ALLIED WASTE INDUSTRIES INC - 10-Q Quarterly Report

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


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

For the quarterly period ended: June 30, 2002


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

For the transition period from _________________________ to ___________

Commission File Number 0-19285

ALLIED WASTE INDUSTRIES, INC.

(Exact name of registrant as specified in its charter)


Delaware		88-0228636




(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)

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

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes X No

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


Class	Outstanding as of August 9, 2002

Common Stock		197,152,284

TABLE OF CONTENTS


	CONSOLIDATED BALANCE SHEETS
	CONSOLIDATED STATEMENTS OF OPERATIONS
	CONSOLIDATED STATEMENTS OF CASH FLOWS
	NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
PART II OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities and Use of Proceeds
Item 3. Defaults upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
Signatures
Exhibit 10.1
Exhibit 99.1
Exhibit 99.2

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

INDEX


Part I	Financial Information




Item 1	Financial Statements




		Consolidated Balance Sheets	3




		Consolidated Statements of Operations	4




		Consolidated Statements of Cash Flows	5




		Notes to Consolidated Financial Statements	6




Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations		31




Item 3	Quantitative and Qualitative Disclosures About Market Risk		39




Part II	Other Information




Item 1	Legal Proceedings		40




Item 2	Changes in Securities and Use of Proceeds		40




Item 3	Defaults Upon Senior Securities		40




Item 4	Submission of Matters to a Vote of Security Holders		40




Item 5	Other Information		40




Item 6	Exhibits and Reports on Form 8-K		41




Signatures			42

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


			June 30,			December 31,
			2002			2001

			(unaudited)
ASSETS




Current Assets —




Cash and cash equivalents			$	160,109		$	158,841




Accounts receivable, net of allowance of $28,344 and $31,876				746,477			751,416




Prepaid and other current assets				108,404			132,026




Deferred income taxes, net				150,363			156,203

	Total current assets			1,165,353			1,198,486




Property and equipment, net				4,137,132			4,010,886




Goodwill, net				8,562,301			8,556,877




Other assets, net				378,121			580,844

	Total assets		$	14,242,907		$	14,347,093

LIABILITIES AND STOCKHOLDERS’ EQUITY




Current Liabilities —




Current portion of long-term debt			$	211,152		$	22,130




Accounts payable				386,847			456,063




Accrued closure, post-closure and environmental costs				127,144			126,885




Accrued interest				188,620			192,872




Other accrued liabilities				356,481			402,816




Unearned revenue				242,045			232,769

	Total current liabilities			1,512,289			1,433,535




Long-term debt, less current portion				9,039,394			9,237,503




Deferred income taxes				504,502			418,836




Accrued closure, post-closure and environmental costs				874,555			878,006




Other long-term obligations				426,757			624,390




Commitments and contingencies




Series A senior convertible preferred stock, 1,000 shares




	authorized, issued and outstanding, liquidation




	preference of $1,207 and $1,169 per share			1,207,029			1,169,044




Stockholders’ Equity —




Common stock; $0.01 par value; 300,000 authorized shares;




		196,600 and 196,236 shares issued and outstanding		1,966			1,962




Additional paid-in capital				1,022,303			1,055,353




Accumulated other comprehensive loss				(63,797	)		(85,120	)




Retained deficit				(282,091	)		(386,416	)

	Total stockholders’ equity			678,381			585,779

	Total liabilities and stockholders’ equity		$	14,242,907		$	14,347,093

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

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


		Six Months Ended June 30,					Three Months Ended June 30,

		2002		2001			2002		2001

Revenues		$	2,717,595	$	2,766,703		$	1,401,920	$	1,412,865




Cost of operations excluding acquisition related and unusual costs			1,624,018		1,579,565			834,608		799,501




Selling, general and administrative expenses excluding




	acquisition related and unusual costs		241,444		202,691			119,320		100,246




Depreciation and amortization			245,524		228,635			125,866		115,026




Goodwill amortization			—		113,027			—		56,463




Acquisition related and unusual costs			—		12,747			—		7,249




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

	Operating income		606,609		523,027			322,126		334,380




Equity in earnings of unconsolidated affiliates			—		(14,072	)		—		(4,967	)




Interest expense and other			427,227		430,640			230,005		213,895

	Income before income taxes		179,382		106,459			92,121		125,452




Income tax expense			73,942		59,580			38,421		71,322




Minority interest			1,115		2,719			493		972

	Income before extraordinary loss		104,325		44,160			53,207		53,158




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

	Net income		104,325		34,707			53,207		53,158




Dividends on preferred stock			37,992		35,620			19,252		18,050

	Net income (loss) available to common shareholders	$	66,333	$	(913	)	$	33,955	$	35,108

Basic EPS:




Income available to common shareholders before




	extraordinary loss, net of income tax benefit	$	0.35	$	0.05		$	0.18	$	0.19




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

	Net income available to common shareholders	$	0.35	$	—		$	0.18	$	0.19

Weighted average common shares			189,995		189,350			190,243		189,495

Diluted EPS:




Income available to common shareholders before




	extraordinary loss, net of income tax benefit	$	0.34	$	0.04		$	0.18	$	0.18




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

	Net income available to common shareholders	$	0.34	$	—		$	0.18	$	0.18

Weighted average common and common equivalent shares			193,846		195,277			193,914		195,670

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

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


			Six Months Ended June 30,

			2002			2001

Operating activities —




Net income			$	104,325		$	34,707




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




Provisions for:




	Depreciation and amortization			245,524			341,662




	Non-cash loss on asset sale			—			107,011




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




	Doubtful accounts			10,221			4,947




	Accretion of debt and amortization of debt issuance costs			22,139			20,962




	Deferred income tax provision			57,641			39,044




	Gain on sale of fixed assets			(3,623	)		(4,631	)




	Extraordinary loss due to early extinguishments of debt, net of income tax




		benefit		—			4,828




	Non-cash gain on de-designated interest rate swap contracts			(1,253	)		—




	Amortization of accumulated other comprehensive income for de-designated




		interest rate swap contracts		17,700			—




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




	acquisitions—




	Accounts receivable, prepaid expenses, inventories and other			13,613			(24,799	)




	Accounts payable, accrued liabilities, unearned revenue, stock option tax




		benefits and other		(24,121	)		(64,510	)




	Expenditures against non-recurring acquisition accruals			(46,948	)		(59,045	)




	Closure and post-closure provision			35,332			33,381




	Closure, post-closure and environmental expenditures			(33,999	)		(46,746	)

Cash provided by operating activities				396,551			372,739

Investing activities —




	Cost of acquisitions, net of cash acquired			(13,815	)		(109,785	)




	Proceeds from divestitures, net of cash divested			79			359,598




	Accruals for acquisition price and severance costs			—			(986	)




	Capital expenditures, excluding acquisitions			(349,678	)		(267,346	)




	Capitalized interest			(12,349	)		(25,173	)




	Proceeds from sale of fixed assets			15,533			14,505




	Change in deferred acquisition costs, notes receivable and other			(22,441	)		1,644

Cash used for investing activities				(382,671	)		(27,543	)

Financing activities —




	Net proceeds from exercise of stock options			2,567			5,248




	Proceeds from long-term debt, net of issuance costs			495,704			1,307,891




	Repayments of long-term debt			(510,883	)		(1,643,922	)

Cash used for financing activities				(12,612	)		(330,783	)

Increase in cash and cash equivalents				1,268			14,413




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

Cash and cash equivalents, end of period			$	160,109		$	136,507

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

ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Organization and Summary of Significant Accounting Policies

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

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

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

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

Statements of cash flows —

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


		Six Months Ended June 30,

		2002		2001

Supplemental Disclosures -




	Interest paid (net of amounts capitalized)	$	394,744	$	404,328




	Income taxes paid		22,135		55,593




Non-Cash Transactions -




	Debt incurred or assumed in acquisitions	$	85	$	805




	Liabilities incurred or assumed in acquisitions		2,786		12,066




	Dividends on preferred stock		37,992		35,620

Capitalized interest —

During the six months ended June 30, 2002 and 2001, we incurred $403.4 million and $438.6 million, respectively, of interest expense of which $12.3 million and $25.2 million, respectively, was capitalized.

ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Use of estimates -—

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

Recently issued accounting pronouncements —

In August 2001, the Financial Accounting Standards Board (FASB) issued SFAS 143, Accounting for Asset Retirement Obligations (SFAS 143), which outlines standards for accounting for an obligation associated with the retirement of a long-lived tangible asset and the associated retirement costs. This standard will apply to our accounting for landfill closure and post-closure obligations. We are required to adopt SFAS 143 by January 1, 2003 and are currently assessing the impact that this statement will have on our consolidated financial statements.

