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                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                     ------
                                    FORM 10-K
(Mark One)
[X]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
     ACT OF 1934

                   For the fiscal year ended December 31, 2000

                                       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          (IRS Employer Identification Number)
   incorporation or organization)

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

       Registrant's telephone number, including area code: (480) 627-2700

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

     Title of each class              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  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 $2,486,717,563 as of March 26, 2001.

         The number of shares of the registrant's  common stock, $.01 par value,
outstanding at March 26, 2001 was 197,139,093.

         The registrant's  proxy statement is to be filed in connection with the
registrant's  2001  annual  meeting  of  stockholders,  portions  of  which  are
incorporated by reference into Part III of this report.
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<PAGE>

<TABLE>
<CAPTION>


                                                           TABLE OF CONTENTS


PART I

<S>                                                                                                                          <C>
     Item 1.      Business...........................................................................................        3

     Item 2.      Properties.........................................................................................        9

     Item 3.      Legal Proceedings..................................................................................        9

     Item 4.      Submission of Matters to a Vote of Security Holders................................................       10




PART II

     Item 5.      Market Price and Dividends on the Common Stock and Related Stockholder Matters.....................       11

     Item 6.      Selected Financial Data............................................................................       12

     Item 7.      Management's Discussion and Analysis of Financial Condition and Results of Operations..............       14

     Item 7A.     Quantitative and Qualitative Disclosures About Market Risk.........................................       32

     Item 8.      Financial Statements and Supplementary Data........................................................       33

     Item 9.      Changes in and Disagreements on Accounting and Financial Disclosure................................       83




PART III

     Item 10.     Directors and Executive Officers of the Registrant.................................................       83

     Item 11.     Executive Compensation.............................................................................       83

     Item 12.     Security Ownership of Certain Beneficial Owners and Management.....................................       83

     Item 13.     Certain Relationships and Related Transactions.....................................................       83




PART IV

     Item 14.     Exhibits, Financial Statement Schedules and Reports on Form 8-K....................................       83




                  Signatures.........................................................................................       87

</TABLE>



                                       2
<PAGE>






                                     PART I

Item 1.       Business

Allied Waste Industries, Inc. ("Allied" or "we"), a Delaware corporation, is the
second  largest,  non-hazardous  solid  waste  management  company in the United
States,   and  operates  as  a  vertically   integrated  company  that  provides
collection,   transfer,   disposal  and  recycling   services  for  residential,
commercial and industrial customers. We serve approximately 10 million customers
through a network of 338 collection companies, 151 transfer stations, 164 active
landfills and 75 recycling  facilities  within 40 states.  We have organized our
operations into eight geographic  operating regions:  Atlantic,  Central,  Great
Lakes, Midwest,  Northeast,  Southeast,  Southwest and West. Consistent with our
vertical  integration  model,  each region is organized  into several  operating
districts  and each  district is  comprised  of specific  site  operations.  The
districts consist of a collection of stand-alone  companies usually operating as
a  vertically  integrated  operation  within a common  marketplace.  We reported
revenues of approximately  $5.7 billion and  approximately  $3.3 billion for the
years ended December 31, 2000 and 1999, respectively.

Industry Trends

Based on industry data, we estimate that the 1999 revenues of the  non-hazardous
solid waste industry in the United States were  approximately  $40 billion.  The
non-hazardous  solid waste  industry  has  traditionally  been very  fragmented,
particularly  in  the  collection  segment  of  the  business.  Publicly  traded
companies,  municipalities and privately held companies,  generate approximately
56%, 24% and 20% of the industry's revenue, respectively.

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

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

Business Strategy

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

                                       3
<PAGE>

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

Focus on Operations.  Decentralized operations and local management characterize
our  operations-oriented  business strategy.  We focus our recruiting efforts on
operating managers with extensive industry experience,  usually with significant
experience in their geographic markets. Our senior executive management,  senior
operating   management   and  regional   vice   presidents   currently   average
approximately  19,  20 and 25 years of  industry  experience,  respectively.  By
continuing to hire and retain experienced,  local  market-oriented  managers, we
believe that we are well  positioned  to react to changes in our markets and are
able to capitalize on growth opportunities.

Achieving a  Sustainable  Long-Term  Growth  Rate.  Our focus is on  achieving a
sustainable  rate of  long-term  growth.  Although  we will  continue to acquire
"tuck-in"  businesses and may enter selected new markets, we will concentrate on
efficiently  operating  the assets we have  accumulated  since the early 1990's.
Therefore, we anticipate future revenue growth will slow to a lower, sustainable
rate  which is slower  than in the past.  We  intend  to grow  revenues  through
organic means by increasing volumes collected and disposed and by increasing the
rates we charge for the  services we provide.  We intend to  supplement  organic
growth with tuck-in acquisitions of privately owned solid waste operations,  net
of the sale of operations  that do not fit our business model. We also intend to
take selective advantage of opportunities when government entities privatize the
operation of all or part of their solid waste systems.  In addition,  we seek to
achieve broad domestic  geographic  diversification in our operations and market
development activities.

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

Operations

Our revenue mix for 2000 was  approximately  61.7%  collection,  29.1%  disposal
(including transfer), 5.6% recycling and 3.6% other.

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

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

                                       4
<PAGE>

     Residential.  We perform  residential  collection services under individual
     monthly  subscriptions  directly  to  households  or under  contracts  with
     municipal  governments  that give us  exclusive  rights to service all or a
     portion of the homes in the municipalities at established rates. We seek to
     obtain municipal contracts that enhance the efficiency and profitability of
     our operations as a result of the density of collection  customers within a
     given area.  At the end of the term of most  municipal  contracts,  we will
     attempt to  renegotiate  the contract,  and if unable to do so, will re-bid
     the  contract on a sealed bid basis.  We also make  residential  collection
     service arrangements with households directly with the customer. We seek to
     enter into  residential  service  arrangements  where the route  density is
     high, thereby creating  additional economic benefit. We set collection fees
     based on general  competitive and prevailing local economic  conditions and
     other considerations such as collection  frequency,  the type and volume or
     weight of the waste collected,  the distance to the disposal facility,  and
     cost of  disposal.  Residential  collection  fees  are  either  paid by the
     municipalities  out of tax revenues or service charges or are paid directly
     by the residents who receive the service.

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

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

     Recycling. We include recycling as a component of our 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.  We generally charge recycling fees based on the
     service sought by the customer. The customer pays for the cost of removing,
     processing  and  disposing of  potentially  recyclable  materials.  In most
     cases, we receive mixed waste materials at a materials  recovery  facility,
     which is often integrated into, or contiguous to, a transfer operation.  At
     the facility, we sort, separate,  accumulate,  bind or place in a container
     and ready for transportation  materials such as paper, cardboard,  plastic,
     aluminum and other metals.  The purchaser  generally pays for the materials
     based on fluctuating  spot-market prices. We dispose of material, for which
     there is no market or for which the market price is insufficient to warrant
     processing,  at a landfill  or other  disposal  facility.  We seek to avoid
     exposure to fluctuating  commodity prices by passing through  substantially
     all of the profit or loss from the sale of  recyclables  to  customers.  We
     also  engage in  organic  materials  recycling  and/or  disposal  and other
     alternative energy concepts such as biomass fuels.

Organization, Marketing and Sales

Our management  philosophy  utilizes a decentralized  business model. We believe
that this model allows us to maximize the  opportunities  in each market that we
operate and has largely  contributed  to our ability to achieve  high  operating
margins.

                                       5
<PAGE>

We implement this philosophy through a regional and district infrastructure.  We
have  organized our  operations  into eight regions:  Atlantic,  Central,  Great
Lakes, Midwest,  Northeast,  Southeast,  Southwest and West. Consistent with the
vertical  integration  model,  each region is organized  into several  operating
districts and each district  contains several specific site operations.  Each of
our  regions,  and  substantially  all  of  our  districts  include  collection,
transfer,  recycling and disposal services, which facilitates efficient and cost
effective  waste  handling and allows the regions and  districts to maximize the
internalization of waste.

The districts consist of a collection of stand-alone companies usually operating
as  a  vertically  integrated  operation  within  a  common  marketplace.  These
districts  range  in  size  from   approximately   $50  million  in  revenue  to
approximately  $300  million in  revenue.  Each  district  reports to a regional
office.   Each  regional  office  has  approximately  six  districts  under  its
management.

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

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

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

We also have a municipal  marketing  coordinator in most service  areas,  who is
responsible for  communicating  with each  municipality or community to which we
provide residential service to ensure customer satisfaction.  Additionally,  the
municipal  coordinators  organize and handle bids for renewal and new  municipal
contracts in their service area.

Competition

The non-hazardous  waste collection and disposal industry is highly competitive.
We compete  with  large  companies  and  municipalities  which may have  greater
financial and operations resources. We also compete with the use of alternatives
to landfill disposal because of state  requirements to reduce landfill disposal.
The  non-hazardous  waste collection and disposal industry is led by three large
national  waste  management  companies:  Allied,  Waste  Management,  Inc.,  and
Republic Services,  Inc. It also includes numerous regional and local companies.
Many counties and  municipalities  that operate their own waste  collection  and
disposal  facilities  have the benefits of tax-exempt  financing and may control
the disposal of waste collected within their jurisdictions.

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


                                       6
<PAGE>

Environmental and Other Regulations

We are subject to extensive and evolving environmental laws and regulations. The
Environmental  Protection Agency,  (the "EPA") and various other federal,  state
and local  environmental,  zoning,  health and safety  agencies  administer  the
regulations.  Many of these  agencies  periodically  examine our  operations  to
monitor compliance with such laws and regulations. Governmental authorities have
the power to enforce compliance with these regulations and to obtain injunctions
or impose  civil or criminal  penalties in case of  violations.  We believe that
regulation  of the waste  industry  will continue to evolve and we will adapt to
such future regulatory requirements to ensure compliance.

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

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

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

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

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




                                       7
<PAGE>

     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  for  which  construction,  reconstruction  or  modification  was
     commenced  before May 30, 1991.  The other applies to all  municipal  solid
     waste landfills for which construction,  reconstruction or modification was
     commenced  on or  after  May  30,  1991.  The  Emission  Guidelines  may be
     implemented  by the states after the EPA approves  the  individual  state's
     program.  These  guidelines,  combined  with  the new  permitting  programs
     established under the recent Clean Air Act amendments,  will likely subject
     solid waste  landfills to significant new permitting  requirements  and, in
     some instances,  require  installation  of methane gas recovery  systems to
     reduce emissions to allowable limits.

     The Occupational Safety and Health Act of 1970 ("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  record  keeping,  disclosure  and
     procedural requirements. Various standards, including standards for notices
     of hazards,  safety in excavation and demolition  work, and the handling of
     asbestos, may apply to our operations.

Future Federal Legislation. In the future, our collection, transfer and landfill
operations  may also be  affected  by  legislation  that may be  proposed in the
United States  Congress that would  authorize the states to enact laws governing
interstate  shipments of waste.  Such  proposed  federal  legislation  may allow
individual states to prohibit the disposal of out-of-state waste or to limit the
amount of  out-of-state  waste that could be  imported  for  disposal  and would
require  states,  under  certain  circumstances,  to reduce the amounts of waste
exported to other states. If this or similar  legislation is enacted,  states in
which we operate  landfills  could act to limit or prohibit the  importation  of
out-of-state  waste.  Such state actions could adversely affect landfills within
these  states  that  receive a  significant  portion of waste  originating  from
out-of-state.  Our  collection,  transfer  and landfill  operations  may also be
affected  by "flow  control"  legislation,  which may be  proposed in the United
States Congress.  This proposed  federal  legislation may allow states and local
governments to direct waste  generated  within their  jurisdiction to a specific
facility for disposal or processing.  If this or similar legislation is enacted,
state or local  governments  with  jurisdiction  over our landfills could act to
limit or prohibit disposal or processing of waste in our landfills.

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

Our  collection  and landfill  operations  may be affected by the current  trend
toward laws requiring the development of waste reduction and recycling programs.
For  example,  a number of states have  recently  enacted laws that will require
counties  to  adopt  comprehensive  plans 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.

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



                                       8
<PAGE>

Liability Insurance and Bonding

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

We are required to provide certain financial assurances to governmental agencies
under  applicable  environmental   regulations  relating  to  our  landfill  and
collection operations.  These financial assurances include surety bonds, letters
of credit,  insurance policies and trust deposits required principally to secure
our estimated  landfill  closure and  post-closure  obligations  and  collection
contracts.  We are required to provide  approximately  $1.5 billion in financial
assurance obligations relating to our landfill operations.

Employees

We employ approximately 28,000 persons.  Certain of our employees are covered by
collective  bargaining  agreements.  We believe relations with our employees are
satisfactory.

Item 2. Properties

Our principal  executive offices are located at 15880 N.  Greenway-Hayden  Loop,
Suite 100,  Scottsdale,  Arizona  85260 where we currently  lease  approximately
60,000   square  feet  of  office   space.   We  currently   maintain   regional
administrative offices in Arizona, Illinois,  Indiana, Missouri,  Georgia, South
Carolina, Colorado and Massachusetts.

Our principal property and equipment consists of land (primarily landfill sites,
transfer stations,  and facilities for collection  operations),  buildings,  and
vehicles and  equipment,  substantially  all of which are encumbered by liens in
favor of our  primary  lenders.  We own or lease real  property in the states in
which we are doing  business.  At December 31,  2000,  we owned and operated 164
active  solid waste  landfills,  aggregating  approximately  72,075 total acres,
including  approximately 24,598 permitted acres. In addition, as of that date we
owned or  operated  338  collection  companies,  151  transfer  stations  and 75
recycling facilities.

Item 3. Legal Proceedings

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

Federal,  state and  local  provisions  that  relate  to the  protection  of the
environment  regulate our  business.  The nature of our  business  results in us
frequently becoming a party to judicial or administrative  proceedings involving
governmental  authorities and other interested parties. At December 31, 2000, we
were not involved in any such proceedings where we reasonably  believe sanctions
imposed by  governmental  authorities  will exceed  $100,000 or which we believe
will  have a  material  effect  on our  consolidated  liquidity  or  results  of
operations.  From time to time,  we may also be subject  to  actions  brought by
citizens'  groups,   adjacent  landowners  or  others  in  connection  with  the
permitting  and  licensing of our  landfills or transfer  stations,  or alleging
personal injury,  environmental damage or violations of the permits and licenses
pursuant to which we operate.

                                       9
<PAGE>

We have been notified that we are considered a potentially  responsible party at
a number of sites under CERCLA or other  environmental  laws. In all cases, such
alleged  responsibility  is due to the actions of  companies  acquired by Allied
prior to their  acquisition  by Allied.  We  continually  review our status with
respect to each site, taking into account the alleged connection to the site and
the extent of the contribution to the volume of waste at the site, the available
evidence  connecting  the  entity  to that  site and the  number  and  financial
soundness of other  potentially  responsible  parties at the site.  The ultimate
amounts for  environmental  liabilities  at sites where we may be a  potentially
responsible party cannot be determined and estimates of such liabilities made by
us, after  consultation with our independent  environmental  engineers,  require
assumptions about future events subject to a number of uncertainties,  including
the extent of the contamination, the appropriate remedy, the financial viability
of  other  potentially  responsible  parties  and  the  final  apportionment  of
responsibility  among  the  potentially   responsible  parties.  Where  we  have
concluded  that our  estimated  share of potential  liabilities  is probable,  a
provision  has been made in the  consolidated  financial  statements.  Since the
ultimate  outcome of these  matters  may differ from the  estimates  used in our
assessments to date, the recorded  liabilities are  periodically  evaluated,  as
additional  information  becomes  available,   to  ascertain  that  the  accrued
liabilities are adequate.  We have  determined  that the recorded  liability for
environmental  matters as of December 31, 2000 of  approximately  $432.5 million
represents  the most probable  outcome of these  contingent  matters.  We do not
expect that adjustments to estimates,  which are reasonably possible in the near
term and that may result in changes to  recorded  amounts,  will have a material
effect  on  our  consolidated  liquidity,   financial  position  or  results  of
operations.

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

         Not Applicable.



                                       10
<PAGE>




                                     PART II

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".  The high and low sales prices per share for the periods
indicated were as follows:

<TABLE>
<CAPTION>
                                                                                       High                 Low
                                                                                  ----------------     ---------------
<S>                                                                                         <C>               <C>
Year Ended December 31, 2000:
First Quarter.............................................................                  8.44              5.38
Second Quarter............................................................                 10.38              5.31
Third Quarter.............................................................                 11.75              9.19
Fourth Quarter............................................................                 14.56              7.88

Year Ended December 31, 1999:
First Quarter.............................................................                 24.06             12.75
Second Quarter............................................................                 20.00             13.13
Third Quarter.............................................................                 20.63             11.06
Fourth Quarter............................................................                 11.94              6.50

</TABLE>

As of March 26,  2001,  there were  approximately 722  holders  of record of our
Common Stock.

Dividend Policy

We have not paid  dividends  on our common  stock,  $0.01 par value (the "Common
Stock"),  and do not anticipate  paying any dividends thereon in the foreseeable
future as we are prohibited under the terms of our long-term  indebtedness  from
paying such dividends.


Recent Sales of Unregistered Securities

         Not Applicable.



                                       11
<PAGE>

Item 6. Selected Financial Data

The selected  financial data presented  below as of and for the five years ended
December 31, 2000 are derived from our Consolidated Financial Statements,  which
have been audited by Arthur Andersen LLP,  independent public  accountants.  See
Note 2 to our Consolidated  Financial Statements.  These selected financial data
should be read in  conjunction  with  "Management's  Discussion  and Analysis of
Financial  Condition and Results of Operations" and our  Consolidated  Financial
Statements and the notes thereto, included elsewhere herein. (All amounts are in
thousands, except per share amounts and percentages.)

<TABLE>
<CAPTION>
                                          2000               1999                 1998              1997(4)              1996(4)
                                     ---------------    ----------------    ----------------   ----------------     ----------------
<S>                                  <C>                <C>                 <C>                <C>                 <C>
Statement of Operations Data:
Revenues............................ $    5,707,485     $     3,341,071     $     1,575,612    $     1,340,661     $       619,548
Cost of operations..................      3,280,027           1,948,964             892,273            777,289             386,001
Selling, general and administrative
  expenses..........................        417,558             231,366             155,835            177,396             102,416
Depreciation and amortization.......        450,794             273,368             149,260            131,658              63,638
Goodwill amortization...............        223,244             110,726              30,705             26,580               4,185
Acquisition related and unusual
  costs(1)..........................        127,327             588,855             317,616              3,934              96,508
                                     ---------------    ----------------    ----------------   ----------------     ----------------
  Operating income (loss)...........      1,208,535             187,792              29,923            223,804             (33,200)
Equity in earnings of unconsolidated
  affiliates........................        (50,788)            (20,785)                 --                 --                  --
Interest income.....................         (4,127)             (7,212)             (4,030)            (1,765)             (2,479)
Interest expense....................        882,282             443,044              88,431            108,045              21,347
                                     ---------------    ----------------    ----------------   ----------------     ----------------
  Income (loss) before income taxes.        381,168            (227,255)            (54,478)           117,524             (52,068)
Income tax expense (benefit)........        237,540              (8,756)             43,773             40,277                 354
Minority interest...................          5,975               2,751                  --                 --                  --
                                     ---------------    ----------------    ----------------   ----------------     ----------------
  Income (loss) before extraordinary
    losses and cumulative effect of
    change in accounting principle..        137,653            (221,250)            (98,251)            77,247             (52,422)
Extraordinary losses, net of income
  tax benefit(2)....................         13,266               3,223             124,801             53,205              13,887
Cumulative effect of change in
  accounting principle, net of income
  tax benefit(3)....................             --              64,255                  --                 --                  --
                                     ---------------    ----------------    ----------------   ----------------     ----------------
  Net income (loss).................        124,387            (288,728)           (223,052)            24,042             (66,309)
Dividends on preferred stock........         68,452              27,789                  --                381               1,073
                                     ---------------    ----------------    ----------------   ----------------     ----------------
  Net income (loss) available to
  common shareholders............... $       55,935     $      (316,517)     $     (223,052)    $       23,661     $       (67,382)
                                     ===============    ================    ================   ================     ================
Basic EPS:
Income (loss) available to
  common shareholders before
  extraordinary losses and
  cumulative effect of change in
  accounting principle, net of income
  tax benefit....................... $         0.37     $         (1.33)     $        (0.54)    $         0.47     $         (0.40)
Extraordinary losses, net of income
  tax benefit.......................          (0.07)              (0.02)              (0.68)             (0.33)              (0.11)
Cumulative effect of change in
  accounting principle, net of income
  tax benefit.......................             --               (0.34)                 --                 --                  --
                                     ---------------    ----------------    ----------------   ----------------     ----------------
Net income (loss) available to
  common shareholders............... $         0.30     $         (1.69)     $        (1.22)    $         0.14      $        (0.51)
                                     ===============    ================    ================   ================     ================
Weighted average common shares......        188,814             187,801             182,796            164,888             132,967
                                     ===============    ================    ================   ================     ================

</TABLE>

                                       12
<PAGE>
<TABLE>
<CAPTION>

                                           2000                 1999                1998                1997              1996
                                     ---------------      ---------------     ---------------     --------------    --------------
<S>                                 <C>                  <C>                  <C>                 <C>               <C>
Diluted EPS:
Income (loss) available to
 common shareholders before
 extraordinary losses and
 cumulative effect of change in
 accounting principle, net of income
 tax benefit....................... $         0.36       $         (1.33)     $       (0.54)      $       0.44      $      (0.40)
Extraordinary loss, net of income
 tax benefit.......................          (0.07)                (0.02)             (0.68)             (0.30)            (0.11)
Cumulative effect of change in
 accounting principle, net of income
 tax benefit.......................             --                 (0.34)                --                 --                --

                                        ---------------      ---------------     ---------------    ---------------   --------------
Net income (loss) available to
 common shareholders............... $         0.29       $         (1.69)     $       (1.22)      $       0.14      $      (0.51)
                                        ===============      ===============     ===============    ===============   ==============
Weighted average common and
 common equivalent shares..........        191,122               187,801            182,796            172,958           132,967
                                        ===============      ===============     ===============    ===============   ==============
Pro forma amounts, assuming the
 change in accounting principle is
 applied retroactively:
Net income (loss) available to
 common shareholders...............                                           $   (256,265)       $      5,085      $    (73,909)
Diluted earnings (loss) per share...                                                 (1.40)               0.03             (0.56)

Balance Sheet Data:
                                                                                    December 31,
                                         -------------------------------------------------------------------------------------------
                                               2000                 1999              1998              1997               1996
                                         ---------------      ---------------   ---------------   ----------------   ---------------
Cash and cash equivalents........... $      122,094       $      121,405      $     39,742      $      33,320      $      70,015
Working capital (deficit)...........       (328,049)            (381,077)           45,031            (75,054)            26,410
Property and equipment, net.........      3,860,538            3,738,388         1,776,025          1,583,133            932,110
Goodwill, net.......................      8,717,438            8,238,929         1,327,470          1,082,750            888,648
Total assets........................     14,513,634           14,963,101         3,752,592          3,073,820          2,662,200
Long-term debt, less current
 portion...........................       9,635,124            9,240,291         2,118,927          1,492,360          1,283,327
Stockholders' equity including
 Preferred Stock...................       1,767,659            1,639,555           930,074            962,465            385,218
Long-term debt to total
 capitalization....................              85%                  85%               69%                61%                77%

<FN>
(1)  Acquisition  related and unusual  costs relate to  management's  changes in
     strategic plans and restructuring resulting from acquisitions.  The charges
     primarily  consist of  transaction  or deal costs,  employee  severance and
     transition costs,  changes in estimates relating to environmental and legal
     matters  and  regulatory  compliance,  restructuring  costs  related to the
     consolidation  or relocation of  operations,  costs for the  abandonment or
     sale of non-revenue producing assets,  provisions for losses on contractual
     obligations, and asset impairments.

(2)  The extraordinary losses were incurred as a result of premiums paid for the
     early  extinguishment  of debt and the  write-off of related  deferred debt
     issue costs.

(3)  During the third quarter of 1999,  we changed our method of accounting  for
     capitalized   interest.   According   to  generally   accepted   accounting
     principles, this change is applied from the beginning of 1999. A charge for
     the  cumulative  effect of the  change in  accounting  principle  of $106.2
     million ($64.3 million, net of income taxes) was recorded effective January
     1, 1999.

(4)  The  years  ended  December  31,  1997  and  1996  Consolidated   Financial
     Statements  have been  restated to reflect  the  acquisition  of  companies
     accounted   for  using  the   pooling-of-interests   method  for   business
     combinations in 1998.

</FN>
</TABLE>




                                       13
<PAGE>


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

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

Introduction

We have experienced significant growth, primarily resulting from the acquisition
of solid  waste  businesses.  Since  January  1,  1993,  we have  completed  275
acquisitions  including 50  acquisitions  in 2000. The results of operations for
the   acquisitions   accounted  for  under  the  purchase  method  for  business
combinations  are included in our financial  statements only from the applicable
date  of  acquisition.  As a  result,  we  believe  our  historical  results  of
operations for the periods presented are not directly  comparable to our current
results of operations.

On July 30, 1999, we completed the  acquisition of  Browning-Ferris  Industries,
Inc.  ("BFI") in a transaction  accounted for as a purchase.  As a result of the
acquisition,  each share of BFI  common  stock was  converted  into the right to
receive $45 in cash. Including assumed and refinanced debt, the original cost of
acquiring BFI was approximately $9.6 billion.  Financing for the acquisition was
obtained  from draws of $4.7 billion from credit  facilities  with a capacity of
$7.1  billion (the "1999  Credit  Facility"),  the sale of $1.0 billion of newly
issued senior  convertible  preferred stock (the "Preferred Stock") and the sale
of $2.0 billion of 10% Senior Subordinated Notes due 2009 (the "1999 Notes").

In connection with the acquisition of Browning-Ferris  Industries, Inc. ("BFI"),
we initiated an asset divestiture program,  whereby we sold, for cash or through
simultaneous buy and sell transactions, certain non-core assets that did not fit
with our  vertical  integration  operating  strategy  for total net  proceeds of
approximately  $1.6  billion.  As of December 31, 2000,  we had  completed  this
divestiture  program with the exception of the  transaction  involving the waste
incineration  business of American Ref-fuel.  A definitive agreement was entered
into  during  November  2000 and is expected  to be  completed  around the first
quarter of 2001.

Status of Integration of BFI. In connection  with the acquisition of BFI on July
30, 1999, we anticipated  annual cost savings of  approximately  $360 million by
the end of 2000  resulting  from  corporate and field SG&A  savings,  operations
labor cost savings, market cost savings and asset buy and sell agreements. As of
June 30, 2000,  we had  substantially  achieved the annual cost savings  through
headcount  reductions  of  approximately  2,900  employees,  the  closure  of 51
facilities,  96 route  rationalizations and other cost savings.  Internalization
increased from 57% at the time of the acquisition to 65% at December 31, 2000.

We have  completed the management  information  systems  conversions  from BFI's
systems to Allied's systems for financial reporting,  payroll,  fixed assets and
maintenance  tracking.  We have also  completed  the  conversion  of the general
ledger and accounts  payable from BFI's SAP system to Allied's  system.  We have
not  experienced  any significant  operational,  accounting or reporting  issues
related to these conversions.


                                       14
<PAGE>

General

Revenues.  Our revenues are attributable  primarily to fees charged to customers
for waste collection,  transfer,  recycling and disposal services.  We generally
provide  collection  services  under  direct  agreements  with our  customers or
pursuant to contracts with  municipalities.  Commercial  and municipal  contract
terms, generally range from one to five years and commonly have renewal options.
Our landfill operations include both company-owned  landfills and those operated
for  municipalities  for a fee.  The  following  tables  show  for  the  periods
indicated the percentage of our total reported revenues attributable to services
provided and revenues attributable to geographic regions.

