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 revenues 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 may negatively impact our business by, among other things, restricting our operations, increasing costs of operations or requiring additional capital expenditures;

• climate change legislation, including possible limits on carbon emissions, may negatively impact our results of operations by increasing expenses related to tracking, measuring and reporting our greenhouse emissions and increasing operating costs and capital expenditures that may be required to comply with any such legislation;

• 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.

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 using waste-to-energy technology to convert solid waste into clean, renewable electric power; expanding our network of material recovery facilities to promote recycling efforts as a means to protecting natural resources and conserving energy; and 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

We had a strong second quarter, evidenced by internal revenue growth of 3.2%, income from operations of $632 million, or 18.1% of revenues, and diluted earnings per common share of $0.64. In comparing the results of the current period with the second quarter of 2007, income from operations decreased from $633 million for the second quarter of 2007 to $632 million in the current period. However, when excluding $33 million of net gains on divestitures and $1 million of restructuring charges recognized last year, our income from operations improved by over 5%. We believe that comparing our results without the impact of the 2007 gains on divestitures and restructuring charges is helpful in assessing the achievements we have made because these items are not reflective

of our ongoing operations. We also believe that our financial results this quarter are particularly impressive given the strong headwinds we have faced. The most significant challenges of the current quarter were record high fuel prices and volume declines due to pricing competition, the general slowdown in the economy and the sharp decline in residential construction in many parts of the country.

Our revenues increased by $131 million, or 3.9%, in the second quarter of 2008, as compared with the prior year period. Our internal revenue growth from yield on base business was 3.1%, which marks the sixth consecutive quarter where this key metric has exceeded three percent. Higher fuel surcharge revenue contributed 2.2% of internal revenue growth, and higher commodity prices provided an additional 1.7%, resulting in total internal revenue growth from yield of 7.0%. Internal revenue growth from yield was offset, in part, by a 3.8% decline in volume-related revenues.

Our operating costs increased by $89 million, or 4.3% in the current period. The increased costs were primarily as a result of (i) record high fuel prices, which resulted in higher direct fuel costs and higher subcontractor costs; and
(ii) increased costs of good sold caused by higher commodity prices. The impacts of higher fuel costs and commodity prices largely offset the margin expansion provided by our continued success in reducing or maintaining our other costs. Our operating costs as a percentage of revenue remained relatively flat, increasing from 62.3% in the second quarter of 2007 to 62.5% in the current period, which we believe is encouraging given the current environment in which we are operating.

Our selling, general and administrative costs increased by $15 million, or 4.4%, in the second quarter of 2008 as compared with the prior year period. The cost increase was primarily a result of higher compensation expense and increased costs associated with our sales efforts and other employee and customer initiatives. Given our ability to continue to increase our revenues in the current economic environment, we believe these were costs well spent. As a percentage of revenue, our selling, general and administrative costs were flat, at 10.3% in the current period compared with 10.2% in the prior year period.

We calculate free cash flow as shown in the table below (in millions):

                                                           Three Months              Six Months
                                                              Ended                    Ended
                                                             June 30,                 June 30,
                                                         2008        2007        2008         2007

Net cash provided by operating activities               $  570      $  537      $ 1,131      $ 1,075
Capital expenditures                                      (273 )      (209 )       (486 )       (481 )
Proceeds from divestitures of businesses (net of cash
divested) and other sales of assets                         24         147           38          216

Free cash flow(a)                                       $  321      $  475      $   683      $   810

(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. The presentation of free cash flow has material limitations. Free cash flow does not represent our cash flow available for discretionary expenditures because it excludes certain expenditures that are required or that we have committed to such as debt service requirements. Our definition of free cash flow may not be comparable to similarly titled measures presented by other companies.

