AW Allied Waste Inds

 

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

(Mark One)

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

For the quarterly period ended: September 30, 2008

OR

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

For the transition period from                      to                     

Commission File Number 1-14705

ALLIED WASTE INDUSTRIES, INC.

(Exact name of registrant as specified in its charter)

Delaware		88-0228636
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)

18500 North Allied Way, Phoenix, Arizona 85054
(Address of principal executive offices and zip code)

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

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 þ       No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer þ		Accelerated filer o	Non-accelerated filer o (Do not check if a smaller reporting company)			Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o       No þ

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

Class		Outstanding as of October 23, 2008
Common Stock			434,706,923

 

 

ALLIED WASTE INDUSTRIES, INC.
FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 2008

INDEX

PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets			1
Consolidated Statements of Operations			2
Consolidated Statements of Cash Flows			3
Notes to Consolidated Financial Statements			4
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			32
Item 3. Quantitative and Qualitative Disclosures About Market Risk			46
Item 4. Controls and Procedures			47
PART II - OTHER INFORMATION
Item 1. Legal Proceedings			48
Item 1A. Risk Factors			53
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			54
Item 3. Defaults upon Senior Securities			55
Item 4. Submission of Matters to a Vote of Security Holders			55
Item 5. Other Information			55
Item 6. Exhibits			55
Signatures			56
EX-10.1
EX-10.2
EX-31.1
EX-31.2
EX-32

ALLIED WASTE INDUSTRIES, INC.

CONSOLIDATED BALANCE SHEETS

(in millions, except per share amounts, unaudited)

		September 30,				December 31,
		2008				2007
ASSETS
Current Assets —
Cash and cash equivalents		$	102.7			$	230.9
Restricted cash			35.8				26.1
Accounts receivable, net of allowance of $21.5 and $21.2			770.2				691.0
Prepaid and other current assets			88.1				81.9
Deferred income taxes			103.9				128.3
Total current assets			1,100.7				1,158.2
Property and equipment, net			4,532.7				4,430.4
Goodwill			8,016.0				8,020.0
Other assets, net			338.8				340.1
Total assets		$	13,988.2			$	13,948.7
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities —
Current portion of long-term debt		$	402.4			$	557.3
Accounts payable			444.1				496.8
Current portion of accrued capping, closure, post-closure and environmental costs			81.3				96.0
Accrued interest			103.6				99.6
Other accrued liabilities			571.4				757.7
Unearned revenue			256.4				239.7
Total current liabilities			1,859.2				2,247.1
Long-term debt, less current portion			6,067.7				6,085.6
Deferred income taxes			472.3				400.3
Accrued capping, closure, post-closure and environmental costs, less current portion			793.7				771.4
Other long-term obligations			566.4				538.6
Minority interests			2.5				1.5
Commitments and Contingencies
Stockholders’ Equity —
Series D senior mandatory convertible preferred stock, $0.10 par value, 2.8 million shares authorized, 2.4 million shares issued and outstanding in 2007, liquidation preference of $250.00 per share, net of $19.2 million of issuance costs			—				580.8
Common stock; $0.01 par value; 525 million authorized shares, 433.5 million and 370.4 million shares issued and outstanding			4.3				3.7
Additional paid-in capital			3,456.3				2,843.3
Accumulated other comprehensive loss			(29.5	)			(29.5	)
Retained earnings			795.3				505.9
Total stockholders’ equity			4,226.4				3,904.2
Total liabilities and stockholders’ equity		$	13,988.2			$	13,948.7

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

ALLIED WASTE INDUSTRIES, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(in millions, except per share amounts, unaudited)

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2008				2007				2008				2007
Revenues		$	1,606.2			$	1,556.3			$	4,672.7			$	4,548.4
Cost of operations (exclusive of depreciation and amortization shown below)			986.0				966.7				2,906.3				2,853.5
Selling, general and administrative expenses			155.6				156.5				447.7				480.7
Merger related costs			12.5				—				21.5				—
Depreciation and amortization			134.1				142.7				411.6				412.6
(Gain) loss from divestitures and asset impairments			(0.3	)			39.0				23.5				40.5
Operating income			318.3				251.4				862.1				761.1
Interest expense and other			108.8				130.3				324.9				424.4
Income from continuing operations before income taxes			209.5				121.1				537.2				336.7
Income tax expense			96.9				53.8				239.7				144.1
Minority interests			0.1				0.4				1.0				0.4
Income from continuing operations			112.5				66.9				296.5				192.2
Loss from discontinued operations, net of tax			—				(39.7	)			—				(33.9	)
Net income			112.5				27.2				296.5				158.3
Dividends on preferred stock			—				(9.4	)			(6.2	)			(28.1	)
Net income available to common shareholders		$	112.5			$	17.8			$	290.3			$	130.2
Basic EPS:
Continuing operations		$	0.26			$	0.16			$	0.69			$	0.45
Discontinued operations			—				(0.11	)			—				(0.10	)
Net income available to common shareholders		$	0.26			$	0.05			$	0.69			$	0.35
Weighted average common shares			433.1				369.3				418.5				368.6
Diluted EPS:
Continuing operations		$	0.26			$	0.15			$	0.68			$	0.44
Discontinued operations			—				(0.10	)			—				(0.09	)
Net income available to common shareholders		$	0.26			$	0.05			$	0.68			$	0.35
Weighted average common and common equivalent shares			446.4				382.4				445.0				381.9

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

ALLIED WASTE INDUSTRIES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in millions, unaudited)

		Nine Months Ended September 30,
		2008				2007
Operating activities —
Net income		$	296.5			$	158.3
Discontinued operations, net of tax			—				33.9
Adjustments to reconcile net income to cash provided by operating activities—
Provisions for:
Depreciation and amortization			411.6				412.6
Stock-based compensation expense			17.9				15.7
Doubtful accounts			17.6				17.7
Accretion of debt and amortization of debt issuance costs			13.1				15.4
Deferred income tax expense			149.1				111.7
Gain on sale of fixed assets			(10.2	)			(7.7	)
Non-cash change in merger related cost accruals			11.3				—
Non-cash change in acquisition accruals			(15.1	)			(2.2	)
Loss from divestitures and asset impairments			23.5				40.5
Write-off of deferred debt issuance costs			0.4				7.2
Other non-cash items			(5.3	)			(2.6	)
Change in operating assets and liabilities, excluding the effects of acquisitions—
Accounts receivable, prepaid expenses, inventories and other assets			(104.5	)			(59.0	)
Accounts payable, accrued liabilities, unearned income and other			(45.5	)			(2.2	)
Payment related to an IRS matter			(195.7	)			—
Capping, closure and post-closure accretion			43.0				41.5
Capping, closure, post-closure and environmental expenditures			(68.9	)			(38.8	)
Cash provided by operating activities from continuing operations			538.8				742.0
Investing activities —
Cost of acquisitions, net of cash acquired			(0.6	)			(75.0	)
Proceeds from divestitures, net of cash divested			0.8				166.2
Proceeds from sale of fixed assets			15.8				12.0
Capital expenditures, excluding acquisitions			(501.0	)			(496.1	)
Capitalized interest			(10.0	)			(14.3	)
Other			0.2				—
Cash used for investing activities from continuing operations			(494.8	)			(407.2	)
Financing activities —
Proceeds from long-term debt, net of issuance costs			556.8				1,379.1
Payments of long-term debt			(858.9	)			(1,778.5	)
Payments of preferred stock dividends			(9.4	)			(28.1	)
Net proceeds from sale of common stock, exercise of stock options and other			23.9				21.5
Net receipts from restricted trusts			115.4				50.5
Cash used for financing activities from continuing operations			(172.2	)			(355.5	)
Discontinued operations —
Used for operating activities			—				(3.2	)
Used for investing activities			—				(2.7	)
Cash used for discontinued operations			—				(5.9	)
Decrease in cash and cash equivalents			(128.2	)			(26.6	)
Cash and cash equivalents, beginning of period			230.9				94.1
Cash and cash equivalents, end of period		$	102.7			$	67.5

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

ALLIED WASTE INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Organization and Summary of Significant Accounting Policies

Allied Waste Industries, Inc. (Allied, we, us, our 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 solid waste collection, transfer, recycling and disposal services in 38 states and Puerto Rico, geographically identified as the East, Midwest, South and West regions.

The consolidated financial statements include the accounts of Allied, its subsidiaries and certain variable interest entities for which we have determined that we are the primary beneficiary in compliance with Financial Accounting Standards Board (FASB) Interpretation No. 46, Consolidation of Variable Interest Entities — an interpretation of ARB No. 51 (revised December 2003). We account for investments in entities in which we do not have a controlling financial interest under either the equity method or cost method of accounting as appropriate. All significant intercompany accounts and transactions are eliminated in consolidation. The December 31, 2007 balance sheet data included herein has been derived from audited financial statements, but does not include all disclosures required by generally accepted accounting principles in the United States (GAAP). The consolidated financial statements included herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (SEC) and are unaudited. As applicable under such regulations, certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP 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, 2007 and our consolidated financial statements for the year ended December 31, 2007 and the related notes thereto included in our Current Report on Form 8-K, filed on May 6, 2008. The consolidated financial statements as of September 30, 2008, and for the three and nine months ended September 30, 2008 and 2007 reflect, in the opinion of management, all adjustments, consisting only of normal recurring adjustments (except as otherwise disclosed in the notes) 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. For comparative purposes, certain prior year amounts have been reclassified to conform to the current year presentation.

