<PAGE>   1
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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 August 31, 1996 or


[ ]       TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
          EXCHANGE ACT OF 1934

     For the transition period from ________________  to _____________________

     Commission file number 1-11016

                                 ALLWASTE, INC.
             (Exact Name of Registrant as Specified in its Charter)

         DELAWARE                                               74-2427167
(State or Other Jurisdiction of                              (I.R.S. Employer
Incorporation or Organization)                            Identification Number)


   5151 SAN FELIPE, SUITE 1600                                     
          HOUSTON, TEXAS                                           77056
(Address of Principal Executive Offices)                         (Zip Code)

                                 (713) 623-8777
              (Registrant's Telephone Number, Including Area Code)

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

<TABLE>
<CAPTION>
                                                                          Name of each exchange
        Title of each class                                                on which registered  
       --------------------                                              -----------------------
<S>                                                                   <C>
COMMON STOCK, PAR VALUE $.01 PER SHARE                                NEW YORK STOCK EXCHANGE, INC.
7 1/4% CONVERTIBLE SUBORDINATED DEBENTURES DUE 2014                   NEW YORK STOCK EXCHANGE, INC.
PREFERRED STOCK PURCHASE RIGHTS                                       NEW YORK STOCK EXCHANGE, INC.
</TABLE>


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

                                      NONE

     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 voting stock held by non-affiliates of
the Registrant, based on the closing price of shares of Common Stock on the New
York Stock Exchange on November 1, 1996, was approximately $133.4 million.

     The number of shares of Common Stock of the Registrant outstanding on
November 19, 1996 was 36,828,024.

                      DOCUMENTS INCORPORATED BY REFERENCE

<TABLE>
<CAPTION>
                 DOCUMENT                                                  INCORPORATED AS TO
                 --------                                                  ------------------
<S>                                                                  <C>     
Notice and Proxy Statement for the Annual Meeting of                 Part III:  Items 10, 11, 12 and 13
Stockholders scheduled to be held January 17, 1997.                  
</TABLE>

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<PAGE>   2
                             FORM 10-K REPORT INDEX



<TABLE>
<CAPTION>
10-K PART AND ITEM NO.                                               PAGE NO.
----------------------                                               --------
<S>            <C>                                                       <C>
PART I
     Item 1.   Business................................................   1
     Item 2.   Properties..............................................   7
     Item 3.   Legal Proceedings.......................................   7
     Item 4.   Submission of Matters to a Vote of Security Holders.....   8

PART II                                                                    
     Item 5.   Market for the Company's Common Equity and Related 
               Stockholder Matters.....................................   9
     Item 6.   Selected Financial Data.................................  10
     Item 7.   Management's Discussion and Analysis of Financial 
               Condition and Results of Operations.....................  11
     Item 8.   Financial Statements and Supplementary Data.............  17
     Item 9.   Changes in and Disagreements with Accountants on 
               Accounting and Financial Disclosure.....................  37
                                                                           
PART III                                                                   
     Item 10.  Directors and Executive Officers of the Registrant......  38
     Item 11.  Executive Compensation..................................  38
     Item 12.  Security Ownership of Certain Beneficial Owners 
               and Management..........................................  38
     Item 13.  Certain Relationships and Related Transactions..........  38
                                                                           
PART IV
     Item 14.  Exhibits, Financial Statement Schedules and Reports 
               on Form 8-K.............................................  39
</TABLE>
<PAGE>   3
                                     PART I

ITEM 1.   BUSINESS

OVERVIEW

     Allwaste, Inc. provides integrated industrial and environmental services
and acts as an outsourcing provider of on- site facility processes and
services, primarily in the United States, Canada and Mexico.  Unless the
context otherwise requires, references to the "Company" or "Allwaste" refer to
Allwaste, Inc., a Delaware corporation incorporated on August 21, 1986, and its
subsidiaries, affiliates and predecessors.

     The Company provides to its industrial and commercial customers a range of
industrial and environmental services, including: on-site industrial cleaning
and waste management services (including hydroblasting and gritblasting and
air- moving and liquid vacuuming); waste transportation and processing;
wastewater services; site remediation; maintenance services; turnaround and
outage services; container cleaning and repair services; emergency spill
response services; and other general plant support services.

     With the completion of the sale of the Company's glass recycling
operations (effective September 1, 1995), the Company combined the prior
industry segments of environmental services and container services into a
single operation.  The following table presents the percentage of total
revenues for each of the Company's principal service lines for each of  the
fiscal years ended August 31, 1996, 1995 and 1994, excluding the Company's
discontinued glass recycling operations.

<TABLE>
<CAPTION>
                                                                         1996            1995            1994
                                                                         ----            ----            ----
<S>                                                                      <C>             <C>             <C>
Hydroblasting and gritblasting services                                   19%             18%             19%
Air-moving and liquid vacuuming services                                  18%             18%             19%
Excavation and site remediation services                                  13%             11%              9%
Other on-site industrial cleaning and waste management services           12%             12%             10%
Container services                                                        11%             11%             13%
Transportation, roll-off and tank rental services                          9%             12%             13%
Wastewater services and dewatering                                         7%             10%              9%
All other services                                                        11%              8%              8%
                                                                         ---             ---             --- 
    Total                                                                100%            100%            100%
                                                                         ===             ===             === 
</TABLE>


     While the Company has historically focused on achieving growth through
acquisitions, the Company has, in recent years, shifted its focus to emphasize
increased internal growth.  See "Business Expansion Program."  The Company has
focused on realizing increased internal growth primarily by developing new
outsourcing and co-sourcing opportunities with its customers and expanding the
number of service lines offered to customers by each of its operating locations
through its AllQuest Enterprises companies (as discussed below), providing
solution-oriented and preventive services that focus on improving customer
efficiency and profitability, transferring technology and knowledge among the
Company's various operating locations, implementing national marketing programs
that target major industries served by the Company, introducing services in new
geographic areas and developing services that address environmental concerns
associated with new products.  The Company's ALLIES(R) program stresses
collaboration between the Company and its customers by focusing on creating
flexible and innovative solutions to a customer's problems and emphasizing the
Company's services as an economically-efficient outsourcing alternative that
can maximize a customer's competitive role in the emerging global market.  See
" -- Marketing."

     In recognition of the new outsourcing and co-sourcing opportunities with
its customers identified through its ALLIES(R) program, the Company created
AllQuest Enterprises, Inc. ("AllQuest Enterprises").  AllQuest Enterprises
enables the Company to expand the bundle of available service lines offered to
its customers by its operating locations and to create new outsourcing and
co-sourcing opportunities with its customers.  AllQuest Enterprises is
comprised of the following early-stage companies: AllQuest Water Resources,
Inc.; AllQuest Technologies, Inc.; AllQuest Pipeline Services, Inc.; AllQuest
Energy Services, Inc.; Allies Staffing, Inc.; and AllQuest Capital, Inc.  See "
-- Business Services -- AllQuest Enterprises."

     The Company's operations are subject to federal, state and local
governmental regulation.  Because of the evolving and uncertain nature of these
often complex regulations, the Company cannot predict the effect, if any, that
the enactment, amendment, repeal or enforcement of applicable governmental
statutes or rules and regulations will have on the Company's operations.  See "
-- Government Regulation" and "Legal Proceedings -- Environmental Proceedings."
Legislation and governmental regulations relating to the protection of the
environment, both existing and future, may also require the Company to outlay
certain capital expenditures to purchase or replace certain equipment





                                      -1-
<PAGE>   4
and to upgrade certain facilities.  It is currently anticipated that such
capital expenditures, if any, will not have a material effect on the Company's
financial position or results of operations.  See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."

     Unless the context indicates otherwise, all statistical and financial
information included in Items I, II and III of this Report is given as of
August 31, 1996 and excludes the Company's discontinued glass recycling
operations.

BUSINESS SERVICES

     The largest component of the Company's business is the provision of
industrial cleaning and waste management services at customer facilities.  The
Company provides industrial cleaning and waste management services from
approximately 96 locations in North America (six of which are in Canada) and is
currently providing such services under long-term contracts at customers'
facilities at an additional 11 locations in North America.  The Company
provides a number of specialized services for the handling and processing of
solid, industrial and hazardous wastes, including hydroblasting and
gritblasting, air-moving and liquid vacuuming, dredging, dewatering and sludge
processing, sludge pumping, chemical cleaning and jet rodding.

     HYDROBLASTING AND GRITBLASTING SERVICES.  The Company's hydroblasting
services are performed using high-pressure pumps capable of achieving water
pressures of up to 35,000 pounds per square inch.  Hydroblasting is an
effective method of removing hard deposits from surfaces, such as heat
exchangers, boilers, aboveground storage tanks and pipelines, that may be
unsuitable for other conventional cleaning techniques.  Gritblasting, although
similar to hydroblasting, utilizes both abrasive and non-abrasive media to
clean surfaces.  Gritblasting is often used to clean electrostatic
precipitators and boilers and prepare metal surfaces for protective coatings
and non-destructive testing.

     AIR-MOVING AND LIQUID VACUUMING SERVICES.  Air-moving is an efficient
method of removing and handling industrial wastes or salvageable materials
contained in customers' tanks, containers or other process configurations by
means of pneumatic conveyance or vacuuming with controlled air velocity.  The
Company performs its air-moving services using truck and trailer-mounted
air-moving equipment.  Typically, the Company's air-mover truck is driven onto
the customer's facility near the actual work site. The Company's employees
extend pipe and/or hose from the air-mover truck into the customer's tank,
container or other process configuration holding the waste or salvageable
material.  The material is then conveyed into the air-mover truck or container
for transportation to a proper customer-designated disposal site.

     EXCAVATION AND SITE REMEDIATION SERVICES.  The Company's excavation and
site remediation services involve the use of heavy equipment such as bulldozers
and scrapers for the purpose of grading or otherwise restructuring existing
terrain.  The Company primarily provides these services to industrial customers
for site preparation, construction and maintenance of industrial settlement
ponds and lagoons, including the periodic cleaning or remediation of such ponds
and lagoons.  The Company also provides these services in connection with the
construction of landfills.

     CONTAINER SERVICES.  The Company conducts container services operations
from 33 locations (three of which are in Canada).  The Company's container
services operations can be divided into three distinct components: cleaning,
inspection and repair.  Over-the-highway tank-trailers, railcar tanks and
intermodal containers and intermediate bulk containers ("IBCs") require
thorough cleaning before shipping a new or different product.  The Company also
inspects all cleaned containers, in accordance with applicable governmental
regulations, to insure no product or moisture remains in the cleaned container.
The Company provides repair services for tank-trailer units, intermodal
containers and IBCs.  The Company believes that its container services business
is the largest non-carrier operation in the industry in terms of total revenues
and number of containers serviced.

     TRANSPORTATION, ROLL-OFF AND TANK RENTAL SERVICES.  The Company provides
both short and long-distance transportation of hazardous and non-hazardous
wastes from customer sites to customer-designated landfills, recycling and
reclamation facilities, and treatment, storage and disposal facilities.  The
Company provides these transportation services primarily on a unit-price or
per-loaded mile basis.  At certain locations, the Company owns air-tight,
water- tight roll-off containers of various sizes, which it utilizes to collect
and transport materials within the customer's facility or to
customer-designated disposal sites.  The Company also operates liquid tank
transports equipped with vacuum pumps.  Most of the Company's liquid tank
transports are certified for the transportation of hazardous materials.

     WASTEWATER SERVICES AND DEWATERING.  The Company currently operates, as
part of its container services group, four facilities that accept non-hazardous
commercial and industrial waste products, primarily from third parties.  Waste
products received and treated at the Company's facilities include wastewaters,
sludges and hydrocarbon-bearing liquids.  The Company processes a variety of
materials at these facilities, including solid waste landfill leachate,
restaurant grease-trap wastes, petroleum-contaminated wastewaters, commercial
sandtrap or sump wastes, food-processing wastewaters and a variety of
industrial wastewaters.  The Company's dewatering services involve the use of





                                      -2-
<PAGE>   5
centrifuges, filter presses and belt presses to separate liquids from solids, a
process typically utilized to minimize disposal volumes.  These services are
frequently used to process the waste generated by tank cleaning or dredging
services.

     ALLQUEST ENTERPRISES.  Through its newly-created AllQuest Enterprises
companies, the Company has expanded the bundle of available service lines
offered to its customers by its operating locations and begun creating new
outsourcing and co-sourcing opportunities with its customers.  The AllQuest
Enterprises companies currently consist of: AllQuest Water Resources, which is
exploring opportunities to own or jointly own water and wastewater facilities;
AllQuest Technologies, which provides advanced chemical cleaning technologies
and products, together with training and laboratory support, to the Company's
operating locations; AllQuest Pipeline Services, which provides various
services to the natural gas pipeline industry in North America; AllQuest Energy
Services, which provides technologies designed to improve the efficiency of
electrical and thermal systems within industrial facilities; Allies Staffing,
which provides temporary employees to the Company, the Company's customers and
third parties for short-term projects; and AllQuest Capital, which serves as a
vehicle for selected investments in industrial services companies.


CUSTOMERS

     The Company provides industrial and environmental services to four primary
industry groups:  the refining and petrochemical, electric power, pulp and
paper and automotive industries.  All four of these industry groups utilize the
Company's on-site industrial services, including cleaning and waste management
services.  The Company also provides extensive excavation, sludge dewatering
and transportation-related services to its petrochemical and refining and
electric power industry customers.  The Company provides certain industrial
services to commercial businesses; steel, mining and manufacturing customers;
and governmental agencies and municipalities.  The Company has customarily
provided tank-trailer cleaning services to contract carriers who own trucks
that have been used to transport hazardous and non- hazardous substances and
has been increasingly providing tank-trailer cleaning services to chemical
manufacturers.  Chemical manufacturers represent the Company's primary customer
for its railcar tank cleaning and IBC cleaning services.  No single customer
accounted for more than 10% of the Company's consolidated revenues for the
fiscal years ended August 31, 1996, 1995 and 1994, and the loss of any single
customer would not have a material adverse effect on the results of operations
or financial position of the Company taken as a whole.

     The Company seeks to enter into master service agreements or
project-specific contracts with its industrial and environmental services
customers.  Under these master service agreements, the customer issues purchase
orders for requested services, if any, on an as-needed basis.  In the
alternative, the Company receives stand-alone purchase orders, pursuant to
which customers order services for a short-term project, with jobs typically
lasting from one to several days. The Company generally provides its industrial
services at prescribed rates, subject to negotiation with the customer, or
based on competitive bidding.  The Company often provides excavation and site
remediation services under fixed-price, unit-price or time-and-materials based
contracts. The Company typically provides container services on a "first come,
first served" basis and maintains a published price list for its container
services.

MARKETING

     The Company utilizes a combination of sales representatives, facility
managers and other designated management employees to solicit business from
industrial customers and tank transportation fleets.   The Company has also
implemented national marketing programs designed to increase penetration of
three of the Company's largest customer groups: the petrochemical and refining,
electric power and pulp and paper industries. The Company provides a number of
complementary services from various operating locations to customers in certain
major industries.  Through concentrated marketing of the full range of
industrial cleaning and waste management and transportation services to these
customers and focusing on broadening the scope of the services it can offer its
customers from a wide range of locations, the Company expects to increase its
penetration of these industries. Given the strict environmental rules and
regulations applicable to generators and transporters of hazardous wastes, in
marketing its container services, the Company emphasizes its state-of-the-art
wastewater pretreatment systems and computerized residual waste tracking
systems in order to alleviate customers' concerns regarding proper treatment of
wastes for which they are responsible. The Company also encourages customers to
utilize the Company's container services facilities as their dispatch locations
to minimize "dead-head" miles to and from the cleaning location.

     The Company's Allwaste's Integrated Environmental Services (ALLIES(R))
program focuses on collaboration between the Company and its customers.
ALLIES(R) encourages the Company's operating managers to focus on creating
flexible and innovative solutions to a customer's problems and to stress the
Company's services as an economically-efficient outsourcing alternative that
can maximize a customer's competitive position in the emerging global market.
Because the Company believes that one of its chief advantages over its
competitors is the wide number of complementary service lines that it can offer
its customers, the Company intends for the ALLIES(R) program, with its emphasis
on the Company as a solution-oriented, customer-focused provider of industrial
and environmental services,





                                      -3-
<PAGE>   6
to provide the Company with a stronger national identity.  Rather than
competing solely on the basis of hourly rate, the Company's overall marketing
strategy, and the focus of the ALLIES(R) program, is to add value to its
customers, primarily through decreasing a customer's plant downtime through
higher levels of productivity; decreasing disposal costs by recovering,
recycling and/or minimizing waste volumes; and improving unit operating
efficiency by increasing heat transfer and unit run time and reducing
unscheduled downtime through preventive maintenance.  The Company believes that
this focus has a positive effect on its customers' profitability, thereby
contributing to their competitive position.

COMPETITION

     The industrial services industry is highly competitive and fragmented.
The Company believes that it is one of the largest industrial service companies
in North America in terms of total revenues, geographic coverage and depth of
service capability.  The Company faces competition from local owner-operated
service contractors and from national and regionally-based companies that
perform a variety of industrial and environmental services.  Competition for
industrial services is based primarily on hourly rates, productivity, safety,
innovative approaches and quality of service. The Company attempts to add value
through providing a safer and more efficient level of service to differentiate
itself from competitors.

     The Company also experiences competition in providing container services
from independently-owned and operated facilities and certain large tank-trailer
transport companies that also operate tank cleaning facilities.  Three large
tank-trailer transport companies have numerous cleaning facilities throughout
the United States and are also customers of the Company.  The important
competitive factors in the Company's container services operations are
geographic location, efficient service, price and the ability to satisfy the
customers' concerns regarding proper waste disposal.

GOVERNMENT REGULATION

     The Company provides its customers with services designed to increase
environmental protection by cleaning and removing materials or substances from
its customers' equipment or sites that must be properly handled, recycled, or
removed from the sites for ultimate disposal.  The Company's customers are
subject to regulation under a complex and evolving system of local, state and
federal statutes, codes and regulations that govern the handling, processing,
use, treatment, storage, transportation and disposal of non-hazardous and
hazardous materials and wastes.  A core component of the Company's business is
advising and assisting its customers in complying with this complex regulatory
system; thus, the central tenet of the Company's business philosophy is that
its operations will meet, and in most cases, exceed the requirements imposed by
this regulatory system.  This commitment ensures that the Company's customers,
as well as the Company itself, are in full compliance with the environmental
regulatory system.

     Although there are many statutory requirements that apply to the Company
and its customers, the principal regulatory schemes within which the Company
must operate are: the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, 42 U.S.C. Section  9601, et seq., as amended ("CERCLA");
the Resource Conservation and Recovery Act, 42 U.S.C. Section  6901, et seq.,
as amended ("RCRA"); the Hazardous Materials Transportation Uniform Safety Act,
49 App. U.S.C. Section  2001, et seq.; the regulations promulgated by the
United States Department of Transportation ("USDOT"); and the Occupational
Safety and Health Act, 29 U.S.C. Section 651, et. seq. (the "OSHA Act"). The
Company's wholly-owned Canadian subsidiaries are subject to similar Canadian
regulations.