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

In July 2002, the FASB issued SFAS 146, Accounting for Costs Associated with Exit or Disposal Activities (SFAS 146), which prescribes the financial accounting and reporting for costs associated with exit or disposal activities. SFAS 146 excludes from its scope exit and disposal activities that are in connection with a business combination and those activities to which SFAS 143 and 144 are applicable. SFAS 146 is effective for exit and disposal activities that are initiated after December 31, 2002.

Recently adopted accounting pronouncements —

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

ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Effective January 2002, we adopted SFAS 142, Goodwill and Other Intangibles (SFAS 142), which among other things, eliminates the amortization of goodwill and instead requires an annual assessment of goodwill impairment by applying a fair value based test to each of our reporting units, which we have defined as our four reporting segments. The impairment test of goodwill will be completed more frequently than annually under certain conditions. There have been no events during 2002 that would trigger such an evaluation. The calculation of fair value is subject to judgments and estimates. We estimate fair value of our reporting segments based on net cash flows discounted using a weighted-average cost of capital of approximately 8%. The estimated fair value could change if there are future changes in our capital structure, cost of debt, interest rates, ability to perform at levels that were forecasted or the market capitalization of our Company. We tested our existing goodwill at January 1, 2002 for realizability and determined that we had no impairment of goodwill and therefore SFAS 142 had no impact to our consolidated financial statements upon adoption. Since the cash flow and net book value vary by reporting segment, the degree of excess fair value also varies by reporting segment. Excess fair value is defined as the amount by which the estimated fair value exceeds the net book value.

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

ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following calculations adjust net income (loss) before extraordinary loss and cumulative effect of change in accounting principle to exclude goodwill amortization expense (in thousands, unaudited):


		For the Six Months				For the Three Months
		Ended June 30,				Ended June 30,

		2002		2001		2002		2001

Reported net income before extraordinary loss		$	104,325	$	44,160	$	53,207	$	53,158




	Add: goodwill amortization, net of tax effect		—		102,420		—		51,111

Adjusted income before extraordinary loss			104,325		146,580		53,207		104,269




	Less: dividends on preferred stock		37,992		35,620		19,252		18,050

Adjusted net income available to common




	shareholders before extraordinary loss		66,333		110,960		33,955		86,219




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

Adjusted net income available to common




	shareholders	$	66,333	$	101,507	$	33,955	$	86,219

EPS before extraordinary loss:




	Basic as reported	$	0.35	$	0.05	$	0.18	$	0.19
	Goodwill amortization, net of tax effect		—		0.54		—		0.27

	Basic as adjusted to exclude goodwill amortization	$	0.35	$	0.59	$	0.18	$	0.46

	Diluted as reported	$	0.34	$	0.04	$	0.18	$	0.18
	Goodwill amortization, net of tax effect		—		0.53		—		0.22

	Diluted as adjusted to exclude goodwill amortization	$	0.34	$	0.57	$	0.18	$	0.40

EPS:




	Basic as reported	$	0.35	$	—	$	0.18	$	0.19
	Goodwill amortization, net of tax effect		—		0.54		—		0.27

	Basic as adjusted to exclude goodwill amortization	$	0.35	$	0.54	$	0.18	$	0.46

	Diluted as reported	$	0.34	$	—	$	0.18	$	0.18
	Goodwill amortization, net of tax effect		—		0.52		—		0.22

	Diluted as adjusted to exclude goodwill amortization	$	0.34	$	0.52	$	0.18	$	0.40

ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


		For the years ended December 31,

		2001			2000		1999

Reported net income (loss) before extraordinary loss




	and cumulative effect of change in accounting principle	$	75,459		$	137,653	$	(221,250	)




	Add: goodwill amortization, net of tax effect		205,061			202,831		96,124

Adjusted income (loss) before extraordinary loss			280,520			340,484		(125,126	)




	Less: dividends on preferred stock		73,012			68,452		27,789

Adjusted net income (loss) available to common




	shareholders before extraordinary loss		207,508			272,032		(152,915	)




Extraordinary loss, net of taxes			16,973			13,266		3,223




Cumulative effect of change in accounting principle, net of taxes			—			—		64,255

Adjusted net income (loss) available to common




	shareholders	$	190,535		$	258,766	$	(220,393	)

EPS before extraordinary loss and cumulative




	effect of change in accounting principle:




	Basic as reported	$	0.01		$	0.37	$	(1.33	)
	Goodwill amortization, net of tax effect		1.08			1.07		0.52

	Basic as adjusted to exclude goodwill amortization	$	1.09		$	1.44	$	(0.81	)

	Diluted as reported	$	0.01		$	0.36	$	(1.33	)
	Goodwill amortization, net of tax effect		1.05			1.00		0.52

	Diluted as adjusted to exclude goodwill amortization	$	1.06		$	1.36	$	(0.81	)

EPS:




	Basic as reported	$	(0.07	)	$	0.30	$	(1.69	)
	Goodwill amortization, net of tax effect		1.08			1.07		0.52

	Basic as adjusted to exclude goodwill amortization	$	1.01		$	1.37	$	(1.17	)

	Diluted as reported	$	(0.07	)	$	0.29	$	(1.69	)
	Goodwill amortization, net of tax effect		1.05			1.02		0.52

	Diluted as adjusted to exclude goodwill amortization	$	0.98		$	1.31	$	(1.17	)

ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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


	Goodwill, net

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

Western Area	$	1,423,579	$	7,054	$	—	$	(8,310	)	$	1,422,323




Central Area		1,900,227		—		—		(142	)		1,900,085




Eastern Area		2,449,308		342		—		1,444			2,451,094




Southern Area		2,783,763		1,619		—		3,417			2,788,799

Total	$	8,556,877	$	9,015	$	—	$	(3,591	)	$	8,562,301

(1)

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

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


		Gross					Net
		Carrying		Accumulated			Carrying
		Value		Amortization			Value

Non-compete agreements		$	17,638	$	(9,970	)	$	7,668




Other			2,559		(269	)		2,290

	Total	$	20,197	$	(10,239	)	$	9,958

Amortization expense for the three and six months ended June 30, 2002 was $0.7 million and $1.5 million, respectively.

ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2. Property and Equipment

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


		Property and Equipment

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

Land and improvements		$	432,875	$	9,397	$	(3,538	)	$	—	$	6,823		$	445,557




Land held for permitting as




	landfills		131,445		4,293		(216	)		—		(20,583	)		114,939




Landfills			2,269,407		89,633		—			—		36,542			2,395,582




Buildings and improvements			443,149		10,577		(5,438	)		—		(2,016	)		446,272




Vehicles and equipment			1,563,394		193,211		(17,468	)		3,596		1,794			1,744,527




Containers and compactors			731,186		40,836		(3,400	)		2,378		(578	)		770,422




Furniture and office equipment			42,232		1,731		(1,037	)		—		289			43,215

Total		$	5,613,688	$	349,678	$	(31,097	)	$	5,974	$	22,271		$	5,960,514


	Accumulated Depreciation and Amortization

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

Land and improvements	$	(13,703	)	$	(2,220	)	$	162		$	—	$	(74	)	$	(15,835	)




Landfills		(494,878	)		(80,183	)		—			—		(504	)		(575,565	)




Buildings and improvements		(70,862	)		(10,502	)		1,743			—		(586	)		(80,207	)




Vehicles and equipment		(683,566	)		(101,621	)		12,946			38		5,551			(766,652	)




Containers and compactors		(315,629	)		(46,343	)		3,307			48		(312	)		(358,929	)




Furniture and office equipment		(24,164	)		(2,905	)		1,029			—		(154	)		(26,194	)

Total	$	(1,602,802	)	$	(243,774	)	$	19,187		$	86	$	3,921		$	(1,823,382	)

Property and equipment, net	$	4,010,886		$	105,904		$	(11,910	)	$	6,060	$	26,192		$	4,137,132


		Property and Equipment

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

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




Land held for permitting as




	landfills		127,778		—		—			—			3,667			131,445




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




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




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




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




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

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


	Accumulated Depreciation and Amortization

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

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




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




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




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




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




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

Total	$	(1,238,842	)	$	(462,633	)	$	51,526		$	14,128	$	33,019		$	(1,602,802	)

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

(1)

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

ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

3. Investments in Unconsolidated Subsidiaries

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

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

4. Landfill Accounting

We have a network of 167 owned or operated active landfills with a net book value of approximately $1.8 billion at June 30, 2002. The landfills have operating lives ranging from 1 to over 150 years based on available capacity using current annual volumes. The average life of our landfills approximates 40 years. We use a life-cycle accounting method for landfills and the related closure and post-closure liabilities. This method applies the costs associated with acquiring, developing, closing and monitoring the landfills over the associated landfill disposal capacity and associated consumption. On an annual basis, we update the development cost estimates (which include the costs to develop the site as well as the individual cell construction costs), closure and post-closure cost estimates and future disposal capacity estimates for each landfill. The cost estimates are prepared by local company and third-party engineers based on the applicable local, state and federal regulations and site specific permit requirements. Future disposal capacity estimates are updated using aerial surveys of each landfill to estimate utilized disposal capacity and remaining disposal capacity. These cost and capacity estimates are reviewed and approved by senior operations management annually.

