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, 1998
                                                           OR
[  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
     SECURITIES ACT OF 1934
                   For the transition period from ______ to ______
                          Commission File Number 0-19285

                          Allied Waste Industries, Inc.
             (Exact name of registrant as specified in its charter)

                 Delaware                        88-0228636
         (State or other jurisdiction of       (I.R.S. Employer
       incorporation or organization)        Identification Number)

     15880 North Greenway-Hayden Loop, Suite 100
                 Scottsdale, Arizona                        85260
      (Address of principal executive offices)            (Zip Code)

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

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

Title of each class                    Name of each exchange on which registered
--------------------                   -----------------------------------------
 Common Stock,  $.01 par value               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  and Exchange Act
of 1934  during the  preceding  12 months (or for such  shorter  period that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days. Yes x  No.
                                             ---    ---

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

         The  aggregate  market value of the  registrant's  voting stock held by
nonaffiliates of the registrant was $2,333,685,285 as of March 25, 1999.

         The  number  of shares  of the  Company's  common  stock,  $.01 par  
value,  outstanding  at March 25,  1999 was 187,637,123.

         The registrant's  proxy statement is to be filed in connection with the
registrant's  1999  annual  meeting  of  stockholders,  portions  of  which  are
incorporated by reference into Part III of this report.


<PAGE>



                                     PART I


Item l.  Business

         Allied Waste Industries,  Inc., a Delaware corporation ("Allied" or the
"Company"),  is the third largest,  non-hazardous solid waste management company
in the United States, as measured by revenues.  The Company serves approximately
2.6 million customers  through  operations in 28 states located primarily in the
Great Lakes, Midwest,  Northeast,  Southeast,  Southwest and West regions of the
United  States.  As of March 1999, the Company  provided its services  through a
network of 130 collection companies, 68 transfer stations, 76 landfills,  and 22
recycling facilities.  The Company had revenues of $1.3 billion and $1.6 billion
for the years ended December 31, 1997 and 1998, respectively.

         In October 1998,  Allied  acquired  American  Disposal  Services,  Inc.
("ADSI") in a transaction  accounted for using the  pooling-of-interests  method
for  business  combinations.   ADSI  is  a  vertically  integrated  solid  waste
management  company  providing  collection,  transfer,  recycling  and  disposal
services to  approximately  485,000  customers  in 12 states,  primarily  in the
Midwest  and  Northeast   United  States  and   generates   annual   revenue  of
approximately  $240  million,  excluding the effects of the  internalization  of
waste volumes.

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

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

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

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

         (3) As a result of heightened  sensitivity to environmental  conditions
in many  communities,  it is  becoming  increasingly  desirable  for solid waste
management  companies  to  provide  waste  recycling  programs  in  addition  to
conventional collection and disposal services.


<PAGE>



         These  developments,  as  well as more  stringent  financial  assurance
requirements  being  imposed  on solid  waste  management  companies  by various
municipalities,  have  increased  the amount of capital  generally  required for
solid waste  management  operations,  causing  smaller  companies  that lack the
requisite capital to sell their operations to better-capitalized companies.

Business Strategy

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

                  Vertical   Integration  and   Internalization.   The  vertical
                  integration  business  model is the key  element  of  Allied's
                  operating  philosophy  and growth  strategy.  The  fundamental
                  objective of the  vertical  integration  business  model is to
                  control the waste stream from the point of collection  through
                  disposal and to achieve a high rate of waste  internalization.
                  Allied seeks to build,  through  acquisitions and other market
                  development   initiatives,    market   specific,    vertically
                  integrated  operations  typically  consisting  of one or  more
                  collection  companies,  transfer stations,  processing centers
                  and landfills.  Within its markets, Allied seeks to strengthen
                  its competitive  position and improve its financial returns by
                  acquiring  additional  operating  assets,   typically  through
                  "tuck-in"  collection  company  acquisitions.  Allied believes
                  that it can realize  competitive  advantages and strong future
                  growth  by  continuously  implementing  this  strategy  across
                  existing  and  new  markets  in the  United  States.  Allied's
                  internalization  rate, as measured by collection volumes,  was
                  approximately 68% in 1998.

                  Focus on  Operations.  Allied's  operations-oriented  business
                  strategy is  characterized  by  decentralized  operations  and
                  local management with significant  experience in operating and
                  growing solid waste businesses. Allied only recruits operating
                  managers  with  extensive  industry  experience,  usually with
                  significant  experience in their geographic markets.  Allied's
                  senior executive  management,  senior operating management and
                  regional vice presidents  currently average  approximately 18,
                  26 and 24  years  of  industry  experience,  respectively.  By
                  continuing   to   hire   and   retain    experienced,    local
                  market-oriented managers, Allied believes that it will be well
                  positioned  to react to changes in its market and will be able
                  to  capitalize  on growth  opportunities  in existing  and new
                  markets.

                  Maintaining High Rate of Growth. Allied seeks to capitalize on
                  the on-going  consolidation of the  approximately  $36 billion
                  solid waste industry in the United  States.  Allied intends to
                  grow  primarily  by  acquiring   privately-owned  solid  waste
                  companies  and  through  internal  development.   Allied  also
                  intends to take  selective  advantage  of  opportunities  when
                  government  entities privatize the operation of all or part of
                  their  solid  waste  systems.  In  addition,  Allied  seeks to
                  achieve broad geographic and business mix  diversification  in
                  its operations  and market  development  activities.  Allied's
                  revenue mix for 1998 was  approximately  56%  collection,  30%
                  disposal, 7% transfer, 4% recycling and 3% other.

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


<PAGE>




Operations

         Collection.  Collection  operations involve collecting and transporting
non-hazardous  waste from the point of generation to the transfer station or the
site of disposal. Solid waste collection is generally provided under two primary
types of arrangements, depending on the customer being served.

              Commercial. The Company provides containerized non-hazardous solid
         waste disposal  services to a wide variety of commercial and industrial
         customers.  These  customers  are  provided  with  containers  that are
         designed to be lifted mechanically and either emptied into a collection
         vehicle's compaction hopper or, in the case of roll-off containers,  to
         be  loaded  onto  the  collection  vehicle.  The  Company's  commercial
         containers  generally  range in size from one to eight  cubic yards and
         its  roll-off  containers  generally  range in size from 20 to 40 cubic
         yards.  Contracts  for roll-off  containers  may provide for  temporary
         (such as the  removal  of waste  from a  construction  site) or ongoing
         services.  Fees relating to those  contracts are  determined by general
         competitive and prevailing local economic  conditions and include other
         considerations  such  as  collection   frequency,   type  of  equipment
         furnished, distance traveled to the disposal site, the cost of disposal
         and the type and volume or weight of the waste collected.

              Residential.   Residential   collection   services  are  performed
         pursuant to individual monthly subscriptions  directly to households or
         long-term  contracts with municipal  governments  that give the Company
         exclusive  rights  to  service  all or a  portion  of the homes in such
         municipalities  at  established  rates.  The  Company  seeks to  obtain
         municipal  contracts which enhance the efficiency and  profitability of
         the  Company's  operations  as a result of the  density  of  collection
         customers within a given area. At the end of the term of most municipal
         contracts, the Company will attempt to renegotiate the contract, and if
         unable  to do so,  will  rebid  the  contract  on a sealed  bid  basis.
         Residential  collection  service  arrangements with households are made
         directly  between the Company and the  resident.  The Company  seeks to
         enter into residential service  arrangements where the route density is
         high, thereby creating additional economic benefit. Collection fees are
         determined by the Company and the customer based on general competitive
         and   prevailing   local   economic   conditions   and  include   other
         considerations  such as  collection  frequency,  the type and volume or
         weight of the waste collected,  the distance to the disposal  facility,
         and cost of disposal.  Residential  collection  fees are either paid by
         the  municipalities  out of tax revenues or service charges or are paid
         directly by the residents who receive the service.

         Transfer  Stations.  A transfer station is a facility where solid waste
is received  from  third-party  and Company owned  collection  vehicles and then
transferred  to and  compacted  in  large,  specially-constructed  trailers  for
transportation  to disposal  facilities.  This  consolidation  reduces  costs by
increasing the density of the waste being transported  through compaction and by
improving  utilization  of  collection  personnel  and  equipment,   and  is  an
increasingly common procedure in the solid waste management  industry.  Fees are
generally  based upon such factors as the type and volume or weight of the waste
transferred and the transport  distance  involved.  The Company believes that as
increased  regulations and public pressure restrict the development of landfills
in urban and suburban areas,  transfer  stations will increasingly be used as an
efficient means to transport waste over longer distances to available landfills.

         Recycling.  In  response to  increasing  awareness  by the  customer of
environmental concerns and expanding federal and state regulations pertaining to
waste recycling, the Company includes recycling as a component of its vertically
integrated solid waste business strategy.  Services include curbside  collection
of recyclable  materials for  residential  customers,  commercial and industrial
collection  of  recyclable  materials,   and,  to  a  lesser  extent,   material
recovery/waste reduction. Recycling fees are generally service based wherein the
customer pays for the cost of removing,  processing and disposing of potentially
recyclable  materials.  In most cases,  mixed waste materials are received at an
owned or leased  materials  recovery  facility ("MRF") which is often integrated
into or contiguous to a transfer operation.  Materials such as paper, cardboard,
plastic, aluminum and other metals are sorted, separated,  accumulated, bound or
placed in a container and readied for transportation to a third-party which will
reuse the separated  materials.  The purchaser  generally pays for the materials
based on fluctuating  spot-market prices.  Material for which there is no market
or for which the market price is insufficient to warrant processing are disposed
of at a landfill or other disposal facility. The Company seeks to avoid exposure
to fluctuating  commodity  prices by passing  through  substantially  all of the
profit or loss from the sale of recyclables to its customers.

         Landfills.  Solid waste landfills are the primary method of disposal of
solid  waste in the  United  States.  Currently,  a landfill  must be  designed,
permitted,  operated  and closed in  compliance  with  federal,  state and local
regulations  pursuant to Subtitle D. Operating  procedures  include  excavation,
continuous  spreading and compacting of waste,  and covering of waste with earth
or other  inert  material.  The cost of  transferring  solid waste to a disposal
location  places an economic  restriction  on the  geographic  scope of landfill
operations  in a particular  market.  Access to a disposal  facility,  such as a
landfill,  is a  requirement  for all solid waste  management  companies.  While
access can  generally  be obtained to disposal  facilities  owned or operated by
unaffiliated  parties,  the Company  believes that, in keeping with its business
strategy, it is preferable to own or operate its own disposal facilities thereby
ensuring access on favorable terms and the internalization of disposal fees.

Organization, Marketing and Sales

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

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

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

         Each  of  Allied's  districts  has  staff  responsible  for  sales  and
marketing.  Allied's policy is to periodically  visit each commercial account to
ensure customer  satisfaction  and to sell additional  services.  In addition to
calling on existing  customers,  each salesperson calls upon potential customers
within a defined area in each market.

         In addition, to its sales efforts directed at commercial and industrial
customers,  Allied has a municipal marketing  coordinator in most service areas.
The municipal  marketing  coordinators are responsible for interfacing with each
municipality or community to which Allied provides residential service to ensure
customer  satisfaction.  In addition,  the municipal  coordinators  organize and
handle bids for renewal and new municipal contracts in their service area.


<PAGE>


Competition

         The  non-hazardous  waste  collection  and disposal  industry is highly
competitive.  The  industry  is  currently  comprised  of  four  national  waste
companies, Waste Management,  Inc.; Browning-Ferris Industries, Inc. ("BFI") (on
March 7, 1999, the Company entered into a definitive merger agreement to acquire
BFI);  Republic  Services,  Inc.; and Allied and local and regional companies of
varying sizes and  competitive  resources  such as Superior  Services,  Inc. and
Waste  Industries,  Inc.  The Company  also  competes  with those  counties  and
municipalities that maintain their own waste collection or disposal  operations.
These counties and  municipalities  may have financial  advantages through their
access to tax revenues and tax-exempt financing and their ability to mandate the
disposal of waste collected within the jurisdiction at a municipal landfill. The
Company may also experience competition from companies using alternative methods
of managing solid waste streams, such as incineration.

         The  solid  waste   collection  and  disposal   industry  is  currently
undergoing  significant  consolidation,  and the Company encounters  competition
through  pricing and service in its efforts to acquire  landfills and collection
operations.  Accordingly,  it may become  uneconomical  for the  Company to make
further  acquisitions or the Company may be unable to locate or acquire suitable
acquisition  candidates  at price  levels and on terms and  conditions  that the
Company  considers  appropriate,  particularly  in markets the Company  does not
already serve.

Environmental and Other Regulations

         The Company is subject to extensive and evolving environmental laws and
regulations.  These  regulations  are  administered by the EPA and various other
federal, state and local environmental, zoning, health and safety agencies, many
of which  periodically  examine the Company's  operations to monitor  compliance
with  such  laws and  regulations.  Governmental  authorities  have the power to
enforce  compliance with these  regulations and to obtain  injunctions or impose
civil or criminal  penalties in case of  violations.  The Company  believes that
there  will  be  increased  regulation  and  legislation  related  to the  waste
management   industry  and  the  Company  attempts  to  anticipate  such  future
regulatory requirements to ensure compliance.

         The   Company's   operation  of   landfills   subjects  it  to  certain
operational,  monitoring,  site  maintenance,  closure,  post-closure  and other
obligations  which  could  give  rise to  increased  costs  for  monitoring  and
corrective  measures.  In connection with the Company's  acquisition of existing
landfills,  it is often necessary to expend  considerable time, effort and money
to obtain  permits  required to increase  the capacity of these  landfills.  The
Company cannot predict whether or not it will be able to obtain the governmental
approvals  necessary to establish new or expand  existing  landfills  and, if it
does, whether or not it will be economically beneficial to do so.

         The  Company's   operations   are  subject  to  extensive   regulation,
principally under the following federal statutes:

         The  Resource  Conservation  and  Recovery  Act of  1976,  ("RCRA")  as
amended.  RCRA regulates the handling,  transportation and disposal of hazardous
and non-hazardous  wastes and delegates  authority to states to develop programs
to ensure the safe  disposal  of solid  wastes.  On  October  9,  1991,  the EPA
promulgated Solid Waste Disposal Facility Criteria for non-hazardous solid waste
landfills  under Subtitle D. Subtitle D includes  location  standards,  facility
design and operating criteria, closure and post-closure requirements,  financial
assurance  standards and  groundwater  monitoring  as well as corrective  action
standards,  many of which had not commonly been in place or enforced  previously
at landfills. Subtitle D applies to all solid waste landfill cells that received
waste after October 9, 1991,  and, with limited  exceptions,  all landfills were
required to meet these requirements by October 9, 1993.  Landfills that were not
in compliance  with the  requirements  of Subtitle D on the  applicable  date of
implementation,  which  varied  state by  state,  were  required  to  close.  In
addition, landfills that stopped receiving waste before October 9, 1993 were not
required  to comply with the final  cover  provisions  of Subtitle D. Each state
must comply with Subtitle D and was required to submit a permit program designed
to  implement  Subtitle D to the EPA for  approval by April 9, 1993.  States may
impose  requirements  for  landfill  units  that  are  more  stringent  than the
requirements of Subtitle D. Once a state has an approved program, it must review
all existing landfill permits to ensure that they comply with Subtitle D.


<PAGE>


         The Federal  Water  Pollution  Control  Act of 1972 (the  "Clean  Water
Act"),  as amended.  This act  establishes  rules  regulating  the  discharge of
pollutants into streams and other waters of the United States (as defined in the
Clean  Water Act) from a variety of  sources,  including  solid  waste  disposal
sites.  If runoff  from the  Company's  landfills  or transfer  stations  may be
discharged  into  surface  waters,  the Clean Water Act  requires the Company to
apply for and obtain  discharge  permits,  conduct  sampling and monitoring and,
under  certain  circumstances,  reduce  the  quantity  of  pollutants  in  those
discharges.   The  permit  program  has  been  expanded  to  include  stormwater
discharges  from  landfills that receive,  or in the past  received,  industrial
waste. In addition,  if development may alter or affect "wetlands," a permit may
have to be obtained and certain  mitigation  measures may need to be  undertaken
before such  development may be commenced.  This requirement is likely to affect
the construction or expansion of many solid waste disposal sites, including some
owned or being developed by the Company.

         The Comprehensive  Environmental  Response,  Compensation and Liability
Act of 1980,  ("CERCLA") as amended.  CERCLA  addresses  problems created by the
release or  threatened  release of hazardous  substances  into the  environment.
CERCLA's  primary  mechanism for remediating  such problems is to impose strict,
joint and several  liability for cleanup of disposal sites on current owners and
operators of the site, former site owners and operators at the time of disposal,
and waste generators and parties who arranged for disposal at the facility.  The
costs of a CERCLA  cleanup can be  substantial.  Liability  under  CERCLA is not
dependent on the existence or disposal of  "hazardous  wastes" (as defined under
RCRA),  but can also be founded on the  existence of even minute  amounts of the
more than 700 "hazardous substances" listed by the EPA.

         The Clean Air Act of 1970 (the "Clean Air Act"), as amended.  The Clean
Air Act  provides  for  increased  federal,  state and local  regulation  of the
emission of air pollutants.  The EPA has applied the Clean Air Act to landfills.
In March 1996,  the EPA adopted New Source  Performance  Standard  and  Emission
Guidelines  (the "Emission  Guidelines")  for municipal  solid waste  landfills.
These regulations impose limits on air emissions from solid waste landfills. The
Emission  Guidelines  propose two sets of emissions  standards,  one of which is
applicable   to  all  solid  waste   landfills   that   commence   construction,
reconstruction  or  modification  after  May  30,  1991  and  another  which  is
applicable to all solid waste  landfills that received waste or had the capacity
to  receive  waste  after  November  8, 1987.  The  Emission  Guidelines  may be
implemented by the states.  These  guidelines,  combined with the new permitting
programs  established  under the recent  Clean Air Act  amendments,  will likely
subject solid waste landfills to significant new permitting requirements and, in
some instances, require installation of methane gas recovery systems.

         The  Occupational  Safety and Health Act of 1970 ("OSHA"),  as amended.
OSHA establishes certain employer  responsibilities,  including maintenance of a
workplace free of recognized  hazards  likely to cause death or serious  injury,
compliance  with  standards  promulgated by the  Occupational  Safety and Health
Administration,   and   various   recordkeeping,   disclosure   and   procedural
requirements.  Various  standards,  including  standards for notices of hazards,
safety in excavation  and  demolition  work,  and the handling of asbestos,  may
apply to the Company's operations.

         Future Federal  Legislation.  In the future, the Company's  collection,
transfer and landfill operations may also be affected by legislation that may be
proposed in the United States  Congress that would authorize the states to enact
legislation  governing  interstate  shipments of waste.  Such  proposed  federal
legislation may allow individual states to prohibit the disposal of out-of-state
waste or to limit the amount of  out-of-state  waste that could be imported  for
disposal and would require states,  under certain  circumstances,  to reduce the
amounts of waste  exported to other states.  If this or similar  legislation  is
enacted,  states in which the Company will operate  landfills could act to limit
or prohibit the  importation  of  out-of-state  waste.  Such state actions could
adversely  affect  landfills  within  these  states that  receive a  significant
portion of waste originating from out-of-state.

         State Regulation. Each state in which the Company operates has laws and
regulations  governing  solid waste disposal and water and air pollution and, in
most cases, regulations governing the design, operation, maintenance and closure
of landfills and transfer stations. Management believes that several states have
proposed  or have  considered  adopting  legislation  that  would  regulate  the
interstate  transportation and disposal of waste in their landfills. Many states
have also adopted  legislative  and regulatory  measures to mandate or encourage
waste reduction at the source and waste recycling.

         The Company's collection and landfill operations may be affected by the
current  trend toward laws  requiring  the  development  of waste  reduction and
recycling  programs.  For example, a number of states have recently enacted laws
that will require counties to adopt comprehensive plans to reduce, through waste
planning,  composting and recycling or other programs, the volume of solid waste
deposited in landfills  within the next few years.  A number of states have also
taken or propose to take steps to ban or otherwise limit the disposal of certain
wastes, such as yard wastes, beverage containers,  newspapers, unshredded tires,
lead-acid batteries and household appliances into landfills.

         The Company has  implemented  and will  continue to  implement  its own
environmental   safeguards  that  comply  with  or  exceed  these   governmental
requirements.  Additionally,  the Company's policy is to obtain an environmental
assessment prepared by an independent environmental consulting firm for all real
estate  acquired.   For  calendar  year  1999,  the  Company  expects  to  spend
approximately   $41.9  million  for  closure,   post-closure   and   remediation
expenditures.

Liability Insurance and Bonding

         The Company carries general liability,  comprehensive  property damage,
workers' compensation,  employer's liability, directors' and officers' liability
and other coverages it believes are customary to the industry.  The Company also
has  environmental  impairment  liability  insurance  for  all of its  operating
landfills except one owned and four operated sites. The environmental impairment
liability  insurance is in the amount of up to $5 million for the policy term in
excess of a $1  million  deductible  per  claim.  Except as  discussed  in Legal
Proceedings  below,   management  does  not  expect  the  impact  of  any  known
environmental   or  other   contingencies   to  be  material  to  the  Company's
consolidated liquidity, financial position or results of operations.

         The Company is  required to provide  certain  financial  assurances  to
governmental agencies under applicable environmental regulations relating to its
landfill  and  collection   operations.   These  financial   assurances  include
performance  bonds,  letters of credit,  insurance  contracts and trust deposits
required  principally  to secure the Company's  estimated  landfill  closure and
post-closure  obligations  and collection  contracts.  The Company expects to be
required  to  provide   approximately   $408  million  in  financial   assurance
obligations  relating to its landfill operations by the end of fiscal year 1999,
before  giving  effect to the  acquisition  of BFI.  The  Company  expects  that
financial  assurances  will  increase in the future as the Company  acquires and
expands its activities and that a greater percentage of the financial assurances
will be comprised, directly and indirectly, of letters of credit.

Employees

         The Company employs  approximately 9,500 persons.  Certain employees of
the  Company  are  covered by  collective  bargaining  agreements.  The  Company
believes relations with its employees are satisfactory.

Item 2.  Properties

         The  Company's  principal  executive  offices  are  located at 15880 N.
Greenway-Hayden  Loop, Suite 100,  Scottsdale,  Arizona 85260 where it currently
leases  approximately  33,000  square feet of office  space.  The  Company  also
maintains six regional  administrative offices in Arizona,  Illinois,  Missouri,
South Carolina, Colorado and New York.

         The principal  property and  equipment of the Company  consists of land
(primarily  landfill  sites,   transfer  stations,   and  bases  for  collection
operations),  buildings, and vehicles and equipment,  substantially all of which
are secured by liens to the  Company's  primary  lenders.  The  Company  owns or
leases real  property in the states in which it is doing  business.  At December
31,  1998,  76 solid waste  landfills,  aggregating  approximately  29,000 total
acres,  including  approximately 20,000 permitted acres, were owned and operated
by the  Company.  In  addition,  the Company  owned or operated  129  collection
companies, 68 transfer stations and 22 recycling facilities.


<PAGE>


Item 3.  Legal Proceedings

         The Company is currently  involved in certain routine  litigation.  The
Company  believes  that all such  litigation  arose in the  ordinary  course  of
business and that costs of settlements or judgments arising from such suits will
not have a materially  adverse effect on the Company's  consolidated  liquidity,
financial position or results of operations.

         The business of the Company is  regulated  by federal,  state and local
provisions that relate to the protection of the  environment.  The nature of the
Company's  business  results in it  frequently  becoming a party to  judicial or
administrative   proceedings  involving   governmental   authorities  and  other
interested  parties.  At December 31, 1998,  the Company was not involved in any
such proceedings  where management  believes  sanctions  imposed by governmental
authorities  may  exceed  $100,000  or which  management  believes  will  have a
material  effect  on  the  Company's   consolidated   liquidity  or  results  of
operations. From time to time the Company may also be subject to actions brought
by  citizens'  groups,  adjacent  landowners  or others in  connection  with the
permitting  and  licensing of its  landfills or transfer  stations,  or alleging
personal injury,  environmental damage or violations of the permits and licenses
pursuant to which the Company operates.

         In connection with acquiring  companies,  Allied engages an independent
environmental consulting firm to assist in conducting environmental  assessments
of  the  real  property  of  companies  acquired  from  third-parties.   Several
contaminated  landfills and other  properties were identified  during 1998, that
require Allied to incur costs for incremental closure and post-closure measures,
remediation  activities and litigation costs in the future. Based on information
available  to the  Company,  Allied  recorded a provision  of $41.1  million for
environmental  matters in the 1998  statement of  operations  and expects  these
amounts to be disbursed over the next 30 years.

         The Company  has been  notified  that it is  considered  a  potentially
responsible  party at a number of locations under CERCLA or other  environmental
laws. The Company  continually reviews its status with respect to each location,
taking into account the alleged connection to the location and the extent of the
contribution  to the volume of waste at the  location,  the  available  evidence
connecting  the entity to that location and the numbers and financial  soundness
of other potentially  responsible parties at the location.  The ultimate amounts
for  environmental  liabilities  at sites  regarding  which the Company may be a
potentially  responsible  party  cannot  be  determined  and  estimates  of such
liabilities  made  by the  Company,  after  consultation  with  its  independent
environmental engineers, require assumptions about future events due to a number
of  uncertainties  including the extent of the  contamination,  the  appropriate
remedy, the financial viability of other potentially responsible parties and the
final apportionment of responsibility among the potentially responsible parties.
Where  the  Company  has  concluded  that  its  estimated   share  of  potential
liabilities is probable, a provision has been made in the consolidated financial
statements.  Since the  ultimate  outcome of these  matters  may differ from the
estimates  used in the Company's  assessment to date,  the recorded  liabilities
will be periodically  evaluated as additional  information  becomes available to
ascertain that the accrued liabilities are adequate.  The Company has determined
that the recorded liability for environmental matters as of December 31, 1998 of
approximately  $93.4  million  represents  the most  probable  outcome  of these
contingent  matters.  The Company does not expect that adjustments to estimates,
which are reasonably possible in the near term and that may result in changes to
recorded  amounts,  will have a material  effect on the  Company's  consolidated
liquidity, financial position or results of operations.

         In  connection  with the  Laidlaw  Acquisition  (as defined in Item 7),
Laidlaw  Inc.  ("Laidlaw")  disclosed  to the  Company  the  existence  of a tax
controversy  relating to  disallowed  deductions  in income tax returns with the
United  States  Internal  Revenue  Service (the "IRS").  In the first quarter of
1999,  Laidlaw  negotiated a settlement  of the tax case with the IRS. The total
net after tax cash cost will be $226 million.  The amount  includes $121 million
in taxes  together with  interest  penalties of $161 million ($105 million after
tax).  The  agreement  satisfies  assessments  upheld in the tax  court  opinion
received on July 1, 1998,  in reference to the years 1986 through  1988, as well
as claims  asserted by the IRS for the six  subsequent  years  (1989-1994)  of a
nine-year Netherlands-based financial program.


<PAGE>



         The Company has obtained an  indemnity  from Laidlaw and certain of its
subsidiaries  (the "Laidlaw Group") which covers the amounts at issue in the tax
controversy  for which any direct or indirect  subsidiary that was acquired from
Laidlaw in 1996 may  ultimately be found liable.  The  obligation of the Laidlaw
Group to  indemnify  the  Company  in  respect  of  amounts  at issue in the tax
controversy is a general, unsecured obligation of the Laidlaw Group.

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

         On October  15,  1998,  a special  meeting of the  stockholders  of the
Company was held. The holders of 112,198,084  shares of Common Stock (as defined
in Item 5) were present in person or represented by proxy at the meeting. At the
meeting, the stockholders took the following actions:

                                             Number of             Number of
                                           Votes for           Votes Withheld
                                           ------------        --------------- 
 Authorization of the
   acquisition of ADSI..................... 111,636,535             561,549
 Authorization to increase authorized
   shares of Common Stock from
   200 million to 300 million.............. 111,541,737             656,347



<PAGE>




                                                       P A R T I I


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

Price Range of Common Stock

         The  Common  Stock (as  defined  below) is traded on the New York Stock
Exchange under the symbol "AW".  Prior to December 30, 1998 the Common Stock was
traded on the Nasdaq  National  Market tier of The Nasdaq Stock Market under the
symbol "AWIN." The high and low sales prices per share for the periods indicated
were as follows:

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

   Year ended December 31, 1998
   First Quarter                           25 7/8       19 1/2
   Second Quarter                          28 7/8       23 3/8
   Third Quarter                           31 5/8           18
   Fourth Quarter                          24 1/8       16 1/8

As of March 25,  1999,  there were  approximately  645  holders of record of the
Company's Common Stock.

Dividend Policy

         The Company has not paid dividends on its common stock, $0.01 par value
(the "Common Stock"),  does not anticipate  paying any dividends  thereon in the
foreseeable future and is prohibited under the terms of the Company's  long-term
indebtedness from paying such dividends.



