UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

(Mark One)

For the transition period from                      to                     

Commission File Number 1-14705

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 [  ]

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

     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 SEPTEMBER 30, 2004

INDEX

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ALLIED WASTE INDUSTRIES, INC.

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

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ALLIED WASTE INDUSTRIES, INC.

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

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ALLIED WASTE INDUSTRIES, INC.

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

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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 37 states geographically identified as the Central, Eastern, Southern and Western areas of the United States. Beginning in the fourth quarter of 2004, we realigned our operating organization by eliminating the four geographic areas and reducing the number of regions from twelve to nine. These actions reflect our on-going efforts to maximize efficiency and improve effectiveness. As a result of these actions, we anticipate that restructuring and other costs will be approximately $5 million, a portion of which will be expensed in the fourth quarter of 2004 with the remainder in 2005. We are anticipating future annual labor savings of approximately $3 million as a result of this restructuring.

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, 2003 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, 2003 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, 2003 and our current report on Form 8-K filed on May 10, 2004. The Consolidated Financial Statements as of September 30, 2004, and for the nine and three months ended September 30, 2004 and 2003 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. Operating results for interim periods are not necessarily indicative of the results for full years. Certain reclassifications have been made to the prior period financial statements to conform to the current presentation.

For the description of our significant accounting policies, see Note 1 of Notes to Consolidated Financial Statements for the year ended December 31, 2003 in our current report on Form 8-K filed on May 10, 2004.

Discontinued operations —

Certain operations that were divested in 2003 and 2004 are reflected as discontinued operations in the accompanying financial statements. During 2003, we sold discontinued operations in South Carolina, Georgia, Colorado, New Jersey, Virginia and Florida for net proceeds of approximately $250.0 million. During the first half of 2004, we sold discontinued operations in Florida for net proceeds of approximately $41.7 million. All proceeds were used to repay debt. Prior period results of these operations sold during 2003 and 2004 have been reclassified to discontinued operations.

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ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The divestitures that are included in discontinued operations that were completed in 2004 were held for sale at December 31, 2003. A summary of the assets held for sale and discontinued operations on the consolidated balance sheets at December 31, 2003 are as follows (in millions):

Amounts related to assets held for sale on the balance sheet are included in other current assets, other long-term assets and other accrued liabilities. There were no assets held for sale at September 30, 2004.

Results of operations for the discontinued operations were as follows (in millions):

The assets held for sale, including goodwill, are presented at the lower of carrying or fair value. Fair value is based on the actual or anticipated sales price. Included in the results for discontinued operations for the nine months ended September 30, 2004, which was recorded in the first half of 2004, is a gain of approximately $1.8 million ($8.5 million loss, net of tax) for the assets, including goodwill, divested during the period. A portion of the goodwill allocated to the operations sold was non-deductible for tax purposes. Also included in the results for discontinued operations for the nine months ended September 30, 2004 is a gain of $2.0 million ($1.2 million gain, net of tax) as a result of purchase price adjustments. There were no amounts recorded in the three months ended September 30, 2004. Included in the results for discontinued operations for the nine and three months ended September 30, 2003 is a loss of $45.5 million ($7.8 million after tax loss net of a $37.7 million tax benefit) and a loss of $22.1 million ($12.5 million after tax loss net of a $9.6 million tax benefit). Certain of the operations divested in 2003 were pursuant to a stock sale agreement. We had additional tax basis in the stock of these operations, which previously could not be recognized under Statement of Financial Accounting Standards (SFAS) No. 109, Accounting for Income Taxes. The divestitures and expected utilization of the resulting capital loss for tax purposes allowed us to record a tax benefit, which was partially offset by the impact of the non-deductible goodwill.

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ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In accordance with Emerging Issues Task Force (EITF) Issue No. 87-24, Allocation of Interest to Discontinued Operations, we allocate interest to discontinued operations based on a ratio of net assets to be sold or sold to the sum of consolidated net assets plus consolidated debt. We do not allocate interest on debt that is directly attributable to other operations outside of the discontinued operations. For the nine months ended September 30, 2004, we allocated $0.4 million of interest expense to discontinued operations, all of which was recorded in the first six months of 2004. We allocated $4.2 million and $1.0 million, respectively, of interest expense to discontinued operations for the nine and three months September 30, 2003.

Interest expense capitalized —

We capitalize interest in connection with the construction of our landfill assets. Actual acquisition, permitting and construction costs incurred related to landfill assets under active development qualify for interest capitalization. Interest capitalization ceases when the construction of a landfill asset is complete and available for use.

During the nine and three months ended September 30, 2004 and 2003, we incurred gross interest expense (including payments under interest rate swap contracts) of $460.6 million, $557.6 million, $141.4 million and $185.2 million of which $9.9 million, $11.7 million, $3.3 million and $4.4 million was capitalized.

Statements of cash flows —

The supplemental cash flow disclosures and non-cash transactions for the nine months ended September 30, 2004 and 2003 are as follows (in millions):

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.