Landfill assets —

We use the units of production method for purposes of calculating the amortization rate at each landfill. This methodology divides the costs associated with acquiring, permitting and developing the entire landfill by the total remaining disposal capacity of that landfill. The resulting per unit amortization rate is applied to each ton of waste disposed at the landfill and is recorded as expense for that period. We expensed approximately $80.2 million and $73.1 million, or an average of $2.30 per ton and $2.11 per ton consumed, related to landfill amortization during the six months ended June 30, 2002 and 2001, respectively.

ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Costs associated with developing the landfill include direct costs such as excavation, liners, leachate collection systems, engineering and legal fees, and capitalized interest. Estimated total future development costs for our 167 active landfills is approximately $3.2 billion as of December 31, 2001, excluding capitalized interest, and we expect that this amount will be spent over the remaining operating lives of the landfills. We have available disposal capacity of approximately 2.54 billion tons, or 3.17 billion cubic yards as of December 31, 2001. We classify this total disposal capacity as either permitted (having received the final permit from the governing authorities) or deemed permitted. Our internal requirements to classify disposal capacity as deemed permitted are as follows:

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

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

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

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

5. Senior operations management approval has been obtained.

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

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

Closure and post-closure —

In addition to our portfolio of 167 active landfills, we own or have responsibility for 107 closed landfills no longer accepting waste. As individual areas within each landfill reach capacity, we are required to cap and close the areas in accordance with the landfill site permit. Generally, closure requirements include the application of compacted clay, geosynthetic liners and vegetative soil barriers in addition to the construction of drainage channels and methane gas collection systems among other closure activities. After the entire landfill site has reached capacity and is closed, we are required to maintain and monitor the site for a post-closure period, which usually extends for 30 years. Post-closure requirements generally include maintenance of the site and monitoring the methane gas collection systems and groundwater systems, among other post-closure activities. Such estimated costs for closure and post-closure as required under Subtitle D regulations are compiled and updated annually for each landfill by local and regional company engineers and reviewed by senior management. The future estimated closure and post-closure costs are increased at an inflation rate of 2.5%, and discounted at a risk-free capital rate of 7.0%, per annum, based on the timing of the amounts to be expended.

ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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

We charged approximately $35.3 million and $33.4 million related to per unit closure and post-closure expense and periodic accretion during the six months ended June 30, 2002 and 2001, respectively. Changes in estimates of costs or disposal capacity are treated on a prospective basis for active landfills and are recorded immediately for closed landfills.

Environmental costs -—

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

The ultimate amounts for environmental liabilities cannot be precisely determined and estimates of such liabilities made by us, after consultation with our independent environmental engineers, require assumptions about future events due to a number of uncertainties including the extent of the contamination, the appropriate remedy, the financial viability of other potentially responsible parties and the final apportionment of responsibility among the potentially responsible parties. Where we have concluded that our estimated share of potential liabilities is probable, a provision has been made in the consolidated financial statements. Since the ultimate outcome of these matters may differ from the estimates used in our assessment to date, the recorded liabilities will be periodically evaluated, as additional information becomes available to ascertain whether the accrued liabilities are adequate. We have determined that the recorded undiscounted liability for environmental matters as of June 30, 2002 and December 31, 2001 of approximately $379.4 million and $395.4 million, respectively, represents the most probable outcome of these contingent matters. We expect costs included in our reserves to be disbursed over the next 30 years. We do not reduce our estimated obligations for proceeds from other potentially responsible parties or insurance companies. If receipt is probable, proceeds are recorded as an offset to environmental expense in operating income. There were no significant recovery receivables outstanding as of June 30, 2002. We do not expect that adjustments to estimates, which are reasonably possible in the near term and that may result in changes to recorded amounts, will have a material effect on our consolidated liquidity, financial position or results of operations. However, we believe that it is reasonably possible the ultimate outcome of environmental matters, excluding closure and post-closure could result in approximately $20 million of additional liability.

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


	Balance at		Charges to		Other						Balance at
	12/31/01		Expense		Changes⁽¹⁾			Payments			6/30/02

Environmental costs	$	395,392	$	—	$	(1,750	)	$	(14,229	)	$	379,413




Open landfills closure and post-closure costs		343,739		28,353		(498	)		(7,918	)		363,676




Closed landfills closure and post-closure costs		265,760		6,979		(2,277	)		(11,852	)		258,610

⁽¹⁾

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

ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

5. Long-term Debt

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


		June 30,		December 31,
		2002		2001

		(unaudited)
Revolving credit facility, weighted average rate of 5.77%		$	—	$	—




Tranche A term loan facility, effective rate of 9.01% and 9.48%, respectively			1,086,656		1,157,785




Tranche B term loan facility, effective rate of 8.20% and 9.37%, respectively			810,937		864,018




Tranche C term loan facility, effective rate of 9.89% and 9.94%, respectively			973,125		1,036,822




Senior subordinated notes, interest at 10.00%, effective rate of 10.18%			2,006,001		2,006,425




Senior notes, interest at 7.88%, effective rate of 8.14%			873,877		873,812




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




Senior notes, interest at 7.38%, effective rate of 7.89%			224,884		224,850




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




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




Debentures, interest at 7.40%, effective rate of 10.19%			284,172		283,031




Senior notes, interest at 6.10%, effective rate of 8.40%			154,768		153,010




Senior notes, interest at 6.38%, effective rate of 9.36%			143,641		142,059




Debentures, interest at 9.25%, effective rate of 9.90%			95,281		95,169




Senior notes, interest at 7.88%, effective rate of 8.99%			67,813		67,502




Solid waste revenue bond obligations, weighted average rate of 5.09%




	and 5.40%, weighted average effective rate of 6.09% and 7.06%, respectively		312,908		313,831




2001 subsidiaries line of credit, effective rate of 8.70% and 8.72%, respectively			246,663		65,925




Notes payable to banks, finance companies, individuals and others, and




	obligations under capital leases, interest rates of 0.5% to 13.25%		19,820		25,394

			9,250,546		9,259,633




Less: Current portion			211,152		22,130

		$	9,039,394	$	9,237,503

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

At June 30, 2002, we have approximately $701 million available on the $1.291 billion Revolving Credit Facility. The Revolving Credit Facility is also used to support the issuance of letters of credit. At June 30, 2002 we had approximately $590 million of letters of credit outstanding.

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

In August 2002, we repaid the 2001 subsidiaries line of credit prior to its maturity. In connection with the repayment, we recorded an expense of approximately $7.7 million ($4.6 million, net of tax) for the write-off of deferred issuance costs and $3.2 million ($1.9 million, net of tax) for a prepayment penalty. The 2001 subsidiaries line of credit was repaid with cash from operations and the Revolving Credit Facility.

Our ability to pay dividends on preferred and common stock is most significantly limited by the 1999 Credit Facility, which specifies that in order to pay cash dividends, the ratio of Total Debt/EBITDA⁽¹⁾, as defined, must be less than 4:1. At June 30, 2002, that ratio was 5.16:1, prohibiting the payment of dividends.

⁽¹⁾ EBITDA is defined as earnings before interest, taxes, depreciation and amortization.

ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

We are subject only to the following financial covenants:

December 31,

2002

2003

2004

2005

Total Debt/EBITDA

5.75x

5.25x

4.50x

4.25x

EBITDA/Interest

2.00x

2.25x

2.50x

2.75x

At June 30, 2002, we were in compliance with all financial covenants. At June 30, 2002, Total Debt/EBITDA ratio, as defined by the 1999 Credit Facility, was 5.16:1 and our EBITDA/Interest ratio was 2.17:1. We are not subject to any minimum net worth covenants.

