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SECURITIES AND EXCHANGE COMMISSION

FORM 10-K

(Mark One)

For the fiscal year ended December 31, 2002

OR

For the transition period from ____ to ____

Commission File Number 0-19285

ALLIED WASTE INDUSTRIES, INC.

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

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

Securities registered pursuant to Section 12(g) of the Act:
None
(Title of Class)

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

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

     Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).
Yes x No o

     The aggregate market value of the registrant’s voting stock held by nonaffiliates of the registrant was $1,893,141,926 as of June 28, 2002.

     The number of shares of the registrant’s common stock, $.01 par value, outstanding at March 25, 2003 was 196,824,278.

     The registrant’s proxy statement is to be filed in connection with the registrant’s 2003 annual meeting of stockholders, portions of which are incorporated by reference into Part III of this report.

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TABLE OF CONTENTS

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     Unless the context requires otherwise, reference in this Form 10-K to “Allied,” “we,” “us” and “our”, refer to Allied Waste Industries, Inc. and its consolidated subsidiaries.

PART I

Item 1. Business

Overview

We are the second largest, non-hazardous solid waste management company in the United States. The non-hazardous solid waste industry in the United States generates approximately $40 billion of annual revenue from publicly traded companies, municipalities and privately held companies. Publicly traded companies generate approximately 47% of the revenues, while municipalities and private companies generate approximately 30% and 23% of revenues, respectively. Presently, the three largest publicly traded companies in the waste management industry in the United States generate over 90% of the public company revenues.

We provide collection, transfer, recycling and disposal services for approximately 10 million residential, commercial and industrial customers. We operate as a vertically integrated company which entails picking up waste from businesses and residences and disposing of that waste in our own landfills to the extent that it is economically feasible (referred to as internalization). This allows us greater stability in and control over the waste flow into our landfills and, therefore, greater control over the cash flow stability in our business. We serve our customers through a network of 340 collection companies, 175 transfer stations, 169 active landfills and 66 recycling facilities in 118 major markets within 39 states.

We reported revenues of approximately $5.5 billion and approximately $5.6 billion for the years ended December 31, 2002 and 2001, respectively. During the years ended December 31, 2002 and 2001, we generated operating cash flows of approximately $1,032.7 million and $905.2 million, and reinvested $542.3 million and $500.9 million of capital into the business, respectively. During 2002, we reduced our debt balance by $377.5 million to $8.88 billion and our debt to total capitalization was 82.1% and 84.1% at December 31, 2002 and 2001, respectively. Our current business objectives are to focus on internal growth and maximize cash flow to repay debt.

Our management philosophy utilizes a decentralized operating model, with centralized management oversight and centralized control of functions and activities related to risk, regulations and compliance. Because the waste collection and disposal business is a very local business, operations and opportunities differ in each of our markets. By utilizing a decentralized operating model, the day-to-day operating decisions are made locally, close to the customer. We believe that this model allows us to maximize the growth and development opportunities in each market in which we operate and has largely contributed to our ability to operate the business efficiently, while maintaining effective controls over our operations and administrative matters, including financial reporting and risk management.

We were incorporated in Delaware in 1987. Since then we have acquired companies within the waste industry that either provide additional infrastructure, such as landfills and transfer stations in existing markets, or tuck into our existing collection companies and enhance our internalization and profitability in a market. Since 2001, we have funded the acquisition of companies through the proceeds from divestitures of our own non-integrated assets. In 2002, we divested companies with $69.3 million of annualized revenue for net proceeds of $84.3 million and acquired companies with $28.3 million of annualized revenue for a purchase price of $55.4 million.