Stock-based compensation plans —

We account for our stock-based compensation plans under Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees and the related interpretations, under 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. Accordingly, we have recorded no compensation expense for stock options granted to employees during the nine and three months ended September 30, 2004 or 2003. SFAS No. 123, Accounting for Stock-Based Compensation (SFAS 123), as amended by SFAS No. 148, Accounting for Stock-Based Compensation – Transition and Disclosure, requires companies that do not elect to account for stock-based compensation as prescribed by this statement to disclose the pro forma effects on earnings and earnings per share as if SFAS 123 had been adopted.

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ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 is as follows (in millions, except per share data):

In accordance with 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 issued accounting pronouncements —

In October 2004, the EITF reached a consensus on EITF Issue No. 04-08, Accounting Issues Related to Certain Features of Contingently Convertible Debt and the Effect on Diluted Earnings Per Share (EITF 04-08). EITF 04-08 requires contingently convertible securities to be included in the diluted earnings per share calculation, if dilutive, regardless of whether the contingency has been met. EITF 04-08 is effective for reporting periods ending after December 15, 2004 and requires prior periods to be restated. EITF 04-08 will require us to include our $230 million 4.25% senior subordinated convertible debentures due 2034 which were issued in April 2004 in our calculation of diluted earnings per share, if dilutive. The diluted earnings per share calculations for periods ending June 30, 2004 and September 30, 2004 would exclude the impact of our convertible debentures as the effect would be anti-dilutive. (See Note 4.)

In April 2004, the Financial Accounting Standards Board (FASB) issued FASB Staff Position (FSP) No. 129-1, Disclosure Requirements under FASB Statement No. 129, Disclosure of Information about Capital Structure, Relating to Contingently Convertible Securities (FSP 129-1). FSP 129-1 requires disclosure of the significant terms or conditions under which contingently convertible securities are convertible and is effective April 2004.

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ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In March 2004, the EITF finalized its consensus on EITF Issue No. 03-6, Participating Securities and the Two-Class Method under FASB Statement No. 128, Earnings per Share, (EITF 03-06). EITF 03-06 clarifies what constitutes a participating security and requires the use of the two-class method for computing basic earnings per share when participating convertible securities exist. EITF 03-06 applied to our Series A Senior Convertible Preferred Stock that was converted to common stock during 2003 and is effective for reporting periods beginning after March 31, 2004. However, EITF 03-06 had no impact on our determination of earnings per share in the current or prior periods.

In January 2003, the FASB issued FASB Interpretation No. 46, Consolidation of Variable Interest Entities (FIN 46), which requires unconsolidated variable interest entities (VIEs) to be consolidated by their primary beneficiaries. In December 2003, the FASB issued FASB Interpretation No. 46 (revised December 2003) Consolidation of Variable Interest Entities (FIN 46R). FIN 46R replaces FIN 46 to incorporate several FSP’s issued relating to FIN 46. FIN 46R is effective for periods ending after December 15, 2003 for public companies that have VIE’s or potential VIE’s. Otherwise, FIN 46R is effective for public companies for periods ending after March 15, 2004. Neither FIN 46 nor FIN 46R had a material impact on our consolidated financial statements.

2. Property and Equipment

Expenditures for major renewals and betterments are capitalized, while expenditures for maintenance and repairs, which do not improve assets or extend their useful lives, are charged to expense as incurred. Maintenance and repair expenses charged to cost of operations for the nine and three months ended September 30, 2004 were $334.7 million and $117.9 million and $304.0 million and $104.0 million for the same periods in 2003, respectively.

The following tables show the activity and balances related to property and equipment from December 31, 2003 through September 30, 2004 (in millions):

(1)

Relates primarily to (i) capitalized interest, (ii) change in our landfill retirement obligation asset for recognition of and adjustments to capping, closure and post-closure costs (see Note 7), and (iii) capitalized leases.

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ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

3. Goodwill and Intangible Assets

Annually, we perform an 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 (see Note 11). Historically, we have not experienced impairments of our goodwill. 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. Due to the organization structure changes that occurred subsequent to September 30, 2004, we now define our reporting units as our nine regions and we will perform our annual testings on this basis in the fourth quarter of 2004. 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 6.7%. In addition, we consider 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.

Approximately $28.1 million of goodwill related to operations sold in the Southern geographic operating segment classified as held for sale at December 31, 2003 was expensed as part of discontinued operations in the first six months of 2004. No amounts were recorded in the third quarter of 2004. The remaining goodwill in this geographic operating segment was subsequently evaluated for realizability and we concluded there was no impairment.

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 reduce debt or improve operations and was economically beneficial. If we decide to sell additional assets 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 from December 31, 2003 through September 30, 2004 (in millions):

(1)

Amounts relate primarily to reallocation of goodwill in connection with a change in our geographic operating segments effective January 1, 2004 (see Note 11) and for purchase accounting adjustments during the allocation period. The reallocation was performed in accordance with SFAS No. 142, Goodwill and Other Intangible Assets.