On June 22, 2008, we entered into a definitive merger agreement with Republic Services, Inc. (Republic) which is expected to be completed in the fourth quarter of 2008. Under the terms of the agreement, our shareholders will receive 0.45 shares of Republic common stock for each share of Allied common stock held. In completing the transaction, Republic is expected to issue approximately 196.2 million shares of common stock to Allied shareholders, representing approximately 52% ownership of the combined company on a diluted basis. On July 14, 2008, Waste Management, Inc. (Waste Management) announced an unsolicited offer to acquire Republic. On July 18, 2008, Republic announced that it would not engage in discussions with Waste Management because the offer could not reasonably be expected to be superior to the Republic—Allied merger. On August 11, 2008, Waste Management announced a revised unsolicited proposal to acquire Republic. On August 14, 2008, Republic determined that the revised proposal did not meet the standard in the definitive merger agreement to allow Republic to furnish information to, or have discussions or negotiations with Waste Management. On October 13, 2008, Waste Management announced its withdrawal from the bid for Republic. In conjunction with the proposed merger with Republic, we recorded $12.5 million and $21.5 million, respectively, of merger related costs, primarily financial advisor and legal fees, during the three and nine months ended September 30, 2008, respectively. These costs are reported as “Merger related costs” on the consolidated statements of operations.

For the description of our significant accounting policies, see Note 1, Organization and Summary of Significant Accounting Policies , of Notes to Consolidated Financial Statements for the year ended December 31, 2007 in our Annual Report on Form 10-K and in our Current Report on Form 8-K, filed on May 6, 2008 .

ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Recently issued accounting pronouncements —

In May 2008, the FASB directed the FASB Staff to issue FASB Staff Position (FSP) APB 14-1, Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement) (FSP APB 14-1). FSP APB 14-1 applies to convertible debt instruments that, by their stated terms, may be settled in cash (or other assets) upon conversion, including partial cash settlement of the conversion option. FSP APB 14-1 requires bifurcation of the instrument into a debt component that is initially recorded at fair value and an equity component. The difference between the fair value of the debt component and the initial proceeds from issuance of the instrument is recorded as a component of equity. The liability component of the debt instrument is accreted to par using the effective yield method; accretion is reported as a component of interest expense. The equity component is not subsequently re-valued as long as it continues to qualify for equity treatment. FSP APB 14-1 is effective for financial statements issued and for fiscal years and interim periods after December 15, 2008 and must be applied retrospectively to all periods presented. Early adoption is not permitted. We are currently evaluating the potential impact that FSP APB 14-1 may have on our financial position and results of operations.

In April 2008, the FASB directed the FASB Staff to issue FSP No. FAS 142-3, Determination of the Useful Life of Intangible Assets (FSP FAS 142-3). FSP FAS 142-3 amends the factors that should be considered in developing a renewal or extension assumptions used for purposes of determining the useful life of a recognized intangible asset under FASB Statement No. 142, Goodwill and Other Intangible Assets (SFAS 142). FSP FAS 142-3 is intended to improve the consistency between the useful life of a recognized intangible asset under SFAS 142 and the period of expected cash flows used to measure the fair value of the asset under SFAS 141(R) and other U.S. generally accepted accounting principles. FSP FAS 142-3 is effective for fiscal years beginning after December 15, 2008. Early application is not permitted. We believe the impact of adopting FSP FAS 142-3 will not have a material effect on our financial position or results of operations.

In February 2008, the FASB issued FSP SFAS No. 140-3, Accounting for Transfers of Financial Assets and Repurchase Financing Transactions (FSP SFAS 140-3). The objective of FSP SFAS 140-3 is to provide implementation guidance on accounting for a transfer of a financial asset and repurchase financing. Under the guidance in FSP SFAS 140-3, there is a presumption that an initial transfer of a financial asset and a repurchase financing are considered part of the same arrangement ( i.e., a linked transaction) for purposes of evaluation under SFAS No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities (SFAS 140). If certain criteria are met, however, the initial transfer and repurchase financing shall not be evaluated as a linked transaction and shall be evaluated separately under SFAS 140. FSP SFAS 140-3 is effective on December 1, 2008. We are currently evaluating the potential impact that FSP SFAS 140-3 may have on our financial position and results of operations.

In December 2007, the FASB issued SFAS No. 141(R), Business Combinations (SFAS 141(R)) which replaces SFAS No. 141, Business Combinations (SFAS 141). The scope of SFAS 141(R) is broader than that of SFAS 141, which applied only to business combinations in which control was obtained by transferring consideration. SFAS 141(R) applies to all transactions and other events in which one entity obtains control over one or more other businesses. The standard requires the fair value of the purchase consideration, including the issuance of equity securities, to be determined on the acquisition date. SFAS 141(R) requires the acquirer to recognize the assets acquired, the liabilities assumed, and any noncontrolling interests in the acquiree at the acquisition date, measured at their respective fair values as of that date, with limited exceptions specified in the statement. SFAS 141(R) requires acquisition costs to be expensed as incurred and restructuring costs relating to the acquired businesses to be expensed in periods after the acquisition date. Earn-outs and other forms of contingent consideration are to be recorded at fair value on the acquisition date. Changes in accounting for deferred tax asset valuation allowances and acquired income tax uncertainties after the measurement period will be recognized in earnings rather than as an adjustment to the cost of the acquisition. SFAS 141(R) generally applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. Early adoption is prohibited. We are currently evaluating the potential impact that the implementation of SFAS 141(R) may have on our financial position and results of operations.

ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements—an amendment of ARB No. 51 (SFAS 160). SFAS 160 requires noncontrolling interests or minority interests to be treated as a separate component of equity, not as a liability or other item outside of permanent equity. Upon a loss of control, the interest sold, as well as any interest retained, are required to be measured at fair value, with any gain or loss recognized in earnings. Additionally, when control is obtained and a previous equity interest was held, a gain or loss will be recognized in earnings for the difference between the fair value of the previously held equity interest and its carrying value. Based on SFAS 160, assets and liabilities will not change for subsequent purchase or sale transactions with noncontrolling interests as long as control is maintained. Differences between the fair value of consideration paid or received and the carrying value of noncontrolling interests are to be recognized as an adjustment to the parent interest’s equity. SFAS 160 is effective for fiscal year beginning on or after December 15, 2008. Earlier adoption is prohibited. SFAS 160 will be applied prospectively to all noncontrolling interests, including any that arose before the effective date except that comparative period information must be recast to classify noncontrolling interests in equity, attribute net income and other comprehensive income to noncontrolling interests, and provide other disclosures required by SFAS 160. Considering that minority interest liability amounts to $2.5 million at September 30, 2008, we do not expect that the implementation of SFAS 160 will have a material impact on our financial position and results of operations.

In March 2007, the Emerging Issues Task Force (EITF) reached a consensus on EITF Issue No. 06-10 (EITF 06-10), Accounting for Deferred Compensation and Postretirement Benefit Aspects of Collateral Assignment Split-Dollar Life Insurance Arrangements , which provides guidance to help companies determine whether a liability for the postretirement benefits associated with a collateral assignment split-dollar life insurance arrangement should be recorded in accordance with either SFAS 106 (if, in substance, a postretirement benefit plan exists), or Accounting Principles Board Opinion No. 12 (if the arrangement is, in substance, an individual deferred compensation contract). EITF 06-10 also provides guidance on how a company should recognize and measure the asset in a collateral assignment split-dollar life insurance contract. EITF 06-10 is effective for fiscal years beginning after December 15, 2007. We have one life insurance policy which is subject to the provisions of this new pronouncement. We recognized the effects of applying the EITF 06-10 as a change in accounting principle through a cumulative-effect adjustment to retained earnings as of January 1, 2008. In accordance with EITF 06-10, we recorded a liability for the present value of the future premiums to be paid to maintain the life insurance policy and adjusted the cash surrender value asset to reflect the total amount of cash we are entitled to at the maturity of the agreement or death of the owner. The $0.9 million difference between the recorded liability for the remaining premium payments (totaling $1.3 million, net of tax) and the adjustment necessary to update the expected cash flows from the policy ($0.4 million) was recognized as an adjustment to retained earnings as of January 1, 2008.

