<SUBMISSION>
<ACCESSION-NUMBER>0000950129-02-002335
<TYPE>10-Q
<PUBLIC-DOCUMENT-COUNT>3
<PERIOD>20020331
<FILING-DATE>20020508
<FILER>
<COMPANY-DATA>
<CONFORMED-NAME>WASTE MANAGEMENT INC
<CIK>0000823768
<ASSIGNED-SIC>4953
<IRS-NUMBER>731309529
<STATE-OF-INCORPORATION>DE
<FISCAL-YEAR-END>1231
</COMPANY-DATA>
<FILING-VALUES>
<FORM-TYPE>10-Q
<ACT>34
<FILE-NUMBER>001-12154
<FILM-NUMBER>02638561
</FILING-VALUES>
<BUSINESS-ADDRESS>
<STREET1>1001 FANNIN STREET
<STREET2>STE 4000
<CITY>HOUSTON
<STATE>TX
<ZIP>77002
<PHONE>7135126200
</BUSINESS-ADDRESS>
<MAIL-ADDRESS>
<STREET1>1001 FANNIN STREET
<STREET2>SUITE 4000
<CITY>HOUSTON
<STATE>TX
<ZIP>77002
</MAIL-ADDRESS>
<FORMER-COMPANY>
<FORMER-CONFORMED-NAME>USA WASTE SERVICES INC
<DATE-CHANGED>19920703
</FORMER-COMPANY>
</FILER>
<DOCUMENT>
<TYPE>10-Q
<SEQUENCE>1
<FILENAME>h96558e10-q.txt
<DESCRIPTION>WASTE MANAGEMENT INC - MARCH 31, 2002
<TEXT>
<PAGE>

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-Q

<Table>
<C>          <S>
 (Mark One)
    [X]      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
             OF THE SECURITIES EXCHANGE ACT OF 1934

             FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2002

                                   OR




    [ ]      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
             OF THE SECURITIES EXCHANGE ACT OF 1934

             FOR THE TRANSITION PERIOD FROM           TO
</Table>

                         COMMISSION FILE NUMBER 1-12154

                             WASTE MANAGEMENT, INC.
             (Exact name of registrant as specified in its charter)

<Table>
<S>                                            <C>
                   DELAWARE                                      73-1309529
       (State or other jurisdiction of                        (I.R.S. Employer
        incorporation or organization)                      Identification No.)
</Table>

                                  1001 FANNIN
                                   SUITE 4000
                              HOUSTON, TEXAS 77002
                    (Address of principal executive offices)

                                 (713) 512-6200
              (Registrant's telephone number, including area code)

     Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.  Yes [X]  No [ ]

     The number of shares of Common Stock, $.01 par value, of the registrant
outstanding at May 3, 2002 was 618,062,193 (excluding treasury shares of
12,267,390).

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>

                                     PART I

ITEM 1.  FINANCIAL STATEMENTS.

                             WASTE MANAGEMENT, INC.

                          CONSOLIDATED BALANCE SHEETS
               (IN MILLIONS, EXCEPT SHARE AND PAR VALUE AMOUNTS)

<Table>
<Caption>
                                                               MARCH 31,    DECEMBER 31,
                                                                 2002           2001
                                                              -----------   ------------
                                                              (UNAUDITED)
<S>                                                           <C>           <C>
                                         ASSETS
Current assets:
  Cash and cash equivalents.................................    $   306       $   730
  Accounts receivable, net of allowance for doubtful
     accounts of $70 and $73, respectively..................      1,300         1,355
  Notes and other receivables...............................        245           314
  Parts and supplies........................................         79            83
  Deferred income taxes.....................................        425           426
  Prepaid expenses and other................................        209           216
                                                                -------       -------
     Total current assets...................................      2,564         3,124
Property and equipment, net.................................     10,298        10,357
Goodwill....................................................      5,009         4,998
Other intangible assets, net................................        116           123
Other assets................................................        820           888
                                                                -------       -------
     Total assets...........................................    $18,807       $19,490
                                                                =======       =======

                          LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
  Accounts payable..........................................    $   513       $   672
  Accrued liabilities.......................................      2,122         2,160
  Deferred revenues.........................................        383           374
  Current portion of long-term debt.........................         82           515
                                                                -------       -------
     Total current liabilities..............................      3,100         3,721
Long-term debt, less current portion........................      7,754         7,709
Deferred income taxes.......................................      1,187         1,127
Environmental liabilities...................................        827           825
Other liabilities...........................................        681           703
                                                                -------       -------
     Total liabilities......................................     13,549        14,085
                                                                -------       -------
Minority interest in subsidiaries...........................         13            13
                                                                -------       -------
Commitments and contingencies
Stockholders' equity:
  Common stock, $.01 par value; 1,500,000,000 shares
     authorized; 630,329,583 and 630,331,591 shares issued,
     respectively...........................................          6             6
  Additional paid-in capital................................      4,526         4,523
  Retained earnings.........................................      1,195         1,057
  Accumulated other comprehensive loss......................       (150)         (148)
  Restricted stock unearned compensation....................         (2)           (2)
  Treasury stock at cost, 12,479,784 and 2,313,883 shares,
     respectively...........................................       (330)          (44)
                                                                -------       -------
     Total stockholders' equity.............................      5,245         5,392
                                                                -------       -------
     Total liabilities and stockholders' equity.............    $18,807       $19,490
                                                                =======       =======
</Table>

                See notes to consolidated financial statements.
                                        1
<PAGE>

                             WASTE MANAGEMENT, INC.

                     CONSOLIDATED STATEMENTS OF OPERATIONS
                    (IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
                                  (UNAUDITED)

<Table>
<Caption>
                                                               THREE MONTHS
                                                              ENDED MARCH 31,
                                                              ---------------
                                                               2002     2001
                                                              ------   ------
<S>                                                           <C>      <C>
Operating revenues..........................................  $2,609   $2,719
                                                              ------   ------
Costs and expenses:
  Operating (exclusive of depreciation and amortization
     shown below)...........................................   1,565    1,646
  Selling, general and administrative.......................     387      389
  Depreciation and amortization.............................     294      335
  Restructuring.............................................      37       --
  Asset impairments and unusual items.......................      (6)       5
                                                              ------   ------
                                                               2,277    2,375
                                                              ------   ------
Income from operations......................................     332      344
                                                              ------   ------
Other income (expense):
  Interest expense..........................................    (116)    (154)
  Interest income...........................................       4       17
  Minority interest.........................................      (1)      (1)
  Other income, net.........................................       2        6
                                                              ------   ------
                                                                (111)    (132)
                                                              ------   ------
Income before income taxes..................................     221      212
Provision for income taxes..................................      84       89
                                                              ------   ------
Income before extraordinary item and cumulative effect of
  changes in accounting principle...........................     137      123
Extraordinary loss on early retirement of debt, net of
  income tax benefit of $1 in 2002 and 2001.................      (1)      (1)
Cumulative effect of changes in accounting principle, net of
  income tax expense of $0 in 2002 and $2 in 2001...........       2        2
                                                              ------   ------
Net income..................................................  $  138   $  124
                                                              ======   ======
Basic earnings per common share:
  Income before extraordinary item and cumulative effect of
     changes in accounting principle........................  $ 0.22   $ 0.20
  Extraordinary item........................................      --       --
  Cumulative effect of changes in accounting principle......      --       --
                                                              ------   ------
Net income..................................................  $ 0.22   $ 0.20
                                                              ======   ======
Diluted earnings per common share:
  Income before extraordinary item and cumulative effect of
     changes in accounting principle........................  $ 0.22   $ 0.20
  Extraordinary item........................................      --       --
  Cumulative effect of changes in accounting principle......      --       --
                                                              ------   ------
Net income..................................................  $ 0.22   $ 0.20
                                                              ======   ======
</Table>

                See notes to consolidated financial statements.
                                        2
<PAGE>

                             WASTE MANAGEMENT, INC.