6. Derivative Instruments and Hedging Activities

Our interest rate swap portfolio continues to fix a significant portion of our variable rate interest payment obligation, protecting us from cash flow variations arising from changes in short term interest rates. We believe this is prudent given our capital structure. At June 30, 2002, the notional value of our interest rate swap contracts was $2.550 billion with a weighted average of 20 months to maturity. These contracts expire as follows: 4% during the remainder of 2002, 31% during 2003, 55% during 2004, and 10% during 2005. Our 1999 Credit Facility required that 50% of our outstanding credit facility remain hedged through July 2002, and our company policy is that at least 75% of our total debt must be effectively fixed, either directly or through interest rate swap contracts. At June 30, 2002, approximately 93% of our debt was effectively fixed, 65% directly, and 28% through interest rate swap contracts.

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

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

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

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

ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

At June 30, 2002, a liability of $121.9 million is included in the Consolidated Balance Sheets in other long-term obligations reflecting the fair market value of our entire interest rate swap portfolio on that date. The liability will fluctuate with market interest rates but will reduce to zero over the terms of each of our interest rate swap contracts. Approximately $21.5 million of the liability at June 30, 2002 relates to contracts maturing within 12 months. Fair value variations over the life of the interest rate swap contracts arise from changes in interest rates and the time value of money.

Designated interest rate swap contracts —

Our designated cash flow interest rate swap contracts are effective as hedges of our variable rate debt. We assume 100% effectiveness in our interest rate hedges, as the notional amounts, indices, repricing dates, and all other significant terms of the swap agreements are matched to the provisions and terms of the variable rate debt being hedged. Changes in fair value of our interest rate swap contracts are reflected in Accumulated Other Comprehensive Income (AOCI). At June 30, 2002, approximately $57.9 million ($35.1 million, net of tax) is included in AOCI.

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

De-designated interest rate swap contracts —

Settlement payments and periodic changes in market values of our de-designated interest rate swap contracts are recorded as a gain or loss on derivative contracts included in interest expense and other in our statement of operations. We recorded $(15.5) million and $1.3 million, of net gain or (loss) related to changes in market values and $14.6 million and $29.0 million of settlement costs during the three and six months ended June 30, 2002, respectively. When interest rate swap hedging relationships are de-designated or terminated, any accumulated gains or losses in AOCI at the time of de-designation are isolated and amortized over the remaining original contract term. For contracts de-designated, the total amount of loss in AOCI at December 31, 2001 was approximately $65 million ($40 million, net of tax), and $47.5 million ($28.7 million, net of tax) remains in AOCI at June 30, 2002. For the three and six months ended June 30, 2002, we recorded $8.9 million and $17.7 million, respectively, of amortization expense related to the accumulated losses in AOCI for interest rate swap contracts that were de-designated at December 31, 2001. The amortization expense is recorded in interest expense. There were no de-designated interest rate swap contracts prior to December 31, 2001.

7. Comprehensive Income (Loss)

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


		June 30,			December 31,
		2002			2001

		(unaudited)
Interest rate swap contracts designated, unrealized loss, net		$	(35,053	)	$	(45,668	)




Interest rate swap contracts de-designated, unrealized loss, net			(28,744	)		(39,452	)

	Accumulated other comprehensive loss	$	(63,797	)	$	(85,120	)

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


			Six Months Ended June 30,					Three Months Ended June 30,

			2002		2001			2002			2001

Net income			$	104,325	$	34,707		$	53,207		$	53,158




Other comprehensive income (loss):




	Designated interest rate swap contracts unrealized gain




		(loss), net of tax effect of $3,500, $(56,340), $(3,728) and $(5,554)		5,362		(86,293	)		(5,710	)		(8,506	)




	Reclassification to earnings for interest rate swap contracts			50,383		18,533			25,869			12,413

	Total comprehensive income (loss)		$	160,070	$	(33,053	)	$	73,366		$	57,065

ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

8. Net Income Per Common Share

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


		Six Months Ended June 30,				Three Months Ended June 30,

		2002		2001		2002		2001

Basic earnings per share computation:




Income before extraordinary loss		$	104,325	$	44,160	$	53,207	$	53,158




Less: dividends on preferred stock			37,992		35,620		19,252		18,050

Income available to common shareholders before




	extraordinary loss	$	66,333	$	8,540	$	33,955	$	35,108

Weighted average common shares outstanding			189,995		189,350		190,243		189,495

Basic earnings per share before extraordinary loss		$	0.35	$	0.05	$	0.18	$	0.19

Diluted earnings per share computation:




Income before extraordinary loss		$	104,325	$	44,160	$	53,207	$	53,158




Less: dividends on preferred stock			37,992		35,620		19,252		18,050

Income available to common shareholders before




	extraordinary loss	$	66,333	$	8,540	$	33,955	$	35,108

Weighted average common shares outstanding			189,995		189,350		190,243		189,495




Dilutive effect of stock, stock options, warrants and




	contingently issuable shares		3,851		5,927		3,671		6,175

Weighted average common and common equivalent




	shares outstanding		193,846		195,277		193,914		195,670

Diluted earnings per share before extraordinary loss		$	0.34	$	0.04	$	0.18	$	0.18

Conversion has not been assumed for the Preferred Stock into 66,005, 61,883, 67,057 and 62,870 common shares and stock options of 10,762, 2,738, 11,084 and 2,902 for the six months and three months ended June 30, 2002 and 2001, respectively, as the effects would not be dilutive.

ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

9. Commitments and Contingencies

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

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

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


	December 31, 2001

2002	$	29,390




2003		27,531




2004		23,437




2005		19,479




2006		16,956




Thereafter		52,295

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

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

ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

We are also required to provide financial assurances to governmental agencies under applicable environmental regulations relating to our landfill operations and collection contracts. These financial assurance requirements are satisfied by our providing performance bonds, letters of credit, insurance policies or trust deposits to secure our obligations as they relate to landfill closure and post-closure costs and performance under certain collection, landfill and transfer station contracts. At June 30, 2002, we had outstanding approximately $1.6 billion in financial assurance instruments relating to our landfill operations, represented by $391.4 million of surety bonds, $1.0 billion of insurance policies, $48.9 million of trust deposits and $127.3 million of letters of credit. During 2002, we expect no material increase in financial assurance obligations relating to our landfill operations and collection contracts although the mix of financial assurance instruments may change in the future. In addition, we have issued approximately $462.6 million of letters of credit for other general business purposes. We also have approximately $581.0 million in operational performance bonds with various municipalities and approximately $69.1 million of financial guarantee bonds for self-insurance.

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

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

During the second quarter of 2002, we received notification from the IRS disallowing all of the capital loss referred to above. If such disallowance were ultimately fully sustained, we now estimate we could owe additional federal and state income tax of up to $310 million and accrued interest through June 30, 2002 of approximately $35 million. We also received a notification from the IRS assessing a penalty of between 20% and 40% of the additional income tax resulting from the disallowance.

We continue to believe our position is well supported and we will vigorously contest the disallowance. Because of several meritorious defenses, we believe the successful assertion of penalties is remote. It is likely and anticipated that the resolution of this matter will entail efforts including administrative appeals and litigation extending over several years. An unfavorable result could require future cash expenditures but should have minimal, if any, impact on our consolidated results of operations.

ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

10. Segment Reporting

Our revenues are derived from one industry segment, which includes the collection, transfer, recycling and disposal of non-hazardous solid waste. We evaluate performance based on several factors, of which the primary financial measure is EBITDA (earnings before interest, taxes, depreciation and amortization) before acquisition related and unusual costs. The accounting policies of the business segments are the same as those described in the Organization and Summary of Significant Accounting Policies (See Note 1).