In February 2007, the FASB issued SFAS No. 159, Fair Value Option for Financial Assets and Financial Liabilities — Including an amendment of FASB Statement No. 115 (SFAS 159), which permits entities to choose to measure many financial instruments and certain other items at fair value. If elected, SFAS 159 was effective beginning January 1, 2008. Under SFAS 159, a company may elect to use fair value to measure eligible items at specified election dates and report unrealized gains and losses on items for which the fair value option has been elected in earnings at each subsequent reporting date. Eligible items include, but were not limited to, accounts and loans receivable, available-for-sale and held-to-maturity securities, equity method investments, accounts payable, guarantees, issued debt and firm commitments. We elected not to measure any financial instruments or other items at fair value as of January 1, 2008 in accordance with SFAS 159.

In September 2006, the FASB issued SFAS No. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans — an amendment of FASB Statements No. 87, 88, 106 and 132(R) (SFAS 158). SFAS 158 required an employer to recognize the overfunded or underfunded status of a defined benefit postretirement plan as an asset or a liability in its balance sheet and to recognize changes in that funded status in the year in which the changes occur through accumulated other comprehensive income. We adopted the recognition provisions of this standard

ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

effective December 31, 2006. SFAS 158 also requires an employer to measure the funded status of a plan as of the employer’s year-end reporting date. The measurement date provisions of SFAS 158 are effective for us for the year ending December 31, 2008. We plan on utilizing the “one measurement” approach under which we measured our benefit obligations as of September 30, 2007 and will recognize the net benefit expense for the transition period from October 1, 2007 to December 31, 2007 in retained earnings as of December 31, 2008, net of related tax effects. We do not expect the adoption of the measurement date provisions of SFAS 158 to have a material impact on our financial position or results of operations.

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (SFAS 157). SFAS 157 defines fair value, establishes a framework for measuring fair value in accordance with GAAP and expands disclosures about fair value measurements. SFAS 157 applies to other accounting pronouncements that require or permit fair value measurements, the FASB having previously concluded in those accounting pronouncements that fair value is the relevant measurement attribute. Accordingly, SFAS 157 does not require any new fair value measurements; however, for some entities, the application of SFAS 157 will change current practice. SFAS 157 was effective for us on January 1, 2008; however, in February 2008, the FASB issued FSP No. SFAS 157-2 (FSP 157-2) which delayed the effective date of SFAS 157 for non-financial assets and non-financial liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis, for one year. The adoption of SFAS 157 effective January 1, 2008 with respect to our financial assets and liabilities did not have a material impact on our consolidated financial statements. We intend to adopt the provisions of SFAS 157 with respect to our non-financial assets and non-financial liabilities effective January 1, 2009 pursuant to the requirements of FSP 157-2, and are currently evaluating the potential impact on our financial position and results of operations. SFAS 157 will impact accounting for fair values associated primarily with assets such as property, plant and equipment, intangible assets, goodwill upon non-recurring events such as business combinations, asset impairments, sales and goodwill impairment, among others.

2. Acquisitions and Divestitures

Acquisitions —

There were no material acquisitions completed during the nine months ended September 30, 2008. During the first quarter of 2007, we acquired collection operations, two transfer stations and a landfill in our West region for total consideration of $61.7 million. These acquisitions were reflected in our operations since the effective date of the acquisition. The pro forma effect of these acquisitions, individually and collectively, was not material.

Discontinued Operations —

During 2007, we divested operations in our South region in the first quarter and in our Midwest region in the third quarter and have reported such divestitures as discontinued operations on our consolidated financial statements for 2007. Results for the discontinued operations are as follows (in millions):

		Three Months				Nine Months
		Ended				Ended
		September 30,				September 30,
		2007				2007
Revenues (1)		$	8.6			$	50.9
(Loss) income before tax		$	(0.5	)		$	3.1
Loss on divestiture			(44.0	)			(32.6	)
Income tax benefit (expense)			4.8				(4.4	)
Discontinued operations, net of tax		$	(39.7	)		$	(33.9	)

ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Results for discontinued operations for the three and nine months ended September 30, 2007 included losses from the sale of these assets of $44.0 million ($39.8 million loss, net of tax) and $32.6 million ($36.0 million loss, net of tax), respectively. These transactions included divested goodwill of $56.5 million and $95.7 million in the three and nine months ended September 30, 2007, respectively. Discontinued operations for the three and nine months ended September 30, 2007 included $0.5 million of pre-tax loss from operations ($0.1 million gain, net of tax) and $3.1 million of pre-tax income ($2.1 million income, net of tax), respectively.

3. Property and Equipment

The following tables show the activity and balances related to property and equipment from December 31, 2007 through September 30, 2008 (in millions):

		Property and Equipment
		Balance at								Sales				Acquisitions,				Transfers				Balance at
		December 31,				Capital				and				Net of				and				September 30,
		2007				Additions				Retirements				Divestitures				Other (1)				2008
Land and improvements		$	486.2			$	4.6			$	(0.6	)		$	—			$	(70.9	)		$	419.3
Land held for permitting as landfills			97.8				14.6				—				—				(15.9	)			96.5
Landfills			4,461.7				166.1				—				(0.4	)			108.5				4,735.9
Buildings and improvements			536.8				22.6				(2.3	)			—				(1.3	)			555.8
Vehicles and equipment			2,354.8				245.6				(128.4	)			(0.2	)			0.7				2,472.5
Containers and compactors			993.6				40.7				(28.5	)			0.1				(0.4	)			1,005.5
Furniture and office equipment			64.5				6.8				(1.3	)			—				—				70.0
Total		$	8,995.4			$	501.0			$	(161.1	)		$	(0.5	)		$	20.7			$	9,355.5

		Accumulated Depreciation and Amortization
						Depreciation
		Balance at				and				Sales				Acquisitions,				Transfers				Balance at
		December 31,				Amortization				and				Net of				and				September 30,
		2007				Expense				Retirements				Divestitures				Other (1)				2008
Land and improvements		$	(42.3	)		$	(2.6	)		$	0.1			$	—			$	24.0			$	(20.8	)
Landfills			(2,268.2	)			(165.2	)			—				0.4				(24.9	)			(2,457.9	)
Buildings and improvements			(188.9	)			(18.6	)			1.7				—				—				(205.8	)
Vehicles and equipment			(1,335.9	)			(161.5	)			123.7				0.2				(2.5	)			(1,376.0	)
Containers and compactors			(689.9	)			(57.6	)			28.4				—				0.3				(718.8	)
Furniture and office equipment			(39.8	)			(5.0	)			1.3				—				—				(43.5	)
Total		$	(4,565.0	)		$	(410.5	)		$	155.2			$	0.6			$	(3.1	)		$	(4,822.8	)
Property and equipment, net		$	4,430.4			$	90.5			$	(5.9	)		$	0.1			$	17.6			$	4,532.7

Maintenance and repair expenses charged to cost of operations for the three and nine months ended September 30, 2008 were $117.1 million and $349.7 million, respectively, and $122.8 million and $364.8 million for the same periods in 2007, respectively. We recognized net pre-tax gains on the disposal of fixed assets for the three and nine months ended September 30, 2008 of $4.1 million and $10.2 million, respectively, and $2.6 million and $7.7 million for same periods in 2007, respectively.

ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

4. Goodwill

The following table shows the activity and balances related to goodwill by reporting unit from December 31, 2007 through September 30, 2008, reflecting the reallocation among regions related to the changes in our regional organization structure that occurred in the first quarter of 2008 (in millions):

		Balance at																Balance at
		December 31,																September 30,
		2007				Acquisitions				Divestitures				Adjustments (1)				2008
East		$	2,411.2			$	—			$	—			$	(1.2	)		$	2,410.0
Midwest			2,083.7				—				—				(0.9	)			2,082.8
South			1,861.9				—				—				(0.9	)			1,861.0
West			1,663.2				—				—				(1.0	)			1,662.2
Total		$	8,020.0			$	—			$	—			$	(4.0	)		$	8,016.0

5. Long-term Debt

Long-term debt at September 30, 2008 and December 31, 2007 consists of the amounts listed in the following table. The effective interest rate includes our interest cost incurred, amortization of deferred financing cost and amortization or accretion of discounts or premiums (in millions, except percentages).

