In an effort to keep our shareholders and the public informed about our business, we may make "forward-looking statements." Forward-looking statements usually relate to future events and anticipated revenues, earnings, cash flows or other aspects of our operations or operating results. Forward-looking statements generally include statements containing:

• projections about accounting and finances;

• plans and objectives for the future;

• projections or estimates about assumptions relating to our performance; and

• our opinions, views or beliefs about the effects of current or future events, circumstances or performance.

You should view these statements with caution. These statements are not guarantees of future performance or events. They are based on the facts and circumstances known to us as of the date the statements are made. All phases of our business are subject to uncertainties, risks and other influences, many of which we do not control. Any of these factors, either alone or taken together, could have a material adverse effect on us and could change whether any forward-looking statement ultimately turns out to be true. Additionally, we assume no obligation to update any forward-looking statement as a result of future events, circumstances or developments. The following discussion should be read together with the Condensed Consolidated Financial Statements and the notes thereto.

Some of the risks that we believe could affect our business and financial statements for 2007 and beyond include the following:

• competition may negatively affect our profitability or cash flows, our price increases may have negative effects on volumes, and price roll-backs and lower than average pricing to retain and attract customers may negatively affect our yield on base business;

• we may be unable to maintain or expand margins if we are unable to control costs;

• we may not be able to successfully execute or continue our operational or other margin improvement plans and programs, such as pricing increases; passing on increased costs to our customers; reducing costs due to our operational improvement programs; and divesting under-performing assets and purchasing accretive businesses, any of which could negatively affect our revenues and margins;

• weather conditions cause our quarter-to-quarter results to fluctuate, and extremely harsh weather or natural disasters may cause us to temporarily shut down operations;

• inflation and resulting higher interest rates as well as other general and local economic conditions may negatively affect the volumes of waste generated, our financing costs and other expenses;

• possible changes in our estimates of site remediation requirements, final capping, closure and post-closure obligations, compliance and regulatory developments may increase our expenses;

• regulations, including regulations to limit greenhouse gas emissions, may negatively impact our business by, among other things, restricting our operations, increasing costs of operations or requiring additional capital expenditures;

• if we are unable to obtain and maintain permits needed to open, operate, and/or expand our facilities, our results of operations will be negatively impacted;

• limitations or bans on disposal or transportation of out-of-state, cross-border, or certain categories of waste, as well as mandates regarding the disposal of waste, can increase our expenses and reduce our revenues;

• fuel price increases or fuel supply shortages may increase our expenses, including our tax expense if Section 45K credits are phased out due to continued high crude oil prices, or restrict our ability to operate;

• increased costs to obtain financial assurance or the inadequacy of our insurance coverages could negatively impact our liquidity and increase our liabilities;

• possible charges as a result of shut-down operations, uncompleted development or expansion projects or other events may negatively affect earnings;

• fluctuating commodity prices may have negative effects on our operating revenues and expenses;

• trends requiring recycling, waste reduction at the source and prohibiting the disposal of certain types of waste could have negative effects on volumes of waste going to landfills and waste-to-energy facilities;

• efforts by labor unions to organize our employees may increase operating expenses and we may be unable to negotiate acceptable collective bargaining agreements with those who have been chosen to be represented by unions, which could lead to labor disruptions, including strikes and lock-outs, which could adversely affect our results of operations and cash flows;

• negative outcomes of litigation or threatened litigation or governmental proceedings may increase our costs, limit our ability to conduct or expand our operations, or limit our ability to execute our business plans and strategies;

• problems with the operation of our current information technology or the development and deployment of new information systems may decrease our efficiencies and increase our costs to operate;

• the adoption of new accounting standards or interpretations may cause fluctuations in reported quarterly results of operations or adversely impact our reported results of operations; and

• we may reduce or eliminate our dividend or share repurchase program or we may need to raise additional capital if cash flows are less than we expect or capital expenditures are more than we expect, and we may not be able to obtain any needed capital on acceptable terms.