In addition, we have other amortizable intangible assets that consist primarily of the following at September 30, 2004 (in millions):

Amortization expense for the nine and three months ended September 30, 2004 was $1.4 million and $0.4 million. Based upon the amortizable assets recorded on the consolidated balance sheet at September 30, 2004, amortization expense for each of the next five years is estimated to decline from $1.2 million to $0.2 million.

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ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

4. Long-term Debt

Long-term debt at September 30, 2004 and December 31, 2003 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 (in millions, except percentages).

* reflects weighted average interest rate

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ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Bank credit facility —

Our bank credit facility is a senior secured credit facility (the 2003 Credit Facility) that includes: (i) a $1.5 billion revolver due January 2008 (the 2003 Revolver), (ii) a $1.2 billion term loan (Term Loan B), (iii) a $250 million term loan (Term Loan C), (iv) a $150 million term loan (Term Loan D), and (v) a $198 million institutional letter of credit facility due 2008. Term Loan D was funded in April 2004. The proceeds of Term Loan D were used to fund a portion of the tender offer of the senior subordinated notes due 2009. All of the term loans under the 2003 Credit Facility mature in 2010. Of the $1.5 billion available under the 2003 Revolver, the entire amount may be used to support the issuance of letters of credit.

At September 30, 2004, we had approximately $79.2 million drawn and $578.9 million in letters of credit outstanding under the 2003 Revolver. At September 30, 2004, we had approximately $841.9 million available under the 2003 Revolver. In addition, at September 30, 2004, we had $198 million in letters of credit outstanding under the institutional letter of credit facility.

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.

We are required to make prepayments on the 2003 Credit Facility upon completion of certain transactions as defined in the 2003 Credit Facility, including asset sales and issuances of debt securities. Proceeds from these transactions are required to be applied to amounts due under the 2003 Credit Facility pursuant to the credit facility agreement. We are also required to make prepayments on the 2003 Credit Facility for 50% of any excess cash flows from operations, as defined.

Senior notes and debentures —

In April 2004, we issued $275 million of 6.375% senior notes due 2011 to fund a portion of the tender offer of senior subordinated notes due 2009. Interest is payable semi-annually on April 15^th and October 15^th beginning on October 15, 2004. These senior notes have a make-whole call provision that is exercisable at any time at the stated redemption price.

In addition, in April 2004, we issued $400 million of 7.375% senior unsecured notes due 2014 to fund a portion of the tender offer of senior subordinated notes due 2009. Interest is payable semi-annually on April 15^th and October 15^th beginning on October 15, 2004. These notes have a make-whole call provision that is exercisable any time prior to April 15, 2009 at the stated redemption price. The notes may also be redeemed after April 15, 2009 at the stated redemption prices. These notes along with the $275 million 6.375% senior notes due 2011 are herein collectively referred to as the April 2004 Senior Notes.

In January 2004, we issued $400 million of 5.750% senior notes due 2011 and $425 million of 6.125% senior notes due 2014 (the January 2004 Senior Notes) to fund the redemption of $825 million of our $875 million 7.875% senior notes due 2009. Interest is payable semi-annually on February 15^th and August 15^th beginning on August 15, 2004. The $400 million senior notes have a make-whole call provision that is exercisable at any time at the stated redemption price. The $425 million senior notes have a make-whole call provision that is exercisable at any time prior to February 15, 2009 at the stated redemption price. The notes may also be redeemed after February 15, 2009 at the stated redemption prices.

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ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

During 2003, we issued $350 million of 6.50% senior notes due 2010 and $450 million of 7.875% senior notes due 2013 (the 2003 Senior Notes). The $350 million senior notes have a make-whole call provision that is exercisable at any time at the stated redemption price and interest is payable semi-annually on February 15^th and August 15^th beginning on August 15, 2004. The $450 million senior notes have a no call provision until 2008 and interest is payable semi-annually on April 1^st and October 1^st.

During 2002, we issued $375.0 million of 9.25% senior notes due 2012 (the 2002 Senior Notes). The 2002 Senior Notes were issued at a premium of $2.4 million. These senior notes have a no call provision until 2007. Interest is payable semi-annually on March 1^st and September 1^st.

During 2001, we issued $750 million of 8.50% senior notes, due 2008 with interest payable semi-annually on April 1^st and October 1^st and $600 million of 8.875% senior notes, due 2008 with interest payable semi-annually on June 1^st and December 1^st (together the 2001 Senior Notes).

In December 1998, we issued an aggregate of $1.7 billion of senior notes consisting of $225 million 7.375% senior notes due 2004, $600 million 7.625% senior notes due 2006 and $875 million 7.875% senior notes due 2009 (together, the 1998 Senior Notes). The $225 million 7.375% senior notes due 2004 were repaid in January 2004. In addition, $825 million of the $875 million 7.875% senior notes due 2009 were redeemed in February 2004 with the remaining $50 million redeemed in May 2004, all at a price of 103.9375%. The premiums paid in connection with these redemptions and the write-off of deferred financing costs of $45.7 million were recorded to interest expense and other in the first half of 2004.

