<PAGE>
 
                                                                    EXHIBIT 13.2

Wheelabrator Technologies Inc. and Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------
(000s omitted, except share amounts)
December 31,                                                                         1994         1995
------------------------------------------------------------------------------------------------------
<S>                                                                            <C>          <C>
Assets
 Current assets:
 Cash and cash equivalents                                                     $   36,133   $   78,732
 Receivables, net of allowance of $9,462 in 1994 and $12,187 in 1995              216,367      215,080
 Inventories                                                                       69,220       62,638
 Costs and earnings in excess of billings                                          42,833       50,497
 Other current assets                                                              58,360       51,312
------------------------------------------------------------------------------------------------------
  Total current assets                                                            422,913      458,259
------------------------------------------------------------------------------------------------------
Property, plant, and equipment, net                                             1,680,002    1,624,159
Cost in excess of net assets of acquired businesses, net                          230,711      233,533
Investments in affiliates                                                         618,971      604,656
Other assets                                                                      324,014      299,586
------------------------------------------------------------------------------------------------------
  Total assets                                                                 $3,276,611   $3,220,193
======================================================================================================

Liabilities and Stockholders' Equity
Current liabilities:
 Current maturities of long-term debt                                          $   35,749   $   35,808
 Due to WMX Technologies, Inc.                                                     53,163           --
 Accounts payable                                                                  94,375       93,327
 Accrued liabilities                                                              189,687      185,273
 Advance payments on contracts                                                     65,966       45,686
------------------------------------------------------------------------------------------------------
  Total current liabilities                                                       438,940      360,094
------------------------------------------------------------------------------------------------------
Long-term debt                                                                    735,933      704,414
Deferred income taxes                                                             326,757      395,645
Deferred income                                                                    89,083       77,513
Other long-term liabilities                                                       261,016      232,262
Commitments and contingencies
Stockholders' equity:
 Preferred stock, par value $1.00 per share; 50,000,000 authorized;
  none issued or outstanding                                                           --           --
 Common stock, par value $0.01 per share; 500,000,000 authorized;
  189,545,407 shares issued in 1994 and 1995                                        1,895        1,895
 Capital in excess of par value                                                   877,428      876,595
 Cumulative translation adjustment                                                (17,650)      (9,986)
 Treasury stock at cost; 3,270,054 shares in 1994, 10,112,610 shares in 1995      (47,489)    (146,494)
 Retained earnings                                                                610,698      728,255
------------------------------------------------------------------------------------------------------
  Total stockholders' equity                                                    1,424,882    1,450,265
------------------------------------------------------------------------------------------------------
   Total liabilities and stockholders' equity                                  $3,276,611   $3,220,193
======================================================================================================
</TABLE>
The accompanying notes are an integral part of these balance sheets.

14
<PAGE>
 
Wheelabrator Technologies Inc. and Subsidiaries

Consolidated Statements of Income
------------------------------------------------------------------------------

<TABLE>
<CAPTION>
 
(000s omitted, except per share amounts)

Years Ended December 31,                        1993         1994         1995
------------------------------------------------------------------------------
<S>                                      <C>          <C>          <C>
Revenue                                   $1,142,219   $1,324,567   $1,451,675
------------------------------------------------------------------------------
 Operating expenses                          792,719      915,237    1,015,269
 Selling and administrative expenses         107,276      119,380      130,976
 Interest expense                             64,484       52,454       60,726
 Interest income                             (18,278)     (14,250)     (11,123)
 Equity in earnings of affiliates
  (1995 reduced by $25.6 million related to
  a special charge recorded by
  WM International)                          (38,462)     (29,348)      (4,998)
 Gains from stock transactions of
  affiliates                                  (7,680)          --           --
 Other income, net                            (4,530)      (1,589)      (2,612)
------------------------------------------------------------------------------
 Income from continuing operations 
  before income taxes                        246,690      282,683      263,437
 Income tax provision                         89,935      102,521      101,288
------------------------------------------------------------------------------
Income from continuing operations            156,755      180,162      162,149
 Equity income from discontinued 
  operations (Note 3)                          6,347        4,733        5,789
 Equity in provision for loss on
  disposal of discontinued operations
  (Note 3)                                        --           --      (30,080)
------------------------------------------------------------------------------
Net income                                $  163,102   $  184,895   $  137,858
==============================================================================
Weighted average common and common
 equivalent shares outstanding               188,900      189,900      185,000
==============================================================================
 
Earnings (loss) per common and
 common equivalent share:
 Continuing operations                    $     0.83   $     0.95   $     0.88
 Discontinued operations                        0.03         0.02        (0.13)
------------------------------------------------------------------------------
Net income                                $     0.86   $     0.97   $     0.75
==============================================================================
</TABLE>

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

                                                                              15
<PAGE>
 
Wheelabrator Technologies Inc. and Subsidiaries
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------
(000s omitted)
Years Ended December 31,                                                           1993        1994        1995
-----------------------------------------------------------------------------------------------------------------
<S>                                                                             <C>         <C>         <C>
Operating Activities
Net income                                                                      $ 163,102   $ 184,895   $ 137,858
Adjustments to reconcile net income to cash flows from operating activities:
  Depreciation and amortization                                                    75,323      95,254     107,814
  Deferred income taxes                                                            61,477      48,909      59,295
  Undistributed earnings of affiliates                                            (38,462)    (29,348)     (4,998)
  Equity in discontinued operations                                                (6,347)     (4,733)     24,291
  Gains from stock transactions of affiliates                                      (7,680)         --          --
  Deferred lease expense                                                           (7,349)     (7,530)    (10,523)
  Changes in assets and liabilities, net of effects of acquired
   and contributed businesses:
     Receivables, net                                                             (21,578)    (29,258)    (11,195)
     Inventories                                                                    4,101      (9,517)      5,014
     Costs and earnings in excess of billings                                     (12,879)     (2,097)     (7,664)
     Other current assets                                                          (2,439)     (2,826)     12,296
     Accounts payable                                                             (32,008)     10,525        (542)
     Accrued liabilities                                                          (21,965)    (19,400)       (933)
     Advance payments on contracts                                                    380      (2,594)    (27,637)
     Other long-term liabilities                                                   23,822     (46,534)    (36,713)
  Other, net                                                                      (23,957)     (6,883)     (9,039)
-----------------------------------------------------------------------------------------------------------------
  Net cash provided by operating activities                                       153,541     178,863     237,324
-----------------------------------------------------------------------------------------------------------------
Investing Activities
Capital expenditures                                                             (291,637)   (105,459)    (37,805)
Proceeds from sale of investments                                                  10,682         583      12,821
Sale of property, plant, and equipment                                              1,682       8,374      12,498
Investments held by trustees                                                        9,917       5,936      36,810
Cash paid for acquisitions, net of acquired cash                                  (14,983)    (25,754)    (12,571)
Other, net                                                                        (27,690)     (6,206)     (5,672)
-----------------------------------------------------------------------------------------------------------------
  Net cash provided by (used for) investing activities                           (312,029)   (122,526)      6,081
-----------------------------------------------------------------------------------------------------------------
Financing Activities
Additions to long-term debt                                                            --     112,985      29,388
Repayments of long-term debt                                                      (83,443)   (160,335)    (61,181)
Net borrowings from WMX Technologies, Inc.                                             --      53,163     (53,163)
Proceeds from exercise of stock options                                             4,205       5,739       3,665
Dividends paid                                                                    (16,826)    (18,954)    (20,301)
Stock repurchase program                                                               --     (47,550)   (102,368)
Other, net                                                                             --      (1,971)      3,154
-----------------------------------------------------------------------------------------------------------------
  Net cash used for financing activities                                          (96,064)    (56,923)   (200,806)
-----------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents                                 (254,552)       (586)     42,599
Cash and cash equivalents at beginning of period                                  291,271      36,719      36,133
-----------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period                                      $  36,719   $  36,133   $  78,732
=================================================================================================================
Supplemental disclosure:
  Interest paid, net of amounts capitalized                                     $  62,490   $  56,015   $  59,812
=================================================================================================================
  Income taxes paid                                                             $  85,441   $  73,790   $  44,099
=================================================================================================================
Significant noncash investing activities:
  Net assets contributed to Rust International Inc.                             $ 244,278   $      --   $      --
=================================================================================================================
  Common stock issued for acquisitions                                          $  30,972   $   2,900   $      --
=================================================================================================================
  Liabilities assumed in acquisitions                                           $  35,427   $  74,938   $   8,232
=================================================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.

