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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

For the quarterly period ended: March 31, 2003

OR

For the transition period from                      to

Commission File Number 0-19285

ALLIED WASTE INDUSTRIES, INC.

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 o

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

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

ALLIED WASTE INDUSTRIES, INC.
FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2003

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

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

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

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ALLIED WASTE INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS

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

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ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

     1.     Organization and Summary of Significant Accounting Policies

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

The Consolidated Financial Statements include the accounts of Allied and its subsidiaries. All significant intercompany accounts and transactions are eliminated in consolidation. The December 31, 2002 balance sheet data included herein is derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America. The Consolidated Balance Sheet as of December 31, 2002 and the unaudited interim Consolidated Financial Statements included herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. As applicable under such regulations, certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States of America 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, 2002. The Consolidated Financial Statements as of March 31, 2003, and for the three months ended March 31, 2003 and 2002 reflect, in the opinion of management, all adjustments, consisting only of 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, 2002 and the related notes thereto included in our Annual Report on Form 10-K, for the year ended December 31, 2002.

For the description of our significant accounting policies, see Note 1 of Notes to Consolidated Financial Statements for the year ended December 31, 2002 in our Annual Report on Form 10-K.

During the first quarter of 2003, we adopted certain changes in accounting principles that impact the comparability of the financial information presented herein. See Recently adopted accounting pronouncements below.

Statements of cash flows —

The supplemental cash flow disclosures and non-cash transactions for the three months ended March 31 are as follows (in thousands):

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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.

Interest expense capitalized —

During the three months ended March 31, 2003 and 2002, we incurred gross interest expense (including payments under interest rate swap contracts) of $189.2 million and $201.8 million, of which $3.4 million $6.6 million was capitalized.

Stock-based compensation plans —

We account for our stock-based compensation plans under Accounting Principles Board Opinion 25, (APB 25) Accounting for Stock Issued to Employees and the related interpretations, for which no compensation cost is recorded in the statement of operations for the estimated fair value of stock options issued with an exercise price equal to the fair value of the common stock on the date of grant. SFAS 123, Accounting for Stock-based Compensation (SFAS 123), as amended by SFAS 148, Accounting for Stock-Based Compensation — Transition and Disclosure (SFAS 148), requires that companies, which do not elect to account for stock-based compensation as prescribed by this statement, disclose the pro forma effects on earnings and earnings per share as if SFAS 123 had been adopted.

If we applied the recognition provisions of SFAS 123 using the Black-Scholes option-pricing model, the resulting pro forma net income available to common shareholders, and pro forma net income available to common shareholders per share would be as follows (in thousands, except per share data):

We have recorded no compensation expense for stock options granted to employees during the three months ended March 31, 2003 or 2002.

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ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In accordance with the SFAS 123, the fair value of each option grant has been estimated as of the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions:

Recently adopted accounting pronouncements —

The Financial Accounting Standards Board (FASB) issued SFAS 143, Accounting for Asset Retirement Obligations (SFAS 143) in June 2001, which outlines standards for accounting for obligations associated with the retirement of long-lived tangible assets. The standard is effective January 1, 2003 and impacts the accounting for landfill retirement obligations, which we have historically referred to as closure and post-closure. The adoption of the standard had no impact on our cash requirements. See Note 7 for additional discussion.

In April 2002, the FASB issued SFAS 145, Rescission of FASB Statements 4, 44 and 64, amendment of FASB Statement 13, and Technical Corrections (SFAS 145), which among other things, restricts the classification of gains and losses from extinguishment of debt as extraordinary, therefore, certain debt extinguishment gains and losses will no longer be classified as extraordinary. We adopted SFAS 145 effective January 1, 2003. Under SFAS 145, gains and losses on future debt extinguishments, if any, will generally be recorded in interest expense and other. Extraordinary losses of $10.1 million and $17.0 million as previously reported, net of tax for the years ended December 31, 2002 and 2001, respectively, will be reclassified on a pre-tax basis to interest expense and other to conform to the requirements under SFAS 145. In first quarter 2003, the adoption of SFAS 145 did not have a material impact on our consolidated financial statements. We expect that during second quarter 2003, we will record approximately $45 million, pretax to interest expense and other for the write-off of deferred debt issuance cost in connection with the completion of our financing plan. These amounts would have been recorded as extraordinary loss prior to the adoption of SFAS 145.

