6-K

FORM 6-K

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Report of Foreign Private Issuer Pursuant to Rule 13a-16 or 15d-16

Under the Securities Exchange Act of 1934

Date of Report: December 11, 2003

Commission file number 333-77633

CAPITAL ENVIRONMENTAL RESOURCE INC.

(Exact name of registrant as specified in its charter)

1005 Skyview Drive

Burlington, Ontario, Canada L7P 5B1

(Address of principal executive offices)

     Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F:

Form 20-F  þ          Form 40-F  o

      Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):                

      Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):                

      Indicate by check mark whether by furnishing the information contained in this Form, the registrant is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.

Yes  o          No  þ

TABLE OF CONTENTS

NORTH CENTRAL FLORIDA DISTRICT/COMBINED FINANCIALS

FLORIDA RECYCLING SERVICES/CONSOLIDATED FINANCIALS

CAPITAL ENVIRONMENTAL RESOURCE INC.

INDEX TO FORM 6-K

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Introduction	2
Unaudited Pro Forma Condensed Consolidated Statements of Operations for the six months ended June 30, 2003	4
Unaudited Pro Forma Condensed Consolidated Statements of Operations for the year ended December 31, 2002	5
Unaudited Pro Forma Condensed Consolidated Balance Sheet as of June 30, 2003	6
Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements	7
Exhibits	9
SIGNATURE	10

i

FORWARD LOOKING STATEMENT

      Certain statements included in this Form 6-K, including, without limitation, information appearing under, “Unaudited Pro Forma Condensed Consolidated Financial Statements,” are forward-looking statements (within the meaning of Section 27A of the Securities Act of 1933 (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934) that involve risks and uncertainties. Factors set forth under the caption “Risk Factors” in the Company’s Annual Report on Form 20-F/A filed with the SEC could affect the Company’s actual results and could cause the Company’s actual results to differ materially from those expressed in any forward-looking statements made by, or on behalf of, the Company in this Report on Form 6-K.

1

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

      On November 14, 2003, Capital Environmental Resource Inc. (the “Company”) announced that its wholly-owned subsidiary Waste Services, Inc. (“WSI”), entered into a definitive agreement to acquire from Allied Waste Industries, Inc. (“Allied”), the assets of Allied’s Northern and Central Florida operations (the “Allied Acquisition”) for a purchase price of approximately US $120 million plus working capital, as defined in the asset purchase agreement, which as of September 30, 2003 approximated $4.8 million. The primary markets serviced by the operations are in Tampa, Sarasota and Jacksonville. Completion of the acquisition, which is expected to occur on or before December 31, 2003, is subject to certain customary conditions including but not limited to the Company obtaining financing.

      Additionally, on November 24, 2003 the Company announced that WSI entered into a definitive agreement to acquire all of the issued shares of Florida Recycling Services, Inc. (“FRS”) for a purchase price of approximately $128.5 million in cash, subject to certain changes in working capital and the issuance of 3,250,000 common shares (the “FRS Acquisition”). FRS operations are based in central Florida, primarily servicing the Orlando, Daytona, Fort Myers and Tampa markets. Completion of the acquisition, which is expected to occur on or before January 31, 2004, is subject to certain customary conditions including but not limited to the Company obtaining financing.

      For purposes of this document the Allied Acquisition and the FRS Acquisition are collectively referred to as the “Acquisitions”.

      These unaudited pro forma condensed financial statements have been prepared from the consolidated financial statements of the Company and its acquisition targets. The Company will acquire all of the Northern and Central Florida operating assets of Allied in connection with the Allied Acquisition and all of the operations of FRS in connection with the FRS Acquisition.

      You should read these unaudited pro forma condensed consolidated financial statements in conjunction with the Consolidated Financial Statements of the Company as filed on Form 20-F/A, and the Unaudited Condensed Consolidated Financial Statements of the Company as filed on Form 6-K as well as the audited and unaudited financial statements of the Acquisitions included herein.

      The unaudited pro forma condensed consolidated statements of operations for the six months ended June 30, 2003 and the year ended December 31, 2002 give effect to the Acquisitions and the following transactions and events as if each had occurred as of the beginning of the period presented:

•  the financing of the Acquisitions and related expenses through the proceeds of the $250 million senior subordinated indebtedness;

•  the elimination of certain indebtedness, liabilities and assets (including inter-company debt or receivables) not assumed by the Company and the related income statement effects;

•  the acquisition of certain receivables, trucks, and containers from other Allied entities;

•  the preliminary allocation of the purchase price, to the assets and liabilities of the Company based upon a preliminary estimate of the fair value of assets being acquired and liabilities being assumed by the Company;

•  the amortization of certain acquired intangibles; and

•  the tax effect of the foregoing events.

      The unaudited pro forma condensed consolidated balance sheet gives effect to the Acquisitions and the other transactions and events previously described as if each had occurred on June 30, 2003.

      The pro forma adjustments are based on preliminary estimates, available information and certain assumptions that the Company believes are reasonable, and may be revised as additional information

2

becomes available. The pro forma adjustments are more fully described in the notes to the unaudited pro forma condensed consolidated financial statements.

      The unaudited pro forma condensed consolidated financial statements should not be considered indicative of actual results that would have been achieved had the Acquisitions and the other transactions and events described above been completed as of the dates or as of the beginning of the periods indicated and do not purport to project the financial condition or results of operations and cash flows for any future date or period.

3

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE SIX MONTHS ENDED JUNE 30, 2003

(in thousands except per share data)

					Allied			FRS
		Historicals			Acquisition			Acquisition			Adjustments			Notes			Pro Forma
Revenue		$	56,562		$	46,013		$	44,804		$	—					$	147,379
Operating expenses:
	Cost of operations		35,321			32,862			33,360			(723	)		(b	)		100,820
	Selling, general and administrative		13,047			4,063			5,278			(1,119	)		(b	)		20,456
												(813	)		(b	)
	Depreciation, depletion and amortization		6,791			2,269			3,397			2,317			(a	)		15,046
												272			(b	)
	Foreign exchange loss and other		357			—			—			—						357
Income from operations			1,046			6,819			2,769			66						10,700
Other			—			(50	)		(50	)		—						(100	)
Interest income			—			(2,510	)		—			2,510			(b	)		—
Interest expense			5,185			—			1,015			11,680			(c	)		16,865
												(1,015	)		(b	)
Income (loss) before income taxes			(4,139	)		9,379			1,804			(13,109	)					(6,065	)
Income tax provision (benefit)			(334	)		3,752			20			(3,772	)		(d	)		(334	)
Net income (loss) before cumulative effect of change in accounting principle		$	(3,805	)	$	5,627		$	1,784		$	(9,337	)				$	(5,731	)
Basic loss per share before cumulative effect of change in accounting principle		$	(0.68	)													$	(0.67	)
Diluted loss per share before cumulative effect of change in accounting principle		$	(0.68	)													$	(0.67	)
Shares used in computing per share amounts:
	Basic		36,537			—			—			3,250						39,787
	Dilutive		36,537			—			—			3,250						39,787

The accompanying notes are an integral part of these statements.

4

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE YEAR ENDED DECEMBER 31, 2002

(in thousands except per share data)

					Allied			FRS
		Historicals			Acquisition			Acquisition			Adjustments			Notes			Pro Forma
Revenue		$	98,846		$	90,576		$	84,784		$	—					$	274,206
Operating expenses:
	Cost of operations		61,250			63,927			64,452			(1,313	)		(b	)		188,316
	Selling, general and administrative		19,470			6,888			9,562			(2,438	)		(b	)		33,482
	Depreciation, depletion and amortization		10,718			4,663			9,215			4,635			(a	)		29,723
												492			(b	)
	Recovery related to sale of US assets		(718	)		—			—			—						(718	)
	Foreign exchange gain and other		(1,441	)		—			—			—						(1,441	)
Income from operations			9,567			15,098			1,555			(1,376	)					24,844
Other			—			—			12			—						12
Interest income			—			(3,409	)		—			3,409			(b	)		—
Interest expense			5,727			—			2,093			23,359			(c	)		29,086
												(2,093	)		(b	)
Income (loss) before income taxes			3,840			18,507			(550	)		(26,051	)					(4,254	)
Income tax provision (benefit)			1,713			7,403			—			(7,403	)		(d	)		1,713
Net income (loss)		$	2,127		$	11,104		$	(550	)	$	(18,648	)				$	(5,967	)
Basic loss per share		$	(0.39	)													$	(0.58	)
Diluted loss per share		$	(0.39	)													$	(0.58	)
Shares used in computing per share amounts:
	Basic		32,414			—			—			3,250						35,664
	Dilutive		32,414			—			—			3,250						35,664

The accompanying notes are an integral part of these statements.

5

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET

AS OF JUNE 30, 2003

(in thousands)

					Allied(1)		FRS(1)			Allied					FRS					Financing
		Historical			Acquisition		Acquisition			Adjustment			Notes		Adjustment			Notes		Adjustment		Notes		Pro Forma
ASSETS
Cash and cash equivalents		$	16,282		$	25	$	339		$	(124,790	)		(e)	$	(128,500	)		(e)	$	243,125		(h)	$	6,481
Accounts receivable			19,793			3,290		14,772			6,108			(f)		—					—				43,963
Prepaid expenses and other assets			2,551			533		2,849			—					(855	)		(f)		—				5,078
	Total current assets		38,626			3,848		17,960			(118,682	)				(129,355	)				243,125				55,522
Property and equipment, net			162,496			17,046		18,143			4,232			(f)		—					—				201,917
Goodwill			75,741			116,168		174			(116,168	)		(f)		(174	)		(f)		—				278,385
											86,704			(g)		115,940			(g)
Deferred income taxes			2,699			—		598			—					(598	)		(f)		—				2,699
Other intangibles and other assets			17,201			64		503			13,159			(g)		10,014			(g)		6,875		(h)		47,193
																(485	)		(f)
																(138	)		(g)
	Total assets	$	296,763		$	137,126	$	37,378		$	(130,755	)			$	(4,796	)			$	250,000			$	585,716
LIABILITIES AND SHAREHOLDERS’ EQUITY
Accounts payable		$	5,303		$	5,226	$	7,615		$	500			(g)	$	500			(g)	$	—			$	13,918
											(5,226	)		(f)
Notes payable			—			—		10,500			—					(10,500	)		(f)		—				—
Accrued expenses and other liabilities			17,601			1,872		3,069			350			(g)		500			(g)		—				22,137
											(1,255	)		(f)
Deferred revenue			—			4,544		—			—					—					—				4,544
Current portion of long-term debt			1,224			5		8,532			—					(8,532	)		(f)		—				1,229
Current portion of capital lease obligations			1,407			—		—			—					—					—				1,407
	Total current liabilities		25,535			11,647		29,716			(5,631	)				(18,032	)				—				43,235
Capital lease obligations			1,251			—		—			—					—					—				1,251
Redeemable Preferred Shares			40,632			—		—			—					—					—				40,632
Due to affiliate			—			80,863		—			(80,863	)		(f)		—					—				—
Long-term obligations			68,974			355		10,188			—					(10,188	)		(f)		250,000		(h)		319,329
	Total liabilities		136,392			92,865		39,904			(86,494	)				(28,220	)				250,000				404,447
Common stock			128,055			—		100			—					20,898			(e)		—				148,953
																(100	)		(e)
Series 1 Preferred Shares			26,891			—		—			—					—					—				26,891
Other additional paid-in-capital			13,152			—		11,671			—					(11,671	)		(e)		—				13,152
Investment by Parent			—			44,261		—			(44,261	)		(e)		—					—				—
Options, warrants and deferred compensation			19,455			—		—			—					—					—				19,455
Accumulated other comprehensive income			9,783			—		—			—					—					—				9,783
Accumulated deficit			(36,965	)		—		(14,297	)		—					14,297			(e)		—				(36,965	)
	Total shareholders’ equity		160,371			44,261		(2,526	)		(44,261	)				23,424					—				181,269
	Total liabilities and shareholders’ equity	$	296,763		$	137,126	$	37,378		$	(130,755	)			$	(4,796	)			$	250,000			$	585,716

(1) Allied Acquisition and FRS Acquisition balance sheet amounts are as of September 30, 2003.

The accompanying notes are an integral part of these statements

6

NOTES TO UNAUDITED PRO FORMA CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except per share data)

      The following notes are a summary of the pro forma adjustments reflected in, and form an integral part of, the unaudited pro forma condensed consolidated financial statements.

(a)  Reflects the amortization of intangible assets based on the estimate of intangible asset values, primarily service agreements, customer lists and non-compete agreements, over their expected useful lives of five years.

(b)  Reflects the removal of rent expense from cost of operations for trucks and containers leased from other Allied subsidiaries. These trucks and containers are being acquired as part of the Allied Acquisition. Rent expense being removed is $723 for the six months ended June 30, 2003 and $1,313 for the year ended December 31, 2002. Depreciation relative to the assets being acquired is $272 for the six months ended June 30, 2003 and $492 for the year ended December 31, 2002.