16
<PAGE>

<TABLE>
<CAPTION>
Wheelabrator Technologies Inc. and Subsidiaries

Consolidated Statements of Changes in Stockholders' Equity
---------------------------------------------------------------------------------------------------------------------------
(000s omitted)
                                                           Capital in     Cumulative                                      
                                                 Common     Excess of    Translation     Treasury    Retained             
                                                  Stock     Par Value     Adjustment        Stock    Earnings         Total
<S>                                              <C>       <C>           <C>            <C>          <C>         <C>      
---------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1992                       $1,865      $758,646       $(17,785)   $      --    $296,617    $1,039,343
---------------------------------------------------------------------------------------------------------------------------
 Net income                                          --            --             --           --     163,102       163,102
 Dividends declared ($0.08 per share)                --            --             --           --     (14,962)      (14,962)
 Foreign currency translation                        --            --        (15,885)          --          --       (15,885)
 Exercise of stock options                            7         4,195             --            3          --         4,205
 Tax benefit from stock options                      --         3,370             --           --          --         3,370
 Stock issued for acquisitions                       16        30,707             --          249          --        30,972
 Treasury shares from acquisition adjustments        --            --             --         (969)         --          (969)
 Investment in Rust International Inc.               --        77,662             --           --          --        77,662
---------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1993                        1,888       874,580        (33,670)        (717)    444,757     1,286,838
---------------------------------------------------------------------------------------------------------------------------
 Net income                                          --            --             --           --     184,895       184,895
 Dividends declared ($0.10 per share)                --            --             --           --     (18,954)      (18,954)
 Foreign currency translation                        --            --         16,020           --          --        16,020
 Exercise of stock options                            5         4,457             --        1,277          --         5,739
 Tax benefit from stock options                      --         2,134             --           --          --         2,134
 Stock issued for acquisitions                        2         2,898             --           --          --         2,900
 Treasury shares from acquisition adjustments        --            --             --         (499)         --          (499)
 Stock repurchases (3,273,800 shares)                --            --             --      (47,550)         --       (47,550)
 Investment in Rust International Inc.               --        (6,641)            --           --          --        (6,641)
---------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1994                        1,895       877,428        (17,650)     (47,489)    610,698     1,424,882
---------------------------------------------------------------------------------------------------------------------------
 Net income                                          --            --             --           --     137,858       137,858
 Dividends declared ($0.11 per share)                --            --             --           --     (20,301)      (20,301)
 Foreign currency translation                        --            --          7,664           --          --         7,664
 Exercise of stock options                           --        (1,488)            --        5,153          --         3,665
 Tax benefit from stock options                      --           655             --           --          --           655
 Stock repurchases (7,194,600 shares)                --            --             --     (104,154)         --      (104,154)
 Treasury shares from acquisition adjustments        --            --             --           (4)         --            (4)
---------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1995                       $1,895      $876,595       $ (9,986)   $(146,494)   $728,255    $1,450,265 
===========================================================================================================================
</TABLE>

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

                                      17

<PAGE>
 
Wheelabrator Technologies Inc. and Subsidiaries Notes to Consolidated Financial
Statements (000s omitted in all tables except per share amounts)
--------------------------------------------------------------------------------

NOTE 1  BUSINESS DESCRIPTION

Wheelabrator Technologies Inc. ("Wheelabrator" or the "Company"), a majority-
owned subsidiary of WMX Technologies, Inc. ("WMX"), is a multi-faceted
environmental services company involved in two principal global lines of
business: Clean Energy and Clean Water. Clean Energy develops, owns, and
operates trash-to-energy and independent power facilities that generate
electrical power for sale to utilities while providing trash disposal for
municipal and commercial customers. Clean Water's products and services include
equipment and process systems designed for water and wastewater management,
water and wastewater treatment facility operation, and biosolids management. Its
customer base is municipal and industrial in nature. The Company also offers air
quality control systems for industrial and utility applications and has
substantial equity investments in two WMX-controlled companies, Waste Management
International plc ("WM International") and Rust International Inc. ("Rust").
Additional financial information by line of business and geographic area appears
in Note 10.
--------------------------------------------------------------------------------

NOTE 2  SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION

The Company's financial statements are prepared on a consolidated basis and
include the Company and its majority-owned subsidiaries. All significant
intercompany transactions and balances are eliminated. Investments in affiliates
the Company does not control are accounted for using the equity method after
elimination of material interaffiliate transactions.

USE OF ESTIMATES

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect reported amounts of assets, liabilities, income, and expenses and
disclosures of contingencies. Future events could alter such estimates.

CONCENTRATIONS

Wheelabrator's businesses offer a multitude of products and services to a
diverse customer base. As of December 31, 1995, the Company believes it has no
significant customer, supplier, product line, credit risk, geographic, or other
concentrations that could expose the Company to adverse, near-term severe
financial impacts.

REVENUE RECOGNITION

The Company recognizes revenue from certain long-term engineering, equipment
supply, and construction contracts on the percentage-of-completion basis, with
estimated losses recognized in full when identified. All other revenue is
recognized when services are rendered or products are shipped.

DEVELOPMENT AGREEMENT

Through August 1994, the Company and WMX were parties to an agreement that
provided for reimbursement by WMX of certain project development expenses
incurred by Wheelabrator, subject to certain limitations. Wheelabrator billed
WMX $6.9 million and $7.6 million under this agreement during 1993 and 1994,
respectively.

FOREIGN CURRENCY

Certain foreign subsidiaries' income statement accounts are translated at the
average exchange rates in effect during the period, while assets and liabilities
are translated at the rates of exchange at the balance sheet date. The resulting
balance sheet translation adjustments are charged or credited directly to
stockholders' equity. Foreign exchange transaction gains and losses realized
during 1993, 1994, and 1995 were not significant.

CONSOLIDATED STATEMENTS OF CASH FLOWS

For purposes of the Consolidated Statements of Cash Flows, all highly liquid
instruments purchased with an original maturity of three months or less, and
investments with WMX, are considered to be cash equivalents.

  Wheelabrator and WMX are parties to a Master Intercorporate Agreement that
provides, among other things, for Wheelabrator to lend excess cash to WMX at
interest rates at least as favorable as those Wheelabrator could otherwise
obtain. In August 1995, this agreement was extended through December 31, 1996,
and will automatically renew on an annual basis thereafter unless either party
provides 90-day notice of termination. Under the agreement's terms, in the event
Wheelabrator requires short-term cash for the conduct of its business and
operations, WMX will make available to Wheelabrator such amounts as Wheelabrator
requires, up to a total of $100.0 million in excess of amounts loaned by
Wheelabrator to WMX. In addition, a right of set-off exists for amounts owed by
either Wheelabrator or WMX. As such, net amounts invested with WMX pursuant to
this agreement are considered to be highly liquid cash equivalents and are
included in cash and cash equivalents on the Company's Consolidated Balance
Sheets. At December 31, 1994, the Company had net borrowings from WMX of
approximately $53.2 million. As of December 31, 1995, the Company had
investments with WMX of $37.3 million.

DERIVATIVE FINANCIAL INSTRUMENTS

From time to time, the Company uses derivatives to manage currency and interest
rate risk. The portfolio of such instruments (which are held for purposes other
than trading) at December 31, 1995, is set forth below:

INTEREST RATE AGREEMENT  As part of the long-term financing of the Company's
Frackville, Pennsylvania, independent power facility, Wheelabrator was required
to enter into an interest rate swap agreement to reduce the impact of changes in
interest rates on the underlying variable rate term loans. Under the agreement,
which expired in December 1995, Wheelabrator paid a fixed interest rate of 9.65
percent and received floating interest rate payments from the counterparty at
LIBOR without the exchange of the underlying $25 million notional amount. Net
differences paid or received were included as part of interest expense over the
life of the agreement. Wheelabrator incurred $1.3 million and $0.7 million of
net interest expense under this agreement during 1994 and 1995, respectively,
which increased the effective interest rate on the related debt by approximately
four percent in 1994 and three percent in 1995.
                                                                
CURRENCY AGREEMENTS  During 1994, the Company used foreign currency derivatives
to mitigate the impact of currency fluctuations on its equity in the earnings of
its WM International affiliate. Although the Company's purpose for using such
derivatives was to hedge currency risk, they did not qualify for hedge
accounting under generally accepted accounting principles and accordingly, were
marked to market at the end of each interim accounting period. The derivatives
in place during 1994 consisted of offsetting 
--------------------------------------------------------------------------------

18
<PAGE>
 
--------------------------------------------------------------------------------

put and call options with different strike prices. The Company received or paid,
based on the notional amount of the option, the difference between the average
exchange rate of the hedged currency against the base currency and the average
(strike price) contained in the option. Complex instruments involving
multipliers or leverage were not used. Although the Company incurred an expense
in connection with these agreements, it recognized an offsetting increase in the
translation of foreign earnings from foreign investees. All options expired in
December 1994. The gains and losses recognized on these collars during 1994 were
immaterial. Management carefully monitors market conditions and may enter
similar agreements in the future when it is deemed beneficial.

  In addition, Wheelabrator has sold an immaterial amount of U.S. Dollars,
German Deutsche Marks, British Pounds, French Francs, Italian Lira, and Dutch
Guilders forward for delivery at various dates in 1996 to hedge foreign exchange
exposure on specifically identified transactions. Gains or losses on these
hedges are included in the measurement of the subsequent transaction. Where
deemed advantageous, management will enter similar hedges in the future to
mitigate foreign exchange exposure.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company's financial instruments consist primarily of cash and cash
equivalents, receivables, investments held by trustees, accounts payable, and
debt instruments. The book values of cash and cash equivalents, receivables,
investments held by trustees, and accounts payable are considered to be
representative of their respective fair values. The aggregate fair market value
of Wheelabrator's long-term debt was approximately $828.3 million and $885.2
million on December 31, 1994 and 1995, respectively. The fair value of the
Company's long-term debt was determined by discounting future cash flows at the
quoted or estimated current rate applicable to each type of debt. See Note 6 for
the terms and carrying values of the Company's various debt instruments. The
fair value of the Frackville interest rate swap was a liability of approximately
$0.6 million on December 31, 1994. The fair value of the interest rate swap was
the estimated amount that the counterparty would have received to terminate the
swap agreement at the balance sheet date.

INVENTORIES

Inventories are stated at the lower of cost (first-in, first-out method) or
market (net realizable value).

PROPERTY, PLANT, AND EQUIPMENT

Property, plant, and equipment (including major improvements) are capitalized
and stated at cost. Items of an ordinary maintenance or repair nature are
charged directly to operating expense. The cost less estimated salvage value of
property, plant, and equipment (except for land and unutilized land options) is
generally depreciated on a straight-line basis over estimated useful lives that
range from 3 to 35 years.

  Under a land option agreement with a WMX subsidiary, the Company has the
exclusive right to purchase or lease sites for trash-to-energy or other
facilities at existing or future landfills owned by the subsidiary. These land
options are classified as property, plant, and equipment. The option cost
attributable to each utilized site will be allocated to a facility and amortized
on a straight-line basis over the estimated useful life of the facility upon
commencement of operations. During 1994, amortization began on $29.6 million
worth of exercised land options as two facilities located on such sites
commenced operations. During 1995, the land option agreement was amended to
include, among other things, a guarantee of value for Wheelabrator and an
extension through 2020. The Company paid $15.0 million to WMX in conjunction
with this amendment, which amount was capitalized net of amounts previously
accrued and capitalized in conjunction with an earlier extension option.

CAPITALIZED INTEREST

The Company capitalizes interest on significant projects under construction in
accordance with Statement of Financial Accounting Standards No. 34. Amounts
capitalized and netted against interest expense in the Consolidated Statements
of Income were $10.0 million in 1993, $12.1 million in 1994, and $0.1 million in
1995.

COST IN EXCESS OF NET ASSETS OF ACQUIRED BUSINESSES

The excess of cost over fair value of the net assets of acquired businesses
("goodwill") is amortized on a straight-line basis over a maximum of 40 years.
The accumulated amortization balances as of December 31, 1994 and 1995, were
$15.9 million and $22.3 million, respectively. On an ongoing basis, the Company
measures realizability of goodwill by the ability of the acquired businesses to
generate current and undiscounted expected future cash flow in excess of
unamortized goodwill. If such realizability is in doubt, an adjustment is made
to reduce the carrying value of the goodwill. Such adjustments have not
historically been material to the Company's financial statements.

DISPOSAL CREDITS

The Company classifies disposal credits as other assets until applied against
the cost of disposing of materials such as biosolids or ash residue from its
trash-to-energy facilities at WMX landfills. These credits are charged to
expense as utilized. The Company utilized $2.5 million and $3.0 million of
disposal credits during 1994 and 1995, respectively. There were approximately
$34.2 million and $31.2 million of disposal credits remaining at December 31,
1994 and 1995, respectively.

FACILITY MAINTENANCE ACCRUAL

In order to match more consistently expenditures for major repair and overhaul
activities with revenue, the Company follows a policy of accruing for major
maintenance expenditures at its trash-to-energy and independent power
facilities. Such accruals are based upon planned maintenance expenditures and
are classified as current or noncurrent liabilities based on the expected timing
of the expenditures.
                                                           
INCOME TAXES

Income taxes are provided based on earnings reported for financial statement
purposes. The provision for income taxes differs from the amounts currently
payable because of timing differences in the recognition of certain income and
expense items for financial reporting and tax reporting purposes. In accordance
with Statement of Financial Accounting Standards No. 109, the Company accounts
for income taxes using an asset and liability method. The asset and liability
method requires the recognition of deferred tax liabilities and assets for the
expected future tax consequences of temporary differences between tax bases and
financial reporting bases of assets and liabilities, measured using the enacted
tax rates and laws that will be in effect when the differences are expected to
reverse. Deferred income taxes are not provided on undistributed earnings of
affiliates because these earnings are considered to be permanently reinvested.
If the reinvested earnings were to be remitted, the U.S. income taxes due under
current tax law would not be material. Investment credits have been deferred and
are included in income as a reduction of income tax expense over the estimated
useful lives of the assets that gave rise to the credits. See Note 4.
--------------------------------------------------------------------------------

                                                                              19
<PAGE>
 
Wheelabrator Technologies Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
--------------------------------------------------------------------------------

ENVIRONMENTAL COSTS AND LIABILITIES

The Company operates in the environmental industry and the majority of its
businesses are involved 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. While the Company
is faced, in the normal course of its business, with the need to expend funds
for environmental protection, it does not expect such expenditures to have a
material adverse effect on its financial condition or results of operations
because its business is based upon compliance with environmental laws and
regulations and its products and services are priced accordingly. Although
unlikely in the near-term, such ongoing compliance costs may increase in the
future as a result of legislation or regulation. However, the Company believes
that in general it benefits from increased government regulation, which
increases the demand for its products and services, and that it has the
resources and experience to manage environmental risk.

  Estimated closure and postclosure monitoring costs associated with ash
residue monofills for which the Company is responsible include items such as
final cap and cover on the site, leachate management, and groundwater
monitoring. These costs are recognized in proportion to use of the permitted
capacity at such disposal sites. Such costs are estimated based on the technical
requirements of EPA or applicable state regulations, whichever are stricter.
These accruals for closure and postclosure costs relate to expenditures to be
incurred after a monofill ceases to accept ash residue. To the extent similar
costs are incurred during the active life of the site, they are expensed as
incurred. Preparation costs associated with these sites and their individual
cells are capitalized and amortized over the respective estimated life of the
disposal site or individual cell.

  Wheelabrator has instituted procedures to periodically evaluate other
potential environmental exposures. When the Company concludes it is probable
that a liability has been incurred, provision is made in the financial
statements, based upon management's judgment and prior experience, for the
Company's best estimate of the liability. Such estimates are subsequently
revised as deemed necessary when additional information becomes available. While
the Company does not anticipate that any such adjustment would be material to
its financial statements, it is reasonably possible that future technological,
regulatory or enforcement developments, results of environmental studies, or
other factors could alter this expectation and necessitate the recording of
additional liabilities, which could be material.

  The Company has recorded liabilities for closure and postclosure monitoring
and environmental remediation costs as follows:

<TABLE>
<CAPTION>
December 31,                        1994     1995
---------------------------------------------------
<S>                                <C>      <C>
Current portion, included in
  accrued liabilities              $ 4,562  $11,452
Noncurrent portion, included in
  other long-term liabilities       17,145    6,677
                                   -------  -------
Total environmental liabilities    $21,707  $18,129
                                   =======  =======
</TABLE>

  During the remaining life of active sites, the Company anticipates providing
an additional $2.1 million of closure and postclosure costs.

CONTRACTS IN PROCESS

Information with respect to contracts in process at December 31, 1994 and 1995,
is as follows:

<TABLE>
<CAPTION>
December 31,                                 1994        1995
---------------------------------------------------------------
<S>                                       <C>         <C>
Costs and estimated earnings
on uncompleted contracts                  $ 601,650   $ 450,202
Less: Billings on uncompleted contracts    (624,783)   (445,391)
                                          ---------   ---------
Total contracts in process                $ (23,133)  $   4,811
                                          =========   =========
  Contracts in process are included in the Consolidated Balance 
Sheets under the following captions:

December 31,                                 1994        1995
---------------------------------------------------------------
Costs and earnings in excess of billings  $  42,833   $  50,497
Advance payments on contracts               (65,966)    (45,686)
                                          ---------   ---------
Total contracts in process                $ (23,133)  $   4,811
                                          =========   =========
</TABLE> 
  All contracts in process are expected to be billed and collected within three
years.

  Accounts receivable includes retainage that has been billed but is not due
pursuant to contract provisions until completion. Such retainage at December 31,
1995, is $14.2 million, including $1.3 million that is expected to be collected
after one year. At December 31, 1994, retainage was $14.6 million.

EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE

Earnings per common and common equivalent share is calculated by dividing net
income by the weighted average number of shares outstanding, including the
effect of common stock equivalents determined using the treasury stock method.
Common stock equivalents consist of unexercised stock options. The treasury
stock method assumes that options with an exercise price below the average
market price for the period are exercised at the beginning of the period and the
proceeds from the exercise of such options are used to repurchase common stock.

  The following table reconciles the number of common shares shown as
outstanding in the Consolidated Balance Sheets with the number of common shares
used in computing earnings per share:

<TABLE>
<CAPTION>
Years Ended December 31,                               1994     1995
----------------------------------------------------------------------
<S>                                                   <C>      <C>
Common shares issued,
  net of treasury stock per
  Consolidated Balance Sheets                         186,275  179,433
Effect of shares issuable under
  stock options after applying
  the "treasury stock" method                             782      643
Effect of using weighted
  average common shares
  outstanding during the year                           2,843    4,924
                                                      -------  -------
Common shares used in computing earnings per share    189,900  185,000
                                                      =======  =======
</TABLE>

ACCOUNTING PRONOUNCEMENTS

Effective January 1, 1994, Wheelabrator adopted Statement of Financial
Accounting Standards No. 112 "Employers' Accounting for Postemployment Benefits"
("FAS 112"). This new statement established accounting standards for employers
who provide benefits to former or inactive employees after employment but before
retirement. The adoption of FAS 112 did not have a material impact on the
Company's financial statements since its accounting prior to adoption of FAS 112
was substantially in compliance with 

20
<PAGE>
 
--------------------------------------------------------------------------------

the new standard. Also effective during 1994 was Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Debt and Equity
Securities" ("FAS 115"). The Company does not have significant investments and
does not contemplate acquiring significant investments of the type covered in
FAS 115.

  The Company is required to adopt Statement of Financial Accounting Standards
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of" ("FAS 121"), beginning in 1996. Wheelabrator does not
believe the adoption of FAS 121 will have a material impact on its financial
statements.

  In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("FAS 123"), which the Company also must adopt in 1996. FAS 123
provides an optional new method of accounting for employee stock options and
expands required disclosure about stock options. If the new method of accounting
is not adopted, the Company will be required to disclose pro forma net income
and earnings per share as if it were. The Company is studying FAS 123 and is
gathering data necessary to calculate compensation in accordance with its
provisions, but has not decided whether to adopt the new method or quantified
its impact on the financial statements.

RECLASSIFICATION

Certain prior period amounts have been reclassified to conform with the current
year presentation.
--------------------------------------------------------------------------------

NOTE 3  CAPITAL TRANSACTIONS, ACQUISITIONS, AND DIVESTITURES

WM INTERNATIONAL

Wheelabrator owns approximately 12 percent of WM International, a WMX subsidiary
that owns substantially all of WMX's waste management services operations
outside of North America. The investment is accounted for using the equity
method due to the significance, through WMX, of Wheelabrator's influence over WM
International. As of December 31, 1995, WM International was owned approximately
12 percent by Wheelabrator, 12 percent by Rust, 56 percent by WMX, and 20
percent by the public.

  During 1993, 1994, and 1995, respectively, Wheelabrator recorded equity in net
income (loss) of WM International of $13.8 million, $15.2 million, and $(5.1)
million. The Company's equity income was reduced by approximately $25.6 million
during the fourth quarter of 1995 for its share of a largely noncash special
charge recorded by WM International. The charge related to actions WM
International is taking to sell or otherwise dispose of noncore businesses and
investments as well as core businesses and investments in low potential markets,
abandon certain hazardous waste treatment and processing technologies, and
streamline its country management organization. The charge followed a thorough
review of WM International's operations and management structure, and reflects
WM International's intention to refocus on its core waste services business.
Wheelabrator's investment in WM International totaled approximately $226.0
million and $228.7 million as of December 31, 1994 and 1995, respectively.
Included within these investment balances are undistributed earnings of
approximately $52.0 million and $47.0 million as of December 31, 1994 and 1995,
respectively. As of December 31, 1995, the market value of the Company's WM
International investment exceeded its book value by approximately $13.2 million.

  A summary of certain financial information for WM International follows:

<TABLE>
<CAPTION>
December 31,                                              1994        1995
--------------------------------------------------------------------------------
<S>                         <C>         <C>         <C>
Current assets                                      $  828,011  $  859,591
Noncurrent assets                                    3,216,661   3,375,998
Current liabilities                                    788,769   1,077,746
Noncurrent liabilities                               1,042,062     893,717
Minority interest                                      330,172     357,934


Years Ended December 31,                      1993        1994        1995
--------------------------------------------------------------------------------
Revenue                                 $1,411,211  $1,710,862  $1,865,081
Gross profit                               402,065     466,265     260,206
Net income (loss)                          114,246     126,753     (42,112)
</TABLE> 

RUST

Wheelabrator owns approximately 40 percent of Rust, an environmental and
infrastructure engineering and consulting company. The remaining 60 percent of
Rust is owned directly or indirectly by WMX. During 1993, 1994, and 1995,
Wheelabrator recorded equity in income from continuing operations of Rust of
$25.0 million, $14.4 million, and $10.2 million, respectively. During 1993, the
Company also recognized a nontaxable gain of $7.7 million from Rust's issuance
of additional shares of its common stock. Wheelabrator's investment in Rust
totaled approximately $387.2 million and $373.1 million as of December 31, 1994
and 1995. The investment balance includes approximately $51.5 million and $37.4
million of undistributed earnings as of December 31, 1994 and 1995,
respectively.

  A summary of certain financial information for Rust follows:

<TABLE>
<CAPTION>
December 31,                                  1994        1995
--------------------------------------------------------------------------------
<S>                                     <C>         <C>
Current assets                          $  494,595  $  258,033
Noncurrent assets(1)                     1,277,060   1,260,844
Current liabilities                        254,068     123,207
Noncurrent liabilities                     545,624     450,696
</TABLE>

(1)  1995 noncurrent assets include approximately $130.6 million of net assets
     held for sale.

<TABLE>
<CAPTION>
Years Ended December 31,          1993        1994        1995
--------------------------------------------------------------------------------
<S>                         <C>         <C>         <C>
Revenue                     $1,035,004  $1,140,294  $1,027,430
Gross profit                   226,198     225,165     210,902
Income from
continuing operations           64,355      43,754      25,514
Net income (loss)               79,964      55,587     (35,213)
</TABLE>

DISCONTINUED OPERATIONS

In the fourth quarter of 1995, Rust announced that as a result of its ongoing
strategic review, it will sell or discontinue its process engineering,
construction, specialty contracting, and similar lines of business and focus on
its environmental and infrastructure engineering and consulting business. Rust
has classified the businesses to be disposed of as discontinued operations.
Wheelabrator has a 40 percent equity interest in Rust, and accordingly, has
recorded 40 percent of Rust's provision for loss on the disposal of these
operations. The Company's equity in the income from this segment of Rust has
also been reported separately from continuing operations.

  The provision for loss on disposal of discontinued operations includes
management's best estimates of the amounts expected to be realized on the sale
of these businesses. The amounts Rust will ultimately realize could differ
materially in the near-term from the amounts estimated in arriving at the
provision for loss.


                                                                              21
<PAGE>
 
Wheelabrator Technologies Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
--------------------------------------------------------------------------------

  During 1993, 1994, and 1995, Wheelabrator paid Rust approximately $144.7
million, $101.6 million, and $26.8 million, respectively, for engineering,
construction management, and other services. The terms of transactions between
the Company and Rust are generally the same as the terms of comparable
transactions with unaffiliated third parties.

ACQUISITIONS

In 1993, the Company acquired seven businesses engaged in providing water and
air quality-related environmental products and services as well as independent
power in exchange for approximately 1.6 million shares of Wheelabrator common
stock and $15.0 million of cash. In 1994, in exchange for approximately 156
thousand shares of Wheelabrator common stock and $25.8 million of cash, the
Company acquired wastewater treatment operating contracts and nine businesses
engaged in providing air and water quality-related environmental products and
services and in manufacturing surface finishing equipment. During 1995,
Wheelabrator completed the privatization of the Miami Conservancy District
wastewater treatment plant located in Franklin, Ohio, at a cost of approximately
$6.8 million. Also during 1995, the Company acquired a Taiwanese company engaged
in the design and engineering of water treatment equipment for approximately
$5.8 million, net of cash acquired. The Company utilizes the purchase method of
accounting, and the purchase price of the foregoing acquisitions has been
allocated to their respective net assets based upon estimated fair market
values. The results of operations of acquired entities have been included in
Wheelabrator's financial statements from their respective dates of acquisition.
The pro forma effect of the acquisitions made during 1993, 1994, and 1995 is not
material.

--------------------------------------------------------------------------------
NOTE 4  INCOME TAXES

Summaries of the Company's income from continuing operations before income taxes
and its income tax provisions are given below.

<TABLE> 
<CAPTION> 

INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES

Years Ended December 31,                           1993       1994       1995
--------------------------------------------------------------------------------
<S>                                            <C>        <C>        <C>
Domestic                                       $235,680   $272,650   $250,249
International                                    11,010     10,033     13,188
                                               --------   --------   --------
Total                                          $246,690   $282,683   $263,437
                                               ========   ========   ========
 
INCOME TAX PROVISION (BENEFIT)

Years Ended December 31,                           1993       1994       1995
--------------------------------------------------------------------------------
Current tax expense
 U.S. Federal                                  $ 16,021   $ 37,152   $ 25,945
 State and local                                  9,333     13,636     10,062
 Foreign                                          3,883      3,603      6,765
                                               --------   --------   --------
 Total current                                   29,237     54,391     42,772
                                               --------   --------   --------
Deferred tax expense
 U.S. Federal                                    54,780     43,713     51,046
 State and local                                  6,697      4,860      9,855
 Foreign                                             --        336     (1,606)
                                               --------   --------   --------
 Total deferred                                  61,477     48,909     59,295
                                               --------   --------   --------
U.S. Federal benefit from
 amortization of deferred
 investment credit                                 (779)      (779)      (779)
                                               --------   --------   --------
Total provision                                $ 89,935   $102,521   $101,288
                                               ========   ========   ========
</TABLE>

  The principal items accounting for the difference in income taxes computed at
the U.S. statutory rates and as recorded are as follows:

<TABLE>
<CAPTION>
Years Ended December 31,                           1993       1994       1995
--------------------------------------------------------------------------------
<S>                                                <C>        <C>        <C>
Statutory federal income tax rate                  35.0%      35.0%      35.0%
State income taxes after
 federal income tax benefit                         4.2        4.3        4.9
Equity income                                      (5.5)      (3.6)      (0.7)
Deferred tax revaluation
 relating to Omnibus Budget
 Reconciliation Act                                 2.6         --         --
Other, net                                          0.2        0.6       (0.8)
                                                   ----       ----       ----
Effective tax rate                                 36.5%      36.3%      38.4%
                                                   ====       ====       ====
</TABLE>

  During 1993, the Company recorded a $6.5 million increase in deferred income
taxes due to the impact that the tax rate increase enacted in the Omnibus Budget
Reconciliation Act of 1993 had on the net deferred income tax liability. The
principal items that comprise the 1994 and 1995 deferred tax (assets) and
liabilities are as follows:

<TABLE>
<CAPTION>
December 31,                                                 1994        1995
--------------------------------------------------------------------------------
<S>                                                       <C>         <C>
Reserves not deductible until paid                        $(107,761)  $(102,400)
Deferred income                                             (25,233)    (22,907)
Basis difference in investments                                                
 and capital loss carryforwards                             (12,904)     (8,579)
Alternative minimum                                                            
 tax credit carryforwards                                   (17,289)    (24,581)
State net operating loss carryforwards                      (12,431)    (13,435)
Other                                                       (13,787)       (410)
Less: Valuation allowance                                    15,989      10,952
                                                          ---------   ---------
 Subtotal                                                  (173,416)   (161,360)
                                                          ---------   ---------
Property, plant, and equipment                              444,127     508,468
Nondeductible prepaid expenses                               13,876      11,817
Other                                                        42,170      36,720
                                                          ---------   ---------
 Subtotal                                                   500,173     557,005
                                                          ---------   ---------
Total deferred tax liability                              $ 326,757   $ 395,645
                                                          =========   ========= 
</TABLE>

  The Company has approximately $24.6 million of alternative minimum tax credit
carryforwards that may be carried forward indefinitely. The Company has capital
loss carryforwards of approximately $15 million with an expiration date of 1998.
Also, various subsidiaries have state operating loss carryforwards of
approximately $310 million with expiration dates through the year 2010.
Valuation allowances have been established due to the uncertainty of ultimately
realizing the tax benefit of certain state net operating loss carryforwards and
the tax benefits attributed to basis differences in certain investments. While
the Company expects to realize the deferred tax assets in excess of the
valuation allowances, changes in estimates of future taxable income or tax laws
could alter this expectation. The valuation allowance decreased $4.4 million
during 1994 primarily as a result of the realization of tax benefits due to the
disposition of certain investments. During 1995, the valuation allowance
decreased $5.0 million due primarily to the realization of capital loss
carryforwards.

22

<PAGE>
 
--------------------------------------------------------------------------------

NOTE 5  CAPITAL STOCK

COMMON STOCK

As of December 31, 1995, approximately 104.6 million shares of the Company's
common stock were held by WMX or its subsidiaries. Under certain circumstances,
WMX has options to purchase at fair market value newly issued shares of
Wheelabrator common stock. WMX also has certain registration rights until August
24, 1999, with respect to certain of the Wheelabrator common stock it holds.

  During 1994 and 1995, the Company repurchased approximately 3.3 million and
7.2 million shares of its common stock for an aggregate cost of approximately
$47.6 million and $104.2 million, respectively. The Company is authorized to
repurchase an additional 19.2 million shares of its common stock through
December 1997 on the open market or in privately negotiated transactions, if
market conditions make it attractive to do so.

  The Company declared and paid cash dividends totaling $0.08, $0.10, and $0.11
per common share during 1993, 1994, and 1995, respectively.
--------------------------------------------------------------------------------

NOTE 6  LONG-TERM DEBT AND LEASE COMMITMENTS

Long-term debt is as follows:

<TABLE> 
<CAPTION> 

December 31,                                                      1994      1995
--------------------------------------------------------------------------------
<S>                                                           <C>       <C>     
Industrial development revenue bonds due 1996 to 2010 
  at rates of 4.0%-9.25%                                      $686,210  $666,678
Private placement bonds due 2008 at a rate of 10.64%            20,000    20,000
Project financing from syndicate of commercial banks 
  due 1995 to 2000 at a rate of 1.5% above LIBOR (8.44% 
  at December 31, 1994)                                         33,699        --
Project financing from commercial bank due 1996 to 2000 
  at a rate of 0.325% above LIBOR (6.2625% at December 31, 
  1995)                                                             --    28,641
Secured notes payable related to coal-handling facilities 
  due 1996 to 1999 at rates of 9.0%-9.875%                      24,950    20,327
Other nonproject debt due 1996 to 2008 at rates of 
  2.857% to 10.0%                                                6,823     4,576
                                                              --------  --------
                                                               771,682   740,222
Less: Current portion                                           35,749    35,808
                                                              --------  --------
Total long-term debt                                          $735,933  $704,414
                                                              ========  ========
</TABLE>

  At December 31, 1995, the Company's long-term project debt was collateralized
by property, plant, and equipment with a net book value of approximately $731.1
million and approximately $45.6 million of investments held by trustees.
Investments held by trustees typically represent proceeds of long-term debt
related to trash-to-energy and independent power projects. These amounts
generally consist of reserve funds maintained pursuant to project financing
agreement requirements. The investments, which are included in other assets in
the Consolidated Balance Sheets, are held in trust and use by the Company is
restricted. Also included within other assets are deferred financing costs,
which are amortized over the term of the related debt using a straight-line
method that approximates the interest method.

  Financing for certain trash-to-energy facilities currently operated by the
Company has been provided through sale and leaseback transactions arranged in
previous years. The leases are classified as operating leases, with lease
expense recognized on a straight-line basis over the base and bargain renewal
periods of each agreement. Timing differences between lease payments and
financial statement lease expense are included in other assets in the
Consolidated Balance Sheets. Gains realized on the sale transactions are
included in deferred income in the Consolidated Balance Sheets and are amortized
on a straight-line basis over the terms of the respective leases.

  Principal payments on long-term debt and noncancelable operating lease
payments for operating and office facilities at December 31, 1995, are due as
follows:

<TABLE>
<CAPTION>
                           Long-term Debt                       Operating Leases
--------------------------------------------------------------------------------
<S>                              <C>                                  <C>
1996                             $ 35,808                             $   87,399
1997                               34,312                                 88,555
1998                               43,160                                 89,182
1999                               43,541                                 92,466
2000                               43,090                                 93,156
Thereafter                        540,311                                651,153
                                 --------                             ----------
Total                            $740,222                             $1,101,911
                                 ========                             ==========
</TABLE>

  Total rent expense was $71.4 million, $72.7 million, and $70.5 million for the
years ended December 31, 1993, 1994, and 1995, respectively.

  The Company has directly or indirectly guaranteed the payment of debt
obligations at certain of its leased or owned facilities (see also Note 9).
These guarantees contain various covenants, the most restrictive of which
require the maintenance of specified levels of tangible net worth. The Company
is in compliance with these covenants as of December 31, 1995.

  Resco Holdings Inc. ("Resco"), a wholly-owned subsidiary of Wheelabrator, and
Allied Signal Inc. ("Allied Signal") are parties to an agreement that provides
for specific credit support by Allied Signal for certain of Resco's trash-to-
energy project subsidiaries. Under the agreement, Allied Signal may require
Resco to refinance, without Allied Signal credit support, indebtedness of
supported trash-to-energy projects if it is economical (as defined in the
agreement) to do so. Resco and certain of its subsidiaries have agreed to
reimburse Allied Signal for all amounts that may be paid by it under the
agreement or various related credit support obligations. No support payments
have been made by Allied Signal as of December 31, 1995.

  Resco is also required to maintain a minimum level of tangible net worth
(approximately $549.8 million as of December 31, 1995). As of December 31, 1995,
Resco was in compliance with this provision. Resco has agreed not to declare or
pay any cash dividends to the Company at any time Resco's tangible net worth is
less than the required amount. Resco owns substantially all of the net operating
assets of the Company except certain net assets including cash and investments.
The Company has the ability to pay cash dividends using assets other than those
restricted within Resco.

                                                                              23
<PAGE>
 
Wheelabrator Technologies Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)
--------------------------------------------------------------------------------

NOTE 7  STOCK AND BENEFIT PLANS

STOCK OPTION PLANS

Wheelabrator's stock option plans provide for the grant to key employees of
nonqualified options to purchase shares of the Company's common stock at a price
equal to the fair market value at the time of grant. When nonqualified options
are exercised, the Company receives a federal income tax deduction equal to the
market value of the shares at exercise date less the exercise price. The
associated tax savings is credited to capital in excess of par value.

  The status of the plans (including predecessor plans under which options
remain outstanding) through December 31, 1995, was as follows:

<TABLE>
<CAPTION>
                                      Shares        Option Price
----------------------------------------------------------------
<S>                                   <C>      <C>     <C> 
December 31, 1992
 Outstanding                           5,464     $ 3.87 - $15.75
 Available for future grant            5,714         --       --
                                      ------
1993: Granted                            673     $17.69 - $20.65
 Exercised                            (1,031)    $ 3.87 - $15.75
 Cancelled:
  Predecessor plans                      (14)             $11.90
  Current plans                          (46)    $14.25 - $20.65
                                      ------
December 31, 1993
 Outstanding                           5,046     $ 3.87 - $20.65
 Available for future grant            5,087         --       --
                                      ------
1994: Granted                            815              $19.13
Exercised                               (593)    $ 3.87 - $15.75
Cancelled:
  Predecessor plans                      (23)             $11.90
  Current plans                          (98)    $15.75 - $20.65
                                      ------
December 31, 1994
 Outstanding                           5,147     $ 3.87 - $20.65
 Available for future grant            4,370         --       --
                                      ------
1995: Granted                          1,283              $13.63
 Exercised                              (341)    $ 3.87 - $16.75
 Cancelled:
  Predecessor plans                       (6)             $11.90
  Current plans                         (212)    $15.75 - $20.65
                                      ------
December 31, 1995
 Outstanding                           5,871     $ 3.87 - $20.65
                                      ======
 Available for future grant            3,299         --       --
                                      ======
 Exercisable at end of year            3,915     $ 3.87 - $20.65
                                      ======
</TABLE>

  Outstanding options generally have a term of seven years from the date of the
grant and expire at various dates through April 1, 2002.

SAVINGS AND RETIREMENT PLAN

Substantially all employees are participants in the Wheelabrator-Rust Savings
and Retirement Plan, which is a qualified defined contribution plan consisting
of a savings account component (the "Savings Account") and a retirement account
component (the "Retirement Account"). Under the terms of the Savings Account,
eligible employees of the Company may elect to contribute a portion of their
annual compensation not to exceed 16 percent. The Company is required to match a
minimum of 30 percent of the first six percent of eligible compensation
contributed by an employee. Under the terms of the Retirement Account, eligible
employees of the Company receive an annual contribution equal to a minimum of
three percent of their eligible earnings. Employees vest in Company
contributions and the associated earnings in the Savings Account at 20 percent
per year and in the Retirement Account after five years. Wheelabrator's
contributions to such plans during 1993, 1994, and 1995 amounted to
approximately $6.2 million, $8.0 million, and $8.5 million, respectively.

POSTRETIREMENT BENEFITS OTHER THAN PENSIONS

The Company provides certain postretirement benefits other than pensions, which
are primarily health care benefits offered to a limited number of former
employees. The majority of the Company's active employees will not receive
postretirement benefits other than pensions. During the fourth quarter of 1995,
the Company settled litigation with a group of retirees regarding their level of
future benefits. As a result, the accumulated postretirement benefit obligation
for retiree health care plans was reduced by approximately $3.6 million.

  Details of the plans' expense recognized in the Consolidated Statements of
Income are as follows:

<TABLE>
<CAPTION>
Years Ended December 31,      1993     1994     1995
----------------------------------------------------
<S>                         <C>      <C>      <C>
Service cost                $   50   $   59   $   64
Interest cost                2,646    2,590    3,155
Net amortization               (27)     (43)     (55)
                            ------   ------   ------
Total expense               $2,669   $2,606   $3,164
                            ======   ======   ======
</TABLE>

  The following sets forth the plans' funded status reconciled with amounts
reported in the Company's Consolidated Balance Sheets:

<TABLE>
<CAPTION>
December 31,                                   1994     1995
------------------------------------------------------------
<S>                                         <C>      <C>
Accumulated postretirement
 benefit obligation (APBO):
Retirees                                    $37,727  $36,794
Fully eligible active plan participants         433      467
Other active plan participants                  549      432
                                            -------  -------
Total APBO                                   38,709   37,693
Unrecognized:
Prior service cost                              627      566
Gain                                          3,080    1,844
                                            -------  -------
Accrued postretirement benefit liability    $42,416  $40,103
                                            =======  =======
</TABLE>

  For measurement purposes, a 10.0 percent annual rate of increase in the per
capita cost of covered health care claims was assumed for 1996, decreasing by
0.5 percent annually to 7.5 percent in 2001 and remaining at that level
thereafter. Increasing the assumed health care cost trend rates by one
percentage point in each year would increase the accumulated postretirement
benefit obligation as of December 31, 1995, by approximately $3.5 million and
increase the aggregate of the service and interest cost components of net
periodic postretirement benefit cost for 1995 by $0.3 million. The weighted
average discount rate used in determining the accumulated postretirement benefit
obligation was 8.5 percent in 1994 and 7.75 percent in 1995 based on expected
payout patterns.

