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The following is an excerpt from a 8-K SEC Filing, filed by WASTE MANAGEMENT INC on 9/17/1999.
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WASTE MANAGEMENT INC - 8-K - 19990917 - SUSPENSION_OF_TRADING_UNDER_BENEFITS_PLAN

11. EMPLOYEE BENEFIT PLANS

Principally through the USA Waste Services, Inc. Employee's Savings Plan, the Waste Management Retirement Savings Plan, and the Wheelabrator-Rust Savings and Retirement Plan, the Company has established qualified defined contribution retirement plans covering substantially all domestic employees other than those employees who are covered under collective bargaining agreements which do not provide for coverage under the plans. In previous years, certain of the plans provided for annual contributions by the Company as determined by their respective boards of directors. In 1998, the primary feature of plans covering the majority of participants was the Company match of employee contributions of amounts as specified in the applicable plan.

Effective January 1, 1999, the Waste Management Retirement Savings Plan and the Wheelabrator-Rust Savings and Retirement Plan were merged into the USA Waste Services, Inc. Employee's Savings Plan, which was then renamed the Waste Management Retirement Savings Plan ("Savings Plan"). The Savings Plan covers employees (except those working subject to a collective bargaining agreement which do not provide for coverage under the plans) following a 90 day waiting period after hire, and allows eligible employees to contribute up to 15% of their annual compensation, as limited by IRS regulations. Under the Savings Plan, the Company matches employee contributions up to 3% of their eligible compensation, and matches 50% of employee contributions in excess of 3% but less than 6% of eligible compensation. Both employee and Company contributions vest immediately. Charges to operations for these plans were $69,721,000, $42,335,000 and $29,648,000 during 1998, 1997 and 1996, respectively.

32

WASTE MANAGEMENT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Certain of the Company's foreign subsidiaries participate in both defined benefit and defined contribution retirement plans for its employees in those countries. The projected benefit obligation, plan assets and unfunded liability of the defined benefit plans are not material. In addition to the pension plan for certain employees under collective bargaining agreements established at the end of 1998 (see below), other Company subsidiaries participate in various multi-employer pension plans covering certain employees not covered under the Company's pension plan. These multi-employer plans are generally defined benefit plans; however, in many cases, specific benefit levels are not negotiated with or known by the employer contributors. Contributions of $25,800,000, $18,600,000 and $16,500,000 for subsidiaries' defined benefit plans were made and charged to income in 1998, 1997 and 1996, respectively.

The Company had a qualified defined benefit pension plan for all eligible non-union domestic employees of WM Holdings which, as discussed below, was terminated as of December 31, 1998 in conjunction with the WM Holdings Merger. Throughout the life of the plan, benefits were based on the employee's years of service and compensation during the highest five consecutive years out of the last ten years of employment. The Company's funding policy was to contribute annually an amount determined in consultation with its actuaries, approximately equal to pension expense, except as may be limited by the requirements of the Employee Retirement Income Security Act ("ERISA"). An actuarial valuation report was prepared for the plan as of September 30 each year and used, as permitted by the FASB's Statement of Financial Accounting Standards No. 87, Employers Accounting for Pensions ("SFAS No. 87"), for the year-end disclosures.

In conjunction with the WM Holdings Merger, the Company decided to terminate the defined benefit pension plan as of December 31, 1998, and liquidate the plan's assets and settle its obligations to participants in 1999, except as related to certain employees participating under collective bargaining agreements, whose benefits were transferred to a newly created plan effective October 1, 1998. As required under the FASB's Statement of Financial Accounting Standard No. 88, Employer's Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits, this decision has resulted in a curtailment expense charge in unusual items of $34,716,000 in 1998, and is currently estimated to result in an approximate net cash settlement charge in unusual items in 1999 of $125,000,000. To the extent that this termination benefit has not yet been charged to expense and funded, additional minimum pension liability has been recorded as a charge to other comprehensive income. The Company expects to record this amount in 1999, at which time it will result in an adjustment to other comprehensive income. The amount of the 1999 settlement is inversely sensitive to changing interest rates. This sensitivity is approximately $20,000,000 for every 25 basis point fluctuation in interest rates.

Also in conjunction with the WM Holdings Merger, the Company has terminated certain non-qualified supplemental benefit plans for certain officers and non-officer managers, the most significant plan being the Supplemental Executive Retirement Plan (collectively the "Supplemental Plans"). The curtailment and settlement loss related to these plans of $61,987,000 was recorded in unusual items in 1998. A substantial portion of these benefits was paid to participants by December 31, 1998, and unpaid amounts are accrued at December 31, 1998.

WM Holdings and certain of its subsidiaries provided post-retirement health care and other benefits to eligible employees. In conjunction with the WM Holdings Merger, the Company has decided to limit participation in these plans to participating retired employees as of December 31, 1998.

33

WASTE MANAGEMENT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following tables provide a reconciliation of the changes in the plans' benefit obligations and the fair value of assets over the two-year period ending December 31, 1998, and a statement of the funded status as of December 31 of both years (in thousands):

<CAPTION>
                                              PENSION BENEFITS       OTHER BENEFITS
                                            --------------------   -------------------
                                              1998        1997       1998       1997
                                            ---------   --------   --------   --------
<S>                                         <C>         <C>        <C>        <C>
Change in benefit obligation:
  Benefit obligation at beginning of
     period...............................  $ 328,892   $257,677   $ 64,482   $ 59,126
  Service cost............................     17,892     14,720      1,783      1,212
  Interest cost...........................     23,944     20,877      4,535      4,538
  Plan participants' contributions........         --         --        300        721
  Amendments..............................     23,372      3,060    (24,188)     3,890
  Actuarial (gain) loss...................     90,346     44,654      4,651       (230)
  Benefits paid...........................    (11,928)   (12,096)    (1,925)    (4,775)
  Curtailments............................     52,209         --      4,085         --
  Settlements.............................    (52,959)        --         --         --
                                            ---------   --------   --------   --------
  Benefit obligation at end of period.....  $ 471,768   $328,892   $ 53,723   $ 64,482
                                            =========   ========   ========   ========
Change in plan assets:
  Fair value of plan assets at beginning
     of period............................  $ 264,870   $193,722   $     --   $     --
  Actual return on plan assets............     29,310     50,357         --         --
  Employer contributions..................     89,985     32,887      1,625      4,054
  Plan participants' contributions........         --         --        300        721
  Benefits paid...........................    (11,928)   (12,096)    (1,925)    (4,775)
  Settlements.............................    (52,959)        --         --         --
                                            ---------   --------   --------   --------
  Fair value of plan assets at end of
     period...............................  $ 319,278   $264,870   $     --   $     --
                                            =========   ========   ========   ========
Funded status:
  Funded status at December 31............  $(152,490)  $(64,022)  $(53,723)  $(64,482)
  Unrecognized transition (asset)
     obligation...........................     (1,430)    (2,860)        --        (73)
  Unrecognized net actuarial (gain)
     loss.................................    123,554     67,176        469     (8,640)
  Unrecognized prior service cost.........        (10)       953    (20,576)     3,890
                                            ---------   --------   --------   --------
  Net amount recognized...................  $ (30,376)  $  1,247   $(73,830)  $(69,305)
                                            =========   ========   ========   ========

The following table provides the amounts recognized in the consolidated balance sheets as of December 31 of both years (in thousands):

<CAPTION>
                                              PENSION BENEFITS       OTHER BENEFITS
                                            --------------------   -------------------
                                              1998        1997       1998       1997
                                            ---------   --------   --------   --------
<S>                                         <C>         <C>        <C>        <C>
Prepaid benefit cost......................  $   8,220   $ 32,139   $     --   $     --
Accrued benefit liability.................    (38,596)   (30,892)   (73,830)   (69,305)
Minimum pension liability.................   (118,871)   (10,139)        --         --
Intangible asset..........................         --      1,184         --         --
Accumulated other comprehensive income
  before tax benefit......................    118,871      8,955         --         --
                                            ---------   --------   --------   --------
Net amount recognized.....................  $ (30,376)  $  1,247   $(73,830)  $(69,305)
                                            =========   ========   ========   ========

34

WASTE MANAGEMENT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following table provides the components of net periodic benefit cost for the years ended 1998, 1997, and 1996 (in thousands):

<CAPTION>
                                              PENSION BENEFITS               OTHER BENEFITS
                                       ------------------------------   ------------------------
                                         1998       1997       1996      1998     1997     1996
                                       --------   --------   --------   ------   ------   ------
<S>                                    <C>        <C>        <C>        <C>      <C>      <C>
Components of net periodic benefit
  cost:
  Service cost.......................  $ 17,892   $ 14,720   $ 15,309   $1,783   $1,212   $1,118
  Interest cost......................    23,944     20,877     16,610    4,535    4,538    4,375
  Expected return on plan assets.....   (20,954)   (17,084)   (13,818)      --       --       --
  Amortization of transition asset...    (1,430)    (1,430)    (1,430)      --       --       --
  Amortization of prior-service
     cost............................       (35)       202        621      278       --       --
  Amortization of net (gain) loss....     8,450      4,772      3,609     (445)    (253)    (313)
                                       --------   --------   --------   ------   ------   ------
  Net periodic benefit cost..........    27,867     22,057     20,901    6,151    5,497    5,180
  Curtailment loss (included in asset
     impairments and unusual
     items)..........................    53,208         --         --       --       --       --
  Settlement loss (included in asset
     impairments and unusual
     items)..........................    43,495         --         --       --       --       --
                                       --------   --------   --------   ------   ------   ------
  Net periodic benefit cost after
     curtailments and settlements....  $124,570   $ 22,057   $ 20,901   $6,151   $5,497   $5,180
                                       ========   ========   ========   ======   ======   ======

The assumptions used in the measurement of the Company's benefit obligations are shown in the following table (weighted average assumptions as of December 31):

<CAPTION>
                                                 PENSION BENEFITS     OTHER BENEFITS
                                                 -----------------    --------------
                                                  1998       1997     1998     1997
                                                 ------     ------    -----    -----
<S>                                              <C>        <C>       <C>      <C>
Discount rate..................................   6.25%      7.25%    6.50%    7.00%
Expected return on plan assets.................   9.00%      9.00%     n/a      n/a
Rate of compensation...........................   3.50%      3.50%     n/a      n/a

The principal element of the Other Benefits referred to above is the post-retirement health care plan. Participants in the WM Holdings plan contribute to the cost of the benefit, and for retirees since January 1, 1992, the Company's contribution is capped at between $0 and $600 per month per retiree, based on years of service. For measurement purposes, a 7.1% annual rate of increase in the per capita cost of covered health care claims was assumed for 1998 (being an average of the rate used by all plans); the rate was assumed to decrease to 6% in 2001 and remain at that level thereafter. A 1% change in assumed health care cost trend rates would have the following effects (in thousands):

<CAPTION>
                                                        1% INCREASE   1% DECREASE
                                                        -----------   -----------
<S>                                                     <C>           <C>
Effect on total of service and interest components of
  net periodic post-retirement health care benefit
  cost................................................    $  290        $  (273)
Effect on the health care component of the accumulated
  post-retirement benefit obligation..................    $3,938        $(3,673)

In 1998, WM Holdings merged the Employee Stock Ownership Plan that was initially established for eligible WM Holdings' employees in 1988 into its Retirement Savings Plan. During 1994, WM Holdings established an Employee Stock Benefit Trust ("Trust") and sold 12,600,000 shares of its treasury stock to the Trust in return for a 30-year, 7.33% note with interest payable quarterly and principal due at maturity. WM Holdings has agreed to contribute to the Trust each quarter funds sufficient, when added to dividends on the shares held by the Trust, to pay interest on the note as well as principal outstanding at maturity. At the direction of an administrative committee, the trustee will use the shares or proceeds from the sale of shares to

35

WASTE MANAGEMENT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

pay employee benefits, and to the extent of such payments by the Trust, the Company will forgive principal and interest on the note. The shares of common stock issued to the Trust are not considered to be outstanding in the computation of earnings per share until the shares are utilized to fund obligations for which the trust was established. Changes in the market value of these shares are reflected as adjustments in additional paid-in capital.

12. INCOME TAXES

For financial reporting purposes, income (loss) from continuing operations before income taxes, showing domestic and international sources, is as follows (in thousands):

<CAPTION>
                                               1998        1997        1996
                                             ---------   ---------   --------
<S>                                          <C>         <C>         <C>
Domestic...................................  $(896,875)  $(865,783)  $757,537
International..............................    196,996     203,286     16,695
                                             ---------   ---------   --------
          Income (loss) from continuing
            operations.....................  $(699,879)  $(662,497)  $774,232
                                             =========   =========   ========

The provision for income taxes on continuing operations consists of the following (in thousands):

<CAPTION>
                                                 YEARS ENDED DECEMBER 31,
                                             --------------------------------
                                               1998        1997        1996
                                             ---------   ---------   --------
<S>                                          <C>         <C>         <C>
Current:
  Federal..................................  $ 356,056   $ 569,935   $216,814
  State....................................     88,484      83,592     57,860
  Foreign..................................     72,541      85,357     22,875
                                             ---------   ---------   --------
                                               517,081     738,884    297,549
                                             ---------   ---------   --------
Deferred:
  Federal..................................   (463,635)   (369,408)    86,654
  State....................................    (51,889)    (27,271)    26,936
  Foreign..................................     65,366      21,136     75,561
                                             ---------   ---------   --------
                                              (450,158)   (375,543)   189,151
                                             ---------   ---------   --------
          Provision for income taxes.......  $  66,923   $ 363,341   $486,700
                                             =========   =========   ========

36

WASTE MANAGEMENT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The federal statutory rate is reconciled to the effective rate as follows:

<CAPTION>
                                                    YEARS ENDED DECEMBER 31,
                                                    -------------------------
                                                     1998      1997     1996
                                                    ------    ------    -----
<S>                                                 <C>       <C>       <C>
Income taxes (benefit) at federal statutory
  rate............................................  (35.00)%  (35.00)%  35.00%
State and local income taxes, net of federal
  income tax benefit..............................    3.23      5.51     7.11
Nondeductible costs relating to acquired
  intangibles.....................................   16.85     30.88     7.55
Nondeductible merger costs........................    8.22      1.40     1.33
Writedown of investments in subsidiary............      --      6.46     7.66
Minority interest.................................    0.82      2.40     1.87
Gain on sale of foreign subsidiary................      --        --     2.26
Deferred tax valuation and other tax reserves.....    8.79     40.11     0.90
Federal tax on foreign income.....................    4.35      0.30     1.20
Nonconventional fuel tax credit...................   (3.61)    (2.80)   (1.99)
Other.............................................    5.91      5.59    (0.07)
                                                    ------    ------    -----
  Provision for income taxes......................    9.56%    54.85%   62.82%
                                                    ======    ======    =====

The components of the net deferred tax assets (liabilities) are as follows (in thousands):

<CAPTION>
                                                           DECEMBER 31,
                                                     -------------------------
                                                        1998          1997
                                                     -----------   -----------
<S>                                                  <C>           <C>
Deferred tax assets:
  Net operating loss, capital loss and tax credit
     carryforwards.................................  $   322,129   $   287,384
  Environmental and other reserves.................      670,502       754,195
  Reserves not deductible until paid...............      178,608       291,168
                                                     -----------   -----------
          Subtotal.................................    1,171,239     1,332,747
Deferred tax liabilities:
  Property, equipment, intangible assets, and
     other.........................................   (1,072,138)   (1,567,579)
Valuation allowance................................     (331,592)     (232,800)
                                                     -----------   -----------
          Net deferred tax liabilities.............  $  (232,491)  $  (467,632)
                                                     ===========   ===========

At December 31, 1998, the Company's subsidiaries have approximately $200,599,000 of federal net operating loss ("NOL") carryforwards, $1,007,749,000 of state NOL carryforwards, and $598,930,000 of foreign NOL carryforwards. Foreign NOL carryforwards of approximately $535,530,000 may be carried forward indefinitely; the remaining NOL carryforwards have expiration dates through 2013. The Company's subsidiaries have $16,062,000 of alternative minimum tax credit carryforwards that may be used indefinitely; state tax credit carryforwards of $5,039,000; federal investment tax credit carryforwards of $381,000; and foreign tax credit carryforwards of $32,614,000. Valuation allowances have been established for uncertainties in realizing the benefit of tax loss and credit carryforwards. While the Company expects to realize the deferred tax assets, net of the valuation allowances, changes in estimates of future taxable income or in tax laws may alter this expectation.

During 1997, the valuation allowance increased approximately $101,056,000, composed of increases to allowances due to the uncertainty of realizing alternative minimum tax credits, tax benefits from certain asset impairment writedowns (primarily land), foreign tax credits, and NOL carryforwards partially offset by reductions in allowances attributable primarily to foreign net operating loss carryforwards. In 1998, the

37

WASTE MANAGEMENT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

valuation allowance increased approximately $98,792,000 primarily due to the uncertainty of realizing foreign NOL carryforwards.

The Company does not provide for U.S. income taxes on unremitted earnings of foreign subsidiaries as it is the present intention of management to reinvest the unremitted earnings in its foreign operations. Unremitted earnings of foreign subsidiaries are approximately $498,000,000 at December 31, 1998. It is not practicable to determine the amount of U.S. income taxes that would be payable upon remittance of the assets that represent those earnings.

13. SEGMENT AND RELATED INFORMATION

The Company's North American solid waste management operations represents 80.5% of operating revenues, 98.7% of earnings before interest and tax ("EBIT"), and 77.3% of total assets in 1998, and is the Company's principal reportable segment under Statement of Financial Accounting Standards No. 131, Disclosure about Segments of an Enterprise and Related Information ("SFAS No. 131"). This segment provides integrated waste management services consisting of collection, transfer, disposal (solid waste landfill, hazardous waste landfill and waste-to-energy), recycling, and other miscellaneous services to commercial, industrial, municipal and residential customers in North America. Similar operations in international markets outside of North America are disclosed as a separate segment. The Company's other reportable segment consists of non-solid waste services, aggregated as a single segment for this reporting presentation as permitted under SFAS No. 131. The non-solid waste segment includes other hazardous waste services such as chemical waste management services and low-level and other radioactive waste services, the Company's independent power projects, and other non-solid waste services to commercial, industrial and government customers, and includes business lines that are being actively marketed. No single customer accounted for as much as 10% of consolidated revenue in any year.

Certain of the services provided by the Company are subject to extensive and evolving federal, state, and local environmental laws and regulations in the U.S. and elsewhere that have been enacted in response to technological advances and the public's increased concern over environmental issues. Refer to Notes 6 and 17 for a further discussion of regulatory issues.

Summarized financial information concerning the Company's reportable segments for the respective years ended December 31, is shown in the following table. Prior period information has been restated to conform to the segments described above, which are based on the structure and internal organization of the Company as of December 31, 1998 (in thousands):

<CAPTION>
                                NORTH AMERICAN   INTERNATIONAL    NON-SOLID     CORPORATE
                                 SOLID WASTE     WASTE SERVICES     WASTE      FUNCTIONS(A)      TOTAL
                                --------------   --------------   ----------   ------------   -----------
<S>                             <C>              <C>              <C>          <C>            <C>
1998
  Net operating revenues(b)...   $10,220,478       $1,533,635     $  949,356    $       --    $12,703,469
  Earnings before interest and
     taxes (EBIT)(c), (d).....     2,478,733          132,937        103,443      (204,043)     2,511,070
  Depreciation and
     amortization.............     1,241,330          169,051         43,579        44,752      1,498,712
  Capital expenditures........     1,438,458          166,035         34,605        12,391      1,651,489
  Total assets(d).............    17,553,957        3,107,968      1,003,035     1,050,238     22,715,198
1997
  Net operating revenues(b)...   $ 9,244,910       $1,789,988     $  937,600    $       --    $11,972,498
  Earnings before interest and
     taxes (EBIT)(c), (d).....     1,790,027          187,619         96,082      (413,814)     1,659,914
  Depreciation and
     amortization.............     1,086,547          181,353         55,258        68,652      1,391,810
  Capital expenditures........     1,128,904          150,908         29,337        23,058      1,332,207
  Total assets(d).............    15,067,951        3,055,634      1,222,464       810,375     20,156,424

38

WASTE MANAGEMENT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

<CAPTION>
                                NORTH AMERICAN   INTERNATIONAL    NON-SOLID     CORPORATE
                                 SOLID WASTE     WASTE SERVICES     WASTE      FUNCTIONS(A)      TOTAL
                                --------------   --------------   ----------   ------------   -----------
<S>                             <C>              <C>              <C>          <C>            <C>
1996
  Net operating revenues(b)...   $ 8,097,860       $1,913,793     $  986,949    $       --    $10,998,602
  Earnings before interest and
     taxes (EBIT)(c), (d).....     1,654,154          216,198        132,267      (148,927)     1,853,692
  Depreciation and
     amortization.............       949,570          195,944         52,631        66,051      1,264,196
  Capital expenditures........     1,248,623          214,103         27,769        28,777      1,519,272
  Total assets(d).............    13,938,513        4,103,273      2,118,313       567,425     20,727,524


(a) Corporate functions include the corporate treasury function (except for limited amounts of locally negotiated and managed project debt), administration of corporate tax function, the corporate insurance function and management of closed landfill and related insurance recovery functions, along with other typical administrative functions.

(b) Non-Solid Waste revenues are net of inter-segment revenue with North American Solid Waste of $122,400,000, $86,400,000 and $69,100,000 in 1998, 1997 and 1996, respectively. There are no other significant sales between segments.

(c) For those items included in the determination of EBIT, (the earnings measurement used by management to evaluate operating performance) the accounting policies of the segments are generally the same as those described in the summary of significant accounting policies.

(d) There are no material asymmetrical allocations of EBIT versus assets between segments or corporate. Certain asset impairments and unusual items reported in the reconciliation of EBIT to reported net income below, however, have resulted in adjustments to assets ultimately reflected on segment balance sheets. Assets are net of inter-segment receivables and investments.

The reconciliation of total EBIT reported above to net income is as follows (in thousands):

<CAPTION>
                                                 YEARS ENDED DECEMBER 31,
                                           -------------------------------------
                                              1998         1997          1996
                                           ----------   -----------   ----------
<S>                                        <C>          <C>           <C>
EBIT, as reported above..................  $2,511,070   $ 1,659,914   $1,853,692
(Plus) less:
  Merger costs...........................   1,807,245       112,748      126,626
  Asset impairments and unusual items....     864,063     1,771,145      529,768
  Income (loss) from continuing
     operations held for sale............         151         9,930         (315)
  Interest expense.......................     681,457       555,576      525,340
  Interest income........................     (26,829)      (45,214)     (34,603)
  Minority interest......................      24,254        45,442       41,289
  Other income, net......................    (139,392)     (127,216)    (108,645)
                                           ----------   -----------   ----------
Income (loss) from continuing operations
  before income taxes....................    (699,879)     (662,497)     774,232
Provision for income taxes...............      66,923       363,341      486,700
                                           ----------   -----------   ----------
Income (loss) from continuing
  operations.............................    (766,802)   (1,025,838)     287,532
Discontinued operations..................          --       (95,688)     263,301
Extraordinary loss.......................       3,900         6,809           --
Cumulative effect of change in accounting
  principle..............................          --         1,936           --
                                           ----------   -----------   ----------
          Net income (loss)..............  $ (770,702)  $  (938,895)  $   24,231
                                           ==========   ===========   ==========

39

WASTE MANAGEMENT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Foreign operations in 1998 were conducted in seven countries in Europe, seven countries in the Pacific Rim, Canada, Mexico, Brazil, Israel and Argentina. Operating revenues and property and equipment (net) relating to the Company's operations by significant geographic area is as follows (in thousands):

<CAPTION>
                                               YEARS ENDED DECEMBER 31,
                                        ---------------------------------------
                                           1998          1997          1996
                                        -----------   -----------   -----------
<S>                                     <C>           <C>           <C>
Operating revenues:
  United States.......................  $10,681,924   $ 9,707,546   $ 8,897,002
  Europe..............................    1,264,209     1,406,026     1,523,347
  Canada..............................      425,531       412,633       150,837
  Other foreign.......................      331,805       446,293       427,416
                                        -----------   -----------   -----------
          Total.......................  $12,703,469   $11,972,498   $10,998,602
                                        ===========   ===========   ===========
Property and equipment, net:
  United States.......................  $ 9,785,845   $ 9,187,923   $ 9,385,496
  Europe..............................      841,418       903,174     1,135,720
  Canada..............................      840,887       906,142       231,928
  Other foreign.......................      169,589       191,291       212,797
                                        -----------   -----------   -----------
          Total.......................  $11,637,739   $11,188,530   $10,965,941
                                        ===========   ===========   ===========

The Company operates facilities in Hong Kong which are owned by the Hong Kong government. The Hong Kong economy has been impacted by the economic uncertainty associated with many of the countries in the region. High and volatile interest rates have resulted from speculation regarding its currency. The Company also has operations in Indonesia, Thailand and Brazil. These countries have experienced illiquidity, volatile currency exchange rates and interest rates, and reduced economic activity. The Company will be affected for the foreseeable future by economic conditions in this region, although it is not possible to determine the extent of such impact. At December 31, 1998, the Company has $114,749,000 revenue, $41,403,000 property and equipment, net, and $104,103,000 total investment in the above Asian countries (including Hong Kong). The Company has a total investment of $38,900,000 in Brazil which is primarily investments accounted for under the equity method of accounting. Income from continuing operations before income taxes from Hong Kong was $21,200,000 in 1998. Income from Indonesia, Thailand and Brazil has not been significant to date.

14. ASSET IMPAIRMENTS AND UNUSUAL ITEMS

In 1998, 1997, and 1996, the Company recorded certain charges for asset impairments and unusual items resulting from reviews of business integration and operating plans. Such reviews were generally performed in connection with the Company's merger activities. In addition, the 1997 consolidated financial statements include a significant accounting charge resulting from a comprehensive review performed by the management of WM Holdings of its operations and investments in the fourth quarter of 1997. Similarly, the 1996 consolidated financial statements include accounting charges recorded by WM Holdings for certain operational and management restructuring activities and assets that had become impaired.

Fair values for asset impairment losses was determined for landfills, hazardous waste facilities, recycling investments and other facilities, primarily based on future cash flow projections discounted back using discount rates appropriate for the risks involved with the specific assets. For surplus real estate, market opinions and appraisals were used. In determining fair values for abandoned projects and vehicles to be sold, recoverable salvage values were determined using market estimates. Impaired assets to be sold are primarily businesses to be sold (see Note 18) and surplus real estate. The Company provides for losses in connection with long-term waste service contracts where an obligation exists to perform services and when it becomes

40

WASTE MANAGEMENT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

evident the projected direct and incremental contract costs will exceed the related contract revenues. In general, these losses relate to contracts with remaining average duration of five years.

The following is a summary of asset impairments and unusual items that are reflected in the Company's consolidated financial statements for the year ended December 31, 1998 (in millions):

<S>                                                           <C>
Provision for losses on contractual commitments.............  $115.6
Changes in estimates relating to the reassessment of
  ultimate losses for certain legal and remediation
  issues....................................................   331.9
Write-down to estimated net sales proceeds of businesses to
  be sold...................................................   195.1
Curtailment and settlement costs of terminating the defined
  benefit pension plan (Note 11)............................    34.7
Compensation charges for the liquidation of WM Holdings'
  Supplemental Executive Retirement Plan (Note 11) and other
  supplemental plans........................................    72.2
Put provisions of certain WM Holdings' stock options as a
  result of change in control provisions....................   114.6
                                                              ------
          Total.............................................  $864.1
                                                              ======

In 1998, the Company increased its reserves for certain legal and environmental remediation issues as a result of management's emphasis to resolve and settle certain issues relating primarily to WM Holdings, including a class action securities litigation against WM Holdings.

Certain WM Holdings' employee stock option plans included change of control provisions that were activated as a result of the WM Holdings Merger whereby the option holder received certain put rights that require charges to earnings through the put periods. The charge to pre-tax earnings as a result of these put rights was $114,600,000 in the third quarter of 1998. To the extent the future market value of the Company's common stock exceeds $54.34 per share, the Company will be required to record additional charges to earnings through July 16, 1999, at which time all put rights expire. The expense related to these stock option put rights has no impact to equity as the offset is a direct increase to additional paid-in capital, as these put rights will be satisfied by the issuance of stock.

41

WASTE MANAGEMENT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following is a summary of asset impairments and unusual items reflected in the Company's consolidated financial statements for the year ended December 31, 1997 (in millions):

<S>                                                           <C>
Asset impairments:
  Landfills, related primarily to management decisions to
     abandon expansions and development projects due to
     political or competitive factors, which will result in
     closure earlier than previously expected (includes
     $233.8 for hazardous waste sites)......................  $  592.9
  Hazardous waste facilities, resulting from continuing
     market deterioration, increased competition, excess
     capacity and changing regulation.......................     131.4
  Goodwill, primarily related to landfills and hazardous
     waste facilities impaired (including $411.0 related to
     hazardous waste business)..............................     433.4
  Write-down of WTI long-lived assets, including $47.1
     related to a wood waste burning independent power
     production facility....................................      57.2
  Recycling investments, related primarily to continued
     pricing, overcapacity and competitive factors..........      21.5
  Write-down to estimated net realizable value of trucks to
     be sold as a result of new fleet management policy
     (Note 4)...............................................      70.9
  Write-down to estimated net sales proceeds of businesses
     to be sold (Note 18)...................................     122.2
  Abandoned equipment and facilities........................      37.3
  Surplus real estate.......................................      38.2
Provisions for losses on contractual commitments............     120.2
Severance for terminated employees..........................      41.6
Special charge for WM International, primarily costs of
  demobilization in Argentina following the expiration of
  the City of Buenos Aires contract, divestiture or closure
  of underperforming businesses (primarily in Italy and
  Germany) and abandonment of projects (primarily in
  Germany)..................................................     104.3
                                                              --------
          Total.............................................  $1,771.1
                                                              ========

42

WASTE MANAGEMENT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following is a summary of asset impairments and unusual items reflected in the Company's consolidated financial statements for the year ended December 31, 1996 (in millions):

<S>                                                           <C>
Asset impairments:
  Landfills, related primarily to management decisions to
     abandon expansion projects due to political or
     competitive factors, which will result in closure
     earlier than previously expected.......................  $   20.4
  Recycling investments, related primarily to pricing,
     overcapacity and competitive factors...................      47.8
  Other, primarily equipment to be scrapped.................       2.0
  Surplus real estate.......................................       1.5
Write-down to estimated net sales proceeds of businesses to
  be sold...................................................      28.9
Reserves for certain litigation and for reengineering of
  finance and administrative functions......................     154.1
Provisions for losses on contractual commitments............      53.6
Western retirement benefits.................................       4.8
Special charge for WM International:
  Loss on sale of investment in Wessex Water Plc............      47.1
  Revaluation of investments in France, Austria, and Spain
     in contemplation of exiting all or part of these
     markets or forming joint ventures and write-off of a
     hazardous waste disposal facility in Germany with
     volumes adversely affected by regulatory changes.......     169.6
                                                              --------
          Total.............................................  $  529.8
                                                              ========

15. EARNINGS PER SHARE

The following reconciles the number of common shares outstanding at December 31 of each year to the weighted average number of common shares outstanding and the weighted average number of common and dilutive potential common shares outstanding for the purposes of calculating basic and dilutive earnings per common share, respectively (in thousands):

<CAPTION>
                                                   YEARS ENDED DECEMBER 31,
                                                  ---------------------------
                                                   1998      1997      1996
                                                  -------   -------   -------
<S>                                               <C>       <C>       <C>
Number of common shares outstanding.............  600,351   556,546   541,071
Effect of using weighted average common shares
  outstanding...................................  (16,050)    1,129    (3,802)
                                                  -------   -------   -------
Weighted average number of common shares
  outstanding...................................  584,301   557,675   537,269
Dilutive effect of common stock options and
  warrants......................................       --        --     9,647
                                                  -------   -------   -------
Weighted average number of common and dilutive
  potential common shares outstanding...........  584,301   557,675   546,916
                                                  =======   =======   =======

Diluted earnings per common share for the years ended December 31, 1998, 1997, and 1996 has been calculated excluding the effects of the Company's convertible subordinated notes and debentures as inclusion of such items would be anti-dilutive for these periods.

At December 31, 1998, there were approximately 73,600,000 common shares potentially issuable with respect to stock options, warrants, and convertible debt, which could dilute basic earnings per share in the future.

43

WASTE MANAGEMENT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

16. COMPREHENSIVE INCOME

Comprehensive income is defined as the change in equity of a business enterprise from transactions and other events and circumstances from nonowner sources and includes all changes in equity except those resulting from investments by owners and distributions to owners. The components of accumulated other comprehensive income are as follows for the periods indicated (in thousands):

<CAPTION>
                                            FOREIGN       MINIMUM      ACCUMULATED
                                           CURRENCY       PENSION         OTHER
                                          TRANSLATION    LIABILITY    COMPREHENSIVE
                                          ADJUSTMENT     ADJUSTMENT      INCOME
                                          -----------    ----------   -------------
<S>                                       <C>            <C>          <C>
Balance, December 31, 1996..............   $ (95,056)     $(18,885)     $(113,941)
  Current-period change.................    (180,744)       11,492       (169,252)
                                           ---------      --------      ---------
Balance, December 31, 1997..............    (275,800)       (7,393)      (283,193)
  Current-period change.................     (77,842)      (59,769)      (137,611)
                                           ---------      --------      ---------
Balance, December 31, 1998..............   $(353,642)     $(67,162)     $(420,804)
                                           =========      ========      =========

17. COMMITMENTS AND CONTINGENCIES

Operating leases -- The Company leases many of its operating and office facilities for various terms. Lease expense aggregated $194,846,000, $189,873,600, and $186,270,000 during 1998, 1997 and 1996, respectively. These amounts include rents under long-term leases, short-term cancelable leases and rents charged as a percentage of revenue, but are exclusive of financing leases capitalized for accounting purposes.

The long-term rental obligations as of December 31, 1998, are due as follows (in thousands):

<S>                                                        <C>
First year...............................................  $  142,397
Second year..............................................     133,069
Third year...............................................     127,206
Fourth year..............................................     155,341
Fifth year...............................................     104,568
Sixth through tenth years................................     431,114
Eleventh year and thereafter.............................     143,004
                                                           ----------
                                                           $1,236,699
                                                           ==========

Financial instruments -- Letters of credit, performance bonds and other guarantees have been provided by the Company supporting tax-exempt bonds, performance of final landfill closure and post-closure requirements, insurance contracts, and other contracts. Total letters of credit, performance bonds, insurance policies, and other guarantees outstanding at December 31, 1998, aggregated approximately $3,940,719,000. The insurance policies are issued by a wholly-owned insurance company subsidiary, the sole business of which is to issue such policies to customers of the Company and its subsidiaries. Because virtually no claims have been made against these financial instruments in the past, management does not expect these instruments will have a material effect on the Company's consolidated financial statements.

In the normal course of business, the Company is a party to financial instruments with off-balance sheet risk, such as bank letters of credit, performance bonds and other guarantees, which are not reflected in the consolidated balance sheets. Such financial instruments are to be valued based on the amount of exposure under the instrument and the likelihood of performance being required. In the Company's experience, virtually no claims have been made against those financial instruments. Management does not expect any material losses to result from these off-balance sheet instruments.

44

WASTE MANAGEMENT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Environmental matters -- The continuing business in which the Company is engaged is intrinsically connected with the protection of the environment. As such, a significant portion of the Company's operating costs and capital expenditures could be characterized as costs of environmental protection. Such costs may increase in the future as a result of legislation or regulation, however, the Company believes that in general it tends to benefit when environmental regulation increases, which may increase the demand for its services, and that it has the resources and experience to manage environmental risk.

As part of its ongoing operations, the Company provides for estimated final closure and post-closure monitoring costs over the estimated operating life of disposal sites as airspace is consumed. The Company has also established procedures to evaluate potential remedial liabilities at closed sites which it owns or operated or to which it transported, waste including 88 sites listed on the NPL as of December 31, 1998. Where the Company concludes that it is probable that a liability has been incurred, provision is made in the financial statements.

Estimates of the extent of the Company's degree of responsibility for remediation of a particular site and the method and ultimate cost of remediation require a number of assumptions and are inherently difficult, and the ultimate outcome may differ from current estimates. However, the Company believes that its extensive experience in the environmental services industry, as well as its involvement with a large number of sites, provides a reasonable basis for estimating its aggregate liability. As additional information becomes available, estimates are adjusted as necessary. While the Company does not anticipate that any such adjustment would be material to its financial statements, it is reasonably possible that technological, regulatory or enforcement developments, the results of environmental studies, the existence and ability of other potentially responsible third parties to contribute to the settlements of such liabilities, or other factors could necessitate the recording of additional liabilities which could be material.

Litigation -- In November and December 1997, several alleged purchasers of WM Holdings securities (including but not limited to WM Holdings common stock), who allegedly bought their securities between 1996 and 1997, brought 14 purported class action lawsuits against WM Holdings and several of its former officers in the United States District Court for the Northern District of Illinois. Each of these lawsuits asserted that the defendants violated the federal securities laws by issuing allegedly false and misleading statements in 1996 and 1997 about WM Holdings' financial condition and results of operations. Among other things, the plaintiffs alleged that WM Holdings employed accounting practices that were improper and that caused its publicly filed financial statements to be materially false and misleading. The lawsuits demanded, among other relief, unspecified compensatory damages, pre- and post-judgement interest, attorneys' fees, and the costs of conducting the litigation. In January 1998, the 14 putative class actions were consolidated before one judge. On May 29, 1998, the plaintiffs filed a consolidated amended complaint against WM Holdings and four of its former officers. The consolidated amended complaint seeks recovery on behalf of a proposed class of all purchasers of WM Holdings securities between May 29, 1995, and October 30, 1997. The consolidated amended complaint alleges, among other things, that WM Holdings filed false and misleading financial statements beginning in 1991 and continuing through October 1997 and seeks recovery for alleged violations of the federal securities laws between May 1995 and October 1997. In December 1998, the Company announced an agreement to settle the consolidated action against all defendants and the establishment of a settlement fund of $220,000,000 for the class of open market purchasers of WM Holdings equity securities between November 3, 1994, and February 24, 1998. The settlement agreement with the plaintiffs is subject to various conditions, including preliminary approval by the Court, notice to the class and final approval by the Court after a hearing. There can be no assurances that the Court will find the settlement to be fair to the class or that, because members of the class may opt out of the lawsuit, WM Holdings will not be a party to additional lawsuits or claims brought by individuals.

The Company is aware of another action arising out of the same set of facts alleging a cause of action under Illinois state law. Additionally, there are several other actions and claims arising out of the same set of

45

WASTE MANAGEMENT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

facts, including one purported class action brought by business owners who received WM Holdings shares in the sales of their businesses to WM Holdings that alleges breach of contract causes of action on the basis of allegedly false representation and warranties. A purported derivative action has also been filed by an alleged former shareholder of WM Holdings against certain former officers and directors of WM Holdings and nominally against WM Holdings to recover damages caused to WM Holdings as a result of the matter described in this paragraph. It is not possible at this time to predict the impact this litigation may have on WM Holdings or the Company nor is it possible to predict whether any other suits or claims arising out of these matters may be brought in the future. However, it is reasonably possible that the outcome of any present or future litigation may have a material adverse impact on their respective financial condition or results of operations in one or more future periods. WM Holdings intends to defend itself vigorously in the litigation.

The Company is also aware that the Securities and Exchange Commission has commenced a formal investigation with respect to the WM Holdings previously filed financial statements (which were subsequently restated) and related accounting policies, procedures and system of internal controls. The Company intends to cooperate with such investigation. The Company is unable to predict the outcome or impact of this investigation at this time.

On March 12, 1998, a stockholder of WM Holdings filed a purported class action suit in the Chancery Court of the State of Delaware in the New Castle County against WM Holdings and certain of its former directors. The complaint alleges, among other things, that (i) the Merger was the product of unfair dealing and the price paid to members of the purported class for their WM Holdings common stock was unfair and inadequate, (ii) the WM Holdings Merger will prevent members of the purported class from receiving their fair portion of the value of WM Holdings' assets and business and from obtaining the real value of their equity ownership of WM Holdings, (iii) defendants breached their fiduciary duties owed to the members of the purported class by putting their personal interests ahead of the interests of WM Holdings' public stockholders and (iv) the members of the class action will suffer irreparable damage unless the defendants are enjoined from breaching their fiduciary duties. The complaint seeks equitable relief that would rescind the WM Holdings Merger and monetary damages from the defendants for unlawfully gained profits and special benefits. The Company believes the suit to be without merit and intends to contest it vigorously.

In the ordinary course of conducting its business activities, the Company becomes involved in judicial and administrative proceedings involving governmental authorities at the foreign, federal, state and local level, including, in certain instances, proceedings instituted by citizens or local governmental authorities seeking to overturn governmental action where governmental officials or agencies are named as defendants together with the Company or one or more of its subsidiaries, or both. In the majority of the situations where proceedings are commenced by governmental authorities, the matters involved relate to alleged technical violations of licenses or permits pursuant to which the Company operates or is seeking to operate or laws or regulations to which its operations are subject or are the result of different interpretations of the applicable requirements. From time to time, the Company pays fines or penalties in environmental proceedings relating primarily to waste treatment, storage or disposal facilities. The Company believes that these matters will not have a material adverse effect on its results of operations or financial condition. However, the outcome of any particular proceeding cannot be predicted with certainty, and the possibility remains that technological, regulatory or enforcement developments, the results of environmental studies or other factors could materially alter this expectation at any time.

From time to time, the Company and certain of its subsidiaries are named as defendants in personal injury and property damage lawsuits, including purported class actions, on the basis of a Company subsidiary's having owned, operated or transported waste to a disposal facility which is alleged to have contaminated the environment or, in certain cases, conducted environmental remediation activities at sites. Some of such lawsuits may seek to have the Company or its subsidiaries pay the costs of groundwater monitoring and health care examinations of allegedly affected persons for a substantial period of time even where no actual damage is

46

WASTE MANAGEMENT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

proven. While the Company believes it has meritorious defenses to these lawsuits, their ultimate resolution is often substantially uncertain due to the difficulty of determining the cause, extent and impact of alleged contamination (which may have occurred over a long period of time), the potential for successive groups of complainants to emerge, the diversity of the individual plaintiffs' circumstances, and the potential contribution or indemnification obligations of co-defendants or other third parties, among other factors. Accordingly, it is possible such matters could have a material adverse impact on the Company's consolidated financial statements.

The Company has been advised by the U.S. Department of Justice that Laurel Ridge Landfill, Inc., a wholly-owned subsidiary of the Company as a result of the Company's acquisition of United, is a target of a federal investigation relating to alleged violations of the Clean Water Act at the Laurel Ridge Landfill in Kentucky. The investigation relates to a period prior to the Company's acquisition of United in August 1997. The Company is attempting to negotiate a resolution with the government which may include a guilty plea to a criminal misdemeanor, a fine and in-kind services. The Company believes that the ultimate outcome of this matter will not have a material adverse effect on the Company's consolidated financial statements.

In June 1996, an indictment was brought against All-Waste Systems, Inc. ("All-Waste"), an indirect subsidiary of the Company acquired in December 1998 in connection with the Eastern Merger, thirteen other corporations and seven individuals in the Southern District of New York. In September 1997 nineteen of the defendants entered guilty pleas and collectively agreed to pay $17,000,000 in restitution to the IRS and Westchester County, fines and civil forfeitures. All-Waste pled guilty to mail fraud, which arose out of an alleged bid-rigging scheme for the Town of New Windsor, paid an $85,000 fine and was sentenced to a five year probation period. The probation period was terminated upon the closing of the sale of All-Waste to Eastern in June 1998.

In March 1999, the Company was notified that All-Waste and two other indirect subsidiaries acquired in the Eastern Merger as well as a current employee of the Company were suspended from future contracting with any agency in the executive branch of the U.S. Government pending proceedings. The suspension and potential debarment are based on the September 1997 conviction of All-Waste and activities that occurred prior to ownership of the entities by Eastern. The Company is attempting to remove the three entities from the suspension and proposed debarment list. The Company believes that the ultimate outcome of this matter will not have a material adverse effect on the Company's consolidated financial statements.

In February 1999, a San Bernardino County, California grand jury returned an amended felony indictment against the Company, certain of its subsidiaries and their current or former employees, and a County employee. The proceeding is based on events that allegedly occurred prior to the WM Holdings Merger in connection with a WM Holdings landfill development project. The indictment includes allegations that certain of the defendants engaged in conduct involving fraud, wiretapping, theft of a trade secret and manipulation of computer data, and that they engaged in a conspiracy to do so. If convicted, the most serious of the available sanctions against the corporate defendants would include substantial fines and forfeitures. The Company believes that meritorious defenses exist to each of the allegations, and the defendants are vigorously contesting them. The Company believes that the ultimate outcome of this matter will not have a material adverse effect on the Company's consolidated financial statements.

The Company has brought suit against a substantial number of insurance carriers in an action entitled Waste Management, Inc. et al. v. The Admiral Insurance Company, et al. pending in the Superior Court in Hudson County, New Jersey. In this action the Company is seeking a declaratory judgment that environmental liabilities asserted against the Company or its subsidiaries, or that may be asserted in the future, are covered by insurance policies purchased by the Company or its subsidiaries. The Company is also seeking to recover defense costs and other damages incurred as a result of the assertion of environmental liabilities against the Company or its subsidiaries for events occurring over at least the last 25 years at approximately 140 sites and the defendant insurance carriers' denial of coverage of such liabilities. While the Company has

47

WASTE MANAGEMENT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

reached settlements with some of the carriers, the remaining defendants have denied liability to the Company and have asserted various defenses, including that environmental liabilities of the type for which the Company is seeking relief are not risks covered by the insurance policies in question. The remaining defendants are contesting these claims vigorously. Discovery is nearly complete as to the 12 sites in the first phase of the case and discovery is expected to continue for several years as to the remaining sites. Currently, trial dates have not been set. The Company is unable at this time to predict the outcome of this proceeding. No amounts have been recognized in the Company's consolidated financial statements for potential recoveries. See Note 6.

Several purported class action lawsuits and one purported derivative lawsuit seeking injunctive relief and unspecified money damages were filed in the Chancery Court in and for New Castle County, Delaware against the Company, WTI, and individual directors of WTI in connection with the June 20, 1997, proposal by WM Holdings to acquire all of the shares of WTI common stock which WM Holdings did not own. WM Holdings subsequently consummated a merger in which WTI's stockholders received $16.50 in cash per share of WTI's common stock. The lawsuits, which have since been consolidated into a single action, allege, among other things, that the defendants breached fiduciary duties to WTI's minority stockholders because the merger consideration contemplated by the proposal was inadequate and unfair. The Company believes that the defendants' actions in connection with the proposal were in accordance with Delaware law and, on that basis, has agreed to a settlement providing for the dismissal of all of the lawsuits against all defendants. The settlement agreement with the plaintiffs is subject to various conditions, including notice to the putative class and approval by the Court after a hearing.

The Company and certain of its subsidiaries are also currently involved in other civil litigation and governmental proceedings relating to the conduct of their business. While the outcome of any particular lawsuit or governmental investigation cannot be predicted with certainty, the Company believes that these matters will not have a material adverse effect on its consolidated financial statements.

Tax Matters -- During the first quarter of 1995, WMI Sellbergs AB, a Swedish subsidiary, received an assessment from the Swedish Tax Authority of approximately 417,000,000 Krona (approximately $52,000,000) plus interest from the date of the assessment, relating to a transaction completed in 1990. On November 4, 1998, the County Court of the County of Stockholm ruled in favor of WMI Sellbergs AB. However, the Swedish Tax Authority has appealed that decision. The Company believes that all appropriate tax returns and disclosures were properly filed at the time of the transaction and intends to vigorously contest the appeal.

Insurance -- The Company carries a broad range of insurance coverages, which management considers prudent for the protection of the Company's assets and operations. Some of these coverages are subject to varying retentions of risk by the Company. The casualty policies provide for $2,000,000 per occurrence coverage for primary commercial general liability and $1,000,000 per accident coverage primary automobile liability (including coverage for pollution exposure arising out of trucking operations) supported by $400,000,000 in umbrella insurance protection. The property policy provides insurance coverage for all of the Company's real and personal property on a replacement cost basis, including California earthquake perils. The Company also carries $200,000,000 in aircraft liability protection.

The Company maintains workers' compensation insurance in accordance with laws of the various states and countries in which it has employees. The Company also currently has an environmental impairment liability ("EIL") insurance policy for certain of its landfills, transfer stations, and recycling facilities that provides coverage for property damages and/or bodily injuries to third parties caused by off-site pollution emanating from such landfills, transfer stations, or recycling facilities. At December 31, 1998, this policy provides $10,000,000 of coverage per loss with a $20,000,000 aggregate limit.

Through the date of the WM Holdings Merger, certain of WM Holdings' auto, general liability, environmental impairment liability, and workers' compensation risks were self-insured up to $5,000,000 per

48

WASTE MANAGEMENT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

accident. For such programs, a provision was made in each accounting period for estimated losses, including losses incurred but not reported, and the related reserves are adjusted as additional claim information becomes available. Claim reserves are discounted at 5.5% and 6% at December 31, 1998 and 1997, respectively. The self-insurance reserve included in the accompanying consolidated balance sheets is $277,400,000 and $226,700,000 at December 31, 1998 and 1997, respectively.

To date, the Company has not experienced any difficulty in obtaining insurance. However, if the Company in the future is unable to obtain adequate insurance, or decides to operate without insurance, a partially or completely uninsured claim against the Company, if successful and of sufficient magnitude, could have a material adverse effect on the Company's financial condition, results of operations or cash flows. Additionally, continued availability of casualty and EIL insurance with sufficient limits at acceptable terms is an important aspect of obtaining revenue-producing waste service contracts.

18. ASSETS AND OPERATIONS HELD FOR SALE

Assets Held for Sale

The Company is disposing of certain assets to comply with governmental orders related to the WM Holdings Merger and Eastern Merger and certain other assets as a result of implementing the business strategy related to the WM Holdings Merger. These businesses' results of operations are fully included in revenues and expenses in the accompanying statements of operations, and generated third party operating revenues of approximately $372,596,000 and earnings before interest and taxes of approximately $20,600,000 in 1998. In addition, as a result of the WM Holdings Merger, various real estate became duplicative and surplus, and will be sold. As discussed in Notes 3 and 14, the Company has recorded charges to write down these assets to fair value, less costs to sell. These charges are based on estimates and certain contingencies that could materially differ from actual results and resolution of any such contingencies.

Operations Held for Sale

In the fourth quarter of 1995, the Company approved a plan to sell or otherwise discontinue the process engineering, construction, specialty contracting and similar lines of business of Rust International, Inc. ("Rust"), a subsidiary owned 60% by WM Holdings and 40% by WTI. At December 31, 1996, management also classified as discontinued and planned to sell Rust's domestic environmental and infrastructure engineering and consulting business and Chemical Waste Management, Inc.'s ("CWM") high organic waste fuel blending services business. Also, WTI classified certain of its water process systems and equipment manufacturing businesses (sold in 1996) and its water and wastewater facility operations and privatization business (sold in 1997) as discontinued businesses in 1996. Operating revenues from the discontinued business were $84,800,000 in 1997, and $734,500,000 in 1996. Results of their operations in 1997 were included in the reserve for loss on disposition provided previously, and such results were not material.

In 1997, management reclassified the CWM business back into continuing operations, and classified certain of its sites as operations held for sale. The Rust dispositions were not completed within one year, and accordingly, this business was reclassified back into continuing operations held for sale, at December 31, 1997, though management continued its efforts to market these businesses. Because these business were reclassified to continuing operations, the remaining provision for loss on disposal ($95,000,000 after tax -- $87,000,000 related to Rust and $8,000,000 related to CWM) was reversed in discontinued operations and an impairment loss for Rust of $122,200,000 was recorded in continuing operations in the fourth quarter of 1997. Prior year financial statements were restated. The majority of these assets were sold during the second and third quarters of 1998, respectively, for amounts approximately equal to their recorded net book values. Information

49

WASTE MANAGEMENT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

regarding the businesses presented in the consolidated statement of operations as net assets of continuing operations held for sale is as follows (in thousands):

<CAPTION>
                                                  YEARS ENDED DECEMBER 31,
                                               ------------------------------
                                                 1998       1997       1996
                                               --------   --------   --------
<S>                                            <C>        <C>        <C>
Operating revenues...........................  $238,108   $350,400   $361,500
Income (loss) before tax after minority
  interest...................................      (151)    (9,930)       315
Net income (loss)............................      (376)    (6,700)       100

The remaining assets and liabilities of these businesses were not material at December 31, 1998. At December 31, 1997, related amounts are included in net assets of continuing operations held for sale (long-term) in the accompanying consolidated balance sheets, and consists of the following (including 73,300,000 of surplus real estate) (in thousands):

<S>                                                        <C>
Current assets..........................................   $ 118,600
Land, property and equipment and other noncurrent
  assets................................................     238,000
Current liabilities.....................................     (41,000)
Noncurrent liabilities..................................    (161,216)
                                                           ---------
Net assets of continuing operations held for sale.......   $ 154,384
                                                           =========

19. SELECTED QUARTERLY FINANCIAL DATA, UNAUDITED

The following table summarizes the unaudited consolidated quarterly results of operations for 1998 and 1997 (in thousands, except per share amounts):

<CAPTION>
                                         FIRST        SECOND       THIRD        FOURTH
                                        QUARTER      QUARTER      QUARTER      QUARTER
                                       ----------   ----------   ----------   ----------
<S>                                    <C>          <C>          <C>          <C>
1998
  Operating revenues.................  $2,969,433   $3,250,731   $3,244,201   $3,239,104
  Operating income(loss).............     452,248      569,247   (1,545,744)     363,860
  Income (loss) from continuing
     operations......................     181,416      246,770   (1,258,473)      63,485
  Net income (loss)..................     181,416      242,870   (1,258,473)      63,485
  Earnings (loss) from continuing
     operations per common share:
     Basic...........................        0.32         0.43        (2.11)        0.11
     Diluted.........................        0.31         0.42        (2.11)        0.10
  Earnings (loss) per common share:
     Basic...........................        0.32         0.42        (2.11)        0.11
     Diluted.........................        0.31         0.41        (2.11)        0.10
1997
  Operating revenues.................  $2,699,541   $3,031,015   $3,154,383   $3,087,559
  Operating income(loss).............     337,229      471,707      284,836   (1,327,681)
  Income (loss) from continuing
     operations......................     170,419      137,117       56,511   (1,389,885)
  Net income (loss)..................     171,066      144,678       50,422   (1,305,061)
  Earnings (loss) from continuing
     operations per common share:
     Basic...........................        0.31         0.25         0.10        (2.50)
     Diluted.........................        0.30         0.24         0.10        (2.50)
  Earnings (loss) per common share:
     Basic...........................        0.31         0.26         0.09        (2.34)
     Diluted.........................        0.30         0.25         0.09        (2.34)

50

WASTE MANAGEMENT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Basic and diluted earnings per common share for each of the quarters presented above is based on the respective weighted average number of common and dilutive potential common shares outstanding for each period and the sum of the quarters may not necessarily be equal to the full year basic and diluted earnings per common share amounts.

Amounts presented above are restated for certain pooling of interests transactions as discussed in Note 3, and are different from amounts originally reported. The results of operations for 1998 and 1997 include certain charges for merger costs, asset impairments and unusual items, as disclosed in Notes 3 and 14. In 1998, such charges were $7,602,000, $7,361,000, $2,231,116,000, and $425,229,000 in the first, second, third, and fourth quarters, respectively. Such items charged to expense in the first, second, third and fourth quarters of 1997 were $27,660,000, $52,922,000, $158,113,000 and $1,645,198,000, respectively.

20. SUBSEQUENT EVENTS

On March 4, 1996, the Company issued $115.0 million of 5% convertible subordinated debentures, due on March 1, 2006. In March 1999, these debentures were called for redemption by the Company and subsequently converted into equity by the debenture holders. Approximately 4.0 million shares of the Company's common stock were issued upon such conversions. If the subordinated debenture conversion occurred on January 1, 1998, diluted earnings per share would have been increased by $0.01 for 1998.

On June 5, 1996, the Company issued $150.0 million of 4 1/2% convertible subordinated notes, due June 1, 2001. In June 1999, these debentures were called for redemption by the Company and subsequently converted into equity by the debenture holders. Approximately 4.9 million shares of the Company's common stock were issued upon such conversions. If the subordinated debenture conversion occurred on January 1, 1998, diluted earnings per share would have been increased by $0.02 for 1998.

On May 21, 1999, the Company completed a private placement of $1.15 billion of its senior notes. The Company issued $200.0 million of 6% senior notes, due 2001; $200.0 million of 6 1/2% senior notes due 2004; $500.0 million of 6 7/8% senior notes due 2009; and $250.0 million of 7 3/8% senior notes due 2029. The senior notes constitute senior and unsecured obligations of the Company ranking equal in right of payment with all other senior and unsecured obligations of the Company, as defined in the indenture. The 6% senior notes are not redeemable by the Company. The 6 1/2% senior notes, the 6 7/8% senior notes, and 7 3/8% senior notes are redeemable, in whole or in part, at the option of the Company at any time, or from time to time, at a redemption price defined in the indenture. Interest is payable semi-annually on May 15 and November 15. All proceeds from the private placement notes were used to repay outstanding debt under the Credit Facility and to reduce the amount of commercial paper outstanding.

On July 6, 1999, the Company announced that it had lowered its expected earnings per share for the three-month period ended June 30, 1999. On July 29, 1999, the Company announced a further reduction in its expected earnings for that period. On August 3, 1999, the Company announced that its reported operating income for the three-month period ended March 31, 1999 may have included certain non-recurring pretax income items. Between July 8, 1999 and August 4, 1999, several lawsuits that purport to be based on one or more of these announcements have been filed against the Company and certain of its officers and directors in the United States District Court for the Southern District of Texas. Taken, together, the plaintiffs in these lawsuits purport to assert claims on behalf of a class of purchasers of the Company's common stock between June 10, 1998 and August 2, 1999. Among other things, the plaintiffs allege that the Company and certain of its officers and directors (i) made knowingly false earnings projections for the three months ended June 30, 1999 and (ii) failed to adequately disclose facts relating to its earnings projections that the plaintiffs allege would have been material to purchasers of the Company's common stock. The plaintiffs also claim that certain of the Company's officers and directors sold common stock at prices known to be inflated by the alleged material misstatements and omissions. The plaintiffs in these actions seek damages with interest, costs and such other relief as the respective courts deem proper.

51

WASTE MANAGEMENT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

In addition, two of the Company's shareholders have filed lawsuits against certain officers and directors of the Company in connection with the events surrounding the Company's second quarter 1999 earnings projections and July 6, 1999 earnings announcement. These lawsuits were filed in the Court of Chancery of the State of Delaware on July 16, 1999 and in the United States District Court for the Southern District of Texas on July 27, 1999. The plaintiffs in these actions purport to allege derivative claims on behalf of the Company against these individuals for alleged breaches of fiduciary duty resulting from these alleged stock sales during the three-month period ended June 30, 1999 and/or their oversight of the Company's affairs. The lawsuits name Waste Management, Inc. as a nominal defendant and seek compensatory and punitive damages with interest, equitable and/or injunctive relief, costs and such other relief as the respective courts deem proper.

The Company has also received a letter from participants in the Company's Employee Stock Purchase Plan who allegedly purchased the Company's common stock on June 30, 1999. The letter demands that the Administrative Committee of the Plan bring an action against the Company and certain selling officers and directors for losses allegedly sustained by the participants in their stock purchases. These Plan participants have indicated in the letter that, absent action by the Plan, they intend to sue the Company and the directors and officers on behalf of the Plan and its participants.

In addition, the United States Securities and Exchange Commission ("SEC") has notified the Company of an informal inquiry into the period ended June 30, 1999, as well as certain sales of the Company's common stock that preceded the Company's July 6, 1999 earnings announcement.

The New York Stock Exchange has notified the Company that its Market Trading Analysis Department is reviewing transactions in the stock of the Company prior to the July 6, 1999 earnings forecast announcement.

The Company is conducting a thorough investigation of each of the allegations that have been made in connection with the Company's second quarter 1999 earnings communications. As part of this investigation, the Company's Board of Directors has authorized a review of the allegations that have been made against certain of the Company's officers and directors. Roderick M. Hills, the former chairman of the SEC and chairman of the Company's audit committee, is directing the review.

The Company has received a Civil Investigative Demand ("CID") from the Antitrust Division of the United States Department of Justice inquiring into the Company's non-hazardous solid waste operations in the State of Massachusetts. The CID purports to have been issued for the purpose of determining whether the Company has engaged in monopolization, illegal contracts in restraint of trade, or anticompetitive acquisitions of disposal and/or hauling assets. The CID requires the Company to provide the Department of Justice with certain documents to assist it in its inquiry.

On July 16, 1999, a lawsuit was filed against the Company in the Circuit Court for Sumter County in the State of Alabama. The plaintiff in the lawsuit purports to allege on behalf of a class of similarly situated persons that the Company has deprived the class of lump sum payments of pension plan benefits allegedly promised to be paid in connection with termination of the WM Holdings defined benefit pension plan. On behalf of the purported class, the plaintiff seeks compensatory and punitive damages, costs, restitution with interest, and such other relief as the Court deems proper.

It is not possible at this time to predict the impact that the above lawsuits may have on WM Holdings or the Company, nor is it possible to predict whether any other suits or claims may arise out of these matters in the future. However, it is reasonably possible that the outcome of any present or future litigation may have a material adverse impact on their respective financial conditions or results of operations in one or more future periods. The Company and WM Holdings intend to defend themselves vigorously in all the above matters.

An Executive Committee of the Board of Directors of the Company has been formed consisting of Ralph V. Whitworth, Roderick M. Hills and Jerome P. York. The Board of Directors has appointed Mr. Whitworth, a managing member of Relational Investors LLC, as Chairman of the Executive Committee.

52

WASTE MANAGEMENT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Rodney R. Proto has relinquished his position as the Company's President and Chief Operating Officer and as a member of the Board of Directors. Earl E. DeFrates has resigned as Chief Financial Officer and John E. Drury has stepped aside as Chairman and Chief Executive Officer, but remains a member of the Board of Directors. Gregory T. Sangalis has resigned as the Company's General Counsel.

The Company's Board of Directors has appointed Ralph V. Whitworth its Chairman. Additionally, Donald R. Chappel has been appointed as Chief Financial Officer and Executive Vice President. Mr. Chappel was previously the Vice President and acting Chief Financial Officer of Waste Management Holdings from October 1997 until its merger with the Company in July 1998 and also served as our Senior Vice President -- Operations and Administration from July 1998 through April 1999.

The Company has initiated a search for a new Chief Executive Officer and General Counsel. Pending the conclusion of this search, the Company's Board of Directors has appointed Robert S. Miller as the Company's Chief Executive Officer and President. Mr. Miller served as Chairman of the Board of the Company from July 1998 until May 1999 and was a director of WM Holdings from October 1997 to July 1998. Mr. Miller serves as Vice-Chairman of Morrison Knudsen Corporation, an engineering and construction firm. He also served as Chief Executive Officer of Federal-Mogul Corporation from September until November 1996 and as Chairman of Morrison Knudsen Corporation from April 1995 until September 1996. In addition, since 1993 he has served as Vice President and treasurer of Moore Mill and Lumber, a privately held forest product firm, and from 1992 to 1993, he served as Senior Partner of James D. Wolfensohn, Inc., an investment banking firm. From 1979 to 1992, Mr. Miller was with Chrysler Corporation ("Chrysler"), an automobile and truck manufacturing firm, rising to become Vice-Chairman of the Board after serving as Chrysler's Chief Financial Officer. Mr. Miller is a director of Federal-Mogul Corporation, Morrison Knudsen Corporation, Pope & Talbot, Inc., and Symantec Corporation.

The Board of Directors has initiated a strategic initiative aimed at increasing shareholder value. The Company has engaged Chase Securities, Inc. and Donaldson, Lufkin & Jenrette Securities Corporation as financial advisors to assist the Company in this matter. The plan calls for disposition of some or all of the Company's International assets, a substantial majority of the Company's non-core assets, and certain non-strategic North American solid waste assets that account for 10% of the Company's operating revenues in that sector. The Company intends immediately to initiate the disposition of these assets, and plans to substantially complete these asset sales in the next 12 months, although there can be no assurance that these dispositions will be in the time frame contemplated. The Company expects to use the proceeds of these asset dispositions as they are realized to repay debt, repurchase shares and pursue tuck-in acquisitions.

On September 14, 1999, the Company announced the declaration of an annual cash dividend of $0.01 per share payable October 19, 1999 to stockholders of record on September 30, 1999.

21. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS

Condensed Consolidating Financial Statements

WM Holdings ("Guarantor"), a wholly-owned subsidiary of Waste Management, Inc. ("Parent"), has fully and unconditionally guaranteed all of the senior indebtedness of the Parent, as well as the Parent's 4% convertible subordinated notes due 2002. The Parent has fully and unconditionally guaranteed all of the senior indebtedness of WM Holdings, as well as WMH's 5.75% convertible subordinated debentures due 2005. However, none of the Company's nor WM Holdings's debt is guaranteed by any of the Parent's indirect subsidiaries or WM Holdings' subsidiaries ("Non-Guarantor"). Accordingly, the following condensed consolidating balance sheet as of June 30, 1999 (unaudited) and December 31, 1998 and 1997, and the related condensed consolidating statements of income for the three and six months ended June 30, 1999 and 1998 (unaudited) and the years ended December 31, 1998, 1997, and 1996, along with the related cash flows have been provided (in thousands). Notes 1-20 should be read in conjunction with the Condensed Consolidating Financial Statements.

53

WASTE MANAGEMENT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

CONDENSED CONSOLIDATING BALANCE SHEET
(UNAUDITED)

JUNE 30, 1999

ASSETS

<CAPTION>
                                      PARENT      GUARANTOR    NON-GUARANTOR   ELIMINATIONS   CONSOLIDATION
                                    -----------   ----------   -------------   ------------   -------------
<S>                                 <C>           <C>          <C>             <C>            <C>
Current assets:
  Cash and cash equivalents.......  $    17,839   $   (1,716)  $     64,876    $        --     $    80,999
  Other current assets............           --        8,220      3,417,039             --       3,425,259
                                    -----------   ----------   ------------    -----------     -----------
                                         17,839        6,504      3,481,915             --       3,506,258
                                    -----------   ----------   ------------    -----------     -----------
Property and equipment, net.......           --           --     11,854,311             --      11,854,311
Intercompany and investment in
  subsidiaries....................   11,939,089    6,792,624    (12,824,157)    (5,907,556)             --
Other assets......................       17,892       11,041      7,602,171             --       7,631,104
                                    -----------   ----------   ------------    -----------     -----------
         Total assets.............  $11,974,820   $6,810,169   $ 10,114,240    $(5,907,556)    $22,991,673
                                    ===========   ==========   ============    ===========     ===========

                                   LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Current maturities of long-term
    debt..........................  $        --   $  199,989   $    169,603    $        --     $   369,592
  Accounts payable and other
    accrued liabilities...........       90,210      227,677      3,140,580             --       3,458,467
                                    -----------   ----------   ------------    -----------     -----------
                                         90,210      427,666      3,310,183             --       3,828,059
                                    -----------   ----------   ------------    -----------     -----------
Long-term debt....................    5,459,631    3,787,475      1,685,278             --      10,932,384
Other liabilities.................           --           --      2,614,350             --       2,614,350
                                    -----------   ----------   ------------    -----------     -----------
Minority interest.................           --           --        140,948             --         140,948
Stockholders' equity..............    6,424,979    2,595,028      2,363,481     (5,907,556)      5,475,932
                                    -----------   ----------   ------------    -----------     -----------
         Total liabilities and
           stockholders' equity...  $11,974,820   $6,810,169   $ 10,114,240    $(5,907,556)    $22,991,673
                                    ===========   ==========   ============    ===========     ===========

54

WASTE MANAGEMENT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

CONDENSED CONSOLIDATING BALANCE SHEET
DECEMBER 31, 1998

ASSETS

<CAPTION>
                                      PARENT      GUARANTOR    NON-GUARANTOR   ELIMINATIONS   CONSOLIDATION
                                    -----------   ----------   -------------   ------------   -------------
<S>                                 <C>           <C>          <C>             <C>            <C>
Current assets:
  Cash and cash equivalents.......  $    27,726   $  (48,578)  $    107,725    $        --     $    86,873
  Other current assets............           --        8,220      3,786,304             --       3,794,524
                                    -----------   ----------   ------------    -----------     -----------
                                         27,726      (40,358)     3,894,029             --       3,881,397
                                    -----------   ----------   ------------    -----------     -----------
Property and equipment, net.......           --           --     11,637,739             --      11,637,739
Intercompany and investment in
  subsidiaries....................   10,373,056    6,271,497    (12,371,573)    (4,272,980)             --
Other assets......................       21,071       14,797      7,160,194             --       7,196,062
                                    -----------   ----------   ------------    -----------     -----------
         Total assets.............  $10,421,853   $6,245,936   $ 10,320,389    $(4,272,980)    $22,715,198
                                    ===========   ==========   ============    ===========     ===========

                                   LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
  Current maturities of long-term
    debt..........................  $        --   $  350,000   $    233,742    $        --     $   583,742
  Accounts payable and other
    accrued liabilities...........       63,547      231,529      3,414,848             --       3,709,924
                                    -----------   ----------   ------------    -----------     -----------
                                         63,547      581,529      3,648,590             --       4,293,666
                                    -----------   ----------   ------------    -----------     -----------
Long-term debt....................    5,197,013    3,786,935      2,130,252             --      11,114,200
Other liabilities.................           --           --      2,822,760             --       2,822,760
                                    -----------   ----------   ------------    -----------     -----------
Minority interest.................           --           --        112,076             --         112,076
Stockholders' equity..............    5,161,293    1,877,472      1,606,711     (4,272,980)      4,372,496
                                    -----------   ----------   ------------    -----------     -----------
         Total liabilities and
           stockholders' equity...  $10,421,853   $6,245,936   $ 10,320,389    $(4,272,980)    $22,715,198
                                    ===========   ==========   ============    ===========     ===========

55

WASTE MANAGEMENT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

CONDENSED CONSOLIDATING BALANCE SHEET
DECEMBER 31, 1997

ASSETS

<CAPTION>
                                     PARENT     GUARANTOR    NON-GUARANTOR   ELIMINATIONS   CONSOLIDATION
                                   ----------   ----------   -------------   ------------   -------------
<S>                                <C>          <C>          <C>             <C>            <C>
Current assets:
  Cash and cash equivalents......  $   14,630   $   42,630    $   132,682    $        --     $   189,942
  Other current assets...........          --       32,139      2,614,595             --       2,646,734
                                   ----------   ----------    -----------    -----------     -----------
                                       14,630       74,769      2,747,277             --       2,836,676
                                   ----------   ----------    -----------    -----------     -----------
Property and equipment, net......          --           --     11,188,530             --      11,188,530
Intercompany and investment in
  subsidiaries...................   6,496,101    6,752,786     (8,760,626)    (4,488,261)             --
Other assets.....................      14,396       16,554      6,100,268             --       6,131,218
                                   ----------   ----------    -----------    -----------     -----------
         Total assets............  $6,525,127   $6,844,109    $11,275,449    $(4,488,261)    $20,156,424
                                   ==========   ==========    ===========    ===========     ===========


                                  LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
  Current maturities of long-term
    debt.........................  $       --   $  450,000    $ 1,148,012    $        --     $ 1,598,012
  Accounts payable and other
    accrued liabilities..........      20,389      128,436      3,057,117             --       3,205,942
                                   ----------   ----------    -----------    -----------     -----------
                                       20,389      578,436      4,205,129             --       4,803,954
                                   ----------   ----------    -----------    -----------     -----------
Long-term debt...................   2,056,140    4,489,765      1,336,044             --       7,881,949
Other liabilities................          --           --      2,504,911             --       2,504,911
                                   ----------   ----------    -----------    -----------     -----------
Minority interest................          --           --      1,110,681             --       1,110,681
Stockholders' equity.............   4,448,598    1,775,908      2,118,684     (4,488,261)      3,854,929
                                   ----------   ----------    -----------    -----------     -----------
         Total liabilities and
           stockholders'
           equity................  $6,525,127   $6,844,109    $11,275,449    $(4,488,261)    $20,156,424
                                   ==========   ==========    ===========    ===========     ===========

56

WASTE MANAGEMENT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
(UNAUDITED)

SIX MONTHS ENDED JUNE 30, 1999

<CAPTION>
                                       PARENT     GUARANTOR   NON-GUARANTOR   ELIMINATIONS   CONSOLIDATION
                                      ---------   ---------   -------------   ------------   -------------
<S>                                   <C>         <C>         <C>             <C>            <C>
Operating revenues..................  $      --   $      --    $6,405,210     $        --     $6,405,210
Costs and expenses..................         --          --     4,929,628              --      4,929,628
                                      ---------   ---------    ----------     -----------     ----------
Income from operations..............         --          --     1,475,582              --      1,475,582
                                      ---------   ---------    ----------     -----------     ----------
Other income (expense):
  Interest income (expense), net....   (174,144)   (139,194)      (39,249)             --       (352,587)
  Equity in subsidiaries, net of
    taxes...........................    773,790     860,786            --      (1,634,576)            --
  Minority interest.................         --          --       (13,009)             --        (13,009)
  Other, net........................         --          --        30,578              --         30,578
                                      ---------   ---------    ----------     -----------     ----------
Income from continuing operations
  before income taxes...............    599,646     721,592     1,453,902      (1,634,576)     1,140,564
Provision for (benefit from) income
  taxes.............................    (65,304)    (52,198)      593,116              --        475,614
                                      ---------   ---------    ----------     -----------     ----------
Net income..........................  $ 664,950   $ 773,790    $  860,786     $(1,634,576)    $  664,950
                                      =========   =========    ==========     ===========     ==========

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
(UNAUDITED)

THREE MONTHS ENDED JUNE 30, 1999

<CAPTION>
                                       PARENT     GUARANTOR   NON-GUARANTOR   ELIMINATIONS   CONSOLIDATION
                                      ---------   ---------   -------------   ------------   -------------
<S>                                   <C>         <C>         <C>             <C>            <C>
Operating revenues..................  $      --   $      --    $3,334,575     $        --     $3,334,575
Costs and expenses..................         --          --     2,619,091              --      2,619,091
                                      ---------   ---------    ----------     -----------     ----------
Income from operations..............         --          --       715,484              --        715,484
                                      ---------   ---------    ----------     -----------     ----------
Other income (expense):
  Interest income (expense), net....    (89,061)    (67,031)      (23,156)             --       (179,248)
  Equity in subsidiaries, net of
    taxes...........................    373,925     415,819            --        (789,744)            --
  Minority interest.................         --          --        (6,547)             --         (6,547)
  Other, net........................         --          --        16,215              --         16,215
                                      ---------   ---------    ----------     -----------     ----------
Income from continuing operations
  before income taxes...............    284,864     348,788       701,996        (789,744)       545,904
Provision for (benefit from) income
  taxes.............................    (33,398)    (25,137)      286,177              --        227,642
                                      ---------   ---------    ----------     -----------     ----------
Net income..........................  $ 318,262   $ 373,925    $  415,819     $  (789,744)    $  318,262
                                      =========   =========    ==========     ===========     ==========

57

WASTE MANAGEMENT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
(UNAUDITED)

SIX MONTHS ENDED JUNE 30, 1998

<CAPTION>
                                          PARENT    GUARANTOR   NON-GUARANTOR   ELIMINATIONS   CONSOLIDATION
                                         --------   ---------   -------------   ------------   -------------
<S>                                      <C>        <C>         <C>             <C>            <C>
Operating revenues.....................  $     --   $      --    $6,220,164     $        --     $6,220,164
Costs and expenses.....................        --          --     5,198,669              --      5,198,669
                                         --------   ---------    ----------     -----------     ----------
Income from operations.................        --          --     1,021,495              --      1,021,495
                                         --------   ---------    ----------     -----------     ----------
Other income (expense):
  Interest income (expense), net.......   (92,863)   (165,515)      (56,203)             --       (314,581)
  Equity in subsidiaries, net of
    taxes..............................   482,325     585,772            --      (1,068,097)            --
  Minority interest....................        --          --       (38,166)             --        (38,166)
  Other, net...........................        --          --       110,432              --        110,432
                                         --------   ---------    ----------     -----------     ----------
Income from continuing operations
  before income taxes..................   389,462     420,257     1,037,558      (1,068,097)       779,180
Provision for (benefit from) income
  taxes................................   (34,824)    (62,068)      447,886              --        350,994
                                         --------   ---------    ----------     -----------     ----------
Income from operations.................   424,286     482,325       589,672      (1,068,097)       428,186
Extraordinary item.....................        --          --        (3,900)             --         (3,900)
                                         --------   ---------    ----------     -----------     ----------
Net income.............................  $424,286   $ 482,325    $  585,772     $(1,068,097)    $  424,286
                                         ========   =========    ==========     ===========     ==========

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
(UNAUDITED)

THREE MONTHS ENDED JUNE 30, 1998

<CAPTION>
                                          PARENT    GUARANTOR   NON-GUARANTOR   ELIMINATIONS   CONSOLIDATION
                                         --------   ---------   -------------   ------------   -------------
<S>                                      <C>        <C>         <C>             <C>            <C>
Operating revenues.....................  $     --   $      --    $3,250,731     $        --     $3,250,731
Costs and expenses.....................        --          --     2,681,484              --      2,681,484
                                         --------   ---------    ----------     -----------     ----------
Income from operations.................        --          --       569,247              --        569,247
                                         --------   ---------    ----------     -----------     ----------
Other income (expense):
  Interest income (expense), net.......   (56,712)    (80,314)      (28,206)             --       (165,232)
  Equity in subsidiaries, net of
    taxes..............................   278,315     328,511            --        (606,826)            --
  Minority interest....................        --          --       (12,864)             --        (12,864)
  Other, net...........................        --          --        40,058              --         40,058
                                         --------   ---------    ----------     -----------     ----------
Income from continuing operations
  before income taxes..................   221,603     248,197       568,235        (606,826)       431,209
Provision for (benefit from) income
  taxes................................   (21,267)    (30,118)      235,824              --        184,439
                                         --------   ---------    ----------     -----------     ----------
Income from operations.................   242,870     278,315       332,411        (606,826)       246,770
Extraordinary item.....................        --          --        (3,900)             --         (3,900)
                                         --------   ---------    ----------     -----------     ----------
Net income.............................  $242,870   $ 278,315    $  328,511     $  (606,826)    $  242,870
                                         ========   =========    ==========     ===========     ==========

58

WASTE MANAGEMENT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998

<CAPTION>
                                      PARENT     GUARANTOR   NON-GUARANTOR   ELIMINATIONS   CONSOLIDATION
                                     ---------   ---------   -------------   ------------   -------------
<S>                                  <C>         <C>         <C>             <C>            <C>
Operating revenues................   $      --   $      --    $12,703,469     $       --     $12,703,469
Costs and expenses................          --          --     12,863,858             --      12,863,858
                                     ---------   ---------    -----------     ----------     -----------
Loss from operations..............          --          --       (160,389)            --        (160,389)
                                     ---------   ---------    -----------     ----------     -----------
Other income (expense):
  Interest income (expense),
    net...........................    (230,925)   (307,591)      (116,112)            --        (654,628)
  Equity in subsidiaries, net of
    taxes.........................    (626,374)   (434,130)            --      1,060,504              --
  Minority interest...............          --          --        (24,254)            --         (24,254)
  Other, net......................          --          --        139,392             --         139,392
                                     ---------   ---------    -----------     ----------     -----------
Loss from continuing operations
  before income taxes.............    (857,299)   (741,721)      (161,363)     1,060,504        (699,879)
Provision for (benefit from)
  income taxes....................     (86,597)   (115,347)       268,867             --          66,923
                                     ---------   ---------    -----------     ----------     -----------
Loss from operations..............    (770,702)   (626,374)      (430,230)     1,060,504        (766,802)
Extraordinary item................          --          --         (3,900)            --          (3,900)
                                     ---------   ---------    -----------     ----------     -----------
Net loss..........................   $(770,702)  $(626,374)   $  (434,130)    $1,060,504     $  (770,702)
                                     =========   =========    ===========     ==========     ===========

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997

<CAPTION>
                                     PARENT      GUARANTOR    NON-GUARANTOR   ELIMINATIONS   CONSOLIDATION
                                    ---------   -----------   -------------   ------------   -------------
<S>                                 <C>         <C>           <C>             <C>            <C>
Operating revenues................  $      --   $        --    $11,972,498     $       --     $11,972,498
Costs and expenses................         --            --     12,206,407             --      12,206,407
                                    ---------   -----------    -----------     ----------     -----------
Loss from operations..............         --            --       (233,909)            --        (233,909)
                                    ---------   -----------    -----------     ----------     -----------
Other income (expense):
  Interest income (expense),
    net...........................    (74,073)     (319,202)      (117,087)            --        (510,362)
  Equity in subsidiaries, net of
    taxes.........................   (892,599)     (693,098)            --      1,585,697              --
  Minority interest...............         --            --        (45,442)            --         (45,442)
  Other, net......................         --            --        127,216             --         127,216
                                    ---------   -----------    -----------     ----------     -----------
Loss from continuing operations
  before income taxes.............   (966,672)   (1,012,300)      (269,222)     1,585,697        (662,497)
Provision for (benefit from)
  income taxes....................    (27,777)     (119,701)       510,819             --         363,341
                                    ---------   -----------    -----------     ----------     -----------
Loss from operations..............   (938,895)     (892,599)      (780,041)     1,585,697      (1,025,838)
Discontinued operations...........         --            --         95,688             --          95,688
Extraordinary item................         --            --         (6,809)            --          (6,809)
Cumulative effect of change in
  accounting principal, net of
  taxes...........................         --            --         (1,936)            --          (1,936)
                                    ---------   -----------    -----------     ----------     -----------
Net loss..........................  $(938,895)  $  (892,599)   $  (693,098)    $1,585,697     $  (938,895)
                                    =========   ===========    ===========     ==========     ===========

59

WASTE MANAGEMENT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996

<CAPTION>
                                        PARENT       GUARANTOR    NON-GUARANTOR   ELIMINATIONS   CONSOLIDATION
                                      -----------   -----------   -------------   ------------   -------------
<S>                                   <C>           <C>           <C>             <C>            <C>
Operating revenues..................  $        --   $        --    $10,998,602    $        --     $10,998,602
Costs and expenses..................           --            --      9,800,989             --       9,800,989
                                      -----------   -----------    -----------    -----------     -----------
Income from operations..............           --            --      1,197,613             --       1,197,613
                                      -----------   -----------    -----------    -----------     -----------
Other income (expense):
  Interest income (expense), net....      (27,981)     (265,755)      (197,001)            --        (490,737)
  Equity in subsidiaries, net of
    taxes...........................       41,719       207,816             --       (249,535)             --
  Minority interest.................           --            --        (41,289)            --         (41,289)
  Other, net........................           --            --        108,645             --         108,645
                                      -----------   -----------    -----------    -----------     -----------
Income (loss) from continuing
  operations
  before income taxes...............       13,738       (57,939)     1,067,968       (249,535)        774,232
Provision for (benefit from)
  income taxes......................      (10,493)      (99,658)       596,851             --         486,700
                                      -----------   -----------    -----------    -----------     -----------
Income from operations..............       24,231        41,719        471,117       (249,535)        287,532
Discontinued operations.............           --            --       (263,301)            --        (263,301)
                                      -----------   -----------    -----------    -----------     -----------
Net income..........................  $    24,231   $    41,719    $   207,816    $  (249,535)    $    24,231
                                      ===========   ===========    ===========    ===========     ===========

60

WASTE MANAGEMENT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
(UNAUDITED)

SIX MONTHS ENDED JUNE 30, 1999

<CAPTION>
                                         PARENT      GUARANTOR   NON-GUARANTOR   ELIMINATIONS   CONSOLIDATION
                                       -----------   ---------   -------------   ------------   -------------
<S>                                    <C>           <C>         <C>             <C>            <C>
Cash flows from operating activities
  Net income (loss)..................  $   664,950   $ 773,790    $   860,786    $(1,634,576)    $   664,950
  Equity in earnings of
    subsidiaries.....................     (773,790)   (860,786)            --      1,634,576              --
  Other adjustments and changes......        5,507       7,768        106,580             --         119,855
                                       -----------   ---------    -----------    -----------     -----------
Net cash provided (used in) by
  operations.........................     (103,333)    (79,228)       967,366             --         784,805
                                       -----------   ---------    -----------    -----------     -----------
Cash flows from investing activities
  Short-term investments.............           --          --         (6,273)            --          (6,273)
  Acquisitions of businesses, net of
    cash acquired....................           --          --       (644,515)            --        (644,515)
  Capital expenditures...............           --          --       (614,085)            --        (614,085)
  Proceeds from sale of assets.......           --          --        502,681             --         502,681
  Other, net.........................           --          --         11,649             --          11,649
                                       -----------   ---------    -----------    -----------     -----------
Net cash provided (used in) by
  investing activities...............           --          --       (750,543)            --        (750,543)
                                       -----------   ---------    -----------    -----------     -----------
Cash flows from financing activities
  Proceeds from issuance of long-term
    debt.............................    1,806,510          --          8,216             --       1,814,726
  Principal payments on long-term
    debt.............................   (1,501,567)   (150,139)      (370,131)            --      (2,021,837)
  Proceeds from exercise of common
    stock options and warrants.......      165,110          --             --             --         165,110
  (Increase) decrease in intercompany
    and investments, net.............     (376,607)    276,229        100,378             --              --
                                       -----------   ---------    -----------    -----------     -----------
Net cash provided (used in) by
  financing activities...............       93,446     126,090       (261,537)            --         (42,001)
                                       -----------   ---------    -----------    -----------     -----------
Effect of exchange rate changes on
  cash and cash equivalents..........           --          --          1,865             --           1,865
                                       -----------   ---------    -----------    -----------     -----------
Increase (decrease) in cash and cash
  equivalents........................       (9,887)     46,862        (42,849)            --          (5,874)
Cash and cash equivalents at
  beginning of period................       27,726     (48,578)       107,725             --          86,873
                                       -----------   ---------    -----------    -----------     -----------
Cash and cash equivalents at end of
  period.............................  $    17,839   $  (1,716)   $    64,876    $        --     $    80,999
                                       ===========   =========    ===========    ===========     ===========

61

WASTE MANAGEMENT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
(UNAUDITED)

SIX MONTHS ENDED JUNE 30, 1998

<CAPTION>
                                         PARENT      GUARANTOR   NON-GUARANTOR   ELIMINATIONS   CONSOLIDATION
                                       -----------   ---------   -------------   ------------   -------------
<S>                                    <C>           <C>         <C>             <C>            <C>
Cash flows from operating activities
  Net income (loss)..................  $   424,286   $ 482,325    $   585,772    $(1,068,097)    $   424,286
  Equity in earnings of
    subsidiaries.....................     (482,325)   (585,772)            --      1,068,097              --
  Other adjustments and changes......        3,947     (12,674)       323,294             --         314,567
                                       -----------   ---------    -----------    -----------     -----------
Net cash provided (used in) by
  operations.........................      (54,092)   (116,121)       909,066             --         738,853
                                       -----------   ---------    -----------    -----------     -----------
Cash flows from investing activities
  Short-term investments.............           --          --         57,837             --          57,837
  Acquisitions of businesses, net of
    cash acquired....................           --          --     (1,402,532)            --      (1,402,532)
  Capital expenditures...............           --          --       (735,801)            --        (735,801)
  Proceeds from sale of assets.......           --          --        455,262             --         455,262
  Acquisition of minority
    interests........................           --          --       (876,232)            --        (876,232)
  Other, net.........................           --          --        (11,160)            --         (11,160)
                                       -----------   ---------    -----------    -----------     -----------
Net cash provided (used in) by
  investing activities...............           --          --     (2,512,626)            --      (2,512,626)
                                       -----------   ---------    -----------    -----------     -----------
Cash flows from financing activities
  Proceeds from issuance of long-term
    debt.............................    1,550,000          --      1,919,463             --       3,469,463
  Principal payments on long-term
    debt.............................     (197,000)   (586,425)    (1,594,963)            --      (2,378,388)
  Cash dividends.....................       (1,176)    (82,060)            --             --         (83,236)
  Net proceeds from issuance of
    common stock.....................      202,997          --             --             --         202,997
  Proceeds from sale of treasury
    stock............................           --     739,161             --             --         739,161
  Proceeds from exercise of common
    stock options and warrants.......       59,605          --             --             --          59,605
  (Increase) decrease in intercompany
    and investments, net.............   (1,556,332)     (9,257)     1,565,589             --              --
  Other, net.........................           --          --        (15,667)            --         (15,667)
                                       -----------   ---------    -----------    -----------     -----------
Net cash provided (used in) by
  financing activities...............       58,094      61,419      1,874,422             --       1,993,935
                                       -----------   ---------    -----------    -----------     -----------
Effect of exchange rate changes on
  cash and cash equivalents..........           --          --            (21)            --             (21)
                                       -----------   ---------    -----------    -----------     -----------
Increase (decrease) in cash and cash
  equivalents........................        4,002     (54,702)       270,841             --         220,141
Cash and cash equivalents at
  beginning of period................       14,630      42,630        132,682             --         189,942
                                       -----------   ---------    -----------    -----------     -----------
Cash and cash equivalents at end of
  period.............................  $    18,632   $ (12,072)   $   403,523    $        --     $   410,083
                                       ===========   =========    ===========    ===========     ===========

62

WASTE MANAGEMENT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1998
(IN THOUSANDS)

<CAPTION>
                                          PARENT      GUARANTOR   NON-GUARANTOR   ELIMINATIONS   CONSOLIDATION
                                        -----------   ---------   -------------   ------------   -------------
<S>                                     <C>           <C>         <C>             <C>            <C>
Cash flows from operating activities
  Net income (loss)...................  $  (770,702)  $(626,374)   $  (434,130)   $ 1,060,504     $  (770,702)
  Equity in earnings of
    subsidiaries......................      626,374     434,130             --     (1,060,504)             --
  Other adjustments and changes.......       35,724     (18,848)     2,255,861             --       2,272,737
                                        -----------   ---------    -----------    -----------     -----------
Net cash provided (used in) by
  operations..........................     (108,604)   (211,092)     1,821,731             --       1,502,035
                                        -----------   ---------    -----------    -----------     -----------
Cash flows from investing activities
  Short-term investments..............           --          --         57,509             --          57,509
  Acquisitions of businesses, net of
    cash acquired.....................           --          --     (1,946,197)            --      (1,946,197)
  Capital expenditures................           --          --     (1,651,489)            --      (1,651,489)
  Proceeds from sale of assets........           --          --        621,387             --         621,387
  Acquisition of minority interests...           --          --     (1,673,168)            --      (1,673,168)
  Other, net..........................           --          --         36,821             --          36,821
                                        -----------   ---------    -----------    -----------     -----------
Net cash provided (used in) by
  investing activities................           --          --     (4,555,137)            --      (4,555,137)
                                        -----------   ---------    -----------    -----------     -----------
Cash flows from financing activities
  Proceeds from issuance of long-term
    debt..............................    4,322,318          --      2,079,579             --       6,401,897
  Principal payments on long-term
    debt..............................   (1,171,402)   (786,425)    (2,449,083)            --      (4,406,910)
  Cash dividends......................      (11,750)    (82,060)            --             --         (93,810)
  Net proceeds from issuance of common
    stock.............................      205,863          --             --             --         205,863
  Proceeds from sale of treasury
    stock.............................           --     739,161             --             --         739,161
  Proceeds from exercise of common
    stock options and warrants........      133,119          --             --             --         133,119
  (Increase) decrease in intercompany
    and investments, net..............   (3,356,448)    249,208      3,107,240             --              --
  Other, net..........................           --          --        (23,524)            --         (23,524)
                                        -----------   ---------    -----------    -----------     -----------
Net cash provided (used in) by
  financing activities................      121,700     119,884      2,714,212             --       2,955,796
                                        -----------   ---------    -----------    -----------     -----------
Effect of exchange rate changes on
  cash and cash equivalents...........           --          --         (5,763)            --          (5,763)
                                        -----------   ---------    -----------    -----------     -----------
Increase (decrease) in cash and cash
  equivalents.........................       13,096     (91,208)       (24,957)            --        (103,069)
Cash and cash equivalents at beginning
  of period...........................       14,630      42,630        132,682                        189,942
                                        -----------   ---------    -----------    -----------     -----------
Cash and cash equivalents at end of
  period..............................  $    27,726   $ (48,578)   $   107,725    $        --     $    86,873
                                        ===========   =========    ===========    ===========     ===========

63

WASTE MANAGEMENT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS)

<CAPTION>
                                        PARENT       GUARANTOR    NON-GUARANTOR   ELIMINATIONS   CONSOLIDATION
                                      -----------   -----------   -------------   ------------   -------------
<S>                                   <C>           <C>           <C>             <C>            <C>
Cash flows from operating activities
  Net income (loss).................  $  (938,895)  $  (892,599)   $  (693,098)   $ 1,585,697     $  (938,895)
  Equity in earnings of
    subsidiaries....................      892,599       693,098             --     (1,585,697)             --
  Other adjustments and changes.....        8,013            55      2,996,733             --       3,004,801
                                      -----------   -----------    -----------    -----------     -----------
Net cash provided (used in) by
  operations........................      (38,283)     (199,446)     2,303,635             --       2,065,906
                                      -----------   -----------    -----------    -----------     -----------
Cash flows from investing activities
  Short-term investments............           --            --       (117,668)            --        (117,668)
  Acquisitions of businesses, net of
    cash acquired...................           --            --     (1,685,415)            --      (1,685,415)
  Capital expenditures..............           --            --     (1,332,207)            --      (1,332,207)
  Proceeds from sale of assets......           --            --      1,487,685             --       1,487,685
  Acquisition of minority
    interests.......................           --            --       (104,165)            --        (104,165)
  Other, net........................           --            --        (25,758)            --         (25,758)
                                      -----------   -----------    -----------    -----------     -----------
Net cash provided (used in) by
  investing activities..............           --            --     (1,777,528)            --      (1,777,528)
                                      -----------   -----------    -----------    -----------     -----------
Cash flows from financing activities
  Proceeds from issuance of
    long-term debt..................      107,500       300,000      4,209,218             --       4,616,718
  Principal payments on long-term
    debt............................   (1,090,865)     (289,541)    (2,998,546)            --      (4,378,952)
  Cash dividends....................           --      (309,577)            --             --        (309,577)
  Net proceeds from issuance of
    common stock....................      580,833            --             --             --         580,833
  Proceeds from exercise of common
    stock options and warrants......       36,955        41,220             --             --          78,175
  Stock repurchases.................      (96,960)     (903,248)            --             --      (1,000,208)
  (Increase) decrease in
    intercompany and investments,
    net.............................      509,335     1,329,375     (1,838,710)            --              --
  Other, net........................           --            --        (31,939)            --         (31,939)
                                      -----------   -----------    -----------    -----------     -----------
Net cash provided (used in) by
  financing activities..............       46,798       168,229       (659,977)            --        (444,950)
                                      -----------   -----------    -----------    -----------     -----------
Effect of exchange rate changes on
  cash and cash equivalents.........           --            --         (5,788)            --          (5,788)
                                      -----------   -----------    -----------    -----------     -----------
Increase (decrease) in cash and cash
  equivalents.......................        8,515       (31,217)      (139,658)            --        (162,360)
Cash and cash equivalents at
  beginning of period...............        6,115        73,847        272,340                        352,302
                                      -----------   -----------    -----------    -----------     -----------
Cash and cash equivalents at end of
  period............................  $    14,630   $    42,630    $   132,682    $        --     $   189,942
                                      ===========   ===========    ===========    ===========     ===========

64

WASTE MANAGEMENT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS)

<CAPTION>
                                         PARENT      GUARANTOR    NON-GUARANTOR   ELIMINATIONS   CONSOLIDATION
                                       -----------   ----------   -------------   ------------   -------------
<S>                                    <C>           <C>          <C>             <C>            <C>
Cash flows from operating activities
  Net income (loss)..................  $    24,231   $   41,719    $   207,816    $  (249,535)    $    24,231
  Equity in earnings of
    subsidiaries.....................      (41,719)    (207,816)            --        249,535              --
  Other adjustments and changes......          137       14,072      1,892,516             --       1,906,725
                                       -----------   ----------    -----------    -----------     -----------
Net cash provided (used in) by
  operations.........................      (17,351)    (152,025)     2,100,332             --       1,930,956
                                       -----------   ----------    -----------    -----------     -----------
Cash flows from investing activities
  Short-term investments.............           --           --          1,170             --           1,170
  Acquisitions of businesses, net of
    cash acquired....................           --           --       (509,608)            --        (509,608)
  Capital expenditures...............           --           --     (1,519,272)            --      (1,519,272)
  Proceeds from sale of assets.......           --           --        814,401             --         814,401
  Acquisition of minority
    interests........................           --           --       (342,034)            --        (342,034)
  Other, net.........................           --           --        (35,459)            --         (35,459)
                                       -----------   ----------    -----------    -----------     -----------
Net cash provided (used in) by
  investing activities...............           --           --     (1,590,802)            --      (1,590,802)
                                       -----------   ----------    -----------    -----------     -----------
Cash flows from financing activities
  Proceeds from issuance of long-term
    debt.............................      369,552    1,500,000      2,533,456             --       4,403,008
  Principal payments on long-term
    debt.............................           --     (473,487)    (3,481,097)            --      (3,954,584)
  Cash dividends.....................           --     (308,265)            --             --        (308,265)
  Proceeds from exercise of common
    stock options and warrants.......       53,518       65,766             --             --         119,284
  Stock repurchases..................           --     (473,560)            --             --        (473,560)
  (Increase) decrease in intercompany
    and investments, net.............     (401,492)      14,482        387,010             --              --
  Other, net.........................           --           --         21,958             --          21,958
                                       -----------   ----------    -----------    -----------     -----------
Net cash provided (used in) by
  financing activities...............       21,578      324,936       (538,673)            --        (192,159)
                                       -----------   ----------    -----------    -----------     -----------
Effect of exchange rate changes on
  cash and cash equivalents..........           --           --          2,807             --           2,807
                                       -----------   ----------    -----------    -----------     -----------
Increase (decrease) in cash and cash
  equivalents........................        4,227      172,911        (26,336)            --         150,802
Cash and cash equivalents at
  beginning of period................        1,888      (99,064)       298,676                        201,500
                                       -----------   ----------    -----------    -----------     -----------
Cash and cash equivalents at end of
  period.............................  $     6,115   $   73,847    $   272,340    $        --     $   352,302
                                       ===========   ==========    ===========    ===========     ===========

65

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.

WASTE MANAGEMENT, INC.

<SIGNATURE>
                                            By: /s/ DONALD R. CHAPPEL
                                              ----------------------------------
                                              Donald R. Chappel,
                                              Executive Vice President and Chief
                                                Financial Officer (Principal
                                                Financial Officer)

                                            By: /s/ BRUCE E. SNYDER
                                              ----------------------------------
                                              Bruce E. Snyder,
                                              Vice President and Chief
                                                Accounting Officer (Principal
                                                Accounting Officer)

Date: September 16, 1999

66

EXHIBIT INDEX

<CAPTION>
EXHIBIT
 NUMBER                                  DESCRIPTION
-------                                  -----------
<C>                      <S>
  23.1           -- Consent of Independent Public Accountants
  23.2           -- Consent of Independent Accountants


EXHIBIT 23.1

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the incorporation of our report included in this Current Report on Form 8-K into the Company's previously filed Registration Statements on Form S-8 (Registration Nos. 33-43619, 33-72436, 33-84988, 33-84990, 33-59807, 33-61621, 33-61625, 33-61627, 333-02181, 333-08161, 333-14115, 333-14613, 333-34819, 333-51975, 333-64239, 333-70055, 333-59247, 333-56113), previously filed Registration Statements on Form S-3 (Registration Nos. 333-00097, 333-08573, 333-32471, 333-33889, 333-52197, 333-80063, 333-21035, 333-17453, 333-17421, 33-63143, 333-63893, 333-62547, 33-85018, 33-42988, 33-76226, 33-76224 and 33-43809), and previously filed Registration Statements on Form S-4 (Registration Nos. 333-14109, 33-60103, 33-63981 and 333-32805). It should be noted that we have performed no audit procedures subsequent to February 25, 1999, the date of our report, except with respect to Notes 20 and 21, as to which the date is September 16, 1999. Furthermore, we have not audited any financial statements of Waste Management, Inc. as of any date or for any period subsequent to December 31, 1998.

<SIGNATURE>
                                       /s/ Arthur Andersen LLP

Houston, Texas
September 16, 1999


EXHIBIT 23.2

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the incorporation by reference in the Registration Statements of Waste Management, Inc. on Form S-3 (File Nos. 333-00097, 333-08573, 333-32471, 333-33889, 333-80063, 333-21035, 333-17453, 333-17421, 333-63143, 333-62547, 333-85018, 333-42988, 333-76226, 333-43809, 333-76224, 333-63893 and 333-52197), on Form S-4 (File Nos. 333-63981, 333-60103, 333-14109 and 333-32805), and on Form S-8 (File Nos. 33-43619, 33-72436, 33-84988, 33-84990, 33-59807, 33-61621, 33-61625, 33-61627, 333-02181, 333-08161, 333-14115, 333-14613, 333-34819, 333-51975, 333-64239, 333-70055, 333-59247, and 333-56113), of our report dated March 16, 1998 relating to the consolidated financial statements of USA Waste Services, Inc. as of December 31, 1997, and for the years ended December 31, 1997 and 1996, which appears in this Form 8-K.

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                                              /s/ PRICEWATERHOUSECOOPERS LLP
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                                                  PricewaterhouseCoopers LLP


Houston, Texas
September 16, 1999

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