Revenues by Line of Business (in thousands, except percentages):

<TABLE>
<CAPTION>
                                                       Years Ended December 31,
                      --------------------------------------------------------------------------------------------
                                 2000                            1999                             1998
                      ---------------------------     ----------------------------     ---------------------------
<S>                     <C>                <C>           <C>               <C>           <C>                <C>
Collection........    $  4,227,680         61.7   %   $   2,422,628        60.4    %   $   1,041,441        56.1   %
Disposal(1).......       1,993,276         29.1           1,261,106        31.4              697,972        37.6
Recycling.........         384,027          5.6             203,632         5.1               64,385         3.5
Other.............         242,196          3.6             125,215         3.1               53,235         2.8
                      --------------     --------     ---------------    ---------     ---------------    --------
                         6,847,179        100.0   %       4,012,581       100.0    %       1,857,033       100.0   %
                                         ========                        =========                        ========
Intercompany......      (1,139,694)                        (671,510)                        (281,421)
                      --------------                  ---------------                  ---------------
  Reported
    revenues......    $  5,707,485                    $   3,341,071                    $   1,575,612
                      ==============                  ===============                  ===============


<FN>
   (1) Transfer revenues are included in disposal.
</FN>
</TABLE>

<TABLE>
<CAPTION>

   Revenues by Region:
                                                                                 Years Ended December 31,
                                                                           --------------------------------------
                                                                             2000           1999          1998
                                                                           ----------     ---------     ---------
<S>                                                                           <C>             <C>          <C>
Atlantic...............................................................       10.6    %       9.4   %      6.6    %
Central................................................................        9.3            12.1        19.1
Great Lakes............................................................       11.2            13.1        18.8
Midwest................................................................        8.5             9.7        10.1
Northeast..............................................................       16.5            15.5        10.5
Southeast..............................................................       13.5             9.2         3.6
Southwest..............................................................       13.2            12.0         9.4
West...................................................................       16.7            18.5        21.5
Other(1)...............................................................        0.5             0.5         0.4
                                                                           ----------      --------     ---------
  Total revenues.......................................................      100.0    %      100.0  %    100.0    %
                                                                           ==========      ========     =========

<FN>
(1)    Amounts relate  primarily to our  subsidiaries  which provide services
       throughout the organization and not on a regional basis.
</FN>
</TABLE>

Our strategy is to develop vertically  integrated  operations to internalize the
waste we  collect  and thus  realize  higher  margins  from our  operations.  By
disposing of waste at  company-owned  and/or operated  landfills,  we retain the
margin generated  through disposal  operations that would otherwise be earned by
third-party landfills.  Approximately 63% of the waste we collect as measured by
disposal volumes was disposed of at landfills we own and/or operate for the year
2000 and this internalization rate had increased to approximately 65% at the end
of 2000.  In addition,  transfer  stations are an integral  part of the disposal
process.  We locate our  transfer  stations  in areas  where our  landfills  are
outside  of the  population  centers in which we  collect  waste.  Such waste is
transferred to long-haul trailers and economically transported to our landfills.

                                       15
<PAGE>

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  our 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. We
use a life-cycle  accounting  method for landfills  and the related  closure and
post-closure  liabilities.   This  method  applies  the  costs  associated  with
acquiring,  developing, closing and monitoring the landfills over the associated
landfill  capacity  based on  consumption.  On an annual  basis,  we update  the
development  cost estimates (which include the costs to develop the site as well
as the  individual  cell  construction  costs),  closure and  post-closure  cost
estimates and future  capacity  estimates for each landfill.  The cost estimates
are prepared by company and third-party engineers based on the applicable local,
state and federal  regulations  and site specific  permit  requirements.  Future
capacity  estimates  are  updated,  using  aerial  surveys of each  landfill  to
estimate utilized disposal capacity and remaining disposal capacity.  These cost
and capacity estimates are reviewed and approved by senior operations management
annually.

Selling,  general and administrative  expenses include management,  clerical and
administrative  compensation  and overhead,  sales cost,  investor and community
relations'  expenses  and  provisions  for  estimated   uncollectible   accounts
receivable.

Depreciation  and  amortization   includes  depreciation  of  fixed  assets  and
amortization of other intangible assets and landfill airspace.  We use the units
of production  method for purposes of calculating the amortization  rate at each
landfill.   This  methodology  divides  the  costs  associated  with  acquiring,
permitting and developing the entire landfill by the total remaining capacity of
that landfill.  The resulting per unit amortization rate is applied to each unit
disposed at the  landfill  and is recorded  as expense  for that  period.  Costs
associated with developing the landfill include direct costs such as excavation,
liners, leachate collection systems, engineering and legal fees, and capitalized
interest,  which are  capitalized  and  amortized  based on  consumed  airspace.
Estimated  total  future  development  cost  for our  164  active  landfills  is
approximately $3.1 billion, excluding interest to be capitalized,  and we expect
that  this  amount  will be spent  over  the  remaining  operating  lives of the
landfills.  We have available  disposal  capacity of  approximately  3.0 billion
cubic yards of capacity as of December 31, 2000.

We believe that the costs  associated  with  engineering,  owning and  operating
landfills  will  increase in the future as a result of federal,  state and local
regulation  as well as community  participation  in  opposition  to the landfill
process.  We cannot assure you that we will be able to raise prices sufficiently
to offset these increased expenses. We expense all indirect landfill development
costs, such as executive salaries,  general corporate  overhead,  public affairs
and other corporate services, as incurred.

Goodwill  amortization  includes the amortization of costs paid in excess of the
net assets acquired in purchase business combinations.

In connection  with  potential  acquisitions,  we incur and  capitalize  certain
transaction  costs and  integration  costs,  which include  stock  registration,
legal,  accounting,  consulting,  engineering  and other direct  costs.  When an
acquisition 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 an  acquisition  is  accounted  for using the
purchase  method for  business  combinations,  these costs are  capitalized.  We
routinely evaluate capitalized transaction and integration costs, and we expense
those costs related to  acquisitions  not likely to occur.  We expense  indirect
acquisition  costs, such as executive  salaries,  general corporate overhead and
other corporate services, as incurred.

                                       16
<PAGE>

Closure and  post-closure  costs  represent  our  financial  commitment  for the
regulatory  required  costs  associated  with our future  obligations  for final
closure, which is the closure of a cell of a landfill once the cell is no longer
receiving waste, and post-closure monitoring and maintenance of landfills, which
is required for up to 30 years after a landfill's  final  closure.  We establish
closure and  post-closure  requirements  based on the standards of Subtitle D as
implemented on a state-by-state basis. We base closure and post-closure accruals
on cost  estimates  for capping and  covering a landfill,  methane gas  control,
leachate  management  and  groundwater  monitoring,  and other  operational  and
maintenance costs to be incurred after the site discontinues accepting waste. We
prepare  site-specific  closure  and  post-closure  engineering  cost  estimates
annually for landfills  owned and/or operated by us for which we are responsible
for closure and post-closure.

We accrue and charge closure and post-closure costs based on accepted tonnage as
landfill  airspace is consumed to ensure that the total closure and post-closure
obligations  are  fully  accrued  for each  landfill  at the time  that the site
discontinues  accepting waste and is closed. For landfills purchased,  we assess
and accrue the closure and post-closure  liability at the time we assume closure
responsibility  based upon the estimated closure and post-closure  costs and the
percentage of airspace utilized as of the date of acquisition. After the date of
acquisition,  we accrue and charge closure and post-closure costs as airspace is
consumed.  We update and approve estimated closure and post-closure  liabilities
annually   based  on   assessments   performed  by  in-house   and   independent
environmental  engineers.  Such  costs may  change in the  future as a result of
permit modifications or changes in legislative or regulatory requirements.

We accrue closure and post-closure  cost estimates based on the present value of
the future  obligation.  We discount future costs where we believe that both the
amounts and timing of related  payments are reliably  determinable.  We annually
update our estimates of future closure and  post-closure  costs.  We account for
the impact of changes,  which are  determined to be changes in  estimates,  on a
prospective basis.

In 2000,  we calculated  the net present  value of the closure and  post-closure
commitment  assuming  inflation of 2.5% and a risk-free capital rate of 7.0%. We
accrete  discounted  amounts  previously  recorded to reflect the effects of the
passage of time.  We currently  estimate  total future  payments for closure and
post-closure  to be $3.2  billion.  The present  value of such  estimate is $1.2
billion.  At  December  31, 2000 and 1999,  accruals  for  landfill  closure and
post-closure   costs  (including  costs  assumed  through   acquisitions)   were
approximately  $601.4  million and $517.3  million,  respectively.  The accruals
reflect a portfolio  of  landfills  with  estimated  remaining  lives,  based on
current  waste  flows,  that range from one to over 150 years,  and an estimated
average remaining life of approximately 40 years.


                                       17
<PAGE>
Results of Operations

The  following  table sets forth the  percentage  relationship  that the various
items  bears  to  revenues  for  the  periods  indicated.  See  Note  2  to  our
Consolidated Financial Statements.

<TABLE>
<CAPTION>
                                                                        Year Ended December 31,
                                                        --------------------------------------------------------
                                                             2000                1999                1998
                                                        ----------------    ---------------     ----------------
<S>                                                         <C>                 <C>                 <C>
Statement of Operations Data:
Revenues...............................................     100.0%              100.0%              100.0%
Cost of operations.....................................      57.5                58.3                56.6
Selling, general and administrative expenses...........       7.3                 6.9                 9.9
Depreciation and amortization..........................       7.9                 8.2                 9.5
Goodwill amortization..................................       3.9                 3.3                 1.9
Acquisition related and unusual costs..................       2.2                17.7                20.1
                                                        ----------------    ---------------     ----------------
  Operating income.....................................      21.2                 5.6                 2.0
Equity in earnings of unconsolidated affiliates........      (0.9)               (0.6)                 --
Interest expense, net..................................      15.4                13.0                 5.4
                                                        ----------------    ---------------     ----------------
  Income (loss) before income taxes....................       6.7                (6.8)               (3.4)
Income tax expense (benefit)...........................       4.2                (0.3)                2.8
Minority interest......................................       0.1                 0.1                  --
                                                        ----------------    ---------------     ----------------
  Income (loss) before extraordinary losses and
    cumulative effect of change in accounting
    principle..........................................       2.4                (6.6)               (6.2)
Extraordinary losses, net of income tax benefit........       0.2                 0.1                 7.9
Cumulative effect of change in accounting
  principle, net of income tax benefit.................        --                 2.0                  --
                                                        ----------------    ---------------     ----------------
  Net income (loss)....................................       2.2                (8.7)              (14.1)
Dividends on Preferred Stock...........................       1.2                 0.8                  --
                                                        ----------------    ---------------     ----------------
  Net income (loss) available to common
    shareholders.......................................       1.0%               (9.5)%             (14.1)%
                                                        ================    ===============     ================
</TABLE>


                                       18
<PAGE>

Years Ended December 31, 2000 and 1999

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

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

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

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

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

Acquisition Related and Unusual Costs

Year Ended December 31, 2000

During 2000, we recorded approximately $127.3 million of acquisition related and
unusual costs primarily associated with the acquisition of BFI. These costs were
comprised  primarily of approximately  $75.2 million of transition costs related
to  transitional  employees and  duplicative  facilities and  operations,  $30.2
million relating to changes in estimated loss contract provisions, restructuring
and abandonment  liabilities,  litigation  liabilities and environmental related
matters, $26.5 million of non-cash asset impairments related to the divestitures
of certain  operations and we reversed through  acquisition  related and unusual
costs approximately $4.6 million of accruals  established in connection with the
acquisition of BFI and accruals associated with 1998 acquisitions.

Subsequent event --

As part of our ongoing  review of the  operations  and the  self-funding  market
development program for 2001, we sold certain  non-integrated  operations in the
Northeast  region for  approximately  $53  million  during the month of February
2001.  The proceeds were used to repay debt,  but will likely be deployed  later
this year as a part of our self-funding  market development  program to purchase
assets in other markets that improve our market density and internalization.  In
connection  with  this  sale,  we will  reflect  an after tax  non-cash  loss of
approximately $65 million in the reported results for the first quarter of 2001.



                                       19
<PAGE>

Year Ended December 31, 1999

During  the year  ended  December  31,  1999,  we  recorded  $588.9  million  of
acquisition related and unusual costs primarily associated with the $9.6 billion
acquisition of BFI, which was accounted for as a purchase.  The costs  primarily
relate to environmental related matters, litigation liabilities, risk management
liabilities,  loss contract  provisions,  transition  costs and the write-off of
deferred  costs  relating to the  acquisition.  These costs are comprised of the
following:

We  recorded  a charge of  approximately  $267.0  million  related to changes in
estimates of  environmental  liabilities  associated with BFI's  operations.  In
connection  with our due diligence and integration  process,  assessments of the
acquired operations were performed by third-party,  in-house engineers and legal
counsel. Based on these assessments,  we made changes in accounting estimates of
approximately (i) $133.7 million  associated with the Superfund accrual for over
150 CERCLA cases in which BFI was involved,  (ii) $30.3 million  associated with
the remedial  accrual for sites in which BFI was involved with  remedial  action
plans, (iii) $56.3 million associated with the environmental accrual for various
containment and treatment matters at 76 active or closed BFI landfills, and (iv)
$46.7  million  associated  with  the  accrual  for  the  remedial  and  closure
requirements of four BFI closed hazardous waste facilities.

In 1999 we recorded a charge of  approximately  $93.5 million related to changes
in estimates of litigation  liabilities  associated  with BFI's  operations.  In
connection  with our due diligence and integration  process,  assessments of the
acquired operations and outstanding litigation were performed by third-party and
in-house legal counsel.  We evaluated over 200 cases involving  employee-related
matters,  regulatory matters,  collection  matters,  contract disputes and other
commercial litigation matters.  Accordingly, we increased the litigation accrual
based on the most probable loss to be incurred.

In  1999  we  recorded  an  increase  of  approximately  $20.0  million  to  the
self-insurance  accruals based on the results of a third-party  actuarial review
performed  in  connection   with  due  diligence  and  integration  of  the  BFI
acquisition. As of September 30, 1999, we instituted a guaranteed cost insurance
program for all casualty insurance coverages.

In  connection  with the  integration  of the BFI  acquisition,  we reviewed the
existing  contracts of the business for  recoverability.  Several contracts were
identified  which were in a loss position when the direct costs  (excluding  any
non-variable  type costs)  attributable  to the contract  were deducted from the
revenue  to be  generated  by  the  contract.  Consistent  with  our  accounting
policies,  we recorded a charge of approximately $32.6 million to operations for
the excess of costs over revenues of the identified contracts.

As a result  of the  acquisition  of BFI,  management  reassessed  the  level of
acquisitions  that it would  pursue  in the  future  and  decided  that  certain
companies that were being considered would no longer be pursued. Accordingly, we
wrote off $26.1 million of deferred  charges  previously  incurred in connection
with these potential acquisitions.  Additionally,  we wrote off $33.8 million of
commitment  fees paid in  connection  with a portion of the financing of the BFI
acquisition.  These fees were  associated  with  funds that were not  ultimately
drawn due to alternative  sources of financing becoming  available.  However, as
secured  financing  for the  entire  purchase  price  of the  acquisition  was a
condition  of the  signing  of the  merger  agreement  with  BFI,  and the  debt
associated  with these fees was not  incurred,  the cost was  written off in the
third quarter of 1999.

In connection  with the  integration  plan for BFI, we  identified  and notified
approximately  1,500  employees  that they  would be  retained  for a  specified
period,  generally not exceeding 12 months from the acquisition date, to perform
transition related functions. Subsequent to the specified time period, they were
terminated.  Additionally,  we identified  certain offices and operations  which
were duplicative.  As these transition costs cannot be expensed or accrued until
committed or paid, approximately $67.4 million of transition costs were expensed
during 1999.  Additionally,  we accrued approximately $10.0 million of committed
transition costs during 1999.

Additionally,   we  recorded  approximately  $43.5  million  of  non-cash  asset
impairments   related  to  the   valuation  of  Allied  assets  held  for  sale,
approximately  $1.8 million of non-cash asset  impairments  related to duplicate
facilities,  and  approximately  $0.4 million of  restructuring  and abandonment
costs related to other 1999 acquisitions.

                                       20
<PAGE>

Any  subsequent  changes in estimates of  acquisition  related and unusual costs
have been and 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. During 1999, approximately $7.2 million of accrued acquisition
related costs  associated  with 1998  acquisitions  were reversed to acquisition
related and unusual costs.

The  following  table  reflects  the cash  activity  related to the  acquisition
related and unusual costs accrued during 1999 (in thousands):

<TABLE>
<CAPTION>

                                    1999                                                                 Balance
                                  Additions                                                             Remaining
                                   through            1999             2000                           December 31,
                                   Expense        Expenditures     Expenditures       Adjustments         2000
                               ----------------  ---------------- ----------------  ---------------- ----------------
<S>                            <C>               <C>              <C>               <C>              <C>
Transition costs.............  $       77,350    $   (74,654)     $     (2,091)     $        (605)   $           --
Loss contracts...............          32,643         (6,058)          (14,698)            18,776            30,663
Litigation and compliance
  costs......................         113,382         (1,553)          (30,960)             5,734            86,603
                               ----------------  ---------------- ----------------  ---------------- ----------------
   Total.....................  $      223,375    $   (82,265)     $    (47,749)     $      23,905    $      117,266
                               ================  ================ ================  ================ ================
</TABLE>

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

Income  Taxes.  Income taxes  reflect an effective tax rate of 63.3% in 2000 and
(3.9)% in 1999. The effective  income tax rate in 2000 deviates from the federal
statutory rate of 35% primarily due to the non-deductibility of the amortization
related to $6.4 billion of goodwill  recorded in connection with the acquisition
of BFI.

Extraordinary  Loss,  net. In September  2000, we repaid the Tranche D term loan
prior to its maturity date. In connection with this  repayment,  we recognized a
non-cash  extraordinary  charge  for the  early  extinguishment  of the  debt of
approximately  $11.2 million ($6.8 million net of income tax benefit) related to
the write-off of previously deferred debt issuance costs.

In  February  2000,  we repaid  the asset sale term loan  facility  prior to its
maturity  date.  In  connection  with this  repayment,  we recognized a non-cash
extraordinary  charge for the early  extinguishment of the debt of approximately
$10.7 million ($6.5 million net of income tax benefit)  related to the write-off
of deferred debt issuance costs.

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

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

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



                                       21
<PAGE>

Years Ended December 31, 1999 and 1998

Revenues.  Revenues in 1999 were $3.3 billion  compared to $1.6 billion in 1998,
an increase of 112%. The increase in revenues was primarily  attributable to the
acquisition  of BFI on July 30,  1999 and the  inclusion  in our  results of BFI
revenues for the period July 31, 1999 through  December 31, 1999. BFI's 1998 pro
forma  revenue  adjusted to reflect the sale of BFI's  Canadian  operations  and
medical waste operations was approximately $3.8 billion.

Cost of  Operations.  Cost of  operations  in 1999 was $1.9 billion  compared to
$892.3  million  in  1998,  an  increase  of  118.4%.  The  increase  in cost of
operations  was  primarily  attributable  to the  inclusion  of  BFI's  cost  of
operations  associated with the revenues from July 31, 1999 through December 31,
1999. As a percentage of revenues, cost of operations increased to 58.3% in 1999
from 56.6% in 1998,  primarily due to the change in revenue mix  resulting  from
the  acquisition  of BFI.  BFI's revenue mix was more heavily  weighted  towards
collection revenue, which has lower margins than landfill revenues.

Selling,  General and Administrative Expenses. SG&A expenses in 1999 were $231.4
million  compared to $155.8 million in 1998, an increase of 48.5%,  and reflects
our  acquisition of BFI. As a percentage of revenues,  SG&A decreased to 6.9% in
1999 from 9.9% in 1998.  This  decrease  is the  result  of  achieving  the cost
savings associated with the acquisition of BFI and significantly  increasing the
revenues as noted above.

Depreciation and Amortization.  Depreciation and amortization in 1999 was $273.4
million  compared to $149.3 million in 1998, an increase of 83.1%,  and reflects
our  acquisition  of  BFI.  As  a  percentage  of  revenues,   depreciation  and
amortization  expense  decreased to 8.2% in 1999 from 9.5% in 1998. The decrease
is primarily due to the significant increase in revenues from our acquisition of
BFI which more than offset the corresponding increase in depreciation due to the
acquisition of BFI.  Additionally,  as required by generally accepted accounting
principles,  we ceased  recording  depreciation  on assets  held for sale during
1999. Such depreciation would have been approximately $6.3 million.

Goodwill Amortization. Goodwill amortization in 1999 was $110.7 million compared
to $30.7  million in 1998,  an  increase  of 260.6%.  The  increase  in goodwill
amortization  was due to an increase in  goodwill  of  approximately  $7 billion
primarily resulting from the acquisition of BFI.

Acquisition  Related and Unusual Costs. During the year ended December 31, 1999,
we recorded  $588.9 million of acquisition  related and unusual costs  primarily
associated with the $9.6 billion  acquisition of BFI, which was accounted for as
a  purchase.  The costs  primarily  relate  to  environmental  related  matters,
litigation liabilities,  risk management liabilities,  loss contract provisions,
transition   costs,  and  the  write-off  of  deferred  costs  relating  to  the
acquisition.

Interest  Expense,  net.  Interest  expense,  net of interest  income was $435.8
million in 1999 compared to $84.4  million in 1998,  an increase of 416.4%.  The
increase  in  interest  expense  was  primarily  due to the  increase in debt of
approximately  $8 billion from the acquisition of BFI, which was outstanding for
five  months in 1999.  Additionally,  capitalized  interest  decreased  to $25.5
million  in 1999 from  $67.5  million  in 1998 due to the  change in  accounting
principle.

Income  Taxes.  Income taxes reflect an effective tax rate of (3.9)% in 1999 and
80.3% in 1998.  The effective  income tax rate in 1999 deviates from the federal
statutory  rate of 35%  primarily  due to the  non-deductible  nature of certain
acquisition  related  charges  and  the  non-deductibility  of the  amortization
related to $6.4 billion of goodwill  recorded in connection with the acquisition
of BFI.  The  effective  income  tax  rate in 1998  deviates  from  the  federal
statutory  rate  primarily  due to 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). Without
considering the effect of the acquisition-related charges the 1999 effective tax
rate was 47.5%.

Extraordinary  Loss,  net. In July 1999, in connection with our financing of the
BFI acquisition, we replaced our credit facility and recognized an extraordinary
charge of  approximately  $5.3 million  ($3.2 million net of income tax benefit)
related to the write-off of previously deferred debt issuance costs.

                                       22
<PAGE>

In December 1998, we replaced our 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, we replaced our 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.

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

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

Liquidity and Capital Resources

Our liquidity needs derived from operations are met with operating cash flow and
when  non-operating  liquidity  needs arise they are met, if not from  remaining
operating cash flow, with borrowings under our revolving  credit facility.  Cash
provided by  operations  for the year 2000 was $803.3  million,  which  included
$242.7  million  spent  on  non-recurring   acquisition   related  accruals  and
transition costs. This exceeded 2000 operating capital expenditure  requirements
of  approximately  $435  million,   (including  capitalized  interest  of  $45.4
million), by $368.3 million.  Non-operating items provided liquidity during 2000
of  $210.0  million  primarily  derived  from the  divestiture  of  solid  waste
businesses net of the acquisition of such businesses for $236.3 million.  During
2000 we were  able to pay  $594.4  million  of our debt  using the  excess  cash
provided by both operating and non-operating sources.

During the year  ending  December  31,  2001 we expect to  generate  excess cash
provided by both operating and non-operating sources that will allow us to repay
between $350 million and $450 million of our debt.

We have historically  operated with a working capital deficit and we expect that
we will continue to operate with a working capital deficit.  The working capital
deficit is  generally  caused by the  current  portion of  non-recurring  market
development  related  obligations,  $243.0  million as of December 31, 2000.  In
addition,   we  regularly  use  excess   available   cash  from   operating  and
non-operating  activities to pay amounts owed on our  revolving  line of credit,
which is  classified  as long term.  Non-recurring  market  development  related
obligations  are primarily  related to the BFI  acquisition  and are expected to
decrease over subsequent years.

We expect  2001 cash  flows to be derived  from the  following  components  (all
amounts are approximate anticipated ranges):

     o    Adjusted   earnings   before   interest,   taxes,   depreciation   and
          amortization from $2.075 billion to $2.150 billion,
     o    Other non-cash items,  including  provision for closure,  post-closure
          and allowance for doubtful accounts from $75 million to $90 million,
     o    Cash interest from $860 million to $880 million,
     o    Cash taxes from $150 million to $165 million,
     o    Closure, post-closure and environmental expenditures from $170 million
          to $185 million,
     o    Capital expenditures from $530 million to $560 million,
     o    Debt reduction from American Ref-Fuel transaction of $300 million,
     o    Non-recurring  payments against acquisition accruals from $125 million
          to $175 million,
     o    Cash taxes and payments  related to acquisitions  and  divestitures in
          prior years of $100 million.


                                       23
<PAGE>

During the years ended  December  31, 2000,  1999 and 1998,  our cash flows from
operating, investing and financing activities were as follows (in millions):

<TABLE>
<CAPTION>
                                                                            Year Ended December 31,
                                                                 -----------------------------------------------
                                                                     2000             1999             1998
                                                                 -------------    -------------     ------------
<S>                                                              <C>              <C>               <C>
Operating Activities:
Net income (loss)................................................$      124.4     $     (288.7)     $    (223.1)
Non-cash acquisition related and unusual costs and asset
  impairments....................................................        26.5            105.2             88.2
Non-cash operating expenses(1)...................................       892.5            318.8            245.8
Cumulative effect of change in accounting principle..............          --             64.3               --
Gain on sale of assets...........................................       (10.5)            (5.3)            (3.5)
Extraordinary losses due to early extinguishments of debt,
  net of income tax benefit and cash premium paid................        13.3              3.2            119.0
Cash premium paid due to early extinguishments of debt...........          --               --           (173.2)
Change in operating assets and liabilities, net..................      (242.9)           291.5            116.2
                                                                 -------------    -------------     ------------
  Cash provided by operating activities..........................       803.3            489.0            169.4
                                                                 -------------    -------------     ------------
Investing Activities:
Cost of acquisitions, net of cash acquired(2)....................      (802.9)        (7,589.6)          (313.0)
Proceeds from divestitures, net(2)...............................     1,039.2            468.9               --
Accruals for acquisition price and severance costs...............       (27.8)            15.2               --
Capital expenditures and net contributions to unconsolidated
  subsidiaries...................................................      (374.5)          (356.2)          (301.7)
Capitalized interest.............................................       (45.4)           (25.5)           (67.5)
Proceeds from sale of fixed assets...............................        42.9             53.2             12.1
Change in deferred acquisition costs and notes
  receivable.....................................................       (41.4)           (28.5)            (8.2)
                                                                 -------------    -------------     ------------
  Cash used for investing activities.............................      (209.9)        (7,462.5)          (678.3)
                                                                 -------------    -------------     ------------
Financing Activities:
Net proceeds from sale of common stock and exercise of
  stock options and warrants.....................................         1.7             10.2             11.3
Net proceeds from sale of Preferred Stock........................          --            973.9               --
Net proceeds from long-term debt, net of issuance costs..........     2,202.0          8,672.3          2,725.3
Repayments of long-term debt.....................................    (2,796.4)        (2,601.2)        (2,265.7)
Other............................................................          --               --             44.4
                                                                 -------------    -------------     ------------
  Cash provided by (used for) financing activities...............      (592.7)         7,055.2            515.3
                                                                 -------------    -------------     ------------
Increase in cash and cash equivalents............................$        0.7     $       81.7      $       6.4
                                                                 =============    =============     ============

<FN>
     (1)  Consists  principally of provisions for depreciation and amortization,
          undistributed  earnings of equity investments,  allowance for doubtful
          accounts,  accretion of debt and  amortization of debt issuance costs,
          and deferred income taxes.

     (2)  During  2000,  we  acquired  solid  waste   operations,   representing
          approximately  $482.6  million  ($468.9  million  net of  intercompany
          eliminations)  in annual  revenues,  and sold operations  representing
          approximately  $814.2  million  ($679.4  million  net of  intercompany
          eliminations) in annual revenues.
</FN>
</TABLE>

                                       24
<PAGE>

As of December 31, 2000, we had cash and cash equivalents of $122.1 million. Our
debt structure  consisted  primarily of $4.9 billion  outstanding under the 1999
Credit Facility, $2.0 billion of the 1999 Notes, $1.7 billion of the 1998 Senior
Notes and $1.1 billion of debt assumed in connection  with the BFI  acquisition.
As of December 31, 2000 there was  aggregate  availability  under the  revolving
credit facility of the 1999 Credit Facility of approximately  $587 million to be
used for working  capital,  letters of credit,  acquisitions  and other  general
corporate purposes. The 1999 Credit Agreement and the indentures relating to the
1999 Notes and the 1998 Senior Notes contain  financial and operating  covenants
and restrictions on our ability to complete acquisitions,  pay dividends,  incur
indebtedness,  make  investments  and take certain other  corporate  actions.  A
substantial  portion of our  available  cash will be  required  to service  this
indebtedness.  For fiscal  2001,  our  required  debt  service is expected to be
approximately  $880 million consisting of approximately $10 million in principal
repayments and between  approximately $860 to $880 million in interest payments.
These amounts may vary depending upon changes in interest rates.

