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, circumstances or events. They are based on 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 face and that could affect our business and financial statements for 2008 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 or raise prices;

• we may not be able to successfully execute or continue our operational or other margin improvement plans and programs, including 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 revenue and margins;

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

• inflation, higher interest rates and 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 costs for site remediation requirements, final capping, closure and post-closure obligations, compliance and regulatory requirements 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 on the disposal of waste, can increase our expenses and reduce our revenue;

• fuel price increases or fuel supply shortages may increase our expenses 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 revenue and expenses;

• trends toward recycling, waste reduction at the source and prohibiting the disposal of certain types of wastes 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 could decrease our efficiencies, increase our costs, or lead to an impairment charge;

• 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 or acquisition spending 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 or 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.

Overview

In the first quarter of 2008, we saw continued earnings growth and margin expansion, reflecting the successes of our pricing program, cost control measures and fix-or-seek exit initiatives. This progress is particularly noteworthy in light of the challenges presented by the weakening of the U.S. economy, rising fuel costs and harsh weather conditions in the Midwest during the first quarter of 2008.

In the first quarter of 2008, our revenues increased by $78 million, or 2.4%, as compared with the prior year period. This increase was driven by yield on our collection business and higher recycling commodity prices. These contributions to revenue growth were partially offset by the impacts of divestures and volume declines that were due to the sluggish economy, our focus on shedding unprofitable customers and competition. Our income from operations was $511 million in the first quarter of 2008 as compared with $481 million in the first quarter of 2007,

an improvement of 6.2%. As a percentage of revenue, income from operations was 15.6% as compared with 15.1% in the first quarter of 2007. These improvements are a direct result of the disciplined approaches we have taken to our strategic initiatives.

Our operating expenses increased by $58 million, or 2.9%, in the first quarter of 2008 as compared with the prior year period. The increase is due primarily to higher fuel costs and commodity prices. Our selling, general and administrative expenses increased by $15 million, or 4.2%, as compared with the first quarter of 2007, primarily as a result of a continued focus on our sales initiatives, which are currently concentrated on identifying new customers that will provide profitable growth for our business. This focus has resulted in higher labor and advertising costs. During the first quarter of 2008, our selling, general and administrative expenses also increased due to higher non-cash expenses for our provision for bad debts.

Our operating cash flow and free cash flow for the first quarter of 2008 also reflect the earnings growth experienced during the period. Operating cash flow increased by $23 million, or 4.3%, and free cash flow increased by $27 million, or 8.1%. We calculate free cash flow as shown in the table below (in millions):

                                                                         Three Months Ended
                                                                              March 31,
                                                                         2008           2007

Net cash provided by operating activities                              $     561       $   538
Capital expenditures                                                        (213 )        (272 )
Proceeds from divestitures of businesses (net of cash divested) and
other sales of assets                                                         14            69

Free cash flow(a)                                                      $     362       $   335

(a) 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 and other investments. Free cash flow is not intended to replace the GAAP measure of "Net cash provided by operating activities", which is the most comparable GAAP measure. 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.

We expect that throughout 2008 we may continue to face challenges related to volume losses, the economy and rising fuel prices. We may also begin to face headwinds from customers' and communities' changing needs and desires regarding their waste services. For these reasons, we are continuing to implement measures that we believe will grow our business, improve our current operations' performance and enhance and expand our services.

After terminating the pilot of a new revenue management system in the fourth quarter of 2007, we participated in a scheduled mediation in March 2008 in an attempt to resolve our disputes with the vendor, SAP. The mediation was not successful. We have filed suit against SAP and will pursue all legal remedies available to us. SAP recently filed a general denial to the suit. As a result, we will not be able to deploy a new revenue management system in the foreseeable future and we will continue to operate our current system, although it does not provide the benefits we were expecting from the licensed application. However, we may be able to make enhancements to our current system. Our plans to install a new revenue management system, to make enhancements to our current system and to address the issues with SAP may result in cost increases, each of which could negatively affect our future cash flow and earnings. As we continue to assess the alternatives available to us, we may determine that the best course of action will be to move forward with another software and abandon the SAP revenue management system. If we decide to abandon the SAP software, the abandonment would result in a charge of between $45 million and $55 million.

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, 2007. Actual results could differ materially from the estimates and assumptions that we use in the preparation of our financial statements.