These are not the only risks that we face. There may be other risks that we do not presently know or that we currently believe are immaterial that could also impair our business and financial position.

General

Our principal executive offices are located at 1001 Fannin Street, Suite 4000, Houston, Texas 77002. Our telephone number at that address is (713) 512-6200. Our website address is http://www.wm.com. Our annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K are all available, free of charge, on our website as soon as practicable after we file the reports with the SEC. Our stock is traded on the New York Stock Exchange under the symbol "WMI."

We are the leading provider of integrated waste services in North America. Using our vast network of assets and employees, we provide a comprehensive range of waste management services. Through our subsidiaries we provide collection, transfer, recycling, disposal and waste-to-energy services. In providing these services, we actively pursue projects and initiatives that we believe make a positive difference for our environment, including recovering and processing the methane gas produced naturally by landfills into a renewable energy source. Our customers include commercial, industrial, municipal and residential customers, other waste management companies, electric utilities and governmental entities.

We manage and evaluate our operations primarily through our Eastern, Midwest, Southern, Western, Wheelabrator (which includes our waste-to-energy facilities and independent power production plants, or IPPs) and Waste Management Recycle America, or WMRA, Groups. These six operating Groups are our reportable segments.

Overview

Earnings Growth and Margin Expansion - Our operating results for the third quarter of 2007 continue to reflect our progress in earnings growth and margin expansion as a result of the strength of our pricing, cost control and fix-or-sell initiatives. Our income from operations for the third quarter of 2007 was $565 million as compared with $557 million for the third quarter of 2006. Income from operations as a percentage of revenue for the third quarter of 2007 was 16.6% as compared with 16.2% in the prior year period. For the three months ended September 30, 2007, our revenues decreased by $38 million, or 1.1%, as compared with the prior year period

primarily as a result of lower volumes and divestitures, offset in part by increased yield from base business and higher commodity prices. The loss of volumes in 2007 has resulted primarily from shedding low margin or unprofitable customers and a significant slowdown in residential construction across the United States, which is affecting our industrial collection operations and our construction and demolition disposal operations. Despite the current period costs incurred for labor disputes, which are discussed below, our operating expenses for the quarter decreased by $38 million, or 1.7%, and as a percentage of revenue, operating expenses decreased to 63.0% from 63.4% in the prior year period. Selling, general and administrative expenses increased by $21 million, or 6.1%, but these increases were primarily a result of salary and wage increases and continued costs associated with our implementation and execution of strategic initiatives to improve operations and processes, including costs for the support and development of our new revenue management system.

Labor Disputes - The Company's collective bargaining agreement with the Teamsters Local 70 (the "Union") in Oakland, California expired on June 30, 2007. Prior to the expiration of the agreement, the Union had declined to accept the Company's proposals and negotiations had stalled. Without an agreement in place, the Company determined it necessary to bring workers from other market areas to its Oakland facilities, instructed Union members not to report to work and implemented the contingency plan it has in place in the case of labor disputes. On July 28, 2007, a new collective bargaining agreement was ratified by Union members, who reported to work on July 29, 2007. This labor dispute negatively affected the income from operations of the Company's Western Group by $25 million for the three months ended September 30, 2007 and $28 million for the nine months ended September 30, 2007. These impacts were largely due to increased "Operating" expenses, which were primarily related to security efforts and the deployment and lodging costs incurred for the Company's replacement workers who were brought to Oakland from across the organization.

The Western Group incurred an additional $1 million of "Operating" expenses during the three months ended September 30, 2007 in connection with a labor dispute in Los Angeles, California. We currently expect that our "Operating" expenses for the fourth quarter of 2007 will be higher than normal due to the increased security and travel costs that will likely be incurred to ensure that our customers receive uninterrupted service until we are able to resolve this matter.