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

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Business Strategy

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

Vertical Integration and Internalization. Our vertical integration business strategy has been and continues to be the key element of our operating philosophy. The fundamental objective of the vertical integration business model is to control the waste stream from the point of collection through disposal, thereby achieving a high rate of waste internalization (or the percentage of collected waste that we manage through to disposal). We have built through market-specific acquisitions vertically integrated operations typically consisting of collection companies, transfer stations, recycling facilities and landfills. We target strategic acquisitions in specific markets to maximize our vertical integration strategy. Within our markets, we seek to strengthen our competitive position and improve our financial returns by acquiring and selling operating assets. We believe that we can realize competitive advantages by continuously implementing this strategy across existing and selected new markets in the United States. Our internalization rate, as measured by collection volumes, was approximately 67% at the end of 2002 and 2001.

Focus on Customer Service Excellence. Decentralized operations and local management characterize our operations-oriented business strategy. Historically, we have successfully focused our management development activities on recruiting and retaining operating managers with extensive industry and local market experiences. Our senior operating management average over 25 years of industry experience. By continuing to hire and retain experienced, local market-oriented managers, we believe that we are well positioned to react to customer needs and changes in our markets and are able to capitalize on growth opportunities. The focus on customer services is supported by investing in and maintaining a quality asset base and providing training programs that maximize our operational excellence.

Internal Development and Incremental Acquisitions. Our focus is on achieving a sustainable rate of long-term growth and efficiently operating the assets we have accumulated since the early 1990’s. We intend to increase revenues by increasing volumes collected and disposed of and by increasing the rates we charge for the services we provide. We intend to supplement this internal growth with acquisitions of operating assets in existing markets, such as landfills and transfer stations, and tuck-in acquisitions of privately owned solid waste operations, funded by the sale of operations that are not consistent with our business model. We also intend to examine opportunities when government entities privatize the operation of all or part of their solid waste systems. In addition, we seek to achieve broad domestic geographic diversification in our operations through market development initiatives.

Maintaining Financial Capacity and Infrastructure for Future Growth. We seek to implement our business strategy by maintaining sufficient financial capacity and effective administrative systems and controls. Our operating cash flows have historically been sufficient to fund our debt service, working capital and capital expenditure requirements, and we maintain revolving line of credit capacity which has been sufficient to handle seasonal and other peak spending requirements. Cash flows in excess of current year debt maturities have been applied to future maturities.

Our system of internal controls is implemented through clear policies and procedures and appropriate delegation of authority and segregation of responsibility. Our company policies establish a philosophy of conducting operations in a responsible and ethical manner. Our system of internal controls are reviewed, modified and improved as changes occur in business conditions and our operations.

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Operations

Our revenue mix (including intercompany revenues) for 2002 was approximately $4.2 billion (62.2%) collection, $2.1 billion (31.6%) disposal (including transfer), $243.1 million (3.6%) recycling and $173.9 million (2.6%) other. No one customer has individually accounted for more than 1% of our consolidated revenue in any of the last three years.

Collection. Collection operations involve collecting and transporting non-hazardous waste from the point of generation to the transfer station or the site of disposal. Fees relating to collection services are based on general competitive and prevailing local economic conditions and other considerations such as collection frequency, type of equipment furnished (if any), the type and volume or weight of the waste collected, the distance traveled to the transfer station or disposal facility and the cost of disposal. Depending on the customer being served, we generally provide solid waste collection under the following two service lines:

	•		Commercial. We provide containerized non-hazardous solid waste disposal services to a wide variety of commercial and industrial customers. Commercial revenue represents approximately 72% of our collection revenue. We provide customers with containers that are designed to be lifted mechanically and either emptied into a collection vehicle’s compaction hopper or, in the case of roll-off containers, to be loaded onto the collection vehicle. Our commercial containers generally range in size from one to eight cubic yards and our roll-off containers generally range in size from 20 to 40 cubic yards. Contracts for roll-off containers may provide for temporary (such as the removal of waste from a construction site) or ongoing services. Commercial contract terms generally range from 1 to 3 years and commonly have renewal options.
	•		Residential. We perform residential collection services under individual monthly subscriptions directly to households or under exclusive contracts with municipal governments that allow us to service all or a portion of the homes in the municipalities at established rates. Municipal contracts generally have a term of 3 to 5 years and commonly have renewal options. We seek to obtain municipal contracts that enhance the efficiency and profitability of our operations as a result of the density of collection customers within a given area. Residential revenue represents approximately 28% of our collection revenue, approximately 40% of which is subscription revenue and approximately 60% of which is municipal revenue. Prior to the end of the term of most municipal contracts, we will attempt to renegotiate the contract, and if unable to do so, will generally re-bid the contract on a sealed bid basis. We also make residential collection service arrangements directly with households. We seek to enter into residential service arrangements where the route density is high, thereby creating additional economic benefit. Residential collection fees are either paid by the municipalities out of tax revenues or service charges, or are paid directly by the residents who receive the service.

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

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

Recycling. We are primarily engaged in two types of recycling activities:

	•		Collection. Collection services include curbside collection of recyclable materials for residential customers and commercial and industrial collection of recyclable materials. We generally charge recycling fees based on the service sought by the customer. The customer pays for the cost of removing, sorting and transferring recyclable materials downstream in the recycling process. Revenues from recycling collection services are reported in the collection line of business.
	•		Commodity Sales. We receive mixed waste materials at a materials recovery facility, which is often integrated into, or contiguous to, a transfer or collection operation. At the facility, we sort, separate, accumulate, bind or place in a container and ready for transport materials such as paper, cardboard, plastic, aluminum and other metals. We also engage in organic materials recycling and/or disposal. Cardboard and various grades of paper represented approximately 80% of our processed recyclable product in 2002. The purchaser of the recyclables generally pays for the sorted materials based on fluctuating spot-market prices. We seek to mitigate exposure to fluctuating commodity prices by entering into contractual agreements that set a minimum sales price on the recyclables and when possible passing through profit or loss from the sale of recyclables to customers.

Organization, Marketing and Sales

Our management philosophy utilizes decentralized operating management, with centralized compliance, regulatory and financial controls. We believe that this model allows us to maximize the growth and development opportunities in each of our markets and has largely contributed to our ability to operate the business efficiently, while maintaining effective controls over our operations and administrative matters, including financial reporting. Since the waste collection and disposal business is a very local business, operations and opportunities differ in each of our markets. By utilizing decentralized operating management, the day-to-day operating decisions are made at the local level, which is closest to the customer.

We implement this philosophy through a corporate, area, region and district infrastructure. In 2002, we expanded our operations into four geographic areas: Eastern, Southern, Central and Western. The areas are further divided into a total of 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 business units with individual 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 organizational structure provides our field operators the ability and flexibility to manage profitability within their respective geographic area, while providing guidance and resources to the local management.

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Corporate and area management, establish long-term business plans, outline business and financial goals, implement policies and procedures and evaluate effectiveness to provide for uniform controls throughout the organization. Regional management develops tactical plans and implements and monitors compliance with policies and procedures to achieve the business goals and objectives. District management is responsible for operational execution in accordance with business plans and compliance with policies and procedures.

The area level of the organization is responsible for, among other things, short and long-term market planning and development, goal setting, oversight of the execution of corporate-wide initiatives and communication of results and trends within their respective geographic operating segment. The area staff consists primarily of an area vice president, an area controller, a project development manager responsible for future landfill and transfer station development, and a market development representative responsible for acquisitions. Each area has three regions under its management.

The regions are responsible for, among other things, implementation and compliance of corporate-wide policies and initiatives, business unit reviews and analysis, personnel development and training and for providing functional expertise. All region managers and most district managers have responsibility for all phases of the vertical integration model including collection, transfer, recycling and disposal. The regions consist primarily of a regional vice president, regional controller, assistant regional vice president, assistant regional controller, sales manager, regional engineer, safety manager, human resource manager, materials marketing manager and accounting and information systems support staff. Region offices are typically located in a district’s facility in order to reduce overhead costs and to promote a close working relationship between the region management and district personnel. Each region has approximately 5 districts under its management.

