REPUBLIC SERVICES INC - 10-K Annual Report

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

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

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002

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

FOR THE TRANSITION PERIOD FROM __________ TO __________

Commission file number: 1-14267

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

DELAWARE 65-0716904
(State of Incorporation) (I.R.S. Employer Identification No.)

REPUBLIC SERVICES, INC. 33301
110 S.E. 6TH STREET, 28TH FLOOR (Zip Code)
FORT LAUDERDALE, FLORIDA
(Address of Principal Executive Offices)

Registrant's telephone number, including area code: (954) 769-2400

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

Title of Each Class Name of Each Exchange on which Registered
COMMON STOCK, PAR VALUE $.01 PER SHARE THE NEW YORK STOCK EXCHANGE

Securities registered pursuant to Section 12(g) of the Act: NONE

Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]

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

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

As of June 28, 2002, the aggregate market value of the shares of the Common
Stock held by non-affiliates of the registrant was approximately $3,150,628,043.

As of March 21, 2003, the registrant had outstanding 161,261,590 shares of
Common Stock.

DOCUMENTS INCORPORATED BY REFERENCE

Part III Portions of the Registrant's Proxy Statement relative to the 2003
Annual Meeting of Stockholders.
Part IV Portions of previously filed reports and registration statements.
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INDEX
TO FORM 10-K

PART I

ITEM 1. BUSINESS

COMPANY OVERVIEW

We are a leading provider of services in the domestic non-hazardous solid
waste industry. We provide non-hazardous solid waste collection services for
commercial, industrial, municipal and residential customers through 142
collection companies in 22 states. We also own or operate 90 transfer stations,
56 solid waste landfills and 33 recycling facilities.

As of December 31, 2002, our operations were organized into five regions
whose boundaries may change from time to time: Eastern, Central, Southern,
Southwestern and Western. Each region is organized into several operating areas
and each area contains a group of operating locations. Each of our regions and
substantially all our areas provide collection, transfer, recycling and disposal
services. We believe that this organizational structure facilitates the
integration of our operations within each region, which is a critical component
of our operating strategy. See Note 10 of the Notes to Consolidated Financial
Statements for further discussion of operating segments.

We had revenue of $2,365.1 million and $2,257.5 million and operating
income of $459.5 million and $283.5 million for the years ended December 31,
2002 and 2001, respectively. The $107.6 million, or 4.8%, increase in revenue
from 2001 to 2002 is primarily attributable to the successful execution of our
operating and growth strategies described below. The $176.0 million, or 62.1%,
increase in operating income from 2001 to 2002 is primarily attributable to a
charge of $132.0 million on a pre-tax basis that we recorded during the fourth
quarter of 2001 related to completed and planned divestitures and closings of
certain core and non-core businesses, asset impairments, downsizing our compost,
mulch and soil business and related inventory adjustments, an increase in
self-insurance reserves and an increase in bad debt expense related to the
economic slowdown. The remaining increase in operating income of $44.0 million
is primarily attributable to the elimination of $43.0 million of goodwill
amortization upon adoption of Statement of Financial Accounting Standards No.
142, "Goodwill and Other Intangible Assets."

Our presence in high growth markets throughout the Sunbelt, including
Florida, Georgia, Nevada, California and Texas, and in other domestic markets
that have experienced higher than average population growth during the past
several years, supports our internal growth strategy. We believe that our
presence in these markets positions our company to experience growth at rates
that are generally higher than the industry's overall growth rate.

While we believe that we are well positioned to continue to increase our
revenue and operating income in the longer term, the economic slowdown has had a
negative impact on certain aspects of our business. However, the aspects of our
business that we believe are "recession resilient" have continued to perform
well. These include our residential and commercial collection operations which
are flat-rate businesses and are not subject to the volatility we experience in
our industrial collection and disposal businesses. We continue to focus on
enhancing stockholder value by implementing our financial, operating and growth
strategies as described below.

INDUSTRY OVERVIEW

Based on analysts' reports and industry trade publications, we believe that
the United States non-hazardous solid waste services industry generates annual
revenue of approximately $43.0 billion, of which approximately 47% is generated
by publicly-owned waste companies, 29% is generated by privately-held waste
companies, and 24% is generated by municipal and other local governmental
authorities. Three companies generate the substantial majority of the
publicly-owned companies' total revenue. However, according to industry data,
the domestic non-hazardous waste industry remains highly fragmented as
privately-held companies and municipal and other local governmental authorities
generate approximately 53% of total industry revenue. In general, growth in the
solid waste industry is proportional to growth in the overall economy.

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The solid waste industry has experienced a period of rapid consolidation.
During this time we were able to grow significantly through acquisitions.
However, growth in the industry by virtue of acquisitions has slowed
considerably since late 1999. Despite this, we believe that the opportunity to
grow through acquisitions still exists, albeit at a slower pace than experienced
in previous years, as a result of the following factors:

Subtitle D Regulation. Subtitle D of the Resource Conservation and
Recovery Act of 1976, as currently in effect, and similar state regulations
have significantly increased the amount of capital, technical expertise,
operating costs and financial assurance obligations required to own and
operate a landfill and other solid waste facilities. Many of the smaller
participants in our industry have found these costs difficult, if not
impossible, to bear. Large publicly-owned companies, like our company, have
greater access to, and a lower cost of, the capital necessary to finance
such increased capital expenditures and costs relative to many of the
privately-owned companies in the industry. Additionally, the required
permits for landfill development, expansion or construction have become
more difficult, time-consuming and costly to acquire. Consequently, many
smaller, independent operators have decided to either close their
operations or sell them to larger operators that have greater access to
capital.

Integration of Solid Waste Businesses. By being able to control the
waste stream in a market through the collection, transfer and disposal
process, integrated solid waste companies gain a further competitive
advantage over non-integrated operators. The ability of the integrated
companies to both collect and dispose of solid waste, coupled with access
to significant capital resources necessary for acquisitions, has created an
environment in which large publicly-owned, integrated companies can operate
more cost effectively and competitively than non-integrated operators.

Municipal Privatization. The trend toward consolidation in the solid
waste services industry is further supported by the increasing tendency of
a number of municipalities to privatize their waste disposal operations.
Privatization of municipal waste operations is often an attractive
alternative to funding the changes required by Subtitle D.

These developments, as well as the fact that there are a limited number of
viable exit strategies for many of the owners and principals of numerous
privately-held companies in the industry, have contributed to the overall
consolidation trend in the solid waste industry.

FINANCIAL STRATEGY

A key component of our financial strategy is our ability to generate free
cash flow. Our definition of free cash flow is cash provided by operating
activities less purchases of property and equipment plus proceeds from the sale
of equipment as presented in our consolidated statement of cash flows. We
believe that free cash flow is the best measure of our financial performance
because strong, sustainable free cash flow is indicative of high quality
earnings. Consequently, we have developed incentive programs and we conduct
monthly field operating reviews that help focus our entire company on the
importance of increasing free cash flow.

We manage our free cash flow primarily by ensuring that capital
expenditures and operating asset levels are appropriate in light of our existing
business and growth opportunities and by closely managing our working capital
which consists primarily of accounts receivable and accounts payable.

We have used and will continue to use our cash flow to maximize stockholder
value as well as our return on investment. This includes the following:

- CUSTOMER SERVICE. We will continue to reinvest in our existing fleet of
vehicles, equipment, landfills and facilities to ensure a high level of
service to our customers.

- INTERNAL GROWTH. Growth through increases in our customer base and
services provided is the most capital efficient means for us to build our
business. This includes not only investing in trucks and containers, but
also includes investing in information tools and training needed to
ensure high productivity and quality service throughout all functional
areas of our business.

- STRATEGIC ACQUISITIONS. We have and will continue to pursue strategic
acquisitions that augment our existing business platform.
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- SHARE REPURCHASE. If we are unable to identify opportunities that
satisfy our growth strategy, we intend to use our free cash flow to
repurchase shares of our common stock at prices that provide value to our
stockholders. As of December 31, 2002, we repurchased a total of 17.2
million shares, or approximately 10% of our common stock outstanding at
the commencement of our share repurchase program in 2000, for $300.1
million. In October 2002, our board of directors authorized the
repurchase of up to an additional $150.0 million of our common stock. We
believe that our share repurchase program will continue to enhance
stockholder value.

- DIVIDENDS. Depending upon the availability of strategic acquisitions, in
addition to using our free cash flow to repurchase shares of our common
stock, we may consider declaring a cash dividend if we believe that it
will enhance stockholder value.

- MINIMIZE BORROWINGS. To the extent that the opportunities to enhance
stockholder value mentioned above are not available, we also intend to
continue to use our free cash flow to minimize our borrowings.

Another key component of our financial strategy includes maintaining an
investment grade rating on our senior debt. This has allowed us to secure
favorable, long-term, fixed-rate financing that reduces our exposure to changing
interest rates. This has also allowed us, and will continue to allow us, to
readily access capital markets.

For certain risks related to our financial strategy, see "Risk Factors."

OPERATING STRATEGY

We seek to leverage existing assets and revenue growth to increase
operating margins and enhance stockholder value. Our operating strategy to
accomplish this goal is to:

- utilize the extensive industry knowledge and experience of our executive
management,

- utilize a decentralized management structure in overseeing day-to-day
operations,

- integrate waste operations,

- improve operating margins through economies of scale, cost efficiencies
and asset utilization,

- achieve high levels of customer satisfaction, and

- utilize systems to improve consistency in financial and operational
performance.

For certain risks related to our operating strategy, see "Risk Factors."

- EXPERIENCED EXECUTIVE MANAGEMENT TEAM. We believe that we have one of
the most experienced executive management teams in the solid waste
industry.

James E. O'Connor, who has served as our Chief Executive Officer since
December 1998 and became our Chairman in January 2003, also worked at Waste
Management, Inc. from 1972 to 1978 and from 1982 to 1998. During that time,
he served in various management positions, including Senior Vice President
in 1997 and 1998, and Area President of Waste Management of Florida, Inc.
from 1992 to 1997. Mr. O'Connor has over 28 years of experience in the
solid waste industry.

Michael J. Cordesman, who has served as our Chief Operating Officer
since March 2002 and also as our President since February 2003, has over 22
years of experience in the solid waste industry. He joined us in June 2001
as our Eastern Region Vice President. From 1999 to 2001, Mr. Cordesman
served as Vice President of the Central Region for Superior Services Inc.
From 1980 to 1999, he served in various positions with Waste Management,
including Vice President of the Mid-Atlantic Region from 1992 to 1999.

The other corporate officers with responsibility for our operations
have an average of over 20 years of management experience in the solid
waste industry. Our five regional vice presidents and our 23 area
presidents have an average of 22 years of experience in the industry.
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In addition, our former Chairman and a current Director, H. Wayne
Huizenga, has over 28 years of experience in the solid waste industry.
After several years of owning and operating private waste collection
companies in Florida, he co-founded Waste Management in 1971. From 1971 to
1984, he served in various executive capacities with Waste Management,
including President and Chief Operating Officer. By then, Waste Management
had become the world's largest integrated solid waste services company.
Furthermore, Harris W. Hudson, who has served as our Vice Chairman since
our initial public offering, has over 38 years of experience in the solid
waste industry, including 11 years with Waste Management and 19 years with
private waste collection companies.

- DECENTRALIZED MANAGEMENT STRUCTURE. We maintain a relatively small
corporate headquarters staff, relying on a decentralized management
structure to minimize administrative overhead costs and to manage our
day-to-day operations more efficiently. Our local management has
extensive industry experience in growing, operating and managing solid
waste companies and has substantial experience in their local geographic
markets. In early 2001, we added a sales, maintenance and operations
manager to each of our regional management teams, which previously
consisted of a regional vice president and a regional controller. We
believe that strengthening our regional management teams allows us to
more effectively and efficiently drive our company's initiatives and
helps ensure consistency throughout our organization. Our regional
management teams and our area presidents have extensive authority,
responsibility and autonomy for operations within their respective
geographic markets. Compensation for regional and area management teams
is primarily based on the improvement in operating income produced and
the cash flow generated in each manager's geographic area of
responsibility. In addition, through long-term incentive programs,
including stock options, we believe we have one of the lowest turnover
levels in the industry for our local management teams. As a result of
retaining experienced managers with extensive knowledge of and
involvement in their local communities, we are proactive in anticipating
our customers' needs and adjusting to changes in our markets. We also
seek to implement the best practices of our various regions and areas
throughout our operations to improve operating margins.

- INTEGRATED OPERATIONS. We seek to achieve a high rate of internalization
by controlling waste streams from the point of collection through
disposal. We expect that our fully integrated markets generally will have
a lower cost of operations and more favorable cash flows than our
non-integrated markets. Through acquisitions and other market development
activities, we create market-specific, integrated operations typically
consisting of one or more collection companies, transfer stations and
landfills. We consider acquiring companies that own or operate landfills
with significant permitted disposal capacity and appropriate levels of
waste volume. We also seek to acquire solid waste collection companies in
markets in which we own or operate landfills. In addition, we generate
internal growth in our disposal operations by developing new landfills
and expanding our existing landfills from time to time in markets in
which we have significant collection operations or in markets that we
determine lack sufficient disposal capacity. During the three months
ended December 31, 2002, approximately 53% of the total volume of waste
that we collected was disposed of at landfills we own or operate. In a
number of our larger markets, we and our competitors are required to take
waste to government-controlled disposal facilities. This provides us with
an opportunity to effectively compete in these markets without investing
in landfill capacity. Because we do not have landfill facilities or
government-controlled disposal facilities for all markets in which we
provide collection services, we believe that through landfill and
transfer station acquisitions and development we have the opportunity to
increase our waste internalization rate and further integrate our
operations. By further integrating operations in existing markets through
acquisitions and development of landfills and transfer stations, we are
able to reduce our disposal costs.

- ECONOMIES OF SCALE, COST EFFICIENCIES AND ASSET UTILIZATION. To improve
operating margins, our management focuses on achieving economies of scale
and cost efficiencies. The consolidation of acquired businesses into
existing operations reduces costs by decreasing capital and expenses used
for routing, personnel, equipment and vehicle maintenance, inventories
and back-office administration. Generally, we consolidate our acquired
administrative centers to reduce our general and administrative

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costs. Our goal is to maintain our selling, general and administrative
costs in the range of 10% of revenue which we feel is appropriate given
our existing business platform. In addition, our size allows our company
to negotiate volume discounts for certain purchases, including waste
disposal rates at landfills operated by third parties. Furthermore, we
have taken steps to increase utilization of our assets. For example, to
reduce the number of collection vehicles and maximize the efficiency of
our fleet, we have instituted a grid productivity program which allows us
to benchmark the performance of all of our drivers. In our larger
markets, we also use a route optimization program to minimize drive times
and improve operating density. By using assets more efficiently,
operating expenses can be significantly reduced.

- HIGH LEVELS OF CUSTOMER SATISFACTION. Our goal of maintaining high
levels of customer satisfaction complements our operating strategy. Our
personalized sales process is oriented towards maintaining relationships
and ensuring that service is being properly provided.

- UTILIZE SYSTEMS TO IMPROVE CONSISTENCY IN FINANCIAL AND OPERATIONAL
REPORTING. We continue to focus on systems and training initiatives that
complement our operating strategy. These initiatives include contact
management, billing, productivity, maintenance and general ledger
systems. These systems provide us with detailed information, prepared in
a consistent manner, that will allow us to quickly analyze and act upon
trends in our business.

GROWTH STRATEGY

Our strategy focuses on increasing revenue, gaining market share and
enhancing stockholder value through internal growth and acquisitions. For
certain risks related to our growth strategy, see "Risk Factors."

- INTERNAL GROWTH. Our internal growth strategy focuses on retaining
existing customers and obtaining commercial, municipal and industrial
customers through our well-managed sales and marketing activities.

Long-Term Contracts. We seek to obtain long-term contracts for
collecting solid waste in high-growth markets. These include exclusive
franchise agreements with municipalities as well as commercial and
industrial contracts. By obtaining such long-term agreements, we have the
opportunity to grow our contracted revenue base at the same rate as the
underlying population growth in these markets. For example, we have secured
exclusive, long-term franchise agreements in high-growth markets such as
Los Angeles, Orange and Contra Costa Counties in California, Las Vegas,
Nevada, Arlington, Texas and many areas of Florida. We believe that this
positions our company to experience internal growth rates that are
generally higher than our industry's overall growth rate. In addition, we
believe that by securing a base of long-term recurring revenue in growth
markets, we are better able to protect our market position from competition
and our business may be less susceptible to downturns in economic
conditions.

Sales and Marketing Activities. We seek to manage our sales and
marketing activities to enable our company to capitalize on our leading
positions in many of the markets in which we operate. We currently have
approximately 500 sales and marketing employees in the field, who are
compensated using a commission structure that is focused on generating high
levels of quality revenue. For the most part, these employees directly
solicit business from existing and prospective commercial, industrial,
municipal and residential customers. We emphasize our rate and cost
structures when we train new and existing sales personnel. In addition, we
utilize a contact management system that assists our sales people in
tracking leads. It also tracks renewal periods for potential commercial,
industrial and franchise contracts.

- ACQUISITION GROWTH. During the late 1990's, the solid waste industry
experienced a period of rapid consolidation. We were able to grow
significantly through acquisitions during this period. However, the rate
of consolidation in the industry has slowed considerably. Despite this,
we continue to look to acquire businesses that complement our existing
business platform. Our acquisition growth strategy focuses on
privately-held solid waste companies and municipal and other local
governmental authorities. We believe that our ability to acquire
privately-held companies is enhanced by increasing competition in the
solid waste industry, increasing capital requirements as a result of
changes in solid

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waste regulatory requirements, and the limited number of exit strategies
for these privately-held companies' owners and principals. We also seek
to acquire operations and facilities from municipalities that are
privatizing, which occurs for many of the same reasons that
privately-held companies sell their solid waste businesses. In addition,
we will continue to evaluate opportunities to acquire operations and
facilities that may be divested by other publicly-owned waste companies.
In sum, our acquisition growth strategy focuses on:

- acquiring businesses that position our company for growth in
existing and new markets,

- acquiring well-managed companies and, when appropriate, retaining
local management,

- acquiring operations and facilities from municipalities that are
privatizing and publicly-owned companies that are divesting of
assets.

For certain risks involved with our acquisition growth strategy, see
"Risk Factors -- We may be unable to execute our acquisition growth
strategy," " -- We may be unable to manage our growth effectively," and
" -- Businesses we acquire may have undisclosed liabilities."

Acquire Businesses Positioning the Company for Growth. In making
acquisitions, we principally target high quality businesses that will allow
our company to be, or provide our company favorable prospects of becoming,
a leading provider of integrated solid waste services in markets with
favorable demographic growth. Generally, we have acquired, and will
continue to seek to acquire, solid waste collection, transfer and disposal
companies that:

- have strong operating margins,

- are in growth markets,

- are among the largest or have a significant presence in their local
markets, and

- have long-term contracts or franchises with municipalities and other
customers.

Once we have a base of operations in a particular market, we focus on
acquiring trucks and routes of smaller businesses that also operate in that
market and surrounding markets, which are typically referred to as
"tuck-in" acquisitions. We seek to consolidate the operations of such
tuck-in businesses into our existing operations in that market. We also
seek to acquire landfills, transfer stations and collection companies that
operate in markets that we are already servicing in order to fully
integrate our operations from collection to disposal. In addition, we have
in the past and may continue in the future to exchange businesses with
other solid waste companies if by doing so there is a net benefit to our
business platform. These activities allow us to increase our revenue and
market share, lower our cost of operations as a percentage of revenue, and
consolidate duplicative facilities and functions to maximize cost
efficiencies and economies of scale.