<PAGE>




Recent Sales of Unregistered Securities

         The  following  table  reflects  sales by the  Company of  unregistered
securities  during the fiscal year ended December 31, 1998.  Except as otherwise
disclosed,  the  issuances  by  the  Company  of  the  securities  sold  in  the
transactions  referenced  below were not registered  under the Securities Act of
1933, as amended (the "Securities Act"), pursuant to the exemptions contemplated
in Section  4(2),  Rule 144A,  Regulation  S and  Section  3(a)(9)  thereof,  or
Regulation D thereunder,  for transactions not involving a public offering.  The
consideration  paid to the Company in respect of each issuance was cash,  unless
otherwise indicated.

<TABLE>
<CAPTION>

                                Number of
                                Shares or
                                Principal
Description/Date                 Amount        Consideration       Underwriters and Other Purchasers
----------------              -------------    --------------  ----------------------------------------          
Common Stock

<S>                                  <C>     <C>                                                                    
January 15, 1998                     23,684  $  150,000          Lee and Pam Brandsma (cashless exercise of warrant)
January 15, 1998                      3,158      20,000          John Garrity (cashless exercise of warrant)
February 17, 1998                    15,604     100,000          Laurence Groot (cashless exercise of warrant)
March 13, 1998                       31,858     200,000          Ben Ipema (cashless exercise of warrant)
March 23, 1998                       77,602     749,805          Kathleen M. Marhronic (cashless exercise of warrant)
                                                                 Thomas Van Weelden, Chairman of the Board of Directors,
April 17, 1998                       10,000      50,000          President and CEO (exercise of expiring warrant)
                                                                 RAV Envira Consulting, Inc. (commission paid in
April 17, 1998                        3,130      68,467          connection with an acquisition)

1998 Notes

December 23, 1998              $225,000,000  $ 219,944,250(1)    Five Year Senior Notes(2)  due 2004
December 23, 1998               600,000,000    587,400,000(1)    Seven Year Senior Notes(2) due 2006
December 23, 1998               875,000,000    855,102,500(1)    Ten Year Senior Notes(2) due 2009

<FN>

(1)  The Five Year  Senior  Notes and Ten Year  Senior  Notes  were  issued at a
     discounted  price to  investors of 99.853% and  99.826%,  respectively.  In
     addition, the Company paid underwriting discounts and commissions of 2.1%.
(2)  The 1998 Senior Notes (as defined herein) were  subsequently  exchanged for registered senior notes on January 27,
     1999.
</FN>
</TABLE>


<PAGE>



Item 6.  Selected Financial Data

         The selected financial data presented below as of December 31, 1994 and
1995 and for the year ended  December  31, 1994 are derived  from the  Company's
Consolidated  Financial  Statements,  which have not been  restated for business
combinations  accounted for as  poolings-of-interests  consummated subsequent to
1997 and were audited by Arthur Andersen,  LLP,  independent public accountants.
The selected  financial data presented  below as of December 31, 1996,  1997 and
1998 and for the four  years  ended  December  31,  1998  are  derived  from the
Company's Consolidated  Financial Statements,  which have been audited by Arthur
Andersen LLP and have been restated to give effect to transactions accounted for
using the pooling-of-interests  method for business combinations.  See Note 2 to
the Company's Consolidated  Financial Statements.  These selected financial data
should be read in  conjunction  with  "Management's  Discussion  and Analysis of
Financial  Condition and Results of Operations"  and the Company's  Consolidated
Financial  Statements  and the notes thereto,  included  elsewhere  herein.  The
Company has not paid dividends on its Common Stock,  does not anticipate  paying
any dividends on its Common Stock in the foreseeable  future,  and is prohibited
under  the  terms of the  Company's  long-term  indebtedness  from  paying  such
dividends.   All  amounts  are  in  thousands   except  per  share  amounts  and
percentages.

<TABLE>
<CAPTION>
                                                 1994         1995          1996          1997           1998
                                                 ----         ----          ----          ----           ----
Statement of Operations Data:
                                             
<S>                                          <C>            <C>          <C>           <C>           <C>                            
Revenues ................................... $   200,184    $  580,784   $   619,548   $  1,340,661  $   1,575,612                  
Cost of                                                               
operations .................................     128,271       366,980       386,001        777,289        892,273                  
Selling, general and
  administrative expenses...................      39,077        97,031       102,416        177,396        155,835
Depreciation and
  amortization expense......................      19,829        55,414        67,823        158,238        179,965
Acquisition related and                                                   
  unusual costs(1)..........................       2,100         1,531        96,508          3,934        247,902
Asset impairments(2)........................         --             --           --             --          69,714
                                             -----------   -----------   -----------   ------------  -------------
Operating income (loss).....................      10,907        59,828      (33,200)        223,804         29,923
Interest income.............................     (1,107)         (735)       (2,479)        (1,765)        (4,030)

Interest expense............................      13,958        20,443        21,347        108,045         88,431
                                             -----------   -----------   -----------   ------------  -------------
Income (loss) before income taxes ..........     (1,944)        40,120      (52,068)        117,524       (54,478)
Income tax expense (benefit) ...............       (663)        10,904           354         40,277         43,773
                                             -----------   -----------   -----------   ------------  -------------
Income (loss) before extraordinary
  item .....................................     (1,281)        29,216      (52,422)         77,247       (98,251)
Extraordinary   loss,   net  of  income  tax
benefit(3)..................................     (3,029)         (908)      (13,887)       (53,205)      (124,801)
                                             -----------   -----------   -----------   ------------  -------------
Net income (loss) ..........................     (4,310)        28,308      (66,309)         24,042      (223,052)
Preferred                                        (3,773)       (4,070)       (1,073)          (381)             --
dividends.........................
Conversion fee on equity
  securities converted(4)...................         --        (2,151)            --             --             --
                                             -----------   -----------   -----------   ------------  -------------
Net income (loss) available
  to common shareholders.................... $   (8,083)   $    22,087   $  (67,382)   $     23,661  $   (223,052)
                                             ===========   ===========   ===========   ============  =============
Basic EPS:
  Income (loss) before
    extraordinary loss...................... $    (0.18)   $      0.21   $    (0.40)   $     0.47    $      (0.54)
  Extraordinary loss........................      (0.11)        (0.01)        (0.11)        (0.33)          (0.68)
                                             -----------   -----------   -----------   ------------  -------------
  Income (loss)............................. $    (0.29)   $      0.20   $    (0.51)   $     0.14    $      (1.22)
                                             ===========   ===========   ===========   ============  =============
Weighted average common shares..............      27,907       112,162       132,967       164,888        182,796
                                             ===========   ===========   ===========   ============  ============
</TABLE>



<TABLE>
<CAPTION>


                                                                      Year Ended December 31,
                                               ----------------------------------------------------------------------
                                                 1994          1995          1996          1997          1998
                                                 ----          ----          ----          ----          ----
Diluted EPS:

<S>                                          <C>           <C>           <C>           <C>           <C>       
Income (loss) before    
    extraordinary loss...................... $   (0.15)    $     0.20    $   (0.40)    $     0.44    $   (0.54)
                                             
Extraordinary loss..........................     (0.09)        (0.01)        (0.11)        (0.30)        (0.68)
                                             ----------    ----------    ----------    ----------    ----------
Income (loss)............................... $   (0.24)    $    0.19     $  (0.51)     $     0.14    $   (1.22)
                                             ==========    ==========    ==========    ==========    ==========
Weighted average common and
  common equivalent shares..................     33,828       115,903       132,967       172,958       182,796
                                             ==========    ==========    ==========    ==========    ==========
</TABLE>

<TABLE>
<CAPTION>

Balance Sheet Data:

                                                                             December 31,
                                              ----------------------------------------------------------------------------
                                                   1994            1995           1996            1997            1998
                                                   ----            ----           ----            ----            ----
<S>                                          <C>             <C>            <C>             <C>             <C>         
Cash and cash equivalents .................. $      6,269    $      5,385   $     70,015    $     33,320    $     39,742
Working capital (deficit) ..................     (10,087)        (43,101)         26,410        (75,054)          45,031
Property and equipment, net ................      222,386         316,837        932,110       1,583,133       1,776,025
Costs in excess of net assets acquired .....       78,633          89,431        888,648       1,082,750       1,327,470
Total assets ...............................      379,324         480,841      2,662,200       3,073,820       3,752,592
Total long-term debt,
  net of current portion ...................      177,126         196,428      1,283,327       1,492,360       2,118,927
Stockholders' equity .......................       93,174         139,571        385,218         962,465         930,074
Long-term debt to
   Total capitalization ....................          66%             58%            77%             61%             69%
-----------------------
<FN>

(1)  During 1998 the Company recorded acquisition related and unusual charges in
     the  amount  of  $247.9  million.   These  charges   primarily   relate  to
     acquisitions  accounted  for  as  poolings-of-interests   and  management's
     changes  in  strategic   plans  and   restructuring   resulting   from  the
     acquisitions.  The charges  consist of transaction or deal costs,  employee
     severance  and  transition   costs,   changes  in  estimates   relating  to
     environmental  or  legal  matters,   restructuring  costs  related  to  the
     consolidation  or relocation of  operations,  costs for the  abandonment or
     sale of revenue producing assets,  and provisions for losses on contractual
     obligations.

(2)  During the fourth quarter of 1998, the Company  recognized asset impairment
     charges aggregating $69.7 million. These charges related to assets held for
     future use and assets to be disposed of in the first and second quarters of
     1999.  An  impairment  charge  of $45.9  million,  with no  associated  tax
     benefit,  was  recorded  relating  to  goodwill  of a waste  transportation
     business recorded by a company recently  acquired by Allied.  Additionally,
     an impairment  charge of $23.8  million was recorded for the  write-down to
     net realizable value less cost of disposal of assets to be sold relating to
     non-core or non-integrated operating districts.

(3)  The  extraordinary  losses in 1994, 1995, 1996, 1997 and 1998 were incurred
     as a result of premiums paid for the early  extinguishment  of debt and the
     write-off of related deferred debt issue costs.

(4)  A  non-cash  conversion  fee of $2.2  million  was  incurred  in the fourth
     quarter 1995 as a result of an inducement offered by the Company to holders
     of certain convertible  preferred stock and convertible  subordinated notes
     to exercise their  conversion  option to receive  Allied common stock.  The
     inducement  fee  consisted  of payment of  dividends  or interest  from the
     conversion  date  through  the  first  call  or  redemption  date  of  each
     convertible security. Approximately 7.8 million shares of common stock were
     issued for conversion and approximately  285,000 shares were issued for the
     conversion fee.
</FN>
</TABLE>


<PAGE>



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

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

Introduction

         The Company has experienced  significant  growth, a substantial portion
of which has resulted  from the  acquisition  of solid waste  businesses.  Since
January 1, 1993,  the Company  has  completed  170  acquisitions.  In 1998,  the
Company  acquired  54  businesses  and  subsequent  to 1998 it has  acquired  17
businesses.  See Note 2 to the Company's Consolidated Financial Statements.  The
Company's  Consolidated  Financial  Statements have been restated to reflect the
acquisition of companies accounted for using the pooling-of-interests method for
business combinations. The majority of the acquisitions were accounted for under
the purchase method for business combinations and,  accordingly,  the results of
operations for such acquired  businesses are included in the Company's financial
statements  only from the  applicable  date of  acquisition.  As a  result,  the
Company believes its historical  results of operations for the periods presented
are not directly comparable.

         On  December  30,  1996,  the  Company  completed  the  acquisition  of
substantially all of the non-hazardous solid waste management business conducted
by Laidlaw in the United  States and Canada  (the  "Laidlaw  Acquisition"),  for
total  consideration  of  approximately  $1.5 billion  comprised of $1.2 billion
cash,  14.6 million  shares of Common  Stock,  a warrant to acquire 20.4 million
shares of Common Stock (the "Warrant"),  and two junior subordinated  debentures
with an aggregate  face amount of $318 million  (the "Allied  Debentures").  The
cash  consideration  was financed from the proceeds of its $1.275 billion senior
credit  facility (the "Bank  Agreement")  and the sale of $525 million of 10.25%
senior subordinated notes due 2006 (the "1996 Notes").

         In March 1997,  pursuant to a Share Purchase  Agreement with USA Waste,
the  Company  sold to USA Waste all of the  Canadian  non-hazardous  solid waste
management  operations  of the  Company  for  approximately  $518  million  (the
"Canadian  Sale").  The Company used the proceeds  from the Canadian Sale to pay
down  approximately  $517 million in debt under the Bank Agreement.  The Company
acquired the Canadian operations in connection with the Laidlaw Acquisition.

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

         In June 1998,  Allied  acquired the Rabanco  Companies in a transaction
accounted for using the  pooling-of-interests  method for business combinations.
The Rabanco Companies provide solid waste collection, recycling,  transportation
and disposal  services in the Pacific  Northwest and generates annual revenue of
approximately  $160  million,  excluding the effects of the  internalization  of
waste volumes.

         In August 1998,  Allied acquired  Illinois  Recycling  Services and its
affiliates in a transaction accounted for using the pooling-of-interests  method
for business  combinations.  Illinois  Recycling  Services  provides solid waste
collection, recycling and transportation services primarily in the Chicago metro
area and northern  Indiana and generates  annual  revenue of  approximately  $80
million, excluding the effects of the internalization of waste volumes.



<PAGE>




         In October 1998, Allied acquired American Disposal Services,  Inc. in a
transaction  accounted  for using the  pooling-of-interests  method for business
combinations.  ADSI is a vertically  integrated solid waste  management  company
providing collection, transfer, recycling and disposal services to approximately
485,000  customers in 12 states,  primarily in the Midwest and Northeast  United
States and generates annual revenue of approximately $240 million, excluding the
effects of the internalization of waste volumes.

         On  November  12,  1998,  Allied  announced  the signing of a letter of
intent  with BFI  involving  the  purchase  and sale of certain  waste  services
assets. The transactions  include customer  contracts,  equipment and facilities
and represent  approximately  $120 million in annual revenues to each party. The
transactions are expected to close in the second quarter of 1999.

         In  December  1998,  the  Company  completed  a private  offering of an
aggregate  of $1.7  billion of senior  notes  consisting  of $225 million 7 3/8%
senior notes due 2004 (the "Five Year Senior Notes"), $600 million 7 5/8% senior
notes due 2006 (the "Seven Year  Senior  Notes") and $875  million 7 7/8% senior
notes due 2009 (the "Ten Year Senior  Notes",  and  together  with the Five Year
Senior  Notes and the Seven Year Senior  Notes,  the "1998 Senior  Notes").  The
Company used the net proceeds from the 1998 Senior Notes to fund the purchase of
the 1996 Notes and the  Senior  Discount  Notes  pursuant  to tender  offers the
Company  commenced in November 1998, to repay borrowings  outstanding  under the
Senior  Credit   Facility  (as  defined   herein)  and  certain   capital  lease
obligations, and for general corporate purposes.

         In March  1999,  Allied  and BFI  announced  that they  entered  into a
definitive  merger agreement under which Allied will acquire BFI for $45 in cash
per BFI common share, as well as assume approximately $1.8 billion in debt, in a
transaction valued at approximately $9.1 billion. Allied has bank commitments to
finance the  acquisition  consisting of $7 billion  senior secured debt and $2.5
billion senior unsecured debt at interest rates ranging from Libor plus 2.50% to
Libor plus 3.50%, and a commitment from Apollo  Management IV, L.P.,  Blackstone
Capital  Partners III Merchant Banking Fund L.P. and other investors to purchase
$1 billion of 6.5% convertible preferred stock. The transaction is structured as
a merger of BFI with a  subsidiary  of Allied and is subject to the  approval of
BFI stockholders and other customary conditions.

General
         Revenues.  The Company's  revenues are  attributable  primarily to fees
charged to customers  for waste  collection,  transfer,  recycling  and disposal
services.  The Company's collection services are generally provided under direct
agreements  with its  customers  or pursuant to contracts  with  municipalities.
Commercial and municipal contract terms, where used, generally range from 1 to 5
years and commonly  have  automatic  renewal  options.  The  Company's  landfill
operations  include  both   Company-owned   landfills  and  those  operated  for
municipalities  for a fee. The Company is fully  integrated  in each  geographic
region in which it is located as it provides  collection,  transfer and disposal
services.  The tables below show for the periods indicated the percentage of the
Company's  total  reported  revenues  attributable  to services  provided and to
geographic  region.  The  data  below  have  been  restated  to give  effect  to
acquisitions that were accounted for using the  pooling-of-interests  method for
business combinations.
                                              Year Ended December 31,
                                   ------------------------------------------
                                        1996           1997            1998
                                        ----           ----            ----
  Collection.............              58.2%           57.2%          55.7%
  Transfer...............               5.9             6.7            7.1
  Landfill (1)...........              25.9            26.4           29.9
  Other..................              10.0             9.7            7.3
                                   ----------      ----------     ----------
    Total revenues.......             100.0%          100.0%         100.0%
                                   ==========      ==========     ==========
  





                                              Year Ended December 31,
                                   ---------------------------------------------
                                        1996           1997          1998
                                        ----           ----          ----
  Great Lakes...........               31.7%          27.6%          33.0%
  Midwest...............                8.8           12.8           12.0
  Northeast.............               12.2           19.6           14.3
  Southeast.............               14.2            8.9            9.7
  Southwest.............                1.9           10.1            9.5
  West .................               31.2           21.0           21.5
                                      -------       ---------      -------
    Total revenues......              100.0%         100.0%         100.0%
                                      =======       =========      ========

(1)  The portion of collection  revenues  attributable  to disposal  charges for
     waste collected by the Company and disposed at the Company's landfills have
     been excluded from collection revenues and included in landfill revenues.

         The Company's strategy is to develop vertically  integrated  operations
to ensure  internalization  of the waste it  collects  and thus  realize  higher
margins  from its  operations.  By disposing  of waste at  Company-owned  and/or
operated  landfills,  the Company retains the margin generated  through disposal
operations   that  would   otherwise   be  earned  by   third-party   landfills.
Approximately  68% of  Company-collected  waste is disposed of at  Company-owned
and/or operated  landfills as measured by disposal volumes in 1998. In addition,
transfer  stations  are an integral  part of the disposal  process.  The Company
locates its transfer  stations in areas where its  landfills  are outside of the
population  centers in which it collects  waste.  Such waste is  transferred  to
long-haul trailers and economically transported to its landfills.

         Expenses.  Cost of operations includes labor,  maintenance and repairs,
equipment  and  facility  rent,  utilities  and  taxes,  the  costs  of  ongoing
environmental  compliance,  safety and  insurance,  disposal  costs and costs of
independent  haulers  transporting  Company waste to the disposal site. Disposal
costs include  certain  landfill  taxes,  host  community  fees,  payments under
agreements  with  respect to landfill  sites that are not owned,  landfill  site
maintenance,  fuel and other  equipment  operating  expenses  and  accruals  for
estimated  closure  and  post-closure  monitoring  expenses  anticipated  to  be
incurred in the future.

         Selling,   general  and  administrative  expenses  include  management,
clerical and administrative  compensation and overhead,  sales costs,  community
relations   expenses  and  provisions  for  estimated   uncollectible   accounts
receivable and potentially unrealizable market development costs.

         Depreciation  and amortization  expense includes  depreciation of fixed
assets and amortization of landfill  development  costs  (including  capitalized
interest), goodwill and other intangible assets.

         In  connection  with  potential  acquisitions,  the Company  incurs and
capitalizes  certain  transaction  and  integration  costs which  include  stock
registration, legal, accounting, consulting, engineering and other direct costs.
When  an   acquisition   is   completed   and  is   accounted   for   using  the
pooling-of-interests  method for business combinations,  these costs are charged
to the statement of operations as acquisition  related  costs.  When a completed
acquisition   is  accounted   for  using  the   purchase   method  for  business
combinations,  these  costs are  capitalized.  The Company  routinely  evaluates
capitalized  transaction and integration  costs and expenses those costs related
to  acquisitions  not  likely  to occur.  Indirect  acquisition  costs,  such as
executive salaries, general corporate overhead and other corporate services, are
expensed as incurred.

         Certain  direct  landfill   development  costs,  such  as  engineering,
construction  and  permitting  costs,  are  capitalized  and amortized  based on
consumed  airspace.   The  Company  believes  that  the  costs  associated  with
engineering,  owning and  operating  landfills  will increase in the future as a
result of federal,  state and local regulation and a growing community awareness
of the landfill  permitting  process.  Although  there can be no assurance,  the
Company believes that it will be able to implement price increases sufficient to
offset these increased expenses.  All indirect landfill  development costs, such
as executive  salaries,  general  corporate  overhead,  public affairs and other
corporate services, are expensed as incurred.

         Accrued  closure and  post-closure  costs  represent an estimate of the
present value of the future obligation  associated with closure and post-closure
monitoring  of  non-hazardous  solid  waste  landfills  currently  owned  and/or
operated by the Company. Site specific closure and post-closure engineering cost
estimates  are prepared  annually  for  landfills  owned and/or  operated by the
Company for which it is responsible  for closure and  post-closure.  The present
value of  estimated  future  costs are  accrued  based on  accepted  tonnage  as
landfill airspace is consumed.  Discounting of future costs is applied where the
Company  believes  that both the  amounts  and  timing of related  payments  are
reliably determinable.  The Company periodically updates its estimates of future
closure and post-closure costs. The impact of changes which are determined to be
changes in estimates are accounted for on a prospective basis.

         The net present  value of the closure and  post-closure  commitment  is
calculated  assuming  inflation  of 2.0% and a risk-free  capital  rate of 6.5%.
Discounted  amounts  previously  recorded are accreted to reflect the effects of
the passage of time. The Company's  current  estimate of total future  payments,
for closure and post-closure is $1.2 billion, adjusted for inflation,  while the
present value of such estimate is $396.5 million. At December 31, 1997 and 1998,
accruals for landfill  closure and  post-closure  costs (including costs assumed
through  acquisitions)  were  approximately  $144.6 million and $154.5  million,
respectively.  The accruals  reflect  relatively  young landfills with estimated
remaining  lives,  based on current  waste  flows,  that range from 1 to over 75
years, and an estimated average remaining life of greater than 30 years.

         Year 2000 Systems Modifications.  Certain computer program software has
been written using two digits  rather than four digits to define the  applicable
year.  If  left  uncorrected,   a  system  failure  or  miscalculations  causing
disruptions  of operations  could result.  The Company is  implementing a formal
plan which  will  require  programming  modifications  to ensure  the  Company's
systems will operate properly in the year 2000 ("Year 2000"). This plan includes
four phases consisting of awareness,  assessment and renovation,  validation and
implementation.  In  management's  opinion,  the  scope  of  Year  2000  systems
modifications  will not be extensive and the costs  associated  with  addressing
them are not expected to exceed $300,000.

         Awareness.  All Year 2000 projects with respect to internal systems are
approved  by  senior  management  and  evaluated  and  reviewed  by the Board of
Directors as deemed necessary if they are expected to result in material cost.

         Assessment and Renovation.  The assessment and renovation  phase of the
plan includes both information  technology-related  systems and  non-information
technology areas.

                  Information  technology-related  systems. To date, the Company
has  assessed  all  information   technology-related   systems,  which  includes
hardware,  applications software, operating systems and databases. The Company's
core business systems, including general ledger, accounts payable, fixed assets,
customer billing and operations support, function properly with respect to dates
in the year 2000.

                  Non-Information  technology areas. The Company's assessment of
Year 2000 issues will include non-information technology areas such as equipment
and communications systems.  Non-information technology systems will be assessed
during the second  quarter of 1999 and, if  necessary,  a plan for  modification
will be reviewed for approval by senior management.  In addition, the Company is
working with outside  vendors to  determine  if their  information  systems will
function in the year 2000.  The  Company  will  monitor  this  through  periodic
questionnaires and discussions with suppliers.


<PAGE>



         Validation.  The Company successfully  validated the modifications made
to the customer billing and operations  support systems during February of 1999.
Validation  included testing and verifying the performance,  functionality,  and
integration of the system after Year 2000 modifications were made.

     Implementation.   Implementation   of  the  Company's  plan  includes  both
information technology-related systems and non-information technology areas.

                  Information  technology-related systems. The Company has begun
implementing  modifications  to its  information  systems.  To date,  one of the
Company's  six regions has been  converted  to the  modified  applications.  The
Company  intends to complete  the  implementation  of all  modified  information
systems,  vendor  supplied  Local Area  Network  ("LAN")  applications,  and LAN
operating-systems patches by the end of the second quarter of 1999.

                  Non-Information  technology areas. The Company plans to modify
necessary   non-information   technology   equipment   and  systems,   establish
contingency plans, and update existing disaster recovery plans throughout 1999.

         Upon  completion of its Year 2000 plan, the Company  expects to be Year
2000  compliant  and  expects  to have no  material  exposure  with  respect  to
information   technology-related   systems.   With  respect  to  non-information
technology  areas,  it is uncertain what risks are associated with the Year 2000
issue and any risks that may be  identified  could have a material  and  adverse
effect on the Company's business, financial condition, results of operations and
cash flows. Further,  there can be no assurances that the information systems of
customers and vendors on which the Company relies will be Year 2000 compliant in
a timely manner and will not have a material and adverse effect on the Company's
business, financial condition, results of operations and cash flow.

         Segment  Reporting.  Effective January 1, 1998, the Company adopted the
Financial   Accounting  Standards  Board's  Statement  of  Financial  Accounting
Standards  131,   Disclosures  about  Segments  of  an  Enterprise  and  Related
Information  ("Statement  131").  Statement 131  superseded  FASB  Statement 14,
Financial  Reporting  for  Segments  of a  Business  Enterprise.  Statement  131
establishes  standards  for the way  that  public  business  enterprises  report
information about operating segments in annual financial statements and requires
that those enterprises  report selected  information about operating segments in
interim financial reports.  Statement 131 also establishes standards for related
disclosures about products and services,  geographic areas, and major customers.
The adoption of Statement 131 did not affect  results of operations or financial
position,  but did affect the disclosure of segment information.  See Note 13 in
the Company's notes to Consolidated Financial Statements.


<PAGE>



Results of Operations
         The following  table sets forth the  percentage  relationship  that the
various items bear to revenues and the  percentage  of change in dollar  amounts
for the periods  indicated.  The statement of operations data have been restated
to  give   effect   to   acquisitions   that  were   accounted   for  using  the
pooling-of-interests  method  for  business  combinations.  See  Note  2 to  the
Company's Consolidated Financial Statements.

<TABLE>
<CAPTION>
                                                                         Year Ended December 31,
                                                 -------------------------------------------------------------------------
                                                                                 1997                    1998 Compared
                                                                               Compared                     to 1997
                                                                                to 1996                     % Change
                                                                               % change                    in Amounts
                                                     1996         1997        in Amounts        1998
                                                     ----         ----        ----------        ----
Statement of Operations Data:
<S>                                                  <C>           <C>           <C>           <C>            <C>  
Revenues ...................................         100.0%        100.0%        116.4%        100.0%         17.5%
Cost of operations .........................          62.3          58.0         101.4          56.6          14.8
Selling, general and administrative 
expenses....................................          16.5          13.2          73.2            9.9        (12.2)
Depreciation and amortization expense ......          10.9          11.8         133.3           11.4         13.8
Acquisition related and unusual costs.......          15.6           0.3         (96.0)          15.7      6,256.4
Asset impairments...........................            --            --          --              4.4        100.0
                                                 ---------     ---------                     --------
Operating income (loss) ....................          (5.3)         16.7         774.1            2.0        (86.6)
Interest expense, net ......................           3.0           7.9         462.4            5.4        (20.6)
Income tax expense, (benefit)  .............           0.1           3.0       9,975.0            2.8          8.7
Extraordinary loss, net of income
tax benefit ................................           2.2           4.0         282.8            7.9        134.6
                                                 ---------     ---------                     --------
  Net income (loss) ........................         (10.6)%         1.8%        136.2%        (14.1)%   (1,029.6)%
                                                 ==========    =========                     ========
</TABLE>



<PAGE>



Years Ended December 31, 1998 and 1997

         Revenues.  Revenues in 1998 were $1,575.6  million compared to $1,340.7
million in 1997, an increase of 17.5%. The increase in revenues  attributable to
existing   operations   ("Internal   Growth")  was  8%  with   approximately  5%
attributable to net volume increases and  approximately 3% attributable to price
increases.  The additional  revenue growth is attributable to companies acquired
net of revenues sold, subsequent to the same period in the prior year.

         Cost of  Operations.  Cost of  operations  in 1998 was  $892.3  million
compared to $777.3 million in 1997, an increase of 14.8%.  This increase in cost
of operations was primarily  attributable to the increase in revenues  described
above.  As a percentage of revenues,  cost of  operations  decreased to 56.6% in
1998 from 58.0% in 1997. The 1997 operating margin decreased from the previously
reported margin due to the  restatements  for companies  acquired  subsequent to
December 31, 1997 and  accounted for using the  pooling-of-interests  method for
business  combinations.  The 1998 operating margin was favorably  impacted by an
increase in internalization of third-party  disposal volumes to 68% in 1998 from
approximately 53% in 1997, as restated,  increased volumes at the landfills, and
other cost savings from the integration of acquisitions.