The districts consist of a group of specific business units with individual site operations, known as divisions, usually operating as a vertically integrated operation within a common marketplace. A division is generally comprised of a single operating unit, such as a collection facility, transfer station or a landfill. Districts range in size from approximately $25 million to $250 million in revenue.

The districts are responsible for the execution of the business plans, coordinating divisions within markets, pricing and market guidance, landfill site construction, maximizing company assets and state and local government affairs. The districts consist primarily of a district manager, district controller, assistant district controller, district safety manager and environmental manager.

Our policy is to periodically visit each commercial account to ensure customer satisfaction and to sell additional services. In addition to calling on existing customers, each salesperson calls upon potential customers within a defined area in each market.

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

In addition to base salary, we compensate area, region and district management through a bonus program and stock incentive plans. Compensation pursuant to the bonus and stock incentive plans is largely contingent upon meeting or exceeding various earnings and cash flow goals in the manager’s geographic area of responsibility, as well as the achievement of overall company goals.

We believe in financial responsibility and reporting at the operating level and as a result, consolidate over 300 financial statements, inclusive of balance sheets, which extend to areas, regions, districts and divisions.

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Employees

At December 31, 2002, we employed approximately 29,000 employees of whom approximately 28,000 were full-time employees. Approximately 5,000 of the full-time employees were employed in clerical, administrative, and sales positions; approximately 3,000 in management; and the remaining in collection, disposal, transfer station and other operations. Approximately 7,000 of our employees are covered by collective bargaining agreements. We currently have no disputes or bargaining circumstances that could cause significant disruptions in our business. Compensation information for our executive management and directors is incorporated by reference in our Proxy Statement for the 2003 Annual Meeting of Stockholders.

Competition

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

We encounter competition in our landfill business on the basis of geographic location, quality of operations and of alternatives to landfill disposal, such as recycling and incineration. Further, most of the states in which we operate landfills require counties and municipalities to formulate comprehensive plans to reduce the volume of solid waste deposited in landfills through waste planning, composting and recycling or other programs. Some state and local governments mandate waste reduction at the source and prohibit the disposal of certain types of wastes, such as yard wastes, at landfills.

Environmental and Other Regulations

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

Our operation of landfills subjects us to certain operational, monitoring, site maintenance, closure, post-closure and other obligations which could give rise to increased costs for compliance and corrective measures. In connection with our acquisition and continued operation of existing landfills, we must often spend considerable time, effort and money to obtain permits required to increase the capacity of these landfills.

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

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

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

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

The Clean Air Act of 1970 as amended (the Clean Air Act). The Clean Air Act provides for increased federal, state and local regulation of the emission of air pollutants. The EPA has applied the Clean Air Act to landfills. In March 1996, the EPA adopted New Source Performance Standard and Emission Guidelines (the “Emission Guidelines”) for municipal solid waste landfills. These regulations impose limits on air emissions from solid waste landfills. The Emission Guidelines impose two sets of emissions standards, one of which is applicable to all solid waste landfills for which construction, reconstruction or modification was commenced before May 30, 1991. The other applies to all municipal solid waste landfills for which construction, reconstruction or modification was commenced on or after May 30, 1991. The Emission Guidelines are being implemented by the states after the EPA approves the individual state’s program. These guidelines, combined with the new permitting programs established under the Clean Air Act subject solid waste landfills to significant permitting requirements and, in some instances, require installation of gas recovery systems to reduce emissions to allowable limits. EPA also regulates the emission of hazardous air pollutants from municipal landfills, and has promulgated regulations that require measures to monitor and reduce such emissions.