Acquire Well-Managed Companies. We also seek to acquire businesses
that have experienced management teams that are willing to join the
management of our company. We generally seek to maintain continuity in
management of larger acquired companies in order to capitalize on their
local market knowledge, community relations and name recognition, and to
instill their entrepreneurial drive at all levels of our operations. By
furnishing the local management of such acquired companies with our
financial and marketing resources and technical expertise, we believe that
the acquired companies are better able to secure additional municipal
franchises and other contracts.

Privatize Municipal Operations and Acquire Divested Operations. We
also seek to acquire solid waste collection operations, transfer stations
and landfills that municipalities and other governmental authorities are
privatizing. Many municipalities are seeking to outsource or sell these
types of solid waste operations, as they lack the capital, technical
expertise and/or operational resources necessary to comply with
increasingly stringent regulatory standards and/or to compete effectively
with private-sector companies. In addition, we have acquired, and will
continue to seek to acquire, operations and facilities that may be divested
by other publicly-owned waste companies.

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OPERATIONS

Our operations primarily consist of the collection and disposal of
non-hazardous solid waste.

Collection Services. We provide solid waste collection services to
commercial, industrial, municipal and residential customers in 22 states through
142 collection companies. In 2002, 75% of our revenue was derived from
collection services consisting of approximately 30% from services provided to
municipal and residential customers, 39% from services provided to commercial
customers and 31% from services provided to industrial and other customers.

Our residential collection operations involve the curbside collection of
refuse from small containers into collection vehicles for transport to transfer
stations or directly to landfills. Residential solid waste collection services
are typically performed under contracts with municipalities, which we generally
secure by competitive bid and which give our company exclusive rights to service
all or a portion of the homes in their respective jurisdictions. These contracts
or franchises usually range in duration from one to five years, although some of
our exclusive franchises are for significantly longer periods. Residential solid
waste collection services may also be performed on a subscription basis, in
which individual households contract directly with our company. The fees
received for subscription residential collection are based primarily on market
factors, frequency and type of service, the distance to the disposal facility
and cost of disposal. In general, subscription residential collection fees are
paid quarterly in advance by the residential customers receiving the service.

In our commercial and industrial collection operations, we supply our
customers with waste containers of varying sizes. We also rent compactors to
large waste generators. Commercial collection services are generally performed
under one- to three-year service agreements, and fees are determined by such
considerations as:

- market factors,

- collection frequency,

- type of equipment furnished,

- the type and volume or weight of the waste collected,

- the distance to the disposal facility and

- the cost of disposal.

We rent waste containers to construction sites and also provide waste
collection services to industrial and construction facilities on a contractual
basis with terms generally ranging from a single pickup to one year or longer.
We collect the containers or compacted waste and transport the waste either to a
landfill or a transfer station for disposal.

We own or operate 90 transfer stations. We deposit waste at these stations,
as do other private haulers and municipal haulers, for compaction and transfer
to trailers for transport to disposal sites or recycling facilities.

Also, we currently provide recycling services in certain markets primarily
to comply with local laws or obligations under our franchise agreements. These
services include the curbside collection of residential recyclable waste and the
provision of a variety of recycling services to commercial and industrial
customers.

Disposal Services. As of December 31, 2002, we owned or operated 56
landfills, which had approximately 7,697 permitted acres and total available
permitted and probable expansion disposal capacity of approximately 1.7 billion
in-place cubic yards. The in-place capacity of our landfills is subject to
change based on engineering factors, requirements of regulatory authorities and
the ability to expand our sites successfully. Some of our landfills accept
non-hazardous special waste, including utility ash, asbestos and contaminated
soils. See "-- Properties."

Most of our existing landfill sites have the potential for expanded
disposal capacity beyond the currently permitted acreage. We monitor the
availability of permitted disposal capacity at each of our landfills and
evaluate whether to pursue expansion at a given landfill based on estimated
future waste volumes and prices, market needs, remaining capacity and likelihood
of obtaining an expansion. To satisfy future disposal demand,

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we are currently seeking to expand permitted capacity at certain of our
landfills, although no assurances can be made that all future expansions will be
permitted as designed.

Other Services. We have 33 materials recovery facilities and other
recycling operations, which are generally required to fulfill our obligations
under long-term municipal contracts for residential collection services. These
facilities primarily sort recyclable paper, aluminum, glass and other materials.
Most of these recyclable materials are internally collected by our residential
collection operations. In some areas, we receive commercial and industrial solid
waste that is sorted at our facilities into recyclable materials and non-
recyclable waste. The recyclable materials are salvaged, repackaged and sold to
third parties and the non-recyclable waste is disposed of at landfills or
incinerators. Wherever possible, our strategy is to reduce our exposure to
fluctuations in recyclable commodity prices by utilizing third party facilities,
thereby minimizing our recycling investment.

We provide remediation and other heavy construction services primarily
through our subsidiary located in Missouri. During March 2001, this subsidiary
agreed to act as a subcontractor on a project awarded by the Army Corps of
Engineers to dredge a portion of the Blue River. Revenue from this contract,
which was completed in 2002, was approximately $9.0 million. During 2002, our
subsidiary was awarded a contract to assist on the Riverside Levy Project in
Missouri. Revenue from this project, which is scheduled to be completed in 2004,
is expected to be approximately $50.0 million of which approximately $17.0 has
already been recorded.

We also have a Texas based compost, mulch and soil business at which yard,
mill and other waste is processed, packaged and sold as various products.

SALES AND MARKETING

We seek to provide quality services that will enable our company to
maintain high levels of customer satisfaction. We derive our business from a
broad customer base which we believe will enable our company to experience
stable growth. We focus our marketing efforts on continuing and expanding
business with existing customers, as well as attracting new customers.

We employ approximately 500 sales and marketing employees. Our sales and
marketing strategy is to provide high-quality, comprehensive solid waste
collection, recycling, transfer and disposal services to our customers at
competitive prices. We target potential customers of all sizes, from small
quantity generators to large "Fortune 500" companies and municipalities.

Most of our marketing activity is local in nature. However, in 2000 we
initiated a national accounts program in response to our customers' needs.

We generally do not change the tradenames of the local businesses we
acquire, and therefore we do not operate nationally under any one mark or
tradename. Rather, we rely on the goodwill associated with the acquired
companies' local tradenames as used in each geographic market in which we
operate.

CUSTOMERS

We provide services to commercial, industrial, municipal and residential
customers. No one customer has individually accounted for more than 10% of the
consolidated revenue of any of our reportable segments in any of the last three
years.

COMPETITION

We operate in a highly competitive industry. Entry into our business and
the ability to operate profitably in the industry requires substantial amounts
of capital and managerial experience.

Competition in the non-hazardous solid waste industry comes from a few
large, national publicly-owned companies, including Waste Management and Allied
Waste Industries, several regional publicly- and privately-owned solid waste
companies, and thousands of small privately-owned companies. Some of our
competitors have significantly larger operations, and may have significantly
greater financial resources, than
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we do. In addition to national and regional firms and numerous local companies,
we compete with municipalities that maintain waste collection or disposal
operations. These municipalities may have financial advantages due to the
availability of tax revenues and tax-exempt financing.

We compete for collection accounts primarily on the basis of price and the
quality of our services. From time to time, our competitors may reduce the price
of their services in an effort to expand market share or to win a competitively
bid municipal contract. This may have an impact on our future revenue and
profitability.

In each market in which we own or operate a landfill, we compete for
landfill business on the basis of disposal costs, geographical location and
quality of operations. Our ability to obtain landfill business may be limited by
the fact that some major collection companies also own or operate landfills to
which they send their waste. There also has been an increasing trend at the
state and local levels to mandate waste reduction at the source and to prohibit
the disposal of certain types of wastes, such as yard wastes, at landfills. This
may result in the volume of waste going to landfills being reduced in certain
areas, which may affect our ability to operate our landfills at their full
capacity and/or affect the prices that we can charge for landfill disposal
services. In addition, most of the states in which we operate landfills have
adopted plans or requirements that set goals for specified percentages of
certain solid waste items to be recycled.

REGULATION

Our facilities and operations are subject to a variety of federal, state
and local requirements that regulate the environment, public health, safety,
zoning and land use. Operating and other permits, licenses and other approvals
are generally required for landfills and transfer stations, certain solid waste
collection vehicles, fuel storage tanks and other facilities that we own or
operate, and these permits are subject to revocation, modification and renewal
in certain circumstances. Federal, state and local laws and regulations vary,
but generally govern wastewater or stormwater discharges, air emissions, the
handling, transportation, treatment, storage and disposal of hazardous and
non-hazardous wastes, and the remediation of contamination associated with the
release or threatened release of hazardous substances. These laws and
regulations provide governmental authorities with strict powers of enforcement,
which include the ability to obtain injunctions and/or impose fines or penalties
in the case of violations, including criminal penalties. The U.S. Environmental
Protection Agency and various other federal, state and local environmental,
public and occupational health and safety agencies and authorities administer
these regulations, including the Occupational Safety and Health Administration
of the U.S. Department of Labor.

We strive to conduct our operations in compliance with applicable laws and
regulations. However, in the existing climate of heightened environmental
concerns, from time to time, we have been issued citations or notices from
governmental authorities that have resulted in the need to expend funds for
remedial work and related activities at various landfills and other facilities.
There is no assurance that citations and notices will not be issued in the
future despite our regulatory compliance efforts. We have established a reserve
that we believe, based on currently available information, will be adequate to
cover any potential regulatory costs. However, we cannot assure you that actual
costs will not exceed our reserve.

Federal Regulation. The following summarizes the primary environmental,
public and occupational health and safety-related statutes of the United States
that affect our facilities and operations:

(1) The Solid Waste Disposal Act, as amended, including the Resource
Conservation and Recovery Act. RCRA and its implementing regulations
establish a framework for regulating the handling, transportation,
treatment, storage and disposal of hazardous and non-hazardous solid
wastes, and require states to develop programs to ensure the safe disposal
of solid waste in sanitary landfills.

Subtitle D of RCRA establishes a framework for regulating the disposal
of municipal solid waste. Regulations under Subtitle D currently include
minimum comprehensive solid waste management criteria and guidelines,
including location restrictions, facility design and operating criteria,
closure and post-closure requirements, financial assurance standards,
groundwater monitoring requirements and corrective action standards, many
of which had not commonly been in effect or enforced in the past in
connection with municipal solid waste landfills. Each state was required to
submit to the U.S. EPA a

9

permit program designed to implement Subtitle D regulations by April 9,
1993. All of the states in which we operate have implemented permit
programs pursuant to RCRA and Subtitle D. These state permit programs may
include landfill requirements which are more stringent than those of
Subtitle D.

All of our planned landfill expansions or new landfill development
projects have been engineered to meet or exceed Subtitle D requirements.
Operating and design criteria for existing operations have been modified to
comply with these new regulations. Compliance with Subtitle D regulations
has resulted in increased costs and may in the future require substantial
additional expenditures in addition to other costs normally associated with
our waste management activities.

(2) The Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended. CERCLA, among other things, provides
for the cleanup of sites from which there is a release or threatened
release of a hazardous substance into the environment. CERCLA may impose
strict, joint and several liability for the costs of cleanup and for
damages to natural resources upon current owners and operators of the site,
parties who were owners or operators of the site at the time the hazardous
substances were disposed of, parties who transported the hazardous
substances to the site and parties who arranged for the disposal of the
hazardous substances at the site. Under the authority of CERCLA and its
implementing regulations, detailed requirements apply to the manner and
degree of investigation and remediation of facilities and sites where
hazardous substances have been or are threatened to be released into the
environment. Liability under CERCLA is not dependent upon the existence or
disposal of only "hazardous wastes" but can also be based upon the
existence of small quantities of more than 700 "substances" characterized
by the U.S. EPA as "hazardous," many of which may be found in common
household waste.

Among other things, CERCLA authorizes the federal government to
investigate and remediate sites at which hazardous substances have been or
are threatened to be released into the environment or to order (or offer an
opportunity to) persons potentially liable for the cleanup of the hazardous
substances to do so. In addition, the U.S. EPA has established a National
Priorities List of sites at which hazardous substances have been or are
threatened to be released and which require investigation or cleanup.

Liability under CERCLA is not dependent upon the intentional disposal
of hazardous wastes or hazardous substances. It can be founded upon the
release or threatened release, even as a result of unintentional,
non-negligent or lawful action, of thousands of hazardous substances,
including very small quantities of such substances. Thus, even if our
landfills have never knowingly received hazardous wastes as such, it is
possible that one or more hazardous substances may have been deposited or
"released" at our landfills or at other properties which we currently own
or operate or may have owned or operated. Therefore, we could be liable
under CERCLA for the cost of cleaning up such hazardous substances at such
sites and for damages to natural resources, even if those substances were
deposited at our facilities before we acquired or operated them. The costs
of a CERCLA cleanup can be very expensive. Given the difficulty of
obtaining insurance for environmental impairment liability, such liability
could have a material impact on our business and financial condition. For a
further discussion, see "--Liability Insurance and Bonding."

(3) The Federal Water Pollution Control Act of 1972, as amended. This
Act regulates the discharge of pollutants from a variety of sources,
including solid waste disposal sites, into streams, rivers and other waters
of the United States. Point source runoff from our landfills and transfer
stations that is discharged into surface waters must be covered by
discharge permits that generally require us to conduct sampling and
monitoring, and under certain circumstances, reduce the quantity of
pollutants in those discharges. Storm water discharge regulations under
this Act require a permit for certain construction activities and
discharges from industrial operations and facilities, which may affect our
operations. If a landfill or transfer station discharges wastewater through
a sewage system to a publicly-owned treatment works, the facility must
comply with discharge limits imposed by that treatment works. In addition,
states may adopt groundwater protection programs under this Act or the Safe
Drinking Water Act that could affect solid waste landfills. Furthermore,
development which alters or affects wetlands must generally be permitted

10

prior to such development commencing, and certain mitigation requirements
may be required by the permitting agencies.

(4) The Clean Air Act, as amended. The Clean Air Act imposes
limitations on emissions from various sources, including landfills. In
March 1996, the U.S. EPA promulgated regulations that require large
municipal solid waste landfills to install landfill gas monitoring systems.
These regulations apply to landfills that commenced construction,
reconstruction or modification on or after May 30, 1991, and, principally,
to landfills that can accommodate 2.5 million cubic meters or more of
municipal solid waste. The regulations apply whether the landfill is active
or closed. The date by which each affected landfill is required to have a
gas collection and control system installed and made operational varies
depending upon calculated emission rates at the landfill. Many state
regulatory agencies also currently require monitoring systems for the
collection and control of certain landfill gas. We do not expect that
compliance with any new state regulations will have a material effect on
us.

(5) The Occupational Safety and Health Act of 1970, as amended. This
Act authorizes the Occupational Safety and Health Administration of the
U.S. Department of Labor to promulgate occupational safety and health
standards. A number of these standards, including standards for notices of
hazardous chemicals and the handling of asbestos, apply to our facilities
and operations.

State Regulation. Each state in which we operate has its own laws and
regulations governing solid waste disposal, water and air pollution, and, in
most cases, releases and cleanup of hazardous substances and liability for such
matters. States also have adopted regulations governing the design, operation,
maintenance and closure of landfills and transfer stations. Our facilities and
operations are likely to be subject to these types of requirements. In addition,
our solid waste collection and landfill operations may be affected by the trend
in many states toward requiring the development of solid waste reduction and
recycling programs. For example, several states have enacted laws that require
counties or municipalities to adopt comprehensive plans to reduce, through solid
waste planning, composting, recycling or other programs, the volume of solid
waste deposited in landfills. Additionally, laws and regulations restricting the
disposal of certain wastes, including yard waste, newspapers, beverage
containers, unshredded tires, lead-acid batteries and household appliances, in
solid waste landfills have been promulgated in several states and are being
considered in others. Legislative and regulatory measures to mandate or
encourage waste reduction at the source and waste recycling also are or have
been under consideration by the U.S. Congress and the U.S. EPA, respectively.

In order to construct, expand and operate a landfill, one or more
construction or operating permits, as well as zoning and land use approvals,
must be obtained. These are difficult and time-consuming to obtain, are often
opposed by neighboring landowners and citizens' groups, may be subject to
periodic renewal and are subject to modification and revocation by the issuing
agency. In connection with our acquisition of existing landfills, it may be and
on occasion has been necessary for our company to expend considerable time,
effort and money to bring the acquired facilities into compliance with
applicable requirements and to obtain the permits and approvals necessary to
increase their capacity.

Many of our facilities own and operate underground storage tanks which are
generally used to store petroleum-based products. These tanks are generally
subject to federal, state and local laws and regulations that mandate their
periodic testing, upgrading, closure and removal, and that, in the event of
leaks, require that polluted groundwater and soils be remediated. We believe
that all of our underground storage tanks currently meet all applicable
regulations. If underground storage tanks we own or operate leak, and the
leakage migrates onto the property of others, we could be liable for response
costs and other damages to third parties. We are unaware of facts indicating
that issues of compliance with regulations related to underground storage tanks
will have a material adverse effect on our business or financial condition.

Finally, with regard to our solid waste transportation operations, we are
subject to the jurisdiction of the Surface Transportation Board and are
regulated by the Federal Highway Administration, Office of Motor Carriers, and
by regulatory agencies in each state. Various states have enacted or
promulgated, or are considering enacting or promulgating, laws and regulations
that would restrict the interstate transportation and processing of solid waste.
In 1978, the U.S. Supreme Court ruled that a law that restricts the importation
of out-of-state solid waste was unconstitutional; however, states have attempted
to distinguish proposed laws
11

from that involved in and implicated by that ruling. In 1994, the Supreme Court
ruled that a flow control law, which attempted to restrict solid waste from
leaving its place of generation, imposed an impermissible burden upon interstate
commerce, and, therefore, was unconstitutional; however, states have also
attempted to distinguish proposed laws from that involved in and implicated by
that ruling. In response to these Supreme Court rulings, the U.S. Congress has
considered passing legislation authorizing states and local governments to
restrict the free movement of solid waste in interstate commerce. If federal
legislation authorizing state and local governments to restrict the free
movement of solid waste in interstate commerce is enacted, such legislation
could adversely affect our operations.

We have established a reserve for landfill and environmental costs, which
includes landfill site closure and post-closure costs. We periodically reassess
such costs based on various methods and assumptions regarding landfill airspace
and the technical requirements of Subtitle D of RCRA and adjust our rates used
to expense closure and post-closure costs accordingly. Based on current
information and regulatory requirements, we believe that our reserves for such
landfill and environmental expenditures are adequate. However, environmental
laws may change, and there can be no assurance that our reserves will be
adequate to cover requirements under existing or new environmental laws and
regulations, future changes or interpretations of existing laws and regulations
or the identification of adverse environmental conditions previously unknown to
us. See "Management's Discussion and Analysis of Financial Condition and Results
of Operations -- Landfill and Environmental Matters" and "Risk
Factors -- Compliance with environmental regulation may impede our growth."

LIABILITY INSURANCE AND BONDING

The nature of our business exposes our company to the risk of liabilities
arising out of our operations, including possible damages to the environment.
Such potential liabilities could involve, for example, claims for remediation
costs, personal injury, property damage and damage to the environment in cases
where we may be held responsible for the escape of harmful materials; claims of
employees, customers or third parties for personal injury or property damage
occurring in the course of our operations; or claims alleging negligence in the
planning or performance of work. We could also be subject to fines and civil and
criminal penalties in connection with alleged violations of regulatory
requirements. Because of the nature and scope of the possible environmental
damages, liabilities imposed in environmental litigation can be significant. Our
solid waste operations have third party environmental liability insurance with
limits in excess of those required by permit regulations, subject to certain
limitations and exclusions. However, we cannot assure you that the limits of
such environmental liability insurance would be adequate in the event of a major
loss, nor can we assure you that we would continue to carry excess environmental
liability insurance should market conditions in the insurance industry make such
coverage costs prohibitive.