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN MILLIONS)
                                  (UNAUDITED)

<Table>
<Caption>
                                                               THREE MONTHS
                                                              ENDED MARCH 31,
                                                              ---------------
                                                               2002     2001
                                                              ------   ------
<S>                                                           <C>      <C>
Cash flows from operating activities:
  Net income................................................  $ 138    $ 124
  Adjustments to reconcile net income to net cash provided
     by operating activities:
       Provision for bad debts..............................      9       10
       Depreciation and amortization........................    294      335
       Deferred income tax provision........................     34       56
       Minority interest in subsidiaries....................      1        1
       Net gain on disposal of assets.......................     (1)      (9)
       Effect of asset impairments and unusual items........     (6)       5
     Change in assets and liabilities, net of effects of
      acquisitions and divestitures:
          Receivables.......................................    130      108
          Prepaid expenses and other current assets.........    (33)     (12)
          Other assets......................................    (17)     (10)
          Accounts payable and accrued liabilities..........   (146)    (191)
          Deferred revenues and other liabilities...........     33      (17)
                                                              -----    -----
Net cash provided by operating activities...................    436      400
                                                              -----    -----
Cash flows from investing activities:
  Acquisitions of businesses, net of cash acquired..........    (48)     (22)
  Capital expenditures......................................   (180)    (144)
  Proceeds from divestitures of businesses, net of cash
     divested, and other sales of assets....................     37        6
  Other.....................................................     60       56
                                                              -----    -----
Net cash used in investing activities.......................   (131)    (104)
                                                              -----    -----
Cash flows from financing activities:
  New borrowings............................................     --      953
  Debt repayments...........................................   (439)    (474)
  Common stock repurchases..................................   (300)      --
  Exercise of common stock options and warrants.............     10       18
                                                              -----    -----
Net cash provided by (used in) financing activities.........   (729)     497
                                                              -----    -----
Increase (decrease) in cash and cash equivalents............   (424)     793
Cash and cash equivalents at beginning of period............    730       94
                                                              -----    -----
Cash and cash equivalents at end of period..................  $ 306    $ 887
                                                              =====    =====
</Table>

                See notes to consolidated financial statements.
                                        3
<PAGE>

                             WASTE MANAGEMENT, INC.

                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
                   (IN MILLIONS, EXCEPT SHARES IN THOUSANDS)
                                  (UNAUDITED)

<Table>
<Caption>
                                                                            ACCUMULATED
                                  COMMON STOCK     ADDITIONAL                  OTHER       RESTRICTED STOCK   TREASURY STOCK
                                ----------------    PAID-IN     RETAINED   COMPREHENSIVE       UNEARNED       ---------------
                                SHARES    AMOUNT    CAPITAL     EARNINGS       LOSS          COMPENSATION     SHARES   AMOUNT
                                -------   ------   ----------   --------   -------------   ----------------   ------   ------
<S>                             <C>       <C>      <C>          <C>        <C>             <C>                <C>      <C>
Balance, December 31, 2001....  630,332   $   6      $4,523      $1,057        $(148)            $(2)          2,314   $ (44)
  Net income..................       --      --          --         138           --              --              --      --
  Common stock issued upon
    exercise of stock options
    and warrants, including
    tax benefit of $2.........       --      --           2          --           --              --            (535)     10
  Common stock repurchases....       --      --          --          --           --              --          10,925    (300)
  Unrealized loss on
    marketable securities, net
    of tax benefit of $2......       --      --          --          --           (3)             --              --      --
  Cumulative translation
    adjustment of foreign
    currency statements.......       --      --          --          --            1              --              --      --
  Other.......................       (2)     --           1          --           --              --            (224)      4
                                -------   -----      ------      ------        -----             ---          ------   -----
Balance, March 31, 2002.......  630,330   $   6      $4,526      $1,195        $(150)            $(2)         12,480   $(330)
                                =======   =====      ======      ======        =====             ===          ======   =====
</Table>

                See notes to consolidated financial statements.
                                        4
<PAGE>

                             WASTE MANAGEMENT, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                  (DOLLARS IN MILLIONS EXCEPT PER SHARE DATA)
                                  (UNAUDITED)

     The consolidated financial statements of Waste Management, Inc., a Delaware
corporation, and subsidiaries ("Waste Management" or the "Company") presented
herein are unaudited. In the opinion of management, these financial statements
include all adjustments, which are of a normal recurring nature, necessary for a
fair presentation of the financial position, results of operations, and cash
flows for the periods presented. The results for interim periods are not
necessarily indicative of results for the entire year. The financial statements
presented herein should be read in connection with the financial statements
included in the Company's Annual Report on Form 10-K for the year ended December
31, 2001.

     The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
certain estimates and assumptions. These estimates and assumptions affect the
reported amounts of assets and liabilities and disclosure of the contingent
assets and liabilities at the date of the financial statements. These estimates
and assumptions will also affect the reported amounts of certain revenues and
expenses during the reporting period. Actual results could differ materially
from the estimates and assumptions that the Company uses in the preparation of
its financial statements. As it relates to estimates and assumptions in landfill
airspace amortization and final closure and post-closure rates per ton and
environmental remediation liabilities, significant engineering and accounting
input is required. The Company reviews these estimates and assumptions no less
than annually. In many circumstances, the ultimate outcome of these estimates
and assumptions may not be known for decades into the future. Actual results
could differ materially from these estimates and assumptions due to changes in
environmental-related regulations, changes in future operational plans, and
inherent imprecision associated with estimating environmental matters so far
into the future. See "Management's Discussion and Analysis" elsewhere herein.

     Certain reclassifications have been made in the prior period financial
statements in order to conform to the current period presentation.

1.  LONG-TERM DEBT

     Long-term debt consisted of the following:

<Table>
<Caption>
                                                              MARCH 31,   DECEMBER 31,
                                                                2002          2001
                                                              ---------   ------------
<S>                                                           <C>         <C>
Senior notes and debentures, interest of 6.375% to 8.75%
  through 2029..............................................   $6,151        $6,169
4% Convertible subordinated notes due 2002..................       --           427
5.75% Convertible subordinated notes due 2005 (2% interest
  rate and 3.75% issuance discount).........................       31            31
Tax-exempt and project bonds, principal payable in periodic
  installments, maturing through 2031, fixed and variable
  interest rates ranging from 1.45% to 10.0% (weighted
  average interest rate of 4.89%) at March 31, 2002.........    1,443         1,404
Installment loans, notes payable and other, interest from 5%
  to 14.25% (average interest rate of 8.4%), maturing
  through 2019..............................................      211           193
                                                               ------        ------
                                                                7,836         8,224
Less current portion........................................       82           515
                                                               ------        ------
                                                               $7,754        $7,709
                                                               ======        ======
</Table>

     The Company has a $750 syndicated line of credit (the "Line of Credit") and
a $1,750 syndicated revolving credit facility (the "Revolver"). The Line of
Credit requires annual renewal by the lender, and if not renewed, the Company
has the option of converting the balance outstanding, if any, as of June 28,
2002 into a one-year term loan. The Revolver matures in June 2006. The Line of
Credit and the Revolver are available for

                                        5
<PAGE>
                             WASTE MANAGEMENT, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

borrowing, including letters of credit, and for supporting the issuance of
commercial paper. The covenant restrictions for the Line of Credit and the
Revolver include, among others, interest coverage, debt to earnings ratio,
minimum net worth, and limitations on investments, additional indebtedness and
liens.