Receivables secured loan —

We have an accounts receivable securitization program with a financial institution that allowed us to borrow up to $175 million as of September 30, 2004 on a revolving basis under a loan agreement secured by receivables. The borrowings are secured by our accounts receivable that are owned by a wholly-owned and fully consolidated subsidiary. This subsidiary is a separate corporate entity whose assets, or collateral securing the borrowings, are available first to satisfy the claims of the subsidiary’s creditors. Under SFAS No. 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 a secured borrowing with a pledge of collateral. The receivables and debt obligation remain on our consolidated balance sheet. At September 30, 2004, we had outstanding borrowings under this program of $136.2 million. 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 available for borrowing.

On October 1, 2004 we increased our receivables secured loan program from $175 million to $230 million. Also, as of October 1, 2004 we increased the amount we borrowed under the loan agreement secured by receivables by $75 million and extended the maturity from March 2005 to May 2005. The loan agreement has a 364 day term with a three year liquidity facility, however, we intend to extend the agreement annually. If we are unable to renew the loan agreement, we would refinance any amounts outstanding with our revolving credit facility which matures in 2008 or with other long-term borrowings. Although we intend to renew the loan agreement in May 2005 and do not expect to repay the amounts within the next twelve months, the loan is classified as current because it has a contractual maturity of less than one year.

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ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Senior subordinated notes —

In July 1999, we issued $2.0 billion of senior subordinated notes (the 1999 Notes) that mature in 2009. Interest accrues on the 1999 Notes at an interest rate of 10% per annum, payable semi-annually on May 1^st and November 1^st. We used the proceeds from the 1999 Notes as partial financing of the acquisition of Browning-Ferris Industries, Inc. (BFI).

During the third and fourth quarters of 2003, we repaid $506.1 million of the 1999 Notes prior to maturity through open market repurchases. In connection with these repurchases, we paid premiums of approximately $46.9 million and wrote-off deferred financing costs of $6.4 million, both of which were recorded as a charge to interest expense and other.

Year to date through June 30, 2004, we completed additional open market repurchases and a tender offer of the 1999 Notes in an aggregate principle amount of $1.149 billion. In connection with these repurchases and tender offer, we paid premiums of approximately $87.5 million and wrote-off deferred financing costs of $13.5 million, both of which were recorded as a charge to interest expense and other.

In August 2004, we redeemed an additional $75 million of the 1999 Notes for $78.8 million. In connection with this redemption, we paid premiums and fees of approximately $4.0 million and wrote-off deferred financing costs of $0.8 million, both of which were recorded as a charge to interest expense and other.

In October 2004, we issued a notice of redemption to redeem an additional $75 million of the 1999 Notes for $78.8 million to be effective November 5, 2004.

Senior subordinated convertible debentures —

In April 2004, we issued $230 million of 4.25% senior subordinated convertible debentures due 2034 that are unsecured and are not guaranteed. They are convertible into our common stock at a conversion price of $20.43 per share totaling 11.3 million shares. Common stock transactions such as cash or stock dividends, splits, combinations or reclassifications and issuances at less than current market price will require an adjustment to the conversion rate as defined per the indenture. Certain of the conversion features contained in the convertible debentures are deemed to be embedded derivatives, as defined under SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities", however, these embedded derivatives have no value.

These debentures are convertible at the option of the holder anytime if any of the following occurs: (i) our closing stock price is in excess of $25.5375 for 20 of 30 consecutive trading days ending on the last day of the quarter, (ii) during the five business day period after any three consecutive trading days in which the average trading price per debenture is less than 98% of the product of the closing price for our common stock times the conversion rate, (iii) we issue a call notice, or (iv) certain specified corporate events such as a merger or change in control.

We can elect to settle the conversion in stock, cash or a combination of stock and cash. If settled in stock, the holder will receive the fixed number of shares based on the conversion rate except if conversion occurs after 2029 as a result of item (ii) above, the holder will receive shares equal to the par value divided by the trading stock price. If settled in cash, the holder will receive the cash equivalent of the number of shares based on the conversion rate at the average trading stock price over a ten day period except if conversion occurs as a result of item (iv) above, the holder will then receive cash equal to the par value only.

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ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

We can elect to call the debentures at any time after April 15, 2009 at par for cash only. The holders can require us to redeem the debentures on April 15^th of 2011, 2014, 2019, 2024 and 2029 at par for stock, cash or a combination of stock and cash at our option. If the debentures are redeemed in stock, the number of shares issued will be determined as the par value of the debentures divided by the average trading stock price over a five day period.

Debt covenants —

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

Minimum Interest Coverage:

Maximum Leverage:

At September 30, 2004, we were in compliance with all financial covenants under our 2003 Credit Facility. At September 30, 2004, Total Debt/EBITDA⁽¹⁾ ratio, as defined by the 2003 Credit Facility, was 5.22:1 and our EBITDA⁽¹⁾/Interest ratio was 2.17:1. We are not subject to any minimum net worth covenants.

(1)

EBITDA used for covenants is calculated in accordance with the definition in our credit facility agreement (Exhibit 99.1 to our current report on Form 8-K dated April 15, 2004). In this context, EBITDA is used solely 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.