         Selling,  General and Administrative Expenses. SG&A expense in 1998 was
$155.8  million  compared to $177.4  million in 1997, a decrease of 12.2%.  As a
percentage  of revenues,  SG&A  decreased  to 9.9% in 1998  compared to 13.2% in
1997. The 1997 SG&A expense increased from the previously reported amount due to
the  restatements  for  companies  acquired  subsequent to December 31, 1997 and
accounted for using the  pooling-of-interests  method for business combinations.
The 1998  SG&A  expense  decreased  due to a  reduction  in  certain  sales  and
administrative  functions and related  facilities  completed at the beginning of
the  second  quarter  of  1998  in  accordance  with  the  Company's  continuing
acquisition integration plan. Additionally, the decrease in SG&A as a percentage
of revenues is due to the continued increase in revenues while reducing overhead
costs.

         Depreciation and Amortization Expense. Depreciation and amortization in
1998 was $180.0  million  compared  to $158.2  million in 1997,  an  increase of
13.8%. In addition to the depreciation  and amortization of acquired  companies,
the increase in depreciation and amortization expense was due to a 7.6% increase
in  internalized  landfill  tonnage,  a 22.6% increase in costs in excess of net
assets acquired and an 11.1% increase in capital  expenditures.  As a percentage
of revenues, depreciation and amortization did not change significantly.

         Acquisition Related and Unusual Costs. During 1998 the Company recorded
acquisition  related and unusual charges in the amount of $247.9 million.  These
charges primarily relate to acquisitions accounted for as  poolings-of-interests
and consist of  transaction  and deal costs,  employee  severance and transition
costs,  environmental  related  matters,   litigation  liabilities,   regulatory
compliance  matters,  restructuring  and  abandonment  costs  and loss  contract
provisions.  The Company does not anticipate that future costs to be incurred in
connection  with 1998  acquisitions  will be  significant as  restructuring  and
transition  activities  have been  substantially  implemented as of December 31,
1998. The acquisition related and unusual charges consist of the following:

         Direct transaction and deal costs of $51.2 million including investment
         banker, attorney, accountant,  environmental assessment and other third
         party fees. Approximately $11.7 million is accrued at December 31, 1998
         and is expected to be paid in 1999.


<PAGE>



         Employee  severance and  transition  costs of $73.6 million  consist of
         $39.3  million in  termination  payments  made to employees of acquired
         companies  based  on  change  of  control   provisions  in  preexisting
         contracts and $34.3 million of costs associated with severance payments
         under  exit  or  integration   plans  implemented  in  connection  with
         acquisitions  made during 1998. The exit and integration plans call for
         the termination of a total of  approximately  800 employees who have or
         are currently performing  managerial,  sales,  administrative  support,
         maintenance and repair, or hauling and landfill  operations duties. All
         employees were identified and notified of their severance or transition
         benefits at the time management approved the plan, which occurred at or
         around the time of the acquisitions. At December 31, 1998, the majority
         of employees  identified have been terminated and  approximately  $10.1
         million is accrued for benefits remaining to be paid in 1999.

         Environmental  related matters,  litigation  liabilities and regulatory
         compliance  matters  assumed in  acquisitions  totaled  $73.4  million.
         Subsequent  to  consummating  business  combinations  accounted  for as
         pooling-of-interests,  the Company made certain  changes in  accounting
         estimates  due to events and new  information  becoming  available  for
         environmental  liabilities of approximately  $41.1 million,  litigation
         liabilities of  approximately  $20.8 million and regulatory  compliance
         liabilities of approximately  $11.5 million.  Additional  environmental
         liabilities were accrued based on comprehensive  assessments  performed
         by third party and in-house  engineers of the operating  sites owned or
         used by the acquired companies at the time of acquisition and represent
         the most probable  outcome of these contingent  matters.  The change in
         estimate relating to litigation and regulatory  compliance  liabilities
         was accrued  based on legal due  diligence  performed  by in-house  and
         outside legal counsel of acquired  companies at the time of acquisition
         and the  determination  of the reasonably  probable loss  incurred.  At
         December  31,  1998,   approximately   $41.1  million  is  accrued  for
         environmental  matters,  which is  expected to be  disbursed  in future
         periods,  and  $15.8  million  is  accrued  for  legal  and  regulatory
         compliance liabilities to be paid in 1999.

         Restructuring  and  abandonment  costs  were  $42.1  million.  Costs to
         consolidate  or relocate  redundant  operations  and to  transition  to
         common  information  systems were $23.1 million.  Abandonment costs and
         losses on the disposal of duplicate  revenue  producing assets relating
         to specifically  identified transfer stations and recycling  facilities
         were $8.8 million.  Additionally,  $10.2 million of costs were incurred
         for  the  disposition  of  redundant   non-revenue   producing  assets,
         including acquired  companies'  corporate and  administrative  offices.
         Approximately  $7.6 million of relocation and  transition  costs remain
         accrued at December 31, 1998 and are expected to be paid in 1999.

         Loss contract  provisions were $7.6 million for losses  associated with
         collection  contracts  and other  contractual  obligations  assumed  in
         acquisitions.  Approximately $5 million remains accrued at December 31,
         1998 and is expected to be resolved in 1999.

         Asset  Impairments.  - During the fourth  quarter of 1998,  the Company
recognized  non-cash asset impairment charges  aggregating $69.7 million.  These
charges  related to assets  held for future use and assets to be  disposed of in
the first and second quarters of 1999.


<PAGE>



         An impairment charge of $45.9 million,  with no associated tax benefit,
was recorded relating to goodwill of a waste transportation business recorded by
a company  recently  acquired  by  Allied.  In the fourth  quarter of 1998,  the
Company lost certain  hauling  agreements at an operating  district in its Great
Lakes  region  which  resulted  in a loss of  revenues  for the  district.  Upon
identifying this event, the Company evaluated  possible  impairment by comparing
estimated  future cash flows,  before  interest  expense and on an  undiscounted
basis,  to the  net  book  value  of  assets.  This  comparison  indicated  that
undiscounted cash flows were insufficient to recover assets and further analysis
was performed in order to determine the amount of the impairment.  In accordance
with Statement of Financial  Accounting Standard 121 (SFAS 121),  Accounting for
the Impairment of Long-lived Assets and Long-lived Assets to be disposed of, the
Company  recorded an  impairment  loss equal to the amount by which the carrying
amount of the assets  exceeded  their fair market  value.  Fair market value was
determined  based on the present value of estimated  expected  future cash flows
over 38 years using a discount rate commensurate with the risks involved,  which
was 12% approximating the Company's weighted average cost of capital.

         Additionally,  an  impairment  charge of $23.8 million was recorded for
the  write-down  to net  realizable  value less cost of disposal of assets to be
sold relating to non-core or non-integrated  operating districts. The ability to
successfully implement the Company's integration strategy is a key consideration
in determining  whether the Company will continue in a specific market or exit a
market.  In October  1998,  the Company  formalized  plans to dispose of certain
operating districts  considered  non-core or non-integrated  assets. The Company
has entered into agreements to sell these assets and in accordance with SFAS 121
recorded an  impairment  loss to reduce the carrying  value of the assets to net
realizable  value  including an accrual for the cost of disposal.  The sales are
expected to be consummated in the first and second quarters of 1999. The results
of operations before  depreciation and amortization of these operating districts
included in consolidated  operating income was  approximately  $4.4 million.  At
December 31, 1998,  the net assets  subject to sale totaled  $143.8  million and
have been  classified as assets held for sale in current  assets in the December
31, 1998 Consolidated Balance Sheet.

         Net Interest  Expense.  Net interest  expense was $84.4 million in 1998
compared to $106.3  million in 1997,  a decrease of 20.6%.  The  decrease in net
interest  expense  was due to an  increase  in  capitalized  interest,  to $67.5
million in 1998 compared to $37.6 million in 1997.  The increase in  capitalized
interest is a result of the  acquisition  of 21 landfills  during 1998 primarily
financed with the common stock of the Company  instead of cash.  Therefore,  the
Company  had a  significant  increase  in  assets  under  development  without a
corresponding  increase in interest  bearing  debt.  Additionally,  net interest
expense  was  impacted by an overall  reduction  in the  average  interest  rate
partially offset by a net increase in outstanding debt.

         Income Taxes.  Income taxes reflect a (80.3)% effective income tax rate
in 1998 and 34.3% in 1997.  The increase is  primarily  caused by the income tax
accounting  effects of asset  write-downs and applying the  pooling-of-interests
method of accounting for business combinations  (including the initial recording
of deferred income taxes and non-deductible  transaction costs, partially offset
by the absence of income taxes on S-Corporation  pre-combination earnings). This
resulted  in  a  one-time  income  tax  provision  of  $61.1  million.   Without
considering  the  effect of pooled  companies  and asset  write-downs,  the 1998
effective tax rate is 40.5%,  which deviates from the federal  statutory rate of
35%, due to the effects of differences in the treatment of goodwill for book and
tax purposes, state income taxes, and other permanent differences.

         Extraordinary  Loss,  Net. In December 1998,  the Company  replaced its
1996  Notes and Senior  Discount  Notes  with $1.7  billion in senior  notes and
recognized  a charge of  approximately  $201.2  million  ($121.7  million net of
income tax benefit)  related to premiums  paid for the early payment of the 1996
Notes and the Senior  Discount  Notes and the write-off of  previously  deferred
debt issuance costs. In June 1998, the Company  replaced its credit facility and
recognized an extraordinary  charge of approximately  $5.1 million ($3.1 million
net of income tax benefit) related to the write-off of previously  deferred debt
issuance costs.


<PAGE>



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

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


<PAGE>


Years Ended December 31, 1997 and 1996

         Revenues.  Revenues in 1997 were  $1,340.7  million  compared to $619.5
million in 1996, an increase of 116.4%. Revenues of approximately $560.4 million
for 1997 were  generated from  companies  acquired  subsequent to the end of the
same  period in the prior  year,  while  increases  in revenue  attributable  to
existing operations amounted to $160.8 million. If the Laidlaw Acquisition,  net
of the Canadian Sale, is included as of January 1, 1996,  Internal  Growth would
have  approximated  15% with 11%  attributable  to net volume  increases  and 4%
attributable to price increases.

         Cost of  Operations.  Cost of  operations  in 1997 was  $777.3  million
compared to $386 million in 1996,  an increase of 101.4%.  This increase in cost
of operations was primarily  attributable to the increase in revenues  described
above.  As a percentage of revenues,  cost of  operations  decreased to 58.0% in
1997 from 62.3% in 1996. The improvement in gross margin is due primarily to the
integration  of the assets  acquired  from  Laidlaw  during  1996 and  increased
landfill volume.

         Selling,  General and Administrative  Expenses. SG&A expenses increased
to $177.4  million in 1997  compared to $102.4  million in 1996,  an increase of
73.2%.  The increase in SG&A expense  resulted  from  expenses  associated  with
acquired  companies  and  expenses  incurred in  connection  with the  Company's
increase in personnel and other  expenses  related to the growth of the Company.
In  addition,  SG&A  expenses  include a charge of  approximately  $3.4  million
related  to  future  post  employment  executive  compensation  and a credit  of
approximately  $3.0  million  related  to  a  favorable  settlement  of  certain
litigation.  As a percentage of revenues,  SG&A  decreased to 13.2% in 1997 from
16.5% in 1996. The decrease in SG&A as a percentage of revenues is primarily due
to the substantial increase in the revenues of the Company resulting principally
from  the  Laidlaw   Acquisition,   while  SG&A   expenses  have  not  increased
proportionately.

         Depreciation and Amortization Expense. Depreciation and amortization in
1997 was $158.2  million  compared  to $67.8  million in 1996,  an  increase  of
133.3%.  The  increase  in  depreciation  and  amortization  expense  is  due to
additional goodwill and capital  expenditures.  Fixed assets have increased from
$830.2 million in 1996,  excluding the Laidlaw Acquisition on December 30, 1996,
to $1.9 billion in 1997 and  goodwill has  increased to $1.1 billion at December
31,  1997 from  $148.6  million at  December  31,  1996,  excluding  the Laidlaw
Acquisition on December 30, 1996. As a percentage of revenues,  depreciation and
amortization  increased  to 11.8% in 1997 from 10.9% in 1996.  This is primarily
the result of an  increase  in  amortization  of  goodwill  as a  percentage  of
revenues  to 2.0% in 1997  from  0.7% in  1996  related  to  increased  goodwill
recorded in connection with the Laidlaw Acquisition.

         Acquisition Related and Unusual Costs.  Acquisition related and unusual
costs in 1997 were $3.9 million compared to $96.5 million in 1996, a decrease of
96.0%.  During  1996 in  connection  with the Laidlaw  Acquisition,  the Company
incurred  approximately $84.6 million in charges, which include $51.5 million of
environmental   related  matters,   $18.4  million  of  asset   impairments  and
abandonments,  and $14.7  million  of  acquisition  liabilities,  of which  $2.0
million  relates to litigation  matters,  $5.4 million relates to relocation and
transition  costs  and  bonuses,  $3.8  million  relates  to taxes,  claims  and
assessments and other  integration  costs,  and $3.5 million relates to acquired
accounts receivable considered uncollectible.

         In December  1996 the Company  recorded  $5.7 million in unusual  costs
including  $2.0  million  in  connection  with  the  ongoing  investigation  and
remediation  of the  Company's  Norfolk  landfill  and  $3.7  million  of  other
non-recurring valuation adjustments.

         Acquisition  related  costs in 1997 were $5.0  million.  In the  fourth
quarter of 1997,  the Company  recorded  approximately  $1.1  million of unusual
costs, comprised of a $5.6 million gain on sale of assets to USA Waste, net of a
charge of  approximately  $4.5 million in  connection  with the  abandonment  of
certain collection and transfer operations.
         Net Interest  Expense.  Net interest expense was $106.3 million in 1997
compared  to $18.9  million in 1996,  an  increase  of 462.4%.  The  increase in
interest  expense is due to the increase in debt from $422.7 million at December
31, 1996,  excluding the Laidlaw  Acquisition on December 30, 1996,  compared to
$1.6  billion at  December  31,  1997.  This  increase  in debt  outstanding  is
primarily the result of debt incurred in connection with the Laidlaw Acquisition
net of the  application  of the net  proceeds  received in  connection  with the
Canadian Sale. Additionally, in connection with the construction and development
of the Company's  landfills,  Allied capitalized  approximately $37.6 million of
interest in 1997  compared to $13.5  million in 1996.  The increase is primarily
due to the increase in the base of assets under  development  which  qualify for
capitalized  interest  (primarily  landfill  assets) as a result of the  Laidlaw
Acquisition in late 1996 and other acquisitions made during 1997.

         Income Taxes.  Income taxes reflect a 34.3%  effective  income tax rate
for 1997 which deviates from the federal  statutory rate of 35% due primarily to
the income tax accounting effects of applying the pooling-of-interests method of
accounting  for  business  combinations.  Other items  impacting  the  Company's
effective  tax rate  for both  1997 and  1996  include  the  differences  in the
treatment of goodwill for book and tax purposes,  state income taxes,  and other
permanent differences. See Note 10 to the Consolidated Financial Statements.

         Extraordinary  Loss.  In May 1997,  the  Company  repurchased  from the
Laidlaw Group two junior  subordinated  debentures with an aggregate face amount
of $318 million and the Warrant,  used as partial  consideration for the Laidlaw
Acquisition,  for an  aggregate  purchase  price of $230  million  in  cash.  An
extraordinary  charge to earnings  related to the  Repurchase  of  approximately
$65.7  million  ($39.4  million  net of income tax  benefit)  was  recorded.  In
addition,  the Company  replaced its $1.275 billion Bank Agreement with the 1997
Credit  Agreement  in June  1997  and  recognized  an  extraordinary  charge  of
approximately $21.6 million ($13.0 million net of income tax benefit).

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

         On July 31, 1996,  Allied completed a tender offer (the "Tender Offer")
for  substantially  all of its $100  million  12%  senior  notes due 2004 at the
redemption price of $1,157.50 per $1,000 note. An  extraordinary  charge related
to the Tender Offer of approximately  $18.4 million ($11.0 million net of income
tax  benefit),  was  charged  to  earnings  in the  third  quarter  of 1996.  In
connection with the Laidlaw Acquisition, the Company refinanced its $300 million
senior  revolving  credit  facility and  recognized an  extraordinary  charge of
approximately  $4.0 million  ($2.4  million net of income tax benefit)  that was
charged to earnings in the fourth quarter of 1996.

         In  May  1996,  the  Company  recognized  an  extraordinary  charge  of
approximately  $0.8 million  ($476,000  net of income tax benefit)  representing
unamortized deferred debt issuance costs related to refinanced obligations.


<PAGE>


Liquidity and Capital Resources

         Historically,  the  Company  has  satisfied  its  acquisition,  capital
expenditure  and working  capital  needs  primarily  through bank  financing and
public offerings and private placements of debt and equity  securities.  Between
December 1996 and December 1998,  the Company has completed  debt  financings in
excess of $3.5 billion.

         Due to the acquisition  driven and the capital  intensive nature of the
Company's  business  strategy,  the Company has used,  and  believes  that it is
reasonably  possible that it will  continue  using amounts in excess of the cash
generated  from  operations  to  fund  acquisitions  and  capital  expenditures,
including landfill development. In connection with acquisitions, the Company has
assumed or incurred indebtedness with relatively short-term repayment schedules,
thereby increasing its current and medium-term liabilities.  Additionally,  some
operating  equipment has been acquired using  financing  leases which have short
and medium-term maturities. Additionally, the Company uses excess cash generated
from  operations to pay down amounts owed on its revolver which is classified as
long-term  debt.  As a result,  the Company has  periodically  had low levels of
working capital or working capital deficits.

         During the years ended December 31, 1996,  1997 and 1998, the Company's
cash flows from  operating,  investing and financing  activities were as follows
(in millions):

<TABLE>
<CAPTION>
                                                                                Year Ended December 31,
                                                                   --------------------------------------------------
                                                                        1996             1997             1998
                                                                        ----             ----             ----
Operating Activities:
<S>                                                                <C>               <C>             <C>          
Net income (loss) ............................................     $      (66.3)     $      24.0     $     (223.1)
Extraordinary loss on early extinguishments of debt ..........             13.6            (13.9)           (54.2)
Non-cash acquisition related and unusual costs ...............             96.5               --             38.8
Asset impairments.............................................               --               --             69.7
Non-cash operating expenses(1)................................             81.7            183.4            241.8
Loss (gain) on sale of assets ................................              1.8            (7.2)             (3.5)
Increase in operating assets and liabilities, net ............            (55.8)          (58.8)             99.9
                                                                   ------------     ------------     ------------
   Cash provided by (used for) operating activities ..........             71.5           127.5             169.4
                                                                   ------------     ------------     ------------
Investing Activities:
Cost of acquisitions, net of cash acquired ...................        (1,380.3)          (498.7)          (313.0)
Capital expenditures .........................................           (87.4)          (225.6)          (369.2)
Proceeds from sale of assets .................................             0.9            530.1             12.1
Other ........................................................            (0.4)            (7.9)            (8.2)
                                                                   ------------     ------------     ------------
  Cash used for investing activities .........................        (1,467.2)          (202.1)          (678.3)
                                                                   ------------     ------------     ------------
Financing Activities:
Net proceeds from sale and
   redemption of preferred stock and common stock ............            48.1            329.0             11.3
Net proceeds from long-term debt .............................         1,881.3          1,336.8          2,725.3
Payments of long-term debt ...................................          (487.9)        (1,791.8)        (2,265.7)
Other ........................................................            (0.6)           163.9             44.4
                                                                   ------------     ------------     ------------
  Cash provided by financing activities ......................         1,440.9             37.9            515.3
                                                                   ------------     ------------     ------------
Increase (decrease) in cash...................................     $      45.2     $      (36.7)     $       6.4
                                                                   ============     ============     ============
------------------
<FN>

(1)  Consists  principally  of provisions  for  depreciation  and  amortization,
     allowance for doubtful accounts, potentially unrealizable acquisition costs
     and deferred income taxes.
</FN>
</TABLE>


<PAGE>



         As of December 31, 1998,  the Company had cash and cash  equivalents of
$39.7  million.   The  Company's   capital   expenditure   and  working  capital
requirements have increased significantly, reflecting the Company's rapid growth
by acquisition and development of revenue  producing  assets,  and will increase
further as the Company continues to pursue its business  strategy.  During 1998,
the Company acquired solid waste operations  representing  approximately  $741.9
million in annual revenues  ($727.8  million net of intercompany  eliminations),
and sold operations  representing  approximately $7.0 million in annual revenue.
Net  consideration  of approximately  $2.3 billion  comprised of cash, notes and
Common Stock, was paid in these  transactions.  Subsequent to December 31, 1998,
the Company acquired 17 operating solid waste businesses with annual revenues of
approximately  $70.6 million for consideration of approximately  $143.7 million.
For the calendar  year 1999,  the Company  expects to spend  approximately  $315
million for capital  expenditures,  closure and  post-closure,  and  remediation
expenditures  relating to its landfill  operations.  As the Company continues to
acquire waste  operations in 1999,  additional  capital amounts will be required
during  1999 for the  acquisition  of  businesses  and the  capital  expenditure
requirements related to those acquired businesses.

         On December 31, 1998, the Company's debt structure  consisted primarily
of $1.7 billion of the 1998 Senior Notes and $300 million  outstanding under the
Term Loan  Facility  (as  defined  herein).  As of  December  31,  1998 there is
aggregate  availability  under the Revolving  Credit  Facility of  approximately
$720.7 million to be used for working capital,  letters of credit,  acquisitions
and other general corporate  purposes.  In October 1997, the Company amended the
Credit  Agreement to expand to $1.1 billion from $900 million by increasing  the
revolving credit facility from $400 million to $600 million and by adding a $200
million  delayed draw term facility (the  "Delayed Draw Term  Facility"),  after
giving  effect to the  repayment  of $203  million of the Term Loan  Facility on
September  30,  1997.  The  Revolving  Credit  Facility  includes a $250 million
sublimit for the issuance of letters of credit  (increased  from $175 million at
September 30, 1997).  The  indentures  relating to the 1998 Senior Notes and the
Credit Agreement contain  financial and operating  covenants and restrictions on
the  ability of the  Company to  complete  acquisitions,  pay  dividends,  incur
indebtedness,  make  investments  and take certain other  corporate  actions.  A
substantial  portion of the  Company's  available  cash will be  required  to be
applied to service  indebtedness.  Currently,  on an annualized  basis,  this is
expected  to  include  approximately  $204.5  million  in annual  principal  and
interest payments.

         The  Company  is also  required  to  provide  financial  assurances  to
governmental agencies under applicable environmental regulations relating to its
landfill  operations  and  collection   contracts.   These  financial  assurance
requirements are satisfied by the Company issuing performance bonds,  letters of
credit, insurance policies or trust deposits to secure the Company's obligations
as they relate to landfill closure and post-closure  costs and performance under
certain collection contracts.  At December 31, 1998, the Company had outstanding
approximately $428.6 million in financial assurance instruments,  represented by
$277.6 million of performance  bonds,  $134.4 million of insurance  policies and
$16.6 million of trust deposits.  During calendar year 1999, the Company expects
to be required to provide  approximately  $408  million in  financial  assurance
obligations  relating to its landfill operations and collection  contracts.  The
Company expects that financial assurance obligations will increase in the future
as it acquires and expands its landfill activities and that a greater percentage
of the financial  assurance  instruments will be comprised of performance  bonds
and insurance policies.

         The Company has lease facilities (the "Lease Facilities") that allow it
to enter into equipment  leases at rates ranging from similar term treasury note
rates plus 1.55% for terms of 36 to 84 months.  In addition to equipment  leases
outstanding  at December 31, 1997 and 1998 of $71.0  million and $36.6  million,
respectively,  the Company had available lease  commitments of $32.4 million and
$55.0 million, respectively. The Company has entered into master equipment lease
facilities   relating  to  the  financing  of  the  acquisition  of  trucks  and
containers.


<PAGE>


         Subtitle D and other regulations that apply to the non-hazardous  waste
disposal industry have required the Company,  as well as others in the industry,
to alter  operations  and to modify or replace  pre-Subtitle  D landfills.  Such
expenditures have been and will continue to be substantial.  Further  regulatory
changes could accelerate  expenditures  for closure and post-closure  monitoring
and obligate the Company to spend sums in addition to those  presently  reserved
for such  purposes.  These  factors,  together with the other factors  discussed
above, could substantially increase the Company's operating costs and impair the
Company's ability to invest in its facilities.

         The Company's  ability to meet future capital  expenditure  and working
capital requirements,  to make scheduled payments of principal, to pay interest,
or to refinance its  indebtedness,  and to fund capital amounts required for the
acquisition  of businesses and the expansion of existing  businesses  depends on
its  future  performance,  which,  to a certain  extent,  is  subject to general
economic,  financial,  competitive,  legislative,  regulatory  and other factors
beyond its control.  Based upon the current level of operations and  anticipated
growth,  management of the Company  believes that available cash flow,  together
with available  borrowing under the Credit  Agreement,  the Lease Facilities and
other sources of liquidity,  will be adequate to meet the Company's  anticipated
future   requirements   for   working   capital,   letters-of-credit,    capital
expenditures,  scheduled  payments of principal  and  interest on debt  incurred
under the Credit  Agreement,  interest  on the 1998  Senior  Notes,  and capital
amounts required for acquisitions and expansion.  However, the principal payment
at maturity on the 1998 Senior  Notes may require  refinancing.  There can be no
assurance that the Company's  business will generate  sufficient  cash flow from
operations or that future  financings will be available in an amount  sufficient
to enable the Company to service its  indebtedness or to make necessary  capital
expenditures,  or that  any  refinancing  would  be  available  on  commercially
reasonable terms if at all.  Additionally,  depending on the timing,  amount and
structure of any future  acquisitions  and the  availability  of funds under the
Credit Agreement,  the Company may need to raise additional  capital to fund the
acquisition and integration of additional  solid waste  businesses.  The Company
may raise such funds  through  additional  bank  financings or public or private
offerings of its debt and equity securities.  There can be no assurance that the
Company will be able to secure such funding,  if necessary,  on favorable terms,
if at all.  If the  Company is not  successful  in securing  such  funding,  the
Company's ability to pursue its business strategy may be impaired and results of
operations for future periods may be negatively affected.

Significant Financing Events

         In December 1996,  Allied Waste North America  ("Allied NA") issued the
1996 Notes. Net proceeds from the sale of the 1996 Notes, after the underwriting
discount and other expenses,  were approximately $509 million.  The net proceeds
were  used  to  pay a  portion  of  the  cash  purchase  price  of  the  Laidlaw
Acquisition, repay amounts outstanding under the Company's previous $300 million
revolving credit facility,  fund certain  acquisitions and for general corporate
purposes.

         In May 1997, the Company,  pursuant to the Laidlaw Securities  Purchase
Agreement with the Laidlaw Group and certain private securities investment funds
affiliated with either (i) Apollo Advisors II, L.P. or (ii) the Blackstone Group
(the  "Apollo/Blackstone  Investors"),  repurchased  from the Laidlaw  Group the
Allied  Debentures  and the  Warrant  for an  aggregate  purchase  price of $230
million in cash. Also pursuant to the Laidlaw Securities Purchase Agreement, the
Apollo/Blackstone  Investors  purchased all of the Common Stock held by Laidlaw.
In connection  with the  Repurchase,  Allied issued $418 million  aggregate face
amount of the Senior  Discount Notes in a private  offering on May 15, 1997. The
net proceeds of $230 million realized from the sale of the Senior Discount Notes
were used to pay the cash consideration in the Repurchase.

         In June 1997, the Company repaid its senior credit facility and entered
into the 1997 Credit  Agreement.  The 1997 Credit  Agreement  provides a six and
one-half  year senior  secured  $500  million  term loan  facility and a six and
one-half year senior secured $400 million revolving credit facility.


<PAGE>



         On September  30,  1997,  the Company  repaid $203 million  outstanding
under the Term Loan  Facility and $71 million  outstanding  under the  Revolving
Credit Facility of the 1997 Credit Agreement. In connection with this repayment,
the Company amended the 1997 Credit  Agreement in October 1997,  providing for a
six and one-half year senior secured $297 million  funded term loan facility,  a
senior secured $200 million  delayed draw term loan facility to finance  certain
acquisitions  prior  to  March  31,  1998,  and a senior  secured  $600  million
revolving credit facility due December 2003.