     CERCLA imposes, without regard to fault or negligence, liability on the
generators of hazardous materials, on the owners and operators of treatment,
storage and disposal sites and sites where hazardous materials are emitted,
released or discharged, either by accident or design, and on companies that
transport hazardous materials from generators to recycling, reclamation or
disposal sites.  With the exception of certain of the container service
facilities, the Company generates hazardous wastes at its operating locations
in de minimis quantities and solely in connection with its business operations.
At certain of its container services locations, hazardous wastes may be
generated as a result of the Company's heel management program (discussed
below).  The Company does not own or operate hazardous waste disposal sites.
Consequently, it has minimal potential liability under CERCLA with respect to
such issues.  As a transporter of hazardous materials, however, the Company is
potentially responsible for the cleanup and remediation at any site to which it
transports hazardous materials.  In addition, although the Company does not own
or operate any landfills, the Company does contract with, on behalf of its
customers, the owners and operators of non-hazardous (also known as solid
waste) and hazardous landfills.  Under CERCLA, the Company is potentially
responsible as an "arranger for disposal" under these circumstances. To protect
against liability under CERCLA as either a transporter or an "arranger for
disposal", the Company works with its customers to ensure that such sites are
carefully selected prior to the use of such facilities and also attempts to
protect itself through its contractual relationship with its customers. The
Company's employees that are involved with the





                                      -4-
<PAGE>   7
handling, processing or transportation of hazardous materials are required to
participate in approved safety and emergency response training under the OSHA
Act.

     RCRA imposes liability on the owners and operators of facilities that are
used to store, treat or dispose of hazardous materials and imposes "cradle to
grave" liability on the generators of hazardous materials.  The Company does
not own or operate any facility that requires a RCRA Part B permit, and
therefore, the Company is not subject to the jurisdiction of the most complex
and costly areas of compliance under RCRA.  Since the Company generates only de
minimis quantities of hazardous materials at its operating locations, with the
exception of the container services locations discussed below, the Company's
potential liability under RCRA is limited.  However, since waste materials are
recycled, reclaimed and stored at several of the Company's facilities, the
Company is required to comply with the RCRA regulations with respect to those
facilities. Most significantly, RCRA imposes a stringent set of regulations on
the identification, storage, treatment, transportation and disposal of wastes.
Thus, when handling, processing and transporting a customer's wastes, the
Company must carefully observe these regulations.  To minimize potential
liability under RCRA, the Company works closely with its customers to ensure
that the wastes generated by the customer have been properly identified so that
such wastes can be appropriately handled, processed and transported and also
attempts to protect itself through its contractual relationship with its
customers.

     With respect to the Company's container services operations, the Company
has potential liability under both CERCLA and RCRA as a generator, storer and
disposer of certain materials that the Company drains or melts from containers
("heels" as they are referred to in the industry).  In some instances, the
Company may be considered to be the generator of those heels that may be
classified as hazardous wastes (within the meaning of applicable regulations).
The Company has instituted a heel management program to minimize this potential
liability under both CERCLA and RCRA.  When an over- the-highway tank trailer,
railcar tank, intermodal container or IBC arrives at one of the Company's
container services facilities, the Company identifies the last substance hauled
in a given container and "empties" the container in accordance with applicable
governmental regulations. All such heels are collected in an approved manner,
labeled as hazardous wastes, if applicable, and manifested and transported by a
licensed waste transporter to an approved treatment, recycling or disposal
facility, all in accordance with applicable law.  The container cleaning
procedures and the cleaning materials utilized depend largely on the
configuration of the container being cleaned and the last material transported
in such container.  The Company's cleaning systems capture all water, chemical
and residue produced from preflushing, final rinsing and steaming. This
wastewater is pretreated and discharged into the sewer system in accordance
with local requirements.  The Company then collects, labels and manifests all
solid residues generated by the pretreatment of wastewater and all contaminated
cleaning solvents and transports them to approved treatment, recycling or
disposal sites through a licensed waste transporter.

     The Company's business depends, in part, on the issuance of permits from
state and federal agencies to allow the Company to transport hazardous
materials, to operate certain of the Company's equipment and to operate the
Company's container cleaning and wastewater pretreatment facilities. The
Company believes that it will be able to obtain and retain the applicable and
necessary permits from governmental authorities.  The majority of these permits
are required to be renewed annually, and accordingly, such permits may be
subject to revocation, modification or denial. There can be no assurance that
the Company will receive necessary permits on a timely basis or that such
permits will not be revoked, modified or denied.  The Company believes,
however, that it has sufficient duplicity of permits so that the loss of any
one permit or group of permits would not have a material adverse effect on the
Company's financial position or results of operations.

     In connection with several of the Company's service lines, there are
significant, but often unforeseeable, inherent business risks that may
materially impact the Company's operations, including, but not limited to: (i)
the potential that the Company will handle, process, transport or dispose of
material that has been misidentified by its customer, resulting in
unanticipated exposure to hazardous wastes by the Company's employees and/or
disposal of such wastes at an unsuitable facility; (ii) the potential that in
connection with the handling, processing or transporting of material, the
Company's employees may inadvertently cause a release or emission of a
hazardous substance; (iii) the potential for governmental actions at the local,
state or federal level that impose unforeseen restrictions on the handling,
transportation or disposal of waste, which actions may result in declining
volumes of waste that may be handled, treated, or transported by the Company's
existing service lines; and (iv) the potential imposition of liability on the
Company for the historical use of a landfill, and the corresponding allocation
of responsibility on the Company for the costs of remediating such facilities.

     The Company may not always be able to accurately assess significant
business risks related to regulatory compliance because of its inability to
predict the future enactment of additional environmental regulations or the
amendment, modification or repeal of existing statutes or regulations.
Frequently, public pressure causes local, state or federal regulators to act
precipitously, with the result that newly-enacted legislation or regulations
may contradict existing regulations.  Consequently, although the Company makes
a significant effort to monitor and to participate in anticipated regulatory,
political and legal developments that may affect its operations, it is very
difficult for the Company to predict the enactment, amendment, repeal or
modification of applicable statutes, rules and regulations





                                      -5-
<PAGE>   8
pertaining to the protection of the environment or the effect that such actions
will have on its financial position or results of operations.

     The complexity of environmental regulations offers the Company vast
potential to provide expanded services to its customers, particularly with
respect to the Company's industrial cleaning and waste management and waste
minimization service lines.  Under the current regulatory scheme, the Company's
customers are facing increasing restrictions on the generation, treatment,
processing and disposal of non-hazardous and hazardous materials.  For example,
changes to the RCRA regulations have increased the types of materials that may
no longer be disposed  in landfills, which has caused the Company's customers
to find alternative treatment methods for such materials. Similarly, changes
over the last few years in the RCRA regulations have resulted in the closure of
many landfills, which closures have increased the demand for the development of
a process that will minimize the types and amounts of materials required to be
disposed in landfills.

     The Company may also experience increased business potential as a result
of the increasing scrutiny placed on companies that provide industrial and
environmental services.  Many states have successfully enacted legislation that
allows the state permitting authorities to consider the "fitness" of a permit
applicant.  Consequently, companies with a history of environmental violations
have been, and will likely continue to be, unable to renew the permits that
allow them to transport and/or operate as environmental service companies in
certain jurisdictions. The inability of the Company's competitors to withstand
similar scrutiny should offer the Company increased potential to attract new
customers in marketplaces affected by these statutes.  Although there can be no
assurance that the Company will be able to successfully withstand scrutiny
under such "applicant fitness" statutes or regulations in the future or in all
jurisdictions that may enact such legislation, to date the Company has not
encountered any significant difficulty in meeting the requirements of these
statutes and has been able to obtain required permits notwithstanding the
increased level of scrutiny.

BUSINESS EXPANSION PROGRAM

     The Company is seeking to expand its service capabilities through its six
operating groups and the AllQuest Enterprises companies, the addition of
selected service lines at existing locations, the establishment of
Company-owned start-up operations in strategic geographic marketplaces and the
acquisition of existing businesses.  A major factor in the historical growth of
the Company has been its acquisition program; however, management expects an
important portion of future growth will be achieved through investment in
start-up operations and  internal expansion of existing operations.

     INTERNAL GROWTH.  The Company has and will continue to open new facilities
with its own resources, equipment and personnel.     The AllQuest Enterprises
ventures have expanded the bundle of service capabilities offered to customers
and have created opportunities for outsourcing and co-sourcing with the
Company's industrial customers.  See " -- Business Services -- AllQuest
Enterprises."  Additionally, the Company expects to continue to pursue
investment opportunities pursuant to which it would acquire minority ownership
or otherwise partner with other business entities to continue to expand its
service capabilities for its industrial customers.  With respect to its on-site
industrial cleaning and waste management operations, the Company seeks to add
service lines to existing locations as customer demand dictates needs for such
additional services.  The Company also seeks to expand its customers' awareness
of its service capabilities through national marketing programs targeted to
specific industry groups.   See " -- Marketing." The Company expects to expand
its IBC service capacity and to upgrade its wastewater pretreatment
capabilities to handle additional third party waste streams.

     ACQUISITIONS.  The Company intends to continue pursuing opportunities to
acquire the stock or assets of suitable industrial and environmental service
businesses for consideration consisting of cash, convertible subordinated
notes, promissory notes, common stock of the Company (the "Common Stock") or a
combination thereof.  The Company may supplement the acquisition of small local
companies or companies engaged in complementary service lines by acquiring
larger companies that would be attractive to the Company's customer base.
There can be no assurance that the Company will be able to successfully
complete any such acquisitions.  See "Management's Discussion and Analysis of
Financial Condition and Results of Operations".  For additional information
regarding the Company's acquisitions, see Note 2 of Notes to Consolidated
Financial Statements.

INSURANCE AND BONDING

     The Company maintains insurance coverage for normal business risks,
including workers' compensation for its employees and auto and general
liability insurance, including products and completed operations coverage.
Comprehensive insurance for environmental accidents and pollution occurring at
the Company's facilities has been expensive and difficult to obtain, and
certain policies purchased by the Company specifically exclude certain perils
and/or operations that could give cause for such claims.  The Company has
obtained pollution liability coverage for





                                      -6-
<PAGE>   9
specific locations within its operations.  If the Company experiences
difficulty in obtaining adequate insurance coverage at reasonable rates in the
future, this could have a material adverse effect on the Company's financial
position or results of operations.  To date, the Company has not incurred
material fines, penalties or liabilities for pollution, environmental damage or
toxic torts.  However, a successful liability claim for which the Company is
only partially insured or completely uninsured could have a material adverse
effect on the Company's financial position and results of operations.

     The Company cannot predict the future availability or cost of insurance.
The Company's total cost of property and casualty insurance, including workers'
compensation premiums, was $12.1 million, $14.8 million and $10.1 million for
the fiscal years ended August 31, 1996, 1995 and 1994, respectively.  The
decreased cost in fiscal 1996 is primarily attributable to favorable loss
development of prior period claims, a continuation of the positive impact of
the Company's safety program on current operations and reductions in the fixed
costs associated with the Company's insurance program.

     A substantial portion of the Company's current and prior year insurance
coverages are "high deductible" or retrospective policies in which the Company,
in many cases, is responsible for the payment of incurred claims up to
specified individual and aggregate limits, over which a third party insurer is
contractually liable for any additional payment of such claims.  Accordingly,
the Company bears certain economic risks related to these coverages.  On a
continual basis, and as of each balance sheet date, the Company records an
accrual equal to the estimated costs expected to result from incurred claims
plus an estimate of claims incurred but not reported as of such date based on
the best available information at such date.  However, the nature of these
claims is such that actual development of the claims may vary significantly
from the estimated accruals.  All changes in the accrual estimates are
accounted for on a prospective basis and can have a significant effect on the
Company's financial position or results of operations.

     Certain of the Company's customers require the Company to post performance
bonds that are equivalent to the full amount of the contracts and guarantee
their completion.  Although the Company has previously obtained bonds through
relationships with various sureties, there can be no assurance that these
relationships will continue or that the Company will not be forced to seek
alternative sources for bonding.

EMPLOYEES

     As of August 31, 1996, the Company had a total of 3,772 full-time
employees.  At 11 of the Company's field locations, the Company is, or is
anticipated to be, bound by collective bargaining agreements governing the
Company's relationship with its labor force at such locations.  These
agreements apply to approximately 301 of the Company's employees and expire at
various times from 1996 to 1999, when they will need to be renegotiated in
accordance with applicable law.  No prediction can be made as to the ultimate
outcome of such negotiations, although the Company's management knows of no
reason why agreements could not be reached.  Additionally, management believes
that any failure to come to terms in such negotiations would not have a
material adverse effect on the Company's financial position or results of
operations.  The Company believes its employee relations are good.


ITEM 2.   PROPERTIES

     More than half of the Company's operating locations in its industrial and
environmental services business are leased premises under written agreements
that expire at various times through 2004.  The majority of the leases have
renewal options at the Company's option for six-month to fifteen-year periods.
The Company owns its industrial service facilities in 28 locations.  Management
does not anticipate any major problems in negotiating new leases on expiration
of any existing leases.  However, should any problems arise, management
believes that it will be able to obtain adequate facilities on terms acceptable
to the Company since these operations are all in industrial marketplaces.


ITEM 3.   LEGAL PROCEEDINGS


     In the normal course of its operations, the Company can become involved in
a variety of legal disputes. Currently, the Company is a defendant in several
legal proceedings, including workers' compensation matters and minor business
disputes, the majority of which are being handled or are expected to be handled
by the Company's insurance carriers. The Company believes that a decision
adverse to the Company in any one or all of these proceedings would not have a
material effect on the Company's financial position or results of operations.





                                      -7-
<PAGE>   10
ENVIRONMENTAL PROCEEDINGS

     In November 1996, the West Virginia Department of Environmental Protection
(the "West Virginia DEP") issued a draft consent order against one of the
Company's subsidiaries, which order seeks to impose an aggregate of
approximately $229,000 in fines against the Company relating to a
transportation-related spill in West Virginia in November 1995.  The Company
voluntarily remediated this spill in December 1995.  The draft consent order
alleges that in remediating the spill, the Company did not comply with certain
technical West Virginia DEP remediation regulations relating to recordkeeping
and generator requirements.  The Company believes that the West Virginia DEP
remediation regulations cited by the West Virginia DEP as the basis of this
draft consent order are not relevant in the context of an emergency spill
response.  Therefore, the Company believes that it may be able to successfully
negotiate the imposition by the West Virginia DEP of significantly lower
penalties in the final consent order.  The Company is actively negotiating the
draft consent order with the West Virginia DEP and does not believe that the
final consent order will have a material adverse effect on the Company's
results of operations or financial position.

     While the Company's paramount goal is to conduct its operations in
compliance with all applicable statutes and regulations, in the normal course
of operations, the Company, as with all other companies engaged in the
industrial and environmental service business, has been and may continue to be
the subject of enforcement proceedings initiated by local, state and federal
regulatory authorities.  In general, such proceedings allege technical
violations of licenses or permits under which the Company operates and often
are the result of either a misunderstanding with respect to the applicability
of a particular regulation or a difference in opinion between the Company and a
regulatory agency with respect to the interpretation of a regulation.  These
enforcement proceedings can result in the imposition of fines and/or penalties
on the Company, and the agreement, by the Company, to change certain operating
practices and procedures to more closely comply with the interpretation of the
environmental regulations favored by the local, state or federal regulatory
agency.  Although the Company's experience to date has been that such
proceedings have not had, either individually or in the aggregate, a material
adverse effect on the Company's financial position or results of operations,
there can be no assurance that a future proceeding will not have such a
material adverse effect.

     Various subsidiaries of the Company have been identified as Potentially
Responsible Parties ("PRPs") at sites listed on the United States Environmental
Protection Agency's ("EPA") National Priorities List ("NPL"), which identifies
sites that have been selected for remedial activity by the EPA under CERCLA
(the NPL is sometimes referred to as the "Superfund List").  In addition,
various subsidiaries of the Company have been sent information requests by EPA,
seeking to determine whether or not such subsidiaries have been involved with
additional sites on the NPL.  The Company's responsibility as a PRP, if any, at
these additional sites has not been determined.  All NPL sites at which the
Company has been identified as a PRP, or for which the Company has been
requested to submit information, are disposal sites owned and operated by third
parties and are sites to which the Company is one of multiple parties
(sometimes in excess of one hundred) alleged to have transported material.
However, in instances in which a subsidiary of the Company has been formally
identified as a PRP, such subsidiaries have uniformly been identified as de
minimis contributors to such sites, and the Company's management anticipates
that its status at additional sites at which it may be named as a PRP in the
future, if any, would be similar.  The Company's status as a de minimis
contributor will entitle its subsidiaries to consider settlements extended by
the EPA and/or those parties that have been identified as significant
contributors to such sites.  Prior to accepting such a settlement, the
Company's management will review its subsidiary's role with respect to each
site, the amount and types of materials transported by the subsidiary to the
site, and the availability of indemnification protection from the subsidiary's
customers whose waste was sent to the site.  As a result of this review, as
well as the Company's continual review of such exposures, the Company may elect
to accrue for an anticipated settlement of such Superfund proceeding.  The
majority of Superfund proceedings involve several years of negotiation between
the group of parties identified as PRPs and EPA; therefore, the actual
expenditure for a PRP settlement occurs years, if not decades, after the use of
the NPL site and typically years after notification of potential liability as a
PRP.  Based on the Company's prior experience at NPL sites, the Company's
management anticipates that it will accept de minimis settlements at any site
at which it is identified as a PRP.  In addition, such settlements historically
have not had and it is anticipated that such settlements will not have a
material adverse effect on the Company's financial position or results of
operations.


ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     No matters were submitted to a vote of the Company's security holders
during the fourth quarter of the fiscal year ended August 31, 1996.





                                      -8-
<PAGE>   11
                                    PART II


ITEM 5.   MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER
          MATTERS

     The Company's Common Stock is traded on the New York Stock Exchange under
the symbol "ALW."  The following table sets forth the range of high and low per
share sales prices for the Company's Common Stock for the Company's two most
recently completed fiscal years:

<TABLE>
<CAPTION>
                                                         HIGH             LOW
                                                         ----             ---
<S>                                                     <C>             <C>
Fiscal 1995 --
   First quarter ended November 30, 1994                $ 7.500         $ 5.875
   Second quarter ended February 28, 1995                 6.125           4.750
   Third quarter ended May 31, 1995                       6.375           5.125
   Fourth quarter ended August 31, 1995                   5.875           5.000

Fiscal 1996 --
   First quarter ended November 30, 1995                $ 5.500         $ 4.125
   Second quarter ended February 29, 1996                 5.500           4.125
   Third quarter ended May 31, 1996                       4.625           3.875
   Fourth quarter ended August 31, 1996                   4.750           4.000
</TABLE>


     According to the Company's transfer agent, on November 19, 1996, there
were 2,402 holders of record of the Company's Common Stock.

