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 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 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;

• continued volatility and further deterioration in the credit markets, inflation, higher interest rates and other general and local economic conditions may negatively affect the volumes of waste generated, our liquidity, our financing costs and other expenses;

• economic conditions may negatively affect parties with whom we do business, which could result in late payments or the uncollectability of receivables as well as the non-performance of certain agreements, including expected funding under our credit agreement, which could negatively impact our liquidity and results of operations;

• possible changes in our estimates of costs for site remediation requirements, final capping, closure and post-closure obligations, compliance and regulatory developments 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 gas 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 or the inability 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;

• fluctuations in commodity prices may have negative effects on our operating results;

• 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 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 permanently eliminate our dividend or share repurchase program, reduce capital spending and cease acquisitions if cash flows are less than we expect and we are not able to obtain capital needed to refinance our debt obligations, including near-term maturities, 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

Our operating results for the third quarter of 2008 were strong, reflecting continued progress in both earnings growth and margin expansion. Highlights from the quarter include:

• An increase in revenues of $122 million, or 3.6%, from $3,403 million in the third quarter of 2007 to $3,525 million in the current period;

• An increase in reported diluted earnings per share of 16.7%, from $0.54 in the third quarter of 2007 to $0.63 in the current period;

• An increase in income from operations of 11.9%, from $565 million in the third quarter of 2007 to $632 million in the current period; and

• Margin growth, reflected by income from operations as a percentage of revenue, of 130 basis points, from 16.6% in the third quarter of 2007 to 17.9% in the current period.

We believe that our financial results this quarter continue to be particularly impressive given the strong headwinds we continue to face. The most significant challenges of the current quarter were record high fuel prices and volume declines due to pricing competition and the general downturn in the economy, including the sharp decline in construction in many parts of the country.

Our operating costs increased by $78 million, or 3.6% in the current period, while our operating costs as a percentage of revenue remained flat at 63.0% in both the current period and prior year. The largest contributor to the increased costs was fuel, followed by costs of good sold in our recycling operations as a result of higher commodity prices. Additionally, we recognized $26 million of operating expenses during the current quarter for a labor disruption in the Milwaukee, Wisconsin area, which resulted in higher than expected operating expenses for the period. Notwithstanding these difficulties, we were able to maintain our operating expenses as a percentage of revenue because of our disciplined approach to controlling our costs and our focus on operational excellence and safety. Our selling, general and administrative costs increased by $4 million, or 1.1%, in the third quarter of 2008, as compared with the prior year period due in large part to $5 million of professional fees incurred to support our previously proposed acquisition of Republic Services, Inc. and higher labor and benefit costs, which were partially offset by decreases in consulting fees paid for our strategic initiatives. As a percentage of revenue, our selling, general and administrative costs declined to 10.5% in the current period compared with 10.7% in the prior year period.

As is our practice, we are including 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. We also believe it is indicative of our ability to pay our quarterly dividends, repurchase common stock, fund acquisitions and other investments, and, in the absence of refinancings, to repay our debt obligations. Free cash flow is not intended to replace "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 how we view our liquidity. Nonetheless, the use of free cash flow as a liquidity measure has material limitations because it excludes certain expenditures that are required or that we have committed to, such as declared dividend payments and debt service requirements.

We calculate free cash flow as shown in the table below (in millions), which may not be the same as similarly titled measures presented by other companies:

                                                           Three Months              Nine Months
                                                               Ended                    Ended
                                                           September 30,            September 30,
                                                         2008         2007        2008         2007

Net cash provided by operating activities               $   771      $  771      $ 1,902      $ 1,846
Capital expenditures                                       (301 )      (240 )       (787 )       (721 )
Proceeds from divestitures of businesses (net of cash
divested) and other sales of assets                          54          19           92          235

Free cash flow                                          $   524      $  550      $ 1,207      $ 1,360

Free cash flow for the third quarter of 2008 decreased by $26 million, or 4.7%, when compared with the prior year period. The decline is a result of higher capital spending in the current year period due to increased fleet spending offset, in part, by an increase in proceeds from divestitures of businesses and other sales of assets. On a year-to-date basis, our operating cash flows have increased by $56 million, or 3.0%, which we believe is indicative of our focus on earnings growth and our ability to generate strong and consistent cash flow from operations.