Free cash flow for the three months ended June 30, 2008 decreased by $154 million, or 32.4%, when compared with the three months ended June 30, 2007. This decrease is a result of (i) a significant decline in proceeds from divestitures, as we have had fewer under-performing businesses for sale this year; and (ii) higher capital spending in the current year period due to increased fleet spending. However, our net cash provided by operating activities increased by 6.1% for the three months ended June 30, 2008 as compared with the prior year period. We believe this

increase is indicative of our focus on earnings growth and the ability to generate strong and consistent cash flow from our operations.

Proposal to Acquire Republic Services, Inc.

On June 23, 2008, Republic Services, Inc. and Allied Waste Industries, Inc. announced that they had entered into a definitive merger agreement. Their merger agreement provided that neither Republic nor Allied would actively solicit third-party acquisition proposals, but that either party could provide information to and engage in discussions with a third party if the Board of Directors of the company receiving the proposal determined that the proposal either constitutes, or could reasonably be expected to lead to, a Superior Proposal (as defined in the agreement). On July 14, 2008, we announced that we had made a proposal to acquire all of Republic's outstanding shares of common stock for $34.00 per share in an all-cash merger. On July 18, 2008, Republic announced that its Board of Directors had determined our proposal did not constitute, and could not reasonably be expected to lead to, a Superior Proposal and, as a result, they were rejecting our offer. Our Board of Directors and management team are currently evaluating the Company's options and working diligently to prepare a response that addresses all of the issues raised by Republic's Board of Directors in their letter dated July 18, 2008. On July 24, 2008, we made a filing with the Department of Justice to initiate the expected antitrust review of our proposed merger transaction with Republic and start the applicable Hart-Scott-Rodino waiting period based on our intended purchases of shares of Republic's common stock. Our future results of operations will be impacted by our having made our proposal to acquire Republic, our decisions as to how we will proceed, and Republic's response to our actions. The impacts may include (i) higher than expected expenditures in future quarters associated with the proposal; (ii) higher expenses to the extent these higher expenditures are not able to be capitalized in accordance with generally accepted accounting principles; and (iii) increased restructuring or similar charges that may be incurred if the merger proceeds.

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 for the three and six months ended June 30, 2008 were
$3.5 billion and $6.8 billion, respectively, compared with $3.4 billion and
$6.5 billion for the three and six months ended June 30, 2007, 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              Six Months
                                       Ended                    Ended
                                     June 30,                 June 30,
                                 2008        2007         2008         2007

                 Eastern        $   845     $   849     $  1,604     $  1,639
                 Midwest            838         811        1,571        1,524
                 Southern           940         928        1,853        1,847
                 Western            848         845        1,658        1,663
                 Wheelabrator       225         219          438          427
                 WMRA               275         230          550          445
                 Other               81          71          159          138
                 Intercompany      (563 )      (595 )     (1,078 )     (1,137 )

                 Total          $ 3,489     $ 3,358     $  6,755     $  6,546

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

                                   Three Months              Six Months
                                       Ended                    Ended
                                     June 30,                 June 30,
                                 2008        2007         2008         2007

                 Collection     $ 2,237     $ 2,193     $  4,375     $  4,314
                 Landfill           786         791        1,471        1,511
                 Transfer           424         433          804          822
                 Wheelabrator       225         219          438          427
                 Recycling          324         276          644          534
                 Other               56          41          101           75
                 Intercompany      (563 )      (595 )     (1,078 )     (1,137 )

                 Total          $ 3,489     $ 3,358     $  6,755     $  6,546

Decreases in volume-related revenues in our collection and transfer lines of business have negatively affected the revenues in our landfill line of business. These collection and transfer 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 and six months ended June 30, 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 the current period changes:

                                           Period-to-Period          Period-to-Period
                                            Change for the            Change for the
                                             Three Months               Six Months
                                                 Ended                     Ended
                                               June 30,                  June 30,
                                             2008 and 2007             2008 and 2007

     Average yield:
     Base business                       $     103         3.1 %   $     203         3.1 %
     Commodity                                  56         1.7           127         2.0
     Electricity (IPPs)                          2           -             2           -
     Fuel surcharges and mandated fees          75         2.2           116         1.8

     Total                                     236         7.0           448         6.9
     Volume                                   (128 )      (3.8 )        (251 )      (3.9 )

     Internal revenue growth                   108         3.2           197         3.0
     Acquisitions                               32         1.0            57         0.9
     Divestitures                              (25 )      (0.8 )         (86 )      (1.3 )
     Foreign currency translation               16         0.5            41         0.6

                                         $     131         3.9 %   $     209         3.2 %

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.

