CLIPPINGS

-- Artuur Anpersen & Co.
To: 035 - Chicago Office
— cago Sun-Times Source
February 10, 1994 Date
Robert E. Allgyer Clipped By

File

Recycling Helps Trash
WMX’s Earnings, Stock

By Fredenck H. Lowe ay AWA
Stas Werer

In Sen Jose. Calif. recy. [. RY
cling maxes a difference. ee.

te St, divrant s¢_ | Financial performance By Qui Brook-basect WMX = “F
companise n which WHO -holds's substantial ownership::... [°]_

‘waste away trom

the resuit of an extensive =) .
environmentally friendly re- |
i 987.” ‘ ‘

in 1967,

But recycling is making a [
difference of a different
kind for WMX Technol-
ogies Inc.. the Oak Brook.
based solid waste disposal

giant.

Dramauc increases in re-
cycting nationwide have cut
into the solid waste tipping | *

A

1993
id-waste disposal business.
“Our core North Ameri-
eve faced “very dificult
business condiicos, inchod: for use of landfill million, of 34 conta per
ing a lengthy recession, Aa @ result. the re shase, down 11 percent from
which masked. to a certain ported 1993 net income of the same three-month per-
extent, some important $4528 million. or 93 cents iod last year. Fourth-quar-
stractural changes in these ‘haze, down 47 percent ter sales reached $2.4 bil-
markete,” Buntrock said. rom last year. Seles lion, up @ percent over the
Increased competition reecked $0.1 billion, up 6 same period last year.
‘Becycling have eut into pereene. In the fourch quer In addition, one industry
. waste die- tor, WMX Tochaoiogise re- ‘obsmver:said .WMK Tech
AABCo.,S.C posal companies can charge ported net income of $162.9. nolegisn bas inutlte alluze an.

AA 00131116


ARTHUR ANDERSEN 4
Arthur Andersen & Co, SC

Date: FEBRUARY 11, 1994
Subject: 1993 AUDIT RESULTS MEETINGS

In summary, our meetings went very well on the items noted above. For the
first time in its history, WMX has indicated to analysts that growth for 1994
would be only 5%-10% above 1993 - a substantial decline from the past.
Fundamentally, the Company is still very strong (1994 budgeted pre-tax and
cash-flow from operations of approximately $1.3 billion) and is making
numerous operating changes to benefit the future. We believe our conclusions
are appropriate based on the facts discussed in this memo.

ROBERT E. ALLGYER

WALTER CERCAVSCHI
JR/S128T

ante! 2 Mote

D fk ly
Khem
jnw~

San


Schedule IV

‘WMX Technologies, Inc.
Summary of Action Steps
December 31, 1993

Implementing the following action steps will ensure WMX begins to move towards its desired change in
mindset resulting in more conservative accounting pracuces.

qo auc Must Do Reasonable Conservative
@ Self-insurance reserve ¢ Discount at risk- © = Accrue full balance
free rate. sheet shortfall over
K Go © = Accrue full balance 3 years.
sheet shortfall over
‘7 years.
‘Closure/Postclosure + No future reversals ¢ Push down © Do not discount
reserve of reserve to adjusting entryto = ¢ = Do not offset
income. field locations. reserve with gas
credits.
Deferred Project Costs + Update Hoisten «| Write off $40 © = Write-off $40
detail schedule * million over 3 million
g doo annually. years.
© Write off $40 © Providea general © Only capitalize hard
ili costs with high
probability of

CONFIDENTIAL TREATMENT
ARTHUN ANOERSEN,LLP

AA 00131111


1. Divisions which have contracts generating losses:

Loss through

Division Contract
WM of Nebraska City of Omaha $ 1,000,000
WM of IL - Metro City of Woodridge 88,800
WM of IL - West Carpentersville 108,437
WMef IL-S.S. City of Oaklawn 1,079,840
WMof IL -S.S. City of Orland Park 981,608
WMofIL-N.W. City of Highland 97.825
Total $ 3,356,510