         In June 1998, the Company repaid $486.8 million  outstanding  under the
1997 Credit  Agreement  and entered  into a new credit  agreement  (the  "Credit
Agreement").  The Credit  Agreement  provides a $800  million  five year  senior
secured  revolving credit facility (the "Revolving  Credit Facility") and a $300
million five year senior  secured term loan facility  (the "Term Loan  Facility"
and together with the Revolving Credit Facility,  the "Senior Credit Facility").
The Term Loan  Facility is a funded,  amortizing  senior  secured term loan with
annual principal  payments  increasing from $75 million in 2001, to $105 million
in 2002,  and to $120  million in 2003.  Principal  under the  Revolving  Credit
Facility is due upon maturity.

         In addition to the scheduled  principal  payments above, the Company is
also required to make mandatory  prepayments on the Senior Credit Facility equal
75% or 50% of the net proceeds  from certain debt issues and up to 75% or 50% of
the net proceeds from the sale of assets if the  Company's  Leverage  Ratio,  as
defined in the Credit Agreement exceeds 4.5 to 1.0 or 4.0 to 1.0,  respectively.
Mandatory prepayments shall be applied first to the outstanding revolving credit
advances  and Term  Loans pro rata  based on  outstandings,  until no  revolving
credit advances are outstanding, and then to repay outstanding Term Loans.

         Borrowings under the Credit Agreement may be used for acquisitions, the
issuance  of letters of credit,  working  capital  and other  general  corporate
purposes.  Of the $800 million available under the Revolving Credit Facility, no
more than $250 million may be used to support the issuance of letters of credit.

         The Senior Credit Facility bears interest,  at the Company's option, at
the lesser of (a) a Base Rate, or (b) a Eurodollar  Rate,  both terms defined in
the Credit  Agreement,  plus, in either case, an agreed upon applicable  margin.
The  applicable  margin will be adjusted from time to time pursuant to a pricing
grid based upon the  Company's  Total  Debt to EBITDA  ratio,  as defined in the
Credit Agreement, and varies between zero percent and 0.50% for Base Rate loans,
and 0.75% and 1.75% for Eurodollar loans.

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

         The Credit Agreement  contains certain financial  covenants  including,
but not limited to, a Total Debt to EBITDA ratio, a Fixed Charge Coverage ratio,
and an  Interest  Expense  Coverage  ratio,  all terms as  defined in the Credit
Agreement.  In addition,  the Credit Agreement also limits the Company's ability
to  make  acquisitions,   purchase  fixed  assets  above  certain  amounts,  pay
dividends, incur additional indebtedness and liens, make optional prepayments on
certain subordinated  indebtedness,  make investments,  loans or advances, enter
into certain transactions with affiliates or enter into a merger,  consolidation
or sale of all or a substantial  portion of the Company's assets. The Company is
in compliance with all applicable covenants at December 31, 1998.


<PAGE>



         In December  1998,  Allied NA issued an  aggregate  of $1.7  billion of
senior notes  consisting of $225 million 7 3/8% senior notes due 2004 (the "Five
Year Senior Notes"),  $600 million 7 5/8% senior notes due 2006 (the "Seven Year
Senior  Notes"),  and $875  million 7 7/8% senior  notes due 2009 (the "Ten Year
Senior Notes" and  collectively the "1998 Senior Notes") in a Rule 144A offering
which was  subsequently  registered  for public  trading with the Securities and
Exchange  Commission  (the "SEC") in  January,  1999.  The Company  used the net
proceeds  from the 1998 Senior  Notes to fund the purchase of the 1996 Notes and
the Senior  Discount  Notes  pursuant to tender offers the Company  commenced in
November 1998 and completed in December  1998, to repay  borrowings  outstanding
under the Senior Credit Facility and certain capital lease obligations,  and for
general corporate purposes. The Five Year Senior Notes and the Seven Year Senior
Notes will not be subject to any  redemption  at the option of the Company prior
to the final  maturity of such notes.  The Five Year Senior Notes and Seven Year
Senior Notes will be  redeemable,  at the option of the Company,  in whole or in
part, at any time,  in cash,  at a redemption  price equal to the greater of (i)
100% of their  principal  amount  or (ii) the sum of the  present  values of the
remaining  scheduled  payments of principal and interest  thereon  discounted to
maturity at a semi-annual basis at the treasury yield plus 50 basis points, plus
in  each  case  accrued  but  unpaid  interest  to but  excluding  the  date  of
redemption.  The Ten Year Senior Notes will be  redeemable  at the option of the
Company, in whole or in part, at any time on or after January 1, 2004 in cash at
the redemption  price plus accrued and unpaid interest to but excluding the date
of  redemption.  Prior to  January 1, 2004,  the Ten Year  Senior  Notes will be
redeemable,  at the option of the Company,  in whole or in part, at any time, in
cash, at a redemption  price equal to the greater of (i) 100% of their principal
amount or (ii) the sum of the present values of the remaining scheduled payments
of principal and interest thereon  discounted to maturity on a semi-annual basis
at the treasury yield plus 50 basis points,  plus accrued but unpaid interest to
but excluding the date of redemption.  In addition, at any time prior to January
1, 2002,  the Company may on any one or more  occasions  redeem up to 33 1/3% of
the aggregate  principal amount of Ten Year Senior Notes originally  issued at a
redemption price equal to 107.9% of the principal  amount thereof,  plus accrued
and unpaid interest to the date of redemption, with the net cash proceeds of one
or more public offerings; provided that the notice of redemption with respect to
any such  redemption  is mailed  within 30 days  following  the  closing  of the
corresponding  public  offering.  The 1998 Senior  Notes are  guaranteed  by the
Company and  substantially  all of Allied NA's current and future  subsidiaries,
the guarantees of which are expressly  subordinated  to the guarantees of Allied
NA's Credit Agreement.



<PAGE>


Disclosure Regarding Forward Looking Statements

         This annual  report  includes  forward  looking  statements  within the
meaning of Section 27A of the  Securities  Act of 1933, as amended,  and Section
21E of the  Securities  Exchange  Act of  1934,  as  amended  ("Forward  Looking
Statements").  All statements  other than statements of historical fact included
in this report,  are Forward Looking  Statements.  Although the Company believes
that  the  expectations   reflected  in  such  Forward  Looking  Statements  are
reasonable,  it can give no assurance that such  expectations will prove to have
been  correct.   Generally,   these  statements  relate  to  business  plans  or
strategies,  projected or  anticipated  benefits or other  consequences  of such
plans or  strategies,  number  of  acquisitions  and  projected  or  anticipated
benefits from acquisitions made by or to be made by the Company,  or projections
involving  anticipated  revenues,  earnings,  levels of capital  expenditures or
other aspects of operating  results.  All phases of the Company  operations  are
subject to a number of uncertainties,  risks and other influences, many of which
are outside the control of the Company and any one of which, or a combination of
which,  could  materially  affect the results of the  Company's  operations  and
whether Forward Looking  Statements made by the Company  ultimately  prove to be
accurate.  Such important factors ("Important  Factors") that could cause actual
results to differ  materially from the Company's  expectations  are disclosed in
this  section and  elsewhere  in this report.  All  subsequent  written and oral
Forward Looking Statements  attributable to the Company or persons acting on its
behalf are  expressly  qualified  in their  entirety  by the  Important  Factors
described  below that could cause  actual  results to differ from the  Company's
expectations.

         Competition. The solid waste collection and disposal business is highly
competitive and requires  substantial  amounts of capital.  The Company competes
with numerous waste management  companies,  a number of which have significantly
larger  operations  and greater  resources  than the  Company.  The Company also
competes with those  counties and  municipalities  that maintain their own waste
collection and disposal  operations.  Forward Looking Statements assume that the
Company  will be able to  effectively  compete  with the other waste  management
companies and municipalities.

         Availability of Acquisition  Targets. The Company's ongoing acquisition
program is a key  element of its  expansion  strategy.  In  addition,  obtaining
landfill  permits  has  become  increasingly   difficult,   time  consuming  and
expensive.  There can be no assurance that the Company will succeed in obtaining
landfill  permits or locating  appropriate  acquisition  candidates  that can be
acquired  at  price  levels  that the  Company  considers  appropriate  and that
reflects  historical prices. The Forward Looking Statements assume that a number
of  acquisition  candidates  and  landfill  properties  sufficient  to meet  the
Company's goals will be available for purchase and that the Company will be able
to complete the  acquisition  at prices that the Company has  experienced in the
past two years.

         Integration. The Company's financial position and results of operations
depend to a large extent on the integration of recently acquired businesses. The
Forward  Looking  Statements  assume that  integration  of  acquired  companies,
including the  internalization  of waste, will require from three to nine months
from the date the acquisition closes.  Failure to achieve effective  integration
in the  anticipated  time  period or at all could have an adverse  effect on the
Company's future results of operations.

         Ongoing Capital  Requirements.  To the extent that internally generated
cash and cash available under the Company's  existing credit  facilities are not
sufficient  to  provide  the  cash  required  for  future  operations,   capital
expenditures,   acquisitions,   debt  repayment   obligations  and/or  financial
assurance  obligations,  the Company will require  additional equity and/or debt
financing  in order to provide such cash.  The Company has incurred  significant
debt  obligations in the last two years,  which entail  substantial debt service
costs.  The Forward Looking  Statements  assume that the Company will be able to
raise the capital  necessary to finance such  requirements  at rates that are as
good as or  better  than  those it is  currently  experiencing.  There can be no
assurance, however, that such financing will be available or, if available, will
be available on terms satisfactory to the Company.


<PAGE>


         Economic  Conditions.  The  Company's  business  is affected by general
economic conditions. The Forward Looking Statements assume that the Company will
be able to achieve  internal volume and price growth which is not impacted by an
economic downturn. As revenue of the Company continues to grow it is likely that
the rates of internal growth will reflect growth rates which are less than those
experienced in 1998.  There can be no assurance  that an economic  downturn will
not  result in a  reduction  in the  volume of waste  being  disposed  of at the
Company's  operations  and/or  the price  that the  Company  can  charge for its
services.

         Weather  Conditions.   Protracted  periods  of  inclement  weather  may
adversely  affect the Company's  operations by interfering  with  collection and
landfill  operations,  delaying  the  development  of landfill  capacity  and/or
reducing the volume of waste generated by the Company's customers.  In addition,
particularly harsh weather conditions may result in the temporary  suspension of
certain of the  Company's  operations.  The Forward  Looking  Statements  do not
assume that such weather conditions will occur.

         Dependence on Senior  Management.  The Company is highly dependent upon
its senior  management team. In addition,  as the Company continues to grow, its
requirements for operations  management with waste industry experience will also
increase.  The  availability of such  experienced  management is not known.  The
Forward Looking Statements assume that experienced  management will be available
when  needed by the  Company at  compensation  levels  that are within  industry
norms.  The loss of the  services  of any  member  of senior  management  or the
inability  to hire  experienced  operations  management  could  have a  material
adverse effect on the Company.

         Influence  of  Government  Regulation.  The  Company's  operations  are
subject to and  substantially  affected by  extensive  federal,  state and local
laws,  regulations,  orders and permits, which govern environmental  protection,
health  and  safety,  zoning and other  matters.  These  regulations  may impose
restrictions on operations that could  adversely  affect the Company's  results,
such as limitations on the expansion of disposal  facilities,  limitations on or
the banning of disposal of out-of-state  waste or certain categories of waste or
mandates  regarding the disposal of solid waste.  Because of  heightened  public
concern,  companies  in the waste  management  business  may  become  subject to
judicial  and  administrative  proceedings  involving  federal,  state  or local
agencies.  These governmental  agencies may seek to impose fines or to revoke or
deny renewal of operating  permits or licenses for  violations of  environmental
laws or regulations or to require remediation of environmental problems at sites
or  nearby  properties,   or  resulting  from  transportation  or  predecessors'
transportation  and  collection  operations,  all of which could have a material
adverse effect on the Company.  Liability may also arise from actions brought by
individuals or community  groups in connection  with the permitting or licensing
of  operations,  any alleged  violations  of such  permits and licenses or other
matters.  The Forward Looking Statements assume that there will be no materially
negative impact on the Company's operations due to government regulation.

         Potential  Environmental  Liability.  The Company may incur liabilities
for the  deterioration  of the  environment as a result of its  operations.  Any
substantial liability for environmental damage could materially adversely affect
the operating results and financial condition of the Company. Due to the limited
nature of the Company's  insurance coverage of environmental  liability,  if the
Company  were to incur  liability  for  environmental  damage,  its business and
financial condition could be materially adversely affected.  The Forward Looking
Statements  assume that the Company  will not incur any  material  environmental
liabilities  other than those for which a  provision  has been  recorded  in the
consolidated financial statements and disclosed in the notes thereto.


<PAGE>



         Year 2000 Systems  Modifications.  The Company  expects to be Year 2000
compliant  in a timely  manner and  expects to have no  material  exposure  with
respect   to   information   technology-related   systems.   With   respect   to
non-information technology areas, it is uncertain what risks are associated with
the Year 2000 issue and any risks that may be identified  could have a material,
adverse  effect on the  Company's  business,  financial  condition,  results  of
operations  and cash  flows.  There can be no  assurances  that the  systems  of
customers and vendors on which the Company  relies will be converted in a timely
manner  and  will  not  have an  adverse  effect  on the  Company's  systems  or
operations. The Forward-Looking Statements assume that there will be no material
adverse effect on the Company's  systems or operations  related to the Year 2000
issue.

Inflation and Prevailing Economic Conditions

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

Seasonality

         The Company believes that its collection and landfill operations can be
adversely  affected by protracted periods of inclement weather which could delay
the  development  of landfill  capacity or transfer of waste  and/or  reduce the
volume of waste generated.

Item 7A.  Quantitative and Qualitative Disclosures About Market Risk.

         The Company is subject to  interest  rate risk on its  long-term  debt.
Although no exposure  exists with respect to the Company's  fixed rate long-term
corporate  debt  instruments,  the  Company  runs  the  risk  of  interest  rate
fluctuations  with respect to its Libor variable rate Senior Credit  Facility at
December 31, 1998. To modify the risk from these interest rate fluctuations, the
Company enters into hedging  transactions that have been authorized  pursuant to
the  Company's  policies  and  procedures.  The Company  does not use  financial
instruments  for  trading   purposes  and  is  not  a  party  to  any  leveraged
derivatives.  The  following  table sets forth,  as of December  31,  1998,  the
Company's  long-term  debt  obligations,   principal  cash  flows  by  scheduled
maturity,  average  interest  rates and estimated  fair market value (amounts in
thousands, except interest rates):

                                           Senior Credit      Average
                                             Facility      Interest Rate
                                             --------      -------------
       1999...........................    $         --         6.0%
       2000...........................              --         6.0%
       2001...........................         75,000          6.0%
       2002...........................        105,000          6.0%
       2003...........................        120,000          6.0%
       Thereafter.....................             --           --
                                            ---------
       Total..........................    $   300,000          6.0%
                                          ===========
       Estimated Fair Value
       at December 31, 1998...........    $   300,000
                                          ===========



<PAGE>



         The  Company  has  effectively  converted  its  long-term  debt,  which
requires  payment at  variable  rates of  interest,  to fixed  rate  obligations
through interest rate swap transactions.  These transactions require the Company
to  pay  fixed  rates  of  interest  on  notional   amounts  of   principal   to
counter-parties. The counter-parties, in turn, pay to the Company variable rates
of  interest on the same  notional  amounts of  principal.  As a result of these
transactions,  the  Company's  earnings and cash flows would be impacted  should
short-term market interest rates increase.  Increases or decreases in short-term
market rates would not impact  earnings and cash flow as all variable  rate debt
has been swapped for fixed rates.  In  addition,  decreases in long-term  market
interest  rates  would  have the  effect  of  increasing  the fair  value of the
Company's  long-term  debt and other  long-term,  fixed  rate  obligations.  The
following  interest rate table shows the interest rate swaps that were in effect
and their fair value as of December 31, 1998:

<TABLE>
<CAPTION>

     Notional                                                                                                 Fair
    Principal                           Interest                 Underlying                  Interest     Market Value
  (in thousands)         Maturity         Paid                   Obligations                 Received    (in thousands)
------------------- ------------------- ---------- ---------------------------------------- ------------ ----------------


<S>                 <C>                  <C>        <C>                                         <C>       <C>
   $  50,000        April 1999           5.12%      Credit Agreement Term Loan Facility         Libor     $     6.0
      50,000        October 1999         6.02       Credit Agreement Term Loan Facility         Libor         497.4
      50,000        November 1999        5.90       Credit Agreement Term Loan Facility         Libor         442.9
      50,000        November 1999        5.91       Credit Agreement Term Loan Facility         Libor         439.5
      50,000        March 2000           6.06       Credit Agreement Term Loan Facility         Libor         618.5
      50,000        September 2000       6.08       Credit Agreement Term Loan Facility         Libor         894.3

</TABLE>

Market Price Risk

         The Company has risk exposure  associated  with the market price on the
1998 Senior Notes. The 1998 Senior Notes are recorded at book value, which could
vary from current market prices. At December 31, 1998, the 1998 Senior Notes had
a value of $1.717 billion based on quoted average market prices.



<PAGE>



Item 8.  Financial Statements and Supplementary Data

         Report of Independent Public Accountants.

         Consolidated Balance Sheets - December 31, 1997 and 1998.

         Consolidated Statements of Operations for the Three Years Ended 
          December 31, 1998.

         Consolidated  Statements  of  Stockholders'  Equity for the Three Years
          Ended December 31, 1998.

         Consolidated  Statements  of Cash  Flows  for  the  Three  Years  Ended
          December 31, 1998.

         Notes to Consolidated Financial Statements.


<PAGE>






                    Report of Independent Public Accountants




To Allied Waste Industries, Inc.:



We have audited the  accompanying  consolidated  balance  sheets of Allied Waste
Industries,  Inc., (a Delaware  corporation) and subsidiaries as of December 31,
1997  and  1998,  and  the  related   consolidated   statements  of  operations,
stockholders'  equity and cash  flows for each of the three  years in the period
ended December 31, 1998. These financial  statements are the  responsibility  of
the Company's  management.  Our responsibility is to express an opinion on these
financial statements based on our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects,  the financial position of Allied Waste Industries,  Inc.
and  subsidiaries  as of December  31,  1997 and 1998,  and the results of their
operations  and their cash flows for each of the three years in the period ended
December 31, 1998, in conformity with generally accepted accounting principles.

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

                                                           ARTHUR ANDERSEN LLP


Phoenix, Arizona,
 March 3, 1999.


<PAGE>

<TABLE>
<CAPTION>

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


                                                                                   1997                1998
                                                                                   ----                ----
ASSETS
Current Assets --
<S>                                                                             <C>              <C>            
   Cash and cash equivalents......................................              $      33,320    $        39,742
   Accounts receivable, net of allowance of $9,348                           
     and $13,907..................................................                    202,687            225,087
   Prepaid and other current assets ..............................                     49,626             47,184
   Deferred income taxes, net ....................................                      7,652             44,141
   Assets held for sale ..........................................                         --            143,750
                                                                                -------------    ---------------
         Total current assets ....................................                    293,285            499,904
Property and equipment, net ......................................                  1,583,133          1,776,025
Costs in excess of net assets acquired, net ......................                  1,082,750          1,327,470
Other assets, net.................................................                    114,652            149,193
                                                                                -------------    ---------------
         Total assets ............................................              $  3,073,820     $   3,752,592
                                                                                =============    =============


LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities --
   Current portion of long-term debt .............................              $      68,996    $      21,516
   Accounts payable...............................................                     98,881          106,082
   Accrued closure, post-closure and environmental costs..........                     36,802           41,938
   Other accrued liabilities .....................................                    119,307          236,826
   Unearned revenue...............................................                    44,353            48,511
                                                                                -------------    -------------
          Total current liabilities ..............................                    368,339          454,873
Long-term debt, less current portion .............................                  1,492,360        2,118,927
Deferred income taxes ............................................                     20,400               --
Accrued closure, post-closure and environmental costs ............                    171,591          205,982
Other long-term obligations ......................................                     58,665           42,736
Commitments and contingencies
Stockholders' Equity --
   Common stock ..................................................                      1,814            1,845
   Additional paid-in capital ....................................                    999,277        1,208,906
   Retained deficit...............................................                   (38,626)        (280,677)
                                                                                -------------    -------------
          Total stockholders' equity .............................                    962,465          930,074
                                                                                -------------    -------------
          Total liabilities and stockholders' equity .............              $   3,073,820    $   3,752,592
                                                                                =============    =============
<FN>

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


<PAGE>

<TABLE>
<CAPTION>


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



                                                                      Year Ended December 31,
                                                            ---------------------------------------------
                                                               1996            1997             1998
                                                               ----            ----             ----
<S>                                                       <C>             <C>             <C>          
Revenues ............................................     $    619,548    $  1,340,661    $   1,575,612
Cost of operations ..................................          386,001         777,289          892,273
Selling, general and administrative expenses ........          102,416         177,396          155,835
Depreciation and amortization .......................           67,823         158,238          179,965
Acquisition related and unusual costs ...............           96,508           3,934          247,902
Asset impairments....................................               --              --           69,714
                                                          ------------    ------------    -------------
   Operating income (loss) ..........................         (33,200)         223,804           29,923
Interest income .....................................          (2,479)         (1,765)          (4,030)
Interest expense.....................................           21,347         108,045           88,431
                                                          ------------    ------------    -------------
   Income (loss) before income taxes.................         (52,068)         117,524         (54,478)
Income tax expense...................................              354          40,277           43,773
                                                          ------------    ------------    -------------
   Income (loss) before extraordinary loss ..........         (52,422)          77,247         (98,251)
Extraordinary loss due to early extinguishments
 of debt, net of income tax benefit .................         (13,887)        (53,205)        (124,801)
                                                          ------------    ------------    -------------
   Net income (loss) ................................         (66,309)          24,042        (223,052)
Dividends on preferred stock.........................          (1,073)           (381)               --
                                                          ------------    ------------    -------------
   Net income (loss) available
   to common shareholders ...........................     $   (67,382)    $     23,661    $   (223,052)
                                                          ============    ============    =============

Basic EPS:
   Net income (loss) before extraordinary loss ......     $     (0.40)    $      0.47     $      (0.54)
   Extraordinary loss ...............................           (0.11)          (0.33)           (0.68)
                                                          ------------    ------------    -------------
   Net income (loss) ................................     $     (0.51)    $      0.14     $      (1.22)
                                                          ============    ============    =============
Weighted average common shares outstanding ..........          132,967         164,888          182,796
                                                          ============    ============    =============

Diluted EPS:
   Net income (loss) before extraordinary loss.......     $     (0.40)    $      0.44     $      (0.54)
   Extraordinary loss ...............................           (0.11)          (0.30)           (0.68)
                                                          ------------    ------------    -------------
   Net income (loss) ................................     $     (0.51)    $      0.14     $      (1.22)
                                                          ============    ============    =============
Weighted average common and common
   equivalent shares outstanding ....................          132,967         172,958          182,796
                                                          ============    ============    =============
<FN>

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


<PAGE>


<TABLE>
<CAPTION>

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


                                                                                                                       
                                                                                      Additional       Retained         Total
                                                         Preferred      Common         Paid-In         Earnings       Stock-holders'
                                                           Stock         Stock         Capital        (Deficit)         Equity
                                                       ----------        -------       ---------      ---------        -------- 
<S>                                                    <C>               <C>           <C>            <C>             <C>      
Balance December 31, 1995..........................    $        2        $ 1,227       $ 196,094      $  21,127       $ 218,450
Common stock issued, net...........................            --            242         162,535             --         162,777
Warrants issued ...................................            --             --          49,000             --          49,000
Stock options and warrants
    exercised .....................................            --             10           2,336             --           2,346
9% Cumulative Convertible preferred
    stock and convertible notes converted .........           (1)             21           5,465             --           5,485
Dividends declared on
    preferred stock ...............................            --             --         (1,073)             --         (1,073)
Equity transactions of pooled
    companies .....................................            --              1          24,703       (10,162)          14,542
Net loss ..........................................            --             --              --       (66,309)         (66,309)
                                                       -----------       --------        -------    -----------         ---------
                                                                                 
                                                              
Balance December 31, 1996..........................             1          1,501         439,060       (55,344)         385,218
Common stock issued, net...........................            --            221         357,798             --         358,019
Warrants repurchased ..............................            --             --         (49,000)            --         (49,000)
Stock grant amortization ..........................            --             --             381             --             381
Stock options and warrants exercised...............            --             13           4,195             --           4,208
9% Cumulative Convertible preferred stock
    and convertible notes converted ...............           (1)             17           2,174             --           2,190
Dividends declared on preferred stock .............            --             --           (381)             --           (381)
Equity transactions of pooled
    companies .....................................            --             62         245,050        (7,324)         237,788
Net income.........................................            --             --              --        24,042           24,042
                                                       -----------       ----------     ---------      --------         ---------
                                                                           
                                                       
Balance December 31, 1997..........................            --          1,814         999,277       (38,626)         962,465
Common stock issued, net...........................            --             13          26,474             --          26,487
Stock grant amortization ..........................            --             --           1,251             --           1,251
Stock options and warrants exercised...............            --             18          23,547             --          23,565
Equity transactions of pooled
    companies .....................................            --             --         158,357        (18,999)         139,358
Net loss ..........................................            --             --              --       (223,052)        (223,052)
                                                        -----------   ------------   -----------    -----------        ---------
                                                             
Balance December 31, 1998..........................      $   --        $  1,845      $ 1,208,906      $(280,677)       $ 930,074
                                                         ========     ==========     ===========     ===========       =========
<FN>

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


<PAGE>

<TABLE>
<CAPTION>

                          ALLIED WASTE INDUSTRIES, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (in thousands)
                                                                                              Year Ended December 31,
                                                                                  ------------------------------------------------
                                                                                 1996              1997             1998
                                                                                 ----              ----             ----
Operating activities --
<S>                                                                            <C>               <C>              <C>       
  Net income (loss) .......................................................    $  (66,309)       $     24,042     $(223,052)
  Adjustments to reconcile net income (loss) to cash
       provided by operating activities--
  Extraordinary loss due to early extinguishments of debt,
        net of income tax benefit..........................................         13,570           (13,921)       (54,202)
  Provisions for:
     Depreciation and amortization ........................................         67,823            158,238        179,965
     Non-cash acquisition related and unusual costs .......................         96,508                 --         38,758
     Asset impairments.....................................................             --                 --         69,714
     Doubtful accounts.....................................................          2,871              4,228          8,086
     Accretion of senior discount notes ...................................             --             22,764         29,149
     Deferred income tax provision (benefit)...............................         11,018            (1,794)         24,637
     Loss (gain) on sale of assets ........................................          1,769            (7,250)        (3,521)
  Change in operating assets and liabilities, excluding the
        effects of purchase acquisitions --
     Accounts receivable, prepaid expenses, inventories and other..........       (34,173)          (127,974)       (54,609)
     Accounts payable, accrued liabilities, unearned income and other .....       (26,520)             70,803        159,861
     Closure and post-closure provision....................................          6,660             12,920         17,607
     Closure, post-closure and environmental expenditures .................        (1,681)           (14,590)       (23,000)
                                                                               -----------       ------------     ----------
Cash provided by operating activities .....................................         71,536            127,466        169,393
                                                                               -----------       ------------     ----------

Investing activities --
  Cost of acquisitions, net of cash acquired ..............................    (1,380,299)          (498,706)      (312,986)
  Capital expenditures. ...................................................       (74,051)          (188,005)      (301,742)
  Capitalized interest ....................................................       (13,451)           (37,568)       (67,499)
  Proceeds from sale of assets.............................................            940            530,120         12,070
  Change in deferred acquisition costs and notes receivable ...............          (352)            (7,926)        (8,184)
                                                                               -----------       ------------     ----------
Cash used for investing activities ........................................    (1,467,213)          (202,085)      (678,341)
                                                                               -----------       ------------     ----------

Financing activities --
  Net proceeds from sale of common stock, and exercise of
     stock options and warrants  ..........................................         48,119            329,019         11,324
  Proceeds from long-term debt,
     net of issuance costs. ...............................................      1,881,300          1,336,780      2,725,262
  Repayments of long-term debt.............................................      (487,868)        (1,791,799)     (2,265,741)
  Repurchase of warrant ...................................................             --           (49,000)             --
  Other long-term obligations .............................................       (13,555)             12,886          2,745
  Dividends paid...........................................................        (1,634)              (525)             --
  Equity transactions of pooled companies..................................         14,542            200,563         41,780
                                                                               -----------       ------------     ----------
Cash provided by financing activities .....................................      1,440,904             37,924        515,370
                                                                               -----------       ------------     ----------
Increase (decrease) in cash and cash equivalents...........................         45,227           (36,695)          6,422

Cash and cash equivalents, beginning of period ............................         24,788             70,015         33,320
                                                                               -----------       ------------     ----------
Cash and cash equivalents, end of period ..................................    $    70,015       $     33,320     $   39,742
                                                                               ===========       ============     ==========
<FN>

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

</FN>
</TABLE>


<PAGE>


                          ALLIED WASTE INDUSTRIES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Organization and Summary of Significant Accounting Policies

         Allied Waste Industries, Inc., a Delaware corporation, ("Allied" or the
"Company") is the third largest, non-hazardous solid waste management company in
the United States, as measured by revenues.  Allied provides non-hazardous waste
collection,  transfer,  recycling  and  disposal  services in 28 states  located
primarily in the Great Lakes, Midwest, Northeast,  Southeast, Southwest and West
regions 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.   The  consolidated   financial   statements  and
accompanying  notes have also been  restated  to reflect  material  acquisitions
accounted for as poolings-of-interests (See Note 2).