In July 2002, the FASB issued SFAS 146, Accounting for Costs Associated with Exit or Disposal Activities (SFAS 146), which prescribes the financial accounting and reporting for costs associated with exit or disposal activities such as: contract terminations, consolidation of facilities and termination benefits to involuntarily terminated employees. SFAS 146 excludes from its scope exit and disposal activities that are in connection with a business combination and those activities to which SFAS 143 and 144, Accounting for the Impairment or Disposal of Long-Lived Assets (SFAS 144) are applicable. Under SFAS 146, certain costs associated with exit and disposal activities are to be recognized as liabilities at the time they meet the definition of a liability (as defined in FASB Concepts Statement 6) as opposed to at the time to which a plan is committed. SFAS 146 is effective for exit and disposal activities that are initiated after December 31, 2002. We adopted SFAS 146 on January 1, 2003. At the time of adoption, SFAS 146 had no impact on our consolidated financial statements.

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ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In November 2002, the FASB issued FASB Interpretation 45, Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others (FIN 45). FIN 45 expands on the accounting guidance of Statements 5, 57, and 107 and incorporates without change the provisions of FASB Interpretation 34, which is being superceded. FIN 45 elaborates on the existing disclosure requirements for most guarantees, including loan guarantees such as standby letters of credit. It also clarifies that at the time a company issues a guarantee, the company must recognize an initial liability for the fair value, or market value, of the obligations it assumes under that guarantee and must disclose that information in its interim and annual financial statements. We adopted the disclosure requirements of FIN 45 as of December 31, 2002. Effective January 1, 2003, we adopted the recognition requirements of FIN 45 for any guarantees entered in or modified subsequent to January 1, 2003. At the time of adoption, FIN 45 had no impact on our consolidated financial statements.

In January 2003, the FASB issued FASB Interpretation 46, Consolidation of Variable Interest Entities (FIN 46), which requires unconsolidated variable interest entities to be consolidated by their primary beneficiaries. We have no unconsolidated subsidiaries; therefore, FIN 46 had no impact on our consolidated financial statements.

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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, 2002 through March 31, 2003 (in millions):

(A)  Relates primarily to the impact of adoption of SFAS 143 recorded as a cumulative effect of change in accounting principle which was an increase to the gross landfill asset and accumulated amortization for landfills of $410.2 million and $435.3 million, respectively.

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ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

3. Goodwill and Intangible Assets

In accordance with SFAS 142 we do not amortize goodwill. Instead we perform an annual assessment of goodwill impairment by applying a fair value based test to each of our reporting units, which we define as our four geographic operating segments. We completed our annual assessment of goodwill as of December 31, 2002 and no impairment was recorded. We may conduct an impairment test of goodwill more frequently than annually under certain conditions. For example, a significant adverse change in liquidity or the business environment, unanticipated competition, a significant adverse action by a regulator or a disposal of a significant portion of an operating segment could prompt an impairment test between annual assessments.

We evaluate goodwill for impairment based on fair value of each geographic operating segment. The calculation of fair value is subject to judgments and estimates. We estimate fair value based on net cash flows discounted using a weighted-average cost of capital of approximately 8%. In addition, consideration is also given to an earnings multiple approach, enterprise value, and overall company market capitalization to evaluate the reasonableness of our discounted cash flows. The estimated fair value could change if there were future changes in our capital structure, cost of debt, interest rates, capital expenditure levels, ability to perform at levels that were forecasted or a permanent change to the market capitalization of our company.

Our geographic operating segment level is an aggregate of several vertically integrated businesses with similar operational characteristics. A divestiture of any individual asset below the geographic operating segment level could result in a loss. At the time of a divestiture of an individual business within a geographic operating segment, goodwill is allocated to that business and a gain or loss on disposal is derived. Subsequently, the remaining goodwill in the geographic operating segment that the assets were divested from would be re-evaluated for realizability, which could result in an additional loss being recognized.

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.