2. Sites included in our proposed adjustment related to valuation exposures on unamortized

land:

Group Landéill Amount
Midwest Wheeler RDF $ 966,018
Midwest Anoka RDF 486,422
Mideast Seneca 161,918
Mideast Lake County 3,397,011
Midsast Pinnacle Road 1.382.500

Total $6,598,869

AA 00131108


WMX TECHNOLOGIES. INU
PROPOSED ADJUSTMENTS
December 31, 1993
($ in millions)

SELF-4ANSURANCE
+ Reserve balance: 12/31/93 - $126, 12/31/92 - $118

CLOSURE/POST CLOSURE
= Reserve balance: 9/30/93 - $103, 9/30/92 -$106

DEFERRED PROJECT COSTS

LOSS CONTRACTS - MIDWEST GROUP

UNAMORTIZED LAND - MIDWEST GROUP ~ sloted scks @ i2fai jos

df

No USt a
DEFERRED SYSTEMS costs Toarp. elt ee ne cuderert
FOREIGN CURRENCY Cou. 4
LANDFILL AMORTIZATION

CWM (net of 21% minority interest)
PLC (net of 30% minority interest)
wn
SUB-TOTAL PRE-TAX PROPOSED ADJUSTMENTS
39% EFFECTIVE TAX RATE
SUB-TOTAL AFTER TAX PROPOSED ADJUSTMENTS
TAXES:
WMX
CWM (net of 21% minority interest)
TOTAL PROPOSED ADJUSTMENTS

Income before special charges
(and cumulative effect in 1992)

Net incoms
(before cumulative effect in 1992)

$

1231/92 12/31
63 $ 6
(15)
15 4
10-17 1
(0)
69 $
x61% x
42 $
30-40 $
72 s
— —
1,052 $
6.84% 1
921 $
7.82% 2
CONFIDENTIAL TREATMENT
REQUESTED BY
ARTHUR AMOERSEN,LLP

Schedule I

AA 00131107


Changes in Estimates:

(a) Depreciation

1993 changes in estimates
Prior years impact

(0) Saivage vaiue

(¢) Landfill amortization
Reverse acquisition reserves
Reverse Venezuela reserve
Reverse environmental reserve
Mercer reserve

Closure / post-ciosure

(1) Discounting closure costs for the
first time

(2) Other changes which decrease

requirements (not quantifiable):
= change in estimating - reduced
property taxes and leachate
treatment requirements

= reduction in WMX standards to
more closely follow state
reguistory requirements

Reversal of reserves:

(a) Environmental
(0) Errors and Omission Insurance
(c) Contract Reserves

Scheduie il

INCOME BEFORE INCOME TAXES
AND MINORITY INTEREST
(O00's Omitted)

WMI wn CWM Inter! RUST Other Consol.
39.218 190,471 (522.657) 191,603 148,510 22,552 669,097

40,000 7,000 47,000
5,000 5,000
4.800 4,800
7,500 7,500
8,900 8,900

6.000 6,000
15,000 : 18,000
5,000 8,000
19,810 19,810
2,000 2.000

5,000 5,000

3,000 3,000

738,308 190.471 (522.857) 175.703 138.510 22.552 740.887

CONFIDENTIAL TREATMENT
REQUESTED BY
ARTHUR ANOERSEN.ULP

AA 00131110



EXHIBIT 3


Environmental

Other deferred assets”

value adjustments

330 (lund Fil

onla)

No future reversals

Support for lives
and salvage values.
Discard NBV
method.

Establish policy
AA and WMX
agree on by 7/1/94.
Roll out to all
divisions by third
quarter and apply
retroactively as of
January 1994,
Usea
equal to cost of
debt.
Evaluate NRV of
L/Fs ona site-by-
site basis after
‘amortization.

Reasonable
Accrual to provide

for sites with "no
acuvity’.

. Capitalization of

‘start up costs and
losses, training and
TSO 9000 costs,

Go back 2 years
and adjust as if
new method had
been applied.

.