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


	Six Months Ended June 30, 2002							Six Months Ended June 30, 2001

					EBITDA							EBITDA
	Revenues				before			Revenues				before
	from external		Intersegment		non-recurring			from external		Intersegment		non-recurring
	customers		revenues		charges			customers		revenues		charges

Eastern	$	767,615	$	178,192	$	219,072		$	814,102	$	193,693	$	255,221




Southern		667,906		133,957		232,708			688,204		118,982		280,971




Central		686,389		163,600		254,500			685,625		157,248		271,696




Western		581,936		107,915		201,326			563,472		109,945		216,985




Other⁽¹⁾		13,749		—		(55,473	)		15,300		—		(40,426	)

Total	$	2,717,595	$	583,664	$	852,133		$	2,766,703	$	579,868	$	984,447


	Three Months Ended June 30, 2002							Three Months Ended June 30, 2001

					EBITDA							EBITDA
	Revenues				before			Revenues				before
	from external		Intersegment		non-recurring			from external		Intersegment		non-recurring
	customers		revenues		charges			customers		revenues		charges

Eastern	$	400,245	$	93,963	$	115,434		$	415,515	$	102,226	$	131,578




Southern		336,466		69,690		117,064			347,453		60,537		142,850




Central		359,331		87,708		133,493			353,845		82,286		144,824




Western		298,899		57,849		104,143			288,810		54,673		111,505




Other⁽¹⁾		6,979		—		(22,142	)		7,242		—		(17,639	)

Total	$	1,401,920	$	309,210	$	447,992		$	1,412,865	$	299,722	$	513,118

⁽¹⁾

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

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


		Six Months Ended June 30,					Three Months Ended June 30,

		2002		2001			2002		2001

Income before taxes:




Total EBITDA before acquisition related and unusual costs for reportable segments		$	852,133	$	984,447		$	447,992	$	513,118




Depreciation and amortization for reportable segments			245,524		341,662			125,866		171,489




Acquisition related and unusual costs			—		12,747			—		7,249




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




Equity in earnings of unconsolidated affiliates			—		(14,072	)		—		(4,967	)




Interest expense and other			427,227		430,640			230,005		213,895

	Income before taxes	$	179,382	$	106,459		$	92,121	$	125,452

ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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


		Six Months Ended June 30,										Three Months Ended June 30,

				2002			2001					2002					2001

Collection		$	2,075,066		62.9	%	$	2,089,463		62.5	%	$	1,056,350		61.7	%	$	1,059,198		61.9	%




Disposal⁽¹⁾			1,027,473		31.1			1,033,249		30.9			546,326		31.9			548,733		32.0




Recycling			115,076		3.5			122,027		3.6			66,465		3.9			58,211		3.4




Other			83,644		2.5			101,832		3.0			41,989		2.5			46,445		2.7

			3,301,259		100.0	%		3,346,571		100.0	%		1,711,130		100.0	%		1,712,587		100.0	%

Intercompany			(583,664	)				(579,868	)				(309,210	)				(299,722	)

	Reported revenues	$	2,717,595				$	2,766,703				$	1,401,920				$	1,412,865

⁽¹⁾ Transfer revenues are included in disposal.

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

The 1998 Senior Notes, 1999 Notes and the 2001 Senior Notes issued by Allied NA (our wholly owned subsidiary) are guaranteed by us. All guarantees (including those of the guarantor subsidiaries) are full, unconditional and joint and several of Allied NA’s and BFI’s debt. All of the debt issuances discussed above have the same issuer, guarantor and non-guarantors. Presented below are Condensed Consolidating Balance Sheets as of June 30, 2002 and December 31, 2001, Condensed Consolidating Statements of Operations for the three and six months ended June 30, 2002 and 2001 and Condensed Consolidating Statements of Cash Flows for the six months ended June 30, 2002 and 2001 of Allied Waste Industries, Inc. (Parent), Allied NA (Issuer), the guarantor subsidiaries (Guarantors) and the subsidiaries which are not guarantors (Non-guarantors):

ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATING BALANCE SHEET
(in thousands, unaudited)


		June 30, 2002

		Parent		Issuer			Guarantors		Non-Guarantors			Eliminations			Consolidated

ASSETS




Current Assets —




Cash and cash equivalents		$	146	$	3,098		$	153,358	$	3,507		$	—		$	160,109




Accounts receivable, net			—		—			736,709		9,768			—			746,477




Prepaid and other current assets			—		—			18,133		90,271			—			108,404




Deferred income taxes, net			—		—			146,179		4,184			—			150,363

	Total current assets		146		3,098			1,054,379		107,730			—			1,165,353




Property and equipment, net			—		—			4,115,421		21,711			—			4,137,132




Goodwill, net			—		—			8,489,887		72,414			—			8,562,301




Investment in subsidiaries			3,192,129		4,580,122			—		—			(7,772,251	)		—




Other assets, net			—		150,430			202,255		25,436			—			378,121

	Total assets	$	3,192,275	$	4,733,650		$	13,861,942	$	227,291		$	(7,772,251	)	$	14,242,907

LIABILITIES AND STOCKHOLDERS’ EQUITY




Current Liabilities —




Current portion of long-term debt		$	—	$	—		$	211,152	$	—		$	—		$	211,152




Accounts payable			—		—			383,038		3,809			—			386,847




Accrued closure, post-closure and environmental costs			—		—			127,144		—			—			127,144




Accrued interest			—		158,871			29,749		—			—			188,620




Other accrued liabilities			45,223		—			185,046		126,212			—			356,481




Unearned revenue			—		—			239,936		2,109			—			242,045

	Total current liabilities		45,223		158,871			1,176,065		132,130			—			1,512,289




Long-term debt, less current portion			—		7,925,480			1,113,914		—			—			9,039,394




Deferred income taxes			—		—			504,471		31			—			504,502




Accrued closure, post-closure and environmental costs			—		—			871,906		2,649			—			874,555




Due to/(from) parent			1,183,280		(6,579,333	)		5,478,077		(82,024	)		—			—




Other long-term obligations			14,565		121,895			290,002		295			—			426,757




Commitments and contingencies




Series A Senior Convertible Preferred Stock			1,207,029		—			—		—			—			1,207,029




Stockholders’ Equity			742,178		3,106,737			4,427,507		174,210			(7,772,251	)		678,381

	Total liabilities and stockholders’ equity	$	3,192,275	$	4,733,650		$	13,861,942	$	227,291		$	(7,772,251	)	$	14,242,907

ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATING BALANCE SHEET
(in thousands)


			December 31, 2001

			Parent		Issuer			Guarantors		Non-Guarantors			Eliminations			Consolidated

ASSETS




Current Assets —




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




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




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




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

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




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




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




Investment in subsidiaries				2,709,187		4,372,354			182,324		—			(7,081,541	)		182,324




Other assets, net				—		165,320			182,229		50,971			—			398,520

	Total assets		$	2,709,336	$	4,546,525		$	13,722,554	$	450,219		$	(7,081,541	)	$	14,347,093

LIABILITIES AND STOCKHOLDERS’ EQUITY




Current Liabilities —




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




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




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




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




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




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

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




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




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




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




Due to/(from) parent				824,670		(6,414,670	)		5,643,467		(53,467	)		—			—




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




Commitments and contingencies




Series A Senior Convertible Preferred Stock				1,169,044		—			—		—			—			1,169,044




Stockholders’ Equity				670,899		2,681,883			3,970,134		344,404			(7,081,541	)		585,779





		Total liabilities and stockholders’ equity	$	2,709,336	$	4,546,525		$	13,722,554	$	450,219		$	(7,081,541	)	$	14,347,093

ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
(in thousands, unaudited)


		Six Months Ended June 30, 2002

		Parent			Issuer			Guarantors		Non-Guarantors		Eliminations			Consolidated

Revenues		$	—		$	—		$	2,598,988	$	118,607	$	—		$	2,717,595




Cost of operations excluding acquisition related and unusual costs			—			—			1,548,955		75,063		—			1,624,018












Selling, general and administrative expenses excluding acquisition related and unusual costs			4,738			250			232,629		3,827		—			241,444




Depreciation and amortization			—			—			232,938		12,586		—			245,524

Operating (loss) income			(4,738	)		(250	)		584,466		27,131		—			606,609




Equity in earnings of subsidiaries			(82,916	)		(299,191	)		—		—		382,107			—




Interest expense and other			905			374,495			51,385		442		—			427,227




Intercompany interest expense (income)			(39,380	)		(16,534	)		55,294		620		—			—




Management fees			(2,500	)		—			2,150		350		—			—





Income (loss) before income taxes			119,153			(59,020	)		475,637		25,719		(382,107	)		179,382




Income tax expense (benefit)			14,828			(141,493	)		189,405		11,202		—			73,942




Minority interest			—			—			1,115		—		—			1,115

	Net income (loss)		104,325			82,473			285,117		14,517		(382,107	)		104,325




Dividends on preferred stock			37,992			—			—		—		—			37,992

	Net income (loss)




	available to common




	shareholders	$	66,333		$	82,473		$	285,117	$	14,517	$	(382,107	)	$	66,333

ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
(in thousands, unaudited)


		Six Months Ended June 30, 2001

		Parent			Issuer			Guarantors			Non-Guarantors			Eliminations			Consolidated

Revenues		$	—		$	—		$	2,761,577		$	5,126		$	—			$	2,766,703




Cost of operations excluding acquisition related and unusual costs			—			—			1,579,564			1			—				1,579,565




Selling, general and administrative expenses excluding acquisition related and unusual costs			5,420						196,219			1,052			—				202,691