		Debt Balance at								Effective Interest Rate
		September 30,				December 31,				September 30,				December 31,
		2008				2007				2008				2007
2005 Revolver due 2012, ABR borrowings*		$	—			$	—				5.50	%			7.75	%
2005 Revolver due 2012, LIBOR borrowings*			—				—				5.55				6.20
2005 Term Loan due 2014			671.7				806.7				5.63				6.75
Receivables secured loan			400.0				393.7				3.86				6.37
6.375% senior notes due 2008			—				161.0				—				8.34
6.50% senior notes due 2010			350.0				350.0				6.76				6.76
5.75% senior notes due 2011			400.0				400.0				6.00				6.00
6.375% senior notes due 2011			275.0				275.0				6.63				6.63
7.875% senior notes due 2013			450.0				450.0				8.09				8.09
6.125% senior notes due 2014			425.0				425.0				6.30				6.30
7.25% senior notes due 2015			600.0				600.0				7.43				7.43
7.125% senior notes due 2016			596.0				595.6				7.38				7.38
6.875% senior notes due 2017			750.0				750.0				7.04				7.04
9.25% debentures due 2021			96.7				96.5				9.47				9.47
7.40% debentures due 2035			298.4				296.7				8.03				8.03
4.25% senior subordinated convertible debentures due 2034			230.0				230.0				4.34				4.34
7.375% senior unsecured notes due 2014			400.0				400.0				7.55				7.55
Solid waste revenue bond obligations, principal payable through 2031**			514.1				397.5				7.82				6.12
Notes payable to individuals, a municipality and a commercial company, interest rates of 7.125% to 11.25%, and principal payable through 2014, secured by vehicles, equipment, real estate or accounts receivable**			1.0				1.2				7.99				7.97
Obligations under capital leases of vehicles and equipment **			11.0				12.3				8.81				8.78
Notes payable to an individual and a commercial company, interest rates of 5.99% to 6.00%, principal payable through 2010 , unsecured**			1.2				1.7				6.00				6.00
Total debt **			6,470.1				6,642.9				6.77				6.96
Less: Current portion			402.4				557.3
Long-term portion		$	6,067.7			$	6,085.6

ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2008 Financings —

During 2008, we issued in aggregate approximately $125 million of variable rate, unsecured tax-exempt bonds with stated maturity dates between 2016 and 2024. Proceeds from these tax exempt bonds are utilized to finance qualifying expenditures at our landfills, transfer and hauling facilities.

In May 2008, we renewed our $400 million accounts receivable securitization program, which matures in May 2009. In September 2008, we amended the definition of “change of control” in our $400 million accounts receivable securitization facility to allow for the proposed merger with Republic.

In January 2008, we repaid at maturity $161.2 million of 6.375% senior notes due 2008 with available cash.

2005 Credit Facility —

At September 30, 2008, we had a senior secured credit facility, referred to as the 2005 Credit Facility, that included: (i) a $1.575 billion Revolving Credit Facility due March 2012 (the 2005 Revolver), (ii) a $671.7 million Term Loan B due March 2014, referred to as the 2005 Term Loan, (iii) a $480 million Institutional Letter of Credit Facility due March 2014, and (iv) a $25 million Incremental Revolving Letter of Credit Facility due March 2012. Of the $1.575 billion available under the 2005 Revolver, the entire amount may be used to support the issuance of letters of credit. At September 30, 2008, we had no borrowings outstanding and $454.7 million in letters of credit drawn on the 2005 Revolver, leaving approximately $1.1 billion capacity available under the 2005 Revolver. Both the $25 million Incremental Revolving Letter of Credit Facility and $480 million Institutional Letter of Credit Facility were fully utilized at September 30, 2008.

The 2005 Credit Facility bears interest at an Alternative Base Rate (ABR) or an Adjusted LIBOR, both terms as defined in the 2005 Credit Facility agreement, plus, in either case, an applicable margin based on our leverage ratio. Proceeds from the 2005 Credit Facility may be used for working capital and other general corporate purposes, including acquisitions.

We are required to make prepayments on the 2005 Credit Facility upon completion of certain transactions as defined in the 2005 Credit Facility agreement, including asset sales and issuances of debt securities. Proceeds from these transactions, in certain circumstances, are required to be applied to amounts due under the 2005 Credit Facility pursuant to the 2005 Credit Facility agreement. The agreement also requires scheduled amortization of the 2005 Term Loan and Institutional Letter of Credit Facility. There is no further scheduled amortization on the 2005 Term Loan except for the outstanding balance at maturity on March 28, 2014. During the third quarter of 2008, we made optional prepayments of $135 million on the 2005 Term Loan. These payments were made with excess cash flow from operations.

Receivables secured loans —

We have an accounts receivable securitization program that allows us to borrow up to $400 million on a revolving basis under a loan agreement and a 364-day liquidity facility secured by receivables. If we are unable to renew the liquidity facility when it matures on May 29, 2009, we intend to refinance any amounts outstanding with a portion of our 2005 Revolver or with other long-term borrowings. Although we intend to renew the liquidity facility on May 29, 2009, 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.

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. At September 30, 2008 and December 31, 2007, the total amount of accounts receivable (gross) serving as collateral securing the borrowing were $569.6 million and $532.5 million, respectively.

ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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, 2008 and December 31, 2007, we had outstanding borrowings under this program of $400.0 million and $393.7 million, respectively. The borrowings under this program bear interest at the financial institution’s commercial paper rate plus an applicable spread and interest is payable monthly.

Debt covenants —

We are not subject to any minimum net worth covenants. At September 30, 2008, our EBITDA ⁽¹⁾ /Interest ratio was 3.52:1 compared to the 2.25:1 minimum required by the covenants under our 2005 Credit Facility and Total Debt/EBITDA ⁽¹⁾ ratio was 3.81:1 compared to the 5.50:1 maximum required by the covenants under our 2005 Credit Facility.

The 2005 Credit Facility also restricts us from making certain types of payments, including dividend payments on our common and preferred stock. However, we were able to pay cash dividends on our outstanding 6.25% Series D senior mandatory convertible preferred stock (Series D preferred stock) prior to its conversion on March 1, 2008. Our debt agreements 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.

Failure to comply with the financial and other covenants under our 2005 Credit Facility, as well as the occurrence of certain material adverse events, would constitute defaults and would allow the lenders under the 2005 Credit Facility to accelerate the maturity of all indebtedness under the related agreement. This could also have an adverse impact on the availability of financial assurance for the obligations discussed in Note 11. In addition, maturity acceleration on the 2005 Credit Facility constitutes an event of default under our other debt instruments, including our senior notes and which would also be subject to acceleration of maturity. If such acceleration were to occur, we would not have sufficient liquidity available to repay the indebtedness. We would likely have to seek an amendment under the 2005 Credit Facility for relief from the financial covenants or repay the debt with proceeds from the issuance of new debt or equity, and/or asset sales, if necessary. We may be unable to amend the 2005 Credit Facility or raise sufficient capital on acceptable terms and conditions to repay such obligations in the event the maturities are accelerated. At September 30, 2008, we were in compliance with all applicable covenants.

Guarantees —

We, and substantially all of our subsidiaries, are jointly and severally liable for the obligations under the 6.50% senior notes due 2010, the 5.75% senior notes due 2011, the 6.375% senior notes due 2011, the 7.875% senior notes due 2013, the 6.125% senior notes due 2014, the 7.375% senior unsecured notes due 2014, the 7.25% senior notes due 2015, the 7.125% senior notes due 2016 and the 6.875% senior notes due 2017 issued by Allied Waste North America, Inc. (Allied NA) and the 2005 Credit Facility through unconditional guarantees issued by us and our current and future subsidiaries. We and Allied NA, our wholly-owned subsidiary are jointly and severally liable for the obligations under the 9.25% debentures due 2021 and the 7.40% debentures due 2035 issued by BFI through unconditional guarantees. We are also jointly and severally liable for the obligations under the $20.0 million 5.15% unsecured tax-exempt bonds due 2015, the $56.8 million 5.20% unsecured tax-exempt bonds due 2018 and the $30.0 million variable rate unsecured tax-exempt bonds due 2017, issued by Allied NA, through unconditional guarantees. Certain other debt issued by us or our subsidiaries may also be guaranteed by us or our subsidiaries. At September 30, 2008, the maximum potential amount of future payments under the guarantees is the outstanding amount of the debt identified above and the amount for letters of credit issued under the 2005 Credit Facility. In accordance with FIN No. 45, Guarantor’s Accounting and Disclosure Requirements for

ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Guarantees, Including Indirect Guarantees of Indebtedness of Others (FIN 45), the guarantees are not recorded in our consolidated financial statements as they represent parent-subsidiary guarantees. We do not guarantee any third party debt.

Collateral —

Our 2005 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 collateralizes the 2005 Credit Facility is shared as collateral with the holders of certain of our senior secured notes and debentures.

The senior secured notes and debentures are collateralized by the stock of substantially all of the Browning-Ferris Industries, LLC (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, 2008, the book value of the assets of the subsidiaries that serve as collateral for these notes and debentures was approximately $9.0 billion, which represents approximately 65% of our consolidated total assets.

Interest expense and other —

Interest expense and other includes interest paid to third parties for our debt obligations (net of amounts capitalized), interest income, amortization or accretion of debt discounts or premiums, amortization of debt issuance costs and costs incurred to early extinguish debt.

Interest expense and other includes the following components (in millions):

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2008				2007				2008				2007
Interest expense		$	108.7			$	120.6			$	324.9			$	371.3
Interest income			(1.2	)			(2.2	)			(3.5	)			(4.1	)
Interest capitalized for development projects			(3.4	)			(5.2	)			(10.0	)			(14.3	)
Accretion of debt and amortization of debt issuance costs			4.3				5.0				13.1				15.4
Costs incurred to early extinguish debt			0.4				13.0				0.4				59.2
Interest expense allocated to discontinued operations			—				(0.9	)			—				(3.1	)
Total interest expense and other		$	108.8			$	130.3			$	324.9			$	424.4

Derivative instruments and hedging activities —

Our policy requires that no less than 70% of our debt be at a fixed rate, either directly or effectively through interest rate swap contracts. In order to adhere to the policy, we have from time to time entered into interest rate swap contracts for the purpose of hedging variability of interest expense and interest payments on our long-term variable rate bank debt and maintaining a mix of fixed and floating rate debt. Our strategy is to use interest rate swap contracts when such transactions will serve to reduce our aggregate exposure and meet the objectives of our interest rate risk management policy. These contracts are not entered into for trading purposes. We believe it is important to have a mix of fixed and floating rate debt to provide financing flexibility.

At September 30, 2008, approximately 80% of our debt was at fixed rate and 20% had variable interest rates. We had no interest rate swap contracts or other derivative and hedging activities at September 30, 2008.

ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

6. Landfill Accounting

Landfill accounting —

We have a network of 158 owned or operated active landfills with a net book value of approximately $2.3 billion at September 30, 2008. In addition, we own or have responsibility for 115 closed landfills.

Landfill assets —

During 2008, we recorded asset impairment charges totaling $24.4 million, which is included in "(Gain) loss from divestitures and asset impairments” on the consolidated statement of operations. The asset impairment amount in 2008 consists primarily of a $5.4 million charge related to a landfill closure in the Midwest region in the second quarter as well as a $17.8 million charge recorded during the first quarter associated with another landfill closure in the Midwest region, for which we had previously recognized an impairment charge of $24.5 million in the third quarter of 2007. This landfill was managed by a third party under a partnership agreement until February 2007 when we assumed operator responsibilities. We have recorded our related capping, closure and post closure accruals at amounts which we believe are adequate based on currently existing information; however, as the closure process continues and additional information becomes known, our estimated costs may change.

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

										Capping,
		Net Book Value of				Landfill				Closure and												Net Book Value at
Net Book Value at		Landfills Acquired,				Development				Post Closure				Landfill								September 30,
December 31, 2007		Net of Divestitures				Costs				Accruals (1)				Amortization				Other (2)				2008
$2,193.5		$	—			$	176.1			$	31.5			$	(165.2	)		$	42.1			$	2,278.0

We expensed approximately $51.6 million and $61.2 million, or an average of $2.89 and $3.28 per ton consumed, related to landfill amortization during the three months ended September 30, 2008 and 2007, respectively. We expensed approximately $165.2 million and $170.7 million, or an average of $3.16 and $3.09 per ton consumed, related to landfill amortization during the nine months ended September 30, 2008 and 2007, respectively.

Capping, closure and post-closure —

Accretion expense for capping, closure and post-closure for the three months ended September 30, 2008 and 2007 was $14.4 million and $13.8 million, respectively, or an average of $0.81 and $0.74 per ton consumed, respectively. Accretion expense for capping, closure and post-closure for the nine months ended September 30, 2008 and 2007 was $43.0 million and $41.5 million, respectively, or an average of $0.82 and $0.75 per ton consumed, respectively.

ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Environmental costs —

Our ultimate liabilities for environmental matters may differ from the estimates determined in our assessments to date. We have determined that the recorded undiscounted liabilities for environmental matters as of September 30, 2008 and December 31, 2007 of approximately $172.5 million and $189.6 million, respectively, represents the most probable outcome of these matters. Using the high end of our estimate of the reasonably possible range, the outcome of these matters would result in approximately $15.5 million and $17.2 million of additional liability at September 30, 2008 and December 31, 2007, respectively. There were no significant environmental recovery receivables outstanding as of September 30, 2008.

The following table shows the activity and balances related to our environmental and capping, closure and post-closure accruals related to open and closed landfills from December 31, 2007 through September 30, 2008 (in millions):

		Balance at																Balance at
		December 31,				Accretion												September 30,
		2007				Expense				Other (1) (2)				Payments				2008
Environmental accruals		$	189.6			$	—			$	2.4			$	(19.5	)		$	172.5
Open landfills capping, closure, and post-closure accruals			452.1				26.2				(49.3	)			(11.8	)			417.2
Closed landfills capping, closure, and post-closure accruals			225.7				16.8				80.4				(37.6	)			285.3
Total		$	867.4			$	43.0			$	33.5			$	(68.9	)		$	875.0

7. Income Taxes

As of September 30, 2008, we had unrecognized tax benefits of $512 million. If these benefits are recognized before December 31, 2008, $20 million would favorably impact our effective tax rate with the majority of the remaining benefits reducing goodwill. Subsequent to December 31, 2008, the recognition of such benefits would favorably impact our effective tax rate under the requirements of SFAS 141(R). As a result of anticipated state tax related settlements, the amount of unrecognized tax benefits may decrease by approximately $15 to $25 million during the next twelve months.

We recognize interest and penalties relating to income tax matters as a component of income tax expense. As of September 30, 2008, we have accrued $140 million for interest and $2 million for penalties relating to income tax matters, including $19 million of interest accrued during the nine months ended September 30, 2008.

We are currently under examination or administrative review by various state and federal taxing authorities for certain tax years, including federal income tax audits for calendar years 2000 through 2006. Certain matters relating to these audits are discussed below.

Risk management companies . Prior to our acquisition of BFI on July 30, 1999, BFI operating companies, as part of a risk management initiative to 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, 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.

ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

On January 18, 2001, the 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. At the time of the disallowance, 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 and, therefore, not liabilities recognized for tax purposes. Under the IRS interpretation, there was no capital loss on the sale of the stock since the tax basis of the stock should have approximated the proceeds received. We protested the disallowance to the Appeals Office of the IRS in August 2002.

In April 2005, the Appeals Office of the IRS upheld the disallowance of the capital loss deduction. As a result, in late April 2005 we paid a deficiency to the IRS of $22.6 million for BFI tax years prior to the acquisition. We also received a notification from the IRS assessing a penalty of $5.4 million and interest of $12.8 million relating to the asserted $22.6 million deficiency. In July 2005, we filed a suit for refund in the United States Court of Federal Claims. The government thereafter filed a counterclaim in the case for the $5.4 million penalty and $12.8 million of interest claimed by the IRS. In December 2005, the IRS agreed to suspend the collection of this penalty and interest until a decision is rendered on our suit for refund.

In July 2006, while the Court of Federal Claims case was pending, we discovered what we construed to be a jurisdictional defect in the case that could have prevented our recovery of the refund amounts claimed even if we would have been successful on the underlying merits. Accordingly, on September 12, 2006, we filed a motion to dismiss the case without prejudice on jurisdictional grounds. On March 2, 2007, the Court of Federal Claims granted our motion dismissing the case. Thereafter, on July 6, 2007, the government appealed the decision to the United States Court of Appeals for the Federal Circuit (Federal Circuit). On April 16, 2008, the Federal Circuit reversed the lower court’s decision and remanded the case back to the Court of Federal Claims for further proceedings. On May 15, 2008, we filed a petition for panel rehearing with the Federal Circuit, requesting that the court reconsider its ruling. On June 8, 2008, the Federal Circuit denied our petition. To date there have been no further proceedings in the Court of Federal Claims subsequent to the remand to that court.

On August 4, 2008, we received from the IRS a Statutory Notice of Deficiency (Notice) related to our utilization of BFI’s capital loss carryforward on our 1999 tax return. As we have previously paid the tax and interest for this year, the Notice relates only to the asserted penalty for 1999. We intend to file a suit for refund of tax and interest for this tax year.

If the capital loss deduction is fully disallowed, we estimate that it would have an impact of approximately $447 million ($376 million net of tax benefit) related to federal taxes, state taxes and interest. This amount has been fully accrued on our consolidated balance sheet. Because of the interest rate assessed on this matter, we have previously paid the IRS and various state tax authorities $239 million ($200 million net of tax benefit), including $196 million paid in the first quarter of 2008, for tax and interest related to the capital loss deductions taken on the 1999 income tax returns. During the fourth quarter of 2008, we expect to pay the IRS and various state tax authorities approximately $163 million ($132 million net of tax benefit) for tax and interest related to capital loss deductions taken on our 2000 — 2003 income tax returns. These payments do not represent a settlement with respect to the potential tax, interest or penalty related to this matter, nor do they prevent us from contesting the IRS tax adjustment applicable to our 1999 — 2003 taxable years in a federal refund action. The remaining impact of the capital loss disallowance, $45 million ($44 million net of tax benefit) will likely be paid in the normal course of future audit cycles for the tax years 2004 and beyond.

Additionally, the IRS and state authorities could ultimately impose penalties and penalty interest for any amount up to approximately $125 million, net of tax benefit, as of September 30, 2008, none of which has been accrued on our consolidated balance sheet.

ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Exchange of partnership interests . In April 2002, we exchanged minority partnership interests in four waste-to-energy facilities for majority partnership interests in equipment purchasing businesses, which are now wholly-owned subsidiaries. In August 2008, the IRS issued a formal notice of proposed adjustment contending that the exchange was a sale on which a corresponding gain should have been recognized. Although we intend to vigorously defend our position on this matter, if the exchange is treated as a sale, we estimate it could have a potential federal and state cash tax impact of approximately $156 million plus accrued interest through September 30, 2008 of approximately $45 million ($28 million, net of tax benefit). Also, the IRS has proposed a penalty of 20% of the additional income tax due. The potential tax and interest (but not penalties) of a full adjustment for this matter have been fully reserved on our consolidated balance sheet at September 30, 2008.

Methane gas . During the second quarter of 2007, as part of its examination of our 2000 through 2003 federal income tax returns, the IRS reviewed our treatment of costs associated with our landfill operations. As a result of this review, the IRS has proposed that certain landfill costs be allocated to the collection and control of methane gas that is naturally produced within the landfill. The IRS’ position is that the methane gas produced by a landfill is a joint product resulting from the operations of the landfill and, therefore, these costs should not be expensed until the methane gas is sold or otherwise disposed.

We plan to contest this issue at the Appeals Office of the IRS. We believe we have several meritorious defenses, including the fact that methane gas is not actively produced for sale by us but rather arises naturally in the context of providing disposal services. Therefore, we believe that the subsequent resolution of this issue will not have a material adverse impact on our consolidated liquidity, financial position or results of operations.

8. Employee Benefit Plans

Components of net periodic benefit cost —

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

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
BFI Pension Plan:		2008				2007				2008				2007
Service cost		$	—			$	0.1			$	0.2			$	0.2
Interest cost			5.2				5.3				15.6				15.8
Expected return on plan assets			(8.1	)			(7.5	)			(24.3	)			(22.4	)
Recognized net actuarial loss			0.3				1.3				0.8				3.8
Net periodic benefit cost		$	(2.6	)		$	(0.8	)		$	(7.7	)		$	(2.6	)

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
SERP:		2008				2007				2008				2007
Service cost		$	0.2			$	0.2			$	0.6			$	0.6
Interest cost			0.2				0.1				0.6				0.5
Amortization of prior service cost			0.1				0.1				0.2				0.5
Net periodic benefit cost		$	0.5			$	0.4			$	1.4			$	1.6

Multi-employer pension plans —

We contribute to 21 multi-employer pension plans under collective bargaining agreements covering union-represented employees. Approximately 20 percent of our total current employees are participants in such multi-employer plans. These plans generally provide retirement benefits to participants based on their service to contributing employers. We do not administer these multi-employer plans, which are generally managed by a board of trustees with the unions appointing certain trustees and other contributing employers of the plan appointing certain members. We are generally not represented on the board of trustees.

ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

We do not have current plan financial information from the plan administrators, but based on the information available to us, we believe that some of the multi-employer plans to which we contribute are underfunded. Additionally, the Pension Protection Act, enacted in August 2006, will require underfunded pension plans to improve their funding ratios within prescribed intervals based on the level of their underfunding, perhaps beginning as soon as 2008. Until the plan trustees develop the funding improvement plans or rehabilitation plans as required by the Pension Protection Act, we are unable to determine the amount of additional future contributions, if any. Accordingly, we cannot determine at this time the impact of the Pension Protection Act on our consolidated liquidity, financial position or results of operations.

Furthermore, under current law regarding multi-employer benefit plans, a plan’s termination, our voluntary withdrawal, or the mass withdrawal of all contributing employers from any under-funded multi-employer pension plan would require us to make payments to the plan for our proportionate share of the multi-employer plan’s unfunded vested liabilities. We do not currently believe a mass withdrawal of employers contributing to these plans is probable or that any of the plans will terminate in the near future.

Our pension expense for multi-employer plans was $6.5 million and $6.1 million for the three months ended September 30, 2008 and 2007, respectively, and $19.2 million and $17.9 million for the nine months ended September 30, 2008 and 2007, respectively.

9. Stockholders’ Equity

Series D senior mandatory convertible preferred stock —

Effective March 1, 2008, each of the outstanding shares of our Series D preferred stock automatically converted into 25.3165 shares of our common stock pursuant to the terms of the certificate of designations governing the Series D preferred stock. This increased our common shares outstanding by approximately 60.8 million shares and eliminated annual cash dividends of $37.5 million.

The conversion rate, pursuant to the terms set forth in the certificate of designations, was equal to $250.00 divided by $9.88 (the threshold appreciation price), as the average of the closing prices per share of our common stock on each of the 20 consecutive trading days ending on February 27, 2008 (the third trading day preceding the conversion date) was greater than the threshold appreciation price. Each holder of Series D preferred stock on the applicable record date received a cash payment equal to the amount of accrued and unpaid dividends. As a result of the automatic conversion, we will no longer pay quarterly dividends with respect to the Series D preferred stock. Each holder of Series D preferred stock on the conversion date received cash in lieu of any fractional shares of common stock issued upon conversion of the Series D preferred stock.

Accumulated other comprehensive loss —

Accumulated other comprehensive loss related to our defined benefit plans was $29.5 million, net of tax, at both September 30, 2008 and December 31, 2007. The amounts are included in stockholders’ equity.

Comprehensive income —

We had no items impacting comprehensive income other than net income for the three and nine months ended September 30, 2008 and 2007.

ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

10. Net Income Per Common Share

Net income per common share from continuing operations is calculated as follows (in millions, except per share data):

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2008				2007				2008				2007
Basic earnings per share computation:
Income from continuing operations		$	112.5			$	66.9			$	296.5			$	192.2
Less: dividends on preferred stock			—				(9.4	)			(6.2	)			(28.1	)
Income from continuing operations available to common shareholders		$	112.5			$	57.5			$	290.3			$	164.1
Weighted average common shares outstanding			433.1				369.3				418.5				368.6
Basic earnings per share from continuing operations		$	0.26			$	0.16			$	0.69			$	0.45
Diluted earnings per share computation:
Income from continuing operations		$	112.5			$	66.9			$	296.5			$	192.2
Less: dividends on preferred stock			—				(9.4	)			—				(28.1	)
Add back: Interest expense on senior subordinated convertible debentures, net of tax			1.6				1.5				4.6				4.4
Income from continuing operations available to common shareholders		$	114.1			$	59.0			$	301.1			$	168.5
Weighted average common shares outstanding			433.1				369.3				418.5				368.6
Dilutive effect of stock awards			2.0				1.8				1.9				2.0
Dilutive effect of senior subordinated convertible debentures			11.3				11.3				11.3				11.3
Dilutive effect of Series D preferred stock			—				—				13.3	(1)			—
Weighted average common and common equivalent shares outstanding			446.4				382.4				445.0				381.9
Diluted earnings per share from continuing operations		$	0.26			$	0.15			$	0.68			$	0.44

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

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2008				2007				2008				2007
Stock options			6.8				4.1				7.7				4.1
Series D preferred stock			—				60.8				—				60.8

11. Commitments and Contingencies

Litigation —

We are subject to extensive and evolving laws and regulations and have implemented our own 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 impact earnings and cash flows for a particular period. We accrue for legal matters and regulatory compliance contingencies when such costs are probable and can be reasonably estimated. Although the ultimate outcome of any legal matter cannot be predicted with certainty, except as described in the discussion of our outstanding tax matters with the IRS (see Note 7, Income Taxes ), we do not believe that the outcome of our pending legal and administrative proceedings will have a material adverse impact on our consolidated liquidity, financial position or results of operations.

ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

A consolidated amended class action complaint was filed against us and five of our current and former officers on March 31, 2005 in the U.S. District Court for the District of Arizona, consolidating three lawsuits previously filed on August 9, 2004, August 27, 2004 and September 30, 2004. The amended complaint asserted 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 complaint alleged that from February 10, 2004 to September 13, 2004, the defendants caused false and misleading statements to be issued in our public filings and public statements regarding our anticipated results for fiscal year 2004. The lawsuit sought an unspecified amount of damages. We filed a motion to dismiss the complaint on May 2, 2005. On December 15, 2005, the U.S. District Court for the District of Arizona granted our motion and dismissed the lawsuit with prejudice. The plaintiffs appealed the dismissal to the U.S. Court of Appeals for the Ninth Circuit. The appeal was fully briefed and oral argument before the Court of Appeals was held on April 17, 2008. On April 29, 2008, the U.S. Court of Appeals for the Ninth Circuit affirmed the dismissal with prejudice. The due date for plaintiffs to file a petition for a writ of certiorari to the U.S. Supreme Court was July 28, 2008. Plaintiffs did not file a writ of certiorari and the matter is now concluded.

A verified consolidated amended class action complaint was filed on behalf of the securities holders of Republic Services, Inc. (Republic) against us, Republic and certain of Republic’s officers and directors (the Individual Defendants) on September 24, 2008 (the Amended Complaint) in the Court of Chancery in the State of Delaware, consolidating two class action lawsuits previously filed in the Delaware Court of Chancery. We were named as a defendant only in the second of the previously filed lawsuits. The Amended Complaint asserts a claim against the Individual Defendants for breach of their fiduciary duties in connection with the proposed merger of Republic and us, and asserts a claim against us for aiding and abetting the Individual Defendants’ breaches of their fiduciary duties. The Amended Complaint alleges that the proposed merger will result in a material dilution of Republic shareholders’ ownership and holdings, a loss of control over Republic and potentially a loss of Republic’s investment grade rating. The Amended Complaint further alleges as to Republic and the Individual Defendants that: Waste Management, Inc. made superior proposals on July 14 and August 11, 2008 to purchase all of the shares of Republic, which Republic and the Individual Defendants improperly failed to pursue; Republic and the Individual Defendants adopted certain improper defensive measures to thwart a superior proposal, including a stockholders’ rights plan and certain bylaw amendments; and Republic and the Individual Defendants are responsible for issuance of an amended joint proxy statement/prospectus in connection with the proposed merger, which is materially false and misleading. The Complaint alleges as to us that we aided and abetted the Individual Defendants in their breaches of fiduciary duties by actively and knowingly encouraging and participating in the breaches to obtain substantial financial benefits of the merger. Plaintiffs seek to: preliminarily and permanently enjoin defendants from closing the proposed merger; rescind the merger if it is consummated; preliminarily and permanently enjoin enforcement of the defensive measures implemented by Republic; have an order entered directing the Individual Defendants to fully evaluate alternatives to the proposed merger; obtain an accounting for all damages suffered by plaintiffs and the class as a result of defendants’ wrongful conduct; and obtain an award of plaintiffs’ costs, expenses and fees. Plaintiffs have requested that the Court schedule a hearing on a motion for preliminary injunctive relief. The hearing is likely to occur prior to Republic’s and our stockholder meetings to consider the proposed merger to prevent the closing of the merger. We intend to vigorously defend the allegations made against us in the Amended Complaint.

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 September 1999, neighboring parties and others filed a civil lawsuit seeking to prevent BFI from obtaining a vertical elevation expansion permit at our 131-acre landfill in Donna, Texas. They claimed BFI had agreed not to expand the landfill based on a pre-existing Settlement Agreement from a dispute years earlier related largely to drainage discharge rights. In 2001, the Texas Commission on Environmental Quality (TCEQ) granted BFI an expansion permit (the administrative expansion permit proceeding), and, based on this expansion permit, the landfill has an estimated remaining capacity of approximately 1.4 million tons at September 30, 2008. Nonetheless, the

ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

parties opposing the expansion continued to litigate the civil lawsuit and pursue their efforts in preventing the expansion. In November 2003, a Texas state trial court in the civil lawsuit issued a judgment, including an injunction that effectively revoked the expansion permit that was granted by the TCEQ in 2001 because it would require us to operate the landfill according to a prior permit granted in 1988 as well as comply with other requirements that the plaintiffs had requested. On appeal, the Texas Court of Appeals stayed the trial court’s order, allowing us to continue to place waste in the landfill in accordance with the expansion permit granted in 2001. In the administrative expansion permit proceeding on October 28, 2005, the Texas Supreme Court denied review of the neighboring parties’ appeal of the expansion permit, thereby confirming that the TCEQ properly granted our expansion permit.

In April 2006, the Texas Court of Appeals ruled on the civil litigation. The Court dissolved the injunction granted in 2003, which would have effectively prevented us from operating the landfill under the expansion permit and potentially required the relocation of over 2 million tons of waste at cost exceeding $50 million, but also required us to pay a damage award of approximately $2 million plus attorney’s fees and interest. On April 27, 2006, all parties filed motions for rehearing, which were denied by the Texas Court of Appeals. Subsequently, all parties filed petitions for review to the Texas Supreme Court. On November 28, 2007, the Texas Supreme Court denied the petitions for review. On October 29, 2007, two petitioners, North Alamo Water Supply Company (North Alamo) and Engelman Irrigation District (Engelman), filed a motion for re-hearing. On January 11, 2008, the Court denied the petitioners’ motion for re-hearing. We have made payments to Engelman and Hidalgo County and obtained releases of the judgment from those entities. We previously paid North Alamo the damages award due under the judgment. In August 2008, we agreed to pay $325,000 to settle the remaining dispute regarding the amount of the attorney’s fees award owed to North Alamo.

On March 14, 2006, our wholly-owned subsidiary, BFI Waste Systems of Mississippi, LLC, received a Notice of Violation from the Environmental Protection Agency (EPA) alleging that it was in violation of certain Clean Air Act provisions governing Federal Emissions Guidelines for Municipal Solid Waste Landfills, New Source Performance Standards for Municipal Solid Waste Landfills, and the facility operating permit at its Little Dixie Landfill. The majority of these alleged violations involve the failure to file reports or permit applications, including but not limited to design capacity reports, non-methane organic compound (NMOC) emission rate reports and collection and control system design plans, with the EPA in a timely manner. If we had been found to be in violation of such regulations we could have been subject to remedial action under EPA regulations, including monetary sanctions of up to $32,500 per day. By letter dated January 17, 2007, the EPA notified us that it had referred the matter to the U.S. Department of Justice (DOJ) for purposes of bringing an enforcement action and invited us to engage in settlement negotiations. On June 6, 2008, the U.S. District Court for the Southern District of Mississippi entered a judgment approving settlement of the matter for a payment of $242,462.

On November 23, 2005, we received a letter from the San Joaquin District Attorney’s Office, Environmental Prosecutions Unit, (the District Attorney) alleging violations of California permit and regulatory requirements relating to Forward, Inc. (Forward), our wholly-owned subsidiary, and the operation of its landfill. The District Attorney is investigating whether Forward may have (i) mixed green waste with food waste as “alternative daily cover”; (ii) exceeded the daily and weekly tonnage intake limits; (iii) allowed a concentration of methane gas well in excess of 5 percent; or (iv) accepted hazardous waste at a landfill which is not authorized to accept hazardous waste. Such conduct allegedly violates provisions of Business and Professions Code sections 17200, et seq., by virtue of violations of Public Resources Code Division 30, Part 4, Chapter 3, Article 1, sections 44004 and 44014(b); California Code of Regulations Title 27, Chapter 3, Subchapter 4, Article 6, sections 20690(11) and 20919.5; and Health and Safety Code sections 25200, 25100, et seq, and 25500, et seq. On December 7, 2006, Forward received a subpoena and interrogatories from the District Attorney and responded to both as of February 15, 2007. On October 1, 2008, the District Attorney served suit against us alleging violations of the California Business and Professional Code sections 17200, et seq. and is seeking monetary sanctions of up to $2,500 per violation and a permanent injunction to obey all applicable laws and regulations. We intend to vigorously defend the allegations.

ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

By letter dated April 18, 2007, the EPA issued to us a Notice of Violation (NOV), alleging that we were in violation of the federally enforceable state implementation plan for Massachusetts under the Clean Air Act, because, the NOV alleged, certain of our trucks had been observed in violation of a Massachusetts regulation limiting truck idling to no more than five minutes. The NOV alleged 63 separate instances of alleged excessive idling. On September 23, 2008, the U.S. District Court for the District of Massachusetts entered a judgment approving settlement of the matter for a payment of $195,000 and the incorporation of certain elements of our existing anti-idling program into a federally enforceable consent decree.

On March 20, 2008, our subsidiary, Allied Waste Systems of Colorado, LLC, received a draft Compliance Order on Consent (COC) from the Colorado Department of Public Health and Environment (CDPHE) related to its Foothills Landfill. The draft COC proposed to assess a civil penalty of $201,650 for alleged violations of the Colorado Air Pollution and Prevention and Control Act, and the facility’s operating permit and construction permit, which allegedly occurred between 2001 and 2008. CDPHE alleges that the facility failed to install a landfill gas collection and control system (GCCS) and submit a complete gas collection plan in a timely manner; collect and control landfill emissions; conduct Carbon Adsorption System (CAS) performance testing in a timely manner, and submit an initial annual report and self-certify compliance regarding the same; properly maintain and operate flare equipment; and properly maintain operation of the CAS. Pursuant to a COC with CDPHE effective June 8, 2008, we resolved the matter by agreeing to a civil penalty of $134,173 (of which $107,339 will be satisfied by the implementation of supplemental environmental projects and the balance paid as a cash penalty to CDPHE). We also agreed to submit by June 30, 2008, an air pollutant emission notice (APEN), a construction permit application, a Title V permit application and an updated landfill GCCS. The June 30, 2008 deadline was met in a timely manner.