     At March 31, 2002, the Company had no borrowings outstanding under the Line
of Credit or the Revolver. The facility fees were 0.175% and 0.225% per annum
under the Line of Credit and Revolver, respectively, at March 31, 2002. The
Company had issued letters of credit of approximately $1,512 under the Revolver,
leaving unused and available aggregate credit capacity of approximately $988 at
March 31, 2002.

     During the first quarter of 2002, the Company refinanced approximately $49
of fixed-rate tax exempt bonds maturing in 2011 with variable-rate tax exempt
bonds maturing in 2022. As a result, the Company incurred prepayment penalties
and other fees for a total extraordinary item charge, net of tax benefit, of
approximately $1. Also in the first quarter of 2002, the Company repaid $427 to
holders of its 4% convertible subordinated notes due February 2002 to retire the
issuance.

     The Company has $300 of 6.625% senior notes due July 15, 2002, $285.7 of
7.7% senior notes due October 1, 2002 and $350 of 6.5% senior notes due December
15, 2002. The Company has classified these borrowings as long-term at March 31,
2002 and December 31, 2001 based upon its ability to use its Line of Credit
and/or Revolver, which are both long-term facilities, to refinance these
borrowings. The Company intends to pursue other sources of long-term financing
to refinance these borrowings; however, in the event other sources of long-term
financing are not available, the Company has the intent and ability to use its
Line of Credit and/or Revolver.

     The Company manages its debt portfolio by using interest rate derivatives
to achieve a desired position of fixed and floating rate debt. At March 31, 2002
and December 31, 2001, the Company had interest rate swap contracts with a
notional amount of approximately $1,770. The significant terms of the interest
rate contracts and the underlying debt instrument are identical. Accordingly,
changes in fair value of these interest rate contracts are deferred and
recognized as an adjustment to interest expense over the life of the interest
rate contract. At March 31, 2002 and December 31, 2001, the net negative fair
value of these derivatives was approximately $16 and $2, respectively. In
addition, approximately $41 and $60 is included in the senior notes and
debentures classification as of March 31, 2002 and December 31, 2001,
respectively, which primarily consists of the remaining unamortized accumulated
adjustment of interest rate swaps terminated in 2001. Approximately $2 is
included in the tax-exempt and project bonds at both March 31, 2002 and December
31, 2001, respectively, for swaps which were terminated in 2001. For the
quarters ended March 31, 2002 and 2001, interest rate swap contracts reduced
interest expense by $20 and $1, respectively.

2.  INCOME TAXES

     The difference in federal income taxes computed at the federal statutory
rate and reported income taxes for the three months ended March 31, 2002 is
primarily due to state and local income taxes. For the three months ended March
31, 2001, the difference is primarily due to state and local income taxes,
non-deductible costs related to acquired intangibles and non-deductible costs
associated with the impairment and divestiture of certain businesses.

3.  2002 RESTRUCTURING

     On March 4, 2002, the Company adopted a new organizational structure that
better aligns collection, transport, recycling and disposal resources within
market areas. The Company believes the new structure will yield a number of
benefits, among them clearer accountability and responsibility for business
performance and profitability in specific markets; simplification of structure;
cost savings through consolidation of duplicate administrative and other support
functions; improved utilization of operating assets; and better customer
responsiveness.

                                        6
<PAGE>
                             WASTE MANAGEMENT, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The new organizational structure does not affect the Company's Wheelabrator
Technologies Inc. ("WTI") or Canadian Waste Services ("CWS") operations. The
Company's remaining operations were restructured to reduce the number of field
layers of management from four to three and the number of field layers that have
administrative and functional staff from four to two. The new structure
refocuses the Company's approximately 1,200 sites into 85 newly established
Market Areas. The sites include waste collection depots, transfer stations,
landfills and recycling facilities. These Market Areas are responsible for the
sales and marketing of the Company's services and for directing the delivery of
service by operating units. The Market Area is also the profit center, and the
districts, all of which used to be profit centers, became cost centers. Each
large Market Area is headed by a Vice President and the others are headed by a
General Manager. The Market Areas consolidate financial reporting and provide a
range of assistance in the areas of finance and accounting, procurement, people,
market planning and development, fleet services, recycling, legal services,
engineering, regulatory compliance, safety and public affairs. They all report
to one of four Groups that divide the United States geographically, and which
were formerly known as the Company's "Areas." WTI and CWS, the fifth and sixth
Areas under the previous structure, continue as the fifth and sixth Groups under
the new structure.

     In March 2002, the Company recorded a $37 pre-tax charge for costs
associated with the implementation of the new structure, including $34 for
employee severance and benefit costs and $3 related to abandoned operating lease
agreements. Approximately 1,800 field-level administrative and operational
positions were eliminated by this reorganization. The former employees will
receive scheduled severance payments during 2002 and, in some cases, into 2003.
During March 2002, the Company made payments of $3 for employee severance and
benefits and for abandoned leases.

     The Company expects to incur an additional $8 of restructuring expenses
throughout the remainder of 2002 related to the relocation of employees and the
consolidation of facilities to support the new organizational structure. This $8
in additional costs will be recognized as restructuring expenses when incurred.

4.  EARNINGS PER SHARE

     The following reconciles the number of common shares outstanding at March
31 of each year to the weighted average number of common shares outstanding and
the weighted average number of common and dilutive potential common shares
outstanding for the purposes of calculating basic and diluted earnings per
common share (shares in millions):

<Table>
<Caption>
                                                              THREE MONTHS
                                                                  ENDED
                                                                MARCH 31,
                                                              -------------
                                                              2002    2001
                                                              -----   -----
<S>                                                           <C>     <C>
Number of common shares outstanding at end of period........  617.8   624.4
  Effect of using weighted average common shares
     outstanding............................................    8.1    (0.5)
                                                              -----   -----
Basic common shares outstanding.............................  625.9   623.9
  Dilutive effect of common stock options and warrants......    4.4     4.1
                                                              -----   -----
Diluted common shares outstanding...........................  630.3   628.0
                                                              =====   =====
</Table>

     For the three months ended March 31, 2002 and 2001, the effect of the
Company's convertible subordinated notes was excluded from the diluted earnings
per share calculation because the effect would be antidilutive.

     At March 31, 2002, there were approximately 40 million shares of common
stock potentially issuable with respect to stock options, warrants and
convertible debt that could dilute basic earnings per share in the future.

                                        7
<PAGE>
                             WASTE MANAGEMENT, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

5.  COMMON STOCK REPURCHASE PROGRAM

     In February 2002 the Company announced that its Board of Directors had
approved a stock buy back program. Under the program, the Company will buy back
up to one billion dollars of its common stock each year for the foreseeable
future. The purchases will be made in open market purchases or privately
negotiated transactions primarily using cash flows from operations.

     In March 2002, the Company entered into an accelerated stock repurchase
master agreement to facilitate the repurchase of its shares of common stock.
Pursuant to the agreement, the Company may from time to time enter into
transactions to purchase shares of its common stock from the counterparty for a
notional amount equal to the fair market value of the shares on the date that it
elects to purchase. Six months from the date of purchase, the parties enter into
a settlement pursuant to which, if the weighted average daily market prices for
the stock during such six month period (other than certain days during which the
Company is entitled to purchase in the market) times the number of shares
initially purchased is greater than the notional amount, the Company will pay
the counterparty the difference. If the average daily market price for the
valuation period times the number of shares initially purchased is less than the
notional amount, the counterparty will pay the Company the difference. The
Company has the option of paying its settlement amount, if any, in shares of its
common stock or with cash.