Depreciation and amortization			—			—			227,912			723			—				228,635




Goodwill amortization			—			—			113,027			—			—				113,027




Acquisition related and unusual costs			—			—			12,747			—			—				12,747




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

	Operating (loss) income		(5,420	)		—			525,097			3,350			—				523,027




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




Equity in earnings of subsidiaries			(13,143	)		(239,468	)		—			—			252,611				—




Interest expense and other			—			382,854			47,659			127			—				430,640




Intercompany interest expense (income)			(39,650	)		(19,162	)		58,785			27			—				—




Management fees			(2,500	)		—			2,500			—			—				—

	Income (loss) before income taxes		49,873			(124,224	)		430,225			3,196			(252,611	)			106,459




Income tax expense (benefit)			15,166			(143,659	)		182,200			5,873			—				59,580




Minority interest			—			(3,161	)		5,880			—			—				2,719

	Income (loss) before extraordinary losses		34,707			22,596			242,145			(2,677	)		(252,611	)			44,160




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

	Net income (loss)		34,707			13,143			242,145			(2,677	)		(252,611	)			34,707




Dividends on preferred stock			35,620			—			—			—			—				35,620

	Net income (loss) available to common shareholders	$	(913	)	$	13,143		$	242,145		$	(2,677	)	$	(252,611	)		$	(913	)

ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
(in thousands, unaudited)


		Three Months Ended June 30, 2002

		Parent			Issuer			Guarantors		Non-Guarantors		Eliminations			Consolidated

Revenues		$	—		$	—		$	1,348,238	$	53,682	$	—		$	1,401,920




Cost of operations excluding acquisition related and unusual costs			—			—			796,821		37,787		—			834,608




Selling, general and administrative expenses excluding acquisition related and unusual costs			275			125			117,125		1,795		—			119,320




Depreciation and amortization			—			—			121,234		4,632		—			125,866

	Operating (loss) income		(275	)		(125	)		313,058		9,468		—			322,126




Equity in earnings of subsidiaries			(41,210	)		(158,767	)		—		—		199,977			—




Interest expense and other			359			202,560			26,999		87		—			230,005




Intercompany interest expense (income)			(19,690	)		(8,267	)		27,666		291		—			—




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

Income (loss) before income taxes			61,516			(35,651	)		257,318		8,915		(199,977	)		92,121




Income tax expense (benefit)			8,309			(76,795	)		102,903		4,004		—			38,421




Minority interest			—			—			493		—		—			493

	Net income (loss)		53,207			41,144			153,922		4,911		(199,977	)		53,207




Dividends on preferred stock			19,252			—			—		—		—			19,252





	Net income (loss) available to common shareholders	$	33,955		$	41,144		$	153,922	$	4,911	$	(199,977	)	$	33,955

ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
(in thousands, unaudited)


		Three Months Ended June 30, 2001

		Parent			Issuer			Guarantors			Non-Guarantors			Eliminations			Consolidated

Revenues		$	—		$	—		$	1,408,218		$	4,647		$	—		$	1,412,865




	Cost of operations excluding acquisition related and unusual costs		—			—			799,500			1			—			799,501




Selling, general and administrative expenses excluding acquisition related and unusual costs			2,632			—			96,979			635			—			100,246




Depreciation and amortization			—			—			114,303			723			—			115,026




Goodwill amortization			—			—			56,463			—			—			56,463




Acquisition related and unusual costs			—			—			7,249			—			—			7,249

	Operating (loss) income		(2,632	)		—			333,724			3,288			—			334,380




Equity in earnings of unconsolidated affiliates			—			—			(4,967	)		—			—			(4,967	)




Equity in earnings of subsidiaries			(42,330	)		(149,044	)		—			—			191,374			—




Interest expense and other			—			191,169			22,599			127			—			213,895




Intercompany interest expense (income)			(19,825	)		(4,987	)		26,276			(1,464	)		—			—




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

	Income (loss) before income taxes		60,773			(37,138	)		288,566			4,625			(191,374	)		125,452




Income tax expense (benefit)			7,615			(73,542	)		136,748			501			—			71,322




Minority interest			—			(3,161	)		4,133			—			—			972

	Net income (loss)		53,158			39,565			147,685			4,124			(191,374	)		53,158




Dividends on preferred stock			18,050			—			—			—			—			18,050

	Net income (loss) available to common shareholders	$	35,108		$	39,565		$	147,685		$	4,124		$	(191,374	)	$	35,108

ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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


			Six Months Ended June 30, 2002

			Parent			Issuer			Guarantors			Non-Guarantors			Eliminations		Consolidated

Cash (used for) provided by operating activities			$	(2,570	)	$	(226,675	)	$	572,062		$	53,734		$	—	$	396,551




Investing activities —




	Cost of acquisitions, net of cash acquired			—			—			(13,815	)		—			—		(13,815	)




	Proceeds from divestitures, net of cash divested			—			—			79			—			—		79




	Capital expenditures, excluding acquisitions			—			—			(152,832	)		(196,846	)		—		(349,678	)




	Capitalized interest			—			—			(12,349	)		—			—		(12,349	)




	Proceeds from sale of fixed assets			—			—			14,165			1,368			—		15,533




	Other investing activities			—			—			(22,441	)		—			—		(22,441	)

Cash used for investing activities				—			—			(187,193	)		(195,478	)		—		(382,671	)

Financing activities —




	Net proceeds from sale of common stock and exercise of stock options and warrants			2,567			—			—			—			—		2,567




	Proceeds from long-term debt, net of issuance
		Costs		—			304,890			(1,886	)		192,700			—		495,704




	Repayments of long-term debt			—			(492,797	)		(6,123	)		(11,963	)		—		(510,883	)




	Intercompany and capital funding between issuer and subsidiary			—			408,829			(339,228	)		(69,601	)		—		—

Cash (used for) provided by financing activities				2,567			220,922			(347,237	)		111,136			—		(12,612	)

Increase (decrease) in cash and cash equivalents				(3	)		(5,753	)		37,632			(30,608	)		—		1,268




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

Cash and cash equivalents, end of period			$	146		$	3,098		$	153,358		$	3,507		$	—	$	160,109


		Six Months Ended June 30, 2001

		Parent			Issuer			Guarantors			Non-Guarantors			Eliminations		Consolidated

Cash (used for) provided by operating activities		$	(6,022	)	$	(351,400	)	$	723,702		$	6,459		$	—	$	372,739




Investing activities —
Cost of acquisitions, net of cash acquired			—			—			(109,785	)		—			—		(109,785	)




	Proceeds from divestitures, net of cash divested		—			—			359,598			—			—		359,598




	Capital expenditures, excluding acquisitions		—			—			(127,830	)		(139,516	)		—		(267,346	)




	Capitalized interest		—			—			(25,173	)		—			—		(25,173	)




	Proceeds from sale of fixed assets		—			—			14,505			—			—		14,505




	Other investing activities		—			—			(575	)		1,233			—		658

Cash (used for) provided by investing activities			—			—			110,740			(138,283	)		—		(27,543	)

Financing activities —
Net proceeds from sale of common stock and exercise of stock options and warrants			5,248			—			—			—			—		5,248




	Proceeds from long-term debt, net of issuance costs		—			1,304,500			(21,609	)		25,000			—		1,307,891




	Repayments of long-term debt		—			(1,636,000	)		(7,922	)		—			—		(1,643,922	)




	Intercompany between issuer and subsidiaries		—			684,275			(847,749	)		163,474			—		—

Cash (used for) provided by financing activities			5,248			352,775			(877,280	)		188,474			—		(330,783	)

Increase (decrease) in cash and cash equivalents			(774	)		1,375			(42,838	)		56,650			—		14,413




Cash and cash equivalents, beginning of period			959			2,669			118,030			436			—		122,094

Cash and cash equivalents, end of period		$	185		$	4,044		$	75,192		$	57,086		$	—	$	136,507

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

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

Introduction

Allied Waste Industries Inc. (“Allied” or “we”), a Delaware corporation, is the second largest non-hazardous solid waste management company in the United States. We operate as a vertically integrated company providing collection, transfer, disposal and recycling services for approximately 10 million residential, commercial and industrial customers. We serve customers through a network of 342 collection companies, 169 transfer stations, 167 active landfills, and 65 recycling facilities within 39 states.

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

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

General

Our business strategy is to develop vertically integrated operations to internalize the waste we collect and thus realize higher margins from our operations. By disposing of waste at company-owned and/or operated landfills, we retain the margin generated through disposal operations that would otherwise be earned by third-party landfills. Approximately 66% of the waste we collect as measured by disposal volumes was disposed of at landfills we own and/or operate in the second quarter of 2002, which is comparable to the quarter ended June 30, 2001. In addition, transfer stations are an integral part of the disposal process. We locate our transfer stations in areas where our landfills are outside of the population centers in which we collect waste. Such waste is transferred to long-haul trailers or rail cars and transported to our landfills.