On July 10, 2008, the State of West Virginia Department of Environmental Protection filed suit against our subsidiary Allied Waste Sycamore Landfill, LLC (Sycamore Landfill) in Putnam County Circuit Court alleging thirty-eight violations of the Solid Waste Management Act, W. Va. Code sec. 22-15-1 et seq, the Water Pollution Control Act, W. Va. Code Sec. 22-11-1 et seq and the Groundwater Protection Act, W. Va. Code sec. 22-12-1 et seq. (collectively the “Applicable Statues”) between January 2007 and August 2007. The State is seeking injunctive relief requiring the Sycamore Landfill to comply with the Applicable Statues as well to eliminate all common law public nuisances, and is seeking monetary sanctions of up to $25,000 per day for each violation. We intend to vigorously defend the allegations.

On October 3, 2008, a jury in federal district court in Boston, Massachusetts, returned a verdict in favor of plaintiff and against defendant, Allied Waste, in a breach of contract action. The jury concluded that, between 1997 and 2002, we had failed to deliver as much fiber recyclables as required under a contract and the jury stated that damages were approximately $10.4 million. Under applicable law, prejudgment interest of 12% per year (approximately $10 million through September 30, 2008) will be automatically added to the verdict amount when judgment is entered by the court. We believe that there were erroneous rulings by the court at trial which warrant a new trial or a significant reduction of the damages awarded by the jury, and we intend vigorously to pursue these remedies both in the trial court and, if necessary, on appeal. There can be no assurance, however, that either the post-trial motions or the appeal will be successful. In addition to the claims decided by the jury, several other claims remain to be decided by the judge. One claim yet to be decided is plaintiff’s claim under a Massachusetts law which allows the judge to impose a penalty of up to twice the jury’s verdict plus attorney’s fees if the defendant is found to have engaged in certain types of unfair business practices. We believe that the potential that we will be found liable under this claim or any of the other remaining claims is remote, although there can be no assurance that we will prevail. We have established a reserve in our consolidated balance sheet as of September 30, 2008 which represents our best estimate of the amount that we ultimately expect to incur to resolve this matter.

ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Royalties —

We have entered into agreements to pay royalties to prior landowners, lessors or host community where the landfill is located, based on waste tonnage disposed at specified landfills. The payments are generally payable quarterly and amounts incurred, but not paid, are accrued in the accompanying consolidated balance sheets. Royalties are accrued as tonnage is disposed of in the landfill.

Disposal agreements —

We have several agreements expiring at various dates through 2019 that require us to dispose of a minimum number of tons at third party disposal facilities. Under these put-or-pay agreements, we are required to pay for the agreed upon minimum volumes regardless of the actual number of tons placed at the facilities.

Financial assurance —

We are required to provide financial assurance to governmental agencies and a variety of other entities under applicable environmental regulations relating to our landfill operations for capping, closure and post-closure costs, and/or related to our performance under certain collection, landfill and transfer station contracts. We satisfy the financial assurance requirements by providing surety bonds, letters of credit, insurance policies or trust deposits. The amount of the financial assurance for capping, closure and post-closure costs is determined by the applicable state environmental regulations and can either be for costs associated with a portion of the landfill or the entire landfill. Generally, states will require a third party engineering specialist to determine the estimated capping, closure and post-closure costs that are used to determine the required amount of financial assurance for a landfill. The amount of financial assurance required can, and generally will, differ from the obligation determined and recorded under GAAP. The amount of the financial assurance requirements related to contract performance varies by contract. Additionally, we are required to provide financial assurance for our self-insurance program and collateral for certain performance obligations.

At September 30, 2008, we had the following financial instruments and collateral in place to secure our financial assurance obligations (in millions):

		Landfill
		Closure/				Contract				Risk/Casualty				Collateral for
		Post-Closure				Performance				Insurance				Obligations				Total
Insurance policies		$	730.9			$	—			$	—			$	—			$	730.9
Surety bonds			742.0				488.2				—				—				1,230.2
Trust deposits			85.3				—				—				—				85.3
Letters of credit (1)			370.1				64.1				233.5				292.0				959.7
Total		$	1,928.3			$	552.3			$	233.5			$	292.0			$	3,006.1

These financial 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 instruments, they are not reflected in the accompanying consolidated balance sheets. However, we have recorded capping, closure and post-closure liabilities and self-insurance liabilities as they are incurred. The underlying financial assurance obligations, in excess of those already reflected in our consolidated balance sheets, would be recorded if it is probable that we would be unable to fulfill our related obligations. We do not expect this to occur.

Off-balance sheet arrangements —

We have no off-balance sheet debt or similar obligations, other than operating leases and the financial assurance discussed above which are not classified as 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 have not guaranteed any third party debt.

ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 relate to our activities prior to the divestiture and that may become known in the future. We do not believe that these contingent obligations will have a material effect on our consolidated liquidity, financial position or results of operations.

We have entered into agreements to guarantee the value of certain property that is adjacent to certain landfills to the property owners. These agreements have varying terms over varying periods. Prior to December 31, 2002, liabilities associated with these guarantees were accounted for in accordance with SFAS 5 . Agreements modified or entered into subsequent to December 31, 2002 are accounted for in accordance with FIN 45 . We do not believe that these contingent obligations will have a material effect on our consolidated liquidity, financial position or results of operations.

12. 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. Our 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.

We manage our operations through four geographic operating segments: East, Midwest, South and West. Each region is responsible for managing several vertically integrated operations, which are comprised of districts. The accounting policies for these segments are the same as those described in Note 1, Organization and Summary of Significant Accounting Policies .

We have reclassified prior period segment results to reflect the realignment of our organizational structure in the first quarter of 2008, which reduced the number of our geographic regions from five to four and moved the costs of the regional personnel from corporate (included in Other) to the individual regions.

The tables below reflect certain information relating to the continuing operations of our geographic operating segments (in millions):

Revenues:

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2008				2007				2008				2007
East		$	420.7			$	412.2			$	1,224.9			$	1,210.4
Midwest			385.9				361.8				1,098.3				1,040.7
South			346.6				336.3				1,025.1				1,001.1
West			414.1				404.8				1,218.8				1,178.8
Total reportable segments			1,567.3				1,515.1				4,567.1				4,431.0
Other (1)			38.9				41.2				105.6				117.4
Total per financial statements		$	1,606.2			$	1,556.3			$	4,672.7			$	4,548.4

ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Operating income before depreciation and amortization: ⁽¹⁾

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2008				2007				2008				2007
East (2)		$	137.8			$	128.1			$	379.5			$	354.2
Midwest (2)			120.4				83.8				303.1				284.1
South			112.0				99.9				323.8				296.8
West			140.0				139.2				400.9				397.5
Total operating income before depreciation and amortization for reportable segments		$	510.2			$	451.0			$	1,407.3			$	1,332.6

A reconciliation of our primary measure of segment profitability (total operating income before depreciation and amortization for reportable segments) to income from continuing operations before income taxes in our consolidated statements of operations is as follows (in millions):

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2008				2007				2008				2007
Total operating income before depreciation and amortization for reportable segments		$	510.2			$	451.0			$	1,407.3			$	1,332.6
Depreciation and amortization			(134.1	)			(142.7	)			(411.6	)			(412.6	)
Interest expense			(108.8	)			(130.3	)			(324.9	)			(424.4	)
Other (1)			(57.8	)			(56.9	)			(133.6	)			(158.9	)
Income from continuing operations before income taxes		$	209.5			$	121.1			$	537.2			$	336.7

The following table shows our total revenues by service line. Intercompany revenues have been eliminated (in millions):

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2008				2007				2008				2007
Collection
Residential		$	312.3			$	304.9			$	917.7			$	899.5
Commercial			422.2				390.5				1,234.1				1,140.9
Roll-off (1)			333.0				332.0				970.9				969.5
Recycling			59.5				53.8				172.9				155.2
Total collection			1,127.0				1,081.2				3,295.6				3,165.1
Disposal
Landfill			220.1				214.9				634.7				624.4
Transfer			114.4				112.7				319.0				330.6
Total disposal			334.5				327.6				953.7				955.0
Recycling - commodity			61.0				66.4				193.7				190.9
Other (2)			83.7				81.1				229.7				237.4
Total revenues		$	1,606.2			$	1,556.3			$	4,672.7			$	4,548.4

ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Discontinued operations —

During 2007, we divested operations in our South region in the first quarter and in our Midwest region in the third quarter and have reported such divestitures as discontinued operations on our consolidated financial statements for 2007. Revenues and operating income before depreciation and amortization relating to the operations divested in both the first and third quarters of 2007 are as follows (in millions):

		Three Months Ended								Nine Months Ended
		September 30, 2007								September 30, 2007
						Operating income								Operating income
						before depreciation								before depreciation
		Revenues				and amortization				Revenues				and amortization
Midwest		$	4.1			$	1.3			$	15.6			$	4.8
South			4.5				—				35.3				6.2
Total discontinued operations		$	8.6			$	1.3			$	50.9			$	11.0