     The Company entered into its first transaction to purchase stock under the
agreement in March, purchasing approximately 10.9 million shares at $27.46 per
share for a total of approximately $300. The Company accounted for the initial
payment as a purchase of treasury stock and has classified the future settlement
with the counterparty as an equity instrument. Under the agreement, the number
of shares to be issued by the Company, if the Company was required to pay the
counterparty and elected to net settle in shares, is capped at ten million
shares. The settlement will not occur until September 2002, and therefore, the
Company is unable at this time to predict the number of shares, if any, it would
have to issue out of its treasury were it to elect that payment option.

     Based on the Company's stock price at the end of the first quarter of 2002,
the Company would receive approximately $8 in cash from the counterparty to
settle the contracts. However, for every one dollar of change in the average
price of the Company's common stock during the valuation period, the settlement
amount would change by $10.9.

                                        8
<PAGE>
                             WASTE MANAGEMENT, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

6.  COMPREHENSIVE INCOME

     Comprehensive income is as follows:

<Table>
<Caption>
                                                              THREE MONTHS
                                                                  ENDED
                                                                MARCH 31,
                                                              -------------
                                                              2002    2001
                                                              -----   -----
<S>                                                           <C>     <C>
Net income..................................................  $138    $124
                                                              ----    ----
Other comprehensive income:
  Changes in minimum pension liability adjustment, net of
     taxes..................................................    --       3
  Unrealized gain on derivative instruments.................    --      10
  Unrealized gain (loss) on marketable securities, net of
     taxes..................................................    (3)      4
  Foreign currency translation adjustment...................     1     (46)
                                                              ----    ----
Other comprehensive loss....................................    (2)    (29)
                                                              ----    ----
Comprehensive income........................................  $136    $ 95
                                                              ====    ====
</Table>

     The components of accumulated other comprehensive loss were as follows:

<Table>
<Caption>
                                                              MARCH 31,   DECEMBER 31,
                                                                2002          2001
                                                              ---------   ------------
<S>                                                           <C>         <C>
Minimum pension liability adjustment, net of taxes..........    $  (1)       $  (1)
Accumulated unrealized gain on derivative instrument, net of
  taxes.....................................................        1            1
Accumulated unrealized gain on marketable securities, net of
  taxes.....................................................        3            6
Cumulative foreign currency translation adjustment..........     (153)        (154)
                                                                -----        -----
                                                                $(150)       $(148)
                                                                =====        =====
</Table>

7.  ENVIRONMENTAL LIABILITIES

     The Company has material financial commitments for final closure and
post-closure obligations with respect to the landfills it owns or operates.
Estimates of final closure and post-closure costs are developed using input from
the Company's engineers and accountants and are reviewed by management,
typically at least once per year. Adjustments for final closure and post-closure
estimates are accounted for prospectively over the remaining capacity of the
landfill. The estimates are based on the Company's interpretation of current
requirements and proposed regulatory changes. For landfills, the present value
of final closure and post-closure liabilities is accrued using a calculated rate
per ton and charged to expense as airspace is consumed. Each year the Company
revises its calculated rate per ton to reflect accretion on the present value of
the liability. The revised rate per ton is calculated by dividing the revised
present value of the liability, less the accumulated liability recognized to
date, by the estimated remaining capacity of the landfill. The present value of
total estimated final closure and post-closure costs will be fully accrued for
each landfill at the time the site discontinues accepting waste and is closed.
Final closure and post-closure accruals consider estimates for the final cap and
cover for the site, methane gas control, leachate management and groundwater
monitoring, and other operational and maintenance costs to be incurred after the
site discontinues accepting waste, which is generally expected to be for a
period of up to thirty years after final site closure. For purchased disposal
sites, the Company assesses and records a present value-based final closure and
post-closure liability at the time the Company assumes closure responsibility.
This liability is based on the estimated final closure and post-closure costs
and the percentage of airspace used as of the date the Company has assumed the
closure responsibility. Thereafter, the difference between the final closure and
post-closure liability recorded at the time of

                                        9
<PAGE>
                             WASTE MANAGEMENT, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

acquisition and the present value of total estimated final closure and
post-closure costs to be incurred is accrued using the calculated rate and
charged to operating costs as airspace is consumed.

     In the United States, the final closure and post-closure requirements are
established by the EPA's Subtitles C and D regulation, as implemented and
applied on a state-by-state basis. The costs to comply with these requirements
could increase in the future as a result of legislation or regulation.

     The Company routinely reviews and evaluates sites that require remediation,
including sites listed on the EPA's National Priorities List ("NPL sites"). The
Company considers whether the Company was an owner, operator, transporter, or
generator at the site, the amount and type of waste hauled to the site, the
number of years the Company was connected with the site, as well as reviews the
same information with respect to other named and unnamed potentially responsible
parties ("PRPs"). The Company then reviews the estimated cost for the likely
remedy, which is based on management's judgment and experience in remediating
such sites for the Company as well as for unrelated parties, information
available from regulatory agencies as to costs of remediation, and the number,
financial resources and relative degree of responsibility of other PRPs who may
be liable for remediation of a specific site, as well as the typical allocation
of costs among PRPs. These estimates are sometimes a range of possible outcomes.
In those cases, the Company provides for the amount within the range which
constitutes its best estimate. If no amount within the range appears to be a
better estimate than any other amount, the Company provides for the minimum
amount within the range in accordance with SFAS No. 5, Accounting for
Contingencies, and its interpretations. The Company believes that it is
"reasonably possible," which means that it is more than remote but less than
likely, that its potential liability at the high end of such ranges would be
approximately $256 higher on a discounted basis in the aggregate than the
estimate that has been recorded in the consolidated financial statements as of
March 31, 2002.

     As of March 31, 2002, the Company or its subsidiaries had been notified
that they are potentially responsible parties in connection with 79 locations
listed on the NPL. Of the 79 NPL sites at which claims have been made against
the Company, 17 are sites that the Company has come to own over time. All of the
NPL sites owned by the Company were initially developed by others as land
disposal facilities. At each of the 17 owned facilities, the Company is working
in conjunction with the government to characterize or remediate identified site
problems. In addition, at these 17 owned facilities, the Company has either
agreed with other legally liable parties on an arrangement for sharing the costs
of remediation or is pursuing resolution of an allocation formula. The 62 NPL
sites at which claims have been made against the Company and that are not owned
by the Company are at different procedural stages under Superfund. At some of
these sites, the Company's liability is well defined as a consequence of a
governmental decision as to the appropriate remedy and an agreement among liable
parties as to the share each will pay for implementing that remedy. At others
where no remedy has been selected or the liable parties have been unable to
agree on an appropriate allocation, the Company's future costs are uncertain.
Any of these matters could have a material adverse effect on the Company's
financial statements.

     Estimates of the Company's degree of responsibility for remediation of a
particular site and the method and ultimate cost of remediation require a number
of assumptions and are inherently difficult, and the ultimate outcome may differ
materially from current estimates. However, the Company believes that its
extensive experience in the environmental services business, as well as its
involvement with a large number of sites, provides a reasonable basis for
estimating its aggregate liability. As additional information becomes available,
estimates are adjusted as necessary. It is possible that technological,
regulatory or enforcement developments, the results of environmental studies,
the non-existence or inability of other PRPs to contribute to the settlements of
such liabilities, or other factors could necessitate the recording of additional
liabilities that could be material.

