3,745.3  |         
|Other assets, net                                                                    |                                             |   | 137.0        |          |      |   | 167.3    |         
|Due from parent                                                                      |                                             |   | 1,323.5      |          |      |   | 2,381.6  |         
|                                                                                     |                                             |   |              |          |      |   |          |         
|                                                                                     | Total assets                                |   | $            | 6,174.9  |      |   | $        | 7,418.7  |  
|                                                                                     |                                             |   |              |          |      |   |          |         
|LIABILITIES AND STOCKHOLDERS DEFICIT                                                |                                             |   |              |          |      |   |          |         
|Current Liabilities                                                                 |                                             |   |              |          |      |   |          |         
|Current portion of long-term debt                                                    |                                             | $ | 19.2         |          |      | $ | 157.7    |         
|Accounts payable                                                                     |                                             |   | 118.0        |          |      |   | 113.5    |         
|Current portion of capping accrued closure, post-closure
and environmental costs     |                                             |   | 58.0         |          |      |   | 77.3     |         
|Accrued interest                                                                     |                                             |   | 105.9        |          |      |   | 113.9    |         
|Other accrued liabilities                                                            |                                             |   | 133.3        |          |      |   | 170.1    |         
|Unearned revenue                                                                     |                                             |   | 57.6         |          |      |   | 58.8     |         
|                                                                                     |                                             |   |              |          |      |   |          |         
|                                                                                     | Total current liabilities                   |   |              | 492.0    |      |   |          | 691.3    |  
|Long-term debt, less current portion                                                 |                                             |   | 6,282.8      |          |      |   | 6,944.2  |         
|Accrued capping, closure, post-closure and
environmental costs, less current portion |                                             |   | 516.1        |          |      |   | 593.2    |         
|Other long-term obligations                                                          |                                             |   | 276.5        |          |      |   | 362.5    |         
|Commitments and contingencies                                                        |                                             |   |              |          |      |   |          |         
|Common stock                                                                         |                                             |   |             |          |      |   |         |         
|Additional paid-in capital                                                           |                                             |   |             |          |      |   |         |         
|Accumulated other comprehensive loss                                                 |                                             |   | (94.5        | )        |      |   | (131.2   | )       
|Retained deficit                                                                     |                                             |   | (1,298.0     | )        |      |   | (1,041.3 | )       
|                                                                                     |                                             |   |              |          |      |   |          |         
|                                                                                     | Total stockholders deficit                 |   |              | (1,392.5 | )    |   |          | (1,172.5 | )
|                                                                                     |                                             |   |              |          |      |   |          |         
|                                                                                     | Total liabilities and stockholders deficit |   | $            | 6,174.9  |      |   | $        | 7,418.7  |  
|                                                                                     |                                             |   |              |          |      |   |          |         

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

153



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##### 



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

|                                                                                                                                                                                        |                                                        |   |                         |        |      |   |         |        |   |   |         |        |  
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------ | - | ----------------------- | ------ | ---- | - | ------- | ------ | - | - | ------- | ------ | -
|                                                                                                                                                                                        |                                                        |   | Year Ended December 31,
|                                                                                                                                                                                        |                                                        |   |                        
|                                                                                                                                                                                        |                                                        |   | 2003                    |        | 2002 |   | 2001   
|                                                                                                                                                                                        |                                                        |   |                         |        |      |   |        
|Revenues                                                                                                                                                                                |                                                        | $ | 1,546.1                 |        |      | $ | 1,554.7 |        |   | $ | 1,596.2 |       
|Cost of operations                                                                                                                                                                      |                                                        |   | 977.3                   |        |      |   | 940.1   |        |   |   | 898.6   |       
|Selling, general and administrative expenses                                                                                                                                            |                                                        |   | 144.7                   |        |      |   | 136.7   |        |   |   | 140.6   |       
|Depreciation and amortization                                                                                                                                                           |                                                        |   | 131.1                   |        |      |   | 116.7   |        |   |   | 116.8   |       
|Goodwill amortization                                                                                                                                                                   |                                                        |   |                        |        |      |   |        |        |   |   | 100.5   |       
|Non-cash gain on divestiture of assets                                                                                                                                                  |                                                        |   |                        |        |      |   | (1.4    | )      |   |   |        |       
|                                                                                                                                                                                        |                                                        |   |                         |        |      |   |         |        |   |   |         |       
|                                                                                                                                                                                        | Operating income                                       |   |                         | 293.0  |      |   |         | 362.6  |   |   |         | 339.7  |  
|Equity in earnings of unconsolidated
affiliates                                                                                                                                         |                                                        |   |                        |        |      |   | (4.9    | )      |   |   | (30.8   | )     
|Interest expense and other                                                                                                                                                              |                                                        |   | 726.5                   |        |      |   | 704.2   |        |   |   | 750.4   |       
|                                                                                                                                                                                        |                                                        |   |                         |        |      |   |         |        |   |   |         |       
|                                                                                                                                                                                        | Loss before income taxes                               |   |                         | (433.5 | )    |   |         | (336.7 | ) |   |         | (379.9 | )
|Income tax benefit                                                                                                                                                                      |                                                        |   | (161.4                  | )      |      |   | (119.5  | )      |   |   | (105.3  | )     
|Minority interest                                                                                                                                                                       |                                                        |   | 1.2                     |        |      |   | 1.2     |        |   |   | 2.7     |       
|                                                                                                                                                                                        |                                                        |   |                         |        |      |   |         |        |   |   |         |       
|                                                                                                                                                                                        | Loss from continuing operations                        |   |                         | (273.3 | )    |   |         | (218.4 | ) |   |         | (277.3 | )
|                                                                                                                                                                                        | Income (loss) from discontinued operations,
net of tax |   |                         | (28.2  | )    |   |         | 6.4    |   |   |         | 15.8   |  
|Cumulative effect of change in accounting
principle, net of tax                                                                                                                         |                                                        |   | 44.8                    |        |      |   |        |        |   |   |        |       
|                                                                                                                                                                                        |                                                        |   |                         |        |      |   |         |        |   |   |         |       
|                                                                                                                                                                                        | Net loss                                               |   | $                       | (256.7 | )    |   | $       | (212.0 | ) |   | $       | (261.5 | )
|                                                                                                                                                                                        |                                                        |   |                         |        |      |   |         |        |   |   |         |       
|Pro
forma amounts, assuming the change in accounting principle is applied
retroactively, and excluding the cumulative effect of change in
accounting principle in the year of adoption: |                                                        |   |                         |        |      |   |         |        |   |   |         |       
|                                                                                                                                                                                        | Net
loss                                               |   | $                       | (301.5 | )    |   | $       | (229.2 | ) |   | $       | (277.1 | )
|                                                                                                                                                                                        |                                                        |   |                         |        |      |   |         |        |   |   |         |       

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

154



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##### 



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

|                                |                                       |                                                          |   |        |   |         |   |               |   |             |   |               |       |              |        |          |   |               |        |          |       |   |        |               |       |  
|------------------------------- | ------------------------------------- | -------------------------------------------------------- | - | ------ | - | ------- | - | ------------- | - | ----------- | - | ------------- | ----- | ------------ | ------ | -------- | - | ------------- | ------ | -------- | ----- | - | ------ | ------------- | ----- | -
|                                |                                       |                                                          |   |        |   |         |   |               |   |             |   |               |       |              |        |          |   |               |        |          |       |   |        | Comprehensive
|                                |                                       |                                                          |   |        |   |         |   |               |   |             |   |               |       |              |        |          |   |               |        |          |       |   |        | Loss for the 
|                                |                                       |                                                          |   |        |   |         |   | Additional    |   | Accumulated |   |               |       |              |        | Total    |   | Twelve Months
|                                |                                       |                                                          |   | Common |   | Paid-In |   | Comprehensive |   | Retained    |   | Stockholders |       | Ended       
|                                |                                       |                                                          |   | Stock  |   | Capital |   | Loss          |   | Deficit     |   | Deficit       |       | December 31,
|                                |                                       |                                                          |   |        |   |         |   |               |   |             |   |               |       |             
|Balance as of
December 31, 2000 |                                       | $                                                        |  |        |   | $       |  |               |   | $           |  |               |       | $            | (567.8 | )        |   | $             | (567.8 | )        |       | $ | (567.8 | )            
|                                |                                       |                                                          |   |        |   |         |   |               |   |             |   |               |       |              |        |          |   |               |        |          |       |   |        |              
|                                | Net loss                              |                                                          |   |       |   |         |   |              |   |             |   |              |       |              |        | (261.5   | ) |               |        | (261.5   | )     |   | $      | (261.5        | )    
|                                | Other comprehensive
loss, net of tax: |                                                          |   |        |   |         |   |               |   |             |   |               |       |              |        |          |   |               |        |          |       |   |        |               |      
|                                |                                       | Cumulative effect of
change in accounting
principle      |   |        |  |         |   |               |  |             |   |               | (45.2 | )            |        |          |  |               |        |          | (45.2 | ) |        |               | (45.2 | )
|                                |                                       | Net loss deferred on
hedging derivatives                 |   |        |  |         |   |               |  |             |   |               | (89.2 | )            |        |          |  |               |        |          | (89.2 | ) |        |               | (89.2 | )
|                                |                                       | Net loss on hedging
derivatives
reclassified to earnings |   |        |  |         |   |               |  |             |   |               | 49.3  |              |        |          |  |               |        |          | 49.3  |   |        |               | 49.3  |  
|                                |                                       |                                                          |   |        |   |         |   |               |   |             |   |               |       |              |        |          |   |               |        |          |       |   |        |              
|                                | Balance as of
December 31, 2001       |                                                          | $ |       |   |         | $ |              |   |             | $ | (85.1         | )     |              | $      | (829.3   | ) |               | $      | (914.4   | )     |   | $      | (346.6        | )    
|                                |                                       |                                                          |   |        |   |         |   |               |   |             |   |               |       |              |        |          |   |               |        |          |       |   |        |              
|                                | Net loss                              |                                                          |   |       |   |         |   |              |   |             |   |              |       |              |        | (212.0   | ) |               |        | (212.0   | )     |   | $      | (212.0        | )    
|                                | Other comprehensive
loss, net of tax: |                                                          |   |        |   |         |   |               |   |             |   |               |       |              |        |          |   |               |        |          |       |   |        |               |      
|                                |                                       | Net gain deferred on
hedging derivatives                 |   |        |  |         |   |               |  |             |   |               | 7.4   |              |        |          |  |               |        |          | 7.4   |   |        |               | 7.4   |  
|                                |                                       | Net loss on
hedging derivatives
reclassified to earnings |   |        |  |         |   |               |  |             |   |               | 21.3  |              |        |          |  |               |        |          | 21.3  |   |        |               | 21.3  |  
|                                | Minimum pension
liability adjustment  |                                                          |   |       |   |         |   |              |   |             |   | (74.8         | )     |              |        |         |   |               |        | (74.8    | )     |   |        | (74.8         | )    
|                                |                                       |                                                          |   |        |   |         |   |               |   |             |   |               |       |              |        |          |   |               |        |          |       |   |        |              
|                                | Balance as of
December 31, 2002       |                                                          | $ |       |   |         | $ |              |   |             | $ | (131.2        | )     |              | $      | (1,041.3 | ) |               | $      | (1,172.5 | )     |   | $      | (258.1        | )    
|                                |                                       |                                                          |   |        |   |         |   |               |   |             |   |               |       |              |        |          |   |               |        |          |       |   |        |              
|                                | Net loss                              |                                                          |   |       |   |         |   |              |   |             |   |              |       |              |        | (256.7   | ) |               |        | (256.7   | )     |   | $      | (256.7        | )    
|                                | Other comprehensive
loss, net of tax: |                                                          |   |        |   |         |   |               |   |             |   |               |       |              |        |          |   |               |        |          |       |   |        |               |      
|                                |                                       | Net gain deferred on
hedging derivatives                 |   |        |  |         |   |               |  |             |   |               | 18.8  |              |        |          |  |               |        |          | 18.8  |   |        |               | 18.8  |  
|                                |                                       | Net loss on
hedging derivatives
reclassified to earnings |   |        |  |         |   |               |  |             |   |               | 13.9  |              |        |          |  |               |        |          | 13.9  |   |        |               | 13.9  |  
|                                | Minimum pension
liability adjustment  |                                                          |   |       |   |         |   |              |   |             |   | 4.0           |       |              |        |         |   |               |        | 4.0      |       |   |        | 4.0           |      
|                                |                                       |                                                          |   |        |   |         |   |               |   |             |   |               |       |              |        |          |   |               |        |          |       |   |        |              
|                                | Balance as of
December 31, 2003       |                                                          | $ |       |   |         | $ |              |   |             | $ | (94.5         | )     |              | $      | (1,298.0 | ) |               | $      | (1,392.5 | )     |   | $      | (220.0        | )    
|                                |                                       |                                                          |   |        |   |         |   |               |   |             |   |               |       |              |        |          |   |               |        |          |       |   |        |              

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

155



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##### 



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

|                                                                                            |                                                                                                     |   |        |                         |   |      |        |          |   |   |        |          |   | 
|------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------- | - | ------ | ----------------------- | - | ---- | ------ | -------- | - | - | ------ | -------- | - | 
|                                                                                            |                                                                                                     |   |        | Year Ended December 31,
|                                                                                            |                                                                                                     |   |        |                        
|                                                                                            |                                                                                                     |   |        | 2003                    |   | 2002 |        | 2001    
|                                                                                            |                                                                                                     |   |        |                         |   |      |        |         
|Operating activities                                                                       |                                                                                                     |   |        |                         |   |      |        |          |   |   |        |         
|Net loss                                                                                    |                                                                                                     | $ | (256.7 | )                       |   | $    | (212.0 | )        |   | $ | (261.5 | )       
|Discontinued operations, net of tax                                                         |                                                                                                     |   | 28.2   |                         |   |      | (6.4   | )        |   |   | (15.8  | )       
|Adjustments to reconcile net loss to cash
used for operating activities                    |                                                                                                     |   |        |                         |   |      |        |          |   |   |        |         
|Provisions for:                                                                             |                                                                                                     |   |        |                         |   |      |        |          |   |   |        |         
|                                                                                            | Depreciation and amortization                                                                       |   |        | 131.1                   |   |      |        | 116.7    |   |   |        | 217.3    |  
|                                                                                            | Non-cash gain on divestiture of assets                                                              |   |        |                        |   |      |        | (1.4     | ) |   |        |         |  
|                                                                                            | Undistributed earnings of equity investment in
unconsolidated affiliates                            |   |        |                        |   |      |        | (4.9     | ) |   |        | (30.8    | )
|                                                                                            | Doubtful accounts                                                                                   |   |        | 6.1                     |   |      |        | 3.5      |   |   |        | 7.4      |  
|                                                                                            | Accretion of debt and amortization of debt
issuance costs                                           |   |        | 25.9                    |   |      |        | 36.4     |   |   |        | 35.9     |  
|                                                                                            | Gain on sale of fixed assets                                                                        |   |        | (2.1                    | ) |      |        | (2.7     | ) |   |        | (28.0    | )
|                                                                                            | Non-cash reduction in acquisition accruals                                                          |   |        | (11.2                   | ) |      |        | (10.7    | ) |   |        |         |  
|                                                                                            | Loss on sale of trade receivables                                                                   |   |        | 9.3                     |   |      |        |         |   |   |        |         |  
|                                                                                            | Non-cash gain on non-hedge accounting interest
rate swap contracts                                  |   |        | (48.0                   | ) |      |        | (2.4     | ) |   |        |         |  
|                                                                                            | Amortization of accumulated other
comprehensive loss for de-designated
interest rate swap contracts |   |        | 23.1                    |   |      |        | 35.4     |   |   |        |         |  
|                                                                                            | Write off of deferred debt issuance costs                                                           |   |        | 61.0                    |   |      |        | 5.9      |   |   |        | 23.4     |  
|                                                                                            | Cumulative effect of change in accounting principle,
net of tax                                     |   |        | (44.8                   | ) |      |        |         |   |   |        |         |  
|Change in operating assets and liabilities,
excluding the effects of purchase acquisitions |                                                                                                     |   |        |                         |   |      |        |          |   |   |        |         
|                                                                                            | Accounts receivable, prepaid expenses,
and other assets                                             |   |        | 53.7                    |   |      |        | 41.3     |   |   |        | (20.2    | )
|                                                                                            | Accounts payable, accrued liabilities, unearned
revenue and other                                   |   |        | (47.7                   | ) |      |        | (32.6    | ) |   |        | (4.9     | )
|                                                                                            | Capping, closure and post-closure provision and accretion                                           |   |        | 28.0                    |   |      |        | 42.5     |   |   |        | 24.1     |  
|                                                                                            | Capping, closure, post-closure and environmental
expenditures                                       |   |        | (49.2                   | ) |      |        | (70.7    | ) |   |        | (71.2    | )
|                                                                                            |                                                                                                     |   |        |                         |   |      |        |          |   |   |        |         
|Cash used for operating activities                                                          |                                                                                                     |   | (93.3  | )                       |   |      | (62.1  | )        |   |   | (124.3 | )       
|                                                                                            |                                                                                                     |   |        |                         |   |      |        |          |   |   |        |         
|Investing activities                                                                       |                                                                                                     |   |        |                         |   |      |        |          |   |   |        |         
|                                                                                            | Cost of acquisitions, net of cash acquired                                                          |   |        |                        |   |      |        | (4.2     | ) |   |        | (44.3    | )
|                                                                                            | Proceeds from divestitures, net of cash
divested                                                    |   |        | 132.0                   |   |      |        | 21.1     |   |   |        | 302.1    |  
|                                                                                            | Proceeds from sale of fixed assets                                                                  |   |        | 6.4                     |   |      |        | 5.0      |   |   |        | 39.0     |  
|                                                                                            | Capital expenditures, excluding acquisitions                                                        |   |        | (144.2                  | ) |      |        | (94.8    | ) |   |        | (126.0   | )
|                                                                                            | Capitalized interest                                                                                |   |        | (6.3                    | ) |      |        | (4.5     | ) |   |        | (14.1    | )
|                                                                                            | Change in deferred acquisition costs, notes
receivable and other                                    |   |        | (0.9                    | ) |      |        | (0.7     | ) |   |        | (16.9    | )
|                                                                                            |                                                                                                     |   |        |                         |   |      |        |          |   |   |        |         
|Cash provided by (used for) investing activities                                            |                                                                                                     |   | (13.0  | )                       |   |      | (78.1  | )        |   |   | 139.8  |         
|                                                                                            |                                                                                                     |   |        |                         |   |      |        |          |   |   |        |         
|Financing activities                                                                       |                                                                                                     |   |        |                         |   |      |        |          |   |   |        |         
|                                                                                            | Proceeds from long-term debt, net of issuance costs                                                 |   |        | 2,870.2                 |   |      |        | 855.9    |   |   |        | 2,698.2  |  
|                                                                                            | Repayments of long-term debt                                                                        |   |        | (3,728.8                | ) |      |        | (1,172.6 | ) |   |        | (3,183.8 | )
|                                                                                            | Change in disbursement account                                                                      |   |        |                        |   |      |        | (4.4     | ) |   |        | (51.4    | )
|                                                                                            | Change in due from parent                                                                           |   |        | 1,001.2                 |   |      |        | 431.5    |   |   |        | 441.7    |  
|                                                                                            |                                                                                                     |   |        |                         |   |      |        |          |   |   |        |         
|Cash provided by (used for) financing activities                                            |                                                                                                     |   | 142.6  |                         |   |      | 110.4  |          |   |   | (95.3  | )       
|                                                                                            |                                                                                                     |   |        |                         |   |      |        |          |   |   |        |         
|Cash provided by (used for) discontinued operations                                         |                                                                                                     |   | (37.4  | )                       |   |      | 20.6   |          |   |   | 12.2   |         
|                                                                                            |                                                                                                     |   |        |                         |   |      |        |          |   |   |        |         
|Decrease in cash and cash equivalents                                                       |                                                                                                     |   | (1.1   | )                       |   |      | (9.2   | )        |   |   | (67.6  | )       
|Cash and cash equivalents, beginning of year                                                |                                                                                                     |   | 7.6    |                         |   |      | 16.8   |          |   |   | 84.4   |         
|                                                                                            |                                                                                                     |   |        |                         |   |      |        |          |   |   |        |         
|Cash and cash equivalents, end of year                                                      |                                                                                                     |   | 6.5    |                         |   | $    | 7.6    |          |   | $ | 16.8   |         
|                                                                                            |                                                                                                     |   |        |                         |   |      |        |          |   |   |        |         
|Supplemental disclosures:                                                                   |                                                                                                     |   |        |                         |   |      |        |          |   |   |        |         
|                                                                                            | Interest paid (net of amounts capitalized)                                                          |   | $      | 576.9                   |   |      | $      | 653.2    |   |   | $      | 670.0    |  
|                                                                                            | Capital lease obligations incurred                                                                  |   |        | 0.2                     |   |      |        | 3.8      |   |   |        |         |  
|                                                                                            | Liabilities incurred or assumed in acquisitions                                                     |   |        |                        |   |      |        |         |   |   |        | 8.8      |  

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

156



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##### 



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

1.     Organization and Summary of Significant Accounting Policies

BFI 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 and provides non-hazardous waste collection, transfer, recycling and disposal services in 37 states. The
business activities of BFI are fully integrated with the operations of Allied, which is operated solely as a consolidated entity.
As such, BFI is reliant on its Parent to provide necessary funding to
support its activities. Allied has issued a letter evidencing its
intent and ability to financially support BFI.

Purpose of financial statements 

The purpose of these financial statements is to provide information about assets and stock, which collateralize
certain outstanding debt obligations of BFI and the Parent. BFI along with certain other wholly-owned subsidiaries of Allied
(herein referred to as the Other Allied Collateral) on a combined basis represents the aggregate collateral. The combined entity
represents all assets that, upon occurrence of any triggering event or certain other conditions under the collateral agreements,
would be available to satisfy the outstanding debt obligation. Separate stand-alone financial statements for the Other Allied
Collateral are not presented herein because none of the subsidiaries within Other Allied Collateral meet the SEC reporting criteria under Rule 3-16 of Regulation S-X.

Transfer of assets and change in financial statement presentation 

Prior to 2001, the Other Allied Collateral was wholly-owned by BFI. During 2003, 2002 and 2001, the Other Allied Collateral was
transferred to newly created subsidiaries of Allied for organizational efficiency and other purposes. A collateral waiver was
received from the collateral trustee. The Other Allied Collateral continues to collateralize the debt. In accordance with
Accounting Principles Board Opinion No. 20 Accounting Changes, the transfers of assets described above constitute a change in
reporting entity, and therefore, have been retroactively restated for all prior periods.

Principles of consolidation and presentation 

All significant intercompany accounts and transactions are eliminated in the accompanying consolidated financial statements. BFI
is not a registrant with 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, including allocations from the Parent, have been made to provide financial
information for SEC and stand-alone 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.

157



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##### 



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

Discontinued operations 

During 2003, we determined certain operations that were divested or held for sale were discontinued operations. As of December 31, 2003, we have sold
operations in Colorado, New Jersey and Florida generating net proceeds of $118.9 million. The net proceeds were received by our Parent and used to repay
debt. In addition, at December 31, 2003, we held for sale certain operations in Florida for which we expect net proceeds of $42.2 million to be used to repay
debt. Prior period results of these operations have been reclassified to discontinued operations.

The accompanying consolidated financial statements and notes reflect the results of operations, financial position and cash flows of these
operations as discontinued operations. Following is a summary of the assets held for sale and discontinued operations on the consolidated
balance sheet (in millions):

|                            |                   |   |              |      |      |   |      |      | 
|--------------------------- | ----------------- | - | ------------ | ---- | ---- | - | ---- | ---- | 
|                            |                   |   | December 31,
|                            |                   |   |             
|                            |                   |   | 2003         |      | 2002
|                            |                   |   |              |      |     
|Accounts receivable, net    |                   | $ | 4.1          |      |      | $ | 19.5 |     
|Other current assets        |                   |   | 2.4          |      |      |   | 1.8  |     
|Property and equipment, net |                   |   | 9.2          |      |      |   | 34.2 |     
|Other long-term assets      |                   |   | 28.6         |      |      |   | 9.2  |     
|                            |                   |   |              |      |      |   |      |     
|                            | Total assets      |   | $            | 44.3 |      |   | $    | 64.7 | 
|                            |                   |   |              |      |      |   |      |     
|Current liabilities         |                   | $ | 3.8          |      |      | $ | 20.9 |     
|Other long-term liabilities |                   |   |             |      |      |   | 0.6  |     
|                            |                   |   |              |      |      |   |      |     
|                            | Total liabilities |   | $            | 3.8  |      |   | $    | 21.5 | 
|                            |                   |   |              |      |      |   |      |     

Amounts related to assets held for sale on the balance sheet are included in other current assets, other long-term assets, other accrued liabilities and other long-term obligations. Excluded from
the balances at December 31, 2003 are amounts related to the operations that were sold prior to December 31, 2003.

Results of operations for the discontinued operations were as follows (in millions):

|                                                                |  |                                 |       |      |  |      |       |  |  |   |       | 
|--------------------------------------------------------------- |  | ------------------------------- | ----- | ---- |  | ---- | ----- |  |  | - | ----- | 
|                                                                |  | For the Year Ended December 31,
|                                                                |  |                                
|                                                                |  | 2003                            |       | 2002 |  | 2001
|                                                                |  |                                 |       |      |  |     
|Revenues                                                        |  | $                               | 155.5 |      |  | $    | 177.4 |  |  | $ | 184.1 | 
|                                                                |  |                                 |       |      |  |      |       |  |  |   |       | 
|Income before tax                                               |  | $                               | 12.8  |      |  | $    | 10.7  |  |  | $ | 26.1  | 
|Loss on divestiture                                             |  |                                 | (14.7 | )    |  |      |      |  |  |   |      | 
|Income tax expense                                              |  |                                 | 26.5  |      |  |      | 4.3   |  |  |   | 10.3  | 
|Cumulative effect of change in
accounting principle, net of tax |  |                                 | 0.2   |      |  |      |      |  |  |   |      | 
|                                                                |  |                                 |       |      |  |      |       |  |  |   |       | 
|Discontinued operations, net of tax                             |  | $                               | (28.2 | )    |  | $    | 6.4   |  |  | $ | 15.8  | 
|                                                                |  |                                 |       |      |  |      |       |  |  |   |       | 

The assets divested or held for sale, including goodwill, were adjusted to the lower of carrying value or fair value, net of gains recorded for assets sold for which proceeds exceeded
book value. Fair value was based on the actual or anticipated sales
price. Included in the pre-tax loss is goodwill that is allocated to
the divestitures. A portion of the goodwill allocated to the
operations sold was non-deductible for tax purposes.

158



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##### 



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

In accordance with Emerging Issues Task Force (EITF) Issue No. 87-24,
Allocation of Interest to Discontinued Operations, we allocate interest to
discontinued operations based on a ratio of net assets to be sold or sold to
the sum of consolidated net assets plus consolidated debt. We do not allocate
interest on debt that is directly attributable to other operations outside of
the discontinued operations. For the year ended December 31, 2003, 2002 and
2001, we allocated $4.5 million, $4.9 million and $6.6 million, respectively,
of interest expense to discontinued operations.

Cash and cash equivalents 

We consider 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. Concentrations of
credit risk with respect to trade receivables are limited due to the
large number of customers comprising our customer base.

Allowance for doubtful accounts 

We provide services to
residential, commercial and
industrial 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, payment
performance factors,
historical trends and other
information. In general, we
reserve 50% of those
receivables outstanding 90
to 120 days and 100% of
those outstanding over 120
days. We also review
outstanding balances on an
account specific basis and
fully reserve the receivable
prior to 120 days if
information becomes
available indicating we will
not receive payment. Our
reserve is evaluated and
revised on a monthly basis.
The allowance as of December
31, 2003 and 2002 for our
continuing operations was
approximately $7.5 million
and $7.2 million,
respectively.

Other assets 

Other assets include notes receivable, landfill closure deposits,
deferred financing costs, investments in unconsolidated affiliates
(see Note 4), and miscellaneous
non-current assets. Deferred financing costs represent transaction
costs directly attributable to obtaining financing. 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.

Other accrued liabilities 

Other accrued liabilities include the current portion of
non-recurring acquisition accruals, accrued payroll, current portion
of accrued insurance and other miscellaneous current liabilities.

159



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##### 



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

Accrued capping, closure and post-closure costs 

Accrued capping, closure and post-closure costs represent an estimate of the
present value of the future obligation associated with capping, closure and
post-closure monitoring of non-hazardous solid waste landfills we currently own
and/or operate. Site specific capping, closure and post-closure engineering
cost estimates are prepared annually for landfills owned and/or operated by us
for which we are responsible for capping, closure and post-closure. The present value
of estimated future costs are accrued on a per unit basis as landfill disposal
capacity is consumed. 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. Changes in estimates for closed landfill sites and fully
incurred capping projects are recognized when determined.

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 receipt is 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,
Environmental Remediation Liabilities.

Other long-term obligations 

Other long-term obligations include the minority interest in consolidated
subsidiaries, net pension liability (see Note 9), the non-current portion of
non-recurring acquisition accruals, the non-current portion of self-insurance
obligations, derivative liabilities for interest rate swap contracts (see Note
6), and other obligations, which are not expected to be paid within the next
twelve months.

Revenue 

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 and others.

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 fixed 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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##### 



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

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 Statement of
Financial Accounting Standards (SFAS) No. 133, Accounting
for Derivatives Instruments and Hedging Activities (SFAS 133), as amended by
SFAS No. 138,
Accounting for Certain Derivative Instruments and Hedging Activities. See Note
6 on Derivative Instruments and Hedging Activities.

Non-recurring acquisition accruals 

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 expense in the period in which the acquisition is
completed. Any subsequent changes to these estimates are also charged to
expense in the same line item as the original charge was recorded. At December
31, 2003 and 2002, we had approximately $137.8 million and $184.5 million,
respectively, of non-recurring acquisition accruals on the balance sheet,
consisting primarily of loss contract, litigation, insurance liabilities and
other commitments associated with the acquisition of BFI by Allied.
Expenditures against non-recurring acquisition accruals, including severance
costs for BFI in 2003, 2002 and 2001 were $36.8 million, $85.1 million and
$105.1 million, respectively.

Interest expense and other 

Interest expense and other includes
interest paid to third parties for
our debt obligations (net of
amounts capitalized), cash
settlement on interest rate swap
contracts, interest income,
accretion of debt and amortization
of debt issuance costs, costs
incurred to early extinguish debt,
non-cash gain or loss on non-hedge
accounting interest rate swap
contracts and the amortization of
accumulated other comprehensive
loss for de-designated interest
rate swap contracts. Interest
expense and other is allocated from
our parent and represents the
interest incurred and other costs
associated with the debt
obligations that have also been
allocated from our parent (see Note
5).

Interest expense capitalized 

We capitalize interest in connection with the construction of our landfill
assets. Actual acquisition, permitting and construction costs incurred related
to landfill assets under active development qualify for interest
capitalization. Interest capitalization ceases when the construction of a
landfill asset is complete and available for use.

During the years ended December 31, 2003, 2002 and 2001, we incurred gross
interest expense (including payments under interest rate swap contracts) of
$643.1 million, $665.3 million and $722.4 million of
which $6.3 million, $4.5
million and $14.1 million were capitalized.

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.
Although we believe that our estimates and assumptions
are reasonable, they are based upon information presently
available. Actual results may differ significantly from
the estimates.

161



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##### 



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

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 No. 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, 2003 using available market information and valuation methodologies. Considerable judgment is required in interpreting market data to
develop the estimates of fair value. Accordingly, estimates of fair value 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).

Business combinations 

All acquisitions in 2003, 2002 and 2001 were accounted for under the purchase method and are reflected in the results of
operations since the effective date of the acquisition. Under the purchase method, the cost of the acquired business is
allocated 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 the future consolidated balance sheets and statements of operations.

The following table summarizes acquisitions for the years ended December 31:

|                                  |  |      |     |      |  |      |     |  |  |   |      | 
|--------------------------------- |  | ---- | --- | ---- |  | ---- | --- |  |  | - | ---- | 
|                                  |  | 2003 |     | 2002 |  | 2001
|                                  |  |      |     |      |  |     
|Number of businesses acquired     |  |      | 1   |      |  |      | 2   |  |  |   | 16   | 
|Total consideration (in millions) |  | $    | 0.0 |      |  | $    | 4.2 |  |  | $ | 45.6 | 

The pro forma effect of these acquisitions were not material.

Stock-based compensation plans

Certain BFI employees are eligible to participate in the stock option plans of the Parent. The Parent accounts for
stock-based compensation plans under Accounting Principles Board
Opinion No. 25, Accounting for Stock Issued
to Employees (APB 25) and the related interpretations, for which no compensation cost is recorded in 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 No. 123, Accounting for Stock-Based Compensation(SFAS 123), as
amended by SFAS No. 148, Accounting for Stock-Based Compensation  Transition and Disclosure, 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 as if SFAS 123 had been adopted.

162



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##### 



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

If the Parent applied the recognition provisions of SFAS 123 using the Black-Scholes option pricing model, the resulting pro forma net loss, after allocation
of expense to BFI, is as follows (in millions):

|                                                                                                     |  |                                  |  |  |  |      |        |      |  |      |        |   |  |   |        |   |  |  |  | 
|---------------------------------------------------------------------------------------------------- |  | -------------------------------- |  |  |  | ---- | ------ | ---- |  | ---- | ------ | - |  | - | ------ | - |  |  |  | 
|                                                                                                     |  | For the Years Ended December 31,
|                                                                                                     |  |                                 
|                                                                                                     |  |                                  |  |  |  | 2003 |        | 2002 |  | 2001 |        |   |  |  
|                                                                                                     |  |                                  |  |  |  |      |        |      |  |      |        |   |  |  
|Net loss, as reported                                                                                |  |                                  |  |  |  | $    | (256.7 | )    |  | $    | (212.0 | ) |  | $ | (261.5 | )
|Total stock-based employee compensation
expense determined under fair value based
method, net of tax |  |                                  |  |  |  |      | (3.1   | )    |  |      | (2.2   | ) |  |   | (1.3   | )
|                                                                                                     |  |                                  |  |  |  |      |        |      |  |      |        |   |  |   |        |  
|Pro forma, net loss                                                                                  |  |                                  |  |  |  | $    | (259.8 | )    |  | $    | (214.2 | ) |  | $ | (262.8 | )
|                                                                                                     |  |                                  |  |  |  |      |        |      |  |      |        |   |  |   |        |  

During the last three years, we have recorded no compensation expense for stock options granted to employees.