Outlook

The recent distress in the financial markets did not have a significant impact on our financial position, results of operations or liquidity in the third quarter of 2008. However, as noted below, the recent volatility and disruption of the credit markets was a significant factor in our decision to withdraw our proposal to acquire the outstanding common stock of Republic Services, Inc. Additionally, depending on events that are beyond our control, it is possible that we may not have access to the credit markets if we were to try to access those markets in the foreseeable future. If the credit markets are not available to us, or are not available on terms we deem acceptable, we expect to rely on our available cash, our existing credit facility and the cash we generate from our operations to meet our debt repayment and other obligations. At September 30, 2008, we had over $500 million of cash and cash equivalents on hand. We also had $897 million of available capacity under our revolving credit facility, which is with a diverse portfolio of banks. See the "Liquidity and Capital Resources" section for additional discussion of our debt maturities and our credit facility.

The expected weakness in the overall economy and any continued lack of liquidity in the credit markets may continue to put negative pressure on both consumer and business spending, resulting in less consumption and waste produced. However, we believe that we are well positioned to weather the current crisis. We provide services that are essential in any economic environment. Additionally, although our levels of net cash provided by operating activities may be negatively affected by general economic conditions, we believe that we will continue to generate strong cash flow from operations, which, along with our available cash and existing credit facility, will provide the means needed to meet our debt repayment obligations during the next 12 months. Our discretionary spending includes capital expenditures for equipment, acquisitions of assets and businesses and repurchases of our common stock. To the extent operating cash flows decline, we have the ability to reduce our discretionary spending while continuing to focus on delivering superior service to our customers and a strong financial performance for our stockholders.

During the third quarter of 2008, we made two proposals to the Board of Directors of Republic to acquire all of Republic's outstanding shares of common stock in an all-cash merger, first at $34 per share and then at $37 per share. Subsequent to each proposal, Republic announced that its Board of Directors had declined to authorize Republic to provide us with information or engage in discussions and negotiations with us. On October 13, 2008, we announced that we were withdrawing our proposal to acquire all of the outstanding shares of Republic Services, Inc. due to the current state of the financial markets.

Our outlook for the fourth quarter of 2008 and early 2009 has also been affected by recent changes in the recyclable commodities markets. Over the years, the recyclables that we process have been subject to significant market price fluctuations, and in 2008, increases in the prices of recycling commodities have contributed to our revenue growth, margin expansion and earnings. In October 2008, we have seen significant dislocation in the commodities markets, including substantial reductions in demand from the Asian markets, which is resulting in difficulties in selling recyclable commodities and sharp declines in commodity prices. This market downturn will reduce our revenues and may negatively affect our earnings and operating cash flows for the remainder of the year.

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 nine months ended September 30, 2008
were $3.5 billion and $10.3 billion, respectively, compared with $3.4 billion
and $9.9 billion for the three and nine months ended September 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              Nine Months
                                       Ended                    Ended
                                   September 30,            September 30,
                                 2008        2007         2008         2007

                 Eastern        $   826     $   841     $  2,430     $  2,480
                 Midwest            831         821        2,402        2,345
                 Southern           935         923        2,788        2,770
                 Western            861         851        2,519        2,514
                 Wheelabrator       245         222          683          649
                 WMRA               296         248          846          693
                 Other               87          80          246          218
                 Intercompany      (556 )      (583 )     (1,634 )     (1,720 )