                                        10
<PAGE>
                             WASTE MANAGEMENT, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The Company reviews its remediation liabilities as part of its ongoing
operations. Accordingly, revisions to remediation liabilities may result in
upward or downward adjustments to income from operations, which may be material,
in any given period.

     Where the Company believes that both the amount of a particular
environmental liability and the timing of the payments are reliably
determinable, the cost in current dollars is inflated (at 2% at both March 31,
2002 and December 31, 2001) until expected time of payment and then discounted
to present value (at 5.5% at both March 31, 2002 and December 31, 2001). The
accretion of the interest related to the discounted environmental liabilities
for operating landfills is included in the annual calculation of the landfill's
final closure and post-closure cost per ton and is charged to operating costs as
landfill airspace is consumed.

     Liabilities for final closure, post-closure and environmental remediation
costs consisted of the following:

<Table>
<Caption>
                                   MARCH 31, 2002                       DECEMBER 31, 2001
                        ------------------------------------   ------------------------------------
                        FINAL CLOSURE/                         FINAL CLOSURE/
                         POST-CLOSURE    REMEDIATION   TOTAL    POST-CLOSURE    REMEDIATION   TOTAL
                        --------------   -----------   -----   --------------   -----------   -----
<S>                     <C>              <C>           <C>     <C>              <C>           <C>
Current (in accrued
  liabilities)........       $ 56           $ 55       $111         $ 55           $ 66       $121
Long-term.............        583            244        827          570            255        825
                             ----           ----       ----         ----           ----       ----
                             $639           $299       $938         $625           $321       $946
                             ====           ====       ====         ====           ====       ====
</Table>

     The changes to environmental liabilities are as follows:

<Table>
<Caption>
                                                              THREE MONTHS
                                                                  ENDED
                                                                MARCH 31,
                                                              -------------
                                                              2002    2001
                                                              -----   -----
<S>                                                           <C>     <C>
Beginning balance...........................................  $946    $962
Expense.....................................................    14      19
Spending....................................................   (12)    (21)
Acquisitions, divestitures and other adjustments............   (10)      5
                                                              ----    ----
Ending balance..............................................  $938    $965
                                                              ====    ====
</Table>

8.  COMMITMENTS AND CONTINGENCIES

     Financial instruments -- The Company has provided letters of credit,
performance bonds, trust agreements, financial guarantees and insurance policies
to support tax-exempt bonds, contracts, performance of landfill final closure
and post-closure requirements, and other obligations. The Company also uses
captive insurance, or insurance policies issued by a wholly-owned insurance
company subsidiary, the sole business of which is to issue such policies to the
Company, in order to secure such obligations. In those instances where the use
of captive insurance is not acceptable, the Company generally has available
alternative bonding mechanisms. Because virtually no claims have been made
against these financial instruments in the past, management does not expect that
these instruments will have a material adverse effect on the Company's
consolidated financial statements. The Company has not experienced difficulty in
obtaining performance bonds or letters of credit for its current operations.
However, the tragic events of September 11, 2001 have had an impact on the
financial status of a number of insurance, surety and reinsurance providers,
which could cause an increase in the cost and a decrease in the availability of
surety and insurance coverages available to the Company in the future.

     For the 14 months ended January 1, 2000, the Company insured certain risks,
including auto, general and workers' compensation, with Reliance National
Insurance Company ("Reliance"). On June 11, 2001, the

                                        11
<PAGE>
                             WASTE MANAGEMENT, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

ultimate parent of Reliance, Reliance Group Holdings, Inc., filed for bankruptcy
under Chapter 11 of the Bankruptcy Code of 1978, as amended (the "Bankruptcy
Code"). On October 3, 2001, Reliance was placed in liquidation by a Pennsylvania
Court. The Company has determined that it will have coverage through various
state insurance guarantee funds in some, but not all, of the jurisdictions where
it is subject to claims that would have been covered by the Reliance insurance
program. While it is not possible to predict the outcome of proceedings
involving Reliance, the Company believes that because of the various insurance
guarantee funds and potential recoveries from the liquidation, it is unlikely
that events relating to Reliance will have a material adverse impact on the
Company's financial statements.

     Environmental matters -- The Company's business is intrinsically connected
with the protection of the environment. As such, a significant portion of the
Company's operating costs and capital expenditures could be characterized as
costs of environmental protection. Such costs may increase in the future as a
result of legislation or regulation, however, the Company believes that, in
general, it tends to benefit when environmental regulation increases, which may
increase the demand for its services, and that it has the resources and
experience to manage environmental risk.

     For more information regarding commitments and contingencies with respect
to environmental matters, see Note 7.

     Litigation -- A group of companies that sold assets in exchange for common
stock in March 1996 to Waste Management Holdings, Inc. ("WM Holdings"), which
was acquired by the Company in July 1998 (the "WM Holdings Merger"), brought an
action against the Company in March 2000 for breach of contract and fraud, among
other things. The parties have agreed to resolve this dispute through
arbitration. The extent of damages in the dispute has not yet been determined.

     In December 1999, an individual brought an action against the Company, five
former officers of WM Holdings, and WM Holdings' former auditor in Illinois
state court on behalf of a proposed class of individuals who purchased WM
Holdings common stock before November 3, 1994, and who held that stock through
February 24, 1998, for alleged acts of common law fraud, negligence, and breach
of fiduciary duty. In May 2001, the court granted in part and denied in part the
defendants' motion to dismiss. This action remains in its early stages and the
extent of possible damages, if any, has not yet been determined.

     On July 6 and July 29, 1999, the Company announced that it had lowered its
expected earnings per share for the three months ended June 30, 1999. On August
3, 1999, the Company provided additional information regarding its expected
earnings for that period, including that its reported operating income for the
three months ended March 31, 1999 might have included certain unusual pre-tax
income items. More than 30 lawsuits based on one or more of these announcements
were filed against the Company and certain of its current and former officers
and directors. These lawsuits were consolidated into a single action pending in
the United States District Court for the Southern District of Texas (the
"Southern District of Texas Court"). On May 8, 2000, the court entered an order
appointing the Connecticut Retirement Plan and Trust Funds as lead plaintiff and
appointing the law firm of Goodkind Labaton Rudoff & Suchrow LLP as lead
plaintiff's counsel.

     The lead plaintiff filed its Amended Consolidated Class Action Complaint
(the "Complaint") on July 14, 2000. The Complaint pleads claims on behalf of a
putative class consisting of all purchasers and acquirers of Company securities
(including common stock, debentures and call options), and all sellers of put
options, from June 11, 1998 through November 9, 1999. The Complaint also pleads
additional claims on behalf of two putative subclasses: (i) the "Merger
Subclass," consisting of all WM Holdings stockholders who received Company
common stock pursuant to the WM Holdings Merger, and (ii) the "Eastern Merger
Subclass," consisting of all Eastern Environmental Services, Inc. ("Eastern")
stockholders who received Company common stock pursuant to the Company's
acquisition of Eastern on December 31, 1998.