Additionally, see Note 10 for other disclosures with respect to stock compensation.

In accordance with the SFAS 123, 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,
|                        |  |                                 
|                        |  |                                  |  |  |  | 2003    |     | 2002    |  | 2001    |     |   |  | 
|                        |  |                                  |  |  |  |         |     |         |  |         |     |   |  | 
|Risk free interest rate |  |                                  |  |  |  |         | 2.7 | %       |  |         | 2.6 | % |  |  | 5.0 | % |  |  |  | 
|Expected life           |  |                                  |  |  |  | 4 years |     | 4 years |  | 5 years |     |   |  | 
|Dividend rate           |  |                                  |  |  |  |         | 0   | %       |  |         | 0   | % |  |  | 0   | % |  |  |  | 
|Expected volatility     |  |                                  |  |  |  |         | 62  | %       |  |         | 66  | % |  |  | 60  | % |  |  |  | 

Recently adopted accounting pronouncements

The Financial Accounting Standards Board (FASB) issued SFAS No. 143, Accounting for Asset Retirement Obligations(SFAS 143) in June 2001, which outlines standards for accounting for obligations associated with the
retirement of long-lived tangible assets. The standard was effective beginning January 1, 2003 and impacts the accounting for landfill retirement obligations, which we have historically referred to as closure and
post-closure. The adoption of the standard had no impact on our cash requirements. See Note 8 for additional discussion.

In April 2002, the FASB issued SFAS No. 145, Rescission of FASB Statements 4, 44 and 64, amendment of FASB Statement 13, and Technical Corrections(SFAS 145), which among other things,
restricts the classification of gains and losses from extinguishment of debt as extraordinary, therefore, certain debt extinguishment gains and losses will no longer be classified as
extraordinary. We adopted SFAS 145 effective January 1, 2003. As a result of the adoption, gains and losses on future debt extinguishments, if any, will generally be recorded in interest
expense and other. Upon adoption, extraordinary losses of $3.6 million and $17.0 million as previously reported, net of tax for the years ended December 31, 2002 and 2001, respectively, were
reclassified on a pre-tax basis to interest expense and other to
conform to the requirements under SFAS 145. During 2003, we recorded approximately $108.1 million, pre-tax to interest expense
and other for the write-off of deferred debt issuance cost and premiums paid in connection with the completion of our financing plan and the open market repurchases of senior subordinated
notes. These amounts would have been recorded as extraordinary loss prior to the adoption of SFAS 145.

163



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##### 



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

In July 2002, the FASB
issued SFAS No. 146,
Accounting for Costs
Associated with Exit or
Disposal Activities(SFAS
146), which prescribes the
financial accounting and
reporting for costs
associated with exit or
disposal activities, such
as, contract terminations,
consolidation of facilities
and termination benefits to
involuntarily terminated
employees. SFAS 146
excludes from its scope exit
and disposal activities that
are in connection with
business combination and
those activities to which
SFAS 143 and SFAS No. 144, Accounting
for the Impairment or
Disposal of Long-Lived
Assets (SFAS 144), are applicable.
Under SFAS 146, certain
costs associated with exit
and disposal activities are
to be recognized as
liabilities at the time they
meet the definition of a
liability (as defined in
FASB Concepts Statement 6)
as opposed to at the time a
plan is committed. SFAS 146
is effective for exit and
disposal activities that are
initiated after December 31,
2002. We adopted SFAS 146
on January 1, 2003. At the
time of adoption, SFAS 146
had no impact on our
consolidated financial
statements.

In November 2002, the FASB
issued FASB Interpretation
No. 45, Guarantors
Accounting and Disclosure
Requirements for Guarantees,
Including Indirect
Guarantees of Indebtedness
of Others(FIN 45). FIN 45
expands on the accounting
guidance of Statements 5,
57, and 107 and incorporates
without change the
provisions of FASB
Interpretation 34, which is
being superceded. FIN 45
elaborates on the existing
disclosure requirements for
most guarantees, including
loan guarantees such as
standby letters of credit.
It also clarifies that at
the time a company issues a
guarantee, the company must
recognize an initial
liability for the fair
value, or market value, of
the obligations it assumes
under that guarantee and
must disclose that
information in its interim
and annual financial
statements. We adopted the
disclosure requirements of
FIN 45 as of December 31,
2002. Effective January 1,
2003, we adopted the
recognition requirements of
FIN 45 for any guarantees
entered in or modified
subsequent to January 1,
2003. At the time of
adoption, FIN 45 had no
impact on our consolidated
financial statements.

In January 2003, the FASB issued FASB Interpretation No. 46, Consolidation of
Variable Interest Entities(FIN 46), which requires unconsolidated variable
interest entities to be consolidated by their primary beneficiaries. In
October 2003, the FASB issued FASB Staff Position (FSP) 46-6, Effective Date of
FASB Interpretation No. 46, Consolidation of Variable Interest Entities (VIE)
which delays the effective date of FIN 46 to December 15, 2003 for certain
VIEs. FIN 46 did not have a material impact on our consolidated financial
statements.

In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial
Instruments with Characteristics of Both Liabilities and Equity (SFAS 150).
SFAS 150 establishes standards for classifying and measuring certain financial
instruments with characteristics of both liabilities and equity. SFAS 150 is
effective for financial instruments entered into or modified after May 31,
2003, and otherwise is effective at the beginning of the first interim period
beginning after June 15, 2003. In November 2003, the FASB issued a FSP
delaying the effective date for certain instruments and entities. SFAS 150 had
no impact on our consolidated financial statements.

In December 2003, the FASB issued SFAS No. 132R,
Employers Disclosures about Pensions and Other
Postretirement Benefits - An Amendment of FASB
Statements No. 87, 88, and 106 (SFAS 132R),
which revised employers disclosures about
pension plans and other postretirement benefit
plans. SFAS 132R did not change the measurement
or recognition of pension and other
postretirement benefit plans. SFAS 132R
requires additional disclosures about assets,
obligations, cash flows, and net periodic
benefit cost of defined benefit pension plans
and other postretirement benefit plans. SFAS
132R is effective for financial statements
issued after December 15, 2003. The additional
disclosures required by SFAS 132R have been
provided in Note 9.

164



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##### 



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

2.     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 (3-15 years), containers and compactors (5-10 years) and furniture and office equipment (3-8 years). We do not assume a residual
value on our depreciable assets. In accordance with SFAS 144, 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 (EITF) Discussion Issue 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. When property is retired or sold, the related cost and accumulated depreciation
are removed from the accounts and any resulting gain or loss is recognized in cost of operations. For the years ended December 31, 2003, 2002
and 2001, we recognized net pre-tax gains on the disposal of fixed assets of $2.1 million, $2.7 million and $28.0 million, respectively.

Property and equipment at December 31, 2003 and 2002 is as follows (in millions):

|                                          |  |      |         |      |  |   |         |  
|----------------------------------------- |  | ---- | ------- | ---- |  | - | ------- | -
|                                          |  | 2003 |         | 2002
|                                          |  |      |         |     
|Land and improvements                     |  | $    | 128.0   |      |  | $ | 131.0   |  
|Land
held for permitting as landfills(1)  |  |      | 11.2    |      |  |   | 9.3     |  
|Landfills                                 |  |      | 971.3   |      |  |   | 646.4   |  
|Buildings and improvements                |  |      | 92.6    |      |  |   | 90.0    |  
|Vehicles, furniture and equipment         |  |      | 333.4   |      |  |   | 300.8   |  
|Containers and compactors                 |  |      | 130.6   |      |  |   | 117.3   |  
|                                          |  |      |         |      |  |   |         |  
|                                          |  |      | 1,667.1 |      |  |   | 1,294.8 |  
|Accumulated depreciation and amortization |  |      | (749.3  | )    |  |   | (398.4  | )
|                                          |  |      |         |      |  |   |         |  
|                                          |  | $    | 917.8   |      |  | $ | 896.4   |  
|                                          |  |      |         |      |  |   |         |  



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

165



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##### 



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

3.     Goodwill and Intangible Assets

In accordance with SFAS No. 142, Goodwill and Other
Intangible Assets(SFAS 142), we do not amortize
goodwill. Instead we perform an annual assessment
of goodwill impairment by applying a fair value
based test to each of our reporting units. We
completed our annual assessment of goodwill as of
December 31, 2003 and no impairment was recorded.
We may conduct an impairment test of goodwill more
frequently than annually under certain conditions.
For example, a significant adverse change in
liquidity or the business environment,
unanticipated competition, a significant adverse
action by a regulator or a disposal of a
significant portion of an operating segment could
prompt an impairment test between annual
assessments.

We evaluate goodwill for impairment using a fair
value based test. The calculation of fair value is
subject to judgments and estimates. We estimate
fair value based on net cash flows discounted using
a weighted-average cost of capital of approximately
6.7%. In addition, we consider an earnings
multiple approach, enterprise value, and overall
company market capitalization to evaluate the
reasonableness of our discounted cash flows. The
estimated fair value could change if there were
future changes in our capital structure, cost of
debt, interest rates, capital expenditure levels,
ability to perform at levels that were forecasted
or a permanent change to the market capitalization
of our company.

At the time of a divestiture of an individual
business, goodwill is allocated to that business
and a gain or loss on disposal is derived.
Subsequently, the remaining goodwill would be
re-evaluated for realizability, which could result
in an additional loss being recognized.

During 2003, we have sold or held for sale certain
operations. During 2003, we allocated approximately
$105.1 million of goodwill related to these
operations, of which $28.6 million relates to the
assets held for sale at December 31, 2003. The
remaining goodwill was subsequently evaluated for
realizability and we concluded there was no
impairment.

We have incurred non-cash losses on sales of assets
when we believed that re-deployment of the proceeds
from the sale of such assets could reduce debt or
improve operations and was economically beneficial.
If we decide to sell additional assets in the
future, we could incur additional non-cash losses
on asset sales.

166



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##### 



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

We adopted SFAS 142 effective January 1, 2002. For the year ended December 31, 2001, net loss adjusted to
exclude goodwill amortization expense was $164.8 million.

BFI goodwill is accounted for at the Parent company level. We make an allocation to the entities that were
acquired as part of the BFI acquisition. These entities are included in both BFI and the Other Allied
Collateral. The following table shows the activity and balances related to the aggregate BFI goodwill as
recorded by the Parent from December 31, 2001 through December 31, 2003 (in millions):

|                  |  |      |         |      |  |   |         |  
|----------------- |  | ---- | ------- | ---- |  | - | ------- | -
|                  |  | 2003 |         | 2002
|                  |  |      |         |     
|Beginning balance |  | $    | 3,745.3 |      |  | $ | 3,769.2 |  
|Acquisitions      |  |      | 0.1     |      |  |   | 2.8     |  
|Divestitures      |  |      | (86.3   | )    |  |   | (8.0    | )
|Adjustments
(1)   |  |      | (28.7   | )    |  |   | (18.7   | )
|                  |  |      |         |      |  |   |         |  
|Ending balance    |  | $    | 3,630.4 |      |  | $ | 3,745.3 |  
|                  |  |      |         |      |  |   |         |  



|(1) |  | Amounts primarily relate to write-off of goodwill in connection
with assets held for sale accounting and purchase accounting
adjustments during the allocation period.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------

In addition, we have other amortizable intangible assets that consist primarily of the following at December 31, 2003 (in
millions):

|                       |       |   |                |     |              |   |              |      |   |   |     |     | 
|---------------------- | ----- | - | -------------- | --- | ------------ | - | ------------ | ---- | - | - | --- | --- | 
|                       |       |   | Gross Carrying |     | Accumulated  |   | Net Carrying
|                       |       |   | Value          |     | Amortization |   | Value       
|                       |       |   |                |     |              |   |             
|Non-compete agreements |       | $ | 0.4            |     |              | $ | (0.2         | )    |   | $ | 0.2 |    
|Other                  |       |   | 0.2            |     |              |   |             |      |   |   | 0.2 |    
|                       |       |   |                |     |              |   |              |      |   |   |     |    
|                       | Total |   | $              | 0.6 |              |   | $            | (0.2 | ) |   | $   | 0.4 | 
|                       |       |   |                |     |              |   |              |      |   |   |     |    

Amortization expense for the three years ended December 31, 2003 was $0.2 million, $0.3 million and $0.4 million,
respectively. Based upon the amortizable assets recorded in the balance sheet at December 31, 2003, amortization
expense for each of the next five years is estimated to be $0.3 million or less.

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 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. During the year ended 2001, we reported approximately $23 million in revenues, $3 million in operating income and
$14 million of equity earnings from American Ref-Fuel.

167



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##### 



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

At December 31, 2001, our equity investment in the four remaining Ref-Fuel facilities was approximately $180 million. In
connection with the modification of the ownership structure, we had an option to exchange our minority interest in the four
Ref-Fuel facilities for 99% interest in Allieds equipment
purchasing subsidiaries owned by subsidiaries of American Ref-Fuel
Company, LLC. At December 31, 2001, the minority interest that represented the outside ownership interests in our
equipment purchasing subsidiaries was approximately $180.0 million. We exercised the exchange option and completed the
exchange on April 30, 2002. We no longer have any interest in the Ref-Fuel entities and our Parent owns 100% of the
equipment purchasing subsidiaries.

We used the equity method of accounting for investments in unconsolidated subsidiaries
over which we exercised significant influence. The Summarized Statement of Operations
Data presented in the table below indicate amounts related to the following equity
investees in which we exercised significant influence through a 50% ownership interest
during January through April 2001: American Ref-Fuel Company of Hempstead, American
Ref-Fuel Company of Essex, American Ref-Fuel Company of Southeastern Connecticut, and
American Ref-Fuel Company of Niagara, LP.

Summarized Combined Statement of Operations Data
(in millions)

|                 |  |                      |       | 
|---------------- |  | -------------------- | ----- | 
|                 |  | For the Year Ended  
|                 |  | December 31, 2001(1)
|                 |  |                     
|Total revenue    |  | $                    | 250.0 | 
|Operating income |  |                      | 116.8 | 
|Net income       |  |                      | 59.4  | 



|(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.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------

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.

168



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##### 



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

5.     Long-term Debt

Allied completed the acquisition of
BFI primarily through the issuance of debt. All of the assets and
substantially all of the stock of BFI and all of the assets and stock
of Other Allied Collateral are
pledged as collateral for this debt and the debt is serviced through cash flows generated by the consolidated operations of Allied. Therefore in
accordance with SEC Staff Accounting Bulletin, Topic 5-J, the debt that was incurred to acquire BFI, while held and managed by Allied, is presented
on BFIs consolidated balance sheet, and related interest expense and debt issue costs are reflected in these financial statements. To the extent
the original acquisition debt is repaid with cash or refinanced with equity, it is no longer presented in these financial statements. To the extent
the original acquisition debt is refinanced with other debt (either bank financings or bonds), the replacement debt instrument, along with the
related issuance costs and interest expense, is presented in these financial statements.

Long-term debt at December 31, 2003 and 2002 consists of the following (in millions):

|                                                                                                                                                                                                                                   |  |                 |         |                         |  |      |         |      |  |  |       |    |  |  |       |   
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------- | ------- | ----------------------- |  | ---- | ------- | ---- |  |  | ----- | -- |  |  | ----- | --
|                                                                                                                                                                                                                                   |  | Debt Balance at |         | Effective Interest Rate
|                                                                                                                                                                                                                                   |  |                 |         |                        
|                                                                                                                                                                                                                                   |  | 2003            |         | 2002                    |  | 2003 |         | 2002
|                                                                                                                                                                                                                                   |  |                 |         |                         |  |      |         |     
|Revolving credit facility                                                                                                                                                                                                          |  | $               |        |                         |  | $    |        |      |  |  | 5.41  | %* |  |  | 5.97  | %*
|Tranche A term loan facility                                                                                                                                                                                                       |  |                 |        |                         |  |      | 899.1   |      |  |  |      |    |  |  | 9.09  |   
|Tranche B term loan facility                                                                                                                                                                                                       |  |                 |        |                         |  |      | 670.9   |      |  |  |      |    |  |  | 8.38  |   
|Tranche C term loan facility                                                                                                                                                                                                       |  |                 |        |                         |  |      | 805.1   |      |  |  |      |    |  |  | 9.46  |   
|2003 Term loan B                                                                                                                                                                                                                   |  |                 | 1,185.0 |                         |  |      |        |      |  |  | 9.83  |    |  |  |      |   
|2003 Term loan C                                                                                                                                                                                                                   |  |                 | 250.0   |                         |  |      |        |      |  |  | 7.81  |    |  |  |      |   
|Senior notes, interest at 6.50%                                                                                                                                                                                                    |  |                 | 350.0   |                         |  |      |        |      |  |  | 4.51  |    |  |  |      |   
|Senior notes, interest at 8.88%                                                                                                                                                                                                    |  |                 | 600.0   |                         |  |      | 600.0   |      |  |  | 9.16  |    |  |  | 9.16  |   
|Senior notes, interest at 8.50%                                                                                                                                                                                                    |  |                 | 750.0   |                         |  |      | 750.0   |      |  |  | 8.77  |    |  |  | 8.77  |   
|Senior notes, interest at 9.25%                                                                                                                                                                                                    |  |                 | 377.1   |                         |  |      | 377.4   |      |  |  | 9.39  |    |  |  | 9.39  |   
|Senior notes, interest at 7.88%                                                                                                                                                                                                    |  |                 | 450.0   |                         |  |      |        |      |  |  | 8.05  |    |  |  |      |   
|Debentures, interest at 7.40%                                                                                                                                                                                                      |  |                 | 287.6   |                         |  |      | 285.3   |      |  |  | 8.03  |    |  |  | 8.03  |   
|Senior notes, interest at 6.10%                                                                                                                                                                                                    |  |                 |        |                         |  |      | 156.5   |      |  |  |      |    |  |  | 8.34  |   
|Senior notes, interest at 6.38%                                                                                                                                                                                                    |  |                 | 148.4   |                         |  |      | 145.2   |      |  |  | 8.34  |    |  |  | 8.34  |   
|Debentures, interest at 9.25%                                                                                                                                                                                                      |  |                 | 95.6    |                         |  |      | 95.4    |      |  |  | 9.48  |    |  |  | 9.48  |   
|Senior notes, interest at 7.88%                                                                                                                                                                                                    |  |                 | 68.7    |                         |  |      | 68.1    |      |  |  | 8.77  |    |  |  | 8.77  |   
|Solid waste revenue bond obligations,
principal
payable through 2031                                                                                                                                                               |  |                 | 238.4   |                         |  |      | 238.4   |      |  |  | 6.17  |    |  |  | 6.15  |   
|Senior subordinated notes, interest at 10.00%                                                                                                                                                                                      |  |                 | 1,497.4 |                         |  |      | 2,005.6 |      |  |  | 10.22 |    |  |  | 10.22 |   
|Notes payable to banks, finance companies,
and individuals, interest rates of 7.0% to
19.6%, and principal payable through 2021,
secured by vehicles, equipment, real estate,
accounts receivable or stock of certain
subsidiaries |  |                 | 3.8     |                         |  |      | 4.9     |      |  |  | 10.47 | *  |  |  | 9.91  | * 
|                                                                                                                                                                                                                                   |  |                 |         |                         |  |      |         |      |  |  |       |    |  |  |       |   
|                                                                                                                                                                                                                                   |  |                 | 6,302.0 |                         |  |      | 7,101.9 |      |  |  |       |    |  |  |       |   
|Less: Current portion                                                                                                                                                                                                              |  |                 | 19.2    |                         |  |      | 157.7   |      |  |  |       |    |  |  |       |   
|                                                                                                                                                                                                                                   |  |                 |         |                         |  |      |         |      |  |  |       |    |  |  |       |   
|                                                                                                                                                                                                                                   |  | $               | 6,282.8 |                         |  | $    | 6,944.2 |      |  |  |       |    |  |  |       |   
|                                                                                                                                                                                                                                   |  |                 |         |                         |  |      |         |      |  |  |       |    |  |  |       |   

* reflects weighted average interest rate

169



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##### 



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

Completion of financing plan 

In April 2003, Allied
completed a multifaceted
financing plan that refinanced
the 1999 Credit Facility. The
financing plan included
issuance of common stock,
preferred stock and senior
notes, along with the
refinancing of the 1999 Credit
Facility, discussed below.
The common and preferred stock
issued was in Allieds shares.
In connection with the
completion of the financing
plan, we recorded a charge to
interest expense and other of
approximately $52.1 million
related to the write-off of
deferred and other costs.

Bank credit facility 

On April 29, 2003, we refinanced our 1999 Credit
Facility, which consisted of a $1.291 billion
revolving credit facility, due 2005 and $2.226
billion in funded, amortizing senior secured term
loans with varying maturity dates through 2007,
with a $2.9 billion senior secured Credit Facility (the 2003
Credit Facility) that includes $1.5 billion revolver due January 2008 (2003 Revolver), a $1.2 billion term loan with
final maturity in January 2010 (the 2003 Term Loan B), and
a $200 million institutional letter of credit
facility.
In addition, the 2003 Credit Facility allows us
to establish an incremental term loan in an amount
up to $250 million and an additional institutional
letter of credit facility in an amount up to $500
million. Of the $1.5 billion available under the
2003 Revolver, the entire amount may be used to
support the issuance of letters of credit.

The 2003 Credit Facility bears interest at (a) an
Alternative Base Rate, or (b) Adjusted LIBOR, both
terms defined in the 2003 Credit Facility, plus,
in either case, an applicable margin based on our
leverage ratio. Proceeds from the 2003 Credit
Facility may be used for working capital and other
general corporate purposes, including
acquisitions.

In August 2003, the 2003 Credit Facility was amended to permit an exchange
transaction between Allied and holders of Allieds Series A Senior Convertible
Preferred Stock. In addition, the amendment permits Allied to incur an
additional $250 million of term loan indebtedness, an additional $350 million of
senior secured indebtedness and $400 million of senior unsecured indebtedness,
for the purpose of retiring portions of our outstanding senior subordinated
indebtedness through optional redemption, public tender offer or open market
repurchases.

During the third quarter 2003, a new
$250 million term loan (2003 Term Loan C) due
2010 was funded under the 2003 Credit Facility and the proceeds were used to
repurchase a portion of senior subordinated notes in the same amount of
principal. In connection with these repurchases, premiums of approximately $23.8
million were paid which are recorded in interest expense and other.

In November 2003, a second amendment to our 2003 Credit Facility was completed to
reduce the interest rate for the 2003 Term Loan B, 2003 Term
Loan C and institutional
letter of credit facility to LIBOR plus 275 basis points. In addition to
re-pricing the term loan facilities, financial covenants were revised to provide
greater operating flexibility.

At December 31, 2003, approximately $637 million in letters of credit were
outstanding under the 2003 Revolver and $200 million in letters of credit were
outstanding under the institutional letter of credit facility. In addition, at
December 31, 2003, approximately $863 million was available under the 2003
Revolver.

170



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##### 



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

The 2003 Credit Facility requires Allied
to make prepayments upon completion of
certain transactions as defined in the
2003 Credit Facility, including asset
sales and issuances of debt securities.
Proceeds from these transactions are to
be applied pursuant to the 2003 Credit
Facility. Allied is also required to
make prepayments on the 2003 Credit
Facility for 50% of any excess cash flows
from operations on a consolidated basis,
as defined.

Senior notes and debentures 

In November 2003, Allied Waste North America (AWNA), a
wholly-owned subsidiary of Allied, issued $350 million of
6.50% senior notes due 2010. These senior notes have a
make-whole call provision that is exercisable at any time at a
stated redemption price. Interest is payable semi-annually on
February 15th and August 15th beginning on August 15, 2004.
Net proceeds of approximately $256.1 million were used to
repurchase a portion of our senior subordinated notes. In
connection with these repurchases, premiums of approximately
$23.1 million were paid. During January 2004, Allied
repurchased $93.9 million of the senior subordinated notes
using the remaining proceeds from the senior notes and paid
premiums of approximately $8.2 million related to the 2004
repurchases.

On April 9, 2003, AWNA issued $450 million of 7.875% senior
notes due 2013 for net proceeds of approximately $440 million.
The net proceeds were used to reduce borrowings under the 1999
Credit Facility. The senior notes have a no call provision
until 2008. Interest is payable April 1st and October 1st of
each year beginning October 2003.

In November 2002, AWNA issued $375.0 million of 9.25% senior notes due 2012 (the 2002
Senior Notes). The 2002 Senior Notes were issued at a premium of $2.4 million. These
senior notes have a no call provision until 2007. Interest is payable semi-annually
on March 1 and September 1. The net proceeds of $370.6 million from the sale of these
notes were used to repay term loans under the 1999 Credit Facility prior to maturity.

During 2001, AWNA issued $750 million of 8.50% senior notes, due 2008 and
$600 million of 8.875% senior notes, due 2008 (together the 2001 Senior
Notes). Interest on the 2001 Senior Notes is payable semi-annually on June
1 and September 1.

In connection with the BFI acquisition on July 30, 1999, Allied assumed all
of BFIs debt securities with the exception of commercial paper that was
paid off in connection with the acquisition. Our debt securities were
recorded at their fair market values as of the date of the acquisition in
accordance with EITF 98-1  Valuation of Debt Assumed in a Purchase
Business Combination(EITF 98-1). The effect of revaluing the debt
securities resulted in an aggregate discount from the historic face amount
of $137.0 million. At December 31, 2003, the remaining unamortized net
discount related to these debt securities was $93.7 million.

The 6.10% senior notes, 6.375% senior notes and 9.25% debentures assumed
from BFI are not redeemable prior to maturity and are not subject to any
sinking fund. In January 2003, the 6.10% senior notes were repaid upon
maturity.

171



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##### 



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

The 7.40% debentures assumed from BFI 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.

Senior subordinated notes 

In July 1999, Allied Waste North
America, Inc. (Allied NA) issued $2.0 billion of senior subordinated notes
(the 1999 Notes) that mature in 2009. Interest accrues on the 1999 Notes
at an interest rate of 10% per annum, payable semi-annually on May 1 and
November 1. These proceeds from the 1999 Notes were used as partial
financing of the acquisition of BFI.

During 2003, $506.1 million of the senior subordinated notes were repaid prior to
maturity through open market repurchases. In connection with these repurchases,
premiums of approximately $46.9 million were paid and deferred financing costs of
$6.4 million were written-off to interest expense and other.

Future maturities of long term debt

Aggregate future scheduled maturities of long-term debt as
of December 31, 2003 are as follows (in millions):

|                |  |   |         |  
|--------------- |  | - | ------- | -
|2004            |  | $ | 19.2    |  
|2005            |  |   | 84.4    |  
|2006            |  |   | 18.7    |  
|2007            |  |   | 15.1    |  
|2008            |  |   | 1,526.3 |  
|Thereafter      |  |   | 4,726.4 |  
|                |  |   |         |  
|Gross Principal |  | $ | 6,390.1 |  
|Discount, net   |  |   | (88.1   | )
|                |  |   |         |  
|Total Debt      |  | $ | 6,302.0 |  
|                |  |   |         |  

172



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##### 



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

Fair value of debt and interest rate protection agreements

The fair value of debt and interest rate swap contracts are subject to change as a result of potential changes in market
rates and prices. The table below provides information about BFIs long-term debt and interest rate swap contracts of Allied
that are presented in these financial statements, 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 millions, except percentages).

|                       |                     |                                   |  |              |         |               |  |              |         |               |  |   |         |   |  |   |         |  
|---------------------- | ------------------- | --------------------------------- |  | ------------ | ------- | ------------- |  | ------------ | ------- | ------------- |  | - | ------- | - |  | - | ------- | -
|                       |                     |                                   |  | Balance at   |         | Fair Value at |  | Balance at   |         | Fair Value at
|                       |                     |                                   |  | December 31, |         | December 31,  |  | December 31, |         | December 31, 
|                       |                     |                                   |  | 2003         |         | 2003          |  | 2002         |         | 2002         
|                       |                     |                                   |  |              |         |               |  |              |         |              
|Long-Term Debt         |                     |                                   |  |              |         |               |  |              |         |               |  |   |         |   |  |  
|                       | Fixed Rate Debt:    |                                   |  |              |         |               |  |              |         |               |  |   |         |   |  |   |        
|                       |                     | Principal amount                  |  | $            | 4,787.4 |               |  | $            | 5,241.6 |               |  | $ | 4,649.6 |   |  | $ | 4,608.1 |  
|                       |                     | Weighted average
interest rate    |  |              | 8.81    | %             |  |              |         |               |  |   | 9.11    | % |  |   |         |  
|                       | Variable Rate Debt: |                                   |  |              |         |               |  |              |         |               |  |   |         |   |  |   |        
|                       |                     | Principal amount                  |  | $            | 1,514.6 |               |  | $            | 1,527.2 |               |  | $ | 2,452.3 |   |  | $ | 2,423.8 |  
|                       |                     | Weighted average
interest rate(1) |  |              | 3.78    | %             |  |              |         |               |  |   | 4.16    | % |  |   |         |  
|Interest Rate Swaps(2) |                     |                                   |  |              |         |               |  |              |         |               |  |   |         |   |  |  
|                       | Non-Cancelable:     |                                   |  |              |         |               |  |              |         |               |  |   |         |   |  |   |        
|                       |                     | Notional amount                   |  | $            | 2,000.0 |               |  | $            | (46.5   | )             |  | $ | 2,300.0 |   |  | $ | (125.7  | )
|                       |                     | Weighted average
interest rate    |  |              | 5.69    | %             |  |              |         |               |  |   | 6.06    | % |  |   |         |  



|(1) |  | Reflects the rate in effect as of December 31, 2003 and 2002 before the
effects of swaps and includes all applicable margins. Actual future
rates may vary.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Amount includes our fixed to floating and floating to fixed interest rate
swap contracts. See Note 6 for additional discussion.                            

Debt covenants

At December 31, 2003, Allied was in compliance with all financial covenants under the 2003 Credit Facility. In addition, the 2003 Credit Facility
has restrictions on making certain types of payments, including certain dividend payments.

The senior notes issued by AWNA and the senior subordinated notes of AWNA contain certain financial covenants and restrictions for the Allied
consolidated entity, 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, 2003, Allied was in compliance with all applicable covenants.

Guarantees 

Substantially all of our subsidiaries along with substantially all other subsidiaries of the Parent, are jointly and severally liable for the obligations under
the 1999 Notes, the 2001 Senior Notes, the 2002 Senior Notes, the
2003 Senior Notes and the 2003 Credit Facility through unconditional guarantees issued by current and future
subsidiaries. At December 31, 2003, the maximum potential amount of future payments under the guarantees is the outstanding amount of the debt identified above
and the amount for letters of credit issued under the credit facility. In accordance with FIN 45, the guarantees are not recorded in our consolidated financial
statements as they represent parent-subsidiary guarantees. We do not guarantee any third party debt.

173



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##### 



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

Collateral 

The 2003 Credit Facility, the senior notes issued by AWNA
and $690 million of senior notes assumed in connection with
the acquisition of BFI by Allied are secured by a pledge of
the stock of substantially all of BFI and Other Allied
Collateral and a security interest in the assets of BFI,
its domestic subsidiaries and Other Allied Collateral. At
December 31, 2003, on an aggregate basis, the book value of
all the assets that serve as collateral was $8.6 billion.

6.     Derivative Instruments and Hedging Activities

Allied utilizes interest rate swaps to protect us from cash
flow variations arising from changes in short term interest
rates as well as to maintain a mix of fixed and floating
rate debt. Allieds risk management policy requires 75% of
the consolidated debt to be fixed, either directly or
effectively through interest rate swap contracts. These
contracts are entered into solely for the purpose of
reducing risk; positions are not taken for trading
purposes. The risk management policy requires that the
credit of our counter-parties is evaluated and monitored.
At December 31, 2003, the notional value of the interest
rate swap contracts that are presented in these financial
statements was $2.0 billion. These contracts expire as
follows: $1.4 billion during 2004 and $250.0 million during
2005, $75.0 million during 2008 and $275.0 million during
2009.

At December 31, 2003, a
liability of $46.5 million
is included in the
consolidated balance sheets
in other long-term
obligations reflecting the
fair market value of the
entire interest rate swap
portfolio on that date.
The liability will
fluctuate with market
interest rates but will
reduce to zero over the
terms of each of our
interest rate swap
contracts. Approximately
$34.0 million of the
liability at December 31,
2003 relates to contracts
maturing within 12 months.
Fair value variations over
the life of the interest
rate swap contracts arise
from changes in forecasted
interest rates and the time
value of money.

On December 31, 2001,
Allied de-designated $1.5
billion of notional amount
interest rate swap
contracts due to the
possibility that future
interest rate payments on
the underlying variable
rate debt may cease prior
to the expiration of the
related interest rate swap
contracts. There were no
de-designated interest rate
swap contracts prior to
December 31, 2001. No
additional interest rate
swap contracts were
de-designated after 2001.

Designated interest rate swap contracts 

Designated cash flow interest rate swap contracts (floating to fixed rate) are
effective as hedges of our variable rate debt. 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
achieving 100% effectiveness. If significant terms do not match, any
ineffectiveness will be assessed and any ineffectiveness is immediately
recorded in interest expense and other.

Changes in fair value of interest rate swap contracts are reflected in
accumulated other comprehensive loss. At December 31, 2003, approximately
$32.0 million ($19.5 million, net of tax) is included in accumulated other
comprehensive loss.

Expense or income related to swap settlements are recorded in interest expense
for the related variable rate debt over the term of the agreements.

Non-hedge accounting interest rate swap contracts 

For certain interest rate swap contract, we have elected
not to apply hedge accounting under SFAS 133. The election
to not apply hedge accounting was made to allow flexibility
to repay debt prior to maturity and to refinance debt when
economically feasible. Following is a description of the
accounting for these interest rate swap contracts.

174



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##### 



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

De-designated interest rate swap contracts.At December 31, 2003, de-designated interest rate swap contracts
(floating to fixed rate) with a notional amount of $925 million and a fair value liability of $15.1 million are
reflected in our financial statements. Settlement payments and periodic changes in market values of
de-designated interest rate swap contracts are recorded as a gain or loss on derivative contracts included in
interest expense and other. We recorded $47.1 million and $2.4 million of net gain related to changes in
market values and $51.9 million and $59.6 million of settlement costs during the year ended December 31, 2003
and 2002, respectively.