24
<PAGE>
 
--------------------------------------------------------------------------------

NOTE 8  ADDITIONAL FINANCIAL INFORMATION

The following is a summary of inventories:

<TABLE> 
<CAPTION> 
December 31,                                     1994     1995
--------------------------------------------------------------
<S>                                           <C>      <C>
Raw materials                                 $ 7,997  $16,595
Work in process                                43,961   32,107
Finished goods                                 17,262   13,936
                                              -------  -------
Total inventories                             $69,220  $62,638
                                              =======  =======
</TABLE>

  Included in other current assets are spare parts and supplies of $23.6 million
and $30.2 million as of December 31, 1994 and 1995, respectively.

  The following is a summary of property, plant, and equipment:

<TABLE>
<CAPTION>
December 31,                                  1994         1995
---------------------------------------------------------------
<S>                                     <C>          <C>
Land                                    $  118,971   $  117,427
Land options                               256,225      261,703
Machinery and equipment                  1,271,152    1,318,223
Buildings and improvements                 303,560      312,681
Construction-in-progress                    40,367        8,233
Less: accumulated depreciation            (310,273)    (394,108)
                                        ----------   ----------
Total property, plant, and equipment    $1,680,002   $1,624,159
                                        ==========   ==========
</TABLE>

  Depreciation of property, plant, and equipment for the years ended December
31, 1993, 1994, and 1995 was $62.4 million, $82.6 million, and $90.7 million,
respectively.

  The following is a summary of accrued liabilities:

<TABLE>
<CAPTION>
December 31,                            1994      1995
------------------------------------------------------
<S>                                 <C>       <C>
Wages, salaries, and benefits       $ 30,642  $ 30,079
Interest and lease expense            41,158    44,928
Warranties and contract reserves      14,428    20,602
Other                                103,459    89,664
                                    --------  --------
Total accrued liabilities           $189,687  $185,273
                                    ========  ========
</TABLE>
------------------------------------------------------
NOTE 9  COMMITMENTS AND CONTINGENCIES

The Company has issued or is a party to 461 bank letters of credit, performance
bonds, and other guarantees. Such financial instruments (averaging approximately
$1 million each) are given in the ordinary course of business.

  Since 1994, the Company was involved in litigation concerning permits for the
construction and operation of the Lisbon, Connecticut, trash-to-energy plant.
These matters were resolved during 1995, and the plant began commercial
operations in January 1996.

  In May 1994, the U.S. Supreme Court ruled that state and local governments may
not constitutionally restrict the free movement of trash in interstate commerce
through the use of flow control laws. Such laws typically involve a municipality
specifying the disposal site for all solid waste generated within its borders.
Since the ruling, several decisions of state or federal courts have invalidated
regulatory flow control schemes in a number of jurisdictions. Other judicial
decisions have upheld nonregulatory means by which municipalities may
effectively control the flow of municipal solid waste. There can be no assurance
that such alternatives to regulatory flow control will in every case be found to
be lawful. For example, the Company's Gloucester County, New Jersey, facility
relies on a disposal franchise for substantially all of its supply of municipal
solid waste. A recent federal court ruling in that state invalidated a franchise
applicable to construction and demolition waste and has cast doubt on the
validity of the municipal solid waste disposal franchise, which is now being
challenged in separate litigation. The Supreme Court's ruling has not to date
had a material adverse affect on any of the Company's trash-to-energy
operations. Federal legislation has been proposed, but not yet enacted, to
effectively grandfather existing flow control mandates. In the event that such
legislation is not adopted, the Company believes that affected municipalities
will endeavor to implement alternative lawful means to continue controlling the
flow of waste. In view of the uncertain state of the law at this time, however,
the Company is unable to predict whether such efforts would be successful.

  Within the next five years, the air pollution control systems at certain 
trash-to-energy facilities owned or leased by Wheelabrator will be required to
be modified to comply with more stringent air pollution control standards
adopted by the EPA in October 1995. The compliance dates will vary by facility,
but all affected facilities will be required to be in compliance with the new
rules by the end of the year 2000. Currently available technologies will be
adequate to meet the new standards. Although the total expenditures required for
such modifications are estimated to be in the $250 - $300 million range, they
are not expected to have a material adverse effect on the Company's liquidity or
results of operations because provisions in the impacted facilities' long-term
waste supply agreements allow the Company to recover from customers the majority
of incremental capital and operating costs.

  Wheelabrator has been notified by certain private parties that it may be
potentially responsible for a portion of the remediation costs related to a
certain state-listed remediation site currently subject to an enforcement order
that includes a site assessment study. Although the Company is considering
joining the private parties to share in these costs, no litigation has been
filed and the Company has not been named a potentially responsible party. At the
present time, there is insufficient information available to estimate the
remediation costs or the extent of Wheelabrator's responsibility beyond its
possible voluntary sharing of enforcement order costs. An estimate of those
costs is included in 1995's results of operations and is not material.

  There are various lawsuits and claims pending against Wheelabrator that have
arisen in the normal course of Wheelabrator's business and relate mainly to
matters of product liability, personal injury, and property damage. The outcome
of these matters is not presently determinable, but in the opinion of
management, based on the advice of counsel, the ultimate resolution of these
matters will not have a material adverse effect on the financial condition or
results of operations of the Company. It is reasonably possible, however, that a
change in the Company's estimate of its probable liability with respect to these
matters could occur in the near-term.

  The Company is self-insured for general liability claims up to $2.0 million
per occurrence. Liability insurance in effect during the last several years
provides coverage for environmental matters only to a limited extent.

                                                                              25
<PAGE>
 
Wheelabrator Technologies Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)
--------------------------------------------------------------------------------
NOTE 10  SEGMENT AND GEOGRAPHIC INFORMATION

During 1995, the Company began implementing the recommendations of a strategic
review of WMX and its subsidiaries. Part of this implementation involved
realigning the Wheelabrator organization and management into two principal
industry segments: Clean Energy and Clean Water. Previously, the Company had
been managed and reported as one segment.

  Information concerning the Company's business segments in 1993, 1994, and 1995
follows. Intersegment revenues are at prices that approximate market and are not
material. Prior year information has been restated to conform with the current
presentation.

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------
                                                                                               Corporate &
                                                           Clean Energy(1)    Clean Water    Eliminations(2)    Consolidated
---------------------------------------------------------------------------------------------------------------------------------
<S>                                                        <C>                <C>            <C>                <C>
1993
Revenue                                                      $  761,558        $392,194         $(11,533)        $1,142,219
Operating expenses including goodwill amortization              508,963         294,525          (10,769)           792,719
Selling and administrative expenses                              43,861          63,937             (522)           107,276
                                                             ----------        --------         --------         ----------
Operating income                                             $  208,734        $ 33,732         $   (242)        $  242,224
                                                             ==========        ========         ========         ==========
Identifiable assets                                          $2,018,156        $485,349         $578,204         $3,081,709
                                                             ==========        ========         ========         ==========
Depreciation and amortization expense                        $   56,026        $ 21,446         $ (2,149)        $   75,323
                                                             ==========        ========         ========         ==========
Capital expenditures(3)                                      $  194,645        $112,965         $ (3,705)        $  303,905
                                                             ==========        ========         ========         ==========
1994
Revenue                                                      $  844,703        $489,295         $ (9,431)        $1,324,567
Operating expenses including goodwill amortization              556,838         369,592          (11,193)           915,237
Selling and administrative expenses                              40,859          78,615              (94)           119,380
                                                             ----------        --------         --------         ----------
Operating income                                             $  247,006        $ 41,088         $  1,856         $  289,950
                                                             ==========        ========         ========         ==========
Identifiable assets                                          $2,055,449        $587,480         $633,682         $3,276,611
                                                             ==========        ========         ========         ==========
Depreciation and amortization expense                        $   56,678        $ 40,813         $ (2,237)        $   95,254
                                                             ==========        ========         ========         ==========
Capital expenditures(3)                                      $   74,857        $ 35,725         $  4,500         $  115,082
                                                             ==========        ========         ========         ==========
1995
Revenue                                                      $  839,484        $618,472         $ (6,281)        $1,451,675
Operating expenses including goodwill amortization              546,018         477,842           (8,591)         1,015,269
Selling and administrative expenses                              41,074          89,922              (20)           130,976
                                                             ----------        --------         --------         ----------
Operating income                                             $  252,392        $ 50,708         $  2,330         $  305,430
                                                             ==========        ========         ========         ==========
Identifiable assets                                          $1,952,457        $612,824         $654,912         $3,220,193
                                                             ==========        ========         ========         ==========
Depreciation and amortization expense                        $   64,922        $ 44,744         $ (1,852)        $  107,814
                                                             ==========        ========         ========         ==========
Capital expenditures(3)                                      $   11,676        $ 33,415         $     10         $   45,101
                                                             ==========        ========         ========         ==========
</TABLE> 

(1)  Includes Air businesses.
(2)  Includes unallocated corporate assets, investments in affiliates, and
     elimination of intercompany transactions.
(3)  Includes property, plant, and equipment of purchased businesses.