     Among other things, the plaintiff alleges that the Company and certain of
its current and former officers and directors (i) made misrepresentations in the
registration statement and prospectus filed with the SEC in
                                        12
<PAGE>
                             WASTE MANAGEMENT, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

connection with the WM Holdings Merger, (ii) made knowingly false earnings
projections for the three months ended June 30, 1999, (iii) failed to adequately
disclose facts relating to its earnings projections that the plaintiff claims
would have been material to purchasers of the Company's common stock and (iv)
made separate and distinct misrepresentations about the Company's operations and
finances on and after July 29, 1999, culminating in the Company's pre-tax charge
of $1,763 in the third quarter of 1999. The plaintiff also alleges that certain
of the Company's current and former officers and directors sold common stock
between May 10, 1999 and June 9, 1999 at prices known to have been inflated by
material misstatements and omissions. The plaintiff in this action seeks damages
with interest, costs and such other relief as the court deems proper. Defendants
filed a motion to dismiss on October 3, 2000. On August 16, 2001, the court
granted the motion in part and denied it in part, allowing the plaintiff to
replead its claims.

     On November 7, 2001, the Company announced that it had reached a settlement
agreement with the plaintiff, resolving all claims brought in the action against
the Company as well as claims against current and former officers and directors
of the Company. A hearing was held April 29, 2002, at which the settlement
agreement was approved. The agreement, which will become final after the appeal
period has run, provides for a payment of $457 to the members of the class and
for the Company to consent to the certification of a class for the settlement of
purchasers or acquirers of the Company's securities from June 11, 1998 through
November 9, 1999. As part of the settlement agreement, the Company also has
presented and recommended at its 2002 annual meeting of stockholders that its
stockholders approve a binding resolution to require that all directors be
elected annually. In anticipation of the settlement agreement, the Company
recorded a charge to asset impairments and unusual items, net of anticipated
insurance recoveries, of $389 in the third quarter 2001. Additionally, certain
stockholders opted out of the settlement, and while certain of those opt-outs
might seek remedies against the Company, the Company does not know which of
these exclusions, if any, will ultimately result in litigation.

     Also on November 7, 2001, the Company announced that, subject to court
approval and additional confirmatory discovery by the derivative plaintiffs, the
Company will receive $20 (less fees awarded to counsel for the derivative
plaintiffs) as a result of a settlement reached between the derivative
plaintiffs and Arthur Andersen LLP ("Andersen") in a stockholder derivative suit
filed on July 3, 2001 in Texas state court against Andersen, as the Company's
independent auditor. The additional discovery was completed in January 2002,
after which the parties executed an agreement removing this contingency from the
settlement. The Company recorded $15 as an offset to asset impairments and
unusual items in the third quarter 2001 in connection with the settlement
agreement. The derivative plaintiffs have alleged that Andersen engaged in
professional malpractice in connection with certain services that it performed
for the Company. Andersen has informed the Company that neither the complaint
nor the settlement affected its independence in 2001 or prior years, when
Andersen served as the Company's independent auditor. A hearing to approve the
settlement has been scheduled for May 17, 2002.

     On June 29, 2000, a putative class action was filed against the Company in
Delaware state court by a class of former Eastern stockholders falling within
the scope of the Eastern Merger Subclass described above. The plaintiffs allege
that the Company stock they received in exchange for their Eastern shares was
overvalued for the same reasons alleged in the consolidated class actions in
Texas. On August 4, 2000, the Company removed the case from the state court to
federal court. On June 14, 2001, the Company filed a motion with the Judicial
Panel on Multidistrict Litigation (the "MDL Panel") to transfer all cases that
are pending or that may be filed in, or removed to, federal courts that relate
to the claims asserted in the consolidated Texas class actions to the Southern
District of Texas Court for coordinated or consolidated pre-trial proceedings.
This motion covered the Delaware putative class action brought by the former
Eastern stockholders. The MDL Panel granted the Company's motion on November 7,
2001, thereby transferring the case to the Southern District of Texas Court. The
Delaware plaintiffs requested their lawsuit be remanded to state court, which
motion was granted in February 2002. The named plaintiffs in the Delaware case
have excluded themselves

                                        13
<PAGE>
                             WASTE MANAGEMENT, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

from the Texas class action settlement. The case is still at a relatively early
stage, and the amount of damages, if any, cannot yet be determined.

     Certain sellers of individual businesses to the Company or to a company
later acquired by the Company have also brought lawsuits, alleging that for
reasons similar to those in the consolidated Texas class actions described
above, the stock that they received in the sales of their businesses was
overvalued. The first such lawsuit was brought in Virginia state court in July
2000. The Company's demurrer in that case was denied in January 2002. The
plaintiff in the Virginia case has excluded himself from the Texas class action
settlement. The second seller's lawsuit was brought in Michigan state court in
May 2001. After the Company removed this case to federal court, the plaintiffs
filed another new lawsuit in Michigan state court alleging only state law claims
and also filed a duplicative complaint in the Southern District of Texas Court.
The Company reached a settlement with the plaintiffs in the Michigan state and
federal lawsuits in April 2002. The third seller's lawsuit was brought in
California state court in July 2001, with an amended complaint filed in December
2001. The parties to this lawsuit entered into a settlement agreement in April
2002.

     Two groups of stockholders have filed separate lawsuits in state courts in
Texas against the Company and certain of its former officers. The petitions
allege that the plaintiffs are substantial stockholders of the Company's common
stock who intended to sell their stock in 1999, or otherwise protect against
loss, but that the individual defendants made false and misleading statements
regarding the Company's prospects that, along with public statements, induced
the plaintiffs to retain their stock. Plaintiffs assert that the value of their
retained stock declined dramatically. Plaintiffs assert claims for fraud,
negligent misrepresentation, and conspiracy. The Court granted the Company's
motion for summary judgment in the first of these cases in March 2002. The
second of these cases is in an early stage, and the extent of damages, if any,
cannot yet be determined.

     The Company's business is intrinsically connected with the protection of
the environment, and there is the potential for the unintended or unpermitted
discharge of materials into the environment. From time to time, the Company pays
fines or penalties in environmental proceedings relating primarily to waste
treatment, storage or disposal facilities. As of March 31, 2002, there were five
proceedings involving Company subsidiaries where the sanctions involved could
potentially exceed one hundred thousand dollars. The matters involve allegations
that subsidiaries (i) operated a hazardous waste incinerator in such a way that
its air emissions exceeded permit limits, (ii) engaged in the importation and
disposal of hazardous waste in contravention of applicable federal regulations,
(iii) are responsible for remediation of landfill gas and chemical compounds
required pursuant to a Unilateral Administrative Order associated with an NPL
site, (iv) are responsible for late performance of work required under a
Unilateral Administrative Order and (v) under-reported waste volumes at an
operating landfill.

     On April 23, 2002, the EPA and the United States Department of Justice
lodged a consent decree in federal court finalizing a settlement agreement
reached between Waste Management of Massachusetts, Inc. ("WMMA") and the EPA
arising out of violations relating to management of chlorofluorocarbons ("CFCs")
that were alleged to have occurred in periods prior to July 1998. Under the
consent decree, which is subject to a thirty day public comment period once it
is published, WMMA will pay a $0.8 civil penalty and spend $2.6 on environmental
projects that involve the installation of pollution control devices on 150
Boston school buses and the payment for the supply of cleaner burning low sulfur
fuel for the buses, as well as the creation of a recreational open space area on
a 4.5 acre waterfront property owned by the City of Boston. The ultimate outcome
of this matter, which is still subject to public review, is not expected to have
a material adverse effect on the Company's financial statements.