When interest rate swap hedging relationships are de-designated or terminated, any
accumulated gains or losses in accumulated other comprehensive loss at the time of
de-designation are isolated and amortized over the remaining original hedged
interest payment. For contracts de-designated, the total amount of loss in
accumulated other comprehensive loss at December 31, 2001 was approximately $65.2
million ($39.5 million, net of tax), $29.8 million ($18.1 million, net of tax) at
December 31, 2002 and $6.7 million ($4.3 million, net of tax) remains in accumulated
other comprehensive loss at December 31, 2003. For the year ended December 31, 2003
and 2002, we recorded $23.1 million and $35.4 million, respectively, of amortization
expense related to the accumulated losses in accumulated other comprehensive loss
for interest rate swap contracts that were de-designated at December 31, 2001. In
2004, we expect to record approximately $6.7 million of amortization expense related
to the accumulated losses in accumulated other comprehensive loss for the
de-designated swap contracts. The amortization expense is recorded in interest
expense and other.

Fair Value Interest Rate Swap Contracts.Fair value interest rate swap contracts
(fixed rate to floating rate) are utilized to achieve a mix of fixed and floating
rate debt. At December 31, 2003, fair value interest rate swap contracts with a
notional amount of $350 million and a derivative fair value asset of $0.9 million
are reflected in our financial statements. Settlement payments and periodic changes
in market values of our fair value interest rate swap contracts are recorded as a
gain or loss on derivative contracts included in interest expense and
other.

We recorded $0.9 million of net gain related to changes in market values and
received settlements of $1.1 million during the year ended December 31, 2003. No
amounts were recorded in 2002 and 2001.

7.     Accumulated Other Comprehensive Loss

The components of the ending balances of accumulated other comprehensive loss, as reflected in stockholders
deficit are shown as follows (in millions):

|                                                                                            |  |                          |       |      |  |   |        |  
|------------------------------------------------------------------------------------------- |  | ------------------------ | ----- | ---- |  | - | ------ | -
|                                                                                            |  | Years Ended December 31,
|                                                                                            |  |                         
|                                                                                            |  | 2003                     |       | 2002
|                                                                                            |  |                          |       |     
|Minimum pension liability adjustment, net of taxes of $47.2 and
$49.8                       |  | $                        | (70.7 | )    |  | $ | (74.8  | )
|Interest rate swap contracts designated,
unrealized loss, net of taxes of $12.5 and $25.1   |  |                          | (19.5 | )    |  |   | (38.3  | )
|Interest rate swap contracts de-designated,
unrealized loss, net of taxes of $2.4 and $11.7 |  |                          | (4.3  | )    |  |   | (18.1  | )
|                                                                                            |  |                          |       |      |  |   |        |  
|Accumulated other comprehensive loss                                                        |  | $                        | (94.5 | )    |  | $ | (131.2 | )
|                                                                                            |  |                          |       |      |  |   |        |  

175



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##### 



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

8.     Landfill Accounting

Change in accounting principle 

Effective January 1, 2003, we adopted SFAS 143 which outlines standards
for accounting for our landfill retirement obligations that have
historically been referred to as closure and post-closure. SFAS 143
does not change the basic accounting principles that the waste industry
has historically followed for accounting for these types of obligations.
In general, the industry has followed the accounting practice of
recognizing a liability on the balance sheet and related expense as
waste is disposed at the landfill to match operating costs with
revenues. The industry refers to this practice as life-cycle
accounting. The principle elements of life-cycle accounting are still
being followed.

The new rules are a
refinement to our
industry practices
and have caused a
change in the
mechanics of
calculating
landfill retirement
obligations and the
classification of
where amounts are
recorded in the
financial
statements.
Landfill retirement
obligations are no
longer accrued
through a provision
to cost of
operations, but
rather by an
increase to
landfill assets.
Liabilities
retained from
divested landfills
that were
historically
accounted for in
closure and
post-closure
liabilities were
reclassified to
other long-term
obligations because
they were not
within the scope of
SFAS 143. In
addition, in
accordance with
SFAS 143, we
changed the
classification of
certain costs
related to capping,
closure and
post-closure
obligations to
other accounts.
The most
significant change
in classification
is that we now
record the costs
for methane gas
collection systems
in the landfill
development assets.
Further, the cost
of financial
assurance
instruments are no
longer accrued as
part of the
post-closure
liability, but
rather are expensed
as incurred.

Upon adoption, SFAS 143 required a cumulative change in accounting for landfill obligations
retroactive to the date the landfill operations commenced or the date the asset was acquired.
To do this, SFAS 143 required the creation of the related landfill asset, net of accumulated
amortization and an adjustment to the capping, closure and post-closure liabilities for
cumulative accretion.

At January 1, 2003, we recorded a cumulative effect of a change in accounting principle of a
net gain of approximately $44.8 million (net of income tax expense of $29.8 million). In
addition, we recorded a decrease in our capping, closure and post-closure liabilities of
approximately $106.5 million, an increase in other long-term obligations of approximately $24.9
million, and a decrease in our net landfill assets of approximately $7.0 million.

The pro forma liability for capping,
closure and post-closure obligations as
of December 31, 2002, 2001 and 2000
would have been $305.8 million, $277.4
million and $252.7 million,
respectively.

Landfill accounting 

We have a network of 45 owned or
operated active landfills with
operating lives ranging from 1 to over
150 years based on available capacity
using current annual volumes. The
average life of our landfills
approximates 32 years.

We use a life-cycle accounting method
for landfills and the related closure
and post-closure liabilities. This
method applies the costs to be
capitalized associated with acquiring,
developing, closing and monitoring the
landfills over the associated landfill
capacity and associated consumption.

176



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##### 



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

Specifically, we
record landfill
retirement
obligations at fair
value as a
liability with a
corresponding
increase to the
landfill asset as
tons are disposed.
The amortizable
landfill asset
includes (i)
landfill
development costs
incurred, (ii)
landfill
development costs
expected to be
incurred over the
life of the
landfill, (iii) the
recorded capping,
closure and
post-closure
liabilities and
(iv) the present
value of cost
estimates for
future capping,
closure and
post-closure costs.
We amortize the
landfill asset over
the total capacity
of the landfill as
volume is consumed
during the life of
the landfill with
one exception. The
exception applies
to capping costs
for which both the
recognition of the
liability and the
amortization of
these costs is
based instead on
the costs and
capacity of the
specific capping
event.

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) and capping, closure and
post-closure cost estimates for each landfill. Additionally, future capacity estimates
(sometimes referred to as airspace) are updated annually using aerial surveys of each landfill
to estimate utilized disposal capacity and remaining disposal capacity. The overall 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 remaining costs (including any unamortized amounts recorded) associated with acquiring, permitting and
developing the entire landfill plus the present value of the total remaining costs for specific capping events, closure
and post-closure by the total remaining disposal capacity of that landfill (except for capping costs, which are divided by
the total remaining capacity of the specific capping event). The resulting per unit amortization rates are applied to each
unit disposed at the landfill and are recorded as expense for that period. We expensed approximately $76.2 million,
related to landfill amortization during the year ended December 31, 2003. Landfill amortization expense for the year
ended December 31, 2002 and 2001 would have been $75.5 million and $72.6 million if we had been accounting for landfill
retirement obligations under SFAS 143 since January 1, 2001.

Costs associated with developing the landfill include direct costs such as
excavation, liners, leachate collection systems, methane gas collection
system installation, engineering and legal fees, and capitalized interest. We
classify this total disposal capacity as either permitted (having received
the final permit from the governing authorities) or probable expansion.
Probable expansion 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 requirements to classify disposal capacity as probable
expansion 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
life-cycle cost of the landfill and
reflected in the calculation of the
amortization rate and the rate at which
capping, closure and post-closure is
accrued.

177



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##### 



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

We, together with our engineering and legal consultants, continually monitor the progress of obtaining local, state
and federal approval for each of our 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 capping, closure and post-closure costs are removed from the landfill
amortization base, and rates are adjusted prospectively. In addition, any value assigned to probably expansion
capacity is written-off to expense during the period in which it is determined that the criteria are no longer met.

Capping, 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, capping
activities include the installation
of compacted clay, geosynthetic
liners, drainage channels,
compacted soil layers and
vegetative soil barriers over areas
of a landfill where total airspace
has been consumed and waste is no
longer being received. Capping
activities occur throughout the
life of the landfill.

Closure costs are those costs incurred after a
landfill site stops receiving waste, but prior to
being certified as closed. 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 may extend 30 years.
Post-closure requirements generally include
maintenance and operational costs of the site and
monitoring the methane gas collection systems and
groundwater systems, among other post-closure
activities. Estimated costs for capping, closure and
post-closure as required under Subtitle D
regulations are compiled and updated annually for
each landfill by local and regional company
engineers. Daily maintenance activities, such as
leachate disposal, methane gas and groundwater
monitoring and maintenance, and mowing and
fertilizing capped areas, incurred during the
operating life of the landfill are expensed as
incurred.

SFAS 143 requires landfill obligations to be recorded at fair value. Quoted market prices in
active markets are the best evidence of fair value. Since quoted market prices for landfill
retirement obligations are not available to determine fair value, we use discounted cash flows
of capping, closure and post-closure cost estimates to approximate fair value. The cost
estimates are prepared by our local management and third-party engineers based on the applicable
local, state and federal regulations and site specific permit requirements and are intended to
approximate fair value.

Capping, closure and post-closure costs are estimated for the period of performance utilizing estimates a
third party would charge (including profit margins) to perform those activities in full compliance with
Subtitle D. If we perform the capping, closure and post-closure activities internally, the difference
between amounts accrued, based upon third party cost estimates (including profit margins) and our actual
cost incurred is recognized as a component of cost of operations in the period earned. An estimate of
fair value should include the price that marketplace participants are able to receive for bearing the
uncertainties in cash flows. However, when utilizing discounted cash flows, reliable estimates of market
risk premiums may not be obtainable. In our industry, there is no market that exists for selling the
responsibility for capping, closure and post-closure independent of selling the entire landfill.
Accordingly, we believe that it is not possible to develop a methodology to reliably estimate a market
risk premium and have excluded a market risk premium from our determination of expected cash flows for
capping, closure and post-closure liability.

We discount our capping, closure and post-closure costs using our
credit-adjusted, risk-free rate (of 9% in 2003). The
credit-adjusted, risk-free rate is based on the risk-free interest
rate on obligations of similar maturity adjusted for our own credit
rating. Changes in our credit-adjusted, risk-free rate do not change
recorded liabilities, but subsequently recognized obligations are
measured using the revised credit-adjusted, risk-free rate.

178



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##### 



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

Accretion expense is necessary to
increase the accrued capping, closure
and post-closure accrual balance to its
future, or undiscounted, value. To
accomplish this, we accrete our
capping, closure and post-closure
accrual balance using the
credit-adjusted, risk-free rate (of 9%
in 2003) and charge this accretion as
an operating expense in that period.
Accretion expense on recorded landfill
liabilities is recorded to cost of
operations from the time the liability
is recognized until the costs are paid.

We charged approximately $28.0 million
related to accretion of the capping,
closure and post-closure liabilities
during the year ended December 31,
2003. Accretion expense for the year
ended December 31, 2002 and 2001 would
have been $26.3 million and $23.9
million if we would have been
accounting for capping, closure and
post-closure obligations under SFAS 143
since January 1, 2001. Changes in
estimates of costs or disposal capacity
are treated on a prospective basis for
operating landfills and are recorded
immediately in results of operations
for fully incurred capping events and
closed landfills.

Environmental costs --

We engage independent environmental consulting firms to assist us
in conducting environmental assessments of existing landfills or
other properties, and in connection with companies acquired from
third parties.

We cannot determine with precision the ultimate amounts for
environmental liabilities. We make estimates of our potential
liabilities in consultation with our independent environmental
engineers and legal counsel. These estimates 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.

Our ultimate liabilities for environmental matters may differ from the
estimates used in our assessment to date. We periodically evaluate the
recorded liabilities 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,
2003 and 2002 of approximately $237.3 million and $253.3 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, 2003 or
December 31, 2002. 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 capping,
closure and post-closure could result in approximately $10 million of
additional liability.

179



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##### 



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

9.     Employee Benefit Plans

Defined Benefit Pension Plans --

We have one qualified defined benefit retirement
plan as a result of Allieds acquisition of BFI.
This plan covers certain BFI employees in the United
States, including some employees subject to
collective bargaining agreements.

During 2002, 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, Inc. (San
Mateo Pension Plan) were merged into one plan.
However benefits continue to be determined under
each of the two separate benefit structures. The
BFI Pension Plan was amended on July 30, 1999 to
freeze future credited service, but interest credits
continue to accrue. Certain participants continue to
receive 2% annual service credits through a portion of the 2003 plan
year in addition to interest credits, pursuant
to the collective bargaining agreements. The
benefits not frozen under this plan are based on
years of service and the employees compensation.

The San Mateo Pension Plan covers substantially all
employees at this location, but excludes employees
who are covered under collective bargaining
agreements under which benefits have been the
subject of good faith bargaining. 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. The San Mateo Pension
Plan was amended in July 2003 to provide unreduced
benefits, under certain circumstances, to
participants who retire on or after January 1, 2004,
at or after a special early retirement date.

Our general funding policy for each pension plan is
to make annual contributions to the plan as
determined to be required by the plans actuary and
as required by ERISA. No contributions were
required during 2003, 2002, or 2001. No
contributions are anticipated for 2004.

Actuarial valuation reports were prepared as of the
measurement dates of September 30, 2003 and 2002 and
used, as permitted by SFAS 132R for disclosures
included in the tables below (in millions, except
percentages):

180



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##### 



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

The following table provides a reconciliation of the changes in the plans benefit obligations and the fair value of plan assets for the twelve month period
ended September 30:

|                                                    |  |      |       |      |  |   |       |  
|--------------------------------------------------- |  | ---- | ----- | ---- |  | - | ----- | -
|                                                    |  | 2003 |       | 2002
|                                                    |  |      |       |     
|Projected benefit obligation at beginning of period |  | $    | 299.2 |      |  | $ | 269.6 |  
|Service cost                                        |  |      | 0.9   |      |  |   | 0.9   |  
|Interest cost                                       |  |      | 19.9  |      |  |   | 19.3  |  
|Amendment costs                                     |  |      | 2.0   |      |  |   | 0.2   |  
|Actuarial loss                                      |  |      | 28.0  |      |  |   | 22.3  |  
|Benefits paid                                       |  |      | (11.8 | )    |  |   | (13.1 | )
|                                                    |  |      |       |      |  |   |       |  
|Projected benefit obligation at end of period       |  | $    | 338.2 |      |  | $ | 299.2 |  
|Fair value of plan assets at beginning of period    |  | $    | 277.6 |      |  | $ | 305.4 |  
|Actual return on plan assets                        |  |      | 51.6  |      |  |   | (14.7 | )
|Benefits paid                                       |  |      | (11.8 | )    |  |   | (13.1 | )
|                                                    |  |      |       |      |  |   |       |  
|Fair value of plan assets at end of period          |  | $    | 317.4 |      |  | $ | 277.6 |  
|Funded Status                                       |  | $    | (20.7 | )    |  | $ | (21.5 | )
|Unrecognized net actuarial loss                     |  |      | 123.6 |      |  |   | 129.6 |  
|Unrecognized prior service cost                     |  |      | 2.0   |      |  |   | 0.1   |  
|                                                    |  |      |       |      |  |   |       |  
|Prepaid pension asset                               |  | $    | 104.9 |      |  | $ | 108.2 |  
|                                                    |  |      |       |      |  |   |       |  

The following table provides the amounts recognized in the balance sheets as of December 31:

|                                                        |  |      |        |      |  |   |        |  
|------------------------------------------------------- |  | ---- | ------ | ---- |  | - | ------ | -
|                                                        |  | 2003 |        | 2002
|                                                        |  |      |        |     
|Prepaid pension asset                                   |  | $    | 104.9  |      |  | $ | 108.2  |  
|Accrued benefit liability                               |  |      | (120.0 | )    |  |   | (124.7 | )
|                                                        |  |      |        |      |  |   |        |  
|Net pension liability                                   |  |      | (15.1  | )    |  |   | (16.5  | )
|Intangible assets                                       |  |      | 2.0    |      |  |   | 0.1    |  
|Accumulated other comprehensive loss
before tax benefit |  |      | 118.0  |      |  |   | 124.6  |  
|                                                        |  |      |        |      |  |   |        |  
|Net amount recognized                                   |  | $    | 104.9  |      |  | $ | 108.2  |  
|                                                        |  |      |        |      |  |   |        |  

The accumulated benefit obligation for our defined benefit pension plan was $332.6 million and $294.2 million at December 31, 2003 and 2002, respectively. The primary difference between the
projected benefit obligation and the accumulated benefit obligation is that the projected benefit obligation includes assumptions about future compensation levels and the accumulated benefit
obligation does not.

The following table provides the components of net periodic benefit cost (income) for the years ended December 31:

|                                     |  |      |       |      |  |      |       |   |  |   |       |  
|------------------------------------ |  | ---- | ----- | ---- |  | ---- | ----- | - |  | - | ----- | -
|                                     |  | 2003 |       | 2002 |  | 2001
|                                     |  |      |       |      |  |     
|Service cost                         |  | $    | 0.9   |      |  | $    | 0.9   |   |  | $ | 0.8   |  
|Interest cost                        |  |      | 19.9  |      |  |      | 19.3  |   |  |   | 17.7  |  
|Expected return on plan assets       |  |      | (25.9 | )    |  |      | (30.4 | ) |  |   | (35.4 | )
|Recognized net actuarial (gain) loss |  |      | 8.3   |      |  |      | 2.0   |   |  |   | (0.2  | )
|Amortization of prior service cost   |  |      | 0.1   |      |  |      |      |   |  |   |      |  
|                                     |  |      |       |      |  |      |       |   |  |   |       |  
|Net periodic benefit cost (income)   |  | $    | 3.3   |      |  | $    | (8.2  | ) |  | $ | (17.1 | )
|                                     |  |      |       |      |  |      |       |   |  |   |       |  

The following table provided additional information regarding our pension plan for the years ended December 31:

|                                                                                                    |  |      |      |      |  |      |       |    |  |   |       |   
|--------------------------------------------------------------------------------------------------- |  | ---- | ---- | ---- |  | ---- | ----- | -- |  | - | ----- | --
|                                                                                                    |  | 2003 |      | 2002 |  | 2001
|                                                                                                    |  |      |      |      |  |     
|Increase (decrease) in minimum pension
liability included in other comprehensive
income, net of tax |  | $    | (4.0 | )    |  | $    | 74.8  |    |  | $ |      |   
|Actual return on plan assets                                                                        |  | $    | 51.6 |      |  | $    | (14.7 | )  |  | $ | (33.4 | ) 
|Actual return on plan assets (%)                                                                    |  |      | 19.0 | %    |  |      | (4.8  | )% |  |   | (9.4  | )%

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

The assumptions used in the measurement of our benefit obligations for the current year and net periodic cost for the following year are shown in the following
table (weighted average assumptions as of September 30):

|                                      |  |      |      |      |  |      |      |   |  |  |      |  
|------------------------------------- |  | ---- | ---- | ---- |  | ---- | ---- | - |  |  | ---- | -
|                                      |  | 2003 |      | 2002 |  | 2001
|                                      |  |      |      |      |  |     
|Discount rate                         |  |      | 6.25 | %    |  |      | 6.75 | % |  |  | 7.25 | %
|Average rate of compensation increase |  |      | 4.00 | %    |  |      | 4.00 | % |  |  | 4.00 | %
|Expected return on plan assets        |  |      | 9.00 | %    |  |      | 9.50 | % |  |  | 9.75 | %

We determine the expected long-term rate of return by averaging the expected earnings for the target asset portfolio. In developing our expected rate of return
assumption, we evaluate an analysis of historical actual performance and conservative long-term return projections from our investment managers, which gives
consideration to our asset mix and anticipated length of obligation of our plan.

We employ a total return investment approach whereby a mix of equities and fixed income investments are used to maximize the long-term return of plan assets for
a prudent level of risk. The intent of this strategy is to minimize plan expenses by outperforming plan liabilities over the long run. Risk tolerance is
established through careful consideration of plan liabilities, plan funded status, and corporate financial condition. The investment portfolio contains a
diversified blend of equity and fixed income investments. Furthermore, equity investments are diversified across U.S. and non-U.S. stocks as well as growth,
value, and small and large capitalizations. Derivatives may be used to gain market exposure in an efficient and timely manner; however, derivatives may not be
used to leverage the portfolio beyond the market value of the underlying investments. Historically, we have not invested in derivative instruments in our
investment portfolio. Investment risk is measured and monitored on an ongoing basis through annual liability measurements, periodic asset/liability studies,
and quarterly investment portfolio reviews.

The following table summarizes our plan asset allocation at September 2003 and 2002, target allocation for 2004, and expected long-term rate of return by asset
category for calendar year 2003:

|                  |       |  |                   |     |      |  |                           |     |                    |  |    |     |   |  |                  |     |  
|----------------- | ----- |  | ----------------- | --- | ---- |  | ------------------------- | --- | ------------------ |  | -- | --- | - |  | ---------------- | --- | -
|                  |       |  |                   |     |      |  |                           |     |                    |  |    |     |   |  | Weighted average
|                  |       |  |                   |     |      |  | Percentage of plan assets |     | expected long-term
|                  |       |  |                   |     |      |  | at September 30,          |     | rate of return for
|                  |       |  | Target allocation |     |      |  | calendar year            
|                  |       |  | 2004              |     | 2003 |  | 2002                      |     | 2003              
|                  |       |  |                   |     |      |  |                           |     |                   
|Equity securities |       |  | 60                | %   |      |  | 61                        | %   |                    |  | 56 | %   |   |  | 10.6             | %  
|Debt securities   |       |  | 40                | %   |      |  | 39                        | %   |                    |  | 44 | %   |   |  | 6.2              | %  
|                  |       |  |                   |     |      |  |                           |     |                    |  |    |     |   |  |                  |    
|                  | Total |  |                   | 100 | %    |  |                           | 100 | %                  |  |    | 100 | % |  |                  | 9.5 | %
|                  |       |  |                   |     |      |  |                           |     |                    |  |    |     |   |  |                  |    

The following table provides the benefit payments made during 2003 and 2002 and estimated future benefit payments:

|                           |  |   |      | 
|-------------------------- |  | - | ---- | 
|Benefit payments:          |  |   |      | 
|2002                       |  | $ | 13.1 | 
|2003                       |  | $ | 11.8 | 
|Estimated future payments: |  |   |      | 
|2004                       |  | $ | 10.6 | 
|2005                       |  |   | 10.8 | 
|2006                       |  |   | 11.1 | 
|2007                       |  |   | 11.3 | 
|2008                       |  |   | 11.9 | 
|Years 2009 - 2013          |  |   | 67.2 | 

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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 where benefits have
been the subject of good faith bargaining. Eligible employees may contribute up to 25% 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 in cash 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. BFIs matching contributions totaled $2.4 million, $2.5 million, and $2.0 million for fiscal
years 2003, 2002 and 2001, respectively.

10.     Stock Option Plans

Certain employees of BFI are eligible to participate in the stock option plans provided by Allied. Below is a description of the plans
provided by Allied.

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. The 1991 Plan limits the maximum number of shares that may be granted to not more than 10.5% of the
number of fully diluted shares of common stock on the date of grant of an award. The 1991 plan also limits awards in the form of
restricted stock, stock bonuses, performance awards and phantom stock 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 1991 Plan to 500,000 per
year. An additional maximum number of shares of 2,000,000 common shares may be granted under the 1994 Plan. After taking into account
previously granted awards, awards covering approximately 13,297,714 shares of common stock were available under the Plans. The
Compensation Committee of the Board of Directors of Allied generally determines the exercise price, term and other conditions applicable
to each option granted. Options granted under the Plans typically vest over 3 years and expire ten years from the grant date.

A summary of the status of the approximate portion of Allieds stock option plans that is allocated to BFI at December 31, 2003,
2002 and 2001 and for the years then ended is presented in the table and narrative below:

|                                       |  |                         |           |       |  |          |       |       |  |         |           |          |  |   |       |  |  |          |         |   |  |   |       | 
|-------------------------------------- |  | ----------------------- | --------- | ----- |  | -------- | ----- | ----- |  | ------- | --------- | -------- |  | - | ----- |  |  | -------- | ------- | - |  | - | ----- | 
|                                       |  | Year Ended December 31,
|                                       |  |                        
|                                       |  | 2003                    |           | 2002  |  | 2001    
|                                       |  |                         |           |       |  |         
|                                       |  |                         |           |       |  | Weighted |       |       |  |         |           | Weighted |  |   |       |  |  | Weighted
|                                       |  |                         |           |       |  | Average  |       |       |  |         |           | Average  |  |   |       |  |  | Average 
|                                       |  |                         |           |       |  | Exercise |       |       |  |         |           | Exercise |  |   |       |  |  | Exercise
|                                       |  | Options                 |           | Price |  | Options  |       | Price |  | Options |           | Price   
|                                       |  |                         |           |       |  |          |       |       |  |         |           |         
|Options outstanding,
beginning of year |  |                         | 1,394,802 |       |  | $        | 12.20 |       |  |         | 768,281   |          |  | $ | 12.77 |  |  |          | 409,896 |   |  | $ | 12.82 | 
|Options granted                        |  |                         | 1,547,704 |       |  |          | 11.39 |       |  |         | 634,689   |          |  |   | 10.50 |  |  |          | 381,973 |   |  |   | 13.41 | 
|Options exercised                      |  |                         | (132,498  | )     |  |          | 6.76  |       |  |         | (743      | )        |  |   | 8.40  |  |  |          | (20,598 | ) |  |   | 9.52  | 
|Options forfeited
or expired           |  |                         | (352,584  | )     |  |          | 12.65 |       |  |         | (7,425    | )        |  |   | 14.88 |  |  |          | (2,990  | ) |  |   | 14.45 | 
|                                       |  |                         |           |       |  |          |       |       |  |         |           |          |  |   |       |  |  |          |         |   |  |   |       | 
|Options outstanding,
end of year       |  |                         | 2,457,424 |       |  |          | 12.33 |       |  |         | 1,394,802 |          |  |   | 12.20 |  |  |          | 768,281 |   |  |   | 12.77 | 
|                                       |  |                         |           |       |  |          |       |       |  |         |           |          |  |   |       |  |  |          |         |   |  |   |       | 
|Options exercisable,
end of year       |  |                         | 1,664,608 |       |  |          | 12.70 |       |  |         | 433,488   |          |  |   | 14.17 |  |  |          | 171,960 |   |  |   | 14.57 | 
|                                       |  |                         |           |       |  |          |       |       |  |         |           |          |  |   |       |  |  |          |         |   |  |   |       | 

183



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##### 



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

The approximate weighted average fair
value of options granted were $5.79, $5.52, and $7.27 for the three years ended December 31, 2003. The Parent accounts for 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. Therefore, there has been no allocation of compensation expense to BFI related to options granted by Allied.

The following tables summarize information about stock options outstanding at December 31, 2003, which are fully vested, partially vested and non-vested:

Fully Vested:

|                                    |  |             |         |                |  |                |  |          |       |  |  | 
|----------------------------------- |  | ----------- | ------- | -------------- |  | -------------- |  | -------- | ----- |  |  | 
|Options Outstanding and Exercisable
|                                   
|                                    |  |             |         |                |  | Weighted       |  | Weighted
|                                    |  | Number      |         | Average        |  | Average       
|Range of Exercise Prices            |  | Outstanding |         | Remaining Life |  | Exercise Price
|                                    |  |             |         |                |  |               
|$  7.31
- $  8.00                   |  |             | 111,423 |                |  | 6 years        |  | $        | 7.56  | 
|$10.32 - $15.00                     |  |             | 913,421 |                |  | 6 years        |  | $        | 12.15 | 

Partially Vested:

|                         |  |             |         |                |  |                |  |          |       |  |  | 
|------------------------ |  | ----------- | ------- | -------------- |  | -------------- |  | -------- | ----- |  |  | 
|Options Outstanding     
|                        
|                         |  |             |         |                |  | Weighted       |  | Weighted
|                         |  | Number      |         | Average        |  | Average       
|Range of Exercise Prices |  | Outstanding |         | Remaining Life |  | Exercise Price
|                         |  |             |         |                |  |               
|$10.32 - $11.57          |  |             | 901,878 |                |  | 9 years        |  | $        | 10.43 | 
|$12.92 - $16.92          |  |             | 530,702 |                |  | 8 years        |  | $        | 13.19 | 

|                         |  |             |         |                |  |                |  |          |       |  |  | 
|------------------------ |  | ----------- | ------- | -------------- |  | -------------- |  | -------- | ----- |  |  | 
|Options Exercisable     
|                        
|                         |  |             |         |                |  | Weighted       |  | Weighted
|                         |  | Number      |         | Average        |  | Average       
|Range of Exercise Prices |  | Outstanding |         | Remaining Life |  | Exercise Price
|                         |  |             |         |                |  |               
|$10.32 - $11.57          |  |             | 300,626 |                |  | 9 years        |  | $        | 10.43 | 
|$12.92 - $16.92          |  |             | 339,138 |                |  | 8 years        |  | $        | 13.18 | 

Non Vested:

|                         |  |             |         |                |  |                |  |          |       |  |  | 
|------------------------ |  | ----------- | ------- | -------------- |  | -------------- |  | -------- | ----- |  |  | 
|Options Outstanding     
|                        
|                         |  |             |         |                |  | Weighted       |  | Weighted
|                         |  | Number      |         | Average        |  | Average       
|Range of Exercise Prices |  | Outstanding |         | Remaining Life |  | Exercise Price
|                         |  |             |         |                |  |               
|$  9.03 - $10.32         |  |             | 137,005 |                |  | 10 years       |  | $        | 9.22  | 
|$11.57 - $12.92          |  |             | 678,857 |                |  | 10 years       |  | $        | 12.27 | 

184



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##### 



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

11.     Stockholders Deficit

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

|                                  |  |            |     |      |  |                        |     |  |  |  |     | 
|--------------------------------- |  | ---------- | --- | ---- |  | ---------------------- | --- |  |  |  | --- | 
|                                  |  |            |     |      |  | Issued and Outstanding
|                                  |  |            |     |      |  | at December 31,       
|                                  |  | Authorized |     |     
|                                  |  | Shares     |     | 2003 |  | 2002                  
|                                  |  |            |     |      |  |                       
|Common stock, $0.16 2/3 par
value |  |            | 1.0 |      |  |                        | 1.0 |  |  |  | 1.0 | 

12.     Income Taxes

Operating results of BFI are included in the consolidated federal
income tax return of Allied for the periods ended December 31, 2003, 2002 and 2001. For
purposes
of determining state income tax liabilities, we file either a consolidated or separate return based
on the filing regulations required by each state.

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 109.
The income tax provision determined for BFI is reflected in due from
parent on BFIs consolidated balance sheets. Deferred tax assets and liabilities (including
any valuation allowance) are recognized, realized 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 entity. Allieds
valuation allowance at December 31, 2003 includes approximately $17
million related to the acquisition of BFI, 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 benefit consist of the following (in
millions):

|                      |  |                                 |        |      |  |      |        |   |  |   |        |  
|--------------------- |  | ------------------------------- | ------ | ---- |  | ---- | ------ | - |  | - | ------ | -
|                      |  | For the Year Ended December
31,
|                      |  |                                
|                      |  | 2003                            |        | 2002 |  | 2001
|                      |  |                                 |        |      |  |     
|Current tax provision |  | $                               | 19.3   |      |  | $    | 3.1    |   |  | $ | 24.2   |  
|Deferred benefit      |  |                                 | (180.7 | )    |  |      | (122.6 | ) |  |   | (129.5 | )
|                      |  |                                 |        |      |  |      |        |   |  |   |        |  
|Total                 |  | $                               | (161.4 | )    |  | $    | (119.5 | ) |  | $ | (105.3 | )
|                      |  |                                 |        |      |  |      |        |   |  |   |        |  

The current tax provision represents
Puerto Rico and various state income taxes paid and payable for the
periods presented. The balance of the provision represents federal
and deferred Puerto Rico and state income taxes. The income tax
provision allocated includes both current and deferred taxes, but
under our tax sharing arrangement with the Parent, the total
provision is considered to be a current provision, reduces our cash
flow from operating activities and is reflected in the due from
Parent on our combined balance sheet.

185



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##### 



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

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

|                                                                    |  |                                 |        |      |  |      |        |   |  |   |        |  
|------------------------------------------------------------------- |  | ------------------------------- | ------ | ---- |  | ---- | ------ | - |  | - | ------ | -
|                                                                    |  | For the Year Ended December
31,
|                                                                    |  |                                
|                                                                    |  | 2003                            |        | 2002 |  | 2001
|                                                                    |  |                                 |        |      |  |     
|Federal statutory tax
rate                                          |  | $                               | (152.1 | )    |  | $    | (118.3 | ) |  | $ | (133.9 | )
|Consolidated state taxes,
net of federal benefit                    |  |                                 | (20.2  | )    |  |      | (13.6  | ) |  |   | (12.0  | )
|Amortization of goodwill
(1)                                        |  |                                 |       |      |  |      |       |   |  |   | 32.0   |  
|Non-deductible write-off of
goodwill and business
combination costs |  |                                 |       |      |  |      | 2.1    |   |  |   |       |  
|Effect of foreign
operations                                        |  |                                 | 4.2    |      |  |      | 2.5    |   |  |   | 3.0    |  
|Other
reserves                                                      |  |                                 | 6.1    |      |  |      | 8.7    |   |  |   |       |  
|Other permanent
differences                                         |  |                                 | 0.6    |      |  |      | (0.9   | ) |  |   | 5.6    |  
|                                                                    |  |                                 |        |      |  |      |        |   |  |   |        |  
|Effective tax
rate                                                  |  | $                               | (161.4 | )    |  | $    | (119.5 | ) |  | $ | (105.3 | )
|                                                                    |  |                                 |        |      |  |      |        |   |  |   |        |  



|(1) |  | In connection with various acquisitions, we recorded goodwill
that was non-deductible goodwill for
income tax purposes.
|--- |  | -----------------------------------------------------------------------------------------------------------------------

Deferred tax assets and liabilities
(including any valuation allowance) are recognized, realized and
maintained on a corporate-wide basis by Allied. Our cumulative
tax-effected temporary differences that have been recorded in due
from Parent on our combined balance sheets are as follows:

|                                                                                         |  |              |        |      |  |   |        |  
|---------------------------------------------------------------------------------------- |  | ------------ | ------ | ---- |  | - | ------ | -
|                                                                                         |  | December 31,
|                                                                                         |  |             
|                                                                                         |  | 2003         |        | 2002
|                                                                                         |  |              |        |     
|Cumulative Tax-Effected
Future (Taxable) Deductible Temporary Differences:               |  |              |        |      |  |   |        |  
|Relating primarily to basis
differences in landfills, fixed assets
and other assets      |  | $            | (140.5 | )    |  | $ | (180.4 | )
|Environmental, capping,
closure and post-closure reserves                                |  |              | 218.5  |      |  |   | 283.1  |  
|Other
reserves                                                                           |  |              | 45.8   |      |  |   | 105.1  |  
|                                                                                         |  |              |        |      |  |   |        |  
|Total                                                                                    |  | $            | 123.8  |      |  | $ | 207.8  |  
|                                                                                         |  |              |        |      |  |   |        |  
|Tax-effected capital loss,
foreign tax credit and state
net operating loss carryforwards |  | $            | 32.4   |      |  | $ | 64.8   |  
|Valuation
allowance                                                                      |  |              | (16.7  | )    |  |   | (51.1  | )
|                                                                                         |  |              |        |      |  |   |        |  
|Net
carryforwards                                                                        |  | $            | 15.7   |      |  | $ | 13.7   |  
|                                                                                         |  |              |        |      |  |   |        |  

The interest expense reflected in our consolidated statement of
operations relates to debt that is held at Allied and presented in these financial
statements for separate financial reporting purposes (See Note 5). BFIs federal net operating
loss carryovers arising from such interest expense
have been recognized in the deferred tax provision and realized through the Allied intercompany
account as Allied on a consolidated return basis has
recognized all such losses as recoverable.