We are also required to provide  financial  assurances to governmental  agencies
under applicable environmental  regulations relating to our landfill operations.
We satisfy  these  financial  assurance  requirements  by issuing  surety bonds,
letters  of credit,  insurance  policies  or trust  deposits  as they  relate to
landfill  closure  and  post-closure   costs.  At  December  31,  2000,  we  had
outstanding  approximately  $1.5  billion in  financial  assurance  instruments,
represented  by $369.3  million of surety bonds,  $1,080.5  million of insurance
policies,  $64.9  million  of trust  deposits  and $18.8  million  of letters of
credit.  During  the  calendar  year  2001,  we expect to  continue  to  provide
approximately $1.5 billion in financial  assurance  instruments  relating to our
landfill operations.

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

Our ability to meet future capital expenditure and working capital requirements,
to make scheduled  payments of principal,  to pay interest,  or to refinance our
indebtedness,  and to fund capital  amounts  required  for the  expansion of the
existing business depends on our future performance, which, to a certain extent,
is subject to general economic, financial, competitive,  legislative, regulatory
and other  factors  beyond our control.  We cannot  assure you that our business
will generate sufficient cash flow from operations,  that future financings will
be  available  to  us  in  amounts  sufficient  to  enable  us  to  service  our
indebtedness or to make necessary capital expenditures,  or that any refinancing
would  be  available  on  commercially  reasonable  terms,  if at all.  Further,
depending  on  the  timing,   amount  and  structure  of  any  possible   future
acquisitions and the  availability of funds under the 1999 Credit  Facility,  we
may need to raise additional capital. We may raise such funds through additional
bank  financings  or  public  or  private  offerings  of  our  debt  and  equity
securities. We cannot assure you that we will be able to secure such funding, if
necessary,  on favorable  terms, if at all. If we are not successful in securing
such  funding,  our ability to pursue our business  strategy may be impaired and
results of operations for future periods may be negatively affected. (See Note 6
to Allied's Consolidated Financial Statements).


                                       25
<PAGE>

Significant Financing Events

In July 1999, in connection  with the  completion of the  acquisition of BFI, we
entered into new financing  arrangements  and repaid all amounts  borrowed under
the then  existing  credit  facility  and all amounts  borrowed by BFI under its
commercial  paper  program.  The new  financing  arrangements  were (i) the 1999
Credit  Facility for Allied Waste North  America,  Inc.  ("Allied  NA"; a wholly
owned  consolidated  subsidiary  of  Allied),  which  is  guaranteed  by us  and
substantially all of our subsidiaries (including BFI and its subsidiaries), from
a bank group for $7.1 billion to provide  financing for the  acquisition  of BFI
and working capital for us following the acquisition,  (ii) the sale of the $2.0
billion  principal amount 1999 Notes by Allied NA which are guaranteed by us and
substantially all of our subsidiaries (including BFI and its subsidiaries),  and
(iii) the sale for $1.0 billion of the Preferred  Stock.  In connection with the
completion  of the  acquisition  of BFI,  we also  guaranteed  certain  of BFI's
remaining debt and, for the 1998 Senior Notes and for certain of BFI's remaining
debt,  we  provided  collateral,  which is also  collateral  for the 1999 Credit
Facility.  Both the 1999 Credit Facility and the 1999 Notes contain restrictions
on Allied's  ability to make  acquisitions,  purchase fixed assets above certain
amounts, pay dividends, incur additional 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  Allied's
assets. The 1999 Credit Facility, the 1999 Notes and the Preferred Stock contain
provisions,  which could  require  repayment,  in some cases at a premium upon a
defined  "change  of  control"  of Allied.  The  Preferred  Stock also  contains
restrictions on Allied's ability to pay cash dividends on common stock.

Subsequent  Event.  On January 30, 2001, we issued $600 million of 8.875% senior
secured  notes,  due  2008,  in a  private  placement  under  Rule  144A  of the
Securities Act of 1933. We used the net proceeds of  approximately  $589 million
from the sale of these notes to ratably repay portions of tranches A, B and C of
the term loans under the 1999 Credit Facility,  $110 million of which was due in
September  2001. We expect to file a  registration  statement to register  these
notes under the  Securities  Act of 1933 within 120 days of the  offering  date.
Coincident with the offering we amended our credit  facilities to change certain
financial covenants to provide us with greater operating flexibility.


New Accounting Standard

In June 2000, the Financial  Accounting Standards Board ("FASB") issued SFAS No.
138,   Accounting  for  Certain  Derivative   Instruments  and  Certain  Hedging
Activities - an amendment of FASB Statement No. 133. This  statement  amends the
accounting  and reporting  standards of SFAS No. 133,  Accounting for Derivative
Instruments and Hedging Activities, with respect to specific interpretations and
circumstances,  and incorporates  certain decisions arising from the Derivatives
Implementation Group process.

In June 1999, the implementation date of SFAS No. 133 was deferred one year from
the original  date to those fiscal years  beginning  after June 15, 2000 by SFAS
No. 137, Accounting for Derivative Instruments and Hedging Activities - Deferral
of the Effective  Date of FASB Statement No. 133. SFAS No.'s 133 and 138 require
all  derivatives  to be  recorded  as  either  assets  or  liabilities  and  the
instruments to be measured at fair value. Gains or losses resulting from changes
in the values of those derivatives are to be recognized immediately in earnings,
other comprehensive income or deferred,  depending on the use of the derivative,
and whether or not it  qualifies  as a hedge.  The  statement  requires a formal
documentation  of hedge  designation  and  assessment  of the  effectiveness  of
transactions that receive hedge accounting. We adopted SFAS No.'s 133 and 138 on
January 1, 2001, as required.

In the  process  of  adoption  of SFAS  133 we  have  reviewed  all  significant
transactions  and  contracts for  derivative  activity and  determined  that our
interest rate swap agreements are our only transactions  representing derivative
instruments  that require a change in accounting  under SFAS No. 133 and 138. We
have interest rate risk relating to long-term  variable rate debt. We enter into
interest rate swap  agreements when such  transactions  will serve to reduce the
aggregate  exposure of future cash flows to volatility  or adverse  movements in
interest  rates.  Interest rate swap  agreements are entered into solely for the
purpose of reducing risk; positions are not taken for speculative purposes.

                                       26
<PAGE>

Our interest rate swaps are properly designated as, and are effective as, hedges
of our variable  rate debt.  We assume no  ineffectiveness  in our interest rate
hedges,  as the  notional  amounts,  indices,  repricing  dates,  and all  other
significant terms of the swap agreements are matched to the provisions and terms
of the variable rate debt being hedged. These instruments are designated as cash
flow hedges,  and  accordingly,  at January 1, 2001, the mark to market value of
these  instruments  was recorded as a cumulative  effect of change in accounting
principle in Other  Comprehensive  Income (OCI) in the amount of ($45.2) million
net of tax. The effect of the swaps will be matched against interest expense for
the related variable rate debt over the terms of the swaps.

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 we believe that the expectations reflected
in such Forward Looking Statements are reasonable, we can give no assurance that
such expectations will prove to be correct.  Generally,  these 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,  including  whether  and when the
acquisitions  will be  accretive  to  earnings,  made by or to be made by us, or
projections  involving  anticipated  revenues,   earnings,   levels  of  capital
expenditures   or  other  aspects  of  operating   results  and  the  underlying
assumptions  including internal growth as well as general economic and financial
market  conditions.  All  phases of our  operations  are  subject to a number of
uncertainties,  risks and other  influences,  many of which are  outside  of our
control and any one of which, or a combination of which, could materially affect
the results of our operations and whether Forward Looking  Statements made by us
ultimately prove to be accurate.  Such important factors  ("Important  Factors")
that could cause actual results to differ  materially from our  expectations are
disclosed in this section, in the section titled "Risk Factors" and elsewhere in
this  report.  All  subsequent  written  and  oral  Forward  Looking  Statements
attributable  to us or persons  acting on our behalf are expressly  qualified in
their entirety by the Important  Factors described below that could cause actual
results to differ from our expectations.  Shareholders,  potential investors and
other readers are urged to consider these factors in evaluating  Forward Looking
Statements  and are  cautioned  not to place  undue  reliance  on these  Forward
Looking Statements.  The forward-looking statements made herein are only made as
of the date of this filing and we undertake  no  obligation  to publicly  update
such forward-looking statements to reflect subsequent events or circumstances.

Risk Factors

Leverage and Ability to Service  Debt.  We have had and will  continue to have a
substantial  amount of outstanding  indebtedness  with  significant debt service
requirements. At December 31, 2000, our consolidated debt was approximately $9.6
billion. The degree to which we are leveraged could have important consequences.
For example it could:

     o    make it more difficult for us to satisfy our obligations  with respect
          to our debt;
     o    require  us to  dedicate a  substantial  portion of our cash flow from
          operations  to payments on our  indebtedness,  which would  reduce the
          availability  of our  cash  flow  to  fund  working  capital,  capital
          expenditures and for other general corporate purposes;
     o    increase  our  vulnerability  to economic  downturns  and  competitive
          pressures in the industry in which we operate;
     o    increase our  vulnerability to interest rate increases for the portion
          of unhedged debt under our credit facility;
     o    place us at a  competitive  disadvantage  compared to our  competitors
          that have less debt in relation to cash flow;
     o    limit our  flexibility  in planning for, or reacting to changes in our
          business and the industry in which we operate;
     o    limit, among other things, our ability to borrow additional funds; and
     o    subject  us to  financial  and  other  restrictive  covenants  in  our
          indebtedness.  The failure to comply with these covenants could result
          in an event of default  which,  if not cured or  waived,  could have a
          material negative effect on us.

                                       27
<PAGE>

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

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

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

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

Competition.  The non-hazardous waste collection and disposal industry is highly
competitive.  We compete with large companies and municipalities  which may have
greater  financial  and  operations  resources.  We also compete with the use of
alternatives  to  landfill  disposal  because  of state  requirements  to reduce
landfill disposal.  The non-hazardous  waste collection and disposal industry is
led  by  three  large  national  waste  management   companies:   Allied,  Waste
Management, Inc., and Republic Services, Inc. It also includes numerous regional
and local  companies.  Many counties and  municipalities  that operate their own
waste  collection  and  disposal  facilities  have the  benefits  of  tax-exempt
financing  and  may  control  the  disposal  of  waste  collected  within  their
jurisdictions.

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

                                       28
<PAGE>

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

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

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

Ongoing Capital  Requirements.  Our ability to remain  competitive,  sustain our
growth and operations  and expand  operations  largely  depends on our cash flow
from operations and access to capital.  We intend to fund our cash needs through
cash flow from  operations and  borrowings  under our 1999 Credit  Facility,  if
necessary.  However,  we may require additional equity and/or debt financing for
debt repayment obligations and to fund our growth. We spent approximately $488.4
million for capital  expenditures  and closure and  post-closure and remediation
expenditures  related to our landfill  operations  during 2000, and we expect to
spend  approximately  $745 million for these  purposes in 2001.  If we undertake
more  acquisitions  or further  expand our  operations,  the amount we expend on
capital,  closure and post-closure and remediation  expenditures  will increase.
The  increase  in  expenditures  may result in low levels of working  capital or
require us to finance working capital deficits.

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

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

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

                                       29
<PAGE>

Economic Conditions. Our business is affected by general economic conditions. We
cannot  assure that an economic  downturn  will not result in a reduction in the
volume of waste being disposed of at our operations and/or the price that we can
charge for our services.

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

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

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

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

In addition to the costs of complying  with  environmental  regulations,  we are
involved in  administrative  and judicial  proceedings  related to environmental
matters.  As a  result,  we may be  required  to pay  fines or may lose  certain
permits and licenses.  We also may have to defend ourselves against governmental
agencies and  surrounding  landowners who assert claims  alleging  environmental
damage,  personal  injury,  property  damage  and/or  violations  of permits and
licenses by us. A  significant  judgment  against us, the loss of a  significant
permit or license or the imposition of a significant  fine could have a material
negative effect on our financial condition.

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

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

                                       30
<PAGE>

Hazardous  Substances  Liability.  We  have  been  identified  as a  potentially
responsible  party at  numerous  sites  under  the  Comprehensive  Environmental
Response,  Compensation and Liability Act of 1980, as amended, or CERCLA. CERCLA
has been  interpreted to impose strict,  joint and several  liability on current
and former  owners or  operators of a facility at which there has been a release
or a threatened release of a "hazardous  substance",  on persons who arrange for
the disposal of such  substances  at the  facility and on persons who  transport
such substances to facilities  selected by such persons.  Hundreds of substances
are  defined as  "hazardous"  under  CERCLA and their  presence,  even in minute
amounts,  can result in  substantial  liability.  The statute  provides  for the
remediation  of  contaminated  facilities  and imposes costs on the  responsible
parties.   The  expense  of  conducting  such  a  cleanup  can  be  significant.
Notwithstanding  our efforts to comply with applicable  regulations and to avoid
transporting and receiving hazardous substances,  such substances may be present
in waste collected by us or disposed of in our landfills, or in waste collected,
transported or disposed of in the past by acquired companies.  Cleanup liability
may also  arise  under  various  state laws  similar to CERCLA.  As used in this
report, "non-hazardous waste" means substances that are not defined as hazardous
waste under federal regulations.

Potential Undisclosed  Liabilities  Associated with our Acquisitions.  We may be
exposed to liabilities that we fail or are unable to discover in connection with
acquisitions.  In  connection  with any  acquisition  made by us,  there  may be
liabilities  that  we fail to  discover  or are  unable  to  discover  including
liabilities  arising from non-compliance with environmental laws by prior owners
and for which we, as successor owner, may be responsible.

Inflation and Prevailing Economic Conditions

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

Seasonality

We  believe  that  our  collection,  transfer  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.  Severe weather can  negatively  effect the costs of
collection and disposal.


                                       31
<PAGE>

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

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

We have effectively converted a significant portion of our long-term debt, which
requires  payment at  variable  rates of  interest,  to fixed  rate  obligations
through interest rate swap transactions.  These transactions  required us to pay
fixed rates of interest on notional amounts of principal to counter-parties. The
counter-parties,  in turn,  paid to us  variable  rates of  interest on the same
notional amounts of principal. Increases or decreases in short-term market rates
did not  materially  impact  earnings and cash flow as a significant  portion of
variable rate debt had been swapped for fixed rates.  In addition,  increases or
decreases in long-term  market interest rates would effect the fair value of our
long-term  debt  offset by change to the fair value of our swap  portfolio.  The
following  interest rate table  summarizes  all interest rate swaps that were in
effect and their fair value as of December 31, 2000:

<TABLE>
<CAPTION>

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

<S>                    <C>                      <C>        <C>                           <C>          <C>
                       January 2001                        Credit Agreement
$     4,000,000        -March 2004              7.02 %      Term Loan Facility           Libor        $     (74,666)

</TABLE>

See Notes 1 and 6 to our  Consolidated  Financial  Statements  in Item 8 of this
Form 10-K for additional  information regarding how we manage interest rate risk
at December 31, 2000,  and accounting  principle  changes  effective  January 1,
2001.



                                       32
<PAGE>

Item 8. Financial Statements and Supplementary Data

     Report of Independent Public Accountants.

     Consolidated Balance Sheets as of December 31, 2000 and 1999.

     Consolidated  Statements of Operations  for the Three Years Ended  December
          31, 2000.

     Consolidated  Statements of Stockholders'  Equity for the Three Years Ended
          December 31, 2000.

     Consolidated  Statements  of Cash Flows for the Three Years Ended  December
          31, 2000.

     Notes to Consolidated Financial Statements.



                                       33
<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,
2000  and  1999,  and  the  related   consolidated   statements  of  operations,
stockholders'  equity and cash  flows for each of the three  years in the period
ended December 31, 2000. These financial  statements are the  responsibility  of
the Company's  management.  Our responsibility is to express an opinion on these
financial statements based on our audits.

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

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,  2000 and 1999,  and the results of their
operations  and their cash flows for each of the three years in the period ended
December 31, 2000, in conformity with accounting  principles  generally accepted
in the United States.

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

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


ARTHUR ANDERSEN LLP


Phoenix, Arizona
February 20, 2001



                                       34
<PAGE>

<TABLE>
<CAPTION>

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


                                                                                          December 31,
                                                                            ------------------------------------------
                                                                                  2000                    1999
                                                                            ------------------      ------------------
<S>                                                                         <C>                     <C>
ASSETS
Current Assets --
Cash and cash equivalents...............................................    $       122,094         $       121,405
Accounts receivable, net of allowance of $43,099 and $59,490............            823,259                 867,667
Prepaid and other current assets........................................            119,483                 252,187
Deferred income taxes, net..............................................            206,867                 115,263
Assets held for sale....................................................                 --                 891,900
                                                                            ------------------      ------------------
  Total current assets..................................................          1,271,703               2,248,422
Property and equipment, net.............................................          3,860,538               3,738,388
Goodwill, net ..........................................................          8,717,438               8,238,929
Other assets, net.......................................................            663,955                 737,362
                                                                            ------------------      ------------------
  Total assets..........................................................    $    14,513,634         $    14,963,101
                                                                            ==================      ==================


LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities --
Current portion of long-term debt.......................................    $         13,997        $      1,002,928
Accounts payable........................................................             476,333                 481,318
Accrued closure, post-closure and environmental costs...................             153,226                 134,968
Accrued interest........................................................             165,954                 158,251
Other accrued liabilities...............................................             564,154                 613,663
Unearned revenue........................................................             226,088                 238,371
                                                                            ------------------      ------------------
  Total current liabilities.............................................           1,599,752               2,629,499
Long-term debt, less current portion....................................           9,635,124               9,240,291
Deferred income taxes...................................................             358,637                 204,786
Accrued closure, post-closure and environmental costs...................             880,580                 860,574
Other long-term obligations.............................................             271,882                 388,396
Commitments and contingencies
Series A Senior Convertible Preferred Stock, 1,000 shares
  authorized, issued and outstanding, liquidation
  preference of $1,096 and $1,028 per share.............................           1,069,827               1,001,559
Stockholders' Equity --
Common stock............................................................               1,961                   1,885
Additional paid-in capital..............................................           1,140,772               1,205,399
Retained deficit........................................................            (444,901)               (569,288)
                                                                            ------------------      ------------------
  Total stockholders' equity............................................             697,832                 637,996
                                                                            ------------------      ------------------
  Total liabilities and stockholders' equity............................    $     14,513,634        $     14,963,101
                                                                            ==================      ==================


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

</TABLE>


                                       35
<PAGE>


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

                                                                                        Year Ended December 31,
                                                                         -------------------------------------------------------
                                                                              2000                1999                1998
                                                                         ---------------     ---------------     ---------------
<S>                                                                      <C>                 <C>                 <C>
Revenues............................................................     $    5,707,485      $    3,341,071      $    1,575,612
Cost of operations excluding acquisition related and unusual costs..          3,280,027           1,948,964             892,273
Selling, general and administrative expenses excluding acquisition
  related and unusual costs.........................................            417,558             231,366             155,835
Depreciation and amortization.......................................            450,794             273,368             149,260
Goodwill amortization...............................................            223,244             110,726              30,705
Acquisition related and unusual costs...............................            127,327             588,855             317,616
                                                                         ---------------     ---------------     ---------------
  Operating income..................................................          1,208,535             187,792              29,923
Equity in earnings of unconsolidated affiliates.....................            (50,788)            (20,785)                 --
Interest income.....................................................             (4,127)             (7,212)             (4,030)
Interest expense....................................................            882,282             443,044              88,431
                                                                         ---------------     ---------------     ---------------
  Income (loss) before income taxes.................................            381,168            (227,255)            (54,478)
Income tax expense (benefit)........................................            237,540              (8,756)             43,773
Minority interest...................................................              5,975               2,751                  --
                                                                         ---------------     ---------------     ---------------
  Income (loss) before extraordinary losses and cumulative effect of
    change in accounting principle..................................            137,653            (221,250)            (98,251)
Extraordinary losses, net of income tax benefit.....................             13,266               3,223             124,801
Cumulative effect of change in accounting principle, net of income
  tax benefit.......................................................                 --              64,255                  --
                                                                         ---------------     ---------------     ---------------
  Net income (loss).................................................            124,387            (288,728)           (223,052)
Dividends on preferred stock........................................             68,452              27,789                  --
                                                                         ---------------     ---------------     ---------------
  Net income (loss) available to common shareholders................     $       55,935      $     (316,517)     $     (223,052)
                                                                         ===============     ===============     ===============

Basic EPS:
Income (loss) available to common shareholders before  extraordinary
  losses and cumulative effect of change in accounting principle, net
  of income tax benefit.............................................     $         0.37      $        (1.33)     $        (0.54)
Extraordinary losses, net of income tax benefit.....................              (0.07)              (0.02)              (0.68)
Cumulative effect of change in accounting principle, net of income
  tax benefit.......................................................                 --               (0.34)                 --
                                                                         ---------------     ---------------     ---------------
  Net income (loss) available to common shareholders................     $         0.30      $        (1.69)     $        (1.22)
                                                                         ===============     ===============     ===============
Weighted average common shares......................................            188,814             187,801             182,796
                                                                         ===============     ===============     ===============

Diluted EPS:
Income (loss) available to common shareholders before  extraordinary
  losses and cumulative effect of change in accounting principle, net
  of income tax benefit.............................................     $         0.36      $        (1.33)      $       (0.54)
Extraordinary losses, net of income tax benefit.....................              (0.07)              (0.02)              (0.68)
Cumulative effect of change in accounting principle, net of income
  tax benefit.......................................................                 --               (0.34)                  --
                                                                         ---------------     ---------------     ---------------
  Net income (loss) available to common shareholders................     $         0.29      $        (1.69)      $       (1.22)
                                                                         ===============     ===============     ===============
Weighted average common and common equivalent shares................            191,122             187,801             182,796
                                                                         ===============     ===============     ===============

Unaudited pro forma  amounts,  assuming  the change in  accounting
  principle is applied retroactively:
Net loss available to common shareholders...........................                                              $    (256,265)
Diluted loss per share..............................................                                              $       (1.40)

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

</TABLE>


                                       36
<PAGE>

<TABLE>
<CAPTION>

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


                                                                        Additional                              Total
                                                        Common            Paid-In          Retained         Stockholders'
                                                         Stock            Capital          Deficit             Equity
                                                      ------------     --------------    -------------     ----------------
<S>                                                   <C>              <C>               <C>               <C>
Balance as of 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, net......              18             23,547              --                23,565
  Equity transactions of pooled companies........              --            158,357          (18,999)             139,358
  Net loss.......................................              --                 --         (223,052)            (223,052)
                                                      ------------     --------------    -------------     ----------------

Balance as of December 31, 1998..................           1,845          1,208,906         (280,677)             930,074
  Common stock issued, net.......................               2                220              --                   222
  Stock options and warrants exercised, net......              14             20,480              --                20,494
  Dividends declared on Series A Senior
    Convertible Preferred Stock..................              --            (27,789)             --               (27,789)
  Equity transactions of pooled companies........              24              3,582              117                3,723
  Net loss....................................                 --                 --         (288,728)            (288,728)
                                                      ------------     --------------    -------------     ----------------

Balance as of December 31, 1999..................           1,885          1,205,399         (569,288)             637,996
  Common stock issued, net.......................              73              2,670              --                 2,743
  Stock options and warrants exercised, net......               3              1,155              --                 1,158
  Dividends declared on Series A Senior
    Convertible Preferred Stock..................              --            (68,452)             --               (68,452)
  Net income.....................................              --                 --          124,387              124,387
                                                      ------------     --------------    -------------     ----------------

Balance as of December 31, 2000..................     $     1,961      $   1,140,772     $   (444,901)     $       697,832
                                                      ============     ==============    =============     ================

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

</TABLE>


                                       37
<PAGE>

<TABLE>
<CAPTION>
                          ALLIED WASTE INDUSTRIES, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (in thousands)

                                                                                            Year Ended December 31,
                                                                               ----------------------------------------------------
                                                                                    2000               1999              1998
                                                                               ---------------    ---------------    --------------
<S>                                                                            <C>                <C>                <C>
Operating activities --
 Net income (loss)...........................................................  $    124,387       $   (288,728)      $    (223,052)
 Adjustments to reconcile net income (loss) to cash provided by operating
   activities--
 Provisions for:
   Depreciation and amortization.............................................       674,038            384,094             179,965
   Non-cash acquisition related and unusual costs and asset impairments......        26,486            105,186              88,228
   Cumulative effect of change in accounting principle, net of income tax                --             64,255                  --
 benefit.....................................................................
   Undistributed earnings of equity investment in unconsolidated subsidiary..       (38,190)            13,217                  --
   Doubtful accounts.........................................................        19,463             10,305               8,086
   Accretion of debt and amortization of debt issuance costs.................        44,219             27,155              33,057
   Deferred income tax provision (benefit)...................................       193,054           (115,964)             24,636
   Gain on sale of assets....................................................       (10,513)            (5,346)             (3,521)
   Extraordinary losses due to early extinguishments of debt, net of income
   tax benefit and cash premium paid.........................................        13,266              3,223             118,957
 Cash premium paid due to early extinguishments of debt......................            --                 --            (173,159)
 Change in operating assets and liabilities, excluding the effects of
   purchase acquisitions--
   Accounts receivable, prepaid expenses, inventories and other..............         3,238           (100,586)            (58,517)
   Accounts payable, accrued liabilities, unearned income, and other.........       (41,859)            13,099             159,862
   Acquisition related and non-recurring accruals............................      (167,542)           382,643              20,244
   Closure and post-closure provision........................................        61,727             35,242              17,607
   Closure, post-closure and environmental expenditures......................       (98,458)           (38,784)            (23,000)
                                                                               ---------------    ---------------    --------------
 Cash provided by operating activities.......................................       803,316            489,011             169,393
                                                                               ---------------    ---------------    --------------

 Investing activities --
   Cost of acquisitions, net of cash acquired................................      (802,876)        (7,589,597)           (312,986)
   Proceeds from divestitures, net of cash divested..........................     1,039,182            468,880                  --
   Accruals for acquisition price and severance costs........................       (27,820)            15,171                  --
   Net distributions from (contributions to) unconsolidated subsidiaries.....        15,372            (17,011)                 --
   Capital expenditures, excluding acquisitions..............................      (389,918)          (339,192)           (301,742)
   Capitalized interest......................................................       (45,352)           (25,474)            (67,499)
   Proceeds from sale of fixed assets........................................        42,874             53,246              12,070
   Change in deferred acquisition costs and notes receivable.................       (41,413)           (28,555)             (8,184)
                                                                               ---------------    ---------------    --------------
 Cash used for investing activities..........................................      (209,951)        (7,462,532)           (678,341)
                                                                               ---------------    ---------------    --------------

 Financing activities --
   Net proceeds from sale of common stock and exercise of stock options
     and warrants............................................................         1,724             10,198              11,324
   Net proceeds from sale of preferred stock.................................            --            973,881                  --
   Proceeds from long-term debt, net of issuance costs.......................     2,202,000          8,672,295           2,725,262
   Repayments of long-term debt..............................................    (2,796,400)        (2,601,190)         (2,265,741)
   Other long-term obligations...............................................            --                 --               2,745
   Equity transactions of pooled companies...................................            --                 --              41,780
                                                                               ---------------    ---------------    --------------
 Cash provided by (used for) financing activities............................      (592,676)         7,055,184             515,370
                                                                               ---------------    ---------------    --------------
 Increase in cash and cash equivalents.......................................           689             81,663               6,422
 Cash and cash equivalents, beginning of year................................       121,405             39,742              33,320
                                                                               ---------------    ---------------    --------------
 Cash and cash equivalents, end of year......................................  $    122,094       $    121,405       $      39,742
                                                                               ===============    ===============    ==============

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

</TABLE>



                                       38
<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 "we") is the
second  largest,  non-hazardous  solid  waste  management  company in the United
States,  as measured by revenues.  We provide  non-hazardous  waste  collection,
transfer, recycling and disposal services in 40 states geographically identified
as the Atlantic, Central, Great Lakes, Midwest, Northeast,  Southeast, Southwest
and West regions of the United States.

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

Principles of consolidation and presentation --

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

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

Cash and cash equivalents --

Cash equivalents are investments  with original  maturities of less than 90 days
and are stated at quoted market  prices.  Cash and cash  equivalents  are net of
approximately  $149.5  million  and  $169.2  million of  outstanding  checks and
deposits in transit at December 31, 2000 and 1999, respectively.