Wheelabrator has foreign operations in six European countries, five countries in
the Asia-Pacific region, Canada, and Mexico. Information relating to the
Company's foreign operations is set forth below:

<TABLE>
<CAPTION>

                         United States      Europe      Asia-Pacific  Other Foreign   Consolidated
--------------------------------------------------------------------------------------------------
<S>                      <C>                <C>         <C>           <C>             <C>
1993
Revenue                   $1,074,699       $ 37,612       $15,094        $14,814       $1,142,219
                          ==========       ========       =======        =======       ==========
Operating income          $  228,632       $  2,855       $ 2,807        $ 7,930       $  242,224
                          ==========       ========       =======        =======       ==========
Identifiable assets       $3,047,736       $ 20,523       $ 6,397        $ 7,053       $3,081,709
                          ==========       ========       =======        =======       ==========
1994
Revenue                   $1,212,771       $ 70,399       $23,781        $17,616       $1,324,567
                          ==========       ========       =======        =======       ==========
Operating income          $  280,218       $  6,017       $ 3,365        $   350       $  289,950
                          ==========       ========       =======        =======       ==========
Identifiable assets       $3,139,778       $102,441       $27,505        $ 6,887       $3,276,611
                          ==========       ========       =======        =======       ==========
1995
Revenue                   $1,240,311       $150,464       $40,340        $20,560       $1,451,675
                          ==========       ========       =======        =======       ==========
Operating income          $  290,224       $  9,915       $ 4,139        $ 1,152       $  305,430
                          ==========       ========       =======        =======       ==========
Identifiable assets       $3,062,077       $ 97,664       $51,818        $ 8,634       $3,220,193
                          ==========       ========       =======        =======       ==========
</TABLE>

26
<PAGE>
 
--------------------------------------------------------------------------------
NOTE 11  SELECTED QUARTERLY FINANCIAL INFORMATION (UNAUDITED)(1)

<TABLE> 
<CAPTION> 
                                        First    Second     Third     Fourth    Full Year
<S>                                     <C>       <C>       <C>       <C>       <C>
-------------------------------------------------------------------------------------------
1994
Revenue                                 $281,332  $321,661  $334,707  $386,867   $1,324,567
Operating expenses                       195,584   218,508   228,624   272,521      915,237
Income from continuing operations         39,635    48,028    45,886    46,613      180,162
Net income                                40,140    48,610    49,389    46,756      184,895
Weighted average common and                       
 common equivalent shares outstanding    190,200   190,500   190,400   188,600      189,900
Earnings per common and                           
 common equivalent share:                          
   Income from continuing operations    $   0.21  $   0.25  $   0.24  $   0.25   $     0.95
   Net Income                               0.21      0.26      0.26      0.25         0.97
Market price:                                     
 High                                     21 1/4    20 5/8    18 3/4    15 1/2       21 1/4
 Low                                      17 1/4    17 3/4    15 1/4    13 1/4       13 1/4
                                                  
1995                                              
Revenue                                 $373,299  $369,994  $355,951  $352,431   $1,451,675
Operating expenses                       267,893   260,590   247,403   239,383    1,015,269
Income from continuing operations(2)      43,700    49,694    49,900    18,855      162,149
Net income (loss)                         43,676    52,968    51,376   (10,162)     137,858
Weighted average common and                       
 common equivalent shares outstanding    186,400   185,300   185,500   182,500      185,000
Earnings per common and                           
 common equivalent share:                          
   Income from continuing operations    $   0.23  $   0.27  $   0.27  $   0.10   $     0.88
   Net income (loss)                        0.23      0.29      0.28     (0.06)        0.75
Market price:                                     
 High                                     17 1/2    15 3/4    17        16 3/4       17 1/2
 Low                                      12 1/2    13 5/8    14 1/4    14           12 1/2
</TABLE>

(1)  Previously reported numbers have been restated for the discontinued
     operations.
(2)  Fourth quarter of 1995 reduced by $25.6 million related to a special charge
     recorded by WM International.

Report of Independent Public Accountants
--------------------------------------------------------------------------------
TO THE STOCKHOLDERS OF WHEELABRATOR TECHNOLOGIES INC.:

We have audited the accompanying consolidated balance sheets of Wheelabrator
Technologies Inc. (a Delaware corporation) and subsidiaries as of December 31,
1994 and 1995, and the related consolidated statements of income, cash flows,
and changes in stockholders' equity for each of the three years in the period
ended December 31, 1995. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

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

  In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Wheelabrator Technologies Inc.
and subsidiaries as of December 31, 1994 and 1995, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1995, in conformity with generally accepted accounting principles.

/s/  ARTHUR ANDERSON LLP
ARTHUR ANDERSEN LLP
New York, New York
February 2, 1996

                                                                              27
<PAGE>
 
Wheelabrator Technologies Inc. Directors and Officers
--------------------------------------------------------------------------------
BOARD OF DIRECTORS

Phillip B. Rooney                         James E. Koenig
Chairman of the Board and                 Sr. Vice President,
Chief Executive Officer                   Chief Financial Officer and Treasurer
Wheelabrator Technologies Inc.            WMX Technologies, Inc.

Dean L. Buntrock                          Paul M. Montrone
Chairman of the Board and                 President and Chief Executive Officer
Chief Executive Officer                   Fisher Scientific International Inc.
WMX Technologies, Inc.

William M. Daley                          Manuel Sanchez
Partner                                   Partner
Mayer Brown & Platt                       Sanchez & Daniels

Donald F. Flynn                           Lt. Gen. Thomas P. Stafford
Chairman of the Board and President       Consultant
Flynn Enterprises, Inc.                   General Technical Services, Inc.

Kay Hahn Harrell
Chairman and
Chief Executive Officer
Fairmarsh Consulting

--------------------------------------------------------------------------------
OFFICERS

Phillip B. Rooney             Herbert A. Getz        Mark P. Paul
Chairman of the Board and     Secretary              Vice President and 
Chief Executive Officer                              General Counsel
                              John J. Goody                            
John M. Kehoe, Jr.            Vice President         John D. Sanford   
President and                                        Executive Vice President,  
Chief Operating Officer       Richard S. Haak, Jr.   Chief Financial Officer 
                              Controller             and Treasurer

--------------------------------------------------------------------------------
STAFF OFFICERS                          SUBSIDIARY OFFICERS

Robert J. Gagalis                       Bruno R. Dunn
Staff Vice President                    Vice President Operations
Corporate Development                   Wheelabrator Environmental
                                        Systems Inc.
Mark P. Hepp
Staff Vice President                    Ray L. Patel
Engineering & Construction              President and
                                        Chief Operating Officer
                                        Wheelabrator Water
                                        Technologies Inc.


Wheelabrator Technologies Inc. Corporate Information
--------------------------------------------------------------------------------
STOCKHOLDER INFORMATION

Headquarters
Wheelabrator Technologies Inc.
Liberty Lane
Hampton, NH 03842
(603) 929-3000

--------------------------------------------------------------------------------
STOCK TRANSFER AGENT AND REGISTRAR

Mellon Securities Transfer Services
85 Challenger Road
Overpeck Centre
Ridgefield Park, NJ 07660

--------------------------------------------------------------------------------
STOCK LISTING

Wheelabrator Technologies Inc. common stock is listed on the
New York Stock Exchange under the stock trading symbol WTI.

--------------------------------------------------------------------------------
SHAREHOLDER SERVICES

If you have questions concerning Wheelabrator Technologies Inc., or your
investment in the Company, we will be pleased to assist you.

You may contact Wheelabrator Shareholder Services by calling (800) 443-6474, or
by writing Wheelabrator Shareholder Services, P.O. Box 1800, Pittsburgh, PA
14230.

--------------------------------------------------------------------------------
CORPORATE REPORTS

A copy of the Company's report on Form 10-K filed with the Securities and
Exchange Commission may be obtained without charge.
                  
28