Free Cash Flow - We have included free cash flow, which is a non-GAAP measure of liquidity, in our disclosures because we use this measure in the evaluation and management of our business and believe it is indicative of our ability to pay our quarterly dividends, repurchase our common stock and fund acquisitions. Free cash flow is not intended to replace the GAAP measure of "Net cash provided by operating activities." However, by subtracting cash used for capital expenditures and adding the cash proceeds from divestitures and other asset sales, we believe free cash flow gives investors greater insight into our liquidity. The following table presents our free cash flow for the three and nine months ended September 30, 2007 and 2006 (in millions):

                                                           Three Months              Nine Months
                                                               Ended                    Ended
                                                           September 30,            September 30,
                                                         2007         2006        2007         2006

Net cash provided by operating activities(a)            $   771      $  707      $ 1,846      $ 1,887
Capital expenditures(a)                                    (240 )      (319 )       (721 )       (846 )
Proceeds from divestitures of businesses (net of cash
divested) and other sales of assets                          19          43          235          198

Free cash flow                                          $   550      $  431      $ 1,360      $ 1,239

(a) Refer to Note 1 of our Condensed Consolidated Financial Statements for information related to the reclassification of 2006 information to conform with our current presentation.

Free cash flow for the three months ended September 30, 2007 increased by $119 million, or 27.6%, when compared with the three months ended September 30, 2006 due to a $79 million decline in capital expenditures and a $64 million increase in net cash provided by operating activities, which were partially offset by a $24 million decrease in proceeds from divestitures. The decline in capital expenditures when comparing the three months ended September 30, 2007 with the prior year period is largely due to relatively high levels of fleet capital spending in the

second half of 2006 in order to adequately prepare for any potential operational difficulties that could be encountered as a result of significant changes in heavy-duty truck engines beginning in January 2007. We generally use a significant portion of our free cash flow on capital spending in the fourth quarter, and currently expect our fourth quarter 2007 capital spending to reflect this trend. Operating cash flow for the three and nine months ended September 30, 2007 has been strong and continues to reflect our ability to generate the cash we need to support our ongoing capital requirements, scheduled debt repayments, our share repurchase program, dividend payments and acquisitions and other investments that will improve our current operations' performance and enhance and expand our services.

Technology Update - One element of the Company's strategy has been to develop and implement technologies and systems that will enable us to achieve long-term cost savings and efficiencies. This includes a new revenue management system that was piloted in one of our market areas earlier in 2007, while the rest of our market areas continue using our existing revenue management system. The pilot has identified issues with the software that have delayed final development and implementation of the system. Based on this information, we are currently evaluating the overall effectiveness of the software portion of the system and re-examining our implementation plan. The delay in a Company-wide deployment of a new system will impact the timing of achieving any expected benefits and changes in our implementation plans may result in cost increases, both of which could negatively affect our future margins.

Basis of Presentation of Consolidated and Segment Financial Information

Accounting Change - Effective January 1, 2007, we adopted FIN 48 and FSP No. 48-1. FIN 48 prescribes a recognition threshold and measurement attribute for financial statement recognition and measurement of tax positions taken or expected to be taken in tax returns. In addition, FIN 48 provides guidance on the de-recognition, classification and disclosure of tax positions, as well as the accounting for related interest and penalties. FSP No. 48-1 provides guidance associated with the criteria that must be evaluated in determining if a tax position has been effectively settled and should be recognized as a tax benefit. Refer to Note 1 of our Condensed Consolidated Financial Statements for additional information related to the impact of the implementation of these new accounting pronouncements on our results of operations and financial position.

Reclassification of Cash Flow Information - Our 2006 Consolidated Statement of Cash Flows, as reported in the 2006 Annual Report on Form 10-K, included the effect of a change in classification of cash flows to exclude accrued capital spending from our reported capital expenditures and changes in accounts payable and accrued liabilities. Because this change was incorporated into our cash flow reporting processes for the first time in the fourth quarter of 2006, we have made reclassifications to our interim 2006 Condensed Consolidated Statements of Cash Flows included within our 2007 Quarterly Reports on Form 10-Q to conform with our current approach.