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ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The 1998 Senior Notes, the 1999 Notes, the 2001 Senior Notes, the 2002 Senior Notes, the 2003 Senior Notes, the January 2004 Senior Notes and the April 2004 Senior Notes contain certain financial covenants and restrictions, which may, in certain circumstances, limit our ability to complete acquisitions, pay dividends, incur indebtedness, make investments and take certain other corporate actions. At September 30, 2004, we were in compliance with all applicable covenants.

Collateral —

Our 2003 Credit Facility is secured by the stock of substantially all of our subsidiaries and a security interest in substantially all of our assets. A portion of the collateral that secures the 2003 Credit Facility is shared as collateral with the holders of certain of our senior notes and debentures.

The $275 million 6.375% Senior Notes due 2011, January 2004 Senior Notes, 2003 Senior Notes, 2002 Senior Notes, 2001 Senior Notes, 1998 Senior Notes and $690 million of senior notes and debentures assumed from BFI are secured by the stock of substantially all of BFI subsidiaries along with certain other Allied subsidiaries and a security interest in the assets of BFI, its domestic subsidiaries and certain other Allied subsidiaries. As of September 30, 2004, the book value of the assets of the subsidiaries that serve as collateral for these notes and debentures was approximately $8.6 billion, which represents approximately 64% of our consolidated total assets.

5. Derivative Instruments and Hedging Activities

Our risk management policy requires a minimum of 70% of our total debt to be fixed, either directly or effectively through interest rate swap contracts. Approximately $1.9 billion of our debt balance has variable interest rates at September 30, 2004. As of September 30, 2004 our interest rate swap portfolio fixed 27% of our variable rate interest payment obligation, protecting us from cash flow variations arising from changes in short term interest rates. We believe it is important to have a mix of fixed and floating rate debt to provide financing flexibility. Approximately 6% of our fixed rate debt is at variable rates through the use of fixed to floating interest rate swap contracts. At September 30, 2004, approximately 78% of our debt was fixed, 72% directly, and 6% through interest rate swap contracts. At September 30, 2004, the notional amount of our interest rate swap contracts was $850 million maturing as follows: $250 million during the fourth quarter of 2004, $250 million during 2005, $75 million during 2008 and $275 million during 2009.

At September 30, 2004, a net liability of $5.8 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 term of each of our interest rate swap contracts. A liability of approximately $6.8 million at September 30, 2004 relates to contracts maturing within 12 months. Fair value variations over the life of the interest rate swap contracts arise from changes in market expectations of future interest rates and the time value of money.

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. There were no de-designated interest rate swap contracts prior to December 31, 2001. No additional interest rate swap contracts have been de-designated after 2001 and as of September 30, 2004.

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ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Designated interest rate swap contracts —

At September 30, 2004, we had designated interest rate swap contracts (floating to fixed rate) with a notional amount of $500 million maturing as follows: $250 million during the fourth quarter of 2004 and $250 million in 2005. The fair value liability of these contracts at September 30, 2004 was $6.8 million. Our designated cash flow interest rate swap contracts are effective as 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 designated interest rate swap contracts are reflected in accumulated other comprehensive income (AOCI). At September 30, 2004, a loss of approximately $6.7 million ($4.4 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.

Non-hedge accounting interest rate swap contracts —

We have certain interest rate swap contracts that we have elected not to apply hedge accounting to under SFAS 133. We have elected to not apply hedge accounting to allow us to have flexibility to repay debt prior to maturity and to refinance debt when economically feasible. Following is a description of the accounting for these interest rate swap contracts.

De-designated interest rate swap contracts. All of our de-designated interest rate swap contracts (floating to fixed rate) reached their contractual maturity by June 30, 2004. Therefore, no amounts were recorded during the three months ended September 30, 2004 for these 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 consolidated statement of operations. We recorded $15.2 million of net gain related to changes in market values and $15.3 million of settlement costs during the first six months of 2004. We recorded $36.5 million and $15.4 million of net gain related to changes in market values and $39.0 million and $13.0 million of settlement costs during the nine and three months ended September 30, 2003.

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. We recorded $6.7 million for the first six months of 2004, and $17.7 million and $5.4 million for the nine and three months ended September 30, 2003, respectively, of amortization expense related to the accumulated losses in AOCI for interest rate swap contracts that were de-designated. The amortization expense is recorded in interest expense and other. There are no amounts in AOCI for de-designated contracts at September 30, 2004.

Fair Value Interest Rate Swap Contracts. We use fair value interest rate swap contracts (fixed rate to floating rate) to achieve our targeted mix of fixed and floating rate debt. At September 30, 2004, we had fair value interest rate swap contracts with a notional amount of $350 million maturing as follows: $75 million in 2008 and $275 million in 2009. The derivative fair value asset of these contracts at September 30, 2004 was $1.0 million. Settlement payments and periodic changes in market values of our fair value 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 $0.1 million and $8.7 million of net gain related to changes in market values and received net settlements of $6.1 million and $1.6 million during the nine and three months ended September 30, 2004, respectively. We had no fair value interest rate swap contracts in place during the nine months ended September 30, 2003.