Concentration of credit risk --

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

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



                                       39
<PAGE>

                          ALLIED WASTE INDUSTRIES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


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 (3-10 years),  containers and compactors (5-15 years) and
furniture and office  equipment  (3-8 years).  In accordance  with  Statement of
Financial  Accounting  Standard  No.  121  ("SFAS  121"),   Accounting  for  the
Impairment  of  Long-lived  Assets and  Long-lived  Assets to be Disposed of, we
evaluate  long-lived  assets,  such  as  property  and  equipment,  and  certain
identifiable   intangibles   for  impairment   whenever  events  or  changes  in
circumstances indicate the carrying amount of an asset may not be recoverable.

The cost of landfill airspace,  including original acquisition cost and incurred
and projected landfill construction costs, is amortized over the capacity of the
landfill  based on a per  unit  basis  as  landfill  airspace  is  consumed.  We
periodically review the realizability of our investment in operating  landfills.
Should events and  circumstances  indicate that any of our landfills be reviewed
for  possible  impairment,  such  review  for  recoverability  will  be  made in
accordance  with Emerging  Issues Task Force  Discussion  Issue No. 95-23 ("EITF
95-23") The Treatment of Certain Site  Restoration/Environmental Exit Costs When
Testing a Long-Lived Asset for Impairment.  The EITF outlines how cash flows for
environmental exit costs should be determined and measured.

Expenditures  for  major  renewals  and  betterments  are   capitalized,   while
expenditures for maintenance and repairs,  which do not improve assets or extend
their  useful  lives,  are charged to expense as  incurred.  For the years ended
December 31, 2000, 1999 and 1998,  maintenance  and repair  expenses  charged to
cost of  operations  were $430.0  million,  $275.6  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.

Goodwill --

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.
We allocate  goodwill  when  appropriate,  to the district  operating the assets
based on a percentage  of acquired  assets'  earnings  before  interest,  taxes,
depreciation  and  amortization  ("EBITDA")  to the total  acquired  EBITDA.  In
accordance with SFAS 121, we continually  review for impairment  whenever events
or changes in circumstances indicate that the remaining estimated useful life of
goodwill might warrant  revision or that the balance may not be recoverable.  We
evaluate possible  impairment by comparing  estimated future cash flows,  before
interest  expense and on an undiscounted  basis, to the net book value of assets
including  goodwill.  If  undiscounted  cash flows are  insufficient  to recover
assets,  further  analysis is performed in order to determine  the amount of the
impairment.  We  record  an  impairment  loss  equal to the  amount by which the
carrying amount of the assets exceeds their fair market value. Fair market value
is usually  determined  based on the present value of estimated  expected future
cash flows  using a  discount  rate  commensurate  with the risks  involved.  In
instances  where  goodwill  is  identified  with  assets  that are subject to an
impairment  loss,  the  carrying  amount of the  identified  goodwill is reduced
before  making any  reduction  to the  carrying  amounts of impaired  long-lived
assets.  See Note 1 - Acquisition  related and unusual costs for a discussion of
asset  impairments  recorded.  Goodwill  amortization of $223.2 million,  $110.7
million and $30.7  million was recorded  for the years ended  December 31, 2000,
1999 and  1998,  respectively.  Accumulated  goodwill  amortization  was  $408.5
million and $185.3 million at December 31, 2000 and 1999, respectively.



                                       40
<PAGE>

                          ALLIED WASTE INDUSTRIES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Other assets --

Other assets  include notes  receivable,  landfill  closure  deposits,  deferred
charges, investments in unconsolidated  subsidiaries,  prepaid pension costs 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 effective 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 five years.

Accrued closure and post-closure costs --

Accrued  closure and  post-closure  costs  represent  an estimate of the present
value  of  the  future  obligation  associated  with  closure  and  post-closure
monitoring  of  non-hazardous  solid waste  landfills we currently  own,  and/or
operate  or  have  retained  upon   divestiture.   Site  specific   closure  and
post-closure  engineering  cost  estimates  are prepared  annually for landfills
owned  and/or  operated  by us for  which we are  responsible  for  closure  and
post-closure. 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 on a per unit basis as  landfill
airspace is consumed.  Discounting  of future costs is applied  where we believe
that both the amounts and timing of related payments are reliably determinable.

Environmental costs --

We accrue 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 as the timing of cash payments is not reliably determinable.
Recoveries of  environmental  remediation  costs from other parties are recorded
when  their  receipts  are  deemed  probable.   Environmental   liabilities  and
apportionment  of  responsibility  among  potentially  responsible  parties  are
accounted for in accordance with the guidance provided by the AICPA Statement of
Position 96-1 ("SOP 96-1") Environmental Remediation Liabilities.

Other long-term obligations --

Other  long-term  obligations  include the  non-current  portions  of  insurance
accruals,  legal accruals,  loss contract and  acquisition-related  accruals and
other obligations not expected to be paid within the following year.

Revenue --

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



                                       41
<PAGE>

                          ALLIED WASTE INDUSTRIES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Loss contracts --

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

Change in accounting principle --

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

The adoption of this method,  which was  accounted for as a change in accounting
principle,  reflects the change in our operating strategy as a result of the BFI
acquisition.  Previously  our  strategy  was  focused  on  the  acquisition  and
development  of  waste  disposal  capacity.  Through  the  BFI  acquisition,  we
substantially  achieved  our  previous  strategy  and  are now  focusing  on the
increased utilization of landfill capacity.

The impact of the change in  accounting  principle  was a  cumulative  charge of
approximately  $106.2 million ($64.3 million net of income taxes). The effect of
the change on the year ended December 31, 1999 was to decrease net income before
cumulative  effect of a change in accounting  principle by $14.8 million  ($0.08
per share)  and net income  after  cumulative  effect of a change in  accounting
principle by $79.1  million  ($0.42 per share).  The unaudited pro forma amounts
shown on our  Consolidated  Statements  of  Operations  reflect  the  effect  of
retroactive  application  on  capitalized  interest in 1998 that would have been
recorded  had the new  method  been in effect  during  this  period,  net of the
related income tax benefit.



                                       42
<PAGE>

                          ALLIED WASTE INDUSTRIES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Acquisition related and unusual costs --

Year Ended December 31, 2000

During 2000, we recorded approximately $127.3 million of acquisition related and
unusual costs primarily  associated with the acquisition of BFI. These costs are
comprised  primarily of approximately  $75.2 million of transition costs related
to  transitional  employees and  duplicative  facilities and  operations,  $30.2
million relating to changes in estimated loss contract provisions, restructuring
and abandonment  liabilities,  litigation  liabilities and environmental related
matters, $26.5 million of non-cash asset impairments related to the divestitures
of certain operations. Additionally during 2000, we reversed through acquisition
related and unusual costs approximately $4.6 million of accruals  established in
connection  with  the  acquisition  of BFI and  accruals  associated  with  1998
acquisitions.

Subsequent event --

As part of our ongoing  review of the  operations  and the  self-funding  market
development program for 2001, we sold certain  non-integrated  operations in the
Northeast  region for  approximately  $53  million  during the month of February
2001.  The proceeds were used to repay debt,  but will likely be deployed  later
this year as a part of our self-funding  market development  program to purchase
assets in other markets that improve our market density and internalization.  In
connection  with  this  sale,  we will  reflect  an after tax  non-cash  loss of
approximately $65 million in the reported results for the first quarter of 2001.


Year Ended December 31, 1999

During  the year  ended  December  31,  1999,  we  recorded  $588.9  million  of
acquisition related and unusual costs primarily associated with the $9.6 billion
acquisition  of BFI,  which was  accounted  for as a purchase  (See Note 2). The
costs primarily relate to environmental related matters, litigation liabilities,
risk management liabilities, loss contract provisions,  transition costs and the
write-off  of  deferred  costs  relating  to the  acquisition.  These  costs are
comprised of the following:

We  recorded  a charge of  approximately  $267.0  million  related to changes in
estimates of  environmental  liabilities  associated with BFI's  operations.  In
connection  with our due diligence and integration  process,  assessments of the
acquired operations were performed by third-party,  in-house engineers and legal
counsel. Based on these assessments,  we made changes in accounting estimates of
approximately (i) $133.7 million  associated with the Superfund accrual for over
150 CERCLA cases in which BFI was involved,  (ii) $30.3 million  associated with
the remedial  accrual for sites in which BFI was involved with  remedial  action
plans, (iii) $56.3 million associated with the environmental accrual for various
containment and treatment matters at 76 active or closed BFI landfills, and (iv)
$46.7  million  associated  with  the  accrual  for  the  remedial  and  closure
requirements of four BFI closed hazardous waste facilities.

In 1999 we recorded a charge of  approximately  $93.5 million related to changes
in estimates of litigation  liabilities  associated  with BFI's  operations.  In
connection  with our due diligence and integration  process,  assessments of the
acquired operations and outstanding litigation were performed by third-party and
in-house legal counsel.  We evaluated over 200 cases involving  employee-related
matters,  regulatory matters, collection matters and contract disputes and other
commercial litigation matters.  Accordingly, we increased the litigation accrual
based on the most probable loss to be incurred.

In  1999  we  recorded  an  increase  of  approximately  $20.0  million  to  the
self-insurance  accruals based on the results of a third-party  actuarial review
performed  in  connection   with  due  diligence  and  integration  of  the  BFI
acquisition. As of September 30, 1999, we instituted a guaranteed cost insurance
program for all casualty insurance coverages.



                                       43
<PAGE>

                          ALLIED WASTE INDUSTRIES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In  connection  with the  integration  of the BFI  acquisition,  we reviewed the
existing  contracts of the business for  recoverability.  Several contracts were
identified  which were in a loss position when the direct costs  (excluding  any
non-variable  type costs)  attributable  to the contract  were deducted from the
revenue  to be  generated  by  the  contract.  Consistent  with  our  accounting
policies,  we recorded a charge of approximately $32.6 million to operations for
the excess of costs over revenues of the identified contracts.

As a result  of the  acquisition  of BFI,  management  reassessed  the  level of
acquisitions  that it would  pursue  in the  future  and  decided  that  certain
companies that were being targeted would no longer be pursued.  Accordingly,  we
wrote off $26.1 million of deferred  charges  previously  incurred in connection
with these potential acquisitions.  Additionally,  we wrote off $33.8 million of
commitment  fees paid in  connection  with a portion of the financing of the BFI
acquisition.  These fees were  associated  with  funds that were not  ultimately
drawn due to alternative  sources of financing becoming  available.  However, as
secured  financing  for the  entire  purchase  price  of the  acquisition  was a
condition  of the  signing  of the  merger  agreement  with  BFI,  and the  debt
associated  with these fees was not  incurred,  the cost was  written off in the
third quarter of 1999.

In connection  with the  integration  plan for BFI, we  identified  and notified
approximately  1,500  employees  that they  would be  retained  for a  specified
period,  generally not exceeding 12 months from the acquisition date, to perform
transition related functions. Subsequent to the specified time period, they were
terminated.  Additionally,  we identified  certain offices and operations  which
were duplicative.  As these transition costs cannot be expensed or accrued until
committed or paid, approximately $67.4 million of transition costs were expensed
during 1999.  Additionally,  we accrued approximately $10.0 million of committed
transition costs during 1999.

Additionally,   we  recorded  approximately  $43.5  million  of  non-cash  asset
impairments   related  to  the   valuation  of  Allied  assets  held  for  sale,
approximately $1.8 million of non-cash asset impairments  related to duplicative
facilities,  and  approximately  $0.4 million of  restructuring  and abandonment
costs related to other 1999 acquisitions.

Any  subsequent  changes in estimates of  acquisition  related and unusual costs
have been and 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. During 1999, approximately $7.2 million of accrued acquisition
related costs  associated  with 1998  acquisitions  were reversed to acquisition
related and unusual costs.

The  following  table  reflects  the cash  activity  related to the  acquisition
related and unusual costs accrued during 1999 (in thousands):

<TABLE>
<CAPTION>

                                    1999                                                                 Balance
                                  Additions                                                             Remaining
                                   through            1999             2000                           December 31,
                                   Expense        Expenditures     Expenditures       Adjustments         2000
                               ----------------  ---------------- ----------------  ---------------- ----------------
<S>                            <C>               <C>              <C>               <C>              <C>
Transition costs.............  $       77,350    $   (74,654)     $     (2,091)     $        (605)   $           --
Loss contracts...............          32,643         (6,058)          (14,698)            18,776            30,663
Litigation and compliance
  costs......................         113,382         (1,553)          (30,960)             5,734            86,603
                               ----------------  ---------------- ----------------  ---------------- ----------------
   Total.....................  $      223,375    $   (82,265)     $    (47,749)     $      23,905    $      117,266
                               ================  ================ ================  ================ ================

</TABLE>



                                       44
<PAGE>

                          ALLIED WASTE INDUSTRIES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Year Ended December 31, 1998

During the year ended  December 31, 1998,  we recorded  acquisition  related and
unusual  costs  in  the  amount  of  $317.6  million.  These  costs  consist  of
transaction   and  deal  costs,   employee   severance  and  transition   costs,
environmental  related matters,  litigation  liabilities,  regulatory compliance
matters,  restructuring  and  abandonment  costs,  loss contract  provisions and
non-cash asset  impairment  charges.  The 1998  acquisition  related and unusual
costs discussed  below  predominantly  relate to  acquisitions  accounted for as
poolings-of-interests and 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 was accrued at December 31, 1998 and was paid during
the first six months of 1999.

Employee  severance and  transition  costs of $73.6  million  consisted 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. Exit plans primarily related
to  the  elimination  of  duplicate  corporate  and  administrative  offices  of
companies  acquired.   Integration  plans  included  the  combination  of  field
activities for human  resource,  accounting,  facility  maintenance,  health and
safety  compliance and customer  service  activities of companies  acquired with
field activities  similar to ours. The exit and integration plans called for the
termination  of  approximately  800 employees who performed  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.  Approximately  $10.1  million  was
accrued at December 31, 1998, substantially all of which was paid in 1999.

Environmental related matters,  litigation liabilities and regulatory compliance
matters  assumed  in  acquisitions  totaled  $73.4  million.  Subsequent  to the
acquisitions,  we 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.

As part of our acquisition due diligence process, environmental assessments were
performed at the time of  acquisition  by  third-party,  in-house  engineers and
legal counsel.  The assessments were performed at over 150 operating sites owned
or used by the 54 companies acquired by Allied in 1998. Additional environmental
liabilities  were accrued based on the results of the  assessments and represent
the most probable outcome of these identified  contingent matters. An additional
accrued  environmental  liability  of $27.1  million was  comprised  of required
remedial activities identified at 28 separate locations. These locations include
eight landfills  acquired by Allied, 15 landfills not owned by Allied,  but used
for  disposal by  collection  companies  acquired,  and  transfer  stations  and
maintenance  facilities  acquired.  Required  remedial  activities  include  the
removal and treatment of waste improperly disposed of, containment and abatement
of landfill  gas  migration,  removal  and  disposal  of  contaminated  soil and
hazardous  waste  and  legal  and  administrative  costs  of the  settlement  of
Superfund claims.  The additional $14 million of environmental  accruals related
to removal and treatment of leachate at landfills,  the level of which  exceeded
permitted  amounts at seven of the  acquired  landfills.  At December  31, 1998,
approximately  $41.1  million and $15.8  million  was accrued for  environmental
matters and legal and regulatory compliance matters, respectively.



                                       45
<PAGE>

                         ALLIED WASTE INDUSTRIES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 for acquired  companies at the time of acquisition and the
determination of the most probable loss incurred.  As a result of this legal due
diligence,   we  identified  14  companies  acquired  in  business  combinations
accounted for as poolings-of-interest  which had an aggregate of 54 asserted and
unasserted  claims  involving  matters  such as  contract  disputes,  employment
related  disputes,  real and personal  property and sales tax issues and billing
disputes. Additionally, we identified regulatory compliance issues related to 12
companies  acquired,  which  included  citations  for certain  state and federal
health, safety and transportation  violations and the associated costs of fines,
assessments  and required  maintenance  costs to bring  facilities and equipment
into compliance.

Restructuring and abandonment costs were $42.1 million in business  combinations
accounted for as  pooling-of-interests.  Costs to relocate redundant  operations
and to  transition  them to  common  information  systems  were  $23.1  million.
Redundant  operations  consisted  primarily of activities  for human  resources,
accounting,  facility  maintenance,  health and safety  compliance  and customer
service which were performed in field offices of companies acquired. 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.   Revenue  and  net  operating  income  of  the  abandoned   operations
represented  less than one percent of our  consolidated  amounts.  Additionally,
$10.2  million  of  costs  were  incurred  for  the   disposition  of  redundant
non-revenue  producing  assets.  This  includes $7.6 million that was accrued at
December 31, 1998 in accordance with exit and integration  plans,  substantially
all  of  which  was  paid  in  1999.   This  accrual  was  for  payments   under
non-cancelable  lease  agreements  for  corporate  offices that were vacated and
other costs to close  corporate  facilities  after  operations have ceased under
exit plans implemented during 1998 at five companies acquired.

Loss contract provisions were $7.6 million for losses associated with collection
contracts   and  other   contractual   obligations   assumed  in   acquisitions.
Approximately  $5 million was  accrued at December  31, 1998 and was paid during
1999.

During the fourth  quarter of 1998,  we  recognized  non-cash  asset  impairment
charges  aggregating  $69.7  million.  These charges  related to assets held for
future use and assets which were  disposed  during the first six months of 1999.
An  impairment  charge of $45.9  million,  with no associated  tax benefit,  was
recorded  relating to goodwill  recorded by  American  Disposal  Services,  Inc.
("ADSI") in connection  with ADSI's  September 1997  acquisition of Fred Barbara
Trucking, a private waste transportation business.  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.

Any  subsequent  changes in estimates of  acquisition  related and unusual costs
have been and 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.   During   1999,   approximately   $7.2   million   accrued
acquisition-related  costs  associated with 1998  acquisitions  were reversed to
acquisition related and unusual costs.



                                       46
<PAGE>

                          ALLIED WASTE INDUSTRIES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The  following  table  reflects  the  activity  related to the 1998  acquisition
related and unusual costs (in thousands):

<TABLE>
<CAPTION>
                                                                                                        Balance
                                      1998                                                             Remaining
                           1998     Non-cash       1998         1999          2000                    December 31,
                         Expense    Charges    Expenditures  Expenditures  Expenditures  Adjustments     2000
                       ----------   ---------    ---------    -----------  -----------   ----------   ---------
<S>                     <C>         <C>          <C>          <C>          <C>          <C>          <C>
Transaction and deal
  costs .............   $  51,200   $    --      $ (39,529)   $ (10,952)   $    --      $    (719)   $    --
Severance and
  transition costs ..      73,619        --        (63,493)      (8,800)        (472)        (854)        --
Restructuring and
  abandonment costs .      42,098     (18,514)     (15,954)      (2,353)        (597)      (4,680)        --
Loss contracts ......       7,569        --         (2,587)      (4,623)        (359)        --
Environmental,
litigation
  and regulatory ....      73,416        --        (16,482)     (16,589)     (10,878)        (599)      28,868
  compliance costs
Asset impairments ...      69,714     (69,714)        --           --           --           --           --
                        ---------   ---------    ---------    ---------    ---------    ---------    ---------
Total ...............   $ 317,616   $ (88,228)   $(138,045)   $ (43,317)   $ (11,947)   $  (7,211)   $  28,868
                        =========   =========    =========    =========    =========    =========    =========
</TABLE>

Extraordinary losses --

In September 2000, we repaid the Tranche D term loan prior to its maturity date.
In connection with this repayment, we recognized a non-cash extraordinary charge
for the early  extinguishment  of the debt of approximately  $11.2 million ($6.8
million, net of income tax benefit, $0.04 per share) related to the write-off of
previously deferred debt issuance costs.

In  February  2000,  we repaid  the asset sale term loan  facility  prior to its
maturity  date.  In  connection  with this  repayment,  we recognized a non-cash
extraordinary  charge for the early  extinguishment of the debt of approximately
$10.7 million ($6.5 million, net of income tax benefit, $0.03 per share) related
to the write-off of previously deferred debt issuance costs.

In July 1999,  we repaid our credit  facility  prior to its  maturity  date.  In
connection with the repayment, we recognized a non-cash extraordinary charge for
the  early  extinguishments  of the debt of  approximately  $5.3  million  ($3.2
million, net of income tax benefit, $0.02 per share) related to the write-off of
previously deferred debt issuance costs.

In December 1998, we replaced our 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,  $0.66 per share) 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, we
replaced  our  credit  facility  and  recognized  an  extraordinary   charge  of
approximately  $5.1 million ($3.1  million, net of income tax benefit, $0.02 per
share) related to the write-off of previously deferred debt issuance costs.



                                       47
<PAGE>

                          ALLIED WASTE INDUSTRIES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Statements of cash flows --

The supplemental  cash flow disclosures and non-cash  transactions for the three
years ended December 31, 2000 are as follows (in thousands):

<TABLE>
<CAPTION>
                                                                                Year Ended December 31,
                                                                   ---------------------------------------------------
                                                                       2000               1999              1998
                                                                   --------------    ---------------    --------------
<S>                                                                <C>               <C>                <C>
Supplemental Disclosures -
  Interest paid (net of amounts capitalized)..................     $     853,770     $     312,623      $      62,386
  Income taxes paid (refunds received)........................            27,876           (74,855)            33,653

Non-Cash Transactions -
  Common stock, preferred stock or warrants issued in
    acquisitions or as commissions............................     $          --     $       1,573      $     124,854
  Capital leases..............................................                --                --              1,187
  Debt and liabilities incurred or assumed in acquisitions....            93,468         1,850,162             65,409

</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 --

We enter into interest rate protection  agreements to manage the  fixed/variable
interest rate mix of the portfolio to reduce our aggregate exposure to increases
in interest rates. We do 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 these  financial  instruments  are  deferred  and  recognized
ratably over the life of the instruments.

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  No.  107 ("SFAS  107"),  Disclosures  About  Fair Value of  Financial
Instruments.  Our  financial  instruments  as defined by SFAS 107 include  cash,
money market funds, accounts receivable, accounts payable and long-term debt. We
have  determined  the  estimated  fair value  amounts at December 31, 2000 using
available market information and valuation methodologies.  Considerable judgment
is required in interpreting  market data to develop the estimates of fair value.
Accordingly,  the  estimates  may not be indicative of the amounts that could be
realized in a current market exchange.  The use of different market  assumptions
or valuation  methodologies  could have a material  effect on the estimated fair
value amounts.

The carrying value of cash, money market funds, accounts receivable and accounts
payable  approximate  fair  values  due to the  short-term  maturities  of these
instruments (See Note 6 for fair value of debt).


                                       48
<PAGE>

                          ALLIED WASTE INDUSTRIES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Stock-based compensation plans --

We account for our stock-based  compensation  plans under Accounting  Principles
Board Opinion No. 25, ("APB 25")  Accounting for Stock Issued to Employees which
does not require a charge to the statement of operations  for the estimated fair
value of stock options  issued with an exercise price equal to the fair value of
the  common  stock on the  date of  grant.  Statement  of  Financial  Accounting
Standards No. 123 ("SFAS 123"), Accounting for Stock-based Compensation requires
that companies,  which do not elect to account for  stock-based  compensation as
prescribed  by this  statement,  disclose the pro forma  effects on earnings and
earnings per share as if SFAS 123 had been adopted. Additionally,  certain other
disclosures with respect to stock  compensation and the related  assumptions are
used to determine the pro forma effects of SFAS 123 (See Note 11).

In  March  2000,   the  Financial   Accounting   Standards   Board  issued  FASB
Interpretation  No. 44,  "Accounting  for Certain  Transactions  Involving Stock
Compensation  - An  interpretation  of APB  Opinion No. 25 ("FIN  44")".  FIN 44
clarifies the application of APB Opinion No. 25 and among other issues clarifies
the  following:  the  definition  of an employee  for  purposes of applying  APB
Opinion No. 25; the  criteria  for  determining  whether a plan  qualifies  as a
non-compensatory  plan; the accounting  consequence of various  modifications to
the terms of previously fixed stock options or awards; and the accounting for an
exchange  of stock  compensation  awards in a  business  combination.  FIN 44 is
effective July 1, 2000, but certain  conclusions in FIN 44 cover specific events
that  occurred  after  either  December  15,  1998  or  January  12,  2000.  The
application of FIN 44 had a material impact on our financial position or results
of operations.

Recently issued accounting pronouncements --

In June 2000, the Financial  Accounting Standards Board ("FASB") issued SFAS No.
138,   Accounting  for  Certain  Derivative   Instruments  and  Certain  Hedging
Activities - an amendment of FASB Statement No. 133. This  statement  amends the
accounting  and reporting  standards of SFAS No. 133,  Accounting for Derivative
Instruments and Hedging Activities, with respect to specific interpretations and
circumstances,  and incorporates  certain decisions arising from the Derivatives
Implementation Group process.

In June 1999, the implementation date of SFAS No. 133 was deferred one year from
the original  date to those fiscal years  beginning  after June 15, 2000 by SFAS
No. 137, Accounting for Derivative Instruments and Hedging Activities - Deferral
of the Effective  Date of FASB Statement No. 133. SFAS No.'s 133 and 138 require
all  derivatives  to be  recorded  as  either  assets  or  liabilities  and  the
instruments to be measured at fair value. Gains or losses resulting from changes
in the values of those derivatives are to be recognized immediately in earnings,
other comprehensive income or deferred,  depending on the use of the derivative,
and whether or not it  qualifies  as a hedge.  The  statement  requires a formal
documentation  of hedge  designation  and  assessment  of the  effectiveness  of
transactions that receive hedge accounting. We adopted SFAS No.'s 133 and 138 on
January 1, 2001, as required.

In the  process  of  adoption  of SFAS  133 we  have  reviewed  all  significant
transactions  and  contracts for  derivative  activity and  determined  that our
interest rate swap agreements are our only transactions  representing derivative
instruments  that require a change in accounting  under SFAS No. 133 and 138. We
have interest rate risk relating to long-term  variable rate debt. We enter into
interest rate swap  agreements when such  transactions  will serve to reduce the
aggregate  exposure of future cash flows to volatility  or adverse  movements in
interest  rates.  Interest rate swap  agreements are entered into solely for the
purpose of reducing risk; positions are not taken for speculative purposes.

Our interest  rate swaps are properly  designated as and are effective as hedges
of our variable  rate debt.  We assume no  ineffectiveness  in our interest rate
hedges,  as the  notional  amounts,  indices,  repricing  dates,  and all  other
significant terms of the swap agreements are matched to the provisions and terms
of the variable rate debt being hedged. These instruments are designated as cash
flow hedges, and accordingly, at January 1, 2001, the fair market value of these
instruments  was  recorded  as a  cumulative  effect  of  change  in  accounting
principle in Other Comprehensive  Income (OCI) in the amount of ($45.2) million,
net of tax. The effect of the swaps will be matched against interest expense for
the related variable rate debt over the terms of the swaps.



                                       49
<PAGE>

                          ALLIED WASTE INDUSTRIES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2. Business Combinations

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

The  acquisition of BFI has been  accounted for as a purchase and,  accordingly,
the operating  results of BFI have been included in our  consolidated  financial
statements  since the date of acquisition.  The excess of the initial  aggregate
purchase  price  over  the  fair  market  value  of  net  assets   acquired  was
approximately $6.7 billion.  During the year following the acquisition,  changes
in estimates were appropriately adjusted through goodwill.