Results of Operations

Operating Revenues

Our operating revenues were $3.3 billion for the three months ended March 31, 2008 compared with $3.2 billion for the three months ended March 31, 2007. 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 WMRA Groups. These six operating Groups are our reportable segments. 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 Ended
                                              March 31,
                                          2008          2007

                        Eastern        $      759      $   790
                        Midwest               690          680
                        Southern              913          919
                        Western               853          851
                        Wheelabrator          213          208
                        WMRA                  275          215
                        Other                  78           67
                        Intercompany         (515 )       (542 )

                        Total          $    3,266      $ 3,188

The mix of operating revenues from our major lines of business is reflected in the table below (in millions):

                                         Three Months Ended
                                              March 31,
                                          2008          2007

                        Collection     $    2,138      $ 2,121
                        Landfill              685          720
                        Transfer              380          389
                        Wheelabrator          213          208
                        Recycling             320          258
                        Other                  45           34
                        Intercompany         (515 )       (542 )

                        Total          $    3,266      $ 3,188

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. 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. Changes in our third-party revenues when comparing the three months ended March 31, 2008 and 2007 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 current period changes:

                                                    Period-to-Period
                                                     Change for the
                                                      Three Months
                                                          Ended
                                                        March 31,
                                                      2008 and 2007

              Average yield:
              Base business                       $     100         3.2 %
              Commodity                                  71         2.3
              Electricity (IPPs)                          -           -
              Fuel surcharges and mandated fees          41         1.2

              Total                                     212         6.7
              Volume                                   (123 )      (3.9 )

              Internal revenue growth                    89         2.8
              Acquisitions                               25         0.8
              Divestitures                              (61 )      (2.0 )
              Foreign currency translation               25         0.8

                                                  $      78         2.4 %

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 and environmental and service fee increases, but also
(i) certain average price changes related to the overall mix of services, which are due to both the types of services provided and the geographic locations where our services are provided; (ii) changes in average price from new and lost business; and (iii) price decreases to retain customers.

Our pricing excellence initiative continues to be the primary contributor to our base business yield growth. The increase in base business yield was driven by our collection operations. However, our transfer stations and landfill municipal solid waste streams also contributed significant base business yield improvements. We saw an increase in revenue from yield at our waste-to-energy facilities, largely due to annual rate increases for electricity under long-term contracts and favorable energy market pricing, which is generally indexed to natural gas prices.

Revenues from our environmental fee, which is included in base business yield, were $41 million during the three months ended March 31, 2008, compared with $22 million in the comparable prior year period.

Commodity - Increases in the prices of recycling commodities contributed $71 million of revenue growth during the first quarter of 2008. As compared with the first quarter of 2007, average prices for old corrugated cardboard increased by 23% and average prices for old newsprint increased by 18%. Approximately half of the increase in revenue from yield on our recycling operations is associated with our relatively lower margin brokerage activities.

Fuel surcharges and mandated fees - Fuel surcharges increased revenues year-over-year by $43 million. This increase is due to our continued effort to pass on higher fuel costs from increases in market prices to our customers through fuel surcharges. Although our fuel surcharge program is designed to respond to changes in the market price for fuel, there is a lag in the timing of revenue increases following fuel cost increases. This timing difference has negatively affected our ability to fully recover our cost increases in the first quarter of 2008 due to the continual increase in the market price for fuel during the quarter.

The mandated fees included in this line item are primarily related to the pass-through of fees and taxes assessed by various state, county and municipal governmental agencies at our landfills and transfer stations. These mandated fees have not had a significant impact on the comparability of revenues for the periods included in the table above.

Volume - The $123 million decline in revenues due to lower volumes was driven by declines in our collection volumes and, to a lesser extent, lower disposal volumes.

Volume reductions in the first quarter of 2008 have significantly affected the revenues of each of our collection lines of business, accounting for $109 million of the revenue decrease. Volumes continue to be affected by our focus on improving margins through increased pricing. However, both the continued slowdown in the economy and the harsh winter weather in the Midwest during the first quarter of 2008 also had significant impacts on each of our collection lines of business. Our industrial collection operations experienced the most significant revenue declines due to lower volumes as a result of the significant slowdown in the housing market across the United States.