Conservative

Do not discount
liability.

Write off existing
asset over 5 years.
Do not capitalize

Adopt shorter lives
and salvage values.

Go back to
inception of NBV
method and adjust
as if new method
had always been

CONPIDENTIAL TREATMENT
jESTED BY
HOR ANDERSERUP

AA 00131113


Unamoruzed Land

2 = %
cot! Ue

Must Do

Review NRV of: .
(a) 1996 - Large

20 years.

(b) 1995 - All sites.
Amoruze all open
sites to NRV by
closure date. .
Do not net
unrealized gains

and losses.

Closed sites

written down to

NRV over 5 years.

Reasonable

Acerue by 1995 on
a “catch-up” basis
the “pet cost” that
‘should have been,
accrued if this was
being done
correctly all along.
Closed sites
written down to
NRV over 2 years.

Only capitalize
“hard” costs in
future (i.e. no

Build free cushion
through addition to
provision rate over
2 years.

Conservarive
Record cumulative

catch-up in 1994
and some extra.

oe

Do not capitalize
symems costs.
Write off CIMS
costs over $ years.

vy
~


1993 1992

pre-tax before PLC gain, special charges, and
‘accounting changes: 1371 1377
CWM charge - 93 . +550 -
‘Special charges : -219
PLC gain : 240
pre-tax before accounting changes 821 1308
taxes 361 47
income before accounting changes 460 921
SFAS 106 : 37
SFAS 109 . : ey
NET INCOME 460 850

CONFIDENTIAL TREATMENT

‘rte ARO ERSENLP

AA 00131109


ARTHUR ANDERSEN 3
Arthur Andersen & Co, SC

Date: FEBRUARY 11, 1994
Subject: 1993 AUDIT RESULTS MEETINGS

We next discussed Schedule 2 (Changes in Estimate) of the attached. Bob noted
the purpose of this schedule was to show the amount current year earnings for
the different companies have been benefited by current year changes in
estimates, In total, WMI's 1993 earnings were benefited approximately $100
million (pretax) due to these estimate changes. Approximately half of this
benefit relates to a 1993 change in depreciation lives on rear end loaders
(going from 10 to 12 years), as well as an increase in salvage values (from
$15,000 to $30,000), Dean and Phil indicated that they felt comfortable that
historical experience could support a 12 year life for trucks. We also
verified this through our audit work at various field locations. However,
they did indicate that this decision would continue to be reviewed because it
may not be the best answer operationally in that significant maintenance costs
may have to be incurred in the later years of a truck's life. Dean and Phil -
also felt comfortable making this life extension in consolidation as opposed
to the field. In fact, Dean indicated he would have a greater concern if the
field waa using 12 years by edict. Dean also indicated with regard to
the $7 million benefit resulting from the change in lives at the plc, that he
was comfortable because the truck life is typically tied to a contract. We
indicated to all individuals that we still needed detailed support from the
Company for their salvage value extension. The environmental reserve (stated
at approximately $230 million at December 31, 1993) was taken down $15 million
due to management's belief that it was overstated. The Company also
reevaluated and standardized its methodology for calculating closure and
post-closure liabilities this year. Based on changes in assumptions
(including $20 million related to discounting closure costs for the first
time), earnings in 1993 were benefitted. The only item on this schedule which
is also a PAJE is the $7.5 million related to landfill amortization. In
summary, most of these changes in estimate will continue to benefit future
years (i.e., higher deprecial lives and salvage values, change in
assumptions in estimating closure and post-closure liabilities). We wanted
the Company to be aware that these items were not part of 1992's earnings and
improved 1993 earnings by $100 million.

Schedule 3 (Summary of Key Issues) was discussed in some detail which
highlights key matters from the other WMX public companies.

Schedule 4 (Summary of Action Steps) is a plan to help WMX resolve its key
accounting issues. The “must do” column has been agreed to (and signed) by
Jim Koenig and Tom Hau. This represents the minimum changes ve have concluded
The points in each column

ed with all officers noted al » €ll of whom support the "must
noted. We clarified that this brings the Company to a minisum
acceptable level of accounting and that the future strategy should be to move
toward the "reasonable" or “conservative” columns.