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The Occupational Safety and Health Act of 1970 as amended (OSHA). OSHA establishes certain employer responsibilities, including maintenance of a workplace free of recognized hazards likely to cause death or serious injury, compliance with standards promulgated by the Occupational Safety and Health Administration, and various record keeping, disclosure and procedural requirements. Various standards, including standards for notices of hazards, safety in excavation and demolition work, and the handling of asbestos, may apply to our operations.

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

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

Our collection and landfill operations may be affected by the current trend toward laws requiring the development of waste reduction and recycling programs. For example, a number of states have enacted laws that require counties to adopt comprehensive plans to reduce, through waste planning, composting and recycling or other programs, the volume of solid waste deposited in landfills. A number of states have also taken or propose to take steps to ban or otherwise limit the disposal of certain wastes, such as yard wastes, beverage containers, newspapers, unshredded tires, lead-acid batteries and household appliances into landfills.

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

Liability Insurance and Bonding

We carry general liability, comprehensive property damage, automobile, workers’ compensation, employer’s liability, directors’ and officers’ liability, limited environmental impairment liability and other coverage we believe are customary in the industry. We are partially self-insured for general liability, automobile and workers’ compensation insurance with varying loss thresholds up to $3 million. We do not expect the impact of any known casualty, property or environmental claims or other contingency to be material to our consolidated liquidity, financial position or results of operations.

We are required to provide approximately $2.8 billion of financial assurances to governmental agencies under applicable environmental regulations relating to our landfill operations and collection contracts and of financial guarantee bonds for self-insurance. We satisfy the financial assurance requirements by providing performance bonds, letters of credit, insurance policies or trust deposits. We expect no material increase in financial assurance obligations although the mix of financial assurance instruments may change.

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Corporate Governance

In July 2002, the Sarbanes-Oxley Act was signed into law, including provisions establishing new disclosure and reporting requirements. In January 2003, the SEC adopted rules addressing the new disclosure requirements in the Sarbanes-Oxley Act relating to codes of ethics for a company’s principle executive, financial and accounting officers. We will be required to comply with these rules on December 31, 2003. We have in place a code of ethics for our executive officers and senior financial officers which is included as Exhibit 14 to this Form 10-K.

In addition, the New York Stock Exchange has proposed rules requiring disclosure of corporate governance guidelines and related documents on companies’ websites, which are not yet effective. We have begun to voluntarily provide such information. The charters of our audit, compensation and nominating committees, and our corporate governance guidelines are available in print to any stockholder who requests them. We expect this information to be available on our website no later than the second half of 2003.

Audit Committee Financial Experts

Our Board of Directors has determined that the chairman of our audit committee, Robert Agate, is an “audit committee financial expert” as defined in section 3(a)(58) of the Exchange Act of 1934 (Exchange Act). The Board of Directors has also determined that other members of the audit committee also meet the definition of a financial expert. All of the audit committee members are independent as defined in section 10A(m)(3) of the Exchange Act.

Item 2. Properties

Our principal executive offices are located at 15880 N. Greenway-Hayden Loop, Suite 100, Scottsdale, Arizona 85260 where we currently lease approximately 105,000 square feet of office space. We currently maintain regional administrative offices in all of our regions.

Our principal property and equipment consists of land, buildings, and vehicles and equipment, substantially all of which are encumbered by liens in favor of our primary lenders. We own or lease real property in the states in which we are conducting operations. At December 31, 2002, we owned or operated 340 collection companies, 175 transfer stations, 169 active solid waste landfills and 66 recycling facilities within 39 states. Our active solid waste landfills aggregated to approximately 73,951 total acres, including approximately 24,671 permitted acres. We believe that our property and equipment are adequate for our current needs.

Item 3. Legal Proceedings

We are involved in certain routine litigation. We believe that such litigation arose in the ordinary course of business and that costs of settlements or judgments arising from such suits will not have a materially adverse effect on our consolidated liquidity, financial position or results of operations.