     The Company has never paid cash dividends on its Common Stock and does not
anticipate paying any cash dividends in the foreseeable future.  In addition,
the Company's credit facility prohibits the payment of cash dividends.


Recent Sales of Unregistered Securities

     The Company did not sell any unregistered securities during the fourth
quarter of fiscal 1996.





                                      -9-
<PAGE>   12
ITEM 6.   SELECTED FINANCIAL DATA

     The Selected Financial Data below includes the accounts of all companies
acquired through August 31, 1996. These companies, all of which were acquired in
transactions accounted for as purchases during the past five years, are included
from their respective dates of acquisition.  For all periods presented, the
selected financial data reflects the Company's former glass recycling operations
as a discontinued operation.

     The Selected Financial Data should be read in conjunction with the
accompanying Consolidated Financial Statements and the related notes thereto
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations."


<TABLE>
<CAPTION>
                                                                     For the Years Ended August 31,
                                                  --------------------------------------------------------------------
                                                    1996           1995          1994            1993           1992   
                                                  --------       --------      --------        --------       --------
                                                              (in thousands, except per share amounts)
<S>                                               <C>            <C>           <C>             <C>            <C>
STATEMENT OF OPERATIONS DATA:

Revenues                                          $382,165       $344,245      $286,861        $243,591       $182,214
Cost of operations                                 286,412        254,596       204,492         173,844        125,886 
                                                  --------       --------      --------        --------       --------

Gross profit                                        95,753         89,649        82,369          69,747         56,328

Write-downs of operating equipment                      --          6,908            --              --             --
Selling, general and administrative expenses        77,011         72,976        59,020          53,033         40,408
Interest expense                                    (9,581)        (8,785)       (5,617)         (4,798)        (3,984)
Interest income and other income (expense),                                                                         
  net                                                3,401         (3,097)         (818)          1,250            276
                                                  --------       --------      --------        --------       --------

Income (loss) from continuing operations
  before income tax provision and minority 
  interest                                          12,562         (2,117)       16,914          13,166         12,212

Income tax provision                                (6,030)        (2,170)       (6,725)         (5,465)        (4,885)

Minority interest                                       82            408           407              --             --
                                                  --------       --------      --------        --------       --------

Income (loss) from continuing operations             6,614         (3,879)       10,596           7,701          7,327

Discontinued Operations
  Income from discontinued operations, net of
    applicable income taxes                             --          2,773         2,501           2,464          4,218
  Gain  on sale of glass recycling operations,
    net of applicable income taxes                   3,764             --            --              --             --
                                                  --------       --------      --------        --------       --------
Net income (loss)                                 $ 10,378       $ (1,106)     $ 13,097        $ 10,165       $ 11,545   
                                                  ========       ========      ========        ========       ========
Net income (loss) per common share
     Continuing operations                        $    .17       $   (.10)     $    .29        $    .21       $    .21
     Discontinued operations                           .10            .07           .07             .07            .12  
                                                  --------       --------      --------        --------       --------
Net income (loss) per common share                $    .27       $   (.03)     $    .36        $    .28       $    .33
                                                  ========       ========      ========        ========       ========

Weighted average common shares outstanding          39,055         38,805        36,852          36,307         35,330
                                                  ========       ========      ========        ========       ========
BALANCE SHEET DATA:

Working capital                                   $ 18,742       $ 26,925      $ 25,579        $ 12,233       $ 14,692

Property and equipment, net                        128,973        131,098       108,956          89,730         71,707
                                                                         
Total assets                                       337,187        372,233       309,263         259,965        196,001
                                                                         
Long-term obligations                              132,467        172,948       134,630         101,041         72,865
                                                                               
Shareholders' equity                               130,946        128,291       121,218         105,196         90,038
                                                                         
Cash dividends declared per common share                --             --            --              --             --
</TABLE>





                                      -10-
<PAGE>   13
ITEM 7.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
          RESULTS OF OPERATIONS

     For all periods presented, "Management's Discussion and Analysis of
Financial Condition and Results of Operations" reflects the Company's former
glass recycling operations as a discontinued operation.  For information
regarding acquisitions and divestitures made by the Company, refer to Notes 2
and 3, respectively, of Notes to Consolidated Financial Statements.


LIQUIDITY AND CAPITAL RESOURCES

     OPERATING ACTIVITIES.  Net cash provided by operating activities was $33.0
million and $38.1 million during fiscal 1996 and 1995, respectively.  In fiscal
1996, net income was $10.4 million, which included $31.5 million in
depreciation and amortization, a gain of $3.8 million from the sale of the
Company's glass recycling operations and $1.1 million in gain on sales of
property and equipment.  The Company reduced accounts receivable which provided
$4.5 million of cash.  The Company achieved this reduction in accounts
receivable by lowering the Company's days sales outstanding through increased
collection efforts.  The Company also reduced capital spending in fiscal 1996,
resulting in a decrease in accounts payable of $9.6 million.

     Net working capital was $18.7 million at August 31, 1996, which was down
from $26.9 million at August 31, 1995.  This decrease was primarily due to both
the previously discussed reduction in accounts receivable and increased current
income tax liability due to the Company's higher net income in fiscal 1996.
The Company's current ratio was 1.3 to 1 at August 31, 1996, which was down
slightly from 1.4 to 1 the prior year.  The Company had uninvested cash of $2.4
million at August 31, 1996, which was significantly lower than the $4.0 million
of uninvested cash held by the Company at the end of fiscal 1995.

     INVESTING ACTIVITIES.  The Company generated cash of $12.0 million from its
investing activities in fiscal 1996, compared with using $68.4 million in fiscal
1995.  On September 1, 1995, the Company sold its glass recycling operations for
consideration (as adjusted) consisting of:  cash of $41.5 million, $8.0 million
of redeemable preferred stock and a $6.6 million subordinated note receivable.
The Company used the proceeds received in this transaction to reduce outstanding
debt.  In fiscal 1995, the $68.4 million used in investing activities was
primarily attributable to capital expenditures of $47.2 million and cash
payments of $19.3 million, net of cash acquired, for the acquisition of
businesses.

     During fiscal 1996, the Company purchased four businesses for $2.1 million
in cash, net of cash acquired, and promissory notes of $0.2 million.  The
Company acquired 13 companies during fiscal 1995, which required $19.3 million
in cash, net of cash acquired, and debt of $6.4 million.  Also, the Company
spent $3.0 million to purchase investments in fiscal 1996.  The Company paid
$2.6 million of this $3.0 million to acquire a 10% interest in The Safe Seal
Company, Inc., which specializes in valve repair and leak sealing.

     Capital expenditures during fiscal 1996 and fiscal 1995 were $27.5 million
and $47.2 million, respectively.  The Company made capital expenditures in the
current year predominately to purchase operating equipment  for expansion of
existing service lines and to replace older equipment.  The Company was able to
reduce its capital spending in fiscal 1996 primarily due to increased monitoring
of equipment usage, transfers of underutilized owned equipment from lower
volume, lower margin locations to higher margin, higher volume locations and the
use of short-term equipment rentals.  Also, the Company constructed a new
container services facility at a total cost of $3.7 million in fiscal 1995,
contributing to higher capital spending for fiscal 1995.  Expenditures for
fiscal 1997 are anticipated to be approximately $25.0 million. The Company's
fiscal 1997 capital expenditure program will be funded from a combination of
cash flows from operating activities and through the utilization of the
Company's revolving credit facility.

     FINANCING ACTIVITIES.  In fiscal 1996, the Company used cash of $46.3
million in financing activities, compared with cash of $31.4 million provided
during 1995.  The Company's total short-term and long-term debt decreased
significantly by $37.8 million to $128.1 million at August 31, 1996 from $165.9
million at August 31, 1995.  Included in the aforementioned long-term debt, the
Company's revolving credit facility decreased by $32.3 million to $87.8 million
at August 31, 1996 from $120.1 million at the end of fiscal 1995.  This
decrease enabled the Company to considerably reduce long-term debt as a
percentage of capitalization to 48% at August 31, 1996 from 56% at August 31,
1995.  This was a significant decrease considering the use of $9.2 million to
repurchase shares of the Company's Common Stock.  During the year ended August
31, 1996, the Company also repurchased $1.1 million of its convertible
subordinated debentures at 85% of their face value and paid $4.6 million on
other long-term borrowings that were predominantly associated with business
acquisitions from previous years.

     In July 1995, the Board of Directors authorized the Company to repurchase,
over a two year period, up to 5,000,000 shares of the Company's Common Stock,
either on the open market or in privately negotiated transactions.





                                      -11-
<PAGE>   14
During the year ended August 31, 1996, the Company spent $9.2 million to
repurchase 2,075,900 shares of its Common Stock at an average cost of  $4.44
per share.  Subsequent to August 31, 1996, the Company has repurchased
1,029,400 additional shares of its Common Stock at an average cost of $4.67 per
share.  Future repurchases of the Company's Common Stock will be dependent upon
prevailing market conditions and other investment opportunities.  Also, the
Company received $0.7 million in proceeds from issuance of shares of Common
Stock, predominantly from the exercise of options to purchase 164,600 shares of
Common Stock under the Company's Amended and Restated 1989 Replacement
Non-Qualified Stock Option Plan.

     The Company's credit facility consists of a revolving credit agreement
with a group of banks.  This agreement, as last amended in August 1996,
provides an unsecured $160 million revolving line of credit to the Company
through January 31, 1999, at which time any outstanding borrowings convert to a
term loan due in equal quarterly installments through January 31, 2003.
Available borrowing capacity under this agreement was $39.0 million at November
15, 1996.  Borrowing availability is subject to the Company maintaining certain
minimum financial ratios as set forth in the agreement.  The Company
anticipates that its credit facilities are adequate to fund its financing
needs.

     Management believes it has adequate capital resources available from
internally generated funds, treasury shares and from the short-term and
long-term capital markets to meet anticipated working capital needs, planned
capital expenditures and to take advantage of new opportunities requiring
capital.

RESULTS OF OPERATIONS

     OVERVIEW.  Allwaste, Inc. provides integrated industrial and environmental
services and acts as an outsourcing provider of on-site facility processes and
services, primarily in the United States, Canada  and Mexico.  With the
completion of the sale of the Company's glass recycling operations in September
1995, the Company combined the prior industry segments of environmental
services and container services into a single operation.

     Net income from continuing operations for fiscal 1996 was $6.6 million,
compared with a net loss of $3.9 million in fiscal 1995 and net income of $10.6
million in fiscal 1994.  Net income (loss) per common share from continuing
operations was $.17, $(.10) and $.29 for fiscal 1996, 1995 and 1994,
respectively.

     The following table identifies certain relationships with consolidated
revenue as percentages:

<TABLE>
<CAPTION>
                                                                                   
                                                               FISCAL YEAR                    
                                                   ----------------------------------       
                                                    1996           1995         1994          
                                                   ------         ------       ------       
<S>                                                <C>            <C>          <C>                    
Revenue                                             100%           100%         100%       

Costs and Expenses:

  Cost of operations                              (74.9)         (74.0)       (71.3)       
                                                  -----          -----        -----

  Gross profit                                     25.1           26.0         28.7        

  Write-downs of operating equipment                --            (2.0)         --         

  Selling, general and administrative                                                                      
    expenses                                      (20.2)         (21.2)       (20.5)       

  Interest expense                                 (2.5)          (2.5)        (2.0)       

  Interest income and other income
    (expense), net                                  0.9           (0.9)        (0.3)       
                                                  -----          -----        -----
Income (loss) from continuing
  operations before income tax
  provision and minority interest                   3.3           (0.6)         5.9        

Income taxes                                       (1.6)          (0.6)        (2.3)       

Minority interest                                   0.0            0.1          0.1        
                                                  -----          -----        -----
Net income (loss) from continuing
  operations                                        1.7%          (1.1%)        3.7%       
                                                  =====          =====        =====
</TABLE>





                                      -12-
<PAGE>   15


     1996 COMPARED WITH 1995.  The Company's revenues for fiscal 1996 increased
to $382.2 million, compared with $344.2 million in fiscal 1995.  Revenue growth
from acquisitions accounted for $22.3 million or 59% of this growth.  Almost
half of this acquisition growth was attributable to a sewer restoration company
acquired in May 1995.  The Company had internally generated revenue growth of
$15.7 million during fiscal 1996, which was primarily attributable to the
Company's excavation/remediation company located in Birmingham, Alabama.  This
operation, the Company's largest, benefited from a significant increase in pulp
and paper and quarry work in fiscal 1996.  Increased demand for the Company's
services by the offshore oil and gas exploration industry in the Gulf of Mexico
area also contributed to this internal revenue growth.  Revenue growth was also
strong in the Company's facilities that serve the United States and Canadian
automobile industry.  These increases in revenue were partly offset by the
decreases in revenue generated by the Company's facilities that service the
Pacific coast refining industries and by the Company's transportation services.

     Gross operating profit increased to $95.8 million in fiscal 1996 from
$89.6 million in fiscal 1995.  Gross operating profit as a percentage of gross
revenues decreased in fiscal 1996 to 25% from 26% in fiscal 1995.  This
decrease was primarily attributable to a general softness in the market for the
Company's container cleaning and repair services and to the higher volume of
lower margin subcontract work, which was predominately attributable to the
Company's excavation and site remediation operations.

     Selling, general and administrative ("SG&A") expenses decreased, as a
percentage of revenues, to 20% in fiscal 1996, from 21% in fiscal 1995, while
SG&A expenditures increased by $4.0 million to $77.0 million.  Incremental SG&A
expense of $5.3 million relates to acquisitions of businesses and start-up 
operations subsequent to 1994.  SG&A relating to existing locations decreased
$2.6 million.  The Company adopted a cost reduction initiative in the first half
of fiscal 1996.  This plan focused on the improvement of profitability, the
creation of shareholder value and enhanced efforts to provide more
cost-effective, value-added services to the Company's large industrial customer
base. Elements of the plan included a work force reduction of approximately 170
employees nationwide, a consolidation of 11 field offices and the realignment of
certain management functions.  In conjunction with this plan, the Company
recorded a restructuring charge of $1.3 million which was related to employee
severance costs, outplacement assistance, office consolidation and other related
costs.

     Interest expense increased $0.8 million to $9.6 million in fiscal 1996
compared with $8.8 million in fiscal 1995 as a result of higher debt levels in
the first half of fiscal 1996.

     Interest income and other income (expense), net was $3.4 million in fiscal
1996 compared to ($3.1) million in fiscal 1995.  The income was primarily
related to interest and dividends of $1.3 million earned on the subordinated
note receivable and preferred stock acquired in the sale of the Company's glass
recycling operations.  Also, the Company recognized income from gain on sales
of property and equipment and dividends earned on the investment in The Safe
Seal Company, Inc.

     The Company's effective income tax rate for the year ended August 31, 1996
was 48%.  The effective tax rate was higher than the statutory federal rate of
35% primarily due to the effect of the nondeductibility of a portion of meal
and entertainment expenses, the nondeductible amortization of a portion of the
Company's goodwill, state income taxes and Canadian earnings which are taxed at
a higher statutory rate.

     1995 COMPARED WITH 1994.  Revenues for fiscal 1995 increased 20% to $344.2
million, compared with $286.9 million in fiscal 1994, and approximately 57% of
this revenue growth was internally generated.  This internally generated growth
of $32.6 million was primarily attributable to higher levels of service work
provided to the refining and petrochemical industries in the Southeastern
United States and to increased activity in the oil and gas exploration and
production industry in the Gulf of Mexico which was partially offset by
decreased activity in the refining industry in the Pacific coast region. This
growth also reflected increased market penetration of the Louisiana pulp and
paper industry, a significant public works contract in Alabama and increased
wastewater pretreatment revenue.  Revenue growth from acquisitions of $24.8
million in fiscal 1995 resulted from the companies acquired during fiscal 1994
and 1995.

     Gross profit, as a percentage of revenues, decreased by 3% to 26% of
revenues in fiscal 1995 compared with 29% in fiscal 1994.  This decrease was
due to higher volumes of lower-margin subcontract and disposal revenues and a
significant loss on a governmental transportation project.  Lower volumes and
lower prices in the Pacific coast refinery market and the nonrecurrence of high
margin spill response work resulting from the severe earthquake in southern
California in January 1994 also adversely affected gross margins.





                                      -13-
<PAGE>   16
     During fiscal 1995, the Company recorded write-downs in recognition of the
permanent impairment of certain operating assets totaling $6.9 million.  The
affected assets included certain operating equipment in Mexico and California,
a wastewater pretreatment facility, equipment relating to two small businesses
which were exited and various owned facilities.

     The Company's SG&A expenses, as a percentage of revenue, remained constant
at 21% of gross revenues for fiscal years 1995 and 1994.  SG&A expenses
increased 24% to $73.0 million in fiscal 1995 from $59.0 million in fiscal
1994.  Approximately 30% of this increase was attributable to incremental
expenses relating to acquisitions completed subsequent to fiscal 1993.  A
significant part of the remaining increase is attributable to higher bad debt
expenses, the write-off of unrealizable organizational costs relating to a
realignment of the Company's Mexico joint ventures and higher legal and
professional fees.  The Company also increased its staffing during this time
period to support its sales, safety and compliance programs and to maintain
strong financial systems and controls.  These increases in SG&A were partially
offset by lower costs relating to the Company's management incentive
compensation plans.

     Interest expense increased $3.2 million from fiscal 1994 to fiscal 1995.
The primary reason for the increase was higher average debt levels at higher
average interest rates which were required to fund the previously discussed
acquisitions and capital expenditures in fiscal 1995.

     Interest income and other income (expense), net in fiscal 1995 is
primarily attributable to $1.0 million in allowances provided for a note
receivable and the write-off of the Company's remaining investment of $2.0
million in previously-owned businesses.  Also, the Company settled a lawsuit
for $0.6 million related to its previously discontinued asbestos abatement
business.

     The Company's effective tax rate was 40% for the year ended August 31,
1994.  The effective tax rate was higher than the statutory federal rate of 35%
primarily due to the effects of nondeductible amortization of goodwill, state
income taxes and Canadian earnings which are taxed at a higher statutory rate.
In fiscal 1995, the Company recorded a tax provision of $2.2 million despite a
pretax loss of $2.1 million.  The provision was attributable to the
nondeductibility of the above mentioned items, nondeductible meals and
entertainment expenses and valuation allowances relating to the Company's
Mexico joint ventures.


FLUCTUATIONS IN RESULTS OF OPERATIONS.

     Certain customers have varying levels of demand for the Company's services
based on the time of the year.  Most of the Company's service lines tend to be
slowest in the winter months (the Company's second quarter).  Services provided
to electric utility customers are typically performed in the fall and spring
when demand for electricity is reduced and maintenance work can be performed
more efficiently.  Likewise, services provided to refining and petrochemical
customers tend to be greater in the fall and spring when most planned
turnarounds at customer plants occur.  See also Note 15 of Notes to
Consolidated Financial Statements for quarterly financial data.  In addition,
the Company's acquisition program can affect not only future results and rates
of growth but also previously reported results because of restatements if
acquisitions are accounted for as poolings-of-interests.

     The impact of inflation on the Company has been minimal.


ENVIRONMENTAL PROCEEDINGS

     In November 1996, the West Virginia Department of Environmental Protection
(the "West Virginia DEP") issued a draft consent order against one of the
Company's subsidiaries, which order seeks to impose an aggregate of
approximately $229,000 in fines against the Company relating to a
transportation-related spill in West Virginia in November 1995.  The Company
voluntarily remediated this spill in December 1995.  The draft consent order
alleges that in remediating the spill, the Company did not comply with certain
technical West Virginia DEP remediation regulations relating to recordkeeping
and generator requirements.  The Company believes that the West Virginia DEP
remediation regulations cited by the West Virginia DEP as the basis of this
draft consent order are not relevant in the context of an emergency spill
response.  Therefore, the Company believes that it may be able to successfully
negotiate the imposition by the West Virginia DEP of significantly lower
penalties in the final consent order.  The Company is actively negotiating the
draft consent order with the West Virginia DEP and does not believe that the
final consent order will have a material adverse effect on the Company's
results of operations or financial position.





                                      -14-
<PAGE>   17
NEW FINANCIAL ACCOUNTING STANDARDS

     In March 1995, the Financial Accounting Standards Board issued SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of" which is effective for years beginning after December
15, 1995 (fiscal 1997 for the Company).  This statement established criteria
for recognizing, measuring and disclosing impairments of long-lived assets,
identifiable intangibles and goodwill.  The Company will adopt SFAS No. 121 in
the first quarter of fiscal year 1997; however, management does not expect that
the adoption will have a material effect on the Company's financial position or
results of operations.

     In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, "Accounting for Stock-Based Compensation" which is effective for years
beginning after December 15, 1995 (fiscal 1997 for the Company).  This
statement allows entities to choose between a new fair value based method of
accounting for employee stock options or similar equity instruments and the
current intrinsic value-based method of accounting prescribed by Accounting
Principles Board Opinion No. 25.  Entities electing to remain with the
accounting in APB Opinion No. 25 must make pro forma disclosures of net income
and earnings per share as if the fair value method of accounting had been
applied.  The Company expects to continue accounting for employee stock options
and similar equity instruments in accordance with APB Opinion No. 25.  The pro
forma effect for fiscal 1996 has not yet been determined.


OUTLOOK FOR 1997

     The Company has clearly defined the industrial customer as the focus of
its business strategy.  The Company's fiscal 1996 sale of its glass recycling
operations has allowed it to narrow its focus on providing services to the
industrial customer and provide additional capital for expansion of this core
business and developing opportunities independently or through partnering
arrangements in the areas of water and wastewater management, energy services,
contract labor services and, through its investment in The Safe Seal Company,
Inc., leak sealing and valve restoration services.  The Company will continue
to evaluate its complement of services offered and allocate capital
accordingly.

     While the Company has historically focused on achieving growth through
acquisitions, the Company has, in recent years, shifted its focus to emphasize
increased internal growth.  The Company has focused on realizing increased
internal growth primarily by developing new outsourcing and co-sourcing
opportunities with its customers and expanding the number of service lines
offered to customers by each of its operating locations, providing
solution-oriented and preventive services that focus on improving customer
efficiency and profitability, transferring technology and knowledge among the
Company's various operating locations, implementing national marketing programs
that target major industries served by the Company, introducing services in new
geographic areas and developing services that address environmental concerns
associated with new products.  The Company's ALLIES(R) program stresses
collaboration between the Company and its customers by focusing on creating
flexible and innovative solutions to a customer's problems and emphasizing the
Company's services as an economically-efficient outsourcing alternative that
can maximize a customer's competitive role in the emerging global market.  In
recognition of the new outsourcing and co-sourcing opportunities with its
customers identified through this program, the Company created AllQuest
Enterprises, Inc. ("AllQuest Enterprises").  AllQuest Enterprises enables the
Company to expand the bundle of available service lines offered to its
customers by its operating locations and to create new outsourcing and
co-sourcing opportunities with its customers.  AllQuest Enterprises is
comprised of the following early-stage start-up companies: AllQuest Water
Resources, Inc.; AllQuest Technologies, Inc.; AllQuest Pipeline Services, Inc.;
AllQuest Energy Services, Inc.; Allies Staffing, Inc.; and AllQuest Capital,
Inc.

     The Company is also focusing on cost control and gross margin expansion
through fiscal 1997.  The Company intends to implement selected price increases
when market conditions permit and as a by-product of value-added selling
efforts.  The Company anticipates savings resulting from the restructuring in
fiscal 1996 and ongoing cost-reduction initiatives to positively affect its
results of operations in fiscal 1997.

     A significant amount of the Company's revenues from its services are
generated on an as needed basis or from irregularly scheduled customer
turnarounds and outages.  The Company is also affected by business cycles
experienced by its industrial customer bases and by changes in environmental
laws and regulations or by changes in the interpretation or enforcement of such
laws and regulations.  The Company's customers have a significant capacity in
the short-term to defer industrial cleaning, maintenance and disposal services.
Deferrals can occur either due to a reduction in maintenance or capital funds,
customer budget restraints or, conversely, increased demand for a customer's
products that make it impractical to perform cleaning and maintenance on
anticipated schedules.  These factors make it difficult to predict, from year
to year, the demand for the Company's services.





                                      -15-
<PAGE>   18
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS

     Certain sections of this Report, specifically the section captioned
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," may include "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995 relating to management's
current expectations regarding the future results of operations or financial
condition of the Company.  These forward-looking statements may be identified
by the use of forward-looking terminology such as "may," "will," "believe,"
"anticipate," "should," or comparable terms or the negative thereof.  These
statements are based solely on data currently available, which data is subject
to change as a result of changes in conditions and should not therefore be
viewed as assurance regarding the Company's future performance.  These
statements involve risks and uncertainties that could cause the actual results
to differ materially from those described in the statements.  In addition to the
risks and uncertainties specifically described in the section captioned
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Outlook for Fiscal 1997," these forward-looking statements may also
be affected by the following risks and uncertainties:  the effect of economic
and market conditions; the impact of costs, insurance recoveries and
governmental, judicial and other third party interpretation and determination in
connection with legal and environmental proceedings; and the impact of current,
pending or future legislation or regulations (collectively, the "Cautionary
Statements"). Although the Company believes that the expectations reflected in
any forward-looking statements contained herein are reasonable, it can give no
assurance that such expectations will prove to have been correct.  All
subsequent written and oral forward-looking statements attributable to the
Company or persons acting on its behalf are expressly qualified in their
entirety by the Cautionary Statements contained herein.





                                      -16-
<PAGE>   19
ITEM 8.   FINANCIAL  STATEMENTS  AND  SUPPLEMENTARY  DATA


                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS


To Allwaste, Inc.:

We have audited the accompanying Consolidated Balance Sheets of Allwaste, Inc.
(a Delaware corporation) and subsidiaries as of August 31, 1996 and 1995, and
the related Consolidated Statements of Operations, Shareholders' Equity and
Cash Flows for each of the three years in the period ended August 31, 1996.
These Consolidated Financial Statements are the responsibility of the Company's
management.  Our responsibility is to express an opinion on these Consolidated
Financial Statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards.  Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the Consolidated Financial Statements
are free of material misstatement.  An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the Consolidated
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 Consolidated Financial Statements referred to above present
fairly, in all material respects, the financial position of Allwaste, Inc. and
subsidiaries as of August 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period ended
August 31, 1996, in conformity with generally accepted accounting principles.





ARTHUR ANDERSEN LLP




Houston, Texas
November 15, 1996





                                      -17-
<PAGE>   20
                        ALLWASTE, INC. AND SUBSIDIARIES

                          CONSOLIDATED BALANCE SHEETS
                         (IN THOUSANDS, EXCEPT SHARES)
<TABLE>
<CAPTION>
                                                                                     August 31,      
                                                                               ----------------------
                                                                                 1996         1995   
                                                                               ---------    ---------
<S>                                                                            <C>          <C>
                                    ASSETS
CURRENT ASSETS:
   Cash and cash equivalents                                                   $   2,436    $   4,029
   Receivables, net of allowance for doubtful accounts                            75,114       80,065
   Prepaid expenses                                                                3,796        3,609
   Deferred taxes and other current assets                                        11,170       10,216
                                                                               ---------    ---------

         Total current assets                                                     92,516       97,919
                                                                               ---------    ---------

INVESTMENTS                                                                       11,030           --

PROPERTY AND EQUIPMENT, at cost                                                  248,280      230,291
   Less -- Accumulated depreciation                                             (119,307)     (99,193)
                                                                               ---------    --------- 
                                                                                 128,973      131,098
                                                                               ---------    ---------

GOODWILL, net of accumulated amortization                                         88,032       88,122
NOTES RECEIVABLE                                                                  13,517        4,893
OTHER ASSETS                                                                       3,119        4,050
NET ASSETS OF DISCONTINUED OPERATIONS                                                 --       46,151
                                                                               ---------    ---------

         Total assets                                                          $ 337,187    $ 372,233
                                                                               =========    =========

                          LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:
  Accounts payable                                                             $  19,250    $  28,737
  Accrued liabilities:
    Payroll and related benefits                                                   9,911        8,282
    Workers' compensation insurance                                               14,751       11,686
    Other insurance                                                                6,381        5,550
    Income taxes and other current liabilities                                    17,232       13,368
  Current maturities of long-term and convertible subordinated debt                6,249        3,371
                                                                               ---------    ---------

         Total current liabilities                                                73,774       70,994
                                                                               ---------    ---------

LONG-TERM DEBT, net of current maturities                                         87,971      120,535

CONVERTIBLE SUBORDINATED DEBT, net of current maturities                          33,924       41,972

DEFERRED INCOME TAXES AND OTHER LIABILITIES                                       10,572       10,441

COMMITMENTS AND CONTINGENCIES

SHAREHOLDERS' EQUITY:
   Preferred Stock, 500,000 shares authorized, none issued or outstanding             --           --
   Common Stock,  $.01 par value,  100,000,000 shares authorized,
      39,799,029 and 39,609,429 shares issued in 1996 and 1995, respectively         398          396
   Additional paid-in capital                                                     55,699       54,958
   Retained earnings                                                              84,163       73,999
                                                                               ---------    ---------
                                                                                 140,260      129,353
   Less:
     Treasury Stock, at cost, 1,945,805 and 250,000 shares in 1996
        and 1995, respectively                                                    (8,561)      (1,062)
     Unearned compensation related to outstanding restricted Common Stock           (753)          --  
                                                                               ---------    ---------

         Total shareholders' equity                                              130,946      128,291
                                                                               ---------    ---------

         Total liabilities and shareholders' equity                            $ 337,187    $ 372,233
                                                                               =========    =========
</TABLE>

              The accompanying notes are an integral part of these
                       Consolidated Financial Statements.


                                      -18-
<PAGE>   21

                        ALLWASTE, INC. AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF OPERATIONS
                     (IN THOUSANDS, EXCEPT PER SHARE DATA)



<TABLE>
<CAPTION>
                                                                  For the Years Ended August 31,        
                                                                -----------------------------------
                                                                  1996         1995         1994     
                                                                ---------    ---------    ---------
<S>                                                             <C>          <C>          <C>
REVENUES                                                        $ 382,165    $ 344,245    $ 286,861

COST OF OPERATIONS                                                286,412      254,596      204,492
                                                                ---------    ---------    ---------

     Gross profit                                                  95,753       89,649       82,369

WRITE-DOWNS OF OPERATING EQUIPMENT                                     --        6,908           --
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES                       77,011       72,976       59,020

INTEREST EXPENSE                                                   (9,581)      (8,785)      (5,617)
INTEREST INCOME                                                     1,041          402          484
OTHER INCOME (EXPENSE), net                                         2,360       (3,499)      (1,302)
                                                                ---------    ---------    --------- 

     Income (loss) from continuing operations before
       income tax provision and minority interest                  12,562       (2,117)      16,914

INCOME TAX PROVISION                                               (6,030)      (2,170)      (6,725)
MINORITY INTEREST, net of taxes                                        82          408          407
                                                                ---------    ---------    --------- 

     Income (loss) from continuing operations                       6,614       (3,879)      10,596

     Discontinued Operations
       Income from discontinued operations, net of applicable
          income taxes                                                 --        2,773        2,501
       Gain on sale of glass recycling operations, net of
          applicable income taxes                                   3,764           --           --  
                                                                ---------    ---------    ---------

          Net income (loss)                                     $  10,378    $  (1,106)   $  13,097
                                                                =========    =========    =========

NET INCOME (LOSS) PER COMMON SHARE:
     Continuing operations                                      $     .17    $    (.10)   $     .29
     Discontinued operations                                          .10          .07          .07
                                                                ---------    ---------    ---------
          Net income (loss) per common share                    $     .27    $    (.03)   $     .36
                                                                =========    =========    =========
</TABLE>

              The accompanying notes are an integral part of these
                       Consolidated Financial Statements.


                                      -19-
<PAGE>   22

                        ALLWASTE, INC. AND SUBSIDIARIES

                CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                                 (IN THOUSANDS)



<TABLE>
<CAPTION>
                                           Common Stock    
                                         ------------------
                                         Number               Additional                                             Share-
                                           of                  Paid-In     Retained     Treasury      Unearned       holders'
                                         Shares    Amount      Capital     Earnings       Stock     Compensation     Equity  
                                         ------   ---------   ----------   ---------    ---------   ------------    ---------
<S>                                      <C>      <C>         <C>          <C>          <C>          <C>          <C>
BALANCE, AUGUST 31, 1993                 36,740   $     367   $  43,097    $  61,732    $      --    $      --    $ 105,196
Net income                                   --          --          --       13,097           --           --       13,097
Issuance of Common Stock for
     purchased businesses                   934           9       4,093           --           --           --        4,102
Issuance of Common Stock
     pursuant to stock option plans
     and related tax benefits                67          --         292           --           --           --          292
Treasury Stock acquired in lawsuit                                                  
     settlement                              --          --          --           --       (1,062)          --       (1,062)
Change in cumulative                                                   
     translation adjustment                  --          --          --         (407)          --           --         (407)
                                         ------   ---------   ---------    ---------    ---------    ---------    --------- 

BALANCE, AUGUST 31, 1994                 37,741         376      47,482       74,422       (1,062)          --      121,218
Net loss                                     --          --          --       (1,106)          --           --       (1,106)
Issuance of Common Stock for
     acquired businesses                  1,432          15       5,079          810           --           --        5,904
Issuance of Common Stock
     pursuant to stock option plans
     and related tax benefits               436           5       2,397           --           --           --        2,402
Change in cumulative
     translation adjustment                  --          --          --         (127)          --           --         (127)
                                         ------   ---------   ---------    ---------    ---------    ---------    --------- 

BALANCE, AUGUST 31, 1995                 39,609         396      54,958       73,999       (1,062)          --      128,291
Net income                                   --          --          --       10,378           --           --       10,378
Issuance of Common Stock for
    previously acquired business             25          --         128           --           --           --          128
Issuance of Common Stock
     pursuant to stock option plans
     and related tax benefits               165           2         638           --           --           --          640
Issuance of treasury shares                  --          --         (25)          --        1,714         (925)         764
Compensation expense                         --          --          --           --           --          172          172
Purchase of Treasury Stock                   --          --          --           --       (9,213)          --       (9,213)
Change in cumulative                                                   
     translation adjustment                  --          --          --         (214)          --           --         (214)
                                         ------   ---------   ---------    ---------    ---------    ---------    --------- 
BALANCE, AUGUST 31, 1996                 39,799   $     398   $  55,699    $  84,163    $  (8,561)   $    (753)   $ 130,946
                                         ======   =========   =========    =========    =========    =========    =========
</TABLE>

              The accompanying notes are an integral part of these
                       Consolidated Financial Statements.


                                      -20-
<PAGE>   23
                        ALLWASTE, INC. AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                             For the Years Ended August 31, 
                                                                            --------------------------------
                                                                              1996        1995        1994  
                                                                            --------    --------    --------
<S>                                                                         <C>         <C>         <C>
CASH FLOWS FROM OPERATING ACTIVITIES:

     Net income (loss)                                                      $ 10,378    $ (1,106)   $ 13,097

     Reconciliation of net income (loss) to cash provided by operating
     activities:
          Depreciation                                                        28,639      25,715      20,635
          Amortization                                                         2,909       2,611       2,824
          Write-downs of operating equipment                                      --       6,908          --
          Gain on sale of glass recycling operations, net of taxes            (3,764)         --          --
          Allowances on notes receivable                                          --       1,000         790
          Write-downs of investments                                              --       1,950         950
          Amortization of unearned compensation - restricted stock               172          --          --
          Gain on purchases of convertible subordinated debentures              (153)         --          --
          Gain on sales of property and equipment                             (1,081)       (777)       (146)
          Equity in losses of unconsolidated partnership                          --          --       2,805
          Gain on sale of Common Stock investment                                 --          --      (2,688)
          Common Stock received in lawsuit settlement                             --          --      (1,062)
          Change in assets and liabilities, net of effect of acquisitions
               accounted for as purchases:
                     Receivables                                               4,545     (10,787)     (9,412)
                     Prepaid expenses, deferred taxes
                          and other current assets                              (112)     (2,309)     (2,556)
                     Notes receivable and other assets                        (1,602)        722      (3,310)
                     Accounts payable                                         (9,556)      8,278         (13)
                     Accrued liabilities                                       2,187       7,170      (2,067)
                     Deferred income taxes and other liabilities                 366      (1,259)      1,521
                                                                            --------    --------    --------

               Cash provided by operating activities                          32,928      38,116      21,368
                                                                            --------    --------    --------

CASH FLOWS FROM INVESTING ACTIVITIES:

     Proceeds from sale of glass recycling operations                         41,500          --          --
     Additions to property and equipment                                     (27,541)    (47,193)    (34,145)
     Proceeds from sales of property and equipment                             3,249       2,394       2,112
     Purchase of investments                                                  (3,030)         --          --
     Payments for acquisitions accounted for as purchases, net
          of cash acquired of $123, $1,337 and $241                           (2,145)    (19,320)     (7,468)
     Proceeds from sale of investment in marketable security                      --          --       2,982
     Cash used in discontinued operations                                         --      (4,233)     (7,013)
                                                                            --------    --------    -------- 

               Cash provided by (used in) investing activities                12,033     (68,352)    (43,532)
                                                                            --------    --------    -------- 

CASH FLOWS FROM FINANCING ACTIVITIES:

     Proceeds from issuances of Common Stock                                     665       2,279         292
     Net increase (decrease) in revolving credit facility                    (32,309)     35,670      32,910
     Net decrease in other long term borrowings                               (4,575)     (6,577)    (10,469)
     Purchases of convertible subordinated debentures                           (908)         --          --
     Purchases of Treasury Stock                                              (9,213)         --          --  
                                                                            --------    --------    --------

               Cash provided by (used in) financing activities               (46,340)     31,372      22,733
                                                                            --------    --------    --------

EFFECT OF EXCHANGE RATE CHANGES                                                 (214)       (127)       (407)
                                                                            --------    --------    -------- 

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                              (1,593)      1,009         162
CASH AND CASH EQUIVALENTS, beginning of year                                   4,029       3,020       2,858
                                                                            --------    --------    --------

CASH AND CASH EQUIVALENTS, end of year                                      $  2,436    $  4,029    $  3,020
                                                                            ========    ========    ========
</TABLE>

              The accompanying notes are an integral part of these
                       Consolidated Financial Statements.


                                      -21-
<PAGE>   24
                        ALLWASTE, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


(1)  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES --

     Description of business

     Allwaste, Inc. ("Allwaste" or the "Company") provides integrated
industrial and environmental services and acts as an outsourcing provider of
on-site facility processes and services, primarily in the United States, Canada
and Mexico.  The Company, through its operating subsidiaries and affiliates,
provides to its industrial and commercial customers a range of industrial and
environmental services, including:  on-site industrial and waste management
services (including hydroblasting and gritblasting and air-moving and liquid
vacuuming); waste transportation and processing; wastewater services; site
remediation; maintenance services; turnaround and outage services; container
cleaning and repair services; emergency spill response services; and other
general plant support services.

     Principles of consolidation and basis of presentation

     The Consolidated Financial Statements include the accounts of Allwaste,
Inc. and all of its wholly-owned and majority-owned subsidiaries.  All
significant intercompany accounts and transactions have been eliminated in
consolidation.  For all periods presented, the Consolidated Financial
Statements and Notes to Consolidated Financial Statements reflect the Company's
glass recycling operations as a discontinued operation, as discussed in Note 3.
Additionally, certain prior year amounts have been reclassified to conform with
the fiscal 1996 presentation.

     Revenue recognition

     Revenues are recorded as services are performed.  Revenues derived from
services provided under fixed-price contracts are recognized on a
percentage-of-completion basis, using the cost-to-cost method. If it is
determined that a contract may result in a loss, a provision for the loss is
accrued at that time.

     Property and equipment

     Property and equipment are carried at cost and depreciated over the
estimated useful life of the asset using the straight-line method.  The costs
of major improvements are capitalized.  Expenditures for maintenance, repairs
and minor improvements are expensed as incurred.  When property and equipment
are sold or retired, the cost and related accumulated depreciation are removed
and the resulting gain or loss is included in results of operations.

     Interest paid in connection with the construction of major facilities and
equipment is capitalized.  The capitalized interest is recorded as a part of
the related asset and is depreciated over the asset's estimated useful life.
Capitalized interest related primarily to expansions and improvements at
container service facilities was $0.1 million, $0.3 million and $0.1 million
for the years ended August 31, 1996, 1995 and 1994, respectively.

     Goodwill

     Goodwill represents the excess of the aggregate purchase price over the
net tangible and identifiable intangible assets of acquired businesses
accounted for under the purchase method of accounting and is amortized on a
straight-line basis over a period of 40 years.  Subsequent to purchase, the
Company continually evaluates whether events or circumstances have occurred
that indicate the remaining estimated useful life of goodwill may warrant
revision or that the remaining balance of goodwill may not be recoverable.
When factors indicate that goodwill should be evaluated for possible
impairment, the Company uses an estimate of the acquired business' undiscounted
future cash flows compared to the carrying value of goodwill to determine
whether goodwill is deemed to be impaired.  Management believes there have been
no events or circumstances which warrant revision to the remaining useful life
or which affect the recoverability of the Company's recorded goodwill.
Accumulated amortization of goodwill as of August 31, 1996 and 1995 was $9.1
million and $6.6 million, respectively.

     Income taxes

     The Company accounts for income taxes under Statement of Financial
Accounting Standards ("SFAS") No. 109 "Accounting for Income Taxes".  Under
SFAS No. 109, the Company provides deferred income taxes for the tax effects of
temporary differences between the financial reporting and income tax bases of
the Company's assets and liabilities.





                                      -22-
<PAGE>   25
     Environmental expenditures

     Environmental expenditures are expensed or capitalized based upon their
future economic benefit.  Costs which improve a property, as compared with the
condition of the property when originally constructed or acquired, and costs
which prevent future environmental contamination are capitalized.  Costs
related to environmental damage resulting from operating activities subsequent
to acquisition are expensed.  Liabilities for these expenditures are recorded
when it is probable that obligations have been incurred and the amounts can be
reasonably estimated.

     Minority interest

     The Company owns an aggregate 60% joint venture interest in each of two
companies in Mexico, and a Mexican company owns the remaining 40% interest in
each entity.  One of the companies performs various industrial services,
including site remediation and aboveground storage tank cleaning services.  The
primary operations of the other company are underground storage tank testing
services.

     For financial reporting purposes, the joint ventures' assets and 
liabilities are consolidated with those of the Company.  The Mexican company's
minority interests, $0.5 million and $0.4 million at August 31, 1996 and 1995,
respectively, are included in the Company's Consolidated Balance Sheets in
deferred income taxes and other liabilities.  The joint venture experienced
pre-tax losses of $0.3 million, $1.2 million and $0.9 million in fiscal 1996,
1995 and 1994, respectively.

     Per share amounts

     Per share amounts are calculated based on the weighted average number of
common and common equivalent shares outstanding for each year (see Note 13).

     Foreign currency translation

     The Company's Canadian and Mexican subsidiaries maintain their books and
records in Canadian dollars and Mexican pesos, respectively.  Assets and
liabilities of these operations are translated into United States ("U.S.")
dollars at the exchange rate in effect at the end of each accounting period;
and, income and expense accounts are translated at the average exchange rate
prevailing during the respective period.  Gains and losses resulting from such
translation are included in retained earnings.  Gains and losses from
transactions in foreign currencies are credited or charged to operations
currently and are not material.

     Investment activity

     In September 1995, the Company sold its glass recycling operations to
Strategic Holdings, Inc. ("SHI"), a company formed by Equus II Incorporated
("Equus").  As partial consideration for the sale, the Company received $8.0
million of redeemable Series A preferred stock.  The stock is redeemable by SHI
beginning in 2002.  This investment is recorded using the cost method and is
included in investments in the accompanying Consolidated Balance Sheets (See
Note 3).

     In October 1995, the Company acquired a 10% interest in The Safe Seal
Company, Inc. ("Safe Seal") which specializes in valve repair and leak sealing.
This $2.6 million investment consists of 20,000 shares of redeemable Class A
preferred stock, 422,000 shares of common stock and warrants to purchase common
shares and is recorded using the cost method.

     For most of fiscal 1994, the Company owned a 40% interest in a wastewater
pretreatment facility and recorded such investment using the equity method of
accounting.  Prior to increasing its ownership interest in late fiscal 1994 to
100%, the Company's equity in losses of this partnership was $1.8 million for
the year ended August 31, 1994 and were included in other income (expense), net
in the accompanying Consolidated Statements of Operations.  Additionally, in
fiscal 1994, the Company recorded $1.0 million in losses relating to its
investment in this facility which is recorded in other income (expense), net in
the accompanying Consolidated Statements of Operations.

     The Company acquired 181,000 shares of Sanifill, Inc. ("Sanifill"), a
publicly traded corporation involved in the collection and disposal of solid
waste, pursuant to a private offering in 1989 at an average cost of $1.62 per
share.  In November 1993, the Company sold all of its shares of Sanifill.  The
sale resulted in a pretax gain for fiscal year 1994 of $2.7 million which is
reflected in other income (expense), net in the accompanying Consolidated
Statements of Operations.





                                      -23-
<PAGE>   26
     Fiscal 1995 special charges

     During fiscal 1995, the Company recorded special charges of $11.9 million.
Such charges include $6.9 million of charges classified as write-downs of
operating equipment in the accompanying Consolidated Statements of Operations.
These write-downs related to the permanent impairment of certain operating
equipment in Mexico and California, a wastewater pretreatment facility,
equipment relating to two small businesses exited and various owned facilities
held for sale.  Included in SG&A expenses in the accompanying Consolidated
Statements of Operations are $1.1 million of charges primarily representing the
write-off of organizational expenses relating to the Mexico joint ventures.
The Consolidated Statements of Operations also reflect $0.6 million in interest
expense relating to the write-off of previously unamortized loan costs in
connection with the bank amendment to the revolving credit facility completed
in August 1995.  Other income (expenses), net in the accompanying Consolidated
Statements of Operations reflects $3.6 million in charges relating to an
allowance provided for a note receivable and the write-off of the Company's
remaining investment in IAM/Environmental, Inc. ("IAM") and another
previously-owned business, as well as the settlement of a lawsuit related to
the previously discontinued asbestos abatement business.  The write-off related
to IAM of $2.0 million reduced the Company's carrying value in this investment
to zero.  Certain of the charges relating to the Mexico joint venture are
partially offset by the minority interest effect of such charges.

     Cash flow reporting

     Highly liquid debt instruments with an original maturity of three months
or less are considered to be cash equivalents.  Cash payments for interest
during the years ended August 31, 1996, 1995 and 1994 were $9.6 million, $10.0
million and $6.3 million, respectively, and cash payments for income taxes
during the years ended August 31, 1996, 1995 and 1994 were $4.9 million, $4.5
million and $8.4 million, respectively.

     New financial accounting standards

     In March 1995, the Financial Accounting Standards Board issued SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of" which is effective for years beginning after December
15, 1995 (fiscal 1997 for the Company).  This statement established criteria
for recognizing, measuring and disclosing impairments of long-lived assets,
identifiable intangibles and goodwill.  The Company will adopt SFAS No. 121 in
the first quarter of fiscal year 1997; however, management does not expect that
the adoption will have a material effect on the Company's financial position or
results of operations.

     In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, "Accounting for Stock-Based Compensation" which is effective for years
beginning after December 15, 1995 (fiscal 1997 for the Company).  This
statement allows entities to choose between a new fair value based method of
accounting for employee stock options or similar equity instruments and the
current intrinsic value-based method of accounting prescribed by Accounting
Principles Board Opinion No. 25.  Entities electing to remain with the
accounting in APB Opinion No. 25 must make pro forma disclosures of net income
and earnings per share as if the fair value method of accounting had been
applied.  The Company expects to continue accounting for employee stock options
and similar equity instruments in accordance with APB Opinion No. 25.  The pro
forma effect for fiscal 1996 has not yet been determined.

     Use of estimates

     The preparation of financial statements in conformity with generally
accepted accounting principles requires the Company to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period.  Actual results could differ from the Company's estimates.


(2)  ACQUISITIONS --

     Under the purchase method of accounting, the results of acquired
businesses are included with the Company's results from their respective
acquisition dates.  The following table summarizes the Company's business
acquisitions accounted for under the purchase method (dollars in thousands):

<TABLE>
<CAPTION>
                  Businesses         Cash and             Convertible           Shares of           Total
                   Purchased     Promissory Notes     Subordinated Notes      Common Stock      Consideration
                  ----------     ----------------     ------------------      ------------      -------------
<S>                   <C>             <C>                  <C>                  <C>                <C>
Fiscal 1996            4              $  2,445             $      --                   --          $  2,445
Fiscal 1995           13                23,231                 4,985            1,426,096            36,766
Fiscal 1994            9                 7,875                   534              934,290            12,511
</TABLE>





                                      -24-
<PAGE>   27
     The allocations of the purchase price to the fair market value of the net
assets acquired in the fiscal 1996 acquisitions are based on preliminary
estimates of fair market value and may be revised when additional information
concerning asset and liability valuations is obtained.

     As an integral part of each of the above acquisitions, all former
shareholders signed non-compete agreements and key management entered into
agreements with the Company to continue managing these businesses.

     In connection with two acquisitions made prior to fiscal 1996, the Company
agreed to make contingent payments to the former owners over periods up to five
years based on formulas in the respective acquisition agreements.  At the
Company's option, these payments may be made in either cash or common stock of
the Company. At August 31, 1996, the maximum aggregate amount of contingent
payments was $3.2 million.  In management's opinion, based on the current
performance levels of the individual acquisitions involved, the ultimate
settlement of these contingent payment obligations is likely to be
substantially less than the $3.2 million maximum aggregate.  Approximately $0.3
million in contingent payments were made during 1996.  Amounts earned under the
terms of these agreements are recorded as additional goodwill and amortized
over the remaining amortization period.


(3) DISCONTINUED OPERATIONS --

    In September 1995, the Company sold its glass recycling operations to SHI,
a company formed by Equus.  In October 1996, the Company and Equus finalized an
agreement with respect to certain post-closing issues which were unresolved on
the date of the sales transaction.  The total consideration, as adjusted, was
$56.1 million, including $41.5 million in cash, $8.0 million of redeemable
Series A preferred stock redeemable beginning in 2002, and a $6.6 million
subordinated note receivable due in 2002. The redeemable Series A preferred
stock dividend is $.065 per share for the period prior to September 1, 1996 and
$.06 per share thereafter.  The subordinated note receivable interest rate is
11% for the period prior to September 1, 1996 and 10.5% thereafter.  The
agreement also provided that all dividends and interest due prior to August 31,
1997 will not be paid when due, but "paid in kind" in the form of two 8.036%
subordinated notes issued September 30, 1996 and June 30, 1997 in the amounts of
$1.3 million and $0.9 million, respectively.  Principal on these two notes will
be due on November 30, 2002.  At August 31, 1996, the Company had accrued $0.5
million for dividends and $0.8 million for interest which is reflected in other
income (expense) in the accompanying Consolidated Statements of Operations. The
Company also received warrants to purchase shares of SHI common stock, providing
the Company the right to own up to approximately 33% of the outstanding stock of
SHI.  The Company may receive additional consideration in the form of an
adjustment to the purchase price in the event that Equus' internal rate of
return, as defined, exceeds certain predetermined targets. The amount of such
additional consideration, if any, is not presently determinable.  The Company
recorded a gain on the sale of its glass recycling operations of $3.8 million,
net of estimated applicable income taxes of $1.6 million, in the first quarter 
of fiscal 1996.  Revenues of the glass recycling operations, net of intercompany
sales, were $70.0 million and $63.2 million for the fiscal years ended August
31, 1995 and 1994, respectively.

     The net assets of the glass recycling operations consisted of the
following as of August 31, 1995 (in thousands):

<TABLE>
          <S>                                          <C>
          Net working capital                          $   7,726
          Property and equipment, net                     21,335
          Goodwill and other assets                       19,264
          Long-term debt                                     440
          Deferred income taxes and other                  1,734
</TABLE>

     Income from discontinued operations in the Consolidated Statements of
Operations is presented net of allocated interest expense of $1.6 million and
$1.0 million and net of applicable income taxes of $1.8 million and $1.6
million for fiscal years 1995 and 1994, respectively. The interest was
allocated based upon the net assets of the glass recycling operations in
relation to the Company's consolidated net assets plus general corporate debt.





                                      -25-
<PAGE>   28
(4)  RECEIVABLES --

     Receivables included in current assets consisted of the following (in
thousands):

<TABLE>
<CAPTION>
                                                                              August 31,           
                                                                       ------------------------
                                                                         1996             1995   
                                                                       -------          ------- 
          <S>                                                          <C>              <C>
          Trade accounts                                               $76,378          $80,619
          Employees                                                        567              996
          Other                                                            489            2,133
                                                                       -------          ------- 
                                                                        77,434           83,748
          Less -- Allowance for doubtful accounts                       (2,320)          (3,683)
                                                                       -------          ------- 
                                                                       $75,114          $80,065
                                                                       =======          =======
</TABLE>



     Notes receivable recorded as non-current assets consisted of the following
(in thousands):

<TABLE>
<CAPTION>
                                                                              August 31,           
                                                                       ------------------------
                                                                         1996             1995   
                                                                       -------          ------- 
          <S>                                                          <C>              <C>
          Notes receivable from employees                              $  2,702         $ 2,483
          Notes receivable from sale of discontinued
            asbestos abatement operation                                  2,888           2,888
          Notes receivable from sale of discontinued
            glass recycling operations:
               Subordinated note receivable                               6,610              --
               Accrued interest and dividends                             1,285              --
          Notes receivable from sale of other businesses                    350             790
          Other                                                             682             522 
                                                                        -------         ------- 
                                                                         14,517           6,683
          Less -- Loss reserves                                          (1,000)         (1,790)
                                                                        -------         ------- 

                                                                        $13,517         $ 4,893
                                                                        =======         =======
</TABLE>

(5)  PROPERTY AND EQUIPMENT--

     The principal categories and estimated useful lives of property and
equipment were as follows (dollars in thousands):

<TABLE>
<CAPTION>
                                                                             August 31,             
                                                     Estimated       --------------------------
                                                    Useful Lives        1996            1995    
                                                    ------------     ----------      ---------- 
          <S>                                       <C>              <C>             <C>
          Land                                                       $    6,412      $    6,226
          Building and improvements                 10 - 30 years        34,421          28,127
          Service equipment and related vehicles     2 - 20 years       188,309         178,162
          Other                                      3 - 10 years        19,138          17,776  
                                                                     ----------      ---------- 
                                                                        248,280         230,291
          Less:  accumulated depreciation                              (119,307)        (99,193)
                                                                     ----------      ---------- 
          Property and equipment, net                                $  128,973      $  131,098 
                                                                     ==========      ==========
</TABLE>





                                      -26-
<PAGE>   29

(6)  DEBT --

     Long-term debt

     Long-term debt consisted of the following (in thousands):

<TABLE>
<CAPTION>
                                                                               August 31,           
                                                                         ---------------------                
                                                                          1996          1995    
                                                                         -------      --------     
     <S>                                                                 <C>          <C>          
          Revolving credit agreement                                     $87,770      $120,079     
          Notes payable to individuals in connection with                                          
            acquisitions of businesses (see Note 2), banks and                                     
            financial institutions, weighted average interest                                      
            rate of 8.4% at August 31, 1996, payable in                                            
            various installments through 1999                                385         1,142     
                                                                         -------      --------     
                                                                          88,155       121,221
     Less -- Current maturities                                             (184)         (686)
                                                                         -------      -------- 
                                                                         
                                                                         $87,971      $120,535
                                                                         =======      ========
</TABLE>

     Revolving credit agreement

     In December 1993, the Company entered into a revolving credit agreement
with a group of banks.  This agreement, as amended most recently in August
1996, provides an unsecured $160 million revolving credit line to the Company
through January 31, 1999, at which time any outstanding borrowings convert to a
term loan due in equal quarterly installments through January 31, 2003.
Interest on outstanding borrowings is charged, at the Company's option, at the
banks' prime rate (8 1/4% at August 31, 1996), adjusted Eurodollar Rate or the
banks' reserve adjusted certificate of deposit rate (CD rate) plus 0% to 1.625%
as determined by the calculation of the debt to cash flow ratio (as defined).
A commitment fee of .25% is payable on the unused portion of the line.  Three
of the banks participating in the revolving credit agreement have also extended
to the Company uncommitted, short-term lines of credit with interest rates
which may be more favorable to the Company than those available under the
revolving credit agreement.  As of August 31, 1996, the Company had $87.8
million outstanding under the revolving credit agreement and the uncommitted
lines of credit and had utilized $30.1 million of the facility for letters of
credit to secure certain insurance obligations and performance bonds.  Under
the terms of the agreement, the Company must maintain a minimum fixed charge
coverage ratio (as defined) and certain other minimum financial ratios.
Borrowing availability is subject to the Company meeting minimum leverage and
other ratios.  Management believes it is in compliance with all applicable
covenants under the revolving credit agreement as of August 31, 1996.  As of
November 15, 1996, available borrowing capacity, as defined under the
agreement, was $39.0 million.  The credit agreement prohibits the payment of
cash dividends.

     Maturities of long-term debt outstanding at August 31, 1996 are as follows
(in thousands):

     For the year ending August 31 --

<TABLE>
                          <S>         <C>                     <C>
                                      1997                    $     184
                                      1998                          191
                                      1999                       10,982
                                      2000                       21,943
                                      2001                       21,943
                                      Thereafter                 32,912
                                                                -------
                                                    
                                                                $88,155
                                                                =======
</TABLE>

     In August 1996, the Company purchased a three year interest rate cap
agreement of 7.0% on $30,000,000 from two of the banks which participate in the
Company's revolving credit agreement. Quarterly payments under the agreement
are based on the difference between a floating rate based on a three-month
LIBOR and the cap rate.  The cost was $0.3 million and is being amortized over
the term of the agreement.




                                     -27-
<PAGE>   30
     Convertible subordinated debt

     Convertible Subordinated Debentures

     In June 1989, the Company completed a public offering of $30.0 million of
7.25% Convertible Subordinated Debentures due June 1, 2014 (the "Debentures");
net proceeds to the Company were $28.7 million.  Direct offering costs related
to the Debentures are included in other assets in the accompanying Consolidated
Balance Sheets and are being amortized over the term of the Debentures.  The
Debentures are convertible by the holder, at any time, into shares of the
Company's Common Stock at a price of $11.94 per share and are redeemable for
cash at the option of the Company.  The Debentures provide for annual mandatory
sinking fund payments equal to 5% of the aggregate principal amount of the
Debentures issued, commencing June 1, 1999.  Interest is payable semi-annually,
on June 1 and December 1.  In fiscal 1996, the Company repurchased $1.1 million
of these Debentures at 85% of face value.  The related gain of $0.2 million was
included in interest expense in the accompanying Consolidated Statements of
Operations.

     In October 1994, the Company entered into an interest rate swap agreement
through June 1997 to potentially lower the overall cost of borrowings.  The
agreement modified the $30.0 million of 7.25% fixed rate debt to LIBOR plus
 .24% debt, which was reset quarterly.  On May 31, 1995, the Company terminated
the agreement and is amortizing the $0.5 million received as a reduction of
interest expense on a straight-line basis over the remaining term of the
original swap.

     Convertible Subordinated Notes

     At August 31, 1996, the Company had outstanding $11.1 million of
convertible subordinated notes to former owners of certain acquired businesses
(the "Notes") which were issued as partial consideration of the acquisition
purchase price.  The Notes bear interest, payable quarterly, at a weighted
average rate of 6.2% and are convertible by the holder into shares of the
Company's Common Stock at a weighted average price of $7.24 per share.  The
Notes are redeemable for cash or the Company's Common Stock at the option of
the Company at any time after one year of issuance.

     Maturities of the Notes outstanding at August 31, 1996 are as follows (in
thousands):

     For the year ending August 31 --

<TABLE>
                                      <S>                    <C>
                                      1997                   $  6,065
                                      1998                      4,985
                                                             --------
                                                    
                                                             $ 11,050
                                                             ========
</TABLE>                                            


(7)  INCOME TAXES --

     The Company and its U.S. subsidiaries file a consolidated federal income
tax return. Acquired entities file appropriate tax returns through their
respective acquisition dates (absent certain administrative elections) and,
thereafter, are included in the Company's consolidated return.  Foreign income
taxes consist primarily of Canadian federal and provincial taxes attributable
to the Company's Canadian subsidiaries.

     Foreign pretax book income (loss) net of certain intercompany interest
expense and other items was $0.5 million (consisting of a Mexican loss of $0.2
million and Canadian income of $0.7 million,) ($0.4 million) and $1.2 million
for the years ended August 31, 1996, 1995 and 1994, respectively.

     Federal, state and foreign income tax provisions (benefits) are as follows
(in thousands):

<TABLE>
<CAPTION>
                                           For the Years Ended August 31,       
                                     -------------------------------------------
                                       1996            1995             1994  
                                     --------        --------         -------  
             <S>                     <C>              <C>              <C>     
             Federal --                                                        
               Current               $  4,941        $  6,536         $ 1,327  
               Deferred                   706          (6,260)          3,819  
                                     --------          ------          ------  
                                        5,647             276           5,146  
                                     --------          ------          ------ 
             State --                                                          
               Current                  1,034           1,494             584  
               Deferred                  (448)           (430)            179  
                                     --------         -------          ------  
                                          586           1,064             763  
                                     --------          ------          ------  
</TABLE>                                                                       
                                                                               




                                      -28-
<PAGE>   31
<TABLE>
      <S>                    <C>              <C>              <C>
      Foreign --            
        Current                         290         667             840
        Deferred                       (493)        163             (24)
                                     ------    --------         ------- 
                                       (203)        830             816
                                     ------    --------         -------
                                     
                                     $6,030    $  2,170         $ 6,725  
                                     ======    ========         =======
</TABLE>                           

     The differences in the income taxes provided and the amount determined by
applying the U.S. federal statutory rate to income before income taxes are
summarized as follows:

<TABLE>
<CAPTION>
                                                             For the Years Ended August 31,       
                                                       -----------------------------------------  
                                                          1996            1995           1994        
                                                       ---------       ---------       ---------     
      <S>                                                 <C>           <C>             <C>          
      Federal income tax at statutory rate                35%             35%             35%        
      Effect of valuation allowance                        1             (55)             --         
      State income taxes, net of benefit for federal                                                 
        deduction                                          3             (33)              3         
      Effect of meals and entertainment limitation         4             (21)             --         
      Effect of other nondeductible amortization                                                     
        of goodwill                                        4             (16)              2         
      Effect of other nondeductible expenses               1              (7)             --         
      Foreign income taxes at higher rates                --              (3)              1         
      Other                                               --              (3)             (1)        
                                                      ------          ------          ------           
                                                                                                     
                                                          48%           (103)%            40%         
                                                      ======          ======          ======   
</TABLE>   

     Deferred income tax expense results principally from the use of different
capital recovery and revenue and expense recognition methods for tax and
financial accounting purposes.  The sources of these temporary differences and
related tax effect were as follows (in thousands):

<TABLE>
<CAPTION>
                                                           For the Years Ended August 31,       
                                                     -------------------------------------------
                                                       1996             1995              1994  
                                                     --------         --------         ---------
      <S>                                            <C>              <C>              <C>
      Depreciation and amortization                   $2,417          $   901            $1,361
      Accruals and reserves not deductible
        until paid                                     1,031           (5,186)            1,926
      Write-downs of assets                              --            (1,580)              --
      Sale of certain leasing operations                (141)            (305)             (222)
      Sale of glass recycling operations              (2,932)             --                --
      Other, net                                        (610)            (357)              909
                                                      ------          -------            ------
      
      Total deferred income
        tax provision (benefit)                       $ (235)          $(6,527)         $ 3,974
                                                      ======           =======          =======
</TABLE>


     Deferred tax assets and liabilities are determined based on the estimated
future tax effects of differences between the financial statement and tax bases
of assets and liabilities.  On the accompanying Consolidated Balance Sheets,
current and non-current deferred tax assets and liabilities are netted within
each tax jurisdiction.  The following table sets forth the gross deferred tax
assets (liabilities) recorded as of August 31 (in thousands):

<TABLE>
<CAPTION>
                                                     1996                    1995     
                                                 ------------            ----------
      <S>                                        <C>                     <C>
      Current deferred tax assets                 $    8,681             $    8,512
                                                  
      Non-current deferred tax assets                  3,383                  5,003
      Valuation allowance                             (1,230)                (1,156)  
                                                  ----------             ----------  
           Total deferred tax assets                  10,834                 12,359
                                                  ----------             ----------
      Non-current deferred tax liabilities           (13,238)               (14,998)
                                                  ----------             ---------- 
      Net deferred tax liabilities                $   (2,404)            $   (2,639)
                                                  ==========             ========== 
</TABLE>





                                      -29-
<PAGE>   32
     The Company is required to record valuation allowances for deferred tax
assets which management believes it is more likely than not that the tax asset
will not be realized.  Accordingly, the Company established valuation
allowances against certain deferred tax assets: primarily those attributable to
the Company's net operating losses of its joint ventures in Mexico.

     Prepaid income taxes of $0.7 and $1.2 million are included in prepaid
expenses at August 31, 1996 and 1995, respectively.


(8)  SHAREHOLDERS' EQUITY --

     Preferred Stock

     The Company can issue up to 500,000 shares of Preferred Stock, none of
which are issued or outstanding. The Board of Directors is authorized to
provide for the issuance of the Preferred Stock in series, to establish the
number of shares to be included in each such series and to fix the designation,
powers, preferences and rights of the shares of each such series and the
qualifications, limitations or restrictions thereof.  This includes, among
other things, any voting rights, conversion privileges, dividend rates,
redemption rights, sinking fund provisions and liquidation rights which shall
be superior to the Common Stock.  No holder of Preferred Stock will have
preemptive rights.

     Stock option plans

     In January 1995, the Company's stockholders approved the Amended and
Restated 1989 Replacement Non-Qualified Stock Option Plan (the "Plan"), which
increased the number of shares issuable under the Plan from 3,000,000 shares to
4,500,000 shares.  Under the Plan and notwithstanding certain restrictions
placed upon grants of options to persons subject to Section 16(a) of the
Securities Exchange Act of 1934, through August 31, 1999, all forfeited,
expired and exercised options automatically become available for grants of new
options under the Plan; therefore, the number of granted option shares plus
those remaining available for grant shall remain constant at 4,500,000 through
such date.  Stock options are granted under the Plan at an exercise price which
equals the fair market value of the Common Stock on the date of grant or on the
date which marks the occurrence of the event pursuant to which the options are
granted.

     In July 1996, the compensation committee of the Board of Directors
approved a stock option exchange offer program (the "Exchange Program"),
pursuant to which all holders of stock options under the Plan were offered the
opportunity to exchange existing outstanding option grants for new option
grants with a new exercise price of $4.81 per share, a new eight-year term and
a new four-year vesting schedule.  Options to purchase an aggregate of
2,251,961 shares of Common Stock (of which, options to purchase an aggregate of
287,526 shares were initially granted during fiscal 1996) were exchanged under
the Exchange Program.

     At August 31, 1996, options to purchase 3,419,878 shares were outstanding
under the Plan at prices ranging from $3.88 to $6.75 per share, of which
options to purchase 404,568 shares were exercisable.  Subsequent to August 31,
1996, options to purchase an additional 949,950 shares were granted under the
Plan at the per share exercise price of $4.25.

     In October 1992, the Company's Board of Directors adopted a supplemental
option plan ("Supplemental Plan") to enable the Company to fulfill obligations
to former employees.  A total of 1,500,000 shares are issuable under the
amended Supplemental Plan.  At August 31, 1996, options to purchase 1,018,812
shares were outstanding under the Supplemental Plan at prices ranging from
$4.00 to $10.88 per share, of which options to purchase 689,818 shares were
exercisable.  Subsequent to August 31, 1996, there were no options granted
under the Supplemental Plan.

     The following table summarizes aggregate stock option activity of both the
Company's stock option plans for each of the three years ended August 31:

<TABLE>
<CAPTION>
                                                   1996               1995              1994      
                                               -------------      ------------      ------------ 
    <S>                                        <C>                <C>               <C>
    Options outstanding, beginning of year         4,220,271         3,422,925         3,153,791
      Granted                                      2,440,601         1,895,400           871,740
      Exercised                                     (164,600)         (430,526)          (66,377)
      Forfeited and canceled                      (2,057,587)         (667,528)         (536,229)
                                               -------------      ------------      ------------ 
    Options outstanding, end of year               4,438,685         4,220,271         3,422,925
                                               =============      ============      ============
</TABLE>





                                      -30-
<PAGE>   33
<TABLE>
    <S>                                        <C>                    <C>                        <C>
    Option prices per share:
      Granted                                  $ 4.00 -   6.50        $  4.00  -    6.25        $  4.00- 6.75
      Exercised                                $ 0.50 -   4.25        $  4.00  -    5.88        $  4.00- 5.63
      Forfeited and canceled                   $ 4.00 -  10.88        $  4.00  -   12.19        $  4.00-12.19
</TABLE>


     Treasury Stock

     In July 1995, the Board of Directors of the Company approved a Stock
Repurchase Plan which authorizes management of the Company to repurchase up to
5,000,000 shares of Common Stock, either on the open market or in privately
negotiated transactions, at prevailing market prices over a two year period.
As of August 31, 1996, 2,075,900 shares of Common Stock had been repurchased
under the plan at an average price of $4.44 per share.  During fiscal 1996, the
Company used 380,095 of these treasury shares for incentive plans, employment
agreements and various other uses.  Subsequent to August 31, 1996, the Company
has repurchased 1,029,400 additional shares of its Common Stock at an average
cost of $4.67 per share.  Future repurchases of the Company's Common Stock will
be dependent on prevailing market conditions and other investment
opportunities.

     In October 1993, the Company reached a settlement of a lawsuit with a
former owner of an acquired business and other parties.  In exchange for a full
and complete release of all claims against the parties, the Company received
$1.0 million in cash and 250,000 shares of the Company's Common Stock.  This
transaction resulted in a gain of $1.4 million, net of related fiscal 1994
legal expenses, which is reflected in other income (expense), net in the
Consolidated Statements of Operations.


     Stockholder Rights Plan

     The Company's Stockholder Rights Plan (the "Rights Plan"), adopted in
August 1996, is designed to deter coercive or unfair takeover tactics and to
prevent a person or group from gaining control of the Company without offering
a fair price to all stockholders.

     All stockholders of record on August 15, 1996 were issued, for each share
of Common Stock held, one "right" entitling them to purchase from the Company
one-thousandth of a share of Series One Junior Participating Preferred Stock of
the Company at an exercise price of $20 (the "Rights").  The Rights are
distributable on the earlier of:  10 days (the "Shares Acquisition Date") after
a public announcement that a person or group has acquired beneficial ownership
of 15% or more of the Company's Common Stock (an "Acquiring Person") or 10
business days after a person or group commences a tender or exchange offer upon
consummation of which such person or group would, if successful, beneficially
own 20% or more of the Company's outstanding Common Stock.

     The Company will generally be entitled to redeem the Rights in full, at
$.01 per Right, at any time until close of business up to 10 days following the
Shares Acquisition Date.  The Rights will expire on August 5, 2006, unless
redeemed earlier by the Company's Board of Directors.

     If a person (and its affiliates) becomes the beneficial owner of 20% or
more of the outstanding shares of the Common Stock (a "Flip-In Triggering
Event"), each Right (other than those Rights held by an Acquiring Person or its
transferees, which Rights are void) becomes exercisable for shares of the
Company's Common Stock having a value of twice the exercise price of such
Rights.  Alternatively, in the event the Company is involved in a merger or
other business combination in which the Company would not be the surviving
corporation or its Common Stock is changed or converted, or it sells 50% or
more of its assets or earning power to another person or group, each Right
would entitle the holder to purchase, at the Right's then current exercise
price, common shares of such other person or group having a value of twice the
exercise price of the Right.

(9)  COMMITMENTS AND CONTINGENCIES --

     Lease commitments

     The Company has entered into various operating lease agreements, primarily
for office space, service facilities and service equipment utilized for
operations.  Minimum annual rental payments under noncancellable operating
leases as of August 31, 1996 were as follows (in thousands):





                                      -31-
<PAGE>   34
     For the year ending August 31 --
                                                   
<TABLE>                                            
                                      <S>                  <C>
                                      1997                 $   5,324
                                      1998                     4,528
                                      1999                     3,385
                                      2000                     2,268
                                      2001                     1,400
                                      Thereafter               4,444 
                                                           ---------
                                                           
                                                           $  21,349 
                                                           =========
</TABLE>                                                          


     Rental expense under operating leases was $16.0 million, $15.1 million and
$11.8 million for the years ended August 31, 1996, 1995 and 1994, respectively.
These amounts include a service facility leased from the Company's Chairman of
the Board of Directors, for which rental expense was $0.1 million for each of
the years ended August 31, 1996, 1995 and 1994.

     Legal matters

     In the normal course of its operations, the Company can become involved in
a variety of legal disputes. Currently, the Company is a defendant in several
legal proceedings, including workers' compensation matters and minor business
disputes, the majority of which are being handled or are expected to be handled
by the Company's insurance carriers. As a company that handles and transports
hazardous waste, the Company is involved in various administrative and court
proceedings under environmental laws and regulations relating to permit
applications, operating authorities and alleged liabilities related to the
Comprehensive Environmental Response, Compensation and Liability Act of 1980,
as amended.  Management of the Company believes that a decision adverse to the
Company in any one or in all of these proceedings would not have a material
effect on the financial position or the results of operations of the Company.

     Insurance

     The Company maintains workers' compensation insurance for its employees
and other coverages for normal business risks.  A substantial portion of the
Company's current and prior year insurance coverages are "high deductible" or
retrospective policies in which the Company, in many cases, is responsible for
the payment of incurred claims up to specified individual and aggregate limits,
over which a third party insurer is contractually liable for any additional
payment of such claims.  Accordingly, the Company bears significant economic
risks related to these coverages. On a continual basis, and as of each balance
sheet date, the Company records an accrual equal to the estimated costs
expected to result from incurred claims plus an estimate of claims incurred but
not reported as of such date based on the best available information at such
date.  However, the nature of these claims is such that actual development of
the claims may vary significantly from the estimated accruals.  All changes in
the accrual estimates are accounted for on a prospective basis and can have a
significant impact on the Company's financial position or results of
operations.