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ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table shows the activity and balances related to goodwill for the three months ended December 31, 2002 through March 31, 2003 (in millions):

(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 March 31, 2003 (in thousands):

Amortization expense for the three months ended March 31, 2003 was $0.7 million. Based upon the amortizable assets recorded in the balance sheet at March 31, 2003, amortization expense for each of the next five years is estimated to be declining from $2.2 million to $0.6 million.

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ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

4. Long-term Debt

Long-term debt at March 31, 2003 and December 31, 2002 consists of the amounts listed in the following table. The effective interest rate includes our interest cost incurred, the effect of interest rate swap contracts, amortization of deferred debt issuance cost and the amortization or accretion of discounts or premiums. (Amounts in thousands, except percentages.)

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ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

At March 31, 2003 we had approximately $508.3 million available under our $1.291 billion Revolving Credit Facility, which was part of our 1999 Credit Facility. As discussed below, we refinanced the 1999 Credit Facility in April 2003. The Revolving Credit Facility under our 1999 Credit Facility was also used to support the issuance of letters of credit. At March 31, 2003, we had approximately $783.0 million of letters of credit outstanding. During the quarter, we repaid approximately $149.4 million on the 1999 Credit Facility prior to maturity with proceeds from the receivables secured loan discussed below. In connection with this repayment, we recorded a charge to interest expense and other of approximately $1.7 million related to the write-off of deferred debt issuance costs.

Our 2002 Senior Notes, 2001 Senior Notes, 1999 Credit Facility, 1998 Senior Notes and $850 million of senior notes assumed from BFI are secured by substantially all of BFI and certain other Allied subsidiaries and a security interest in the assets of BFI, its domestic subsidiaries and certain other Allied subsidiaries. As of March 31, 2003, the book value of the assets of the subsidiaries that serve as collateral was approximately $8.8 billion, which represents approximately 64% of our consolidated total assets.

At March 31, 2003, we were in compliance with all financial covenants under our 1999 Credit Facility. At March 31, 2003, Total Debt/EBITDA⁽¹⁾ ratio, as defined by the 1999 Credit Facility, was 4.97:1 and our EBITDA⁽¹⁾/Interest ratio was 2.20:1. We are not subject to any minimum net worth covenants.

(1)  EBITDA is a non-GAAP financial measure, calculated in accordance with the definition in our credit facility agreement and is different than the EBITDA we use as a measure of financial performance. In this context, EBITDA is used solely for debt covenant calculations under the credit facility and to provide information on the extent to which we are in compliance with debt covenants.

Receivables secured loan —

In March 2003, we entered into an accounts receivable securitization program with a financial institution. The securitization program allows us to borrow up to $175 million on a revolving basis under a loan agreement secured by receivables. The borrowings are secured by accounts receivable that are owned by a wholly-owned and fully consolidated subsidiary. Under SFAS 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities — a Replacement of FASB Statement 125, the securitization program is accounted for as secured borrowing with a pledge of collateral. The receivables and debt obligation remain on our consolidated balance sheet. At March 31, 2003, we had outstanding borrowings under this program of $149 million. Borrowings during the quarter were used to pay down tranches A, B and C term loans on a pro-rata basis. The borrowings under this program bear interest at the financial institution’s commercial paper rate plus an applicable spread and interest is payable monthly. There is also a fee on the undrawn portion of the $175 million available for borrowing. The loan agreement has a one year term with a three year liquidity facility, however, we intend to extend the agreement annually at the end of the one year term. If we are unable to renew annually, we have the ability to refinance these borrowings through the Revolving Credit Facility of the 1999 Credit Facility (subsequently the 2003 revolver). Accordingly, the loan has been classified as long-term.

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ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Completion of financing plan —

On March 27, 2003, we announced a multifaceted financing plan that would enable us to refinance the 1999 Credit Facility. In April 2003, we completed that financing plan. The financing plan included the receivables secured loan discussed above and the issuance of common stock, mandatory convertible preferred stock and senior notes, along with the refinancing of the 1999 Credit Facility, discussed below. The issuance of the common stock, mandatory convertible preferred stock and senior notes were consummated under our shelf registration statement.

Issuance of common stock
On April 9, 2003, we issued 12,048,193 shares of common stock, par value $0.01, through a public offering for net proceeds of approximately $94 million.