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

   Cash and cash equivalents --

         Cash equivalents are investments with original  maturities of less than
ninety days and are stated at quoted market  prices.  Cash and cash  equivalents
includes  approximately  $21.2 million and $32.7  million of book  overdrafts at
December 31, 1997 and 1998, respectively.

   Concentration of credit risk --

         Financial   instruments  that   potentially   subject  the  Company  to
concentrations  of credit risk  consist of cash and cash  equivalents  and trade
receivables.  The Company places its cash and cash equivalents with high quality
financial  institutions  and  limits the  amount of credit  exposure  to any one
financial institution.

         The Company provides  services to commercial and residential  customers
in the  United  States.  Concentrations  of credit  risk with  respect  to trade
receivables  are limited due to the large  number of  customers  comprising  the
Company's  customer base. The Company performs ongoing credit evaluations of its
customers, but does not require collateral to support customer receivables.  The
Company  establishes  an  allowance  for  doubtful  accounts  based  on  factors
surrounding the credit risk of specific  customers,  historical trends and other
information.

   Property and equipment --

         Property and equipment are recorded at cost, which includes interest to
finance the acquisition and  construction of major capital  additions during the
development phase,  primarily  landfills and transfer  stations,  until they are
completed  and ready for their  intended  use.  Depreciation  is provided on the
straight-line method over the estimated useful lives of buildings (30-40 years),
vehicles and equipment (3-15 years),  containers and compactors (5-10 years) and
furniture and office  equipment (3-8 years).  Statement of Financial  Accounting
Standard 121 (SFAS 121),  Accounting for the Impairment of Long-lived Assets and
Long-lived  Assets to be Disposed of, requires that long-lived  assets,  such as
property and  equipment,  and certain  identifiable  intangibles be reviewed for
impairment  whenever  events or changes in  circumstances  indicate the carrying
amount of an asset may not be recoverable.


<PAGE>


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

         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 tonnage as landfill  airspace is  consumed.
Management periodically reviews the realizability of its investment in operating
landfills.  Should events and  circumstances  indicate that any of the Company's
landfills be reviewed for possible  impairment,  such review for  recoverability
will be made in accordance  with  Emerging  Issues Task Force  Discussion  Issue
("EITF") 95-23.  The EITF outlines how cash flows for  environmental  exit costs
should be determined and measured.

         Expenditures for major renewals and betterments are capitalized,  while
expenditures  for  maintenance and repairs which do not improve assets or extend
their useful lives are charged to expense as incurred. For the three years ended
December 31, 1998, maintenance and repair expenses charged to cost of operations
were $33.1 million, $80.9 million and $99.8 million, respectively. When property
is retired,  the related cost and accumulated  depreciation are removed from the
accounts and any resulting gain or loss is recognized.

   Costs in excess of net assets acquired --

         Cost in excess of net assets  acquired (or  "goodwill")  is the cost in
excess of fair value of identifiable  assets in purchase  business  combinations
and is amortized on a straight-line  basis over 40 years. The Company  allocates
cost in  excess of net  assets  acquired,  when  appropriate,  to the  districts
operating the assets based on a percentage of acquired assets'  operating income
to the total acquired operating income. In accordance with SFAS 121, the Company
continually  reviews for impairment  whenever events or changes in circumstances
indicate  that the  remaining  estimated  useful  life of costs in excess of net
assets acquired may warrant revision or that the balance may not be recoverable.
The Company  evaluates  possible  impairment by comparing  estimated future cash
flows,  before interest  expense and on an undiscounted  basis, and the net book
value  of  assets  including  costs  in  excess  of  net  assets  acquired.   If
undiscounted cash flows are insufficient to recover assets,  further analysis is
performed  in order to  determine  the  amount of the  impairment.  The  Company
records an impairment  loss equal to the amount by which the carrying  amount of
the assets  exceeds  their  fair  market  value.  Fair  market  value is usually
determined  based on the present value of estimated  expected  future cash flows
using a discount rate commensurate  with the risks involved.  In instances where
goodwill is identified  with assets that are subject to an impairment  loss, the
carrying  amount  of the  identified  goodwill  is  reduced  before  making  any
reduction of the carrying amounts of impaired  long-lived  assets.  See Note 1 -
Asset Impairments for a discussion of current year asset  impairments  recorded.
Goodwill  amortization  of $5.2  million,  $26.6  million  and $30.7  million is
included  in  depreciation  and  amortization  for the three years in the period
ended December 31, 1998,  respectively.  Accumulated  goodwill  amortization was
$43.9 million and $74.6 million at December 31, 1997 and 1998, respectively.

     Other assets --

         Other assets  include  notes  receivable,  landfill  closure  deposits,
deferred charges and miscellaneous  non-current assets. Deferred charges include
costs  incurred  to  acquire  businesses  and to  obtain  debt  financing.  Upon
consummation of an acquisition,  deferred costs relating to acquired  businesses
accounted for as purchases are allocated to goodwill or landfill  airspace while
costs relating to acquired businesses accounted for as poolings-of-interests are
expensed.  Direct costs related to acquisitions under evaluation are capitalized
and reviewed for realization on a periodic basis.  These costs are expensed when
management determines that the capitalized costs provide no future benefit. Upon
funding of debt offerings, deferred costs are capitalized as debt issuance costs
and  amortized  using the  interest  method over the life of the  related  debt.
Miscellaneous assets include consulting and non-competition agreements which are
amortized  in  accordance  with  the  terms  of the  respective  agreements  and
contracts, generally not exceeding 5 years.


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



   Accrued closure and post-closure costs --

         Accrued  closure and  post-closure  costs  represent an estimate of the
current value of the future obligation  associated with closure and post-closure
monitoring  of  non-hazardous  solid  waste  landfills  currently  owned  and/or
operated by the Company. Site specific closure and post-closure engineering cost
estimates  are prepared  annually  for  landfills  owned and/or  operated by the
Company for which it is responsible for closure and post-closure.  The impact of
changes  determined to be changes in estimates,  based on the annual update, are
accounted for on a  prospective  basis.  The present  value of estimated  future
costs are accrued  based on accepted  tonnage as landfill  airspace is consumed.
Discounting of future costs is applied where the Company  believes that both the
amounts and timing of related payments are reliably determinable.

   Environmental costs --

         Allied  accrues for costs  associated  with  environmental  remediation
obligations when such costs are probable and reasonably estimable.  Accruals for
estimated  losses  from  environmental  remediation  obligations  generally  are
recognized no later than  completion  of the remedial  feasibility  study.  Such
accruals are adjusted as further information  develops or circumstances  change.
Costs of future expenditures for environmental  remediation  obligations are not
discounted to their present value. Recoveries of environmental remediation costs
from other  parties  are  recorded  when  their  receipts  are deemed  probable.
Environmental  liabilities and apportionment of responsibility among potentially
responsible  parties are accounted for in accordance with the guidance  provided
by the  Statement  of  Position  96-1 ("SOP  96-1")  "Environmental  Remediation
Liabilities".

   Other long-term obligations --

         Other long-term  obligations  include  non-competition  agreements with
former owners of acquired companies and deferred royalty obligations. Guaranteed
minimum royalty  obligations are recorded upon  acquisition of the related asset
whereas  royalty  obligations  dependent upon future waste accepted at landfills
are expensed as earned.

   Revenue --

         Advance  billings  are  recorded  as unearned  revenue,  and revenue is
recognized when services are provided.

   Acquisition related and unusual costs --

         During  1998,  the  Company  recorded  acquisition  related and unusual
charges in the  amount of $247.9  million.  These  charges  primarily  relate to
acquisitions accounted for as  poolings-of-interests  and consist of transaction
and deal costs,  employee severance and transition costs,  environmental related
matters,  litigation liabilities,  regulatory compliance matters,  restructuring
and  abandonment  costs  and loss  contract  provisions.  The  Company  does not
anticipate that future costs to be incurred in connection with 1998 acquisitions
will be  significant  as  restructuring  and  transition  activities  have  been
substantially  implemented as of December 31, 1998. The acquisition  related and
unusual charges consist of the following:

         Direct transaction and deal costs of $51.2 million including investment
         banker, attorney, accountant,  environmental assessment and other third
         party fees. Approximately $11.7 million is accrued at December 31, 1998
         and is expected to be paid in 1999.


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


         Employee  severance and  transition  costs of $73.6 million  consist of
         $39.3  million in  termination  payments  made to employees of acquired
         companies  based  on  change  of  control   provisions  in  preexisting
         contracts and $34.3 million of costs associated with severance payments
         under  exit  or  integration   plans  implemented  in  connection  with
         acquisitions  made during 1998. The exit and integration plans call for
         the termination of a total of  approximately  800 employees who have or
         are currently performing  managerial,  sales,  administrative  support,
         maintenance and repair, or hauling and landfill  operations duties. All
         employees were identified and notified of their severance or transition
         benefits at the time management approved the plan, which occurred at or
         around the time of the acquisitions. At December 31, 1998, the majority
         of employees  identified have been terminated and  approximately  $10.1
         million is accrued for benefits remaining to be paid in 1999.

         Environmental  related matters,  litigation  liabilities and regulatory
         compliance  matters  assumed in  acquisitions  totaled  $73.4  million.
         Subsequent  to  consummating  business  combinations  accounted  for as
         pooling-of-interests,  the Company made certain  changes in  accounting
         estimates  due to events and new  information  becoming  available  for
         environmental  liabilities of approximately  $41.1 million,  litigation
         liabilities of  approximately  $20.8 million and regulatory  compliance
         liabilities of approximately  $11.5 million.  Additional  environmental
         liabilities were accrued based on comprehensive  assessments  performed
         by third party and in-house  engineers of the operating  sites owned or
         used by the acquired companies at the time of acquisition and represent
         the most probable  outcome of these contingent  matters.  The change in
         estimate relating to litigation and regulatory  compliance  liabilities
         was accrued  based on legal due  diligence  performed  by in-house  and
         outside legal counsel of acquired  companies at the time of acquisition
         and the  determination  of the reasonably  probable loss  incurred.  At
         December  31,  1998,   approximately   $41.1  million  is  accrued  for
         environmental  matters,  which is  expected to be  disbursed  in future
         periods,  and  $15.8  million  is  accrued  for  legal  and  regulatory
         compliance liabilities to be paid in 1999.

         Restructuring  and  abandonment  costs  were  $42.1  million.  Costs to
         consolidate  or relocate  redundant  operations  and to  transition  to
         common  information  systems were $23.1 million.  Abandonment costs and
         losses on the disposal of duplicate  revenue  producing assets relating
         to specifically  identified transfer stations and recycling  facilities
         were $8.8 million.  Additionally,  $10.2 million of costs were incurred
         for  the  disposition  of  redundant   non-revenue   producing  assets,
         including acquired  companies'  corporate and  administrative  offices.
         Approximately  $7.6 million of relocation and  transition  costs remain
         accrued at December 31, 1998 and are expected to be paid in 1999.

         Loss contract  provisions were $7.6 million for losses  associated with
         collection  contracts  and other  contractual  obligations  assumed  in
         acquisitions.  Approximately $5 million remains accrued at December 31,
         1998 and is expected to be resolved in 1999.

         Acquisition  related and unusual costs in 1996 were $96.5  million.  In
connection with the 1996 acquisition of substantially  all of the  non-hazardous
solid  waste  management  business  conducted  by  Laidlaw  Inc.  (the  "Laidlaw
Acquisition"),  the  Company  incurred  approximately  $84.6  million in charges
primarily  associated with the acquisition,  which include  approximately  $51.5
million  of   environmental   related  matters  for   incremental   closure  and
post-closure measures,  remediation activities and litigation costs, expected to
be disbursed  over the next 30 years,  $18.4  million of asset  impairments  and
abandonments  consisting  of $10.8  million  related  to over 50  noncompetition
agreements  in  several  markets  where  the  counterparty  no  longer  poses  a
significant  threat,  $4.8 million for discontinued  facilities and $2.8 million
for market development  activities no longer being pursued, and $14.7 million of
acquisition  liabilities.  Any subsequent  changes in estimates to unusual costs
will be included in the  acquisition  related and unusual  costs  caption of the
statement of  operations  in the period in which the change in estimate is made.
To date,  no  significant  changes in estimates  have been made related to these
costs.





Asset Impairments

         During the fourth  quarter of 1998,  the  Company  recognized  non-cash
asset impairment  charges  aggregating  $69.7 million.  These charges related to
assets  held for future use and assets to be disposed of in the first and second
quarters of 1999.

         An impairment charge of $45.9 million,  with no associated tax benefit,
was recorded relating to goodwill of a waste transportation business recorded by
a company  recently  acquired  by  Allied.  In the fourth  quarter of 1998,  the
Company lost certain  hauling  agreements at an operating  district in its Great
Lakes  region  which  resulted  in a loss of  revenues  for the  district.  Upon
identifying this event, the Company evaluated  possible  impairment by comparing
estimated  future cash flows,  before  interest  expense and on an  undiscounted
basis,  to the  net  book  value  of  assets.  This  comparison  indicated  that
undiscounted cash flows were insufficient to recover assets and further analysis
was performed in order to determine the amount of the impairment.  In accordance
with SFAS 121, the Company  recorded an  impairment  loss equal to the amount by
which the carrying amount of the assets  exceeded their fair market value.  Fair
market value was  determined  based on the present  value of estimated  expected
future  cash flows over 38 years  using a discount  rate  commensurate  with the
risks involved,  which was 12% approximating the Company's weighted average cost
of capital.

         Additionally,  an  impairment  charge of $23.8 million was recorded for
the  write-down  to net  realizable  value less cost of disposal of assets to be
sold relating to non-core or non-integrated  operating districts. The ability to
successfully implement the Company's integration strategy is a key consideration
in determining  whether the Company will continue in a specific market or exit a
market.  In October  1998,  the Company  formalized  plans to dispose of certain
operating districts  considered  non-core or non-integrated  assets. The Company
has entered into agreements to sell these assets and in accordance with SFAS 121
recorded an  impairment  loss to reduce the carrying  value of the assets to net
realizable  value  including an accrual for the cost of disposal.  The sales are
expected to be consummated in the first and second quarters of 1999. The results
of operations before  depreciation and amortization of these operating districts
included in consolidated  operating income was  approximately  $4.4 million.  At
December 31, 1998,  the net assets  subject to sale totaled  $143.8  million and
have been  classified as assets held for sale in current  assets in the December
31, 1998 Consolidated Balance Sheet.

   Extraordinary loss --

1998:

       In December 1998, the Company  completed  tender offers to repurchase all
of its 1996 Notes (see Note 5) and all of its  Senior  Discount  Notes (see Note
5). An extraordinary  charge of approximately $201.2 million ($121.7 million net
of income tax  benefit)  related  to  prepayment  premiums  issued in the tender
offers  and the  write-off  of  previously  deferred  debt  issuance  costs  was
recognized in the fourth  quarter 1998. In addition,  in June 1998,  the Company
replaced  its  credit  facility  and  recognized  an  extraordinary   charge  of
approximately  $5.1 million ($3.1 million net of income tax benefit)  related to
the write-off of previously deferred debt issuance costs.


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



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

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

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

1996:

         In  May  1996,  the  Company  recognized  an  extraordinary  charge  of
approximately  $0.8 million  ($476,000  net of income tax benefit)  representing
unamortized deferred debt issuance costs related to refinanced obligations.

         In July 1996, the Company completed a tender offer (the "Tender Offer")
and  purchased  substantially  all of its $100  million 12% Senior  Subordinated
Notes due 2004 (the  "1994  Notes") at the  redemption  price of  $1,157.50  per
$1,000 note. An extraordinary  charge to earnings related to the Tender Offer of
approximately  $18.4  million  ($11.0  million  net of income tax  benefit)  was
charged to earnings in the third  quarter of 1996.  The Company also  received a
consent  from a  majority  of the  holders of the 1994  Notes to  eliminate  all
substantive financial covenants associated with the remaining 1994 Notes.

         In  December  1996,  the Company  refinanced  its $300  million  senior
revolving  credit  facility with the proceeds  from the senior  credit  facility
related to the Laidlaw  Acquisition  and recognized an  extraordinary  charge of
approximately $4.0 million ($2.4 million net of income tax benefit).



<PAGE>

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


   Statements of cash flows --

         The supplemental  cash flow  disclosures and non-cash  transactions for
the three years ended December 31, 1998 are as follows (in thousands):

<TABLE>
<CAPTION>

                                                                                      Year Ended December 31,
                                                                        ------------------------------------------
                                                                             1996         1997         1998
                                                                             ----         ----         ----
Supplemental Disclosures --
<S>                                                                     <C>           <C>           <C>        
   Interest paid (net of amounts capitalized).....................      $    22,941   $    86,125   $    62,386
   Income taxes paid..............................................            6,727        17,244        33,653

Non-Cash Transactions --
   Common stock, preferred stock or warrants
      issued in acquisitions or as commissions....................      $   164,764   $    73,570   $   124,854
   Capital leases.................................................           19,094        38,693         1,187
   Debt and liabilities incurred or assumed
      in acquisitions.............................................          214,451       207,806        65,409
   Debt converted to common stock ................................            5,485         2,265            --
   Non-cash purchase and sale of operating businesses ............               --       181,434            --
</TABLE>

   Use of estimates --

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

   Interest rate protection agreements --

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

   Fair value of financial instruments --

     The  following   disclosure  of  the  estimated  fair  value  of  financial
instruments  is made  in  accordance  with  the  requirements  of  Statement  of
Financial  Accounting  Standards ("SFAS") 107,  "Disclosures About Fair Value of
Financial  Instruments".  The Company's financial instruments as defined by SFAS
107 include cash, money market funds, accounts receivable,  accounts payable and
long-term  debt.  The estimated  fair value amounts have been  determined by the
Company at December 31, 1998 using  available  market  information and valuation
methodologies.  Considerable judgment is required in interpreting market data to
develop the  estimates  of fair value.  Accordingly,  the  estimates  may not be
indicative of the amounts that could be realized in a current  market  exchange.
The use of different market assumptions or valuation  methodologies could have a
material effect on the estimated fair value amounts.

         The carrying value of cash, money market funds, accounts receivable and
accounts  payable  approximate  fair values due to the short-term  maturities of
these instruments.

   Stock-based compensation plans --

         The  Company  accounts  for its  stock-based  compensation  plans under
Accounting  Principles  Board  Opinion 25,  ("APB 25").  Effective in January 1,
1996, the Company  adopted the disclosure  option of SFAS 123,  "Accounting  for
Stock-based  Compensation." SFAS 123 requires that companies, which do not elect
to account for stock-based compensation as prescribed by the statement, disclose
the pro forma effects on earnings and earnings per share as if SFAS 123 had been
adopted.   Additionally,   certain  other  disclosures  with  respect  to  stock
compensation  and the related  assumptions  are used to determine  the pro forma
effects of SFAS 123 (see Note 8).

   Recently issued accounting pronouncements --

         In  June  1998,  the  Financial   Accounting  Standards  Boards  issued
Statement of Financial  Accounting  Standards 133 - "Accounting  for  Derivative
Instruments and Hedging Activities".  This statement establishes  accounting and
reporting standards for derivative instruments, including derivative instruments
embedded in other contracts, and for hedging activities. The statement, which is
to be applied prospectively, is effective for the Company's quarter ending March
31,  2000.  The Company is  currently  evaluating  the impact of SFAS 133 on its
future results of operations and financial position.

         Effective  January 1, 1998, the Company adopted  Statement of Financial
Accounting Standards 130 Reporting Comprehensive Income. This statement requires
the Company to classify items of other comprehensive  income,  defined to be the
change in equity of the Company  during the period from  transactions  and other
events  and  circumstances  from  non-owner  sources,  in a  separate  financial
statement  and display the  accumulated  balance of other  comprehensive  income
separately from retained  earnings and additional  paid-in capital.  Adoption of
this standard did not have an effect on the Company's financial statements as it
has no items of other comprehensive income for any period presented.

         During 1998,  the American  Institute of Certified  Public  Accountants
issued  Statement  of  Position  98-5  ("SOP  98-5")  Reporting  on the Costs of
Start-Up  Activities.  SOP  98-5  requires  costs  of  start-up  activities  and
organization  costs to be expensed as incurred.  The new  statement is effective
for fiscal years beginning after December 15, 1998. The Company intends to adopt
this statement  effective  January 1, 1999.  Initial  application of SOP 98-5 is
required to be reported as the cumulative effect of a change in accounting.  The
Company believes that its adoption will have no impact on its financial position
or results of operations.


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



2.  Business Combinations
         Acquisitions accounted for as purchases are reflected in the results of
operations  since  the  date of  purchase  in  Allied's  consolidated  financial
statements.  The  results  of  operations  for  acquisitions  accounted  for  as
poolings-of-interests  are included in Allied's restated consolidated  financial
statements for all periods presented.  The final  determination of the cost, and
the allocation thereof, of certain of the Company's  acquisitions  accounted for
as  purchases  is subject to  resolution  of  certain  contingencies.  Once such
contingencies are achieved, the purchase price is adjusted.

         On  December  30,  1996,  the  Company  completed  the  acquisition  of
substantially all of the non-hazardous solid waste management business conducted
by  Laidlaw  in the  United  States  and  Canada,  for  total  consideration  of
approximately $1.5 billion comprised of cash, Common Stock, a warrant to acquire
Common Stock, and subordinated  debentures.  The cash consideration was financed
from the  proceeds of a senior  credit  facility  and the sale of the 1996 Notes
(see Note 5).

         The following table  summarizes  acquisitions for the three years ended
December 31, 1998, excluding the Laidlaw Acquisition:

<TABLE>
<CAPTION>
                                                                 1996              1997             1998
                                                                 ----              ----             ----
Number of businesses acquired accounted for as:
<S>                                                           <C>              <C>             <C>
Poolings-of-interests ....................................              5                9                19
Purchases ................................................             16               26                35
Total consideration (in millions) ........................    $     126.5      $     730.8     $     2,329.0
Shares of common stock issued (in millions)(1)............            8.9              7.0              79.5
<FN>

(1)  Includes 0.8 million,  0.4 million and 1.6 million shares of contingently  issuable common stock for the three years
     ended December 31, 1998, respectively.
</FN>
</TABLE>

         Revenues and net income have been restated for  acquisitions  accounted
for as poolings-of-interests as presented in the following table (in thousands):

<TABLE>
<CAPTION>
                                                         Allied
                                                         Before
                                                        Pooling               1998            Allied, as
                                                      Acquisitions          Poolings           Restated
                                                    ---------------        ----------          ---------

                       
<S>                                               <C>                 <C>                  <C>         
Year ended December 31, 1996   
   Revenues...................................... $         291,685   $         327,863    $    619,548
   Net loss......................................           (80,582)             14,273         (66,309)
Year ended December 31, 1997
   Revenues .....................................           875,028             465,633        1,340,661
   Net income....................................               412              23,630           24,042
Year ended December 31, 1998
   Revenues .....................................         1,189,139             386,473        1,575,612
   Net loss .....................................         (261,783)              38,731        (223,052)


</TABLE>

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



    Unaudited pro forma statement of operations data --

         The following table compares,  for the year ended December 31, 1997 and
1998,  reported  consolidated  results  of  operations  to  unaudited  pro forma
consolidated data as if all of the companies acquired in 1997 and 1998 accounted
for using the purchase  method for  business  combinations  were  acquired as of
January 1, 1997 (in thousands, except per share data):

<TABLE>
<CAPTION>
                                                                  1997                             1998
                                                    ------------------------------   ------------------------------
                                                       Restated        Pro Forma        Reported        Pro Forma
                                                       ----------      ----------       ---------       ---------
<S>                                                 <C>             <C>              <C>             <C>         
Revenues ........................................   $   1,340,661   $   1,439,615    $   1,575,612   $  1,602,815
Net income (loss) before extraordinary item......          77,247          76,626         (98,251)      (103,556)
Net income (loss) before extraordinary item
   to common shareholders........................          76,866          76,245         (98,251)      (103,556)
Net income (loss) before extraordinary item
   per common share - basic......................            0.47            0.46           (0.54)         (0.56)
Net income (loss) before extraordinary item                                           
   per common share - diluted ...................            0.44            0.44           (0.54)         (0.56)
<FN>

         This  data  does  not  purport  to be  indicative  of  the  results  of
operations  of Allied  that might have  occurred  nor which  might  occur in the
future.
</FN>
</TABLE>

3.  Assets Held for Sale
         The  ability  to   successfully   implement  the   Company's   vertical
integration  business plan is a key  consideration  in  determining  whether the
Company will continue to operate in a specific  market.  In the normal course of
business,  the Company has exited markets in which the execution of the vertical
integration  business plan was not  practicable.  In October  1998,  the Company
formalized  plans to dispose of certain  operating  districts  that  represented
non-core or  non-integrated  assets.  The Company has entered into agreements to
sell these assets and in accordance with SFAS 121 recorded an impairment loss to
reduce the carrying  value of the assets to net  realizable  value  including an
accrual for the cost of disposal.  The sales are expected to be  consummated  in
the first and second quarters of 1999.

         The results of operations before depreciation and amortization of these
operating  districts  included in consolidated  operating  income, in accordance
with SFAS 121, was approximately $4.4 million. During the period from October 1,
1998  through  December  31,  1998,  the  Company  excluded  from   consolidated
statements  of  operations,  in  accordance  with  SFAS  121,  depreciation  and
amortization  relating to assets held for sale in the amount of $2.7 million. At
December 31, 1998, the net assets subject to sale totaled $143.8 million,  which
are  classified  as assets held for sale in current  assets on the  Consolidated
Balance Sheets and are summarized as following (in thousands):

    Accounts receivable, net ...........        $  16,608
    Other current assets................            4,460
    Property and equipment, net ........           55,869
    Costs in excess of net assets
    acquired, net ......................          106,214
    Other long-term assets..............            1,595
    Current liabilities ................          (1,785)
    Long-term liabilities ..............         (39,211)
                                                 --------
    Total net assets....................        $ 143,750
                                                =========


4.   Property and Equipment

     Property  and  equipment  at December  31, 1997 and 1998 was as follows (in
thousands):
<TABLE>
<CAPTION>

                                                                        1997               1998
                                                                        ----               ----
<S>                                                              <C>                 <C>             
Land and improvements .................................          $        129,881    $        168,569
Land held for permitting as landfills(1)...............                    79,253              95,463
Landfills .............................................                   901,026           1,063,598
Buildings and improvement..............................                   150,247             162,989
Vehicles and equipment.................................                   473,827             500,811
Containers and compactors..............................                   198,456             247,173
Furniture and office equipment ........................                    14,171              18,655
                                                                 ----------------    ----------------
                                                                        1,946,861           2,257,258
Accumulated depreciation and amortization .............                 (363,728)           (481,233)
                                                                 ----------------    ----------------
                                                                 $      1,583,133    $      1,776,025
                                                                 ================    ================
<FN>

         (1) These  properties have been approved for use as landfills,  and the
             Company is  currently  in the process of  obtaining  the  necessary
             permits.
</FN>
</TABLE>


<PAGE>

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


5.  Long-Term Debt

      Long-term debt at December 31, 1997 and 1998 consists of the following (in
thousands):
<TABLE>
<CAPTION>

                                                                                 1997                1998
                                                                                 ----                ----
                                           
<S>                                                                      <C>                 <C>             
Senior credit facilities, weighted average interest
  at 7.5% and 6.0%, respectively .................................       $        438,000    $        300,000
Senior subordinated notes, interest at 10.25% ....................                525,000                  --
Senior discount notes, interest at 11.3% .........................                254,690                  --
Senior notes, interest at 7.375% .................................                     --             224,669
Senior notes, interest at 7.625%..................................                     --             600,000
Senior notes, interest at 7.875% .................................                     --             873,478
Notes payable to related parties at rates ranging
  from 5.74% to 12%, repaid during 1998...........................                 12,374                  --
Notes payable to banks, finance companies, and
  individuals,  weighted  average interest rate of 8.6% and 6.3% 
  at December 31, 1997 and 1998,  respectively  and principal  
 payable through 2014,  secured by vehicles, equipment, real estate,
  accounts receivable or stock of certain subsidiaries............                230,044              87,376
Notes payable to individuals and a commercial
  company, interest at 5%-10%, principal and
  interest payable through 2006, unsecured .......................                 30,247              18,296
Obligations under capital leases of vehicles and
  equipment, weighted average interest at 7.8%
  and 8.1% at December 31, 1997, and 1998,                                                    
  respectively, payable monthly ..................................                 71,001              36,624
                                                                         ----------------    ----------------

                                                                                1,561,356           2,140,443
Current portion...................................................                 68,996              21,516
                                                                         ----------------    ----------------
                                                                         $      1,492,360    $      2,118,927
                                                                         ================    ================
</TABLE>

     In connection with the Laidlaw  Acquisition,  Allied NA (as defined herein)
issued  $525  million of 10.25%  Senior  Subordinated  Notes due 2006 (the "1996
Notes") in a Rule 144A offering  which was  subsequently  registered  for public
trading with the SEC. The 1996 Notes were repaid in December 1998.