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

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


	Six Months Ended June 30,

	2002					2001

Collection	$	2,075,066		62.9	%	$	2,089,463		62.5	%




Disposal⁽¹⁾		1,027,473		31.1			1,033,249		30.9




Recycling		115,076		3.5			122,027		3.6




Other		83,644		2.5			101,832		3.0

		3,301,259		100.0	%		3,346,571		100.0	%

Intercompany		(583,664	)				(579,868	)

Reported revenues	$	2,717,595				$	2,766,703

⁽¹⁾ Transfer revenues are included in disposal.

Revenues by Area:


		Six Months Ended June 30,

		2002			2001

Eastern			28.2	%		29.4	%




Southern			24.6			24.9




Central			25.3			24.8




Western			21.4			20.4




Other⁽¹⁾			0.5			0.5

	Total revenues		100.0	%		100.0	%

⁽¹⁾ Amounts relate primarily to our subsidiaries which provide services throughout the organization.

Operating Expenses. Cost of operations includes expenses related to labor, repairs and maintenance, equipment and facility rent, utilities and taxes, environmental compliance and remediation, safety and insurance, disposal and costs of independent haulers transporting our waste to the disposal site. Disposal costs include host community fees, landfill royalty payments, landfill site maintenance, fuel and other equipment operating expenses and increases in the accruals for estimated closure and post-closure monitoring expenses.

Selling, general and administrative expenses include compensation and overhead for corporate and field general management, accounting and finance, legal, management information systems and clerical and administrative departments in addition to sales, investor and community relations and provisions for estimated uncollectible accounts receivable.

Critical Accounting Judgments and Estimates

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

Deferred Contract Costs —

Nature of Asset: We incur costs associated with business development projects and long-term revenue producing contracts. Certain costs incremental and directly related to these activities, such as legal, engineering, and third party consultant fees, are deferred and recognized as operating expense over the period of benefit. At June 30, 2002, we have invested approximately $24 million on development projects such as waste transfer sites and disposal contracts in anticipation of receiving long-term revenue producing contracts.

Evaluation of Realizability: If circumstances occur where we believe a project would not be consummated, the costs would be immediately expensed. At this time we believe that the on-going projects are viable and we are actively working towards finalization. However, resolving the details of the projects is dependent upon contractual, legislative, regulatory, and financing elements.

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

Goodwill Impairment Evaluation —

Valuation Methodology: We evaluate goodwill for impairment based on fair value of each reporting unit.

Evaluation Criteria: SFAS 142 requires an annual assessment of goodwill impairment to be completed by applying a fair value based test to each of our reporting units, which we have defined as our four reporting segments. In addition, we test goodwill for recoverability between annual evaluations whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable. There have been no events during 2002 that would trigger such an evaluation. Examples of such events could include a significant adverse change in legal factors, liquidity or in the business climate, an adverse action or assessment by a regulator, unanticipated competition, loss of key personnel, or new circumstances that would cause an expectation that it is more likely than not that we would sell or otherwise dispose of a reporting segment or a significant portion of a reporting segment.

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

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

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

Results of Operations

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


		Six Months Ended June 30,						Three Months Ended June 30,

		2002			2001			2002			2001

Statement of Operations Data:




Revenues			100.0	%		100.0	%		100.0	%		100.0	%




Cost of operations excluding acquisition related and unusual costs			59.8			57.1			59.5			56.6




Selling, general and administrative expenses excluding acquisition related and unusual costs			8.9			7.3			8.5			7.1




Depreciation and amortization			9.0			8.3			9.0			8.1




Goodwill amortization			—			4.1			—			4.0




Acquisition related and unusual costs			—			0.4			—			0.5




Non-cash loss on asset sale			—			3.9			—			—

	Operating income		22.3			18.9			23.0			23.7




Equity in earnings of unconsolidated affiliates			—			(0.5	)		—			(0.3	)




Interest expense and other			15.7			15.6			16.4			15.1

	Income before income taxes		6.6			3.8			6.6			8.9




Income tax expense			2.8			2.1			2.8			5.0




Minority interest			—			0.1			—			0.1

	Income before extraordinary loss, net of income tax benefit		3.8			1.6			3.8			3.8




Extraordinary loss, net of income tax benefit			—			0.3			—			—





	Net income		3.8			1.3			3.8			3.8




Dividends on preferred stock			1.4			1.3			1.4			1.3

	Net income available to common shareholders		2.4	%		—	%		2.4	%		2.5	%

Three and Six Months Ended June 30, 2002 and 2001

Results of operations for the quarter ended June 30, 2002 as compared to June 30, 2001 reflect a decline in revenues and earnings primarily attributable to pricing pressures driven by the continued economic slowdown. Economic pressures are preventing us from fully recovering increases in costs caused by normal inflation and the expanded field infrastructure.

Revenues. For the three months ended June 30, 2002 revenues were $1.402 billion compared to the same period in the prior year of $1.413 billion, a decrease of 0.8%. Decreases in per unit pricing of approximately 2.3% were partially offset by volume increases of 0.4%, increases in commodity revenue of 0.6% and a 0.5% increase attributable to net revenues from acquisitions. Commodity revenue increases are attributable to the rebound in average prices for old corrugated cardboard and other recyclables. Commodity volumes for second quarter 2002 were down by 2.4% compared to the same period in 2001.

For the six months ended June 30, 2002, revenues were $2.718 billion compared to $2.767 billion for the same period in 2001, a decrease of approximately 1.8%. The decrease in revenues reflects the effect of the weakening economy which slowed dramatically after the second quarter of 2001, resulting in year over year negative pricing of approximately 1.5% and slight volume decreases. Residential revenue increased reflecting inflation factor price increases in our long-term contracts, while roll-off and commercial revenues decreased due to these lines of business being more sensitive to economic slowdown.

Cost of Operations. For the three and six months ended June 30, 2002, cost of operations was $834.6 million and $1.62 billion compared to $799.5 million and $1.58 billion for the same periods last year, reflecting increases of 4.4% and 2.8%, respectively. For the three and six-month period, cost of sales as a percent of revenues increased by 2.9% and 2.7%, respectively. The increase is primarily attributable to inflationary increases in costs and increases in insurance costs in excess of inflation increases. Economic pricing pressures have prevented us from recovering these costs through increased unit prices to our customers.

Selling, General and Administrative Expenses. For the three and six months ended June 30, 2002, selling, general and administrative expenses was $119.3 million and $241.4 million compared to $100.2 million and $202.7 million for the same periods in 2001, an increase of 19.0% and 19.1%, respectively. Second quarter 2002 selling, general and administrative expenses were 8.5% of revenues compared to 7.1% for second quarter 2001. The increase is primarily due to costs associated with the field expansion, compensation increases and an increase in the allowance for doubtful accounts.

Depreciation and Amortization. Depreciation and amortization was $245.5 million for the six months ended June 30, 2002, compared to $228.6 million for the same period in 2001, an increase of 7.4%. For the three months ended June 30, 2002, depreciation and amortization was $125.9 million compared to $115.0 million in 2001, an increase of 9.4%. As a percentage of revenues, depreciation and amortization expense increased to 9.0% from 8.1% and to 9.0% from 8.3% for the three and six months ended June 30, 2002, respectively, compared to 2001. The increase in depreciation and amortization is primarily due to the increased capital expenditures year over year.

Goodwill Amortization. Effective January 1, 2002, we discontinued the amortization of our goodwill upon the adoption of SFAS 142. For the three months and six months ended June 30, 2001, goodwill amortization was $113.0 million and $56.5 million, respectively.

Acquisition Related and Unusual Costs. We no longer segregate acquisition related cost from our costs of ongoing operations on the face of the statement of operations, since we have substantially completed transition activities with respect to the BFI acquisition effective January 1, 2002.

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

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

Interest expense and other. Interest expense and other was $230.0 million and $213.9 million for the three months ended June 30, 2002 and 2001, respectively. Interest expense and other was $427.2 million and $430.6 million for the six months ended June 30, 2002 and 2001, respectively. Excluding the non-cash effect of accounting for de-designated interest rate swap contracts, the comparable interest expense for the three and six months ended June 30, 2002 was $205.7 and $410.8 million representing a decrease of 3.8% and 4.6%, respectively. The decrease is attributable primarily to the repayment of debt from our continued de-leveraging strategy.

Included in interest expense and other, during the three and six months ended June 30, 2002 is $8.9 million and $17.7 million, respectively, of amortization of amounts in accumulated other comprehensive income in stockholders’ equity and a loss of $15.5 million, and a gain of $1.3 million, respectively, related to the change in market value of the interest rate swap contracts that were de-designated December 31, 2001. Before de-designation, the changes in market value were recorded as a component of equity in accumulated other comprehensive income.