When comparing the three and six months ended June 30, 2008 with the comparable prior year periods, our pricing excellence initiative continues to be the primary contributor to our revenue growth from base business yield. The increase in revenue from base business yield was driven by our collection operations. However, our transfer stations and landfill municipal solid waste streams also contributed significant improvements. We also 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 we include in our base business yield, were $47 million and $88 million during the three and six months ended June 30, 2008, respectively, compared with $31 million and $53 million in the comparable prior year periods. The increase in revenues from our environmental fee is due to an increase of 1.2% in the fee charged to customers receiving services subject to the fee.

Commodity - Increases in the prices of recycling commodities contributed $56 million and $127 million of revenue growth during the three and six months ended June 30, 2008, respectively. During the first six months of 2008, average prices for old corrugated cardboard increased by 21% and average prices for old newsprint increased by 20%. A significant portion of revenues attributable to commodities is rebated to our suppliers of recyclable materials. Accordingly, changes in our revenues due to fluctuations in commodity prices have a corresponding impact on our cost of goods sold.

Fuel surcharges and mandated fees - Fuel surcharges increased revenues by $75 million and $118 million during the three and six months ended June 30, 2008, respectively. This increase is due to our continued effort to pass on our higher fuel costs 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 delay between the time our fuel costs increase and when we are able to recover those increases through the surcharge. This timing difference has negatively affected our ability to fully recover our cost increases in the first six months of 2008 due to the continued increases in the cost of fuel during the year.

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 $128 million and $251 million declines in revenues due to lower volumes when comparing the three and six months ended June 30, 2008 with the corresponding prior year periods have been driven by declines in our collection volumes. Declines in revenues due to reduced volumes in our collection business accounted for $121 million of the decrease for the three-month period and $230 million of the decrease for the six-month period. Our revenues from collection volumes continue to be affected by our focus on improving margins through increased pricing. However, the continued slowdown in the economy also had a significant impact on each of our collection lines of business for the first six months of 2008. Our industrial collection operations experienced the most significant revenue declines due to lower volumes as a result of the significant slowdown in residential construction across the United States.

Revenue from waste-to-energy disposal volumes also declined during the three and six months ended June 30, 2008, largely due to the termination of an operating and maintenance agreement in May 2007. For the six months ended June 30, 2008, we also experienced declines in third-party revenue at our landfills due to reduced construction and demolition and municipal solid waste volumes, partially offset by an increase in special waste disposal volumes. However, for the three months ended June 30, 2008, third-party revenue at our landfills was up slightly as a result of increased special waste disposal volumes, particularly in our Southern Group. The revenue growth from special waste disposal volumes was largely offset by declines in our municipal solid waste and construction and demolition waste disposal volumes, although the volume decline in our construction and demolition waste stream is at a slower rate than it had been in the past several quarters.

Acquisitions and divestitures - Revenues increased $32 million during the three months ended June 30, 2008 due to acquisitions, while divestitures accounted for decreased revenues of $25 million for the same period. This represents the first time in over two years that revenue growth from acquisitions exceeded revenue declines from divestitures, reflecting (i) that there are less under-performing operations that are being considered for divestiture and (ii) the resulting shift of focus to accretive acquisitions. Acquisitions contributed $57 million of additional revenues when comparing the six months ended June 30, 2008 with the comparable prior year period, and divestitures of under-performing or non-strategic operations accounted for decreased revenues of $86 million.

Operating Expenses

The following table summarizes the major components of our operating expenses,
including the impact of foreign currency translation, for the three- and
six-month periods ended June 30 (dollars in millions):


. . .