         In May 1997, Allied issued $418 million aggregate face amount of senior
discount  notes  (the  "Senior  Discount  Notes)  in a 144A  offering  which was
subsequently  registered  for public  trading with the SEC. The Senior  Discount
Notes were issued at a discount of principal  amount and,  were  registered  for
public trading with the SEC in July 1997 and repaid in December 1998.

         In June 1997,  the Company  entered into a credit  agreement (the "1997
Credit  Agreement").  The 1997 Credit Agreement provides a six and one-half year
senior  secured  $500 million  term loan  facility  and a six and one-half  year
senior secured $400 million revolving credit facility.


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


         On September 30, 1997, the Company repaid $203 million on the term loan
facility and $71 million  outstanding  on the revolving  credit  facility of the
1997 Credit  Agreement.  In connection with this repayment,  the Company amended
the 1997 Credit Agreement in October 1997, providing for a six and one-half year
senior  secured $297 million  funded term loan  facility,  a senior secured $200
million delayed draw term loan facility to finance certain acquisitions prior to
March 31, 1998, and a senior secured $600 million  revolving credit facility due
December 2003.

           In June 1998 the Company repaid $486.8 million  outstanding under the
1997 Credit  Agreement  and entered  into the Senior  Credit  Facility  (defined
herein).  The Senior  Credit  Facility  provides a $800 million five year senior
secured  revolving credit facility (the "Revolving  Credit Facility") and a $300
million five year senior  secured term loan facility  (the "Term Loan  Facility"
and together with the Revolving Credit Facility,  the "Senior Credit Facility").
The Term Loan  Facility is a funded,  amortizing  senior  secured term loan with
annual principal  payments  increasing from $75 million in 2001, to $105 million
in 2002,  and to $120  million in 2003.  Principal  under the  Revolving  Credit
Facility is due upon maturity.

           Borrowings   under  the  Senior  Credit  Facility  may  be  used  for
acquisitions,  the  issuance  of letters of credit,  working  capital  and other
general  corporate  purposes.  Of the $800 million available under the Revolving
Credit  Facility,  no more than $250 million may be used to support the issuance
of letters of credit.

           The Senior Credit Facility bears interest,  at the Company's  option,
at the lesser of (a) a Base Rate, or (b) a Eurodollar  Rate,  both terms defined
in the Senior Credit  Facility,  plus, in either case, an agreed upon applicable
margin.  The applicable  margin will be adjusted from time to time pursuant to a
pricing grid based upon the Company's  Total Debt to EBITDA ratio, as defined in
the Senior Credit  Facility,  and varies between zero percent and 0.50% for Base
Rate loans, and 0.75% and 1.75% for Eurodollar loans.

         In December 1998, Allied Waste North America, Inc. ("Allied NA") issued
an aggregate of $1.7 billion of senior notes  consisting  of $225 million 7 3/8%
senior notes due 2004 (the "Five Year Senior Notes"), $600 million 7 5/8% senior
notes due 2006 (the "Seven Year  Senior  Notes") and $875  million 7 7/8% senior
notes due 2009 (the "Ten Year Senior  Notes" and  collectively  the "1998 Senior
Notes") in a Rule 144A offering  which were  subsequently  registered for public
trading with the Securities and Exchange Commission (the "SEC") in January 1999.
Interest  accrues  on the 1998  Senior  Notes at a  weighted  average  effective
interest rate of 7.74% per annum, payable  semi-annually on January 1 and July 1
beginning  on July 1, 1999.  The  Company  used the net  proceeds  from the 1998
Senior  Notes to fund the  purchase  of the 1996 Notes and the  Senior  Discount
Notes  pursuant to tender  offers the  Company  commenced  in November  1998 and
completed in December  1998, to repay  borrowings  outstanding  under the Senior
Credit Facility and certain capital lease obligations, and for general corporate
purposes.  The 1998 Senior Notes are guaranteed by the Company and substantially
all of Allied NA's current and future subsidiaries,  the guarantees of which are
expressly subordinated to the guarantees of Allied NA's Credit Agreement.


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



   Future maturities of long-term debt --

         Aggregate  future  maturities of long-term debt outstanding at December
31, 1998 (in thousands):

                Maturity                      1998
                --------                      ----
                  1999             $           21,516
                  2000                         20,093
                  2001                         84,625
                  2002                        117,496
                  2003                        125,306
                 Thereafter                 1,771,407
                                            ---------- 
                                   $        2,140,443
                                            ========== 

         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, 1998 (in thousands):
<TABLE>
<CAPTION>

                                                                    1998
                                         -----------------------------------------------------------
                 Maturity                  Principal               Interest                 Total
                 --------                  ---------               --------                 -----
                   <S>                   <C>                    <C>                     <C>          
                   1999                  $       5,779          $       2,383           $       8,162
                   2000                          4,280                  2,032                   6,312
                   2001                          5,234                  1,806                   7,040
                   2002                          9,023                  2,163                  11,186
                   2003                          2,398                    915                   3,313
                    Thereafter                   9,910                  8,180                  18,090
                                         -------------          -------------           -------------
                                         $      36,624          $      17,479           $      54,103
                                         =============          =============           =============
</TABLE>

   Fair value of debt --

         The  Company's  1996 Notes had a fair value of $577.5  million  and the
Senior  Discount  Notes had a fair value of $292.6  million at December 31, 1997
based upon quoted market prices.  The Company's 1998 Senior Notes had a value of
$1.717  billion at  December  31,  1998 based upon  quoted  market  prices.  The
Company's management believes the carrying value of all remaining long-term debt
approximates fair value.

   Interest rate protection agreements --

         The Company has entered into interest rate  protection  agreements (the
"Agreements"),  with reputable national  commercial banks and investment banking
institutions to reduce its exposure to fluctuations in variable  interest rates.
A summary of the  Agreements  outstanding  as of December 31, 1998 is as follows
(update):
<TABLE>
<CAPTION>

     Notional                                                                                                 Fair
    Principal                           Interest                 Underlying                  Interest     Market Value
  (in thousands)         Maturity         Paid                   Obligations                 Received    (in thousands)
------------------- ------------------- ---------- ---------------------------------------- ------------ ----------------
<S>                 <C>                  <C>        <C>                                         <C>       <C>        
   $   50,000       April 1999           5.12%      Credit Agreement Term Loan Facility         Libor     $       6.0
       50,000       October 1999         6.02       Credit Agreement Term Loan Facility         Libor           497.4
       50,000       November 1999        5.90       Credit Agreement Term Loan Facility         Libor           442.9
       50,000       November 1999        5.91       Credit Agreement Term Loan Facility         Libor           439.5
       50,000       March 2000           6.06       Credit Agreement Term Loan Facility         Libor           618.5
       50,000       September 2000       6.08       Credit Agreement Term Loan Facility         Libor           894.3

</TABLE>


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


         The Agreements  effectively  change the Company's interest rate paid on
its  floating  rate  long-term  debt  to  a  weighted   average  fixed  rate  of
approximately  5.85% plus applicable  margins imposed by the terms of the Credit
Agreement at December 31, 1998.  The fair value of the Agreements as of December
31, 1998 was  approximately  $2.9 million,  which reflects the estimated amounts
that the Company  would pay to terminate the  Agreements  based on quoted market
prices of comparable contracts as of December 31, 1998.

   Debt covenants --

         The  Company's  Senior  Credit  Facility,  contains  certain  financial
covenants,  including,  but not  limited  to, an EBITDA  ratio,  a fixed  charge
coverage  ratio and an interest  expense  coverage  ratio.  Additionally,  these
covenants  limit  among  other  things,  the  ability of the  Company and of its
subsidiaries to incur additional  indebtedness and liens,  make acquisitions and
purchase  fixed assets above  certain  amounts,  pay  dividends,  make  optional
prepayments on certain  subordinated  indebtedness,  make investments,  loans or
advances,  enter into  certain  transactions  with  affiliates  or  consummate a
merger,  consolidation  or sale of all or  substantially  all of its assets.  At
December 31, 1998,  Allied was in compliance with all applicable  covenants.  In
connection with the acquisition of  Browning-Ferris  Industries,  Inc. (see Note
16), the Company intends to replace the Senior Credit Facility.

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

         Substantially all subsidiaries of the Company are jointly and severally
liable for the  obligations  under the 1998 Senior  Notes and the Senior  Credit
Facility  through   unconditional   guarantees  issued  by  current  and  future
subsidiaries  which  are all,  except  in one minor  case,  wholly-owned  by the
Company. In addition, the Senior Credit Facility is secured by substantially all
the  personal  property  and a pledge of the stock of  substantially  all of the
Company's present and future subsidiaries.

6.    Closure, Post-Closure and Environmental Costs

   Closure and post-closure costs --

         The net present  value of the closure and  post-closure  commitment  is
calculated  assuming  inflation  of 2.0% and a risk-free  capital  rate of 6.5%.
Discounted  amounts  previously  recorded are accreted to reflect the effects of
the passage of time. The Company's current estimate of total future payments for
closure and  post-closure,  in  accordance  with  Subtitle  D, is $1.2  billion,
adjusted for inflation, as shown below, while the present value of such estimate
is $396.5  million.  At December 31, 1997 and 1998,  respectively,  accruals for
landfill  closure  and  post-closure  costs  (including  costs  assumed  through
acquisitions) were approximately $144.6 million and $154.5 million. The accruals
reflect  relatively young landfills whose estimated  remaining  lives,  based on
current waste flows,  range from 1 to over 75 years,  with an estimated  average
remaining life of greater than 30 years.


<PAGE>

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

         The  Company's  estimate  of total  future  payments  for  closure  and
post-closure  liabilities  for  currently  owned and  operated  landfills  is as
follows (in thousands):

               1999                 $           28,938
               2000                             25,218
               2001                             13,264
               2002                             19,960
               2003                             20,646
               Thereafter                    1,119,766
                                          ------------
                                    $        1,227,792
                                          ============

   Environmental costs --

         In connection  with the  acquisition  of companies,  Allied  engages an
independent   environmental   consulting   firm  to  assist  in   conducting  an
environmental  assessment  of companies  acquired  from  third-parties.  Several
contaminated  landfills and other  properties were  identified  during 1998 that
would require  Allied to incur costs for  incremental  closure and  post-closure
measures,  remediation  activities and litigation costs in the future.  Based on
information  available  to the  Company,  Allied  recorded a provision  of $41.1
million for  environmental  matters,  in the 1998  statement of  operations  and
expects these amounts to be disbursed over the next 30 years.

         The ultimate amounts for environmental liabilities cannot be determined
and estimates of such liabilities made by the Company,  after  consultation with
its independent environmental engineers, require assumptions about future events
due to a number of uncertainties including the extent of the contamination,  the
appropriate  remedy,  the financial  viability of other potentially  responsible
parties and the final  apportionment  of  responsibility  among the  potentially
responsible parties. Where the Company has concluded that its estimated share of
potential liabilities is probable, a provision has been made in the consolidated
financial  statements.  Since the ultimate  outcome of these  matters may differ
from the  estimates  used in the  Company's  assessment  to date,  the  recorded
liabilities  will be periodically  evaluated as additional  information  becomes
available to ascertain that the accrued  liabilities  are adequate.  The Company
has  determined  that the recorded  liability  for  environmental  matters as of
December 31, 1997 and 1998 of  approximately  $63.8  million and $93.4  million,
respectively,  represents the most probable outcome of these contingent matters.
The Company does not expect that adjustments to estimates,  which are reasonably
possible  in the near term and that may result in changes to  recorded  amounts,
will have a material effect on the Company's consolidated  liquidity,  financial
positions or results of operations.


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


7.  Stockholders' Equity

         The authorized,  issued and outstanding shares of the Company's classes
of capital stock were as follows (in thousands, except per share data):

<TABLE>
<CAPTION>
                                                                                      Issued and Outstanding
                                                                                          At December 31,
                                                                                     --------------------------
                                                   Liquidation
                                                    Preference        Authorized
                                                    Per Share           Shares           1997          1998
                                                    ---------           ------           ----          ----
   
<S>                                              <C>                     <C>            <C>           <C>       
    Preferred stock, $.10 par - 
     Series C Convertible ...............        $          10              800              --            --
     Series D Convertible ...............                   15              267              --            --
     Series E Convertible ...............                5,000                3              --            --
     9% Cumulative Convertible ..........                1,000               30              --            --
     $90 Cumulative Convertible .........                1,000               20              --            --
     7% Cumulative Convertible ..........                1,000              100              --            --
   Common stock, $0.01 par, net of
     570 treasury shares.................                   --           300,000        181,406       184,495
</TABLE>

         In October 1998,  the Company's  shareholders  approved an amendment to
the Restated  Certificate of  Incorporation to increase the number of authorized
shares of common stock from 200 million to 300 million.

     The Company had declared and accrued  dividends on preferred  stock of $1.1
million and $381,000 in 1996 and 1997, respectively.

         During 1996,  the Series D preferred  stock and 9% preferred  stock was
converted into Common Stock.  During 1997, the 7% preferred  stock was converted
into Common Stock.

Warrants to purchase common stock --
<TABLE>
<CAPTION>

 Warrants to purchase common shares at December 31, 1997 and 1998 are summarized as follows:
                                                        1997                  1998
                                                        -----                ------ 
<S>                                                    <C>                   <C>    
     Number of shares...........................       858,942               647,827
     Purchase price per share...................     $4.60 - $7.00         $4.60 - $5.25
     Expiration Dates...........................      1998 - 2005           1999 - 2003
</TABLE>

         In  connection  with the  Laidlaw  Acquisition,  the  Company  issued a
warrant to Laidlaw for the purchase of  20,400,000  shares of Common Stock at an
exercise  price of $8.25 per share.  The Company  repurchased  this warrant from
Laidlaw during 1997 for $49 million.


<PAGE>

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


8.  Stock Option Plans

         The 1991 Incentive  Stock Plan ("1991 Plan"),  the 1993 Incentive Stock
Plan ("1993 Plan") and the 1994  Incentive  Stock Plan ("1994 Plan") provide for
the grant of  non-qualified  stock options,  incentive stock options,  shares of
restricted stock, shares of phantom stock and stock bonuses.  The maximum number
of shares  which may be granted  under the 1991 Plan may not exceed  7.5% of the
number of common shares  outstanding  at the end of a preceding  fiscal  quarter
(10,292,056 shares at December 31, 1998). An additional maximum number of shares
of 500,000 and  1,000,000  common  shares may be granted under the 1993 Plan and
the 1994 Plan,  respectively.  The  exercise  price,  term and other  conditions
applicable to each option granted are generally  determined by the  Compensation
Committee of the Board of Directors.

         The 1994 Amended and Restated  Non-Employee  Director Stock Option Plan
provides for the grant of  non-qualified  options to each member of the Board of
Directors,  who is not also an employee of the Company,  at a price equal to the
fair market value of a common share on the date of grant.  The maximum number of
shares which may be granted under the plan is 750,000 common shares. All options
granted under the plan are fully vested and exercisable on the date of grant and
expire ten years from the grant date.


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



     A summary of the status of the Company's stock option plans at December 31,
1996,  1997 and 1998 and for the years then ended is  presented in the table and
narrative below:
<TABLE>
<CAPTION>

                                                            Years Ended December 31,
                           --------------------------------------------------------------------------------------------

                                       1996                          1997                           1998
                                       -----                         -----                          ----
                                              Weighted                      Weighted                       Weighted
                                              Average                       Average                        Average
                                              Exercise                      Exercise                       Exercise
                               Options         Price         Options         Price         Options           Price
                              --------        -------       --------         -------      ---------        -------
     
<S>                             <C>              <C>          <C>               <C>           <C>             <C>  
     Options                                                                                                
      outstanding,
      beginning     
      of period.............    3,910,908        $4.89        5,449,036         $6.10         8,831,266       $8.24
     Options
      granted...............    1,826,552         8.46        3,961,100         10.86         3,656,562       22.29
     Options
      exercised.............     (282,289)        4.53        (437,780)          6.04       (1,701,828)        8.50
     Options
      terminated............      (6,135)         6.54        (141,090)          9.10                --          --
                                  -------                     ---------                      ----------     
                                                                                                     
   Options
      outstanding,
      end of period........     5,449,036         6.10        8,831,266          8.19        10,786,000       19.71
                                =========                     =========                      ==========
   Options
      exercisable,
      end of period........     2,170,086         5.19        3,498,598          6.67         6,220,735       11.02
</TABLE>

         The Company accounts for its stock-based  compensation  plans under APB
No. 25, under which no compensation expense has been recognized,  as all options
have  been  granted  with an  exercise  price  equal  to the  fair  value of the
Company's Common Stock upon the date of grant. In 1996, the Company adopted SFAS
No. 123 for  disclosure  purposes.  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:
<TABLE>
<CAPTION>

                                                                         For the Years Ended December 31,
                                                             ----------------------------------------------------------
                                                                 1996                   1997                   1998
                                                                 ----                   ----                   ----
<S>                                                              <C>                    <C>              <C>      
   Risk free interest rate........................               5.2% to 6.7%           5.8% to 7.6%     4.7% to 5.6%
   Expected life..................................                  5-8 years                5 years          5 years
   Dividend rate..................................                         0%                     0%               0%
   Expected volatility............................                        49%             25% to 50%       44% to 46%

</TABLE>


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


         Using  these  assumptions,  pro forma net income  (loss) and net income
(loss) per share would reflect additional  compensation  expense recognized over
the  vesting  periods  of the  options.  The pro forma  income  (loss)  for 1997
includes the impact of certain Allied options whose vesting  accelerated in 1997
due to a change  in  control  related  to an  equity  financing  transaction  in
connection  with the Laidlaw  Acquisition.  The pro forma income (loss) for 1998
includes  the impact of certain ADSI options that vested in 1998 due to a change
in control related to the ADSI  acquisition.  The resulting pro forma net income
(loss), and pro forma net income (loss) per share is as follows (in thousands):
 
<TABLE>
<CAPTION>
                                                                               For the Years Ended December 31,
                                                                          ----------------------------------------------
                                                                            1996            1997             1998
                                                                            ----            ----             ----
<S>                                                                     <C>            <C>              <C>         
    Net income (loss):                           As reported            $ (66,309)     $   24,042       $  (223,052)
                                                 Pro forma                (68,583)         11,329          (229,928)

    Net income (loss) per share:                 As reported            $   (0.51)           0.14             (1.22)
                                                 Pro forma                  (0.52)           0.07             (1.26)
</TABLE>

         The  following  tables  summarize   information   about  stock  options
outstanding  at December 31, 1998 which are fully vested,  partially  vested and
non-vested:
<TABLE>
<CAPTION>

    Fully Vested:
    ------------
                                          Options Outstanding and Exercisable
                                        --------------------------------------
                                                      Number               Weighted Average         Weighted Average
            Range of Exercise Prices               Outstanding             Remaining Life           Exercise Price
            ------------------------          -------------------         --------------           --------------
                  <S>                                  <C>                  <C>                       <C>  
                  $3.00 - $7.75                        2,681,743            4 years                   $5.01
                 $8.38 - $12.25                          776,294            6 years                  $10.21
                 $16.03 - $21.36                         421,809            5 years                  $18.20
                 $21.97 - $27.27                       1,074,214            3 years                  $25.58
</TABLE>
<TABLE>
<CAPTION>

    Partially Vested:
    ----------------- 
                                                 Options Outstanding
                                                 --------------------          
                                                     Number                Weighted Average         Weighted Average
            Range of Exercise Prices               Outstanding             Remaining Life           Exercise Price
            ------------------------         ---------------------        --------------           --------------
                 <S>                                   <C>                  <C>                       <C>  
                 $6.88 - $10.00                        3,332,040            8 years                   $9.55
                 $11.38 - $15.88                         200,000            9 years                  $14.98
</TABLE>
<TABLE>
<CAPTION>

                                                 Options Exercisable
                                                 -------------------

                                                    Number               Weighted Average         Weighted Average
            Range of Exercise Prices              Outstanding             Remaining Life           Exercise Price
            ------------------------         ----------------------       --------------           --------------
                 <S>                                   <C>                  <C>                       <C>  
                 $6.88 - $10.00                        1,221,342            8 years                   $9.30
                 $11.38 - $15.88                          45,333            9 years                  $14.55
</TABLE>
<TABLE>
<CAPTION>

    Non Vested:
   ------------
                                                      Options Outstanding  
                                                      ------------------- 
                                                      Number           Weighted Average         Weighted Average
            Range of Exercise Prices                Outstanding           Remaining Life           Exercise Price
            ------------------------           --------------------    --------------           --------------
                  <S>                                  <C>                 <C>                       <C>  
                  $4.27 - $6.88                           59,067            5 years                   $5.30
                 $9.50 - $18.94                          113,300            8 years                  $12.35
                 $21.06 - $21.19                       2,127,533           10 years                  $22.60
</TABLE>


<PAGE>

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





9.  Net Income (Loss) Per Common Share

         Net income (loss) per common share is calculated by dividing net income
(loss),  less dividend  requirements on preferred stock, by the weighted average
number of common  shares and common share  equivalents  outstanding  during each
period   as    restated    to   reflect    acquisitions    accounted    for   as
poolings-of-interests.  The  computation of basic earnings per share and diluted
earnings per share is as follows (in thousands, except per share data):
<TABLE>
<CAPTION>

                                                                          For the Years Ended December 31,
                                                                 ----------------------------------------------------
                                                                       1996             1997              1998
                                                                       ----             ----              ----
  Basic earnings per share computation:
<S>                                                              <C>               <C>              <C>       
    Income (loss) before extraordinary item..................... $ (52,422)        $   77,247       $ (98,251)
  
    Less:  Preferred stock dividends ...........................    (1,073)             (381)               --
                                                                 -----------       -----------      -----------
    Income (loss) before extraordinary item
      available to common shareholders ......................... $ (53,495)         $  76,866       $ (98,251)
                                                                 ===========       ===========      ===========

      Weighted average common shares
       outstanding during the period ...........................    132,967           164,888         182,796
                                                                 ===========       ===========      ===========

  Basic earnings per share before extraordinary item ........... $     (0.40)      $       0.47     $     (0.54)
                                                                 ============      ============     ============

  Diluted earnings per share  computation:
  Income (loss) before extraordinary item
      available to common shareholders..........................  $ (53,495)        $   76,866      $  (98,251)
                                                                  ==========        ==========      ===========

  Weighted average common
    shares outstanding during the                                    132,967           164,888          182,796
  period........................
  Effect of stock options and warrants,
    assumed exercised...........................................          --             6,657               --
  Effect of shares assumed issued
    pursuant to earn-out agreement..............................          --             1,413               --
                                                                 -----------       -----------      -----------
  Total shares..................................................     132,967           172,958          182,796
                                                                 ===========       ===========      ===========
  

  Diluted earnings per share before
    extraordinary item.......................................... $      (0.40)     $       0.44     $      (0.54)
                                                                 =============     ============     =============
</TABLE>

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

         In 1997, the Company  adopted SFAS 128 "Earnings per Share,"  effective
December 15, 1997. As a result,  the Company's  reported  earnings for 1996 were
restated.  This accounting change had no material effect on previously  reported
earnings per share data.


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



10.  Income Taxes

         The Company  accounts for income taxes using a balance  sheet  approach
whereby  deferred  tax  assets  and  liabilities  are  determined  based  on the
differences  in financial  reporting and income tax basis of assets,  other than
non-deductible goodwill, and liabilities. The differences are measured using the
income tax rate in effect during the year of measurement.

         The Company and its subsidiaries file a consolidated federal income tax
return.  As of December 31, 1998,  Allied had a net operating loss  carryforward
("NOLC") for federal income tax purposes of  approximately  $65.5  million.  The
NOLC,  which expires  beginning in 2004,  is available to offset future  taxable
income subject to potential limitations.

The  components  of the  income  tax  provision  consist  of the  following  (in
thousands):
<TABLE>
<CAPTION>

                                                                       Year Ended December 31,
                                                              ------------------------------------------
                                                                 1996            1997            1998
                                                                 ----            ----            ----
<S>                                                          <C>            <C>             <C>        
      Current tax provision .............................    $     1,600    $    78,418     $     2,000
      Deferred provision (benefit) ......................        (1,246)       (38,141)          41,773
                                                             -----------    -----------     -----------
      Total..............................................    $       354    $    40,277     $    43,773
                                                             ===========    ===========     ===========
</TABLE>

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

<TABLE>
<CAPTION>
                                                                              Year Ended December 31,
                                                                   ------------------------------------------------
                                                                        1996            1997            1998
                                                                        ----            ----            ----
<S>                                                                    <C>             <C>            <C>      
      Federal statutory tax rate ..........................            (35.0)  %       35.0 %         (35.0)  %
      Consolidated state taxes, net of federal benefit ....             (5.0)           3.1             9.2
      Taxes of pooled companies ...........................              2.0           (5.1)           70.6
      Amortization of goodwill.............................              2.3            0.6             3.7
      Book goodwill  associated with
        asset impairments..................................               --             --            28.8
      Potential tax goodwill greater than book
        goodwill..........................................              34.7             --              --
      Other permanent differences .........................              1.7            0.7             3.0
                                                                    ---------      ---------       --------
      Effective tax rate...................................              0.7  %        34.3 %          80.3 %
                                                                    ========       ========        ========
</TABLE>

         Tax benefits on the extraordinary  items in 1997 and 1998 were based on
the Company's  then ordinary  combined  federal and state rate of 40% and 39.5%,
respectively.

         The net current  deferred tax asset of $7.7 million and $44.1  million,
as of December 31, 1997 and 1998,  respectively,  includes  the current  benefit
expected to be obtained  from the  utilization  of the  Company's  NOLCs and its
alternative minimum tax credits.  These amounts include a valuation allowance of
$3.1 million,  as of December 31, 1997 and 1998 to reflect possible  limitations
on the  ability to use NOLCs.  The  Company has  determined  that no  additional
valuation  allowance is needed at December 31, 1998 because the Company believes
the asset is more likely than not realizable.  This determination is based on an
analysis of the Company's  recent  operating  results,  considering  unusual and
non-recurring items, and anticipated future earnings.



         The components of the net deferred tax asset (liability) are as follows
(in thousands):
<TABLE>
<CAPTION>

                                                                              Year Ended December 31,
                                                                           ------------------------------
                                                                                1997           1998
                                                                                ----           ----
      
<S>                                                                        <C>             <C>          
      Deferred tax liability relating primarily to property
        consisting of landfill assets and debt basis differences........   $    (24,555)   $   (120,942)
                                                                           -------------   -------------

      Deferred tax assets relating to:
        Closure and post-closure reserves...............................           1,194          23,995
        Other, primarily reserves and estimated expenses ...............           2,961         120,293
        Net operating loss and minimum tax credit carry forwards........          10,728          35,940
        Valuation allowance.............................................         (3,076)         (3,076)
                                                                           -------------   -------------
        Total deferred tax asset........................................          11,807         177,152
                                                                           -------------   -------------
      Net deferred tax asset (liability)................................   $    (12,748)   $      56,210
                                                                           =============   =============
</TABLE>

         The change in the long-term  deferred tax liability  includes  deferred
taxes related to 1998 acquisitions  where the financial basis of assets acquired
differed from the tax basis of those assets.

11.  Commitments and Contingencies

         The Company is subject to extensive and evolving  laws and  regulations
and has  implemented its own  environmental  safeguards to respond to regulatory
requirements.  In the normal course of  conducting  its  operations,  Allied may
become involved in certain legal and administrative  proceedings.  Some of these
actions may result in fines,  penalties or judgements  against the Company which
may have an impact on earnings for a particular period.  Management expects that
such  matters in process at December 31, 1998 which have not been accrued in the
consolidated  balance  sheet  will not have a  material  adverse  effect  on the
Company's consolidated liquidity, financial position or results from operations.

         In connection with the Laidlaw  Acquisition,  Laidlaw  disclosed to the
Company the existence of a tax controversy relating to disallowed  deductions in
income tax returns with the United States Internal  Revenue Service (the "IRS").
In the first  quarter of 1999,  Laidlaw  negotiated a settlement of the tax case
with the IRS. The total net after tax cash cost will be $226 million. The amount
includes $121 million in taxes together with interest  penalties of $161 million
($105 million after tax). The agreement satisfies  assessments upheld in the tax
court  opinion  received on July 1, 1998, in reference to the years 1986 through
1988, as well as claims  asserted by the IRS for the six subsequent  years (1989
through 1994) of a nine-year Netherlands-based financial program.