Deferred income taxes have not been provided as of December 31,
2003 and 2002 on approximately $31 million and $36 million, respectively, of undistributed
earnings of Puerto Rican
affiliates, which are considered to be permanently reinvested. A determination of the U.S. income
and foreign withholding taxes, if these earnings were remitted as dividends, is
not practicable.

We are currently under examination by various state and federal
taxing authorities for certain tax years. A federal income tax audit for BFIs tax years ended
September 30, 1996
through July 30, 1999 is completed with the exception of the matter discussed below.

186



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##### 



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

Prior to our acquisition of BFI on July 30, 1999, BFI
operating companies, as part of a risk management initiative
to effectively manage and reduce costs associated with certain
liabilities, contributed assets and existing environmental and
self-insurance liabilities to six fully consolidated BFI risk
management companies (RMCs) in exchange for stock representing
a minority ownership interest in the RMCs. Subsequently, on
July 9, 1999, the BFI operating companies sold that stock in
the RMCs to third parties at fair market value which resulted
in a capital loss of approximately $900 million for tax
purposes, calculated as the excess of the tax basis of the
stock over the cash proceeds received. The capital loss was
claimed in the BFI tax return for the period from October 1,
1998 to July 30, 1999. On January 18, 2001, the IRS
designated this type of transaction and other similar
transactions as a potentially abusive tax shelter under the
IRS regulations.

During 2002, the IRS proposed the disallowance of all of this
capital loss. The primary argument advanced by the IRS for
disallowing the capital loss was that the tax basis of the
stock of the RMCs received by the BFI operating companies was
required to be reduced by the amount of liabilities assumed by
the RMCs even though such liabilities were contingent. Under
the IRS view, there was no capital loss on the sale of the
stock since the tax basis of the stock should have
approximately equaled the proceeds received. We protested the
disallowance to the Appeals Office of the IRS in August 2002.

If the proposed disallowance
is upheld, we estimate it
could have a potential total
cash impact of up to $310
million plus accrued
interest through December
31, 2003 of approximately
$46 million ($28 million net
of tax benefit). We also
received a notification from
the IRS proposing a penalty
of 40% of the additional
income tax resulting from
the disallowance. Because
of several meritorious
defenses, we believe the
successful assertion of
penalties is unlikely.

If we are unable to resolve this matter with
the Appeals Office of the IRS, we would
expect to receive a notice of tax deficiency
from the IRS. Upon receiving the notice, we
would have the following options:



| | 1. |  | File a petition for
redetermination in Tax Court
within 90 days. In this case,
payments would not be required
until the Tax Court renders its
decision.                                                                                                                                                                                                       
| | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | 2. |  | Wait to receive a statement of
amount due from the IRS and pay
the amount due. The amount due
would be based on the portion of
the capital loss claimed during
the BFI tax years ended September
30, 1996 through July 30, 1999.
Additional amounts will be owed
as the audits of the Companys
tax returns for calendar years
1999 and forward are completed.
|
| | 3. |  | Pay the amount due as outlined
in option 2 above, except, after
paying the amount due, take
appropriate steps to institute a
suit in Federal District Court or
the Federal Claims Court for a
refund of the amounts paid.                                                                                                                                     

The timing of any payments for any related
state tax deficiencies will generally follow
closely after the timing of any federal
payments. Furthermore, at any point in time
under any of the options outlined above, we
can attempt to reach a settlement agreement
with the IRS.

If we are unable to resolve this matter with
the Appeals Office of the IRS, a decision
would be made at that time as to which of the
above options would be pursued. In any case,
we continue to believe our position is well
supported and we will vigorously contest the
disallowance. An unfavorable result should
have minimal impact on the consolidated
results of operations of Allied as the tax and interest
impact of a disallowance have been fully
reserved on the consolidated balance sheet of Allied.

187



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##### 



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

13.     Commitments and Contingencies

Litigations 

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 can reasonably be estimable. We expect that matters in process
at December 31, 2003, 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 the normal course of conducting our landfill operations, we are
involved in legal and administrative proceedings relating to the
process of obtaining and defending the permits that allow us to
operate our landfills. In June 1999, neighboring parties and the
county drainage district filed a lawsuit seeking to prevent BFI
from obtaining a vertical elevation expansion permit at one of our
landfills in Texas. In 2001, the expansion permit was granted.
The parties opposing the expansion permit continued to pursue their
efforts in preventing the expansion permit. In December 2003, a
judgment issued by a District Court in Texas, effectively revoked
the expansion permit that was granted by the State of Texas in 2001
and would require us to operate the landfill according to a prior
permit granted in 1988. We plan to vigorously defend this
expansion in the State Court of Appeals and believe that the merits
of our position will prevail. Operationally, we are in the process
of obtaining bonding that will allow us to continue to operate the
landfill as usual during the period of appeals, which may continue
two years or longer. If the appeal is not successful, the landfill
may become impaired and we may incur costs to relocate waste to
another landfill and this matter could result in a charge of up to
$25 million to our consolidated statement of operations.

Royalties 

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. Royalties are expensed as tonnage is
disposed of in the landfill

Lease agreements 

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 at December 31,
2003 are as follows (in millions):

|           |  |   |      | 
|---------- |  | - | ---- | 
|2004       |  | $ | 31.6 | 
|2005       |  |   | 12.1 | 
|2006       |  |   | 2.4  | 
|2007       |  |   | 2.1  | 
|2008       |  |   | 2.2  | 
|Thereafter |  |   | 9.5  | 

Rental expense under such operating
leases was approximately $32.1
million, $29.2 million and $10.7 million, for the years ended
December 31, 2003, 2002 and 2001, respectively.

188



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##### 



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

Financial assurances 

We are required to provide $1.1 billion
in financial assurances to governmental
agencies under applicable environmental
regulations relating to our landfill
operations for closure and post-closure
costs and performance under certain
collection, landfill and transfer
station contracts. We satisfy the
financial assurance requirements by
providing performance bonds, letters of
credit, insurance policies or trust
deposits. Additionally, we are
required to provide financial
assurances for our insurance programs
and collateral required for certain
performance obligations. During 2004,
we expect no material increase in
financial assurance obligations.

These financial instruments are issued in the normal course
of business and are not debt of the company. Since we
currently have no liability for these financial assurance
instruments, they are not reflected in the accompanying
consolidated balance sheets. The underlying obligations of
the financial assurance instruments would be valued and
recorded in the consolidated balance sheets if it is
probable that we would not be able to perform our
obligations under the financial assurance contracts. We
do not expect this to occur.

Guarantees 

We enter into contracts in the normal course of business that include
indemnification clauses. Indemnifications relating to known liabilities are
recorded in the consolidated financial statements based on our best estimate of
required future payments. Certain of these indemnifications relate to
contingent events or occurrences, such as the imposition of additional taxes
due to a change in the tax law or adverse interpretation of the tax law, and
indemnifications made in divestiture agreements where we indemnify the buyer
for liabilities that may become known in the future but that relate to our
activities prior to the divestiture. As of December 31, 2003, we estimate the
contingent obligations associated with these indemnifications to be de minimus.

We have entered into agreements to guarantee to property owners the
value of
certain property that is adjacent to landfills. These agreements have varying
terms over varying periods. Prior to December 31, 2002, liabilities associated
with these guarantees have been accounted for in accordance with SFAS No. 5,
Accounting for Contingencies, in the consolidated financial statements.
Agreements modified or entered into subsequent to December 31, 2002 are
accounted for in accordance with FIN 45 and were not significant in 2003.

189



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##### 



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

14.     Related Party Transactions

All treasury functions are maintained by Allied. The amount due from
parent
represents proceeds Allied received from the issuance of 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. No interest is earned on the amount due from Parent.

We are charged for management, financial and other administrative
services
provided during the year by Allied, including allocations for overhead. Related
charges for the years ended December 31, 2003, 2002 and 2001 were approximately
$23.3 million, $24.1 million and $16.4 million, respectively, recorded in
selling, general and administrative expenses. In addition, Allied maintains
insurance coverage for us and we were charged for the cost of insurance $62.4
million, $81.9 million and $90.4 million during 2003, 2002 and 2001,
respectively.

We provide services to, and receive services from, Allied and
subsidiaries of
Allied, which are recorded in our consolidated statement of operations.
Related revenues and expenses for the years ended December 31, 2003, 2002 and
2001 were approximately $166.1 million, $169.8 million and $172.3 million,
respectively, recorded in revenues, and $57.4 million, $45.2 million and $41.8
million, respectively, recorded in cost of operations.

During 2003, we sold trade receivables at a discount to another
subsidiary of
Allied in connection with Allieds receivables secured loan program. In
connection with the sale, we recognized a loss of approximately $9.3 million
recorded in selling, general and administrative expenses for the year ended
December 31, 2003, and recorded a note receivable due from affiliate of
approximately $15.0 million in due from Parent as part of the initial sale of
receivables. Allocated interest income on the note receivable was
approximately $0.5 million for the year ended December 31, 2003.

In 2001, we entered into lease
agreements with certain subsidiaries of Allied
for
equipment and vehicles. The associated lease expense is included in cost of
operations for 2003, 2002 and 2001 of approximately $10.8 million, $9.9 million
and $2.6 million, respectively.

190



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##### 



Financial Statement Schedules -

Schedule II  Valuation and Qualifying Accounts (in
millions):

|                                |  |          |      |         |  |            |     |             |  |          |      |   |  |         |      |   |  |   |      | 
|------------------------------- |  | -------- | ---- | ------- |  | ---------- | --- | ----------- |  | -------- | ---- | - |  | ------- | ---- | - |  | - | ---- | 
|                                |  | Balance  |      | Charges |  |            |     |             |  |          |      |   |  | Balance
|                                |  | at       |      | to      |  | Other      |     | Write-offs/ |  | at      
|                                |  | 12/31/00 |      | Expense |  | Charges(1) |     | Payments    |  | 12/31/01
|                                |  |          |      |         |  |            |     |             |  |         
|Allowance for doubtful
accounts |  | $        | 21.8 |         |  | $          | 7.4 |             |  | $        | (9.1 | ) |  | $       | (8.9 | ) |  | $ | 11.2 | 
|Severance and termination
costs |  |          | 4.4  |         |  |            |    |             |  |          | 0.1  |   |  |         | (1.7 | ) |  |   | 2.8  | 
|Restructuring
costs             |  |          | 6.0  |         |  |            | 8.0 |             |  |          | 2.2  |   |  |         | (2.9 | ) |  |   | 13.3 | 

|                                |  |          |      |         |  |            |     |             |  |          |      |   |  |         |      |   |  |   |     | 
|------------------------------- |  | -------- | ---- | ------- |  | ---------- | --- | ----------- |  | -------- | ---- | - |  | ------- | ---- | - |  | - | --- | 
|                                |  | Balance  |      | Charges |  |            |     |             |  |          |      |   |  | Balance
|                                |  | at       |      | to      |  | Other      |     | Write-offs/ |  | at      
|                                |  | 12/31/01 |      | Expense |  | Charges(1) |     | Payments    |  | 12/31/02
|                                |  |          |      |         |  |            |     |             |  |         
|Allowance for doubtful
accounts |  | $        | 11.2 |         |  | $          | 3.5 |             |  | $        | 0.1  |   |  | $       | (7.6 | ) |  | $ | 7.2 | 
|Severance and termination
costs |  |          | 2.8  |         |  |            |    |             |  |          |     |   |  |         | (1.4 | ) |  |   | 1.4 | 
|Restructuring
costs             |  |          | 13.3 |         |  |            |    |             |  |          | (3.1 | ) |  |         | (7.0 | ) |  |   | 3.2 | 

|                                |  |          |     |         |  |            |     |             |  |          |      |   |  |         |      |   |  |   |     | 
|------------------------------- |  | -------- | --- | ------- |  | ---------- | --- | ----------- |  | -------- | ---- | - |  | ------- | ---- | - |  | - | --- | 
|                                |  | Balance  |     | Charges |  |            |     |             |  |          |      |   |  | Balance
|                                |  | at       |     | to      |  | Other      |     | Write-offs/ |  | at      
|                                |  | 12/31/02 |     | Expense |  | Charges(1) |     | Payments    |  | 12/31/03
|                                |  |          |     |         |  |            |     |             |  |         
|Allowance for doubtful
accounts |  | $        | 7.2 |         |  | $          | 6.1 |             |  | $        | (0.2 | ) |  | $       | (5.6 | ) |  | $ | 7.5 | 
|Severance and termination
costs |  |          | 1.4 |         |  |            |    |             |  |          |     |   |  |         | (0.8 | ) |  |   | 0.6 | 
|Restructuring
costs             |  |          | 3.2 |         |  |            |    |             |  |          | 0.4  |   |  |         | (1.3 | ) |  |   | 2.3 | 



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

Valuation and qualifying accounts not included above have been shown
in Notes 1 and 8 of our consolidated
financial statements herein.

191



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##### 



GUARANTOR FINANCIAL STATEMENTS Financial Statements of Non Wholly-Owned Guarantors Following are the stand-alone financial statements for seven of our
subsidiaries that we do not wholly-own. We are required to provide these
financial statements under Securities and Exchange Commission (SEC) Rule
3-10 of Regulation S-X. These entities, along with substantially all of our
wholly-owned subsidiaries, guarantee certain of our outstanding debt
obligations. In Note 19 of our consolidated financial statements, included
under Item 8 of this Form 10-K, we have provided consolidating
financial information for both these
entities and the other Allied subsidiaries that serve as guarantors. 192




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##### 



BFI ENERGY SYSTEMS OF PLYMOUTH, INC. Financial Statements  Report of Independent Auditors.Balance Sheets as of December 31, 2003 and 2002.Statements of Operations for Each of the Three Years in the Period Ended December 31, 2003.Statements of Stockholders Equity for the Three Years Ended December 31, 2003.Statements of Cash Flows for Each of the Three Years in the Period Ended December 31, 2003.Notes to Financial Statements. 193




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##### 



Report of Independent
Auditors To the Board of Directors and Shareholders of
BFI Energy Systems of Plymouth, Inc.: In our opinion, the accompanying balance sheets and the related statements of
operations, of stockholders equity and of cash flows present fairly, in all
material respects, the financial position of BFI Energy Systems of Plymouth,
Inc. at December 31, 2003 and 2002, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 2003 in
conformity with accounting principles generally accepted in the United States
of America. 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 audit. We conducted our audit of these statements in
accordance with auditing standards generally accepted in the United States of
America, which 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, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audit provides a reasonable basis for our opinion. As discussed in Note 3 to the financial statements, the Company changed its
method of accounting for obligations associated with the retirement of
long-lived tangible assets and the associated asset retirement costs as of
January 1, 2003. PRICEWATERHOUSECOOPERS LLP Phoenix, Arizona
March 5, 2004 194




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##### 



BFI ENERGY SYSTEMS OF PLYMOUTH, INC.
BALANCE SHEETS
(in thousands) December 31,2003
    
    2002ASSETSCurrent assets Cash
    
    $
    
    
    
    $
    583Interest receivable from affiliate
    
    
    16,606
    
    
    
    16,606Total current assets
    
    
    16,606
    
    
    
    17,189Due from parent, net
    
    
    71,001
    
    
    
    48,222Notes receivable from affiliate
    
    
    436,316
    
    
    
    436,316Total assets
    
    $
    523,923
    
    
    $
    501,727LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities Current portion of other long-term obligations
    
    $
    681
    
    
    $
    Current portion of accrued capping, closure and
post-closure costs
    
    
    25,177
    
    
    
    15,392Total current liabilities
    
    
    25,858
    
    
    
    15,392Accrued capping, closure and post-closure costs,
less current portion
    
    
    179,895
    
    
    
    207,407Other long-term obligations
    
    
    5,691
    
    
    
    Class B common stock; no par value; 111 shares
authorized, issued and outstanding
    
    
    1,415
    
    
    
    1,022Commitments and contingenciesClass A common stock; no par value; 1,000 shares
authorized issued and outstanding
    
    
    3,328
    
    
    
    3,328Intercompany with parent
    
    
    256,449
    
    
    
    261,025Retained earnings
    
    
    51,287
    
    
    
    13,553Total stockholders equity
    
    
    311,064
    
    
    
    277,906Total liabilities and stockholders equity
    
    $
    523,923
    
    
    $
    501,727
 The accompanying Notes to Financial Statements are an integral part of these balance sheets. 195




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##### 



BFI ENERGY SYSTEMS OF PLYMOUTH, INC.
STATEMENTS OF OPERATIONS
(in thousands) Year Ended December 31,2003
    
    2002
    
    2001Capping, closure and post-closure provision and
accretion
    
    $
    12,720
    
    
    $
    26,728
    
    
    $
    29,964General and administrative expenses
    
    
    54
    
    
    
    60
    
    
    
    51Operating loss
    
    
    (12,774
    )
    
    
    (26,788
    )
    
    
    (30,015
    )Interest income
    
    
    (37,847
    )
    
    
    (36,836
    )
    
    
    (35,740
    )Income before income tax
    
    
    25,073
    
    
    
    10,048
    
    
    
    5,725Income tax expense
    
    
    10,029
    
    
    
    4,019
    
    
    
    2,290Income before cumulative effect of
change in accounting principle
    
    
    15,044
    
    
    
    6,029
    
    
    
    3,435Cumulative effect of change in accounting
principle, net of tax
    
    
    23,083
    
    
    
    
    
    
    
    Net income
    
    
    38,127
    
    
    
    6,029
    
    
    
    3,435Changes in redemption value of Class B
common stock
    
    
    (393
    )
    
    
    1,925
    
    
    
    (2,020
    )Net income available to Class A common
shareholder
    
    $
    37,734
    
    
    $
    7,954
    
    
    $
    1,415Pro forma amounts, assuming the change in
accounting principle is applied retroactively and
excluding the cumulative effect of change in
accounting principle in the year of adoption:Net income
available to Class A common shareholder
    
    $
    14,651
    
    
    $
    17,160
    
    
    $
    10,266
 The accompanying Notes to Financial Statements are an integral part of these statements. 196




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##### 



BFI ENERGY SYSTEMS OF PLYMOUTH, INC.
STATEMENTS OF STOCKHOLDERS EQUITY
(in thousands) Class A
    
    
    
    
    
    
    
    
    
    TotalCommon
    
    Intercompany
    
    Retained
    
    Stockholders'Stock
    
    with Parent
    
    Earnings
    
    EquityBalance as of December 31, 2000
    
    $
    3,328
    
    
    $
    254,715
    
    
    $
    4,184
    
    
    $
    262,227Change in redemption value of Class B
common stock
    
    
    
    
    
    
    
    
    
    
    (2,020
    )
    
    
    (2,020
    )Net income
    
    
    
    
    
    
    
    
    
    
    3,435
    
    
    
    3,435Change in intercompany with parent
    
    
    
    
    
    
    2,290
    
    
    
    
    
    
    
    2,290Balance as of December 31, 2001
    
    $
    3,328
    
    
    $
    257,005
    
    
    $
    5,599
    
    
    $
    265,932Change in redemption value of Class B
common stock
    
    
    
    
    
    
    
    
    
    
    1,925
    
    
    
    1,925Net income
    
    
    
    
    
    
    
    
    
    
    6,029
    
    
    
    6,029Change in intercompany with parent
    
    
    
    
    
    
    4,020
    
    
    
    
    
    
    
    4,020Balance as of December 31, 2002
    
    $
    3,328
    
    
    $
    261,025
    
    
    $
    13,553
    
    
    $
    277,906Change in
redemption value of Class B common stock
    
    
    
    
    
    
    
    
    
    
    (393
    )
    
    
    (393
    )Net income
    
    
    
    
    
    
    
    
    
    
    38,127
    
    
    
    38,127Change in intercompany with parent
    
    
    
    
    
    
    (4,576
    )
    
    
    
    
    
    
    (4,576
    )Balance as of December 31, 2003
    
    $
    3,328
    
    
    $
    256,449
    
    
    $
    51,287
    
    
    $
    311,064
 The accompanying Notes to Financial Statements are an integral part of these statements. 197




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##### 



BFI ENERGY SYSTEMS OF PLYMOUTH, INC.
STATEMENTS OF CASH FLOWS
(in thousands) Year Ended December 31,2003
    
    2002
    
    2001Operating activities Net income
    
    $
    38,127
    
    
    $
    6,029
    
    
    $
    3,435Adjustments to reconcile net income to cash provided by
operating activities Provision for income taxes
    
    
    10,029
    
    
    
    4,019
    
    
    
    2,290Capping, closure and post-closure provision and
accretion
    
    
    12,720
    
    
    
    26,728
    
    
    
    29,964Cumulative effect of change in accounting principle
    
    
    (23,083
    )
    
    
    
    
    
    
    Change in operating assets and liabilities Capping, closure and post-closure expenditures
    
    
    (15,597
    )
    
    
    (19,030
    )
    
    
    (17,760
    )Cash provided by operating activities
    
    
    22,196
    
    
    
    17,746
    
    
    
    17,929Financing activities Change in due from parent, net
    
    
    (22,779
    )
    
    
    (18,698
    )
    
    
    (16,445
    )Cash used for financing activities
    
    
    (22,779
    )
    
    
    (18,698
    )
    
    
    (16,445
    )Increase (decrease) in cash
    
    
    (583
    )
    
    
    (952
    )
    
    
    1,484Cash, beginning of year
    
    
    583
    
    
    
    1,535
    
    
    
    51Cash, end of year
    
    $
    
    
    
    $
    583
    
    
    $
    1,535Supplemental disclosures Non-cash change in intercompany with parent in equity
    
    $
    (4,576
    )
    
    $
    4,020
    
    
    $
    2,290
 The accompanying Notes to Financial Statements are an integral part of these statements. 198




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##### 



BFI ENERGY SYSTEMS OF PLYMOUTH, INC.
NOTES TO FINANCIAL STATEMENTS 1. Organization and Summary of Significant Accounting Policies BFI Energy Systems of Plymouth, Inc. (BFI Plymouth, we or the Company), a
Delaware corporation, manages certain liabilities assumed from its parent
company, Browning-Ferris Industries, Inc. (BFI), a wholly owned subsidiary of
Allied Waste Industries, Inc. (Allied). These liabilities represent estimated
capping costs associated with operating active landfills, as well as other
routine closure and post-closure costs including leachate management, ground
water monitoring, cover management, gas management, property management and
administrative expenses. BFI Plymouth does not own the related landfills. BFI
owns all of our Class A common stock, which represents 90% of our outstanding
shares of common stock. The Class B common stock, which represents the
remaining 10% equity interest, is owned by unaffiliated environmental
consultants. We are dependent on Allied to provide funding for the liabilities assumed.
This is accomplished through interest income and principal payments on notes
receivable from affiliate (see Note 2) and, if necessary, borrowings from a
subsidiary of Allied under a revolving credit agreement (see Note 8). Purpose and basis of presentation  The purpose of these financial statements is to provide information about BFI
Plymouth which guarantees certain outstanding debt obligations of BFI and
Allied. BFI Plymouth, along with substantially all of Allieds other
subsidiaries, represent the aggregate guarantor of the debt obligations. In
the event that BFI or Allied cannot make payments on such debt obligations when
they are due, the guarantor subsidiaries must make the payments instead. These
financial statements are presented herein because BFI Plymouth is not a
wholly-owned subsidiary of Allied and Securities and Exchange Commission (SEC)
Rule 3-10 of Regulation S-X requires separate stand alone financial statements
of non wholly-owned guarantors. BFI Plymouth is not a registrant with the SEC and is not subject to the SECs
periodic reporting requirements, except as may be required by Rule 3-10 of
Regulation S-X. Certain estimates, including allocations from Allied, have
been made to provide financial information for SEC and stand-alone reporting
purposes as if BFI Plymouth were a registrant. We believe that the
presentations and disclosures herein are adequate to make the financial
information not misleading. In the opinion of management, all adjustments
necessary to fairly state the financial statements have been reflected. We adopted Statement of Financial Accounting Standards No. 143, Accounting for
Asset Retirement Obligations(SFAS 143) on January 1, 2003, which changed our
accounting for landfill retirement obligations, which impacts the comparability
of the financial information presented herein. See Recently adopted accounting
pronouncementsbelow. 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.
Although we believe that our estimates and assumptions are reasonable, they are
based upon information presently available. Actual results may differ
significantly from the estimates. 199




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##### 



BFI ENERGY SYSTEMS OF PLYMOUTH, INC.
NOTES TO FINANCIAL STATEMENTS Fair value of financial instruments  Our financial instruments, as defined by Statement of Financial Accounting
Standards (SFAS) No. 107, Disclosures about the Fair Value of Financial
Instruments, include cash and notes receivable. The carrying value of our cash
approximates fair value due to the short-term maturity of this instrument and
the carrying value of the notes receivable approximates fair value due to the
fixed interest rate being comparable with market rates for similar types of
notes receivable. Other long-term obligations - Other long-term obligations represents the liabilities retained from divested
landfills that were historically accounted for in closure and post-closure
liabilities, which at the time of adoption of SFAS 143 were reclassified to
other-long-term obligations because they were not within the scope of SFAS 143. Accrued capping, closure and post-closure costs  Accrued capping, closure and post-closure costs represent an estimate of the
present value of the future obligation associated with capping, closure and
post-closure monitoring of our non-hazardous solid waste landfills. Site
specific capping, closure and post-closure engineering cost estimates are
prepared annually. The present value of estimated future costs are accrued
on a per unit basis as landfill disposal capacity is consumed. 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. Changes in
estimates for fully incurred capping events are recognized when determined. Recently adopted accounting pronouncements  The Financial Accounting Standards Board (FASB) issued SFAS 143 in June 2001,
which outlines standards for accounting for obligations associated with the
retirement of long-lived tangible assets. The standard was effective beginning
January 1, 2003 and impacts the accounting for landfill retirement obligations,
which we have historically referred to as closure and post-closure. The
adoption of the standard had no impact on our cash requirements. See Note 3
for additional discussion. 2. Interest and Notes Receivable from Affiliate Notes receivable from affiliate at December 31, 2003 and 2002 consist of seven
notes receivable from a wholly-owned subsidiary of BFI. The original notes
receivable were issued at a rate of 8.00% on July 7, 1999 and have face values
ranging from approximately $4.2 million to $278.7 million. An additional note,
related to the assumption of additional liabilities, was issued at a rate of
7.00% as of December 31, 2000 with a face value of $66.1 million. Interest is
payable annually and the principal amounts of the notes are due upon maturity
on July 7, 2011. Interest income of $34.2 million was included in the
accompanying statements of operations for the years ended December 31, 2003,
2002 and 2001. 3. Capping, Closure and Post-Closure Costs Effective January 1, 2003, we adopted SFAS 143 which outlines standards for
accounting for our landfill retirement obligations that have historically been
referred to as closure and post-closure. SFAS 143 does not change the basic
accounting principles that the waste industry has historically followed for
accounting for these types of obligations. In general, the industry has
followed the accounting practice of recognizing a liability on the balance
sheet and related expense as waste is disposed at the landfill to match
operating costs with revenues. The industry refers to this practice as
life-cycle accounting. The principle elements of life-cycle accounting are
still being followed. 200




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##### 



BFI ENERGY SYSTEMS OF PLYMOUTH, INC.
NOTES TO FINANCIAL STATEMENTS The new rules are a refinement to our industry practices and have caused a
change in the mechanics of calculating landfill retirement obligations and the
classification of where amounts are recorded in the financial statements.
Landfill retirement obligations are no longer accrued through a provision to
cost of operations, but rather as an increase to landfill assets. Since we do
not own the related landfills, the increase to landfill assets is recorded by
the entity that owns the landfill and is reflected in due to parent, net on the
accompanying balance sheets. Liabilities retained from divested landfills that
were historically accounted for in closure and post-closure liabilities were
reclassified to other-long-term obligations because they were not within the
scope of SFAS 143. In addition, in accordance with SFAS 143, we changed the
classification of certain costs related to capping, closure and post-closure
obligations to other accounts. The most significant change in classification
is that the costs for methane gas collection systems are recorded in the
landfill development assets by the entity that owns the related landfill asset.
Further, the cost of financial assurance instruments are no longer accrued as
part of the post-closure liability, but rather are expensed as incurred by the
entity that owns the related landfill. Upon adoption, SFAS 143 required a cumulative change in accounting for landfill
obligations retroactive to the date the landfill operations commenced or the
date the asset was acquired. To do this, SFAS 143 required the creation of the
related landfill asset, net of accumulated amortization and an adjustment to
the capping, closure and post-closure liabilities for cumulative accretion. At January 1, 2003, we recorded a cumulative effect of a change in accounting
principle of a net benefit of approximately $23.1 million (net of income tax
expense of $15.4 million). In addition, we recorded a decrease in our capping,
closure and post-closure liabilities of approximately $46.6 million and an
increase in other long-term obligations of $8.1 million. The pro forma
liability for capping, closure and post-closure obligations as of December 31,
2002, 2001 and 2000 would have been $163.1 million, $137.2 million and $114.9
million, respectively. We use a life-cycle accounting method for capping, closure and post-closure
liabilities. This method applies the costs to be capitalized associated with
capping, closing and monitoring the landfills over the associated landfill
capacity and associated consumption. On an annual basis, we update the capping,
closure and post-closure cost estimates for each landfill. Additionally,
future capacity estimates (sometimes referred to as airspace) are updated
annually using aerial surveys of each landfill to estimate utilized disposal
capacity and remaining disposal capacity. The overall cost and capacity
estimates are reviewed and approved by operations management annually. 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,
capping activities include the installation of compacted clay, geosynthetic
liners, drainage channels, compacted soil layers and vegetative soil barriers
over areas of a landfill where total airspace has been consumed and waste is no
longer being received. Capping activities occur throughout the life of the
landfill. Closure costs are those costs incurred after a landfill site stops receiving
waste, but prior to being certified as closed. 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 may extend for 30 years. Post-closure
requirements generally include maintenance and operational costs of the site
and monitoring the methane gas collection systems and groundwater systems,
among other post-closure activities. Estimated costs for capping, closure and
post-closure as required under Subtitle D regulations are compiled and updated
annually for each landfill by local and regional company engineers. 201




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##### 



BFI ENERGY SYSTEMS OF PLYMOUTH, INC.
NOTES TO FINANCIAL STATEMENTS SFAS 143 required landfill obligations to be recorded at fair value. Quoted
market prices in active markets are the best evidence of fair value. Since
quoted market prices for landfill retirement obligations are not available to
determine fair value, we use discounted cash flows of capping, closure and
post-closure cost estimates to approximate fair value. The cost estimates are
prepared by our local management and third-party engineers based on the
applicable local, state and federal regulations and site specific permit
requirements and are intended to approximate fair value. Capping, closure and post-closure costs are estimated for the period of
performance utilizing estimates a third party would charge (including profit
margins) to perform those activities in full compliance with Subtitle D. If we
perform the capping, closure and post-closure activities internally, the
difference between amounts accrued, based upon third party cost estimates
(including profit margins) and our actual cost incurred is recognized as a
component of cost of operations in the period earned. An estimate of fair
value should include the price that marketplace participants are able to
receive for bearing the uncertainties in cash flows. However, when utilizing
discounted cash flows, reliable estimates of market risk premiums may not be
obtainable. In our industry, there is no market that exists for selling the
responsibility for capping, closure and post-closure independent of selling the
entire landfill. Accordingly, we believe that it is not possible to develop a
methodology to reliably estimate a market risk premium and have excluded a
market risk premium from our determination of expected cash flows for capping,
closure and post-closure liability. We discount our capping, closure and post-closure costs using our
credit-adjusted, risk-free rate (of 9% in 2003). The credit-adjusted,
risk-free rate is based on the risk-free interest rate on obligations of
similar maturity adjusted for Allieds credit rating. Changes in our
credit-adjusted, risk-free rate do not change recorded liabilities, but
subsequently recognized obligations are measured using the revised
credit-adjusted, risk-free rate. Accretion expense is necessary to increase the accrued capping, closure and
post-closure accrual balance to its future, or undiscounted, value. To
accomplish this, we accrete our capping, closure and post-closure accrual
balance using the credit-adjusted, risk-free rate (of 9% in 2003) and charge
this accretion as an operating expense in that period. Accretion expense on
recorded landfill liabilities is recorded to cost of operations from the time
the liability is recognized until the costs are paid. 4. Income Taxes Our operating results are included in the consolidated federal income tax
return of Allied for the periods ended December 31, 2003, 2002 and 2001. For
purposes of determining state income tax liabilities, we filed either a
consolidated or separate return based on the filing regulations required by
each state. The allocation of consolidated taxes of Allied to us is determined
as if we prepared a separate tax return, in accordance with the provisions of
the SFAS No. 109, Accounting for Income Taxes. 202