CONFIOENTIAL TREATMENT
ARTHUR

AA 00131105


To:

File: ( ) Pre-Audit

CLIPPINGS

Artuur Anpersen & Co.

035 - Chicago Office
Thicago Sun-Times Source
february 10, 1994 Date
Robert £. Allgyer Clipped By
() Non-Client of
‘ based group that represents Ferrier said.
WW MX orrns te Bole: the cr owns
panies But ELA {Pokesman x 100 percent ot Waste
ames mn saic e 1! ienageroent
Contiqued from Page 69 increase was the smallest Sé percent of Wheelabra
landfill space. more cities year-to-vear inc in dol- tr hnologies. an envi-
have instituted recycling lars and percent since i985. ronmental services firm.
programs. As a result, the The rate of increase for #56 percent of Waste Man-
amount of solid waste tipping fees has slowed dra- agement International PLC.
dumped into landfills matically because more cit- 79 percent of Chemical
dropped dramatically, re- ies have ‘estinuoed ¢ extensive Waste Management.
ducing the fees Waste Man- recycling progra Tn turn, ChemWaste owns
sgament C for landfill isposal tems pick up 56 percent of Rust Interna-
rant Ferrier. 200,000 tons of solid and tional, an environmental
cditor of the Environmental yard waste annually in San consulting firm, while
Business Journal in San Jose, according to Lindsey Wheelabrator Technologies
Diego. Wolf, assistant to the direc- owns 40 percent.
For example, in 1992 tip- tor of San Jose's Environ- ‘ompany spokesman Bil!
ping fees at solid waste mental Services Depart- Plunkett defended WMX's
landfills averaged $30.21 ment. decision co sell of its
per ton. up 14 percent from WMX also has become a subsidiaries.‘ sales
a 1990 survey conducted by less~ attractive -investment- -have "US tO" serves
the Environmental Industry because it has sold major markets throughout the
Associations. a Washington- pieces of key subsidiaries, world.”
SONPDENTIAL TRearwene
Cr Hd w

AAACO., S.C. Form 029 (Rev, 12/68) Printed in U.S.A,


ARTHUR ANDERSEN 2
Arthur Andersen & Co, SC

Date: FEBRUARY 11, 1994

Subject: 1993 AUDIT RESULTS MEETINGS

° The trend of the Company's earnings is down as evidenced by the
fourth quarter being at 34 cents per share compared to the street's
expectations of 38 cents and versus earlier quarters during 1993
(i.e., lst quarter was 41 cents and 2nd quarter was 45 cents). In
addition, a press release was issued recently indicating the
Company's first quarter, 1994, would be flat compared to the 4th
quarter, 1993.

Bob also noted our conclusions had been discussed internally at AA&Co. with
key partners (Bob Kutsenda, Steve Samek, Ed Maier as concurring partner, and
Dick Measelle as advisory partner), all of whom concurred with the issuance of
an unqualified opinion and the necessity for WMX to adjust its accounting
going forward as discussed later. Bob emphasized to all individuals that the
current level of p. adjustments must be systematically corrected in the
future. Bob noted that this message, as well as an appropriate discussion of
the attached four schedules would be had with the audit committee. Finally,
Bob noted that every quarter prior to the earnings release he would meet with
Dean, at his request, to discuss his assessment of that quarter's results.

Agenda Discussion

° Inaurance Reserve (Schedule 1 - PAJE's) ~ Bob indicated that the
Company was continuing its strategy to correct the insurance reserve
shortfall. In the current year, the Company overprovided
approximately $10 million, however, this was largely offset by using
too high of a discount rate in the insurance requirement
calculation. Accordingly, the proposed adjustment remained
approximately the same. We also discussed that WMX planned on
making substantial headway in 1994 in decreasing the shortfall for a
number of reasons; the recent hiring of a number of claims managers,
higher use of WMS and front loaders (to mitigate backing up
accidents), higher on-site use of CNA, etc. The Company, however,
will continue providing reserves based on historical experience.