The following  table  reflects the initial  allocation of purchase price for the
acquisition of BFI, giving effect to asset divestitures  described in Note 3 (in
thousands):

<TABLE>
<CAPTION>

<S>                                                               <C>
Current assets, including assets classified as held for sale....  $       2,584,387
Property and equipment, net.....................................          1,943,906
Goodwill........................................................          6,672,992
Non-current assets..............................................            678,139
Current liabilities.............................................         (1,142,469)
Long-term debt..................................................         (1,755,501)
Other long-term obligations.....................................         (1,327,003)
                                                                  --------------------
    Total net assets............................................  $       7,654,451
                                                                  ====================

</TABLE>

The following table  summarizes  acquisitions for the three years ended December
31, 2000, excluding the acquisition of BFI:

<TABLE>
<CAPTION>

                                                        2000              1999               1998
                                                  -------------     --------------    ---------------
<S>                                               <C>               <C>               <C>
Number of businesses acquired accounted for as:
Poolings-of-interests.............................          --                 2                 19
Purchases.........................................          50                52                 35
                                                  ------------      ------------      -------------
Total acquisitions................................          50                54                 54
Total consideration (in millions).................$      853.9      $      467.5      $     2,329.0
Shares of common stock issued (in millions).......          --               1.6               79.5

</TABLE>



                                       50
<PAGE>

                          ALLIED WASTE INDUSTRIES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Unaudited pro forma statement of operations data --

The following  table  compares,  for the years ended December 31, 2000 and 1999,
reported  consolidated results of operations to unaudited pro forma consolidated
data as if all of the  companies  acquired in 2000 and 1999  accounted for using
the purchase  method for business  combinations  were  acquired as of January 1,
1999 (in thousands, except per share data):

<TABLE>
<CAPTION>
                                                            2000                                   1999
                                             ------------------------------------    ---------------------------------
                                                Reported          Pro Forma(1)         Reported         Pro Forma(1)
                                             ---------------     ----------------    --------------    ---------------
<S>                                          <C>                 <C>                 <C>               <C>
Revenues.................................    $   5,707,485       $    5,738,821      $  3,341,071      $   5,574,076
Net income (loss) before
  extraordinary losses and cumulative
  effect of change in accounting
  principle, net.........................          137,653              141,537          (221,250)          (360,770)
Net income (loss) available to
  common shareholders before
  extraordinary losses and cumulative
  effect of change in accounting
  principle, net.........................           69,201               73,085          (249,039)          (426,935)
Net income (loss) available to
  common shareholders before
  extraordinary losses and cumulative
  effective of change in accounting
  principle per common share - basic.....             0.37                 0.39             (1.33)             (2.27)
Net income (loss) available to
  common shareholders before
  extraordinary losses and cumulative
  effective of change in accounting
  principle per common
  share - diluted........................             0.36                 0.38             (1.33)             (2.27)

<FN>
     (1)  The pro forma results of operations  exclude  divestitures  of certain
          BFI  operations  planned  at the  time of the  acquisition  of BFI and
          exclude any projected annual cost savings.
</FN>
</TABLE>

This data does not purport to be indicative  of our results of  operations  that
might have occurred, nor which might occur in the future.

3. Assets Held for Sale

The ability to successfully  implement our vertical integration business plan is
a key  consideration  in  determining  whether we will  continue to operate in a
specific  market.  In the normal course of business,  we have exited  markets in
which  the  execution  of  the  vertical   integration  business  plan  was  not
practicable.

In October 1998, we formalized plans to dispose of certain  operating  districts
(the  "Operating   Districts")  that  represented   non-core  or  non-integrated
operations.  We  entered  into  agreements  to  sell  these  operations  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.  We completed  the sale of these assets during the first six months of
1999.

In July 1999,  management  formalized  plans to  dispose  of certain  operations
required to be divested by governmental order as a condition for approval of the
acquisition  of  BFI  (the  "Allied  Divestitures").   Additionally,  management
identified other Allied operating  districts (the "Allied  Operations") in which
our  vertical  integration  plan  was not  practicable  as a  result  of the BFI
transaction and therefore these districts were identified for  divestiture.  All
of  these  operations  had  been  owned  prior  to the  acquisition  of BFI.  In
accordance  with SFAS 121, an  impairment  loss of $43.5  million  was  recorded
during  1999 to reduce the  carrying  value of the assets to the net  realizable
value including an accrual for the cost of disposal.


                                       51
<PAGE>

                          ALLIED WASTE INDUSTRIES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The results of operations  before  depreciation and amortization and acquisition
related and unusual costs of the Operating  Districts,  the Allied  Divestitures
and  the  Allied  Operations  included  in  consolidated  operating  income,  in
accordance  with SFAS 121,  was  approximately  $2.6  million and $11.1  million
during the 12 months ended December 31, 2000 and 1999, respectively. We excluded
from our  Consolidated  Statements of Operations,  in accordance  with SFAS 121,
depreciation and amortization in the amount of $1.4 million and $6.3 million for
the twelve months ended December 31, 2000 and 1999, respectively.

BFI assets --

Concurrent with the  acquisition of BFI,  certain BFI operations were identified
by management as non-core or  non-integrated  operations  and are expected to be
divested  along with certain  operations  required by  governmental  order to be
divested.  These operations  included BFI's Canadian  operations,  medical waste
operations,   gas  systems   operations  and  certain  solid  waste   operations
(collectively,  the "BFI  Divestitures").  The  sales of these  operations  were
accounted  for in  accordance  with  Emerging  Issues  Task Force Issue 87-11 --
Allocation of Purchase  Price to Assets to Be Sold.  The BFI  Divestitures  were
carried at the net realizable value based on the terms of transactions including
accruals for cost of disposal,  operating income and allocable interest expense.
Accordingly,  approximately  $24.3  million  and $49.7  million of  consolidated
operating   income  excluding   acquisition   related  and  unusual  costs,  and
approximately  $24.8  million and $45.5  million of allocable  interest  expense
related to the BFI Divestitures  were excluded from the Consolidated  Statements
of Operations for the 12 months ended December 31, 2000 and 1999, respectively.

At December 31, 1999,  the assets held for sale totaled  $891.9 million and were
classified  as  current  assets  on the  Consolidated  Balance  Sheets  and  are
summarized as follows (in thousands):

<TABLE>
<CAPTION>

                                                        December 31, 1999
                                                     ---------------------
<S>                                                  <C>
Accounts receivable, net............................ $        90,396
Other current assets................................          16,478
Property and equipment, net.........................         616,973
Goodwill, net.......................................         247,383
Other long-term assets..............................           5,405
Current liabilities.................................         (64,682)
Long-term liabilities...............................         (20,053)
                                                     ---------------------
  Total net assets.................................. $       891,900
                                                     =====================
</TABLE>

During  2000,  we  completed  the  divestitures  of  the  operations  previously
classified as assets held for sale.

4. Property and Equipment

Property  and  equipment  at  December  31,  2000  and  1999 is as  follows  (in
thousands):

<TABLE>
<CAPTION>

                                                        2000                       1999
                                                ---------------------      ---------------------
<S>                                             <C>                        <C>
Land and improvements...........................$       406,700            $       437,119
Land held for permitting as landfills(1)........        127,778                     98,914
Landfills.......................................      1,997,733                  1,637,782
Buildings and improvements......................        444,348                    454,416
Vehicles and equipment..........................      1,411,068                  1,114,130
Containers and compactors.......................        672,175                    611,889
Furniture and office equipment..................         39,578                    120,636
                                                ---------------------      ---------------------
                                                      5,099,380                  4,474,886
Accumulated depreciation and amortization.......     (1,238,842)                  (736,498)
                                                ---------------------      ---------------------
                                                $     3,860,538            $     3,738,388
                                                =====================      =====================

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



                                       52
<PAGE>

                          ALLIED WASTE INDUSTRIES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

5. Investments In Unconsolidated Subsidiaries

We use the  equity  method  of  accounting  for  investments  in  unconsolidated
subsidiaries  over  which we  exercise  control  through a 20% to 50%  ownership
interest. The summarized combined balance sheet, and the statement of operations
data  presented in the table below  indicates  amounts  related to the following
equity  investees  acquired in the BFI acquisition in which we exercise  control
through a 50% ownership interest:  American Ref-Fuel Company,  American Ref-Fuel
Company of Hempstead,  American  Ref-Fuel  Company of Essex,  American  Ref-Fuel
Company of Southeastern  Connecticut,  American Ref-Fuel Company of Niagara, LP,
American  Ref-Fuel Company of SEMASS,  LP, and American  Ref-Fuel  Operations of
SEMASS,  LP. There were no investments in unconsolidated  subsidiaries  prior to
the acquisition of BFI (See Note 14) (in thousands, unaudited).

<TABLE>
<CAPTION>
                                             Summarized Combined Balance Sheet Data

                                                                     December 31, 2000          December 31, 1999
                                                                 --------------------------  -------------------------
<S>                                                                   <C>                         <C>
Current assets................................................        $         162,799           $         147,863
Property and equipment, net of accumulated depreciation                       1,086,470                   1,116,711
Other non-current assets......................................                  245,836                     248,378
Current liabilities...........................................                  120,964                     127,989
Long-term debt, net of current portion........................                1,098,605                   1,123,414
Other long-term liabilities...................................                  216,597                     199,828
Retained earnings.............................................                   58,939                      61,721

</TABLE>

<TABLE>
<CAPTION>
                                        Summarized Combined Statement of Operations Data


                                                                      For the           For the Period July 31,
                                                                     Year Ended              1999 through
                                                                 December 31, 2000         December 31, 1999
                                                             -------------------------  -----------------------
<S>                                                               <C>                       <C>
Total revenue...........................................          $         363,719         $         146,940
Operating income........................................                    159,113                    52,216
Net income..............................................                     95,118                    27,328

</TABLE>

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

For the year ended  December  31,  2000,  and for the period  from July 31, 1999
through  December  31,  1999,  our equity in earnings of equity  investees  were
approximately $50.8 million and $20.8 million and dividends received from equity
investees were approximately $12.6 million and $34.0 million, respectively.

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



                                       53
<PAGE>

                          ALLIED WASTE INDUSTRIES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

6. Long-term Debt

Long-term  debt at December  31, 2000 and 1999  consists  of the  following  (in
thousands):

<TABLE>
<CAPTION>
                                                                                                     2000                1999
                                                                                                ---------------     ---------------
<S>                                                                                             <C>                 <C>
Senior subordinated notes, interest at 10.00%, effective rate of 10.15% and 10.24%,
  respectively, including unamortized premium of $7,272 and $8,119, respectively..........      $    2,007,272      $    2,008,119
Tranche A term loan facility, effective rate of 9.19% and 8.57%, respectively.............           1,675,000           1,750,000
Tranche B term loan facility, effective rate of 9.52% and 9.05%, respectively.............           1,250,000           1,250,000
Tranche C term loan facility, effective rate of 9.73% and 9.24%, respectively.............           1,500,000           1,500,000
Tranche D term loan facility, effective rate of 9.78%.....................................                  --             500,000
Senior notes, interest at 7.88%, effective rate of 8.01% and 8.21%, respectively, net of
  unamortized discount of $1,310 and $1,417, respectively.................................             873,690             873,583
Senior notes, interest at 7.63% and effective rate of 7.85%...............................             600,000             600,000
Senior notes, interest at 7.38%, effective rate of 7.77% and 7.95%, respectively, net
  of unamortized discount of $216 and $274, respectively..................................             224,784             224,726
Revolving credit facility, effective rate of 10.46% and 10.16%, respectively..............             435,000              65,000
Debentures, interest at 7.40%, effective rate of 10.34% and 10.39%, respectively, net
  of unamortized discount of $79,251 and $81,526, respectively............................             280,749             278,474
Senior notes, interest at 6.10%, effective rate of 8.82% and 8.95%, respectively, net of
  unamortized discount of $7,194 and $10,671, respectively................................             149,495             146,018
Senior notes, interest at 6.38%, effective rate of 9.77% and 9.90%, respectively, net of
  unamortized discount of $22,305 and $25,446, respectively...............................             138,895             135,754
Debentures, interest at 9.25%, effective rate of 9.94% and 9.95%, respectively, net of
  unamortized discount of $4,554 and $4,778, respectively.................................              94,946              94,722
Senior notes, interest at 7.88%, effective rate of 9.15% and 9.20%, respectively, net of
  unamortized discount of $2,622 and $3,240, respectively.................................              66,879              66,261
Market value put securities, interest at 6.08%, effective rate of 7.73%, net of
  unamortized discount of $295............................................................                  --             249,705
Asset sale term loan facility, effective rate of 8.56%....................................                  --              99,496
Solid waste revenue bond obligations, weighted average interest rate of 6.40% and
  6.30%, weighted average effective rate of 7.35% and 6.12%, respectively, net of
  unamortized discount of $4,810 and $5,131, respectively.................................             314,887             316,299
Notes payable to banks, finance companies, and individuals, weighted average
  interest rates of 5% - 20%, and principal payable through 2010, secured by vehicles,
  equipment, real estate, accounts receivable or stock of certain subsidiaries............              22,931              54,648
Obligations under capital leases of vehicles and equipment, weighted average
  interest of 8.00%.......................................................................              10,592              14,790
Notes payable to individuals and a commercial company, interest of 5%-10%,
  principal and interest payable through 2007, unsecured..................................               4,001              15,624
                                                                                                ---------------     ---------------
                                                                                                     9,649,121          10,243,219
Less: Current portion.....................................................................              13,997           1,002,928
                                                                                                ---------------     ---------------
                                                                                                $    9,635,124      $    9,240,291
                                                                                                ===============     ===============
</TABLE>


                                       54
<PAGE>

                          ALLIED WASTE INDUSTRIES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In  connection  with the BFI  acquisition  in July 1999,  we entered  into a new
credit facility (the "1999 Credit Facility").  The 1999 Credit Facility provides
a $1.5 billion six-year revolving credit facility, a $556 million two-year asset
sale term loan (the "Asset Sale Term Loan") which was repaid in full in February
2000, a $1,750 million six-year Tranche A term loan (the "Tranche A Term Loan"),
a $1,250 million  seven-year  Tranche B term loan (the "Tranche B Term Loan"), a
$1,500 million  eight-year Tranche C term loan (the "Tranche C Term Loan") and a
$500 million  eight-year  Tranche D term loan (the  "Tranche D Term Loan").  The
Tranche D Term Loan was repaid in full in September 2000.

The 1999 Credit Facility bears interest, at (a) an Alternate Base Rate, or (b) a
Eurodollar Rate, both terms defined in the 1999 Credit Facility, plus, in either
case, an applicable margin and may be used for working capital and other general
corporate purposes,  acquisitions, and the issuance of letters of credit. Of the
$1.5 billion  available under the Revolving Credit  Facility,  no more than $800
million may be used to support the issuance of letters of credit. As of December
31, 2000, approximately $587 million was available on this facility.

The term loan  facility is a funded,  amortizing  senior  secured term loan with
annual principal payments increasing from zero in 2001, to $127 million in 2002,
and to $350 million in 2003.  Principal  under the revolving  credit facility is
due upon maturity.

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

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

In connection with the BFI acquisition on July 30, 1999, we assumed all of BFI's
debt  securities  with the  exception of  commercial  paper that was paid off in
connection  with the  acquisition.  BFI's debt securities were recorded at their
fair market values as of the date of the acquisition in accordance with Emerging
Issues Task Force Issue 98-1 -- Valuation of Debt Assumed in a Purchase Business
Combination.  The  effect  of  revaluing  the  debt  securities  resulted  in an
aggregate discount from the historic face amount of $137.0 million.  At December
31, 2000,  the remaining  unamortized  discount  related to the debt  securities
assumed from BFI was $120.7 million.

The Market  Value Put  Securities  ("MVPs")  had an optional  put on January 18,
2000, which was exercised.  Accordingly, we repaid the MVPs in January through a
draw on our revolving credit facility.

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

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




                                       55
<PAGE>

                          ALLIED WASTE INDUSTRIES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In December 1998,  Allied NA issued an aggregate of $1.7 billion of senior notes
consisting  of $225 million  7.375% senior notes due 2004,  $600 million  7.625%
senior  notes due 2006 and $875 million  7.875%  senior notes due 2009 in a Rule
144A offering which were subsequently registered for public trading with the SEC
in  January  1999.  Interest  accrued  on  the  1998  Senior  Notes  is  payable
semi-annually  on January 1 and July 1. We used the net  proceeds  from the 1998
Senior Notes to fund the  redemption  of the 1996 Notes and the Senior  Discount
Notes  pursuant to tender  offers we 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.  We,
together with  substantially all of our subsidiaries,  guarantee the 1998 Senior
Notes.

In June  1998,  we repaid  $486.8  million  outstanding  under  the 1997  Credit
Agreement and entered into a new credit agreement (the "1998 Credit Agreement").
The Credit Agreement  provided a $800 million five year senior secured revolving
credit  facility and a $300 million five year senior  secured term loan facility
(together with the revolving credit facility, the "Senior Credit Facility").

Future maturities of long term debt --

Aggregate  future  maturities of long-term debt outstanding at December 31, 2000
reflect our intent and ability to refinance  certain tranches of the 1999 Credit
Facility (in thousands):

                        Maturity                   2000
                  ----------------------    -------------------
                  2001                      $         13,997
                  2002                               141,534
                  2003                               507,179
                  2004                               680,023
                  2005                             1,030,555
                  Thereafter                       7,275,833
                                            -------------------
                                            $      9,649,121
                                            ===================


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, 2000 (in thousands):

<TABLE>
<CAPTION>

     Maturity           Principal            Interest               Total
-------------------  -----------------   ------------------   ------------------
<S>                  <C>                 <C>                  <C>
2001                 $        3,323      $          713       $        4,036
2002                          3,599                 431                4,030
2003                          1,709                 212                1,921
2004                          1,189                 113                1,302
2005                            566                  36                  602
Thereafter                      206                  17                  223
                     -----------------   ------------------   ------------------
                     $       10,592      $        1,522       $       12,114
                     =================   ==================   ==================

</TABLE>



                                       56
<PAGE>

                          ALLIED WASTE INDUSTRIES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Fair value of debt and interest rate protection agreements --

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

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

<TABLE>
<CAPTION>
                                         Balance at         Fair Value at          Balance at         Fair Value at
                                        December 31,         December 31,         December 31,         December 31,
                                            2000                 2000                 1999                 1999
                                      -----------------    -----------------    -----------------   ------------------
<S>                                   <C>                  <C>                  <C>                 <C>
Long-Term Debt
  Fixed Rate Debt:
    Principal amount.............     $     4,697,530      $     4,349,440      $     4,725,018     $     4,280,180
    Weighted average interest
      rate.......................                8.74%                                     8.44%
  Variable Rate Debt:
    Principal amount.............     $     4,951,591      $     4,746,918      $     5,518,201     $     5,518,201
    Weighted average interest
      rate(1)....................                9.22%                                     8.84%

Interest Rate Swaps(2)
  Cancelable:
    Notional amount..............     $       450,000      $        (2,170)     $     2,650,000     $        14,402
    Weighted average interest
      rate.......................                6.37%                                     5.74%
  Non-Cancelable:
    Notional amount..............     $     3,550,000      $       (72,496)     $       450,000     $         1,049
    Weighted average interest
      rate.......................                7.10%                                     5.78%


<FN>
     (1)  Reflects  the rate in  effect  as of  December  31,  2000 and 1999 and
          includes all applicable margins. Actual future rates may vary.

     (2)  All  interest  rate swaps  enable us to pay a fixed  interest  rate in
          exchange for receiving variable interest rates at LIBOR.

</FN>
</TABLE>


                                       57
<PAGE>

                          ALLIED WASTE INDUSTRIES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Debt covenants --

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

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

At December 31, 2000, we were in compliance with all applicable covenants.

Substantially  all of our  subsidiaries are jointly and severally liable for the
obligations  under the 1998  Senior  Notes,  the 1999 Notes and the 1999  Credit
Facility  through   unconditional   guarantees  issued  by  current  and  future
subsidiaries  which are all,  except in one minor case,  wholly-owned  by us. In
addition,  the 1999 Credit Facility is secured by substantially all the personal
property  and a pledge  of the stock of  substantially  all of our  present  and
future subsidiaries.

On January 30,  2001,  we funded an offering  of $600  million of 8.875%  senior
secured  notes,  due  2008,  as a  private  placement  under  Rule  144A  of the
Securities  Act of 1933 (the  "Securities  Act").  We used the proceeds from the
sale of these notes to ratably repay portions of tranches A, B and C of the term
loans under the 1999 Credit  Facility.  The offer of these senior  secured notes
was made only by means of an offering  circular to qualified  investors  and has
not been  registered  under the Securities Act and may not be offered or sold in
the United States absent  registration  under the Securities Act or an exemption
from the registration  requirements of the Securities Act. We expect to file for
registration within 120 days of the offering date.  Coincident with the offering
we amended our credit facility to change certain financial  covenants to provide
us with greater operating flexibility.

7. Landfill Accounting

We have a network  of 164 owned or  operated  active  landfills  with a net book
value of  approximately  $1.65 billion at December 31, 2000.  The landfills have
operating  lives ranging from one to over 150 years based on available  capacity
using current annual volumes. The average life of our landfills  approximates 40
years.  We use a  life-cycle  accounting  method for  landfills  and the related
closure and post-closure  liabilities.  This method applies the costs associated
with  acquiring,  developing,  closing and  monitoring  the  landfills  over the
associated landfill capacity and associated consumption.  On an annual basis, we
update the  development  cost estimates  (which include the costs to develop the
site  as  well  as  the  individual  cell  construction   costs),   closure  and
post-closure cost estimates and future capacity estimates for each landfill. The
cost estimates are prepared by local company and third-party  engineers based on
the applicable  local,  state and federal  regulations  and site specific permit
requirements. Future capacity estimates are updated using aerial surveys of each
landfill to estimate utilized disposal capacity and remaining disposal capacity.
These cost and capacity estimates are reviewed and approved by senior operations
management annually.



                                       58
<PAGE>

                          ALLIED WASTE INDUSTRIES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Landfill assets --

We  use  the  units  of  production  method  for  purposes  of  calculating  the
amortization  rate  at  each  landfill.   This  methodology  divides  the  costs
associated with acquiring,  permitting and developing the entire landfill by the
total remaining  capacity of that landfill.  The resulting per unit amortization
rate is applied to each unit disposed at the landfill and is recorded as expense
for that period. We expensed  approximately  $131.8 million and $81.5 million or
an average of $1.35 per cubic yard and $1.28 per cubic yard consumed, related to
landfill  amortization  during  the  years  ended  December  31,  2000 and 1999,
respectively.  The following is a rollforward  of our investment in our landfill
assets excluding land held for permitting as landfills (in thousands):

<TABLE>
<CAPTION>
                                 Net Book Value
                                  of Landfills
                                 Acquired During            Landfill
    Net Book Value at             2000, net of            Development           Landfill        Net Book Value at
    December 31, 1999             Divestitures               Costs            Amortization      December 31, 2000
---------------------------   ----------------------   -------------------   ---------------  ---------------------

<S>                                  <C>                    <C>                <C>            <C>
$       1,421,673                    188,230                170,900            (131,795)      $      1,649,008

</TABLE>

Costs  associated  with  developing  the landfill  include  direct costs such as
excavation, liners, leachate collection systems, engineering and legal fees, and
capitalized interest. Estimated total future development cost for our 164 active
landfills is approximately $3.1 billion,  excluding capitalized interest, and we
expect that this amount will be spent over the remaining  operating lives of the
landfills.  We have available  disposal  capacity of  approximately  3.0 billion
cubic yards as of December 31, 2000. We classify this total disposal capacity as
either   permitted   (having  received  the  final  permit  from  the  governing
authorities)  and  deemed  permitted.  Our  internal  requirements  to  classify
capacity as deemed permitted are as follows:

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

Upon  successfully  meeting the preceding  criteria,  the costs  associated with
developing,  constructing,  closing and monitoring the total  additional  future
capacity are considered in the calculation of the  amortization  and closure and
post-closure  rates.  At December 31, 2000,  we had 2.41 billion  cubic yards of
permitted  capacity,  and at 43 of our  landfills,  589.3 million cubic yards of
deemed permitted capacity.



                                       59
<PAGE>

                          ALLIED WASTE INDUSTRIES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table reflects  landfill airspace activity for active landfills we
owned or operated  for the twelve  months ended  December 31, 2000  (airspace in
millions of cubic yards):

<TABLE>
<CAPTION>

                                                                              Additions
                               Balance     Acquisitions,        Additions        To                       Changes in      Balance
                               as of       Divestitures         to Deemed     Permitted    Airspace      Engineering       as of
                              12/31/99    and Closures(1)       Airspace      Airspace     Consumed       Estimates       12/31/00
                              ----------  -----------------    ------------   ----------  ------------  ---------------  -----------
<S>                             <C>                <C>                          <C>            <C>              <C>       <C>
Permitted airspace........      2,108.0           195.9                 --      202.2          (97.6)           0.7       2,409.2
Number of landfills.......          151              13                 --         --            --              --           164

Deemed airspace...........        545.0            37.8              162.4     (155.3)           --            (0.6)        589.3
Number of landfills.......           37               4                 10         (8)           --              --            43
                              ----------  -----------------    ------------   ----------  ------------  ---------------  -----------

Total airspace............      2,653.0           233.7              162.4       46.9          (97.6)           0.1       2,998.5
Number of landfills.......          151              13                 --         --            --              --           164

<FN>
     (1)  Landfills   classified  as  assets  held  for  sale  are  included  as
          divestitures.
</FN>
</TABLE>

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

Closure and post-closure --

Estimated  costs for  closure and  post-closure  as  required  under  Subtitle D
regulations  are  compiled and updated  annually for each  landfill by local and
regional  company  engineers  and  reviewed  by senior  management.  The  future
estimated  closure and post-closure  costs are increased at an inflation rate of
2.5%,  and discounted at a risk-free  capital rate of 7.0%, per annum,  based on
the timing of the amounts to be expended.  The  following  table is a summary of
the closure and post-closure costs (in thousands):

<TABLE>
<CAPTION>
                                                                               December 31, 2000     December 31, 1999
                                                                               ------------------    ------------------
<S>                                                                            <C>                   <C>
Discounted Closure and  Post-Closure Liability Recorded:
   Current Portion.........................................................    $        90,785       $        75,316
   Non-Current Portion.....................................................            510,568               442,032
                                                                               ------------------    ------------------
   Total...................................................................    $       601,353       $       517,348

 Estimated Remaining Closure and Post-Closure Costs to be Expended:
   Discounted..............................................................    $     1,222,920       $     1,046,538
   Undiscounted............................................................          3,180,287             2,689,485

 Estimated Total Future Payments:
 2001......................................................................    $        90,785
 2002......................................................................             92,703
 2003......................................................................             76,548
 2004......................................................................             54,873
 2005......................................................................             49,344
 Thereafter................................................................          2,816,034

</TABLE>


                                       60
<PAGE>

                          ALLIED WASTE INDUSTRIES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

The second component is the accretion  expense necessary to increase the accrued
closure and post-closure reserve balance to its future, or undiscounted,  value.
To accomplish  this,  we accrete our closure and  post-closure  accrual  balance
using the  current  risk-free  capital  rate and  charge  this  accretion  as an
operating  expense in that period.  We charged  approximately  $61.7 million and
$35.2  million,  or an  average of $0.63 per cubic yard and $0.55 per cubic yard
consumed,  related to per unit  closure and  post-closure  expense and  periodic
accretion  during the years  ended  December  31,  2000 and 1999,  respectively.
Changes in estimates of costs or capacity are treated on a prospective basis.

Environmental costs ---

In  connection  with  the  acquisition  of  companies,   we  engage  independent
environmental   consulting  firms  to  assist  in  conducting  an  environmental
assessment  of  companies  acquired  from third  parties.  Several  contaminated
landfills and other  properties were identified  during 1999 and 1998 that would
require us to incur costs for  incremental  closure and  post-closure  measures,
remediation  activities and litigation costs in the future. Based on information
available,  we recorded a provision of $3.3  million,  $267.0  million and $41.1
million for  environmental  matters,  in the 2000,  1999 and 1998  statements of
operations, respectively, and expect 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  us,  after   consultation  with  our
independent environmental engineers, require assumptions about future events due
to a number of  uncertainties  including  the extent of the  contamination,  the
appropriate  remedy,  the financial  viability of other potentially  responsible
parties and the final  apportionment  of  responsibility  among the  potentially
responsible  parties.  Where  we have  concluded  that  our  estimated  share of
potential liabilities is probable, a provision has been made in the consolidated
financial  statements.  Since the ultimate  outcome of these  matters may differ
from the estimates used in our assessment to date, the recorded liabilities will
be  periodically  evaluated,  as  additional  information  becomes  available to
ascertain whether the accrued liabilities are adequate.  We have determined that
the recorded  liability  for  environmental  matters as of December 31, 2000 and
1999  of  approximately   $432.5  million  and  $478.2  million,   respectively,
represents  the most probable  outcome of these  contingent  matters.  We do not
reduce our estimated obligations for proceeds from other potentially responsible
parties or insurance companies. If receipt is probable, proceeds are recorded as
an  offset  to  environmental   expense  in  operating  income.  There  were  no
significant recovery receivables outstanding as of December 31, 2000 or 1999. We
do not expect that  adjustments to estimates,  which are reasonably  possible in
the near term and that may result in changes to  recorded  amounts,  will have a
material effect on our consolidated liquidity,  financial position or results of
operations.  However,  we believe  that it is  reasonably  possible the ultimate
outcome of  environmental  matters,  excluding  closure and  post-closure  could
result in approximately $30 million of additional liability.