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ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

6. Accumulated Other Comprehensive Loss

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

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

7. Landfill Accounting

We have a network of 167 owned or operated active landfills with a net book value of approximately $2.0 billion at September 30, 2004. The landfills have operating lives ranging from approximately 1 to over 150 years based on available capacity using current annual forecasted volumes. The average life of our landfills approximates 37 years. In addition, we own or have responsibility for 111 closed landfills. During the nine months ended September 30, 2004, we acquired one landfill.

We use a life-cycle accounting method for landfills and the related capping, closure and post-closure liabilities. This method applies the costs to be capitalized associated with acquiring, developing, closing and monitoring the landfills over the associated landfill capacity and associated consumption. Specifically, we record landfill retirement obligations at fair value as a liability with a corresponding increase to the landfill asset as tons are disposed. The amortizable landfill asset includes (i) landfill development costs incurred, (ii) landfill development costs expected to be incurred over the life of the landfill, (iii) the recorded capping, closure and post-closure asset retirement obligation and (iv) the present value of cost estimates for future capping, closure and post-closure costs. We amortize the landfill asset over the total capacity of the landfill as volume is consumed during the life of the landfill with one exception. The exception applies to capping costs for which both the recognition of the liability and the amortization of these costs is based on the costs and capacity of the specific capping event.

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) and capping, closure and post-closure cost estimates for each landfill. Additionally, future capacity estimates (sometimes referred to as airspace) are updated annually using aerial surveys of each landfill to estimate utilized disposal capacity and remaining disposal capacity. The overall cost and capacity estimates are reviewed and approved by senior operations management annually.

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ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Landfill assets —

The following is a rollforward of our investment in our landfill assets excluding land held for future permitting as landfills (in millions):

(1)

Includes amounts transferred from land or land held for permitting as landfills to landfill (for projects that have met the criteria for probable expansion during 2004).

We expensed approximately $194.6 million and $177.8 million, or an average of $3.33 and $3.09 per ton consumed, related to landfill amortization during the nine months ended September 30, 2004 and 2003, respectively. We expensed approximately $67.5 million and $63.8 million, or an average of $3.30 and $3.10 per ton consumed, related to landfill amortization during the quarter ended September 30, 2004 and 2003, respectively.

We have available disposal capacity of approximately 2.5 billion tons as of September 30, 2004. We classify this total disposal capacity as either permitted (having received the final permit from the governing authorities) or probable expansion. Probable expansion disposal capacity has not yet received final approval from the regulatory agencies, but we have determined that certain critical criteria have been met and the successful completion of the expansion is highly probable. At September 30, 2004, we had 2.0 billion tons of permitted disposal capacity, and at 26 of our landfills, a total of 515.7 million tons of probable expansion disposal capacity.

Capping, closure, post-closure and environmental costs —

The following table shows the activity and balances related to capping, closure and post-closure accruals for open and closed landfills and our environmental accruals from December 31, 2003 through September 30, 2004 (in millions):

(1)

Amounts consist primarily of liabilities related to acquired companies, the recognition of and adjustments to amounts accrued for capping, closure and post-closure liability to landfill recorded asset during the period and adjustments to reserves during purchase price allocation period.

Accretion expense relating to capping, closure and post-closure for the nine months ended September 30, 2004 and 2003 was $36.0 million and $33.3 million or an average of $0.62 and $0.58 per ton consumed. Accretion expense for the three months ended September 30, 2004 and 2003 was $12.0 million and $11.1 million or an average of $0.59 and $0.54 per ton consumed. Changes in estimates of costs or disposal capacity are treated on a prospective basis for operating landfills and are recorded immediately in results of operations for fully incurred capping events and closed landfills.

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ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For environmental matters, we periodically evaluate the recorded liabilities as information becomes available to ascertain whether the accrued liabilities are adequate. 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 capping, closure and post-closure could result in approximately $20 million of additional liability.

8. Employee Benefit Plans

Components of Net Periodic Benefit Cost —

The following table provides the components of net periodic benefit cost for the BFI Pension Plan and the supplemental executive retirement plan (in millions):

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ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

9. Net Income Per Common Share

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

In calculating earnings per share, we have not assumed conversion of the following securities into common shares since those conversions would not be dilutive (in millions):

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ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

10. Commitments and Contingencies

Litigation —

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 may become involved in certain legal and administrative proceedings. Some of these actions may result in fines, penalties or judgments against us, which may have an impact on earnings for a particular period. We accrue for litigation and regulatory compliance contingencies when such costs are probable and can reasonably be estimated. We expect that matters in process at September 30, 2004, 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.

On August 9, 2004, August 27, 2004, and September 30, 2004, three putative class action lawsuits were filed against us and four of our current and former officers in the U.S. District Court for the District of Arizona. The complaints assert claims against all defendants under Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder and claims against the officers under Section 20(a) of the Securities Exchange Act. The complaints allege that from February 10, 2004, to July 27, 2004, the defendants caused false and misleading statements to be issued in our public filings and public statements regarding our anticipated second quarter 2004 results. The complaints further allege that the statements were false and misleading because the defendants knew, but did not disclose, that we could not meet our financial projections because (i) our growth was lagging due to poor execution and the loss of a large contract, (ii) we failed to successfully implement our best practices initiatives, and (iii) an anticipated cyclical pickup in trash volume was not materializing. The lawsuits seek an unspecified amount of damages. We believe the claims are without merit and we intend to defend the action vigorously.

In the normal course of conducting our landfill operations, we are involved in legal and administrative proceedings relating to the process of obtaining and defending the permits that allow us to operate our landfills.

In June 1999, neighboring parties and the county drainage district filed a lawsuit seeking to prevent BFI from obtaining a vertical elevation expansion permit at one of our landfills in Texas. In 2001, the expansion permit was granted. The parties opposing the expansion permit continued to pursue their efforts in preventing the expansion permit. In November 2003, a judgment issued by a state trial court in Texas, effectively revoked the expansion permit that was granted by the State of Texas in 2001 and would require us to operate the landfill according to a prior permit granted in 1988. We are vigorously defending this expansion in the State Court of Appeals and believe that the merits of our position will prevail. Operationally, if necessary, we will attempt to obtain bonding that will allow us to continue to operate the landfill as usual during the period of appeals, which may continue two years or longer. If the appeal is not successful, the landfill may become impaired and we may incur costs to relocate waste to another landfill and this matter could result in a charge of up to $50 million to our consolidated statement of operations.

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ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Employment agreements —

We have entered into employment agreements with certain of our executive officers for renewable two-year periods. Under these agreements, in some circumstances, we may be obligated to pay an amount up to four times the sum of the targeted annual incentive compensation and base salary in the year in which a termination of employment occurs.

Additionally, if an executive’s employment is terminated under certain circumstances, the executive may be entitled to continued medical, dental and/or vision coverage, continued vesting in his restricted stock awards, continued vesting in his restricted stock units and continued vesting and exercisability of the executive’s stock options, and continued coverage under our directors’ and officers’ liability insurance, among other matters. In addition, our executive officers and certain key members of management are entitled to retirement payments under our supplemental executive retirement plan.

Effective October 4, 2004, we entered into an employment agreement with Charles H. Cotros, in his capacity as Chief Executive Officer, for a term of not less than one year and not more than two years. Mr. Cotros may, at his election, receive up to 50% of his salary in the form of our common stock. If Mr. Cotros’ employment is terminated under certain circumstances, within the first year of his employment, we may be obligated to pay his salary for the remainder of that first year. We have also agreed to pay Mr. Cotros’ necessary business expenses, including reimbursement for all reasonable costs incurred in commuting to the Company’s headquarters, and to maintain rental housing for Mr. Cotros in the vicinity of the Company’s headquarters. Mr. Cotros is not entitled to retirement payments under our supplemental executive retirement plan.

On October 25, 2004, the Company and Thomas H. Van Weelden terminated Mr. Van Weelden’s employment contract and Mr. Van Weelden is no longer serving as the Company’s President. In the fourth quarter of 2004, we expect to record a severance charge of approximately $15 million ($9 million after tax). This represents the present value of a cash obligation of approximately $8 million to be paid over the next three and a half years, and a non-cash charge associated with Mr. Van Weelden’s vesting of restricted stock awards.

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ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Financial assurances —

We are required to provide financial assurances to governmental agencies under applicable environmental regulations relating to our landfill operations for capping, closure and post-closure costs and performance under certain collection, landfill and transfer station contracts. We satisfy the financial assurance requirements by providing performance bonds, letters of credit, insurance policies or trust deposits. Additionally, we are required to provide financial assurances for our insurance program and collateral required for certain performance obligations. During the remainder of 2004, we expect no material increase in financial assurance obligations.

At September 30, 2004, we had the following financial assurance instruments (in millions):

(1)

At September 30, 2004, these amounts were issued under the 2003 Revolver and the institutional letter of credit facility under our 2003 Credit Facility.

These financial assurance instruments are issued in the normal course of business and are not debt of the company. Since we currently have no liability for these financial assurance instruments, they are not reflected in the accompanying consolidated balance sheets. The underlying obligations of the financial assurance instruments would be valued and recorded in the consolidated balance sheets if it is probable that we would be unable to perform our obligations under the financial assurance contracts. We do not expect this to occur.

Off-balance sheet arrangements —

We have no off-balance sheet debt or similar obligations, other than financial assurance instruments discussed above which are not debt. We have no transactions or obligations with related parties that are not disclosed, consolidated into or reflected in our reported results of operations or financial position. We do not guarantee any third party debt.

Guarantees —

We enter into contracts in the normal course of business that include indemnification clauses. Indemnifications relating to known liabilities are recorded in the consolidated financial statements based on our best estimate of required future payments. Certain of these indemnifications relate to contingent events or occurrences, such as the imposition of additional taxes due to a change in the tax law or adverse interpretation of the tax law, and indemnifications made in divestiture agreements where we indemnify the buyer for liabilities that may become known in the future but that relate to our activities prior to the divestiture. As of September 30, 2004, we estimate the contingent obligations associated with these indemnifications to be de minimus.