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Federal, state and local laws and regulations that relate to the protection of the environment regulate our business. The nature of our business results in us frequently becoming a party to judicial or administrative proceedings involving governmental authorities and other interested parties. At December 31, 2002, we were a party to two pending environmental enforcement matters where potential monetary sanctions are reasonably likely to exceed $100,000 and one such matter that was resolved during the fourth quarter of 2002. We believe that these matters will not have a material adverse effect on our consolidated financial statements.

On October 30, 2002, we signed a Stipulation and Proposal for Settlement with the State of Illinois relating to an alleged failure of BFI Waste Systems of North America, Inc. to timely obtain a significant modification permit for its Mallard Lake Landfill in DuPage County Illinois. Under the Stipulation and Proposal for Settlement, we paid $94,000 in penalties and we are in the process of implementing a supplemental environmental project in the amount of approximately $200,000.

Additionally in 2002, we received an Administrative Order from the New Jersey Department of Environmental Protection (NJDEP) alleging violations of permit and regulatory requirements at our Linden, New Jersey transfer station, seeking a penalty of $140,000 and reducing the daily limit on the volume of waste that the transfer station is allowed to handle. We have successfully negotiated with NJDEP to restore the prior permit levels and we are in the process of discussing the amount of the assessed penalty.

In October 2002, we agreed to a settlement with the EPA regarding alleged violations of the Clean Air Act related to the practice of our hauling company in Boston, Massachusetts, of crushing appliances, some of which contained freon or other regulated chlorofluorocarbons. The consent decree was entered by the court on January 28, 2003. On February 21, 2003, we paid $782,550 in penalties and we are in the process of implementing a supplemental environmental project in the amount of approximately $2.3 million.

Other than the foregoing matters, at December 31, 2002, we were not involved in any such proceedings where we reasonably believe sanctions imposed by governmental authorities will exceed $100,000 or which we believe will have a material effect on our consolidated liquidity, financial position or results of operations. From time to time, we may also be subject to actions brought by citizens’ groups, adjacent landowners or others in connection with the permitting and licensing of our landfills or transfer stations, or alleging personal injury, environmental damage or violations of the permits and licenses pursuant to which we operate.

We have been notified that we are considered a potentially responsible party at a number of sites under CERCLA or other environmental laws. In all cases, such alleged responsibility is due to the actions of companies prior to the time we acquired them. We continually review our status with respect to each site, taking into account the alleged connection to the site and the extent of the contribution to the volume of waste at the site, the available evidence connecting the entity to that site and the number and financial soundness of other potentially responsible parties at the site. The ultimate amounts for environmental liabilities at sites where we may be a potentially responsible party cannot be determined and estimates of such liabilities made by us require assumptions about future events subject to a number of uncertainties, including the extent of the contamination, the appropriate remedy, the financial viability of other potentially responsible parties and the final apportionment of responsibility among the potentially responsible parties. Where we have concluded that our estimated share of potential liabilities is probable, a provision has been made in the consolidated financial statements. Since the ultimate outcome of these matters may differ from the estimates used in our assessments to date, the recorded liabilities are periodically evaluated, as additional information becomes available, to ascertain that the accrued liabilities are adequate. We have determined that the recorded liability for environmental matters as of December 31, 2002 of approximately $365.1 million represents the most probable outcome of these contingent matters. We do not expect that adjustments to estimates, which may be 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. For more information about our potential environmental liabilities see Note 8 to our Consolidated Financial Statements included herein under Item 8.

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

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

On January 23, 2003, a special meeting of our stockholders was held at which we submitted to a vote of our stockholders a proposal to increase in the number of authorized shares of common stock from 300 million to 525 million. The results of the vote were as follows:

PART II

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

Price Range of Common Stock

Our common stock, $0.01 par value, is traded on the New York Stock Exchange under the symbol “AW”. The high and low closing sales prices per share for the periods indicated were as follows:

On March 25, 2003, the closing sales price of our common stock was $8.63. The number of holders of record of our common stock at March 25, 2003, was approximately 643.