Issuance of mandatory convertible preferred stock
On April 9, 2003, we issued 6.9 million shares of Series C Mandatory Convertible Preferred Stock, par value of $50 per share, through a public offering for net proceeds of approximately $333 million. The Series C Mandatory Convertible Preferred Stock (Series C Preferred Stock) has a dividend rate of 6.25%. The Series C Preferred Stock is mandatorily convertible on April 1, 2006. On the conversion date, each share of Series C Preferred Stock will automatically convert into shares of common stock based on the following conversion table:

The Series C Preferred Stock is convertible into common stock at any time prior to April 1, 2006 at the option of the holder at a conversion rate of 4.9358. Any time prior to April 1, 2006, the Series C Preferred Stock can be required to be converted at our option if the closing price of our common stock is greater than $15.20 for 20 days within a 30-day consecutive period. If the conversion is required by us, we are required to pay the present value of the remaining dividend payments through April 1, 2006.

Issuance of senior notes
On April 9, 2003, Allied Waste North America, Inc. (Allied NA; a wholly-owned consolidated subsidiary of Allied) issued $450 million of 7.875% Senior Notes due 2013 (2003 Senior Notes) for net proceeds of approximately $440 million. These senior notes have a no call provision until 2008. Interest is payable in April and October of each year beginning October 2003.

The aggregate net proceeds of approximately $867 million from the issuance of the common stock, Series C Preferred Stock and 2003 Senior Notes were used to reduce borrowings under the tranche A, B and C term loans under our 1999 Credit Facility on a pro-rata basis.

Refinancing of 1999 Credit Facility
At March 31, 2003, we had a senior secured credit facility (the 1999 Credit Facility) that provided a $1.291 billion revolving credit facility, due July 2005 (the Revolving Credit Facility) and $2.226 billion in funded, amortizing senior secured term loans with varying maturity dates through 2007.

On April 29, 2003, we refinanced the 1999 Credit Facility with a $2.9 billion senior secured credit facility (the 2003 Credit Facility) that includes a $1.5 billion revolver due January 2008 (the 2003 Revolver), a $1.2 billion term loan due January 2010 (the 2003 Term Loan), and a $200 million institutional letter of credit facility. In addition, the 2003 Credit Facility allows us to establish an incremental term loan in an amount up to $250 million and an additional institutional letter of credit facility in an amount up to $500 million. Upon the closing of the 2003 Credit Facility, we borrowed approximately $145 million on the 2003 Revolver to refinance the remaining amounts outstanding under the 1999 Credit Facility.

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ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The 2003 Credit Facility bears interest at (a) an Alternative Base Rate, or (b) Adjusted LIBOR, both terms defined in the 2003 Credit Facility, plus, in either case, an applicable margin based on our leverage ratio. Proceeds from the 2003 Credit Facility may be used for working capital and other general corporate purposes, including acquisitions. Of the $1.5 billion available under the 2003 Revolver, the entire amount may be used to support the issuance of letters of credit.

We are required to make prepayments on the 2003 Credit Facility upon completion of certain transactions as defined in the credit facility (see exhibit 10.1 to this Form 10-Q), including asset sales and issuances of debt securities. Proceeds from these transactions are to be applied pursuant to the 2003 Credit Facility. We are also required to make prepayments on the 2003 Credit Facility for 50% of any excess cash flows from operations, as defined.

Under the 2003 Credit Facility, we are subject to the following financial covenants:

Minimum Interest Coverage:

Maximum Leverage:

(1)  EBITDA is a non-GAAP financial measure, calculated in accordance with the definition in our credit facility agreement and is different than the EBITDA we use as a measure of financial performance. In this context, EBITDA is used solely for debt covenant calculations under the credit facility and to provide information on the extent to which we are in compliance with debt covenants.

In addition, the 2003 Credit Facility restricts us from making certain types of payments, including dividend payments on our common and preferred stock. However, we are able to pay cash dividends on the Series C Preferred Stock and pay up to $75 million of cumulative cash dividends on the Series A Preferred Stock even if the leverage ratio is in excess of 4:1 after July 30, 2004.