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##### 



BFI ENERGY SYSTEMS OF PLYMOUTH, INC.
NOTES TO FINANCIAL STATEMENTS The components of the income tax provision (benefit) consist of the following
(in thousands): For the Year Ended December 31,2003
    
    2002
    
    2001Current state tax provision
    
    $
    
    
    
    $
    
    
    
    $
    Balance of provision
    
    
    10,029
    
    
    
    4,019
    
    
    
    2,290Total
    
    $
    10,029
    
    
    $
    4,019
    
    
    $
    2,290
 The current state tax provision represents the state income taxes paid and
payable for the periods presented. The balance of the provision represents
federal and deferred state income taxes. The income tax provision allocated
includes both current and deferred taxes, and is
reflected in intercompany with parent in stockholders equity on our balance
sheets. The reconciliation of our income tax provision at the federal statutory tax
rate to our effective tax rate follows (in thousands): For the Year Ended December 31,2003
    
    2002
    
    2001Federal statutory tax rate
    
    $
    8,775
    
    
    $
    3,517
    
    
    $
    2,004Consolidated state taxes, net of
federal benefit
    
    
    1,254
    
    
    
    502
    
    
    
    286Effective tax rate
    
    $
    10,029
    
    
    $
    4,019
    
    
    $
    2,290
 Deferred tax assets and liabilities (including any valuation allowance) are
recognized, realized and maintained on a corporate-wide basis by Allied. Our
cumulative tax-effected temporary differences that have been recorded in
intercompany with parent in stockholders equity on our balance sheets are as
follows (in thousands): December 31,2003
    
    2002Cumulative Tax-Effected Future (Taxable)
Deductible Temporary Differences:Capping, closure and post-closure reserves
    
    $
    82,029
    
    
    $
    89,120Other
obligations
    
    
    2,549
    
    
    
    Total
    
    $
    84,578
    
    
    $
    89,120
 5. Commitments and Contingencies Litigation  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, 2003, which have
not been accrued in the balance sheet, will not have a material adverse effect
on our liquidity, financial position or results from operations. 203




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##### 



BFI ENERGY SYSTEMS OF PLYMOUTH, INC.
NOTES TO FINANCIAL STATEMENTS 6. Common Stock BFI owns all 1,000 outstanding shares our Class A common stock. In July 1999,
we issued all 111 outstanding shares of Class B common stock to BFI in exchange
for notes receivable (see Note 2) and the assumption of certain liabilities
(see Note 3). In July 1999, BFI sold all 111 outstanding shares of the Class B
common stock to outside parties. The Class B shares do not generally have
voting rights, other than the right to elect one of the six members of our
Board of Directors. We have the right to call the Class B common stock for redemption at any time
after five years from the date of their initial issuance at a price equal to
10.5% of our net worth, as defined, as of the last day of the calendar month
immediately preceding the month in which the redemption notice is sent by us.
Net worth as defined in our incorporating documents varies significantly from
net worth presented in these financial statements. The redemption price is
limited to $41,977 per share of Class B common stock. The maximum aggregate
redemption price would be approximately $4.7 million if we called all Class B
shares for redemption. 7. Redeemable Class B Common Stock Three environmental consulting firms collectively own all 111 outstanding
shares of Class B common stock. The Class B shareholders have experience in
environmental technologies, community relations and knowledge of various
environmental laws and regulations to manage and reduce overall capping,
closure and post-closure liabilities. The Class B shareholders participate in
our Strategic Action Committee, which manages our overall liabilities. The holders of Class B common stock have the right to require BFI Plymouth to
redeem the shares any time after six years from the date of their initial
issuance at a price equal to 10% of our net worth, as defined, as of the last
day of the calendar month immediately preceding the month in which the
redemption notice is received by us. The redemption price is limited to
$39,978 per share of Class B common stock. The maximum aggregate redemption
price would be approximately $4.4 million if all Class B shares were tendered
for redemption by the shareholders. We present the Class B common stock on our balance sheet at approximate
redemption value based on the amounts due the shareholders upon redemption at
the balance sheet date. This amount will not exceed the maximum redemption
amount of $4.4 million although we may elect to call as described in Note 6. 204




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##### 



BFI ENERGY SYSTEMS OF PLYMOUTH, INC.
NOTES TO FINANCIAL STATEMENTS 8. Related Party Transactions Transactions with related parties are entered into only upon approval by a
majority of our directors and only upon terms comparable to those that would be
available from unaffiliated parties. All treasury functions are maintained by
Allied. In order to meet our cash flow needs, we will occasionally borrow
funds from a wholly-owned subsidiary of Allied under a revolving credit
agreement permitting a maximum borrowing of $15 million. Loans under the
revolving credit agreement bear interest at a rate of 6.5%. In addition, any
excess cash we generate is advanced to a wholly-owned subsidiary of Allied and
earns interest at a rate of 6.5%. We have pledged the notes receivable to
affiliate and substantially all of our other assets as collateral for any
borrowings under the revolving credit agreement. As of December 31, 2003 and
2002, $71.0 million and $48.2 million, respectively, of excess cash was
advanced and was reported as due from parent, net in the accompanying balance
sheets. Interest earned on excess cash of $3.6 million, $2.6 million and $1.5
million was reported as interest income in the accompanying statements of
operations for the years ended December 31, 2003, 2002 and 2001, respectively. The receivables for excess cash advanced are shown net of amounts we owe Allied
for administrative costs incurred by Allied on behalf of us. We are charged
for certain administrative and general expenses for services provided by Allied
pursuant to an administrative services agreement. Related charges for the
years ended December 31, 2003, 2002 and 2001 are approximately $0.1 million,
approximately $0.1 million and approximately $0.1 million, respectively, and
are included in general and administrative expenses. Management believes the
costs charged to us are reasonable in relation to the services provided, but
would not necessarily represent those charged by non-affiliated companies or
incurred for similar functions on a stand-alone basis. The intercompany with parent in stockholders equity represents adjustments to
present these stand-alone financial statements in accordance with generally
accepted accounting principles and is non-interest bearing due to the nature of
the transactions. 205




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##### 



BFI SERVICES GROUP, INC. Financial Statements  Report of Independent Auditors.Balance Sheets as of December 31, 2003 and 2002.Statements of Operations for Each of the Three Years in the Period Ended December 31, 2003.Statements of Stockholders Equity for the Three Years Ended December 31, 2003.Statements of Cash Flows for Each of the Three Years in the Period Ended December 31, 2003.Notes to Financial Statements. 206




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##### 



Report of Independent Auditors To the Board of Directors and Shareholders of
BFI Services Group, Inc.: In our opinion, the accompanying balance sheets and the related statements of
operations, of stockholders equity and of cash flows present fairly, in all
material respects, the financial position of BFI Services Group, Inc. at
December 31, 2003 and 2002, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 2003 in
conformity with accounting principles generally accepted in the United States
of America. 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 audit. We conducted our audit of these statements in
accordance with auditing standards generally accepted in the United States of
America, which 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, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audit provides a reasonable basis for our opinion. As discussed in Note 3 to the financial statements, the Company changed its
method of accounting for obligations associated with the retirement of
long-lived tangible assets and the associated asset retirement costs as of
January 1, 2003. PRICEWATERHOUSECOOPERS LLP Phoenix, Arizona
March 5, 2004 207




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##### 



BFI SERVICES GROUP, INC.
BALANCE SHEETS
(in thousands) December 31,2003
    
    2002ASSETSCurrent assets Cash
    
    $
    
    
    
    $
    124Interest receivable from affiliate
    
    
    7,527
    
    
    
    7,527Total current assets
    
    
    7,527
    
    
    
    7,651Notes receivable from affiliate
    
    
    194,014
    
    
    
    194,014Total assets
    
    $
    201,541
    
    
    $
    201,665LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities Current portion of accrued post-closure costs
    
    $
    19,403
    
    
    $
    13,651Total current liabilities
    
    
    19,403
    
    
    
    13,651Accrued post-closure costs, less current portion
    
    
    90,607
    
    
    
    120,315Due to parent, net
    
    
    14,640
    
    
    
    15,633Class B common stock; no par value; 74 shares
authorized, issued and outstanding
    
    
    2,326
    
    
    
    2,326Commitments and contingenciesClass A common stock; no par value; 666 shares
authorized, issued and outstanding
    
    
    1,744
    
    
    
    1,744Intercompany with parent
    
    
    37,312
    
    
    
    27,855Retained earnings
    
    
    35,509
    
    
    
    20,141Total stockholders equity
    
    
    74,565
    
    
    
    49,740Total liabilities and stockholders equity
    
    $
    201,541
    
    
    $
    201,665
 The accompanying Notes to Consolidated Financial Statements are an integral part of these balance sheets. 208




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##### 



BFI SERVICES GROUP, INC.
STATEMENTS OF OPERATIONS
(in thousands) Year Ended December 31,2003
    
    2002
    
    2001Post-closure provision and accretion
expense, net
    
    $
    9,241
    
    
    $
    7,850
    
    
    $
    (13,591
    )General and administrative expenses
    
    
    56
    
    
    
    63
    
    
    
    43Operating income (loss)
    
    
    (9,297
    )
    
    
    (7,913
    )
    
    
    13,548Interest income
    
    
    (15,521
    )
    
    
    (15,521
    )
    
    
    (15,521
    )Interest expense
    
    
    976
    
    
    
    1,025
    
    
    
    902Income before income tax
    
    
    5,248
    
    
    
    6,583
    
    
    
    28,167Income tax expense
    
    
    2,099
    
    
    
    2,633
    
    
    
    11,267Income before cumulative effect of change in
accounting principle
    
    
    3,149
    
    
    
    3,950
    
    
    
    16,900Cumulative effect of change in accounting
principle, net of tax
    
    
    12,219
    
    
    
    
    
    
    
    Net income
    
    
    15,368
    
    
    
    3,950
    
    
    
    16,900Changes in redemption value of Class B
common stock
    
    
    
    
    
    
    
    
    
    
    (1,895
    )Net income available to Class A common
shareholder
    
    $
    15,368
    
    
    $
    3,950
    
    
    $
    15,005Pro forma amounts, assuming the change in
accounting principle is applied retroactively and
excluding the cumulative effect of change in
accounting principle in the year of adoption:Net income
available to Class A common shareholder
    
    $
    3,149
    
    
    $
    3,786
    
    
    $
    16,083
 The accompanying Notes to Financial Statements are an integral part of these statements. 209




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##### 



BFI SERVICES GROUP, INC.
STATEMENTS OF STOCKHOLDERS EQUITY
(in thousands) Class A
    
    
    
    
    
    
    
    
    
    TotalCommon
    
    Intercompany
    
    Retained
    
    Stockholders'Stock
    
    with Parent
    
    Earnings
    
    EquityBalance as of December 31, 2000
    
    $
    1,744
    
    
    $
    13,955
    
    
    $
    1,186
    
    
    $
    16,885Change in redemption value of Class B
common stock
    
    
    
    
    
    
    
    
    
    
    (1,895
    )
    
    
    (1,895
    )Net income
    
    
    
    
    
    
    
    
    
    
    16,900
    
    
    
    16,900Change in intercompany with parent
    
    
    
    
    
    
    11,267
    
    
    
    
    
    
    
    11,267Balance as of December 31, 2001
    
    $
    1,744
    
    
    $
    25,222
    
    
    $
    16,191
    
    
    $
    43,157Net income
    
    
    
    
    
    
    
    
    
    
    3,950
    
    
    
    3,950Change in intercompany with parent
    
    
    
    
    
    
    2,633
    
    
    
    
    
    
    
    2,633Balance as of December 31, 2002
    
    $
    1,744
    
    
    $
    27,855
    
    
    $
    20,141
    
    
    $
    49,740Net income
    
    
    
    
    
    
    
    
    
    
    15,368
    
    
    
    15,368Change in intercompany with parent
    
    
    
    
    
    
    9,457
    
    
    
    
    
    
    
    9,457Balance as of December 31, 2003
    
    $
    1,744
    
    
    $
    37,312
    
    
    $
    35,509
    
    
    $
    74,565
 The accompanying Notes to Financial Statements are an integral part of these statements. 210




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##### 



BFI SERVICES GROUP, INC.
STATEMENTS OF CASH FLOWS
(in thousands) Year Ended December 31,2003
    
    2002
    
    2001Operating activities Net income
    
    $
    15,368
    
    
    $
    3,950
    
    
    $
    16,900Adjustments
to reconcile net income to cash provided by (used for)
operating activities Provision for income taxes
    
    
    2,099
    
    
    
    2,633
    
    
    
    11,267Post-closure provision and accretion, net
    
    
    9,241
    
    
    
    7,850
    
    
    
    (13,591
    )Cumulative effect of change in accounting principle,
net of tax
    
    
    (12,219
    )
    
    
    
    
    
    
    Post-closure expenditures
    
    
    (13,620
    )
    
    
    (14,126
    )
    
    
    (17,724
    )Cash
provided by (used for) operating activities
    
    
    869
    
    
    
    307
    
    
    
    (3,148
    )Financing activities Change in due to parent, net
    
    
    (993
    )
    
    
    (183
    )
    
    
    2,556Cash
provided by (used for) financing activities
    
    
    (993
    )
    
    
    (183
    )
    
    
    2,556Increase (decrease) in cash
    
    
    (124
    )
    
    
    124
    
    
    
    (592
    )Cash, beginning of year
    
    
    124
    
    
    
    
    
    
    
    592Cash, end of year
    
    $
    
    
    
    $
    124
    
    
    $
    Supplemental disclosures Non-cash change in intercompany with parent in equity
    
    $
    9,457
    
    
    $
    2,633
    
    
    $
    11,267
 The accompanying Notes to Financial Statements are an integral part of these statements. 211




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##### 



BFI SERVICES GROUP, INC.
NOTES TO FINANCIAL STATEMENTS 1. Organization and Summary of Significant Accounting Policies BFI Services Group, Inc. (BFI Services, we or the Company), a California
corporation, manages certain liabilities assumed from its parent company
Browning-Ferris Industries, Inc. (BFI), a wholly owned subsidiary of Allied
Waste Industries, Inc. (Allied). These liabilities represent estimated
post-closure costs of closed landfills including leachate management, ground
water monitoring, cover management, gas management, property management and
administrative expenses. We do not own the related landfills. BFI owns all of
our Class A common stock, which represents 90% of our outstanding shares of
common stock. The Class B common stock, which represents the remaining 10%
equity interest, is owned 1.5% by unaffiliated environmental consultants and
98.5% by BFI. We are dependent on Allied to provide funding for the liabilities assumed.
This is accomplished through interest income and principal payments on notes
receivable from affiliate (see Note 2) and, if necessary, borrowings from a
subsidiary of Allied under a revolving credit agreement (see Note 8). Purpose and basis of presentation  The purpose of these financial statements is to provide information about BFI
Services which guarantees certain outstanding debt obligations of BFI and
Allied. BFI Services, along with substantially all of Allieds other
subsidiaries, represent the aggregate guarantor of the debt obligations. In
the event that BFI or Allied cannot make payments on such debt obligations when
they are due, the guarantor subsidiaries must make the payments instead. These
financial statements are presented herein because BFI Services is not a
wholly-owned subsidiary of Allied and Securities and Exchange Commission (SEC)
Rule 3-10 of Regulation S-X requires separate stand alone financial statements
of non wholly-owned guarantors. BFI Services is not a registrant with the SEC and is not subject to the SECs
periodic reporting requirements, except as may be required by Rule 3-10 of
Regulation S-X. Certain estimates, including allocations from Allied, have
been made to provide financial information for SEC and stand-alone reporting
purposes as if BFI Services were a registrant. We believe that the
presentations and disclosures herein are adequate to make the financial
information not misleading. In the opinion of management, all adjustments
necessary to fairly state the financial statements have been reflected. We adopted Statement of Financial Accounting Standards No. 143, Accounting for
Asset Retirement Obligations(SFAS 143) on January 1, 2003, which changed our
accounting for landfill retirement obligations, which impacts the comparability
of the financial information presented herein. See Recently adopted accounting
pronouncementsbelow. 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.
Although we believe that our estimates and assumptions are reasonable, they are
based upon information presently available. Actual results may differ
significantly from the estimates. 212




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##### 



BFI SERVICES GROUP, INC.
NOTES TO FINANCIAL STATEMENTS Fair value of financial instruments  Our financial instruments, as defined by Statement of Financial Accounting
Standards (SFAS) No. 107, Disclosures about the Fair Value of Financial
Instruments, include cash and notes receivable. The carrying value of our cash
approximates fair value due to the short-term maturity of this instrument and
the carrying value of the notes receivable approximates fair value due to the
fixed interest rate being comparable with market rates for similar types of
notes receivable. Accrued post-closure costs  Accrued post-closure costs represent an estimate of the present value of the
future obligation associated with post-closure monitoring of our non-hazardous
solid waste landfills. Site specific post-closure engineering cost estimates
are prepared annually. The impact of changes determined to be changes in
estimates for closed landfill sites are recognized in results of operations
when determined. Recently adopted accounting pronouncements  The Financial Accounting Standards Board (FASB) issued SFAS 143 in June 2001,
which outlines standards for accounting for obligations associated with the
retirement of long-lived tangible assets. The standard was effective beginning
January 1, 2003 and impacts the accounting for landfill retirement obligations,
which we have historically referred to as post-closure. The adoption of the
standard had no impact on our cash requirements. See Note 3 for additional
discussion. 2. Interest and Notes Receivable from Affiliate Notes receivable at December 31, 2003 and 2002 consists of eight notes
receivable from a wholly owned subsidiary of BFI. These notes receivable were
issued on July 7, 1999 and have face values ranging from approximately $310,000
to $138.8 million. Interest is payable annually at a rate of 8.0% and the
principal amount of the notes are due upon maturity on July 7, 2011. Interest
income of $15.5 million was included in the accompanying statements of
operations for the years ended December 31, 2003, 2002 and 2001. 3. Post-Closure Costs Effective January 1, 2003, we adopted SFAS 143 which outlines standards for
accounting for our landfill retirement obligations that have historically been
referred to as post-closure. SFAS 143 does not change the basic accounting
principles that the waste industry has historically followed for accounting for
these types of obligations. In general, the industry has followed the
accounting practice of recognizing a liability on the balance sheet and related
expense as waste is disposed at the landfill to match operating costs with
revenues. The industry refers to this practice as life-cycle accounting. The
principle elements of life-cycle accounting are still being followed. The new rules required only a few changes that affected our accounting for
liabilities associated with closed landfills. The most significant change was
a change in the discount rate from a risk-free rate in 2002 (7.0%) to a
credit-adjusted risk-free rate in 2003 (9.0%). Further, the cost of financial
assurance instruments are no longer accrued as part of the post-closure
liability, but rather are expensed as incurred by the entity that owns the
related landfill. 213




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##### 



BFI SERVICES GROUP, INC.
NOTES TO FINANCIAL STATEMENTS Upon adoption, SFAS 143 required a cumulative change in accounting for landfill
obligations retroactive to the date the landfill operations commenced or the
date the asset was acquired. At January 1, 2003, we recorded a cumulative
effect of a change in accounting principle of a net benefit of approximately
$12.2 million (net of income tax expense of $8.2 million). In addition, we
recorded a decrease in our post-closure liabilities of approximately $20.4
million. The pro forma liability for post-closure obligations as of December
31, 2002, 2001 and 2000 would have been $102.7 million. 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 may
extend for 30 years. Post-closure requirements generally include maintenance
and operational costs of the site and monitoring the methane gas collection
systems and groundwater systems, among other post-closure activities. Estimated
costs for post-closure as required under Subtitle D regulations are compiled
and updated annually for each landfill by local and regional company engineers. SFAS 143 required landfill obligations to be recorded at fair value. Quoted
market prices in active markets are the best evidence of fair value. Since
quoted market prices for landfill retirement obligations are not available to
determine fair value, we use discounted cash flows of post-closure cost
estimates to approximate fair value. The cost estimates are prepared by our
local management and third-party engineers based on the applicable local, state
and federal regulations and are intended to approximate fair value. Post-closure costs are estimated for the period of performance utilizing
estimates a third party would charge (including profit margins) to perform
those activities in full compliance with Subtitle D. If we perform the
post-closure activities internally, the difference between amounts accrued,
based upon third party cost estimates (including profit margins) and our actual
cost incurred is recognized as a component of cost of operations in the period
earned. An estimate of fair value should include the price that marketplace
participants are able to receive for bearing the uncertainties in cash flows.
However, when utilizing discounted cash flows, reliable estimates of market
risk premiums may not be obtainable. In our industry, there is no market that
exists for selling the responsibility for post-closure independent of selling
the entire landfill. Accordingly, we believe that it is not possible to
develop a methodology to reliably estimate a market risk premium and have
excluded a market risk premium from our determination of expected cash flows
for post-closure liability. We discount our post-closure costs using Allieds credit-adjusted, risk-free
rate (of 9% in 2003). The credit-adjusted, risk-free rate is based on the
risk-free interest rate on obligations of similar maturity adjusted for
Allieds credit rating. 214




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##### 



BFI SERVICES GROUP, INC.
NOTES TO FINANCIAL STATEMENTS Accretion expense is necessary to increase the accrued post-closure balance to
its future, or undiscounted, value. To accomplish this, we accrete our
post-closure accrual balance using the credit-adjusted, risk-free rate (of 9%
in 2003) and charge this accretion as an operating expense in that period.
Accretion expense on recorded landfill liabilities is expensed from the time
the liability is recognized until the costs are paid. 4. Income Taxes Our operating results are included in the consolidated federal income tax
return of Allied for the periods ended December 31, 2003, 2002 and 2001. For
purposes of determining state income tax liabilities, we filed either a
consolidated or separate return based on the filing regulations required by
each state. The allocation of consolidated taxes of Allied to us is determined
as if we prepared a separate tax return, in accordance with the provisions of
the SFAS No. 109, Accounting for Income Taxes. The components of the income tax provision consist of the following (in
thousands): For the Year Ended December 31,2003
    
    2002
    
    2001Current state tax provision
    
    $
    
    
    
    $
    
    
    
    $
    Balance of provision
    
    
    2,099
    
    
    
    2,633
    
    
    
    11,267Total
    
    $
    2,099
    
    
    $
    2,633
    
    
    $
    11,267
 The current state tax provision represents the state income taxes paid and
payable for the periods presented. The balance of the provision represents
federal and deferred state income taxes. The income tax provision allocated
includes both current and deferred taxes and is
reflected in intercompany with parent in stockholders equity on our balance
sheets. The reconciliation of our income tax provision at the federal statutory tax
rate to our effective tax rate follows (in thousands): For the Year Ended December 31,2003
    
    2002
    
    2001Federal statutory tax rate
    
    $
    1,837
    
    
    $
    2,304
    
    
    $
    9,858Consolidated state taxes, net of
federal benefit
    
    
    262
    
    
    
    329
    
    
    
    1,408Effective tax rate
    
    $
    2,099
    
    
    $
    2,633
    
    
    $
    11,266
 Deferred tax assets and liabilities (including any valuation allowance) are
recognized, realized and maintained on a corporate-wide basis by Allied. Our
cumulative tax-effected temporary differences that have been recorded in
intercompany with parent in stockholders equity on our balance sheets are as
follows (in thousands): December 31,2003
    
    2002Cumulative Tax-Effected Future
(Taxable) Deductible Temporary
Differences:Post-closure reserves
    
    $
    44,004
    
    
    $
    53,586Total
    
    $
    44,004
    
    
    $
    53,586
 215




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##### 



BFI SERVICES GROUP, INC.
NOTES TO FINANCIAL STATEMENTS 5. Commitments and Contingencies Litigation  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, 2003, which have
not been accrued in the balance sheet, will not have a material adverse effect
on our liquidity, financial position or results from operations. 6. Common Stock BFI owns all 666 outstanding shares of our Class A common stock. In July 1999,
we issued all 74 outstanding shares of Class B common stock to BFI in exchange
for notes receivable (see Note 2) and the assumption of certain contingent
liabilities (see Note 3). In July 1999, BFI sold all 74 outstanding shares of
the Class B common stock to outside parties. In 2001, BFI repurchased 72.86
outstanding shares of the Class B common stock from the outside parties. The
Class B shares do not generally have voting rights, other than the right to
elect one of the six members of our Board of Directors. We have the right to call the Class B common stock for redemption at any time
after five years from the date of their initial issuance at a price equal to
10.5% of our net worth, as defined, as of the last day of the calendar month
immediately preceding the month in which the redemption notice is sent by us.
Net worth, as defined in our incorporating documents, varies significantly from
net worth presented in these financial statements. The redemption price is
limited to $33,002 per share of Class B common stock. The maximum aggregate
redemption price would be approximately $2.4 million if all Class B shares were
called for redemption by us. 216




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##### 



BFI SERVICES GROUP, INC.
NOTES TO FINANCIAL STATEMENTS 7. Redeemable Class B Common Stock As of December 31, 2003, two environmental consulting firms collectively own
1.14 outstanding shares of Class B common stock. The Class B shareholders have
experience in environmental technologies, community relations and knowledge of
various environmental laws and regulations to manage and reduce the overall
closure and post-closure liabilities. The Class B shareholders participate in
our Strategic Action Committee, which manages our overall liabilities. The holders of Class B common stock have the right to require BFI Services to
redeem the shares any time after six years from the date of their initial
issuance at a price equal to 10% of our net worth, as defined, as of the last
day of the calendar month immediately preceding the month in which the
redemption notice is received by the us. The redemption price is limited to
$31,430 per share of Class B common stock. The maximum aggregate redemption
price would be approximately $2.3 million if all Class B shares were tendered
for redemption by the shareholders. We present the Class B common stock on our balance sheet at approximate
redemption value based on the amounts due the shareholders upon redemption at
the balance sheet date. This amount will not exceed the maximum redemption
amount of $2.3 million although we may elect to call as described in Note 6. 8. Related Party Transactions Transactions with related parties are entered into only with the approval by
a majority of our directors and only upon terms comparable to those that
would be available from unaffiliated parties. All treasury functions are
maintained by Allied. In order to meet our cash flow needs, we will
occasionally borrow funds from a wholly-owned subsidiary of Allied under a
revolving credit agreement permitting a maximum borrowing of $40 million. We
have pledged the notes receivable to affiliate and substantially all of our
other assets as collateral for any borrowings. As of December 31, 2003 and
2002, $14.6 million and $15.6 million, respectively, of cash borrowed under
the revolving credit agreement was reported as due to parent in the
accompanying balance sheets. We repay these funds including interest
calculated at 6.5%. Interest expense related to loans from Allied was $1.0
million, $1.0 million and $0.9 million for the years ended December 31, 2003,
2002 and 2001, respectively. We are charged for certain administrative and general expenses for services
provided by Allied pursuant to an administrative services agreement. Related
charges for the years ended December 31, 2003, 2002 and 2001 are
approximately $0.1 million, approximately $0.1 million and approximately $0.1
million, respectively, and are included in general and administrative
expenses. Management believes the costs charged to us are reasonable in
relation to the services provided, but would not necessarily represent those
charged by non-affiliated companies or incurred for similar functions on a
stand-alone basis. The intercompany with parent in stockholders equity represents adjustments
to present these stand-alone financial statements in accordance with
generally accepted accounting principles and is non-interest bearing due to
the nature of the transactions. 217




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##### 



BFI TRANS RIVER (LP), INC. Financial Statements  Report of Independent Auditors.Balance Sheets as of December 31, 2003 and 2002.Statements of Operations for Each of the Three Years in the Period Ended December 31, 2003.Statements of Stockholders Deficit for the Three Years Ended December 31, 2003.Statements of Cash Flows for Each of the Three Years in the Period Ended December 31, 2003.Notes to Financial Statements. 218




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##### 



Report of Independent Auditors To the Board of Directors and Shareholders of
BFI Trans River (LP), Inc.: In our opinion, the accompanying balance sheets and the related statements of
operations, of stockholders deficit and of cash flows present fairly, in all
material respects, the financial position of BFI Trans River (LP), Inc. at
December 31, 2003 and 2002, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 2003 in
conformity with accounting principles generally accepted in the United States
of America. 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 audit. We conducted our audit of these statements in
accordance with auditing standards generally accepted in the United States of
America, which 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, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audit provides a reasonable basis for our opinion. PRICEWATERHOUSECOOPERS LLP Phoenix, Arizona
March 5, 2004 219




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##### 



BFI TRANS RIVER (LP), INC.
BALANCE SHEETS
(in thousands) December 31,2003
    
    2002ASSETSCurrent assets Cash
    
    $
    
    
    
    $
    80Interest receivable from affiliate
    
    
    4,017
    
    
    
    4,017Total current assets
    
    
    4,017
    
    
    
    4,097Notes receivable from affiliate
    
    
    103,554
    
    
    
    103,554Total assets
    
    $
    107,571
    
    
    $
    107,651LIABILITIES
AND STOCKHOLDERS DEFICITCurrent liabilities Current portion of environmental liabilities
    
    $
    20,401
    
    
    $
    9,084Total current liabilities
    
    
    20,401
    
    
    
    9,084Due to parent, net
    
    
    32,542
    
    
    
    29,651Environmental liabilities, less current portion
    
    
    61,798
    
    
    
    87,663Class B common stock; no par value; 111 shares
authorized, issued and outstanding
    
    
    267
    
    
    
    163Commitments and contingenciesClass A common stock; no par value; 1,000 shares
authorized, issued and outstanding
    
    
    931
    
    
    
    931Intercompany with parent
    
    
    (28,965
    )
    
    
    (33,581
    )Retained earnings
    
    
    20,597
    
    
    
    13,740Total
stockholders deficit
    
    
    (7,437
    )
    
    
    (18,910
    )Total
liabilities and stockholders deficit
    
    $
    107,571
    
    
    $
    107,651
 The accompanying Notes to Financial Statements are an integral part of these balance sheets. 220




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##### 



BFI TRANS RIVER (LP), INC.
STATEMENTS OF OPERATIONS
(in thousands) Year Ended December 31,2003
    
    2002
    
    2001Remediation (income) expense, net
    
    $
    (5,464
    )
    
    $
    (5,324
    )
    
    $
    7,186General and administrative expenses
    
    
    141
    
    
    
    166
    
    
    
    159Operating income (loss)
    
    
    5,323
    
    
    
    5,158
    
    
    
    (7,345
    )Interest income
    
    
    (8,284
    )
    
    
    (8,284
    )
    
    
    (8,284
    )Interest expense
    
    
    2,006
    
    
    
    1,817
    
    
    
    1,363Income (loss) before income tax
    
    
    11,601
    
    
    
    11,625
    
    
    
    (424
    )Income tax expense (benefit)
    
    
    4,640
    
    
    
    4,650
    
    
    
    (169
    )Net income (loss)
    
    
    6,961
    
    
    
    6,975
    
    
    
    (255
    )Change in redemption value of Class B
common stock
    
    
    (104
    )
    
    
    (163
    )
    
    
    225Net income (loss) available to Class A
common shareholder
    
    $
    6,857
    
    
    $
    6,812
    
    
    $
    (30
    )
 The accompanying Notes to Financial Statements are an integral part of these statements. 221




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##### 



BFI TRANS RIVER (LP), INC.
STATEMENTS OF STOCKHOLDERS DEFICIT
(in thousands) Class A
    
    
    
    
    
    
    
    
    
    TotalCommon
    
    Intercompany
    
    Retained
    
    Stockholders'Stock
    
    with Parent
    
    Earnings
    
    DeficitBalance as of December 31, 2000
    
    $
    931
    
    
    $
    (38,061
    )
    
    $
    6,958
    
    
    $
    (30,172
    )Change in redemption value of Class B
common stock
    
    
    
    
    
    
    
    
    
    
    225
    
    
    
    225Net loss
    
    
    
    
    
    
    
    
    
    
    (255
    )
    
    
    (255
    )Change in intercompany with parent
    
    
    
    
    
    
    (170
    )
    
    
    
    
    
    
    (170
    )Balance as of December 31, 2001
    
    $
    931
    
    
    $
    (38,231
    )
    
    $
    6,928
    
    
    $
    (30,372
    )Change in redemption value of Class B
common stock
    
    
    
    
    
    
    
    
    
    
    (163
    )
    
    
    (163
    )Net income
    
    
    
    
    
    
    
    
    
    
    6,975
    
    
    
    6,975Change in intercompany with parent
    
    
    
    
    
    
    4,650
    
    
    
    
    
    
    
    4,650Balance as of December 31, 2002
    
    $
    931
    
    
    $
    (33,581
    )
    
    $
    13,740
    
    
    $
    (18,910
    )Change in redemption value of Class B
common stock
    
    
    
    
    
    
    
    
    
    
    (104
    )
    
    
    (104
    )Change in intercompany with parent
    
    
    
    
    
    
    4,616
    
    
    
    
    
    
    
    4,616Net income
    
    
    
    
    
    
    
    
    
    
    6,961
    
    
    
    6,961Balance as of December 31, 2003
    
    $
    931
    
    
    $
    (28,965
    )
    
    $
    20,597
    
    
    $
    (7,437
    )
 The accompanying Notes to Financial Statements are an integral part of these statements. 222




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##### 



BFI TRANS RIVER (LP), INC.
STATEMENTS OF CASH FLOWS
(in thousands) Year Ended December 31,2003
    
    2002
    
    2001Operating activities Net income (loss)
    
    $
    6,961
    
    
    $
    6,975
    
    
    $
    (255
    )Adjustments to reconcile net income (loss) to cash used for
operating activities Provision (benefit) for income taxes
    
    
    4,640
    
    
    
    4,650
    
    
    
    (169
    )Remediation expense (benefit)
    
    
    (5,464
    )
    
    
    (5,324
    )
    
    
    7,186Environmental expenditures
    
    
    (9,108
    )
    
    
    (11,898
    )
    
    
    (24,035
    )Cash used for operating activities
    
    
    (2,971
    )
    
    
    (5,597
    )
    
    
    (17,273
    )Financing activities Change in due from parent
    
    
    2,891
    
    
    
    5,677
    
    
    
    17,024Cash provided by financing activities
    
    
    2,891
    
    
    
    5,677
    
    
    
    17,024Increase (decrease) in cash
    
    
    (80
    )
    
    
    80
    
    
    
    (249
    )Cash, beginning of year
    
    
    80
    
    
    
    
    
    
    
    249Cash, end of year
    
    $
    
    
    
    $
    80
    
    
    $
    Supplemental disclosures Non-cash change in intercompany with parent in equity
    