     The Company has brought suit against numerous insurance carriers in an
action entitled Waste Management, Inc., et al. v. The Admiral Insurance Company,
et al., pending in the Superior Court in Hudson County, New Jersey. The Company
has been seeking (i) a declaratory judgment that past and future environmental
liabilities asserted against it or its subsidiaries are covered by its insurance
policies and (ii) to
                                        14
<PAGE>
                             WASTE MANAGEMENT, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

recover defense and remediation costs and other damages incurred as a result of
the insurance carriers' denial of coverage of environmental liabilities. The
Company began mediating certain of the claims in the third quarter of 2001.
Trial with respect to five of the sites where discovery was complete began in
October 2001 ("Phase I"). To date, the Company has entered into settlement
agreements with substantially all Phase I defendants and has dismissed its
claims as to those defendants. The Company is currently engaged in the initial
stages of preparing for trial in the next phase of the litigation ("Phase II"),
which involves only two parties as material defendants. The Company is unable to
predict the outcome of the remaining proceedings, but it believes the majority
of the claims were settled in 2001.

     It is not possible at this time to predict the impact that the above
lawsuits, proceedings, investigations and inquiries may have on the Company, nor
is it possible to predict whether any other suits or claims may arise out of
these matters in the future. The Company and each of its subsidiaries intend to
defend themselves vigorously in all the above matters. However, it is reasonably
possible that the outcome of any present or future litigation, proceedings,
investigations or inquiries may have a material adverse impact on their
respective financial conditions or results of operations in one or more future
periods.

     The Company and certain of its subsidiaries are also currently involved in
other routine civil litigation and governmental proceedings relating to the
conduct of their business. The outcome of any particular lawsuit or governmental
investigation cannot be predicted with certainty and these matters could,
individually or in the aggregate, have a material adverse impact on the
Company's financial statements.

     Other -- The Company is a party to an agreement pursuant to which it is
obligated to purchase certain operating assets in Canada no later than December
2005. However, there is an option in the agreement that allows either party to
cause an earlier purchase. The purchase price is based on certain calculations
of the financial performance of the assets to be acquired, which will be
determined at the time of purchase. In addition, the Company subcontracted
certain business to the owner of the assets to be purchased. The owner has
informed the Company that it believes the Company is required to repurchase the
subcontracted business. The Company strongly disagrees with this position. In
any event, the Company does not believe that the purchase will have a material
effect on its financial statements.

9.  SEGMENT AND RELATED INFORMATION

     The Company's North American solid waste business ("NASW") is the Company's
principal reportable segment and is presented below as a subtotal that includes
the "NASW (excluding WTI)" and "WTI" columns. The NASW segment provides
integrated waste management services consisting of collection, transfer,
disposal (solid waste landfill, hazardous waste landfill and waste-to-energy
facilities), recycling, independent power production plants ("IPPs"), and other
miscellaneous services to commercial, industrial, municipal and residential
customers throughout the United States, Puerto Rico and Canada. The Company's
five geographically organized NASW operating segments and its national recycling
operations have been aggregated as NASW (excluding WTI) below due to their
economic and operational similarities. The WTI operating segment consists of the
Company's waste-to-energy and independent power production facilities. Though
also economically similar to its other NASW operations, the Company has elected
to present WTI as a separate segment. The Company's other operating units
consisted of waste management services in international markets outside of North
America and non-solid waste services, all of which were divested by March 31,
2002.

                                        15
<PAGE>
                             WASTE MANAGEMENT, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     Summarized financial information concerning the Company's reportable
segments is shown in the following table. Prior period information has been
restated to conform to the current year presentation.

<Table>
<Caption>
                                          NASW
                             -------------------------------
                                  NASW                                  CORPORATE
                             (EXCLUDING WTI)   >WTI   TOTAL    OTHER   FUNCTIONS(A)   TOTAL
                             ---------------   ----   ------   -----   ------------   ------
<S>                          <C>               <C>    <C>      <C>     <C>            <C>
Three Months Ended:
March 31, 2002
Net operating
  revenues(b)..............      $2,434        $167   $2,601   $  8       $   --      $2,609
EBIT(c),(d)................         389          35      424     (2)         (90)        332
March 31, 2001
Net operating
  revenues(b)..............      $2,505        $180   $2,685   $ 34       $   --      $2,719
EBIT(c),(d)................         464          29      493    (16)        (133)        344
</Table>

---------------

(a)  Corporate functions include the corporate treasury, legal, information
     technology, corporate tax, corporate insurance, management of the closed
     landfill and related insurance recovery, centralized service center and
     other typical administrative functions.

(b)  Other operations are net of intersegment revenue with NASW of $1 and $6 for
     the three months ended March 31, 2002 and 2001, respectively. There are no
     other significant sales between reportable segments. However, WTI
     operations are net of intrasegment revenue with NASW (excluding WTI) of $15
     for both the three months ended March 31, 2002 and 2001. Additionally, NASW
     (excluding WTI) operations are net of intrasegment revenue with WTI of $5
     and $6 for the three months ended March 31, 2002 and 2001, respectively.

(c)  EBIT is defined as "Earnings Before Interest and Taxes" and equals income
     from operations on the consolidated statements of operations. EBIT is an
     earnings measurement used by management to evaluate operating performance.

(d)  For those items included in the determination of EBIT, the accounting
     policies of the segments are generally the same as those described in the
     summary of significant accounting policies in the Company's Form 10-K for
     the year ended December 31, 2001 except as it relates to goodwill. EBIT in
     2001 included goodwill amortization of $39, of which $29 was in the NASW
     (excluding WTI) segment, $8 was in the WTI segment, and $2 was in the
     corporate function. As discussed in Note 12, the Company ceased the
     amortization of its goodwill in conjunction with the adoption of SFAS No.
     142 on January 1, 2002. In 2002, the Company's corporate functions began
     charging its NASW operations an expense similar to what those NASW
     operations' goodwill amortization would have been had the Company not been
     required to adopt SFAS No. 142. For the three months ended March 31, 2002,
     this charge increased EBIT for the corporate functions by $36 and decreased
     EBIT for the WTI segment by $7 and the NASW (excluding WTI) segment by $29.

10.  WASTE PAPER DERIVATIVES AND HEDGING ACTIVITIES

     The Company enters into waste paper swap agreements and other derivative
instruments to secure margins on certain paper products to be sold from its
material recovery facilities. The Company expects to achieve the margins by
entering into transactions to mitigate the variability in cash flows from sales
of waste paper products at floating prices, resulting in a fixed price being
received from sales of such products. The Company accounts for these derivatives
as cash flow hedges. As of March 31, 2002, the fair value of these derivatives
as well as any hedge ineffectiveness was not material.

     In addition, the Company has entered into waste paper swap agreements for
trading purposes with certain counterparties that have issued letters of credit
to the Company to support their credit worthiness. For the first quarter of
2002, the Company reduced revenues by $0.2 for waste paper swap agreements not
designated as hedges.

     For the quarter ending March 31, 2001 the Company recorded a gain of $6
related to derivative agreements with Enron North America Corp. ("Enron") as an
offset to operating expenses. In the fourth quarter of 2001, the Company
reclassified its year-to-date net waste paper swap mark-to-market adjustments to
be an adjustment to revenue instead of operating expenses. On December 2, 2001,
Enron declared bankruptcy under Chapter 11 of the Bankruptcy Code of 1978, as
amended (the "Bankruptcy Code"). Due to the uncertainty of Enron's ability to
satisfy all of its financial commitments, the Company determined that all

                                        16
<PAGE>
                             WASTE MANAGEMENT, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

of its waste paper derivatives with Enron had zero fair value at December 31,
2001. In February 2002, the Company terminated its derivative instruments with
Enron. The Company carries a deferred gain as of March 31, 2002, which is
included in accumulated other comprehensive income, of approximately $6 related
to its waste paper derivatives with Enron that had qualified through November
2001 as cash flow hedges. This deferred gain is being amortized into earnings as
the forecasted transactions that were previously hedged actually occur. The
deferred gain related to waste paper derivatives that previously qualified as
hedges that are expected to be reclassified into earnings over the next twelve
months is approximately $3.