Dividend Policy

We have not paid dividends on our common stock and are currently prohibited by the terms of our loan agreements from paying dividends. For more detail discussion on these loan agreements, see Note 5 to our Consolidated Financial Statements included herein in Item 8.

Recent Sales of Unregistered Securities

In November 2002, we issued $375.0 million of 9.25% senior notes due 2012 in a private placement under Rule 144A of the Securities Act of 1933. We will initiate the registration of these notes with the SEC under the Securities Act of 1933 shortly after the filing of this
Form 10-K.

Equity Compensation Plan Information

Information required to be included about our equity compensation plan is incorporated by reference to the material appearing under the heading “Equity Compensation Plan Information” in the Proxy Statement for the 2003 Annual Meeting of Stockholders.

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Item 6. Selected Financial Data

The selected financial data presented below as of and for the three years ended December 31, 2002 are derived from our Consolidated Financial Statements. The selected financial data presented below as of and for the two years ended December 31, 1999 are derived from our Consolidated Financial Statements, except for the cost of operations and selling, general and administrative expenses which give effect to the reclassification discussed in Note 1 below. Our Consolidated Financial Statements as of and for the years ended December 31, 2002 and 2001 have been audited by PricewaterhouseCoopers LLP, independent accountants. Our Consolidated Financial Statements for each of the years ended December 31, 2000, 1999 and 1998 prior to the revisions described in Notes 1 and 3 to the 2002 Consolidated Financial Statements, were audited by Arthur Andersen LLP, independent accountants. These selected financial data should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our Consolidated Financial Statements and the related notes included elsewhere in this Form 10-K. (Amounts are in millions, except per share amounts and percentages.)

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Statement of Cash Flows Data:

Balance Sheet Data:

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

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

General

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

During 2002, we generated revenues of $5.5 billion, cash from operations of $1,032.7 million, reinvested $542.3 million of capital into the business and reduced debt by $377.5 million to $8.88 billion at December 31, 2002. During 2002, we experienced a decline in revenues and earnings primarily attributable to pricing pressures driven by the continued economic slowdown. Economic pressures have made it difficult to recover increases in costs caused by normal inflation, increases in medical, property and casualty insurance in excess of normal inflation, and the expansion in our field infrastructure implemented in 2002 to provide our field operators the ability and flexibility to manage more efficiently within the geographic area for which each is responsible.

Revenues. Our revenues result primarily from fees charged to customers for waste collection, transfer, recycling and disposal services. We also generate revenue from the sale of recycled commodities. Revenue is recorded as services are provided, including instances where services are billed in advance of the service being provided. The following tables show the percentage of our total reported revenues by service line and geographic areas.

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

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Revenues by Area ⁽¹⁾ (in thousands, except percentages) :

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Other Matters

In June 2002, the Board of Directors named PricewaterhouseCoopers LLP (PwC) as our independent auditing firm, replacing Arthur Andersen LLP. In August 2002, PwC completed a re-audit of the 2001 financial statements at our request which resulted in no restatement of the 2001 financial results.

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 SEC has defined a company’s most critical accounting policies as those that are most important to the portrayal of the company’s financial condition and results of operations that require management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates of matters that are inherently uncertain. These judgments and estimates often involve future events. Based on this definition, we have identified the critical accounting policies and judgments addressed below. In addition, management has discussed these accounting policies and judgments with the Audit Committee of our Board of Directors. No one geographic operating segment has more significant concentration of the critical accounting policies and judgments addressed below. Although we believe that our estimates and assumptions are reasonable, they are based upon information available at the time of the valuations. Actual results may differ significantly from estimates under different assumptions or conditions. The following critical accounting judgments and estimates are based on our accounting practices in effect during 2002.

We have noted examples of the residual accounting risk inherent for these areas that you should be aware of and for you to consider. Residual accounting risk is defined as the inherent risk that remains after the application of our policies and processes and is generally outside of our control.

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