Income Taxes. Income taxes reflect an effective tax rate of 42% for the three and six months ended June 30, 2002 and 57% for the three and six months ended June 30, 2001. The effective tax rate has decreased due to the cessation of goodwill amortization, most of which was non-deductible for income tax purposes.

Extraordinary Loss, net. In January 2001, we repaid $589.5 million of the tranche A, B and C term loan facility prior to its maturity date, with net proceeds from the issuance of $600 million senior notes. In connection with this repayment, we recognized an extraordinary charge for the early extinguishment of the debt of approximately $15.6 million ($9.5 million, net of income tax benefit) related to the write-off of deferred debt issuance costs.

Dividends on Preferred Stock. Dividends on preferred stock were $19.3 million and $38.0 million for the three and six months ended June 30, 2002 compared to $18.1 million and $35.6 million for the same periods in 2001. The dividends on preferred stock reflect the 6.5% dividend on the liquidation preference of the preferred stock issued on July 30, 1999 in connection with the financing of the acquisition of BFI. Dividends were not paid in cash, instead, the liquidation preference of the preferred stock increased by accrued, but unpaid dividends.

Liquidity and Capital Resources

Our operational liquidity needs are met with operating cash flow. When non-operating liquidity needs arise, they are met, if not from remaining operating cash flow, with borrowings under our revolving credit facility. Cash provided by operations for the six months ended June 30, 2002 of $396.6 million, is after $46.9 million spent on non-recurring acquisition accruals. During the six months ended June 30, 2002, cash from operations of $396.6 million and proceeds from the sale of fixed assets of $15.5 million was used to fund $349.7 million of capital expenditures, $13.7 million of net market development activity, reduce debt by $9.1 million and fund $39.6 million of other non-operating net cash outflows. At June 30, 2002, the current portion of our outstanding debt was $211.2 million, of which $27.0 million is scheduled to be repaid during the remainder of 2002.

During the six months ended June 30, 2001, cash provided by operations was $372.7 million, capital expenditures were $267.3 million, other non-operating cash outflows were $32.5 million, the cash balance increased by $14.4 million, we generated cash from net market development activities of $249.8 million and debt was reduced by $308.3 million.

We have historically operated and we expect that we will continue to operate with a working capital deficit. We regularly use excess available cash from operating and non-operating activities to pay amounts owed on our revolving line of credit, which is classified as long-term debt. Additionally, this deficit is in part caused by the current portion of non-recurring acquisition accruals.

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


Revolver Availability:




	Capacity Commitment	$	1,291.0




	Less: Borrowings		—




	Less: Letters of Credit outstanding		590.0

	Total Availability	$	701.0

Credit Facility Financial Covenants:




	Debt / EBITDA⁽¹⁾		5.16x




	Covenant Maximum		5.75x




	EBITDA in excess of covenant requirement	$	157.0





	EBITDA / Total Interest		2.17x




	Covenant Minimum		2.00x




	EBITDA in excess of covenant requirement	$	131.1

⁽¹⁾ EBITDA is defined as earnings before interest, taxes, depreciation and amortization. EBITDA is not a measure of operating income, operating performance on liquidity under GAAP and may not be comparable to similarly titled measured reported by other companies.

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


Debt	2002		2003		2004		2005		2006		2007		Thereafter		Total

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




Tranche A term loan		—		111.7		450.0		525.0		—		—		—		1,086.7




Tranche B term loan		—		—		—		—		810.9		—		—		810.9




Tranche C term loan		—		—		—		—		—		973.1		—		973.1




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




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




7.875% BFI Senior notes		—		—		—		69.5		—		—		—		69.5




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




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




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




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




7.875% Senior notes due 2009		—		—		—		—		—		—		875.0		875.0




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




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




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




Other Debt		27.0		45.5		43.4		53.8		114.5		—		299.5		583.7

Total principal due	$	27.0	$	313.9	$	718.4	$	648.3	$	1,525.4	$	973.1	$	5,145.2	$	9,351.3




Discount, net																(100.8	)

Total debt balance															$	9,250.5

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

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

We have included a discussion of our obligations and commitments, our finance plan and the effects of the finance plan on our interest rate swap portfolio accounting in our December 31, 2001 Form 10-K under Item 7 as updated in our Form 8-K dated July 31, 2002. There have not been significant changes in our business that would require an update to those disclosures during the six months ended June 30, 2002.

Recently Issued Accounting Pronouncements

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

Disclosure Regarding Forward Looking Statements

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

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

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

Item 3. Quantitative and Qualitative Disclosures About Market Risk

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

PART II
OTHER INFORMATION

Item 1. Legal Proceedings

No changes to previously reported information.

Item 2. Changes in Securities and Use of Proceeds

None.

Item 3. Defaults upon Senior Securities

None.

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

(a) The annual meeting of stockholders of Allied Waste Industries, Inc. was held May 29, 2002.

(b) Non applicable-(i) proxies for the meeting were solicited pursuant to Regulation 14 under the Securities Exchange Act of 1934; (ii) there was no solicitation in opposition to management’s nominees as listed in the proxy statement; and (iii) all such nominees were elected.

(c) Matters voted upon at the annual meeting for which proxies were solicited pursuant to Regional 14 under the Securities Exchange Act of 1934 —

(1) Election of directors as follows:


	Number of Votes for		Number of Votes Withheld

Thomas H. Van Weelden		235,533,335		2,570,713




Robert Agate		235,844,726		2,259,322




Leon D. Black		64,916,059*		—




Michael Gross		64,916,059*		—




Dennis Hendrix		235,845,026		2,259,022




J. Tomilson Hill		64,916,059*		—




Nolan Lehmann		235,845,026		2,259,022




Howard A. Lipson		64,916,059*		—




Roger A. Ramsey		235,533,335		2,570,713




Antony P. Ressler		64,916,059*		—




Warren B. Rudman		235,844,926		2,259,122

* Voted by Preferred Stockholders only

(2) The approval of the Sixth Amendment to the 1994 Amended and Restated Non-Employee Director Stock Option Plan:


Affirmative Vote			229,814,923




Against			5,970,033




Abstentions			2,319,092

Item 5. Other Information

None.

Item 6. Exhibits and Reports on Form 8-K

(a) Exhibits —


10.1 *		Amendment to the Credit Facility dated as of April 23, 2002









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









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

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


April 11, 2002		Our current report on Form 8-K to review the selection of the Company’s independent public accountants.




April 30, 2002		Our current report on Form 8-K reports the financial results for the first quarter of 2002.




June 20, 2002		Our current report on Form 8-K to appoint PricewaterhouseCoopers LLP as our new independent auditors.

* Filed herewith

Signatures

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


		ALLIED WASTE INDUSTRIES, INC.









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









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

Date: August 14, 2002

EXHIBIT INDEX


10.1 *		Amendment to the Credit Facility dated as of April 23, 2002









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









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

* Filed herewith

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

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

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

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

	5.		Senior operations management approval has been obtained.


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

	At June 30, 2002, we have approximately $701 million available on the $1.291 billion Revolving Credit Facility. The Revolving Credit Facility is also used to support the issuance of letters of credit. At June 30, 2002 we had approximately $590 million of letters of credit outstanding.

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

	In August 2002, we repaid the 2001 subsidiaries line of credit prior to its maturity. In connection with the repayment, we recorded an expense of approximately $7.7 million ($4.6 million, net of tax) for the write-off of deferred issuance costs and $3.2 million ($1.9 million, net of tax) for a prepayment penalty. The 2001 subsidiaries line of credit was repaid with cash from operations and the Revolving Credit Facility.

	Our ability to pay dividends on preferred and common stock is most significantly limited by the 1999 Credit Facility, which specifies that in order to pay cash dividends, the ratio of Total Debt/EBITDA⁽¹⁾, as defined, must be less than 4:1. At June 30, 2002, that ratio was 5.16:1, prohibiting the payment of dividends.

(a)		The annual meeting of stockholders of Allied Waste Industries, Inc. was held May 29, 2002.

(b)		Non applicable-(i) proxies for the meeting were solicited pursuant to Regulation 14 under the Securities Exchange Act of 1934; (ii) there was no solicitation in opposition to management’s nominees as listed in the proxy statement; and (iii) all such nominees were elected.

(c)		Matters voted upon at the annual meeting for which proxies were solicited pursuant to Regional 14 under the Securities Exchange Act of 1934 —

(1)		Election of directors as follows: