ALLIED WASTE INDUSTRIES INC - 10-Q Quarterly Report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


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

For the quarterly period ended: September 30, 2002


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

For the transition period from to

Commission File Number 0-19285

ALLIED WASTE INDUSTRIES, INC.

(Exact name of registrant as specified in its charter)


Delaware		88-0228636
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)

15880 North Greenway-Hayden Loop, Suite 100, Scottsdale, Arizona 85260
(Address of principal executive offices and zip code)

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

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 the number of shares outstanding of the issuer’s class of common stock, as of the latest practicable date.


Class	Outstanding as of November 5, 2002

Common Stock		197,165,654

TABLE OF CONTENTS


	CONSOLIDATED BALANCE SHEETS
	CONSOLIDATED STATEMENTS OF OPERATIONS
	CONSOLIDATED STATEMENTS OF CASH FLOWS
	NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
	Item 3. Quantitative and Qualitative Disclosures About Market Risk
	Item 4. Controls and Procedures
PART II OTHER INFORMATION
	Item 1. Legal Proceedings
	Item 2. Changes in Securities and Use of Proceeds
	Item 3. Defaults upon Senior Securities
	Item 4. Submission of Matters to a Vote of Security Holders
	Item 5. Other Information
	Item 6. Exhibits and Reports on Form 8-K
	Signatures
	CERTIFICATIONS
Exhibit Index
EX-99.1
EX-99.2

ALLIED WASTE INDUSTRIES, INC.
FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 2002

INDEX


Part I Financial Information




Item 1 Financial Statements




	Consolidated Balance Sheets	3




	Consolidated Statements of Operations	4




	Consolidated Statements of Cash Flows	5




	Notes to Consolidated Financial Statements	6




Item 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations		32




Item 3 Quantitative and Qualitative Disclosures About Market Risk		41




Item 4 Controls and Procedures		42




Part II Other Information




Item 1 Legal Proceedings		43




Item 2 Changes in Securities and Use of Proceeds		43




Item 3 Defaults Upon Senior Securities		43




Item 4 Submission of Matters to a Vote of Security Holders		43




Item 5 Other Information		43




Item 6 Exhibits and Reports on Form 8-K		44




Signatures		45




Certifications		46

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


		September 30,			December 31,
		2002			2001

		(unaudited)
ASSETS




Current Assets —




Cash and cash equivalents		$	100,999		$	158,841




Accounts receivable, net of allowance of $26,346 and $31,876			738,764			751,416




Prepaid and other current assets			108,567			132,026




Deferred income taxes, net			212,166			156,203

	Total current assets		1,160,496			1,198,486




Property and equipment, net			4,095,488			4,010,886




Goodwill, net			8,570,613			8,556,877




Other assets, net			345,338			580,844

	Total assets	$	14,171,935		$	14,347,093

LIABILITIES AND STOCKHOLDERS’ EQUITY




Current Liabilities —




Current portion of long-term debt		$	266,509		$	22,130




Accounts payable			395,264			456,063




Accrued closure, post-closure and environmental costs			127,231			126,885




Accrued interest			220,299			192,872




Other accrued liabilities			367,683			402,816




Unearned revenue			236,807			232,769

	Total current liabilities		1,613,793			1,433,535




Long-term debt, less current portion			8,712,803			9,237,503




Deferred income taxes			606,330			418,836




Accrued closure, post-closure and environmental costs			867,206			878,006




Other long-term obligations			430,395			624,390




Commitments and contingencies




Series A senior convertible preferred stock, 1,000 shares authorized, issued and outstanding, liquidation preference of $1,227 and $1,169 per share			1,226,805			1,169,044




Stockholders’ Equity —




Common stock; $0.01 par value; 300,000 authorized shares; 196,563 and 196,236 shares issued and outstanding			1,966			1,962




Additional paid-in capital			1,003,522			1,055,353




Accumulated other comprehensive loss			(65,912	)		(85,120	)




Retained deficit			(224,973	)		(386,416	)

	Total stockholders’ equity		714,603			585,779

	Total liabilities and stockholders’ equity	$	14,171,935		$	14,347,093

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

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


		Nine Months Ended						Three Months Ended
		September 30,						September 30,

		2002			2001			2002			2001

Revenues		$	4,146,781		$	4,180,103		$	1,429,186		$	1,413,400




Cost of operations			2,476,088			2,394,890			852,070			807,839




Selling, general and administrative expenses			362,190			327,605			120,746			119,653




Depreciation and amortization			372,651			347,211			127,127			118,576




Goodwill amortization			—			169,744			—			56,717




Non-cash loss on asset sale			—			107,011			—			—

	Operating income		935,852			833,642			329,243			310,615




Equity in earnings of unconsolidated affiliates			—			(14,072	)		—			—




Interest expense and other			646,400			641,708			219,173			211,068

	Income before income taxes		289,452			206,006			110,070			99,547




Income tax expense			119,725			140,326			45,783			80,746




Minority interest			1,747			3,228			632			509

	Income before extraordinary loss		167,980			62,452			63,655			18,292




Extraordinary loss, net of income tax benefit			6,537			9,453			6,537			—

	Net income		161,443			52,999			57,118			18,292




Dividends on preferred stock			57,771			54,164			19,779			18,544

	Net income (loss) available to common shareholders	$	103,672		$	(1,165	)	$	37,339		$	(252	)

Basic EPS:




Income (loss) available to common shareholders before extraordinary loss, net of income tax benefit		$	0.58		$	0.04		$	0.23		$	(0.00	)




Extraordinary loss, net of income tax benefit			(0.03	)		(0.05	)		(0.03	)		—

	Net income (loss) available to common shareholders	$	0.55		$	(0.01	)	$	0.20		$	(0.00	)

Weighted average common shares			190,193			189,492			190,349			189,772

Diluted EPS:




Income (loss) available to common shareholders before extraordinary loss, net of income tax benefit		$	0.57		$	0.04		$	0.23		$	(0.00	)




Extraordinary loss, net of income tax benefit			(0.03	)		(0.05	)		(0.04	)		—

	Net income (loss) available to common shareholders	$	0.54		$	(0.01	)	$	0.19		$	(0.00	)

Weighted average common and common equivalent shares			193,473			195,521			192,717			196,112

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

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


		Nine Months Ended September 30,

		2002			2001

Operating activities —




Net income		$	161,443		$	52,999




Adjustments to reconcile net income to cash provided by operating activities—




Provisions for:




	Depreciation and amortization		372,651			516,955




	Non-cash loss on asset sale		—			107,011




	Undistributed earnings of equity investment in unconsolidated affiliates		—			(14,072	)




	Doubtful accounts		13,805			12,384




	Accretion of debt and amortization of debt issuance costs		32,860			31,775




	Deferred income tax		107,549			112,925




	Gain on sale of fixed assets		(6,568	)		(11,975	)




	Extraordinary loss due to early extinguishments of debt, net of income tax benefit		4,698			4,828




	Non-cash loss on de-designated interest rate swap contracts		7,886			—




	Amortization of accumulated other comprehensive income for de-designated interest rate swap contracts		26,550			—




Change in operating assets and liabilities, excluding the effects of purchase acquisitions—




	Accounts receivable, prepaid expenses, inventories and other		16,334			(68,175	)




	Accounts payable, accrued liabilities, unearned revenue, stock option tax benefits and other		35,254			(45,534	)




	Expenditures against non-recurring acquisition accruals		(69,699	)		(87,716	)




	Closure and post-closure provision		53,222			50,452




	Closure, post-closure and environmental expenditures		(55,723	)		(70,242	)

Cash provided by operating activities			700,262			591,615

Investing activities —




Cost of acquisitions, net of cash acquired			(29,573	)		(230,693	)




	Proceeds from divestitures, net of cash divested		2,489			359,866




	Accruals for acquisition price and severance costs		—			(1,362	)




	Capital expenditures, excluding acquisitions		(433,825	)		(419,296	)




	Capitalized interest		(16,947	)		(35,864	)




	Proceeds from sale of fixed assets		24,042			23,261




	Change in deferred acquisition costs, notes receivable and other		(12,430	)		(7,619	)

Cash used for investing activities			(466,244	)		(311,707	)

Financing activities —




Net proceeds from exercise of stock options			2,594			6,171




	Proceeds from long-term debt, net of issuance costs		674,582			1,749,944




	Repayments of long-term debt		(969,036	)		(2,057,867	)

Cash used for financing activities			(291,860	)		(301,752	)

Decrease in cash and cash equivalents			(57,842	)		(21,844	)




Cash and cash equivalents, beginning of period			158,841			122,094

Cash and cash equivalents, end of period		$	100,999		$	100,250

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

ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Organization and Summary of Significant Accounting Policies

Allied Waste Industries, Inc., (Allied, we or the Company), a Delaware corporation, is the second largest, non-hazardous solid waste management company in the United States, as measured by revenues. We provide non-hazardous waste collection, transfer, recycling and disposal services in 39 states geographically identified as the Central, Eastern, Southern and Western Areas of the United States.

The Consolidated Financial Statements include the accounts of Allied and its subsidiaries. All significant intercompany accounts and transactions are eliminated in consolidation. The December 31, 2001 balance sheet data included herein is derived from audited financial statements. The Consolidated Balance Sheet as of December 31, 2001 and the unaudited interim Consolidated Financial Statements included herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. As applicable under such regulations, certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. We believe that the presentations and disclosures herein are adequate when read in conjunction with our Annual Report on Form 10-K, for the year ended December 31, 2001. The Consolidated Financial Statements as of September 30, 2002, and for the three and nine months ended September 30, 2002 and 2001 reflect, in the opinion of management, all adjustments (which include normal recurring adjustments) necessary to fairly state the financial position and results of operations for such periods. Certain reclassifications have been made to the prior period financial statements to conform to the current presentation.

There were two non-recurring items recorded during the quarter that are discussed in Note 13. Subsequent to September 30, 2002, we completed the divestiture of certain operations, as discussed in Note 14.

Operating results for interim periods are not necessarily indicative of the results for full years. These Consolidated Financial Statements should be read in conjunction with our Consolidated Financial Statements for the year ended December 31, 2001 and the related notes thereto included in our Annual Report on Form 10-K, for the year ended December 31, 2001.

For a description of our accounting policies, see Note 1 of Notes to Consolidated Financial Statements for the year ended December 31, 2001 in our Annual Report on Form 10-K.

Statements of cash flows —

The supplemental cash flow disclosures and non-cash transactions for the nine months ended September 30, 2002 and 2001 are as follows (in thousands, unaudited):


		Nine Months Ended September 30,

		2002		2001

Supplemental Disclosures -




	Interest paid (net of amounts capitalized)	$	553,505	$	587,322




	Income taxes paid, net of refunds		7,811		71,373





Non-Cash Transactions -




	Debt incurred or assumed in acquisitions	$	85	$	2,258




	Liabilities incurred or assumed in acquisitions		4,215		32,020




	Capital lease obligations incurred		5,156		—




	Dividends on preferred stock		57,771		54,164

Interest expense capitalized —

During the nine months ended September 30, 2002 and 2001, we incurred $599.4 million and $650.6 million, respectively, of interest expense of which $16.9 million and $35.9 million, respectively, was capitalized.

ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Extraordinary losses —

In August 2002, we repaid the 2001 subsidiaries line of credit prior to its maturity. In connection with the repayment, we recognized an extraordinary loss of approximately $10.9 million ($6.5 million, net of tax) related to the write-off of $7.7 million of deferred debt issuance costs and for a $3.2 million prepayment penalty paid. The 2001 subsidiaries line of credit was repaid with the cash from operations and the Revolving Credit Facility.

Use of estimates—

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Although we believe that our estimates and assumptions are reasonable, they are based upon information presently available. Actual results may differ significantly from the estimates under different assumptions or conditions.

Recently issued accounting pronouncements —

In August 2001, the Financial Accounting Standards Board (FASB) issued SFAS 143, Accounting for Asset Retirement Obligations (SFAS 143), which outlines standards for accounting for an obligation associated with the retirement of a long-lived tangible asset and the associated retirement costs. This standard will apply to our accounting for landfill closure and post-closure obligations. We are required to adopt SFAS 143 by January 1, 2003 and are currently assessing the impact that this statement will have on our consolidated financial statements. The adoption of SFAS 143 will have no impact on our cash requirements.

In April 2002, the FASB issued SFAS 145, Rescission of FASB Statements 4, 44 and 64, amendment of FASB Statement 13, and Technical Corrections (SFAS 145), which among other things, restricts the classification of gains and losses from extinguishment of debt as extraordinary such that most debt extinguishment gains and losses will no longer be classified as extraordinary. SFAS 145 is effective January 1, 2003. Under SFAS 145, generally gains and losses on future debt extinguishment, if any, will be recorded in interest expense and other. Upon adoption, extraordinary losses of $6.5 million, $17.0 million and $13.3 million, net of tax for the nine months ended September 30, 2002 and the years ended December 31, 2001 and 2000, respectively, will be reclassified to interest expense and other to conform to the requirements under SFAS 145.

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

Recently adopted accounting pronouncements —

Effective January 1, 2002, we adopted SFAS 144, Accounting for the Impairment or Disposal of Long-Lived Assets, which supercedes SFAS 121. SFAS 144 provides a single accounting model for impairment of long-lived assets held for use and for long-lived assets that are to be disposed of by sale (including discontinued operations). In addition, the statement broadens the presentation of discontinued operations to include certain divestiture transactions that have been previously recorded in operating income. SFAS 144 retained the requirements under SFAS 121 to recognize impairment on long-lived assets, excluding goodwill. The adoption of SFAS 144 had no impact on our consolidated financial statements.

ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Effective January 1, 2002, we adopted SFAS 142, Goodwill and Other Intangibles (SFAS 142), which among other things, eliminates the amortization of goodwill and instead requires an annual assessment of goodwill impairment by applying a fair value based test to each of our four operating segments. See Note 3 for additional discussion.

ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2. Property and Equipment

The following tables show the activity and balances related to property and equipment from December 31, 2000 through September 30, 2002 (in thousands, unaudited):


	Property and Equipment

	Balance at				Sales and			Acquisitions, Net		Transfers and Other			Balance at
	December 31, 2001		Capital Additions		Retirements			of Divestitures		(1)			September 30, 2002

Land and improvements	$	432,875	$	10,138	$	(5,755	)	$	404	$	7,590		$	445,252




Land held for permitting as landfills		131,445		6,261		(216	)		—		(24,607	)		112,883




Landfills		2,269,407		144,936		—			—		45,748			2,460,091




Buildings and improvements		443,149		14,797		(9,753	)		1,362		(3,558	)		445,997




Vehicles and equipment		1,563,394		204,554		(28,540	)		4,235		1,923			1,745,566




Containers and compactors		731,186		50,330		(4,062	)		3,808		(403	)		780,859




Furniture and office equipment		42,232		2,809		(1,553	)		2		417			43,907

Total	$	5,613,688	$	433,825	$	(49,879	)	$	9,811	$	27,110		$	6,034,555


	Accumulated Depreciation and Amortization

	Balance at			Depreciation			Sales and			Acquisitions, Net		Transfers and Other			Balance at
	December 31, 2001			Expense			Retirements			of Divestitures		(1)			September 30, 2002

Land and improvements	$	(13,703	)	$	(3,333	)	$	175		$	—	$	(76	)	$	(16,937	)




Landfills		(494,878	)		(123,102	)		—			—		(504	)		(618,484	)




Buildings and improvements		(70,862	)		(15,967	)		2,447			—		(542	)		(84,924	)




Vehicles and equipment		(683,566	)		(153,648	)		22,880			171		4,068			(810,095	)




Containers and compactors		(315,629	)		(69,518	)		3,909			63		(275	)		(381,450	)




Furniture and office equipment		(24,164	)		(4,357	)		1,505			—		(161	)		(27,177	)

Total	$	(1,602,802	)	$	(369,925	)	$	30,916		$	234	$	2,510		$	(1,939,067	)

Property and equipment, net	$	4,010,886		$	63,900		$	(18,963	)	$	10,045	$	29,620		$	4,095,488


	Property and Equipment

	Balance at				Sales and			Acquisitions, Net			Transfers and Other			Balance at December
	December 31, 2000		Capital Additions		Retirements			of Divestitures			(1)			31, 2001

Land and improvements	$	406,700	$	11,500	$	(16,700	)	$	22,473		$	8,902		$	432,875




Land held for permitting as landfills		127,778		—		—			—			3,667			131,445




Landfills		1,997,733		181,932		—			8,537			81,205			2,269,407




Buildings and improvements		444,348		24,376		(9,660	)		(2,466	)		(13,449	)		443,149




Vehicles and equipment		1,411,068		217,394		(35,743	)		(6,254	)		(23,071	)		1,563,394




Containers and compactors		672,175		55,935		(5,676	)		15,359			(6,607	)		731,186




Furniture and office equipment		39,578		9,775		(764	)		(251	)		(6,106	)		42,232

Total	$	5,099,380	$	500,912	$	(68,543	)	$	37,398		$	44,541		$	5,613,688


	Accumulated Depreciation and Amortization

	Balance at			Depreciation			Sales and			Acquisitions, Net		Transfers and Other			Balance at
	December 31, 2000			Expense			Retirements			of Divestitures		(1)			December 31, 2001

Land and improvements	$	(10,372	)	$	(4,107	)	$	215		$	—	$	561		$	(13,703	)




Landfills		(348,725	)		(149,177	)		—			—		3,024			(494,878	)




Buildings and improvements		(56,285	)		(19,469	)		12,220			671		(7,999	)		(70,862	)




Vehicles and equipment		(571,736	)		(195,772	)		33,089			12,196		38,657			(683,566	)




Containers and compactors		(231,405	)		(89,510	)		5,445			1,065		(1,224	)		(315,629	)




Furniture and office equipment		(20,319	)		(4,598	)		557			196		—			(24,164	)

Total	$	(1,238,842	)	$	(462,623	)	$	51,526		$	14,128	$	33,019		$	(1,602,802	)

Property and equipment, net	$	3,860,538		$	38,279		$	(17,017	)	$	51,526	$	77,560		$	4,010,886

(1)

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

ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

3. Goodwill and Intangible Assets

As discussed in Note 1, we adopted SFAS 142, effective January 1, 2002. SFAS 142 eliminates the amortization of goodwill and instead requires an annual assessment of goodwill impairment by applying a fair value based test to each of our four operating segments. The calculation of fair value is subject to judgments and estimates. We estimate fair value of our operating segments based on net cash flows discounted using a weighted-average cost of capital of approximately 8%. The estimated fair value could change if there were future changes in our capital structure, cost of debt, interest rates, ability to perform at levels that were forecasted or a permanent change to the market capitalization of our Company.

We tested our existing goodwill at January 1, 2002 for realizability and determined that we had no impairment of goodwill and therefore SFAS 142 had no impact to our consolidated financial statements upon adoption (other than the elimination of goodwill amortization discussed above). Since the cash flow and net book value vary by operating segment, the degree of excess fair value also varies by operating segment. Excess fair value is defined as the amount by which the estimated fair value exceeds the net book value. The impairment test of goodwill will be completed more frequently than annually under certain conditions. For example, a significant adverse change in liquidity or the business environment, unanticipated competition, a significant adverse action by a regulator or a disposal of a significant portion of an operating segment could prompt an impairment test between annual assessments.

Under SFAS 142, we evaluate goodwill impairment at our operating segment level, which is an aggregate of several vertically integrated businesses with similar operational characteristics. There is a range of cash earnings from each of the businesses within the vertically integrated asset groups. A divestiture of any individual asset below the operating segment level could result in a loss. At the time of a divestiture of an individual business unit within an operating segment, goodwill is allocated to that business unit and a gain or loss on disposal is derived. Subsequently, the remaining goodwill in the operating segment that the assets were divested from would be re-evaluated for realizability, which could result in an additional loss being recognized.

As discussed in Note 14, in October 2002, we sold certain non-integrated collection operations in Tennessee and Illinois. In connection with this sale, we do not anticipate a loss, and we are currently evaluating the realizability of the remaining goodwill.

ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following calculations adjust net income before extraordinary loss to exclude goodwill amortization expense (in thousands, unaudited):


			For the Nine Months Ended						For the Three Months
			September 30,						Ended September 30,

			2002		2001			2002			2001

Reported net income before extraordinary loss			$	167,980	$	62,452			$	63,655	$	18,292




	Add: goodwill amortization, net of tax effect			—		150,826				—		70,333

Adjusted income before extraordinary loss				167,980		213,278				63,655		88,625




	Less: dividends on preferred stock			57,771		54,164				19,779		18,544

Adjusted net income available to common shareholders before extraordinary loss				110,209		159,114				43,876		70,081




Extraordinary loss, net of taxes				6,537		9,453				6,537		—

Adjusted net income available to common shareholders			$	103,672	$	149,661			$	37,339	$	70,081

EPS before extraordinary loss:
	Basic as reported		$	0.58	$	0.04			$	0.23	$	(0.00	)




		Goodwill amortization, net of tax effect		—		0.80				—		0.37

		Basic as adjusted to exclude goodwill amortization	$	0.58	$	0.84			$	0.23	$	0.37

		Diluted as reported	$	0.57	$	0.04			$	0.23	$	(0.00	)




		Goodwill amortization, net of tax effect		—		0.77				—		0.34

		Diluted as adjusted to exclude goodwill amortization	$	0.57	$	0.81			$	0.23	$	0.34

EPS:




		Basic as reported	$	0.55	$	(0.01	)		$	0.20	$	(0.00	)




		Goodwill amortization, net of tax effect		—		0.80				—		0.37

		Basic as adjusted to exclude goodwill amortization	$	0.55	$	0.79			$	0.20	$	0.37

		Diluted as reported	$	0.54	$	(0.01	)		$	0.19	$	(0.00	)




		Goodwill amortization, net of tax effect		—		0.78				—		0.34

		Diluted as adjusted to exclude goodwill amortization	$	0.54	$	0.77			$	0.19	$	0.34

		Weighted average common shares outstanding for basic EPS		190,193		189,492				190,349		189,772

		Weighted average common and common equivalent shares outstanding for diluted EPS		193,473		195,521				192,717		258,981	^(A)

^(A)

Includes the dilutive effect of the assumed conversion for the Preferred Stock into 62,869 common shares.

ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table shows the activity and balances related to goodwill for the nine months ended September 30, 2002 (in thousands, unaudited):



	Balance as of										Balance as of
	December 31, 2001		Acquisitions		Divestitures			Adjustments ⁽¹⁾			September 30, 2002

Western Area	$	1,423,579	$	7,055	$	—		$	(8,959	)	$	1,421,675




Central Area		1,900,227		8,888		—			(1,042	)		1,908,073




Eastern Area		2,449,308		5,125		(1,385	)		305			2,453,353




Southern Area		2,783,763		1,843		—			1,906			2,787,512

Total	$	8,556,877	$	22,911	$	(1,385	)	$	(7,790	)	$	8,570,613

(1)

Amounts primarily relate to purchase accounting adjustments during the allocation period.

In addition, we have other amortizable intangible assets that consist primarily of the following at September 30, 2002 (in thousands, unaudited):


							Net
		Gross Carrying Value		Accumulated Amortization			Carrying Value

Non-compete agreements		$	15,835	$	(8,756	)	$	7,079




Other			2,474		(397	)		2,077

	Total	$	18,309	$	(9,153	)	$	9,156

Amortization expense for the three and nine months ended September 30, 2002 was $0.8 million and $2.3 million, respectively. Based upon the amortizable assets recorded in the balance sheet at September 30, 2002, amortization expense for each of the next five years declines from $2.7 million to $0.7 million per year.

ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

4. Investments in Unconsolidated Subsidiaries

On April 30, 2001, we modified our ownership structure of four Ref-Fuel facilities to give American Ref-Fuel Company LLC operational control and we retained a minority interest. At December 31, 2001, our equity investment in these entities was approximately $180 million, which was included in other assets on the Consolidated Balance Sheets. In connection with the modification of the ownership structure, we had an option to exchange our minority interest in the four Ref-Fuel facilities for the 99% interest in our equipment purchasing subsidiaries owned by subsidiaries of American Ref-Fuel Company LLC. At December 31, 2001, the minority interest that represented the outside ownership interests in our equipment purchasing subsidiaries was approximately $180 million, which was included in other long-term obligations on the Consolidated Balance Sheets. We exercised the exchange option and completed the exchange on April 30, 2002. We no longer have any interest in the Ref-Fuel facilities and we own 100% of the equipment purchasing subsidiaries.

The assets, liabilities and operations of the equipment purchasing subsidiaries have been and continue to be fully consolidated. The equipment purchasing subsidiaries were established to purchase fixed assets, including vehicles, equipment, containers and compactors, to be used in our operations. During the year ended 2001, we reported approximately $23.2 million in revenues, $3.5 million in operating income and $14.1 million of equity earnings from American Ref-Fuel.

5. Landfill Accounting

We have a network of 168 owned or operated active landfills with a net book value of approximately $1.8 billion at September 30, 2002. The landfills have operating lives ranging from 1 to over 150 years based on available capacity using current annual volumes. The average life of our landfills is approximately 40 years.

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

Landfill assets —

We use the units of production method for purposes of calculating the amortization rate at each landfill. This methodology divides the costs associated with acquiring, permitting and developing the entire landfill by the total remaining disposal capacity of that landfill. The resulting per unit amortization rate is applied to each ton of waste disposed at the landfill and is recorded as expense for that period. We expensed approximately $123.1 million and $111.6 million, or an average of $2.28 per ton and $2.10 per ton consumed, related to landfill amortization during the nine months ended September 30, 2002 and 2001, respectively.

ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Costs associated with developing the landfill include direct costs such as excavation, liners, leachate collection systems, engineering and legal fees, and capitalized interest. Estimated total future development costs for our 168 active landfills was approximately $3.2 billion as of December 31, 2001, excluding capitalized interest, and we expect that this amount will be spent over the remaining operating lives of the landfills. We have available disposal capacity of approximately 2.54 billion tons, or 3.17 billion cubic yards as of December 31, 2001. We classify this total disposal capacity as either permitted (having received the final permit from the governing authorities) or deemed permitted. Our internal requirements to classify disposal capacity as deemed permitted are as follows:

1. We have control of and access to the land where the expansion permit is being sought.

2. All geologic and other technical siting criteria for a landfill have been met, or a variance from such requirements has been received (or can reasonably be expected to be achieved).

3. The political process has been assessed and there are no identified impediments that cannot be resolved.

4. We are actively pursuing the expansion permit and have an expectation that the final local, state and federal permits will be received within the next five years.

5. Senior operations management approval has been obtained.

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

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

Closure and post-closure —

In addition to our portfolio of 168 active landfills, we own or have responsibility for 107 closed landfills no longer accepting waste. As individual areas within each landfill reach capacity, we are required to cap and close the areas in accordance with the landfill site permit. Generally, closure requirements include the application of compacted clay, geosynthetic liners and vegetative soil barriers in addition to the construction of drainage channels and methane gas collection systems among other closure activities.

After the entire landfill site has reached capacity and is closed, we are required to maintain and monitor the site for a post-closure period, which usually extends for 30 years. Post-closure requirements generally include maintenance of the site and monitoring the methane gas collection systems and groundwater systems, among other post-closure activities. Such estimated costs for closure and post-closure as required under Subtitle D regulations are compiled and updated annually for each landfill by local and regional company engineers and reviewed by senior management. The future estimated closure and post-closure costs are increased at an inflation rate of 2.5%, and discounted at a long-term risk-free rate of 7.0%, per annum, based on the timing of the amounts to be expended.

ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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

We charged approximately $53.2 million and $50.5 million related to per unit closure and post- closure expense and periodic accretion during the nine months ended September 30, 2002 and 2001, respectively. Changes in estimates of costs or disposal capacity are treated on a prospective basis for active landfills and are recorded immediately for closed landfills.

Environmental costs —

In connection with the acquisition of companies, we engage independent environmental consulting firms to assist in conducting an environmental assessment of companies acquired from third parties. Several contaminated landfills and other properties were identified during 1999 and 1998 that will require us to incur costs for incremental closure and post-closure measures, remediation activities and litigation costs in the future.

The ultimate amounts for environmental liabilities cannot be precisely determined and estimates of such liabilities made by us, after consultation with our independent environmental engineers, require assumptions about future events due to a number of uncertainties including the extent of the contamination, the appropriate remedy, the financial viability of other potentially responsible parties and the final apportionment of responsibility among the potentially responsible parties. Where we have concluded that our estimated share of potential liabilities is determinable and probable, a provision has been made in the consolidated financial statements.

Since the ultimate outcome of these matters may differ from the estimates used in our assessments to date, the recorded liabilities will be periodically evaluated, as additional information becomes available to ascertain whether the accrued liabilities are adequate. We have determined that the recorded undiscounted liability for environmental matters as of September 30, 2002 and December 31, 2001 of approximately $373.8 million and $395.4 million, respectively, represents the most probable outcome of these contingent matters. We expect costs included in our reserves to be disbursed over the next 30 years. We do not reduce our estimated obligations for proceeds from other potentially responsible parties or insurance companies. When a receipt becomes probable, proceeds are recorded as an offset to environmental expense in operating income. There were no significant recovery receivables outstanding as of September 30, 2002. We do not expect adjustments to estimates, which are reasonably possible in the near term and that may result in changes to recorded amounts, will have a material effect on our consolidated liquidity, financial position or results of operations. However, we believe that it is reasonably possible that the ultimate outcome of environmental matters, excluding closure and post-closure could result in approximately $20 million of additional liability.

The following table shows the activity and balances related to environmental accruals and for closure and post-closure accruals related to open and closed landfills from December 31, 2001 through September 30, 2002 (in thousands, unaudited):


	Balance at		Charges to		Other						Balance at
	12/31/01		Expense		Changes(1)			Payments			9/30/02

Environmental costs	$	395,392	$	—	$	(2,305	)	$	(19,278	)	$	373,809




Open landfills closure and post-closure costs		343,739		42,754		(499	)		(17,280	)		368,714




Closed landfills closure and post-closure costs		265,760		10,468		(5,149	)		(19,165	)		251,914

Total	$	1,004,891	$	53,222	$	(7,953	)	$	(55,723	)	$	994,437

⁽¹⁾

Amounts consist primarily of changes to estimates of costs for landfill liabilities.

ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

6. Long-term Debt

Long-term debt at September 30, 2002 and December 31, 2001 consists of the following (in thousands):


		September 30, 2002		December 31, 2001

		(unaudited)
Revolving credit facility, weighted average rate of 5.91%		$	—	$	—




Tranche A term loan facility, effective rate of 8.99% and 9.48%, respectively			1,079,085		1,157,785




Tranche B term loan facility, effective rate of 8.28% and 9.37%, respectively			805,287		864,018




Tranche C term loan facility, effective rate 9.57% and 9.94%, respectively			966,345		1,036,822




Senior subordinated notes, interest at 10.00%, effective rate of 10.18%			2,005,789		2,006,425




Senior notes, interest at 7.88%, effective rate of 8.14%			873,911		873,812




Senior notes, interest at 7.63%, effective rate of 7.98%			600,000		600,000




Senior notes, interest at 7.38%, effective rate of 7.90%			224,904		224,850




Senior notes, interest at 8.88%, effective rate of 9.16%			600,000		600,000




Senior notes, interest at 8.50%, effective rate of 8.77%			750,000		750,000




Debentures, interest at 7.40%, effective rate of 10.18%			284,742		283,031




Senior notes, interest at 6.10%, effective rate of 8.37%			155,647		153,010




Senior notes, interest at 6.38%, effective rate of 9.34%			144,432		142,059




Debentures, interest at 9.25%, effective rate of 9.90%			95,337		95,169




Senior notes, interest at 7.88%, effective rate of 8.98%			67,969		67,502




	Solid waste revenue bond obligations, weighted average rate of 5.09% and 5.40%, weighted average effective rate of 6.19% and 7.06%, respectively		305,987		313,831




2001 subsidiaries line of credit, effective rate of 8.72%					65,925




Notes payable to banks, finance companies, individuals and others, and obligations under capital leases, interest rates of 0.69% to 16.59%			19,877		25,394





			8,979,312		9,259,633




Less: Current portion			266,509		22,130

		$	8,712,803	$	9,237,503

The effective interest rate includes our interest cost incurred, the effect of interest rate swap contracts, amortization of deferred debt issuance cost and the amortization or accretion of discounts or premiums.

At September 30, 2002, we have approximately $605 million available on the $1.291 billion Revolving Credit Facility, which is part of the 1999 Credit Facility. The Revolving Credit Facility is also used to support the issuance of letters of credit. At September 30, 2002, we had approximately $686 million of letters of credit outstanding. In August 2002, we repaid the 2001 subsidiaries line of credit prior to maturity with cash from operations and the Revolving Credit Facility.

The 2001 Senior Notes, 1999 Credit Facility, 1998 Senior Notes and $850 million of senior notes assumed from BFI are secured by substantially all of the subsidiaries of our wholly owned subsidiary, BFI and certain other wholly owned subsidiaries. As of September 30, 2002, the book value of the assets of the subsidiaries that serve as collateral was approximately $9.0 billion, which represents approximately 63% of our consolidated total assets.

Our ability to pay dividends on preferred and common stock is most significantly limited by the 1999 Credit Facility, which specifies that in order to pay cash dividends, the ratio of Total Debt/EBITDA⁽¹⁾, as defined, must be less than 4:1. At September 30, 2002, that ratio was 5.04:1, precluding the payment of cash dividends. Shares of preferred stock are entitled to cumulative quarterly dividends in an amount equal to 6.5% per annum. Beginning July 30, 2004, the dividend rate on the preferred stock increases to 12% per annum for any dividends that are not paid in cash. There are circumstances under which we would not be required to accrue dividends at the 12% rate. As long as we have a Total Debt/EBITDA ratio of less than 4:1, under the current 1999 Credit Facility, we would be able to pay cash dividends at the 6.5% rate.

⁽¹⁾

EBITDA, used for this calculation, is defined in the 1999 Credit Facility and is based on twelve months trailing amount.

ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

We are subject to the following financial covenants under the 1999 Credit Facility, as amended:


	Total
	Debt/EBITDA⁽¹⁾			EBITDA/Interest⁽¹⁾

From the quarter ending December 31, 2001 to the quarter ending December 31, 2002		5.75	x		2.00	x




From the quarter ending March 31, 2003 to the quarter ending September 30, 2003		5.50	x		2.00	x




From the quarter ending December 31, 2003 to the quarter ending March 31, 2004		5.25	x		2.25	x




From the quarter ending June 30, 2004 to the quarter ending September 30, 2004		5.00	x		2.25	x




From the quarter ending December 31, 2004 to the quarter ending September 30, 2005		4.50	x		2.50	x




For the quarter ending December 31, 2005		4.25	x		2.75	x

⁽¹⁾

EBITDA and interest used for this calculation are defined in the 1999 Credit Facility and are based on twelve month trailing amounts.

At September 30, 2002, we were in compliance with all financial covenants. At September 30, 2002, Total Debt/EBITDA ratio, as defined by the 1999 Credit Facility, was 5.04:1 and or EBITDA/Interest ratio was 2.19:1. We are not subject to any minimum net worth covenants.

7. Derivative Instruments and Hedging Activities

Our interest rate swap portfolio continues to fix a significant portion of our variable rate interest payment obligation, protecting us from cash flow variations arising from changes in short term interest rates. We believe this is prudent given our capital structure. At September 30, 2002, the notional value of our interest rate swap contracts was $2.550 billion with a weighted average of 17 months to maturity. These contracts expire as follows: 4% during the remainder of 2002, 31% during 2003, 55% during 2004, and 10% during 2005. Our 1999 Credit Facility required that 50% of our outstanding credit facility remain hedged through July 2002, and our company policy is that at least 75% of our total debt must be effectively fixed, either directly or through interest rate swap contracts. At September 30, 2002, approximately 96% of our debt was effectively fixed, 68% directly, and 28% through interest rate swap contracts.

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

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

Thus, in December 2001, we began contemplating the possibility of refinancing or prepaying our variable rate debt before the expiration of some interest rate swap contracts. On December 31, 2001, we de-designated $1.5 billion of notional amount interest rate swap contracts due to the possibility that future interest rate payments on the underlying variable rate debt may cease prior to the expiration of the related interest rate swap contracts. We believe that our December 31, 2001 de-designation still reflects current market conditions.

ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In determining the amount to de-designate, we considered various business scenarios. Sensitivity analysis was performed to identify the impact of various alternatives. We then identified only those interest rate swap contracts where we could affirm, based on new and current circumstances, that future interest payments were highly probable. We left those as designated hedge accounting transactions, and de-designated the remaining contracts. Until the underlying variable rate debt is paid, the de-designated interest rate swap contracts are expected to remain in force. These analyses and results were reviewed and approved by senior management and the Board of Directors.

At September 30, 2002, a liability of $143.4 million is included in the Consolidated Balance Sheets in other long-term obligations reflecting the fair market value of our entire interest rate swap portfolio on that date. The liability will fluctuate with market interest rates but will reduce to zero over the terms of each of our interest rate swap contracts. Approximately $13.7 million of the liability at September 30, 2002 relates to contracts maturing within 12 months. Fair value variations over the life of the interest rate swap contracts arise from changes in interest rates and the time value of money.

Designated interest rate swap contracts —

Our designated cash flow interest rate swap contracts are effective as hedges of our variable rate debt. We assume 100% effectiveness in our interest rate hedges, as the notional amounts, indices, repricing dates, and all other significant terms of the swap agreements are matched to the provisions and terms of the variable rate debt being hedged. Changes in fair value of our interest rate swap contracts are reflected in Accumulated Other Comprehensive Income (AOCI). At September 30, 2002, approximately $70.3 million ($42.5 million, net of tax) is included in AOCI.

Expense or income related to swap settlements are recorded in interest expense in earnings for the related variable rate debt over the term of the agreements. If significant terms do not match we will then use the hypothetical swap method to assess any ineffectiveness. Any ineffectiveness is recorded in interest expense in our statement of operations.

De-designated interest rate swap contracts —

Settlement payments and periodic changes in market values of our de-designated interest rate swap contracts are recorded as a gain or loss on derivative contracts included in interest expense and other in our statement of operations. We recorded $9.1 million and $7.9 million, of net loss related to changes in market values and $15.1 million and $44.1 million of settlement costs during the three and nine months ended September 30, 2002, respectively.

When interest rate swap hedging relationships are de-designated or terminated, any accumulated gains or losses in AOCI at the time of de-designation are frozen and amortized over the remaining original contract term. For contracts de-designated, the total amount of loss in AOCI at December 31, 2001 was approximately $65 million ($40 million, net of tax), and $38.7 million ($23.4 million, net of tax) remains in AOCI at September 30, 2002. For the three and nine months ended September 30, 2002, we recorded $8.9 million and $26.6 million, respectively, of amortization expense related to the accumulated losses in AOCI for interest rate swap contracts that were de-designated at December 31, 2001. The amortization expense is recorded in interest expense. There were no de-designated interest rate swap contracts prior to December 31, 2001.

ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

8. Comprehensive Income (Loss)

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


		September 30, 2002			December 31, 2001

		(unaudited)
Interest rate swap contracts designated, unrealized loss, net		$	(42,478	)	$	(45,668	)




Interest rate swap contracts de-designated, unrealized loss, net			(23,434	)		(39,452	)

	Accumulated other comprehensive loss	$	(65,912	)	$	(85,120	)

The components of total comprehensive income (loss) are shown as follows (in thousands, unaudited):


		Nine Months Ended September 30,						Three Months Ended September 30,

		2002			2001			2002			2001

Net income		$	161,443		$	52,999		$	57,118		$	18,292




Other comprehensive income (loss):




	Designated interest rate swap contracts unrealized loss, net of tax effect of ($1,450), ($95,346), ($4,950) and ($39,006)		(2,064	)		(146,037	)		(7,426	)		(59,744	)




	Reclassification to earnings for interest rate swap contracts		63,307			45,271			12,924			26,738

	Total comprehensive income (loss)	$	222,686		$	(47,767	)	$	62,616		$	(14,714	)

9. Net Income Per Common Share

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


	Nine Months Ended				Three Months Ended
	September 30,				September 30,

	2002		2001		2002		2001

Basic earnings per share computation:




Income before extraordinary loss	$	167,980	$	62,452	$	63,655	$	18,292




Less: dividends on preferred stock		57,771		54,164		19,779		18,544

Income (loss) available to common shareholders before extraordinary loss	$	110,209	$	8,288	$	43,876	$	(252	)

Weighted average common shares outstanding		190,193		189,492		190,349		189,772

Basic earnings (loss) per share before extraordinary loss	$	0.58	$	0.04	$	0.23	$	(0.00	)

Diluted earnings per share computation:




Income before extraordinary loss	$	167,980	$	62,452	$	63,655	$	18,292




Less: dividends on preferred stock		57,771		54,164		19,779		18,544

Income (loss) available to common shareholders before extraordinary loss	$	110,209	$	8,288	$	43,876	$	(252	)

Weighted average common shares outstanding		190,193		189,492		190,349		189,772




Dilutive effect of stock, stock options, warrants and contingently issuable shares		3,280		6,029		2,368		6,340

Weighted average common and common equivalent shares outstanding		193,473		195,521		192,717		196,112

Diluted earnings (loss) per share before extraordinary loss	$	0.57	$	0.04	$	0.23	$	(0.00	)

Conversion has not been assumed for the Preferred Stock into 66,005, 61,883, 67,057 and 62,869 common shares and stock options of 10,809, 2,610, 13,998 and 2,351 for the nine months and three months ended September 30, 2002 and 2001, respectively, as the effects would not be dilutive.

ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

10. Commitments and Contingencies

We are subject to extensive and evolving laws and regulations and have implemented our own environmental safeguards to respond to regulatory requirements. In the normal course of conducting our operations, we become involved in certain legal and administrative proceedings. Some of these actions may result in fines, penalties or judgments against us, which may have an impact on earnings for a particular period. We accrue for litigation and regulatory compliance contingencies when such costs are probable and can reasonably be estimated. We expect that matters in process at September 30, 2002, which have not been accrued in the Consolidated Balance Sheets, will not have a material adverse effect on our consolidated liquidity, financial position or results from operations.

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

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


	December 31, 2001

2002	$	29,252




2003		27,393




2004		23,299




2005		19,341




2006		16,818




Thereafter		51,743

We have entered into employment agreements with certain of our executive officers for periods up to three years. Under these agreements, in some circumstances, the Company may be obligated to pay an amount equal to the largest annual bonus paid to the employee for any of the last three years preceding the date of termination and to continue making base salary payments through the term of the agreement. Additionally, under certain circumstances, including a change in control, as defined in the employment agreements, we have agreed to pay severance amounts equal to a multiple of defined compensation. If a termination occurs in conjunction with a change in control, as defined in the employment agreements, the Company is obligated to pay an additional amount equal to two times the sum of the employee’s base salary on the date of termination and the bonus paid to the employee for the previous year.

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

ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

We are also required to provide financial assurances to governmental agencies under applicable environmental regulations relating to our landfill operations and collection contracts. We satisfy the financial assurance requirements by providing performance bonds, letters of credit, insurance policies or trust deposits to secure our obligations as they relate to landfill closure and post-closure costs, performance under certain collection, landfill and transfer station contracts, our risk and casualty insurance and collateral required for certain performance obligations. During the remainder of 2002, we expect no material increase in financial assurance obligations relating to landfill operations and collection contracts although the mix of financial assurance instruments may change.

At September 30, 2002, we had the following financial assurance instruments (in thousands):


	Landfill		Contract		Risk/Casualty		Collateral for
	Closure/Post-Closure		Performance		Insurance		Obligations		Total

Insurance Polices	$	1,016,344	$	—	$	—	$	—	$	1,016,344




Surety Bonds		346,630		584,772		—		53,493		984,895




Trust Deposits		63,145		—		—		—		63,145




Letters of Credit (1)		209,042		44,731		203,302		229,306		686,381

Total	$	1,635,161	$	629,503	$	203,302	$	282,799	$	2,750,765

(1)

These amounts are outstanding under the Revolving Credit Facility, which is part of the 1999 Credit Facility.

These financial instruments are issued in the normal course of business and are not reflected in the accompanying Consolidated Balance Sheets. The underlying obligations of the financial instruments are valued and recorded in the Consolidated Balance Sheets based on the likelihood of performance being required. We do not expect any material losses to result from these off balance sheet instruments based on historical results.

As discussed in our Annual Report on Form 10-K for the year ended December 31, 2001, we are currently under examination by various state and federal taxing authorities for certain tax years. A federal audit for the years ended December 31, 1998 and 1999, as well as BFI tax years ended September 30, 1996 through July 30, 1999 is ongoing. Also, in the Annual Report, we disclosed the possibility that the IRS could seek to disallow some or all of a capital loss included in BFI’s July 30, 1999 tax return and indicated that such a disallowance could have a tax effect of up to $360 million.

During the second quarter 2002, we received notification from the IRS disallowing all of the capital loss referred to above. If such disallowance were ultimately fully sustained, we now estimate we could owe additional federal and state income tax of up to $310 million and accrued interest through September 30, 2002 of approximately $38 million. We also received a notification from the IRS assessing a penalty of between 20% and 40% of the additional income tax resulting from the disallowance. Because of several meritorious defenses, we believe the successful assertion of penalties is remote.

In October 2002, the IRS issued a revenue procedure outlining two resolution alternatives related to this matter. Taxpayers can elect to participate under this revenue procedure if certain eligibility requirements are met. We are currently evaluating the IRS issuance. We continue to believe our position is well supported and we will vigorously contest the disallowance. The resolution of this matter may entail efforts including administrative appeals and litigation which could extend over several years. An unfavorable result could require future cash expenditures but should have minimal, if any, impact on our consolidated results of operations.

ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

11. Segment Reporting

Our revenues are derived from one industry, which includes the collection, transfer, recycling and disposal of non-hazardous solid waste. We evaluate performance based on several factors, of which the primary financial measure is EBITDA and is defined as earnings before interest, taxes, depreciation and amortization. EBITDA is not a measure of operating income, operating performance or liquidity under GAAP and may not be comparable to similarly titled measures reported by other companies. Management uses EBITDA in the evaluation of operating performance as it represents operational cash flows and is a profit measure of components that are within the control of the business segments. The accounting policies of the business segments are the same as those described in the Organization and Summary of Significant Accounting Policies (See Note 1).

As of January 1, 2002, we expanded our existing infrastructure by increasing the number of areas, regions and districts. As a result of the change in our infrastructure, we manage our operations through four geographic operating segments: Eastern, Southern, Central and Western. Each area is responsible for managing several vertically integrated operations which are comprised of three regions. Results by segment have been restated for previous periods to reflect this change. The tables below reflect certain geographic information relating to our operations for the nine and three months ended September 30, 2002 and 2001 (in thousands, unaudited):


	Nine Months Ended September 30, 2002							Nine Months Ended September 30, 2001

	Revenues							Revenues
	from external		Intersegment					from external		Intersegment
	customers		revenues		EBITDA			customers		revenues		EBITDA⁽²⁾

Eastern	$	1,175,254	$	275,814	$	330,943		$	1,220,297	$	292,024	$	382,374
Southern		1,007,161		203,135		347,227			1,033,409		185,770		406,661
Central		1,052,518		249,091		381,527			1,036,045		238,509		400,141
Western		890,709		166,109		311,481			866,133		162,283		334,251
Other⁽¹⁾		21,139		—		(62,675	)		24,219		—		(65,819	)

Total	$	4,146,781	$	894,149	$	1,308,503		$	4,180,103	$	878,586	$	1,457,608


	Three Months Ended September 30, 2002							Three Months Ended September 30, 2001

	Revenues							Revenues
	from external		Intersegment					from external		Intersegment
	customers		revenues		EBITDA			customers		revenues		EBITDA

Eastern	$	407,639	$	97,622	$	110,671		$	406,195	$	98,331	$	128,883
Southern		339,255		69,178		114,519			345,205		66,788		126,890
Central		366,129		85,491		127,027			350,420		81,261		130,363
Western		308,773		58,194		110,155			302,661		52,338		119,904
Other⁽¹⁾		7,390		—		(6,002	)		8,919		—		(20,132	)

Total	$	1,429,186	$	310,485	$	456,370		$	1,413,400	$	298,718	$	485,908

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




(2)		EBITDA is before non-cash loss on asset sale.

Reconciliation of reportable segment primary financial measure to net income before income taxes (in thousands, unaudited):


		Nine Months Ended September 30,						Three Months Ended September 30,

		2002			2001⁽¹⁾			2002			2001

Income before incomes taxes:




Total EBITDA for reportable segments		$	1,308,503		$	1,457,608		$	456,370		$	485,908




Depreciation and amortization			(372,651	)		(516,955	)		(127,127	)		(175,293	)




Non-cash loss on asset sale			—			(107,011	)		—			—




Equity in earnings of unconsolidated affiliates			—			14,072			—			—




Interest expense and other			(646,400	)		(641,708	)		(219,173	)		(211,068	)

	Income before income taxes	$	289,452		$	206,006		$	110,070		$	99,547

(1)

Total EBITDA for reportable segments is before non-cash loss on asset sale.

ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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


		Nine Months Ended September 30,										Three Months Ended September 30,

		2002					2001					2002					2001

Collection		$	3,142,830		62.3	%	$	3,157,807		62.5	%	$	1,067,764		61.4	%	$	1,068,344		62.4	%




Disposal⁽¹⁾			1,585,915		31.5			1,578,567		31.2			558,442		32.1			545,318		31.9




Recycling			182,703		3.6			176,050		3.5			67,627		3.9			54,023		3.2




Other			129,482		2.6			146,265		2.8			45,838		2.6			44,433		2.5

			5,040,930		100.0	%		5,058,689		100.0	%		1,739,671		100.0	%		1,712,118		100.0	%

Intercompany Reported			(894,149	)				(878,586	)				(310,485	)				(298,718	)

	revenues	$	4,146,781				$	4,180,103				$	1,429,186				$	1,413,400

(1)

Transfer revenues are included in disposal.

12. Condensed Consolidating Financial Statements of Allied Waste Industries, Inc.

The 1998 Senior Notes, 1999 Notes and the 2001 Senior Notes issued by Allied NA (our wholly owned subsidiary) and certain debt of BFI (all of which are no longer registered under the Securities and Exchange Act of 1934) are guaranteed by us. All guarantees (including those of the guarantor subsidiaries) are full, unconditional and joint and several of Allied NA’s and BFI’s debt. Presented below are Condensed Consolidating Balance Sheets as of September 30, 2002 and December 31, 2001, Condensed Consolidating Statements of Operations for the three and nine months ended September 30, 2002 and 2001 and Condensed Consolidating Statements of Cash Flows for the nine months ended September 30, 2002 and 2001 of Allied Waste Industries, Inc. (Parent), Allied NA (Issuer), the guarantor subsidiaries (Guarantors) and the subsidiaries which are not guarantors (Non-guarantors):

ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

CONDENSED CONSOLIDATING BALANCE SHEET
(in thousands, unaudited)


		September 30, 2002

									Non-
		Parent		Issuer		Guarantors			Guarantors			Eliminations			Consolidated

ASSETS




Current Assets —




Cash and cash equivalents		$	144	$	5,060	$	93,187		$	2,608		$	—		$	100,999




Accounts receivable, net			—		—		727,690			11,074			—			738,764




Prepaid and other current assets			—		—		44,001			64,566			—			108,567




Deferred income taxes, net			—		—		207,960			4,206			—			212,166

	Total current assets		144		5,060		1,072,838			82,454			—			1,160,496




Property and equipment, net			—		—		4,074,828			20,660			—			4,095,488




Goodwill, net			—		—		8,498,199			72,414			—			8,570,613




Investment in subsidiaries			3,290,449		12,473,040		—			—			(15,763,489	)		—




Other assets, net			—		142,540		132,712			70,086			—			345,338

	Total assets	$	3,290,593	$	12,620,640	$	13,778,577		$	245,614		$	(15,763,489	)	$	14,171,935

LIABILITIES AND STOCKHOLDERS’ EQUITY




Current Liabilities —




Current portion of long-term debt		$	—	$	104,085	$	162,424		$	—		$	—		$	266,509




Accounts payable			—		—		391,041			4,223			—			395,264




Accrued closure, post-closure and environmental costs			—		—		127,231			—			—			127,231




Accrued interest			—		205,100		15,199			—			—			220,299




Other accrued liabilities			52,750		—		173,605			141,328			—			367,683




Unearned revenue			—		—		234,401			2,406			—			236,807

	Total current liabilities		52,750		309,185		1,103,901			147,957			—			1,613,793




Long-term debt, less current portion			—		7,801,236		911,567			—			—			8,712,803




Deferred income taxes			—		—		619,200			(12,870	)		—			606,330




Accrued closure, post-closure and environmental costs			—		—		864,476			2,730			—			867,206




Due to/(from) parent			1,281,784		1,097,718		(2,311,679	)		(67,823	)		—			—




Other long-term obligations			14,651		143,409		272,135			200			—			430,395




Commitments and contingencies Series A Senior Convertible Preferred Stock			1,226,805		—		—			—			—			1,226,805




Stockholders’ Equity			714,603		3,269,092		12,318,977			175,420			(15,763,489	)		714,603

Total liabilities and stockholders’ equity		$	3,290,593	$	12,620,640	$	13,778,577		$	245,614		$	(15,763,489	)	$	14,171,935

ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATING BALANCE SHEET
(in thousands)


		December 31, 2001

		Parent		Issuer			Guarantors		Non-Guarantors			Eliminations			Consolidated

ASSETS




Current Assets —




Cash and cash equivalents		$	149	$	8,851		$	115,726	$	34,115		$	—		$	158,841




Accounts receivable, net			—		—			734,267		17,149			—			751,416




Prepaid and other current assets			—		—			90,686		41,340			—			132,026




Deferred income taxes, net			—		—			156,203		—			—			156,203

	Total current assets		149		8,851			1,096,882		92,604			—			1,198,486




Property and equipment, net			—		—			3,776,651		234,235			—			4,010,886




Goodwill, net			—		—			8,484,468		72,409			—			8,556,877




Investment in subsidiaries			2,703,035		4,372,354			—		—			(7,075,389	)		—




Other assets, net			—		165,320			364,553		50,971			—			580,844

	Total assets	$	2,703,184	$	4,546,525		$	13,722,554	$	450,219		$	(7,075,389	)	$	14,347,093

LIABILITIES AND STOCKHOLDERS’ EQUITY




Current Liabilities —




Current portion of long-term debt		$	—	$	—		$	11,780	$	10,350		$	—		$	22,130




Accounts payable			—		—			447,143		8,920			—			456,063




Accrued closure, post-closure and environmental costs			—		—			126,885		—			—			126,885




Accrued interest			—		165,601			27,271		—			—			192,872




Other accrued liabilities			30,723		—			293,022		79,071			—			402,816




Unearned revenue			—		—			230,359		2,410			—			232,769

	Total current liabilities		30,723		165,601			1,136,460		100,751			—			1,433,535




Long-term debt, less current portion			—		8,113,711			1,068,217		55,575			—			9,237,503




Deferred income taxes			—		—			418,805		31			—			418,836




Accrued closure, post-closure and environmental costs			—		—			875,566		2,440			—			878,006




Due to/(from) parent			903,638		(6,414,670	)		5,564,499		(53,467	)		—			—




Other long-term obligations			14,000		—			609,905		485			—			624,390




Commitments and contingencies Series A Senior Convertible Preferred Stock			1,169,044		—			—		—			—			1,169,044




Stockholders’ Equity			585,779		2,681,883			4,049,102		344,404			(7,075,389	)		585,779

	Total liabilities and stockholders’ equity	$	2,703,184	$	4,546,525		$	13,722,554	$	450,219		$	(7,075,389	)	$	14,347,093

ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
(in thousands, unaudited)


		Nine Months Ended September 30, 2002

		Parent			Issuer			Guarantors		Non-Guarantors			Eliminations			Consolidated

Revenues		$	—		$	—		$	3,983,767	$	163,014		$	—		$	4,146,781




Cost of operations			—			—			2,360,088		116,000			—			2,476,088




Selling, general and administrative expenses			6,964			375			349,232		5,619			—			362,190




Depreciation and amortization			—			—			359,083		13,568			—			372,651

	Operating (loss) income		(6,964	)		(375	)		915,364		27,827			—			935,852




Equity in earnings of subsidiaries			(129,073	)		(458,341	)		—		—			587,414			—




Interest expense and other			1,066			569,007			78,546		(2,219	)		—			646,400




Intercompany interest expense (income)			(59,070	)		(24,801	)		82,957		914			—			—




Management fees			(3,750	)		—			3,225		525			—			—

	Income (loss) before income taxes		183,863			(86,240	)		750,636		28,607			(587,414	)		289,452




Income tax expense (benefit)			22,420			(215,109	)		299,534		12,880			—			119,725




Minority interest			—			—			1,747		—			—			1,747

Income before extraordinary loss			161,443			128,869			449,355		15,727			(587,414	)		167,980




Extraordinary loss, net of Income tax benefit			—			—			6,537		—			—			6,537

	Net income		161,443			128,869			442,818		15,727			(587,414	)		161,443




Dividends on preferred stock			57,771			—			—		—			—			57,771

	Net income available to common shareholders	$	103,672		$	128,869		$	442,818	$	15,727		$	(587,414	)	$	103,672

ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS


		Nine Months Ended September 30, 2001

		Parent			Issuer			Guarantors			Non-Guarantors		Eliminations			Consolidated

Revenues		$	—		$	—		$	4,035,833		$	144,270	$	—		$	4,180,103




Cost of operations			—			—			2,300,774			94,116		—			2,394,890




Selling, general and administrative expenses			7,930			—			315,080			4,595		—			327,605




Depreciation and amortization			—			—			339,252			7,959		—			347,211




Goodwill amortization			—			—			168,169			1,575		—			169,744




Non-cash loss on asset sale			—			—			107,011			—		—			107,011

	Operating (loss) income		(7,930	)		—			805,547			36,025		—			833,642




Equity in earnings on unconsolidated affiliates			—			—			(14,072	)		—		—			(14,072	)




Equity in earnings of subsidiaries			(20,575	)		(352,434	)		—			—		373,009			—




Interest expense and other			68			568,122			72,199			1,319		—			641,708




Intercompany interest expense (income)			(59,475	)		(28,672	)		86,022			2,125		—			—




Management fees			(3,750	)		—			3,124			626		—			—

	Income (loss) before income taxes		75,802			(187,016	)		658,274			31,955		(373,009	)		206,006




Income tax expense (benefit)			22,803			(213,083	)		318,427			12,179		—			140,326




Minority interest			—			—			3,228			—		—			3,228

	Income before extraordinary loss		52,999			26,067			336,619			19,776		(373,009	)		62,452




Extraordinary loss, net of income tax benefit			—			9,453			—			—		—			9,453

	Net income		52,999			16,614			336,619			19,776		(373,009	)		52,999




Dividends on preferred stock			54,164			—			—			—		—			54,164

	Net income (loss) available to common shareholders	$	(1,165	)	$	16,614		$	336,619		$	19,776	$	(373,009	)	$	(1,165	)

ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
(in thousands, unaudited)


		Three Months Ended September 30, 2002

		Parent			Issuer			Guarantors		Non-Guarantors			Eliminations			Consolidated

Revenues		$	—		$	—		$	1,384,779	$	44,407		$	—		$	1,429,186




Cost of operations			—			—			811,133		40,937			—			852,070




Selling, general and administrative expenses			2,227			125			116,603		1,791			—			120,746




Depreciation and amortization			—			—			126,145		982			—			127,127

	Operating (loss) income		(2,227	)		(125	)		330,898		697			—			329,243




Equity in earnings of subsidiaries			(46,157	)		(159,148	)		—		—			205,305			—




Interest expense and other			160			194,511			27,164		(2,662	)		—			219,173




Intercompany interest expense (income)			(19,690	)		(8,267	)		27,662		295			—			—




Management fees			(1,250	)		—			1,075		175			—			—

	Income (loss) before income taxes		64,710			(27,221	)		274,997		2,889			(205,305	)		110,070




Income tax expense (benefit)			7,592			(73,616	)		110,129		1,678			—			45,783




Minority interest			—			—			632		—			—			632

	Income before extraordinary loss		57,118			46,395			164,236		1,211			(205,305	)		63,655




Extraordinary loss, net of income tax benefit			—			—			6,537		—			—			6,537

	Net income		57,118			46,395			157,699		1,211			(205,305	)		57,118




Dividends on preferred stock			19,779			—			—		—			—			19,779

	Net income available to common shareholders	$	37,339		$	46,395		$	157,699	$	1,211		$	(205,305	)	$	37,339

ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
(in thousands, unaudited)


		Three Months Ended September 30, 2001

		Parent			Issuer			Guarantors		Non-Guarantors		Eliminations			Consolidated

Revenues		$	—		$	—		$	1,311,369	$	102,031	$	—		$	1,413,400




Cost of operations			—			—			733,883		73,956		—			807,839




Selling, general and administrative expenses			2,510			—			115,349		1,794		—			119,653




Depreciation and amortization			—			—			113,368		5,208		—			118,576




Goodwill amortization			—			—			56,192		525		—			56,717

	Operating (loss) income		(2,510	)		—			292,577		20,548		—			310,615




Equity in earnings of subsidiaries			(7,432	)		(109,805	)		—		—		117,237			—




Interest expense and other			68			185,268			24,540		1,192		—			211,068




Intercompany interest expense (income)			(19,825	)		(9,510	)		27,237		2,098		—			—




Management fees			(1,250	)		—			624		626		—			—

	Income (loss) before income taxes		25,929			(65,953	)		240,176		16,632		(117,237	)		99,547




Income tax expense (benefit)			7,637			(69,424	)		136,228		6,305		—			80,746




Minority interest			—			—			509		—		—			509

	Net income		18,292			3,471			103,439		10,327		(117,237	)		18,292




Dividends on preferred stock			18,544			—			—		—		—			18,544

	Net income (loss) available to common shareholders	$	(252	)	$	3,471		$	103,439	$	10,327	$	(117,237	)	$	(252	)

ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
(in thousands, unaudited)


		Nine Months Ended September 30, 2002

		Parent			Issuer			Guarantors			Non-Guarantors			Eliminations		Consolidated

Cash provided by (used for) operating activities		$	(2,599	)	$	74,800		$	582,910		$	45,151		$	—	$	700,262

Investing activities —




	Cost of acquisitions, net of cash acquired		—			—			(29,573	)		—			—		(29,573	)




	Proceeds from divestitures, net of cash divested		—			—			2,489			—			—		2,489




	Capital expenditures, excluding acquisitions		—			—			(236,752	)		(197,073	)		—		(433,825	)




	Capitalized interest		—			—			(16,947	)		—			—		(16,947	)




	Proceeds from sale of fixed assets		—			—			22,654			1,388			—		24,042




	Other investing activities		—			—			(12,430	)		—			—		(12,430	)

Cash used for investing activities			—			—			(270,559	)		(195,685	)		—		(466,244	)

Financing activities —




	Net proceeds from exercise of stock options		2,594			—			—			—			—		2,594




	Proceeds from long-term debt, net of issuance Costs		—			484,190			(2,308	)		192,700			—		674,582




	Repayments of long-term debt		—			(692,097	)		(264,976	)		(11,963	)		—		(969,036	)




	Intercompany and capital funding between issuer and subsidiary		—			129,316			(67,606	)		(61,710	)		—		—

Cash provided by (used for) financing activities			2,594			(78,591	)		(334,890	)		119,027			—		(291,860	)

Decrease in cash and cash equivalents			(5	)		(3,791	)		(22,539	)		(31,507	)		—		(57,842	)




Cash and cash equivalents, beginning of period			149			8,851			115,726			34,115			—		158,841

Cash and cash equivalents, end of period		$	144		$	5,060		$	93,187		$	2,608		$	—	$	100,999


		Nine Months Ended September 30, 2001

		Parent			Issuer			Guarantors			Non-Guarantors			Eliminations		Consolidated

Cash provided by (used for) operating activities		$	(6,977	)	$	(358,173	)	$	967,276		$	(10,511	)	$	—	$	591,615

Investing activities —




	Cost of acquisitions, net of cash acquired		—			—			(230,693	)		—			—		(230,693	)




	Proceeds from divestitures, net of cash divested		—			—			359,866			—			—		359,866




	Accruals for acquisition price and severance		—			—			(1,362	)		—			—		(1,362	)




	Capital expenditures, excluding acquisitions		—			—			(207,909	)		(211,387	)		—		(419,296	)




	Capitalized interest		—			—			(35,864	)		—			—		(35,864	)




	Proceeds from sale of fixed assets		—			—			23,047			214			—		23,261




	Other investing activities		—			—			(8,909	)		1,290			—		(7,619	)

Cash used for investing activities			—			—			(101,824	)		(209,883	)		—		(311,707	)

Financing activities —




	Net proceeds from exercise of stock options		6,171			—			—			—			—		6,171




	Proceeds from long-term debt, net of issuance costs		—			1,726,553			(21,609	)		45,000			—		1,749,944




	Repayments of long-term debt		—			(2,046,053	)		(10,877	)		(937	)		—		(2,057,867	)




	Intercompany between issuer and subsidiaries		—			681,170			(873,356	)		192,186			—		—

Cash provided by (used for) financing activities			6,171			361,670			(905,842	)		236,249			—		(301,752	)

Increase (decrease) in cash and cash equivalents			(806	)		3,497			(40,390	)		15,855			—		(21,844	)




Cash and cash equivalents, beginning of period			959			2,669			117,840			626			—		122,094

Cash and cash equivalents, end of period		$	153		$	6,166		$	77,450		$	16,481		$	—	$	100,250

ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

13. Non-recurring items

During the quarter ended September 30, 2002, we had two non-recurring items. During the quarter, a legal matter was resolved. The accrual for this legal matter that had been established in connection with the acquisition of BFI was no longer necessary. We reversed approximately $10.7 million of accruals in connection with the legal settlement to cost of operations.

In addition, based on a change in the long-term disposal plans of a municipality that became known during the quarter, management determined that a market development project was no longer viable. As a result, we recorded a non-cash charge of $9.9 million to cost of operations for the write-off of costs that had been previously deferred associated with the project.

14. Subsequent events

In October 2002, we sold certain non-integrated collection operations for net proceeds of approximately $70 million. In connection with our strategic business model and ongoing review of the operations, we determined that the sale of such assets would allow us to deploy proceeds from the sale to purchase more productive assets in other markets that improve our market density and internalization. We have initially used the proceeds to repay debt and plan to redeploy approximately $30 million of the proceeds to purchase other assets. The carrying value of the assets sold was approximately $65 million at the time of the sale. Revenues and net operating income of the sold operations represent approximately 1% of our consolidated revenue and net operating income for the period prior to the sale during 2002. The assets were held for use and were not previously impaired based on the criteria and analysis under SFAS 144, Accounting for the Impairment or Disposal of Long-Lived Assets. In connection with this sale, we do not anticipate a loss and are currently evaluating the realizability of the remaining goodwill in accordance with SFAS 142.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

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

Introduction

Allied Waste Industries Inc. (Allied or we), a Delaware corporation, is the second largest non-hazardous solid waste management company in the United States. We operate as a vertically integrated company providing collection, transfer, disposal and recycling services for approximately 10 million residential, commercial and industrial customers. We serve customers through a network of 343 collection companies, 174 transfer stations, 168 active landfills, and 65 recycling facilities within 39 states.

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

Effective January 1, 2002, we expanded our existing organization into four areas: Eastern, Southern, Central and Western. The areas are further divided into twelve regions. Consistent with the vertical integration business model, each region is organized into several operating districts and each district contains a group of specific site operations. Each of our regions, and substantially all of our districts include collection, transfer, recycling and disposal services, which facilitates efficient and cost effective waste handling and allows the regions and districts to maximize the efficiencies from the internalization of waste. This expansion was implemented to provide our field operators better flexibility to manage profitability by reducing the amount of revenue and geographic area each is responsible for managing.

General

Our business strategy is to develop vertically integrated operations to internalize the waste we collect and thus realize higher margins from our operations. By disposing of waste at company-owned and/or operated landfills, we retain the margin generated through disposal operations that would otherwise be earned by third-party landfills. Approximately 67% of the waste we collect as measured by disposal volumes was disposed of at landfills we own and/or operate in the third quarter of 2002, which is comparable to the quarter ended September 30, 2001. In addition, transfer stations are an integral part of the disposal process. We locate our transfer stations in areas where our landfills are outside of the population centers in which we collect waste. Such waste is transferred to long-haul trailers or rail cars and transported to our landfills.

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

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


	Nine Months Ended September 30,

	2002					2001

Collection	$	3,142,830		62.3	%	$	3,157,807		62.5	%




Disposal⁽¹⁾		1,585,915		31.5			1,578,567		31.2




Recycling		182,703		3.6			176,050		3.5




Other		129,482		2.6			146,265		2.8

		5,040,930		100.0	%		5,058,689		100.0	%

Intercompany		(894,149	)				(878,586	)

Reported revenues	$	4,146,781				$	4,180,103

(1)

Transfer revenues are included in disposal.

Revenues by Area:


		Nine Months Ended September 30,

		2002			2001
Eastern			28.3	%		29.2	%




Southern			24.3			24.7




Central			25.4			24.8




Western			21.5			20.7




Other⁽¹⁾			0.5			0.6

	Total revenues		100.0	%		100.0	%

(1)

Amounts relate primarily to our subsidiaries which provide services throughout the organization.

Operating Expenses. Cost of operations includes expenses related to labor, repairs and maintenance, equipment and facility rent, utilities and taxes, environmental compliance and remediation, safety and insurance, disposal and costs of independent haulers transporting our waste to the disposal site. Disposal costs include host community fees, landfill royalty payments, landfill site maintenance, fuel and other equipment operating expenses and increases in the accruals for estimated closure and post-closure monitoring expenses. Selling, general and administrative expenses include compensation and overhead for corporate and field general management, accounting and finance, legal, management information systems and clerical and administrative departments in addition to sales, investor and community relations and provisions for estimated uncollectible accounts receivable.

Critical Accounting Judgments and Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities in the consolidated financial statements. The U.S. Securities and Exchange Commission has defined a company’s most critical accounting policies as the ones that are most important to the portrayal of the company’s financial condition and results of operations, and which require the company to make its most difficult and subjective judgments, often as a result of the need to make estimates of matters that are inherently uncertain. These judgments and estimates often involve future events. Based on this definition, we have identified the critical accounting policies and judgments addressed under Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2001. Below is an update of those judgments and estimates to include the evaluation of deferred contract costs associated with potential future revenue producing contracts and the evaluation of goodwill impairment as prescribed by SFAS 142, which was adopted on January 1, 2002. Although we believe that our estimates and assumptions are reasonable, they are based upon information available at the time of the valuations. Actual results may differ significantly from estimates under different assumptions or conditions.

Deferred Contract Costs —

Nature of Asset: We incur costs associated with business development projects and long-term revenue producing contracts. Certain costs incremental and directly related to these activities, such as legal, engineering, and third party consultant fees, are deferred and recognized as operating expense over the period of benefit. At September 30, 2002, we have invested approximately $6.5 million on development projects such as waste transfer sites and disposal contracts in anticipation of receiving or in conjunction with long-term revenue producing contracts.

Evaluation of Realizability: If circumstances occur where we believe a project would not be consummated, the costs would be immediately expensed. During third quarter 2002, we recorded a charge of $9.9 million for the write-off of certain deferred costs associated with a project we no longer believe will be consummated. At this time we believe that the on-going projects are viable and we are actively working towards finalization. However, resolving the details of the projects is dependent upon contractual, legislative, regulatory, and financing elements.

Residual Accounting Risk: There is risk that issues surrounding finalization of the contracts and obtaining permits may not be satisfactorily resolved to enable us to go forward with the projects. If future circumstances indicate that it is no longer prudent to continue to develop a project, or we determine it is no longer a viable project, we would recognize the accumulated deferred contract costs immediately as a charge to operating expense. There may be additional costs incurred between now and the time that any such determination is made.

Goodwill Recoverability Evaluation —

Valuation Methodology: We evaluate goodwill for impairment based on fair value of each operating segment. We estimate fair value using discounted cash flows.

Evaluation Criteria: SFAS 142 requires an annual assessment of goodwill impairment to be completed by applying a fair value based test to each of our segments. In addition, we test goodwill for recoverability between annual evaluations whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable. Examples of such events could include a significant adverse change in legal factors, liquidity or in the business climate, a significant adverse action or assessment by a regulator, unanticipated competition, or new circumstances that would cause an expectation that it is more likely than not that we would sell or otherwise dispose of an operating segment or a significant portion of an operating segment.

Recognition Criteria: We recognize an impairment for the difference between the net book value and the fair value of goodwill, if the net book value exceeds the fair value. We estimate the fair value of our operating segments based on net cash flows discounted using a weighted-average cost of capital.

Residual Accounting Risk: If there are changes in events or circumstances, including lower than anticipated cash flows generated by our operations or determinations to divest of certain operations, goodwill could be impaired which would result in a non-cash charge to earnings. The estimated fair value could change as there are future changes in our capital structure, cost of debt, interest rates, ability to perform at levels that were forecasted, or a permanent change in our market capitalization. Since the cash flows and net book value vary by operating segment, the degree of excess fair value also varies by operating segment. Excess fair value is defined as the amount by which the estimated fair value exceeds the net book value.

In the past, we have incurred non-cash losses on sales of assets when we believed that re-deployment of the proceeds from the sale of such assets could improve operations and was economically beneficial. If such decisions are made in the future, we could incur additional non-cash losses on asset sales. Under SFAS 142 we evaluate goodwill impairment at our operating segment level (our four geographic areas), which is an aggregate of several vertically integrated businesses with similar operational characteristics. There is a range of cash earnings from the businesses within the vertically integrated asset groups. A divestiture of any individual asset below the operating segment level could result in a loss. At the time of a divestiture of an individual business unit within an operating segment, goodwill is allocated to that business unit and a gain or loss on disposal is derived. Subsequently, the remaining goodwill in the operating segment that the assets were divested from is re-evaluated for realizability, which could result in additional loss being recognized.

Results of Operations

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


		Nine Months Ended September 30,						Three Months Ended September 30,

		2002			2001			2002			2001

Statement of Operations Data:




Revenues			100.0	%		100.0	%		100.0	%		100.0	%




Cost of operations			59.7			57.3			59.6			57.2




Selling, general and administrative expenses			8.7			7.8			8.5			8.5




Depreciation and amortization			9.0			8.3			8.9			8.4




Goodwill amortization			—			4.1			—			4.0




Non-cash loss on asset sale			—			2.6			—			—

	Operating income		22.6			19.9			23.0			21.9




Equity in earnings of unconsolidated affiliates			—			(0.3	)		—			—




Interest expense and other			15.6			15.3			15.3			14.9

	Income before income taxes		7.0			4.9			7.7			7.0




Income tax expense			2.9			3.3			3.2			5.7




Minority interest			0.0			0.1			0.0			0.0

	Income before extraordinary loss, net of income tax benefit		4.1			1.5			4.5			1.3




Extraordinary loss, net of income tax benefit			0.2			0.2			0.5			0.0

	Net income		3.9			1.3			4.0			1.3




Dividends on preferred stock			1.4			1.3			1.4			1.3

	Net income available to common shareholders		2.5	%		0.0	%		2.6	%		0.0	%

Three and Nine Months Ended September 30, 2002 and 2001

Revenues. For the three months ended September 30, 2002 revenues were $1.43 billion compared to $1.41 billion for the same period in 2001, an increase of $15.8 million or 1.1%. During the quarter, revenue (excluding commodity revenues) increased by $31.9 million from volume increases, offset by a decrease in revenues of $33.1 million from continued pricing pressures. Pricing pressures are primarily being experienced in the roll-off business and the commercial collection business, while the residential business has shown resiliency to the economic slowdown. Landfill volumes increased in third quarter 2002 as compared to 2001 and pricing held fairly constant. The overall increase in revenues is primarily attributable to $11.8 million of revenues from net acquisitions and a net increase in commodity and other revenues of $5.0 million. Commodity volumes declined by 5% during the quarter compared to prior year; however, our per unit average price of our primary commodities, old corrugated cardboard and old news paper, increased year over year.

For the nine months ended September 30, 2002, revenues were $4.15 billion compared to $4.18 billion for the same period in 2001, a decrease of $33.3 million or 0.8%. The decrease in revenues (excluding commodity revenues) is primarily attributable to a decrease in per unit pricing of $67.1 million, partially offset by an increase in volumes of $18.6 million from an increase and a net increase of $7.1 from net acquisitions and other revenue. The per unit pricing in commercial and roll-off business continue to be negatively impacted by the economic slowdown, while landfill volumes increased. Commodity revenues increased by $8.1 million when comparing year to date 2002 to 2001. The increase in commodity revenues is primarily attributable to the rebound in commodity prices during mid-2002.

Cost of Operations. For the three months ended September 30, 2002, cost of operations was $852.1 million compared to $807.8 million for the same period last year, an increase of 5.5%. The 2001 costs of operations includes $2.2 million of acquisition related and unusual costs primarily consisting of BFI transition activities. Cost of operations for 2002 includes a reversal of $10.7 million of accruals established in connection with the BFI acquisition for a legal matter that was settled during the quarter, and a non-cash charge of $9.9 million related to a market development project determined during the quarter to no longer be viable. Excluding these items, cost of operations as a percentage of revenue increased from 57.0% in 2001 to 59.6% in 2002. The increase is primarily attributable to an increase in overall operating costs from normal inflation and an increase of approximately 15% in annual insurance costs. Transportation, disposal and other variable operating costs increased as a result of the additional volumes. Economic pricing pressures have made it difficult to recover the increases in cost of operations.

For the nine months ended September 30, 2002, cost of operations was $2.48 billion compared to $2.39 billion for the same period last year, reflecting an increase of 3.4%. Included in 2001 costs of operations is $9.6 million of acquisition related and unusual costs primarily consisting of BFI transition activities. Excluding these items and the non-recurring items in 2002 discussed above, cost of operations as a percentage of revenue increased from 57.1% in 2001 to 59.7% in 2002. The increase is a result of inflationary cost increases that have not been recoverable through price increases due to continued economic driven pricing pressures.

Selling, General and Administrative Expenses. For the three and nine months ended September 30, 2002, selling, general and administrative expenses was $120.7 million and $362.2 million compared to $119.7 million and $327.6 million for the same periods in 2001, an increase of 0.9% and 10.6%, respectively. Included in selling, general and administrative expenses is $9.6 million and $14.9 million of acquisition related and unusual costs primarily consisting of BFI transition activities for the three and nine months ended September 30, 2001, respectively. Excluding acquisition related and unusual costs, the increase in selling, general and administrative expenses is primarily attributable to the expansion of the field organization completed in early 2002 and an overall increase from normal inflation.

Depreciation and Amortization. For the three months ended September 30, 2002, depreciation and amortization was $127.1 million compared to $118.6 million in 2001, an increase of 7.2%. Depreciation and amortization was $372.7 million for the nine months ended September 30, 2002 compared to $347.2 million for the same period in 2001, an increase of 7.3%. As a percentage of revenues, depreciation and amortization expense increased to 8.9% from 8.4% and to 9.0% from 8.3% for the three and nine months ended September 30, 2002 compared to 2001, respectively. The increase is primarily a result of increased capital expenditures and higher landfill volumes in 2002 as compared to 2001.

Goodwill Amortization. Effective January 1, 2002, we discontinued the amortization of our goodwill upon the adoption of SFAS 142. For the three months and nine months ended September 30, 2001, goodwill amortization was $56.7 million and $169.7 million, respectively.

Non-Cash Loss on Asset Sale. As part of our ongoing review of operations and our goal of having a self-funding market development program, we sold certain non-integrated operations during February 2001 in the Northeast region for approximately $53 million and reflected a non-cash loss of approximately $107 million ($65 million, net of income tax benefit) in the reported results for the nine months ended September 30, 2001. The proceeds were used to repay debt, and subsequently redeployed as a part of our self-funding market development program to purchase assets in other markets that improve our market density and internalization.

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

Interest expense and other. Interest expense and other was $219.2 million and $211.1 million for the three months ended September 30, 2002 and 2001, respectively. Interest expense and other was $646.4 million and $641.7 million for the nine months ended September 30, 2002 and 2001, respectively. Excluding the non-cash effect of accounting for de-designated interest rate swap contracts, the comparable interest expense for the three and nine months ended September 30, 2002 was $201.2 and $612.0 million representing a decrease of 4.7% and 4.6%, respectively. The decrease is a result of continued repayment of debt over the past four quarters.

Included in interest expense and other, during the three and nine months ended September 30, 2002 is $8.9 million and $26.6 million, respectively, of amortization of amounts in accumulated other comprehensive income in stockholders’ equity and a losses of $9.1 million and $7.9 million, respectively, related to the change in market value of the interest rate swap contracts that were de-designated December 31, 2001. Before de-designation, the changes in market value were recorded as a component of equity in accumulated other comprehensive income.

Income Taxes. Income taxes reflect an effective tax rate of approximately 42% for three and nine months ended September 30, 2002 and 81.5% and 69.2% for the three and nine months ended September 30, 2001. The effective tax rate has decreased due to the cessation of goodwill amortization, most of which is non-deductible for income tax purposes.

Extraordinary Loss, net. In August 2002, we repaid the 2001 subsidiary line of credit prior to its maturity date. In connection with this repayment, during the three months ended September 30, 2002, we recognized an extraordinary loss of approximately $10.9 million ($6.5 million, net of income tax benefit) related to the write-off of deferred debt issuance costs and for a prepayment penalty paid.

In January 2001, we repaid $589.5 million of the 1999 Credit Facility prior to its maturity date, with net proceeds from the issuance of $600 million senior notes. In connection with this repayment, we recognized an extraordinary charge for the early extinguishment of the debt of approximately $15.6 million ($9.5 million, net of income tax benefit) related to the write-off of deferred debt issuance costs, which is reflected in the results for the nine months ended September 30, 2001.

Dividends on Preferred Stock. Dividends on preferred stock were $19.8 million and $57.8 million for the three and nine months ended September 30, 2002 compared to $18.5 million and $54.2 million for the same periods in 2001. The dividends on preferred stock reflect the 6.5% dividend on the liquidation preference of the preferred stock issued on July 30, 1999 in connection with the financing of the acquisition of BFI. Dividends were not paid in cash, instead, the liquidation preference of the preferred stock increased by accrued, but unpaid dividends.

Liquidity and Capital Resources

Our operational liquidity needs are met with operating cash flow. When non-operating liquidity needs arise, they are met, if not from remaining operating cash flow, with borrowings under our revolving credit facility. Cash provided by operations for the nine months ended September 30, 2002 was $700.3 million (including $69.7 million spent against non-recurring acquisition accruals). Cash provided from operations increased by $108.7 million or 18.4% when compared to the same period in the prior year. During the nine months ended September 30, 2002, cash from operations, the application of $57.8 million of balance sheet cash, and proceeds from the sale of fixed assets of $24.0 million was used to fund $433.8 million of capital expenditures, $27.1 million of net market development activity and $40.9 million of other non-operating net cash outflows in addition to reducing debt by $280.3 million. At September 30, 2002, the current portion of our outstanding debt was $266.5 million, substantially all of which is required to be repaid during 2003. We believe this debt reduction will be achieved with operating cash flows.

In October 2002, we divested certain non-integrated collection operations for net proceeds of approximately $70 million. We have initially used the proceeds to repay debt, however, we plan to redeploy approximately $30 million of net proceeds to purchase other assets.

During the nine months ended September 30, 2001, cash provided by operations for the nine months ended September 30, 2001 of $591.6 million, is net of $105.4 million spent against non-recurring acquisition related accruals and on transition costs. Cash provided by operations exceeded capital expenditure requirements of $419.3 million (net of capitalized interest of $35.9 million) by $136.4 million. Proceeds of $359.9 million from divestitures of solid waste businesses and the American Ref-Fuel transaction described above provided liquidity for market development acquisitions of $230.7 million. During the nine months ended September 30, 2001, we were able to repay $307.9 million of our debt using the excess cash provided by both operating and non-operating sources.

We have historically operated and we expect that we will continue to operate with a working capital deficit. We regularly use excess available cash from operating and non-operating activities to pay the current portion of our outstanding debt. All debt obligations are recorded on our balance sheet and we have no off-balance sheet debt.

The following information on our debt maturity schedule is as of September 30, 2002 (in millions):


Debt		2002		2003		2004		2005		2006		2007		Thereafter		Total

Revolving Credit		$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—




Facility Tranche A term loan			—		104.1		450.0		525.0		—		—		—		1,079.1




Tranche B term loan			—		—		—		—		805.3		—		—		805.3




Tranche C term loan			—		—		—		—		—		966.3		—		966.3




6.10% BFI Senior notes			—		156.7		—		—		—		—		—		156.7




7.375% Senior notes			—		—		225.0		—		—		—		—		225.0




7.875% BFI Senior notes					—		—		—		—		—		875.0		875.0




7.625% Senior notes			—		—		—		—		600.0		—		—		600.0




8.785% Senior notes due 2008			—		—		—		—		—		—		600.0		600.0




8.50% Senior notes due 2008			—		—		—		—		—		—		750.0		750.0




6.375% BFI Senior notes due 2008			—		—		—		—		—		—		161.2		161.2




7.875% Senior notes due 2009			—		—		—		69.5		—		—		—		69.5




10.00% Senior Sub Notes due 2009			—		—		—		—		—		—		2,000.0		2,000.0




9.25% BFI debentures due 2021			—		—		—		—		—		—		99.5		99.5




7.40% BFI debentures due 2035			—		—		—		—		—		—		360.0		360.0




Other Debt			1.9		6.0		4.0		14.4		4.9		0.6		298.3		330.1

Total principal due		$	1.9	$	266.8	$	679.0	$	608.9	$	1,410.2	$	966.9	$	5,144.0	$	9,077.7




Discount, net																	(98.4	)

	Total debt balance															$	8,979.3

Cash flow available to repay debt in excess of the current year’s maturities will be ratably applied to future maturities of the 1999 Credit Facility. Consistent with our “Financing Plan” as disclosed in the 2001 Form 10-K, we anticipate refinancing the 1999 Credit Facility that matures in 2005, which consists of the Revolving Credit Facility, tranche A term loan, tranche B term loan and tranche C term loans by late 2003 or early 2004.

The following information on our 1999 Credit Facility is as of September 30, 2002 (in millions, except ratios):


Revolver Availability:




	Capacity Commitment	$	1,291




	Less: Borrowings		—




	Less: Letters of Credit outstanding		686

	Total Availability	$	605

Credit Facility Financial Covenants:




	Debt / EBITDA ⁽¹⁾		5.04	x




	Covenant Maximum		5.75	x




	EBITDA in excess of covenant requirement	$	186.8




	EBITDA / Total Interest ⁽¹⁾		2.19	x




	Covenant Minimum		2.00	x




	EBITDA in excess of covenant requirement	$	141.1

⁽¹⁾ EBITDA and interest are defined in the 1999 Credit Facility and are based on twelve month trailing amounts.

Our ability to pay dividends on preferred and common stock is most significantly limited by the 1999 Credit Facility, which specifies that in order to pay cash dividends, the ratio of Total Debt/EBITDA must be less than 4:1. This ratio was 5.04:1 at September 30, 2002 and therefore we are currently precluded from the payment of cash dividends. Shares of preferred stock are entitled to cumulative quarterly dividends in an amount equal to 6.5% per annum. Beginning July 30, 2004, the dividend rate on the preferred stock increases to 12% per annum for any dividends that are not paid in cash. There are circumstances under which we would not be required to accrue dividends at the 12% rate. As long as we have a Total Debt/EBITDA ratio of less than 4:1, under the current 1999 Credit Facility, we would be able to pay cash dividends at the 6.5% rate.

As discussed in our Annual Report on Form 10K for the year ended December 31, 2001, we are currently under examination by various state and federal taxing authorities for certain tax years. A federal audit for the years ended December 31, 1998 and 1999, as well as BFI tax years ended September 30, 1996 through July 30, 1999 is ongoing. Also, in the Annual Report, we disclosed the possibility that the IRS could seek to disallow some or all of a capital loss included in BFI’s July 30, 1999 tax return and indicated that such a disallowance could have a tax effect of up to $360 million.

During the second quarter of 2002, we received notification from the IRS disallowing all of the capital loss referred to above. If such disallowance were ultimately fully sustained, we now estimate we could owe additional federal and state income tax of up to $310 million and accrued interest through September 30, 2002 of approximately $38 million. We also received a notification from the IRS assessing a penalty of between 20% and 40% of the additional income tax resulting from the disallowance. Because of several meritorious defenses, we believe the successful assertion of penalties is remote.

In October 2002, the IRS issued a revenue procedure outlining two resolution alternatives related to this matter. Tax payers can elect to participate under this revenue procedure if certain eligibility requirements are met. We are currently evaluating the IRS issuance. We continue to believe our position is well supported and we will vigorously contest the disallowance. The resolution of this matter may entail efforts including administrative appeals and litigation which could extend over several years. An unfavorable result could require future cash expenditures but should have minimal, if any, impact on our consolidated results of operations.

We have included a discussion of our obligations and commitments, our finance plan and the effects of the finance plan on our interest rate swap portfolio accounting in our December 31, 2001 Form10-K under Item 7 as updated in our Form 8-K dated October 30, 2002. There have not been significant changes in our business that would require an update to those disclosures during the nine months ended September 30, 2002.

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

Recently Issued Accounting Pronouncements

See discussion in Footnote 1 of Notes to Consolidated Financial Statements included under Item 1 herein.

Disclosure Regarding Forward Looking Statements

This quarterly report includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (Forward Looking Statements). All statements other than statements of historical fact included in this report, are Forward Looking Statements. Although we believe that the expectations reflected in such Forward Looking Statements are reasonable, we can give no assurance that such expectations will prove to be correct. Generally, these statements relate to business plans or strategies, projected or anticipated benefits or other consequences of such plans or strategies or projections involving anticipated revenues, earnings, level of capital expenditures or other aspects of operating results and the underlying assumptions including internal growth as well as general economic and financial market conditions.

All phases of our operations are subject to a number of uncertainties, risks and other influences, many of which are outside of our control and any one of which, or a combination of which, could materially affect the results of our operations and whether Forward Looking Statements made by us ultimately prove to be accurate. These risks and uncertainties include, without limitation, (1) continuing weakness in the U.S. economy in 2002 and beyond may continue a decline in the demand for the Company’s services (particularly in the commercial and industrial sectors), a decline in the price of commodities sold by the Company, and increased competitive pressure on pricing generally make it more difficult for the Company to predict economic trends; (2) the Company may be impeded in the successful integration of acquired businesses and its market development efforts; (3) a change in interest rates or a reduction in the Company’s cash flow could impair the Company’s ability to service and reduce its debt obligations; (4) volatility in interest rates may, among other things, affect earnings due to possible mark to market changes on certain interest rate hedges; (5) divestitures by the Company may not raise funds exceeding financing needed for acquisitions in the near term; and (6) severe weather conditions could impair the Company’s operating results.

Important factors that could cause actual results to differ materially from our expectations are discussed in greater detail in the section titled “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2001 and elsewhere in this report. All subsequent written and oral Forward Looking Statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by this discussion and such important factors described in our Annual Report on Form 10-K for the year ended December 31, 2001 that could cause actual results to differ from our expectations. Shareholders, potential investors and other readers are urged to consider these factors in evaluating Forward Looking Statements and are cautioned not to place undue reliance on Forward Looking Statements. The Forward-Looking Statements made herein are only made as of the date of this filing and we undertake no obligation to publicly update such Forward-Looking Statements to reflect subsequent events or circumstances.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

See Note 5 “Long-term Debt” and Note 6 “Derivative Instruments and Hedging Activities” to the Consolidated Financial Statements for the year ended December 31, 2001 in our Annual Report on Form 10-K.

Item 4. Controls and Procedures

Evaluation of disclosure controls and procedures. We maintain disclosure controls and procedures and internal controls designed to ensure that information required to be disclosed in our filings under the Securities Exchange Act of 1934 is recorded, processed, evaluated, summarized and reported accurately within the time periods specified in the Securities and Exchange Commission’s (SEC) rules and forms. An evaluation was performed under the supervision and with the participation of management, including the Chief Executive Officer (CEO) and Chief Financial Officer (CFO), of the effectiveness of the design and operation of our disclosure controls and procedures (pursuant to Exchange Act Rule 13a-14) on October 22, 2002. Based upon that evaluation, the CEO and CFO concluded that our disclosure controls and procedures are effective in timely alerting them to material information required to be included in our periodic SEC filings. The conclusions of the CEO and CFO from this evaluation were communicated to the Audit Committee. In connection with this evaluation, there were no breaches of such controls that would require disclosure to the Audit Committee or our auditors.

Changes in Internal Controls. There were no significant changes in our internal controls or in other factors that could significantly affect these internal controls subsequent to October 22, 2002. There were no significant deficiencies or material weaknesses; therefore, there were no corrective actions to be taken.

PART II
OTHER INFORMATION

Item 1. Legal Proceedings

There are two pending environmental enforcement matters where potential monetary sanctions are reasonably likely to exceed $100,000. During 2002, we received an Administrative Order from the New Jersey Department of Environmental Protection alleging violations of permit and regulatory requirements at our Linden, New Jersey transfer station and seeking a penalty of $140,000 and reducing the daily limit on the volume of waste that the transfer station is allowed to handle. Additionally, in 2001, the U.S. Environmental Protection Agency notified us of alleged violations of the Clean Air Act related to the practice of crushing appliances, some of which contained freon or other regulated chlorofluorocarbons. We have signed a Consent Decree agreeing to settle this claim by paying a civil penalty of $782,550 and implementing a supplemental environmental project at a transfer station.

Item 2. Changes in Securities and Use of Proceeds

None.

Item 3. Defaults upon Senior Securities

None.

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

None.

Item 5. Other Information

None.

Item 6. Exhibits and Reports on Form 8-K

(a) Exhibits —


99.1*		Certification Pursuant to 18 U.S.C.§1350 of Thomas H. Van Weelden, Chairman of the Board of Directors and Chief Executive Officer




99.2*		Certification Pursuant to 18 U.S.C.§1350 of Thomas W. Ryan, Executive Vice President and Chief Financial Officer

(b) Reports on Form 8-K during the Quarter Ended September 30, 2002 —


July 31, 2002		Our current report on Form 8-K reports the financial results for the second quarter of 2002.




August 1, 2002		Our current report on Form 8-K to disclose information regarding certifications.




August 13, 2002		Our current report on Form 8-K to announce completion of PricewaterhouseCooper’s re-audit of 2001 financial results with no adjustments.




August 14, 2002		Our current report on Form 8-K to report executed sworn statements in accordance with SEC Order No. 4-460.




August 19, 2002		Our current report on Form 8-K to report our re-audited financial results.




September 18, 2002		Our current report on Form 8-K to announce the Company’s intention to offer $250 million in Senior Notes.




September 20, 2002		Our current report on Form 8-K to announce the Company’s withdrawal offering of $250 million in Senior Notes.

Filed herewith

Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant, Allied Waste Industries, Inc., has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


		ALLIED WASTE INDUSTRIES, INC.









		By:		/s/ THOMAS W. RYAN Thomas W. Ryan Executive Vice President and Chief Financial Officer (Principal Financial Officer)









		By:		/s/ JAMES E. GRAY James E. Gray Vice President, Controller and Chief Accounting Officer

Date: November 8, 2002

CERTIFICATIONS

I, Thomas H. Van Weelden, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Allied Waste Industries, Inc.;

2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6. The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.


		ALLIED WASTE INDUSTRIES, INC.









		By:		/s/ THOMAS H. VAN WEELDEN Thomas H. Van Weelden Chairman of the Board of Directors and Chief Executive Officer

Date: November 8, 2002

CERTIFICATIONS

I, Thomas W. Ryan, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Allied Waste Industries, Inc.;

2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

4. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

5. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

6. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

7. The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.


		ALLIED WASTE INDUSTRIES, INC.









		By:		/s/ THOMAS W. RYAN Thomas W. Ryan Executive Vice President and Chief Financial Officer

Date: November 8, 2002

Exhibit Index


99.1*		Certification Pursuant to 18 U.S.C.§1350 of Thomas H. Van Weelden, Chairman of the Board of Directors and Chief Executive Officer




99.2*		Certification Pursuant to 18 U.S.C.§1350 of Thomas W. Ryan, Executive Vice President and Chief Financial Officer

	1.		We have control of and access to the land where the expansion permit is being sought.

	2.		All geologic and other technical siting criteria for a landfill have been met, or a variance from such requirements has been received (or can reasonably be expected to be achieved).

	3.		The political process has been assessed and there are no identified impediments that cannot be resolved.

	4.		We are actively pursuing the expansion permit and have an expectation that the final local, state and federal permits will be received within the next five years.

	5.		Senior operations management approval has been obtained.

1.		I have reviewed this quarterly report on Form 10-Q of Allied Waste Industries, Inc.;

2.		Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3.		Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4.		The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

	a)		designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

	b)		evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

	c)		presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

	a)		all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

	b)		any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and