    $
    4,616
    
    
    $
    4,650
    
    
    $
    
 The accompanying Notes to Financial Statements are an integral part of these statements. 223




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##### 



BFI TRANS RIVER (LP), INC.
NOTES TO FINANCIAL STATEMENTS 1. Organization and Summary of Significant Accounting Policies BFI Trans River (LP), Inc. (BFI Trans River, we or the Company), a Delaware
corporation, manages certain contingent environmental liabilities assumed from
its parent company Browning-Ferris Industries, Inc. (BFI), a wholly owned
subsidiary of Allied Waste Industries, Inc. (Allied). These contingent
environmental liabilities represent estimated transaction costs for Superfund
matters, remediation costs, potential legal settlements and related legal and
engineering costs. BFI owns all Class A common stock of the Company, which
represents 90% of our outstanding shares of common stock. The Class B common
stock, which represents the remaining 10% equity interest, is owned by
environmental consultants and lawyers that are not employees of the Company or
Allied. We are dependent on Allied to provide funding for the liabilities assumed.
This is accomplished through interest income and principal payments on notes
receivable from affiliate (see Note 2) and, if necessary, borrowings from a
subsidiary of Allied under a revolving credit agreement (see Note 8). Purpose and basis of presentation  The purpose of these financial statements is to provide information about BFI
Trans River which guarantees certain outstanding debt obligations of BFI and
Allied. BFI Trans River along with substantially all of Allieds other
subsidiaries, represent the aggregate guarantor of the debt obligations. In
the event that BFI or Allied cannot make payments on such debt obligations when
they are due, the guarantor subsidiaries must make the payments instead. These
financial statements are presented herein because BFI Trans River is not a
wholly-owned subsidiary of Allied and Securities and Exchange Commission (SEC)
Rule 3-10 of Regulation S-X requires separate stand alone financial statements
of non wholly-owned guarantors. BFI Trans River is not a registrant with the SEC and is not subject to the
SECs periodic reporting requirements, except as may be required by Rule 3-10
of Regulation S-X. Certain estimates, including allocations from Allied, have
been made to provide financial information for SEC and stand-alone reporting
purposes as if BFI Trans River were a registrant. We believe that the
presentations and disclosures herein are adequate to make the financial
information not misleading. In the opinion of management, all adjustments
necessary to fairly state the financial statements have been reflected. 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.
Although we believe that our estimates and assumptions are reasonable, they are
based upon information presently available. Actual results may differ
significantly from the estimates. Fair value of financial instruments  Our financial instruments, as defined by Statement of Financial Accounting
Standards (SFAS) No. 107, Disclosures about the Fair Value of Financial
Instruments, include cash and notes receivable. The carrying value of our cash
approximates fair value due to the short-term maturity of this instrument and
the carrying value of the notes receivable approximates fair value due to the
fixed interest rate being comparable with market rates for similar types of
notes receivable. 224




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##### 



BFI TRANS RIVER (LP), INC.
NOTES TO FINANCIAL STATEMENTS 2. Interest and Notes Receivable from Affiliate Notes receivable at December 31, 2003 and 2002 consists of eleven notes
receivable from a wholly owned subsidiary of BFI. These notes receivable were
issued on July 7, 1999 and have face values ranging from approximately $30,000
to $72.9 million. Interest is payable annually at a rate of 8.0% and the
principal amount of the notes is due upon maturity on July 7, 2011. Interest
income of $8.3 million was included in the accompanying statements of
operations for the years ended December 31, 2003, 2002 and 2001. 3. Environmental Liabilities We accrue for costs associated with environmental liabilities 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 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
receipt is deemed probable. There were no significant recovery receivables
outstanding as of December 31, 2003 or December 31, 2002. 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,
Environmental Remediation Liabilities. We engage independent environmental consulting firms to assist us in conducting
assessments of our environmental liabilities. We cannot determine with
precision the ultimate amounts for environmental liabilities. We make
estimates of our potential liabilities in consultation with our independent
environmental engineers and legal counsel. These estimates 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 financial statements. We expect that the environmental liabilities will
be adjusted from time to time as circumstances change or actual amounts are
realized. Any changes (increases or decreases) in our estimate of the
environmental liabilities are recorded in results of operations in the period
the change is determined. Our ultimate liabilities for environmental matters may differ from the
estimates used in our assessment to date. We periodically evaluate the
recorded liabilities as additional information becomes available to ascertain
whether the accrued liabilities are adequate. We have determined that the
recorded undiscounted liability for environmental matters 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 liquidity or financial position. However, we
believe that it is reasonably possible the ultimate outcome of environmental
matters could result in an adjustment that would be material to our results
of operations. 225




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##### 



BFI TRANS RIVER (LP), INC.
NOTES TO FINANCIAL STATEMENTS 4. Income Taxes Our operating results are included in the consolidated federal income tax
return of Allied for the periods ended December 31, 2003, 2002 and 2001. For
purposes of determining state income tax liabilities, we filed either a
consolidated or separate return based on the filing regulations required by
each state. The allocation of consolidated taxes of Allied to us is determined
as if we prepared a separate tax return, in accordance with the provisions of
the SFAS No. 109, Accounting for Income Taxes. The components of the income tax provision (benefit) consist of the following
(in thousands): For the Year Ended December 31,2003
    
    2002
    
    2001Current state tax provision
    
    $
    
    
    
    $
    
    
    
    $
    Balance of provision (benefit)
    
    
    4,640
    
    
    
    4,650
    
    
    
    (169
    )Total
    
    $
    4,640
    
    
    $
    4,650
    
    
    $
    (169
    )
 The current state tax provision represents the state income taxes paid and
payable for the periods presented. The balance of the provision represents
federal and deferred state income taxes. The income tax provision allocated
includes both current and deferred taxes and is
reflected in intercompany with parent in stockholders equity on our balance
sheets. The reconciliation of our income tax provision at the federal statutory tax
rate to our effective tax rate follows (in thousands): For the Year Ended December 31,2003
    
    2002
    
    2001Federal statutory tax rate
    
    $
    4,060
    
    
    $
    4,069
    
    
    $
    (148
    )Consolidated state taxes, net of
federal benefit
    
    
    580
    
    
    
    581
    
    
    
    (21
    )Effective tax rate
    
    $
    4,640
    
    
    $
    4,650
    
    
    $
    (169
    )
 Deferred tax assets and liabilities (including any valuation allowance) are
recognized, realized and maintained on a corporate-wide basis by Allied. Our
cumulative tax-effected temporary differences that have been recorded in
intercompany with parent in stockholders equity on our balance sheets are as
follows (in thousands): December 31,2003
    
    2002Cumulative Tax-Effected Future
(Taxable) Deductible Temporary
Differences:Environmental Liabilities
    
    $
    32,880
    
    
    $
    38,699Total
    
    $
    32,880
    
    
    $
    38,699
 226




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##### 



BFI TRANS RIVER (LP), INC.
NOTES TO FINANCIAL STATEMENTS 5. Commitments and Contingencies Litigation  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, 2003, which have
not been accrued in the balance sheet, will not have a material adverse effect
on our liquidity, financial position or results from operations. 6. Common Stock BFI owns all 1,000 outstanding shares of our Class A common stock. In July
1999, we issued all 111 outstanding shares of Class B common stock to BFI in
exchange for notes receivable (see Note 2) and the assumption of certain
contingent environmental liabilities (see Note 3). In July 1999, BFI sold all
111 outstanding shares of the Class B common stock to outside parties. The
Class B shares do not generally have voting rights, other than the right to
elect one of the six members of our Board of Directors. We have the right to call the Class B common stock for redemption at any time
after five years from the date of their initial issuance at a price equal to
10.5% of our net worth, as defined, as of the last day of the calendar month
immediately preceding the month in which the redemption notice is sent by us.
Net worth, as defined in our incorporating documents, varies significantly from
net worth presented in these financial statements. The redemption price is
limited to $11,743 per share of Class B common stock. The maximum aggregate
redemption price would be approximately $1.3 million if all Class B shares were
called for redemption by us. 7. Redeemable Class B Common Stock Two environmental lawyers and two environmental consulting firms collectively
own all 111 outstanding shares of Class B common stock. The Class B
shareholders have experience in environmental technologies, community
relations and knowledge of various environmental laws and regulations to
manage and reduce overall contingent environmental liabilities. The Class B
shareholders participate in our Strategic Action Committee, which
manages our overall liabilities. 227




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##### 



BFI TRANS RIVER (LP), INC.
NOTES TO FINANCIAL STATEMENTS The holders of Class B common stock have the right to require BFI Trans River
to redeem the shares any time after six years from the date of their initial
issuance at a price equal to 10% of our net worth, as defined, as of the last
day of the calendar month immediately preceding the month in which the
redemption notice is received by us. The redemption price is limited to
$11,184 per share of Class B common stock. The maximum aggregate redemption
price would be approximately $1.2 million if all Class B shares were tendered
for redemption by the shareholders. We present the Class B common stock on our balance sheet at approximate
redemption value based on the amounts due the shareholders upon redemption at
the balance sheet date. This amount will not exceed the maximum redemption
amount of $1.2 million although we may elect to call as described in Note 6. 5. Related Party Transactions Transactions with related parties are entered into only with the approval by
a majority of our directors and only upon terms comparable to those that
would be available from unaffiliated parties. All treasury functions are
maintained by Allied. In order to meet our cash flow needs, we will
occasionally borrow funds from a wholly-owned subsidiary of Allied under a
revolving credit agreement permitting a maximum borrowing of $70 million.
Loans under the revolving credit agreement bear interest at a rate of 6.5%.
In addition, any excess cash we generate is advanced to a wholly-owned
subsidiary of Allied and earns interest at a rate of 6.5%. We have pledged
the notes receivable to affiliate and substantially all of our other assets
as collateral for any borrowings under the revolving credit agreement. As of
December 31, 2003 and 2002, $32.5 million and $29.7 million, respectively, of
cash borrowed under the revolving credit agreement was reported as due
to/from parent in the accompanying balance sheets. Interest expense related
to loans from Allied was $2.0 million, $1.8 million and $1.4 million for the
years ended December 31, 2003, 2002 and 2001, respectively. We are charged for certain administrative and general expenses for services
provided by Allied pursuant to an administrative services agreement. Related
charges for the years ended December 31, 2003, 2002 and 2001 are $0.1
million, $0.2 million and $0.2 million, respectively, and are included in
general and administrative expenses. Management believes the costs charged
to us are reasonable in relation to the services provided, but would not
necessarily represent those charged by non-affiliated companies or incurred
for similar functions on a stand-alone basis. The intercompany with parent in stockholders equity represents adjustments
to present these stand-alone financial statements in accordance with
generally accepted accounting principles and is non-interest bearing due to
the nature of the transactions. 228




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##### 



BROWNING-FERRIS INDUSTRIES EUROPE, INC. Financial Statements  Report of Independent Auditors.Balance Sheets as of December 31, 2003 and 2002.Statements of Operations for Each of the Three Years in the Period Ended December 31, 2003.Statements of Stockholders Deficit for the Three Years Ended December 31, 2003.Statements of Cash Flows for Each of the Three Years in the Period Ended December 31, 2003.Notes to Financial Statements. 229




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##### 



Report of Independent Auditors To the Board of Directors and Shareholders of
Browning-Ferris Industries Europe, Inc.: In our opinion, the accompanying balance sheets and the related statements of
operations, of stockholders deficit and of cash flows present fairly, in all
material respects, the financial position of Browning-Ferris Industries Europe,
Inc. at December 31, 2003 and 2002, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 2003 in
conformity with accounting principles generally accepted in the United States
of America. 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 audit. We conducted our audit of these statements in
accordance with auditing standards generally accepted in the United States of
America, which 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, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audit provides a reasonable basis for our opinion. PRICEWATERHOUSECOOPERS LLP Phoenix, Arizona
March 5, 2004 230




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##### 



BROWNING-FERRIS INDUSTRIES EUROPE, INC.
BALANCE SHEETS
(in thousands) December 31,2003
    
    2002ASSETSCurrent assets Cash
    
    $
    137
    
    
    $
    38Interest receivable from affiliates
    
    
    6,052
    
    
    
    6,052Total current assets
    
    
    6,189
    
    
    
    6,090Notes receivable from affiliates
    
    
    155,996
    
    
    
    155,996Total assets
    
    $
    162,185
    
    
    $
    162,086LIABILITIES
AND STOCKHOLDERS DEFICITCurrent liabilities Current portion of insurance liabilities
    
    $
    7,900
    
    
    $
    16,074Total current liabilities
    
    
    7,900
    
    
    
    16,074Due to parent, net
    
    
    143,546
    
    
    
    130,708Insurance liabilities, less current portion
    
    
    25,248
    
    
    
    29,490Class B common stock; no par value; 111 shares
authorized, issued and outstanding
    
    
    
    
    
    
    Commitments and contingenciesClass A common stock; no par value; 1,000 shares
authorized, issued and outstanding
    
    
    1,403
    
    
    
    1,403Intercompany with parent
    
    
    (27,517
    )
    
    
    (27,388
    )Retained earnings
    
    
    11,605
    
    
    
    11,799Total
stockholders deficit
    
    
    (14,509
    )
    
    
    (14,186
    )Total
liabilities and stockholders deficit
    
    $
    162,185
    
    
    $
    162,086
 The accompanying Notes to Financial Statements are an integral part of these balance sheets. 231




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##### 



BROWNING-FERRIS INDUSTRIES EUROPE, INC.
STATEMENTS OF OPERATIONS
(in thousands) Year Ended December 31,2003
    
    2002
    
    2001Insurance related expense, net
    
    $
    3,658
    
    
    $
    6,364
    
    
    $
    1,269General and administrative expenses
    
    
    215
    
    
    
    236
    
    
    
    232Operating loss
    
    
    (3,873
    )
    
    
    (6,600
    )
    
    
    (1,501
    )Interest income
    
    
    (12,480
    )
    
    
    (12,480
    )
    
    
    (12,480
    )Interest expense
    
    
    8,930
    
    
    
    7,411
    
    
    
    5,492Income (loss) before income tax
    
    
    (323
    )
    
    
    (1,531
    )
    
    
    5,487Income tax expense (benefit)
    
    
    (129
    )
    
    
    (612
    )
    
    
    2,195Net income (loss)
    
    
    (194
    )
    
    
    (919
    )
    
    
    3,292Change in redemption value of Class B
common stock
    
    
    
    
    
    
    
    
    
    
    247Net income (loss) available to Class A
common shareholder
    
    $
    (194
    )
    
    $
    (919
    )
    
    $
    3,539
 The accompanying Notes to Financial Statements are an integral part of these statements. 232




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##### 



BROWNING-FERRIS INDUSTRIES EUROPE, INC.
STATEMENTS OF STOCKHOLDERS DEFICIT
(in thousands) Class A
    
    
    
    
    
    
    
    
    
    TotalCommon
    
    Intercompany
    
    Retained
    
    Stockholders'Stock
    
    with Parent
    
    Earnings
    
    DeficitBalance as of December 31, 2000
    
    $
    1,403
    
    
    $
    (28,970
    )
    
    $
    9,179
    
    
    $
    (18,388
    )Change in redemption value of Class B
common stock
    
    
    
    
    
    
    
    
    
    
    247
    
    
    
    247Net income
    
    
    
    
    
    
    
    
    
    
    3,292
    
    
    
    3,292Change in intercompany with parent
    
    
    
    
    
    
    2,194
    
    
    
    
    
    
    
    2,194Balance as of December 31, 2001
    
    $
    1,403
    
    
    $
    (26,776
    )
    
    $
    12,718
    
    
    $
    (12,655
    )Net loss
    
    
    
    
    
    
    
    
    
    
    (919
    )
    
    
    (919
    )Change in intercompany with parent
    
    
    
    
    
    
    (612
    )
    
    
    
    
    
    
    (612
    )Balance as of December 31, 2002
    
    $
    1,403
    
    
    $
    (27,388
    )
    
    $
    11,799
    
    
    $
    (14,186
    )Net loss
    
    
    
    
    
    
    
    
    
    
    (194
    )
    
    
    (194
    )Change in intercompany with parent
    
    
    
    
    
    
    (129
    )
    
    
    
    
    
    
    (129
    )Balance as of December 31, 2003
    
    $
    1,403
    
    
    $
    (27,517
    )
    
    $
    11,605
    
    
    $
    (14,509
    )
 The accompanying Notes to Financial Statements are an integral part of these statements. 233




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##### 



BROWNING-FERRIS INDUSTRIES EUROPE, INC.
STATEMENTS OF CASH FLOWS
(in thousands) Year Ended December 31,2003
    
    2002
    
    2001Operating activities Net income (loss)
    
    $
    (194
    )
    
    $
    (919
    )
    
    $
    3,292Adjustments to reconcile net income (loss) to cash used for
operating activities Provision (benefit) for income taxes
    
    
    (129
    )
    
    
    (612
    )
    
    
    2,195Insurance related expense, net
    
    
    3,658
    
    
    
    6,364
    
    
    
    1,269Insurance related expenditures
    
    
    (16,074
    )
    
    
    (39,778
    )
    
    
    (32,194
    )Cash used for operating activities
    
    
    (12,739
    )
    
    
    (34,945
    )
    
    
    (25,438
    )Financing activities Change in due to parent, net
    
    
    12,838
    
    
    
    34,909
    
    
    
    25,365Cash provided by financing activities
    
    
    12,838
    
    
    
    34,909
    
    
    
    25,365Increase (decrease) in cash
    
    
    99
    
    
    
    (36
    )
    
    
    (73
    )Cash, beginning of year
    
    
    38
    
    
    
    74
    
    
    
    147Cash, end of year
    
    $
    137
    
    
    $
    38
    
    
    $
    74Supplemental disclosures Non-cash change in intercompany with parent in equity
    
    $
    (129
    )
    
    $
    (612
    )
    
    $
    2,194
 The accompanying Notes to Financial Statements are an integral part of these statements. 234




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##### 



BROWING-FERRIS INDUSTRIES EUROPE, INC.
NOTES TO FINANCIAL STATEMENTS 1. Organization and Summary of Significant Accounting Policies Browning-Ferris Industries Europe, Inc. (BFI Europe, we or the Company), a
Delaware corporation, manages certain casualty related liabilities assumed from
its parent company, Browning-Ferris Industries, Inc. (BFI), a wholly owned
subsidiary of Allied Waste Industries, Inc. (Allied). These liabilities
represent estimated workers compensation, automobile, product and general
liabilities incurred from October 1, 1983 to March 31, 1999 and the associated
claims handling and financial assurance costs. BFI owns all of our Class A
common stock, which represents 90% of our outstanding shares of common stock.
The Class B common stock, which represents the remaining 10% equity interest,
is owned by an unaffiliated risk management consulting firm. We are dependent on Allied to provide funding for the liabilities assumed.
This is accomplished through interest income and principal payments on notes
receivable from affiliates (see Note 2) and, if necessary, borrowings from a
subsidiary of Allied under a revolving credit agreement (see Note 7). Purpose and basis of presentation  The purpose of these financial statements is to provide information about BFI,
Europe which guarantees certain outstanding debt obligations of BFI and Allied.
BFI Europe, along with substantially all of Allieds other subsidiaries,
represent the aggregate guarantor of the debt obligations. In the event that
BFI or Allied cannot make payments on such debt obligations when they are due,
the guarantor subsidiaries must make the payments instead. These financial
statements are presented herein because BFI Europe is not a wholly-owned
subsidiary of Allied and Securities and Exchange Commission (SEC) Rule 3-10 of
Regulation S-X requires separate stand alone financial statements of non
wholly-owned guarantors. BFI Europe is not a registrant with the SEC and is not subject to the SECs
periodic reporting requirements, except as may be required by Rule 3-10 of
Regulation S-X. Certain estimates, including allocations from Allied, have
been made to provide financial information for SEC and stand-alone reporting
purposes as if BFI Europe were a registrant. We believe that the presentations
and disclosures herein are adequate to make the financial information not
misleading. In the opinion of management, all adjustments necessary to fairly
state the financial statements have been reflected. 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.
Although we believe that our estimates and assumptions are reasonable, they are
based upon information presently available. Actual results may differ
significantly from the estimates. Fair value of financial instruments  Our financial instruments, as defined by Statement of Financial Accounting
Standards (SFAS) No. 107, Disclosures about the Fair Value of Financial
Instruments, include cash and notes receivable. The carrying value of our cash
approximates fair value due to the short-term maturity of this instrument and
the carrying value of the notes receivable approximates fair value due to the
fixed interest rate being comparable with market rates for similar types of
notes receivable. 235




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##### 



BROWNING-FERRIS INDUSTRIES EUROPE, INC.
NOTES TO FINANCIAL STATEMENTS Insurance liabilities and related costs  Insurance liabilities include the retained or non-insured portion of commercial
general liability, automobile liability and workers compensation liabilities
for unpaid claims and associated expenses, including claims incurred but not
reported, using actuarial valuations provided by an independent third party.
The actuarially determined liability is estimated based on our past claims
experience factor, which considers the historical settlement amount of claims.
We use a third party administrator to track and evaluate actual claims
experience for consistency of data used in the annual actuarial valuation. The
recorded liabilities include our estimate of the costs of handling these claims
and the financial assurances we must provide. Any changes in estimates for the
recorded liability are recorded in the results of operations in the period the
change is determined. Our insurance related liabilities are recorded on an
undiscounted basis. 2. Interest and Notes Receivable from Affiliate Notes receivable at December 31, 2003 and 2002 consists of a note receivable
from a wholly owned subsidiary of BFI. This note receivable was issued on July
7, 1999 and has a face value of $156.0 million. Interest is payable annually
at a rate of 8.0% and the principal amount of the note is due upon maturity on
July 7, 2011. Interest income of $12.5 million was included in the
accompanying statements of operations for the years ended December 31, 2003,
2002 and 2001. 3. Income Taxes Our operating results are included in the consolidated federal income tax
return of Allied for the periods ended December 31, 2003, 2002 and 2001. For
purposes of determining state income tax liabilities, we filed either a
consolidated or separate return based on the filing regulations required by
each state. The allocation of consolidated taxes of Allied to us is determined
as if we prepared a separate tax return, in accordance with the provisions of
the SFAS No. 109, Accounting for Income Taxes. The components of the income tax provision (benefit) consist of the following
(in thousands): For the Year Ended December 31,2003
    
    2002
    
    2001Current state tax provision
    
    $
    
    
    
    $
    
    
    
    $
    Balance of provision (benefit)
    
    
    (129
    )
    
    
    (612
    )
    
    
    2,195Total
    
    $
    (129
    )
    
    $
    (612
    )
    
    $
    2,195
 The current state tax provision represents the state income taxes paid and
payable for the periods presented. The balance of the provision represents
federal and deferred state income taxes. The income tax provision allocated
includes both current and deferred taxes and is
reflected in intercompany with parent in stockholders equity on our balance
sheets. 236




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##### 



BROWNING-FERRIS INDUSTRIES EUROPE, INC.
NOTES TO FINANCIAL STATEMENTS The reconciliation of our income tax provision at the federal statutory tax
rate to our effective tax rate follows (in thousands): For the Year Ended December 31,2003
    
    2002
    
    2001Federal statutory tax rate
    
    $
    (113
    )
    
    $
    (536
    )
    
    $
    1,921Consolidated state taxes, net of
federal benefit
    
    
    (16
    )
    
    
    (76
    )
    
    
    274Effective tax rate
    
    $
    (129
    )
    
    $
    (612
    )
    
    $
    2,195
 Deferred tax assets and liabilities (including any valuation allowance) are
recognized, realized and maintained on a corporate-wide basis by Allied. Our
cumulative tax-effected temporary differences that have been recorded in
intercompany with parent in stockholders equity on our balance sheets are as
follows (in thousands): December 31,2003
    
    2002Cumulative Tax-Effected Future
(Taxable) Deductible Temporary
Differences:Insurance liabilities
    
    $
    13,259
    
    
    $
    18,226Total
    
    $
    13,259
    
    
    $
    18,226
 4. Commitments and Contingencies Litigation  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 contingencies
when such costs are probable and reasonably estimable. There were no matters
in process at December 31, 2003 which have not been accrued in the balance
sheet. 5. Common Stock BFI owns all 1,000 outstanding shares of our Class A common stock. In July
1999, we issued all 111 outstanding shares of Class B common stock to BFI in
exchange for a note receivable (see Note 2) and the assumption of certain
insurance related liabilities (see Note 1). In July 1999, BFI sold all 111
outstanding shares of the Class B common stock to an outside party. The Class
B shares do not generally have voting rights, other than the right to elect one
of the six members of our Board of Directors. We have the right to call the Class B common stock for redemption at any time
after five years from the date of their initial issuance at a price equal to
10.5% of our net worth, as defined, as of the last day of the calendar month
immediately preceding the month in which the redemption notice is sent by us.
Net worth, as defined in our incorporating documents, varies significantly from
net worth presented in these financial statements. The redemption price is
limited to $17,690 per share of Class B common stock. The maximum aggregate
redemption price would be approximately $2.0 million if all Class B shares were
called for redemption by us. 237




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##### 



BROWNING-FERRIS INDUSTRIES EUROPE, INC.
NOTES TO FINANCIAL STATEMENTS 6. Redeemable Class B Common Stock A risk management consulting firm owns all 111 outstanding shares of Class B
common stock. The Class B shareholder has experience in risk management
solutions, risk transfer expertise, claims and management services and
specialized consulting services to manage and reduce overall insurance related
liabilities. The Class B shareholders participates in our Strategic
Action Committee, which manages our overall liabilities. The holders of Class B common stock have the right to require us to redeem the
shares any time after six years from the date of their initial issuance at a
price equal to 10% of our net worth, as defined, as of the last day of the
calendar month immediately preceding the month in which the redemption notice
is received by us. The redemption price is limited to $16,848 per share of
Class B common stock. The maximum aggregate redemption price would be
approximately $1.9 million if all Class B shares were tendered for redemption
by the shareholders. We present the Class B common stock on our balance sheet at approximate
redemption value based on the amounts due the shareholders upon redemption at
the balance sheet date. This amount will not exceed the maximum redemption
amount of $1.9 million although we may elect to call as described in Note 6. 7. Related Party Transactions Transactions with related parties are entered into only with the approval by a
majority of our directors and only upon terms comparable to those that would be
available from unaffiliated parties. All treasury functions are maintained by
Allied. In order to meet our cash flow needs, we will occasionally borrow
funds from a wholly-owned subsidiary of Allied under a revolving credit
agreement permitting a maximum borrowing of $200 million. We have pledged the
notes receivable to affiliate and substantially all of our other assets as
collateral for any borrowings. At December 31, 2003 and 2002, we had $143.5
million and $130.7 million, respectively, of funds borrowed under the revolving
credit agreement as due to parent on the accompanying balance sheets. We repay
these funds including interest calculated at 6.5%. Interest expense related to
loans from Allied was $8.9 million, $ 7.4 million and $5.5 million for the
years ended December 31, 2003, 2002 and 2001, respectively. We are charged for certain administrative and general expenses for services
provided by Allied pursuant to an administrative services agreement. Related
charges for the years ended December 31, 2003, 2002 and 2001 are $0.2 million,
$0.2 million and $0.2 million, respectively, and are included in general and
administrative expenses. Management believes the costs charged to us are
reasonable in relation to the services provided, but would not necessarily
represent those charged by non-affiliated companies or incurred for similar
functions on a stand-alone basis. The intercompany with parent in stockholders equity represents adjustments to
present these stand-alone financial statements in accordance with generally
accepted accounting principles and is non-interest bearing due to the nature of
the transactions. 238




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##### 



BROWNING-FERRIS INDUSTRIES ASIA PACIFIC, INC. Financial Statements  Report of Independent Auditors.Balance Sheets as of December 31, 2003 and 2002.Statements of Operations for Each of the Three Years in the Period Ended December 31, 2003.Statements of Stockholders Deficit for the Three Years Ended December 31, 2003.Statements of Cash Flows for Each of the Three Years in the Period Ended December 31, 2003.Notes to Financial Statement. 239




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##### 



Report of Independent Auditors To the Board of Directors and Shareholders of
Browning-Ferris Industries Asia Pacific, Inc.: In our opinion, the accompanying balance sheets and the related statements of
operations, of stockholders deficit and of cash flows present fairly, in all
material respects, the financial position of Browning-Ferris Industries Asia
Pacific, Inc. at December 31, 2003 and 2002 and the results of its operations
and its cash flows for each of the three years in the period ended December 31,
2003 in conformity with accounting principles generally accepted in the United
States of America. 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 audit. We conducted our audit of these
statements in accordance with auditing standards generally accepted in the
United States of America, which 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, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audit provides a reasonable basis for our opinion. PRICEWATERHOUSECOOPERS LLP Phoenix, Arizona
March 5, 2004 240




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##### 



BROWNING-FERRIS INDUSTRIES ASIA PACIFIC, INC.
BALANCE SHEETS
(in thousands) December 31,2003
    
    2002ASSETSCurrent assets Cash
    
    $
    
    
    
    $
    42Interest receivable from affiliate
    
    
    2,711
    
    
    
    2,711Total current assets
    
    
    2,711
    
    
    
    2,753Due from parent, net
    
    
    2,582
    
    
    
    2,455Notes receivable from affiliate
    
    
    69,880
    
    
    
    69,880Total assets
    
    $
    75,173
    
    
    $
    75,088LIABILITIES
AND STOCKHOLDERS DEFICITCurrent liabilities Current portion of environmental liabilities
    
    $
    6,269
    
    
    $
    5,783Total current liabilities
    
    
    6,269
    
    
    
    5,783Environmental liabilities, less current portion
    
    
    88,270
    
    
    
    93,203Class B common stock; no par value; 111 shares
authorized, issued and outstanding
    
    
    832
    
    
    
    731Commitments and contingenciesClass A common stock; no par value; 1,000 shares
authorized, issued and outstanding
    
    
    628
    
    
    
    628Intercompany with parent
    
    
    (29,079
    )
    
    
    (30,997
    )Retained earnings
    
    
    8,253
    
    
    
    5,740Total
stockholders deficit
    
    
    (20,198
    )
    
    
    (24,629
    )Total
liabilities and stockholders deficit
    
    $
    75,173
    
    
    $
    75,088
 The accompanying Notes to Financial Statements are an integral part of these balance sheets. 241




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##### 



BROWNING-FERRIS INDUSTRIES ASIA PACIFIC, INC.
STATEMENTS OF OPERATIONS
(in thousands) Year Ended December 31,2003
    
    2002
    
    2001Remediation (income) expense, net
    
    $
    1,336
    
    
    $
    9,743
    
    
    $
    (922
    )General and administrative expenses
    
    
    55
    
    
    
    60
    
    
    
    57Operating income (loss)
    
    
    (1,391
    )
    
    
    (9,803
    )
    
    
    865Interest income
    
    
    (5,748
    )
    
    
    (5,709
    )
    
    
    (5,671
    )Income (loss) before income tax
    
    
    4,357
    
    
    
    (4,094
    )
    
    
    6,536Income tax expense (benefit)
    
    
    1,743
    
    
    
    (1,638
    )
    
    
    2,614Net income (loss)
    
    
    2,614
    
    
    
    (2,456
    )
    
    
    3,922Changes in redemption value of Class B
common stock
    
    
    (101
    )
    
    
    107
    
    
    
    (677
    )Net income (loss) available to Class A
common shareholder
    
    $
    2,513
    
    
    $
    (2,349
    )
    
    $
    3,245
 The accompanying Notes to Financial Statements are an integral part of these statements. 242




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##### 



BROWNING-FERRIS INDUSTRIES ASIA PACIFIC, INC.
STATEMENTS OF STOCKHOLDERS DEFICIT
(in thousands) Class A
    
    
    
    
    
    
    
    
    
    TotalCommon
    
    Intercompany
    
    Retained
    
    Stockholders'Stock
    
    with Parent
    
    Earnings
    
    DeficitBalance as of December 31, 2000
    
    $
    628
    
    
    $
    (31,974
    )
    
    $
    4,844
    
    
    $
    (26,502
    )Change in redemption value of Class B
common stock
    
    
    
    
    
    
    
    
    
    
    (677
    )
    
    
    (677
    )Net income
    
    
    
    
    
    
    
    
    
    
    3,922
    
    
    
    3,922Change in intercompany with parent
    
    
    
    
    
    
    2,614
    
    
    
    
    
    
    
    2,614Balance as of December 31, 2001
    
    $
    628
    
    
    $
    (29,360
    )
    
    $
    8,089
    
    
    $
    (20,643
    )Change in redemption value of Class B
common stock
    
    
    
    
    
    
    
    
    
    
    107
    
    
    
    107Net loss
    
    
    
    
    
    
    
    
    
    
    (2,456
    )
    
    
    (2,456
    )Change in intercompany with parent
    
    
    
    
    
    
    (1,637
    )
    
    
    
    
    
    
    (1,637
    )Balance as of December 31, 2002
    
    $
    628
    
    
    $
    (30,997
    )
    
    $
    5,740
    
    
    $
    (24,629
    )Change in redemption value of Class B
common stock
    
    
    
    
    
    
    
    
    
    
    (101
    )
    
    
    (101
    )Net income
    
    
    
    
    
    
    
    
    
    
    2,614
    
    
    
    2,614Change in intercompany with parent
    
    
    
    
    
    
    1,918
    
    
    
    
    
    
    
    1,918Balance as of December 31, 2003
    
    $
    628
    
    
    $
    (29,079
    )
    
    $
    8,253
    
    
    $
    (20,198
    )
 The accompanying Notes to Financial Statements are an integral part of these statements. 243




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##### 



BROWNING-FERRIS INDUSTRIES ASIA PACIFIC, INC.
STATEMENTS OF CASH FLOWS
(in thousands) Year Ended December 31,2003
    
    2002
    
    2001Operating activities Net income (loss)
    
    $
    2,614
    
    
    $
    (2,456
    )
    
    $
    3,922Adjustments to reconcile net income (loss) to cash provided
by (used for) operating activities Provision (benefit) for income taxes
    
    
    1,743
    
    
    
    (1,638
    )
    
    
    2,614Remediation expense, net
    
    
    1,336
    
    
    
    9,743
    
    
    
    (922
    )Environmental expenditures
    
    
    (5,608
    )
    
    
    (4,908
    )
    
    
    (4,248
    )Cash provided by (used for) operating activities
    
    
    85
    
    
    
    741
    
    
    