Deferred Project Costs - We indicated that this proposed adjustment
did not really increase significantly between years but that based
on better information and a more detailed Company analysis that the
actual PAJE, both last year and this year, is in the $40-$60 million
range, compared to $15 million last year.

Taxea - We informed Dean that the proposed adjustment for taxes has
increased primarily as a result of the Company using too low of an

effective tax rate in the current year. We indicated that this has
been a continuing problem which must be corrected during 1994

(Tom Hau indicated that this had already been corrected for 1994).

WMX's current year under-reserve is largely offset by its share of

overprovision for taxes on CWM's books.

CONMDENTIAL TREATMENT
ea AA 00131104


ARTHUR ANDERSEN
Arthur Andersen & Co, SC

To: THE FILES, CHICAGO

From: ROBERT E. ALLGYER, CHICAGO
WALTER CERCAVSCHI, LINCOLN CENTRE/CHICAGO

Date: FEBRUARY 11, 1994 )

Subject: 1993 AUDIT RESULTS MEETINGS

We met with the following officers on the dates indicated to discuss annual
results for 1993:

° Dean Buntrock, February 8, 1994
(Andy Newman also in attendance)

° Jim Koenig and Tom Hau and Steve Bergerson, February 9, 1994
(see separate memo)

° Phil Rooney, February 11, 1994

° Steve Bergerson and Herb Getz, February 11, 1994.

Bob Allgyer led these meetings and discussed the attached four schedules to
this memo as an agenda for our discussions. All items were covered in detail
with all individuals being active participants in the discussions. The
purpose of this memo is to document the key issues addressed.

Overview

Bob began all discussions by pointing out that the aggregate impact of our
passed adjustments would have been a charge to net income of $115 million
representing approximately 15% of earnings before the Chemical Waste
Management special charge (see Schedule 1). Bob explained that we will issue
an unqualified opinion in 1993 for two reasons:

° The impact of the current year effect of the passed adjustments on
the current year income statement ia not material. The overwhelming
majority of the adjustments proposed were in existence at December
31, 1992, in substantially the same magnitude. The two items
deserving comment in this regard are deferred project costs and
taxes. The PAJE for deferred project costs increased from $15
million at December 31, 1992 to $40 million at December 31, 1993.
This PAJE did not actually worsen between years but rather the
increase represents better information based on a recent analysis
performed by WMI. Also, while the tax PAJE at WMX increased between
years, this was largely offset by tax cushion created by CWM. Bob
also indicated that as the Company's earnings decline, the impact of

the passed adjustments increases.

AA 00131103



Legal Costs
Special Gains

Discount Rates

AA 00131114



File: ( ) Pre-Audit

AARCO.. S.C.

() NonClient of

CLIPPINGS
Axtuur Anpersen & Co.

ago
Februar

Robert E. Allgyer

Office
Source
Date

035 - Chicago
un=Times
10, 1994
Clipped By

Dow gushes over oil prices
Broader markets join in the climb; bonds get bullish

Sharply lower oil prices and a
thaw in the bond market sparked
@ broad-based rally in stock prices

‘The Dow Jones industrial aver-
age gained 25.89 points to 3931.92
in heavy trading on the New York
Stock Broader market
indicators also advanced. The
Nasdaq composite index closed up
3.83 to 786.53.

crase ol stockpiss plus unproved
oil stockpiles plus

refinery output pushed the March
light crude oil futures contract
down 61 cents. to $14.60, on the
New York Mercantile Exchange.

That's the first daily settlement
price below $15 a barre! since Jan.

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Market report

day's advance in stock prices. Sep-
arately, the Securities and Ex-
change Commission Wednesday
Proposed increased reporting
Tules for institutional investors
that engage in

The puzzie for analysts
whether the 11 percent
fourth-quarter

picture

x wait |

Tp

AA 00131117