         The Company has obtained an  indemnity  from Laidlaw and certain of its
subsidiaries  (the "Laidlaw Group") which covers the amounts at issue in the tax
controversy  for which any direct or indirect  subsidiary that was acquired from
Laidlaw in 1996 may  ultimately be found liable.  The  obligation of the Laidlaw
Group to  indemnify  the  Company  in  respect  of  amounts  at issue in the tax
controversy is a general, unsecured obligation of the Laidlaw Group.

         In connection with certain  acquisitions,  the Company has entered into
agreements  to pay  royalties  based  on waste  tonnage  disposed  at  specified
landfills. The royalties are generally payable quarterly and amounts earned, but
not paid are accrued in the accompanying consolidated balance sheets.


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


                  Allied has operating lease agreements for service  facilities,
office  space  and  equipment.  Future  minimum  payments  under  non-cancelable
operating leases with terms in excess of one year are as follows (in thousands):
                                December 31, 1998
                              --------------------
           1999              $      12,629
           2000                     11,606
           2001                     10,462
           2002                      8,821
           2003                      9,239
           Thereafter               26,274

     Rental expense under such operating leases was approximately  $9.3 million,
$12.2  million and $13.9  million for the three years ended  December  31, 1998,
respectively.

         The Company has entered into employment  agreements with certain of its
executive  officers  for  periods up to five  years.  The  Company has agreed to
severance pay amounts equal to a multiple of defined  compensation under certain
circumstances.  In the event of a material  change in control or  termination of
all executive  officers under such agreements,  Allied would be required to make
payments of approximately $10.7 million, in addition to a reimbursement  payment
to eliminate the effect of any excise taxes associated with this payment.

         Allied  carries a broad range of insurance  coverage for  protection of
its assets and operations from certain risks including environmental  impairment
liability insurance for certain landfills.

         The  Company  is also  required  to  provide  financial  assurances  to
governmental agencies under applicable environmental regulations relating to its
landfill  operations  and  collection   contracts.   These  financial  assurance
requirements are satisfied by the Company issuing performance bonds,  letters of
credit, insurance policies or trust deposits to secure the Company's obligations
as they relate to landfill closure and post-closure  costs and performance under
certain collection contracts.  At December 31, 1998, the Company had outstanding
approximately $428.6 million in financial assurance instruments,  represented by
$277.6 million of performance  bonds,  $134.4 million of insurance  policies and
$16.6 million of trust deposits.  During calendar year 1999, the Company expects
to be required to provide  approximately  $408  million in  financial  assurance
obligations  relating to its landfill operations and collection  contracts.  The
Company expects that financial assurance obligations will increase in the future
as it acquires and expands its landfill activities and that a greater percentage
of the financial  assurance  instruments will be comprised of performance  bonds
and insurance policies.


12.  Related Party Transactions

         Transactions  with related  parties are entered into only upon approval
by a majority of the  independent  directors  of the Company and only upon terms
comparable to those that would be available from unaffiliated parties.

         In connection  with the receipt in April 1995 of all permits  necessary
to develop a landfill on certain real estate  acquired in July 1992, the Company
was  obligated to pay $5.6  million to the  previous  owners of the real estate,
including current  stockholders of the Company.  During the years ended December
31, 1996,  1997 and 1998, the Company paid  principal of $121,000,  $136,000 and
$1.7  million,  respectively,  to  stockholders  of the  Company  related to the
receipt of permits. The Company fully repaid these promissory notes in 1998.


         In  connection  with  the  successful   completion  of  certain  market
development  projects during 1997, Allied paid approximately $2.5 million to the
former  owner of a company  acquired  in 1996 who served as a director of Allied
during 1996 and 1997.

         In 1998, the Company sold certain assets to a relative of an officer of
the Company for  approximately  $1.5 million.  No gain or loss was recognized on
this transaction.


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


13.  Segment Reporting

     The  Company  classifies  its  operations  into  six  geographic   regions:
Northeast,  Southeast,  Great Lakes, Midwest,  Southwest and West United States.
The Company's revenues are derived from one industry segment, which includes the
collection,  transfer,  recycling and disposal of non-hazardous solid waste. The
Company  evaluates  performance  based on several factors,  of which the primary
financial measure is business segment  operating income before  depreciation and
amortization  ("EBITDA") before acquisition  related and unusual costs and asset
impairments.  The accounting  policies of the business  segments are the same as
those  described  in the  Organization  and  Summary of  Significant  Accounting
Policies (see Note 1). The tables below reflect certain  geographic  information
relating to the Company's operations (in thousands):

<TABLE>
<CAPTION>

                          North-       South-        Great                     South-
                           east         east         Lakes        Midwest       west         West        Other(1)         Total
                      ------------ ------------ ------------- ------------ ------------ ------------ -------------- -------------
                                                                                                          
<S>                         <C>         <C>           <C>           <C>          <C>         <C>             <C>          <C>      
 1996 
 Revenues from
  external  
  customers.................$75,383     $ 87,905      $196,318      $54,659      $11,730     $193,521        $    32      $ 619,548
Intersegment
  revenues....................2,632       11,808        38,134       12,253          107       11,151             --         76,085
Depreciation and
  amortization................6,833        8,274        22,863        8,378        1,086       16,451          3,938         67,823
EBITDA before non-recurring
  charges(2).................11,159       19,011        49,081       16,545        2,694       33,618           (977)       131,131

1997
Revenues from
  external                                                                                                             
  customers................$258,123     $117,462      $362,479     $168,650     $132,246     $275,721      $  25,980     $1,340,661
Intersegment                          
  revenues...................29,554       15,268        48,608       40,905       24,309       17,580             --        176,224
Depreciation and                      
  amortization...............23,776       10,565        45,806       24,973       18,791       23,087         11,240        158,238
EBITDA before non-recurring
  charges(2).................66,696       28,586       105,192       74,917       48,737       61,999           (151)       385,976
Total assets................281,710      188,687     1,167,321      444,087      334,508      557,058      1,108,427      4,081,798
Capital                                                                                                                
  Expenditures...............23,615       24,603        66,897       29,760       16,071       23,151          3,908        188,005

1998
Revenues from
  external
  customers................$224,657     $152,568      $517,428     $188,330     $148,768     $338,058       $  5,803     $1,575,612
Intersegment
  revenues...................32,228       27,472       108,179       43,627       35,626       34,289             --        281,421
Depreciation and
  amortization...............21,047       16,911        61,385       25,800       20,111       28,397          6,314        179,965
EBITDA before non-recurring
  charges(2).................51,524       45,684       192,219       78,761       58,026      116,661        (15,371)       527,504
Total assets................589,936      291,618       863,771      521,030      366,011      609,821      2,313,980      5,556,167

Capital expenditures.........31,155       51,954       120,466       34,588       27,538       34,387          1,654        301,742
<FN>

(1)  Amounts  relate  primarily  to the  Company's  subsidiaries  which  provide
     services throughout the organization and not on a regional basis
(2)  EBITDA before non-recurring charges includes acquisition related and
     unusual costs and asset impairments.
</FN>
</TABLE>


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

Reconciliation  of reportable  segment primary  financial  measure and assets to
operating income (loss) and total assets, respectively (amounts in thousands):
<TABLE>
<CAPTION>

                                                                  Year Ended December 31,
                                              ----------------------------------------------------------------
Operating income (loss):                             1996                  1997                  1998
------------------------                             ----                  ----                  ----
<S>                                           <C>                  <C>                   <C>              
Total EBIDTA before
   non-recurring charges 
   for reportable segments..............      $         131,131    $         385,976     $         527,504
Depreciation and amortization
   for reportable segments..............                 67,823              158,238               179,965
Acquisition related and
   unusual costs........................                 96,508                3,934               247,902
Asset impairments.......................                     --                   --                69,714
                                              -----------------    -----------------     -----------------
   Operating income (loss)..............      $        (33,200)    $         223,804     $          29,923
                                              =================    =================     =================
</TABLE>

                                                                                
<TABLE>
<CAPTION>
                                                                    December 31,
                                                        -------------------------------------- 
                                                               1997                1998
                                                               ----                ----
       Assets:
<S>                                                       <C>               <C>            
       Total assets for reportable segments               $   4,081,798     $     5,556,167
       Elimination of investments                           (1,007,978)         (1,803,575)
                                                          ------------      ---------------

              Total assets                                $   3,073,820     $     3,752,592
                                                          =============     ===============

</TABLE>
                        
Percentage of Company's total revenue attributable to services provided:

                                             
                                             Year Ended December 31,
                                   ------------------------------------------
                                        1996           1997            1998
                                        ----           ----            ----
  Collection.............              58.2%           57.2%          55.7%
  Transfer...............               5.9             6.7            7.1
  Landfill (1)...........              25.9            26.4           29.9
  Other..................              10.0             9.7            7.3
                                   ----------      ----------     ----------
    Total revenues.......             100.0%          100.0%         100.0%
                                   ==========      ==========     ==========

(1)  The portion of collection  revenues  attributable  to disposal  charges for
     waste collected by the Company and disposed at the Company's landfills have
     been excluded from collection revenues and included in landfill revenues.

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


14.  Selected Quarterly Financial Data (unaudited)

       The  following  table  summarizes  the unaudited  consolidated  quarterly
results of operations as reported and as restated for  poolings-of-interests for
1997 and 1998 (in thousands, except per share amounts):
<TABLE>
<CAPTION>

                                                First            Second            Third             Fourth
                                               Quarter           Quarter          Quarter           Quarter
                                             -----------       -----------      -----------       -----------
Operating revenues:
<S>                                        <C>               <C>              <C>               <C>          
   1997 as reported.................       $     184,065     $     211,119    $     224,295     $     229,267
   1997 as restated.................             292,883           336,077          355,004           356,697
Gross profit:
   1997 as reported.................              79,143            97,759          107,671           107,611
   1997 as restated.................             116,117           140,685          154,592           151,978
Income before income
   taxes and extraordinary item
   1997 as reported.................              10,294            22,332           24,312            31,870
   1997 as restated.................              15,998            30,452           34,726            36,348
Net income (loss):
   1997 as reported.................               5,868          (39,683)           13,634            19,352
   1997 as restated.................              11,002          (32,671)           23,346            22,365
Basic earnings (loss) per common share:
   1997 as reported.................                0.08            (0.51)             0.16              0.19
   1997 as restated.................                0.07            (0.21)             0.14              0.12
Diluted earnings (loss) per common share:
   1997 as reported.................                0.08            (0.45)             0.16              0.18
   1997 as restated.................                0.07            (0.20)             0.14              0.12
Operating revenues:
   1998 as reported.................       $     223,755     $     299,692    $     334,290     $     407,119
   1998 as restated.................             357,900           394,853          415,740           407,119
Gross profit:
   1998 as reported.................             104,504           135,096          147,379           178,686
   1998 as restated.................             152,084           171,998          180,571           178,686
Income (loss) before income
   taxes and extraordinary item
   1998 as reported.................              28,387             8,565           28,245         (165,457)
   1998 as restated.................              46,292            22,690           41,997         (165,457)
Net income (loss):
   1998 as reported.................              16,749           (9,501)           11,123         (274,817)
   1998 as restated.................              31,565             1,589           18,611         (274,817)
Basic earnings (loss) per common share:
   1998 as reported.................                0.16            (0.08)             0.08            (1.50)
   1998 as restated.................                0.17              0.01             0.10            (1.50)
Diluted earnings (loss) per common share:
   1998 as reported.................                0.16            (0.07)             0.08            (1.50)
   1998 as restated.................                0.17              0.01             0.10            (1.50)

</TABLE>

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


15. Summarized Financial Information of Allied Waste North America, Inc.

         As discussed in Note 5, the 1996 Notes and the 1998 Senior Notes issued
by Allied NA (a  consolidated  subsidiary  of the  Company)  are  guaranteed  by
Allied.  The separate complete  financial  statements of Allied NA have not been
included  herein  as  management  has  determined  that such  disclosure  is not
considered to be material.  However,  summarized  balance sheet  information for
Allied NA and  subsidiaries  as of December  31, 1997 and 1998 is as follows (in
thousands):
<TABLE>
<CAPTION>

                                    Summarized Consolidated Balance Sheet Information

                                                                   December 31, 1997            December 31, 1998
                                                                   -----------------            -----------------
<S>                                                                  <C>                            <C>          
Current assets ......................................                $     293,285                  $     499,904
Property and equipment, net..........................                    1,583,133                      1,776,025
Costs in excess of net assets acquired...............                    1,082,750                      1,327,470
Other non-current assets ............................                      114,653                        149,193
Current liabilities..................................                      358,894                        445,528
Long-term debt, net of current portion ..............                    1,237,670                      2,118,927
Due to parent........................................                    1,059,838                      1,083,515
Due to Allied Canada Finance, Ltd....................                      152,825                             --
Other long-term obligations..........................                      255,930                        268,407
Retained earnings (deficit) .........................                        8,664                      (163,785)
</TABLE>

         On November 25, 1996,  substantially  all of the  operating  assets and
liabilities of Allied were  contributed from Allied to Allied NA. The results of
operations  from inception to December 31, 1996 were not material except for the
acquisition related costs and unusual items (see Note 1).

<TABLE>
<CAPTION>

Summarized Statement of Operations Information

                                                                         Year Ended December 31,
                                                               ---------------------------------------------
                                                                   1997                        1998
                                                                   ----                        ----
<S>                                                           <C>                          <C>          
Revenue  ..............................................       $   1,340,661                $   1,575,612
Operating costs and expenses...........................           1,116,857                    1,545,689
Operating income                                                    223,804                       29,923
Net income (loss) before extraordinary loss............              77,247                     (80,338)
Extraordinary loss, net................................              53,205                       72,202
Net income (loss)......................................              24,042                    (152,540)
</TABLE>




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


16.  Events (unaudited) Subsequent to Date of Auditors' Report

         Subsequent  to December  31,  1998,  the Company  acquired 17 operating
solid waste businesses with annual revenues of  approximately  $70.6 million for
consideration of approximately $143.7 million.

         In March 1999,  Allied and  Browning-Ferris  Industries,  Inc.  ("BFI")
announced  that they  entered  into a definitive  merger  agreement  under which
Allied will acquire BFI for $45 in cash per BFI common share,  as well as assume
approximately  $1.8 billion in debt,  in a transaction  valued at  approximately
$9.1 billion.  Allied has bank commitments to finance the acquisition consisting
of $7 billion  senior  secured debt and $2.5 billion  senior  unsecured  debt at
interest  rates  ranging  from  Libor  plus  2.50% to Libor  plus  3.50%,  and a
commitment  from Apollo  Management IV, L.P.,  Blackstone  Capital  Partners III
Merchant  Banking Fund L.P.  and other  investors to purchase $1 billion of 6.5%
convertible  preferred  stock.  The transaction is structured as a merger of BFI
with a subsidiary  of Allied and is subject to the approval of BFI  stockholders
and other customary conditions.





<PAGE>







Item 9.    Changes in and Disagreements on Accounting and Financial Disclosure
         Not applicable.




<PAGE>







                                    PART III

Item 10.   Directors and Executive Officers of the Registrant
         Information  required by this item is  incorporated by reference to the
material  appearing  under the  heading  "Election  of  Directors"  in the Proxy
Statement for the 1999 Annual Meeting of Stockholders.

Item 11.   Executive Compensation
         Information  required by this item is  incorporated by reference to the
material  appearing  under the  heading  "Executive  Compensation"  in the Proxy
Statement for the 1999 Annual Meeting of Stockholders.

Item 12.   Security Ownership of Certain Beneficial Owners and Management
         Information  required by this item is  incorporated by reference to the
material  appearing  under the  headings  "Election of  Directors"  and "Certain
Stockholders"   in  the  Proxy   Statement  for  the  1999  Annual   Meeting  of
Stockholders.

Item 13.   Certain Relationships and Related Transactions
         Information  required by this item is  incorporated by reference to the
material  appearing  under  the  heading  "Certain   Relationships  and  Related
Transactions"   in  the  Proxy   Statement  for  the  1999  Annual   Meeting  of
Stockholders.


                                     PART IV

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

         Financial Statement Schedules --
         Schedule II - Valuation and Qualifying Accounts




<PAGE>




<TABLE>
<CAPTION>


                                              ALLIED WASTE INDUSTRIES, INC.
                                     SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
                                                     (in thousands)



                                        Balance       Charges to         Other       Write-offs/      Balance
                                       12/31/95         Expense       Charges(1)      Payments        12/31/96
                                      ----------       ---------      ----------     -----------    ---------  
<S>                                  <C>                 <C>               <C>      <C>               <C>    
Allowance for  
   doubtful accounts...........      $     7,457         $ 2,871           $ 937    $    (2,874)      $ 8,391
Accrued severance and
   termination costs...........               --           5,534               --             --        5,534
Accrued restructuring costs....               --           6,803               --             --        6,803
Environmental costs............               --          35,119            9,981             --       45,100
Accrued closure and
   post-closure costs..........           37,447          25,041           61,974        (1,681)      122,781


                                        Balance       Charges to         Other       Write-offs/      Balance
                                       12/31/96         Expense       Charges(1)      Payments        12/31/97
                                       ---------       ----------     ----------     ----------     ---------      
Allowance for
   doubtful accounts...........      $     8,391         $ 4,228          $ 1,624   $    (4,895)      $ 9,348
Accrued severance and
   termination costs...........            5,534              --               --        (5,534)           --
Accrued restructuring costs.....           6,803              --               --        (3,549)        3,254
Environmental costs.............          45,100              --           20,895        (2,233)       63,762
Accrued closure and
   post-closure costs...........         122,781          12,920           21,287       (12,357)      144,631


                                        Balance       Charges to         Other       Write-offs/      Balance
                                       12/31/97         Expense       Charges(1)      Payments        12/31/98
                                       ---------       ----------     ----------     ----------     ---------- 
Allowance for
   doubtful accounts...........      $     9,348         $ 8,086          $ 1,912   $    (5,439)     $ 13,907
Accrued severance and 
   termination costs                          --          73,619               --       (63,492)       10,127
Accrued restructuring costs.....           3,254          51,321               --       (28,909)       25,666
Environmental costs.............          63,762          41,100               --       (11,489)       93,373
Accrued closure and
   post-closure costs...........         144,631          17,607            3,820       (11,511)      154,547
<FN>

(1) Amounts consist primarily of costs assumed from acquired  companies recorded
prior to the date of acquisition.
</FN>
</TABLE>


<PAGE>






         Exhibits --

2.1      Stock Purchase  Agreement  dated  September 17, 1996 among the Company,
         Allied NA, 3294862 Canada Inc., Laidlaw Inc.,  Laidlaw  Transportation,
         Inc., Laidlaw Waste Systems,  Inc., Laidlaw Waste Systems (Canada) Ltd.
         and Laidlaw Medical Services Ltd. Exhibit 2.1 to the Company's  Current
         Report on Form 8-K dated  October 2, 1996,  is  incorporated  herein by
         reference.
2.2      Purchase  Agreement relating to the 1996 Notes dated November 25, 1996.
         Exhibit 2.1 to the Company's  Current Report on Form 8-K dated December
         19, 1996, is incorporated herein by reference.
2.3      Share  Purchase  Agreement  dated  January 15, 1997 among the  Company,
         Allied Waste Holdings (Canada) Ltd.,  Laidlaw Waste Systems,  Inc., USA
         Waste Services,  Inc. and Canadian Waste Services, Inc. Exhibit 10.0 to
         the  Company's  Current  Report on Form 8-K dated  January 30, 1997, is
         incorporated herein by reference.
2.4      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  the  Company's
         Quarterly  Report on Form 10-Q for the  quarter  ended June 30, 1998 is
         incorporated herein by reference.
2.5      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 the  Company's  Current
         Report on Form 8-K filed  August  21,  1998 is  incorporated  hereby by
         reference.
2.6      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 the Company's  Current
         Report  on Form 8-K  filed  March 16,  1999 is  incorporated  herein by
         reference.
3.1      Amended  Certificate  of  Incorporation  of the  Company  (incorporated
         herein by reference to Exhibit 3.1 to the Company's Report on Form 10-K
         for the fiscal year ended December 31, 1996).
3.2      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.
3.3      Amendment to Amended  Certificate of Incorporation of the Company dated
         October 15, 1998.  Exhibit 3.4 to the Company's Report on Form 10-Q for
         the  quarter  ended  September  30,  1998  is  incorporated  herein  by
         reference.
4.1      Specimen certificate for shares of Common Stock par value $.01 per 
         share.  Exhibit 4.2 of the Company's Registration Statement
         on Form S-1 (No. 33-48507) is incorporated herein by reference.
4.2      Indenture relating to the 1994 Notes dated January 15, 1994 between the
         Company  and First  Trust  National  Association,  as  trustee  ("First
         Trust").  Exhibit 4.1 to the Company's  Registration  Statement on Form
         S-1 (No. 33-73110) is incorporated herein by reference.
4.3      Specimen  certificate  representing the 1994 Notes.  Exhibit 4.2 of the
         Company's   Registration  Statement  on  Form  S-1  (No.  33-48507)  is
         incorporated herein by reference.
4.4      Second Supplemental Indenture relating to the 1994 Notes dated June 30,
         1994 between the Company and First Trust.  Exhibit 1.1 to the Company's
         Current  Report on Form 8-K dated  December 29, 1994,  is  incorporated
         herein by reference.
4.5      Third  Supplemental  Indenture relating to the 1994 Notes dated January
         31,  1995  between the Company  and First  Trust.  Exhibit  10.3 to the
         Company's  Quarterly  Report on Form 10-Q  dated  August 10,  1995,  is
         incorporated herein by reference.
4.6      Fourth Supplemental  Indenture relating to the 1994 Notes dated January
         23,  1996,  between the Company and First  Trust.  Exhibit  10.1 to the
         Company's  Current  Report  on Form 8-K  dated  January  22,  1996,  is
         incorporated herein by reference.
4.7      Fifth Supplemental  Indenture relating to the 1994 Notes dated July 30,
         1996 between the Company and First Trust. Exhibit 10.2 to the Company's
         Quarterly  Report on Form 10-Q dated August 14, 1996,  is  incorporated
         herein by reference.
4.8      Indenture  relating to the 1996 Notes dated  February  28, 1997 between
         the Company and First Trust. Exhibit 4.1 to the Company's  Registration
         Statement  on Form  S-4  (No.  333-22575)  is  incorporated  herein  by
         reference.
4.9      1991 Incentive Stock Plan of the Company.  Exhibit 10.T to the 
         Company's Form 10 dated May 14, 1991, is incorporated herein by 
         reference.
4.10     1991 Non-Employee Director Stock Plan of the Company.  Exhibit 10.U to
         the Company's Form 10 dated May 14, 1991, is incorporated herein by 
         reference.
4.11     1993 Incentive Stock Plan of the Company. Exhibit 10.3 to the Company's
         Registration Statement on Form S-1 (No. 33-73110) is incorporated
         herein by reference.
4.12     1994 Amended and Restated  Non-Employee  Director  Stock Option Plan of
         the Company.  Exhibit B to the Company's  Definitive Proxy Statement in
         accordance  with  Schedule  14A dated April 28, 1994,  is  incorporated
         herein by reference.
4.13     Amendment to the 1994 Amended and Restated  Non-Employee Director Stock
         Option Plan.  Exhibit 10.2 to the  Company's  Quarterly  Report on Form
         10-Q dated August 10, 1995, is incorporated herein by reference.
4.14     Amended and Restated 1994 Incentive Stock Plan.  Exhibit 10.1 to the 
         Company's Quarterly Report on Form 10-Q dated May 31, 1996, is 
         incorporated herein by reference.
4.15     Indenture, dated as of May 15, 1997, by and among the Company and First
         Bank National Association with respect to the Senior Discount Notes and
         Exchange Notes. Exhibit 4.1 to the Company's  Registration Statement on
         Form S-4 (No. 333-31231) is incorporated herein by reference.
4.16     Indenture,  dated as of December 1, 1996, by and among the Company, the
         Guarantors and First Bank National Association with respect to the 1996
         Notes and Exchange  Notes.  Exhibit 4.1 to the  Company's  Registration
         Statement  on Form  S-4  (No.  333-22575)  is  incorporated  herein  by
         reference.
4.17     First  Supplemental  Indenture  dated  December 30, 1996 related to the
         1996 Notes. Exhibit 4.2 to the Company's Registration Statement on Form
         S-4 (No. 333-22575) is incorporated herein by reference.
4.18     Second Supplemental  Indenture dated April 30, 1997 related to the 1996
         Notes. Exhibit 4.3 to the Company's  Registration Statement on Form S-4
         (No. 333-22575) is incorporated herein by reference.
4.19     Senior  Subordinated  Guarantee dated as of December 1, 1996 related to
         the 1996 Notes. Exhibit 4.5 to the Company's  Registration Statement on
         Form S-4 (No. 333-22575) is incorporated herein by reference.
4.20     Amendment No. 1 to the 1991 Incentive Stock Plan dated November 1, 
         1996.  Exhibit 4.20 to the Company's Annual Report on Form 10-K dated 
         March 31, 1998 is incorporated herein by reference.
4.21     Indenture  relating to the 1998 Senior Notes,  dated as of December 23,
         1998,  by  and  among  the  Company  and  U.S.   Bank  Trust   National
         Association,  as Trustee, with respect to the 1998 Senior Notes and
         Exchange Notes. Exhibit  4.1  to the  Company's  Registration  
         Statement  on  Form  S-4 (No.333-70709) is incorporated herein by 
         reference.
4.22     Five Year Series  Supplement  Indenture  relating to the 1998 Five Year
         Notes, dated December 23, 1998,  among the Company,  the Guarantors and
         the Trustee.  Exhibit 4.2 to the  Company's  Registration  Statement on
         Form S-4 (No. 333-70709) is incorporated herein by reference.
4.23     Form of Series B Five Year Notes (included in Exhibit 4.22) Exhibit 4.3
         to the Company's Registration  Statement on Form S-4  (No.333-70709) is
         incorporated herein by reference.
4.24     Seven Year Series Supplement  Indenture relating to the 1998 Seven Year
         Notes,  dated December 23, 1998, among the Company,  the Guarantors and
         the Trustee.  Exhibit 4.4 to the  Company's  Registration  Statement on
         Form S-4 (No.333-70709) is incorporated herein by reference.
4.25     Form of Series B Seven Year Notes(included in Exhibit 4.24).Exhibit 4.5
         to the Company's  Registration Statement on Form S-4 (No. 333-70709) is
         incorporated herein by reference.
4.26     Ten Year  Series  Supplement  Indenture  relating  to the 1998 Ten Year
         Notes,  dated December 23, 1998,  among the Company, the Guarantors and
         the Trustee.  Exhibit 4.6 to the  Company's  Registration  Statement on
         Form S-4 (No.333-70709)  is incorporated  herein by reference. 