                                       61
<PAGE>
                          ALLIED WASTE INDUSTRIES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The  following  table shows the activity and balances  related to  environmental
accruals and for closure and  post-closure  accruals  related to open and closed
landfills from December 31, 1997 through December 31, 2000 (in thousands):

<TABLE>
<CAPTION>
                                                  Balance at      Charges to         Other                        Balance at
                                                   12/31/97         Expense        Charges(1)      Payments        12/31/98
                                                 -------------  ----------------  -------------  --------------  --------------
<S>                                              <C>            <C>               <C>            <C>             <C>
Environmental costs............................  $     63,762   $       41,100    $         --   $   (11,489)    $     93,373
Open landfills closure and post-closure costs..       103,751           15,384           3,820        (1,596)         121,359
Closed landfills closure and post-closure costs        40,880            2,223              --        (9,915)          33,188

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

                                                  Balance at      Charges to         Other                        Balance at
                                                   12/31/99         Expense        Charges(1)      Payments        12/31/00
                                                 -------------  ----------------  -------------  --------------  --------------
Environmental costs............................  $    478,194   $        3,331    $     (9,436)  $   (39,636)    $    432,453
Open landfills closure and post-closure costs..       313,800           47,134          34,438       (18,925)         376,447
Closed landfills closure and post-closure costs       203,548           14,593          46,662       (39,897)         224,906

<FN>
     (1)  Amounts  consist  primarily  of  liabilities  related to acquired  and
          divested companies.
</FN>
</TABLE>

8. Employee Benefit Plans

Effective July 30, 1999, in connection  with the  acquisition of BFI, we assumed
two defined benefit retirement plans covering substantially all BFI employees in
the United States, except for certain employees subject to collective bargaining
agreements.  The BFI  retirement  plan was  amended  on July 30,  1999 to freeze
future credited service,  but interest credits will continue to accrue.  Certain
union  participants  will  continue  to  receive  2% annual  service  credits in
addition to interest  credits  through  the  duration of the current  collective
bargaining agreements.  The benefits not frozen for this plan are based on years
of service and the employee's compensation.  Our general funding policy for each
pension plan is to make annual  contributions  to the plans as  determined to be
required by the plans' actuary.  No  contributions  were required during 1999 or
2000.

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


                                       62
<PAGE>

                          ALLIED WASTE INDUSTRIES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For both plans, an actuarial  valuation  report was prepared as of September 30,
1999 and 2000 and used,  as  permitted  by  Statement  of  Financial  Accounting
Standards   No.  132,   Employers'   Disclosures   about   Pensions   and  Other
Postretirement   Benefits  ("SFAS  132"),  for  the  following  disclosures  (in
thousands):

<TABLE>
<CAPTION>

                                                                       For the Period from          For the Period from
                                                                       September 30, 1999              July 30, 1999
Change in Benefit Obligation                                                 through                      through
                                                                       September 30, 2000            September 30, 1999
                                                                     ------------------------    ---------------------------
<S>                                                                         <C>                  <C>
  Benefit obligation at beginning of period.....................     $        249,110            $        247,875
  Service cost..................................................                1,094                         496
  Interest cost.................................................               17,965                       7,945
  Actuarial gain................................................              (10,665)                     (4,994)
  Benefits paid.................................................              (20,531)                     (2,212)
                                                                     ------------------------    ---------------------------
  Benefit obligation at end of period...........................     $        236,973            $        249,110


Change in Plan Assets
  Fair value of plan assets at beginning of period..............     $        304,274            $        309,092
  Actual return on plan assets..................................               70,464                      (2,606)
  Benefits paid.................................................              (20,531)                     (2,212)
                                                                     ------------------------    ---------------------------
  Fair value of plan assets at end of period....................              354,207                     304,274


  Funded Status.................................................              117,234                      55,164
  Unrecognized net actuarial (gain) loss........................              (34,333)                     10,768
                                                                     ------------------------    ---------------------------
  Prepaid benefit cost..........................................     $         82,901            $         65,932
                                                                     ========================    ===========================



----------------------------------------------------------------------------------------------------------------------------
Amounts Recognized in the Statement of Financial Position
                                                                        December 31, 2000            December 31, 1999
                                                                     ------------------------    ---------------------------
  Prepaid benefit cost..........................................     $         82,901            $         65,932

----------------------------------------------------------------------------------------------------------------------------

                                                                                                    For the Period from
Components of Net Periodic Benefit Cost                                For the Year Ended          July 30, 1999 through
                                                                        December 31, 2000             December 31, 1999
                                                                     ------------------------    ---------------------------
  Service cost..................................................     $          1,094            $            496
  Interest cost.................................................               17,965                       7,945
  Expected return on plan assets................................              (34,630)                    (13,155)
  Recognized net actuarial gain.................................               (1,398)                         --
                                                                     ------------------------    ---------------------------
  Net periodic benefit cost.....................................     $        (16,969)            $        (4,714)
                                                                     ========================    ===========================


Weighted-Average Assumptions at September 30, 2000 and 1999
  Discount rate.................................................                 7.75%                       7.75%
  Expected return on plan assets................................                10.25%                      10.25%
  Average rate of compensation increase.........................                 4.00%                       4.00%

</TABLE>



                                       63
<PAGE>

                          ALLIED WASTE INDUSTRIES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

9. Redeemable Preferred Stock

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

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

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

The amounts added to the  liquidation  preference  of the  Preferred  Stock were
approximately  $68.4 million or $68.44 per share during the year ended  December
31, 2000 and approximately $27.6 million or $27.61 per share for the five months
ended December 31, 1999.

10. Stockholders' Equity

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

<TABLE>
<CAPTION>
                                                                                         Issued and Outstanding
                                                                                             At December 31,
                                                                                    ----------------------------------
                                                                   Authorized
                                                                     Shares              2000               1999
                                                                  --------------    ----------------    --------------
<S>                                                                    <C>                <C>                 <C>
Common stock, $0.01 par, net of 603 treasury shares...........         300,000            196,109             188,519

</TABLE>

Warrants to purchase common stock --

Warrants to purchase  common shares at December 31, 2000 and 1999 are summarized
as follows:

<TABLE>
<CAPTION>
                                                                                 2000                     1999
                                                                          --------------------     -------------------
<S>                                                                             <C>                     <C>
Number of shares......................................................          347,827                 347,827
Purchase price per share..............................................            $4.60                   $4.60
Expiration dates......................................................             2003                    2003

</TABLE>


                                       64
<PAGE>

                          ALLIED WASTE INDUSTRIES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

11. Stock Plans

Option plans --

The 1991  Incentive  Stock Plan ("1991  Plan"),  the 1993  Incentive  Stock Plan
("1993 Plan") and the 1994 Incentive Stock Plan ("1994 Plan",  collectively  the
"Plans") provide for the grant of non-qualified  stock options,  incentive stock
options,  shares of restricted stock, shares of phantom stock and stock bonuses.
During 1999, the 1991 Plan was amended so that the maximum number of shares that
may be granted  may not exceed  8.0% of the  number of fully  diluted  shares of
common stock on the date of grant of an award.  An additional  maximum number of
shares of 500,000 and 2,000,000 common shares may be granted under the 1993 Plan
and the 1994 Plan,  respectively.  After taking into account  previously granted
awards,  awards  covering  approximately  606,741  shares of common  stock  were
available under the Plans. The Compensation  Committee of the Board of Directors
generally determines the exercise price, term and other conditions applicable to
each option granted.

The 1994 Amended and Restated  Non-Employee  Director Stock Option Plan provides
for the grant of non-qualified options to each member of the Board of Directors,
who is not also our  employee,  at a price equal to the fair  market  value of a
common share on the date of grant.  The maximum  number of shares,  which may be
granted under the plan, is 1,150,000  common shares.  All options  granted under
the plan are fully  vested and  exercisable  on the date of grant and expire ten
years from the grant date.

A summary of the status of our stock option plans at December 31, 2000, 1999 and
1998 and for the years then ended is presented in the table and narrative below:

<TABLE>
<CAPTION>
                                                                  Years Ended December 31,
                            -------------------------------------------------------------------------------------------------------
                                        2000                                1999                                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 year......... 15,415,129       $     13.37        10,786,000       $     12.97         8,831,266       $       8.19
Options granted.............  2,203,800             11.65         6,085,000             13.11         3,656,562              22.29
Options exercised...........   (375,927)             5.90        (1,231,771)             7.97        (1,701,828)              8.50
Options forfeited........... (1,791,360)            17.57          (224,100)            16.88                --                 --
                            -------------                      ---------------                     ---------------
Options outstanding, end
  of year................... 15,451,642             12.82        15,415,129             13.37        10,786,000              12.97
                            =============                      ===============                     ===============
Options exercisable, end
  of year...................  7,832,176             14.44         6,628,574             12.52         6,220,735              11.02


</TABLE>


                                       65
<PAGE>

                          ALLIED WASTE INDUSTRIES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

We account for our stock-based  compensation  plans under APB 25, under which no
compensation expense has been recognized,  as all options have been granted with
an exercise  price equal to the fair value of our Common  Stock upon the date of
grant.  The fair value of each option grant has been estimated as of the date of
grant using the Black-Scholes  option pricing model with the following  weighted
average assumptions:

<TABLE>
<CAPTION>
                                                                       For the Years Ended December 31,
                                                         -------------------------------------------------------------
                                                               2000                  1999                 1998
                                                         -----------------     -----------------    ------------------
<S>                                                        <C>                   <C>                  <C>
Risk free interest rate.............................       5.3% to 6.9%          5.2% to 6.3%         4.7% to 5.6%
Expected life.......................................          5 years              5 years               5 years
Dividend rate.......................................            0%                    0%                   0%
Expected volatility.................................        52% to 55%            47% to 50%           44% to 46%

</TABLE>

Using these  assumptions,  pro forma net income (loss) and net income (loss) per
share would reflect additional  compensation expense recognized over the vesting
periods of the options. The resulting pro forma net income (loss), and pro forma
net income (loss) per share is as follows (in thousands, except per share data):

<TABLE>
<CAPTION>
                                                            For the Years Ended December 31,
                                                  ------------------------------------------------------
                                                      2000                1999               1998
                                                  --------------     ---------------    ----------------
<S>                                               <C>                <C>                <C>
Net Income (loss):             As reported......  $     55,935       $  (316,517)       $    (223,052)
                               Pro forma........        42,634          (325,973)            (229,928)

Net Income (loss) Per Share:   As reported......  $       0.29       $     (1.69)       $       (1.22)
                               Pro forma........          0.22             (1.74)               (1.26)

</TABLE>


                                       66
<PAGE>

                          ALLIED WASTE INDUSTRIES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following tables summarize  information  about stock options  outstanding at
December 31, 2000 which are fully vested, partially vested and non-vested:

<TABLE>
<CAPTION>

Fully Vested:

                                       Options Outstanding and Exercisable
-------------------------------------------------------------------------------------------------------------
                                                              Weighted Average           Weighted Average
   Range of Exercise Prices         Number Outstanding         Remaining Life             Exercise Price
--------------------------------    -------------------    -----------------------    -----------------------
 <S> <C>       <C>                       <C>                      <C>                        <C>
     $ 4.27 - $ 8.38                     1,926,848                5 years                    $  5.46
     $ 8.50 - $12.25                     1,638,342                6 years                    $  9.73
     $16.44 - $21.97                       494,629                8 years                    $ 19.71
     $22.84 - $27.27                       140,349                8 years                    $ 26.26


Partially Vested:

                                            Options Outstanding
-------------------------------------------------------------------------------------------------------------
                                                               Weighted Average          Weighted Average
   Range of Exercise Prices          Number Outstanding         Remaining Life            Exercise Price
--------------------------------    --------------------    ------------------------  -----------------------
     $ 7.31 - $10.00                     2,466,374                7 years                    $  9.32
     $13.31 - $15.00                     4,741,000                9 years                    $ 13.72
     $15.88 - $21.19                     2,025,600                7 years                    $ 20.78

                                            Options Exercisable
-------------------------------------------------------------------------------------------------------------
                                                               Weighted Average          Weighted Average
   Range of Exercise Prices          Number Outstanding         Remaining Life            Exercise Price
--------------------------------    --------------------    ------------------------  -----------------------
     $ 7.31 - $10.00                     1,313,692                7 years                    $  9.58
     $13.31 - $15.00                     1,185,250                9 years                    $ 13.72
     $15.88 - $21.19                     1,133,066                8 years                    $ 20.76

Non Vested:

                                            Options Outstanding
-------------------------------------------------------------------------------------------------------------
                                                               Weighted Average          Weighted Average
   Range of Exercise Prices          Number Outstanding         Remaining Life            Exercise Price
--------------------------------    --------------------    ------------------------  -----------------------
     $ 6.06 - $ 8.00                       243,000               10 years                    $  7.68
     $ 9.63 - $12.94                     1,775,500               10 years                    $ 12.72

</TABLE>



                                       67
<PAGE>

                          ALLIED WASTE INDUSTRIES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Stockholder rights plan --

During May 2000, our Board of Directors  adopted a Stockholder  Rights Plan (the
"Plan").  The Plan provides for the distribution of one preferred stock purchase
right on each  share of our  Common  Stock and  approximately  57 rights on each
share of our Preferred Stock.  Initially,  the rights will trade with the Common
Stock and Preferred Stock and will not be represented by separate  certificates.
The rights  represent the right to purchase one  ten-thousandth  of a share of a
newly created series of our junior  preferred stock at an exercise price of $85,
but will not be exercisable until certain events occur.

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

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

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

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

Restricted stock plan --

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

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

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

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

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




                                       68
<PAGE>
                          ALLIED WASTE INDUSTRIES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

During 2000,  the  Compensation  Committee  of the Board of  Directors  approved
grants of approximately  7.0 million shares of restricted stock to approximately
60 key management  employees  under this plan. The weighted  average  grant-date
fair value of shares granted during 2000 was $6.10 per share. None of the shares
are vested at December 31, 2000.  During 2000 we recognized  approximately  $2.8
million  recorded for compensation  expense.  At December 31, 2000 we have $39.9
million of deferred compensation related to this plan.

12. Net Income (Loss) Per Common Share

Net income (loss) per common share is calculated by dividing net income  (loss),
less dividend requirements on preferred stock, by the weighted average number of
common shares and common share equivalents  outstanding  during each period. The
computation  of basic  earnings  per share and diluted  earnings per share is as
follows (in thousands, except per share data):

<TABLE>
<CAPTION>
                                                                            For the Years Ended December 31,
                                                                   ----------------------------------------------------
                                                                        2000              1999              1998
                                                                  -----------------  ----------------  ----------------
<S>                                                               <C>                <C>               <C>
Basic earnings per share computation:
Income (loss) before extraordinary losses and cumulative
  effect of change in accounting principle......................  $     137,653      $    (221,250)    $     (98,251)
Less: preferred stock dividends.................................         68,452             27,789                --
                                                                  -----------------  ----------------  ----------------
Income (loss) available to common shareholders before
  extraordinary losses and cumulative effect of change in
  accounting principle, net of income tax benefit...............  $      69,201      $    (249,039)    $     (98,251)
                                                                  =================  ================  ================
Weighted average common shares outstanding......................        188,814            187,801           182,796
                                                                  =================  ================  ================
Basic earnings (loss) per share before extraordinary losses
  and cumulative effect of change in accounting principle,
  net of income tax benefit.....................................  $        0.37      $       (1.33)    $       (0.54)
                                                                  =================  ================  ================
Diluted earnings per share computation:
Income (loss) before extraordinary losses and cumulative
  effect of change in accounting principle......................  $     137,653      $    (221,250)    $     (98,251)
Less: preferred stock dividends.................................         68,452             27,789                --
                                                                  -----------------  ----------------  ----------------
Income (loss) available to common shareholders before
  extraordinary losses and cumulative effect of change in
  accounting principle, net of income tax benefit...............  $      69,201      $    (249,039)    $     (98,251)
                                                                  =================  ================  ================
Weighted average common shares outstanding......................        188,814            187,801           182,796
Dilutive effect of stock, stock options, warrants and
  contingently issuable shares..................................          2,308                 --                --
                                                                  -----------------  ----------------  ----------------
Weighted average common and common equivalent
  shares outstanding............................................        191,122            187,801           182,796
                                                                  =================  ================  ================
Diluted earnings (loss) per share before extraordinary
  losses and cumulative effect of change in accounting
  principle, net of income tax benefit..........................  $        0.36      $       (1.33)    $       (0.54)
                                                                  =================  ================  ================


<FN>
Conversion  has not been assumed for the Preferred  Stock into 60,891 and 57,089
common  shares  and  stock  options  of  2,663  and  12,468  in 2000  and  1999,
respectively as the effects would not be dilutive.
</FN>
</TABLE>



                                       69
<PAGE>

                          ALLIED WASTE INDUSTRIES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

13. Income Taxes

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

The acquisition of BFI in 1999,  which was accounted for as a purchase  business
combination, resulted in approximately $6.7 billion of goodwill, $6.4 billion of
which  is  not  amortizable   for  income  tax  purposes.   The  impact  of  the
non-deductible  amortization is reflected in the  reconciliation  of the federal
statutory tax rate to the effective tax rate.

As of December 31, 2000, approximately $173 million of capital loss carryforward
remains  unused that will expire if not used by the end of 2003. We believe that
anticipated  divestitures will generate  sufficient capital gains to offset most
of the capital loss carryforward and we have established a $49 million valuation
allowance  against  the  deferred  tax asset for the amount of the  carryforward
which may not offset capital gains. We also have federal net operating losses of
$112 million  available at December 31, 2000.  If unused,  material  portions of
these  losses  will  begin to expire in 2018.  Additionally,  we have  state net
operating loss carryforwards  available at December 31, 2000 that we expect will
generate  future  tax  savings  of  approximately  $51  million.  The  state net
operating losses will expire at various times between 2001 and 2019 if not used.
We have  established  a valuation  allowance of $35 million for the  possibility
that some of these state  carryforwards  may not be used. In addition to the net
operating loss carryforwards,  we have federal minimum tax credit  carryforwards
of  approximately  $11 million as of December 31, 2000, which are not subject to
expiration.  The net current  deferred tax asset includes the current benefit we
expect to receive in 2001 from the use of our net operating  loss,  capital loss
and minimum tax credit carryforwards.

The balance  sheet  classification  and amount of the tax  accounts  established
relating to acquisitions  are based on certain  assumptions  that could possibly
change  based on the  ultimate  outcome of  certain  tax  matters.  As these tax
accounts were established in purchase accounting, any future changes relating to
these amounts will result in balance sheet reclassifications,  which may include
an  adjustment to the  goodwill.  The  valuation  allowance at December 31, 2000
includes  approximately  $73  million  related  to  the  BFI  acquisition,   the
subsequent reduction of which would result in an adjustment to goodwill.



                                       70
<PAGE>

                          ALLIED WASTE INDUSTRIES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

<TABLE>
<CAPTION>

                                                                                 Year Ended December 31,
                                                                   ---------------------------------------------------
                                                                        2000                1999             1998
                                                                   ----------------    ---------------    ------------

<S>                                                                <C>                 <C>                <C>
Current tax provision.........................................     $        44,486     $     65,300       $     2,000
Deferred provision (benefit)..................................             193,054          (74,056)           41,773
                                                                   ----------------    ---------------    ------------
Total.........................................................     $       237,540     $     (8,756)      $    43,773
                                                                   ================    ===============    ============
</TABLE>

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

<TABLE>
<CAPTION>
                                                                                 Year Ended December 31,
                                                                    ---------------------------------------------
                                                                      2000             1999              1998
                                                                    ---------       -----------        ----------

<S>                                                                     <C>             <C>               <C>
Federal statutory tax rate....................................          35.0  %         (35.0)  %         (35.0)  %
Consolidated state taxes, net of federal benefit..............           7.2             (0.4)              9.2
Taxes of pooled companies.....................................            --             (0.1)             70.6
Amortization of goodwill......................................          16.0             11.2               3.7
Non-deductible write-off of goodwill and business
  combination costs...........................................           1.8             16.2              28.8
Other permanent differences...................................           3.3              4.2               3.0
                                                                    ---------       -----------        ----------
Effective tax rate............................................          63.3  %          (3.9)  %          80.3   %
                                                                    =========       ===========        ==========
</TABLE>

Tax benefits for the  extraordinary  items in 2000,  1999 and 1998 were based on
our then ordinary combined federal and state rates of 39.5%. Tax benefit for the
cumulative  effect of change in  accounting  principle  in 1999 was based on our
ordinary combined federal and state rate of 39.5%.

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

<TABLE>
<CAPTION>
                                                                                          December 31,
                                                                            ------------------------------------------
                                                                                   2000                   1999
                                                                            -------------------    -------------------
<S>                                                                         <C>                    <C>
Deferred tax liability relating primarily to property consisting
   of landfill assets, fixed assets and debt basis differences..........    $       (714,529)      $       (608,894)
                                                                            -------------------    -------------------
 Deferred Tax Assets Relating To:
 Environmental, closure and post-closure reserves.......................             326,866                 61,982
 Other reserves.........................................................             141,324                317,769
 Net operating loss, capital loss and minimum tax credit
   carryforwards........................................................             179,183                278,232
 Valuation allowance....................................................             (84,614)              (138,612)
                                                                            -------------------    -------------------
 Total deferred tax asset...............................................             562,759                519,371
                                                                            -------------------    -------------------
 Net deferred tax liability.............................................    $       (151,770)      $        (89,523)
                                                                            ===================    ===================
</TABLE>

Deferred  income taxes have not been  provided as of December 31, 2000 and 1999,
on  approximately  $36 million and $21 million,  respectively,  of undistributed
earnings  of  foreign  affiliates,   which  are  considered  to  be  permanently
reinvested.



                                       71
<PAGE>

                          ALLIED WASTE INDUSTRIES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

14. Commitments and Contingencies

We are  subject  to  extensive  and  evolving  laws  and  regulations  and  have
implemented   our  own   environmental   safeguards  to  respond  to  regulatory
requirements.  In the normal course of conducting our operations,  we may become
involved in certain legal and administrative proceedings.  Some of these actions
may result in fines, penalties or judgments against us, which may have an impact
on earnings for a particular  period.  We accrue for  litigation  and regulatory
compliance  contingencies when such costs are probable and reasonably estimable.
We expect that  matters in process at  December  31,  2000,  which have not been
accrued in the  Consolidated  Balance  Sheet,  will not have a material  adverse
effect  on our  consolidated  liquidity,  financial  position  or  results  from
operations.

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

We have  operating  lease  agreements for service  facilities,  office space and
equipment.  Future minimum payments under  non-cancelable  operating leases with
terms in excess of one year are as follows (in thousands):

                                         December 31, 2000
                                      ----------------------
                   2001                     $   31,045
                   2002                         28,137
                   2003                         24,936
                   2004                         21,040
                   2005                         18,713
                   Thereafter                   41,109

Rental  expense under such  operating  leases was  approximately  $31.0 million,
$26.9 million and $13.9  million for each of the three years ended  December 31,
2000, respectively.

We have  entered  into  employment  agreements  with  certain  of our  executive
officers for periods up to three years. We have agreed to pay severance  amounts
equal to a multiple of defined compensation under certain circumstances.  In the
event of a material change in control, as defined in the employment  agreements,
or termination  of all executive  officers  under such  agreements,  we would be
required  to make  payments of  approximately  $12.3  million,  in addition to a
reimbursement  payment to eliminate  the effect of any excise  taxes  associated
with this payment.

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

We are also required to provide  financial  assurances to governmental  agencies
under applicable  environmental  regulations relating to our landfill operations
and collection contracts.  These financial assurance  requirements are satisfied
by us issuing performance bonds, letters of credit,  insurance policies or trust
deposits  to secure our  obligations  as they  relate to  landfill  closure  and
post-closure  costs and  performance  under  certain  collection  contracts.  At
December 31, 2000, we had  outstanding  approximately  $1.5 billion in financial
assurance  instruments,  represented by $369.3 million of surety bonds, $1,080.5
million of insurance policies, $64.9 million of trust deposits and $18.8 million
of letters of credit.  During calendar year 2001, we expect no material increase
in  financial  assurance  obligations  relating to our landfill  operations  and
collection contracts.



                                       72
<PAGE>

                          ALLIED WASTE INDUSTRIES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

We have issued bank letters of credit in the aggregate  amount of  approximately
$477.6  million at December  31, 2000,  including  approximately  $18.8  million
relating  to  financial  assurances  to  government  agencies.  These  financial
instruments are issued in the normal course of business and are not reflected in
the accompanying  Consolidated Balance Sheets. The underlying obligations of the
financial  instruments  are valued based on the likelihood of performance  being
required.  We do not expect any material losses to result from these off balance
sheet  instruments  based on historical  results,  and therefore,  we are of the
opinion that the fair value of these instruments is zero.

Certain of our subsidiaries  have 50% ownership  interests in American  Ref-Fuel
partnerships that construct,  own and operate facilities which generate and sell
electricity  from the  incineration  of solid  waste.  Substantially  all of the
remaining  ownership  interests  are held by  Duke/UAE  Ref-Fuel  LLC, an entity
indirectly  owned 65% by Duke Capital  Corporation  ("Duke  Capital") and 35% by
United American Energy  Corporation.  Financing  arrangements  for four of these
projects include  agreements with Allied and Duke Capital to each severally fund
one-half  of  each   partnership's   cash   deficiencies   resulting   from  the
partnership's failure to perform.

In  the  event  of  a  partnership  default  which  results  in  termination  of
incineration  service,  we may limit our financial  obligations to funding up to
50%  of  periodic   payments  related  to  outstanding   debt,  and  in  certain
circumstances other operating cash deficiencies.  Average annual debt service on
50% of the aggregate American Ref-Fuel partnership debt over the next five years
is $50 million.  Funding of operating cash deficiencies would not be required in
excess  of $100  million  or 50% of the  deficiency,  whichever  is less.  Under
support  agreements  with  one of  the  partnerships,  a  subsidiary  of  Allied
guarantees to lend up to $2.5 million,  defer operating cost reimbursement up to
$3.5  million and fund up to $2.5  million in operating  damages  under  certain
circumstances.

On  November  10,  2000,  we entered  into a  definitive  agreement  to sell our
interest  in two  Ref-Fuel  facilities  located in  Chester,  Pennsylvania,  and
Rochester,  Massachusetts, to Duke/UAE. Additionally, pursuant to the agreement,
the ownership structure of the four remaining Ref-Fuel facilities located in New
York, New Jersey and Connecticut  will be modified to give Duke/UAE  operational
control of the  entities.  This  transaction  should allow us to reduce our debt
requirements by approximately  $300 million and decrease our required letters of
credit related to Ref-Fuel by  approximately  $130 million.  The  transaction is
subject to  customary  closing  provisions  and the  consents  and  approvals of
relevant  municipalities  and regulatory  agencies,  along with a requirement of
obtaining an  investment  grade rating of the  acquiring  entity from the credit
rating agencies.  The ratings agency  requirement has been met as of the date of
filing this report.