We have entered into agreements to guarantee to property owners the value of certain property that is adjacent to landfills. These agreements have varying terms over varying periods. Prior to December 31, 2002, liabilities associated with these guarantees have been accounted for in accordance with SFAS No. 5, Accounting for Contingencies, in the consolidated financial statements. Agreements modified or entered into subsequent to December 31, 2002 are accounted for in accordance with FASB Interpretation No. 45, Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others and were not significant during the nine months ended September 30, 2004.

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ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Contingencies —

We are currently under examination by various state and federal taxing authorities for certain tax years, including federal income tax audits for calendar years 1998 through 2002. A federal income tax audit for BFI’s tax years ended September 30, 1996 through July 30, 1999 is complete with the exception of the matter discussed below.

Prior to our acquisition of BFI on July 30, 1999, BFI operating companies, as part of a risk management initiative to effectively manage and reduce costs associated with certain liabilities, contributed assets and existing environmental and self-insurance liabilities to six fully consolidated BFI risk management companies (RMCs) in exchange for stock representing a minority ownership interest in the RMCs. Subsequently, on July 9, 1999, the BFI operating companies sold that stock in the RMCs to third parties at fair market value which resulted in a capital loss of approximately $900 million for tax purposes, calculated as the excess of the tax basis of the stock over the cash proceeds received. The capital loss was claimed in the BFI tax return for the period from October 1, 1998 to July 30, 1999. On January 18, 2001, the Internal Revenue Service (IRS) designated this type of transaction and other similar transactions as a “potentially abusive tax shelter” under IRS regulations.

During 2002, the IRS proposed the disallowance of all of this capital loss. The primary argument advanced by the IRS for disallowing the capital loss was that the tax basis of the stock of the RMCs received by the BFI operating companies was required to be reduced by the amount of liabilities assumed by the RMCs even though such liabilities were contingent. Under the IRS view, there was no capital loss on the sale of the stock since the tax basis of the stock should have approximately equaled the proceeds received. We protested the disallowance to the Appeals Office of the IRS in August 2002.

If the proposed disallowance is upheld, we estimate it could have a potential total cash impact of up to $310 million for federal and state taxes plus accrued interest through September 30, 2004 of approximately $76.4 million ($45.8 million net of tax benefit). We also received a notification from the IRS proposing a penalty of 40% of the additional income tax resulting from the disallowance. Because of several meritorious defenses, we believe the successful assertion of penalties is unlikely.

We continue to believe our position is well supported and are actively contesting the disallowance with the Appeals Office of the IRS while at the same time evaluating potential settlement opportunities. If we are unable to resolve this matter with the Appeals Office of the IRS, we would expect to receive a notice of tax deficiency from the IRS. Upon receiving the notice, we would have the following options:

1.		File a petition for redetermination in Tax Court within 90 days. In this case, payments would not be required until the Tax Court renders its decision.
2.		Wait to receive a statement of amount due from the IRS and pay the amount due. The amount due would be based on the portion of the capital loss claimed during the BFI tax years ended September 30, 1996 through July 30, 1999. Additional amounts would be owed as the audits of the Company’s tax returns for calendar years 1999 and forward are completed.
3.		Pay the amount due as outlined in option 2 above, except, after paying the amount due, take appropriate steps to institute a suit in Federal District Court or the Federal Claims Court for a refund of the amounts paid.

The timing of any payments for any related state tax deficiencies will generally follow closely after the timing of any federal payments.

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ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

We have fully reserved on our consolidated balance sheet for the tax and interest impact of a disallowance. Therefore, with regard to tax and accrued interest through September 30, 2004, a disallowance would have minimal impact on our consolidated results of operations. If we receive a notice of tax deficiency, depending which course of action is taken, a portion of the reserve may be reclassified to a current liability. The periodic accrual of additional interest charged through the time at which this matter is resolved will continue to affect consolidated results of operations and the successful assertion by the IRS of penalties could have a material adverse impact on our consolidated results of operations.

11. 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 operating income before depreciation and amortization. Operating income before depreciation and amortization is not a measure of operating income, operating performance or liquidity under GAAP and may not be comparable to similarly titled measures reported by other companies. Consistent with our decentralized operating structure, management uses operating income before depreciation and amortization in the evaluation of field operating performance as it represents operational cash flows and is a profit measure of components that are within the control of the operating units. 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).

We manage our operations through four geographic operating segments: Eastern, Southern, Central and Western. Each area is responsible for managing several vertically integrated operations, which are comprised of regions and districts. As a result of the divestiture activity in 2003 and in an effort to continue to align our operating structure in a manner that is consistent with optimal waste flow, we revised the boundaries that define our four geographic areas effective January 1, 2004. The total number of areas, regions and districts did not change. Results by segment have been restated for previous periods to reflect the change in organizational structure that was effective January 1, 2004.

The tables below reflect information relating to our continuing operations of our geographic operating segments, as they are defined at September 30, 2004, for the nine and three months ended September 30, 2004 and 2003 (in millions):