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ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

5.     Derivative Instruments and Hedging Activities

Our risk management policy requires 75% of our total debt to be fixed, either directly or effectively through interest rate swap contracts. At March 31, 2003, approximately 93% of our debt was fixed, 72% directly, and 21% through interest rate swap contracts, protecting us from cash flow variations arising from changes in short term interest rates. Given our capital structure, we believe it is prudent to minimize interest expense volatility. At March 31, 2003, the notional value of our interest rate swap contracts was $1.85 billion with a weighted average of 15.6 months to maturity. These contracts expire as follows: $200.0 million during 2003, $1.4 billion during 2004, and $250.0 million during 2005.

At March 31, 2003, a liability of $108.5 million was included in the Consolidated Balance Sheet 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 $17.0 million of the liability at March 31, 2003 relates to contracts maturing within 12 months. Fair value variations over the life of the interest rate swap contracts arise from changes in forecasted interest rates and the time value of money.

Designated interest rate swap contracts —

Our designated interest rate swap contracts are effective as cash flow hedges of our variable rate debt. 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 achieving 100% effectiveness. If significant terms do not match we will assess any ineffectiveness and any ineffectiveness is immediately recorded in interest expense in our statement of operations.

Changes in fair value of our interest rate swap contracts are reflected in Accumulated Other Comprehensive Income (AOCI). At March 31, 2003, approximately $56.1 million ($33.9 million, net of tax) is included in AOCI.

Expense or income related to swap settlements are recorded in interest expense for the related variable rate debt over the term of the agreements.

De-designated interest rate swap contracts —

Settlement payments and periodic changes in market values of our de-designated interest rate swap contracts are recorded as a gain or loss on derivative contracts included in interest expense and other in our statement of operations. We recorded $9.9 million and $16.7 million of net gain related to changes in market values and $13.4 million and $14.4 million of settlement costs during the three months ended March 31, 2003 and 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 hedged interest payment. For contracts de-designated, the total amount of loss in AOCI at March 31, 2003 was approximately $22.9 million ($14.0 million, net of tax). For the three months ended March 31, 2003, we recorded $6.9 million of amortization expense related to the accumulated losses in AOCI for interest rate swap contracts that were de-designated. We expect to record approximately $20.9 million of amortization expense related to the accumulated losses in AOCI for the de-designated swap contracts in the next twelve months. The amortization expense is recorded in interest expense.

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ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

6.     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):

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

7.     Landfill Accounting

Change in accounting principle —

Effective January 1, 2003, we adopted SFAS 143 which outlines standards for accounting for our landfill retirement obligations that have historically been referred to as closure and post-closure. SFAS 143 does not change the basic accounting principles that the waste industry has historically followed for accounting for these types of obligations. In general, the industry has followed the accounting practice of recognizing a liability on the balance sheet and related expense as waste is disposed at the landfill to match operating costs with revenues. The industry refers to this practice as life cycle accounting. The principle elements of life cycle accounting are still being followed.

The new rules are a refinement to our industry practices and have caused a change in the mechanics of calculating landfill retirement obligations and the classification of where amounts are recorded in the financial statements. Landfill retirement obligations are no longer accrued through a provision to cost of operations, but rather by an increase to landfill assets. Liabilities retained from divested landfills that were historically accounted for in closure and post-closure liabilities were reclassified to other long-term obligations because they were not within the scope of SFAS 143. In addition, in accordance with SFAS 143, we changed the classification of costs related to capping, closure and post-closure obligations to other accounts. The most significant change in classification is that we now record the costs for methane gas collection systems in the landfill development assets.

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ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Following are the key changes from our prior accounting practices:

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ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Upon adoption, SFAS 143 required a cumulative change in accounting for landfill obligations retroactive to the date the landfill operations commenced or the date the asset was acquired. To do this, SFAS 143 required the creation of the related landfill asset, net of accumulated amortization and an adjustment to the capping, closure and post-closure liabilities for cumulative accretion.

At January 1, 2003, we recorded a cumulative effect of a change in accounting principle of a net gain of approximately $29.2 million (net of income tax expense of $19.5 million). In addition, we recorded a decrease in our capping, closure and post-closure liabilities of approximately $100.7 million, an increase in other long-term obligations of approximately $26.9 million, and a decrease in our net landfill assets of approximately $25.1 million.

Following is a summary of the balance sheet changes for landfill assets and capping, closure and post-closure liabilities at January 1, 2003 (in millions):