We have general liability, vehicle liability, employment practices
liability, pollution liability, directors and officers liability, worker's
compensation and employer's liability coverage, as well as umbrella liability
policies to provide excess coverage over the underlying limits contained in
these primary policies. We also carry property insurance. Although we try to
operate safely and prudently and while we have, subject to limitations and
exclusions, substantial liability insurance, no assurance can be given that we
will not be exposed to uninsured liabilities which could have a material adverse
effect on our financial condition, results of operations or cash flows.

Our insurance programs for worker's compensation, general liability,
vehicle liability and employee-related health care benefits are effectively
self-insured. Claims in excess of self-insurance levels are fully insured
subject to policy limits. Accruals are based on claims filed and estimates of
claims incurred but not reported.

In the normal course of business, we may be required to post performance
bonds, insurance policies, letters of credit and/or cash deposits in connection
with municipal residential collection contracts, the operation, closure or
post-closure of landfills, certain remediation contracts, certain environmental
permits, and certain business licenses and permits. Bonds issued by surety
companies operate as a financial guarantee

12

of our performance. To date, we have satisfied financial responsibility
requirements by making cash deposits or by obtaining bank letters of credit,
insurance policies or surety bonds.

EMPLOYEES

As of December 31, 2002, we employed approximately 12,700 full-time
employees, approximately 3,300 of whom were covered by collective bargaining
agreements. Our management believes that we have good relations with our
employees.

COMPENSATION

We believe that our compensation program effectively aligns our field and
corporate management team with the company's overall goal of generating
increasing amounts of free cash flow while achieving targeted earnings and
returns on invested capital. This is done by utilizing simple and measurable
metrics on which incentive pay is based. At the field level, these metrics are
based upon free cash flow, earnings and return on invested capital for each
manager's geographic area of responsibility. Great effort is taken to ensure
that these individual goals agree to the overall goals of the company. Incentive
compensation at the corporate level is based on the obtainment of our company's
overall goals. In addition, certain field and corporate employees also
participate in a long-term incentive program. We believe this program aligns our
company's short- and long-term goals and helps ensure that the long-term success
of our company is not sacrificed for the obtainment of short-term goals.

CORPORATE HISTORY

We were incorporated as a Delaware corporation in 1996 by our former parent
company, AutoNation, Inc. In 1998, AutoNation separated its non-hazardous solid
waste services division from its other businesses and we completed an initial
public offering of shares of our common stock. In 1999, AutoNation sold
substantially all of its remaining interest in our company in a secondary public
offering.

AVAILABILITY OF REPORTS AND OTHER INFORMATION

Our corporate website is http://www.republicservices.com. We make available
on this website, free of charge, access to our Annual Report on Form 10-K,
Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, Proxy Statement on
Schedule 14A and amendments to those materials filed or furnished pursuant to
Section 13(a) or 15(d) of the Securities and Exchange Act of 1934 as soon as
reasonably practicable after we electronically submit such material to the
Securities and Exchange Commission. In addition, the Commission's website is
http://www.sec.gov. The Commission makes available on this website, free of
charge, reports, proxy and information statements, and other information
regarding issuers, such as us, that file electronically with the Commission.
Information on our website or the Commission's website is not part of this
document.

RISK FACTORS

This Annual Report on Form 10-K includes "forward-looking statements'
within the meaning of Section 21E of the Securities Exchange Act of 1934, as
amended, including, in particular, certain statements about our plans,
strategies and prospects. Although we believe that our plans, intentions and
expectations reflected in or suggested by such forward-looking statements are
reasonable, we cannot assure you that such plans, intentions or expectations
will be achieved. Important factors that could cause our actual results to
differ materially from our forward-looking statements include those set forth in
this Risk Factors section. All forward-looking statements attributable to us or
any persons acting on our behalf are expressly qualified in their entirety by
the cautionary statements set forth below. Unless the context requires
otherwise, all references to the "company," "we," "us" or "our" include Republic
Services, Inc. and its subsidiaries.

If any of the following risks, or other risks not presently known to us or
that we currently believe to not be significant, develop into actual events,
then our business, financial condition, results of operations, cash flows or
prospects could be materially adversely affected.
13

WE OPERATE IN A HIGHLY COMPETITIVE INDUSTRY AND MAY BE UNABLE TO COMPETE
EFFECTIVELY.

We operate in a highly competitive business environment. Some of our
competitors have significantly larger operations and may have significantly
greater financial resources than we do. In addition, the solid waste industry is
constantly changing as a result of rapid consolidation which may create
additional competitive pressures in our business environment.

We also compete with municipalities that maintain their own waste
collection or disposal operations. These municipalities may have a financial
advantage over us as a result of the availability of tax revenue and tax-exempt
financing.

We compete for collection accounts primarily on the basis of price and the
quality of services. From time to time our competitors may reduce the price of
their services in an effort to expand their market share or to win a
competitively bid municipal contract.

In each market in which we own or operate a landfill, we compete for solid
waste volume on the basis of disposal or "tipping" fees, geographical location
and quality of operations. Our ability to obtain solid waste volume for our
landfills may be limited by the fact that some major collection companies also
own or operate landfills to which they send their waste. In markets in which we
do not own or operate a landfill, our collection operations may operate at a
disadvantage to fully integrated competitors.

As a result of these factors, we may have difficulty competing effectively
from time to time.

ECONOMIC CONDITIONS MAY CONTINUE TO ADVERSELY AFFECT OUR BUSINESS, OPERATIONS
AND INTERNAL GROWTH.

During 2001, the economic slowdown reduced recycling commodity prices which
negatively impacted our operating margins. The economic slowdown also negatively
impacted the portion of our business servicing the manufacturing sector and the
non-residential construction industry. Landfill volumes attributable to
manufacturing and construction activity began to weaken. Furthermore, the
portion of our business that services the residential construction industry was
negatively impacted toward the latter part of 2001. During 2002, landfill
volumes attributable to manufacturing and construction activity continued to
weaken. A continued slowdown in the economy could further adversely affect
volumes, pricing and operating margins in our collection, transfer and disposal
operations.

AN INCREASE IN THE PRICE OF FUEL MAY ADVERSELY AFFECT OUR BUSINESS.

Our operations are dependent upon fuel, which we purchase in the open
market on a daily basis. During 2000, we experienced an increase in the cost of
fuel. A portion of this increase was passed on to our customers. To date in
2003, we have experienced a significant increase in the cost of fuel. However,
because of the competitive nature of the waste industry, there can be no
assurances that we will be able to pass on the recent or any future increases in
fuel prices to our customers. Due to prospects of war and political instability
in oil producing countries, fuel prices may continue to increase significantly
in 2003. A significant increase in fuel costs could adversely affect our
business.

WE MAY BE UNABLE TO EXECUTE OUR FINANCIAL STRATEGY.

Our ability to execute our financial strategy is dependent upon our ability
to maintain an investment grade rating on our senior debt. The credit rating
process is contingent upon a number of factors, many of which are beyond our
control.

Our financial strategy is also dependent upon our ability to generate
sufficient cash flow to reinvest in our existing business, to fund our internal
growth, to acquire other solid waste businesses, repurchase shares of our common
stock, minimize our borrowings and take other actions to enhance stockholder
value. We cannot assure you that we will generate sufficient cash flow to
execute our financial strategy, that we will be able to repurchase our common
stock or that we will declare any cash dividends.

14

WE MAY BE UNABLE TO EXECUTE OUR ACQUISITION GROWTH STRATEGY.

Our ability to execute our growth strategy still depends in part on our
ability to identify and acquire desirable acquisition candidates as well as our
ability to successfully consolidate acquired operations into our business. The
consolidation of our operations with the operations of acquired companies,
including the consolidation of systems, procedures, personnel and facilities,
the relocation of staff, and the achievement of anticipated cost savings,
economies of scale and other business efficiencies, presents significant
challenges to our management, particularly if several acquisitions occur at the
same time. In short, we cannot assure you that:

- desirable acquisition candidates exist or will be identified,

- we will be able to acquire any of the candidates identified,

- we will effectively consolidate companies which are acquired and fully or
timely realize the expected cost savings, economies of scale or business
efficiencies, or

- any acquisitions will be profitable or accretive to our earnings.

Additional factors may negatively impact our acquisition growth strategy.
Our acquisition strategy requires spending significant amounts of capital. If we
are unable to obtain additional needed financing on acceptable terms, we may
need to reduce the scope of our acquisition growth strategy, which could have a
material adverse effect on our growth prospects. The intense competition among
our competitors pursuing the same acquisition candidates may increase purchase
prices for solid waste businesses and increase our capital requirements and/or
prevent us from acquiring certain acquisition candidates. If any of the
aforementioned factors force us to alter our growth strategy, our financial
condition, results of operations and growth prospects could be adversely
affected.

WE MAY BE UNABLE TO MANAGE OUR GROWTH EFFECTIVELY.

Our growth strategy places significant demands on our financial,
operational and management resources. In order to continue our growth, we will
need to add administrative and other personnel, and make additional investments
in operations and systems. We cannot assure you that we will be able to find and
train qualified personnel, or do so on a timely basis, or expand our operations
and systems to the extent, and in the time, required.

BUSINESSES WE ACQUIRE MAY HAVE UNDISCLOSED LIABILITIES.

In pursuing our acquisition strategy, our investigations of the acquisition
candidates may fail to discover certain undisclosed liabilities of the
acquisition candidates. If we acquire a company having undisclosed liabilities,
as a successor owner we may be responsible for such undisclosed liabilities. We
typically try to minimize our exposure to such liabilities by obtaining
indemnification from each seller of the acquired companies, by deferring payment
of a portion of the purchase price as security for the indemnification and by
acquiring only specified assets. However, we cannot assure you that we will be
able to obtain indemnifications or that they will be enforceable, collectible or
sufficient in amount, scope or duration to fully offset any undisclosed
liabilities arising from our acquisitions.

WE DEPEND ON KEY PERSONNEL.

Our future success depends on the continued contributions of several key
employees and officers. We do not maintain key man life insurance policies on
any of our officers. The loss of the services of key employees and officers,
whether such loss is through resignation or other causes, or the inability to
attract additional qualified personnel, could have a material adverse effect on
our financial condition, results of operations and growth prospects.

15

COMPLIANCE WITH ENVIRONMENTAL AND OTHER LAWS AND REGULATIONS MAY IMPEDE OUR
GROWTH.

We may need to spend considerable time, effort and capital to keep our
facilities in compliance with federal, state and local requirements regulating
health, safety, environment, zoning, land use and transportation. In addition,
some of our waste operations that cross state boundaries could be adversely
affected if the federal government, or the state or locality in which these
waste operations are located, imposes fees on, or otherwise limits or prohibits,
the transportation or disposal of solid waste. If environmental laws become more
stringent, our environmental capital expenditures and costs for environmental
compliance may increase in the future. In addition, due to the possibility of
unanticipated events or regulatory developments, the amounts and timing of
future environmental expenditures could vary substantially from those we
currently anticipate. Because of the nature of our operations, we have in the
past, currently are, and may in the future be named as a potentially responsible
party in connection with the investigation or remediation of environmental
conditions. We cannot assure you that the resolution of any such investigations
will not have a material adverse effect on our financial condition, results of
operations or cash flows. A significant judgment or fine against our company, or
our loss of significant permits or licenses, could have a material adverse
effect on our financial condition, results of operations, cash flows or
prospects.

REGULATORY APPROVAL TO DEVELOP OR EXPAND OUR LANDFILLS AND TRANSFER STATIONS MAY
BE DELAYED OR DENIED.

Our plans include developing new landfills and transfer stations, as well
as expanding the disposal and transfer capacities of certain of our landfills
and transfer stations, respectively. Various parties, including citizens' groups
and local politicians, sometimes challenge these projects. Responding to these
challenges has, at times, increased our costs and extended the time associated
with establishing new facilities and expanding existing facilities. In addition,
failure to receive regulatory approval may prohibit us from establishing new
facilities and expanding existing facilities.

OUR FINANCIAL STATEMENTS ARE BASED UPON ESTIMATES AND ASSUMPTIONS THAT MAY
DIFFER FROM ACTUAL RESULTS.

Our financial statements have been prepared in accordance with accounting
principles generally accepted in the United States and necessarily include
amounts based on estimates and assumptions made by us. Actual results could
differ from these amounts. Significant items subject to such estimates and
assumptions include the carrying value of long-lived assets, the depletion and
amortization of landfill development costs, accruals for closure and
post-closure costs, valuation allowances for accounts receivable, liabilities
for potential litigation, claims and assessments, and liabilities for
environmental remediation, deferred taxes and self-insurance.

We currently accrue for landfill closure and post-closure costs based on
consumption of landfill airspace. As of December 31, 2002, assuming that all
available landfill capacity is used, we expect to expense approximately $541.3
million of landfill closure and post-closure costs over the remaining lives of
these facilities. We cannot assure you that our reserves for landfill and
environmental costs will be adequate to cover the requirements of existing
environmental regulations, future changes or interpretations of existing
regulations, or the identification of adverse environmental conditions
previously unknown to us.

SEASONAL CHANGES MAY ADVERSELY AFFECT OUR BUSINESS AND OPERATIONS.

Our operations may be adversely affected by periods of inclement weather
which could delay the collection and disposal of waste, reduce the volume of
waste generated, or delay the construction or expansion of our landfill sites
and other facilities.

WE MAY BE UNABLE TO EXTEND THE MATURITY OF OUR REVOLVING SHORT-TERM CREDIT
FACILITY.

We have a revolving short-term credit facility in the principal amount of
$300.0 million which expires in July 2003. We anticipate extending the maturity
of this credit facility until July 2004. However, we cannot assure you that we
will receive such extension and, if so, whether such extension will be on terms
as favorable to us as those currently contained in the credit facility.

16

THE OUTCOME OF AUDITS BY THE INTERNAL REVENUE SERVICE MAY ADVERSELY AFFECT OUR
COMPANY.

Through the date of our initial public offering in July 1998, we filed
consolidated federal income tax returns with AutoNation. The Internal Revenue
Service is auditing AutoNation's consolidated tax returns for fiscal years 1995
through 1999. In accordance with the tax sharing agreement we have with
AutoNation, we may be liable for certain assessments imposed by the Internal
Revenue Service for the periods through June 1998 resulting from this audit. In
addition, the Internal Revenue Service is auditing our consolidated tax returns
for fiscal years 1998 and 1999. No assurance can be given with respect to the
outcome of this audit or the effect it may have on us, or that our reserves with
respect thereto are adequate. A significant assessment against us could have a
material adverse effect on our financial position, results of operations or cash
flows.

17

ITEM 2. PROPERTIES

Our corporate headquarters are located in Ft. Lauderdale, Florida in leased
premises. As of December 31, 2002, we operated approximately 5,400 collection
vehicles. Certain of our property and equipment are subject to operating leases
or liens securing payment of portions of our indebtedness. We also lease certain
of our offices and equipment. We believe that our facilities are sufficient for
our current needs.

The following table provides certain information regarding the 56 landfills
owned or operated by us as of December 31, 2002:

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

(1) Operated but not owned by us.
(2) Total acreage includes permitted acreage, probable expansion acreage, other
acreage available for future disposal that has not been permitted, buffer
land and other land owned by our company.
(3) Permitted acreage consists of all acreage at the landfill encompassed by an
active permit to dispose of waste.
(4) Unused permitted acreage consists of all acreage at the landfill encompassed
by an active permit on which disposal operations have not commenced.

18

ITEM 3. LEGAL PROCEEDINGS

We are and will continue to be involved in various administrative and legal
proceedings in the ordinary course of business. We can give you no assurance
regarding the outcome of these proceedings or the effect their outcomes may
have, or that our insurance coverages or reserves are adequate. A significant
judgment against our company, the loss of significant permits or licenses, or
the imposition of a significant fine could have a material adverse effect on our
financial position, results of operations, cash flows or prospects.

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

No matters were submitted to our stockholders during the fourth quarter of
2002.

19

PART II

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

MARKET INFORMATION, HOLDERS AND DIVIDENDS

Our common stock began trading on the New York Stock Exchange on July 1,
1998.

The following table sets forth the range of the high and low sales prices
of our common stock for the periods indicated:

On March 21, 2003 the last reported sales price of our common stock was
$19.86.

There were approximately 91 record holders of our common stock at March 21,
2003.

We did not pay cash dividends on our common stock in 2001 and 2002. We
intend to retain all earnings for use in the operation and expansion of our
business. However, if we are unable to expand our business by acquiring
businesses that satisfy our acquisition growth strategy, we intend to use a
portion of our future earnings to repurchase our common stock and we may
consider declaring a cash dividend.

During 2000, 2001 and 2002, our board of directors authorized the
repurchase of up to $150.0 million, $125.0 million and $175.0 million,
respectively, of our common stock. As of December 31, 2002, we paid $300.1
million to repurchase approximately 17.2 million shares of our stock, of which
approximately 8.0 million shares were acquired during 2002 for $150.0 million.

The information required by Item 201(d) of Regulation S-K is included with
Item 12 of Part III of this Form 10-K, which is incorporated by reference to our
Proxy Statement for our 2003 Annual Meeting of Stockholders.

20

ITEM 6. SELECTED FINANCIAL DATA (IN MILLIONS, EXCEPT PER SHARE DATA)

The following Selected Financial Data should be read in conjunction with
our Consolidated Financial Statements and notes thereto as of December 31, 2002
and 2001 and for each of the three years in the period ended December 31, 2002
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this Annual Report on Form 10-K. The selected
statement of income data and the other operating data for the years 1999 and
1998 and the selected balance sheet data at December 31, 2000 and 1999 were
derived from our Consolidated Financial Statements, which have been audited by
Arthur Andersen LLP, independent certified public accountants. Certain amounts
in the historical Consolidated Financial Statements have been reclassified to
conform to the 2002 presentation. See Notes 1, 3 and 7 of the Notes to our
Consolidated Financial Statements for a discussion of basis of presentation,
business combinations and stockholders' equity and their effect on comparability
of year-to-year data.

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

(a) Prior to our initial public offering on July 1, 1998, we had 100 shares of
common stock outstanding, all of which were owned by AutoNation. Historical
share and per share data have been retroactively adjusted for the
recapitalization of our 100 shares of common stock into 95.7 million shares
of common stock in July 1998.
(b) During 2002, we also paid $72.6 million to purchase equipment originally
placed into service pursuant to an operating lease.
(c) EBITDA represents operating income plus depreciation, amortization and
depletion. While EBITDA data should not be construed as a substitute for
operating income, net income or cash flows from operations in analyzing our
operating performance, financial position and cash flows, we have included
EBITDA data, which is not a measure of financial performance calculated in
accordance with accounting principles generally accepted in the United
States, because we believe that this data is commonly used by certain
investors to evaluate a company's performance in the solid waste industry.
Due to the fact that not all companies calculate non-GAAP measures in the
same manner, the EBITDA presentation herein may not be comparable to
similarly titled measures reported by other companies.
(d) EBITDA margin represents EBITDA divided by revenue.

21

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

You should read the following discussion in conjunction with our
Consolidated Financial Statements and their Notes contained in this Annual
Report on Form 10-K.

2002 FINANCIAL OBJECTIVES

In January 2002, we publicly announced our objectives for the year. These
objectives included the following:

- Increasing free cash flow by over 10%.

- Growing revenue by 1.5% to 2.0%, with 1.0% from price increases and .5%
to 1.0% from volume growth.

- Generating earnings per share of $1.37 to $1.39.

- Using free cash flow to enhance shareholder value by completing strategic
acquisitions and repurchasing up to $125.0 million of our stock.