Reflects the removal of losses on the sale of receivables to another subsidiary of Allied. These receivables are being acquired as part of the Allied Acquisition. Loss on the sale of receivables being removed is $813 for the six months ended June 30, 2003 and nil for the year ended December 31, 2002.

Reflects the elimination of FRS management fees related to agreements not being assumed approximating $1,344 for the six months ended June 30, 2003 and $2,888 for the year ended December 31, 2003 offset by new employment and consulting agreements approximating $225 for the six months ended June 30, 2003 and $450 for the year ended December 31, 2003.

Reflects the elimination of interest income received on balances due from affiliate not being acquired as part of the Allied Acquisition. Such amounts were $2,510 for the six months ended June 30, 2003 and $3,409 for the year ended December 31, 2002.

Reflects the elimination of FRS interest, expense of $1,015 for the six months ended June 30, 2003 and $2,093 for the year ended December 31, 2002, related to debt not assumed.

(c)  Reflects interest expense from the issuance by the Company of the $250 million senior subordinated indebtedness as of the beginning of the period being presented. The all-in interest cost includes interest based upon the stated rate of the notes, amortizing debt issue costs and underwriter fees. The stated rate of the notes is assumed to be 9.0%. For each additional 100bps change in the actual borrowing rate from the assumed rate, interest expense would increase or decrease by approximately $2.5 million. The Company expects to enter into a short-term bridge facility to close the Allied Acquisition. The bridge facility is expected to be outstanding for two months with a stated rate of 9.0%. The Company has excluded from the pro forma adjustments approximately $3.6 million of estimated fees and expenses related to the bridge facility.

(d)  Reflects the elimination of U.S. income taxes otherwise payable as a result of the pro forma adjustments previously described. The Company has not assumed any additional benefit of the tax losses attributed to the pro forma adjustments as it does not expect to benefit from such losses at this time.

(e)  Reflects the payment of cash purchase price as well as the issuance of 3,250 common shares at a fair value of $6.43 per share and the elimination of predecessor entity equity components. Fair value of the shares issued in connection with the acquisition was based upon the average closing market price of the Company’s common stock during the five-day period consisting of the period two days before, the day of and two days after the terms of the acquisition were agreed.

(f)  Reflects the elimination of assets not acquired and liabilities not assumed as part of the Acquisitions. The assets not being acquired primarily relate to predecessor entity goodwill and certain tax assets. The liabilities not assumed primarily relate to indebtedness of FRS and accounts payable and accrued expenses of Allied. Additionally, the Company is acquiring certain receivables, trucks and containers

7

from other Allied entities. Also, refer to Note (g) for further details concerning the allocation of purchase price.

(g)  Reflects the preliminary allocation of purchase price based upon a preliminary estimate of the fair value of assets being acquired and liabilities being assumed by the Company as follows:

					Allied			FRS
					Acquisition			Acquisition			Total
Purchase price:
	Cash				$	124,790		$	128,500		$	253,290
	Common Stock issued					—			20,898			20,898
	Warrants issued					—			138			138
				Total purchase price		124,790			149,536			274,326
Allocated as follows:
	Net book value of assets acquired / (liabilities) assumed					44,261			(2,526	)		41,735
	Adjustments to net book value:
		Receivables acquired				6,108			—			6,108
		Trucks and containers acquired				4,232			—			4,232
		Accounts payable and accrued expenses not assumed				6,481			—			6,481
		Indebtedness not assumed				—			29,220			29,220
		Due to affiliate not assumed				80,863			—			80,863
		Historical goodwill and intangible assets				(116,168	)		(659	)		(116,827	)
		Additional liability assumed				(850	)		(1,000	)		(1,850	)
		Other assets not acquired				—			(855	)		(855	)
		Deferred income tax asset not acquired				—			(598	)		(598	)
			Adjusted net book value of assets/(liabilities)			24,927			23,582			48,509
Excess purchase price to be allocated					$	99,863		$	125,954		$	225,817
Allocated as follows:
	Goodwill				$	86,704		$	115,940		$	202,644
	Service contracts, customer lists and non-compete agreements					13,159			10,014			23,173
				Total allocated	$	99,863		$	125,954		$	225,817

(h)  Reflects the issuance by the Company of $250 million senior subordinated indebtedness at a rate of 9.0% for eight years, and underwriting, professional and legal fees of approximately $6,875.

Other Note:

•  Amounts used in the numerator for the calculation of loss per share before cumulative effect of change in accounting principle for the historical and pro forma periods are as follows:

		For the six months ended						For the year ended
		June 30, 2003						December 31, 2002
		Historical			Pro Forma			Historical			Pro Forma
Numerator:
	Net income (loss) before cumulative effect of change in accounting principle	$	(3,805	)	$	(5,731	)	$	2,127		$	(5,967	)
	Deemed dividend on Series 1 Preferred Shares		(21,021	)		(21,021	)		(14,717	)		(14,717	)
	Net loss attributable to Common Shareholders	$	(24,826	)	$	(26,752	)	$	(12,590	)	$	(20,684	)

•  Historical interest expense for the six months ended June 30, 2003 includes interest expense related to the Company’s Redeemable Preferred Shares of approximately $2,198.

8

EXHIBITS

99.1                      North Central Florida District (Wholly Owned Divisions of Allied Waste Industries, Inc.) Combined Financial Statements, as of December 31, 2002 and 2001 and for the three years ended December 31, 2002 and Combined Financial Statements, as of September 30, 2003, December 31, 2002 and for the nine months ended September 30, 2003 and September 30, 2002

99.2                      Florida Recycling Services, Inc. of Illinois and Subsidiary, Consolidated Financial Statements for the years ended December 31, 2002, 2001 and 2000 and as of and for the nine months ended September 30, 2003 and September 30, 2002

9

SIGNATURES

      Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.

By:

/s/ DAVID SUTHERLAND-YOEST

David Sutherland-Yoest

Chairman and Chief Executive Officer

/s/ RONALD L. RUBIN

Ronald L. Rubin

Chief Financial Officer

Date: December 11, 2003

10 EX-99.1 3 g85968exv99w1.htm NORTH CENTRAL FLORIDA DISTRICT/COMBINED FINANCIALS

EXHIBIT 99.1

NORTH CENTRAL FLORIDA DISTRICT

(Wholly Owned Divisions of Allied Waste Industries, Inc.)

COMBINED FINANCIAL STATEMENTS

As of December 31, 2002 and 2001 and

For the three years ended December 31, 2002

F-1

REPORT OF INDEPENDENT AUDITORS

To the Management of Allied Waste Industries, Inc.

      In our opinion, the accompanying combined balance sheets and the related combined statements of operations, of equity and of cash flows present fairly, in all material respects, the financial position of the North Central Florida District (wholly owned divisions of Allied Waste Industries, Inc.) (the “Company”) at December 31, 2002 and 2001, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2002 in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company’s management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

      As discussed in Note 1 to the combined financial statements, the Company changed its method of accounting for goodwill and other intangible assets as of January 1, 2002.

/s/ PricewaterhouseCoopers LLP

July 9, 2003

Phoenix, Arizona

F-2

NORTH CENTRAL FLORIDA DISTRICT

(Wholly Owned Divisions Of Allied Waste Industries, Inc.)

COMBINED BALANCE SHEETS

			December 31,
			2002		2001
			(In thousands)
ASSETS
Current assets
	Cash		$	23	$	130
	Accounts receivable, net of allowance of $141 and $189			9,976		10,326
	Prepaid and other current assets			723		1,076
		Total current assets		10,722		11,532
Property and equipment, net				18,476		22,309
Goodwill				116,168		116,168
Other assets, net				609		636
		Total assets	$	145,975	$	150,645
LIABILITIES AND DISTRICT’S EQUITY
Current liabilities
	Accounts payable		$	5,157	$	4,078
	Current portion of accrued closure, post-closure and environmental costs			378		251
	Accrued liabilities			1,063		1,553
	Unearned revenue			4,630		4,617
		Total current liabilities		11,228		10,499
Long-term debt, net of current portion				12		—
Accrued closure, post-closure and environmental costs, less current portion				268		481
Due to parent				98,321		114,623
Commitments and contingencies
District’s equity				36,146		25,042
		Total liabilities and district’s equity	$	145,975	$	150,645

The accompanying notes are an integral part of these combined balance sheets.

F-3

NORTH CENTRAL FLORIDA DISTRICT

(Wholly Owned Divisions Of Allied Waste Industries, Inc.)

COMBINED STATEMENTS OF OPERATIONS

		Year Ended December 31,
		2002			2001			2000
		(In thousands)
Revenues		$	90,576		$	89,346		$	97,463
Cost of operations			63,927			60,668			62,475
Selling, general and administrative expenses			6,888			5,649			9,843
Depreciation and amortization			4,663			7,977			8,151
	Operating income		15,098			15,052			16,994
Interest income, net			(3,409	)		(3,003	)		(1,210	)
	Income before income taxes		18,507			18,055			18,204
Income tax expense			7,403			8,283			8,334
Net income		$	11,104		$	9,772		$	9,870

The accompanying notes are an integral part of these combined financial statements.

F-4

NORTH CENTRAL FLORIDA DISTRICT

(Wholly Owned Divisions Of Allied Waste Industries, Inc.)

COMBINED STATEMENTS OF DISTRICT’S EQUITY

	(In thousands)
Balance as of December 31, 1999	$	5,400
Net income		9,870
Balance as of December 31, 2000		15,270
Net income		9,772
Balance as of December 31, 2001		25,042
Net income		11,104
Balance as of December 31, 2002	$	36,146

The accompanying notes are an integral part of these combined financial statements.

F-5

NORTH CENTRAL FLORIDA DISTRICT

(Wholly Owned Divisions Of Allied Waste Industries, Inc.)

COMBINED STATEMENTS OF CASH FLOWS

				Year Ended December 31,
				2002			2001			2000
				(In thousands)
Operating activities
Net income				$	11,104		$	9,772		$	9,870
Adjustments to reconcile net income to cash provided by operating activities
	Provisions for
		Depreciation and amortization			4,663			7,977			8,151
		Doubtful accounts			180			373			210
		Gain on sale of fixed assets			(59	)		(121	)		(460	)
Change in operating assets and liabilities, excluding the effects of purchase acquisitions
	Accounts receivable, prepaid expenses, inventories and other				542			653			1,785
	Accounts payable, accrued liabilities, unearned revenue and other				601			(2,247	)		(2,814	)
	Closure and post-closure provision				244			230			84
	Closure, post-closure and environmental expenditures				(227	)		(224	)		(245	)
			Cash provided by operating activities		17,048			16,413			16,581
Investing activities
Cost of acquisitions, net of cash acquired					—			(383	)		—
Proceeds from sale of fixed assets					100			1,076			539
Capital expenditures, excluding acquisitions					(1,147	)		(877	)		(1,461	)
Capitalized interest					(1	)		(11	)		—
Change in notes receivable and other					3			(545	)		—
			Cash used for investing activities		(1,045	)		(740	)		(922	)
Financing activities
Change in due to parent					(16,110	)		(15,678	)		(15,545	)
			Cash used for financing activities		(16,110	)		(15,678	)		(15,545	)
(Decrease) increase in cash					(107	)		(5	)		114
Cash at beginning of year					130			135			21
Cash at end of year				$	23		$	130		$	135
Supplemental disclosures:
Liabilities incurred or assumed in acquisitions				$	—		$	125		$	—
Non-cash change in due to parent					(192	)		314			—

The accompanying notes are an integral part of these combined financial statements.

F-6

NORTH CENTRAL FLORIDA DISTRICT

(Wholly Owned Divisions Of Allied Waste Industries, Inc.)

NOTES TO COMBINED FINANCIAL STATEMENTS

1. Organization and Summary of Significant Accounting Policies

      The North Central Florida District (the “Company”) is a group of several business units that provide waste collection, transfer, recycling and disposal services in North and Central Florida and are wholly owned by Allied Waste Industries, Inc. (“AWI”, “Allied” or “Parent”), a Delaware corporation. Allied is the second largest, non-hazardous solid waste management company in the United States, as measured by revenues and provides non-hazardous waste collection, transfer, recycling and disposal services in 39 states. All significant operational and financial decisions of the Company are made by Allied’s management.

Basis of Presentation

      All significant intercompany accounts and transactions between the business units within the Company are eliminated in the combined financial statements. We are not a registrant with the Securities and Exchange Commission (the “SEC”) and are not subject to the SEC’s periodic reporting requirements. Certain estimates, including allocations from the Parent, have been made to provide financial information for SEC and stand-alone reporting purposes. We believe that the presentations and disclosures herein are adequate to make the information not misleading. In the opinion of management, all adjustments necessary to fairly state the financial statements have been reflected.

Use of Estimates

      The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosures of contingencies at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Allowance for Doubtful Accounts

      We perform credit evaluations of our significant customers and establish an allowance for doubtful accounts based on the aging of our receivables, payment performance factors, historical trends and other information. In general, we reserve 50 percent of those receivables outstanding 90 to 120 days and 100 percent of those outstanding over 120 days. We also review outstanding balances on an account specific basis and fully reserve the receivable prior to 120 days if information becomes available indicating we will not receive payment. Our reserve is evaluated and revised on a monthly basis.

Concentration of Credit Risk

      Financial instruments that potentially subject us to concentrations of credit risk consist of trade receivables. Concentrations of credit risk with respect to trade receivables are limited due to the large number of customers comprising our customer base. On-going credit evaluations are performed on customers, but we do not require collateral to support customer receivables.

Fair Value of Financial Instruments

      The carrying value of our financial instruments, which include cash, accounts receivable and accounts payable, as defined by Statement of Financial Accounting Standards (“SFAS”) No. 107, Disclosures about the Fair Value of Financial Instruments, approximate fair values due to the short-term maturities of these instruments.

F-7

NORTH CENTRAL FLORIDA DISTRICT

(Wholly Owned Divisions Of Allied Waste Industries, Inc.)

NOTES TO COMBINED FINANCIAL STATEMENTS — (Continued)

Accrued Closure and Post-Closure Costs

      Accrued closure and post-closure costs represent an estimate of the present value of the future obligation associated with closure and post-closure monitoring of our two non-hazardous solid waste landfills. Site specific closure and post-closure engineering cost estimates are prepared annually. For active landfills, the impact of changes determined to be changes in estimates, based on the annual update, are accounted for on a prospective basis except for instances where the cost expenditure will occur within 12 months. The present value of estimated future costs are accrued on a per unit basis as landfill disposal capacity is consumed. Discounting of future costs is applied where we believe that both the amounts and timing of related payments are reliably determinable. Changes in estimates after the landfills site are closed are recognized when determined.

Environmental Costs

      We accrue for costs associated with environmental remediation obligations when such costs are probable and reasonably estimable. Such accruals are adjusted as further information develops or circumstances change. Costs of future expenditures for environmental remediation obligations are not discounted to their present value, as the timing of cash payments is not reliably determinable. Recoveries of environmental remediation costs from other parties are recorded when their receipts are deemed probable. Environmental liabilities and apportionment of responsibility among potentially responsible parties are accounted for in accordance with the guidance provided by the American Institute of Certified Public Accountants Statement of Position 96-1 (“SOP 96-1”) Environmental Remediation Liabilities.

Revenue

      Revenues result primarily from fees charged to customers for waste collection, transfer, recycling and disposal services. We generally provide collection services under direct agreements with our customers or pursuant to contracts with municipalities. Commercial and municipal contract terms generally range from one to five years and commonly have renewal options.

      Advance billings are recorded as unearned revenue, and revenue is recognized when services are provided, usually within 90 days.

Business Combinations

      Under the purchase method, we allocate the cost of the acquired business to the assets acquired and liabilities assumed based upon their estimated fair values. These estimates are revised during the allocation period as necessary when, and if, information regarding contingencies becomes available to further define and quantify assets acquired and liabilities assumed. The allocation period generally does not exceed one year. To the extent contingencies are resolved or settled during the allocation period, such items are included in the revised allocation of the purchase price. Purchase accounting adjustments, acquisition related costs and other possible charges that may arise from the acquisitions may materially impact our future combined balance sheet and statements of operations.

      Allied acquired a hauling and recycling business in February 2001 for cash consideration of approximately $425,000 which was accounted for under the purchase method and is reflected in the results of operations since the effective date of the acquisition. Our reported revenues and net income for the years ended December 31, 2001 and 2000 were not significantly impacted by the pro forma effect of this acquisition.

F-8

NORTH CENTRAL FLORIDA DISTRICT

(Wholly Owned Divisions Of Allied Waste Industries, Inc.)

NOTES TO COMBINED FINANCIAL STATEMENTS — (Continued)

Recently Issued Accounting Pronouncements

      In August 2001, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 143, Accounting for Asset Retirement Obligations (“SFAS No. 143”), which outlines the standards for accounting for an obligation associated with the retirement of a long-lived tangible asset. The standard is effective beginning January 1, 2003.

      SFAS 143 will require us to refine our current accounting practices and will cause a change in the mechanics of calculating landfill retirement obligations and the classification of where amounts are recorded in the financial statements. Landfill retirement obligations are no longer accrued through a provision to cost of operations, but rather by an increase to landfill assets. Under SFAS 143, the amortizable landfill asset includes (i) landfill development costs incurred, (ii) landfill development costs expected to be incurred over the life of the landfill, (iii) the recorded capping, closure and post-closure liabilities and (iv) the cost estimates for future capping, closure and post-closure costs. The landfill asset is amortized over the total capacity of the landfill as volume is consumed during the life of the landfill, with one exception. The exception applies to capping costs for which both the recognition of the liability and the amortization of these costs are based instead on the capacity of the specific capping events as volume is consumed. The adjustments that occur upon adoption are required to be accounted for as a cumulative effect of a change in accounting principle. Upon adoption of SFAS 143 on January 1, 2003, we expect an increase in our capping, closure and post-closure liabilities of approximately $286,000 and a decrease in our net landfill assets of approximately $23,000. We expect the cumulative effect of change in accounting principle to be a gain of approximately $186,000, net of tax.

      In November 2002, the FASB issued FASB Interpretation 45, Guarantor’s Accounting and Disclosure requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others (“FIN 45”). FIN 45 elaborates on the existing disclosure requirements for most guarantees, including loan guarantees such as standby letters of credit. It also clarifies that at the time a company issues a guarantee, the company must recognize an initial liability for the fair value, or market value, of the obligations it assumes under that guarantee and must disclose that information in its interim and annual financial statements. The recognition requirements of FIN 45 are effective for any guarantees entered into subsequent to January 1, 2003. We anticipate that the adoption of FIN 45 will not have a material impact on our combined financial statements. We have complied with the disclosure requirements of FIN 45 as of December 31, 2002.

Recently Adopted Accounting Pronouncements

      Effective January 1, 2002, we adopted SFAS 142, Goodwill and Other Intangibles (“SFAS 142”), which among other things, eliminates the amortization of goodwill and instead requires an annual assessment of goodwill impairment by applying a fair value based test. See Note 3 for additional discussion.

      Effective January 1, 2002, we adopted SFAS No. 144, which supercedes SFAS No. 121 Accounting for the Impairment or Disposal of Long-Lived Assets. SFAS No. 144 provides a single accounting model for impairment of long-lived assets held for use and for long-lived assets that are to be disposed of by sale (including discontinued operations). SFAS No. 144 does not address impairment of goodwill. There was no impact on our financial statements or results of operations upon adoption.

2.     Property and Equipment

      Property and equipment are recorded at cost. Depreciation is provided on the straight-line method over the estimated useful lives of land improvements (10 years), buildings and improvements (30 to

F-9

NORTH CENTRAL FLORIDA DISTRICT

(Wholly Owned Divisions Of Allied Waste Industries, Inc.)

NOTES TO COMBINED FINANCIAL STATEMENTS — (Continued)

40 years), vehicles and equipment (3 to 10 years), containers and compactors (5 to 10 years) and furniture and office equipment (3 to 8 years). We do not assume a residual value on our depreciable assets. In accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (“SFAS No. 144”), property and equipment are evaluated for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable.

      The cost of landfill airspace, including original acquisition cost and incurred and projected landfill construction costs, is amortized over the capacity of the landfill based on a per unit basis as landfill airspace is consumed. We periodically review the realizability of our investment in operating landfills. Should events and circumstances indicate that any of our landfills be reviewed for possible impairment, such review for recoverability will be made in accordance with Emerging Issues Task Force (“EITF”) Discussion Issue 95-23, The Treatment of Certain Site Restoration/Environmental Exit Costs When Testing a Long-Lived Asset for Impairment (“EITF 95-23”). The EITF outlines how cash flows for environmental exit costs should be determined and measured.

      Expenditures for major renewals and betterments are capitalized, while expenditures for maintenance and repairs, which do not improve assets or extend their useful lives, are charged to expense as incurred. When property is retired, the related cost and accumulated depreciation are removed from the accounts and any resulting gain or loss is recognized.

      Property and equipment at December 31 are as follows:

		2002		2001
		(In thousands)
Land and land improvements		$	2,684	$	2,682
Land held for permitting as landfills			208		—
Landfills			2,156		2,081
Buildings and improvements			2,899		2,911
Vehicles and equipment			18,804		19,102
Containers and compactors			7,838		7,304
Furniture and fixtures			334		345
	Total property and equipment		34,923		34,425
Less: Accumulated depreciation and amortization			16,447		12,116
	Property and equipment, net	$	18,476	$	22,309

3.     Goodwill

      Our goodwill balance reflects an amount related to the acquisition in February 2001, as discussed in Note 1, and an allocation from our Parent related to the acquisition of Browning-Ferris Industries, Inc. (“BFI”) on July 30, 1999.

      As discussed in Note 1, we adopted SFAS 142, effective January 1, 2002. SFAS 142 eliminates the amortization of goodwill and instead requires an annual assessment of goodwill impairment by applying a fair value based test. The calculation of fair value is subject to judgments and estimates. We estimate fair value of the combined divisions based on net cash flows discounted using a weighted-average cost of capital of approximately 8 percent and other considerations. The estimated fair value could change if there were future changes in our expenditures levels or ability to perform at levels that were forecasted.

F-10

NORTH CENTRAL FLORIDA DISTRICT

(Wholly Owned Divisions Of Allied Waste Industries, Inc.)

NOTES TO COMBINED FINANCIAL STATEMENTS — (Continued)

      We tested our existing goodwill at January 1, 2002 for realizability and determined that we had no impairment of goodwill and therefore SFAS 142 had no impact to the combined financial statements upon adoption (other than the elimination of goodwill amortization discussed above). The impairment test of goodwill will be completed more frequently than annually under certain conditions. For example, a significant adverse change in liquidity or the business environment, unanticipated competition, a significant adverse action by a regulator or a disposal of a significant portion of our operations could prompt an impairment test between annual assessments. We completed our annual assessment of goodwill as of December 31, 2002 and no impairment was recorded.

      The following calculations adjust net income to exclude goodwill amortization expense for the year ended December 31:

		2002		2001		2000
		(In thousands)
Reported net income		$	11,104	$	9,772	$	9,870
Add back: Goodwill amortization			—		2,903		2,894
	Adjusted net income	$	11,104	$	12,675	$	12,764

      We have approximately $116 million of goodwill at December 31, 2002 and 2001 of which approximately $407,000 related to the February 2001 acquisition. There was no activity in the goodwill balance from December 31, 2001 through December 31, 2002.

4.     Landfill Accounting

      The following discussion of landfill accounting pertains to our 2002 accounting practice. Effective January 1, 2003, we adopted SFAS 143 which will require changes to certain elements of these practices. Refer to Note 1 for a discussion on the impact of the adoption on our landfill accounting.

      We have two active landfills in the North Central Florida District. One landfill has an expected operating life of 5 years. The second landfill has a remaining operating life of less than a year. However, we are currently seeking disposal capacity expansion which is expected to be received in 2003. We use a life-cycle accounting method for landfills and the related closure and post-closure liabilities. This method applies the costs associated with acquiring, developing, closing and monitoring the landfills over the associated landfill capacity and associated consumption. On an annual basis, we update the development cost estimates (which include the costs to develop the site as well as the individual cell construction costs), closure and post-closure cost estimates and future capacity estimates (sometimes referred to as airspace) for each landfill. The cost estimates are prepared by our local management and third-party engineers based on the applicable local, state and federal regulations and site specific permit requirements. Future capacity estimates are updated using aerial surveys of each landfill to estimate utilized disposal capacity and remaining disposal capacity. These cost and capacity estimates are reviewed and approved by senior operations management annually.

Landfill Assets

      We use the units of production method for purposes of calculating the amortization rate at each landfill. This methodology divides the costs associated with acquiring, permitting and developing the entire landfill by the total remaining capacity of that landfill. The resulting per unit amortization rate is applied to each unit disposed at the landfill and is recorded as expense for that period.

      Costs associated with developing the landfill include direct costs such as excavation, liners, leachate collection systems, engineering and legal fees, and capitalized interest. We classify this total disposal

F-11

NORTH CENTRAL FLORIDA DISTRICT

(Wholly Owned Divisions Of Allied Waste Industries, Inc.)

NOTES TO COMBINED FINANCIAL STATEMENTS — (Continued)

capacity as either permitted (having received the final permit from the governing authorities) or probable expansion. Probable expansion disposal capacity has not yet received final approval from the regulatory agencies, but we have determined that certain critical criteria have been met and the successful completion of the expansion is highly probable. Our internal requirements to classify disposal capacity as probable expansion are as follows:

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

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

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

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

      5. Senior operations management approval has been obtained.

      Upon successfully meeting the preceding criteria, the costs associated with developing, constructing, closing and monitoring the total additional future disposal capacity are considered in the life-cycle cost of the landfill and reflected in the calculation of the amortization and closure and post-closure rates.

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

Closure and Post-Closure

      As individual areas within each landfill reach capacity, we are required to cap and close the areas in accordance with the landfill site permit. Generally, closure requirements include the application of compacted clay, geosynthetic liners and vegetative soil barriers in addition to the construction of drainage channels and methane gas collection systems among other closure activities.

      After the entire landfill site has reached capacity and is closed, we are required to maintain and monitor the site for a post-closure period, which may extend for 30 years. Post-closure requirements generally include maintenance of the site and monitoring the methane gas collection systems and groundwater systems, among other post-closure activities. Estimated costs for such closure and post-closure as required under Subtitle D regulations are compiled and updated annually for each landfill by local and regional company engineers. In addition, on an annual basis, senior management performs a review of the overall cost estimates. The future estimated closure and post-closure costs are increased at an inflation rate of 2.5 percent, and discounted at a risk-free capital rate of 7.0 percent, per annum, based on the timing of the amounts to be expended.

      Our periodic closure and post-closure expense has two components. The first component is the site specific per unit closure and post-closure expense. The per unit rate is derived by dividing the estimated total remaining discounted closure and post-closure costs by the remaining disposal capacity at each landfill (consistent with the disposal capacity used to calculate landfill amortization rates). We use the

F-12

NORTH CENTRAL FLORIDA DISTRICT

(Wholly Owned Divisions Of Allied Waste Industries, Inc.)

NOTES TO COMBINED FINANCIAL STATEMENTS — (Continued)

resulting site-specific rates to record expense during a given period based upon the consumption of disposal capacity during that period.

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

Environmental Costs

      We engage independent environmental consulting firms to assist us in conducting environmental assessments of existing landfills or other properties, and in connection with companies acquired from third parties.

      The ultimate amounts for environmental liabilities cannot be precisely determined and estimates of such liabilities made by us, after consultation with our independent environmental engineers and legal counsel, require assumptions about future events due to a number of uncertainties including the extent of the contamination, the appropriate remedy, the financial viability of other potentially responsible parties and the final apportionment of responsibility among the potentially responsible parties. Where we have concluded that our estimated share of potential liabilities is probable, a provision has been made in the combined financial statements.

      Since the ultimate outcome of these matters may differ from the estimates used in our assessment to date, the recorded liabilities are periodically evaluated, as additional information becomes available to ascertain whether the accrued liabilities are adequate. We have determined that the recorded liability for environmental matters as of December 31, 2002 and 2001 of $52,845 and $165,662, respectively, represents the most probable outcome of these contingent matters. We do not reduce our estimated obligations for proceeds from other potentially responsible parties or insurance companies. If receipt is probable, proceeds are recorded as an offset to environmental expense in operating income. There were no significant recovery receivables outstanding as of December 31, 2002 or 2001. We do not expect that adjustments to estimates, which are reasonably possible in the near term and that may result in changes to recorded amounts, will have a material effect on our combined liquidity, financial position or results of operations. In addition, we do not believe that it is reasonably possible the ultimate outcome of environmental matters, excluding closure and post-closure could result in any additional liability.

5.     Retirement Plan

      AWI sponsors the AWI 401(k) Plan, a defined contribution plan which is available to all eligible employees not represented by collective bargaining agreements. Eligible employees may contribute up to 25 percent of their annual compensation on a pre-tax basis. Participant contributions are subject to certain restrictions as set forth in the Internal Revenue Code. AWI matches in cash 50 percent of employee contributions, up to the first 5 percent of the employee’s compensation which is deferred. Participant contributions vest immediately and the employer contributions vest in increments of 20 percent based upon years of service. AWI’s matching contributions to the plan on our behalf amounted to approximately $242,000, $85,000 and $154,000 for the years ended December 31, 2002, 2001 and 2000, respectively, and are included in selling, general and administrative expenses.

F-13

NORTH CENTRAL FLORIDA DISTRICT

(Wholly Owned Divisions Of Allied Waste Industries, Inc.)

NOTES TO COMBINED FINANCIAL STATEMENTS — (Continued)

6.     Commitments and Contingencies

Litigation

      We are subject to extensive and evolving laws and regulations and have implemented our own environmental safeguards to respond to regulatory requirements. In the normal course of conducting operations, we may become involved in certain legal and administrative proceedings. Some of these actions may result in fines, penalties or judgments against us, which may have an impact on earnings for a particular period. Litigation and regulatory compliance contingencies are accrued for when such costs are probable and reasonably estimable. There are no matters at December 31, 2002 that management expects to have a material adverse effect on our liquidity, financial position or results of operations.

Lease Agreements

      We have non-cancelable operating lease agreements for certain facilities and equipment. Future minimum lease commitments under these agreements for the years ending December 31 are as follows:

	(In thousands)
2003		1,641
2004		1,625
2005		713
2006		62
2007		22
	$	4,063

      Rent expense was approximately $1.5 million, $588,000 and $232,000 for the years ended December 31, 2002, 2001 and 2000, respectively.

Financial Assurances

      We are required to provide $8.9 million in financial assurances to governmental agencies under applicable environmental regulations relating to our landfill operations and collection contracts. We satisfy the financial assurance requirements by providing performance bonds, letters of credit, or trust deposits to secure our obligations as they relate to landfill closure and post-closure costs and performance under certain collection, landfill and transfer station contracts. Additionally, we are required to provide financial assurances for collateral required for certain performance obligations. We have not experienced difficulty in obtaining the financial assurances that we need. However, we cannot make any assurances that the level of financial assurances that we are required to provide will be available in the future.

      These financial instruments are issued in the normal course of business. They are not debt and, therefore, are not reflected in the accompanying combined balance sheets. The underlying obligations of the financial assurance instruments would be valued and recorded in the combined balance sheets based on the likelihood of performance being required. We do not expect this to occur.

Guarantees and Collateral

      We enter into contracts in the normal course of business that include indemnification clauses. Indemnifications relating to known liabilities are recorded in our combined financial statements based on our best estimate of required future payments. We are not able to determine potential future payments for indemnifications that 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

F-14

NORTH CENTRAL FLORIDA DISTRICT

(Wholly Owned Divisions Of Allied Waste Industries, Inc.)

NOTES TO COMBINED FINANCIAL STATEMENTS — (Continued)

divestiture agreements where we indemnify the buyer for liabilities that may become known in the future but that relate to our activities prior to the divestiture.

      Along with substantially all of the other operations of our Parent, we guarantee certain of our Parent’s outstanding debt obligations.

7.     Income Taxes

      Our operating results are included in the consolidated federal income tax return of AWI for the periods ended December 31, 2002, 2001 and 2000. Separate company state income tax returns are filed in Florida. The allocation of consolidated taxes of AWI to us is determined as if we prepared a separate tax return, in accordance with the provisions of the SFAS 109, Accounting for Income Taxes.

      The components of the income tax provision for the year ended December 31 consist of the following:

		2002		2001		2000
		(In thousands)
Current state tax provision		$	812	$	1,173	$	456
Balance of provision			6,591		7,110		7,878
	Total	$	7,403	$	8,283	$	8,334

      The current state tax provision represents the state income taxes paid and payable for the periods presented. The balance of the provision represents federal and deferred state income taxes. The income tax provision allocated includes both current and deferred taxes, but under our tax sharing arrangement with the Parent, the total provision is considered to be a current provision which reduces our cash flows from operating activities, and is reflected in the due to Parent on our combined balance sheets.

      The reconciliation of our income tax provision at the federal statutory tax rate to our effective tax rate for the year ended December 31 is as follows:

		2002		2001		2000
		(In thousands)
Federal statutory tax rate		$	6,478	$	6,320	$	6,371
Consolidated state taxes, net of federal benefit			925		943		950
Goodwill amortization			—		1,020		1,013
	Effective tax rate	$	7,403	$	8,283	$	8,334

      Deferred tax assets and liabilities (including any valuation allowance) are recognized, realized and maintained on a corporate-wide basis by AWI. The cumulative tax-effected temporary differences that have been recorded in due to Parent on our combined balance sheets at December 31 are as follows:

			2002			2001
			(In thousands)
Cumulative tax-effected future (taxable) deductible temporary differences
	Relating primarily to property consisting of landfill and fixed assets and contingencies related to other basis differences		$	(3,089	)	$	(3,674	)
	Environmental, closure and post-closure reserves			258			289
	Other reserves			57			75
		Total	$	(2,774	)	$	(3,310	)

F-15

NORTH CENTRAL FLORIDA DISTRICT

(Wholly Owned Divisions Of Allied Waste Industries, Inc.)

NOTES TO COMBINED FINANCIAL STATEMENTS — (Continued)

8.     Related Party Transactions

      All treasury functions are maintained at the Parent. Cash receipts are deposited into an account maintained by our Parent, and our cash requirements are met by our Parent on our behalf. The net amount of these cash transactions is recorded in due to Parent. We earn interest on the balance with our Parent, excluding tax-related items (Note 7), purchasing accounting related items, goodwill (Note 3) and certain other non-cash, non-interest bearing items at a rate of 6 percent, 9 percent and 9 percent, for the years ended December 31, 2002, 2001 and 2000, respectively. Related interest income allocated by our Parent to us was approximately $3.4 million, $3.0 million and $1.2 million for the years ended December 31, 2002, 2001 and 2000, respectively.

      The average balance due from Parent for which we earned interest income was $56.4 million, $32.5 million and $13.1 million for the years ended December 31, 2002, 2001 and 2000, respectively. The average balance due to Parent for which no interest was charged by the Parent was $162.9 million, $154.8 million and $150.9 million at December 31, 2002, 2001 and 2000, respectively. The balance due to Parent was $98.3 million at December 31, 2002.

      We receive services from affiliated business units which are recorded in our statement of operations at amounts that approximate arms length transactions. However, these amounts would not necessarily represent those charged by non-affiliated companies. We recorded related expenses of approximately $91,000, $124,000 and $247,000 as disposal expenses in cost of operations for the three years ended December 31, 2002, 2001 and 2000, respectively.

      In 2001, we entered into operating lease agreements with certain other subsidiaries of our Parent for equipment and vehicles. The associated lease expense included in cost of operations for 2002 and 2001 was approximately $1.3 million and $360,000, respectively.

      We are charged for management, financial and other administrative services provided by AWI during the year, including allocations for overhead. Amounts were allocated on the basis of revenues earned. Related charges for the years ended December 31, 2002, 2001 and 2000 were $1.6 million, $1.1 million and $4.6 million, respectively, and are included in selling, general and administrative expenses. Included in the amount for 2000 was approximately $2.7 million of logo fees expense relating to the use of the BFI name that was discontinued after 2000. In addition, AWI maintains employee health and workers’ compensation insurance coverage for us and we are allocated a portion of the cost of such coverage. Related charges included in cost of operations for the years ended December 31, 2002, 2001 and 2000 of $5.7 million, $5.1 million and $4.8 million, respectively, were allocated on the basis of payroll expenses incurred. Management believes the method of allocation used is reasonable, but would not necessarily represent those charged by non-affiliated companies or incurred for similar functions on a stand-alone basis. With the exception of the lease agreements discussed above, there are no contractual relationships between us and the Parent.

F-16

NORTH CENTRAL FLORIDA DISTRICT

(Wholly-Owned Divisions of Allied Waste Industries, Inc.)

COMBINED FINANCIAL STATEMENTS

As of September 30, 2003, December 31, 2002 and

for the nine months ended September 30, 2003 and September 30, 2002

F-17

NORTH CENTRAL FLORIDA DISTRICT

(Wholly-Owned Divisions of Allied Waste Industries, Inc.)

COMBINED BALANCE SHEETS

		September 30,		December 31,
		2003		2002
		(Unaudited)
		(In thousands)
ASSETS
Current Assets —
Cash		$	25	$	23
Accounts receivable, net of allowance of $35 and $141.			3,290		9,976
Prepaid and other current assets			533		723
	Total current assets		3,848		10,722
Property and equipment, net			17,046		18,476
Goodwill			116,168		116,168
Other assets, net			64		609
	Total assets	$	137,126	$	145,975
LIABILITIES AND DISTRICT’S EQUITY
Current Liabilities —
Current portion of long-term debt		$	5	$	—
Accounts payable			5,226		5,157
Current portion of accrued capping, closure, post-closure and environmental costs			617		378
Accrued liabilities			1,255		1,063
Unearned revenue			4,544		4,630
	Total current liabilities		11,647		11,228
Long-term debt, net of current portion			—		12
Accrued capping, closure, post-closure and environmental costs, less current portion			355		268
Due to parent			80,863		98,321
Commitments and contingencies
District’s equity			44,261		36,146
	Total liabilities and district’s equity	$	137,126	$	145,975

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

F-18

NORTH CENTRAL FLORIDA DISTRICT

(Wholly-Owned Divisions of Allied Waste Industries, Inc.)

COMBINED STATEMENTS OF OPERATIONS

		Nine Months Ended
		September 30,
		2003			2002
		(In thousands,
		unaudited)
Revenues		$	68,346		$	68,011
Cost of operations			49,599			48,007
Selling, general and administrative expenses			5,992			4,970
Depreciation and amortization			3,355			3,525
	Operating income		9,400			11,509
Interest income, net			(3,815	)		(2,556	)
	Income before income taxes		13,215			14,065
Income tax expense			5,286			5,626
	Net income before cumulative effect of change in accounting principle, net of tax		7,929			8,439
Cumulative effect of change in accounting principle, net of tax			(186	)		—
Net income		$	8,115		$	8,439
Pro forma net income assuming the change in accounting principle is applied retroactively					$	8,476

The accompanying Notes to Combined Financial Statements are an integral part of

these combined statements.

F-19

NORTH CENTRAL FLORIDA DISTRICT

(Wholly-Owned Divisions of Allied Waste Industries, Inc.)

COMBINED STATEMENTS OF CASH FLOWS

		Nine Months Ended
		September 30,
		2003			2002
		(In thousands,
		unaudited)
Operating activities —
Net income		$	8,115		$	8,439
Adjustments to reconcile net income to cash provided by operating activities —
Provisions for:
	Depreciation and amortization		3,355			3,525
	Doubtful accounts		119			79
	Gain on sale of fixed assets		(21	)		(34	)
	Loss on sale of trade receivables		1,258			—
	Cumulative effect of change in accounting principle, net of tax		(186	)		—
Change in operating assets and liabilities, excluding the effects of purchase acquisitions —
	Accounts receivable, prepaid expenses, inventories and other		4,095			(200	)
	Accounts payable, accrued liabilities, unearned revenue and other		175			319
	Capping, closure and post-closure accretion provision		12			184
	Capping, closure, post-closure and environmental expenditures		(43	)		(11	)
Cash provided by operating activities			16,879			12,301
Investing activities —
	Proceeds from sale of fixed assets		62			56
	Capital expenditures, excluding acquisitions		(1,909	)		(544	)
	Capitalized interest		(1	)		(1	)
	Change in notes receivable and other		542			(4	)
Cash used for investing activities			(1,306	)		(493	)
Financing activities —
	Change in due to parent		(15,564	)		(11,915	)
	Payments on debt		(7	)		—
Cash used for financing activities			(15,571	)		(11,915	)
(Decrease) increase in cash			2			(107	)
Cash at beginning of period			23			130
Cash at end of period		$	25		$	23
Supplemental disclosures:
	Non-cash change in due to parent	$	4		$	(9	)
	Note receivable due from affiliate for trade receivables sold	$	1,405		$	—

The accompanying Notes to Combined Financial Statements are an integral part of

these combined statements.

F-20

NORTH CENTRAL FLORIDA DISTRICT

(Wholly-Owned Divisions of Allied Waste Industries, Inc.)

NOTES TO COMBINED FINANCIAL STATEMENTS

1.     Organization and Summary of Significant Accounting Policies

      The North Central Florida District (the Company) is a group of several business units that provide waste collection, transfer, recycling and disposal services in North and Central Florida and are wholly-owned by Allied Waste Industries, Inc. (AWI, Allied or Parent), a Delaware corporation. Allied is the second largest, non-hazardous solid waste management company in the United States, as measured by revenues and provides non-hazardous waste collection, transfer, recycling and disposal services in 38 states. All significant operational and financial decisions of the Company are made by Allied’s management.

Basis of presentation —

      All significant intercompany accounts and transactions between the business units within the Company are eliminated in the combined financial statements. The December 31, 2002 balance sheet data included herein is derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America. We are not a registrant with the Securities and Exchange Commission (the SEC) and are not subject to the SEC’s periodic reporting requirements. Certain estimates, including allocations from the Parent, have been made to provide financial information for SEC and stand-alone reporting purposes. We believe that the presentations and disclosures herein are adequate when read in conjunction with our audited financial statements for the year ended December 31, 2002 to make the information not misleading. In the opinion of management, all adjustments necessary to fairly state the financial statements have been reflected.

      Operating results for interim periods are not necessarily indicative of the results for full years. These combined financial statements should be read in conjunction with our audited financial statements for the year ended December 31, 2002 and the related notes thereto.

      For the description of our significant accounting policies, see Note 1 of Notes to Combined Financial Statements for the year ended December 31, 2002 in our audited financial statements.

      On January 1, 2003, we adopted certain changes in accounting principles that impact the comparability of the financial information presented herein. See Recently adopted accounting pronouncements below.

Use of estimates —

      The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosures of contingencies at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Recently adopted accounting pronouncements —

      In June 2001, the Financial Accounting Standards Board (FASB) issued SFAS No. 143, Accounting for Asset Retirement Obligations (SFAS No. 143), which outlines the standards for accounting for obligations associated with the retirement of a long-lived tangible asset. The standard was effective beginning January 1, 2003 and impacts the accounting for landfill retirement obligations, which we have historically referred to as closure and post-closure. See Note 3 for additional discussion.

      In November 2002, the FASB issued FASB Interpretation 45, Guarantor’s Accounting and Disclosure requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others (FIN 45). FIN 45 elaborates on the existing disclosure requirements for most guarantees, including loan guarantees such as

F-21

NORTH CENTRAL FLORIDA DISTRICT

(Wholly-Owned Divisions of Allied Waste Industries, Inc.)

NOTES TO COMBINED FINANCIAL STATEMENTS — (Continued)

standby letters of credit. It also clarifies that at the time a company issues a guarantee, the company must recognize an initial liability for the fair value, or market value, of the obligations it assumes under that guarantee and must disclose that information in its interim and annual financial statements. The recognition requirements of FIN 45 are effective for any guarantees entered into subsequent to January 1, 2003. The adoption of FIN 45 did not have a material impact on our combined financial statements.

      Effective January 1, 2002, we adopted SFAS 142, Goodwill and Other Intangible Assets (SFAS 142), which among other things, eliminates the amortization of goodwill and instead requires an annual assessment of goodwill impairment by applying a fair value based test.

      Effective January 1, 2002, we adopted SFAS No. 144, which supercedes SFAS No. 121 Accounting for the Impairment or Disposal of Long-Lived Assets. SFAS No. 144 provides a single accounting model for impairment of long-lived assets held for use and for long-lived assets that are to be disposed of by sale (including discontinued operations). SFAS No. 144 does not address impairment of goodwill. There was no impact on our financial statements or results of operations upon adoption.

2.     Property and Equipment

      Property and equipment at September 30, 2003 and December 31, 2002 are as follows (in thousands):

		September 30,		December 31,
		2003		2002
Land and land improvements		$	2,882	$	2,684
Land held for permitting as landfills			347		208
Landfills			2,892		2,156
Buildings and improvements			2,933		2,899
Vehicles and equipment			19,646		18,804
Containers and compactors			8,295		7,838
Furniture and fixtures			339		334
	Total property and equipment		37,334		34,923
Less: Accumulated depreciation and amortization			20,288		16,447
	Property and equipment, net	$	17,046	$	18,476

3.     Landfill Accounting

     Change in accounting principle —

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

      The new rules are a refinement to our industry practices and have caused a change in the mechanics of calculating landfill retirement obligations and the classification of where amounts are recorded in the financial statements. Landfill retirement obligations are no longer accrued through a provision to cost of operations, but rather as an increase to landfill assets. In addition, in accordance with SFAS 143, we

F-22

NORTH CENTRAL FLORIDA DISTRICT

(Wholly-Owned Divisions of Allied Waste Industries, Inc.)

NOTES TO COMBINED FINANCIAL STATEMENTS — (Continued)

changed the classification of costs related to capping, closure and post-closure obligations to other accounts. The most significant change in classification is that we now record the costs for methane gas collection systems in the landfill development assets.

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

      At January 1, 2003, we recorded a cumulative effect of a change in accounting principle of a net gain of approximately $186,000 (net of income tax expense of $124,000). In addition, we recorded an increase in our capping, closure and post-closure liabilities of approximately $286,000 and a decrease in our net landfill assets of approximately $23,000.

      Our net income for years ended December 31, 2002, 2001 and 2000 was approximately $11.1 million, $9.8 million and $9.9 million, respectively. On a pro forma basis assuming SFAS 143 is applied retroactively, our net income for those years would be approximately the same.

      We have two active landfills in the North Central Florida District. One landfill has an expected operating life of 4 years. The second landfill has a remaining operating life of 9 years, including permitted airspace approved subsequent to September 30, 2003. We use a life-cycle accounting method for landfills and the related closure and post-closure liabilities. This method applies the costs associated with acquiring, developing, closing and monitoring the landfills over the associated landfill capacity and associated consumption. On an annual basis, we update the development cost estimates (which include the costs to develop the site as well as the individual cell construction costs), closure and post-closure cost estimates and future capacity estimates (sometimes referred to as airspace) for each landfill. The cost estimates are prepared by our local management and third-party engineers based on the applicable local, state and federal regulations and site specific permit requirements. Future capacity estimates are updated using aerial surveys of each landfill to estimate utilized disposal capacity and remaining disposal capacity. These cost and capacity estimates are reviewed and approved by senior operations management annually.

Landfill assets —

      We use the units of production method for purposes of calculating the amortization rate at each landfill. This methodology divides the costs associated with acquiring, permitting and developing the entire landfill by the total remaining capacity of that landfill. The resulting per unit amortization rate is applied to each unit disposed at the landfill and is recorded as expense for that period.

      Costs associated with developing the landfill include direct costs such as excavation, liners, leachate collection systems, engineering and legal fees, and capitalized interest. We classify this total disposal capacity as either permitted (having received the final permit from the governing authorities) or probable expansion. Probable expansion disposal capacity has not yet received final approval from the regulatory agencies, but we have determined that certain critical criteria have been met and the successful completion of the expansion is highly probable. Our internal requirements to classify disposal capacity as probable expansion are as follows:

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

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

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

F-23

NORTH CENTRAL FLORIDA DISTRICT

(Wholly-Owned Divisions of Allied Waste Industries, Inc.)

NOTES TO COMBINED FINANCIAL STATEMENTS — (Continued)

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

      5. Senior operations management approval has been obtained.

      Upon successfully meeting the preceding criteria, the costs associated with developing, constructing, closing and monitoring the total additional future disposal capacity are considered in the life-cycle cost of the landfill and reflected in the calculation of the amortization and closure and post-closure rates.

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

Capping, closure and post-closure —

      As individual areas within each landfill reach capacity, we are required to cap and close the areas in accordance with the landfill site permit. Generally, capping activities include the installation of compacted clay, geosynthetic liners, drainage channels, compacted soil layers and vegetative soil barriers over areas of a landfill where total airspace has been consumed and waste is no longer being received. Capping activities occur throughout the life of the landfill.

      After the entire landfill site has reached capacity and is closed, we are required to maintain and monitor the site for a post-closure period, which may extend for 30 years. Post-closure requirements generally include maintenance and operational costs of the site and monitoring the methane gas collection systems and groundwater systems, among other post-closure activities. Estimated costs for such closure and post-closure as required under Subtitle D regulations are compiled and updated annually for each landfill by local and regional company engineers. In addition, on an annual basis, senior management performs a review of the overall cost estimates. Daily maintenance activities, such as leachate disposal, methane gas and groundwater monitoring and maintenance, and mowing and fertilizing capped areas, incurred during the operating life of the landfill are expensed as incurred.

      SFAS 143 required landfill obligations to be recorded at fair value. Quoted market prices in active markets are the best evidence of fair value. Since quoted market prices for landfill retirement obligations are not available to determine fair value, we use discounted cash flows of capping, closure and post-closure cost estimates to approximate fair value. The cost estimates are prepared by our local management and third-party engineers based on the applicable local, state and federal regulations and site specific permit requirements and are intended to approximate fair value.

      Capping, closure and post-closure costs are estimated for the period of performance utilizing estimates a third party would charge (including profit margins) to perform those activities in full compliance with Subtitle D. If we perform the capping, closure and post-closure activities internally, the difference between amounts accrued, based upon third party cost estimates (including profit margins) and our actual cost incurred is recognized as a component of cost of operations in the period earned. An estimate of fair value should include the price that marketplace participants are able to receive for bearing the uncertainties in cash flows. However, when utilizing discounted cash flows, reliable estimates of market risk premiums may not be obtainable. In our industry, there is no market that exists for selling the responsibility for capping, closure and post-closure independent of selling the entire landfill. Accordingly, we believe that it is not

F-24

NORTH CENTRAL FLORIDA DISTRICT

(Wholly-Owned Divisions of Allied Waste Industries, Inc.)

NOTES TO COMBINED FINANCIAL STATEMENTS — (Continued)

possible to develop a methodology to reliably estimate a market risk premium and have excluded a market risk premium from our determination of expected cash flows for capping, closure and post-closure liability.

      We discount our capping, closure and post-closure costs using our credit-adjusted, risk-free rate of 9%. The credit-adjusted, risk-free rate is based on the risk-free interest rate on obligations of similar maturity adjusted for our own credit rating. Changes in our credit-adjusted, risk-free rate do not change recorded liabilities, but subsequently recognized obligations are measured using the revised credit-adjusted, risk-free rate.

      Accretion expense is necessary to increase the accrued capping, closure and post-closure accrual balance to its future, or undiscounted, value. To accomplish this, we accrete our capping, closure and post-closure accrual balance using the credit-adjusted, risk-free rate of 9% and charge this accretion as an operating expense in that period.

      Accretion expense for the nine months ended September 30, 2002 would have been approximately $54,000 if we would have been accounting for capping, closure and post-closure obligations under SFAS 143 since January 1, 2002.

Environmental costs —

      We engage independent environmental consulting firms to assist us in conducting environmental assessments of existing landfills or other properties, and in connection with companies acquired from third parties.

      The ultimate amounts for environmental liabilities cannot be precisely determined and estimates of such liabilities made by us, after consultation with our independent environmental engineers and legal counsel, require assumptions about future events due to a number of uncertainties including the extent of the contamination, the appropriate remedy, the financial viability of other potentially responsible parties and the final apportionment of responsibility among the potentially responsible parties. Where we have concluded that our estimated share of potential liabilities is probable, a provision has been made in the combined financial statements.

      Since the ultimate outcome of these matters may differ from the estimates used in our assessment to date, the recorded liabilities are periodically evaluated, as additional information becomes available to ascertain whether the accrued liabilities are adequate. We have determined that the recorded liability for environmental matters as of September 30, 2003 and December 31, 2002 of approximately $53,000, represents the most probable outcome of these contingent matters. We do not reduce our estimated obligations for proceeds from other potentially responsible parties or insurance companies. If receipt is probable, proceeds are recorded as an offset to environmental expense in operating income. There were no significant recovery receivables outstanding as of September 30, 2003 or December 31, 2002. We do not expect that adjustments to estimates, which are reasonably possible in the near term and that may result in changes to recorded amounts, will have a material effect on our combined liquidity, financial position or results of operations. In addition, we do not believe that it is reasonably possible the ultimate outcome of environmental matters, excluding closure and post-closure could result in any additional liability.

4.     Retirement Plan

      AWI sponsors the AWI 401(k) Plan, a defined contribution plan which is available to all eligible employees not represented by collective bargaining agreements. Eligible employees may contribute up to 25% of their annual compensation on a pre-tax basis. Participant contributions are subject to certain restrictions as set forth in the Internal Revenue Code. AWI matches in cash 50% of employee contributions, up to the first 5% of the employee’s compensation which is deferred. Participant

F-25

NORTH CENTRAL FLORIDA DISTRICT

(Wholly-Owned Divisions of Allied Waste Industries, Inc.)

NOTES TO COMBINED FINANCIAL STATEMENTS — (Continued)

contributions vest immediately and the employer contributions vest in increments of 20% based upon years of service. AWI’s matching contributions to the plan on our behalf amounted to approximately $166,000 and $181,000 for the nine months ended September 30, 2003 and 2002, respectively, included in selling, general and administrative expenses.

5.     Commitments and Contingencies

Litigation —

      We are subject to extensive and evolving laws and regulations and have implemented our own environmental safeguards to respond to regulatory requirements. In the normal course of conducting operations, we may become involved in certain legal and administrative proceedings. Some of these actions may result in fines, penalties or judgments against us, which may have an impact on earnings for a particular period. Litigation and regulatory compliance contingencies are accrued for when such costs are probable and reasonably estimable. There are no matters at September 30, 2003 that management expects to have a material adverse effect on our liquidity, financial position or results of operations.

Financial assurances —

      We are required to provide $13.3 million in financial assurances to governmental agencies under applicable environmental regulations relating to our landfill operations and collection contracts. We satisfy the financial assurance requirements by providing performance bonds, letters of credit, or trust deposits to secure our obligations as they relate to landfill closure and post-closure costs and performance under certain collection, landfill and transfer station contracts. Additionally, we are required to provide financial assurances for collateral required for certain performance obligations. We have not experienced difficulty in obtaining the financial assurances that we need. However, we cannot make any assurances that the level of financial assurances that we are required to provide will be available in the future.

      These financial instruments are issued in the normal course of business. They are not debt and, therefore, are not reflected in the accompanying combined balance sheets. The underlying obligations of the financial assurance instruments would be valued and recorded in the combined balance sheets based on the likelihood of performance being required. We do not expect this to occur.

Guarantees and collateral —

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

      Along with substantially all of the other operations of our Parent, we guarantee certain of our Parent’s outstanding debt obligations.

6.     Related Party Transactions

      All treasury functions are maintained at the Parent. Cash receipts are deposited into an account maintained by our Parent, and our cash requirements are met by our Parent on our behalf. The net amount of these cash transactions is recorded in due to Parent. We earn interest on the balance with our Parent, excluding tax-related items, purchase accounting related items, goodwill and certain other non-

F-26

NORTH CENTRAL FLORIDA DISTRICT

(Wholly-Owned Divisions of Allied Waste Industries, Inc.)

NOTES TO COMBINED FINANCIAL STATEMENTS — (Continued)

cash, non-interest bearing items at a rate of 6% for both 2003 and 2002. Related interest income allocated by our Parent to us was approximately $3.7 million and $2.5 million for the nine months ended September 2003 and 2002, respectively.

      The average balance due from Parent for which we earned interest income was $83.3 million and $56.4 million for the nine months ended September 30, 2003 and 2002, respectively. The average balance due to Parent for which no interest was charged by the Parent was $172.9 million and $165.1 million for the nine months ended September 30, 2003 and 2002, respectively.

      In 2002, we received services from affiliated business units which are recorded in our statement of operations at amounts that approximate arms length transactions. However, these amounts would not necessarily represent those charged by non-affiliate companies. We recorded related expenses of approximately $74,000 as disposal expenses in cost of operations for the nine months ended September 30, 2002.

      In 2001, we entered into operating lease agreements with certain other subsidiaries of our Parent for equipment and vehicles. The associated lease expense included in cost of operations for the nine months ended September 30, 2003 and 2002 was approximately $1.1 million and $952,000, respectively.

      During 2003, we sold trade receivables at a discount to another subsidiary of our Parent in connection with a receivables secured loan program of our Parent. In connection with the sale, we recognized a loss of approximately $1.3 million recorded in selling, general and administrative expenses for the nine months ended September 30, 2003, and recorded a note receivable due from affiliate of approximately $1.4 million in due to Parent as part of the initial sale of receivables. Allocated interest income on the note receivable was approximately $17,000 for the nine months ended September 30, 2003.

      We are charged for management, financial and other administrative services provided by AWI during the year, including allocations for overhead. Amounts were allocated on the basis of revenues earned. Related charges for both the nine months ended September 30, 2003 and 2002 of $1.2 million and are included in selling, general and administrative expenses. In addition, AWI maintains employee health and workers’ compensation insurance coverage for us and we are allocated a portion of the cost of such coverage. Related charges included in cost of operations for the nine months ended September 30, 2003 and 2002 of $4.7 million and $4.6 million, respectively, were allocated on the basis of payroll expenses incurred. Management believes the method of allocation used is reasonable, but would not necessarily represent those charged by non-affiliated companies or incurred for similar functions on a stand-alone basis. With the exception of the lease agreements discussed above, there are no contractual relationships between us and the Parent.

F-27 EX-99.2 4 g85968exv99w2.htm FLORIDA RECYCLING SERVICES/CONSOLIDATED FINANCIALS

EXHIBIT 99.2

FLORIDA RECYCLING SERVICES, INC. OF ILLINOIS

AND SUBSIDIARY

CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000

AND AS OF AND FOR THE NINE

MONTHS ENDED SEPTEMBER 30, 2003

AND SEPTEMBER 30, 2002

FLORIDA RECYCLING SERVICES, INC. OF ILLINOIS AND SUBSIDIARY

TABLE OF CONTENTS

Independent Auditor’s Report
	Consolidated Balance Sheets	Exhibit  A
	Consolidated Statements of Operations	Exhibit  B
	Consolidated Statements of Shareholder’s Equity (Deficit)	Exhibit  C
	Consolidated Statements of Cash Flows	Exhibit  D
Notes to Consolidated Financial Statements

F-1

INDEPENDENT AUDITOR’S REPORT

To the Shareholders
Florida Recycling Services, Inc. of Illinois
Chicago, Illinois

      We have audited the accompanying consolidated balance sheets of Florida Recycling Services, Inc. of Illinois and Subsidiary as of December 31, 2002, 2001 and 2000, and the related consolidated statements of operations, cash flows and shareholder’s equity (deficit) for the years then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

      We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

      In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Florida Recycling Services, Inc. of Illinois and Subsidiary as of December 31, 2002, 2001 and 2000, and the results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

/s/ Shepard Schwartz & Harris LLP

April 23, 2003

Chicago, Illinois

F-2

EXHIBIT A

FLORIDA RECYCLING SERVICES, INC. OF ILLINOIS AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

				Nine Months Ended
				September 30,						Years Ended December 31,
				2003			2002			2002			2001			2000
				(Unaudited)
ASSETS
CURRENT ASSETS
	Cash and cash equivalents			$	338,986		$	—		$	69,192		$	897,341		$	853,357
	Receivables trade				14,564,071			9,630,940			10,691,735			12,256,134			12,106,381
		Other			208,412			19,822			11,424			45,347			38,612
	Prepaid expenses				1,007,695			417,817			492,026			370,707			366,655
	Advances to related parties				855,000			720,000			510,000			—			—
	Supplies and materials				986,311			470,834			487,520			432,939			314,010
			Total current assets		17,960,475			11,259,413			12,261,897			14,002,468			13,679,015
PROPERTY AND EQUIPMENT
	Building				576,941			699,721			699,721			1,451,221			1,451,221
	Machinery and equipment				54,385,643			48,806,698			50,661,524			45,253,426			42,235,017
					54,962,584			49,506,419			51,361,245			46,704,647			43,686,238
	Less — accumulated depreciation				36,917,362			31,094,841			33,828,548			24,966,942			15,428,841
					18,045,222			18,411,578			17,532,697			21,737,705			28,257,397
	Land				98,198			413,198			413,198			476,226			476,226
					18,143,420			18,824,776			17,945,895			22,213,931			28,733,623
OTHER ASSETS
	Deposits				17,961			18,435			18,435			2,878			445,897
	Contract acquisition rights (net of accumulated amortization of $21,667 in 2002)				484,328			381,622			363,566			—			—
	Goodwill (net of accumulated amortization of $68,611 in 2001 and $25,278 in 2000)				174,489			174,489			174,489			581,389			624,722
	Deferred income taxes				598,200			627,700			636,000			636,000			486,000
					1,274,978			1,202,246			1,192,490			1,220,267			1,556,619
				$	37,378,873		$	31,286,435		$	31,400,282		$	37,436,666		$	43,969,257
LIABILITIES AND SHAREHOLDER’S DEFICIT
CURRENT LIABILITIES
	Checks issued in excess of bank balance			$	—		$	—		$	—		$	2,170,476		$	1,547,156
	Note payable — bank				10,500,000			4,500,000			4,500,000			—			—
	Current maturities of long-term debt				8,532,000			9,107,018			8,198,916			10,687,496			8,985,279
	Accounts payable				7,614,752			6,163,097			5,369,645			3,775,630			7,457,537
	Accrued expenses				3,069,317			2,677,996			2,697,802			4,168,021			3,812,972
			Total current liabilities		29,716,069			22,448,111			20,766,363			20,801,623			21,802,944
LONG-TERM DEBT — net of current maturities					10,188,434			14,355,973			15,051,757			25,457,100			23,832,025
SHAREHOLDER’S DEFICIT
	Common stock — $1,000 par value, 1,000 shares authorized, 100 shares issued and outstanding				100,000			100,000			100,000			100,000			100,000
	Additional paid-in capital				11,670,550			9,570,550			11,670,550			6,716,512			6,687,112
	Accumulated deficit				(14,296,180	)		(15,188,199	)		(16,188,388	)		(15,638,569	)		(8,452,824	)
			Total shareholder’s deficit		(2,525,630	)		(5,517,649	)		(4,417,838	)		(8,822,057	)		(1,665,712	)
				$	37,378,873		$	31,286,435		$	31,400,282		$	37,436,666		$	43,969,257

The accompanying notes are an integral part of these statements.

F-3

EXHIBIT B

FLORIDA RECYCLING SERVICES, INC. OF ILLINOIS AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF OPERATIONS

		Nine Months Ended
		September 30,						Years Ended December 31,
		2003			2002			2002			2001			2000
		(Unaudited)
Sales		$	68,152,545		$	62,906,633		$	84,783,830		$	81,722,405		$	65,051,439
Cost of sales:
	Direct labor		18,341,890			16,384,695			22,268,603			23,188,341			16,903,230
	Dumping and hauling		22,188,786			21,044,331			28,516,654			30,123,083			19,196,995
	Depreciation and amortization		5,069,585			6,216,011			9,172,228			10,645,485			9,991,132
	Amortization of contract rights		45,000			—			43,334			—			—
	Other		7,238,315			7,260,256			9,561,909			9,938,131			7,796,478
			52,883,576			50,905,293			69,562,728			73,895,040			53,887,835
Gross profit			15,268,969			12,001,340			15,221,102			7,827,365			11,163,604
Operating expenses			11,012,774			10,027,007			13,666,493			12,497,884			16,043,229
Operating income (loss)			4,256,195			1,974,333			1,554,609			(4,670,519	)		(4,879,625	)
Other (income) expense:
	(Gain) loss on sale of assets		(51,206	)		(26,120	)		11,466			38,470			32,610
	Interest expense		1,441,741			1,541,783			2,092,962			2,626,756			1,960,305
	Interest income		—			—			—			—			(47,434	)
			1,390,535			1,515,663			2,104,428			2,665,226			1,945,481
Income (loss) before income tax expense (benefit)			2,865,660			458,670			(549,819	)		(7,335,745	)		(6,825,106	)
Income tax expense (benefit) — deferred			37,800			8,300			—			(150,000	)		(250,000	)
Net income (loss)		$	2,827,860		$	450,370		$	(549,819	)	$	(7,185,745	)	$	(6,575,106	)
Earnings per share		$	28,278.60		$	4,503.70		$	(5,498.19	)	$	(71,857.45	)	$	(65,751.06	)

The accompanying notes are an integral part of these statements.

F-4

EXHIBIT C

FLORIDA RECYCLING SERVICES, INC. OF ILLINOIS AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDER’S EQUITY (DEFICIT)

Years Ended December 31, 2002, 2001 and 2000

					Additional
	Shares		Par		Paid in		Accumulated
	Issued		Value		Capital		Deficit			Total
Balance — January 1, 2000		100	$	100,000	$	6,687,112	$	(524,835	)	$	6,262,277
Net loss		—		—		—		(6,575,106	)		(6,575,106	)
Shareholder’s distribution		—		—		—		(1,352,883	)		(1,352,883	)
Balance — December 31, 2000		100		100,000		6,687,112		(8,452,824	)		(1,665,712	)
Net loss		—		—		—		(7,185,745	)		(7,185,745	)
Shareholder’s contribution		—		—		29,400		—			29,400
Balance — December 31, 2001		100		100,000		6,716,512		(15,638,569	)		(8,822,057	)
Net loss		—		—		—		(549,819	)		(549,819	)
Shareholder’s contribution		—		—		4,954,038		—			4,954,038
Balance — December 31, 2002		100	$	100,000	$	11,670,550	$	(16,188,388	)	$	(4,417,838	)
Net income		—		—		—		2,827,860			2,827,860
Shareholder’s distribution		—		—		—		(935,652	)		(935,652	)
Balance — September 30, 2003		100	$	100,000	$	11,670,550	$	(14,296,180	)	$	(2,525,630	)

The accompanying notes are an integral part of these statements.

F-5

EXHIBIT D

FLORIDA RECYCLING SERVICES, INC. OF ILLINOIS AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

						Nine Months Ended
						September 30,						Years Ended December 31,
						2003			2002			2002			2001			2000
						(Unaudited)
Cash flows from operating activities:
	Cash received from customers					$	64,279,125		$	65,557,352		$	86,348,229		$	81,572,652		$	63,423,841
	Interest received						—			—			—			—			47,434
	Cash paid for goods and operating expenses						(57,463,385	)		(56,104,512	)		(76,284,274	)		(78,757,105	)		(55,466,326	)
	Interest paid						(1,353,863	)		(1,486,321	)		(2,011,004	)		(2,450,343	)		(1,841,305	)
					Net cash provided by operating activities		5,461,877			7,966,519			8,052,951			365,204			6,163,644
Cash flows from investing activities:
	Advances to related parties						(345,000	)		(720,000	)		(510,000	)		—			—
	Deposits paid (returned)						474			(15,557	)		(15,557	)		443,019			(23,978	)
	Cash received from sale of property and equipment						260,510			53,000			117,221			1,578,756			118,805
	Purchase of property and equipment						(5,066,195	)		(3,642,169	)		(5,821,311	)		(5,670,297	)		(22,485,330	)
	Purchase of goodwill / contract acquisition rights						(165,762	)		—			—			—			(650,000	)
					Net cash used for investing activities		(5,315,973	)		(4,324,726	)		(6,229,647	)		(3,648,522	)		(23,040,503	)
Cash flows from financing activities:
	Proceeds from note payable — bank						2,900,000						1,300,000			—			—
	Proceeds of long-term debt						4,976,696			1,331,222			1,590,216			11,282,538			36,024,348
	Payments of long-term debt						(6,406,935	)		(5,870,356	)		(7,641,669	)		(7,955,236	)		(17,056,365	)
	Contribution from shareholder												2,100,000			—			—
	Distributions to shareholder						(508,628	)					—			—			(1,352,883	)
					Net cash provided by (used for) financing activities		961,133			(4,539,134	)		(2,651,453	)		3,327,302			17,615,100
Net increase (decrease) in cash and cash equivalents							269,794			(897,341	)		(828,149	)		43,984			738,241
Cash and cash equivalents — beginning							69,192			897,341			897,341			853,357			115,116
Cash and cash equivalents — ending						$	338,986		$	—		$	69,192		$	897,341		$	853,357
Reconciliation of net income (loss) to net cash provided by operating activities:
	Net income (loss)					$	2,827,860		$	450,370		$	(549,819	)	$	(7,185,745	)	$	(6,575,106	)
	Adjustments to reconcile net income (loss) to net cash provided by (used for) operating activities:
		Depreciation and amortization					5,114,585			6,241,289			9,215,562			10,645,485			10,016,410
			(Gain) loss on sale of property and equipment				(51,206	)		(26,120	)		11,466			38,470			32,610
			(Increase) decrease in:
				Receivables — trade			(3,872,336	)		2,625,194			1,564,399			(149,753	)		(1,627,598	)
				Other receivables			(196,988	)		25,525			33,923			(6,735	)		28,196
				Supplies and materials			(515,669	)		(47,110	)		(54,580	)		(118,929	)		(106,509	)
				Prepaid expenses			(498,791	)		(37,895	)		(121,320	)		(4,052	)		(302,127	)
				Deferred income taxes			37,800			8,300			(150,000	)		(250,000	)
			Increase (decrease) in:
				Checks issued in excess of bank balance						(2,170,476	)		(2,170,476	)		623,321			1,547,154
				Accounts payable			2,245,107			2,387,467			1,594,015			(3,681,907	)		3,240,178
				Accrued expenses			371,515			(1,490,025	)		(1,470,219	)		355,049			160,436
							2,634,017			7,516,149			8,602,770			7,550,949			12,738,750
					Net cash provided by operating activities	$	5,461,877		$	7,966,519		$	8,052,951		$	365,204		$	6,163,644

During the nine months ended September 30, 2003, the Company distributed a building

and land with a book value of $427,023 to its shareholder

The accompanying notes are an integral part of these statements

F-6

FLORIDA RECYCLING SERVICES, INC. OF ILLINOIS AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note A — Nature of Operations

      Florida Recycling Services, Inc. of Illinois (FRS of Illinois) and its subsidiary Florida Recycling Services, Inc. of Delaware (FRS of Delaware) operate waste disposal and recycling services in central Florida.

Note B — Summary of Significant Accounting Policies

Principles of Consolidation

      The accompanying consolidated financial statements include the accounts of FRS of Illinois and its subsidiary. All significant intercompany transactions and balances have been eliminated in consolidation.

Unaudited Interim Financial Statements

      In the opinion of management, the unaudited consolidated financial statements contain all adjustments, necessary to present fairly the consolidated financial position of the Company at June 30, 2003 and 2002 and the consolidated results of operations and cash flows for the six months ended June 30, 2003 and 2002.

      Financial statement disclosures required by generally accepted accounting principles have not been included for the unaudited interim consolidated financial information where those disclosures are not significantly different than disclosures presented with the audited consolidated financial statements for the years ended December 31, 2002, 2001 and 2000.

Cash and Cash Equivalents

      The Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents.

Accounts Receivable

      Trade receivables are uncollateralized customer obligations due 30 days from the invoice date.

      Trade receivables are stated at the amount billed to the customer. The carrying amount of trade receivables is reduced by an allowance for doubtful accounts that reflects management’s estimate of the amounts that will not be collected. Management reviews individual receivable balances and the Company’s average write offs to estimate the allowance for doubtful accounts. At December 31, 2002, 2001 and 2000, an allowance of $379,120, $363,332 and $549,778, respectively was considered necessary.

Property and Equipment

      Property and equipment is stated at cost. Expenditures for maintenance, repairs and minor renewals are charged to expense as incurred. Expenditures for improvements, replacements and major renewals are capitalized.

      Depreciation is provided principally by accelerated methods over estimated useful lives of 5 to 39 years.

Goodwill and Other Intangible Assets

      Goodwill, representing the aggregate excess cost of companies acquired over the fair value of their net assets at dates of acquisition, was being amortized by the straight-line method over a period of 15 years in the years ended December 31, 2001 and 2000.

F-7

FLORIDA RECYCLING SERVICES, INC. OF ILLINOIS AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Note B — Summary of Significant Accounting Policies (Cont’d)

      In June 2001, Statement of Financial Accounting Standards (SFAS) No. 142 was issued to address the initial recognition and measurement of intangible assets acquired outside of a business combination and the accounting for goodwill and other intangible assets subsequent to their acquisition. SFAS No. 142 provides that intangible assets with finite useful lives be amortized and that goodwill and intangible assets with indefinite lives not be amortized, but rather be tested at least annually for impairment. The Company adopted SFAS No. 142 as of January 1, 2002. Upon adoption of SFAS 142, the Company assigned approximately $407,000 of previously reported goodwill to contract acquisition costs.

      Contract acquisition costs are being amortized over their estimated remaining useful lives of approximately 8 years. Estimated amortization expense for each year through December 31, 2007 is $43,334.

      On January 1, 2002, goodwill amounting to $174,489 was not subject to further amortization as a result of SFAS No. 142. The Company conducted its initial impairment test in 2002, with no reduction of recorded goodwill resulting from the test. A reconciliation adjusting comparative net earnings and earnings per share for the years ended December 31, 2001 and 2000, to show the effect of amortizing the contract acquisition costs and no longer amortizing goodwill, follows:

		2001			2000
Reported net loss		$	(7,185,745	)	$	(6,575,106	)
Adjustments:
	Goodwill Amortization		43,334			25,278
	Contract acquisition costs amortization		(30,334	)		(17,700	)
Adjusted net loss		$	(7,172,745	)	$	(6,567,528	)
Basic earnings per share:
	Reported net earnings	$	(71,857.45	)	$	(65,751.06	)
	Effect of amortization changes		130.00			75.78
Adjusted net loss per share		$	(71,727.45	)	$	(65,675.28	)

Impairment of Long-Lived Assets

      In accordance with SFAS No. 144 Accounting for the Impairment or Disposal of Long-Lived Assets, property and equipment and amortizable intangibles are reviewed for impairment whenever events or changes in circumstances indicate that their carrying amount may not be recoverable from estimated future undiscounted cash flows, excluding interest charges. Impairment losses are measured as the amount by which the carrying amount of the assets exceed their fair value.

Fair Value of Financial Instruments

      SFAS No. 107 requires disclosures about the fair value for all financial instruments, whether or not recognized, for financial statement purposes. Disclosures about fair value of financial instruments are based on pertinent information available to management as of December 31, 2002, 2001 and 2000. Accordingly, the estimates presented in these statements are not necessarily indicative of the amounts that could be realized on disposition of the financial instruments.

      Management estimates the fair value of (i) receivables, advances to related parties, accounts payable, accrued expenses and notes payable to approximate carrying value due to short maturity of these instruments; and (ii) borrowings under the long-term debt approximates carrying value because the most significant portion of these borrowings accrues interest at a floating interest rate based on the market.

F-8

FLORIDA RECYCLING SERVICES, INC. OF ILLINOIS AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Note B — Summary of Significant Accounting Policies (Cont’d)

      The Company’s remaining assets and liabilities, which are not considered financial instruments, have not been valued differently than customary with historical cost accounting.

Per Share Data

      Net earnings per share (EPS) are computed by dividing net earnings by the weighted average number of shares of common stock outstanding during the period. Weighted average shares outstanding amounted to 100 shares in the years ended December 31, 2002, 2001 and 2000.

Income Taxes

      FRS of Illinois, with the consent of its shareholder, has elected to be taxed as an S corporation for Federal and state income tax purposes. The shareholder of an S corporation includes his share of the company’s income or loss on his individual income tax returns. Therefore, no provision or liability for federal or state income taxes has been made in the 2002, 2001 and 2000 financial statements for FRS of Illinois net loss of approximately $480,000, $6,966,000 and $6,184,000, respectively.

      FRS of Delaware provides for federal and state taxes currently due plus deferred taxes, if any, arising from temporary differences between income for financial reporting and income tax purposes. Deferred taxes are also recognized for operating losses that are available to offset future taxable income.

Advertising

      Advertising costs are expensed when incurred. Advertising expense for the years ended December 31, 2002, 2001 and 2000 was $73,300, $65,046 and $41,795, respectively.

Estimates and Assumptions

      The presentation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Note C — Note Payable — Bank

      The Company has a $6,500,000 commitment of which $4,500,000 is drawn at December 31, 2002. The note, which is due January 2004, bears interest at the banks prime rate (effective rate of 5% in 2002). Interest is payable monthly. The note is collateralized by a personal guarantee of the Company’s shareholder.

      Additionally in the first quarter of 2003, the Company entered into a $3,000,000 note payable agreement with a bank. The note was due October 2003. The Company is currently working on an extension for the note. The note bears interest at the bank’s prime rate and is payable interest only. The note is collateralized by a personal guarantee of the shareholder.

F-9

FLORIDA RECYCLING SERVICES, INC. OF ILLINOIS AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Note D — Long-Term Debt

      Long-term debt consists of the following:

	2002		2001		2000
Property note — payable in monthly installments of $5,065 including interest at 8%, due February 2015. Collateralized by land and building with a cost of $835,000	$	—	$	490,280	$	510,951
Equipment notes — payable in monthly installments aggregating $777,591, $803,579 and $617,935 for 2002, 2001 and 2000, respectively, including interest at rates ranging LIBOR plus 2% to 9.78% (effective rate of 6.7%, 7.62% and 8.5% in 2002, 2001 and 2000, respectively) due at various dates through 2008. Collateralized by equipment with a cost of $34,723,265, $28,695,553 and $28,604,641 in 2002, 2001 and 2000 and personal guarantees of the Company’s shareholder		21,850,673		27,891,166		24,093,203
Unsecured note payable to shareholder, interest payable monthly at 8%		—		3,163,150		3,163,150
Note payable — interest payable monthly at 8.5%, due at various dates through 2004. The note is collateralized by a personal guarantee of the Company’s shareholder		1,400,000		1,400,000		1,400,000
Note payable — interest payable monthly at 5.75%, due on demand. The note is collateralized by a personal guarantee of the Company’s shareholder		—		3,200,000		3,650,000
		23,250,673		36,144,596		32,817,304
Less — current maturities		8,198,916		10,687,496		8,985,279
	$	15,051,757	$	25,457,100	$	23,832,025

      Maturities of long-term debt in the five years subsequent to 2002 are:

Year	Amount
2003	$	8,198,916
2004		8,344,232
2005		4,057,751
2006		2,096,314
2007		469,851
Thereafter		83,609
	$	23,250,673

Note E — Retirement Plan

      The Company has a qualified cash or deferred compensation plan under Section 401(k) of the Internal Revenue Code. Under the plan, employees who meet minimum eligibility requirements may elect to defer portions of their salary, subject to Internal Revenue Service limits. Employer contributions are discretionary. There was no profit sharing expense during 2002, 2001 and 2000.

Note F — Leases

      FRS of Illinois leases a recycling facility and warehouses under the terms of operating leases. The leases, which expire in September 2006 provide for minimum monthly rentals aggregating approximately $7,420 plus operating expenses. In addition, the Company rents office space for approximately $7,800 per month under a month-to-month lease. Minimum future rents under these leases are:

F-10

FLORIDA RECYCLING SERVICES, INC. OF ILLINOIS AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Year	Amount
2003	$	89,040
2004		89,040
2005		80,560
2006		9,540
Total	$	268,180

      Rent expense for the years ended December 31, 2002, 2001 and 2000 was $268,208, $311,422 and $232,000, respectively.

Note G — Income Taxes

      Income tax expense (benefit) is comprised of the following:

		Years Ended December 31,
		2002		2001			2000
Current federal income tax		$	—	$	—		$	—
Deferred federal income tax benefit			—		(150,000	)		(250,000	)
	Income tax benefit	$	—	$	(150,000	)	$	(250,000	)

      Income tax expense (benefit), as a percentage of pretax earnings, is as follows:

	As a Percent of Pretax
	Earnings
	2002			2001			2000
Combined statutory federal income tax rate		39.0	%		39.0	%		39.0	%

      At December 31, 2002, FRS of Delaware has available net operating loss carryforwards that may be used to reduce future taxable income amounting to $1,772,800. The carryforwards expire in the years 2013 -2017. A deferred tax asset, amounting to $636,000, $636,000 and $486,000 at December 31 2002, 2001 and 2000, respectively, was recorded relating to the future tax benefit of the net operating loss carryforwards. The Company has determined that it is more likely than not that the future tax benefit will be fully utilized; therefore no valuation allowance has been established related to the deferred tax asset.

Note H — Management Agreement

      The Company entered into a management agreement with a related party which provides for the payment of a monthly management fee of between 2.5% and 3.5% of sales. The management agreement is on a month-to-month basis. Management fees for the year ended December 31, 2002, 2001 and 2000 were approximately $2,888,000, $1,868,000 and $2,063,000, respectively. At December 31, 2002, accrued expenses include $194,700 due to the related party.

Note I — Concentrations of Credit Risk

      Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of cash and accounts receivable. The Company places its cash with high credit quality financial institutions. Concentrations of credit risk with respect to accounts receivable are limited due to the Company’s large number of customers.

F-11

FLORIDA RECYCLING SERVICES, INC. OF ILLINOIS AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Note J — Cash Flow Information

Non-cash investing and financing activities:

      During 2002, the Company distributed land and building subject to the related debt to its sole shareholder as partial payment on the note payable to the shareholder. The Company’s shareholder contributed the remaining balance on the note payable to additional paid-in capital. No additional shares were issued to the shareholder for the capital contribution. The additional paid-in capital contributed by the shareholder is as follows:

Loan payable to shareholder						$	3,163,150
Less — property distributions:
	Building (net of $46,567 of accumulated depreciation)		$	704,932
	Land			83,500
	Debt assumed			(479,320	)		309,112
Loan contributed to additional paid-in capital							2,854,038
Cash contributions							2,100,000
		Total				$	4,954,038

      In 2001, the shareholder contributed equipment (containers) valued at $29,400 to additional paid-in capital.

Note K — Acquisitions

      On June 30, 2000, FRS of Illinois acquired certain assets of a waste disposal and recycling company in Illinois for $4,500,000 in cash. The total purchase price exceeded the estimated fair market value of net assets acquired by approximately $650,000, which was recorded by the Company as goodwill. Upon adoption of SFAS 142, the Company assigned approximately $407,000 of previously reported goodwill to contract acquisition costs. The identifiable intangible asset represents the future benefit associated with the assets acquired.

      The following is a condensed description of assets acquired disclosing the preliminary estimated fair value amounts assigned to the major asset and liability captions, as adjusted:

Machinery and equipment	$	3,850,000
Contract acquisition rights		407,000
Goodwill		243,000

      Cash flow information relative to the acquisition of the assets follows:

Fair value of assets acquired	$	4,500,000
Cash paid for the assets		4,500,000
Liabilities assumed	$	—

F-12

FLORIDA RECYCLING SERVICES, INC. OF ILLINOIS AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Note L — Condensed Financial Information — Parent Company

FRS of Illinois — Condensed Balance Sheets —

December 31, 2002, 2001 and 2000

			2002			2001			2000
ASSETS
Cash			$	69,192		$	897,341		$	853,357
Receivables				10,115,580			12,045,021			11,896,545
Other current assets				1,117,161			602,734			510,499
		Total current assets		11,301,933			13,545,096			13,260,401
Investment in subsidiaries, at equity				1,617,397			1,687,733			1,907,687
Property and equipment				15,907,601			19,091,041			24,526,133
Intangible assets				538,055			581,389			624,722
Other assets				18,435			2,878			445,897
		Total assets	$	29,383,421		$	34,908,137		$	40,764,840
LIABILITIES AND SHAREHOLDER’S DEFICIT
Note payable			$	4,500,000		$	—		$	—
Current maturities of long-term debt				8,198,916			10,687,496			8,985,279
Other current liabilities				6,050,586			7,585,598			9,613,248
		Total current liabilities		18,749,502			18,273,094			18,598,527
Long-term debt				15,051,757			25,457,100			23,832,025
		Total liabilities		33,801,259			43,730,194			42,430,552
Shareholder’s deficit:
	Common stock			100,000			100,000			100,000
	Additional paid-in capital			11,670,550			6,716,512			6,687,112
Accumulated deficit				(16,188,388	)		(15,638,569	)		(8,452,824	)
		Total shareholder’s deficit		(4,417,838	)		(8,822,057	)		(1,665,712	)
		Total liabilities and shareholder’s deficit	$	29,383,421		$	34,908,137		$	40,764,840

F-13

FLORIDA RECYCLING SERVICES, INC. OF ILLINOIS AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Note L — Condensed Financial Information — Parent Company (Cont’d)

FRS of Illinois — Condensed Statements of Earnings —

For the Years Ended December 31, 2002, 2001 and 2000

	2002			2001			2000
Sales	$	77,351,419		$	74,595,327		$	58,367,668
Cost of sales		62,766,038			67,487,704			47,364,929
Gross profit		14,585,381			7,107,623			11,002,739
Operating expenses		12,960,439			11,408,185			15,241,068
Operating income (loss)		1,614,942			(4,300,562	)		(4,238,329	)
Other expense		2,104,428			2,665,227			1,945,481
Loss before subsidiary earnings (loss)		(479,486	)		(6,965,789	)		(6,183,810	)
Undistributed equity in loss of subsidiary		(70,333	)		(219,956	)		(391,296	)
Net loss	$	(549,819	)	$	(7,185,745	)	$	(6,575,106	)

FRS of Illinois — Condensed Statements of Cash Flows —

For the Years Ended December 31, 2002, 2001 and 2000

				2002			2001			2000
Cash flows from operating activities:
	Net loss			$	(549,819	)	$	(7,185,745	)	$	(6,575,106	)
	Adjustments to reconcile net earnings to net cash provided by (used for) operating activities:
		Undistributed equity in loss of subsidiary			70,333			219,956			391,296
		Depreciation and amortization			8,130,965			9,560,888			8,208,748
		Loss on sale of property and equipment			11,466			38,470			32,610
		(Increase) decrease in current assets			1,797,514			(240,714	)		(1,529,788	)
		Increase (decrease) in current liabilities			(1,535,008	)		(2,027,651	)		5,597,614
			Net cash provided by operating activities		7,925,451			365,204			6,125,374
Cash flows from investing activities:
	Advances to related parties				(382,500	)		—			—
	Proceeds from sale of property and equipment				117,221			1,578,756			118,805
	Purchase of property and equipment				(5,821,311	)		(5,670,297	)		(22,418,281	)
	Other, net				(15,557	)		443,019			(673,978	)
			Net cash used for investing activities		(6,102,147	)		(3,648,522	)		(22,973,454	)
Cash flows from financing activities:
	Proceeds from note payable				1,300,000			—			—
	Proceeds from long-term debt				1,590,216			11,282,538			36,024,348
	Payments on long-term debt				(7,641,669	)		(7,955,236	)		(17,056,365	)
	Contribution from shareholder				2,100,000			—			—
	Distributions to shareholder				—			—			(1,352,883	)
			Net cash provided by (used for) financing activities		(2,651,453	)		3,327,302			17,615,100
Net increase (decrease) in cash and cash equivalents					(828,149	)		43,984			767,020
Cash and cash equivalents — beginning of year					897,341			853,357			86,337
Cash and cash equivalents — end of year				$	69,192		$	897,341		$	853,357

F-14 -----END PRIVACY-ENHANCED MESSAGE-----

EX-99.1

NORTH CENTRAL FLORIDA DISTRICT/COMBINED FINANCIALS

EX-99.2

FLORIDA RECYCLING SERVICES/CONSOLIDATED FINANCIALS