     Insurance for environmental accidents and pollution has historically been
expensive and difficult to obtain.  The Company currently maintains insurance
for environmental accidents and pollution relating to the performance of
services at certain customer locations.  To date, the Company has not incurred
material fines, penalties or liabilities for pollution, environmental damage or
toxic torts.  However, in the event a claim is successful against the Company
for pollution or toxic tort liability for which the Company is only partially
insured or completely uninsured, there could be a material adverse effect on
the Company's financial position or results of operations.

     Environmental Proceedings

     In November 1996, the West Virginia Department of Environmental Protection
(the "West Virginia DEP") issued a draft consent order against one of the
Company's subsidiaries, which order seeks to impose an aggregate of
approximately $229,000 in fines against the Company relating to a
transportation-related spill in West Virginia in November 1995.  The Company
voluntarily remediated this spill in December 1995.  The draft consent order
alleges that in remediating the spill, the Company did not comply with certain
technical West Virginia DEP remediation regulations relating to recordkeeping
and generator requirements.  The Company believes that the West Virginia DEP
remediation regulations cited by the West Virginia DEP as the basis of this
draft consent order are not relevant in the context of an emergency spill
response.  Therefore, the Company believes that it may be able to successfully
negotiate the imposition by the West Virginia DEP of significantly lower
penalties in the final consent order.  The Company is actively negotiating the
draft consent order with the West Virginia DEP and does not believe that the
final consent order will have a material adverse effect on the Company's
results of operations or financial position.





                                      -32-
<PAGE>   35
     Other matters

     In August 1995, the Company entered into an agreement with Resource 
Recovery Techniques of Arizona, Inc. ("RRT"), a start-up operation that was in
the process of constructing a wastewater treatment facility located in Phoenix,
Arizona (the "Facility").  As part of the agreement, the Company caused the
issuance of a Letter of Credit in the amount of $4.2 million for the benefit of
holders of tax exempt bonds (the "Bonds") issued to finance the construction of
the Facility.  The Letter of Credit is subject to draw under the terms of a
certain Trust Indenture and Reimbursement Agreement executed in connection with
the issuance of the Bonds.  As consideration, the Company was issued warrants,
with 10 year terms, to purchase 10% of the common stock of RRT and upon the
occurrence of certain conditions, an additional 15% of the common stock of RRT.



(10) RETIREMENT PLANS --

     Effective October 1, 1990, the Company established a defined contribution
employee benefit plan, the Allwaste Retirement Savings Plan, which covered
substantially all full-time non-union U.S. employees having at least one year
of service.  On July 1, 1995, the Company adopted the Allwaste Employee
Retirement Plan (the "Retirement Plan"), which amended and restated the
Allwaste Retirement Savings Plan.  Eligible employees may contribute up to 15%
of their compensation, subject to certain Internal Revenue Code limitations.
The Company matches 50% of each participant's contributions up to 3% of
eligible compensation.  Retirement Plan participants may select among six
investment options, one of which is the Company's Common Stock.  At August 31,
1996, the Retirement Plan held 626,723 shares of the Company's Common Stock
(market value of $2.6 million) which represented 24.3% of the Retirement Plan's
assets.  In addition to the Plan, the Company maintains three other defined
contribution employee benefit plans which cover a small group of union
employees.  Defined contribution expense related to all plans for the Company
was $0.8 million, $0.6 million and $0.5 million for fiscal years 1996, 1995 and
1994, respectively.


(11) INCENTIVE PLANS --

     On October 26, 1995, the Company's Board of Directors adopted a limited
single-purpose incentive plan (the "Incentive Plan") for certain key employees
("Participants") of the Company.  Under this plan, each Participant that
purchased shares of the Company's Common Stock, based on a designated
percentage of the Participant's annual salary (the "Qualifying Shares"), was
granted a number of shares of restricted Common Stock equal to two times the
number of Qualifying Shares purchased by the Participant.  On completion of the
purchases by a Participant, the Compensation Committee, in exercise of its
discretion and under the Company's Amended and Restated 1989 Replacement
Non-qualified Stock Option Plan, granted to such Participant an option to
purchase a number of shares of Common Stock equal to four times the number of
Qualifying Shares purchased by the Participant.  Shares of Common Stock issued
under this Incentive Plan are treasury shares.  At August 31, 1996, 203,366
shares of restricted Common Stock and options to purchase 423,464 shares of
Common Stock have been granted to Participants.  Additionally, 3,460 shares of
restricted Common Stock were earned and not yet issued.  The Company does not
contemplate that any additional restricted shares will be issued under the
Incentive Plan or that any options to purchase shares of Common Stock will be
granted under the Plan in relation to purchases of Qualifying Shares pursuant to
the Incentive Plan.

     The value of restricted shares awarded under this Incentive Plan during 
fiscal 1996 was $0.9 million.  These amounts were recorded as unearned
compensation related to outstanding restricted stock and are shown as a separate
component of Shareholders' Equity.  Unearned compensation is being amortized to
expense over a predominately four year vesting period and amounted to $0.2
million for the year ended August 31, 1996.

     During fiscal 1996, the Company adopted an Interim Management Bonus Plan
("Interim Plan") for eligible personnel, as defined.  Under this Interim Plan,
eligible personnel may receive bonus payments contingent upon the Company
meeting or exceeding certain predetermined earnings levels, as determined by
the Compensation Committee of the Board of Directors, and individual
performance.  At August 31, 1996, compensation earned and recorded in operating
expense was $1.0 million.


(12) DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS --

     The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to do so.





                                      -33-
<PAGE>   36
     The Company's notes receivable are estimated by discounting the future
cash flows using the current rates at which similar loans would be made to
borrowers with similar credit ratings and for the same remaining maturities.

     Long-term investments are based on the carrying value of the asset.

     The Company's long-term debt and convertible subordinated debt are
estimated based on quotations obtained from broker-dealers who make markets in
these and similar securities.  The bank credit facilities are based on floating
interest rates and, as such, the carrying amount is a reasonable estimate of
fair value.

     Letters of credit are based on the face amount of the related obligations
and performance bonds.

     Interest rate cap agreements are based on quotes from the market makers of
these instruments and represent the amounts that the Company would expect to
receive to terminate the agreements.

     The estimated fair values of the Company's financial instruments are as
follows (in thousands):

<TABLE>
<CAPTION>
                                                        August 31,                       
                                ---------------------------------------------------------
                                            1996                            1995         
                                -----------------------           -----------------------
                                  Carrying       Fair              Carrying        Fair
                                   Amount        Value              Amount         Value 
                                ----------    ---------           ----------     --------
<S>                             <C>           <C>                 <C>            <C>
Notes receivable                $   13,517    $  13,120           $    4,893     $  4,428
Long-term investments               11,030       11,030                   --           --
Long-term debt and convertible 
  subordinated debentures          128,144      123,064              165,878      162,126
Letters of credit                       --       30,090                   --       25,072
Interest Rate Cap Agreement            270          377                   --           --

</TABLE>
                               

(13) NET INCOME (LOSS) PER COMMON SHARE --

        Net income (loss) per common share is computed by dividing net income
(loss) by the weighted average number of shares of Common Stock and equivalents
outstanding during the year as shown below (in thousands, except per share
data):

<TABLE>
<CAPTION>

                                                                 For the Years Ended August 31,       
                                                         --------------------------------------------
                                                           1996             1995                1994   
                                                         --------          -------            -------
<S>                                                      <C>                <C>              <C>
   Income (loss) from continuing operations,
     net of income taxes                                 $  6,614          $(3,879)           $10,596

   Discontinued Operations
     Income from discontinued operations, net of
       applicable income taxes                                --             2,773              2,501
     Gain on sale of glass recycling operations, net of
       applicable income taxes                              3,764               --                 --
                                                         --------          -------            -------

   Net income (loss)                                     $ 10,378          $(1,106)           $13,097
                                                         ========          =======            =======

   Shares outstanding, beginning
     of year                                               39,609           37,741             36,740

   Weighted average number of
     common shares outstanding:

       Stock options, treasury stock method                    63              290                188
                                                                                    
       Purchased companies,                                                         
         including earnouts                                    25              816                132
       Exercise of stock options                              113              208                  4

</TABLE> 
         




                                      -34-
<PAGE>   37
<TABLE>
   <S>                                                   <C>               <C>                <C>
       Treasury stock and other, net                         (755)            (250)              (212)
                                                         --------          -------            -------

    Total weighted average common
      shares outstanding                                   39,055           38,805             36,852
                                                         ========          =======            =======

   Net income (loss) per common share:
     Continuing operations                               $    .17             (.10)           $   .29
     Discontinued operations                                  .10              .07                .07
                                                         --------          -------            -------

   Net income (loss) per common share                    $    .27          $  (.03)           $   .36
                                                         ========          =======            =======
</TABLE>


     Fully diluted net income per common share is not presented for any period
as it is not materially different from the above primary calculations.

     Common stock equivalents include stock options to purchase Common Stock.
The convertible subordinated debt is not a common stock equivalent and does not
have a material dilutive effect on net income (loss) per common share for any
of the three years presented.


(14) BUSINESS OPERATIONS AND GEOGRAPHIC INFORMATION --

     The primary business of the Company involves the provision of on-site
industrial cleaning and waste management services (including hydroblasting and
gritblasting and air moving and liquid vacuuming), waste transportation and
processing, wastewater services, site remediation, maintenance services,
turnaround and outage services, container cleaning and repair services,
emergency spill response services and other general plant support services to
the industrial customer. The Company's operations are located in the United
States, Canada and Mexico, as summarized below (in thousands):

<TABLE>
<CAPTION>
                                             United
                                             States            Canada         Mexico               Total
                                            -------            ------         ------               -----
<S>                                       <C>                <C>            <C>                 <C>
1996 --
    Revenues                               $347,484          $ 32,952       $  1,729            $382,165
    Operating income (loss)                  16,978             2,120           (356)             18,742
    Total assets                            320,222            16,522            443             337,187

1995 --
    Revenues                               $322,644          $ 20,484       $  1,117            $344,245
    Operating income (loss)                  11,253             1,375         (2,863)              9,765
    Total assets                            359,507            12,257            469             372,233

1994 --
    Revenues                               $263,210          $ 22,611       $  1,040            $286,861
    Operating income (loss)                  22,165             2,690         (1,506)             23,349
    Total assets                            297,063             9,578          2,622             309,263
</TABLE>


(15) QUARTERLY FINANCIAL DATA (UNAUDITED) --

     The table below sets forth consolidated operating results by fiscal
quarter for the years ended August 31, 1996 and 1995, excluding the Company's
discontinued glass recycling operations (in thousands, except per share data):

<TABLE>
<CAPTION>
                                             First            Second           Third            Fourth
                                            Quarter           Quarter          Quarter          Quarter
                                            --------          --------        --------          --------
<S>                                         <C>               <C>             <C>                <C>
1996 --
    Revenues                                $ 99,798          $ 88,278        $ 98,731          $ 95,358

    Gross profit                              26,744            18,659          25,621            24,729

    Net income (loss)
      Continuing operations                    2,715            (1,357)          2,583             2,673
      Discontinued operations                  3,764                --              --                -- 
                                            --------          --------        --------          --------     
                                            $  6,479          $ (1,357)       $  2,583          $  2,673     
                                            ========          ========        ========          ========     



</TABLE>


                                      -35-
<PAGE>   38
<TABLE>
<S>                                   <C>                <C>              <C>             <C>
    Net income (loss) per common share
      Continuing operations            $       .07        $     (.03)      $       .07     $         .07
      Discontinued operations                  .09               --               --                --  
                                       -----------        ---------        ----------   -- -------------
                                       $       .16        $     (.03)      $       .07     $         .07 
                                       ===========        ==========       ===========     =============
                                                                                           
1995 --
    Revenues                           $    82,591         $  78,433       $    86,638     $      96,583
                                                                               
    Gross profit                            22,846            20,903            23,384            22,516
                                                                               
    Net income (loss)                                                          
      Continuing operations                  2,926             1,507             2,170           (10,482)
      Discontinued operations                  794               825               872               282
                                       -----------         ---------       -----------     -------------
                                       $     3,720         $   2,332       $     3,042          $(10,200)
                                       ===========         =========       ===========     ============= 

    Net income (loss) per common share
      Continuing operations            $       .08         $     .04       $      .06      $        (.27)
      Discontinued operations                  .02               .02              .02                .01 
                                       -----------         ---------       ----------      -------------
                                       $       .10         $     .06       $      .08      $        (.26)  
                                       ===========         =========       ==========      =============
</TABLE>


    Due to changes in weighted average common shares outstanding, the sum of
the quarterly per share amounts for fiscal 1996 and 1995 do not equal earnings
(loss) per share for the respective years.





                                      -36-
<PAGE>   39
ITEM 9.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
          FINANCIAL DISCLOSURE

     None.





                                      -37-
<PAGE>   40
                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
ITEM 11.  EXECUTIVE COMPENSATION
ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS


     The above items will be included in the Company's proxy statement to be
filed within 120 days after the close of the fiscal year end in connection with
the 1997 Annual Stockholders' Meeting.





                                      -38-
<PAGE>   41
                                    PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a)  1.   FINANCIAL STATEMENTS.

     Report of Independent Public Accountants

     Consolidated Balance Sheets as of August 31, 1996 and 1995

     Consolidated Statements of Operations for the years ended August 31, 1996,
     1995 and 1994

     Consolidated Statements of Shareholders' Equity for the years ended August
     31, 1996, 1995 and 1994

     Consolidated Statements of Cash Flows for the years ended August 31, 1996,
     1995 and 1994

     Notes to Consolidated Financial Statements

     2.   FINANCIAL STATEMENT SCHEDULE.

     Report of Independent Public Accountants on Financial Statement Schedule

     Schedule II - Valuation and Qualifying Accounts

     All other schedules are omitted because they are not applicable or the
     required information is provided in the Consolidated Financial Statements
     or notes thereto.

     3.   EXHIBITS.
<TABLE>
<CAPTION>
                                                                                                                    SEQUENTIAL
     EXHIBIT                                                                                                           PAGE
       NO.          EXHIBIT INDEX                                                                                    NUMBER * 
     -------        -------------                                                                                  ----------
       <S>     <C>  <C>                                                                                             <C>
       3.1     --   Amended and Restated Certificate of Incorporation of Allwaste, Inc.
                    ("Allwaste") effective February 22, 1990.  (Exhibit 3.1 to the Allwaste
                    Quarterly Report on Form 10-Q (File No. 0-15217) for the fiscal quarter ended
                    February 28, 1990 is hereby incorporated by reference.)

       3.2     --   Corrected Bylaws of Allwaste (Exhibit 3.2 to the Allwaste Annual Report on Form
                    10-K (File No. 1-11008) for the fiscal year ended August 31, 1992, filed
                    November 27, 1992 (the "1992 10-K"), is hereby incorporated by reference.)

       3.3     --   Certificate of Designation of Series One Junior Participating Preferred Stock
                    of Allwaste, Inc., effective November 19, 1996.  (Filed herewith.)

       4.1     --   Specimen Common Stock certificate (Exhibit 4.1 to the Allwaste Quarterly Report 
                    on Form 10-Q (File No. 1-11016) for the fiscal quarter ended February 29, 1996 
                    (the "February 10-Q") is hereby incorporated by reference.)

       4.2     --   Specimen debenture certificate (Exhibit 4.2 to the 1992 10-K is hereby
                    incorporated by reference.)

       4.3     --   Form of Indenture between Allwaste and Texas Commerce Trust Company of New York
                    dated June 1, 1989, relating to certain debentures of Allwaste.  (Exhibit 4.1
                    to the Allwaste Quarterly Report on Form 10-Q (File No. 0-15217) for the fiscal
                    quarter ended May 31, 1989 is hereby incorporated by reference.)

       4.4     --   Stockholder Rights Agreement dated August 5, 1996, between Allwaste and
                    American Stock Transfer & Trust Company as Rights Agent.  (Exhibit 1 to the
                    Allwaste, Inc. Registration Statement on Form 8-A, filed November 14, 1996, is
                    hereby incorporated by reference.)
</TABLE>





                                      -39-
<PAGE>   42
<TABLE>
      <S>      <C>  <C>
      10.1     --   Employment Agreement dated October 23, 1986, between R.L. Nelson, Jr. and
                    Allwaste.  (Exhibit 10.1 to the Allwaste Annual Report on Form 10-K (File No.
                    1-11008) for the fiscal year ended August 31, 1994, filed November 29, 1994
                    (the "1994 10-K"), is hereby incorporated by reference.)

      10.2     --   Employment Agreement dated October 17, 1994, between Robert M. Chiste and
                    Allwaste.  (Exhibit 10.6 to the 1994 10-K is hereby incorporated by reference.)

      10.3     --   Allwaste Amended and Restated 1989 Replacement Non-Qualified Stock Option Plan.
                    (Exhibit A to the Allwaste proxy statement relating to its 1995 annual meeting
                    of stockholders, filed December 20, 1994, is hereby incorporated by reference.)


      10.4     --   Allwaste, Inc. Target 2000:  One, Two, Four Plan.  (Exhibit 10.4 to the
                    Allwaste Quarterly Report on Form 10-Q (File No. 1-11008) for the fiscal
                    quarter ended February 29, 1996 (the "February 10-Q") is hereby incorporated by
                    reference.)

      10.5     --   Allwaste Employee Retirement Plan.  (Exhibit 4.3 to the Post-Effective
                    Amendment No. 1 to Registration Statement on Form S-8 (File No. 33-37684),
                    filed August 7, 1995, is hereby incorporated by reference.)

      10.6     --   Credit Agreement dated as of November 30, 1993, as amended, by and among
                    Allwaste, Inc., a Delaware corporation, the Financial Institutions signatory
                    thereto, and Texas Commerce Bank National Association, a national banking
                    association, as Agent.  (Exhibit 10.10 to the 1994 10-K is hereby incorporated
                    by reference.)

      10.7     --   Agreement and First Amendment to Credit Agreement dated January 21, 1994, by and
                    among Allwaste, the Financial Institutions signatory thereto, and Texas Commerce
                    Bank National Association, a national banking association, as Agent.  (Exhibit
                    10.7 to the February 10-Q is hereby incorporated by reference.)

      10.8     --   Agreement and Second Amendment to Credit Agreement dated March 20, 1994, by and
                    among Allwaste, the Financial Institutions signatory thereto, and Texas Commerce
                    Bank National Association, a national banking association, as Agent.  (Exhibit
                    10.8 to the February 10-Q is hereby incorporated by reference.)

      10.9     --   Agreement and Third Amendment to Credit Agreement dated May 31,  1994, by and
                    among Allwaste, the Financial Institutions signatory thereto, and Texas Commerce
                    Bank National Association, a national banking association, as Agent.  (Exhibit
                    10.9 to the February 10-Q is hereby incorporated by reference.)

      10.10    --   Agreement and Fourth Amendment to Credit Agreement dated October 18, 1994, by
                    and among Allwaste, the Financial Institutions signatory thereto, and Texas
                    Commerce Bank National Association, a national banking association, as Agent.
                    (Exhibit 10.10 to the February 10-Q is hereby incorporated by reference.)