Reclassification of Segment Information - In the first quarter of 2007, we realigned our Eastern, Midwest and Western Group organizations to facilitate improved business execution. We moved certain market areas in the Eastern and Midwest Groups to the Midwest and Western Groups, respectively. We have reflected the impact of this realignment for all periods presented to provide financial information that consistently reflects our current approach to managing our operations.

Critical Accounting Estimates and Assumptions

In preparing our financial statements, we make numerous estimates and assumptions that affect the accounting for and recognition and disclosure of assets, liabilities, stockholders' equity, revenues and expenses. We must make these estimates and assumptions because certain information that we use is dependent on future events, cannot be calculated with a high degree of precision from data available or simply cannot be readily calculated based on generally accepted methodologies. In some cases, these estimates are particularly difficult to determine and we must exercise significant judgment. In preparing our financial statements, the most difficult, subjective and complex estimates and the assumptions that deal with the greatest amount of uncertainty relate to our accounting for landfills, environmental remediation liabilities, asset impairments and self-insurance reserves and recoveries, as described in Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2006.

Results of Operations

Operating Revenues

Our operating revenues for the three and nine months ended September 30, 2007
were $3.4 billion and $9.9 billion, respectively, compared with $3.4 billion and
$10.1 billion for the three and nine months ended September 30, 2006,
respectively. Shown below (in millions) is the contribution to revenues during
each period provided by our six operating Groups and our other waste services:


                                   Three Months              Nine Months
                                       Ended                    Ended
                                   September 30,            September 30,
                                 2007        2006         2007         2006

                 Eastern        $   841     $   939     $  2,480     $  2,740
                 Midwest            779         787        2,232        2,261
                 Southern           923         951        2,770        2,840
                 Western            893         890        2,627        2,628
                 Wheelabrator       222         233          649          677
                 WMRA               248         199          693          580
                 Other               80          70          218          217
                 Intercompany      (583 )      (628 )     (1,720 )     (1,863 )

                 Total          $ 3,403     $ 3,441     $  9,949     $ 10,080

Our operating revenues generally come from fees charged for our collection, disposal, transfer, Wheelabrator and recycling services. Revenues from our disposal operations consist of tipping fees, which are generally based on the weight, volume and type of waste being disposed of at our disposal facilities. Fees charged at transfer stations are generally based on the volume of waste deposited, taking into account our cost of loading, transporting and disposing of the solid waste at a disposal site. Our Wheelabrator revenues are based on the type and volume of waste received at our waste-to-energy facilities and IPPs and fees charged for the sale of energy and steam. Recycling revenue, which is generated by WMRA as well as recycling operations embedded in the operations of our four geographic operating Groups, generally consists of the sale of recyclable commodities to third parties and tipping fees. Our "other" revenues include our in-plant services, methane gas operations, Port-O-Let® services and street and parking lot sweeping services. Intercompany revenues between our operations have been eliminated in the consolidated financial statements. The mix of operating revenues from our different services is reflected in the table below (in millions):

                                      Three Months              Nine Months
                                          Ended                    Ended
                                      September 30,            September 30,
                                    2007        2006         2007         2006

             Collection            $ 2,210     $ 2,251     $  6,524     $  6,661
             Landfill                  789         838        2,300        2,422
             Transfer                  426         469        1,248        1,369
             Wheelabrator              222         233          649          677
             Recycling and other       339         278          948          814
             Intercompany             (583 )      (628 )     (1,720 )     (1,863 )

             Total                 $ 3,403     $ 3,441     $  9,949     $ 10,080

The decreases in revenues in our collection and transfer lines of business due to third-party volume declines have negatively affected the revenues in our landfill line of business. However, these volume declines generally have resulted in a decrease in intercompany revenues at our landfills and have not significantly affected the change in our net operating revenues for the landfill line of business for the periods presented. Changes in our third-party revenues when comparing the three and nine months ended September 30, 2007 and 2006 are discussed further in the following table and analysis.