2002 BUSINESS PERFORMANCE

We exceeded all four of our financial objectives for 2002 despite a weak
economy.

The economic slowdown which began in 2001 continued to negatively impact
the portion of our business servicing the manufacturing sector and
non-residential construction activity during 2002. Volumes attributable to
manufacturing and construction activity continued to weaken during 2002.

Despite the weakness we experienced in the aspects of our business noted
above, our internal growth from core operations for 2002 was 3.0% with 1.4% from
price increases and 1.6% from volume growth. During 2002, we secured several
long-term franchise and municipal contracts. We also benefited from the
geographic mix of our business which favors high growth markets. As a result,
during 2002 we were able to exceed the internal growth objectives we established
at the beginning of the year.

In addition to the impact of the economic slowdown discussed above, during
2002 our operating margins were also negatively impacted by increased costs for
risk and health insurance, increased depreciation expense primarily associated
with capital additions, and increased revenue from municipal contracts and
transfer stations which have lower margins than our other lines of business.

This decrease in operating margins was partially offset by an increase in
recycling commodity prices, a decrease in fuel costs and the termination of our
operating lease facility. During 2001, we began a number of initiatives designed
to increase efficiencies and reduce costs including the implementation of a
number of management information systems such as route optimization, customer
relationship tracking and equipment maintenance software. We continued to
realize benefits from these initiatives in 2002.

Notwithstanding the impact of the economic slowdown and the increase in
certain expenses, our earnings per share for the year ended December 31, 2002
was $1.42, excluding a gain on sale of certain assets, which exceeded the
objective we established at the beginning of the year. We were also able to
exceed our free cash flow objective for the year.

During 2002 our board of directors increased our previously authorized
share repurchase program from $125.0 million to $150.0 million. We used our free
cash flow during 2002 to repurchase 8.0 million shares of our common stock for
$150.0 million.

22

2003 FINANCIAL OBJECTIVES

Our financial objectives for 2003 assume no deterioration or improvement in
the overall economy from that experienced during the fourth quarter 2002.
Specific guidance is as follows:

- Our goal is to generate free cash flow of approximately 90.0% of 2003 net
income. We define free cash flow as cash provided by operating activities
less purchases of property and equipment plus proceeds from the sale of
equipment as presented in our Consolidated Statement of Cash Flows.

- We anticipate using our free cash flow to repurchase shares of our common
stock under our $150.0 million share repurchase program approved by our
board of directors in October 2002.

- We anticipate earnings per share of $1.46 to $1.48, including an
estimated $.03 of additional landfill costs associated with the adoption
of Statement of Financial Accounting Standards No. 143, "Accounting for
Asset Retirement Obligations," and a change in accounting associated with
methane gas collection systems.

- We anticipate internal growth from core operations to be 2.0% to 3.0%,
with approximately 1.0% to 1.5% attributable to price increases and 1.0%
to 1.5% attributable to volume growth.

BUSINESS INITIATIVES

Our business initiatives for 2003 are generally a continuation of those
initiated in the prior two years and are dependent on standardizing our business
processes and improving our systems. Ensuring that our people understand our
initiatives and processes and are trained on our new systems is essential to the
overall success of our initiatives. Our business initiatives for 2003 are as
follows:

- Improve the quality of our revenue. The first step in this process was
completed in 2001 and included installing a standardized billing and
operating system. This system enables us to, among other things, stratify
our customers to determine how our rates compare to current market
pricing. During 2002, we implemented the second generation of this
software which we call RSI 1.0. RSI 1.0, our company's core business
system, provides a variety of functionalities including customer service,
dispatch, billing, sales analysis, account retention and route
productivity analysis.

We currently monitor our return on investment by market place and are in
the process of instituting a return on investment pricing model. This
model will eventually allow us to track our return on investment by
customer.

During 2001, we also implemented a customer relationship management
system. This system improves the productivity of our sales force by
helping to establish marketing priorities and track sales leads. It also
tracks renewal periods for potential commercial, industrial and franchise
contracts. Our focus during 2003 will be to ensure our sales force is
properly trained on this system and using it as intended.

- Improve the productivity of our operations. We have instituted a grid
productivity program that enables us to benchmark the performance of our
drivers. In addition, in our larger markets, we use a route optimization
program to minimize drive times and improve operational density. During
2003, we will continue to update our disposal optimization reviews. These
reviews determine which local disposal option maximizes our return on
invested capital and cash flow.

- Improve fleet management and procurement. In February 2002, we selected
Dossier as our fleet management and procurement system. Among other
features, this system will track parts inventories, generate automatic
quantity order points and log all maintenance work. It will allow us to
capture and review information to ensure our preventive maintenance
programs comply with manufacturers' warranties. In addition, the purchase
order module within this system will allow us to cross-reference
purchasing information with our inventory. We expect to have Dossier
implemented at all of our hauling and landfill operations by the end of
2003.

- Enhance operational and financial reporting systems. We currently have
several initiatives underway aimed at improving our operational and
financial reporting systems. The overall goal of these initiatives
23

is to provide us with detailed information, prepared in a consistent
manner, that will allow us to quickly analyze and act upon trends in our
business.

The most significant of these systems is our enterprise-wide general
ledger package. We successfully converted all of our locations to Lawson
general ledger software in 2002 and we are currently in the process of
converting all of our locations to Lawson fixed asset software.

All of the system initiatives mentioned above will provide us with more
consistent and detailed information, thus allowing us to make quicker and
more informed business decisions. In addition, during 2001, all of our
significant software applications were standardized and centralized at our
data center in Fort Lauderdale, Florida. This standardization and
centralization provides us with consolidated information concerning our
operations across a variety of operational and financial disciplines. It
also significantly enhances our ability to execute our disaster recovery
plan, if necessary.

- Expand our safety training programs. As part of our ongoing emphasis on
safe work practices and in light of the recent increase in insurance
costs, we expanded our safety training programs in 2002. We have signed a
multi-year agreement with DuPont Safety Resources to assist in
successfully completing this initiative.

OUR BUSINESS

We are a leading provider of non-hazardous solid waste collection and
disposal services in the United States. We provide solid waste collection
services for commercial, industrial, municipal and residential customers through
142 collection companies in 22 states. We also own or operate 90 transfer
stations, 56 solid waste landfills and 33 recycling facilities.

We generate revenue primarily from our solid waste collection operations,
and our remaining revenue is from landfill disposal services and other services,
including recycling and compost, mulch and soil operations.

The following table reflects our total revenue by source for the years
ended December 31, 2002, 2001 and 2000 (in millions):

Our revenue from collection operations consists of fees we receive from
commercial, industrial, municipal and residential customers. Our residential and
commercial collection operations in some markets are based on long-term
contracts with municipalities. We generally provide industrial and commercial
collection operations to individual customers under contracts with terms up to
three years. Our revenue from landfill operations is from disposal or tipping
fees charged to third parties. In general, we integrate our recycling operations
with our collection operations and obtain revenue from the sale of recyclable
materials. No one customer has individually accounted for more than 5% of our
consolidated revenue in any of the last three years.

The cost of our collection operations is primarily variable and includes
disposal, labor, fuel and equipment maintenance costs. We try to be more
efficient by controlling the movement of waste streams from the point of

24

collection through disposal. During the three months ended December 31, 2002,
approximately 53% of the total volume of waste we collected was disposed of at
landfills we own or operate.

Our landfill cost of operations includes daily operating expenses, costs of
capital for cell development, accruals for closure and post-closure costs, and
the legal and administrative costs of ongoing environmental compliance. We
expense all indirect landfill development costs as they are incurred. We use
life cycle accounting and the units-of-consumption method to recognize certain
direct landfill costs. In life cycle accounting, certain direct costs are
capitalized or accrued, and charged to expense based upon the consumption of
cubic yards of available airspace. These costs include all costs to acquire,
construct, close and maintain a site during the post-closure period.

Cost and airspace estimates are developed annually by independent engineers
together with our engineers. These estimates are used by our operating and
accounting personnel to annually adjust our rates used to expense capitalized
costs and accrue closure and post-closure costs. Changes in these estimates
primarily relate to changes in available airspace, inflation and applicable
regulations. Changes in available airspace include changes in design and changes
due to the addition of airspace lying in expansion areas that we believe has a
probable likelihood of being permitted.

CRITICAL ACCOUNTING POLICIES AND DISCLOSURES

Our Consolidated Financial Statements have been prepared using accounting
principles generally accepted in the United States and necessarily include
certain estimates and judgments made by management. In the past, we
significantly expanded our accounting disclosures in a number of areas that
require subjective or complex judgments including landfill accounting, fixed
assets and the activity in various balance sheet accounts such as closure and
post-closure accruals, self-insurance reserves and allowance for doubtful
accounts. As part of our continuing commitment to reliable and transparent
financial reporting that allows the users of our financial statements to make
more informed decisions, we have prepared the following list of accounting
policies that we believe are the most critical in understanding our company's
financial condition, results of operations and cash flows, and may require
management to make subjective or complex judgments about matters that are
inherently uncertain.

The following policies related to our landfill accounting are effective
through December 31, 2002. On January 1, 2003, certain of our policies will
change upon the adoption of Statement of Financial Accounting Standards No. 143,
"Accounting for Asset Retirement Obligations." See Note 2, Summary of
Significant Accounting Policies, of the Notes to our Consolidated Financial
Statements for further information.

BUSINESS COMBINATIONS

We make decisions to acquire or invest in businesses based on financial and
strategic considerations. Businesses acquired are accounted for under the
purchase method of accounting and are included in our Consolidated Financial
Statements from the date of acquisition.

30

We acquired various solid waste businesses during the year ended December
31, 2002. The aggregate purchase price we paid for these transactions was $55.8
million.

We acquired various solid waste businesses during the year ended December
31, 2001. The aggregate purchase price we paid for these transactions was $287.7
million. The aggregate purchase price paid, less cash and restricted cash
acquired plus debt assumed, was $247.5 million.

In July 1999, we entered into a definitive agreement with Allied Waste
Industries to acquire certain solid waste assets. In 2000, we had completed the
purchase of these assets for approximately $105.5 million in cash, $85.8 million
of which were acquired during 2000. In October 1999, we entered into a
definitive agreement with Allied for the simultaneous purchase and sale of
certain other solid waste assets. In 2000, we and Allied had completed the
purchase and sale of these assets of which annual revenue was approximately
$145.0 million. Our net proceeds from the cash portion of the exchange of assets
were $30.7 million. All of these transactions have been accounted for under the
purchase method of accounting.

In addition to the acquisitions from Allied, we also acquired various other
solid waste businesses during the year ended December 31, 2000. The aggregate
purchase price we paid in these transactions was $102.5 million in cash.

Cost in excess of fair value of net assets acquired for 2002 acquisitions
totaled approximately $40.1 million. As of December 31, 2002 we had intangible
assets, net of accumulated amortization, of $1,569.9 million, which consist
primarily of the cost in excess of fair value of net assets acquired.

During 2002, $5.1 million of the total purchase price paid for acquisitions
and contingent payments to former owners was allocated to landfill airspace. As
of December 31, 2002, we had $1,026.3 million of landfill development costs
which includes purchase price allocated to landfill airspace as well as other
capitalized landfill costs. When a landfill is acquired as part of a group of
assets, purchase price is allocated to airspace based upon the discounted
expected future cash flows of the landfill relative to the other assets within
the acquired group and is adjusted for other non-depletable landfill assets and
liabilities acquired (primarily closure and post-closure liabilities). Landfill
purchase price is amortized using the units-of-consumption method over total
available airspace which includes probable expansion airspace where appropriate.

Cost in excess of fair value of net assets acquired for 2001 acquisitions
totaled approximately $223.3 million. As of December 31, 2001, we had intangible
assets, net of accumulated amortization, of $1,551.6 million, which consists
primarily of the cost in excess of fair value of net assets acquired. In
addition, during 2001, $62.6 million of the total purchase price for
acquisitions and contingent payments to former owners was allocated to landfill
airspace.

Cost in excess of fair value of net assets acquired for 2000 acquisitions
totaled approximately $253.4 million. As of December 31, 2000, we had intangible
assets, net of accumulated amortization, of $1,435.0 million, which consists
primarily of the cost in excess of fair value of net assets acquired. In
addition, during 2000, $30.9 million of the total purchase price for
acquisitions and contingent payments to former owners was allocated to landfill
airspace.

CONSOLIDATED RESULTS OF OPERATIONS

Years Ended December 31, 2002, 2001 and 2000

Our net income was $239.6 million for the year ended December 31, 2002, as
compared to $125.5 million in 2001 and $221.0 million in 2000. Our operating
results for the years ended December 31, 2002, 2001 and 2000 include other
charges (income) described below.

31

The following table summarizes our costs and expenses in millions of
dollars and as a percentage of our revenue for 2000 through 2002:

Revenue. Revenue was $2,365.1 million, $2,257.5 million and $2,103.3
million for the years ended December 31, 2002, 2001 and 2000, respectively.
Revenue increased by $107.6 million, or 4.8%, from 2001 to 2002. Revenue
increased by $154.2 million, or 7.3%, from 2000 to 2001. The following table
reflects the components of our revenue growth for the years ended December 31,
2002, 2001 and 2000:

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

(a) Represents new taxes levied on landfill volumes in certain states that are
passed on to customers.

The economic slowdown which began in 2001 continued to negatively impact
the portion of our business servicing the manufacturing sector and
non-residential construction industry during 2002. Volumes attributable to
manufacturing and construction activity continued to weaken during 2002.

The weakness in our business attributable to the economic slowdown was
partially offset by an increase in recycling commodity prices in the early part
of 2002.

Despite the weakness we experienced in the aspects of our business noted
above, our internal growth from core operations for 2002 was 3.0%. During 2002,
we secured several long-term franchise and municipal contracts. We also
benefited from the geographic mix of our business which favors high growth
markets.

During the first and second quarters of 2001, our revenue was negatively
impacted by weakness in recycling commodity prices. In addition, during the
second quarter of 2001, we began to see a slowdown in revenue from the
manufacturing sector, particularly in the Midwestern and Mid-Atlantic states.

During the third quarter of 2001, the economic slowdown began to impact our
industrial business servicing the non-residential construction industry.
Landfill volumes attributable to manufacturing and construction activity began
to weaken. In addition, the slowdown we began to experience in the second
quarter in the manufacturing sector became more acute as we experienced
significant shift reductions and plant closings in the Southeastern United
States, particularly in the textile and home furnishing industries in the
Carolinas. These conditions were reflected in our internal growth numbers, which
were approximately half of what we experienced in prior quarters.

32

During the fourth quarter of 2001, we continued to see a weakening in waste
volumes from the manufacturing sector. We also continued to see a slowdown in
commercial construction and special waste activity which resulted in both volume
reductions and price sensitivity for these services. Furthermore, we began to
see a softening in residential construction activity.

We anticipate internal growth from core operations to be 2.0% to 3.0%
during 2003 assuming no deterioration or improvement in the overall economy from
that experienced during the fourth quarter of 2002. However, our price and
volume growth may remain flat or may decline in 2003 depending upon the severity
and duration of the economic slowdown.

Cost of Operations. Cost of operations was $1,472.9 million, $1,422.5
million and $1,271.3 million, or, as a percentage of revenue, 62.3%, 63.0% and
60.5%, for the years ended December 31, 2002, 2001 and 2000, respectively.

The increase in aggregate dollars from 2001 to 2002 is primarily a result
of the expansion of our operations through acquisitions and internal growth.
During the fourth quarter of 2001, we recorded a charge of $86.1 million on an
after-tax basis, or $132.0 million on a pre-tax basis. Of this pre-tax amount,
$24.2 million was recorded to cost of operations which relates primarily to the
downsizing of our compost, mulch and soil business and related inventory
adjustments and an increase in self-insurance reserves.

Excluding the impact of this charge, cost of operations for 2001 was
$1,398.3 million, or 61.9% as a percent of revenue. The increase in adjusted
cost of operations as a percentage of revenue from 2001 to 2002 is primarily the
result of the economic slowdown, higher costs for risk and health insurance, and
increased revenue from municipal contracts and transfer stations which have
higher operating costs. These increases in cost of operations were partially
offset by improved operating efficiencies, higher recycling commodity prices,
lower fuel costs and the termination of our operating lease facility.

The increase in aggregate dollars from 2000 to 2001 is primarily a result
of the expansion of our operations through acquisitions and internal growth. The
increase in cost of operations as a percentage of revenue from 2000 to 2001,
excluding the impact of the charge recorded in the fourth quarter of 2001, is
primarily a result of the economic slowdown, lower recycling commodity prices,
higher labor costs and higher costs for risk and health insurance partially
offset by improved operating efficiencies and revenue mix. In addition, during
the third quarter of 2001 we continued to be successful in attracting municipal
customers; however, these customers generally produce lower margins than other
customers.

To date in 2003, we have experienced a significant increase in fuel prices.
We believe that cost of operations as a percentage of revenue may continue to
remain high or increase further depending upon the cost of fuel, health
insurance, risk insurance and other key components of our cost structure and the
severity and duration of the economic slowdown.

Depreciation, Amortization and Depletion of Property and
Equipment. Depreciation, amortization and depletion expenses for property and
equipment were $193.5 million, $168.3 million and $157.0 million, or, as a
percentage of revenue, 8.2%, 7.4% and 7.5%, for the years ended December 31,
2002, 2001 and 2000, respectively. The increase in aggregate dollars for all
periods presented is primarily due to acquisitions and capital expenditures. The
increase as a percentage of revenue from 2001 to 2002 is primarily due to higher
depreciation expense resulting from capital expenditures, acquisitions and the
purchase of equipment originally placed into service pursuant to an operating
lease. The decrease as a percentage of revenue from 2000 to 2001 is primarily
due to lower depletion expense at our landfills resulting from higher compaction
and more cost efficient cell construction.

Amortization of Intangible Assets. Intangible assets consist primarily of
cost in excess of fair value of net assets acquired, but also includes values
assigned to long-term contracts and covenants not to compete. Expenses for
amortization of intangible assets were $6.1 million, $47.1 million and $40.4
million, or, as a percentage of revenue, .2%, 2.1% and 1.9%, for the years ended
December 31, 2002, 2001 and 2000, respectively. The decrease in aggregate
dollars and as a percent of revenue from 2001 to 2002 is due to the adoption of
Statement of Financial Accounting Standards No. 142, "Goodwill and Other
Intangible Assets," effective January 1, 2002 under which most of our intangible
assets are no longer subject to amortization. The
33

increase in aggregate dollars and as a percentage of revenue from 2000 to 2001
is primarily due to an increase in the aggregate dollar amount of acquisitions
accounted for using the purchase method of accounting.

Selling, General and Administrative Expenses. Selling, general and
administrative expenses were $238.7 million, $236.5 million and $193.9 million,
or, as a percentage of revenue, 10.1%, 10.5% and 9.2%, for the years ended
December 31, 2002, 2001 and 2000, respectively. The increases in aggregate
dollars are primarily a result of the expansion of our operations through
acquisitions and internal growth.

During the fourth quarter of 2001, we recorded a charge of $86.1 million on
an after-tax basis, or $132.0 million on a pre-tax basis. Of this pre-tax
amount, $8.2 million was recorded to selling, general and administrative
expenses which relates primarily to an increase in bad debt expense resulting
from the economic slowdown. Excluding the impact of this charge, selling,
general and administrative expenses for 2001 were $228.3 million, or 10.1% as a
percent of revenue, which is consistent with 2002. The increase in selling,
general and administrative expenses as a percentage of revenue from 2000 to 2001
is primarily due to the strengthening of our regional management structure and
various systems and training initiatives. We believe that selling, general and
administrative expenses in the range of 10% of revenue is appropriate for 2003
given our business platform. However, selling, general and administrative
expenses as a percentage of revenue may increase depending upon the severity and
duration of the economic slowdown.

