UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended: June 30, 2007

OR

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

For the transition period from                     to                     

Commission File Number 1-14705

ALLIED WASTE INDUSTRIES, INC.

(Exact name of registrant as specified in its charter)

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

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

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

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

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

Large accelerated filer þ Accelerated filer o Non-accelerated filer o

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

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

Class	Outstanding as of July 27, 2007
Common Stock	371,009,233

ALLIED WASTE INDUSTRIES, INC.
FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2007

INDEX

PART I — FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets	1
Consolidated Statements of Operations	2
Consolidated Statements of Cash Flows	3
Notes to Consolidated Financial Statements	4
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	28
Item 3. Quantitative and Qualitative Disclosures About Market Risk	41
Item 4. Controls and Procedures	41
PART II — OTHER INFORMATION
Item 1. Legal Proceedings	42
Item 1A. Risk Factors	44
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	45
Item 3. Defaults upon Senior Securities	45
Item 4. Submission of Matters to a Vote of Security Holders	45
Item 5. Other Information	45
Item 6. Exhibits	45
Signatures	47
EX-10.1
EX-10.2
EX-10.3
EX-10.4
EX-31.1
EX-31.2
EX-32

ALLIED WASTE INDUSTRIES, INC.

CONSOLIDATED BALANCE SHEETS

(in millions, except per share amounts, unaudited)

	June 30,			December 31,
	2007			2006
ASSETS
Current Assets —
Cash and cash equivalents	$	107.6		$	94.1
Accounts receivable, net of allowance of $20.4 and $18.6		724.9			692.8
Prepaid and other current assets		82.1			88.3
Deferred income taxes		45.8			172.5
Total current assets		960.4			1,047.7
Property and equipment, net		4,510.0			4,341.8
Goodwill		8,091.3			8,126.0
Other assets, net		301.9			295.5
Total assets	$	13,863.6		$	13,811.0
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities —
Current portion of long-term debt	$	459.4		$	236.6
Accounts payable		489.3			498.5
Current portion of accrued capping, closure, post-closure and environmental costs		93.3			95.8
Accrued interest		116.5			106.9
Other accrued liabilities		476.4			363.9
Unearned revenue		242.0			231.0
Total current liabilities		1,876.9			1,532.7
Long-term debt, less current portion		6,401.9			6,674.0
Deferred income taxes		276.4			357.3
Accrued capping, closure, post-closure and environmental costs, less current portion		798.5			769.5
Other long-term obligations		777.5			878.6
Commitments and Contingencies
Stockholders’ Equity —
Series D senior mandatory convertible preferred stock, $0.10 par value, 2.8 million shares authorized, 2.4 million shares issued and outstanding, liquidation preference of $250.00 per share, net of $19.2 million of issuance costs		580.8			580.8
Common stock, $0.01 par value, 525 million authorized shares, 369.7 million and 367.9 million shares issued and outstanding		3.7			3.7
Additional paid-in capital		2,823.1			2,802.0
Accumulated other comprehensive loss		(57.4	)		(57.4	)
Retained earnings		382.2			269.8
Total stockholders’ equity		3,732.4			3,598.9
Total liabilities and stockholders’ equity	$	13,863.6		$	13,811.0

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

1

ALLIED WASTE INDUSTRIES, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(in millions, except per share amounts, unaudited)

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2007			2006			2007			2006
Revenues	$	1,560.2		$	1,524.9		$	3,016.9		$	2,947.7
Cost of operations (exclusive of depreciation and amortization shown below)		972.1			979.6			1,903.1			1,910.9
Selling, general and administrative expenses		164.5			147.6			326.5			292.1
Depreciation and amortization		143.1			146.7			272.8			287.5
Loss from divestitures and asset impairments		2.4			—			1.5			—
Operating income		278.1			251.0			513.0			457.2
Interest expense and other		123.7			173.7			296.1			306.2
Income before income taxes from continuing operations		154.4			77.3			216.9			151.0
Income tax expense		62.6			40.6			90.8			74.8
Minority interests		0.1			0.2			—			(0.2	)
Income from continuing operations		91.7			36.5			126.1			76.4
(Loss) income from discontinued operations, net of tax		(0.5	)		1.1			5.0			2.4
Net income		91.2			37.6			131.1			78.8
Dividends on preferred stock		(9.3	)		(9.4	)		(18.7	)		(24.1	)
Net income available to common shareholders	$	81.9		$	28.2		$	112.4		$	54.7
Basic EPS:
Continuing operations	$	0.22		$	0.07		$	0.29		$	0.15
Discontinued operations		—			0.01			0.01			0.01
Net income available to common shareholders	$	0.22		$	0.08		$	0.30		$	0.16
Weighted average common shares		368.7			364.1			368.2			347.2
Diluted EPS:
Continuing operations	$	0.21		$	0.07		$	0.29		$	0.15
Discontinued operations		—			0.01			0.01			0.01
Net income available to common shareholders	$	0.21		$	0.08		$	0.30		$	0.16
Weighted average common and common equivalent shares		442.9			367.3			381.5			349.9

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

2

ALLIED WASTE INDUSTRIES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in millions, unaudited)

	Six Months Ended
	June 30,
	2007			2006
Operating activities —
Net income	$	131.1		$	78.8
Discontinued operations, net of tax		(5.0	)		(2.4	)
Adjustments to reconcile net income to cash provided by operating activities— Provisions for:
Depreciation and amortization		272.8			287.5
Stock-based compensation expense		10.3			7.3
Doubtful accounts		10.9			7.5
Accretion of debt and amortization of debt issuance costs		10.4			10.9
Deferred income tax expense		71.4			62.4
Gain on sale of fixed assets		(5.1	)		(2.6	)
Non-cash reduction in acquisition accruals		(2.2	)		(13.5	)
Loss on divestitures and asset impairments		1.5			—
Write-off of deferred debt issuance costs		5.4			3.6
Change in operating assets and liabilities, excluding the effects of acquisitions—
Accounts receivable, prepaid expenses, inventories and other assets		(34.8	)		(54.7	)
Accounts payable, accrued liabilities, unearned income and other		(11.4	)		(26.5	)
Capping, closure and post-closure accretion		28.1			25.2
Capping, closure, post-closure and environmental expenditures		(19.9	)		(23.8	)
Cash provided by operating activities from continuing operations		463.5			359.7
Investing activities –
Cost of acquisitions, net of cash acquired		(72.8	)		(10.6	)
Proceeds from divestitures, net of cash divested		70.8			13.4
Proceeds from sale of fixed assets		8.2			7.3
Capital expenditures, excluding acquisitions		(367.8	)		(370.7	)
Capitalized interest		(9.3	)		(8.2	)
Other		(0.2	)		1.5
Cash used for investing activities from continuing operations		(371.1	)		(367.3	)
Financing activities —
Proceeds from long-term debt, net of issuance costs		1,255.9			1,223.1
Payments of long-term debt		(1,329.0	)		(1,147.0	)
Payments of preferred stock dividends		(18.7	)		(29.4	)
Net change in disbursement account		(0.7	)		(63.3	)
Net proceeds from sale of common stock, exercise of stock options and other		15.7			8.7
Cash used for financing activities from continuing operations		(76.8	)		(7.9	)
Discontinued operations -
Operating activities		(2.1	)		8.1
Investing activities		—			(1.1	)
Cash provided by (used for) discontinued operations		(2.1	)		7.0
Increase (decrease) in cash and cash equivalents		13.5			(8.5	)
Cash and cash equivalents, beginning of period		94.1			56.1
Cash and cash equivalents, end of period	$	107.6		$	47.6

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

3

ALLIED WASTE INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Organization and Summary of Significant Accounting Policies

Allied Waste Industries, Inc. (Allied, we, us, our or the Company), a Delaware corporation, is the second largest non-hazardous solid waste management company in the United States, as measured by revenues. We provide non-hazardous waste collection, transfer, recycling and disposal services in 37 states and Puerto Rico, geographically identified by the Company as the Midwestern, Northeastern, Southeastern, Southwestern and Western regions.

The consolidated financial statements include the accounts of Allied and its subsidiaries. All significant intercompany accounts and transactions are eliminated in consolidation. The December 31, 2006 balance sheet data included herein has been derived from audited financial statements, but does not include all disclosures required by generally accepted accounting principles in the United States (GAAP). The consolidated financial statements included herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). As applicable under such regulations, certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted. We believe that the presentations and disclosures herein are adequate when read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2006 and our consolidated financial statements for the year ended December 31, 2006 and the related notes thereto included in our Current Report on Form 8-K, filed on May 18, 2007. The consolidated financial statements as of June 30, 2007, and for the three and six months ended June 30, 2007 and 2006 reflect, in the opinion of management, all adjustments, consisting only of normal recurring adjustments (except as otherwise disclosed in the notes) necessary to fairly state the financial position and results of operations for such periods. Operating results for interim periods are not necessarily indicative of the results for full years. Certain reclassifications have been made to the prior period financial statements to conform to the current presentation.

For the description of our significant accounting policies, see Note 1 of Notes to Consolidated Financial Statements for the year ended December 31, 2006 in our Annual Report on Form 10-K.

Discontinued operations –

During the first quarter of 2007, we sold hauling, transfer and recycling operations in Florida as well as the stock in an unrelated immaterial subsidiary in a single transaction for net proceeds of approximately $69.4 million. The results of these operations, including those related to prior years, have been classified as discontinued operations in the accompanying consolidated financial statements.

A summary of discontinued operations on the consolidated balance sheet is as follows (in millions):

	December 31, 2006
Accounts receivable, net	$	8.6
Other current assets		0.4
Property and equipment, net		12.3
Total assets	$	21.3
Current liabilities	$	9.8
Total liabilities	$	9.8

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

	Three Months Ended					Six Months Ended
	June 30,					June 30,
	2007			2006		2007		2006
Revenues	$	—		$	15.7	$	16.4	$	31.6
(Loss) income before income taxes	$	(0.5	)	$	1.7	$	2.2	$	3.9
Gain on divestiture		—			—		11.5		—
Income tax expense		—			0.6		8.7		1.5
Discontinued operations, net of tax	$	(0.5	)	$	1.1	$	5.0	$	2.4

4

ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Included in the results for discontinued operations for the six months ended June 30, 2007 is a gain of approximately $11.5 million ($3.8 million gain, net of tax) for the sale of the assets, including $39.2 million of goodwill, divested and recorded in the first quarter of 2007. Discontinued operations for the three months ended June 30, 2007 and 2006 included $0.5 million of pre-tax loss ($0.5 million loss, net of tax) and $1.7 million of pre-tax income ($1.1 million income, net of tax), respectively, from operations. Discontinued operations for the six months ended June 30, 2007 and 2006 included $2.2 million of pre-tax income ($1.2 million income, net of tax) and $3.9 million of pre-tax income ($2.4 million income, net of tax), respectively, from operations.

Acquisitions —

During the first quarter of 2007, we acquired collection operations, two transfer stations and a landfill in our Western region for a total consideration of $61.7 million, of which $8.0 million was paid in April 2007. The pro forma effect of these acquisitions, individually and collectively, was not material.

Interest expense capitalized —

We capitalize interest in connection with the construction of our landfill assets. Actual acquisition, permitting and construction costs incurred, which relate to landfill assets under active development, qualify for interest capitalization. Interest capitalization ceases when the construction of a landfill asset is complete and available for use. During the three and six months ended June 30, 2007 and 2006, we capitalized interest expense of $4.8 million, $9.3 million, $4.1 million and $8.2 million, respectively.

Statements of cash flows —

The supplemental cash flow disclosures are as follows (in millions):

	Six Months Ended
	June 30,
	2007		2006
Supplemental Disclosures -
Interest paid (net of amounts capitalized)	$	231.7	$	254.5
Income taxes paid (net of refunds received)		16.7		17.1
Non-Cash Transactions -
Liabilities incurred or assumed in acquisitions	$	1.9	$	1.7
Accrued dividends on preferred stock		3.1		3.1

Stockholders’ equity —

Accumulated other comprehensive loss, included in stockholders’ equity, reflects our pension liability of $57.4 million, net of tax, at both June 30, 2007 and December 31, 2006.

Total comprehensive income is $91.2 million, $131.1 million, $37.6 million and $78.8 million for the three and six months ended June 30, 2007 and 2006, respectively.

Use of estimates —

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Although we believe that our estimates and assumptions are reasonable, they are based upon information available at the time made and assumptions about the future. Actual results may differ significantly from the estimates.

5

ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Recently issued accounting pronouncements —

In February 2007, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No.159, The Fair Value Option for Financial Assets and Financial Liabilities — Including an amendment of FASB Statement No. 155 (SFAS 159). SFAS 159 provides companies with an option to report selected financial assets and liabilities at fair value. SFAS 159 is effective for us beginning January 1, 2008. We are evaluating the impact of the adoption of SFAS 159 on our financial position and results of operations.

In September 2006, the FASB issued SFAS No.158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans — an amendment of FASB Statements No. 87, 88, 106 and 132(R) (SFAS 158). SFAS 158 requires an employer to recognize the overfunded or underfunded status of a defined benefit postretirement plan as an asset or a liability in its balance sheet and to recognize changes in that funded status in the year in which the changes occur through accumulated other comprehensive income. We adopted the recognition provisions of this standard effective December 31, 2006. SFAS 158 also requires an employer to measure the funded status of a plan as of the employer’s year-end reporting date. The measurement date provisions of SFAS 158 are effective for us for the year ending December 31, 2008. We do not expect the adoption of the measurement date provisions of SFAS 158 to have a material impact on our financial position or results of operations.

In June 2006, the Emerging Issues Task Force (EITF) reached a consensus on EITF Issue No. 06-3, How Taxes Collected and Remitted to Governmental Authorities Should Be Presented in the Income Statement (EITF 06-3). The EITF determined that the presentation of taxes on either a gross or net basis is an accounting policy decision that requires disclosure. EITF 06-03 was effective for us beginning January 1, 2007. We report sales taxes collected from customers on a net presentation basis. We report landfill taxes collected from customers on a gross basis as they create a direct obligation for us. Landfill taxes recorded during the three and six months ended June 30, 2007 and 2006 were $33.5 million, $63.4 million, $35.3 million, and $67.8 million, respectively. The adoption of EITF 06-03 did not impact our financial position or results of operations.

In June 2006, the FASB issued FASB Interpretation (FIN) No. 48, Accounting for Uncertainty in Income Taxes — an Interpretation of FASB Statement No. 109 (FIN 48). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an entity’s financial statements and provides guidance on the recognition, de-recognition and measurement of benefits related to an entity’s uncertain income tax positions. We adopted FIN 48 effective January 1, 2007; prior to that date, we recognized liabilities for uncertain tax positions when disallowance was probable and the related amount was estimable. Our adoption of FIN 48 was not material to our consolidated financial position; however, certain reclassifications of various income tax-related balance sheet amounts were required.

We are currently under examination or administrative review by various state and federal taxing authorities for certain tax years, including federal income tax audits for calendar years 1998 through 2003. Years subsequent to 2003 remain subject to examination.

As of January 1, 2007, we had unrecognized tax benefits of $629 million, $17 million of which would favorably impact our effective tax rate if subsequently recognized. As of June 30, 2007, we had unrecognized tax benefits of $535 million, $20 million of which would favorably impact our effective tax rate if subsequently recognized. As a result of the expected completion by the Appeals Office of the Internal Revenue Service (IRS) of its review of our 1998 and 1999 federal income tax returns, the amount of unrecognized tax benefits related to various audit adjustments may decrease by approximately $19 million during the next twelve months.

We have historically recognized interest and penalties relating to income tax matters as a component of income tax expense and will continue to do so under FIN 48. As of June 30, 2007, we have accrued $199 million for interest and $2 million for penalties relating to income tax matters including $24 million of interest accrued during the six months ended June 30, 2007.

6

ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2. Property and Equipment

The following tables show the activity and balances related to property and equipment from December 31, 2006 through June 30, 2007 (in millions):

	Property and Equipment
	Balance at				Sales			Acquisitions,		Transfers			Balance at
	December 31,		Capital		and			Net of		and			June 30,
	2006		Additions		Retirements			Divestitures		Other(1)			2007
Land and improvements	$	477.8	$	3.3	$	(9.0	)	$	10.2	$	1.5		$	483.8
Land held for permitting as landfills		95.1		6.8		—			—		(7.6	)		94.3
Landfills		4,267.8		99.7		—			47.0		22.8			4,437.3
Buildings and improvements		507.1		8.0		(1.0	)		7.1		(3.6	)		517.6
Vehicles and equipment		2,214.2		221.5		(55.9	)		1.5		(0.4	)		2,380.9
Containers and compactors		962.7		25.4		(8.5	)		1.1		—			980.7
Furniture and office equipment		53.4		3.1		(0.9	)		—		3.1			58.7
Total	$	8,578.1	$	367.8	$	(75.3	)	$	66.9	$	15.8		$	8,953.3

	Accumulated Depreciation and Amortization
				Depreciation
	Balance at			and			Sales			Acquisitions,		Transfers			Balance at
	December 31,			Amortization			and			Net of		and			June 30,
	2006			Expense			Retirements			Divestitures		Other			2007
Land and improvements	$	(37.1	)	$	(3.0	)	$	0.1		$	—	$	—		$	(40.0	)
Landfills		(2,090.7	)		(110.7	)		—			—		—			(2,201.4	)
Buildings and improvements		(167.6	)		(12.6	)		0.9			—		(0.1	)		(179.4	)
Vehicles and equipment		(1,260.3	)		(103.6	)		53.4			2.9		(1.6	)		(1,309.2	)
Containers and compactors		(641.6	)		(40.2	)		8.2			0.8		—			(672.8	)
Furniture and office equipment		(39.0	)		(2.3	)		0.9			—		(0.1	)		(40.5	)
Total	$	(4,236.3	)	$	(272.4	)	$	63.5		$	3.7	$	(1.8	)	$	(4,443.3	)
Property and equipment, net	$	4,341.8		$	95.4		$	(11.8	)	$	70.6	$	14.0		$	4,510.0

⁽¹⁾ Primarily relates to capitalized interest of $9.3 million (see Note 1) as well as a $5.6 million write-up to fair value for surplus land which was donated in April 2007.

Maintenance and repair expenses charged to cost of operations for the three and six months ended June 30, 2007 were $122.8 million and $244.6 million, respectively, and $124.5 million and $250.3 million for the same periods in 2006, respectively. We recognized net pre-tax gains on the disposal of fixed assets for the three and six months ended June 30, 2007 of $3.1 million and $5.1 million, respectively; and $1.7 million and $2.6 million for same periods in 2006, respectively.

7

ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

3. Goodwill

The following table shows the activity and balances related to goodwill by reporting unit from December 31, 2006 through June 30, 2007 (in millions):

	Balance at									Balance at
	December 31,									June 30,
	2006		Acquisitions		Divestitures			Adjustments(1)		2007
Midwestern	$	2,156.4	$	—	$	—		$	0.6	$	2,157.0
Northeastern		1,762.9		—		—			0.5		1,763.4
Southeastern		1,579.0		—		(39.2	)		0.5		1,540.3
Southwestern		1,372.9		—		—			0.4		1,373.3
Western		1,254.8		1.8		—			0.7		1,257.3
Total	$	8,126.0	$	1.8	$	(39.2	)	$	2.7	$	8,091.3

⁽¹⁾ Includes income tax related adjustments associated with the acquisition of BFI in 1999.

4. Long-term Debt

Long-term debt at June 30, 2007 and December 31, 2006 consists of the amounts listed in the following table. The effective interest rates include our interest cost incurred, amortization of deferred debt issuance cost and amortization or accretion of discounts or premiums (dollars in millions).

	Debt Balance at				Effective Interest Rate
	June 30,		December 31,		June 30,			December 31,
	2007		2006		2007			2006
2005 Revolver due 2012, ABR borrowings*	$	12.0	$	—		9.00	%		9.75	%
2005 Revolver due 2012, Adjusted LIBOR borrowings*		—		—		7.11			7.86
2005 Term Loan due 2014		901.7		1,105.0		7.28			7.34
Receivables secured loan		297.1		230.0		6.01			6.02
6.375% senior notes due 2008		159.5		157.9		8.34			8.34
8.50% senior notes due 2008		—		750.0		—			8.78
6.50% senior notes due 2010		350.0		350.0		6.76			6.76
5.75% senior notes due 2011		400.0		400.0		6.00			6.00
6.375% senior notes due 2011		275.0		275.0		6.63			6.63
9.25% senior notes due 2012		250.9		250.9		9.40			9.40
7.875% senior notes due 2013		450.0		450.0		8.09			8.09
6.125% senior notes due 2014		425.0		425.0		6.30			6.30
7.25% senior notes due 2015		600.0		600.0		7.43			7.43
7.125% senior notes due 2016		595.3		595.1		7.38			7.38
6.875% senior notes due 2017		750.0		—		7.04			—
9.25% debentures due 2021		96.4		96.3		9.47			9.47
7.40% debentures due 2035		295.6		294.4		8.03			8.03
4.25% senior subordinated convertible debentures due 2034		230.0		230.0		4.34			4.34
7.375% senior unsecured notes due 2014		400.0		400.0		7.55			7.55
Solid waste revenue bond obligations, principal payable through 2031		357.2		280.6		6.49			6.85
Notes payable to banks, finance companies, and individuals, interest rates of 2.37% to 11.25%, and principal payable through 2014, secured by vehicles, equipment, real estate or accounts receivable **		1.9		2.3		6.55			6.00
Obligations under capital leases of vehicles and equipment **		11.9		12.4		8.88			8.92
Notes payable to individuals and commercial companies, interest rates of 5.99% to 9.50%, principal payable through 2010, unsecured **		1.8		5.7		6.10			8.07
Total debt **		6,861.3		6,910.6		7.13			7.37
Less: Current portion		459.4		236.6
Long-term portion	$	6,401.9	$	6,674.0

*	Reflects weighted average interest rate, excludes fees.
**	Reflects weighted average interest rate.

8

ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2007 Financing —

In March 2007, we issued $750 million of 6.875% senior notes due 2017 and used the proceeds to fund a portion of our tender offer for our 8.50% senior notes due 2008. On March 28, 2007, we completed the amendment to our 2005 Credit Facility, which included re-pricing the 2005 Revolver and a two-year maturity extension for all facilities under the 2005 Credit Facility. The interest rate and fees for borrowings and letters of credit under the 2005 Revolver were reduced by 75 basis points. In addition, our fee for the unused portion of the 2005 Revolver was reduced by 37.5 basis points. We expensed approximately $45.4 million of costs related to premiums paid, write-off of deferred financing and other costs in connection with these transactions. These costs were included in interest expense and other on our consolidated statements of operations.

In May 2007, we renewed our accounts receivable securitization program and concurrently increased the capacity of this 364-day liquidity facility from $230 million to $300 million. The proceeds from this increase of approximately $70 million were used to repay a portion of our 2005 Term Loan. Additionally, we made an optional $135 million prepayment on the 2005 Term Loan during the quarter ended June 30, 2007.

In April 2007, we completed an offering of $56.8 million of 5.20% unsecured tax-exempt bonds due 2018. In June 2007, we completed an offering of $20.0 million of 5.15% unsecured tax-exempt bonds due 2015. At June 30, 2007, we had $357.2 million of tax-exempt bonds outstanding, most of which were originated by certain subsidiaries of ours prior to their acquisition.

2005 Credit facility —

At June 30, 2007, we had a senior secured credit facility, referred to as the 2005 Credit Facility, that included: (i) a $1.575 billion Revolving Credit Facility due March 2012 (the 2005 Revolver), (ii) a $901.7 million Term Loan B due March 2014, referred to as the 2005 Term Loan, (iii) a $490 million Institutional Letter of Credit Facility due March 2014, and (iv) a $25 million Incremental Revolving Letter of Credit Facility due March 2012. Of the $1.575 billion available under the 2005 Revolver, the entire amount may be used to support the issuance of letters of credit. At June 30, 2007, we had $12.0 million of borrowings outstanding and $323.1 million in letters of credit drawn on the 2005 Revolver, leaving approximately $1.2 billion capacity available under the 2005 Revolver. Both the $25 million Incremental Revolving Letter of Credit Facility and $490 million Institutional Letter of Credit Facility were fully utilized at June 30, 2007.

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

We are required to make prepayments on the 2005 Credit Facility upon completion of certain transactions as defined in the 2005 Credit Facility, including asset sales and issuances of debt securities. Proceeds from these transactions, in certain circumstances, are required to be applied to amounts due under the 2005 Credit Facility pursuant to the 2005 Credit Facility agreement. We are also required to prepay a portion of the 2005 Term Loan with up to 50% of any excess cash flows from operations, as defined in the 2005 Credit Facility agreement. The agreement also requires scheduled amortization of the 2005 Term Loan and Institutional Letter of Credit Facility. There is no further scheduled amortization on the 2005 Term Loan except for the outstanding balance at maturity on March 28, 2014.

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ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Senior notes —

In March 2007, we issued $750 million of 6.875% senior notes due 2017. The net proceeds were used to fund a portion of the tender offer for our 8.50% senior notes due 2008. Interest is payable semi-annually on June 1^st and December 1^st, beginning on December 1, 2007. These senior notes have a make-whole call provision that is exercisable at our option any time prior to June 1, 2012, at the stated redemption price. These notes may also be redeemed on or after June 1, 2012 at the stated redemption price.

Receivables secured loan —

We have an accounts receivable securitization program with two financial institutions that allows us to borrow up to $300 million on a revolving basis under a loan agreement secured by receivables. The agreements include a 364-day liquidity facility and a three-year purchase commitment, secured by receivables. If we are unable to renew the liquidity facility when it matures on May 27, 2008, we will refinance any amounts outstanding with borrowings from our 2005 Revolver or with other long-term borrowings. Although we intend to renew the liquidity facility on May 27, 2008, and do not expect to repay the amounts within the next twelve months, the loan is classified as a current liability because it has a contractual maturity of less than one year.

Debt covenants —

Under the 2005 Credit Facility, we are subject to the financial covenants set forth below:

Minimum Interest Coverage:

From the Quarter Ending	Through the Quarter Ending	EBITDA(1)/Interest
April 1, 2007	June 30, 2007	2.15x
July 1, 2007	March 31, 2008	2.20x
April 1, 2008	September 30, 2008	2.25x
October 1, 2008	December 31, 2008	2.30x
January 1, 2009	June 30, 2009	2.40x
July 1, 2009	December 31, 2009	2.55x
January 1, 2010	Thereafter	2.75x

Maximum Leverage:

From the Quarter Ending	Through the Quarter Ending	Total Debt/EBITDA(1)
January 1, 2007	June 30, 2007	5.75x
July 1, 2007	December 31, 2008	5.50x
January 1, 2009	June 30, 2009	5.25x
July 1, 2009	December 31, 2009	5.00x
January 1, 2010	Thereafter	4.50x

At June 30, 2007, we were in compliance with all financial and other covenants under our 2005 Credit Facility. We are not subject to any minimum net worth covenants. At June 30, 2007, our EBITDA⁽¹⁾/Interest ratio, as defined by the 2005 Credit Facility was 2.80:1 and Total Debt/EBITDA⁽¹⁾ ratio was 4.22:1.

⁽¹⁾ EBITDA, which is a non-GAAP measure used for covenants, is calculated in accordance with the definition in the 2005 Credit Facility agreement. In this context, EBITDA is used solely to provide information on the extent to which we are in compliance with debt covenants and is not comparable to EBITDA used by other companies.

In addition, the 2005 Credit Facility restricts us from making certain types of payments, including dividend payments on our common and preferred stock. However, we are able to pay cash dividends on our outstanding 6.25% Series D senior mandatory convertible preferred stock (Series D preferred stock).

All of our notes contain certain financial covenants and restrictions, which may, in certain circumstances, limit our ability to complete acquisitions, pay dividends, incur indebtedness, make investments and take certain other corporate actions. At June 30, 2007, we were in compliance with all applicable covenants.

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ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Guarantees —

We, and substantially all of our subsidiaries, are jointly and severally liable for the obligations under the 6.50% senior notes due 2010, the 5.75% senior notes due 2011, the 6.375% senior notes due 2011, the 9.25% senior notes due 2012, the 7.875% senior notes due 2013, the 6.125% senior notes due 2014, the 7.375% senior unsecured notes due 2014, the 7.25% senior notes due 2015, the 7.125% senior notes due 2016 and the 6.875% senior notes due 2017 issued by Allied Waste North America, Inc. (Allied NA) and the 2005 Credit Facility through unconditional guarantees issued by us, current and future subsidiaries. Allied NA, our wholly-owned subsidiary, and Allied are jointly and severally liable for the obligations under the 6.375% senior notes due 2008, the 9.25% debentures due 2021 and the 7.40% debentures due 2035 issued by Browning-Ferris Industries, Inc. (BFI) through an unconditional, joint and several, guarantee issued by Allied NA and Allied. Allied is also jointly and severally liable for the obligations under the $20.0 million 5.15% due 2015 and the $56.8 million 5.20% unsecured tax-exempt bonds due 2018 issued by Allied NA through unconditional guarantees issued by us. Certain of other debt issued by us or our subsidiaries may also be guaranteed by us or our subsidiaries. At June 30, 2007, the maximum potential amount of future payments under the guarantees is the outstanding amount of the debt identified above and the amount for letters of credit issued under the 2005 Credit Facility. In accordance with FIN No. 45, Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others (FIN 45), the guarantees are not recorded in our consolidated financial statements as they represent parent-subsidiary guarantees. We do not guarantee any third-party debt.

Collateral —

Our 2005 Credit Facility is secured by the stock of substantially all of our subsidiaries and a security interest in substantially all of our assets. A portion of the collateral that collateralizes the 2005 Credit Facility is shared as collateral with the holders of certain of our senior secured notes and debentures.

The senior secured notes and debentures are collateralized by the stock of substantially all of the Browning-Ferris Industries, LLC (BFI, LLC) subsidiaries along with certain other Allied subsidiaries and a security interest in the assets of BFI, LLC, its domestic subsidiaries and certain other Allied subsidiaries. As of June 30, 2007, the book value of the assets of the subsidiaries that serve as collateral for these notes and debentures was approximately $8.9 billion, which represents approximately 64% of our consolidated total assets.

Derivative instruments and hedging activities —

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

At June 30, 2007, approximately 81% of our debt was fixed and 19% had variable interest rates. We had no interest rate swap contracts at June 30, 2007.

11

ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

5. Landfill Accounting

Landfill accounting —

We have a network of 169 owned or operated active landfills with a net book value of approximately $2.2 billion at June 30, 2007. In addition, we own or have responsibility for 112 closed landfills.

We use a life-cycle accounting method for landfills and the related capping, closure and post-closure liabilities. This method applies the costs to be capitalized associated with acquiring, developing, closing and monitoring the landfills over the associated consumption of landfill capacity.

The amortizable landfill asset includes landfill development costs incurred, landfill development costs expected to be incurred over the life of the landfill, the recorded capping, closure and post-closure asset retirement obligation and the present value of cost estimates for future capping, closure and post-closure costs. We amortize the landfill asset over the remaining 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 are based on the costs and capacity of each specific capping event.

On an annual basis, we update the development cost estimates (which include the costs to develop the site as well as the individual cell construction costs) and capping, closure and post-closure cost estimates for each landfill. Additionally, future capacity estimates (sometimes referred to as airspace) are updated annually using aerial surveys of each landfill to estimate utilized disposal capacity and remaining disposal capacity. The overall cost and capacity estimates are reviewed and approved by senior operations management annually.

Landfill assets —

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

			Capping,
	Net Book Value of	Landfill	Closure and
Net Book Value at	Landfills Acquired,	Development	Post Closure	Landfill		Net Book Value at
December 31, 2006	Net of Divestitures	Costs	Accruals	Amortization	Other	June 30, 2007
$2,177.1	$47.0	$109.0	$14.5	$(110.7)	$(1.0)	$2,235.9

Landfill amortization expense approximated $61.0 million and $67.9 million, respectively, or an average of $3.12 and $3.28 per ton consumed during the three months ended June 30, 2007 and 2006, respectively. During the six months ended June 30, 2007 and 2006, we expensed approximately $110.7 million and $129.6 million, respectively, or an average of $2.99 and $3.30 per ton consumed, respectively, related to landfill amortization.

Capping, closure and post-closure and environmental costs —

We record landfill retirement obligations at fair value as a liability with a corresponding increase to the landfill asset as waste is disposed. Accretion expense is necessary to increase landfill retirement obligations to their future undiscounted value. We accrete our capping, closure and post-closure accrual balance using the applicable credit-adjusted, risk-free rate through a charge to cost of operations from the time the liability is recognized until the costs are paid.

Accretion expense for capping, closure and post-closure for the three months ended June 30, 2007 and 2006 was $14.1 million and $12.4 million, respectively, or an average of $0.72 and $0.60 per ton consumed, respectively. During the six months ended June 30, 2007 and 2006, we recorded accretion expense of $28.1 million and $25.2 million, respectively, or an average of $0.76 and $0.64 per ton consumed, respectively.

12

ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Changes in estimates of costs or disposal capacity are treated on a prospective basis for operating landfills and are recorded immediately in results of operations for fully incurred capping events and closed landfills.

Environmental liabilities arise primarily from contamination at sites that we own or operate or third-party sites where we deliver or transport waste. These liabilities primarily include costs associated with remediating groundwater, surface water and soil contamination as well as controlling and containing methane gas migration. In connection with evaluating liabilities for environmental matters, we estimate a range of potential impacts and the most likely outcome. The recorded liabilities represent our estimate of the most likely outcome of the matters for which we have determined liability is probable. We re-evaluate these matters as additional information becomes available to ascertain whether the accrued liabilities are adequate. We do not expect that near-term adjustments to our estimates will have a material effect on our consolidated liquidity, financial position or results of operations.

These estimates 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. As noted above, because of these uncertainties, we estimate a range of exposure for environmental liabilities. Using the high end of our estimate of the reasonably possible range, the outcome of these matters would result in approximately $24 million of additional liability.

The following table shows the activity and balances related to environmental accruals and for capping, closure and post-closure accruals related to open and closed landfills from December 31, 2006 through June 30, 2007 (in millions):

	Balance at									Balance at
	December 31,		Accretion							June 30,
	2006		Expense		Other(1)		Payments			2007
Environmental accruals	$	217.3	$	—	$	1.3	$	(9.7	)	$	208.9
Open landfills capping, closure, and post-closure accruals		429.3		18.4		16.4		(0.8	)		463.3
Closed landfills capping, closure, and post-closure accruals		218.7		9.7		0.6		(9.4	)		219.6
Total	$	865.3	$	28.1	$	18.3	$	(19.9	)	$	891.8

⁽¹⁾ Amounts consist primarily of amounts accrued for capping, closure and post-closure liabilities during the period which were offset by a related increase in landfill assets.

6. Employee Benefit Plans

Components of net periodic benefit cost —

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

	Three Months Ended						Six Months Ended
	June 30,						June 30,
BFI Pension Plan:	2007			2006			2007			2006
Service cost	$	—		$	—		$	0.1		$	0.1
Interest cost		5.3			5.3			10.5			10.6
Expected return on plan assets		(7.4	)		(7.5	)		(14.9	)		(15.0	)
Recognized net actuarial loss		1.2			1.8			2.5			3.5
Curtailment		—			0.1			—			0.1
Net periodic benefit cost	$	(0.9	)	$	(0.3	)	$	(1.8	)	$	(0.7	)

	Three Months Ended				Six Months Ended
	June 30,				June 30,
SERP:	2007		2006		2007		2006
Service cost	$	0.2	$	0.2	$	0.4	$	0.4
Interest cost		0.2		0.1		0.4		0.3
Curtailment		0.2		—		0.4		—
Amortization of prior service cost		—		0.2		—		0.4
Net periodic benefit cost	$	0.6	$	0.5	$	1.2	$	1.1

13

ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

7. Net Income Per Common Share

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

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2007			2006			2007			2006
Basic earnings per share computation:
Income from continuing operations	$	91.7		$	36.5		$	126.1		$	76.4
Less: Dividends on preferred stock		(9.3	)		(9.4	)		(18.7	)		(24.1	)
Income from continuing operations available to common shareholders	$	82.4		$	27.1		$	107.4		$	52.3
Weighted average common shares outstanding		368.7			364.1			368.2			347.2
Basic earnings per share from continuing operations	$	0.22		$	0.07		$	0.29		$	0.15
Diluted earnings per share computation:
Income from continuing operations	$	91.7		$	36.5		$	126.1		$	76.4
Less: Dividends on preferred stock		—			(9.4	)		(18.7	)		(24.1	)
Add back: Interest expense on senior subordinated convertible debentures, net of tax		1.5			—			2.9			—
Income from continuing operations available to common shareholders	$	93.2		$	27.1		$	110.3		$	52.3
Weighted average common shares outstanding		368.7			364.1			368.2			347.2
Dilutive effect of stock awards		2.1			3.2			2.0			2.7
Dilutive effect of senior subordinated convertible debentures		11.3			—			11.3			—
Dilutive effect of Series D preferred stock		60.8			—			—			—
Weighted average common and common equivalent shares outstanding		442.9			367.3			381.5			349.9
Diluted earnings per share from continuing operations	$	0.21		$	0.07		$	0.29		$	0.15

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

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2007		2006		2007		2006
Stock options		4.5		7.0		4.5		8.7
Series C preferred stock		—		—		—		34.1
Series D preferred stock		—		60.8		60.8		60.8
Senior subordinated convertible debentures		—		11.3		—		11.3

8. Commitments and Contingencies

Litigation —

We are subject to extensive and evolving laws and regulations and have implemented our own safeguards to respond to regulatory requirements. In the normal course of conducting our operations, we may become involved in certain legal and administrative proceedings. Some of these actions may result in fines, penalties or judgments against us, which may impact earnings for a particular period. We accrue for legal matters and regulatory compliance contingencies when such costs are probable and can be reasonably estimated. Except for the tax contingencies discussed below, we do not believe that matters in process at June 30, 2007 will have a material adverse effect on our consolidated liquidity, financial position or results of operations.

14

ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

A consolidated amended class action complaint was filed against us and five of our current and former officers on March 31, 2005 in the U.S. District Court for the District of Arizona, consolidating three lawsuits previously filed on August 9, 2004, August 27, 2004 and September 30, 2004. The amended complaint asserted claims against all defendants under Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder and claims against the officers under Section 20(a) of the Securities Exchange Act. The complaint alleged that from February 10, 2004 to September 13, 2004, the defendants caused false and misleading statements to be issued in our public filings and public statements regarding our anticipated results for fiscal year 2004. The lawsuit sought an unspecified amount of damages. We filed a motion to dismiss the complaint on May 2, 2005. On December 15, 2005, the U.S. District Court for the District of Arizona granted our motion and dismissed the lawsuit with prejudice. The plaintiffs have appealed the dismissal to the Ninth Circuit Court of Appeals. On October 6, 2006, the plaintiffs filed their opening appellate brief. The Company and four individual defendants filed their brief in opposition on December 15, 2006, and the plaintiffs filed their reply brief on January 24, 2007. We do not believe the outcome of this matter will have a material adverse effect on our consolidated liquidity, financial position or results of operations.

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

In September 1999, neighboring parties and others filed a civil lawsuit seeking to prevent BFI from obtaining a vertical elevation expansion permit at our 131-acre landfill in Donna, Texas. They claimed BFI had agreed not to expand the landfill based on a pre-existing Settlement Agreement from a dispute years earlier related largely to drainage discharge rights. In 2001, the Texas Commission on Environmental Quality (TCEQ) granted BFI an expansion permit (the administrative expansion permit proceeding), and, based on this expansion permit, the landfill has an estimated remaining capacity of approximately 2.1 million tons at June 30, 2007. Nonetheless, the parties opposing the expansion continued to litigate the civil lawsuit and pursue their efforts in preventing the expansion. In November 2003, a Texas state trial court in the civil lawsuit issued a judgment, including an injunction that effectively revoked the expansion permit that was granted by the TCEQ in 2001 because it would require us to operate the landfill according to a prior permit granted in 1988 as well as comply with other requirements that the plaintiffs had requested. On appeal, the Texas Court of Appeals stayed the trial court’s order, allowing us to continue to place waste in the landfill in accordance with the expansion permit granted in 2001. In the administrative expansion permit proceeding on October 28, 2005, the Texas Supreme Court denied review of the neighboring parties’ appeal of the expansion permit, thereby confirming that the TCEQ properly granted our expansion permit.

In April 2006, the Texas Court of Appeals ruled on the civil litigation. The court dissolved the injunction granted in 2003, which would have effectively prevented us from operating the landfill under the expansion permit, but also required us to pay a damage award of approximately $2 million plus attorney’s fees and interest. On April 27, 2006, all parties filed motions for rehearing, which were denied by the Texas Court of Appeals. All parties have filed petitions for review to the Texas Supreme Court. The Texas Supreme Court has not yet decided if it will grant or deny review.

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

15

ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

do not believe the outcome of this matter will have a material adverse effect on our consolidated liquidity, financial position or results of operations.

By letter dated March 21, 2007, our subsidiary, Greenridge Reclamation LLC (Greenridge Reclamation), received a proposed Consent Assessment of Civil Penalty (CACP) from the Pennsylvania Department of Environmental Protection (PaDEP) Waste Management Bureau. The CACP for Greenridge Reclamation proposed to assess a civil penalty of $366,000 for alleged violations of the facility’s landfill permit between July 1 and December 15, 2006, specifically, that storage of yard cans in an area not permitted for such storage and eleven separate incidents in which yard can wastes were allegedly disposed of in the landfill without first being weighed. Currently, Greenridge Reclamation is discussing both the substantive allegations and the amounts of the proposed penalties with PaDEP.

By letter dated March 21, 2007, our subsidiary, Greenridge Waste Services, LLC (GWS) received a proposed CACP from the PaDEP Waste Management Bureau. The CACP for GWS proposed a civil penalty assessment of $172,000 for violations of the Pennsylvania Solid Waste Management Act regulations, and Greenridge Reclamation’s landfill permit, which occurred between July 1 and December 15, 2006. PaDEP alleged that GWS had caused or contributed to the yard can storage violations alleged against Greenridge Reclamation; had disposed of yard can wastes in the landfill without first having the waste weighed in; had transported waste to the landfill on three occasions in overweight vehicles; and, on one occasion, failed to properly tarp a waste load, which allegedly resulted in the spill of material onto a public highway. PaDEP also alleged that GWS failed to provide prompt notification of the incident. Currently, GWS is discussing both the substantive allegations and the amounts of the proposed penalties with PaDEP.

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

Employment agreements —

We have entered into employment agreements with certain of our executive officers for periods of up to two years. Under these agreements, in some circumstances, including a change in control as defined in the employment agreements, we may be obligated to pay an amount up to three times the sum of the executive’s base salary and targeted bonus. Also, in the event of a change in control, our executive officers may be entitled to a gross-up of certain excise taxes incurred, provided that the fair market value of our shares is at or greater than a specified price as of the date of the change in control. If an executive officer’s employment is terminated under certain circumstances, the executive may be entitled to continued medical, dental and/or vision coverage, continued vesting and exercisability of the executive’s stock options, and continued coverage under our directors’ and officers’ liability insurance, among other matters. In addition, our executive officers may be entitled to retirement payments equal to up to 60% of their base salary, paid over a period of 10 years under our SERP.

16

ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

We have made certain modifications to the employment agreements, as well as to related compensation plans, programs and arrangements, to comply with the provisions of Section 409A of the Internal Revenue Code of 1986, as amended. We are reviewing the employment agreements and related compensation plans, programs and arrangements to determine if additional changes will be required as the result of final regulations under Section 409A which were released in April 2007. Under the final regulations, our company is required to operate its employment and compensation agreements, plans, programs and arrangements in reasonable good faith compliance with Section 409A and the guidance issued thereunder during 2006 and 2007. Under the final regulations, we generally will have until December 31, 2007 to amend documents to comply with Section 409A.

Financial assurances —

We are required to provide financial assurances to governmental agencies and a variety of other entities under applicable environmental regulations relating to our landfill operations for capping, closure and post-closure costs and/or related to our performance under certain collection, landfill and transfer station contracts. We satisfy the financial assurance requirements by providing performance bonds, letters of credit, insurance policies or trust deposits. Additionally, we are required to provide financial assurances for our insurance program and collateral for certain performance obligations.

At June 30, 2007, we had the following financial assurance instruments and collateral in place (in millions):

	Landfill
	Closure/		Contract		Risk/Casualty		Collateral for
	Post-Closure		Performance		Insurance		Obligations		Total
Insurance policies	$	690.5	$	—	$	—	$	—	$	690.5
Surety bonds		639.5		502.8		—		—		1,142.3
Trust deposits		84.5		—		—		—		84.5
Letters of credit(1)		399.8		65.1		245.7		127.5		838.1
Total	$	1,814.3	$	567.9	$	245.7	$	127.5	$	2,755.4

⁽¹⁾ At June 30, 2007, these amounts were issued under the 2005 Revolver, the Incremental Revolving Letter of Credit and the Institutional Letter of Credit Facility under our 2005 Credit Facility.

These financial instruments are issued in the normal course of business and are not debt of the Company. Since we currently have no liability for these financial assurance instruments, they are not reflected in the accompanying consolidated balance sheets. However, we have recorded capping, closure and post-closure liabilities and self-insurance liabilities as they are incurred. The underlying obligations of the financial assurance instruments, in excess of those already reflected in our consolidated balance sheets, would be recorded if it is probable that we would be unable to fulfill our related obligations. We do not expect this to occur.

Off-balance sheet arrangements —

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

Guarantees —

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

17

ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

divestiture and that may become known in the future. As of June 30, 2007, we estimated the contingent obligations associated with these indemnifications to be insignificant.

We have entered into agreements to guarantee the value of certain property that is adjacent to certain landfills to the property owners. These agreements have varying terms over varying periods. Prior to December 31, 2002, liabilities associated with these guarantees were accounted for in accordance with SFAS No. 5, Accounting for Contingencies. Agreements modified or entered into subsequent to December 31, 2002 are accounted for in accordance with FIN 45. We estimate that the contingent obligations associated with these indemnifications are not significant at June 30, 2007.

Tax contingencies —

We are subject to various federal, state and local tax rules and regulations. Although these rules are extensive and often complex, we are required to interpret and apply them to our transactions. Positions taken in tax filings are subject to challenge by taxing authorities. Accordingly, we may have exposure for additional tax liabilities if, upon audit, any positions taken are disallowed by the taxing authorities.

We are currently under examination or administrative review by various state and federal taxing authorities for certain tax years, including federal income tax audits for calendar years 1998 through 2003. Certain matters relating to these audits are discussed below.

Risk management companies. Prior to our acquisition of BFI on July 30, 1999, BFI operating companies, as part of a risk management initiative to manage and reduce costs associated with certain liabilities, contributed assets and existing environmental and self-insurance liabilities to six fully consolidated BFI risk management companies (RMCs) in exchange for stock representing a minority ownership interest in the RMCs. Subsequently, the BFI operating companies sold that stock in the RMCs to third parties at fair market value which resulted in a capital loss of approximately $900 million for tax purposes, calculated as the excess of the tax basis of the stock over the cash proceeds received.

On January 18, 2001, the IRS designated this type of transaction and other similar transactions as a “potentially abusive tax shelter” under IRS regulations. During 2002, the IRS proposed the disallowance of all of this capital loss. At the time of the disallowance, the primary argument advanced by the IRS for disallowing the capital loss was that the tax basis of the stock of the RMCs received by the BFI operating companies was required to be reduced by the amount of liabilities assumed by the RMCs even though such liabilities were contingent and, therefore, not liabilities recognized for tax purposes. Under the IRS interpretation, there was no capital loss on the sale of the stock since the tax basis of the stock should have approximately equaled the proceeds received. We protested the disallowance to the Appeals Office of the IRS in August 2002.

In April 2005, the Appeals Office of the IRS upheld the disallowance of the capital loss deduction. As a result, in late April 2005 we paid a deficiency to the IRS of $22.6 million for BFI tax years prior to the acquisition. We also received a notification from the IRS assessing a penalty of $5.4 million and interest of $12.8 million relating to the asserted $22.6 million deficiency.

In July 2005, we filed a suit for refund in the United States Court of Federal Claims. The government thereafter filed a counterclaim in the case for the $5.4 million penalty and $12.8 million of interest claimed by the IRS. In December 2005, the IRS agreed to suspend the collection of this penalty and interest until a decision is rendered on our suit for refund.

In July 2006, while the Court of Federal Claims case was pending, we discovered a jurisdictional defect in the case that could have prevented our recovery of the refund amounts claimed even if we would have been successful on the underlying merits. Accordingly, on September 12, 2006, we filed a motion to dismiss the case without prejudice on jurisdictional grounds. On March 2, 2007, the Court granted our motion dismissing the case. Thereafter, on July 6, 2007, the government appealed the decision to the United States Court of Appeals for the Federal Circuit. If the Court of Appeals reverses the lower court’s decision, the case will continue in the Court of Federal Claims. If the Court of Appeals affirms the lower court’s decision, we intend to refile the case in another

18

ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

litigating forum, having now cured the jurisdictional defect. We would not intend to refile the case in the Court of Federal Claims because the Court of Appeals, having jurisdiction over cases in the Court of Federal Claims, has rendered a decision on a similar issue in another case that is unfavorable to taxpayers litigating in the lower court. Although we continue to believe that the Court of Appeals decision in that case is flawed, the legal bases upon which the decision was reached are binding on the Court of Federal Claims and could adversely impact other litigation there involving a similar issue.

The remaining tax years affected by the capital loss issue are currently being audited or reviewed by the IRS. A decision by a Federal Court in the case described above should resolve the issue in these years as well. If we were to win the case, the initial payments would be refunded to us, subject to an appeal. If we were to lose the case, the deficiency associated with the remaining tax years would be due, subject to an appeal. If we were to settle the case, the settlement would likely cover all affected tax years and any resulting deficiency would become due in the ordinary course of the audits.

If the capital loss deduction is fully disallowed, we estimate it could have a potential federal and state cash tax impact (excluding penalties) of approximately $280 million, of which approximately $33 million has been paid, plus accrued interest through June 30, 2007 of approximately $148 million ($89 million net of tax benefit). Additionally, the IRS could ultimately impose penalties and interest on those penalties for any amount up to approximately $130 million, as of June 30, 2007, after tax.

Exchange of partnership interests. In April 2002, we exchanged minority partnership interests in four waste-to-energy facilities for majority partnership interests in equipment purchasing businesses, which are now wholly-owned subsidiaries. Although we have not yet received a formal notice of proposed adjustment, the IRS is contending that the exchange was a sale on which a corresponding gain should have been recognized. Although we intend to vigorously defend our position on this matter, if the exchange is treated as a sale, we estimate it could have a potential federal and state cash tax impact of approximately $160 million plus accrued interest through June 30, 2007 of approximately $31 million ($19 million, net of tax benefit). Also, the IRS could propose a penalty of up to 40% of the additional income tax due. Because of several meritorious defenses, we believe the successful assertion of penalties is unlikely.

The potential tax and interest (but not penalties) impact of a full disallowance for both of these matters has been fully reserved on our consolidated balance sheet, $121 million of which is reflected in current liabilities. With regard to tax and accrued interest through June 30, 2007, a disallowance would not materially adversely affect our consolidated results of operations; however a deficiency payment would adversely impact our cash flow in the period the payment was made. The accrual of additional interest through the time these matters are resolved will continue to adversely affect our consolidated results of operations. In addition, the successful assertion by the IRS of penalties could have a material adverse impact on our consolidated liquidity, financial position and results of operations.

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

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

19

ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

9. Segment Reporting

Our revenues are derived from one industry segment, which includes the collection, transfer, recycling and disposal of non-hazardous solid waste. We evaluate performance based on several factors, of which the primary financial measure is operating income before depreciation and amortization. Operating income before depreciation and amortization is not a measure of operating income, operating performance or liquidity under GAAP and may not be comparable to similarly titled measures reported by other companies. Our management uses operating income before depreciation and amortization in the evaluation of field operating performance as it represents operational cash flows and is a profit measure of components that are within the control of the operating units.

We manage our operations through five geographic operating segments: Midwestern, Northeastern, Southeastern, Southwestern and Western. Each region is responsible for managing several vertically integrated operations, which are comprised of districts. The accounting policies of the business segments are the same as those described in Note 1, Organization and Summary of Significant Accounting Policies. Results by segment have been restated for previous periods for discontinued operations and the completion of refinements to our organization structure during the second quarter of 2006.

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

Revenues:	Three Months Ended June 30,				Six Months Ended June 30,
	2007		2006		2007		2006
Midwestern	$	325.0	$	319.6	$	615.4	$	608.7
Northeastern		326.1		322.3		620.9		618.6
Southeastern		251.8		254.3		495.9		496.6
Southwestern		258.0		252.6		504.1		493.6
Western		362.6		338.0		704.4		660.8
Total reportable segments		1,523.5		1,486.8		2,940.7		2,878.3
Other(1)		36.7		38.1		76.2		69.4
Total per financial statements	$	1,560.2	$	1,524.9	$	3,016.9	$	2,947.7

⁽¹⁾ Amounts relate primarily to our subsidiaries that provide services throughout the organization and not on a regional basis.

Operating income before depreciation and amortization: (1)	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2007		2006		2007		2006
Midwestern	$	101.8	$	96.2	$	187.7	$	174.3
Northeastern		92.0		84.3		166.3		156.6
Southeastern		81.3		77.9		158.1		147.6
Southwestern		80.4		73.5		148.6		143.8
Western		127.0		109.7		239.4		209.0
Total operating income before depreciation and amortization for reportable segments	$	482.5	$	441.6	$	900.1	$	831.3

⁽¹⁾ See following table for reconciliation to income before income taxes from continuing operations per the consolidated statements of operations.

20

ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Reconciliation of our primary measure of segment profitability to income before income taxes from continuing operations (in millions):

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2007			2006			2007			2006
Total operating income before depreciation and amortization for reportable segments	$	482.5		$	441.6		$	900.1		$	831.3
Depreciation and amortization		(143.1	)		(146.7	)		(272.8	)		(287.5	)
Interest expense and other		(123.7	)		(173.7	)		(296.1	)		(306.2	)
Other(1)		(61.3	)		(43.9	)		(114.3	)		(86.6	)
Income before income taxes from continuing operations	$	154.4		$	77.3		$	216.9		$	151.0

⁽¹⁾ Amounts relate primarily to our subsidiaries, which provide services throughout the organization and not on a regional basis, including national accounts where work has been subcontracted.

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

	Three Months Ended								Six Months Ended
	June 30,								June 30,
	2007				2006				2007				2006
Collection
Residential	$	305.3	19.6	%	$	301.5	19.8	%	$	600.8	19.9	%	$	597.0	20.2	%
Commercial		383.7	24.6			365.4	24.0			756.1	25.1			721.6	24.5
Roll-off(1)		336.2	21.5			342.9	22.5			645.0	21.4			656.9	22.3
Recycling		51.9	3.3			49.9	3.2			101.4	3.4			93.7	3.2
Total collection		1,077.1	69.0			1,059.7	69.5			2,103.3	69.8			2,069.2	70.2
Disposal
Landfill		221.6	14.2			223.2	14.6			413.5	13.7			421.6	14.3
Transfer		117.7	7.5			111.3	7.3			218.3	7.2			207.8	7.1
Total disposal		339.3	21.7			334.5	21.9			631.8	20.9			629.4	21.4
Recycling — commodity		64.9	4.2			54.2	3.6			124.6	4.1			103.1	3.5
Other(2)		78.9	5.1			76.5	5.0			157.2	5.2			146.0	4.9
Total revenues	$	1,560.2	100.0	%	$	1,524.9	100.0	%	$	3,016.9	100.0	%	$	2,947.7	100.0	%

(1)	Consists of revenue generated from commercial, industrial and residential customers from waste collected in roll-off containers that are loaded onto collection vehicles.
(2)	Consists primarily of revenue from national accounts where the work has been subcontracted, revenue generated from transporting waste via railway or truck and revenue from liquid waste.

Discontinued operations —

All of the operations for the discontinued operations were in the Southeastern region. Revenue and operating income before depreciation and amortization were as follows (in millions):

	Three Months Ended					Six Months Ended
	June 30,					June 30,
	2007			2006		2007		2006
Revenues	$	—		$	15.7	$	16.4	$	31.6
Operating (loss) income before depreciation and amortization	$	(0.5	)	$	2.6	$	3.1	$	5.6

21

ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

10. Condensed Consolidating Financial Statements

Most of our outstanding debt is issued by Allied NA, our wholly-owned subsidiary. The 6.50% senior notes due 2010, the 5.75% senior notes due 2011, the 6.375% senior notes due 2011, the 9.25% senior notes due 2012, the 7.875% senior notes due 2013, the 6.125% senior notes due 2014, the 7.375% senior unsecured notes due 2014, the 7.25% senior notes due 2015, the 7.125% senior notes due 2016, the 6.875% senior notes due 2017, the 5.15% unsecured tax-exempt bonds due 2015 and the 5.20% unsecured tax-exempt bonds due 2018 issued by Allied NA and the 2005 Credit Facility are guaranteed by Allied. The 6.375% senior notes due 2008, the 9.25% debentures due 2021 and the 7.40% debentures due 2035 issued by BFI are guaranteed by Allied NA and Allied. Certain of other debt issued by us or our subsidiaries may also be guaranteed by us or our subsidiaries. All guarantees (including those of the guarantor subsidiaries) are full, unconditional and joint and several of Allied NA’s and BFI’s debt. Presented below are Condensed Consolidating Balance Sheets as of June 30, 2007 and December 31, 2006 and the related Condensed Consolidating Statements of Operations and of Cash Flows for the three and six months ended June 30, 2007 and 2006 of Allied (Parent), Allied NA (Issuer), the guarantor subsidiaries (Guarantors) and the subsidiaries that are not guarantors (Non-Guarantors). The Company does not believe that the separate financial statements and related footnote disclosures concerning the Guarantors would provide any additional information that would be material to investors making an investment decision.

CONDENSED CONSOLIDATING BALANCE SHEETS
(in millions)

	June 30, 2007
	Parent			Issuer		Guarantors			Non-Guarantors			Eliminations			Consolidated
ASSETS
Current Assets —
Cash and cash equivalents	$	—		$	31.9	$	44.0		$	31.7		$	—		$	107.6
Accounts receivable, net		—			—		330.6			394.3			—			724.9
Prepaid and other current assets		—			0.2		37.4			121.4			(76.9	)		82.1
Deferred income taxes, net		—			—		36.3			9.5			—			45.8
Total current assets		—			32.1		448.3			556.9			(76.9	)		960.4
Property and equipment, net		—			—		4,485.6			24.4			—			4,510.0
Goodwill		—			—		8,018.9			72.4			—			8,091.3
Investment in subsidiaries		2,428.2			15,165.2		443.1			—			(18,036.5	)		—
Other assets, net		5.5			89.3		186.9			1,209.0			(1,188.8	)		301.9
Total assets	$	2,433.7		$	15,286.6	$	13,582.8		$	1,862.7		$	(19,302.2	)	$	13,863.6
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities —
Current portion of long-term debt	$	—		$	—	$	162.3		$	297.1		$	—		$	459.4
Accounts payable		—			—		484.7			4.6			—			489.3
Accrued closure, post-closure and environmental costs		—			—		18.2			75.1			—			93.3
Accrued interest		2.1			92.9		96.6			1.8			(76.9	)		116.5
Other accrued liabilities		62.1			—		196.6			217.7			—			476.4
Unearned revenue		—			—		233.3			8.7			—			242.0
Total current liabilities		64.2			92.9		1,191.7			605.0			(76.9	)		1,876.9
Long-term debt, less current portion		230.0			5,486.7		685.2			—			—			6,401.9
Deferred income taxes		—			—		281.2			(4.8	)		—			276.4
Accrued closure, post-closure and environmental costs		—			—		385.0			413.5			—			798.5
Due to/(from) parent		(1,613.0	)		7,317.5		(5,655.3	)		(49.2	)		—			—
Other long-term obligations		20.1			—		1,877.2			70.0			(1,189.8	)		777.5
Stockholders’ equity		3,732.4			2,389.5		14,817.8			828.2			(18,035.5	)		3,732.4
Total liabilities and stockholders’ equity	$	2,433.7		$	15,286.6	$	13,582.8		$	1,862.7		$	(19,302.2	)	$	13,863.6

22

ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

CONDENSED CONSOLIDATING BALANCE SHEETS
(in millions)

	December 31, 2006
	Parent			Issuer		Guarantors			Non-Guarantors			Eliminations			Consolidated
ASSETS
Current Assets —
Cash and cash equivalents	$	—		$	—	$	68.3		$	25.8		$	—		$	94.1
Accounts receivable, net		—			—		322.5			370.3			—			692.8
Prepaid and other current assets		—			0.1		63.8			63.7			(39.3	)		88.3
Deferred income taxes, net		—			—		163.0			9.5			—			172.5
Total current assets		—			0.1		617.6			469.3			(39.3	)		1,047.7
Property and equipment, net		—			—		4,320.4			21.4			—			4,341.8
Goodwill		—			—		8,053.6			72.4			—			8,126.0
Investment in subsidiaries		2,334.6			14,898.3		423.6			—			(17,656.5	)		—
Other assets, net		5.6			81.1		189.2			1,217.6			(1,198.0	)		295.5
Total assets	$	2,340.2		$	14,979.5	$	13,604.4		$	1,780.7		$	(18,893.8	)	$	13,811.0
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities —
Current portion of long-term debt	$	—		$	—	$	6.6		$	230.0		$	—		$	236.6
Accounts payable		—			—		492.8			5.7			—			498.5
Accrued closure, post-closure and environmental costs		—			—		20.7			75.1			—			95.8
Accrued interest		2.0			83.6		58.9			1.7			(39.3	)		106.9
Other accrued liabilities		88.4			6.1		48.5			220.9			—			363.9
Unearned revenue		—			—		222.2			8.8			—			231.0
Total current liabilities		90.4			89.7		849.7			542.2			(39.3	)		1,532.7
Long-term debt, less current portion		230.0			5,601.0		843.0			—			—			6,674.0
Deferred income taxes		—			—		362.1			(4.8	)		—			357.3
Accrued closure, post-closure and environmental costs		—			—		342.3			427.2			—			769.5
Due to/(from) parent		(1,598.7	)		6,988.2		(5,339.8	)		(49.7	)		—			—
Other long-term obligations		19.6			—		1,994.7			63.4			(1,199.1	)		878.6
Stockholders’ equity		3,598.9			2,300.6		14,552.4			802.4			(17,655.4	)		3,598.9
Total liabilities and stockholders’ equity	$	2,340.2		$	14,979.5	$	13,604.4		$	1,780.7		$	(18,893.8	)	$	13,811.0

23

ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
(in millions )

	Three Months Ended June 30, 2007
										Non-
	Parent			Issuer			Guarantors			Guarantors			Eliminations			Consolidated
Revenues	$	—		$	—		$	1,505.9		$	54.3		$	—		$	1,560.2
Cost of operations		—			—			926.5			45.6			—			972.1
Selling, general and administrative expenses		7.5			—			153.6			3.4			—			164.5
Depreciation and amortization		—			—			141.7			1.4			—			143.1
Loss from divestitures and asset impairments		—			—			2.4			—			—			2.4
Operating income (loss)		(7.5	)		—			281.7			3.9			—			278.1
Equity in earnings (losses) of subsidiaries		72.9			136.6			6.4			—			(215.9	)		—
Interest income (expense) and other		(2.7	)		(100.0	)		(21.5	)		0.5			—			(123.7	)
Intercompany interest income (expense)		37.1			(29.0	)		(26.9	)		18.8			—			—
Management fee income (expense)		2.1			—			(1.7	)		(0.4	)		—			—
Income before income taxes		101.9			7.6			238.0			22.8			(215.9	)		154.4
Income tax (expense) benefit		(10.7	)		61.3			(104.8	)		(8.4	)		—			(62.6	)
Minority interests		—			—			—			(0.1	)		—			(0.1	)
Net income from continuing operations		91.2			68.9			133.2			14.3			(215.9	)		91.7
Discontinued operations, net of tax		—			—			(0.5	)		—			—			(0.5	)
Net income		91.2			68.9			132.7			14.3			(215.9	)		91.2
Dividends on preferred stock		(9.3	)		—			—			—			—			(9.3	)
Net income available to common shareholders	$	81.9		$	68.9		$	132.7		$	14.3		$	(215.9	)	$	81.9

	Six Months Ended June 30, 2007
										Non-
	Parent			Issuer			Guarantors			Guarantors			Eliminations			Consolidated
Revenues	$	—		$	—		$	2,907.5		$	109.4		$	—		$	3,016.9
Cost of operations		—			—			1,806.5			96.6			—			1,903.1
Selling, general and administrative expenses		14.3			—			305.3			6.9			—			326.5
Depreciation and amortization		—			—			269.9			2.9			—			272.8
Loss from divestitures and asset impairments		—			—			1.5			—			—			1.5
Operating income (loss)		(14.3	)		—			524.3			3.0			—			513.0
Equity in earnings (losses) of subsidiaries		94.0			273.7			12.4			—			(380.1	)		—
Interest income (expense) and other		(5.5	)		(248.7	)		(43.5	)		1.6			—			(296.1	)
Intercompany interest income (expense)		74.3			(59.7	)		(51.9	)		37.3			—			—
Management fee income (expense)		4.3			—			(3.4	)		(0.9	)		—			—
Income (loss) before income taxes		152.8			(34.7	)		437.9			41.0			(380.1	)		216.9
Income tax (expense) benefit		(21.7	)		123.6			(177.6	)		(15.1	)		—			(90.8	)
Minority interests		—			—			—			—			—			—
Net income from continuing operations		131.1			88.9			260.3			25.9			(380.1	)		126.1
Discontinued operations, net of tax		—			—			5.0			—			—			5.0
Net income		131.1			88.9			265.3			25.9			(380.1	)		131.1
Dividends on preferred stock		(18.7	)		—			—			—			—			(18.7	)
Net income available to common shareholders	$	112.4		$	88.9		$	265.3		$	25.9		$	(380.1	)	$	112.4

24

ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
(in millions)

	Three Months Ended June 30, 2006
										Non-
	Parent			Issuer			Guarantors			Guarantors			Eliminations			Consolidated
Revenues	$	—		$	—		$	1,467.1		$	57.8		$	—		$	1,524.9
Cost of operations		—			0.2			944.9			34.5			—			979.6
Selling, general and administrative expenses		6.9			—			138.0			2.7			—			147.6
Depreciation and amortization		—			0.2			144.2			2.3			—			146.7
Operating income (loss)		(6.9	)		(0.4	)		240.0			18.3			—			251.0
Equity in earnings (losses) of subsidiaries		21.3			119.4			10.9			—			(151.6	)		—
Interest income (expense) and other		(2.7	)		(150.6	)		(20.9	)		0.5			—			(173.7	)
Intercompany interest income (expense)		35.1			(21.7	)		(32.6	)		19.2			—			—
Management fee income (expense)		2.0			—			(1.6	)		(0.4	)		—			—
Income (loss) before income taxes		48.8			(53.3	)		195.8			37.6			(151.6	)		77.3
Income tax (expense) benefit		(11.2	)		69.0			(83.7	)		(14.7	)		—			(40.6	)
Minority interests		—			—			—			(0.2	)		—			(0.2	)
Net income from continuing operations		37.6			15.7			112.1			22.7			(151.6	)		36.5
Discontinued operations, net of tax		—			—			1.1			—			—			1.1
Net income		37.6			15.7			113.2			22.7			(151.6	)		37.6
Dividends on preferred stock		(9.4	)		—			—			—			—			(9.4	)
Net income available to common shareholders	$	28.2		$	15.7		$	113.2		$	22.7		$	(151.6	)	$	28.2

	Six Months Ended June 30, 2006
										Non-
	Parent			Issuer			Guarantors			Guarantors			Eliminations			Consolidated
Revenues	$	—		$	—		$	2,834.9		$	112.8		$	—		$	2,947.7
Cost of operations		—			—			1,826.4			84.5			—			1,910.9
Selling, general and administrative expenses		12.9			—			272.2			7.0			—			292.1
Depreciation and amortization		—			0.7			282.4			4.4			—			287.5
Operating income (loss)		(12.9	)		(0.7	)		453.9			16.9			—			457.2
Equity in earnings (losses) of subsidiaries		46.3			226.3			17.2			—			(289.8	)		—
Interest income (expense) and other		(5.5	)		(259.6	)		(42.7	)		1.6			—			(306.2	)
Intercompany interest income (expense)		69.3			(51.3	)		(56.6	)		38.6			—			—
Management fee income (expense)		4.1			—			(3.3	)		(0.8	)		—			—
Income (loss) before income taxes		101.3			(85.3	)		368.5			56.3			(289.8	)		151.0
Income tax (expense) benefit		(22.5	)		124.6			(154.8	)		(22.1	)		—			(74.8	)
Minority interests		—			—			—			0.2			—			0.2
Net income from continuing operations		78.8			39.3			213.7			34.4			(289.8	)		76.4
Discontinued operations, net of tax		—			—			2.4			—			—			2.4
Net income		78.8			39.3			216.1			34.4			(289.8	)		78.8
Dividends on preferred stock		(24.1	)		—			—			—			—			(24.1	)
Net income available to common shareholders	$	54.7		$	39.3		$	216.1		$	34.4		$	(289.8	)	$	54.7

25

ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
(in millions)

	Six Months Ended June 30, 2007
										Non-
	Parent			Issuer			Guarantors			Guarantors			Eliminations		Consolidated
Cash (used for) provided by operating activities from continuing operations	$	(15.7	)	$	(286.0	)	$	748.6		$	16.6		$	—	$	463.5
Investing activities —
Proceeds from divestitures (cost of acquisitions), net of cash divested/acquired		—			—			(2.0	)		—			—		(2.0	)
Proceeds from sale of fixed assets		—			—			8.2			—			—		8.2
Capital expenditures, excluding acquisitions		—			—			(362.5	)		(5.3	)		—		(367.8	)
Capitalized interest		—			—			(9.3	)		—			—		(9.3	)
Change in deferred acquisitions costs, notes receivable and other		—			—			(0.2	)		—			—		(0.2	)
Cash used for investing activities from continuing operations		—			—			(365.8	)		(5.3	)		—		(371.1	)
Financing activities —
Proceeds from long-term debt, net of issuance costs		—			1,170.6			—			85.3			—		1,255.9
Payments of long-term debt		—			(1,305.7	)		(5.1	)		(18.2	)		—		(1,329.0	)
Payments of preferred stock dividends		(18.7	)		—			—			—			—		(18.7	)
Net change in disbursement account		—			—			(0.7	)		—			—		(0.7	)
Net proceeds from sale of common stock, exercise of stock options and other		15.7			—			—			—			—		15.7
Intercompany between issuer and subsidiaries		18.7			453.0			(399.2	)		(72.5	)		—		—
Cash provided by (used for) financing activities from continuing operations		15.7			317.9			(405.0	)		(5.4	)		—		(76.8	)
Cash used for discontinued operations		—			—			(2.1	)		—			—		(2.1	)
Increase (decrease) in cash and cash equivalents		—			31.9			(24.3	)		5.9			—		13.5
Cash and cash equivalents, beginning of period		—			—			68.3			25.8			—		94.1
Cash and cash equivalents, end of period	$	—		$	31.9		$	44.0		$	31.7		$	—	$	107.6

26

ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
(in millions)

	Six Months Ended June 30, 2006
										Non-
	Parent			Issuer			Guarantors			Guarantors			Eliminations		Consolidated
Cash (used for) provided by operating activities from continuing operations	$	(8.7	)	$	(258.6	)	$	602.1		$	24.9		$	—	$	359.7
Investing activities —
Proceeds from divestitures (cost of acquisitions), net of cash divested/acquired		—			—			2.8			—			—		2.8
Proceeds from sale of fixed assets		—			—			7.3			—			—		7.3
Capital expenditures, excluding acquisitions		—			—			(367.0	)		(3.7	)		—		(370.7	)
Capitalized interest		—			—			(8.2	)		—			—		(8.2	)
Change in deferred acquisition costs, notes receivable and other		—			—			1.5			—			—		1.5
Cash used for investing activities from continuing operations		—			—			(363.6	)		(3.7	)		—		(367.3	)
Financing activities —
Proceeds from long-term debt, net of issuance costs		—			1,200.7			—			22.4			—		1,223.1
Payments of long-term debt		—			(1,104.1	)		(5.7	)		(37.2	)		—		(1,147.0	)
Payments of preferred stock dividend		(29.4	)		—			—			—			—		(29.4	)
Net change in disbursement account		—			—			(63.3	)		—			—		(63.3	)
Net proceeds from sale of common stock, exercise of stock options and other		8.7			—			—			—			—		8.7
Intercompany between issuer and subsidiary		29.4			162.0			(185.5	)		(5.9	)		—		—
Cash provided by (used for) financing activities from continuing operations		8.7			258.6			(254.5	)		(20.7	)		—		(7.9	)
Cash provided by discontinued operations		—			—			7.0			—			—		7.0
Increase (decrease) in cash and cash equivalents		—			—			(9.0	)		0.5			—		(8.5	)
Cash and cash equivalents, beginning of period		—			—			53.1			3.0			—		56.1
Cash and cash equivalents, end of period	$	—		$	—		$	44.1		$	3.5		$	—	$	47.6

27

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with our consolidated financial statements and the notes thereto, included elsewhere herein. Please note that unless otherwise specifically indicated, discussion of our results relate to continuing operations. This discussion may contain forward-looking statements that anticipate results based upon assumptions as to future events that may not prove to be accurate. See “Disclosure Regarding Forward-Looking Statements” below.

Executive Summary

We are the second largest non-hazardous solid waste management company in the United States, as measured by revenues. We provide non-hazardous solid waste collection, transfer, recycling and disposal services in 37 states and Puerto Rico, geographically identified as the Midwestern, Northeastern, Southeastern, Southwestern and Western regions.

Our 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. Our landfill operations include both company-owned landfills and landfills that we operate on behalf of municipalities and others.

We consistently invest capital to support the ongoing operations of our landfill and collection business. Landfills are highly engineered, sophisticated facilities similar to civil works. Each year we invest capital at our 169 owned or operated active landfills to ensure sufficient capacity to receive the waste volume we handle. In addition, we have approximately 12,500 collection vehicles and approximately 1.2 million containers to serve our collection customers. Our vehicles and containers endure rough conditions each day and must be routinely maintained and replaced. During the six months ended June 30, 2007, we invested $367.8 million of capital into the business (see Note 2, Property and Equipment, for detail by fixed asset category). In 2007, total capital expenditures are expected to be approximately $675 million.

Cash flows in our business are generally predictable as a result of the nature of our customer base and the essential service we provide to the communities where we operate. This predictability has enabled us to consistently reinvest in the business and to service debt obligations. As a result, we have incurred debt to acquire the assets we own and we have paid cash to acquire existing cash flow streams. This financial model should continue to allow us over time to transfer the enterprise value of the company from debt holders to shareholders as we continue to use our cash flow from operations after capital expenditures to reduce our debt balance.

Net income for the three months ended June 30, 2007 increased to $91.2 million, or $0.21 per diluted share, from $37.6 million, or $0.08 per diluted share, for the three months ended June 30, 2006. Net income for the six months ended June 30, 2007 was $131.1 million, or $0.30 per diluted share, compared to $78.8 million, or $0.16 per diluted share, for the same period in the prior year. The increases during 2007 were primarily attributable to higher operating income and lower interest expenses, offset by higher income tax expenses.

Our organic revenue growth was 2.7% and 2.9%, respectively, for the three and six months ended June 30, 2007, primarily due to increases in price, partially offset by volume decreases. Revenues increased across all service lines. Operating income for the three and six months ended June 30, 2007 increased by $27.1 million and $55.8 million, respectively, over the same periods in the prior year. Interest expense for the three months ended June 30, 2007 was lower than in the prior year primarily due to costs incurred in connection with refinancing transactions during the second quarter of 2006. For the six months ended June 30, 2007, interest expense decreased as a result of interest savings associated with the decrease in our outstanding debt balance as well as lower interest rates from the refinancing transactions during the year.

28

Our pricing programs and operational effectiveness initiatives continue to drive improved profitability. These programs contributed to our cost of operations as a percentage of revenues decreasing to 62.3% and 63.1% for the three and six months ended June 30, 2007 compared to 64.2% and 64.8% in 2006. In addition, we continue to focus on improving our return on invested capital by evaluating the return potential of new capital expenditures and by evaluating opportunities to divest operations that do not provide an adequate return.

We plan to invest approximately $675 million in capital expenditures during 2007, a portion of which relates to investment in our fleet. We expect this investment, along with improved maintenance practices, to continue to have a favorable impact on maintenance costs and route productivity. Maintenance and repairs for the three and six months ended June 30, 2007 decreased by $1.7 million and $5.7 million, respectively, compared to the same periods in 2006.

We remain committed to our long-term strategy of reducing our debt balance. As this occurs, we believe the relative cost of debt should decline. Upon achieving optimal credit ratios, we should have the opportunity to choose the best use of any excess cash flow: further repay debt, pay a dividend to the extent permitted by our debt agreements, repurchase stock or reinvest in our company. We may take advantage of opportunities that arise to accelerate the de-leveraging process as long as the opportunities are economically advantageous and meet our need to maintain our competitive strength.

In March 2007, we issued $750 million of 6.875% senior notes due 2017 and used the proceeds to fund a portion of our tender offer for our 8.50% senior notes due 2008. On March 28, 2007, we completed the amendment to our 2005 Credit Facility, which included re-pricing of the 2005 Revolver and a two-year maturity extension for all facilities under the 2005 Credit Facility. The interest rate and fees for borrowings and letters of credit under the 2005 Revolver were reduced by 75 basis points. In addition, our fee for the unused portion of the 2005 Revolver was reduced by 37.5 basis points. We expensed approximately $45.4 million of costs related to premiums paid, write-off of deferred financing and other costs in connection with these transactions. We expect the refinancing transactions to generate approximately $15 million in annual interest savings.

In April and June 2007, we completed offerings of $56.8 million and $20.0 million of unsecured tax-exempt bonds due 2018 and 2015, respectively. Interest rates on the tax-exempt bonds were 5.20% and 5.15%, respectively.

In May 2007, we renewed and increased our accounts receivable securitization program from $230 million to $300 million, the proceeds of which were used to repay a portion of our 2005 Term Loan. Additionally, we made an optional $135 million prepayment on the 2005 Term Loan during the quarter ended June 30, 2007. In connection with the Term Loan repayments, we expensed $0.8 million of costs related to write-off of deferred financing and other costs.

At June 30, 2007, our leverage ratio, as defined by the 2005 Credit Facility, was 4.22:1 compared to 4.49:1 at December 31, 2006. Under the terms of the 2005 Credit Facility, this lower leverage ratio will result in a 25 basis point reduction on the 2005 Term Loan, the 2005 Revolver and the Institutional Letter of Credit Facility.

We continue to focus on maximizing cash flow to repay debt, and we seek opportunities to create additional cash flow through reductions in interest cost while continuing to support our fixed asset base with appropriate capital expenditures. Our debt to total capitalization ratio was 64.8% and 65.8% at June 30, 2007 and December 31, 2006, respectively.

29

Results of Operations

Three and Six months ended June 30, 2007 and 2006

The following table sets forth our results of operations and percentage relationship that the various items bear to revenues for the periods indicated (dollars in millions).

	Three Months Ended June 30,
	2007					2006
Revenues	$	1,560.2		100.0	%	$	1,524.9		100.0	%
Cost of operations		972.1		62.3			979.6		64.2
Selling, general and administrative expenses		164.5		10.5			147.6		9.7
Depreciation and amortization		143.1		9.2			146.7		9.6
Loss from divestitures and asset impairments		2.4		0.2			—		—
Operating income		278.1		17.8			251.0		16.5
Interest expense and other		123.7		7.9			173.7		11.4
Income before income taxes from continuing operations		154.4		9.9			77.3		5.1
Income tax expense		62.6		4.0			40.6		2.7
Minority interests		0.1		—			0.2		—
Income from continuing operations		91.7		5.9			36.5		2.4
Discontinued operations, net of tax		(0.5	)	(0.1	)		1.1		0.1
Net income		91.2		5.8			37.6		2.5
Dividends on preferred stock		(9.3	)	(0.6	)		(9.4	)	(0.7	)
Net income available to common shareholders	$	81.9		5.2	%	$	28.2		1.8	%

	Six Months Ended June 30,
	2007					2006
Revenues	$	3,016.9		100.0	%	$	2,947.7		100.0	%
Cost of operations		1,903.1		63.1			1,910.9		64.8
Selling, general and administrative expenses		326.5		10.8			292.1		9.9
Depreciation and amortization		272.8		9.0			287.5		9.8
Loss from divestitures and asset impairments		1.5		0.1			—		—
Operating income		513.0		17.0			457.2		15.5
Interest expense and other		296.1		9.8			306.2		10.4
Income before income taxes from continuing operations		216.9		7.2			151.0		5.1
Income tax expense		90.8		3.0			74.8		2.5
Minority interests		—		—			(0.2	)	—
Income from continuing operations		126.1		4.2			76.4		2.6
Discontinued operations, net of tax		5.0		0.1			2.4		0.1
Net income		131.1		4.3			78.8		2.7
Dividends on preferred stock		(18.7	)	(0.6	)		(24.1	)	(0.8	)
Net income available to common shareholders	$	112.4		3.7	%	$	54.7		1.9	%

Revenues. We generate revenues primarily from fees charged to customers for waste collection, transfer, recycling and disposal services. Although we consider our core business to be our collection and disposal operations, we also generate revenue from the sale of recycled commodities. We record revenue as the services are provided, with revenue deferred in instances where customers are billed in advance of the service being provided. National accounts revenue included in other revenue represents the portion of revenue generated from nationwide contracts in markets outside our operating areas, and as such, the associated waste handling services are subcontracted to local operators. Consequently, substantially all of this revenue is offset by the corresponding subcontract costs.

30

The following table shows our total reported revenues by service line. Intercompany revenues have been eliminated.

Revenues by service line (dollars in millions):

	Three Months Ended June 30,								Six Months Ended June 30,
	2007				2006				2007				2006
Collection
Residential	$	305.3	19.6	%	$	301.5	19.8	%	$	600.8	19.9	%	$	597.0	20.2	%
Commercial		383.7	24.6			365.4	24.0			756.1	25.1			721.6	24.5
Roll-off(1)		336.2	21.5			342.9	22.5			645.0	21.4			656.9	22.3
Recycling		51.9	3.3			49.9	3.2			101.4	3.4			93.7	3.2
Total collection		1,077.1	69.0			1,059.7	69.5			2,103.3	69.8			2,069.2	70.2
Disposal
Landfill		221.6	14.2			223.2	14.6			413.5	13.7			421.6	14.3
Transfer		117.7	7.5			111.3	7.3			218.3	7.2			207.8	7.1
Total disposal		339.3	21.7			334.5	21.9			631.8	20.9			629.4	21.4
Recycling – commodity		64.9	4.2			54.2	3.6			124.6	4.1			103.1	3.5
Other(2)		78.9	5.1			76.5	5.0			157.2	5.2			146.0	4.9
Total revenues	$	1,560.2	100.0	%	$	1,524.9	100.0	%	$	3,016.9	100.0	%	$	2,947.7	100.0	%

(1)	Consists of revenue generated from commercial, industrial and residential customers from waste collected in roll-off containers that are loaded onto collection vehicles.
(2)	Consists primarily of revenue from national accounts where the work has been subcontracted, revenue generated from transporting waste via railway or truck and revenue from liquid waste.

Revenues increased by 2.3% during both the three and six months ended June 30, 2007 over the same periods in 2006 across all lines of business. The revenue increase within the collection business was primarily attributable to the increase in the commercial line of business. The revenue increase in the disposal line of business was due to transfer revenue increase, partially offset by the decrease in landfill revenue. Recycling-commodity revenue increased primarily due to cardboard and newspaper commodity price increases. Other revenue increased as a result of increases associated with the subcontracted portion of our national accounts.

Following is a summary of the change in revenues (in millions):

	Three Months			Six Months
	Ended			Ended
	June 30,			June 30,
Reported revenues in 2006	$	1,524.9		$	2,947.7
Core business organic growth
Increase from average base per unit price change		79.2			148.7
Increase from fuel recovery fees		7.4			17.2
Decrease from net volume change		(47.8	)		(85.7	)
Net divested revenues and adjustments		(12.4	)		(26.4	)
Increase in recycling and other		8.9			15.4
Reported revenues in 2007	$	1,560.2		$	3,016.9

We analyze our revenue by organic growth which excludes the effect of revenue from acquisitions and divestitures, certain adjustments, revenue from recycling and other. During the three and six months ended June 30, 2007, we generated organic revenue growth of 2.7% and 2.9%, respectively, of which $86.6 million or 6.0% and $165.9 million or 6.0% were attributable to increases from our average price per unit on core business. Within the collection business, average per unit pricing increased 8.9%, 4.9%, 5.1% and 6.9%, respectively, in the commercial, roll-off, residential and recycling collection lines of business for the quarter ended June 30, 2007. For the six months ended June 30, 2007, average per unit pricing increased by 8.7%, 5.6%, 4.6% and 10.8% in the commercial, roll-off, residential and recycling collection lines of business, respectively. Within the disposal line of business, landfill average per unit pricing increased 6.5% and 5.3%, respectively, and transfer average per unit pricing increased 4.3% and 4.2%, respectively, for the three and six months ended June 30, 2007. The fuel recovery fee program, implemented in 2005 to mitigate our exposure to increases in fuel price, generated $7.4 million or 8.5% and $17.2 million or 10.4%, respectively, of the total price growth in the three and six months ended June 30, 2007.

31

This fee fluctuates with the price of fuel; and, consequently, any decline in fuel prices would result in a decrease in our revenue, which would be offset by a decrease in our fuel expense.

Core business volume decreased 3.3% and 3.1% for the three and six months ended June 30, 2007 compared to the same periods in the prior year, primarily due to volume decreases in the roll-off, residential and landfill lines of business. Within the collection business, the commercial, roll-off, residential and recycling collection lines of business experienced volume decreases of 2.3%, 6.2%, 3.4% and 3.6%, respectively, during the quarter ended June 30, 2007; and 2.0%, 6.5%, 3.3% and 3.2% during the six months ended June 30, 2007. Within the disposal business, landfill volume decreased 7.3% and 7.4%, respectively, while transfer volume increased 4.1% and 2.8%, respectively, for the three and six months ended June 30, 2007. The volume decreases were primarily attributable to conditions reflective of the general economy and, to a lesser extent, customer loss from pricing increases. Transfer volume increased due to the continued phasing-in of a new contract in our Staten Island, New York market.

Our operations are not concentrated in any one geographic region. At June 30, 2007, we operated in 126 major areas in 37 states and Puerto Rico. Our regional teams focus on developing local areas in which we can operate a vertically integrated operation and maximize operating efficiency. As a result, we may choose to not operate in a area where we believe our business objectives cannot be met.

The following table shows our revenues by geographic region in total and as a percentage of total revenues.

Revenues by region⁽¹⁾ (dollars in millions):

	Three Months Ended June 30,								Six Months Ended June 30,
	2007				2006				2007				2006
Midwestern	$	325.0	20.8	%	$	319.6	21.0	%	$	615.4	20.4	%	$	608.7	20.6	%
Northeastern		326.1	20.9			322.3	21.1			620.9	20.6			618.6	21.0
Southeastern		251.8	16.1			254.3	16.7			495.9	16.4			496.6	16.9
Southwestern		258.0	16.5			252.6	16.5			504.1	16.7			493.6	16.7
Western		362.6	23.3			338.0	22.2			704.4	23.4			660.8	22.4
Other(2)		36.7	2.4			38.1	2.5			76.2	2.5			69.4	2.4
Total revenues	$	1,560.2	100.0	%	$	1,524.9	100.0	%	$	3,016.9	100.0	%	$	2,947.7	100.0	%

(1)	See discussion in Note 9 to our consolidated financial statements.
(2)	Amounts relate primarily to our subsidiaries that provide services throughout the organization and not on a regional basis.

Cost of operations. Cost of operations includes labor and related benefits, which consists of salaries and wages, health and welfare benefits, incentive compensation and payroll taxes. It also includes transfer and disposal costs representing tipping fees paid to third-party disposal facilities and transfer stations; maintenance and repairs relating to our vehicles, equipment, and containers, including related labor and benefit costs; transportation and subcontractor costs, which include costs for independent haulers who transport our waste to disposal facilities and costs for local operators who provide waste handling services associated with our national accounts in markets outside our standard operating areas; fuel, which includes the direct cost of fuel used by our vehicles, net of fuel credits; disposal and franchise fees and taxes consisting of landfill taxes, municipal franchise fees, host community fees and royalties; landfill operating costs, which includes landfill accretion, financial assurance, leachate disposal and other landfill maintenance costs; risk management, which includes casualty insurance premiums and costs; cost of goods sold, which includes material costs paid to suppliers associated with recycling commodities; and other, which includes expenses such as facility operating costs, equipment rent, and gains or losses on sale of assets used in our operations.

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The following table provides the components of our operating costs and as a percentage of revenues (dollars in millions):

	Three Months Ended June 30,								Six Months Ended June 30,
	2007				2006				2007				2006
Labor and related benefits	$	274.0	17.6	%	$	281.4	18.5	%	$	543.3	18.0	%	$	560.6	19.0	%
Transfer and disposal costs		116.6	7.5			127.8	8.4			221.2	7.3			239.7	8.1
Maintenance and repairs		122.8	7.9			124.5	8.2			244.6	8.1			250.3	8.5
Transportation and subcontractor costs		132.8	8.5			138.0	9.1			258.7	8.6			257.3	8.7
Fuel		77.9	5.0			82.0	5.4			145.2	4.8			146.4	5.0
Disposal and franchise fees and taxes		94.6	6.1			92.2	6.0			180.6	6.0			181.7	6.2
Landfill operating costs		42.2	2.7			38.4	2.5			82.6	2.7			76.4	2.6
Risk management		37.3	2.4			37.0	2.4			81.2	2.7			78.4	2.7
Cost of goods sold		18.8	1.2			16.0	1.0			34.9	1.2			25.5	0.9
Other		55.1	3.4			42.3	2.7			110.8	3.7			94.6	3.1
Total cost of operations	$	972.1	62.3	%	$	979.6	64.2	%	$	1,903.1	63.1	%	$	1,910.9	64.8	%

Cost of operations decreased less than 1% during the three and six months ended June 30, 2007 compared to the same periods in the prior year primarily due to decreases in transfer and disposal costs, labor and fuel, partially offset by increases in cost of goods sold and other expenses. Transfer and disposal costs and labor decreased partially as a function of lower volume. Additionally, the decrease in labor cost is primarily attributable to the continued benefits from the headcount reduction initiative in the prior year. Cost of goods sold increased due to increases in commodity pricing during 2007. Other expense increased compared to the prior year primarily due to an $8.0 million favorable adjustment to our environmental reserves in the second quarter of 2006, primarily due to the selection by the U.S. Environmental Protection Agency of a lower cost remediation plan related to a Superfund site at which the Company is a potentially responsible party.

Fuel costs decreased during the three and six months ended June 30, 2007 because of lower fuel prices and volume during the current year, partially offset by market price exposure as a result of the expiration of certain fixed price purchase contracts in the first quarter of 2006. All fixed price purchase contracts expired as of March 31, 2006, and, unless new contracts are executed, all future fuel purchases will be at market rates. When economically practical, we may enter into new or renewal contracts, or engage in other strategies to mitigate market risk. We expect that our fuel recovery fee will offset a portion of the volatility in fuel costs arising from future market price fluctuations. At June 30, 2007, approximately 57% of our customers participated in the fuel recovery fee program.

Selling, general and administrative expenses include salaries, health and welfare benefits and incentive compensation for corporate and field general management, field support functions, sales force, accounting and finance, legal, management information systems and clerical and administrative departments. It also includes rent and office costs, fees for professional services provided by third parties, such as accountants, lawyers and consultants, provisions for estimated uncollectible accounts receivable and other expenses such as marketing, investor and community relations, directors’ and officers’ insurance, employee relocation, travel, entertainment and bank charges.

The following table provides the components of our selling, general and administrative costs and as a percentage of revenues (dollars in millions):

	Three Months Ended June 30,								Six Months Ended June 30,
	2007				2006				2007				2006
Salaries	$	99.6	6.4	%	$	89.2	5.8	%	$	196.1	6.5	%	$	175.4	5.9	%
Rent and office costs		9.7	0.6			10.7	0.7			20.4	0.7			21.2	0.7
Professional fees		20.1	1.3			15.0	1.0			36.5	1.2			29.6	1.0
Provision for doubtful accounts		5.2	0.3			2.8	0.2			10.9	0.4			7.5	0.3
Other		29.9	1.9			29.9	2.0			62.6	2.0			58.4	2.0
Total selling, general and administrative expenses	$	164.5	10.5	%	$	147.6	9.7	%	$	326.5	10.8	%	$	292.1	9.9	%

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Selling, general and administrative expenses increased 11.6% and 11.8% for the three and six months ended June 30, 2007, respectively, compared to the same periods in 2006 primarily relating to salaries, professional fees and bad debt expense. The increase in salaries during the three months ended June 30, 2007 was due primarily to lower incentive compensation accrued in the second quarter of 2006 while the salaries increase for the six months ended June 30, 2007 included the impact of annual compensation adjustments and higher incentive compensation accrued in 2007. The professional fees increase was primarily attributable to consulting fees related to our pricing initiative, billing system conversion, procurement initiatives and organization development activities. The increase in bad debt expense for the three and six months ended June 30, 2007 included the impact of reserves for certain specific customer accounts. The increase in other expense for the six months ended June 30, 2007 related to costs associated with a now-settled strike in our Dallas market and a charitable land donation.

Depreciation and amortization includes depreciation of fixed assets and amortization costs associated with the acquisition, development and retirement of landfill airspace and intangible assets. Depreciation is provided on the straight-line method over the estimated useful lives of assets. The estimated useful lives of assets are: buildings and improvements (30-40 years), vehicles and equipment (3-15 years), containers and compactors (5-10 years) and furniture and office equipment (4-8 years). For building improvements, the depreciable life can be the shorter of the improvements’ estimated useful lives or related lease terms. Depreciation expense of vehicles increases as fully depreciated trucks are replaced by new vehicles. Landfill assets are amortized at a rate per ton of waste disposed. Amortization of landfill assets is impacted by several factors including rates of inflation, landfill expansions and compaction rates.

The following table provides the components of our depreciation and amortization and as a percentage of revenues (dollars in millions):

	Three Months Ended June 30,								Six Months Ended June 30,
	2007				2006				2007				2006
Depreciation of fixed assets	$	81.9	5.3	%	$	78.6	5.1	%	$	161.7	5.3	%	$	157.3	5.4	%
Landfill and other amortization		61.2	3.9			68.1	4.5			111.1	3.7			130.2	4.4
Total depreciation and amortization	$	143.1	9.2	%	$	146.7	9.6	%	$	272.8	9.0	%	$	287.5	9.8	%

Depreciation and amortization decreased 2.6% and 5.2% for the three and six months ended June 30, 2007, respectively, compared to the same periods in 2006. Depreciation expense related to vehicles and equipment increased primarily due to increases in capital expenditures in recent periods. Landfill amortization expense decreased primarily due to reduced landfill disposal volume.

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

	Three Months Ended June 30,						Six Months Ended June 30,
	2007			2006			2007			2006
Interest expense, gross	$	124.0		$	132.4		$	250.5		$	264.4
Interest income		(1.3	)		(0.7	)		(1.9	)		(1.4	)
Interest capitalized for development projects		(4.8	)		(4.1	)		(9.3	)		(8.2	)
Accretion of debt and amortization of debt issuance costs		5.0			5.4			10.4			10.9
Costs incurred to early extinguish debt		0.8			40.8			46.2			40.8
Interest expense allocated to discontinued operations		—			(0.1	)		0.2			(0.3	)
Total interest expense and other	$	123.7		$	173.7		$	296.1		$	306.2

Gross interest expense decreased 6.3% and 5.3% during the three and six months ended June 30, 2007 as a result of debt repayment from our continued de-leveraging strategy and the refinancing of debt at lower interest rates. In connection with the refinancing transactions during 2007 and 2006, we incurred costs to early extinguish and refinance debt of $46.2 million and $40.8 million, respectively, relating to premiums paid, write-off of deferred financing and other costs.

Income tax expense. The effective tax rate for the three and six months ended June 30, 2007 was 40.6% and 41.9%, respectively, compared to 52.6% and 49.5% for the same periods in the prior year. The decrease in the effective rate was primarily attributable to the impact of a benefit recorded in 2007 related to a favorable resolution of an uncertain tax matter and the increase in estimated annual earnings before taxes in 2007 compared with 2006.

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Discontinued operations. During the first quarter of 2007, we sold hauling, transfer and recycling operations in Florida as well as the stock in an unrelated immaterial subsidiary, in a single transaction for net proceeds of approximately $69.4 million. The results of these operations, including those related to prior years, have been classified as discontinued operations in the accompanying consolidated financial statements. Included in the results for discontinued operations for the six months ended June 30, 2007 was a gain of approximately $11.5 million ($3.8 million gain, net of tax) for the sale of the assets, including $39.2 million of goodwill, divested and recorded in the first quarter of 2007. Discontinued operations for the three months ended June 30, 2007 and 2006 included $0.5 million of pre-tax loss ($0.5 million loss, net of tax) and $1.7 million of pre-tax income ($1.1 million income, net of tax), respectively, from operations. Discontinued operations for the six months ended June 30, 2007 and 2006 included $2.2 million of pre-tax income ($1.2 million income, net of tax) and $3.9 million of pre-tax income ($2.4 million income, net of tax), respectively, from operations.

Dividends on preferred stock. Dividends on preferred stock were $9.3 million for the three months ended June 30, 2007 and $9.4 million for the same period in 2006 and $18.7 million and $24.1 million for the six months ended June 30, 2007 and 2006, respectively. The decrease of $5.4 million for the six months ended June 30, 2007 resulted from the conversion of the Series C mandatory convertible preferred stock on April 1, 2006 into approximately 34.1 million shares of common stock, eliminating approximately $21.6 million of annual dividends.

Liquidity and Capital Resources

Our capital structure consists of 65% debt and 35% equity at June 30, 2007. The majority of our debt was incurred to acquire solid waste companies between 1990 and 2000. We incurred and assumed over $11 billion of debt to acquire BFI in 1999. Since the acquisition of BFI, we have repaid debt with cash flow from operations, asset sales and the issuance of equity. We intend to continue to reduce our debt balance until we reach credit ratios we believe will allow us to benefit from a cost of debt afforded to investment grade companies. We believe that as we move towards these ratios, we will have additional opportunities to reduce the cost of debt below our current level on a basis relative to interest rates at the time. We expect these opportunities will increase liquidity and provide more flexibility in deciding the most appropriate use of our cash flow to improve shareholder value.

We may refinance or repay portions of our debt to ensure a capital structure that supports our operating plan, as well as continue to seek opportunities to extend our maturities in the future with actions that are economically beneficial. The potential alternatives include continued application of cash flow from operations, asset sales and capital markets transactions. We continue to evaluate the performance of and opportunities to divest operations that do not maximize operating efficiencies or provide an adequate return on invested capital. Capital markets transactions could include issuance of debt with longer maturities, issuance of equity, or a combination of both.

We generally meet our operational liquidity needs with operating cash flows. Our liquidity needs are primarily for working capital, capital expenditures for vehicles, containers and landfill development, capping, closure, post-closure and environmental expenditures, debt service costs, cash taxes, and scheduled debt maturities.

When we cannot meet our liquidity needs with operating cash flow, we meet those needs with borrowings under our 2005 Credit Facility. We have a $1.575 billion commitment until 2012 under our 2005 Credit Facility, which we believe is adequate to meet our liquidity needs based on current conditions. At June 30, 2007, we had $12.0 million in loans outstanding and $323.1 million in letters of credit drawn on the 2005 Revolver, leaving approximately $1.2 billion of availability. Both the $25 million Incremental Revolving Letter of Credit Facility and $490 million Institutional Letter of Credit Facility were fully utilized at June 30, 2007.

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Cash flow from operations for the six months ended June 30, 2007 increased $103.8 million or 28.9% over the same period in the prior year. This was primarily the result of an increase in net income of $52.3 million along with a larger benefit from the change in working capital of $35.0 million. Investing activities for the six month period in 2007 were comparable to 2006. Cash used for capital expenditures remained consistent at $367.8 million in 2007, compared to $370.7 million in 2006. In both periods, the cost of acquisitions was mostly offset by proceeds from asset sales. Net debt repayments increased $149.2 million in the six months ended June 30, 2007 over the same period in the prior year. This increase in cash outflow was partially offset by the change in the disbursement account activity, resulting in a net increase in the cash used for financing activities of $68.9 million. The disbursement account represents outstanding checks as of the balance sheet date.

Following is a summary of the primary sources and uses of cash during the six months ended June 30, 2007 and 2006 (in millions):

Sources of cash	2007		2006
Cash provided by continuing operations	$	463.5	$	359.7
Net proceeds from issuance of common stock and exercise of stock options		15.7		8.7
Debt proceeds, net of debt repayments		—		87.4
Decrease in cash balance		—		8.5
Net proceeds from divestitures, net of acquisitions		—		2.8
Proceeds from sale of fixed assets		8.2		7.3
Other non-operating net cash inflows		—		0.3
Total	$	487.4	$	474.7

Uses of cash	2007		2006
Capital expenditures	$	367.8	$	370.7
Debt payments, net of debt proceeds		52.4		—
Increase in cash balance		13.5		—
Net cost of acquisitions, net of divestitures		2.0		—
Debt issuance costs		20.7		11.3
Decrease in disbursement account		0.7		63.3
Payment of preferred stock cash dividends		18.7		29.4
Other non-operating net cash outflows		11.6		—
Total	$	487.4	$	474.7

Financing activities. We continually seek opportunities to increase our cash flow through improvements in operations and reduction of our interest cost. Historically, we have used bank financings and capital markets transactions to meet our refinancing and liquidity requirements. Under our 2005 Credit Facility, we are required to meet certain financial covenants. Our objective is to maintain sufficient surplus between the required covenant ratios and the actual ratios calculated according to the 2005 Credit Agreement. We monitor the surplus carefully and will seek to take action if the surplus becomes too small. We have not historically experienced difficulty in obtaining financing or refinancing existing debt. We expect to continue to seek such opportunities in the future to the extent they are available to us. We cannot assure you opportunities to obtain financing or to refinance existing debt will be available to us on favorable terms, or at all. (See also Debt Covenants in Contractual Obligations and Commitments.)

Significant financing events in 2007.

In March 2007, we issued $750 million of 6.875% senior notes due 2017 and used the proceeds to fund a portion of our tender offer for our 8.50% senior notes due 2008. On March 28, 2007, we completed the amendment to our 2005 Credit Facility, which included re-pricing of the 2005 Revolver and a two-year maturity extension for all facilities under the 2005 Credit Facility. The interest rate and fees for borrowings and letters of credit under the 2005 Revolver was reduced by 75 basis points. In addition, our fee for the unused portion of the 2005 Revolver was reduced by 37.5 basis points. We expensed approximately $45.4 million of costs related to premiums paid, write-off of deferred financing and other costs in connection with these transactions. We expect the refinancing transactions to generate approximately $15 million in annual interest savings.

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In May 2007, we renewed our accounts receivable securitization program and concurrently increased the capacity of this 364-day liquidity facility from $230 million to $300 million. The proceeds from this increase of approximately $70 million were used to repay a portion of our 2005 Term Loan.

In April 2007, we completed an offering of $56.8 million of 5.20% unsecured tax-exempt bonds due 2018. In June 2007, we completed an offering of $20.0 million of 5.15% unsecured tax-exempt bonds due 2015. At June 30, 2007, we had $357.2 million of tax-exempt bonds outstanding, most of which were originated by certain subsidiaries of ours prior to their acquisition.

Contractual Obligations and Commitments

The following table provides additional maturity detail of our long-term debt at June 30, 2007 (in millions):

Debt	2007		2008		2009		2010		2011		Thereafter		Total
2005 Revolver (1)	$	—	$	—	$	—	$	—	$	—	$	12.0	$	12.0
2005 Term loan		—		—		—		—		—		901.7		901.7
Receivables secured loan(2)		—		297.1		—		—		—		—		297.1
6.375% BFI Senior notes		—		161.2		—		—		—		—		161.2
6.50% Senior notes		—		—		—		350.0		—		—		350.0
5.75% Senior notes		—		—		—		—		400.0		—		400.0
6.375% Senior notes		—		—		—		—		275.0		—		275.0
9.25% Senior notes due 2012		—		—		—		—		—		250.0		250.0
7.875% Senior notes due 2013		—		—		—		—		—		450.0		450.0
6.125% Senior notes due 2014		—		—		—		—		—		425.0		425.0
7.25% Senior notes due 2015		—		—		—		—		—		600.0		600.0
7.125% Senior notes due 2016		—		—		—		—		—		600.0		600.0
6.875% Senior notes due 2017		—		—		—		—		—		750.0		750.0
9.25% BFI debentures due 2021		—		—		—		—		—		99.5		99.5
7.40% BFI debentures due 2035		—		—		—		—		—		360.0		360.0
4.25% Senior subordinated convertible debentures due 2034		—		—		—		—		—		230.0		230.0
7.375% Senior unsecured notes due 2014		—		—		—		—		—		400.0		400.0
Other debt		1.6		1.9		2.0		25.3		1.3		343.5		375.6
Total principal due	$	1.6	$	460.2	$	2.0	$	375.3	$	676.3	$	5,421.7		6,937.1
Discount, net														(75.8	)
Total debt balance													$	6,861.3

(1)

At June 30, 2007, under our 2005 Credit Facility, we had revolving commitments totaling $1.575 billion with $12.0 million in loans outstanding and $323.1 million of letters of credit outstanding, providing us remaining availability of approximately $1.2 billion. In addition, we had an Institutional Letter of Credit Facility of $490 million and an Incremental Revolving Letter of Credit Facility of $25 million available under the 2005 Credit Facility, all of which were used for letters of credit outstanding.

(2)

The receivables secured loan is a 364-day liquidity facility with a maturity date of May 27, 2008. Although we intend to renew the liquidity facility on May 27, 2008, the outstanding balance is classified as a current liability because it has a contractual maturity of less than one year.

Debt covenants. Our 2005 Credit Facility and the indentures relating to our senior subordinated notes and our senior notes contain financial covenants and restrictions on our ability to complete acquisitions, pay dividends, incur indebtedness, make investments and take certain other corporate actions. See Note 4 to our consolidated financial statements for additional information regarding our primary financial covenants.

At June 30, 2007, we were in compliance with all financial and other covenants under our 2005 Credit Facility. We are not subject to any minimum net worth covenants.

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

Prepayments. Under our 2005 Credit Facility, if we generate cash flow in excess of specified levels, we must prepay a portion of our Term Loan borrowings annually (prior to the stated maturity). To make these payments, if required, we may have to use the 2005 Revolver to accommodate cash timing differences. Factors primarily increasing Excess Cash Flow, as defined in the 2005 Credit Agreement, could include increases in operating cash flow, lower capital expenditures and working capital requirements, net divestitures or other favorable cash generating activities. In addition, we are required to make prepayments on the 2005 Credit Facility upon completion of certain transactions as defined in the 2005 Credit Agreement, including asset sales and issuances of debt or equity securities.

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

Additionally, we are required to provide financial assurance for our insurance program and collateral for certain performance obligations. We do not expect a material increase in financial assurances during 2007, although the mix of financial assurance instruments may change.

At June 30, 2007, we had the following financial assurance instruments and collateral in place (in millions):

	Landfill				Risk/		Collateral
	Closure/		Contract		Casualty		for
	Post-Closure		Performance		Insurance		Obligations		Total
Insurance policies	$	690.5	$	—	$	—	$	—	$	690.5
Surety bonds		639.5		502.8		—		—		1,142.3
Trust deposits		84.5		—		—		—		84.5
Letters of credit (1)		399.8		65.1		245.7		127.5		838.1
Total	$	1,814.3	$	567.9	$	245.7	$	127.5	$	2,755.4

⁽¹⁾ These amounts were issued under the 2005 Revolver, the Incremental Revolving Letter of Credit and the Institutional Letter of Credit Facility under our 2005 Credit Facility.

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These financial instruments are issued in the normal course of business and are not debt of our company. Since we currently have no liability for these financial assurance instruments, they are not reflected in the accompanying consolidated balance sheets. However, we record capping, closure and post-closure liabilities and self-insurance liabilities as they are incurred. The underlying obligations of the financial assurance instruments, in excess of those already reflected in our consolidated balance sheets, would be recorded if it is probable that we would be unable to fulfill our related obligations. We do not expect this to occur.

Off-Balance Sheet Financing

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

Interest Rate Risk Management

We believe it is important to have a mix of fixed and floating rate debt to provide financing flexibility. Our policy requires that no less than 70% of our total debt is fixed, either directly or effectively, through interest rate swap agreements. At June 30, 2007, approximately 81% of our debt was fixed, all directly.

From time to time, we have entered into interest rate swap agreements for the purpose of hedging variability of interest expense and interest payments on our long-term variable rate bank debt and maintaining a mix of fixed and floating rate debt. Our strategy is to use interest rate swap agreements when such transactions will serve to reduce our aggregate exposure and meet the objectives of our interest rate policy. These contracts are not entered into for trading purposes. At June 30, 2007, we had no interest rate swap agreements outstanding.

Contingencies

For a description of our commitments and contingencies, see Note 8 to our consolidated financial statements included under Item 1 of this Form 10-Q.

Critical Accounting Judgments and Estimates

We identified and discussed our critical accounting judgments and estimates in our Annual Report on Form 10-K for the year ended December 31, 2006. Although we believe that our estimates and assumptions are reasonable, they are based upon information available at the time the judgment or estimate is made. Actual results may differ significantly from estimates under different assumptions or conditions.

New Accounting Standards

For a description of the new accounting standards that affect us, see Note 1 to our consolidated financial statements included under Item 1 of this Form 10-Q.

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Disclosure Regarding Forward Looking Statements

This Form 10-Q includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 (Forward Looking Statements). Statements that are predictive in nature, that depend upon or refer to events or conditions or that include words such as “may,” “will,” “expect,” “anticipate,” “estimate,” “should,” “predict,” “plan,” “potential” or “continue,” and any other words of similar meaning are Forward-Looking Statements. Forward-Looking Statements, although based on assumptions that we consider reasonable, are subject to risks and uncertainties which could cause actual results, events or conditions to differ materially from those expressed or implied by the Forward-Looking Statements. Although we believe that the expectations reflected in such Forward Looking Statements are reasonable, we can give no assurance that such expectations will prove to be correct. Examples of these Forward Looking Statements include, among others, statements regarding:

• our business plans or strategies, projected or anticipated benefits or other consequences of such plans or strategies;

• our ability to obtain financing, refinance existing debt, increase liquidity, reduce interest cost, extend debt maturities, provide adequate financial liquidity and reduce debt costs;

• the adequacy of our operating cash flow and revolving credit facility to make payments on our indebtedness, support our capital reinvestment needs and fund other liquidity needs;

• our expected interest savings in connection with the refinancing of portions of our 2005 Credit Facility and the payment of our 8.50% senior notes due to the issuance of our 6.875% senior notes due 2017;

• our expectation of the amounts we will spend on capital expenditures, closure, post-closure and remediation expenditures related to landfill operations;

• our ability to achieve credit ratios that would allow us to receive benefits of an investment grade company;

• our ability to achieve price and volume increases and cost reductions in the future;

• our estimates of future annual interest cost reductions;

• our ability to perform our obligations under financial assurance contracts and our expectation that financial assurance contracts will not materially increase;

• underlying assumptions related to general economic and financial market conditions;

• our expectation that our tax claims relating to the collection and control of methane gas will not have a material effect on our operations, liquidity or financial position;

• our belief that the costs of settlements or judgments arising from litigation and the effects of settlements or judgments on our consolidated liquidity, financial position or results of operation will not be material;

• the impact of fuel costs and fuel recovery fees on our operations;

• our ability to meet our projected capital expenditures spending and consequently, produce a favorable impact on maintenance costs and route productivity;

• our ability to renew and repay our receivables liquidity facility;

• our expectations regarding the utilization of tax loss carryforwards;

• our ability to sustain uncertain tax positions;

• our ability to maintain sufficient surplus between our covenant ratios;

• our ability to avoid penalties from the IRS; and

• the impact or effect of new accounting pronouncements on our financial condition or results of operations.

Other factors that could materially affect the Forward Looking Statements in this Form 10-Q can be found in our periodic reports filed with the SEC, including risk factors detailed in Item 1A, “Risk Factors” in our Form 10-K for the year ended December 31, 2006. Shareholders, potential investors and other readers are urged to consider these factors carefully in evaluating the Forward Looking Statements and are cautioned not to place undue reliance on such Forward Looking Statements. The Forward Looking Statements made herein are only made as of the date of this quarterly report on Form 10-Q, and we undertake no obligation to publicly update such Forward Looking Statements to reflect subsequent events or circumstances, except as required by law.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

Interest rate risk. We are subject to interest rate risk on our variable rate long-term debt. From time to time, to reduce the risk from interest rate fluctuations, we have entered into interest rate swap agreements that have been authorized pursuant to our policies and procedures. We do not use financial instruments for trading purposes and are not a party to any leveraged derivatives. We currently have no outstanding interest rate swap agreements at June 30, 2007.

Increases or decreases in short-term market rates did not materially impact cash flow in the first six months of 2007. At June 30, 2007, we have $1.3 billion of floating rate debt. If interest rates increased or decreased by 100 basis points, annualized interest expense and cash payments for interest would increase or decrease by approximately $13.0 million ($7.8 million after tax). This analysis does not reflect the effect that interest rates would have on other items, such as new borrowings. See Note 4 to our consolidated financial statements in this Form 10-Q for additional information regarding how we manage interest rate risk.

Fuel prices. Fuel costs represent a significant operating expense. Historically, we have mitigated fuel cost exposure with fixed price purchase contracts. These contracts expired in the first quarter of 2006. When economically practical, we may enter into new or renewal contracts, or engage in other strategies to mitigate market risk. Where appropriate, we have implemented a fuel recovery fee that is designed to recover our fuel costs. While we charge these fees to a majority of our customers, we are unable to charge such fees to all customers. Consequently, an increase in fuel costs results in (1) an increase in our costs of operations, (2) a smaller increase in our revenues (from the fuel recovery fee) and (3) a decrease in our operating margin percentage, since the increase in revenue is more than offset by the increase in cost. Conversely, a decrease in fuel costs results in (1) a decrease in our costs of operations, (2) a smaller decrease in our revenues and (3) an increase in our operating margin percentage.

At our current consumption levels, a one-cent change in the price of diesel fuel changes our fuel costs by approximately $1.1 million ($0.7 million, after tax) on an annual basis, which would be partially offset by a smaller change in the fuel recovery fees charged to our customers. Accordingly, a substantial rise or drop in fuel costs could result in a material impact to our revenues and costs of operations.

Commodities prices. We market recycled products such as cardboard and newspaper from our material recycling facilities. As a result, changes in the market prices of these items will impact our results of operations. Revenues from sales of recycled cardboard and newspaper in the second quarter of 2007 and 2006 were approximately $30.1 million and $22.3 million, respectively.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures. We maintain disclosure controls and procedures designed to ensure that information required to be disclosed in our filings under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported accurately within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer (CEO) and Chief Financial Officer (CFO), as appropriate to allow timely decisions regarding required disclosure. As of the end of the period covered by this report, an evaluation was performed under the supervision and with the participation of management, including the CEO and CFO, of the effectiveness of the design and operation of our disclosure controls and procedures (pursuant to Exchange Act Rule 13a-15). Based upon that evaluation, the CEO and CFO concluded that our disclosure controls and procedures are effective. The conclusions of the CEO and CFO from this evaluation were communicated to the Audit Committee.

Changes in Internal Control over Financial Reporting. There were no changes in our internal control over financial reporting that occurred during our last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II

OTHER INFORMATION

Item 1. Legal Proceedings

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

By letter dated March 21, 2007, our subsidiary, Greenridge Reclamation LLC (Greenridge Reclamation), received a proposed Consent Assessment of Civil Penalty (CACP) from the Pennsylvania Department of Environmental Protection (PaDEP) Waste Management Bureau. The CACP for Greenridge Reclamation proposed to assess a civil penalty of $366,000 for alleged violations of the facility’s landfill permit between July 1 and December 15, 2006, specifically, that storage of yard cans in an area not permitted for such storage and eleven separate incidents in which yard can wastes were allegedly disposed of in the landfill without first being weighed. Currently, Greenridge Reclamation is discussing both the substantive allegations and the amounts of the proposed penalties with the PaDEP.

By letter dated March 21, 2007, our subsidiary, Greenridge Waste Services, LLC (GWS) received a proposed CACP from the PaDEP Waste Management Bureau. The CACP for GWS proposed a civil penalty assessment of $172,000 for violations of the Pennsylvania Solid Waste Management Act regulations, and Greenridge Reclamation’s landfill permit, which occurred between July 1 and December 15, 2006. PaDEP alleged that GWS had caused or contributed to the yard can storage violations alleged against Greenridge Reclamation; had disposed of yard can wastes in the landfill without first having the waste weighed in; had transported waste to the landfill on three occasions in overweight vehicles; and, on one occasion, failed to properly tarp a waste load which allegedly resulted in the spill of material onto a public highway. PaDEP also alleged that GWS failed to provide prompt notification of the incident. Currently,GWS is discussing both the substantive allegations and the amounts of the proposed penalties with the PaDEP.

We are currently under examination or administrative review by various state and federal taxing authorities for certain tax years, including federal income tax audits for calendar years 1998 through 2003. Certain matters relating to these audits are discussed below.

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Risk management companies. Prior to our acquisition of BFI on July 30, 1999, BFI operating companies, as part of a risk management initiative to manage and reduce costs associated with certain liabilities, contributed assets and existing environmental and self-insurance liabilities to six fully consolidated BFI risk management companies (RMCs) in exchange for stock representing a minority ownership interest in the RMCs. Subsequently, the BFI operating companies sold that stock in the RMCs to third parties at fair market value which resulted in a capital loss of approximately $900 million for tax purposes, calculated as the excess of the tax basis of the stock over the cash proceeds received.

On January 18, 2001, the IRS designated this type of transaction and other similar transactions as a “potentially abusive tax shelter” under IRS regulations. During 2002, the IRS proposed the disallowance of all of this capital loss. At the time of the disallowance, the primary argument advanced by the IRS for disallowing the capital loss was that the tax basis of the stock of the RMCs received by the BFI operating companies was required to be reduced by the amount of liabilities assumed by the RMCs even though such liabilities were contingent and, therefore, not liabilities recognized for tax purposes. Under the IRS interpretation, there was no capital loss on the sale of the stock since the tax basis of the stock should have approximately equaled the proceeds received. We protested the disallowance to the Appeals Office of the IRS in August 2002.

In April 2005, the Appeals Office of the IRS upheld the disallowance of the capital loss deduction. As a result, in late April 2005 we paid a deficiency to the IRS of $22.6 million for BFI tax years prior to the acquisition. We also received a notification from the IRS assessing a penalty of $5.4 million and interest of $12.8 million relating to the asserted $22.6 million deficiency.

In July 2005, we filed a suit for refund in the United States Court of Federal Claims. The government thereafter filed a counterclaim in the case for the $5.4 million penalty and $12.8 million of interest claimed by the IRS. In December 2005, the IRS agreed to suspend the collection of this penalty and interest until a decision is rendered on our suit for refund.

In July 2006, while the Court of Federal Claims case was pending, we discovered a jurisdictional defect in the case that could have prevented our recovery of the refund amounts claimed even if we would have been successful on the underlying merits. Accordingly, on September 12, 2006, we filed a motion to dismiss the case without prejudice on jurisdictional grounds. Thereafter, on July 6, 2007, the government appealed the decision to the United States Court of Appeals for the Federal Circuit. If the Court of Appeals reverses the lower court’s decision, the case will continue in the Court of Federal Claims. If the Court of Appeals affirms the lower court’s decision, we intend to refile the case in another litigating forum, having now cured the jurisdictional defect. We would not intend to refile the case in the Court of Federal Claims because the Court of Appeals, having jurisdiction over cases in the Court of Federal Claims, has rendered a decision on a similar issue in another case that is unfavorable to taxpayers litigating in the lower court. Although we continue to believe that the Court of Appeals decision in that case is flawed, the legal bases upon which the decision was reached are binding on the Court of Federal Claims and could adversely impact other litigation there involving a similar issue.

The remaining tax years affected by the capital loss issue are currently being audited or reviewed by the IRS. A decision by a Federal Court in the case described above should resolve the issue in these years as well. If we were to win the case, the initial payments would be refunded to us, subject to an appeal. If we were to lose the case, the deficiency associated with the remaining tax years would be due, subject to an appeal. If we were to settle the case, the settlement would likely cover all affected tax years and any resulting deficiency would become due in the ordinary course of the audits.

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If the capital loss deduction is fully disallowed, we estimate it could have a potential federal and state cash tax impact (excluding penalties) of approximately $280 million, of which approximately $33 million has been paid, plus accrued interest through June 30, 2007 of approximately $148 million ($89 million net of tax benefit). Additionally, the IRS could ultimately impose penalties and interest on those penalties for any amount up to approximately $130 million, as of June 30, 2007, after tax.

Exchange of partnership interests. In April 2002, we exchanged minority partnership interests in four waste-to-energy facilities for majority partnership interests in equipment purchasing businesses, which are now wholly-owned subsidiaries. Although we have not yet received a formal notice of proposed adjustment, the IRS is contending that the exchange was a sale on which a corresponding gain should have been recognized. Although we intend to vigorously defend our position on this matter, if the exchange is treated as a sale, we estimate it could have a potential federal and state cash tax impact of approximately $160 million plus accrued interest through June 30, 2007 of approximately $31 million ($19 million, net of tax benefit). Also, the IRS could propose a penalty of up to 40% of the additional income tax due. Because of several meritorious defenses, we believe the successful assertion of penalties is unlikely.

The potential tax and interest (but not penalties) impact of a full disallowance for both of these matters has been fully reserved on our consolidated balance sheet. With regard to tax and accrued interest through June 30, 2007, a disallowance would not materially adversely affect our consolidated results of operations; however a deficiency payment would adversely impact our cash flow in the period the payment was made. The accrual of additional interest through the time these matters are resolved will adversely affect our consolidated results of operations. In addition, the successful assertion by the IRS of penalties could have a material adverse impact on our consolidated liquidity, financial position and results of operations.

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

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

See Item 3 of our Form 10-K, for the year ended December 31, 2006 for our other previously reported legal proceedings.

Item 1A.	Risk Factors
	There are no material changes to the disclosure regarding risk factors presented in our Annual Report on Form 10-K for the year ended December 31, 2006.

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Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds
	None.

Item 3.	Defaults upon Senior Securities
	None.

Item 4.	Submission of Matters to a Vote of Security Holders
	On May 17, 2007, our annual meeting of stockholders was held at which we submitted to a vote of our stockholders the following proposals:
	(1)	Election of directors as follows:

	Number of Votes		Number of Votes
Nominee	For		Withheld
John J. Zillmer		313,456,288		41,924,634
Robert M. Agate		332,437,416		22,943,506
Charles H. Cotros		330,464,533		24,916,389
James W. Crownover		332,445,283		22,935,639
William J. Flynn		309,313,698		46,067,224
David I. Foley		328,979,339		26,401,583
Nolan Lehmann		314,375,237		41,005,685
Steven Martinez (1)		328,970,862		26,410,060
James A. Quella		328,512,451		26,868,471
John M. Trani		309,336,523		46,044,399

⁽¹⁾ Steven Martinez subsequently resigned from our Board of Directors effective July 2, 2007.

		Results of the Vote
								Broker
		Affirmative		Against		Abstentions		Non-Votes
(2)	To ratify the appointment of PricewaterhouseCoopers LLP as our independent registered public accounting firm (independent auditor) for fiscal year 2007		353,205,827		631,471		1,543,627		—
(3)	Stockholder proposal on majority voting for director nominees		209,670,995		120,065,994		1,456,362		24,187,574

Item 5.	Other Information
	None.

Item 6. Exhibits

1.1	Underwriting Agreement dated May 7, 2007 among Allied Waste Industries, Inc., the selling stockholders listed on Schedule B thereto and Goldman, Sachs & Company. Exhibit 1.1 to Allied’s Report on Form 8-K dated May 10, 2007, is incorporated by reference herein.
1.2	Letter Agreement dated May 9, 2007 among Allied Waste Industries, Inc., the selling stockholders named therein and Goldman, Sachs & Company. Exhibit 1.2 to Allied’s Report on Form 8-K dated May 10, 2007, is incorporated by reference herein.
10.1*	Fourteenth Amendment to Receivables Sale Agreement, dated as of May 29, 2007, among Allied Waste North America, Inc, as originators and Allied Receivables Funding Incorporated as buyer.

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10.2*	Third Amendment to Amended and Restated Credit and Security Agreement, dated as of May 29, 2007, among Allied Receivables Funding Incorporated as borrower, Allied Waste North America, Inc. as servicer, Variable Funding Capital Company LLC, as a lender, Wachovia Bank, National Association as agent, liquidity bank and lender group agent, Atlantic Asset Securitization LLC, as a lender and Calyon New York Branch, as Atlantic group agent and as Atlantic liquidity bank.
10.3*	Form of Restricted Stock Units Agreement under the 2006 Incentive Stock Plan for conversion match restricted stock units awarded under the 2007 Senior Management Incentive Plan and the 2007 Management Incentive Plan.
10.4*	Form of Restricted Stock Units Agreement under the 2006 Incentive Stock Plan for conversion restricted stock units awarded under the 2007 Senior Management Incentive Plan and the 2007 Management Incentive Plan.
31.1*	Section 302 Certification of John J. Zillmer, Chairman of the Board of Directors and Chief Executive Officer.
31.2*	Section 302 Certification of Peter S. Hathaway, Executive Vice President and Chief Financial Officer.
32*	Certification Pursuant to 18 U.S.C.§1350 of John J. Zillmer, Chairman of the Board of Directors and Chief Executive Officer and Peter S. Hathaway, Executive Vice President and Chief Financial Officer.

* Filed herewith

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Signatures

Pursuant to the requirements of Section 13 or 15(d) 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.

ALLIED WASTE INDUSTRIES, INC.
By:	/s/ PETER S. HATHAWAY
	Peter S. Hathaway
	Executive Vice President and Chief Financial Officer
By:	/s/ JOHN S. QUINN
	John S. Quinn
	Senior Vice President, Controller and Chief Accounting Officer

Date: August 2, 2007

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