The following table provides details associated with the period-to-period change in revenues (dollars in millions) along with an explanation of the significant components of the current period changes:

                                          Period-to-Period           Period-to-Period
                                           Change for the             Change for the
                                            Three Months                Nine Months
                                                Ended                      Ended
                                            September 30,              September 30,
                                            2007 and 2006              2007 and 2006

    Average yield:
    Base business                       $     111         3.3 %    $     326         3.3 %
    Commodity                                  78         2.3            214         2.2
    Electricity (IPPs)                          -           -              2           -
    Fuel surcharges and mandated fees          (4 )      (0.1 )            4           -

    Total                                     185         5.5            546         5.5
    Volume                                   (169 )      (5.0 )         (466 )      (4.7 )

    Internal revenue growth                    16         0.5             80         0.8
    Acquisitions                               13         0.4             23         0.2
    Divestitures                              (80 )      (2.4 )         (249 )      (2.5 )
    Foreign currency translation               13         0.4             15         0.2

                                        $     (38 )      (1.1 )%   $    (131 )      (1.3 )%

Base Business - Yield on base business reflects the effect on our revenue from the pricing activities of our collection, transfer, disposal and waste-to-energy operations, exclusive of volume changes. Revenue growth from base business yield includes not only price increases, but also (i) price decreases to retain customers; (ii) changes in average price from new and lost business; and
(iii) certain average price changes related to the overall mix of services, which are due principally to the types of services provided and the geographic locations where our services are provided.

When comparing the three and nine months ended September 30, 2007 with the comparable prior year periods, our pricing excellence initiative continues to be the primary contributor to our base business yield growth. The increases in base business yield were driven by our collection operations, which experienced substantial yield growth in all lines of business and in every geographic operating group primarily as a result of our continued focus on pricing our services based on market specific factors, including our costs. As discussed below, increased collection revenues due to pricing have been more than offset by revenue declines from lower collection volumes. We continue to find that, in spite of volume declines, increased yield on base business and a focus on controlling variable costs provide notable margin improvements in our collection line of business. In addition to the improvements in the collection line of business, we experienced increases in revenues from yield from our transfer stations and our special waste, municipal solid waste and construction and demolition waste streams at our landfills due to our pricing excellence initiative.

For the three months ended September 30, 2007, we experienced a slight increase in revenue from yield at our waste-to-energy facilities. However, we experienced declines in revenue from yield when comparing the nine months ended September 30, 2007 with the same period of the prior year. The changes in revenue from yield provided by our waste-to-energy business are largely due to fluctuations in rates charged for electricity under our long-term contracts, which generally are indexed to natural gas prices.

Revenues from our environmental fee, which is included in base business yield, were $34 million and $87 million during the three and nine months ended September 30, 2007, respectively, compared with $22 million and $54 million in the comparable prior year periods.

Commodity - Increases in the prices of the recycling commodities we process contributed $78 million of revenue growth for the three months ended September 30, 2007 and $214 million of revenue growth for the nine months ended September 30, 2007. During the first nine months of 2007, average prices for old corrugated cardboard increased by about 53% and average prices for old newsprint increased by about 44%. Approximately

50% of the increase in revenue from yield on our recycling operations is associated with our relatively lower margin brokerage activities.

Volume - The declines in our revenues due to lower volumes when comparing the three and nine months ended September 30, 2007 with the corresponding prior year periods have been driven by declines in our collection volumes and, to a lesser extent, lower third party disposal, transfer station and recycling volumes.

Declines in revenue due to reduced volumes in our collection business accounted for $116 million of the decrease for the three-month period and $325 million of . . .