                                       73
<PAGE>

                          ALLIED WASTE INDUSTRIES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

15. Related Party Transactions

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

16. Segment Reporting

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

<TABLE>
<CAPTION>
                                             Great
                      Atlantic   Central     Lakes     Midwest   Northeast  Southeast   Southwest    West      Other(1)     Total
                      --------   -------   ---------  ---------  ---------  ---------  ----------  ---------  ----------  ---------
<S>                   <C>       <C>        <C>        <C>        <C>        <C>        <C>         <C>        <C>         <C>
2000:
Revenues from external
  customers.......... $ 604,334 $ 529,003  $ 638,100  $ 483,240  $ 943,281  $ 772,027  $ 754,432   $ 950,664  $   32,404  $5,707,485
Intersegment revenues    89,198   123,993    159,468    115,807    204,666    111,077    126,124     209,361          --   1,139,694
Depreciation and
  amortization.......    64,949    68,111     95,513     71,600     84,546     81,011     96,663     104,972       6,673     674,038
EBITDA before non-
  recurring charges..   211,525   180,711    250,669    228,711    244,217    296,104    297,181     354,788     (54,006)  2,009,900
Total assets......... 1,237,401 1,332,753  1,708,010  1,531,835  2,083,952  1,627,026  1,772,697   2,663,654  12,042,318  25,999,646
Capital expenditures.    38,202    47,833     46,162     33,276     36,196     39,841     60,737      82,431       5,240     389,918
1999:
Revenues from external
  customers.......... $ 313,656 $ 405,557  $ 437,978  $ 323,984  $ 516,517  $ 308,742  $ 400,557   $ 616,799  $   17,281  $3,341,071
Intersegment revenues    56,841    94,918    119,244     72,353     94,704     49,315     79,606     104,529          --     671,510
Depreciation and
  amortization.......    38,322    43,960     64,549     45,131     47,784     35,020     58,385      50,943          --     384,094
EBITDA before non-
  recurring charges..   105,563   124,251    182,995    139,132    124,179    101,610    159,094     212,204      11,713   1,160,741
Total assets......... 1,467,231 1,005,625  1,801,617  1,464,808  2,233,476  1,670,626  1,928,064   2,065,265  11,904,199  25,540,911
Capital expenditures.    49,363    57,931     64,966     40,381     20,821     16,784     27,593      54,699       6,654     339,192
1998:
Revenues from external
  customers.......... $ 104,587 $ 300,183  $ 296,894  $ 159,344  $ 164,701  $  57,274  $ 148,768   $ 338,058  $    5,803  $1,575,612
Intersegment revenues    14,728    56,522     68,675     37,524     21,314     12,743     35,626      34,289          --     281,421
Depreciation and
  amortization.......    11,858    29,566     41,794     22,533     13,006      5,829     20,111      28,397       6,871     179,965
EBITDA before non-
  recurring charges..    31,348    89,360    132,002     67,561     33,580     14,337     58,026     116,661     (15,371)    527,504
Total assets.........   198,064   547,108    747,767    445,185    439,215     98,729    376,442     595,290   2,108,367   5,556,167
Capital expenditures.    48,752    42,416     67,987     31,023      8,064     10,302     35,142      54,149       3,907     301,742

<FN>
(1)  Amounts  relate  primarily  to  our  subsidiaries  which  provide  services
     throughout the organization and not on a regional basis.
</FN>
</TABLE>



                                       74
<PAGE>

                          ALLIED WASTE INDUSTRIES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

<TABLE>
<CAPTION>
                                                                                Years Ended December 31,
                                                                   ---------------------------------------------------
                                                                        2000               1999              1998
                                                                   ---------------    ---------------    -------------
<S>                                                                <C>                <C>                <C>
Operating income:
Total EBITDA before acquisition related and unusual costs
  for reportable segments.....................................     $    2,009,900     $   1,160,741      $    527,504
Depreciation and amortization for reportable segments.........            674,038           384,094           179,965
Acquisition related and unusual costs.........................            127,327           588,855           317,616
                                                                   ---------------    ---------------    -------------
  Operating income............................................     $    1,208,535     $     187,792      $     29,923
                                                                   ===============    ===============    =============
</TABLE>

<TABLE>
<CAPTION>
                                                                                              December 31,
                                                                                   -----------------------------------
                                                                                        2000                1999
                                                                                   ----------------    ---------------
<S>                                                                                <C>                 <C>
Assets:
Total assets for reportable segments...........................................    $   25,999,646      $   25,540,911
Elimination of investments.....................................................       (11,486,012)        (10,577,810)
                                                                                   ----------------    ---------------
  Total assets.................................................................    $   14,513,634      $   14,963,101
                                                                                   ================    ===============
</TABLE>

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

<TABLE>
<CAPTION>
                                                       Years Ended December 31,
                      --------------------------------------------------------------------------------------------
                                 2000                            1999                             1998
                      ---------------------------     ----------------------------     ---------------------------
<S>                     <C>                <C>           <C>               <C>           <C>                 <C>
Collection........    $  4,227,680         61.7   %   $   2,422,628        60.4    %   $   1,041,441         56.1  %
Disposal(1).......       1,993,276         29.1           1,261,106        31.4              697,972         37.6
Recycling.........         384,027          5.6             203,632         5.1               64,385          3.5
Other.............         242,196          3.6             125,215         3.1               53,235          2.8
                      ---------------    --------     ---------------    ---------     ----------------    -------
                         6,847,179        100.0   %       4,012,581       100.0    %       1,857,033        100.0  %
                                         ========                        =========                         =======
Intercompany......      (1,139,694)                        (671,510)                        (281,421)
                      ---------------                 ---------------                  ----------------
  Reported
    revenues......    $  5,707,485                    $   3,341,071                    $   1,575,612
                      ===============                 ===============                  ================


<FN>
(1) Transfer revenues are included in disposal.
</FN>
</TABLE>




                                       75
<PAGE>

                          ALLIED WASTE INDUSTRIES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

17. Selected Quarterly Financial Data (unaudited)

The following table summarizes the unaudited  consolidated  quarterly results of
operations  as  reported  for  2000 and 1999 (in  thousands,  except  per  share
amounts):

<TABLE>
<CAPTION>
                                                    First             Second           Third              Fourth
                                                    Quarter           Quarter          Quarter             Quarter
                                                  -------------     -------------    --------------     --------------
<S>                                               <C>               <C>              <C>                <C>
2000
Operating revenues:...........................    $  1,378,293      $  1,461,854     $   1,474,731      $   1,392,607

Gross profit:.................................         568,337           611,733           640,608            606,780

Income before extraordinary items:............          24,957            47,696            28,740             36,260

Net income available to common
  shareholders:...............................           1,863            30,817             4,618             18,637

Basic earnings per common share:..............            0.13              0.25              0.15               0.19

Diluted earnings per common share:............            0.13              0.25              0.15               0.19

                                                     First             Second            Third             Fourth
                                                    Quarter           Quarter         Quarter(2)           Quarter
                                                  -------------     -------------    --------------     --------------
1999
Operating revenues:...........................    $    408,045      $    463,357     $   1,085,628      $   1,384,041

Gross profit:.................................         178,031           206,345           449,937            557,794

Income (loss) before extraordinary items
  and cumulative effect of change in
  accounting principle:(1)....................          33,174            46,894          (332,330)            31,012

Net income (loss) available to common
  shareholders: (1)...........................         (31,081)           46,894          (346,772)            14,442

Basic earnings (loss) per common
  share:(1)...................................            0.18              0.25             (1.77)              0.16

Diluted earnings (loss) per common
  share:(1)...................................            0.17              0.25             (1.77)              0.16

<FN>
(1)  The first and second  quarters  have been restated to reflect the effect of
     the change in accounting principle (See Note 1).

(2)  Includes  approximately  $548.7 million of acquisition  related and unusual
     costs.
</FN>
</TABLE>

18. Consolidating Financial Statements of Allied NA

As  discussed  in Note 6, the 1998  Senior  Notes and the 1999  Notes  issued by
Allied NA (our wholly owned subsidiary) and certain debt of BFI (all of which is
no longer  registered under the Securities  Exchange Act of 1934) are guaranteed
by us. Our guarantee is full, unconditional and joint and several of Allied NA's
and BFI's debt. Presented below are Consolidating  Balance Sheets as of December
31, 2000 and 1999 and the related  Consolidating  Statements of  Operations  and
Cash Flows for the years ended December 31, 2000,  1999 and 1998 of Allied Waste
Industries,  Inc. ("Parent"), the guarantor subsidiaries  ("Guarantors") and the
subsidiaries which are not guarantors ("Non-guarantors") (in thousands):



                                       76
<PAGE>

<TABLE>
<CAPTION>

                                                ALLIED WASTE INDUSTRIES, INC.
                                          NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                                     CONSOLIDATING BALANCE SHEET
                                               (in thousands, except per share amount)

                                                                    December 31, 2000
                                    ----------------------------------------------------------------------------------

                                        Parent         Guarantors    Non-Guarantors    Eliminations    Consolidated
                                    ---------------- --------------- ---------------- --------------- ----------------
<S>                                 <C>              <C>             <C>              <C>             <C>
ASSETS
Current Assets --
Cash and cash equivalents.......... $          959   $      120,699  $          436   $           --  $      122,094
Accounts receivable, net of
  allowance of $43,099.............             --          823,259              --               --         823,259
Prepaid and other current assets...             --          116,853           2,630               --         119,483
Deferred income taxes, net.........             --          206,867              --               --         206,867
                                    ---------------- --------------- ---------------- --------------- ----------------
  Total current assets.............            959        1,267,678           3,066               --       1,271,703
Property and equipment, net........             --        3,860,538              --               --       3,860,538
Goodwill, net .....................             --        8,717,438              --               --       8,717,438
Investment in subsidiaries.........        176,400           47,715              --         (224,115)             --
Other assets, net..................             --          663,955              --               --         663,955
                                    ---------------- --------------- ---------------- --------------- ----------------
  Total assets..................... $      177,359   $   14,557,324  $        3,066   $     (224,115) $   14,513,634
                                    ================ =============== ================ =============== ================

LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities --
Current portion of long-term debt.. $           --   $       13,997  $           --   $           --  $       13,997
Accounts payable...................             --          476,333              --               --         476,333
Accrued closure, post-closure
  and environmental costs..........             --          153,226              --               --         153,226
Accrued interest...................             --          165,954              --               --         165,954
Other accrued liabilities..........         29,254          529,965           4,935               --         564,154
Unearned revenue...................             --          224,801           1,287               --         226,088
                                    ---------------- --------------- ---------------- --------------- ----------------
  Total current liabilities........         29,254        1,564,276           6,222               --       1,599,752
Long-term debt, less current
  portion..........................             --        9,635,124              --               --       9,635,124
Deferred income taxes..............             --          358,637              --               --         358,637
Accrued closure, post-closure
  and environmental costs..........             --          880,580              --               --         880,580
Due to/(from) parent...............     (2,252,840)       2,183,578         (58,115)         127,377              --
Other long-term obligations........             --          271,882              --               --         271,882
Commitments and contingencies
Series A senior convertible
  preferred stock, 1,000 shares
  authorized, issued and
  outstanding, liquidation
  preference of $1,096 per share...      1,069,827               --              --               --       1,069,827
Stockholders' Equity --
Common stock.......................          1,961               --             200             (200)          1,961
Additional paid-in capital.........      1,238,571               --          47,515         (145,314)      1,140,772
Retained earnings (deficit)........         90,586         (336,753)          7,244         (205,978)       (444,901)
                                    ---------------- --------------- ---------------- --------------- ----------------
  Total stockholders' equity.......      1,331,118         (336,753)         54,959         (351,492)        697,832
                                    ---------------- --------------- ---------------- --------------- ----------------
  Total liabilities and
stockholders'                       $      177,359   $   14,557,324  $        3,066   $     (224,115) $   14,513,634
    equity......................... ================ =============== ================ =============== ================

</TABLE>



                                       77
<PAGE>

<TABLE>
<CAPTION>
                                                 ALLIED WASTE INDUSTRIES, INC.
                                          NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                                     CONSOLIDATING BALANCE SHEET
                                               (in thousands, except per share amount)

                                                                    December 31, 1999
                                    ----------------------------------------------------------------------------------

                                        Parent         Guarantors    Non-Guarantors    Eliminations    Consolidated
                                    ---------------- --------------- ---------------- --------------- ----------------
<S>                                 <C>              <C>             <C>              <C>             <C>
ASSETS
Current Assets --
Cash and cash equivalents.......... $        3,759   $      117,396  $          250   $           --  $      121,405
Accounts receivable, net of
  allowance of $59,490.............             --          867,667              --               --         867,667
Prepaid and other current assets...             --          251,757             430               --         252,187
Deferred income taxes, net.........             --          115,263              --               --         115,263
Assets held for sale...............             --          891,900              --               --         891,900
                                    ---------------- --------------- ---------------- --------------- ----------------
  Total current assets.............          3,759        2,243,983             680               --       2,248,422
Property and equipment, net........             --        3,738,388              --               --       3,738,388
Goodwill, net .....................             --        8,238,929              --               --       8,238,929
Investment in subsidiaries.........        176,400               --              --         (176,400)             --
Other assets, net..................             --          737,362              --               --         737,362
                                    ---------------- --------------- ---------------- --------------- ----------------
  Total assets..................... $      180,159   $   14,958,662  $          680         (176,400) $   14,963,101
                                    ================ =============== ================ =============== ================

LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities --
Current portion of long-term debt.. $           --   $    1,002,928  $           --   $           --  $    1,002,928
Accounts payable...................             --          481,318              --               --         481,318
Accrued closure, post-closure
  and environmental costs..........             --          134,968              --               --         134,968
Accrued interest...................             --          158,251              --               --         158,251
Other accrued liabilities..........         34,636          577,858           1,169               --         613,663
Unearned revenue...................             --          238,548            (177)              --         238,371
                                    ---------------- --------------- ---------------- --------------- ----------------
  Total current liabilities........         34,636        2,593,871             992               --       2,629,499
Long-term debt, less current
  portion..........................             --        9,240,291              --               --       9,240,291
Deferred income taxes..............             --          204,786              --               --         204,786
Accrued closure, post-closure
  and environmental costs..........             --          860,574              --               --         860,574
Due to/(from) parent...............     (2,177,658)       2,128,178          (1,278)          50,758              --
Other long-term obligations........             --          388,396              --               --         388,396
Commitments and contingencies
Series A senior convertible
  preferred stock, 1,000 shares
  authorized, issued and
  outstanding, liquidation
  preference of $1,028 per share...      1,001,559               --              --               --       1,001,559
Stockholders' Equity --
Common stock.......................          1,885               --             100             (100)          1,885
Additional paid-in capital.........      1,233,851               --            (100)         (28,352)      1,205,399
Retained earnings (deficit)........         85,886         (457,434)            966         (198,706)       (569,288)
                                    ---------------- --------------- ---------------- --------------- ----------------
  Total stockholders' equity.......      1,321,622         (457,434)            966         (227,158)        637,996
                                    ---------------- --------------- ---------------- --------------- ----------------
  Total liabilities and
stockholders'                       $      180,159   $   14,958,662  $          680   $     (176,400) $   14,963,101
    equity......................... ================ =============== ================ =============== ================

</TABLE>



                                       78
<PAGE>


<TABLE>
<CAPTION>
                                                            ALLIED WASTE INDUSTRIES, INC.
                                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                                   CONSOLIDATING STATEMENT OF OPERATIONS
                                                              (in thousands)

                                                                   Year Ended December 31, 2000
                                         ---------------------------------------------------------------------------------
                                             Parent        Guarantors    Non-Guarantors   Eliminations     Consolidated
                                         --------------- --------------- ---------------- -------------- -----------------
<S>                                      <C>             <C>             <C>             <C>              <C>
Revenues................................ $           --  $    5,705,555  $        1,930  $           --   $    5,707,485
Cost of operations excluding acquisition
  related and unusual costs.............             --       3,280,027              --              --        3,280,027
Selling, general and administrative
expenses excluding acquisition related
  and unusual costs.....................          8,443         408,347             768              --          417,558
Depreciation and amortization...........             --         450,794              --              --          450,794
Goodwill amortization...................             --         223,244              --              --          223,244
Acquisition related and unusual costs...             --         127,327              --              --          127,327
                                         ---------------  --------------- ---------------- -------------- ----------------
  Operating income......................         (8,443)      1,215,816           1,162              --        1,208,535
Equity in earnings of unconsolidated
  affiliates............................             --         (50,788)             --              --          (50,788)
Interest income.........................             --          (4,143)             16              --           (4,127)
Interest expense........................             --         890,811          (8,529)             --          882,282
Intercompany interest expense (income)..        (72,528)         72,528              --              --               --
Management fees.........................         (5,000)          5,000              --              --               --
                                         ---------------  --------------- ---------------- -------------- ----------------
  Income before income taxes............         69,085         302,408           9,675              --          381,168
Income tax expense......................         28,574         205,570           3,396              --          237,540
Minority interest.......................             --           5,975              --              --            5,975
                                         ---------------  --------------- ---------------- -------------- ----------------
  Income before extraordinary losses....         40,511          90,863           6,279              --          137,653
Extraordinary loss, net of income tax
  benefit...............................             --          13,266              --              --           13,266
                                         ---------------  --------------- ---------------- -------------- ----------------
  Net income............................         40,511          77,597           6,279              --          124,387
Dividends on preferred stock............         68,452              --              --              --           68,452
                                         ---------------  --------------- ---------------- -------------- ----------------
  Net income (loss) available to common
    shareholders........................ $      (27,941) $       77,597  $        6,279  $           --   $       55,935
                                         =============== =============== =============== ================ ================

</TABLE>


                                       79
<PAGE>

<TABLE>
<CAPTION>
                                                           ALLIED WASTE INDUSTRIES, INC.
                                                     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                                 CONSOLIDATING STATEMENT OF OPERATIONS
                                                             (in thousands)

                                                                Year Ended December 31, 1999
                                      ---------------------------------------------------------------------------------
                                          Parent        Guarantors    Non-Guarantors    Eliminations    Consolidated
                                      ---------------- --------------- --------------- ---------------- ---------------
<S>                                   <C>             <C>             <C>              <C>             <C>
Revenues............................. $           --  $    3,340,764  $          307   $           --  $    3,341,071
Cost of operations excluding
  acquisition related and unusual                 --       1,951,048          (2,084)              --       1,948,964
costs................................
Selling, general and administrative
  expenses excluding acquisition
  related and unusual costs..........          3,302         227,824             240               --         231,366
Depreciation and amortization........             --         273,368              --               --         273,368
Goodwill amortization................             --         110,726              --               --         110,726
Acquisition related and unusual costs             --         588,855              --               --         588,855
                                      ---------------  --------------- ---------------- -------------- ----------------
  Operating income...................         (3,302)        188,943           2,151               --         187,792
Equity in earnings of unconsolidated
  affiliates.........................             --         (20,785)              --              --         (20,785)
Interest income......................         (4,028)         (3,156)            (28)              --          (7,212)
Interest expense.....................             --         443,063             (19)              --         443,044
Intercompany interest expense
  (income)...........................        (77,329)         77,329              --               --              --
Management fees......................         (5,000)          5,000              --               --              --
                                      ---------------  --------------- ---------------- -------------- ----------------
  Income (loss) before income taxes..         83,055        (312,508)          2,198               --        (227,255)
Income tax expense (benefit).........         33,388         (43,341)          1,197               --          (8,756)
Minority interest....................             --           2,751              --               --           2,751
                                      ---------------  --------------- ---------------- -------------- ----------------
  Income (loss) before extraordinary
   loss and cumulative effect of
   change in accounting principle....         49,667        (271,918)          1,001               --        (221,250)
Extraordinary loss, net of income
  tax benefit........................             --           3,223              --               --           3,223
Cumulative effect of change in
  accounting principle, net of income
  tax benefit........................             --          64,255              --               --          64,255
                                      ---------------  --------------- ---------------- -------------- ----------------
  Net income (loss)..................         49,667        (339,396)          1,001               --        (288,728)
Dividends on preferred stock.........         27,789              --              --               --          27,789
                                      ---------------  --------------- ---------------- -------------- ----------------
  Net income (loss) available to
    common shareholders.............. $       21,878  $     (339,396) $        1,001   $           --  $     (316,517)
                                      =============== =============== =============== ================ ================

</TABLE>


                                       80
<PAGE>

<TABLE>
<CAPTION>
                                                          ALLIED WASTE INDUSTRIES, INC.
                                                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                                CONSOLIDATING STATEMENT OF OPERATIONS
                                                           (in thousands)

                                                            Year Ended December 31, 1998
                               ---------------------------------------------------------------------------------------
                                    Parent         Guarantors      Non-Guarantors     Eliminations     Consolidated
                               ---------------- ----------------- ----------------- ----------------- ----------------
<S>                            <C>              <C>               <C>               <C>               <C>
Revenues...................... $           --   $    1,575,212    $          400    $           --    $    1,575,612
Cost of operations excluding
  acquisition related and
  unusual costs...............             --          892,273                --                --           892,273
Selling, general and
administrative expenses
  excluding acquisition
  related and unusual costs...          4,601          150,932               302                --           155,835
Depreciation and amortization.             --          149,260                --                --           149,260
Goodwill amortization.........             --           30,705                --                --            30,705
Acquisition related and
  unusual costs...............             --          317,616                --                --           317,616
                               ----------------- ---------------- ----------------- ----------------- ----------------
  Operating income............         (4,601)          34,426                98                --            29,923
Interest income...............             --           (4,022)               (8)               --            (4,030)
Interest expense..............             --           88,431                --                --            88,431
Intercompany interest
  expense (income)............        (95,836)          95,836                --                --                --
Management fees...............         (5,000)           5,000                --                --                --
                               ----------------- ---------------- ----------------- ----------------- ----------------
  Income (loss) before income
    taxes.....................         96,235         (150,819)              106                --           (54,478)
Income tax expense............         38,686            5,087                --                --            43,773
                               ----------------- ---------------- ----------------- ----------------- ----------------
  Income (loss) before
   extraordinary loss net of
   income tax benefit.........         57,549         (155,906)              106                --           (98,251)
Extraordinary loss, net of
  income tax benefit..........             --          124,801                --                --           124,801
                               ----------------- ---------------- ----------------- ----------------- ----------------
  Net income (loss)........... $       57,549   $     (280,707)   $          106    $           --    $     (223,052)
                               ================= ================ ================= ================= ================

</TABLE>


                                       81
<PAGE>

<TABLE>
<CAPTION>
                                                    ALLIED WASTE INDUSTRIES, INC.
                                             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                      CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
                                                       (in thousands)
                                                                          Year Ended December 31, 2000
                                                    -------------------------------------------------------------------------
                                                        Parent     Guarantors    Non-Guarantors  Eliminations  Consolidated
                                                    ------------  ------------    -------------  ------------- --------------

<S>                                                   <C>            <C>            <C>            <C>         <C>
Cash (used for) provided by operating activities ..   $    (4,523)   $   855,368    $   (47,529)   $    --     $   803,316

Investing activities --
  Cost of acquisitions, net of cash acquired ......          --         (802,876)          --           --        (802,876)
  Proceeds from divestitures, net of cash divested           --        1,039,182           --           --       1,039,182
  Other investing activities ......................          --         (493,972)        47,715         --        (446,257)
                                                      -----------    -----------    -----------    ---------   -----------
Cash (used for) provided by investing activities ..          --         (257,666)        47,715         --        (209,951)
                                                      -----------    -----------    -----------    ---------   -----------

Financing activities --
  Proceeds from common stock ......................         1,724           --             --           --           1,724
  Proceeds from long-term debt, net of issuance ...          --        2,202,000           --           --       2,202,000
costs
  Repayments of long-term debt ....................          --       (2,796,400)          --           --      (2,796,400)
                                                      -----------    -----------    -----------    ---------   -----------
Cash provided by (used in) financing activities ...         1,724       (594,400)          --           --        (592,676)
                                                      -----------    -----------    -----------    ---------   -----------

Increase (decrease) in cash and cash equivalents ..        (2,799)         3,302            186         --             689
Cash and cash equivalents, beginning of period ....         3,759        117,396            250         --         121,405
                                                      -----------    -----------    -----------    ---------   -----------
Cash and cash equivalents, end of period ..........   $       960    $   120,698    $       436    $    --     $   122,094
                                                      ===========    ===========    ===========    =========   ===========

                                                                          Year Ended December 31, 1999
                                                    --------------------------------------------------------------------------
                                                        Parent    Guarantors   Non-Guarantors Eliminations Consolidated
                                                    ------------  -----------    ----------    ----------- -----------
Cash (used for) provided by operating activities   $  (981,443)   $ 1,470,239    $       215   $    --     $   489,011

Investing activities --
  Cost of acquisitions, net of cash acquired ...          --       (7,589,597)          --          --      (7,589,597)
  Other investing activities ...................          --          127,065           --          --         127,065
                                                   -----------    -----------    -----------   ---------   -----------
Cash used for investing activities .............          --       (7,462,532)          --          --      (7,462,532)
                                                   -----------    -----------    -----------   ---------   -----------
Financing activities --
  Net proceeds from sale of common stock and
exercise .......................................          --           10,198           --          --          10,198
    of stock options and warrants
  Net proceeds from sale of preferred stock ....       973,881           --             --          --         973,881
  Proceeds from long-term debt, net of issuance         10,189      8,662,106           --          --       8,672,295
costs
  Repayments of long-term debt .................          --       (2,601,190)          --          --      (2,601,190)
                                                   -----------    -----------    -----------   ---------   -----------
Cash provided by financing activities ..........       984,070      6,071,114           --          --       7,055,184
                                                   -----------    -----------    -----------   ---------   -----------

Increase in cash and cash equivalents ..........         2,627         78,821            215        --          81,663
Cash and cash equivalents, beginning of period .         1,132         38,575             35        --          39,742
                                                   -----------    -----------    -----------   ---------   -----------
Cash and cash equivalents, end of period .......   $     3,759    $   117,396    $       250   $    --     $   121,405
                                                   ===========    ===========    ===========   =========   ===========

                                                                          Year Ended December 31, 1998
                                                    --------------------------------------------------------------------------
                                                        Parent     Guarantors  Non-Guarantors  Eliminations  Consolidated
                                                    ------------  ------------ --------------- ------------- --------------
Cash provided by (used for) operating activities   $   246,580    $   (77,141)   $       (46)   $    --     $   169,393

Cash used for investing activities .............          --         (678,341)          --           --        (678,341)

Financing activities --
  Proceeds from long-term debt, net of issuance         11,324      2,713,938           --           --       2,725,262
costs
  Repayments of long-term debt .................      (256,950)    (2,008,791)          --           --      (2,265,741)
  Other financing activities ...................          --           55,849           --           --          55,849
                                                   -----------    -----------    -----------    ---------   -----------
Cash provided by (used in) financing activities       (245,626)       760,996           --           --         515,370
                                                   -----------    -----------    -----------    ---------   -----------

Increase (decrease) in cash and cash equivalents           954          5,514            (46)        --           6,422
Cash and cash equivalents, beginning of period .           178         33,061             81         --          33,320
                                                   -----------    -----------    -----------    ---------   -----------
Cash and cash equivalents, end of period .......   $     1,132    $    38,575    $        35    $    --     $    39,742
                                                   ===========    ===========    ===========    =========   ===========

</TABLE>


                                       82
<PAGE>





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

          Not applicable.

                                    PART III

Item 10. Directors and Executive Officers of the Registrant

Information  required by this item is  incorporated by reference to the material
appearing  under the heading  "Election of Directors" in the Proxy Statement for
the 2001 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 2001 Annual Meeting of Stockholders.