      10.11    --   Agreement and Fifth Amendment to Credit Agreement dated August 31, 1995, by and
                    among Allwaste, the Financial Institutions signatory thereto, and Texas Commerce
                    Bank National Association, a national banking association, as Agent. (Exhibit
                    10.11 to the February 10-Q is hereby incorporated by reference.)
</TABLE>





                                      -40-
<PAGE>   43
<TABLE>
     <S>       <C>  <C>
      10.12    --   First Amendment to Employment Agreement dated as of October 26, 1995, between
                    Robert M. Chiste and Allwaste.  (Exhibit 10.6 to the Allwaste Annual Report on
                    Form 10-K (File No. 1-11016) for the fiscal year ended August 31, 1995, filed
                    November 30, 1995 (the "1995 Form 10-K") is hereby incorporated by reference.)

      10.13    --   Agreement and Sixth Amendment to Credit Agreement dated February 29, 1996, by
                    and among Allwaste, the financial institutions signatory thereto and Texas
                    Commerce Bank National Association, a national banking association, as Agent.
                    (Exhibit 10.13 to the Allwaste Quarterly Report on Form 10-Q (File No. 1-11016)
                    for the fiscal quarter ended May 31, 1996  (the "May 10-Q") is hereby
                    incorporated by reference.)

      10.14    --   Agreement and Seventh Amendment to Credit Agreement dated  August 1, 1996, by
                    and among Allwaste, the financial institutions signatory thereto and Texas
                    Commerce Bank National Association, a national banking association, as Agent.
                    (Filed herewith.)

      10.15    --   First Amendment to Employment Agreement dated November 11, 1996, between R. L.
                    Nelson, Jr. and Allwaste.  (Filed herewith.)

      10.16    --   Second Amendment to Employment Agreement dated October 25, 1996, between Robert
                    M. Chiste and Allwaste.  (Filed herewith).

      10.17    --   First Amendment to Employment Agreement dated November 11, 1996, between
                    William L. Fiedler and Allwaste.  (Filed herewith.)

      10.18    --   Employment Agreement dated November 11, 1996, between David E. Fanta and
                    Allwaste.  (Filed herewith.)

      10.19    --   Employment Agreement dated November 11, 1996, between T. Wayne Wren, Jr. and
                    Allwaste.  (Filed herewith.)

      10.20    --   Employment Agreement dated November 11, 1996, between James E. Rief and
                    Allwaste.  (Filed herewith.)

      10.21    --   Employment Agreement dated November 11, 1996, between Michael W. Ramirez and
                    Allwaste.  (Filed herewith.)

      10.22    --   Executive Severance Agreement dated November 11, 1996, between R. L. Nelson,
                    Jr. and Allwaste.  (Filed herewith.)

      10.23    --   Executive Severance Agreement dated November 11, 1996, between Robert M. Chiste
                    and Allwaste.  (Filed herewith.)

      10.24    --   Executive Severance Agreement dated November 11, 1996, between David E. Fanta
                    and Allwaste.  (Filed herewith.)

      10.25    --   Executive Severance Agreement dated November 11, 1996, between T. Wayne Wren,
                    Jr. and Allwaste.  (Filed herewith.)

      10.26    --   Executive Severance Agreement dated November 11, 1996, between James E. Rief
                    and Allwaste.  (Filed herewith.)

      10.27    --   Executive Severance Agreement dated November 11, 1996, between William L.
                    Fiedler and Allwaste.  (Filed herewith.)

      10.28    --   Executive Severance Agreement dated November 11, 1996, between Michael W.
                    Ramirez and Allwaste.  (Filed herewith.)

      10.29    --   1996 Interim Management Bonus Plan.  (Filed herewith.)

      10.30    --   Third Amendment to Employment Agreement dated November 11, 1996, between Robert
                    M. Chiste and Allwaste.  (Filed herewith.)

     10.31     --   Allwaste EVA Incentive Compensation Plan.  (Filed herewith.)
</TABLE>





                                      -41-
<PAGE>   44
<TABLE>
      <S>      <C>  <C>
      11.1     --   Calculation of Net Income Per Common Share.  (See Note 11 of Notes to
                    Consolidated Financial Statements of Allwaste, Inc. and Subsidiaries.)

      21.1     --   Subsidiaries of Allwaste, Inc.  (Filed herewith.)

      23.1     --   Consent of Arthur Andersen LLP to incorporation by reference of the report in
                    this Form 10-K into the Allwaste, Inc. previously filed Form S-4 and S-8
                    Registration Statements.  (Filed herewith.)

      27.1     --   Financial Data Schedule.  (Filed herewith.)
</TABLE>

_______________

*  This information appears only in the manually signed and sequentially
   numbered original.

(b)  REPORTS ON FORM 8-K.

     None.





                                      -42-
<PAGE>   45
                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
                        ON FINANCIAL STATEMENT SCHEDULE


To Allwaste, Inc.:

We have audited in accordance with generally accepted auditing standards, the
Consolidated Financial Statements of Allwaste, Inc. and subsidiaries included in
this Form 10-K, and have issued our report thereon dated November 15, 1996.  Our
audits were made for the purpose of forming an opinion on the basic financial
statements taken as a whole.  The schedule listed in Part IV, Item 14 (a)(2) for
Allwaste, Inc. and subsidiaries is the responsibility of the Company's
management and 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



Houston, Texas
November 15, 1996





                                      -43-
<PAGE>   46

                                                                     SCHEDULE II

                      ALLWASTE, INC. AND SUBSIDIARIES (1)

                       VALUATION AND QUALIFYING ACCOUNTS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                Additions          
                                                       ------------------------------
                                       Balance,        Charged to       Acquisitions                      Balance,
                                      Beginning        Costs and        Accounted for   Deductions         End of
          Description                  of Year          Expenses        as Purchases       (2)              Year    
--------------------------------      ---------        ----------       -------------   ----------        --------
<S>                                     <C>              <C>              <C>             <C>              <C>    
Allowance for Doubtful                                                                                            
 Accounts Receivable                                                                                              
                                                                                                                  
    YEAR ENDED AUGUST 31, 1994:         $ 2,475          $ 1,355          $    46         $(1,226)         $ 2,650
                                                                                                                  
    YEAR ENDED AUGUST 31, 1995:         $ 2,650          $ 2,900          $    89         $(1,956)         $ 3,683
                                                                                                                  
    YEAR ENDED AUGUST 31, 1996:         $ 3,683          $ 2,962          $     1         $(4,326)         $ 2,320
                                                                                                                  
                                                                                                                  
Allowance for Doubtful                                                                                            
  Notes Receivable                                                                                                
                                                                                                                  
    YEAR ENDED AUGUST 31, 1994:         $  --            $   790          $  --           $  --            $   790
                                                                                                                  
    YEAR ENDED AUGUST 31, 1995:         $   790          $ 1,000          $  --           $  --            $ 1,790
                                                                                                                  
    YEAR ENDED AUGUST 31, 1996:         $ 1,790          $  --            $  --           $  (790)         $ 1,000
</TABLE>

-----------

(1)  Restated to exclude the discontinued glass recycling operations; see 
     Note 3 of Notes to Consolidated Financial Statements.

(2)  Uncollectible accounts written off, net of recoveries on accounts
     previously written off.


                                      -44-

<PAGE>   47
                                 SIGNATURE PAGE

     Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant, Allwaste, Inc., has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
                                        ALLWASTE, INC.



                                        By: /s/  Robert M. Chiste 
                                            -----------------------------------
                                             Robert M. Chiste, President and 
                                             Chief Executive 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, Allwaste, Inc., and in the capacities and on the dates indicated.


<TABLE>
<CAPTION>
            SIGNATURE                                   TITLE                               DATE
            ---------                                   -----                               ----
<S>                               <C>                                                     <C>
/s/  Robert M. Chiste             President and Chief Executive Officer (Principal        November 22, 1996
-------------------------------   Executive Officer); Director                                             
Robert M. Chiste                                              


/s/  T. Wayne Wren, Jr.           Senior Vice President - Chief Financial Officer         November 22, 1996
-------------------------------   and Treasurer (Principal Financial Officer)                              
T. Wayne Wren, Jr.                                                            


/s/  Michael W. Ramirez           Vice President - Controller (Principal Accounting       November 22, 1996
-------------------------------   Officer)                                                                 
Michael W. Ramirez                        


/s/  R. L. Nelson, Jr.            Chairman of the Board                                   November 22, 1996
-------------------------------                                                                            
R.L. Nelson, Jr.


/s/  Michael A. Baker             Director                                                November 22, 1996
-------------------------------                                                                            
Michael A. Baker


/s/  John U. Clarke               Director                                                November 22, 1996
-------------------------------                                                                            
John U. Clarke


/s/  William E. Haynes            Director                                                November 22, 1996
-------------------------------                                                                            
William E. Haynes


/s/   Robert L. Knauss            Director                                                November 22, 1996
-------------------------------                                                                            
Robert L. Knauss


/s/  Frank A. Rossi               Director                                                November 22, 1996
-------------------------------                                                                            
Frank A. Rossi


/s/  Thomas J. Tierney            Director                                                November 22, 1996
-------------------------------                                                                            
Thomas J. Tierney


/s/  T. Michael Young             Director                                                November 22, 1996
-------------------------------                                                                            
T. Michael Young

</TABLE>





                                      -45-
<PAGE>   48
                               INDEX TO EXHIBITS


<TABLE>
<CAPTION>
                                                                                                                    SEQUENTIAL
     EXHIBIT                                                                                                           PAGE
       NO.          EXHIBIT INDEX                                                                                    NUMBER * 
     -------        -------------                                                                                  ----------
       <S>     <C>  <C>                                                                                             <C>
       3.1     --   Amended and Restated Certificate of Incorporation of Allwaste, Inc.
                    ("Allwaste") effective February 22, 1990.  (Exhibit 3.1 to the Allwaste
                    Quarterly Report on Form 10-Q (File No. 0-15217) for the fiscal quarter ended
                    February 28, 1990 is hereby incorporated by reference.)

       3.2     --   Corrected Bylaws of Allwaste (Exhibit 3.2 to the Allwaste Annual Report on Form
                    10-K (File No. 1-11008) for the fiscal year ended August 31, 1992, filed
                    November 27, 1992 (the "1992 10-K"), is hereby incorporated by reference.)

       3.3     --   Certificate of Designation of Series One Junior Participating Preferred Stock
                    of Allwaste, Inc., effective November 19, 1996.  (Filed herewith.)

       4.1     --   Specimen Common Stock certificate (Exhibit 4.1 to the Allwaste Quarterly Report on 
                    Form 10-Q (File No. 1-11016) for the fiscal quarter ended February 29, 1996
                    (the "February 10-Q") is hereby incorporated by reference.)

       4.2     --   Specimen debenture certificate (Exhibit 4.2 to the 1992 10-K is hereby
                    incorporated by reference.)

       4.3     --   Form of Indenture between Allwaste and Texas Commerce Trust Company of New York
                    dated June 1, 1989, relating to certain debentures of Allwaste.  (Exhibit 4.1
                    to the Allwaste Quarterly Report on Form 10-Q (File No. 0-15217) for the fiscal
                    quarter ended May 31, 1989 is hereby incorporated by reference.)

       4.4     --   Stockholder Rights Agreement dated August 5, 1996, between Allwaste and
                    American Stock Transfer & Trust Company as Rights Agent.  (Exhibit 1 to the
                    Allwaste, Inc. Registration Statement on Form 8-A, filed November 14, 1996, is
                    hereby incorporated by reference.)

      10.1     --   Employment Agreement dated October 23, 1986, between R.L. Nelson, Jr. and
                    Allwaste.  (Exhibit 10.1 to the Allwaste Annual Report on Form 10-K (File No.
                    1-11008) for the fiscal year ended August 31, 1994, filed November 29, 1994
                    (the "1994 10-K"), is hereby incorporated by reference.)

      10.2     --   Employment Agreement dated October 17, 1994, between Robert M. Chiste and
                    Allwaste.  (Exhibit 10.6 to the 1994 10-K is hereby incorporated by reference.)

      10.3     --   Allwaste Amended and Restated 1989 Replacement Non-Qualified Stock Option Plan.
                    (Exhibit A to the Allwaste proxy statement relating to its 1995 annual meeting
                    of stockholders, filed December 20, 1994, is hereby incorporated by reference.)


      10.4     --   Allwaste, Inc. Target 2000:  One, Two, Four Plan.  (Exhibit 10.4 to the
                    Allwaste Quarterly Report on Form 10-Q (File No. 1-11008) for the fiscal
                    quarter ended February 29, 1996 (the "February 10-Q") is hereby incorporated by
                    reference.)

      10.5     --   Allwaste Employee Retirement Plan.  (Exhibit 4.3 to the Post-Effective
                    Amendment No. 1 to Registration Statement on Form S-8 (File No. 33-37684),
                    filed August 7, 1995, is hereby incorporated by reference.)

      10.6     --   Credit Agreement dated as of November 30, 1993, as amended, by and among
                    Allwaste, Inc., a Delaware corporation, the Financial Institutions signatory
                    thereto, and Texas Commerce Bank National Association, a national banking
                    association, as Agent.  (Exhibit 10.10 to the 1994 10-K is hereby incorporated
                    by reference.)

      10.7     --   Agreement and First Amendment to Credit Agreement dated January 21, 1994, by and
                    among Allwaste, the Financial Institutions signatory thereto, and Texas Commerce
                    Bank National Association, a national banking association, as Agent.  (Exhibit
                    10.7 to the February 10-Q is hereby incorporated by reference.)

      10.8     --   Agreement and Second Amendment to Credit Agreement dated March 20, 1994, by and
                    among Allwaste, the Financial Institutions signatory thereto, and Texas Commerce
                    Bank National Association, a national banking association, as Agent.  (Exhibit
                    10.8 to the February 10-Q is hereby incorporated by reference.)

      10.9     --   Agreement and Third Amendment to Credit Agreement dated May 31,  1994, by and
                    among Allwaste, the Financial Institutions signatory thereto, and Texas Commerce
                    Bank National Association, a national banking association, as Agent.  (Exhibit
                    10.9 to the February 10-Q is hereby incorporated by reference.)

      10.10    --   Agreement and Fourth Amendment to Credit Agreement dated October 18, 1994, by
                    and among Allwaste, the Financial Institutions signatory thereto, and Texas
                    Commerce Bank National Association, a national banking association, as Agent.
                    (Exhibit 10.10 to the February 10-Q is hereby incorporated by reference.)

      10.11    --   Agreement and Fifth Amendment to Credit Agreement dated August 31, 1995, by and
                    among Allwaste, the Financial Institutions signatory thereto, and Texas Commerce
                    Bank National Association, a national banking association, as Agent. (Exhibit
                    10.11 to the February 10-Q is hereby incorporated by reference.)
</TABLE>
<PAGE>   49
<TABLE>
     <S>       <C>  <C>
      10.12    --   First Amendment to Employment Agreement dated as of October 26, 1995, between
                    Robert M. Chiste and Allwaste.  (Exhibit 10.6 to the Allwaste Annual Report on
                    Form 10-K (File No. 1-11016) for the fiscal year ended August 31, 1995, filed
                    November 30, 1995 (the "1995 Form 10-K") is hereby incorporated by reference.)

      10.13    --   Agreement and Sixth Amendment to Credit Agreement dated February 29, 1996, by
                    and among Allwaste, the financial institutions signatory thereto and Texas
                    Commerce Bank National Association, a national banking association, as Agent.
                    (Exhibit 10.13 to the Allwaste Quarterly Report on Form 10-Q (File No. 1-11016)
                    for the fiscal quarter ended May 31, 1996  (the "May 10-Q") is hereby
                    incorporated by reference.)

      10.14    --   Agreement and Seventh Amendment to Credit Agreement dated  August 1, 1996, by
                    and among Allwaste, the financial institutions signatory thereto and Texas
                    Commerce Bank National Association, a national banking association, as Agent.
                    (Filed herewith.)

      10.15    --   First Amendment to Employment Agreement dated November 11, 1996, between R. L.
                    Nelson, Jr. and Allwaste.  (Filed herewith.)

      10.16    --   Second Amendment to Employment Agreement dated October 25, 1996, between Robert
                    M. Chiste and Allwaste.  (Filed herewith).

      10.17    --   First Amendment to Employment Agreement dated November 11, 1996, between
                    William L. Fiedler and Allwaste.  (Filed herewith.)

      10.18    --   Employment Agreement dated November 11, 1996, between David E. Fanta and
                    Allwaste.  (Filed herewith.)

      10.19    --   Employment Agreement dated November 11, 1996, between T. Wayne Wren, Jr. and
                    Allwaste.  (Filed herewith.)

      10.20    --   Employment Agreement dated November 11, 1996, between James E. Rief and
                    Allwaste.  (Filed herewith.)

      10.21    --   Employment Agreement dated November 11, 1996, between Michael W. Ramirez and
                    Allwaste.  (Filed herewith.)

      10.22    --   Executive Severance Agreement dated November 11, 1996, between R. L. Nelson,
                    Jr. and Allwaste.  (Filed herewith.)

      10.23    --   Executive Severance Agreement dated November 11, 1996, between Robert M. Chiste
                    and Allwaste.  (Filed herewith.)

      10.24    --   Executive Severance Agreement dated November 11, 1996, between David E. Fanta
                    and Allwaste.  (Filed herewith.)

      10.25    --   Executive Severance Agreement dated November 11, 1996, between T. Wayne Wren,
                    Jr. and Allwaste.  (Filed herewith.)

      10.26    --   Executive Severance Agreement dated November 11, 1996, between James E. Rief
                    and Allwaste.  (Filed herewith.)

      10.27    --   Executive Severance Agreement dated November 11, 1996, between William L.
                    Fiedler and Allwaste.  (Filed herewith.)

      10.28    --   Executive Severance Agreement dated November 11, 1996, between Michael W.
                    Ramirez and Allwaste.  (Filed herewith.)

      10.29    --   1996 Interim Management Bonus Plan.  (Filed herewith.)

      10.30    --   Third Amendment to Employment Agreement dated November 11, 1996, between Robert
                    M. Chiste and Allwaste.  (Filed herewith.)

     10.31     --   Allwaste EVA Incentive Compensation Plan.  (Filed herewith.)

      11.1     --   Calculation of Net Income Per Common Share.  (See Note 11 of Notes to
                    Consolidated Financial Statements of Allwaste, Inc. and Subsidiaries.)

      21.1     --   Subsidiaries of Allwaste, Inc.  (Filed herewith.)

      23.1     --   Consent of Arthur Andersen LLP to incorporation by reference of the report in
                    this Form 10-K into the Allwaste, Inc. previously filed Form S-4 and S-8
                    Registration Statements.  (Filed herewith.)

      27.1     --   Financial Data Schedule.  (Filed herewith.)
</TABLE>

_______________

*  This information appears only in the manually signed and sequentially
   numbered original.