    1,366Financing activities Change in due from parent, net
    
    
    (127
    )
    
    
    (699
    )
    
    
    (1,452
    )Cash provided by (used for) financing activities
    
    
    (127
    )
    
    
    (699
    )
    
    
    (1,452
    )Increase (decrease) in cash
    
    
    (42
    )
    
    
    42
    
    
    
    (86
    )Cash, beginning of year
    
    
    42
    
    
    
    
    
    
    
    86Cash, end of year
    
    $
    
    
    
    $
    42
    
    
    $
    Supplemental disclosures Non-cash change in intercompany with parent in equity
    
    $
    1,918
    
    
    $
    (1,637
    )
    
    $
    2,614
 The accompanying Notes to Financial Statements are an integral part of these statements. 244




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##### 



BROWNING-FERRIS INDUSTRIES ASIA PACIFIC, INC.
NOTES TO FINANCIAL STATEMENTS 1. Organization and Summary of Significant Accounting Policies Browning-Ferris Industries Asia Pacific, Inc. (BFI Asia Pacific, we or the
Company), a Delaware corporation, manages certain contingent environmental
liabilities assumed from its parent company Browning-Ferris Industries, Inc.
(BFI), a wholly owned subsidiary of Allied Waste Industries, Inc. (Allied).
These contingent environmental liabilities represent estimated hazardous waste
management costs as well as other costs including leachate management, ground
water monitoring, cover management, property management and administrative
expenses. BFI owns all of our Class A common stock, which represents 90% of
our outstanding shares of common stock. The Class B common stock, which
represents the remaining 10% equity interest, is owned by unaffiliated
environmental consultants. We are dependent on Allied to provide funding for the liabilities assumed.
This is accomplished through interest income and principal payments on notes
receivable from affiliate (see Note 2) and, if necessary, borrowings from a
subsidiary of Allied under a revolving credit agreement (see Note 8). Purpose and basis of presentation  The purpose of these financial statements is to provide information about BFI
Asia Pacific which guarantees certain outstanding debt obligations of BFI and
Allied. BFI Asia Pacific, along with substantially all of Allieds other
subsidiaries, represent the aggregate guarantor of the debt obligations. In
the event that BFI or Allied cannot make payments on such debt obligations when
they are due, the guarantor subsidiaries must make the payments instead. These
financial statements are presented herein because BFI Asia Pacific is not a
wholly-owned subsidiary of Allied and Securities and Exchange Commission (SEC)
Rule 3-10 of Regulation S-X requires separate stand alone financial statements
of non wholly-owned guarantors. BFI Asia Pacific is not a registrant with the SEC and is not subject to the
SECs periodic reporting requirements, except as may be required by Rule 3-10
of Regulation S-X. Certain estimates, including allocations from Allied, have
been made to provide financial information for SEC and stand-alone reporting
purposes as if BFI Asia Pacific were a registrant. We believe that the
presentations and disclosures herein are adequate to make the financial
information not misleading. In the opinion of management, all adjustments
necessary to fairly state the financial statements have been reflected. 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.
Although we believe that our estimates and assumptions are reasonable, they are
based upon information presently available. Actual results may differ
significantly from the estimates. Fair value of financial instruments  Our financial instruments, as defined by Statement of Financial Accounting
Standards (SFAS) No. 107, Disclosures about the Fair Value of Financial
Instruments, include cash and notes receivable. The carrying value of our cash
approximates fair value due to the short-term maturity of this instrument and
the carrying value of the notes receivable approximates fair value due to the
fixed interest rate being comparable with market rates for similar types of
notes receivable. 245




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##### 



BROWNING-FERRIS INDUSTRIES ASIA PACIFIC, INC.
NOTES TO FINANCIAL STATEMENTS 2. Interest and Notes Receivable from Affiliate Notes receivable at December 31, 2003 and 2002 consists of a note receivable
from a wholly owned subsidiary of BFI. This note receivable was issued on July
7, 1999 and has a face value of approximately $69.9 million. Interest is
payable annually at a rate of 8.0% and the principal amount of the note is due
upon maturity on July 7, 2011. Interest income of $5.6 million was included in
the accompanying statements of operations for the years ended December 31,
2003, 2002 and 2001. 3. Environmental Liabilities We accrue for costs associated with environmental liabilities 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 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
receipt is deemed probable. There were no significant recovery receivables
outstanding as of December 31, 2003 or December 31, 2002. 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,
Environmental Remediation Liabilities. We engage independent environmental consulting firms to assist us in conducting
assessments of our environmental liabilities. We cannot determine with
precision the ultimate amounts for environmental liabilities. We make
estimates of our potential liabilities in consultation with our independent
environmental engineers and legal counsel. These estimates 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 financial statements. We expect that the environmental liabilities will
be adjusted from time to time as circumstances change or actual amounts are
realized. Any changes (increases or decreases) in our estimate of the
environmental liabilities are recorded in results of operations in the period
the change is determined. Our ultimate liabilities for environmental matters may differ from the
estimates used in our assessment to date. We periodically evaluate the
recorded liabilities as additional information becomes available to ascertain
whether the accrued liabilities are adequate. We have determined that the
recorded undiscounted liability for environmental matters 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 liquidity or financial position. However, we believe
that it is reasonably possible the ultimate outcome of environmental matters
could result in an adjustment that would be material to our results of
operations. 246




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##### 



BROWNING-FERRIS INDUSTRIES ASIA PACIFIC, INC.
NOTES TO FINANCIAL STATEMENTS 4. Income Taxes Our operating results are included in the consolidated federal income tax
return of Allied for the periods ended December 31, 2003, 2002 and 2001. For
purposes of determining state income tax liabilities, we filed either a
consolidated or separate return based on the filing regulations required by
each state. The allocation of consolidated taxes of Allied to us is determined
as if we prepared a separate tax return, in accordance with the provisions of
the SFAS No. 109, Accounting for Income Taxes. The components of the income tax provision (benefit) consist of the following
(in thousands): For the Year Ended December 31,2003
    
    2002
    
    2001Current state tax provision
    
    $
    
    
    
    $
    
    
    
    $
    Balance of provision (benefit)
    
    
    1,743
    
    
    
    (1,638
    )
    
    
    2,614Total
    
    $
    1,743
    
    
    $
    (1,638
    )
    
    $
    2,614
 The current state tax provision represents the state income taxes paid and
payable for the periods presented. The balance of the provision represents
federal and deferred state income taxes. The income tax provision allocated
includes both current and deferred taxes and is
reflected in intercompany with parent in stockholders equity on our balance
sheets. The reconciliation of our income tax provision at the federal statutory tax
rate to our effective tax rate follows (in thousands): For the Year Ended December 31,2003
    
    2002
    
    2001Federal statutory tax rate
    
    $
    1,525
    
    
    $
    (1,433
    )
    
    $
    2,287Consolidated state taxes, net of
federal benefit
    
    
    218
    
    
    
    (205
    )
    
    
    327Effective tax rate
    
    $
    1,743
    
    
    $
    (1,638
    )
    
    $
    2,614
 Deferred tax assets and liabilities (including any valuation allowance) are
recognized, realized and maintained on a corporate-wide basis by Allied. Our
cumulative tax-effected temporary differences that have been recorded in
intercompany with parent in stockholders equity on our balance sheets are as
follows (in thousands): December 31,2003
    
    2002Cumulative Tax-Effected Future
(Taxable) Deductible Temporary
Differences:Environmental liabilities
    
    $
    37,816
    
    
    $
    39,594Total
    
    $
    37,816
    
    
    $
    39,594
 247




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##### 



BROWNING-FERRIS INDUSTRIES ASIA PACIFIC, INC.
NOTES TO FINANCIAL STATEMENTS 5. Commitments and Contingencies Litigation  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, 2003, which have
not been accrued in the balance sheet, will not have a material adverse effect
on our liquidity, financial position or results from operations. 6. Common Stock BFI owns all 1,000 outstanding shares of our Class A common stock. In July
1999, we issued all 111 outstanding shares of Class B common stock to BFI in
exchange for a note receivable (see Note 2) and the assumption of certain
contingent liabilities (see Note 3). In July 1999, BFI sold all 111
outstanding shares of the Class B common stock to outside parties. The Class B
shares do not generally have voting rights, other than the right to elect one
of the six members of our Board of Directors. We have the right to call the Class B common stock for redemption at any time
after five years from the date of their initial issuance at a price equal to
10.5% of our net worth, as defined, as of the last day of the calendar month
immediately preceding the month in which the redemption notice is sent by us.
Net worth, as defined in our incorporating documents, varies significantly from
net worth presented in these financial statements. The redemption price is
limited to $7,924 per share of Class B common stock. The maximum aggregate
redemption price would be approximately $880,000 if all Class B shares were
called for redemption by us. 7. Redeemable Class B Common Stock Two environmental consultants and two environmental consulting firms
collectively own all 111 outstanding shares of Class B common stock. The Class
B shareholders have experience in environmental technologies, community
relations and knowledge of various environmental laws and regulations to manage
and reduce overall contingent environmental liabilities. The Class B
shareholders participate in our Strategic Action Committee, which manages
our overall liabilities. 248




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##### 



BROWNING-FERRIS INDUSTRIES ASIA PACIFIC, INC.
NOTES TO FINANCIAL STATEMENTS The holders of Class B common stock have the right to require BFI Asia Pacific
to redeem the shares any time after six years from the date of their initial
issuance at a price equal to 10% of our net worth, as defined, as of the last
day of the calendar month immediately preceding the month in which the
redemption notice is received by us. The redemption price is limited to $7,547
per share of Class B common stock. The maximum aggregate redemption price would
be approximately $838,000 if all Class B shares were tendered for redemption by
the shareholders. We present the Class B common stock on our balance sheet at approximate
redemption value based on the amounts due the shareholders upon redemption at
the balance sheet date. This amount will not exceed the maximum redemption
amount of $838,000 although we may elect to call as described in Note 6. 8. Related Party Transactions Transactions with related parties are entered into only upon approval by a
majority of our directors and only upon terms comparable to those that would be
available from unaffiliated parties. All treasury functions are maintained by
Allied. In order to meet our cash flow needs, we will occasionally borrow
funds from a wholly-owned subsidiary of Allied under a revolving credit
agreement permitting a maximum borrowing of $5 million. Loans under the
revolving credit agreement bear interest at a rate of 6.5%. In addition, any
excess cash we generate is advanced to a wholly-owned subsidiary of Allied and
earns interest at a rate of 6.5%. As of December 31, 2003 and 2002 $2.6
million and $2.5 million, respectively, of excess cash was advanced and was
reported as due from parent, net in the accompanying balance sheets. Interest
earned on excess cash of $0.2 million, $0.1 million and $0.1 million was
reported as interest income in the accompanying statements of operations for
the years ended December 31, 2003, 2002 and 2001, respectively. The receivables for excess cash advanced are shown net of amounts we owe Allied
for administrative costs incurred by Allied on behalf of us. We are charged
for certain administrative and general expenses for services provided by Allied
pursuant to an administrative services agreement. Related charges for the
years ended December 31, 2003, 2002 and 2001 were $0.1 million, and are
included in general and administrative expenses. Management believes the costs
charged to us are reasonable in relation to the services provided, but would
not necessarily represent those charged by non-affiliated companies or incurred
for similar functions on a stand-alone basis. The intercompany with parent in stockholders equity represents adjustments to
present these stand-alone financial statements in accordance with generally
accepted accounting principles and is non-interest bearing due to the nature of
the transactions. 249




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##### 



BFI ENERGY SYSTEMS OF BOSTON, INC. Financial Statements  Report of Independent Auditors.Balance Sheets as of December 31, 2003 and 2002.Statements of Operations for Each of the Three Years in the Period Ended December 31, 2003.Statements of Stockholders Equity for the Three Years Ended December 31, 2003.Statements of Cash Flows for Each of the Three Years in the Period Ended December 31, 2003.Notes to Financial Statement. 250




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##### 



Report of Independent Auditors To the Board of Directors and Shareholders of
BFI Energy Systems of Boston, Inc.: In our opinion, the accompanying balance sheets and the related statements of
operations, of stockholders equity and of cash flows present fairly, in all
material respects, the financial position of BFI Energy Systems of Boston, Inc.
at December 31, 2003 and 2002, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 2003 in
conformity with accounting principles generally accepted in the United States
of America. 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 audit. We conducted our audit of these statements in
accordance with auditing standards generally accepted in the United States of
America, which 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, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audit provides a reasonable basis for our opinion. PRICEWATERHOUSECOOPERS LLP Phoenix, Arizona
March 5, 2004 251




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##### 



BFI ENERGY SYSTEMS OF BOSTON, INC.
BALANCE SHEETS
(in thousands) December 31,2003
    
    2002ASSETSCurrent assets Cash
    
    $
    31
    
    
    $
    57Interest receivable from affiliate
    
    
    706
    
    
    
    706Total current assets
    
    
    737
    
    
    
    763Due from parent, net
    
    
    1,608
    
    
    
    729Notes receivable from affiliate
    
    
    18,433
    
    
    
    18,433Total assets
    
    $
    20,778
    
    
    $
    19,925LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities Current portion of environmental liabilities
    
    $
    1,585
    
    
    $
    626Total current liabilities
    
    
    1,585
    
    
    
    626Environmental liabilities, less current portion
    
    
    16,808
    
    
    
    18,221Class B common stock; no par value; 111 shares
authorized, issued and outstanding
    
    
    133
    
    
    
    133Commitments and contingenciesClass A common stock; no par value; 1,000 shares
authorized issued and outstanding
    
    
    100
    
    
    
    100Intercompany with parent
    
    
    (3,721
    )
    
    
    (4,244
    )Retained earnings
    
    
    5,873
    
    
    
    5,089Total stockholders equity
    
    
    2,252
    
    
    
    945Total liabilities and stockholders equity
    
    $
    20,778
    
    
    $
    19,925
 The accompanying Notes to Financial Statements are an integral part of these balance sheets. 252




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##### 



BFI ENERGY SYSTEMS OF BOSTON, INC.
STATEMENTS OF OPERATIONS
(in thousands) Year Ended December 31,2003
    
    2002
    
    2001Remediation (income) expense, net
    
    $
    172
    
    
    $
    (1,184
    )
    
    $
    (3,442
    )General and administrative expenses
    
    
    55
    
    
    
    63
    
    
    
    56Operating income (loss)
    
    
    (227
    )
    
    
    1,121
    
    
    
    3,386Interest income
    
    
    (1,534
    )
    
    
    (1,459
    )
    
    
    (1,457
    )Interest expense
    
    
    
    
    
    
    
    
    
    
    37Income before income tax
    
    
    1,307
    
    
    
    2,580
    
    
    
    4,806Income tax expense
    
    
    523
    
    
    
    1,032
    
    
    
    1,922Net income
    
    
    784
    
    
    
    1,548
    
    
    
    2,884Change in redemption value of Class B
common stock
    
    
    
    
    
    
    
    
    
    
    (107
    )Net income available to Class A
common shareholder
    
    $
    784
    
    
    $
    1,548
    
    
    $
    2,777
 The accompanying Notes to Financial Statements are an integral part of these statements. 253




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##### 



BFI ENERGY SYSTEMS OF BOSTON, INC.
STATEMENTS OF STOCKHOLDERS EQUITY
(in thousands) Class A
    
    
    
    
    
    
    
    
    
    TotalCommon
    
    Intercompany
    
    Retained
    
    Stockholders'Stock
    
    with Parent
    
    Earnings
    
    EquityBalance as of December 31, 2000
    
    $
    100
    
    
    $
    (7,198
    )
    
    $
    764
    
    
    $
    (6,334
    )Change in redemption value of Class B
common stock
    
    
    
    
    
    
    
    
    
    
    (107
    )
    
    
    (107
    )Net income
    
    
    
    
    
    
    
    
    
    
    2,884
    
    
    
    2,884Change in intercompany with parent
    
    
    
    
    
    
    1,922
    
    
    
    
    
    
    
    1,922Balance as of December 31, 2001
    
    $
    100
    
    
    $
    (5,276
    )
    
    $
    3,541
    
    
    $
    (1,635
    )Net income
    
    
    
    
    
    
    
    
    
    
    1,548
    
    
    
    1,548Change in intercompany with parent
    
    
    
    
    
    
    1,032
    
    
    
    
    
    
    
    1,032Balance as of December 31, 2002
    
    $
    100
    
    
    $
    (4,244
    )
    
    $
    5,089
    
    
    $
    945Net income
    
    
    
    
    
    
    
    
    
    
    784
    
    
    
    784Change in intercompany with parent
    
    
    
    
    
    
    523
    
    
    
    
    
    
    
    523Balance as of December 31, 2003
    
    $
    100
    
    
    $
    (3,721
    )
    
    $
    5,873
    
    
    $
    2,252
 The accompanying Notes to Financial Statements are an integral part of these statements. 254




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##### 



BFI ENERGY SYSTEMS OF BOSTON, INC.
STATEMENTS OF CASH FLOWS
(in thousands) Year Ended December 31,2003
    
    2002
    
    2001Operating activities Net income
    
    $
    784
    
    
    $
    1,548
    
    
    $
    2,884Adjustments to reconcile net income to cash provided by
(used for) operating activities Provision for income taxes
    
    
    523
    
    
    
    1,032
    
    
    
    1,922Remediation expense, net
    
    
    172
    
    
    
    (1,184
    )
    
    
    (3,442
    )Environmental expenditures
    
    
    (626
    )
    
    
    (625
    )
    
    
    (653
    )Cash provided by (used for) operating activities
    
    
    853
    
    
    
    771
    
    
    
    711Financing activities Change in due from parent, net
    
    
    (879
    )
    
    
    (937
    )
    
    
    (623
    )Cash provided by (used for) financing activities
    
    
    (879
    )
    
    
    (937
    )
    
    
    (623
    )Increase (decrease) in cash
    
    
    (26
    )
    
    
    (166
    )
    
    
    88Cash, beginning of year
    
    
    57
    
    
    
    223
    
    
    
    135Cash, end of year
    
    $
    31
    
    
    $
    57
    
    
    $
    223Supplemental disclosures Non-cash change in intercompany with parent in equity
    
    $
    523
    
    
    $
    1,032
    
    
    $
    1,922
 The accompanying Notes to Financial Statements are an integral part of these statements. 255




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##### 



BFI ENERGY SYSTEMS OF BOSTON, INC.
NOTES TO FINANCIAL STATEMENTS 1. Organization and Summary of Significant Accounting Policies BFI Energy Systems of Boston, Inc. (BFI Boston, we or the Company), a
Massachusetts corporation, manages certain contingent environmental liabilities
assumed from its parent company, Browning-Ferris Industries, Inc. (BFI), a
wholly owned subsidiary of Allied Waste Industries, Inc. (Allied). These
contingent environmental liabilities represent estimated remediation costs
associated with chemical waste management, as well as other costs including,
ground water monitoring, cover management, property management and
administrative expenses. BFI owns all of our Class A common stock, which
represents 90% of our outstanding shares of common stock. The Class B common
stock, which represents the remaining 10% equity interest, is owned by
unaffiliated environmental consultants. We are dependent on Allied to provide funding for the liabilities assumed.
This is accomplished through interest income and principal payments on notes
receivable from affiliates (see Note 2) and, if necessary, borrowings from a
subsidiary of Allied under a revolving credit agreement (see Note 8). Purpose and basis of presentation  The purpose of these financial statements is to provide information about BFI
Boston which guarantees certain outstanding debt obligations of BFI and Allied.
BFI Boston, along with the substantially all of Allieds other subsidiaries,
represent the aggregate guarantor of the debt obligations. In the event that
Allied cannot make payments on such debt obligations when they are due, the
guarantor subsidiaries must make the payments instead. These financial
statements are presented herein because BFI Boston is not a wholly-owned
subsidiary of Allied and Securities and Exchange Commission (SEC) Rule 3-10 of
Regulation S-X requires separate stand alone financial statements of non
wholly-owned guarantors. BFI Boston is not a registrant with the SEC and is not subject to the SECs
periodic reporting requirements, except as may be required by Rule 3-10 of
Regulation S-X. Certain estimates, including allocations from Allied, have
been made to provide financial information for SEC and stand-alone reporting
purposes as if BFI Boston 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. 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.
Although we believe that our estimates and assumptions are reasonable, they are
based upon information presently available. Actual results may differ
significantly from the estimates. Fair value of financial instruments  Our financial instruments, as defined by Statement of Financial Accounting
Standards (SFAS) No. 107, Disclosures about the Fair Value of Financial
Instruments, include cash and notes receivable. The carrying value of our cash
approximates fair value due to the short-term maturity of this instrument and
the carrying value of the notes receivable approximates fair value due to the
fixed interest rate being comparable with market rates for similar types of
notes receivable. 256




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##### 



BFI ENERGY SYSTEMS OF BOSTON, INC.
NOTES TO FINANCIAL STATEMENTS 2. Interest and Notes Receivable from Affiliate Notes receivable at December 31, 2003 and 2002 consists of four notes
receivable from a wholly owned subsidiary of BFI. The original notes
receivable were issued at a rate of 8.5% on July 7, 1999 and have face values
ranging from approximately $831,000 to $5.7 million. An additional note,
related to the assumption of additional environmental remediation liabilities,
was issued at a rate of 7.0% on December 31, 2000 with a face value of $7.3
million. Interest is payable annually and the principal amounts of the notes
are due upon maturity on July 7, 2011. Interest income of $1.5 million was
included in the accompanying statements of operations for the years ended
December 31, 2003, 2002 and 2001. 3. Remediation Liabilities We accrue for costs associated with environmental liabilities 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 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
receipt is deemed probable. There were no significant recovery receivables
outstanding as of December 31, 2003 or December 31, 2002. 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,
Environmental Remediation Liabilities. We engage independent environmental consulting firms to assist us in conducting
assessments of our environmental liabilities. We cannot determine with
precision the ultimate amounts for environmental liabilities. We make
estimates of our potential liabilities in consultation with our independent
environmental engineers and legal counsel. These estimates 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 financial statements. We expect that the environmental liabilities will
be adjusted from time to time as circumstances change or actual amounts are
realized. Any changes (increases or decreases) in our estimate of the
environmental liabilities are recorded in results of operations in the period
the change is determined. Our ultimate liabilities for environmental matters may differ from the
estimates used in our assessment to date. We periodically evaluate the
recorded liabilities as additional information becomes available to ascertain
whether the accrued liabilities are adequate. We have determined that the
recorded undiscounted liability for environmental matters 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 liquidity or financial position. However, we believe
that it is reasonably possible the ultimate outcome of environmental matters
could result in an adjustment that would be material to our results of
operations. 257




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##### 



BFI ENERGY SYSTEMS OF BOSTON, INC.
NOTES TO FINANCIAL STATEMENTS 4. Income Taxes Our operating results are included in the consolidated federal income tax
return of Allied for the periods ended December 31, 2003, 2002 and 2001. For
purposes of determining state income tax liabilities, we filed either a
consolidated or separate return based on the filing regulations required by
each state. The allocation of consolidated taxes of Allied to us is determined
as if we prepared a separate tax return, in accordance with the provisions of
the SFAS No. 109, Accounting for Income Taxes. The components of the income tax provision consist of the following (in
thousands): For the Year Ended December 31,2003
    
    2002
    
    2001Current state tax provision
    
    $
    
    
    
    $
    
    
    
    $
    Balance of provision
    
    
    523
    
    
    
    1,032
    
    
    
    1,922Total
    
    $
    523
    
    
    $
    1,032
    
    
    $
    1,922
 The current state tax provision represents the state income taxes paid and
payable for the periods presented. The balance of the provision represents
federal and deferred state income taxes. The income tax provision allocated
includes both current and deferred taxes and is
reflected in intercompany with parent in stockholders equity on our balance
sheets. The reconciliation of our income tax provision at the federal statutory tax
rate to our effective tax rate follows (in thousands): For the Year Ended December 31,2003
    
    2002
    
    2001Federal statutory tax rate
    
    $
    458
    
    
    $
    903
    
    
    $
    1,682Consolidated state taxes, net of
federal benefit
    
    
    65
    
    
    
    129
    
    
    
    240Effective tax rate
    
    $
    523
    
    
    $
    1,032
    
    
    $
    1,922
 Deferred tax assets and liabilities (including any valuation allowance) are
recognized, realized and maintained on a corporate-wide basis by Allied. Our
cumulative tax-effected temporary differences that have been recorded in
intercompany with parent in stockholders equity on our balance sheets are as
follows (in thousands): December 31,2003
    
    2002Cumulative Tax-Effected Future
(Taxable) Deductible Temporary
Differences:Environmental liabilities
    
    $
    7,357
    
    
    $
    7,539Total
    
    $
    7,357
    
    
    $
    7,539
 258




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##### 



BFI ENERGY SYSTEMS OF BOSTON, INC.
NOTES TO FINANCIAL STATEMENTS 5. Commitments and Contingencies Litigation  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, 2003, which have
not been accrued in the balance sheet, will not have a material adverse effect
on our liquidity, financial position or results from operations. 6. Common Stock BFI owns all 1,000 outstanding shares of our Class A common stock. In July
1999, we issued all 111 outstanding shares of Class B common stock to BFI in
exchange for notes receivable (see Note 2) and the assumption of certain
contingent liabilities (see Note 3). In July 1999, BFI sold all 111
outstanding shares of the Class B common stock to outside parties. The Class B
shares do not generally have voting rights, other than the right to elect one
of the six members of our Board of Directors. We have the right to call the Class B common stock for redemption at any time
after five years from the date of their initial issuance at a price equal to
10.5% of our net worth, as defined, as of the last day of the calendar month
immediately preceding the month in which the redemption notice is sent by us.
Net worth, as defined in our incorporating documents, varies significantly from
net worth presented in these financial statements. The redemption price is
limited to $1,258 per share of Class B common stock. The maximum aggregate
redemption price would be approximately $140,000 if all Class B shares were
called for redemption by us. 259




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##### 



BFI ENERGY SYSTEMS OF BOSTON, INC.
NOTES TO FINANCIAL STATEMENTS 7. Redeemable Class B Common Stock Two environmental consultants and two environmental consulting firms
collectively own all 111 outstanding shares of our Class B common stock. The
Class B shareholders have experience in environmental technologies, community
relations and knowledge of various environmental laws and regulations to manage
and reduce overall contingent environmental liabilities. The Class B
shareholders participate in our Strategic Action Committee, which manages
our overall liabilities. The holders of Class B common stock have the right to require us to redeem the
shares any time after six years from the date of their initial issuance at a
price equal to 10% of our net worth, as defined, as of the last day of the
calendar month immediately preceding the month in which the redemption notice
is received by us. The redemption price is limited to $1,198 per share of
Class B common stock. The maximum aggregate redemption price would be
approximately $133,000 if all Class B shares were tendered for redemption by
the shareholders. We present the Class B common stock on our balance sheet at approximate
redemption value based on the amounts due the shareholders upon redemption at
the balance sheet date. This amount will not exceed the maximum redemption
amount of $133,000 although we may elect to call as described in Note 6. 8. Related Party Transactions Transactions with related parties are entered into only upon approval by a
majority of our directors and only upon terms comparable to those that would
be available from unaffiliated parties. All treasury functions are
maintained by Allied. In order to meet our cash flow needs, we will
occasionally borrow funds from a wholly-owned subsidiary of Allied under a
revolving credit agreement permitting a maximum borrowing of $5 million.
Loans under the revolving credit agreement bear interest at a rate of 6.5%.
In addition, any excess cash we generate is advanced to a wholly-owned
subsidiary of Allied and earns interest at a rate of 6.5%. As of December
31, 2003 and 2002 $1.6 million and $0.7 million, respectively, of excess cash
was advanced and was reported as due from parent, net in the accompanying
balance sheets. Interest earned on excess cash of $0.1 million, $0.9 million
and $0.1 million was reported as interest income in the accompanying
statements of operations for the years ended December 31, 2003, 2002 and
2001, respectively. The receivables for excess cash advanced are shown net of amounts we owe
Allied for administrative costs incurred by Allied on behalf of us. We are
charged for certain administrative and general expenses for services provided
by Allied pursuant to an administrative services agreement. Related charges
for the years ended December 31, 2003, 2002 and 2001 were $0.1 million, and
are included in general and administrative expenses. Management believes the
costs charged to us are reasonable in relation to the services provided, but
would not necessarily represent those charged by non-affiliated companies or
incurred for similar functions on a stand-alone basis. The intercompany with parent in stockholders equity represents adjustments to
present these stand-alone financial statements in accordance with generally
accepted accounting principles and is non-interest bearing due to the nature
of the transactions. 260




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##### 



CONSOLIDATED PROCESSING, INC. Financial Statements  Report of Independent Auditors.Balance Sheets as of December 31, 2003 and 2002.Statements of Operations for Each of the Three Years in the Period Ended December 31, 2003.Statements of Stockholders Equity for the Three Years Ended December 31, 2003.Statements of Cash Flows for Each of the Three Years in the Period Ended December 31, 2003.Notes to Financial Statement. 261




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##### 



Report of Independent Auditors To the Board of Directors and Shareholders of
Consolidated Processing, Inc.: In our opinion, the accompanying balance sheets and the related statements of
operations, of stockholders equity and of cash flows present fairly, in all
material respects, the financial position of Consolidated Processing, Inc. at
December 31, 2003 and 2002, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 2003 in
conformity with accounting principles generally accepted in the United States
of America. 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 audit. We conducted our audit of these statements in
accordance with auditing standards generally accepted in the United States of
America, which 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, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audit provides a reasonable basis for our opinion. PRICEWATERHOUSECOOPERS LLP Phoenix, Arizona
March 5, 2004 262




---



##### 



CONSOLIDATED PROCESSING, INC.
BALANCE SHEETS
(in thousands) December 31,2003
    
    2002ASSETSCurrent assets Interest receivable from affiliate
    
    $
    14
    
    
    $
    14Total current assets
    
    
    14
    
    
    
    14Due from parent, net
    
    
    6,800
    
    
    
    4,934Notes receivable from affiliate
    
    
    20,045
    
    
    
    20,045Total assets
    
    $
    26,859
    
    
    $
    24,993LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities Current portion of environmental liabilities
    
    $
    2,237
    
    
    $
    74Total current liabilities
    
    
    2,237
    
    
    
    74Environmental liabilities, less current portion
    
    
    21,927
    
    
    
    21,552Class B common stock; no par value; 1,110 shares
authorized, issued and outstanding
    
    
    180
    
    
    
    180Commitments and contingenciesClass A common stock; no par value; 10,000 shares
authorized, issued and outstanding
    
    
    135
    
    
    
    135Intercompany with parent
    
    
    (3,604
    )
    
    
    (3,344
    )Retained earnings
    
    
    5,984
    
    
    
    6,396Total stockholders equity
    
    
    2,515
    
    
    
    3,187Total liabilities and stockholders equity
    
    $
    26,859
    
    
    $
    24,993
 The accompanying Notes to Financial Statements are an integral part of these balance sheets. 263




---



##### 



CONSOLIDATED PROCESSING, INC.
STATEMENTS OF OPERATIONS
(in thousands) Year Ended December 31,2003
    
    2002
    
    2001Remediation (income) expense, net
    
    $
    2,612
    
    
    $
    (785
    )
    
    $
    (2,022
    )General and administrative expenses
    
    
    53
    
    
    
    66
    
    
    
    65Operating income (loss)
    
    
    (2,665
    )
    
    
    719
    
    
    
    1,957Interest income
    
    
    (1,979
    )
    
    
    (1,863
    )
    
    
    (1,790
    )Income (loss) before income tax
    
    
    (686
    )
    
    
    2,582
    
    
    
    3,747Income tax expense
    
    
    (274
    )
    
    
    1,033
    
    
    
    1,499Net income (loss)
    
    
    (412
    )
    
    
    1,549
    
    
    
    2,248Change in redemption value of Class B
common stock
    
    
    
    
    
    
    
    
    
    
    Net income (loss) available to Class A
common shareholder
    
    $
    (412
    )
    
    $
    1,549
    
    
    $
    2,248
 The accompanying Notes to Financial Statements are an integral part of these statements. 264




---



##### 



CONSOLIDATED PROCESSING, INC.
STATEMENTS OF STOCKHOLDERS EQUITY
(in thousands) Class A
    
    
    
    
    
    
    
    
    
    TotalCommon
    
    Intercompany
    
    Retained
    
    Stockholders'Stock
    
    with Parent
    
    Earnings
    
    EquityBalance as of December 31, 2000
    
    $
    135
    
    
    $
    (5,875
    )
    
    $
    2,599
    
    
    $
    (3,141
    )Net income
    
    
    
    
    
    
    
    
    
    
    2,248
    
    
    
    2,248Change in intercompany with parent
    
    
    
    
    
    
    1,498
    
    
    
    
    
    
    
    1,498Balance as of December 31, 2001
    
    $
    135
    
    
    $
    (4,377
    )
    
    $
    4,847
    
    
    $
    605Net income
    
    
    
    
    
    
    
    
    
    
    1,549
    
    
    
    1,549Change in intercompany with parent
    
    
    
    
    
    
    1,033
    
    
    
    
    
    
    
    1,033Balance as of December 31, 2002
    
    $
    135
    
    
    $
    (3,344
    )
    
    $
    6,396
    
    
    $
    3,187Net loss
    
    
    
    
    
    
    
    
    
    
    (412
    )
    
    
    (412
    )Change in intercompany with parent
    
    
    
    
    
    
    (260
    )
    
    
    
    
    
    
    (260
    )Balance as of December 31, 2003
    
    $
    135
    
    
    $
    (3,604
    )
    
    $
    5,984
    
    
    $
    2,515
 The accompanying Notes to Financial Statements are an integral part of these statements. 265




---



##### 



CONSOLIDATED PROCESSING, INC.
STATEMENTS OF CASH FLOWS
(in thousands) Year Ended December 31,2003
    
    2002
    
    2001Operating activities Net income (loss)
    
    $
    (412
    )
    
    $
    1,549
    
    
    $
    2,248Adjustments to reconcile net income (loss) to cash provided by
(used for) operating activities Provision (benefit) for income taxes
    
    
    (274
    )
    
    
    1,033
    
    
    
    1,499Remediation expense, net
    
    
    2,612
    
    
    
    (785
    )
    
    
    (2,022
    )Environmental expenditures
    
    
    (60
    )
    
    
    (388
    )
    
    
    (596
    )Cash provided by (used for) operating activities
    
    
    1,866
    
    
    
    1,409
    
    
    