Item 12. Security Ownership of Certain Beneficial Owners and Management

Information  required by this item is  incorporated by reference to the material
appearing under the heading "Other Information - Principal  Stockholders" in the
Proxy Statement for the 2001 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 2001 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

<TABLE>
<CAPTION>

                                  Balance at       Charges to                           Other          Write-offs/      Balance at
                                   12/31/97          Expense                          Charges(1)        Payments         12/31/98
                                  ------------    --------------                     -------------    --------------   -------------
<S>                               <C>             <C>                                <C>              <C>              <C>
Allowance for doubtful accounts...$     9,348     $       8,086                      $      1,912     $     (5,439)    $     13,907
Severance and termination costs...         --            34,328                                --          (24,202)          10,126
Restructuring costs...............         --            10,152                                --           (2,522)           7,630

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


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

<FN>
(1)  Amounts primarily relate to acquired companies.
</FN>
</TABLE>

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




                                       83
<PAGE>


Exhibit No.                    Description
-----------                   ------------
2.1  Amended and Restated  Agreement and Plan of  Reorganization  between Allied
     Waste Industries, Inc. and Rabanco Acquisition Company, Rabanco Acquisition
     Company Two, Rabanco Acquisition Company Three, Rabanco Acquisition Company
     Four, Rabanco  Acquisition  Company Five, Rabanco  Acquisition Company Six,
     Rabanco  Acquisition  Company  Seven,  Rabanco  Acquisition  Company Eight,
     Rabanco  Acquisition Company Nine, Rabanco Acquisition Company Ten, Rabanco
     Acquisition Company Eleven, and Rabanco Acquisition Company Twelve. Exhibit
     2.4 to Allied's  Quarterly  Report on Form 10-Q for the quarter  ended June
     30, 1998 is incorporated herein by reference.
2.2  Agreement  and Plan of  Merger  dated as of  August  10,  1998 by and among
     Allied Waste Industries, Inc., AWIN II Acquisition Corporation and American
     Disposal  Services,  Inc.  Exhibit 2 to Allied's Current Report on Form 8-K
     filed August 21, 1998 is incorporated herein by reference.
2.3  Agreement  and Plan of Merger dated as of March 7, 1999 by and among Allied
     Waste Industries,  Inc., AWIN I Acquisition Corporation and Browning-Ferris
     Industries,  Inc.  Exhibit 2 to Allied's  Current  Report on Form 8-K filed
     March 16, 1999 is incorporated herein by reference.
3.1  Amended  Certificate of  Incorporation  of Allied  (Incorporated  herein by
     reference  to  Exhibit  3.1 to the  Company's  Report  on Form 10-K for the
     fiscal year ended December 31, 1996).
3.2  Amended and Restated Bylaws of Allied as of July 30, 1999.
3.3  Amendment to Amended  Certificate of  Incorporation of Allied dated October
     15, 1998.  Exhibit 3.4 to the Company's Report on Form 10-Q for the quarter
     ended September 30, 1998 is incorporated herein by reference.
4.1  Specimen  certificate  for shares of Common Stock par value $.01 per share.
     Exhibit 4.2 of Allied's  Registration  Statement on Form S-1 (No. 33-48507)
     is incorporated herein by reference.
4.2  1991 Incentive Stock Plan of Allied. Exhibit 10.T to Allied's Form 10 dated
     May 14, 1991, is incorporated herein by reference.
4.3  1991 Non-Employee  Director Stock Plan of Allied.  Exhibit 10.U to Allied's
     Form 10 dated May 14, 1991, is incorporated herein by reference.
4.4  1993 Incentive Stock Plan of Allied.  Exhibit 10.3 to Allied's Registration
     Statement on Form S-1 (No. 33-73110) is incorporated herein by reference.
4.5  1994  Amended  and  Restated  Non-Employee  Director  Stock  Option Plan of
     Allied. Exhibit B to Allied's Definitive Proxy Statement in accordance with
     Schedule 14A dated April 28, 1994, is incorporated herein by reference.
4.6  Amendment  to the 1994  Amended and Restated  Non-Employee  Director  Stock
     Option Plan.  Exhibit 10.2 to Allied's  Quarterly Report on Form 10-Q dated
     August 10, 1995, is incorporated herein by reference.
4.7  Amended and Restated 1994  Incentive  Stock Plan.  Exhibit 10.1 to Allied's
     Quarterly Report on Form 10-Q dated May 31, 1996, is incorporated herein by
     reference.
4.8  Amendment No. 1 to the 1991  Incentive  Stock Plan dated  November 1, 1996.
     Exhibit 4.20 to Allied's Annual Report on Form 10-K dated March 31, 1998 is
     incorporated herein by reference.
4.9  Senior Indenture relating to the 1998 Senior Notes dated as of December 23,
     1998, by and among Allied NA and U.S. Bank Trust National  Association,  as
     Trustee,  with respect to the 1998 Senior Notes and Exchange Notes. Exhibit
     4.1 to  Allied's  Registration  Statement  on Form S-4 (No.  333-70709)  is
     incorporated herein by reference.
4.10 Five Year  Series  Supplemental  Indenture  relating  to the 1998 Five Year
     Notes,  dated  December 23, 1998,  among Allied NA, the  Guarantors and the
     Trustee.  Exhibit 4.2 to Allied's  Registration  Statement on Form S-4 (No.
     333-70709) is incorporated herein by reference.
4.11 Form of Series B Five Year Notes (included in Exhibit 4.21). Exhibit 4.3 to
     Allied's Registration Statement on Form S-4 (No. 333-70709) is incorporated
     herein by reference.
4.12 Seven Year Series  Supplemental  Indenture  relating to the 1998 Seven Year
     Notes,  dated  December 23, 1998,  among Allied NA, the  Guarantors and the
     Trustee.  Exhibit 4.4 to Allied's  Registration  Statement on Form S-4 (No.
     333-70709) is incorporated herein by reference.
4.13 Form of Series B Seven Year Notes  (included in Exhibit 4.25).  Exhibit 4.5
     to  Allied's  Registration   Statement  on  Form  S-4  (No.  333-70709)  is
     incorporated herein by reference.


                                       84
<PAGE>

4.14 Ten Year Series Supplemental Indenture relating to the 1998 Ten Year Notes,
     dated  December 23, 1998,  among Allied NA, the Guarantors and the Trustee.
     Exhibit 4.6 to Allied's Registration  Statement on Form S-4 (No. 333-70709)
     is incorporated herein by reference.
4.15 Form of  Series B Ten Year  Notes.  Exhibit  4.7 to  Allied's  Registration
     Statement on Form S-4 (No. 333-70709) is incorporated herein by reference.
4.16 Fourth  Supplemental  Indenture relating to the 1998 Senior Notes, dated as
     of July 30, 1999, among Allied NA, certain  guarantors  signatory  thereto,
     and U.S.  Bank Trust  National  Association,  as Trustee.  Exhibit  4.26 to
     Allied's  Report on Form  10-Q for the  quarter  ended  June 30,  2000,  is
     incorporated herein by reference.
4.17 Fifth Supplemental Indenture relating to the 1998 Senior Notes, dated as of
     December 29, 1999, among Allied NA, certain  guarantors  signatory thereto,
     and U.S.  Bank Trust  National  Association,  as Trustee.  Exhibit  4.27 to
     Allied's  Report on Form  10-Q for the  quarter  ended  June 30,  2000,  is
     incorporated herein by reference.
4.18 Collateral Trust  Agreement,  dated July 30, 1999, among Allied NA, certain
     of its subsidiaries,  and The Chase Manhattan Bank, as Collateral  Trustee,
     is incorporated herein by reference.
4.19 Shared Collateral  Pledge Agreement,  dated July 30, 1999, among Allied NA,
     certain of its  subsidiaries,  and The Chase  Manhattan Bank, as Collateral
     Trustee, is incorporated herein by reference.
4.20 Shared Collateral Security Agreement, dated July 30, 1999, among Allied NA,
     certain of its  subsidiaries,  and The Chase  Manhattan Bank, as Collateral
     Trustee, is incorporated herein by reference.
4.21 Certificate of Designation for Series A Senior Convertible Preferred Stock.
     Exhibit 4.1 to Allied's  current  report on Form 8-K dated August 10, 1999,
     is incorporated herein by reference.
4.22 Certificate of Designation for Series B Junior Preferred Stock. Exhibit 4.2
     to  Allied's  current  report  on  Form  8-K  dated  August  10,  1999,  is
     incorporated herein by reference.
4.23 Subordinated  Indenture,  dated July 30,  1999,  among  Allied NA,  certain
     guarantors signatory thereto, and U.S. Bank Trust National Association,  as
     Trustee, regarding the 10% Senior Subordinated Notes due 2009 of Allied NA.
     Exhibit 4.1 to Allied's Registration Statement on Form S-4 (No. 333-91539),
     is incorporated herein by reference.
4.24 First Supplemental Indenture,  dated July 30, 1999 among Allied NA, certain
     subsidiaries  of Allied NA and U.S. Bank Trust,  National  Association,  as
     Trustee,  regarding  10% Senior  Subordinated  Notes due 2009 of Allied NA.
     Exhibit 4.3 to Allied's  current  report on Form 8-K dated August 10, 1999,
     is incorporated herein by reference.
4.25 Second  Supplemental  Subordinated  Indenture  relating  to the 10%  Senior
     Subordinated  Notes due 2009 of Allied NA, dated  December 29, 1999,  among
     Allied  NA,  certain  guarantors  signatory  thereto,  and U.S.  Bank Trust
     National  Association,  as Trustee.  Exhibit  4.2 to Allied's  Registration
     Statement on Form S-4 (No. 333-91539), is incorporated herein by reference.
4.26 Form of 10%  Series B Senior  Subordinated  Notes  due  2009  (included  in
     Exhibit 4.25), is incorporated herein by reference.
4.27 Restated  Indenture,  relating to debt issued by BFI,  dated  September  1,
     1991, among BFI and First City,  Texas-Houston,  National  Association,  as
     Trustee, is incorporated herein by reference.
4.28 First Supplemental Indenture relating to the debt issued by BFI, dated July
     30, 1999, among Allied, BFI and Chase Bank of Texas,  National Association,
     as Trustee, is incorporated herein by reference.
4.29 Rights  Agreement,  dated as of May 25, 2000,  between  Allied and American
     Stock  Transfer & Trust  Company,  as Rights  Agent.  Exhibit 1 to Allied's
     Registration  Statement  on Form 8-A filed May 31,  2000,  is  incorporated
     herein by reference.
10.1 Securities   Purchase   Agreement  dated  April  21,  1997  between  Apollo
     Investment Fund III, L.P.,  Apollo Overseas  Partners III, L.P., and Apollo
     (U.K.) Partners III, L.P.;  Blackstone Capital Partners II Merchant Banking
     Fund L.P.,  Blackstone  Offshore  Capital  Partners II L.P. and  Blackstone
     Family   Investment   Partnership   II  L.P.;   Laidlaw  Inc.  and  Laidlaw
     Transportation,  Inc.; and Allied Waste  Industries,  Inc.  Exhibit 10.1 to
     Allied's  Report on Form 10-Q for the  quarter  ended  March 31,  1997,  is
     incorporated herein by reference.
10.2 Executive  Employment  Agreement  between  Allied and with Henry L. Hirvela
     dated February 23, 2000, is incorporated herein by reference.


                                       85
<PAGE>

10.3 Executive  Employment  Agreement  between  Allied  and with  Thomas  H. Van
     Weelden dated January 1, 1999. Exhibit 10.9 to Allied's Report on Form 10-Q
     for the quarter ended March 31, 1999, is incorporated herein by reference.
10.4 Executive  Employment Agreement between Allied and with Larry D. Henk dated
     June 6, 1997.  Exhibit 10.4 to Allied's Report on Form 10-Q for the quarter
     ended June 30, 1997, is incorporated herein by reference.
10.5 Executive Employment Agreement between Allied and with Steven M. Helm dated
     June 6, 1997.  Exhibit 10.5 to Allied's Report on Form 10-Q for the quarter
     ended June 30, 1997, is incorporated herein by reference.
10.6 Executive  Employment  Agreement  between  Allied and with Donald W. Slager
     dated January 1, 1999.  Exhibit  10.12 to Allied's  Report on Form 10-Q for
     the quarter ended March 31, 1999, is incorporated herein by reference.
10.7 Executive  Employment  Agreement  between Allied and with Peter S. Hathaway
     dated June 6, 1997.  Exhibit 10.14 to Allied's  Report on Form 10-K for the
     year ended December 31, 1997, is incorporated herein by reference.
10.8 Executive  Employment  Agreement  between Allied and with Michael G. Hannon
     dated June 6, 1997.  Exhibit 10.15 to Allied's  Report on Form 10-K for the
     year ended December 31, 1997, is incorporated herein by reference.
10.9 Registration  Rights  Agreement,  dated as of July 30,  1999,  by and among
     Allied,  the  Guarantors  and  the  initial  purchasers,  relating  to  the
     $2,000,000,000  10% Senior  Subordinated  Notes due 2009.  Exhibit  10.3 to
     Allied's  Current Report on Form 8-K dated August 10, 1999, is incorporated
     herein by reference.
10.10Purchase   Agreement  dated  July  27,  1999,  by  and  among  Allied,  the
     Guarantors and the initial  purchasers,  with respect to the $2,000,000,000
     10% Senior  Subordinated  Notes due 2009.  Exhibit 10.4 to Allied's Current
     Report  on Form 8-K  dated  August  10,  1999,  is  incorporated  herein by
     reference.
10.11Credit  Facility  dated  as of July  21,  1999.  Exhibit  10.1 to  Allied's
     current report on Form 8-K dated August 10, 1999, is incorporated herein by
     reference.
10.12Non-Shared  Collateral  Security  Agreement,  dated  July 30,  1999,  among
     Allied,  Allied NA, certain of its  subsidiaries,  and The Chase  Manhattan
     Bank, as Collateral Agent, is incorporated herein by reference.
10.13Non-Shared Collateral Pledge Agreement,  dated July 30, 1999, among Allied,
     Allied NA, certain of its  subsidiaries,  and The Chase  Manhattan Bank, as
     Collateral Agent, is incorporated herein by reference.
10.14Second Amended and Restated  Shareholders  Agreement,  dated as of July 30,
     1999,  between Allied and the purchasers of the Series A Senior Convertible
     Preferred  Stock and related  parties.  Exhibit  10.2 to  Allied's  current
     report  on Form 8-K  dated  August  10,  1999,  is  incorporated  herein by
     reference.
10.15Amended and Restated  Registration  Rights  Agreement  dated as of July 30,
     1999,  between Allied and the purchasers of the Series A Senior Convertible
     Preferred  Stock and related  parties.  Exhibit  10.3 to  Allied's  current
     report  on Form 8-K  dated  August  10,  1999,  is  incorporated  herein by
     reference.
12   * Ratio of earnings to fixed charges and preferred stock dividends.
21   * Subsidiaries of the Registrant.
23.1 * Consent of Arthur Andersen LLP.

     * Filed herewith

Reports on Form 8-K during the Quarter Ended December 31, 2000

November 7, 2000    Our Current Report on Form 8-K reports the financial results
                    for the third quarter of 2000.




                                       86
<PAGE>

                                   Signatures

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


                          ALLIED WASTE INDUSTRIES, INC.


  Date:       3/15/01            By:       /s/ THOMAS W. RYAN
        -------------------        ------------------------------------
                                            Thomas W. Ryan
                            Executive Vice President and Chief Financial Officer


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


       Signature                               Title                   Date
--------------------------   ------------------------------------- ------------

                             Director, Chairman of the Board of
/s/ THOMAS H. VAN WEELDEN     Directors and Chief Executive Officer   3/15/01
--------------------------    (Principal Executive officer)         -----------
 Thomas H. Van Weelden

   /s/ THOMAS W. RYAN        Executive Vice President and Chief       3/15/01
--------------------------    Financial Officer                     -----------
     Thomas W. Ryan

 /s/ PETER S. HATHAWAY       Senior Vice President, Finance           3/15/01
--------------------------    (Principal Accounting Officer)        -----------
   Peter S. Hathaway


   /s/ MICHAEL GROSS         Director                                 3/16/01
--------------------------                                          -----------
     Michael Gross

   /s/ DENNIS HENDRIX        Director                                 3/16/01
--------------------------                                          -----------
     Dennis Hendrix

   /s/ LEON D. BLACK         Director                                 3/16/01
--------------------------                                          -----------
     Leon D. Black

   /s/ NOLAN LEHMANN         Director                                 3/16/01
--------------------------                                          -----------
     Nolan Lehmann

  /s/ HOWARD A. LIPSON       Director                                 3/19/01
--------------------------                                          -----------
    Howard A. Lipson

  /s/ ROGER A. RAMSEY        Director                                 3/20/01
--------------------------                                          -----------
    Roger A. Ramsey

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

  /s/ WARREN B. RUDMAN       Director                                 3/15/01
--------------------------                                          -----------
    Warren B. Rudman

    /s/ VINCENT TESE         Director                                 3/16/01
--------------------------                                          -----------
      Vincent Tese

   /s/ DAVID BLITZER         Director                                 3/16/01
--------------------------                                          -----------
     David Blitzer

    /s/ ROBERT AGATE         Director                                 3/16/01
--------------------------                                          -----------
      Robert Agate



                                       87
<PAGE>



                                 EXHIBIT INDEX

Exhibit No.                      Description
-----------                      -----------
2.1  Amended and Restated  Agreement and Plan of  Reorganization  between Allied
     Waste Industries, Inc. and Rabanco Acquisition Company, Rabanco Acquisition
     Company Two, Rabanco Acquisition Company Three, Rabanco Acquisition Company
     Four, Rabanco  Acquisition  Company Five, Rabanco  Acquisition Company Six,
     Rabanco  Acquisition  Company  Seven,  Rabanco  Acquisition  Company Eight,
     Rabanco  Acquisition Company Nine, Rabanco Acquisition Company Ten, Rabanco
     Acquisition Company Eleven, and Rabanco Acquisition Company Twelve. Exhibit
     2.4 to Allied's  Quarterly  Report on Form 10-Q for the quarter  ended June
     30, 1998 is incorporated herein by reference.
2.2  Agreement  and Plan of  Merger  dated as of  August  10,  1998 by and among
     Allied Waste Industries, Inc., AWIN II Acquisition Corporation and American
     Disposal  Services,  Inc.  Exhibit 2 to Allied's Current Report on Form 8-K
     filed August 21, 1998 is incorporated herein by reference.
2.3  Agreement  and Plan of Merger dated as of March 7, 1999 by and among Allied
     Waste Industries,  Inc., AWIN I Acquisition Corporation and Browning-Ferris
     Industries,  Inc.  Exhibit 2 to Allied's  Current  Report on Form 8-K filed
     March 16, 1999 is incorporated herein by reference.
3.1  Amended  Certificate of  Incorporation  of Allied  (Incorporated  herein by
     reference  to  Exhibit  3.1 to the  Company's  Report  on Form 10-K for the
     fiscal year ended December 31, 1996).
3.2  Amended and Restated Bylaws of Allied as of July 30, 1999.
3.3  Amendment to Amended  Certificate of  Incorporation of Allied dated October
     15, 1998.  Exhibit 3.4 to the Company's Report on Form 10-Q for the quarter
     ended September 30, 1998 is incorporated herein by reference.
4.1  Specimen  certificate  for shares of Common Stock par value $.01 per share.
     Exhibit 4.2 of Allied's  Registration  Statement on Form S-1 (No. 33-48507)
     is incorporated herein by reference.
4.2  1991 Incentive Stock Plan of Allied. Exhibit 10.T to Allied's Form 10 dated
     May 14, 1991, is incorporated herein by reference.
4.3  1991 Non-Employee  Director Stock Plan of Allied.  Exhibit 10.U to Allied's
     Form 10 dated May 14, 1991, is incorporated herein by reference.
4.4  1993 Incentive Stock Plan of Allied.  Exhibit 10.3 to Allied's Registration
     Statement on Form S-1 (No. 33-73110) is incorporated herein by reference.
4.5  1994  Amended  and  Restated  Non-Employee  Director  Stock  Option Plan of
     Allied. Exhibit B to Allied's Definitive Proxy Statement in accordance with
     Schedule 14A dated April 28, 1994, is incorporated herein by reference.
4.6  Amendment  to the 1994  Amended and Restated  Non-Employee  Director  Stock
     Option Plan.  Exhibit 10.2 to Allied's  Quarterly Report on Form 10-Q dated
     August 10, 1995, is incorporated herein by reference.
4.7  Amended and Restated 1994  Incentive  Stock Plan.  Exhibit 10.1 to Allied's
     Quarterly Report on Form 10-Q dated May 31, 1996, is incorporated herein by
     reference.
4.8  Amendment No. 1 to the 1991  Incentive  Stock Plan dated  November 1, 1996.
     Exhibit 4.20 to Allied's Annual Report on Form 10-K dated March 31, 1998 is
     incorporated herein by reference.
4.9  Senior Indenture relating to the 1998 Senior Notes dated as of December 23,
     1998, by and among Allied NA and U.S. Bank Trust National  Association,  as
     Trustee,  with respect to the 1998 Senior Notes and Exchange Notes. Exhibit
     4.1 to  Allied's  Registration  Statement  on Form S-4 (No.  333-70709)  is
     incorporated herein by reference.
4.10 Five Year  Series  Supplemental  Indenture  relating  to the 1998 Five Year
     Notes,  dated  December 23, 1998,  among Allied NA, the  Guarantors and the
     Trustee.  Exhibit 4.2 to Allied's  Registration  Statement on Form S-4 (No.
     333-70709) is incorporated herein by reference.
4.11 Form of Series B Five Year Notes (included in Exhibit 4.21). Exhibit 4.3 to
     Allied's Registration Statement on Form S-4 (No. 333-70709) is incorporated
     herein by reference.
4.12 Seven Year Series  Supplemental  Indenture  relating to the 1998 Seven Year
     Notes,  dated  December 23, 1998,  among Allied NA, the  Guarantors and the
     Trustee.  Exhibit 4.4 to Allied's  Registration  Statement on Form S-4 (No.
     333-70709) is incorporated herein by reference.
4.13 Form of Series B Seven Year Notes  (included in Exhibit 4.25).  Exhibit 4.5
     to  Allied's  Registration   Statement  on  Form  S-4  (No.  333-70709)  is
     incorporated herein by reference.



<PAGE>


4.14 Ten Year Series Supplemental Indenture relating to the 1998 Ten Year Notes,
     dated  December 23, 1998,  among Allied NA, the Guarantors and the Trustee.
     Exhibit 4.6 to Allied's Registration  Statement on Form S-4 (No. 333-70709)
     is incorporated herein by reference.
4.15 Form of  Series B Ten Year  Notes.  Exhibit  4.7 to  Allied's  Registration
     Statement on Form S-4 (No. 333-70709) is incorporated herein by reference.
4.16 Fourth  Supplemental  Indenture relating to the 1998 Senior Notes, dated as
     of July 30, 1999, among Allied NA, certain  guarantors  signatory  thereto,
     and U.S.  Bank Trust  National  Association,  as Trustee.  Exhibit  4.26 to
     Allied's  Report on Form  10-Q for the  quarter  ended  June 30,  2000,  is
     incorporated herein by reference.
4.17 Fifth Supplemental Indenture relating to the 1998 Senior Notes, dated as of
     December 29, 1999, among Allied NA, certain  guarantors  signatory thereto,
     and U.S.  Bank Trust  National  Association,  as Trustee.  Exhibit  4.27 to
     Allied's  Report on Form  10-Q for the  quarter  ended  June 30,  2000,  is
     incorporated herein by reference.
4.18 Collateral Trust  Agreement,  dated July 30, 1999, among Allied NA, certain
     of its subsidiaries,  and The Chase Manhattan Bank, as Collateral  Trustee,
     is incorporated herein by reference.
4.19 Shared Collateral  Pledge Agreement,  dated July 30, 1999, among Allied NA,
     certain of its  subsidiaries,  and The Chase  Manhattan Bank, as Collateral
     Trustee, is incorporated herein by reference.
4.20 Shared Collateral Security Agreement, dated July 30, 1999, among Allied NA,
     certain of its  subsidiaries,  and The Chase  Manhattan Bank, as Collateral
     Trustee, is incorporated herein by reference.
4.21 Certificate of Designation for Series A Senior Convertible Preferred Stock.
     Exhibit 4.1 to Allied's  current  report on Form 8-K dated August 10, 1999,
     is incorporated herein by reference.
4.22 Certificate of Designation for Series B Junior Preferred Stock. Exhibit 4.2
     to  Allied's  current  report  on  Form  8-K  dated  August  10,  1999,  is
     incorporated herein by reference.
4.23 Subordinated  Indenture,  dated July 30,  1999,  among  Allied NA,  certain
     guarantors signatory thereto, and U.S. Bank Trust National Association,  as
     Trustee, regarding the 10% Senior Subordinated Notes due 2009 of Allied NA.
     Exhibit 4.1 to Allied's Registration Statement on Form S-4 (No. 333-91539),
     is incorporated herein by reference.
4.24 First Supplemental Indenture,  dated July 30, 1999 among Allied NA, certain
     subsidiaries  of Allied NA and U.S. Bank Trust,  National  Association,  as
     Trustee,  regarding  10% Senior  Subordinated  Notes due 2009 of Allied NA.
     Exhibit 4.3 to Allied's  current  report on Form 8-K dated August 10, 1999,
     is incorporated herein by reference.
4.25 Second  Supplemental  Subordinated  Indenture  relating  to the 10%  Senior
     Subordinated  Notes due 2009 of Allied NA, dated  December 29, 1999,  among
     Allied  NA,  certain  guarantors  signatory  thereto,  and U.S.  Bank Trust
     National  Association,  as Trustee.  Exhibit  4.2 to Allied's  Registration
     Statement on Form S-4 (No. 333-91539), is incorporated herein by reference.
4.26 Form of 10%  Series B Senior  Subordinated  Notes  due  2009  (included  in
     Exhibit 4.25), is incorporated herein by reference.
4.27 Restated  Indenture,  relating to debt issued by BFI,  dated  September  1,
     1991, among BFI and First City,  Texas-Houston,  National  Association,  as
     Trustee, is incorporated herein by reference.
4.28 First Supplemental Indenture relating to the debt issued by BFI, dated July
     30, 1999, among Allied, BFI and Chase Bank of Texas,  National Association,
     as Trustee, is incorporated herein by reference.
4.29 Rights  Agreement,  dated as of May 25, 2000,  between  Allied and American
     Stock  Transfer & Trust  Company,  as Rights  Agent.  Exhibit 1 to Allied's
     Registration  Statement  on Form 8-A filed May 31,  2000,  is  incorporated
     herein by reference.
10.1 Securities   Purchase   Agreement  dated  April  21,  1997  between  Apollo
     Investment Fund III, L.P.,  Apollo Overseas  Partners III, L.P., and Apollo
     (U.K.) Partners III, L.P.;  Blackstone Capital Partners II Merchant Banking
     Fund L.P.,  Blackstone  Offshore  Capital  Partners II L.P. and  Blackstone
     Family   Investment   Partnership   II  L.P.;   Laidlaw  Inc.  and  Laidlaw
     Transportation,  Inc.; and Allied Waste  Industries,  Inc.  Exhibit 10.1 to
     Allied's  Report on Form 10-Q for the  quarter  ended  March 31,  1997,  is
     incorporated herein by reference.
10.2 Executive  Employment  Agreement  between  Allied and with Henry L. Hirvela
     dated February 23, 2000, is incorporated herein by reference.

<PAGE>

10.3 Executive  Employment  Agreement  between  Allied  and with  Thomas  H. Van
     Weelden dated January 1, 1999. Exhibit 10.9 to Allied's Report on Form 10-Q
     for the quarter ended March 31, 1999, is incorporated herein by reference.
10.4 Executive  Employment Agreement between Allied and with Larry D. Henk dated
     June 6, 1997.  Exhibit 10.4 to Allied's Report on Form 10-Q for the quarter
     ended June 30, 1997, is incorporated herein by reference.
10.5 Executive Employment Agreement between Allied and with Steven M. Helm dated
     June 6, 1997.  Exhibit 10.5 to Allied's Report on Form 10-Q for the quarter
     ended June 30, 1997, is incorporated herein by reference.
10.6 Executive  Employment  Agreement  between  Allied and with Donald W. Slager
     dated January 1, 1999.  Exhibit  10.12 to Allied's  Report on Form 10-Q for
     the quarter ended March 31, 1999, is incorporated herein by reference.
10.7 Executive  Employment  Agreement  between Allied and with Peter S. Hathaway
     dated June 6, 1997.  Exhibit 10.14 to Allied's  Report on Form 10-K for the
     year ended December 31, 1997, is incorporated herein by reference.
10.8 Executive  Employment  Agreement  between Allied and with Michael G. Hannon
     dated June 6, 1997.  Exhibit 10.15 to Allied's  Report on Form 10-K for the
     year ended December 31, 1997, is incorporated herein by reference.
10.9 Registration  Rights  Agreement,  dated as of July 30,  1999,  by and among
     Allied,  the  Guarantors  and  the  initial  purchasers,  relating  to  the
     $2,000,000,000  10% Senior  Subordinated  Notes due 2009.  Exhibit  10.3 to
     Allied's  Current Report on Form 8-K dated August 10, 1999, is incorporated
     herein by reference.
10.10Purchase   Agreement  dated  July  27,  1999,  by  and  among  Allied,  the
     Guarantors and the initial  purchasers,  with respect to the $2,000,000,000
     10% Senior  Subordinated  Notes due 2009.  Exhibit 10.4 to Allied's Current
     Report  on Form 8-K  dated  August  10,  1999,  is  incorporated  herein by
     reference.
10.11Credit  Facility  dated  as of July  21,  1999.  Exhibit  10.1 to  Allied's
     current report on Form 8-K dated August 10, 1999, is incorporated herein by
     reference.
10.12Non-Shared  Collateral  Security  Agreement,  dated  July 30,  1999,  among
     Allied,  Allied NA, certain of its  subsidiaries,  and The Chase  Manhattan
     Bank, as Collateral Agent, is incorporated herein by reference.
10.13Non-Shared Collateral Pledge Agreement,  dated July 30, 1999, among Allied,
     Allied NA, certain of its  subsidiaries,  and The Chase  Manhattan Bank, as
     Collateral Agent, is incorporated herein by reference.
10.14Second Amended and Restated  Shareholders  Agreement,  dated as of July 30,
     1999,  between Allied and the purchasers of the Series A Senior Convertible
     Preferred  Stock and related  parties.  Exhibit  10.2 to  Allied's  current
     report  on Form 8-K  dated  August  10,  1999,  is  incorporated  herein by
     reference.
10.15Amended and Restated  Registration  Rights  Agreement  dated as of July 30,
     1999,  between Allied and the purchasers of the Series A Senior Convertible
     Preferred  Stock and related  parties.  Exhibit  10.3 to  Allied's  current
     report  on Form 8-K  dated  August  10,  1999,  is  incorporated  herein by
     reference.
12   * Ratio of earnings to fixed charges and preferred stock dividends.
21   * Subsidiaries of the Registrant.
23.1 * Consent of Arthur Andersen LLP.

     * Filed herewith

Reports on Form 8-K during the Quarter Ended December 31, 2000

November 7, 2000    Our Current Report on Form 8-K reports the financial results
                    for the third quarter of 2000.