                 Total          $ 3,525     $ 3,403     $ 10,280     $  9,949

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

                                   Three Months              Nine Months
                                       Ended                    Ended
                                   September 30,            September 30,
                                 2008        2007         2008         2007

                 Collection     $ 2,233     $ 2,210     $  6,608     $  6,524
                 Landfill           787         789        2,258        2,300
                 Transfer           417         426        1,221        1,248
                 Wheelabrator       245         222          683          649
                 Recycling          344         294          988          828
                 Other               55          45          156          120
                 Intercompany      (556 )      (583 )     (1,634 )     (1,720 )

                 Total          $ 3,525     $ 3,403     $ 10,280     $  9,949

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,
                                             2008 and 2007             2008 and 2007

     Average yield:
     Base business                       $      92         2.7 %   $     295         3.0 %
     Commodity                                  51         1.5           178         1.8
     Electricity (IPPs)                          5         0.2             7           -
     Fuel surcharges and mandated fees          77         2.3           193         2.0

     Total                                     225         6.7           673         6.8
     Volume                                   (108 )      (3.2 )        (359 )      (3.6 )

     Internal revenue growth                   117         3.5           314         3.2
     Acquisitions                               28         0.8            85         0.8
     Divestitures                              (24 )      (0.7 )        (110 )      (1.1 )
     Foreign currency translation                1           -            42         0.4

                                         $     122         3.6 %   $     331         3.3 %

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 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 revenue growth from base business yield when comparing the three and nine months ended September 30, 2008 with the comparable prior year periods. The increase in revenue from base business yield continues to be driven by our collection pricing programs, although pricing at our transfer stations and for landfill municipal solid waste streams also contributed significant improvements.

In addition to the revenue growth provided by our pricing initiatives, we also saw an increase in revenue from yield at our waste-to-energy facilities. This increase was 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 increased our base business yield by $13 million and $48 million when comparing the three and nine months ended September 30, 2008, respectively, with 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 $51 million and $178 million of revenue growth during the three and nine months ended September 30, 2008, respectively. For the nine months ended September 30, 2008, average prices for old corrugated cardboard increased by 10% and average prices for old newsprint increased by 30%. While market prices for commodities remained strong throughout the third quarter, we did see a 9% decline in average prices for old corrugated cardboard when comparing the three months ended September 30, 2008 with the comparable prior year period. Over 50% 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 by $77 million and $194 million when comparing the three and nine months ended September 30, 2008, respectively, with the comparable prior year periods. 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 an administrative delay between the time our fuel costs change and when we are able to make the corresponding change in our fuel surcharges. This delay negatively affected our ability to fully recover our cost increases in the first six months of 2008 as the increases in our fuel surcharges consistently lagged the sharp increases in fuel costs throughout the first half of the year. However, the cost of fuel began to decline during the third quarter of 2008, allowing us to fully recover the fuel costs we incurred during the period.

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 $108 million and $359 million declines in revenues due to lower volumes when comparing the three and nine months ended September 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 were $115 million for the three-month period and $345 million for the nine-month period. Our revenues from collection volumes continue to be affected by our focus on improving margins through increased pricing. However, the slowdown in the economy continues to have a significant impact, particularly on our commercial and industrial collection lines of business. Our industrial collection operations experienced the most significant revenue declines due to lower volumes as a result of the continued slowdown in construction activities across the United States.

Third-party revenue at our landfills is relatively flat when comparing the three and nine months ended September 30, 2008 with the comparable prior year periods. Throughout 2008, we have experienced declines in third-party revenue at our landfills due to reduced construction and demolition and municipal solid waste 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. In both the second and third quarters of 2008, these volume declines have been more than offset by an increase in special waste disposal volumes, principally in our Southern Group.

Acquisitions and divestitures - Revenues increased $28 million during the three months ended September 30, 2008 due to acquisitions, while divestitures accounted for decreased revenues of $24 million for the same period. In both the second and third quarters of 2008, revenue growth from acquisitions exceeded . . .