    1,129Financing activities Change in due from parent, net
    
    
    (1,866
    )
    
    
    (1,409
    )
    
    
    (1,129
    )Cash used for financing activities
    
    
    (1,866
    )
    
    
    (1,409
    )
    
    
    (1,129
    )Change in cash
    
    
    
    
    
    
    
    
    
    
    Cash, beginning of year
    
    
    
    
    
    
    
    
    
    
    Cash, end of year
    
    $
    
    
    
    $
    
    
    
    $
    Supplemental disclosures Non-cash change in intercompany with parent in equity
    
    $
    (260
    )
    
    $
    1,033
    
    
    $
    1,498
 The accompanying Notes to Financial Statements are an integral part of these statements. 266




---



##### 



CONSOLIDATED PROCESSING, INC.
NOTES TO FINANCIAL STATEMENTS 1. Organization and Summary of Significant Accounting Policies Consolidated Processing, Inc. (CPI, we or the Company), an Illinois
corporation, manages certain contingent environmental liabilities assumed from
its parent company Allied Waste Industries, Inc. (Allied). These contingent
environmental liabilities represent estimated Superfund payments, remediation
costs, anticipated legal settlements and related legal, engineering and other
costs. Allied Waste Transportation, Inc. (AWT), a wholly owned subsidiary of
Allied, owns all of our Class A common stock, which represents 90% of our
outstanding shares of common stock. The Class B common stock, which represents
the remaining 10% equity interest, is owned by unaffiliated environmental
consultants. We are dependent on Allied to provide funding for the liabilities assumed.
This is accomplished through interest income and principal payments on notes
receivable from affiliates (see Note 2) and, if necessary, borrowings from a
subsidiary of Allied under a revolving credit agreement (see Note 8). Purpose and basis of presentation  The purpose of these financial statements is to provide information about CPI
which guarantees certain outstanding debt obligations of BFI and Allied. CPI,
along with substantially all of Allieds other subsidiaries, represent the
aggregate guarantor of the debt obligations. In the event that Allied cannot
make payments on such debt obligations when they are due, the guarantor
subsidiaries must make the payments instead. These financial statements are
presented herein because CPI is not a wholly-owned subsidiary of Allied and
Securities and Exchange Commission (SEC) Rule 3-10 of Regulation S-X requires
separate stand alone financial statements of non wholly-owned guarantors. CPI is not a registrant with the SEC and is not subject to the SECs periodic
reporting requirements, except as may be required by Rule 3-10 of Regulation
S-X. Certain estimates, including allocations from Allied, have been made to
provide financial information for SEC and stand-alone reporting purposes as if
CPI were a registrant. We believe that the presentations and disclosures
herein are adequate to make the financial information not misleading. In the
opinion of management, all adjustments necessary to fairly state the financial
statements have been reflected. 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.
Although we believe that our estimates and assumptions are reasonable, they are
based upon information presently available. Actual results may differ
significantly from the estimates. Fair value of financial instruments  Our financial instruments, as defined by Statement of Financial Accounting
Standards (SFAS) No. 107, Disclosures about the Fair Value of Financial
Instruments, include cash and notes receivable. The carrying value of our cash
approximates fair value due to the short-term maturity of this instrument and
the carrying value of the notes receivable approximates fair value due to the
fixed interest rate being comparable with market rates for similar types of
notes receivable. 267




---



##### 



CONSOLIDATED PROCESSING, INC.
NOTES TO FINANCIAL STATEMENTS 2. Interest and Notes Receivable from Affiliate Notes receivable at December 31, 2003 and 2002 consists of two notes receivable
from a wholly owned subsidiary of Allied. These notes receivable were issued on
December 29, 1997 and have face values of $16.3 million and $3.8 million ,
respectively. Interest is payable annually at a rate of 8.11%, and the
principal amount of the note is due upon maturity on December 29, 2009.
Interest income of approximately $1.6 million was included in the accompanying
statements of operations for the years ended December 31, 2003, 2002 and 2001. 3. Environmental Liabilities We accrue for costs associated with environmental liabilities 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 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
receipt is deemed probable. There were no significant recovery receivables
outstanding as of December 31, 2003 or December 31, 2002. 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,
Environmental Remediation Liabilities. We engage independent environmental consulting firms to assist us in conducting
assessments of our environmental liabilities. We cannot determine with
precision the ultimate amounts for environmental liabilities. We make
estimates of our potential liabilities in consultation with our independent
environmental engineers and legal counsel. These estimates 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 financial statements. We expect that the environmental liabilities will
be adjusted from time to time as circumstances change or actual amounts are
realized. Any changes (increases or decreases) in our estimate of the
environmental liabilities are recorded in results of operations in the period
the change is determined. Our ultimate liabilities for environmental matters may differ from the
estimates used in our assessment to date. We periodically evaluate the
recorded liabilities as additional information becomes available to ascertain
whether the accrued liabilities are adequate. We have determined that the
recorded undiscounted liability for environmental matters 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 liquidity or financial position. However, we
believe that it is reasonably possible the ultimate outcome of environmental
matters could result in an adjustment that would be material to our results
of operations. 268




---



##### 



CONSOLIDATED PROCESSING, INC.
NOTES TO FINANCIAL STATEMENTS 4. Income Taxes Our operating results are included in the consolidated federal income tax
return of Allied for the periods ended December 31, 2003, 2002 and 2001. For
purposes of determining state income tax liabilities, we filed either a
consolidated or separate return based on the filing regulations required by
each state. The allocation of consolidated taxes of Allied to us is determined
as if we prepared a separate tax return, in accordance with the provisions of
the SFAS No. 109, Accounting for Income Taxes. The components of the income tax provision (benefit) consist of the following
(in thousands): For the Year Ended December 31,2003
    
    2002
    
    2001Current state tax provision
    
    $
    
    
    
    $
    
    
    
    $
    Balance of provision (benefit)
    
    
    (274
    )
    
    
    1,033
    
    
    
    1,499Total
    
    $
    (274
    )
    
    $
    1,033
    
    
    $
    1,499
 The current state tax provision represents the state income taxes paid and
payable for the periods presented. The balance of the provision represents
federal and deferred state income taxes. The income tax provision allocated
includes both current and deferred taxes and is
reflected in intercompany with parent in stockholders equity on our balance
sheets. The reconciliation of our income tax provision at the federal statutory tax
rate to our effective tax rate follows (in thousands): For the Year Ended December 31,2003
    
    2002
    
    2001Federal statutory tax rate
    
    $
    (240
    )
    
    $
    904
    
    
    $
    1,312Consolidated state taxes, net of
federal benefit
    
    
    (34
    )
    
    
    129
    
    
    
    187Effective tax rate
    
    $
    (274
    )
    
    $
    1,033
    
    
    $
    1,499
 Deferred tax assets and liabilities (including any valuation allowance) are
recognized, realized and maintained on a corporate-wide basis by Allied. Our
cumulative tax-effected temporary differences that have been recorded in
intercompany with parent in stockholders equity on our balance sheets are as
follows (in thousands): December 31,2003
    
    2002Cumulative Tax-Effected Future
(Taxable) Deductible Temporary
Differences:Environmental liabilities
    
    $
    9,666
    
    
    $
    8,650Total
    
    $
    9,666
    
    
    $
    8,650
 269




---



##### 



CONSOLIDATED PROCESSING, INC.
NOTES TO FINANCIAL STATEMENTS 5. Commitments and Contingencies Litigation  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, 2003, which have not been accrued in the balance sheet, will not
have a material adverse effect on our liquidity, financial position or
results from operations. 6. Common Stock AWT owns all 1,000 outstanding shares of our Class A common stock. In December
1997, we issued all 111 outstanding shares of Class B common stock to Allied in
exchange for two notes receivable (see Note 2) and the assumption of certain
contingent environmental liabilities (see Note 3). In December 1997, Allied
sold all 111 outstanding shares of the Class B common stock to outside parties.
The Class B shares do not generally have voting rights, other than the right
to elect one of the six members of our Board of Directors. We have the right to call the Class B common stock for redemption at any time
after five years from the date of their initial issuance at a price equal to
10.5% of our net worth, as defined, as of the last day of the calendar month in
which the redemption notice is sent by us. Net worth, as defined in our
incorporating documents, varies significantly from net worth presented in these
financial statements. The redemption price is limited to $1,703 per share of
Class B common stock. The maximum aggregate redemption price would be
approximately $189,000 if all Class B shares were called for redemption by us. 7. Redeemable Class B Common Stock Two environmental consultants and one environmental consulting firm
collectively own all 111 outstanding shares of Class B common stock. The
Class B shareholders have experience in environmental technologies, community
relations and knowledge of various environmental laws and regulations to
manage and reduce overall contingent environmental liabilities. The Class B
shareholders participate in our Strategic Action Committee, which
manages our overall liabilities. 270




---



##### 



CONSOLIDATED PROCESSING, INC.
NOTES TO FINANCIAL STATEMENTS The holders of the Class B Common Stock have the right to require us to redeem
the shares at any time after six years from the date of their initial issuance
at a price equal to 10% of our net worth, as defined, as of the last day of the
calendar month in which the redemption notice is received by us. The
redemption price is limited to $1,622 per share of Class B common stock. The
maximum aggregate redemption price would be approximately $180,000 if all Class
B shares were tendered for redemption by the shareholders. We present the Class B common stock on our balance sheet at approximate
redemption value based on the amounts due the shareholders upon redemption at
the balance sheet date. This amount will not exceed the maximum redemption
amount of $180,000 although we may elect to call as described in Note 6. 8. Related Party Transactions Transactions with related parties are entered into only upon approval by a
majority of our directors and only upon terms comparable to those that would be
available from unaffiliated parties. All treasury functions are maintained by
Allied. In order to meet our cash flow needs, we will occasionally borrow
funds from a wholly-owned subsidiary of Allied under a revolving credit
agreement permitting a maximum borrowing of $15 million. Loans under the
revolving credit agreement bear interest at a rate of 7.5%. In addition, any
excess cash we generate is advanced to a wholly-owned subsidiary of Allied and
earns interest at a rate of 7.5%. As of December 31, 2003 and 2002 $6.8
million and $4.9 million, respectively, of excess cash was advanced and was
reported as due from parent, net in the accompanying balance sheets. Interest
earned on excess cash of $0.4 million, $0.2 million and $0.2 million was
reported as interest income in the accompanying statements of operations for
the years ended December 31, 2003, 2002 and 2001, respectively. The receivables for excess cash advanced are shown net of amounts we owe Allied
for administrative costs incurred by Allied on behalf of us. We are charged
for certain administrative and general expenses for services provided by Allied
pursuant to an administrative services agreement. Related charges for the
years ended December 31, 2003, 2002 and 2001 were $0.1 million, and are
included in general and administrative expenses. Management believes the costs
charged to us are reasonable in relation to the services provided, but would
not necessarily represent those charged by non-affiliated companies or incurred
for similar functions on a stand-alone basis. The intercompany with parent in stockholders equity represents adjustments to
present these stand-alone financial statements in accordance with generally
accepted accounting principles and is non-interest bearing due to the nature of
the transactions. 271




---



##### 



|            |  |  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |  |  |  | 
|----------- |  |  |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  |  |  | 
|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 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 Report on Form 8-K filed March 16, 1999 is
incorporated herein by reference.                                                                                                                                                                                                                                                                                                                                                                                    
|            |  |  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|3.1         |  |  |  | Amended Certificate of Incorporation of Allied
 Exhibit 3.1 to the Companys Report on
Form 10-K/A for the fiscal year ended
December 31, 1996 is incorporated herein by reference.                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|            |  |  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|3.1(i)      |  |  |  | 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.                                                                                                                                                                                                                                                                                                                                                                                                                                           
|            |  |  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|3.1(ii)     |  |  |  | Certificate of Amendment to Restated Certificate of
Incorporation of Allied dated January 23, 2003. Exhibit 3.1(ii)
to the Companys Report on Form 10-K for the year ended
December 31, 2002 is incorporated herein by reference.                                                                                                                                                                                                                                                                                                                                                                                                                           
|            |  |  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|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
Amended and Restated 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|            |  |  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|3.2 (ii)    |  |  |  | Amendment No. 2 to the Amended and Restated Bylaws of
Allied Waste Industries, Inc. effective June 24, 2003. Exhibit 3.2 to
Allieds Report on Form 10-Q for
the quarter ended September 30,
2003 is incorporated herein by
reference.                                                                                                                                                                                                                                                                                                                                                                                                                       
|            |  |  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|10.1        |  |  |  | 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.                                                                                                               
|            |  |  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|10.2        |  |  |  | Executive Employment Agreement between Allied and
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.                                                                                                                                                                                                                                                                                                                                                                                                                                       
|            |  |  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|10.3        |  |  |  | Executive Employment Agreement between Allied and
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.                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|            |  |  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|10.4        |  |  |  | Executive Employment Agreement between Allied and
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.                                                                                                                                                                                                                                                                                                                                                                                                                                           
|            |  |  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|10.5        |  |  |  | Executive Employment Agreement between Allied and
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.                                                                                                                                                                                                                                                                                                                                                                                                                                             
|            |  |  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|10.6        |  |  |  | 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.
Exhibit 4.1 to Allieds Registration Statement on Form S-4 (No. 333-82362) is
incorporated by reference.                                                                                                                                                                                                                                                                                          
|            |  |  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|10.7        |  |  |  | Form of 8-1/2% Senior Notes due 2008 (included in
Exhibit 10.11).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|            |  |  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|10.8        |  |  |  | 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.                                                                                                                                                                                                                                                                                                                            

272



---



##### 



|            |  |  |  |                                                                                                                                                                                                                                                                                                                                                       |  |  |  | 
|----------- |  |  |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  |  |  | 
|Exhibit No. |  |  |  | Description                                                                                                                                                                                                                                                                                                                                           |  |  |  | 
|            |  |  |  |                                                                                                                                                                                                                                                                                                                                                       |  |  |  | 
|10.9        |  |  |  | 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.
|            |  |  |  |                                                                                                                                                                                                                                                                                                                                                      
|10.10       |  |  |  | Form 8-7/8%
Senior Notes due 2008 (included in Exhibit 10.13).                                                                                                                                                                                                                                                                                       
|            |  |  |  |                                                                                                                                                                                                                                                                                                                                                      
|10.11       |  |  |  | 1994 Amended and Restated Non-Employee Director
Stock Option Plan of Allied. Exhibit B to Allieds Definitive Proxy Statement in
accordance with Schedule 14A dated
April 28, 1994, is incorporated herein by reference.                                                                                                                             
|            |  |  |  |                                                                                                                                                                                                                                                                                                                                                      
|10.12       |  |  |  | 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.                                                                                                                                               
|            |  |  |  |                                                                                                                                                                                                                                                                                                                                                      
|10.13       |  |  |  | Second Amendment to the 1994 Amended and Restated
Non-Employee Directors Stock Option Plan of Allied. Exhibit A to Allieds Definitive
Proxy Statement in
accordance with Schedule 14A dated April 25, 1995, is incorporated herein by
reference.                                                                                                   
|            |  |  |  |                                                                                                                                                                                                                                                                                                                                                      
|10.14       |  |  |  | Third Amendment to the 1994 Amended and Restated
Non-Employee Directors Stock Option Plan dated January 1, 1998. Exhibit 4.41 to
Allieds Quarterly Report on Form
10-Q dated May 15, 2002, is incorporated herein by reference.                                                                                                                    
|            |  |  |  |                                                                                                                                                                                                                                                                                                                                                      
|10.15       |  |  |  | Fourth Amendment to the 1994 Amended and Restated
Non-Employee Directors Stock Option Plan dated January 1, 1998. Exhibit 4.42 to
Allieds Quarterly Report on Form
10-Q dated May 15, 2002, is incorporated herein by reference.                                                                                                                   
|            |  |  |  |                                                                                                                                                                                                                                                                                                                                                      
|10.16       |  |  |  | Fifth Amendment to the 1994 Amended and Restated
Non-Employee Directors Stock Option Plan dated May 26, 1999. Exhibit 4.43 to
Allieds Quarterly Report on Form
10-Q dated May 15, 2002, is incorporated herein by reference.                                                                                                                       
|            |  |  |  |                                                                                                                                                                                                                                                                                                                                                      
|10.17       |  |  |  | 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.                                                                                                                                                                                      
|            |  |  |  |                                                                                                                                                                                                                                                                                                                                                      
|10.18       |  |  |  | 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.                                                                                                                                                          
|            |  |  |  |                                                                                                                                                                                                                                                                                                                                                      
|10.19       |  |  |  | First Amendment to the 1991 Incentive Stock
Plan dated August 8, 2001.                                                                                                                                                                                                                                                                               
|            |  |  |  |                                                                                                                                                                                                                                                                                                                                                      
|10.20       |  |  |  | First Amendment to the 1994 Amended and Restated
Incentive Stock Plan dated January 1, 1998. Exhibit 4.44 to Allieds Quarterly Report
on Form 10-Q dated May 15,
2002, is incorporated herein by reference.                                                                                                                                         
|            |  |  |  |                                                                                                                                                                                                                                                                                                                                                      
|10.21       |  |  |  | 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.                                                                                                                                                                                                 
|            |  |  |  |                                                                                                                                                                                                                                                                                                                                                      
|10.22       |  |  |  | Amendment No. 1 to the 1993 Incentive Stock
Option Plan dated January 1, 1998.                                                                                                                                                                                                                                                                       
|            |  |  |  |                                                                                                                                                                                                                                                                                                                                                      
|10.23       |  |  |  | Amendment to the Allied Waste Industries, Inc. 1993
Incentive Stock Plan dated June 20, 2000.                                                                                                                                                                                                                                                        
|            |  |  |  |                                                                                                                                                                                                                                                                                                                                                      
|10.24       |  |  |  | Second Amendment to the 1993 Incentive Stock Plan
dated December 12, 2002.                                                                                                                                                                                                                                                                           
|            |  |  |  |                                                                                                                                                                                                                                                                                                                                                      
|10.25       |  |  |  | First Amendment to the 1994 Incentive Stock Plan
dated June 20, 2000 is incorporated herein by reference.                                                                                                                                                                                                                                            
|            |  |  |  |                                                                                                                                                                                                                                                                                                                                                      
|10.26       |  |  |  | Second Amendment to the 1994 Incentive Stock Plan
dated December 12, 2002.                                                                                                                                                                                                                                                                           
|            |  |  |  |                                                                                                                                                                                                                                                                                                                                                      
|10.27       |  |  |  | Restated 1994 Non-Employee Director Stock Plan
dated April 3, 2002 incorporated herein by reference.                                                                                                                                                                                                                                                 
|            |  |  |  |                                                                                                                                                                                                                                                                                                                                                      
|10.28       |  |  |  | Sixth Amendment to the 1994 Amended and Restated
Non-Employee Director Stock Plan dated April 3, 2002 incorporated herein by
reference.                                                                                                                                                                                                              
|            |  |  |  |                                                                                                                                                                                                                                                                                                                                                      
|10.29       |  |  |  | Second Amendment to Restated 1991 Incentive Stock
Plan dated December 12, 2002.                                                                                                                                                                                                                                                                      
|            |  |  |  |                                                                                                                                                                                                                                                                                                                                                      
|10.30       |  |  |  | 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.             

273



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##### 



|            |  |  |  |                                                                                                                                                                                                                                                                                                                                                                |  |  |  | 
|----------- |  |  |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  |  |  | 
|Exhibit No. |  |  |  | Description                                                                                                                                                                                                                                                                                                                                                    |  |  |  | 
|            |  |  |  |                                                                                                                                                                                                                                                                                                                                                                |  |  |  | 
|10.31       |  |  |  | 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.                                                                                     
|            |  |  |  |                                                                                                                                                                                                                                                                                                                                                               
|10.32       |  |  |  | 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.                                                                                                                                                                                 
|            |  |  |  |                                                                                                                                                                                                                                                                                                                                                               
|10.33       |  |  |  | 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.                                                                                         
|            |  |  |  |                                                                                                                                                                                                                                                                                                                                                               
|10.34       |  |  |  | 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.                                                                                                                                                                                                              
|            |  |  |  |                                                                                                                                                                                                                                                                                                                                                               
|10.35       |  |  |  | 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.                               
|            |  |  |  |                                                                                                                                                                                                                                                                                                                                                               
|10.36       |  |  |  | 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.                            
|            |  |  |  |                                                                                                                                                                                                                                                                                                                                                               
|10.37       |  |  |  | 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.
|            |  |  |  |                                                                                                                                                                                                                                                                                                                                                               
|10.38       |  |  |  | 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.                                                           
|            |  |  |  |                                                                                                                                                                                                                                                                                                                                                               
|10.39       |  |  |  | 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.      
|            |  |  |  |                                                                                                                                                                                                                                                                                                                                                               
|10.40       |  |  |  | Amended and Restated Collateral Trust Agreement, dated April 29, 2003, among Allied NA, certain of its subsidiaries,
and JPMorgan Chase Bank, as Collateral Trustee. Exhibit 10.14 to
Allieds Registration Statement on Form S-4 (No. 333-104451) is incorporated herein by reference.                                                                       
|            |  |  |  |                                                                                                                                                                                                                                                                                                                                                               
|10.41       |  |  |  | Amended and Restated
Shared Collateral Pledge Agreement, dated April 29, 2003, among
Allied NA, certain of its subsidiaries, and JP Morgan Chase Bank, as
Collateral Trustee.
Exhibit 10.13 to Allieds Registration Statement on Form S-4 (No.
333-104451) is incorporated herein by reference.                                                              
|            |  |  |  |                                                                                                                                                                                                                                                                                                                                                               
|10.42       |  |  |  | Amended and Restated
Shared Collateral Security Agreement, dated April 29, 2003, among
Allied NA, certain of its subsidiaries, and JP Morgan Chase Bank, as
Collateral Trustee. Exhibit  10.12 to Allieds Registration Statement
on Form S-4 (No. 333-104451) is incorporated herein by reference.                                                           
|            |  |  |  |                                                                                                                                                                                                                                                                                                                                                               
|10.43       |  |  |  | Amended and Restated
Non-Shared Collateral Security Agreement, dated April 29, 2003, among
Allied, Allied NA, certain of its subsidiaries, and JP Morgan Chase
Bank, as Collateral Agent. Exhibit  10.10 to Allieds Registration
Statement on Form S-4 (No. 333-104451) is incorporated herein by
reference.                                                 
|            |  |  |  |                                                                                                                                                                                                                                                                                                                                                               
|10.44       |  |  |  | Amended and Restated
Non-Shared Collateral Pledge Agreement, dated April 29, 2003, among
Allied, Allied NA, certain of its subsidiaries, and JP Morgan Chase
Bank, as Collateral Agent. Exhibit 10.11 to Allieds
Registration Statement on Form S-4 (No. 333-104451) is incorporated
herein by reference.                                                    

274



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##### 



|            |  |  |  |                                                                                                                                                                                                                                                                                                                                                                        |  |  |  | 
|----------- |  |  |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  |  |  | 
|Exhibit No. |  |  |  | Description                                                                                                                                                                                                                                                                                                                                                            |  |  |  | 
|            |  |  |  |                                                                                                                                                                                                                                                                                                                                                                        |  |  |  | 
|10.45       |  |  |  | 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.                         
|            |  |  |  |                                                                                                                                                                                                                                                                                                                                                                       
|10.46       |  |  |  | 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 Report on
Form 8-K dated August 10, 1999, is incorporated herein by reference.                                     
|            |  |  |  |                                                                                                                                                                                                                                                                                                                                                                       
|10.47       |  |  |  | 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.
|            |  |  |  |                                                                                                                                                                                                                                                                                                                                                                       
|10.48       |  |  |  | Form of 10% Series B Senior Subordinated Notes
due 2009 (included in Exhibit 10.51), is incorporated herein by reference.                                                                                                                                                                                                                                             
|            |  |  |  |                                                                                                                                                                                                                                                                                                                                                                       
|10.49       |  |  |  | Ninth Supplemental
Indenture relating to the 91⁄4%
Senior Notes due 2012,
dated November 15, 2002, among Allied NA, certain guarantors signatory
thereto, and U.S. Bank National Association as Trustee.                                                                                                                                                                
|            |  |  |  |                                                                                                                                                                                                                                                                                                                                                                       
|10.50       |  |  |  | Amended and Restated
Credit Agreement, dated April 29, 2003. Exhibit 10.1 to Allieds Report on Form 10-Q for the
quarter ended March
31, 2003 is incorporated herein by reference.                                                                                                                                                                                   
|            |  |  |  |                                                                                                                                                                                                                                                                                                                                                                       
|10.51       |  |  |  | Amendment to Amended
and Restated Credit Agreement, dated as of August 20,
2003.
Exhibit 10.01 to Allieds Current Report on Form 8-K dated August 25, 2003 is
incorporated by reference.                                                                                                                                                                             
|            |  |  |  |                                                                                                                                                                                                                                                                                                                                                                       
|10.52       |  |  |  | Certificate of Designations of 6-1/4% Series C
Senior Mandatory Convertible Preferred Stock of Allied Waste Industries, Inc., as filed with the
Delaware Secretary of State on April 8, 2003. Exhibit 3.01 to Allieds Current Report
on Form 8-K dated April 10, 2003 is incorporated by
reference.                                                                  
|            |  |  |  |                                                                                                                                                                                                                                                                                                                                                                       
|10.53       |  |  |  | Tenth Supplemental Indenture governing the 7-7/8%
Senior Notes due 2013, dated April 9, 2003, among Allied Waste North America, Inc., Allied
Waste
Industries, Inc., the guarantors party thereto, and U.S. Bank National Association as Trustee.
Exhibit 10.01 to Allieds Current Report on Form 8-K
dated April 10, 2003 is incorporated by reference.             
|            |  |  |  |                                                                                                                                                                                                                                                                                                                                                                       
|10.54       |  |  |  | Exchange Agreement,
dated July 31, 2003, by and among Allied Waste
Industries, Inc., and the Parties Listed on Schedule I thereto.
Exhibit 1.01 to Allieds
Current Report on Form 8-K dated August 6, 2003 is incorporated by reference.                                                                                                                             
|            |  |  |  |                                                                                                                                                                                                                                                                                                                                                                       
|10.55       |  |  |  | Executive Employment Agreement between the Company
and Thomas W. Ryan effective August 1, 2003. Exhibit 10.1 to Allieds Report on
Form 10-Q for
the quarter ended September 30, 2003 is incorporated herein by reference.                                                                                                                                            
|            |  |  |  |                                                                                                                                                                                                                                                                                                                                                                       
|10.56       |  |  |  | Registration Rights Agreement, dated as of
November 10, 2003, by and among the Company, the Guarantors and the initial purchasers,
relating to $350
million aggregate principal amount of 6-1/2% Senior Notes due 2010. Exhibit 10.4 to
Allieds Report on Form 10-Q for the quarter ended September
30, 2003 is incorporated herein by reference.                    

275



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##### 



|            |  |  |   |                                                                                                                                                                                                                                                                                                                                         |  |  |  | 
|----------- |  |  | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  |  |  | 
|Exhibit No. |  |  |   | Description                                                                                                                                                                                                                                                                                                                             |  |  |  | 
|            |  |  |   |                                                                                                                                                                                                                                                                                                                                         |  |  |  | 
|            |  |  |   |                                                                                                                                                                                                                                                                                                                                        
|10.57       |  |  |   | Eleventh Supplemental Indenture relating to the
6-1/2% Senior Notes due 2010, dated November 10, 2003, among Allied NA, certain guarantors
signatory thereto, and U.S. Bank National Association as Trustee. Exhibit 10.5 to Allieds
Report on Form 10-Q for the quarter ended September 30,
2003 is incorporated herein by reference.
|            |  |  |   |                                                                                                                                                                                                                                                                                                                                        
|10.58       |  |  | * | Twelfth Supplemental Indenture governing the 5-3/4%
Series A Senior Notes
due 2011, dated January 27, 2004, among Allied Waste North America, Inc.,
Allied Waste Industries, Inc., the guarantors party thereto, and U.S. Bank
National Association as Trustee.                                                                        
|            |  |  |   |                                                                                                                                                                                                                                                                                                                                        
|            |  |  |   |                                                                                                                                                                                                                                                                                                                                        
|10.59       |  |  | * | Thirteenth Supplemental Indenture governing the
6-1/8% Series A Senior
Notes due 2014, dated January 27, 2004, among Allied Waste North America,
Inc., Allied Waste Industries, Inc., the guarantors party thereto, and U.S.
Bank National Association as Trustee.                                                                     
|            |  |  |   |                                                                                                                                                                                                                                                                                                                                        
|10.60       |  |  | * | Second Amended and Restated Registration Rights
Agreement, dated as of
December 18, 2003, between Allied and the purchasers of the Series A
Convertible Preferred Stock and related parties.                                                                                                                                           
|            |  |  |   |                                                                                                                                                                                                                                                                                                                                        
|10.61       |  |  | * | Third Amended and Restated Shareholders Agreement,
dated as of December 18,
2003, between Allied and the purchasers of the Series A Senior Convertible
Preferred Stock and related parties.                                                                                                                                            
|            |  |  |   |                                                                                                                                                                                                                                                                                                                                        
|10.62       |  |  |   | Amendment to Amended
and Restated Credit Agreement, dated November 20, 2003.
Exhibit 99.1 to Allieds Current Report on Form 8-K
dated November 26, 2003 is incorporated by reference.                                                                                                                                                 
|            |  |  |   |                                                                                                                                                                                                                                                                                                                                        
|12.1        |  |  | * | Ratio of earnings to fixed charges and preferred
stock dividends.                                                                                                                                                                                                                                                                      
|            |  |  |   |                                                                                                                                                                                                                                                                                                                                        
|14          |  |  | * | Allied Waste Industries Code of Ethics.                                                                                                                                                                                                                                                                                                
|            |  |  |   |                                                                                                                                                                                                                                                                                                                                        
|21          |  |  | * | Subsidiaries of the Registrant.                                                                                                                                                                                                                                                                                                        
|            |  |  |   |                                                                                                                                                                                                                                                                                                                                        
|23.1        |  |  | * | Consent of Pricewaterhouse Coopers
LLP.                                                                                                                                                                                                                                                                                               
|            |  |  |   |                                                                                                                                                                                                                                                                                                                                        
|31.1        |  |  | * | Section 302 Certifications of Thomas H. Van
Weelden, Chairman of the Board of Directors and Chief Executive Officer.                                                                                                                                                                                                                   
|            |  |  |   |                                                                                                                                                                                                                                                                                                                                        
|31.2        |  |  | * | Section 302 Certifications of Peter S.
Hathaway, Executive Vice President and Chief Financial Officer.                                                                                                                                                                                                                                 
|            |  |  |   |                                                                                                                                                                                                                                                                                                                                        
|32          |  |  | * | Certification Pursuant to 18 U.S.C.§1350 of
Thomas H. Van Weelden, Chairman of the Board of Directors and Chief Executive Officer and Peter S.
Hathaway, Executive Vice President and Chief Financial Officer.                                                                                                                         
|            |  |  |   |                                                                                                                                                                                                                                                                                                                                        
|            |  |  | * | Filed herewith                                                                                                                                                                                                                                                                                                                         

|                                                               |  |                                                                                                                                                                                                                                                                  
|-------------------------------------------------------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Reports on Form 8-K during the Quarter Ended
December 31, 2003
|                                                               |  |                                                                                                                                                                                                                                                                  
|October 28, 2003                                               |  | Our current report on Form 8-K to announce the financial results for the third quarter ended
September 30, 2003.                                                                                                                                                 
|                                                               |  |                                                                                                                                                                                                                                                                  
|October 31, 2003                                               |  | Our current report on Form 8-K to file under Item 9 the reclassified results relating to
the divestiture of
certain operations for the each of the quarters beginning September 30, 2002 through
September 30, 2003                                              
|                                                               |  |                                                                                                                                                                                                                                                                  
|October 31, 2003                                               |  | Our current report on Form 8-K to file under Item 9 the announcement that we were
commencing the process of
seeking modifications to our 2003 Credit Facility to reduce the interest rates on the term loans and
to
favorably revise certain financial covenants.
|                                                               |  |                                                                                                                                                                                                                                                                  
|November 26, 2003                                              |  | Our current report on Form 8-K to file under Item 9 our
Second Amendment and Restatement as of November 20, 2003 to the
Credit Agreement dated as of July 21,  1999, as amended and
restated as of August 20, 2003.                                              

276



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##### 



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: | March 15, 2004 | By:                           |  | /s/ Peter S. Hathaway                       
|      |                |                               |  |                                             
|      |                |                               |  | Peter S. Hathaway                           
|      |                |                               |  | 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 WeeldenThomas H. Van Weelden |  | Director, Chairman of the Board of
Directors and Chief Executive Officer
(Principal Executive officer) |  | March 15, 2004
|                                              
|/s/ Peter S. HathawayPeter S. Hathaway         |  | Executive Vice President and Chief
Financial Officer
(Principal Financial Officer)                     |  | March 15, 2004
|                                              
|/s/ James E. GrayJames E. Gray                 |  | Vice President, Controller, Chief
Accounting Officer
(Principal Accounting Officer)                    |  | March 15, 2004
|                                              
|/s/ Michael GrossMichael Gross                 |  | Director                                                                                               |  | March 15, 2004
|                                              
|/s/ Dennis HendrixDennis Hendrix               |  | Director                                                                                               |  | March 15, 2004
|                                              
|/s/ Leon D. BlackLeon D. Black                 |  | Director                                                                                               |  | March 15, 2004
|                                              
|/s/ Nolan LehmannNolan Lehmann                 |  | Director                                                                                               |  | March 15, 2004
|                                              
|/s/ Howard A. LipsonHoward A. Lipson           |  | Director                                                                                               |  | March 15, 2004
|                                              
|/s/ James W. CrownoverJames W. Crownover       |  | Director                                                                                               |  | March 15, 2004
|                                              
|/s/ Antony P. ResslerAntony P. Ressler         |  | Director                                                                                               |  | March 15, 2004
|                                              
|/s/ Warren B. RudmanWarren B. Rudman           |  | Director                                                                                               |  | March 15, 2004
|                                              
|/s/ Lawrence V. JacksonLawrence V. Jackson     |  | Director                                                                                               |  | March 15, 2004
|                                              
|/s/ J. Tomilson HillJ. Tomilson Hill           |  | Director                                                                                               |  | March 15, 2004
|                                              
|/s/ Robert AgateRobert Agate                   |  | Director                                                                                               |  | March 15, 2004

277