Other Charges. During the fourth quarter of 2002, we recorded a $5.6
million gain on the sale of certain assets for amounts exceeding estimates
originally made during the fourth quarter of 2001.

During the fourth quarter of 2001, we recorded a charge of $86.1 million on
an after-tax basis, or $132.0 million on a pre-tax basis. Of this pre-tax
amount, $99.6 million was recorded to other charges which relates primarily to
completed and planned divestitures and closings of certain core and non-core
businesses and asset impairments.

Other charges were $6.7 million for the year ended December 31, 2000. These
charges relate primarily to the early closure of a landfill in south Texas.

Operating Income. Operating income was $459.5 million, $283.5 million and
$434.0 million, or, as a percentage of revenue, 19.4%, 12.6% and 20.6%, for the
years ended December 31, 2002, 2001 and 2000, respectively. Excluding the impact
of the other charges (income) we recorded in the fourth quarters of 2002 and
2001, our operating income was $453.9 million, or 19.2%, and $415.5 million, or
18.4%, for the years ended December 31, 2002 and 2001, respectively.

Interest Expense. We incurred interest expense on our revolving credit
facility, unsecured notes and tax-exempt bonds. Interest expense was $77.0
million, $80.1 million and $81.6 million for the years ended December 31, 2002,
2001 and 2000, respectively. The decrease in interest expense is due to a
general market decrease in interest rates and an increase in tax-exempt
financings which generally bear interest at lower rates than our unsecured
notes. The decrease in interest expense is also due to interest rate swap
agreements that we entered into during 2001 and 2002.

Capitalized interest was $2.5 million, $3.3 million and $2.9 million for
the years ended December 31, 2002, 2001 and 2000, respectively.

Interest and Other Income (Expense), Net. Interest and other income, net
of other expense, was $4.0 million, $5.9 million and $4.0 million for the years
ended December 31, 2002, 2001 and 2000, respectively. The variances during the
periods are primarily due to fluctuations in cash balances on hand and related
interest income and net gains on the disposition of assets during 2000 and 2001.

Income Taxes. Our provision for income taxes was $146.9 million, $83.8
million and $135.4 million for the years ended December 31, 2002, 2001 and 2000,
respectively. Our effective income tax rate was 38.0%, 40.0% and 38.0% for the
years ended December 31, 2002, 2001 and 2000, respectively. The increase in our
effective tax rate from 2000 to 2001 is the result of certain non-tax-deductible
items included in the charge that we recorded during the fourth quarter of 2001.
Excluding the impact of this charge, our effective tax rate for 2001 was 38.0%.

34

Consolidated Results of Operations. Our net income for the year ended
December 31, 2002 was $239.6 million. Our adjusted net income was $236.1 million
for the year ended December 31, 2002. Our adjusted operating results exclude a
$5.6 million pre-tax, or a $3.5 million after-tax, gain we recorded during the
fourth quarter of 2002 on the sale of certain assets for amounts exceeding
estimates originally made during the fourth quarter of 2001.

LANDFILL AND ENVIRONMENTAL MATTERS

Among our most significant investments and most valuable assets are our
landfills. The additional disclosures included in this section provide the users
of our financial statements with a clearer understanding of our investment in
our landfills and various accounting principles that are unique to landfill
operations.

Available Airspace

The following tables reflect landfill airspace activity for landfills owned
or operated by us for the years ended December 31, 2000, 2001 and 2002:

Changes in engineering estimates typically include minor modifications to
the available disposal capacity of a landfill based on a refinement of the
capacity calculations resulting from updated information. Changes in design
typically include significant modifications to a landfill's footprint or
vertical slopes.

35

During 2000, we actively pursued obtaining landfill permits which resulted
in adding over twice as much permitted airspace during the year than was
consumed. During 2001, total available airspace increased by 34.1 million cubic
yards primarily due to changes in design partially offset by consumption. During
2002, total available airspace increased by 22.6 million cubic yards primarily
due to the opening of a greenfield site in South Carolina, and changes in
engineering estimates partially offset by consumption.

As of December 31, 2002, we owned or operated 56 solid waste landfills with
total available disposal capacity estimated to be 1.7 billion in-place cubic
yards. Total available disposal capacity represents the sum of estimated
permitted airspace plus an estimate of probable expansion airspace. These
estimates are developed annually by independent engineers together with our
engineers utilizing information provided by annual aerial surveys. As of
December 31, 2002, total available disposal capacity is estimated to be 1.4
billion in-place cubic yards of permitted airspace plus .3 billion in-place
cubic yards of probable expansion airspace. Before airspace included in an
expansion area is determined to be probable expansion airspace and, therefore,
included in our calculation of total available disposal capacity, it must meet
our expansion criteria. See Note 4, Accrued Landfill, Environmental and Legal
Costs of the Notes to our Consolidated Financial Statements for further
information.

As of December 31, 2002, twenty of our landfills meet the criteria for
including probable expansion airspace in their total available disposal
capacity. At projected annual volumes, these twenty landfills have an estimated
remaining average site life of 32 years, including probable expansion airspace.
The average estimated remaining life of all of our landfills is 34 years.

As of December 31, 2002, five of our landfills that meet the criteria for
including expansion airspace had obtained approval from local authorities and
are proceeding into the state permitting process. Also, as of December 31, 2002,
nine of our twenty landfills that meet the criteria for including expansion
airspace had submitted permit applications to state authorities. The remaining
six landfills that meet the criteria for including expansion airspace are in the
process of obtaining approval from local authorities and have not identified any
fatal flaws or impediments associated with the expansions at either the local or
state level.

Closure and Post-Closure Costs

The following table reflects our closure and post-closure expense per cubic
yard of airspace consumed for the years ended December 31, 2002, 2001 and 2000:

As of December 31, 2002, accrued closure and post-closure costs were $255.8
million. The current portion of these costs of $22.1 million is reflected in our
Consolidated Balance Sheets in other current liabilities. The long-term portion
of these costs of $233.7 million is reflected in our Consolidated Balance Sheets
in accrued landfill, environmental and legal costs. As of December 31, 2002,
assuming that all available landfill capacity is used, we expect to expense
approximately $541.3 million of additional closure and post-closure costs over
the remaining lives of our facilities.

Our estimates for closure and post-closure do not take into account
discounts for the present value of total estimated costs. If total estimated
costs were discounted to present value, they would be lower.

36

Investment in Landfills

The following tables reflect changes in our investment in landfills for the
years ended December 31, 2000, 2001 and 2002 and the future expected investment
as of December 31, 2002 (in millions):

The following table reflects our net investment in our landfills, excluding
non-depletable land, and our depletion and amortization expense for the years
ended December 31, 2002, 2001 and 2000:

37

During 2002, our weighted average compaction rate for converting cubic
yards to tons was approximately 1,500 pounds per cubic yard.

As of December 31, 2002, we expect to spend an estimated additional
$1,146.4 million on existing landfills, primarily related to cell construction
and environmental structures, over their expected remaining lives. Our total
expected gross investment, excluding non-depletable land, estimated to be $1.9
billion, or $1.11 per cubic yard, is used in determining our depletion and
amortization expense based upon airspace consumed using the units-of-consumption
method. Our estimates for expected future investment in landfills do not take
into account inflation or discounts for the present value of total estimated
costs. For further information, see "Closure and Post-Closure Costs."

We accrue costs related to environmental remediation activities through a
charge to income in the period such liabilities become probable and can be
reasonably estimated. We also accrue costs related to environmental remediation
activities associated with properties acquired through business combinations as
a charge to cost in excess of fair value of net assets acquired or landfill
purchase price allocated to airspace, as appropriate. No material amounts were
charged to expense during the years ended December 31, 2002, 2001 and 2000.

FINANCIAL CONDITION

One of our key financial objectives is to maintain a simple, cost-effective
and transparent capital structure.

At December 31, 2002, we had $141.5 million of cash and cash equivalents.
We also had $175.0 million of restricted cash, of which $139.7 million relates
to proceeds from tax-exempt bonds and other tax-exempt financing that will be
used to fund capital expenditures. At December 31, 2002, we had $378.2 million
of tax-exempt bonds and other tax-exempt financing outstanding at favorable
interest rates.

In July 1998, we entered into a $1.0 billion unsecured revolving credit
facility with a group of banks. $500.0 million of the credit facility was
scheduled to expire in July 2002 and the remaining $500.0 million was scheduled
to expire in July 2003. As a result of our strong financial position and
liquidity, in February 2002 we reduced the short- and long-term portions of our
credit facility to $300.0 million and $450.0 million, respectively. In July
2002, we renewed the short- and long-term portions of our credit facility on
substantially the same terms and conditions. The short-term portion of the
facility expires in July 2003 and the long-term portion expires in July 2007.
Borrowings under the credit facility bear interest at LIBOR-based rates. We use
our operating cash flow and proceeds from our credit facilities to finance our
working capital, capital expenditures, acquisitions, share repurchases and other
requirements. As of December 31, 2002, we had $437.7 million available under our
credit facility.

In May 1999, we sold $600.0 million of unsecured notes in the public
market. $225.0 million of these notes bear interest at 6 5/8% per annum and
mature in 2004. The remaining $375.0 million bear interest at 7 1/8% per annum
and mature in 2009. Interest on these notes is payable semi-annually in May and
November. The $225.0 million and $375.0 million in notes were offered at a
discount of $1.0 million and $.5 million, respectively. Proceeds from the notes
were used to repay our revolving credit facility.

In December 1999, we entered into an operating lease facility established
to finance the acquisition of operating equipment consisting primarily of
revenue-producing vehicles. In July 2002, we exercised our right to purchase the
equipment underlying this facility by paying $72.6 million using our excess
cash, which was the balance outstanding under the facility at that time.

In August 2001, we sold $450.0 million of unsecured notes in the public
market. The notes bear interest at 6 3/4% and mature in 2011. Interest on these
notes is payable semi-annually in February and August. The notes were offered at
a discount of $2.6 million. Proceeds from the notes were used to repay our
revolving credit facility.

In order to manage risk associated with fluctuations in interest rates, in
September 2001 and October 2002, we entered into interest rate swap agreements
with investment grade rated financial institutions. The swap agreements have
total notional values of $225.0 million and $75.0 million, respectively, and
require our
38

company to pay interest at floating rates based upon changes in LIBOR and
receive interest at fixed rates of 6 5/8% and 6 3/4%, respectively. The swap
agreements terminate in May 2004 and August 2011, respectively.

At December 31, 2002, we had $378.2 million of tax-exempt bonds and other
tax-exempt financings outstanding of which approximately $96.5 million was
obtained during fiscal 2002. Borrowings under these bonds and other financings
bear interest based on fixed or floating interest rates at the prevailing market
ranging from 1.45% to 5.25% at December 31, 2002 and have maturities ranging
from 2003 to 2032. As of December 31, 2002, we had $139.7 million of restricted
cash related to proceeds from tax-exempt bonds and other tax-exempt financings.
This restricted cash will be used to fund capital expenditures under the terms
of the agreements.

We plan to extend the maturity of our revolving short-term credit facility
prior to its expiration in July 2003 to July 2004. We believe that such an
extension would provide us with sufficient financial resources to meet our
anticipated capital requirements and obligations as they come due. We believe
that we would be able to raise additional debt or equity financing, if
necessary, to fund special corporate needs or to complete acquisitions. However,
we cannot assure you that we would be able to obtain additional financing under
favorable terms or to extend the existing short-term credit facility on the same
terms.

SELECTED BALANCE SHEET ACCOUNTS

We were the first in our industry to provide the users of our financial
statements with additional disclosures regarding selected balance sheet
accounts. These additional disclosures include schedules that show the activity
in our available airspace, investment in landfills, property and equipment, and
other selected balance sheet accounts. We believe that these disclosures permit
the readers of our financial statements to gain a better understanding of our
company's financial condition, results of operations and cash flows.

The following tables reflect the activity in our allowance for doubtful
accounts, accrued closure and post-closure, accrued self-insurance and amounts
due to former owners during the years ended December 31, 2000, 2001 and 2002 (in
millions):

Our expense related to doubtful accounts as a percentage of revenue for
2000, 2001 and 2002 was .6%, 1.0% and .5%, respectively.

As of December 31, 2002, accounts receivable were $238.6 million, net of
allowance for doubtful accounts of $19.0 million, resulting in days sales
outstanding of 36 days, or 23 days net of deferred revenue. In addition, at
December 31, 2002, our trade receivables in excess of 90 days old totaled $13.8
million, or 5.4% of gross receivables outstanding.

Our expense for self-insurance as a percentage of revenue for 2000, 2001
and 2002 was 4.8%, 5.8% and 5.8%, respectively. The increases are primarily due
to overall increases in insurance costs that we experienced during 2001 and
2002.

PROPERTY AND EQUIPMENT

The following tables reflect the activity in our property and equipment
accounts for the years ended December 31, 2000, 2001 and 2002 (in millions):

Capital additions for 2002 include $72.6 million used to purchase equipment
consisting primarily of revenue-producing vehicles originally placed into
service pursuant to an operating lease.

LIQUIDITY AND CAPITAL RESOURCES

The major components of changes in cash flows for the years ended December
31, 2002, 2001 and 2000 are discussed below.

Cash Flows From Operating Activities. Cash flows provided by operating
activities were $569.7 million, $459.2 million and $461.8 million for the years
ended December 31, 2002, 2001 and 2000, respectively. The changes in cash
provided by operating activities during the periods are due to the expansion of
our business, deferred taxes and timing of receipts and payments from accounts
receivable and accounts payable, respectively.

We use cash flow from operations to fund capital expenditures,
acquisitions, share repurchases and debt repayments.

41

Cash Flows Used In Investing Activities. Cash flows used in investing
activities consist primarily of cash used for capital additions and business
acquisitions. Cash used to acquire businesses, net of cash acquired, was $55.8
million, $261.2 million and $188.1 million during the years ended December 31,
2002, 2001 and 2000, respectively. Capital additions were $258.6 million, $249.3
million and $208.0 million during the years ended December 31, 2002, 2001 and
2000, respectively.

We intend to finance capital expenditures and acquisitions through cash on
hand, cash flows from operations, our revolving credit facility, tax-exempt
bonds and other financings. We expect to use primarily cash for future business
acquisitions.

Cash Flows From (Used In) Financing Activities. Cash flows provided by
(used in) financing activities during the years ended December 31, 2002, 2001
and 2000 included commercial bank borrowings and repayments of debt in all three
years, proceeds from our sale of unsecured notes in 2001, and proceeds from
issuances of tax-exempt bonds in 2002, 2001 and 2000. In August 2001, we sold
unsecured notes with a face value of $450.0 million at a discounted price of
$447.4 million. Proceeds from the notes were used to repay our revolving credit
facility.

In December 1999, we entered into an operating lease facility established
to finance the acquisition of operating equipment consisting primarily of
revenue-producing vehicles. In July 2002, we retired this facility using our
excess cash.

During 2000, 2001 and 2002, our board of directors authorized the
repurchase of up to $150.0 million, $125.0 million and $175.0 million,
respectively, of our common stock. As of December 31, 2002, we paid $300.1
million to repurchase approximately 17.2 million shares of our stock, of which
we paid $150.0 million during 2002 to repurchase approximately 8.0 million
shares of our stock. We intend to finance future stock repurchases through cash
on hand, cash flow from operations, our revolving credit facility and other
financings.

We used proceeds from our revolving credit facility, unsecured notes and
tax-exempt bonds to fund capital expenditures and acquisitions and to repay
debt.

CREDIT RATING

Our company has received investment grade credit ratings. As of December
31, 2002, our senior debt was rated Baa3 by Moody's, BBB by Standard & Poor's
and BBB+ by Fitch.

One of our key financial objectives is to maintain our investment grade
credit rating on our senior debt. We believe that frequently communicating with
our rating agencies and providing them with detailed information concerning our
financial and operational performance is critical in achieving this objective.

The following table demonstrates our improvement in certain financial
ratios as of and for the years ended December 31, 2002, 2001 and 2000 that we
believe are important to our credit rating agencies:

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

(a) Adjusted results for 2001 exclude an $86.1 million after-tax charge we
recorded in the fourth quarter of 2001 related to the completed and planned
divestitures and closings of certain core and non-core businesses, asset
impairments, downsizing our compost, mulch and soil business and related
inventory adjustments, an increase in self-insurance reserves and an
increase in bad debt expense related to the economic slowdown.
(b) EBITDA represents operating income plus depreciation, amortization and
depletion. While EBITDA data should not be construed as a substitute for
operating income, net income or cash flows from operations in analyzing our
operating performance, financial position and cash flows, we have included
EBITDA data, which is not a measure of financial performance calculated in
accordance with accounting

42

principles generally accepted in the United States, because we believe that
this data is commonly used by certain credit rating agencies to evaluate a
company's financial performance. Due to the fact that not all companies
calculate non-GAAP measures in the same manner, the EBITDA presentation
herein may not be comparable to similarly titled measures reported by other
companies.

We believe that our investment grade rating from our credit rating agencies
and the financial ratios above are indicative of the financial strength of our
company.

OPERATING LEASE FACILITY

One of our key financial objectives is to maintain a simple, cost-effective
and transparent capital structure.

As we previously disclosed in our quarterly and annual filings with the
Securities and Exchange Commission, in December 1999, we entered into a $100.0
million facility established to finance the acquisition of operating equipment
consisting primarily of revenue-producing vehicles. The facility had a term of
three years with two consecutive one-year renewals and was entered into
primarily because its implicit interest rate was over ten basis points less than
our revolving credit facility at the time. The facility met the criteria of an
operating lease under generally accepted accounting principles. Accordingly,
during the term of this facility, we did not record this facility as debt nor
did we record the related operating equipment as assets on our balance sheets.
However, we included the cost of operating equipment acquired under the facility
as capital expenditures for purposes of calculating our free cash flow.

In July 2002, we exercised our right to purchase the equipment underlying
this facility by paying $72.6 million using our excess cash, which was the
balance outstanding under the facility at that time. As a result of our success
in obtaining financing in the public markets, including tax-exempt bonds, we do
not anticipate using this form of financing again in the foreseeable future.

FUEL HEDGE

We have minimized our risk associated with changes in the price of diesel
fuel by entering into derivatives with a group of financial institutions having
investment grade ratings. Our derivative instruments qualify for hedge
accounting treatment under Statement of Financial Accounting Standards No. 133,
"Accounting for Derivative Instruments and Hedging Activities," as amended.
Under these option agreements, we receive or make payments based on the
difference between actual average heating oil prices and predetermined fixed
prices. These option agreements protect us from fuel prices rising above a
predetermined fixed price in the option agreements, but also limit our ability
to benefit from price decreases below the predetermined fixed price in the
option agreements.

During June 2001, we entered into option agreements for approximately 14.3
million gallons of heating oil. These option agreements settled each month in
equal notional amounts through December 2002. The option agreements were
structured as zero-cost collars indexed to the price of heating oil. The option
agreements expired in December 2002. In accordance with SFAS 133, $1.6 million
and $(1.6) million, net of tax, representing the effective portion of the change
in fair value during the periods have been recorded in stockholders' equity as a
component of accumulated other comprehensive income (loss) for the years ended
December 31, 2002 and 2001, respectively. The ineffective portions of the
changes in fair value of approximately $.1 million and $(.1) million for the
years ended December 31, 2002 and 2001, respectively, have been included in
other income (expense), net in the accompanying Consolidated Statements of
Income. Realized losses of $.8 million and $.6 million for the years ended
December 31, 2002 and 2001, respectively, related to these option agreements are
included in cost of operations in our Consolidated Statements of Income.