We also experienced declines in third-party revenue at our landfills due to reduced construction and demolition, municipal solid waste and special waste disposal volumes in the first quarter of 2008. The most significant decline was in our construction and demolition waste stream, which was down due to the significant slowdown in residential construction across the United States. Waste-to-energy revenue from disposal volumes also declined in the first quarter of 2008, largely due to the termination of an operating and maintenance agreement in May 2007.

Divestitures - Divestitures of under-performing or non-strategic operations accounted for decreased revenues of $61 million in the first quarter of 2008. These divestitures were primarily comprised of collection operations and, to a lesser extent, recycling and transfer station operations.

Operating Expenses

The following table summarizes the major components of our operating expenses,
including the impact of foreign currency translation, for the three-month
periods ended March 31 (dollars in millions):


                                                 Three Months
                                                     Ended               Period-to-
                                                   March 31,               Period
                                               2008        2007            Change

      Labor and related benefits              $   593     $   593     $   -           - %
      Transfer and disposal costs                 257         280       (23 )      (8.2 )
      Maintenance and repairs                     279         277         2         0.7
      Subcontractor costs                         217         213         4         1.9
      Cost of goods sold                          216         167        49        29.3
      Fuel                                        168         129        39        30.2
      Disposal and franchise fees and taxes       142         134         8         6.0
      Landfill operating costs                     64          63         1         1.6
      Risk management                              57          61        (4 )      (6.6 )
      Other                                        99         117       (18 )     (15.4 )

                                              $ 2,092     $ 2,034     $  58         2.9 %

As summarized in the table above, our operating expenses increased by $58 million, or 2.9%, when comparing the three months ended March 31, 2008 with the comparable prior year period. Our operating expenses as a percentage of revenues increased from 63.8% in the first quarter of 2007 to 64.1% in the current period. The increases in our operating expenses during the first quarter of 2008 can largely be attributed to the following economic and market conditions:

• Higher market prices for commodities - Market prices for commodities rose sharply when comparing the first quarter of 2008 with the corresponding prior year period. This significant increase in market prices was the driver of the current quarter increase in cost of goods sold.

• Fuel cost increases - On average, diesel fuel prices increased 39% from $2.55 per gallon in the first quarter of 2007 to $3.55 per gallon in the first quarter of 2008. Higher fuel costs caused increases in both our direct fuel costs and our subcontractor costs for the first quarter of 2008.

• Strengthening of the Canadian dollar - When comparing the average exchange rate for the first quarter of 2008 with the first quarter of 2007, the Canadian rate improved by 17%, which increased our expenses in all operating cost categories.

After considering the significant impacts that these general economic conditions had on our operating expenses for the first quarter of 2008, we are encouraged that our results continue to reflect our focus on identifying operational efficiencies that translate into cost savings and managing our fixed costs and reducing our variable costs as volumes decline due to our pricing program, divestiture activity and the slowdown in the economy.

Other items affecting the comparability of our operating expenses by category for the three months ended March 31, 2008 and 2007 include the following:

• Labor and related benefits - higher costs due to annual merit increases and, to a lesser extent, additional overtime and other labor costs attributed to severe winter weather conditions experienced in our Midwest Group, offset by costs savings provided by our operational improvement initiatives mentioned above;

• Transfer and disposal costs - cost decreases due to volume declines and divestitures;

• Maintenance and repairs - cost increases due to changes in the timing of maintenance projects at our waste-to-energy facilities, partially offset by the impact of various fleet initiatives that favorably affected our maintenance, parts and supplies costs;

• Cost of goods sold - in addition to the sharp rise in market prices for commodities mentioned above, our cost of goods sold are higher due to an increase in our brokerage activities;

• Disposal and franchise fees and taxes - the favorable resolution of a tax matter in our Eastern Group reduced expenses by $15 million during the first quarter of 2007 and $3 million during the first quarter of 2008;

• Landfill operating costs - (i) the unfavorable impact of the January 1, 2008 adoption of SFAS No. 157, which resulted in a $6 million charge to landfill operating costs; (ii) increased leachate collection, trucking, treatment and disposal costs that were attributed in part to higher precipitation levels experienced during the first quarter of 2008; and
(iii) an $8 million charge taken during the first quarter of 2007 for a revision in our estimate associated with remediation costs at one of our closed landfills;

• Risk management - cost decreases due primarily to reduced costs related to workers compensation, partially offset by higher costs associated with auto and general liability; and

• Other - cost decreases due to $21 million of lease termination costs in the first quarter of 2007 associated with purchasing one of our independent . . .