4.27     Form of Series B Ten Year Notes (included in Exhibit 4.26).  Exhibit 
         4.7 to the Company's   Registration   Statement  on  Form  S-4  
         (No.333-70709) is incorporated herein by reference.
4.28     Certificate of Designation,  Preferences,  Rights and Limitations of 7%
         Cumulative  Convertible Preferred Stock, par value $.10 per share dated
         April 27, 1994. Exhibit 3.2 to Post-Effective Amendment Number 1 to the
         Company's   Registration  Statement  on  Form  S-1  (No.  33-75070)  is
         incorporated herein by reference.
10.1     Agreement  dated September 17, 1996,  between Allied Waste  Industries,
         Inc.,  and the Laidlaw  Group.  Exhibit 10.1 to the  Company's  Current
         Report on Form 8-K dated  October 2, 1996,  is  incorporated  herein by
         reference.
10.2     Credit Agreement among the Company,  Allied NA, and the various lenders
         represented by Goldman Sachs Credit Partners,  L.P.,  Credit Suisse and
         Citibank,  N.A. dated December 30, 1996. Exhibit 10.11 to the Company's
         report  on  Form  10-K  for  the  year  ended   December  31,  1996  is
         incorporated herein by reference.
10.3     Securities  Purchase  Agreement  dated  April 21, 1997  between  Apollo
         Investment  Fund III,  L.P.,  Apollo  Overseas  Partners III, L.P., and
         Apollo  (U.K.)  Partners  III,  L.P.;  Blackstone  Capital  Partners II
         Merchant  Banking Fund L.P.,  Blackstone  Offshore  Capital Partners II
         L.P. and Blackstone Family Investment Partnership II L.P.; Laidlaw Inc.
         and Laidlaw Transportation,  Inc.; and Allied Waste Industries. Exhibit
         10.1 to the  Company's  Report on Form 10-Q for the quarter ended March
         31, 1997 is incorporated herein by reference.
10.4     Shareholders  Agreement dated as of April 14, 1997 between Allied Waste
         Industries,  Inc. and Apollo Investment Fund III, L.P., Apollo Overseas
         Partners III,  L.P., and Apollo (U.K.)  Partners III, L.P.;  Blackstone
         Capital  Partners II Merchant  Banking Fund L.P.,  Blackstone  Offshore
         Capital Partners II L.P. and Blackstone Family  Investment  Partnership
         II L.P.  Exhibit  10.2 to the  Company's  Report  on Form  10-Q for the
         quarter ended March 31, 1997 is incorporated herein by reference.
10.5     Amended and Restated Shareholders  Agreement dated as of April 21, 1997
         between Allied Waste  Industries,  Inc. and Apollo Investment Fund III,
         L.P.,  Apollo  Overseas  Partners III, L.P., and Apollo (U.K.) Partners
         III, L.P.;  Blackstone  Capital Partners II Merchant Banking Fund L.P.,
         Blackstone  Offshore  Capital  Partners II L.P. and  Blackstone  Family
         Investment  Partnership II L.P. Exhibit 10.3 to the Company's Report on
         Form 10-Q for the quarter ended March 31, 1997 is  incorporated  herein
         by reference.
10.6     Registration Rights Agreement dated as of April 21, 1997 between Allied
         Waste  Industries,  Inc. and Apollo  Investment Fund III, L.P.,  Apollo
         Overseas  Partners III L.P.,  and Apollo (U.K.)  Partners III,  L.P.;
         Blackstone  Capital Partners II Merchant Banking Fund L.P.,  Blackstone
         Offshore  Capital  Partners II L.P. and  Blackstone  Family  Investment
         Partnership II L.P.  Exhibit 10.4 to the Company's  Report on Form 10-Q
         for the  quarter  ended  March  31,  1997  is  incorporated  herein  by
         reference.
10.7     Amended and Restated  Credit  Agreement  dated as of June 5, 1997 among
         the  Company,  Allied  Waste North  America,  the  Lenders  referred to
         therein and Credit Suisse First Boston,  Goldman Sachs Credit  Partners
         L.P.,  and  Citibank,  N.A.,  as agents.  Exhibit 10.1 to the Company's
         Report on Form 10-Q for the quarter ended June 30, 1997 is incorporated
         herein by reference.
10.8     Executive  Employment  Agreement  between the Company and with Henry L.
         Hirvela  dated June 6, 1997.  Exhibit 10.2 to the  Company's  Report on
         Form 10-Q for the quarter ended June 30, 1997 is incorporated herein by
         reference.
10.9     Third Amendment to Executive  Employment  Agreement between the Company
         and with Thomas H. Van Weelden dated January 30, 1997.  Exhibit 10.3 to
         the  Company's  Report on Form 10-Q for the quarter ended June 30, 1997
         is incorporated herein by reference.
10.10    Executive  Employment  Agreement  between the Company and with Larry D.
         Henk dated June 6, 1997.  Exhibit 10.4 to the Company's  Report on Form
         10-Q for the  quarter  ended June 30,  1997 is  incorporated  herein by
         reference.
10.11    Executive  Employment  Agreement between the Company and with Steven M.
         Helm dated June 6, 1997  Exhibit 10.5 to the  Company's  Report on Form
         10-Q for the  quarter  ended June 30,  1997 is  incorporated  herein by
         reference.
10.12    Third Amendment to Executive  Employment  Agreement between the Company
         and with Roger A. Ramsey dated  January 30,  1997.  Exhibit 10.6 to the
         Company's  Report on Form 10-Q for the  quarter  ended June 30, 1997 is
         incorporated herein by reference.
10.13    Registration  Rights  Agreement,  dated as of December 5, 1996,  by and
         among the  Company,  Goldman Sachs & Co.,  Merrill  Lynch & Co.,  and
         Credit Suisse First Boston.  Exhibit 10.1 to the Company's Registration
         Statement  on Form  S-4  (No. 333-31231)  is  incorporated  herein  by
         reference.
10.14    Executive  Employment  Agreement  between the Company and with Peter S.
         Hathaway dated June 6, 1997.  Exhibit 10.14 to the Company's  Report on
         Form 10-K for the year ended December 31, 1997 is  incorporated  herein
         by reference.
10.15    Executive  Employment Agreement between the Company and with Michael G.
         Hannon dated June 6, 1997.  Exhibit  10.15 to the  Company's  Report on
         Form 10-K for the year ended December 31, 1997 is  incorporated  herein
         by reference.
10.16    Share Purchase Agreement between Allied Waste Industries, Inc. and 
         Allied Waste Holdings (Canada) Ltd. and Laidlaw Waste Systems, Inc. and
         USA Waste Services, Inc. and Canadian Waste Services Inc. dated 
         January 15, 1997.  Exhibit 10.0 to the Company's Report on Form 8-K
         dated January 30, 1997 is incorporated herein by reference.
10.17    Credit  Agreement  dated as of June 18, 1998 among  Allied  Waste North
         America, Inc., Allied Waste Industries,  Inc., certain lenders,  Credit
         Suisse,  First  Boston and  Goldman  Sachs  Credit  Partners  L.P.,  as
         Co-Syndication  Agents,  Citibank,  N.A.,  as Issuing Bank and Citicorp
         USA,  Inc.,  as  Administrative  Agent.  Exhibit 10.1 to the  Company's
         Quarterly  Report on Form 10-Q for the  quarter  ended June 30, 1998 is
         incorporated herein by reference.
10.18    Registration  Rights  Agreement,  dated as of December 23, 1998, by and
         among the Company,  the  Guarantors,  and Donaldson,  Lufkin & Jenrette
         Securities  Corporation,  relating  to the  $225,000,000  7 3/8% Senior
         Notes due 2004. Exhibit 10.1 to the Company's Registration Statement on
         Form S-4 (No.333-70709) is incorporated herein by reference.
10.19    Registration  Rights  Agreement,  dated as of December 23, 1998, by and
         among the Company,  the  Guarantors,  and Donaldson,  Lufkin & Jenrette
         Securities  Corporation,  relating  to the  $600,000,000  7 5/8% Senior
         Notes due 2006. Exhibit 10.2 to the Company's Registration Statement on
         Form S-4 (No.333-70709) is incorporated herein by reference.
10.20    Registration  Rights  Agreement,  dated as of December 23, 1998, by and
         among the Company,  the  Guarantors,  and Donaldson,  Lufkin & Jenrette
         Securities  Corporation,  Goldman  Sachs  & Co.,  Credit  Suisse  First
         Boston,  Merrill Lynch,  Pierce,  Fenner & Smith  Incorporated,  Morgan
         Stanley Dean Witter  Incorporated,  Bear, Stearns, & Co, Inc., BT Alex.
         Brown, CIBC Oppenheimer,  Salomon Smith Barney,  Inc.,  relating to the
         $875,000,000  7  7/8%  Senior  Notes  due  2009.  Exhibit  10.3  to the
         Company's   Registration   Statement  on  Form  S-4  (No.333-70709)  is
         incorporated herein by reference.
10.21    Purchase  Agreement  dated December 14, 1998, by and among the Company,
         the Guarantors and Donaldson, Lufkin & Jenrette Securities Corporation,
         with respect to the 1998 Senior  Notes.  Exhibit 10.4 to the  Company's
         Registration Statement on Form S-4 (No.333-70709)is incorporated herein
         by reference.
*12      Ratio of earnings to fixed charges.
*21      Subsidiaries of the Registrant.
*23.1    Consent of Arthur Andersen LLP.
*27.1    Financial Data Schedule for the year ended December 31, 1998.
*27.2    Restated Financial Data Schedule for the year ended December 31, 1997.
*27.3    Restated Financial Data Schedule for the year ended December 31, 1996.
*27.4    Restated Financial Data Schedule for the three months ended 
          March 31, 1998.
*27.5    Restated Financial Data Schedule for the six months ended 
          June 30, 1998.
*27.6    Restated Financial Data Schedule for the nine months ended 
          September 30, 1998.
*27.7    Restated Financial Data Schedule for the three months ended 
          March 31, 1997.
*27.8    Restated Financial Data Schedule for the six months ended 
          June 30, 1997.
*27.9    Restated Financial Data Schedule for the nine months ended
          September 30, 1997.

*        Filed herewith.



<PAGE>



         Reports on Form 8-K during the Quarter Ended December 31, 1998--

           December 28,  1998       The  Company's  Current  Report on
                                    Form 8-K reports the  successful  completion
                                    of its $1.7 billion (previously announced as
                                    $1.5  billion)  debt  offering  and the cash
                                    tender  offer to purchase  all of its 10.25%
                                    1996 Notes and 11.30% Senior Discount Notes.

           December 8, 1998         The Company's Current Report on Form
                                    8-K reports the  offering of $1.5 billion in
                                    senior unsecured notes.


           December 7, 1998         The Company's Current Report on Form
                                    8-K  reports  the   supplemental   financial
                                    statements related to the ADSI acquisition.

           November 25,  1998       The  Company's  Current  Report on
                                    Form 8-K reports the  commencement of a cash
                                    tender  offer to purchase all of AWNA's $525
                                    million 10.25% Senior Subordinated Notes due
                                    2006 and all of the 11.30%  Senior  Discount
                                    Notes of the Company.

           October 30,  1998        The  Company's  Current  Report on
                                    Form 8-K  reports  the  consummation  of the
                                    merger with ADSI.

           October 29,  1998        The  Company's  Current  Report on
                                    Form 8-K reports the  restated  supplemental
                                    financial  statements  and  other  financial
                                    data to reflect the significant acquisitions
                                    completed  in 1998 that were  accounted  for
                                    using  the  pooling-of-interests  method  of
                                    business combinations.



<PAGE>


                                   SIGNATURES


Pursuant to the requirements of Sections 13 or 15(d) of the Securities  Exchange
Act of 1934, as amended,  the  Registrant,  Allied Waste  Industries,  Inc., has
caused this Report to be signed on its behalf by the undersigned, in the City of
Scottsdale, State of Arizona, on March 30, 1999.

                           ALLIED WASTE INDUSTRIES, INC.

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

                           By:           /s/PETER S. HATHAWAY              
                                        --------------------------
                                             Peter S. Hathaway
                                Vice President, Chief Accounting Officer
                                    (Principal Accounting Officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following  persons in the  capacities  indicated on March
30, 1999.


           Signature                             Title
          -----------                            ------

   /s/THOMAS H. VAN WEELDEN         Director, Chairman of the Board of Directors
 ----------------------------       President and - Chief Executive Officer     
     Thomas H. Van Weelden          (Principal Executive Officer)               
                                     

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

     /s/PETER S. HATHAWAY           Vice President - Chief Accounting Officer   
 -----------------------------      (Principal Accounting Officer)           
       Peter S. Hathaway            

       /s/MICHAEL GROSS             Director   
 -----------------------------     
         Michael Gross

       /s/DENNIS HENDRIX            Director
------------------------------
        Dennis Hendrix

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

       /s/NOLAN LEHMANN             Director
-------------------------------
         Nolan Lehmann

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


<PAGE>



                            SIGNATURES - (Continued)


    /s/ROGER A. RAMSEY                Director
   -----------------------
      Roger A. Ramsey

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

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

      /s/VINCENT TESE                 Director
       Vincent Tese


<PAGE>



<TABLE>
<CAPTION>



                                                     EXHIBIT INDEX
Exhibit #     Exhibit                                                                                   Page 
---------     -------                                                                                   ----  

<S>           <C>                     
2.1           Stock Purchase Agreement dated September 17, 1996 among the Company,
              Allied NA, 3294862 Canada Inc., Laidlaw Inc., Laidlaw Transportation, Inc.,
              Laidlaw Waste Systems, Inc., Laidlaw Waste Systems (Canada) Ltd. and
              Laidlaw Medical Services Ltd.  Exhibit 2.1 to the Company's Current Report
              on Form 8-K dated October 2, 1996, is incorporated herein by reference.
2.2           Purchase Agreement relating to the 1996 Notes dated November 25, 1996.
              Exhibit 2.1 to the Company's Current Report on Form 8-K dated December 19,
              1996, is incorporated herein by reference.
2.3           Share Purchase Agreement dated January 15, 1997 among the Company,
              Allied Waste Holdings (Canada) Ltd., Laidlaw Waste Systems,  Inc.,
              USA Waste Services, Inc. and Canadian Waste Services, Inc. Exhibit
              10.0 to the Company's Current Report on Form 8-K dated January 30,
              1997, is incorporated herein by reference.
2.4           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 the  Company's  Quarterly  Report  on  Form  10-Q  for the
              quarter ended June 30, 1998 is incorporated herein by reference.
2.5           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 the
              Company's  Current  Report on Form 8-K filed  August  21,  1998 is
              incorporated herein by reference.
2.6           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 the
              Company's  Current  Report  on Form 8-K filed  March  16,  1999 is
              incorporated herein by reference.
3.1           Amended Certificate of Incorporation of the Company (incorporated
              herein by reference to Exhibit 3.1 to the Company's Report on Form 10-K
              for the fiscal year ended December 31, 1996).
3.2           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.
3.3           Amendment to Amended  Certificate of  Incorporation of the Company
              dated  October 15, 1998.  Exhibit 3.4 to the  Company's  Report on
              Form 10-Q for the quarter ended September 30, 1998 is incorporated
              herein by reference.
4.1           Specimen certificate for shares of Common Stock par value $.01 per share.
              Exhibit 4.2 of the Company's Registration Statement on Form S-1
              (No. 33-48507) is incorporated herein by reference.
4.2           Indenture relating to the 1994 Notes dated January 15, 1994 between the
              Company and First Trust National Association, as trustee ("First Trust").
              Exhibit 4.1 to the Company's Registration Statement on Form S-1
              (No. 33-73110) is incorporated herein by reference.
4.3           Specimen  certificate representing the 1994 Notes.  Exhibit 4.2 of the
              Company's Registration Statement on Form S-1 (No. 33-48507) is
              incorporated herein by reference.
4.4           Second Supplemental Indenture relating to the 1994 Notes dated June 30,
              1994 between the Company and First Trust.  Exhibit 1.1 to the Company's
              Current Report on Form 8-K dated December 29, 1994, is incorporated herein
              by reference.
4.5           Third  Supplemental  Indenture  relating  to the 1994 Notes  dated
              January 31, 1995 between the Company and First Trust. Exhibit 10.3
              to the  Company's  Quarterly  Report on Form 10-Q dated August 10,
              1995, is incorporated herein by reference.
4.6           Fourth  Supplemental  Indenture  relating  to the 1994 Notes dated
              January 23,  1996,  between the Company and First  Trust.  Exhibit
              10.1 to the Company's Current Report on Form 8-K dated January 22,
              1996, is incorporated herein by reference.
4.7           Fifth Supplemental Indenture relating to the 1994 Notes dated July
              30, 1996 between the Company and First Trust.  Exhibit 10.2 to the
              Company's  Quarterly Report on Form 10-Q dated August 14, 1996, is
              incorporated herein by reference.
4.8           Indenture relating to the 1996 Notes dated February 28, 1997 between the
              Company and First Trust.  Exhibit 4.1 to the Company's Registration Statement on
              Form S-4 (No. 333-22575) is incorporated herein by reference.
4.9           1991  Incentive  Stock Plan of the  Company.  Exhibit  10.T to the
              Company's  Form 10 dated May 14, 1991, is  incorporated  herein by
              reference.
4.10          1991 Non-Employee Director Stock Plan of the Company. Exhibit 10.U
              to the  Company's  Form 10 dated  May 14,  1991,  is  incorporated
              herein by reference.
4.11          1993 Incentive Stock Plan of the Company. Exhibit 10.3 to the Company's
              Registration Statement on Form S-1 (No. 33-73110) is incorporated herein by
              reference.
4.12          1994 Amended and Restated Non-Employee Director Stock Option Plan of the
              Company. Exhibit B to the Company's Definitive Proxy Statement in accordance
              with Schedule 14A dated April 28, 1994, is incorporated herein by reference.
4.13          Amendment to the 1994 Amended and Restated Non-Employee Director Stock
              Option Plan.  Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q
              dated August 10, 1995, is incorporated herein by reference.
4.14          Amended and Restated 1994 Incentive Stock Plan.  Exhibit 10.1 to the Company's
              Quarterly Report on Form 10-Q dated May 31, 1996, is incorporated herein by
              reference.
4.15          Indenture, dated as of May 15, 1997, by and among the Company and First Bank
              National  Association  with respect to the Senior Discount Notes and Exchange Notes
              Exhibit 4.1 to the Company's Registration Statement on Form S-4
              (No. 333-31231) is incorporated herein by reference.
4.16          Indenture, dated as of December 1, 1996, by and among the Company,
              the Guarantors and First Bank National Association with respect to
              the 1996 Notes and Exchange  Notes.  Exhibit 4.1 to the  Company's
              Registration Statement on Form S-4 (No. 333-22575) is incorporated
              herein by reference.
4.17          First Supplemental Indenture dated December 30, 1996 related to the 1996 Notes.
              Exhibit 4.2 to the Company's Registration Statement on Form S-4 (No. 333-22575)
              is incorporated herein by reference.
4.18          Second Supplemental Indenture dated April 30, 1997 related to the 1996 Notes.
              Exhibit 4.3 to the Company's Registration Statement on Form S-4 (No. 333-22575)
              is incorporated herein by reference.
4.19          Senior Subordinated Guarantee dated as of December 1, 1996 related to the
              1996 Notes.  Exhibit 4.5 to the Company's Registration Statement on Form S-4
              (No. 333-22575) is incorporated herein by reference.
4.20          Amendment No. 1 to the 1991 Incentive  Stock Plan dated  November 1, 1996.  Exhibit
              4.20  to the  Company's  Annual  Report  on  Form  10-K  dated  March  31,  1998 is
              incorporated herein by reference.
4.21          Indenture relating to the 1998 Senior Notes, dated as of December 23, 1998, by and
              among the Company and U.S. Bank Trust National Association, as Trustee, with
              respect to the 1998 Senior Notes and Exchange Notes.  Exhibit 4.1 to the Company's
              Registration Statement on Form S-4 (No.333-70709) is incorporated herein by
              reference.
4.22          Five Year Series  Supplement  Indenture  relating to the 1998 Five
              Year  Notes,  dated  December  23,  1998,  among the  Company,  the
              Guarantors   and  the  Trustee.   Exhibit  4.2  to  the  Company's
              Registration  Statement on Form S-4  (No.333-70709) is incorporated
              herein by reference.
4.23          Form of Series B Five Year Notes (included in Exhibit 4.22)  Exhibit 4.3 to the
              Company's Registration Statement on Form S-4 (No.333-70709) is incorporated herein
              by reference.
4.24          Seven Year Series Supplement  Indenture relating to the 1998 Seven
              Year  Notes,  dated  December  23,  1998,  among the  Company,  the
              Guarantors   and  the  Trustee.   Exhibit  4.4  to  the  Company's
              Registration  Statement on Form S-4  (No.333-70709) is incorporated
              herein by reference.
4.25          Form of Series B Seven Year Notes (included in Exhibit 4.24)  Exhibit 4.5 4 to the
              Company's Registration Statement on Form S-4 (No.333-70709) is incorporated herein
              by reference.
4.26          Ten Year Series Supplement Indenture relating to the 1998 Ten Year
              Notes, dated December 23, 1998,  among the Company,  the Guarantors
              and  the  Trustee.  Exhibit  4.6  to  the  Company's  Registration
              Statement  on Form S-4  (No.333-70709)  is  incorporated  herein by
              reference.
4.27          Form of Series B Ten Year Notes (included in Exhibit 4.26)  Exhibit 4.7 to the
              Company's Registration Statement on Form S-4 (No.333-70709) is incorporated herein
              by reference.
4.28          Certificate of Designation, Preferences, Rights and Limitations of 7%
              Cumulative Convertible Preferred Stock, par value $.10 per share dated
              April 27, 1994.  Exhibit 3.2 to Post-Effective Amendment Number 1 to the
              Company's Registration Statement on Form S-1 (No. 33-75070) is
              incorporated herein by reference.
10.1          Agreement dated September 17, 1996, between Allied Waste Industries, Inc.,
              and the Laidlaw Group.  Exhibit 10.1 to the Company's Current Report on
              Form 8-K dated October 2, 1996, is incorporated herein by reference.
10.2          Credit Agreement among the Company, Allied NA, and the various lenders
              represented by Goldman Sachs Credit Partners, L.P., Credit Suisse and
              Citibank, N.A. dated December 30, 1996.  Exhibit 10.11 to the Company's
              report on Form 10-K for the year ended December 31, 1996 is incorporated
              herein by reference.
10.3          Securities Purchase Agreement dated April 21, 1997 between Apollo Investment
              Fund III, L.P., Apollo Overseas Partners III, L.P., and Apollo (U.K.) Partners III, L.P.;
              Blackstone Capital Partners II Merchant Banking Fund L.P., Blackstone Offshore
              Capital Partners II L.P. and Blackstone Family Investment Partnership II L.P.;
              Laidlaw Inc. and Laidlaw Transportation, Inc.; and Allied Waste Industries.
              Exhibit 10.1 to the Company's Report on Form 10-Q for the quarter
              ended March 31, 1997 is incorporated herein by reference.
10.4          Shareholders Agreement dated as of April 14, 1997 between Allied Waste
              Industries, Inc. and Apollo Investment Fund III, L.P., Apollo Overseas Partners
              III, L.P., and Apollo (U.K.) Partners III, L.P.; Blackstone Capital
              Partners II Merchant Banking Fund L.P., Blackstone Offshore Capital
              Partners II L.P. and Blackstone Family Investment Partnership II L.P.
              Exhibit 10.2 to the Company's Report on Form 10-Q
              for the quarter ended March 31, 1997 is incorporated herein by reference.
10.5          Amended and Restated Shareholders Agreement dated as of April 21, 1997
              between Allied Waste Industries, Inc. and Apollo Investment Fund III, L.P.,
              Apollo Overseas Partners III, L.P., and Apollo (U.K.) Partners III, L.P.;
              Blackstone Capital Partners II Merchant Banking Fund L.P., Blackstone Offshore
              Capital Partners II L.P. and Blackstone Family Investment Partnership II L.P.
              Exhibit 10.3 to the Company's Report on Form 10-Q for the quarter
              ended March 31, 1997 is incorporated herein by reference.
10.6          Registration  Rights  Agreement dated as of April 21, 1997 between
              Allied  Waste  Industries,  Inc. and Apollo  Investment  Fund III,
              L.P.,  Apollo  Overseas  Partners  III,  L.P.,  and Apollo  (U.K.)
              Partners  III,  L.P.;  Blackstone  Capital  Partners  II  Merchant
              Banking Fund L.P.,  Blackstone  Offshore  Capital Partners II L.P.
              and Blackstone Family Investment  Partnership II L.P. Exhibit 10.4
              to the  Company's Report on Form 10-Q for the quarter ended March
              31, 1997 is incorporated herein by reference.
10.7          Amended and Restated Credit Agreement dated as of June 5, 1997 among the
              Company, Allied Waste North America, the Lenders referred to therein and
              Credit Suisse First Boston, Goldman Sachs Credit Partners L.P.,
              and Citibank, N.A., as agents.  Exhibit 10.1 to the Company's Report on
              Form 10-Q  for the quarter ended June 30, 1997 is incorporated herein
              by reference.
10.8          Executive Employment Agreement between the Company and with Henry L.
              Hirvela dated June 6, 1997.  Exhibit 10.2 to the Company's Report
              on Form 10-Q for the quarter ended June 30, 1997 is incorporated herein
              by reference.
10.9          Third  Amendment to  Executive  Employment  Agreement  between the
              Company  and with Thomas H. Van Weelden  dated  January 30,  1997.
              Exhibit 10.3 to the Company's  Report on Form 10-Q for the quarter
              ended June 30, 1997 is incorporated herein by reference.
10.10         Executive  Employment Agreement between the Company and with Larry
              D. Henk dated June 6, 1997.  Exhibit 10.4 to the Company's  Report
              on Form 10-Q for the quarter  ended June 30, 1997 is  incorporated
              herein by reference.
10.11         Executive Employment Agreement between the Company and with Steven
              M. Helm dated June 6, 1997. Exhibit 10.5 to the Company's Report on
              Form 10-Q for the  quarter  ended  June 30,  1997 is  incorporated
              herein by reference.
10.12         Third  Amendment to  Executive  Employment  Agreement  between the
              Company and with Roger A. Ramsey dated  January 30, 1997.  Exhibit
              10.6 to the  Company's  Report on Form 10-Q for the quarter  ended
              June 30, 1997 is incorporated herein by reference.
10.13         Registration  Rights  Agreement,  dated as of December 5, 1996, by
              and among the Company,  Goldman Sachs & Co., Merrill Lynch & Co.,
              and Credit  Suisse First  Boston.  Exhibit  10.1 to the  Company's
              Registration Statement on Form S-4 (No.333-31231) is incorporated 
              herein by reference.
10.14         Executive  Employment Agreement between the Company and with Peter
              S.  Hathaway  dated June 6, 1997.  Exhibit  10.14 to the Company's
              Report  on Form  10-K  for the year  ended  December  31,  1997 is
              incorporated herein by reference.
10.15         Executive  Employment  Agreement  between  the  Company  and  with
              Michael  G.  Hannon  dated  June 6,  1997.  Exhibit  10.15  to the
              Company's Report on Form 10-K for the year ended December 31, 1997
              is incorporated herein by reference.
10.16         Share Purchase Agreement between Allied Waste Industries, Inc. and Allied Waste
              Holdings (Canada) Ltd. and Laidlaw Waste Systems, Inc. and USA Waste
              Services, Inc. and Canadian Waste Services Inc. dated January 15, 1997.
              Exhibit 10.0 to the Company's Report on Form 8-K dated January 30, 1997
              is incorporated herein by reference.
10.17         Credit  Agreement  dated as of June 18,  1998 among  Allied  Waste
              North  America,  Inc.,  Allied  Waste  Industries,  Inc.,  certain
              lenders,  Credit  Suisse,  First  Boston and Goldman  Sachs Credit
              Partners  L.P.,  as  Co-Syndication  Agents,  Citibank,  N.A.,  as
              Issuing Bank and Citicorp  USA,  Inc.,  as  Administrative  Agent.
              Exhibit 10.1 to the  Company's  Quarterly  Report on Form 10-Q for
              the  quarter  ended  June  30,  1998  is  incorporated  herein  by
              reference.
10.18         Registration  Rights  Agreement,   dated  as  of December 23, 1998, 
              by and among the Company,  the Guarantors,  and Donaldson,  Lufkin 
              & Jenrette Securities Corporation,  relating to the $225,000,000 
              7 3/8% Senior Notes due 2004. Exhibit 10.1 to the Company's 
              Registration  Statement  on Form S-4  (No. 333-70709)  is
              incorporated herein by reference.
10.19         Registration  Rights Agreement,  dated as of December 23, 1998, by
              and among the Company,  the  Guarantors,  and Donaldson,  Lufkin &
              Jenrette  Securities  Corporation,  relating to the $600,000,000 7
              5/8%  Senior  Notes  due  2006.  Exhibit  10.2  to  the  Company's
              Registration  Statement on Form S-4  (No.333-70709) is incorporated
              herein by reference.
10.20         Registration  Rights Agreement,  dated as of December 23, 1998, by
              and among the Company,  the  Guarantors,  and Donaldson,  Lufkin &
              Jenrette  Securities  Corporation,  Goldman  Sachs  & Co.,  Credit
              Suisse  First  Boston,  Merrill  Lynch,  Pierce,  Fenner  &  Smith
              Incorporated,  Morgan  Stanley  Dean  Witter  Incorporated,  Bear,
              Stearns,  & Co, Inc., BT Alex. Brown,  CIBC  Oppenheimer,  Salomon
              Smith Barney,  Inc.,  relating to the  $875,000,000  7 7/8% Senior
              Notes  due  2009.  Exhibit  10.3  to  the  Company's  Registration
              Statement  on Form S-4  (No.333-70709)  is  incorporated  herein by
              reference.
10.21         Purchase  Agreement  dated  December  14,  1998,  by and among the
              Company,   the  Guarantors   and  Donaldson,   Lufkin  &  Jenrette
              Securities  Corporation,  with  respect to the 1998 Senior  Notes.
              Exhibit 10.4 to the Company's  Registration  Statement on Form S-4
              (No.333-70709) is incorporated herein by reference.
*12           Ratio of earnings to fixed charges.
*21           Subsidiaries of the Registrant.
*23.1         Consent of Arthur Andersen LLP.
*27.1         Financial Data Schedule for the year ended December 31, 1998.
*27.2         Restated Financial Data Schedule for the year ended December 31, 1997.
*27.3         Restated Financial Data Schedule for the year ended December 31, 1996.
*27.4         Restated Financial Data Schedule for the three months ended March 31, 1998.
*27.5         Restated Financial Data Schedule for the six months ended June 30, 1998.
*27.6         Restated Financial Data Schedule for the nine months ended September 30, 1998.
*27.7         Restated Financial Data Schedule for the three months ended March 31, 1997.
*27.8         Restated Financial Data Schedule for the six months ended June 30, 1997.
*27.9         Restated Financial Data Schedule for the nine months ended September 30, 1997.

*        Filed herewith.

</TABLE>