43

FUTURE OBLIGATIONS

The following table summarizes our significant future obligations as of
December 31, 2002:

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The table below provides information about our market sensitive financial
instruments and constitutes a "forward-looking statement." Our major market risk
exposure is changing interest rates in the United States and fluctuations in
LIBOR. We intend to manage interest rate risk through the use of a combination
of fixed and floating rate debt. All items described below are non-trading.

The fair value of variable rate debt approximates the carrying value since
interest rates are variable and, thus, approximate current market rates.

SEASONALITY

Our operations can be adversely affected by periods of inclement weather
which could delay the collection and disposal of waste, reduce the volume of
waste generated or delay the construction or expansion of our landfill sites and
other facilities.

NEW ACCOUNTING PRONOUNCEMENTS

In June 2001, the Financial Accounting Standards Board issued Statement No.
143, "Accounting for Asset Retirement Obligations." This statement is effective
for financial statements issued for fiscal years beginning after June 15, 2002
and applies to all legally enforceable obligations associated with the
retirement of tangible long-lived assets. SFAS 143 will require our company to
change the methodology we currently use to record closure and post-closure costs
related to our landfills. The most significant change to our methodology
promulgated by this statement is inflating and discounting obligations to
reflect today's dollars.

SFAS 143 does not change the basic landfill accounting policies followed by
us and others in the waste industry. In general, the industry has amortized
capitalized costs and accrued future closure and post-closure obligations using
the units-of-consumption method as cubic yards of available airspace are
consumed over the life of the related landfill. This practice is referred to as
life cycle accounting and will continue to be followed except as modified by
SFAS 143 as discussed below.

44

Under SFAS 143, obligations associated with final capping activities that
occur during the operating life of the landfill will be recognized on a
units-of-consumption basis as airspace is consumed within each discrete capping
event. Obligations related to closure and post-closure activities that occur
after the landfill has ceased operations will be recognized on a
units-of-consumption basis as airspace is consumed throughout the entire
landfill. Landfill retirement obligations will be capitalized as the related
liabilities are recognized and amortized using the units-of-consumption method
over the airspace consumed within the capping event or the airspace consumed
throughout the entire landfill, depending upon the nature of the obligation. All
obligations will be initially measured at estimated fair value. Fair value will
be calculated on a present value basis using the company's credit-adjusted,
risk-free rate.

Upon adopting SFAS 143, the company will no longer record closure and
post-closure expense as a component of cost of operations. Instead, amortization
expense will be recorded on the capitalized portion of the obligation and
accretion expense will be recorded using the effective interest method.

The table below reflects significant changes between our current
methodology and the methodology we will use upon adopting SFAS 143:

We will adopt SFAS No. 143 beginning January 1, 2003 and, based on current
estimates, will record an after-tax expense of approximately $21 million as a
cumulative effect of a change in accounting principle. In addition, beginning
January 1, 2003, we will modify our accounting for methane gas collection
systems and, based on current estimates, will record an after-tax expense of
approximately $17 million as a cumulative effect of a change in accounting
principle. We expect that the impact of adopting SFAS No. 143 and changing

46

our accounting for methane gas collection systems in 2003 will decrease earnings
per share in the range of $.02 to $.03 per share. The adoption of SFAS No. 143
will have no net effect on our cash flow.

In July 2002, the Financial Accounting Standards Board issued Statement No.
146, "Accounting for Costs Associated with Exit or Disposal Activities." SFAS
No. 146 addresses financial accounting and reporting for costs associated with
exit or disposal activities, such as restructurings, involuntarily terminating
employees and consolidating facilities initiated after December 31, 2002. The
implementation of SFAS No. 146 is not expected to have a material effect on our
consolidated financial position, results of operations or cash flows.

47

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

48

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

To the Board of Directors and Stockholders of Republic Services, Inc.:

We have audited the accompanying consolidated balance sheet of Republic
Services, Inc. and subsidiaries (the "Company") as of December 31, 2002, and the
related consolidated statements of income, stockholders' equity and
comprehensive income, and cash flows for the year then ended. Our audit also
included the financial statement schedule listed in the index at Item 15(a).
These financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audit. The consolidated financial
statements of the Company as of December 31, 2001 and for each of the years in
the two year period ended December 31, 2001 and the financial statement
schedules as of December 31, 2001 and 2000 and for each of the years then ended
listed in Item 15(a) of this form 10-K were audited by other auditors who have
ceased operations and whose report dated January 30, 2002 expressed an
unqualified opinion on those statements and schedules before the restatement
adjustments and disclosures described below and in Notes 2, 4 and 10.

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

In our opinion, the 2002 consolidated financial statements referred to
above present fairly, in all material respects, the consolidated financial
position of Republic Services, Inc. and subsidiaries at December 31, 2002, and
the consolidated results of their operations and their cash flows for the year
then ended in conformity with accounting principles generally accepted in the
United States. Also, in our opinion, the related financial statement schedule,
when considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.

As discussed in Note 2 of the consolidated financial statements, effective
January 1, 2002 the Company adopted Statement of Financial Accounting Standards
No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142").

As discussed above, the consolidated financial statements of the Company as
of December 31, 2001, and for each of the years in the two year period ended
December 31, 2001, were audited by other auditors who have ceased operations.
The Company has made certain adjustments to and provided additional disclosures
in prior years' financial statements to conform with the current year's
presentation or to comply with adoption requirements of new accounting
pronouncements, as follows:

(i) As described in Note 2, the 2001 and 2000 consolidated financial
statements have been revised to include the transitional and other
disclosures required by SFAS 142, which the Company adopted as of January
1, 2002. Our audit procedures with respect to the disclosures in Note 2
with respect to 2001 and 2000 included (a) agreeing the previously reported
net income (in total and the related earnings-per-share amounts) to the
previously issued consolidated financial statements and the adjustments to
net income representing amortization expense (including any related tax
effects) recognized in those periods related to goodwill as a result of
initially applying SFAS 142 to the Company's underlying records obtained
from management, and (b) testing the mathematical accuracy of the
reconciliation of adjusted net income to previously reported net income and
the related earnings-per-share amounts. Additionally, our procedures with
respect to the disclosures in Note 2 regarding 2001 included (a) agreeing
the cost basis and accumulated amortization of goodwill and other
intangibles to the Company's underlying records obtained from management,
and (b) agreeing the total of goodwill and other intangible assets, net of
accumulated amortization, to the 2001 consolidated balance sheet.

(ii) As described in Note 2, the 2001 and 2000 consolidated financial
statements have been revised to include the disclosures required by
Statement of Financial Accounting Standards No. 148, "Accounting for
Stock-Based Compensation -- Transition and Disclosure," which were adopted
by the Company as of December 31, 2002. Our audit procedures with respect
to the disclosures in Note 2 regarding 2001

49

and 2000 included (a) agreeing the previously reported net income (in total
and the related per share amounts) to the previously issued consolidated
financial statements, (b) agreeing the adjustments to reported net income
representing pro forma compensation expense, net of any tax effect, related
to those periods to the Company's underlying records obtained from
management, and (c) testing the mathematical accuracy of the reconciliation
of pro forma net income to reported net income and related per share
amounts.

(iii) In the table presented under "Stock Options" in Note 2, the
Company changed the calculation of the pro forma weighted-average fair
value of stock options granted in 2002. The amounts in the 2001 and 2000
consolidated financial statements have been restated to conform to the 2002
calculation of the pro forma weighted-average fair value of stock options
granted. We audited the adjustments that were applied to restate the
disclosures for the weighted average fair value of stock options granted
reflected in the 2001 and 2000 consolidated financial statements. Our
procedures included (a) agreeing the adjusted weighted average fair value
of stock options granted during the period to the Company's underlying
records obtained from management, and (b) testing the mathematical accuracy
of the calculations of the weighted average fair value of stock options
granted during the period.

(iv) In the table presented in Note 4, the Company provided additional
detail regarding the composition of "Landfill, Environmental and Legal
Costs," as of December 31, 2001 which was not provided in the prior year's
financial statements. Our procedures related to the 2001 amounts reflected
in the table in Note 4 included (a) agreeing the components of 2001
"Landfill, Environmental and Legal Costs" to the company's underlying
records obtained from management, and (b) testing the mathematical accuracy
of the table in Note 4.

(v) As described in Note 10, the Company changed the composition of
its reportable segments in 2002, and the amounts in the 2001 and 2000
consolidated financial statements relating to reportable segments have been
restated to conform to the 2002 composition of reportable segments. In
addition, the Company provided additional disclosure, not provided in prior
years, of consolidated revenue by source. We audited the 2001 and 2000
disclosures for reportable segments included in Note 10 to conform to the
2002 composition of reportable segments and the 2001 and 2000 disclosure of
revenue by source. Our procedures with regard to the disclosure of the 2001
and 2000 reportable segments included (a) agreeing the amounts of segment
gross operating revenue, intercompany operating revenue, net operating
revenue, depreciation, amortization and depletion, other charges (income),
operating income, capital expenditures and total assets to the Company's
underlying records obtained from management, (b) testing the mathematical
accuracy of the reconciliations of segment amounts to the 2001 and 2000
consolidated financial statements, (c) agreeing the amount of charges
included in 2001 operating income from Corporate Entities to the Company's
underlying records obtained from management, and (d) agreeing the 2001
balance of goodwill, net of accumulated amortization, for each reportable
segment to the Company's underlying records obtained from management. With
regard to the disclosure of 2001 and 2000 revenue by source, our procedures
included (a) agreeing the amounts of 2001 and 2000 revenue by source to the
Company's underlying records provided by management, (b) testing the
mathematical accuracy of the 2001 and 2000 revenue by source table, and (c)
agreeing the total revenue for 2001 and 2000 to the amounts reported in the
2001 statement of income.

In our opinion, the adjustments and disclosures described in (i), (ii),
(iii), (iv) and (v) above are appropriate and have been properly applied.
However, we were not engaged to audit, review or apply any procedures to the
2001 and 2000 consolidated financial statements of the Company other than with
respect to such adjustments and disclosures and, accordingly, we do not express
an opinion or any other form of assurance on the 2001 and 2000 consolidated
financial statements taken as a whole.

/s/ ERNST & YOUNG LLP

Fort Lauderdale, Florida
February 3, 2003

50

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

To Republic Services, Inc.:

We have audited the accompanying consolidated balance sheets of Republic
Services, Inc. (a Delaware corporation) and subsidiaries as of December 31, 2001
and 2000, and the related consolidated statements of operations, stockholders'
equity and other comprehensive income, and cash flows for each of the years in
the three-year period ended December 31, 2001. These financial statements and
the schedule referred to below are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and the schedule based on our audits.

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

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Republic Services, Inc. and
subsidiaries as of December 31, 2001 and 2000, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 2001, in conformity with accounting principles generally
accepted in the United States.

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

ARTHUR ANDERSEN LLP

Fort Lauderdale, Florida,
January 30, 2002.

THIS IS A COPY OF THE AUDIT REPORT PREVIOUSLY ISSUED BY ARTHUR ANDERSEN LLP IN
CONNECTION WITH REPUBLIC SERVICES, INC.'S FILING ON FORM 10-K FOR THE YEAR ENDED
DECEMBER 31, 2001. THIS AUDIT REPORT HAS NOT BEEN REISSUED BY ARTHUR ANDERSEN
LLP IN CONNECTION WITH THIS FILING ON FORM 10-K AND ARTHUR ANDERSEN LLP HAS NOT
CONSENTED TO THE INCLUSION OF THIS AUDIT REPORT IN THIS FORM 10-K.

51

REPUBLIC SERVICES, INC.

CONSOLIDATED BALANCE SHEETS
(IN MILLIONS, EXCEPT SHARE DATA)

The accompanying notes are an integral part of these statements.

52

REPUBLIC SERVICES, INC.

CONSOLIDATED STATEMENTS OF INCOME
(IN MILLIONS, EXCEPT EARNINGS PER SHARE DATA)

The accompanying notes are an integral part of these statements.

53

REPUBLIC SERVICES, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
AND COMPREHENSIVE INCOME
(IN MILLIONS)

The accompanying notes are an integral part of these statements.

54

REPUBLIC SERVICES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN MILLIONS)

The accompanying notes are an integral part of these statements.

55

REPUBLIC SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(ALL TABLES IN MILLIONS, EXCEPT PER SHARE DATA)

1. BASIS OF PRESENTATION

The accompanying Consolidated Financial Statements include the accounts of
Republic Services, Inc. (a Delaware corporation) and its subsidiaries (the
"Company"). The Company provides non-hazardous solid waste collection and
disposal services in the United States. All material intercompany transactions
have been eliminated.

Certain amounts in the 2001 and 2000 Consolidated Financial Statements have
been reclassified to conform to the 2002 presentation.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

USE OF ESTIMATES

The financial statements have been prepared in accordance with accounting
principles generally accepted in the United States and necessarily include
amounts based on estimates and assumptions made by management. Actual results
could differ from these amounts. Significant items subject to such estimates and
assumptions include the depletion and amortization of landfill development
costs, accruals for closure and post-closure costs, valuation allowances for
accounts receivable, liabilities for potential litigation, claims and
assessments, and liabilities for environmental remediation, deferred taxes and
self-insurance.

ACCOUNTS RECEIVABLE

Accounts receivable represent receivables from customers for collection,
transfer, disposal and other services. Receivables are recorded when billed.
Accounts receivable, net of the allowance for doubtful accounts, represents
their estimated net realizable value. Provisions for doubtful accounts are
recorded based on historical collection experience, the age of the receivables,
specific customer information and economic conditions. In general, reserves are
provided for accounts receivable in excess of 90 days old. Accounts receivable
are written off when they are deemed uncollectible.

PREPAID EXPENSES AND OTHER CURRENT ASSETS

A summary of prepaid expenses and other current assets is as follows:

Inventories consist primarily of compost, mulch, and soil materials,
equipment parts, and fuel that are valued under a method that approximates the
lower of cost (first-in, first-out) or market.

The Company expenses substantially all advertising expenditures as
incurred.

PROPERTY AND EQUIPMENT

Property and equipment are recorded at cost. Expenditures for major
additions and improvements to facilities are capitalized. All expenditures for
maintenance and repairs are charged to expense as incurred. When property is
retired or otherwise disposed of, the related cost and accumulated depreciation
are removed from the accounts and any resulting gain or loss is reflected in the
Consolidated Statements of Income.
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REPUBLIC SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The Company revises the estimated useful lives of property and equipment
acquired through business acquisitions to conform with its policies regarding
property and equipment. Depreciation is provided over the estimated useful lives
of the assets involved using the straight-line method. The estimated useful
lives are twenty to forty years for buildings and improvements, five to twelve
years for vehicles, seven to ten years for most landfill equipment, five to
fifteen years for all other equipment, and five to ten years for furniture and
fixtures.

Landfills are stated at cost and are depleted based on consumed airspace.
Landfill improvements include direct costs incurred to obtain landfill permits
and direct costs incurred to acquire, construct and develop sites. All indirect
landfill development costs are expensed as incurred. (For further information,
see Note 4, Accrued Landfill, Environmental and Legal Costs.)

The Company capitalizes interest on landfill cell construction and other
construction projects in accordance with Statement of Financial Accounting
Standards No. 34, "Capitalization of Interest Cost." Construction projects must
meet the following criteria before interest is capitalized:

1. Total construction costs are $50,000 or greater,

2. The construction phase is one month or longer, and

3. The assets have a useful life of one year or longer.

Interest is capitalized on qualified assets while they undergo activities
to ready them for their intended use. Capitalization of interest ceases once an
asset is placed into service or if construction activity is suspended for more
than a brief period of time. The interest capitalization rate is based upon the
Company's weighted average cost of indebtedness. Interest capitalized was $2.5
million, $3.3 million and $2.9 million for the years ended December 31, 2002,
2001 and 2000, respectively.

A summary of property and equipment is as follows:

In August 2001, the Financial Accounting Standards Board issued Statement
No. 144, "Accounting for the Impairment of Long-Lived Assets" ("SFAS 144"). This
statement supersedes Statement No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of" ("SFAS 121") and
APB Opinion No. 30, "Reporting the Results of Operations--Reporting the Effects
of Disposal of a Segment of a Business, and Extraordinary, Unusual and
Infrequently Occurring Events and

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REPUBLIC SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Transactions." This statement establishes a single accounting model for assets
to be disposed of by sale and resolves certain SFAS 121 implementation issues.
SFAS 144 is effective for financial statements issued for fiscal years beginning
after December 15, 2001, and is generally to be applied prospectively. The
adoption of this statement had no effect on the Company's consolidated financial
position or results of operations.

The Company periodically evaluates whether events and circumstances have
occurred that may warrant revision of the estimated useful life of property and
equipment or whether the remaining balance of property and equipment should be
evaluated for possible impairment. The following are examples of such events or
changes in circumstances:

- A significant decrease in the market price of a long-lived asset or asset
group,

- A significant adverse change in the extent or manner in which a
long-lived asset or asset group is being used or in its physical
condition,

- A significant adverse change in legal factors or in the business climate
that could affect the value of a long-lived asset or asset group,
including an adverse action or assessment by a regulator,

- An accumulation of costs significantly in excess of the amount originally
expected for the acquisition or construction of a long-lived asset or
asset group,

- A current-period operating or cash flow loss combined with a history of
operating or cash flow losses or a projection or forecast that
demonstrates continuing losses associated with the use of a long-lived
asset or asset group, or

- A current expectation that, more likely than not, a long-lived asset or
asset group will be sold or otherwise disposed of significantly before
the end of its previously estimated useful life.

There are certain indicators listed above that require significant judgment
and understanding of the waste industry when applied to landfill development or
expansion. For example, a regulator may initially deny a landfill expansion
permit application though the expansion permit is ultimately granted. In
addition, management may periodically divert waste from one landfill to another
to conserve remaining permitted landfill airspace. Therefore, certain events
could occur in the ordinary course of business and not necessarily be considered
indicators of impairment due to the unique nature of the waste industry.

The Company uses an estimate of the related undiscounted cash flows over
the remaining life of the property and equipment in assessing their
recoverability. The Company measures impairment loss as the amount by which the
carrying amount of the asset exceeds the fair value of the asset.

Included in other charges of $99.6 million for the year ended December 31,
2001 in the accompanying Consolidated Financial Statements are write-downs to
fixed assets of $35.6 million for completed and planned divestitures and
closings of certain core and non-core businesses, and asset impairments.

During the year ended December 31, 2000, the Company recorded a $6.7
million pre-tax charge primarily related to the early closure of a landfill in
south Texas.

INTANGIBLE ASSETS

Intangible assets consist of the cost of acquired businesses in excess of
the fair value of net assets acquired and other intangible assets. Other
intangible assets include values assigned to long-term contracts and covenants
not to compete and are amortized generally over periods ranging from 3 to 25
years.

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REPUBLIC SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following table summarizes the activity in the intangible asset and
related accumulated amortization accounts for the year ended December 31, 2002:

During 2002, the Company adopted Statement of Financial Accounting
Standards No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142"). In
accordance with SFAS 142, the Company ceased amortizing intangibles with
indefinite lives effective January 1, 2002. Prior to the adoption of SFAS No.
142, cost in excess of the fair value of net assets acquired was amortized over
40 years on a straight-line basis.

The following table summarizes the adjustments to net income and earnings
per share as if SFAS 142 were adopted January 1, 2000:

In general, goodwill is tested for impairment on an annual basis. In
testing for impairment, the Company estimates the fair value of each operating
segment and compares the fair values with the carrying values. The fair value of
goodwill is determined by deducting the fair value of an operating segment's
identifiable assets and liabilities from the fair value of the operating segment
as a whole, as if that operating segment had just been acquired and the purchase
price were being initially allocated. If the fair value were less than the
carrying value for a segment, an impairment charge would be recorded to earnings
in the Company's Consolidated Statement of Income.

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REPUBLIC SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

In addition, the Company would evaluate an operating segment for impairment
if events or circumstances change between annual tests indicating a possible
impairment. Examples of such events or circumstances include:

- A significant adverse change in legal factors or in the business climate,

- An adverse action or assessment by a regulator,

- A more likely than not expectation that a segment or a significant
portion thereof will be sold, or

- The testing for recoverability under SFAS No. 144 of a significant asset
group within the segment.

The Company incurred no impairment of goodwill upon its initial adoption of
SFAS No. 142, or as a result of its annual goodwill impairment test. However,
there can be no assurance that goodwill will not be impaired at any time in the
future.

Included in other charges of $99.6 million for the year ended December 31,
2001 in the accompanying Consolidated Financial Statements are write-downs to
intangible assets of $54.2 million for completed and planned divestitures of
certain core businesses.

ACCRUED LIABILITIES

A summary of accrued liabilities is as follows:

OTHER CURRENT LIABILITIES

A summary of other current liabilities is as follows:

STOCK OPTIONS

The Company accounts for its stock-based compensation using the intrinsic
value method prescribed by Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB 25") and related
Interpretations. No stock-based employee compensation cost is reflected in net
income, as all options granted under the 1998 Stock Incentive Plan for the
periods presented had an exercise price equal to the market value of the
underlying common stock at the date of grant. Had compensation cost for stock
option grants under the Company's Stock Incentive Plan been determined pursuant
to Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" ("SFAS 123"), the Company's net income would have
decreased accordingly. Using the Black-Scholes option pricing model, the
Company's

60

REPUBLIC SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

pro forma net income, earnings per share and pro forma weighted-average fair
value of options granted during the period, with related assumptions, are as
follows:

REVENUE RECOGNITION AND DEFERRED REVENUE

The Company generally provides services under contract with municipalities
or individual customers. Revenue consists primarily of collection fees from
commercial, industrial, residential and municipal customers and transfer and
landfill disposal fees charged to third parties. Advance billings are recorded
as deferred revenue, and the revenue is then recognized over the period services
are provided. Collection, transfer and disposal, and other services accounted
for approximately 75%, 18% and 7%, respectively, of consolidated revenue for the
year ended December 31, 2002. No one customer has individually accounted for
more than 10% of the Company's consolidated revenues of any of the Company's
reportable segments in any of the past three years.

The Company recognizes revenue when all four of the following criteria are
met:

- Persuasive evidence of an arrangement exists such as a service agreement
with a hauling customer or a disposal agreement with a disposal customer.

- Services have been performed such as the collection and hauling of waste
or the disposal of waste at a Company owned disposal facility.

- The price of the services provided to the customer are fixed or
determinable.

- Collectability is reasonably assured.

OTHER CHARGES

During the fourth quarter of 2002, the Company recorded a $5.6 million gain
on the sale of certain assets for amounts exceeding estimates originally made
during the fourth quarter of 2001.

During the fourth quarter of 2001, the Company recorded a charge of $86.1
million on an after-tax basis, or $132.0 million on a pre-tax basis, related to
completed and planned divestitures and closings of certain core and non-core
businesses, asset impairments, downsizing its compost, mulch and soil business
and related inventory adjustments, an increase in self-insurance reserves and an
increase in bad debt expense related to the economic slowdown. Of the pre-tax
amount, $24.2 million is included in cost of operations in the

61

REPUBLIC SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

accompanying Consolidated Statements of Income, $8.2 million is included in
selling, general and administrative expenses, and the remaining $99.6 million is
included in other charges.

Other charges of $6.7 million for the year ended December 31, 2000 are
primarily related to the early closure of a landfill in south Texas.

INCOME TAXES

The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes." Accordingly, deferred income taxes have been
provided to show the effect of temporary differences between the recognition of
revenue and expenses for financial and income tax reporting purposes and between
the tax basis of assets and liabilities and their reported amounts in the
financial statements.

COMPREHENSIVE INCOME

During the years ended December 31, 2002 and 2001, the Company recorded
unrealized gains (losses) of $2.8 million and $(2.8) million, ($1.7 million and
$(1.7) million, net of tax), respectively, relating to the change in fair value
of its fuel hedge option agreements in accordance with Statement of Financial
Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities" ("SFAS 133"), as amended. (For further information, see Note 11,
Fuel Hedge.) Of these amounts, $1.6 million and $(1.6) million, net of tax, were
recorded to other comprehensive income (loss) for the years ended December 31,
2002 and 2001, respectively. The Company had no other components of other
comprehensive income (loss) for the periods presented.

STATEMENTS OF CASH FLOWS

The Company considers all unrestricted highly liquid investments with
purchased maturities of three months or less to be cash equivalents. The effect
of non-cash transactions related to business combinations, as discussed in Note
3, Business Combinations, and other non-cash transactions are excluded from the
accompanying Consolidated Statements of Cash Flows.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amounts of cash and cash equivalents, restricted cash,
receivables, accounts payable and accrued liabilities approximate fair value due
to the short maturity of these instruments. The fair value of the Company's
fixed rate unsecured notes using quoted market rates is $1,164.3 million at
December 31, 2002. The carrying value of the unsecured notes is $1,046.9 million
at December 31, 2002. The carrying amounts of the Company's remaining notes
payable and long-term debt approximate fair value because interest rates are
primarily variable and, accordingly, approximate current market rates.

CONCENTRATION OF CREDIT RISK

The Company provides services to commercial, industrial, municipal and
residential customers in the United States. Concentrations of credit risk with
respect to trade receivables are limited due to the wide variety of customers
and markets in which services are provided as well as their dispersion across
many geographic areas in the United States. The Company performs ongoing credit
evaluations of its customers, but does not require collateral to support
customer receivables. The Company establishes an allowance for doubtful accounts
based on various factors including the credit risk of specific customers, age of
receivables outstanding, historical trends, economic conditions and other
information. Reserves for specific accounts receivable are provided when a
receivable is believed likely to be uncollectible or generally when a receivable
is in excess of 90 days old.

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REPUBLIC SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NEW ACCOUNTING PRONOUNCEMENTS

In June 2001, the Financial Accounting Standards Board ("FASB") issued
Statement No. 143, "Accounting for Asset Retirement Obligations" ("SFAS 143").
SFAS 143 is effective for financial statements issued for fiscal years beginning
after June 15, 2002 and applies to all legally enforceable obligations
associated with the retirement of tangible long-lived assets. SFAS 143 will
require the Company to change the methodology it currently uses to record
closure and post-closure costs related to its landfills. The most significant
change to the Company's methodology required by SFAS 143 is inflating and
discounting obligations to reflect today's dollars.

SFAS 143 does not change the basic landfill accounting policies followed by
the Company and others in the waste industry. In general, the industry has
amortized capitalized costs and accrued future closure and post-closure
obligations using the units-of-consumption method as cubic yards of available
airspace are consumed over the life of the related landfill. This practice is
referred to as life cycle accounting and will continue to be followed except as
modified by SFAS 143 as discussed below.

Under SFAS 143, obligations associated with final capping activities that
occur during the operating life of the landfill will be recognized on a
units-of-consumption basis as airspace is consumed within each discrete capping
event. Obligations related to closure and post-closure activities that occur
after the landfill has ceased operations will be recognized on a
units-of-consumption basis as airspace is consumed throughout the entire
landfill. Landfill retirement obligations will be capitalized as the related
liabilities are recognized and amortized using the units-of-consumption method
over the airspace consumed within the capping event or the airspace consumed
throughout the entire landfill, depending upon the nature of the obligation. All
obligations will be initially measured at estimated fair value. Fair value will
be calculated on a present value basis using the Company's credit-adjusted,
risk-free rate.

Upon adopting SFAS 143, the Company will no longer record closure and
post-closure expense as a component of cost of operations. Instead, amortization
expense will be recorded on the capitalized portion of the obligation and
accretion expense will be recorded using the effective interest method.

The table below reflects significant changes between the Company's current
methodology and the methodology the Company will use upon adopting SFAS 143:

63

REPUBLIC SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

64

REPUBLIC SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The Company will adopt SFAS No. 143 beginning January 1, 2003 and, based on
current estimates, will record an after-tax expense of approximately $21 million
as a cumulative effect of a change in accounting principle. In addition,
beginning January 1, 2003, the Company will modify its accounting for methane
gas collection systems and, based on current estimates, will record an after-tax
expense of approximately $17 million as a cumulative effect of a change in
accounting principle. The Company expects that the impact of adopting SFAS No.
143 and changing its accounting for methane gas collection systems in 2003 will
decrease earnings per share in the range of $.02 to $.03 per share. The adoption
of SFAS No. 143 will have no net effect on our cash flow.

In July 2002, the FASB issued Statement No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities" ("SFAS No. 146"). SFAS No. 146
addresses financial accounting and reporting for costs associated with exit or
disposal activities, such as restructurings, involuntarily terminating
employees, and consolidating facilities initiated after December 31, 2002. The
implementation of SFAS No. 146 is not expected to have a material effect on the
Company's consolidated financial position, results of operations or cash flows.

3. BUSINESS COMBINATIONS

The Company acquires businesses as part of its growth strategy. Businesses
acquired are accounted for under the purchase method of accounting and are
included in the Consolidated Financial Statements from the date of acquisition.
The Company allocates the cost of the acquired business to the assets acquired
and the liabilities assumed based on estimates of fair values thereof. These
estimates are revised during the allocation period as necessary if, and when,
information regarding contingencies becomes available to further define and
quantify assets acquired and liabilities assumed. The allocation period
generally does not exceed one year. To the extent contingencies such as
preacquisition environmental matters, litigation and related legal fees are
resolved or settled during the allocation period, such items are included in the
revised allocation of the purchase price. After the allocation period, the
effect of changes in such contingencies is included in results of operations in
the periods in which the adjustments are determined. The Company does not
believe potential differences between its fair value estimates and actual fair
values are material.

The Company acquired various solid waste businesses during the year ended
December 31, 2002. The aggregate purchase price paid for these transactions was
$55.8 million.

The Company acquired various solid waste businesses during the year ended
December 31, 2001. The aggregate purchase price paid for these transactions was
$287.7 million. The aggregate purchase price paid, less cash and restricted cash
acquired plus debt assumed, was $247.5 million.

In July 1999, the Company entered into a definitive agreement with Allied
Waste Industries, Inc. ("Allied") to acquire certain solid waste assets. In
2000, the Company had completed the purchase of these

65

REPUBLIC SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

assets for approximately $105.5 million in cash, $85.8 million of which were
acquired during 2000. In October 1999, the Company entered into a definitive
agreement with Allied for the simultaneous purchase and sale of certain other
solid waste assets for which annual revenue was approximately $145.0 million. In
2000, the Company and Allied completed the purchase and sale of these assets.
Net proceeds from the cash portion of the exchange of assets were $30.7 million.

In addition to the acquisitions from Allied, the Company also acquired
various other solid waste businesses during the year ended December 31, 2000,
which were accounted for under the purchase method of accounting. The aggregate
purchase price the Company paid in these transactions was $102.5 million in
cash.

During 2002, 2001 and 2000, $5.1 million, $62.6 million and $30.9 million,
respectively, of the total purchase price paid for acquisitions and contingent
payments to former owners was allocated to landfill airspace. For landfills
purchased as part of a group of several assets, the allocations of purchase
price were based on the discounted expected future cash flow of each landfill
relative to other assets within the acquired group and were adjusted for other
non-depletable landfill assets and liabilities acquired (primarily closure and
post-closure liabilities). Landfill purchase price is amortized using the
units-of-consumption method over total available airspace, which includes
probable expansion airspace where appropriate, and is included in property and
equipment, net in the accompanying Consolidated Balance Sheets.

The following summarizes the preliminary purchase price allocations for
business combinations accounted for under the purchase method of accounting:

Substantially all of the intangible assets recorded for these acquisitions
are deductible for tax purposes.

The Company's unaudited pro forma consolidated results of operations
assuming all significant acquisitions during 2002 accounted for under the
purchase method of accounting had occurred at the beginning of the periods
presented are as follows:

The unaudited pro forma results of operations are presented for
informational purposes only and may not necessarily reflect the future results
of operations of the Company or what the results of operations would have been
had the Company owned and operated these businesses as of the beginning of the
periods presented.

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REPUBLIC SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

4. ACCRUED LANDFILL, ENVIRONMENTAL AND LEGAL COSTS

Certain of the Company's landfill accounting policies will be modified upon
the adoption of SFAS 143, which is effective January 1, 2003. (For further
information, see Note 2, Summary of Significant Accounting Policies.)

LANDFILL, ENVIRONMENTAL AND LEGAL COSTS

A summary of accrued landfill and environmental costs is as follows:

LIFE CYCLE ACCOUNTING

The Company uses life cycle accounting and the units-of-consumption method
to recognize certain landfill costs over the life of the site. In life cycle
accounting, all costs to acquire, construct, close and maintain a site during
the post-closure period are capitalized or accrued, and charged to expense based
upon the consumption of cubic yards of available airspace. Costs and airspace
estimates are developed annually by independent engineers together with the
Company's engineers. These estimates are used by the Company's operating and
accounting personnel to annually adjust the Company's rates used to expense
capitalized costs and accrue closure and post-closure costs. Changes in these
estimates primarily relate to changes in available airspace, inflation and
applicable regulations. Changes in available airspace include changes due to the
addition of airspace lying in probable expansion areas.

TOTAL AVAILABLE DISPOSAL CAPACITY

As of December 31, 2002, the Company owned or operated 56 solid waste
landfills with total available disposal capacity of approximately 1.7 billion
in-place cubic yards. Total available disposal capacity represents the sum of
estimated permitted airspace plus an estimate of expansion airspace that the
Company believes has a probable likelihood of being permitted.

PROBABLE EXPANSION AIRSPACE

Before airspace included in an expansion area is determined as probable
expansion airspace and, therefore, included in the Company's calculation of
total available disposal capacity, the following criteria must be met:

1. The land associated with the expansion airspace is either owned by
the Company or is controlled by the Company pursuant to an option
agreement;

2. The Company is committed to supporting the expansion project
financially and with appropriate resources;

3. There are no identified fatal flaws or impediments associated with
the project, including political impediments;

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REPUBLIC SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

4. Progress is being made on the project;

5. The expansion is attainable within a reasonable time frame; and

6. The Company believes it is likely the expansion permit will be
received.

Upon meeting the Company's expansion criteria, the rates used at each
applicable landfill to expense costs to acquire, construct, close and maintain a
site during the post-closure period are adjusted to include probable expansion
airspace and all additional costs to be capitalized or accrued associated with
the expansion airspace.

The Company has identified three sequential steps that landfills generally
follow to obtain expansion permits. These steps are as follows:

1. Obtaining approval from local authorities;

2. Submitting a permit application to state authorities; and

3. Obtaining permit approval from state authorities.

Once a landfill meets the Company's expansion criteria, management
continuously monitors each site's progress in obtaining the expansion permit. If
at any point it is determined that an expansion area no longer meets the
required criteria, the probable expansion airspace is removed from the
landfill's total available capacity and the rates used at the landfill to
expense costs to acquire, construct, close and maintain a site during the
post-closure period are adjusted accordingly.

CAPITALIZED LANDFILL COSTS

Capitalized landfill costs include expenditures for land, permitting costs,
cell construction costs and environmental structures. Capitalized permitting and
cell construction costs are limited to direct costs relating to these
activities, including legal, engineering and construction associated with
excavation, liners and site berms. Interest is capitalized on landfill
construction projects while the assets are undergoing activities to ready them
for their intended use.

Costs related to acquiring land, excluding the estimated residual value of
unpermitted, non-buffer land, and costs related to permitting and cell
construction are depleted as airspace is consumed using the units-of-
consumption method. Environmental structures, which include leachate collection
systems, methane collection systems and groundwater monitoring wells, are
charged to expense over the shorter of their useful life or the life of the
landfill.

Capitalized landfill costs may also include an allocation of purchase price
paid for landfills. For landfills purchased as part of a group of several
assets, the purchase price assigned to the landfill is determined based upon the
discounted expected future cash flows of the landfill relative to the other
assets within the acquired group. If the landfill meets the Company's expansion
criteria, the purchase price is further allocated between permitted airspace and
expansion airspace based upon the ratio of permitted versus probable expansion
airspace to total available airspace. Landfill purchase price is amortized using
the units-of-consumption method over the total available airspace including
probable expansion airspace where appropriate.

CLOSURE AND POST-CLOSURE COSTS

Landfill site closure and post-closure costs include estimated costs to be
incurred for final closure of the landfills and estimated costs for providing
required post-closure monitoring and maintenance of landfills. These costs are
accrued and charged to cost of operations based upon consumed airspace in
relation to total available disposal capacity using the units-of-consumption
method. The Company estimates future cost requirements for closure and
post-closure monitoring and maintenance for its solid waste facilities based on

68

REPUBLIC SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

the technical standards of the Environmental Protection Agency's Subtitle D
regulations and applicable state and local regulations. These estimates do not
take into account inflation or discounts for the present value of total
estimated costs. Closure and post-closure expense totaled approximately $26.1
million, $22.9 million and $23.4 million during the years ended December 31,
2002, 2001 and 2000, respectively. Accruals for closure and post-closure are
included in accrued landfill, environmental and legal costs in the accompanying
Consolidated Balance Sheets.

A number of the Company's landfills were acquired from other entities and
recorded using the purchase method of accounting. Accordingly, the Company
assessed and recorded a closure and post-closure liability as of the date the
landfill was acquired based upon the estimated total closure and post-closure
costs and the percentage of total available disposal capacity utilized as of
such date. Thereafter, the difference between the closure and post-closure costs
accrued and the total estimated closure and post-closure costs to be incurred
are accrued and charged to expense as airspace is consumed. Closure and
post-closure costs will be fully accrued for the Company's landfills at the time
such facilities cease to accept waste and are closed. As of December 31, 2002,
assuming that all available landfill capacity is used, the Company expects to
expense approximately $541.3 million of such costs over the remaining lives of
these facilities.

The expected future payments for closure and post-closure costs as of
December 31, 2002 are as follows:

REMEDIATION

The Company accrues for remediation costs when they become probable and
reasonably estimatable. Substantially all of the Company's recorded remediation
costs are for incremental landfill post-closure care required under approved
remediation action plans for acquired landfills. Remediation costs are estimated
by independent engineers together with the Company's engineers based upon site
remediation plans. These estimates do not take into account discounts for the
present value of total estimated costs. Management believes that the amounts
accrued for remediation costs are adequate. However, a significant increase in
the estimated costs for remediation could have a material adverse effect on the
Company's financial position, results of operations or cash flows.

The expected future payments for remediation costs as of December 31, 2002
are as follows:

69

REPUBLIC SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

ENVIRONMENTAL COSTS

In the normal course of business, the Company is subject to ongoing
environmental investigations by certain regulatory agencies, as well as other
claims and disputes that could result in litigation. Environmental costs are
accrued by the Company through a charge to income in the period such liabilities
become probable and can be reasonably estimated. No material amounts were
charged to expense during the years ended December 31, 2002, 2001, and 2000.

5. NOTES PAYABLE AND LONG-TERM DEBT

Notes payable and long-term debt are as follows:

70

REPUBLIC SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Aggregate maturities of notes payable and long-term debt as of December 31,
2002 (excluding discounts and adjustments to fair market value from hedging
transactions) are as follows:

As of December 31, 2002, the Company had approximately $437.7 million of
availability under its revolving credit facility.

As of December 31, 2002, the Company had $175.0 million of restricted cash
of which $139.7 million were proceeds from the issuance of tax-exempt bonds and
other tax-exempt financing and will be used to fund capital expenditures.
Restricted cash also includes amounts held in trust as a financial guarantee of
the Company's performance.

The Company made interest payments on notes payable and long-term debt of
approximately $75.9 million, $70.4 million and $83.4 million (net of capitalized
interest of $2.5 million, $3.3 million and $2.9 million) for the years ended
December 31, 2002, 2001 and 2000, respectively.

In August 2001, the Company sold $450.0 million of public notes, which have
a fixed coupon rate of 6 3/4% and mature in 2011. Proceeds from these notes were
used to repay the Company's revolving credit facility.

The Company's ability to obtain financing through the capital markets is a
key component of its financial strategy. Historically, the Company has managed
risk associated with executing this strategy, particularly as it relates to
fluctuations in interest rates, by using a combination of fixed and floating
rate debt. During 2001 and 2002, the Company also entered into interest rate
swap agreements to manage risk associated with fluctuations in interest rates
and to take advantage of favorable floating interest rates. The swap agreements
have total notional values of $225.0 million and $75.0 million, respectively,
and mature in 2004 and 2011, respectively. These maturities are identical to the
Company's public notes that were sold in 1999 and 2001, respectively. Under the
swap agreements, the Company pays interest at floating rates based on changes in
LIBOR and receives interest at fixed rates of 6 5/8% and 6 3/4%, respectively.
The Company has designated these agreements as hedges in changes in the fair
value of the Company's fixed-rate debt and accounts for them in accordance with
SFAS 133. The Company has determined that these agreements qualify for the
short-cut method under SFAS 133 and, therefore, changes in the fair value of the
agreements are assumed to be perfectly effective in hedging changes in the fair
value of the Company's fixed rate debt due to changes in interest rates.

As of December 31, 2002, interest rate swap agreements are reflected at
fair market value of $9.1 million and are included in other assets and as an
adjustment to long-term debt in the accompanying Consolidated Balance Sheets.
During the years ended December 31, 2002 and 2001, the Company recorded net
interest income of $5.8 million and $1.3 million, respectively, related to its
interest rate swap agreements which is included in interest expense in the
accompanying Consolidated Statements of Income.

The unsecured revolving credit facility requires the Company to maintain
certain financial ratios and comply with certain financial covenants. At
December 31, 2002, the Company was in compliance with the financial covenants
under these agreements.

71

REPUBLIC SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

6. INCOME TAXES

The components of the provision for income taxes are as follows:

A reconciliation of the statutory federal income tax rate to the Company's
effective tax rate is shown below:

Components of the net deferred income tax liability in the accompanying
Consolidated Balance Sheets are as follows:

In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. The Company adjusts the valuation allowance, if
any, in the period management determines it is more likely than not that
deferred tax assets will or will not be realized.

The Company made income tax payments of approximately $69.3 million, $109.3
million and $89.3 million for the years ended December 31, 2002, 2001 and 2000,
respectively.

7. STOCKHOLDERS' EQUITY

During 2000, 2001 and 2002, the Board of Directors authorized the
repurchase of up to $150.0 million, $125.0 million and $175.0 million,
respectively, of its Common Stock. As of December 31, 2002, the Company had paid
$300.1 million to repurchase 17.2 million shares of its Common Stock.

72

REPUBLIC SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

8. STOCK OPTIONS

In July 1998, the Company adopted the 1998 Stock Incentive Plan ("Stock
Incentive Plan") to provide for grants of options to purchase shares of Common
Stock to employees and non-employee directors of the Company who are eligible to
participate in the Stock Incentive Plan. Options granted under the Stock
Incentive Plan are non-qualified and are granted at a price equal to the fair
market value of the Company's Common Stock at the date of grant. Generally,
options granted have a term of ten years from the date of grant, and vest in
increments of 25% per year over a four year period beginning on the first
anniversary date of the grant. Options granted to non-employee directors have a
term of ten years and vest immediately at the date of grant. In May 2002, the
Company's stockholders approved and adopted an amendment and restatement of the
Stock Incentive Plan, which modified a number of its provisions, including an
increase in the number of shares of Common Stock reserved for issuance under the
Stock Incentive Plan from 20.0 million to 27.0 million. As of December 31, 2002,
there were 9.3 million stock options reserved for future grants under the Stock
Incentive Plan.

The following table summarizes stock option activity for the years ended
2000, 2001 and 2002:

The following table summarizes information about the Company's outstanding
and exercisable stock options at December 31, 2002:

The Company applies Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees," in accounting for stock-based employee
compensation arrangements whereby no compensation cost related to stock options
is deducted in determining net income.

73

REPUBLIC SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The Company also maintains the Republic Services 401(k) Plan (the "Plan"),
which is a defined contribution plan covering all eligible employees. Under the
provisions of the Plan, participants may direct the Company to defer a portion
of their compensation to the Plan, subject to a maximum of 15% of eligible
compensation, as defined. In general, the Company provides matching
contributions of 50% of the amount contributed by each participant up to 4% of
the employee's salary. The employer match is generally made in shares of the
Company's common stock. Both employee and Company contributions vest
immediately. During 2002, the Company contributed shares of its common stock
valued at $2.5 million to the Plan.

9. EARNINGS PER SHARE

Basic earnings per share is computed by dividing net income by the weighted
average number of common shares outstanding during the period. Diluted earnings
per share is based on the combined weighted average number of common shares and
common share equivalents outstanding which include, where appropriate, the
assumed exercise of employee stock options. In computing diluted earnings per
share, the Company utilizes the treasury stock method.

Earnings per share is calculated as follows:

10. SEGMENT INFORMATION

The Company provides collection, transfer and disposal services in the
domestic non-hazardous solid waste industry. Operations are managed and
evaluated through five regions: Eastern, Central, Southern, Southwestern and
Western. These five regions are presented below as the Company's reportable
segments. These reportable segments provide integrated waste management services
consisting of collection, transfer and disposal of domestic non-hazardous solid
waste.

Summarized financial information concerning the Company's reportable
segments for the respective years ended December 31 is shown in the following
table. In prior years' Consolidated Financial Statements, the Company presented
one reportable segment. For the current year presentation, prior period
information has been restated to conform to the current year presentation.

74

REPUBLIC SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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

(a) Corporate functions include legal, tax, treasury, information technology,
insurance, human resources, national accounts and other typical
administrative functions. During 2001, operating income from Corporate
Entities includes $12.2 million of charges related primarily to increases in
self-insurance reserves and bad debt expense.
(b) Intercompany operating revenue reflects transactions within and between
segments and are generally made on a basis intended to reflect the market
value of such services.
(c) Effective January 1, 2002 upon the adoption of SFAS 142, the Company ceased
amortizing intangibles with indefinite lives. (See Note 2, Summary of
Significant Accounting Policies, for further information.)
(d) Capital expenditures for 2002 exclude $72.6 million used to purchase
equipment consisting primarily of revenue-producing vehicles originally
placed into service pursuant to an operating lease.

75

REPUBLIC SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Goodwill is the cost of acquired businesses in excess of the fair value of
net assets acquired. The activity in goodwill, net of accumulated amortization,
during 2002 is as follows:

Total revenue of the Company by revenue source for the years ended December
31, 2002, 2001 and 2000 is as follows:

11. FUEL HEDGE

The Company has minimized its risk associated with changes in the price of
diesel fuel by entering into derivatives with a group of financial institutions
having investment grade ratings. The Company's derivative instruments qualify
for hedge accounting treatment under SFAS 133. Under these option agreements,
the Company receives or makes payments based on the difference between actual
average heating oil prices and predetermined fixed prices. These option
agreements provide the Company protection from fuel prices rising above a
predetermined fixed price in the option agreements but also limit the Company's
ability to benefit from price decreases below the predetermined fixed price in
the option agreements.

In accordance with SFAS 133, to the extent the option agreements are
effective in hedging changes in diesel fuel prices, unrealized gains and losses
on these option agreements are recorded, net of tax, in stockholders' equity as
a component of accumulated other comprehensive income or loss. To the extent the
change in the fuel option agreements does not perfectly offset the change in
value of diesel fuel purchases being hedged, SFAS 133 requires the ineffective
portion of the hedge to immediately be recognized as other income or expense.
The effectiveness of these option agreements as a hedge against future purchases
of diesel fuel is periodically evaluated. If the option agreements were to
become other than highly effective, the unrealized accumulated gains and or
losses would be immediately recognized in income. Realized gains and losses on
these option agreements are recognized as a component of fuel expense in the
period in which the corresponding fuel is purchased.

76

REPUBLIC SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

During June 2001, the Company entered into option agreements for
approximately 14.3 million gallons of heating oil. These option agreements
settled each month in equal notional amounts through December 2002. The option
agreements were structured as zero-cost collars indexed to the price of heating
oil. These option agreements expired in December 2002. In accordance with SFAS
133, $1.6 million, and $(1.6) million, net of tax, representing the effective
portion of the change in fair value during the periods have been recorded in
stockholders' equity as a component of accumulated other comprehensive income
(loss) for the years ended December 31, 2002 and 2001, respectively. The
ineffective portions of the changes in fair value of approximately $.1 million
and $(.1) million for the years ended December 31, 2002 and 2001, respectively,
have been included in other income (expense), net in the accompanying
Consolidated Statements of Income. Realized losses of $.8 million and $.6
million for the years ended December 31, 2002 and 2001, respectively, related to
these option agreements are included in cost of operations in the Company's
Consolidated Statements of Income.

12. COMMITMENTS AND CONTINGENCIES

LEGAL PROCEEDINGS

The Company is a party to various general legal proceedings which have
arisen in the ordinary course of business. While the results of these matters
cannot be predicted with certainty, the Company believes that losses, if any,
resulting from the ultimate resolution of these matters will not have a material
adverse effect on the Company's consolidated financial position, results of
operations or cash flows. However, unfavorable resolution could affect the
consolidated financial position, results of operations or cash flows for the
quarterly periods in which they are resolved.

LEASE COMMITMENTS

During December 1999, the Company entered into a $100.0 million operating
lease facility established to finance the acquisition of operating equipment
(primarily revenue-producing vehicles). In July 2002, the Company exercised its
right to purchase the equipment underlying this facility by paying $72.6
million. In addition, the Company and its subsidiaries lease real property,
equipment and software under various other operating leases with terms from one
to twenty-five years. Rent expense during the years ended December 31, 2002,
2001 and 2000 was approximately $20.0 million, $27.5 million and $25.3 million,
respectively.

Future minimum lease obligations under non-cancelable real property,
equipment and software leases with initial terms in excess of one year at
December 31, 2002 are as follows:

LIABILITY INSURANCE

The Company carries general liability, vehicle liability, employment
practices liability, pollution liability, directors and officers liability,
worker's compensation and employer's liability coverage, as well as umbrella
liability policies to provide excess coverage over the underlying limits
contained in these primary policies. The Company also carries property
insurance.

77

REPUBLIC SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The Company's insurance programs for worker's compensation, general
liability, vehicle liability and employee-related health care benefits are
effectively self-insured. Claims in excess of self-insurance levels are fully
insured subject to policy limits. Accruals are based on claims filed and
estimates of claims incurred but not reported.

The Company's liabilities for unpaid and incurred but not reported claims
at December 31, 2002 was $75.0 million under its current risk management program
and are included in other current and other liabilities in the accompanying
Consolidated Balance Sheets. While the ultimate amount of claims incurred are
dependent on future developments, in management's opinion, recorded reserves are
adequate to cover the future payment of claims. However, it is reasonably
possible that recorded reserves may not be adequate to cover the future payment
of claims. Adjustments, if any, to estimates recorded resulting from ultimate
claim payments will be reflected in results of operations in the periods in
which such adjustments are known.

OTHER MATTERS

In the normal course of business, the Company is required to post
performance bonds, insurance policies, letters of credit and/or cash deposits as
a financial guarantee of the Company's performance. To date, the Company has
satisfied financial responsibility requirements for regulatory agencies by
making cash deposits, obtaining bank letters of credit or by obtaining surety
bonds. At December 31, 2002, surety bonds totaling $652.6 million which expire
through 2015 and letters of credit totaling $359.1 million were outstanding. In
addition, at December 31, 2002, the Company had $175.0 million of restricted
cash deposits held as financial guarantees as well as funds restricted for
capital expenditures under certain debt facilities.

The Company's business activities are conducted in the context of a
developing and changing statutory and regulatory framework. Governmental
regulation of the waste management industry requires the Company to obtain and
retain numerous governmental permits to conduct various aspects of its
operations. These permits are subject to revocation, modification or denial. The
costs and other capital expenditures which may be required to obtain or retain
the applicable permits or comply with applicable regulations could be
significant. Any revocation, modification or denial of permits could have a
material adverse effect on the Company.

Through the date of the Company's initial public offering of common stock
in July 1998, the Company filed consolidated federal income tax returns with
AutoNation Inc. ("AutoNation"), its former parent company. The Internal Revenue
Service is auditing AutoNation's consolidated tax returns for fiscal years 1995
through 1999. In accordance with the Company's tax sharing agreement with
AutoNation, the Company may be liable for certain assessments imposed by the
Internal Revenue Service for the periods through June 1998, resulting from this
audit. In addition, the Internal Revenue Service is auditing the Company's
consolidated tax returns for fiscal years 1998 and 1999. Management believes
that the tax liabilities recorded are adequate. However, a significant
assessment in excess of liabilities recorded against the Company could have a
material adverse effect on the Company's financial position, results of
operations or cash flows.

13. RELATED PARTY TRANSACTIONS

The following is a summary of agreements and transactions that the Company
is involved in with related parties. It is the Company's policy that
transactions with related parties must be on terms that, on the whole, are no
less favorable than those that would be available from unaffiliated parties. It
is management's belief that all of these transactions met that standard at the
time such transactions were effected.

The Company leases its corporate office space from AutoNation. During 2002,
2001 and 2000, the Company paid AutoNation approximately $.7 million, $.7
million and $.5 million, respectively, pursuant to the lease. During 2002, the
Company collected solid waste from, and leased roll-off containers to, certain
automotive retail and other properties of AutoNation. The Company provided all
of these services at standard

78

REPUBLIC SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

rates. The Company continues to provide these services to AutoNation on the same
terms. In March 2000, the Company sold a Lear Jet 55 to AutoNation for
approximately $4.7 million. In January 2001, the Company purchased a Lear Jet 55
from AutoNation for approximately $4.7 million which the Company believes
approximated its fair market value. H. Wayne Huizenga and Harris W. Hudson are
both directors of AutoNation.

Pro Player Stadium is a professional sports stadium in South Florida that
is owned and controlled by H. Wayne Huizenga, the former Chairman and a current
member of the Company's Board of Directors. One of the Company's subsidiaries
collected solid waste from, and leased roll-off waste containers to, Pro Player
Stadium pursuant to standard agreements under which Pro Player Stadium paid an
aggregate of $293,392 in 2002. The Company expects to continue to provide these
services in 2003 on the same terms.

14. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

The following is an analysis of certain items in the Consolidated
Statements of Income by quarter for 2002 and 2001:

The Company's operating results for 2002 include a $5.6 million gain on the
sale of certain assets for amounts exceeding estimates originally made during
the fourth quarter of 2001.

The Company's operating results for 2001 were affected by a charge of $86.1
million charge on an after-tax basis, or $132.0 million on a pre-tax basis,
recorded during the fourth quarter of 2001 related to completed and planned
divestitures and closings of certain core and non-core businesses, asset
impairments, downsizing its compost, mulch and soil business and related
inventory adjustments, an increase in self-insurance reserves and an increase in
bad debt expense related to the economic slowdown.

79

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

As discussed in the Current Report on Form 8-K dated June 21, 2002 that we
filed with the Commission on June 24, 2002, we appointed Ernst & Young LLP as
our new independent public accountant effective June 21, 2002 and we dismissed
Arthur Andersen LLP as our independent public accountant effective as of June
21, 2002.

80

PART III

The information required by Items 10, 11, 12 and 13 of Part III of Form
10-K will be set forth in the Proxy Statement of the Company relating to the
2003 Annual Meeting of Stockholders and is incorporated by reference herein.

ITEM 14. CONTROLS AND PROCEDURES

(a) Evaluation of Disclosure Controls and Procedures

Within the 90 days prior to the filing date of this Annual Report, we
carried out an evaluation, under the supervision and with the participation of
our management, including our Chief Executive Officer and Chief Financial
Officer, of the effectiveness of the design and operation of our disclosure
controls and procedures pursuant to Securities Exchange Act Rules 13a-14(c) and
15d-14(c). Based upon that evaluation, the Chief Executive Officer and Chief
Financial Officer concluded that our disclosure controls and procedures were
effective as of the date of their evaluation in timely alerting them to material
information relating to us (including our consolidated subsidiaries) required to
be included in this Annual Report.

(b) Changes in Internal Controls

There were no significant changes in our internal controls or in other
factors that could significantly affect such internal controls subsequent to the
date of the evaluation described in paragraph (a) above. As a result, no
corrective actions were required or undertaken.

81

PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K

(a) The following documents are filed as part of this report:

1. All Financial Statements:

The following financial statements are filed as part of this report
under Item 8 -- Financial Statements and Supplementary Data.

2. Financial Statement Schedules:

Schedule II -- Valuation and Qualifying Accounts and Reserves, for each
of the Three Years Ended December 31, 2002, 2001 and 2000.

All other schedules are omitted as the required information is not
applicable or the information is presented in the Consolidated Financial
Statements and Notes thereto in Item 8 above.

3. Exhibits:

The following exhibits are filed herewith or are incorporated by
reference to exhibits previously filed with the Commission, as indicated
in the description of each. We agree to furnish to the Commission upon
request a copy of any instrument with respect to long-term debt not
filed herewith as to which the total amount of securities authorized
thereunder does not exceed 10 percent of our total assets on a
consolidated basis.

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

* Indicates a management contract or compensatory plan, contract or arrangement.

(b) Reports on Form 8-K:

Form 8-K, furnished pursuant to Item 9 and dated October 28, 2002,
including a press release announcing the Company's operating results for the
three and nine months ended September 30, 2002, and a press release announcing
the board of directors' approval of an additional $150.0 million for the
Company's Common Stock repurchase program. This Form 8-K is not deemed
incorporated by reference into any of our filings with the Securities and
Exchange Commission.

84

SIGNATURES

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

REGISTRANT:

REPUBLIC SERVICES, INC.

By: /s/ JAMES E. O'CONNOR
------------------------------------
James E. O'Connor
Chairman of the Board and Chief
Executive Officer

March 27, 2003

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

85

CERTIFICATION

I, James E. O'Connor, certify that:

1. I have reviewed this annual report on Form 10-K of Republic Services,
Inc;

2. Based on my knowledge, this annual 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 annual
report;

3. Based on my knowledge, the financial statements, and other financial
information included in this annual 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 annual 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 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 annual 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
annual report (the "Evaluation Date"); and

c) presented in this annual 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
annual 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.

Date: March 27, 2003

By: /s/ JAMES E. O'CONNOR
- ------------------------------------------------------
James E. O'Connor
Chairman and Chief Executive Officer

86

CERTIFICATION

I, Tod C. Holmes, certify that:

1. I have reviewed this annual report on Form 10-K of Republic Services,
Inc;

2. Based on my knowledge, this annual 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 annual
report;

3. Based on my knowledge, the financial statements, and other financial
information included in this annual 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 annual 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 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 annual 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
annual report (the "Evaluation Date"); and

c) presented in this annual 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
annual 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.

Date: March 27, 2003

By: /s/ TOD C. HOLMES
----------------------------------------------------------
Tod C. Holmes
Senior Vice President and
Chief Financial Officer

87

REPUBLIC SERVICES, INC.

VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
SCHEDULE II
(IN MILLIONS)

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

(1) Allowance of acquired and divested businesses, net.

88

EXHIBIT INDEX