11.  CONDENSED CONSOLIDATING FINANCIAL STATEMENTS

     WM Holdings ("Guarantor"), which is 100% owned by Waste Management, Inc.
("Parent"), has fully and unconditionally guaranteed all of the senior
indebtedness of the Parent, as well as the Parent's 4% convertible subordinated
notes that matured and were repaid in February 2002. The Parent has fully and
unconditionally guaranteed all of the senior indebtedness of WM Holdings, as
well as WM Holdings' 5.75% convertible subordinated debentures due 2005.
However, none of the Company's nor WM Holdings' debt is guaranteed by any of the
Parent's indirect subsidiaries or WM Holdings' subsidiaries ("Non-Guarantors").
Accordingly, the following unaudited condensed consolidating balance sheet as of
March 31, 2002 and the condensed consolidating balance sheet as of December 31,
2001, the unaudited condensed consolidating statements of operations for the
three months ended March 31, 2002 and 2001, along with the related unaudited
statements condensed consolidating of cash flows, have been provided below.

                                        17
<PAGE>
                             WASTE MANAGEMENT, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

                     CONDENSED CONSOLIDATING BALANCE SHEETS
                                 MARCH 31, 2002
                                  (UNAUDITED)

<Table>
<Caption>
                                            PARENT   GUARANTOR   NON-GUARANTORS   ELIMINATIONS   CONSOLIDATION
                                            ------   ---------   --------------   ------------   -------------
<S>                                         <C>      <C>         <C>              <C>            <C>
                                                    ASSETS
Current assets:
  Cash and cash equivalents...............  $  319    $   --        $   (13)        $    --         $   306
  Other current assets....................      --        --          2,258              --           2,258
                                            ------    ------        -------         -------         -------
                                               319        --          2,245              --           2,564
Property and equipment, net...............      --        --         10,298              --          10,298
Intercompany and investment in
  subsidiaries............................   8,861     5,696         (8,343)         (6,214)             --
Other assets..............................      20        13          5,912              --           5,945
                                            ------    ------        -------         -------         -------
    Total assets..........................  $9,200    $5,709        $10,112         $(6,214)        $18,807
                                            ======    ======        =======         =======         =======

                                     LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
  Current portion of long-term debt.......  $    4    $   --        $    78         $    --         $    82
  Accounts payable and other accrued
    liabilities...........................      81        58          2,879              --           3,018
                                            ------    ------        -------         -------         -------
                                                85        58          2,957              --           3,100
Long-term debt, less current portion......   3,851     2,638          1,265              --           7,754
Other liabilities.........................      19        --          2,676              --           2,695
                                            ------    ------        -------         -------         -------
  Total liabilities.......................   3,955     2,696          6,898              --          13,549
Minority interest in subsidiaries.........      --        --             13              --              13
Stockholders' equity......................   5,245     3,013          3,201          (6,214)          5,245
                                            ------    ------        -------         -------         -------
  Total liabilities and stockholders'
    equity................................  $9,200    $5,709        $10,112         $(6,214)        $18,807
                                            ======    ======        =======         =======         =======
</Table>

                               DECEMBER 31, 2001

<Table>
<Caption>
                                            PARENT   GUARANTOR   NON-GUARANTORS   ELIMINATIONS   CONSOLIDATION
                                            ------   ---------   --------------   ------------   -------------
<S>                                         <C>      <C>         <C>              <C>            <C>
                                                    ASSETS
Current assets:
  Cash and cash equivalents...............  $  757    $   --        $   (27)        $    --         $   730
  Other current assets....................      --        --          2,394              --           2,394
                                            ------    ------        -------         -------         -------
                                               757        --          2,367              --           3,124
Property and equipment, net...............      --        --         10,357              --          10,357
Intercompany and investment in
  subsidiaries............................   8,989     5,517         (8,665)         (5,841)             --
Other assets..............................      30        21          5,958              --           6,009
                                            ------    ------        -------         -------         -------
    Total assets..........................  $9,776    $5,538        $10,017         $(5,841)        $19,490
                                            ======    ======        =======         =======         =======

                                     LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
  Current portion of long-term debt.......  $  431    $   --        $    84         $    --         $   515
  Accounts payable and other accrued
    liabilities...........................      73        51          3,082              --           3,206
                                            ------    ------        -------         -------         -------
                                               504        51          3,166              --           3,721
Long-term debt, less current portion......   3,860     2,645          1,204              --           7,709
Other liabilities.........................      20         2          2,633              --           2,655
                                            ------    ------        -------         -------         -------
  Total liabilities.......................   4,384     2,698          7,003              --          14,085
Minority interest in subsidiaries.........      --        --             13              --              13
Stockholders' equity......................   5,392     2,840          3,001          (5,841)          5,392
                                            ------    ------        -------         -------         -------
  Total liabilities stockholders'
    equity................................  $9,776    $5,538        $10,017         $(5,841)        $19,490
                                            ======    ======        =======         =======         =======
</Table>

                                        18
<PAGE>
                             WASTE MANAGEMENT, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

                CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
                       THREE MONTHS ENDED MARCH 31, 2002
                                  (UNAUDITED)

<Table>
<Caption>
                                       PARENT   GUARANTOR   NON-GUARANTORS   ELIMINATIONS   CONSOLIDATION
                                       ------   ---------   --------------   ------------   -------------
<S>                                    <C>      <C>         <C>              <C>            <C>
Operating revenues...................   $ --      $ --          $2,609          $  --          $2,609
Costs and expenses...................     --        --           2,277             --           2,277
                                        ----      ----          ------          -----          ------
Income from operations...............     --        --             332             --             332
                                        ----      ----          ------          -----          ------
Other income (expense):
  Interest income (expense), net.....    (56)      (41)            (15)            --            (112)
  Equity in subsidiaries, net of
     taxes...........................    173       199              --           (372)             --
  Minority interest..................     --        --              (1)            --              (1)
  Other, net.........................     --        --               2             --               2
                                        ----      ----          ------          -----          ------
                                         117       158             (14)          (372)           (111)
                                        ----      ----          ------          -----          ------
Income before income taxes...........    117       158             318           (372)            221
Provision for (benefit from) income
  taxes..............................    (21)      (15)            120             --              84
                                        ----      ----          ------          -----          ------
Income before extraordinary item and
  cumulative effect of change in
  accounting principle...............    138       173             198           (372)            137
Extraordinary item...................     --        --              (1)            --              (1)
Cumulative effect of change in
  accounting principle...............     --        --               2             --               2
                                        ----      ----          ------          -----          ------
Net income...........................   $138      $173          $  199          $(372)         $  138
                                        ====      ====          ======          =====          ======
</Table>

                       THREE MONTHS ENDED MARCH 31, 2001
                                  (UNAUDITED)

<Table>
<Caption>
                                       PARENT   GUARANTOR   NON-GUARANTORS   ELIMINATIONS   CONSOLIDATION
                                       ------   ---------   --------------   ------------   -------------
<S>                                    <C>      <C>         <C>              <C>            <C>
Operating revenues...................   $ --      $ --          $2,719          $  --          $2,719
Costs and expenses...................     --        --           2,375             --           2,375
                                        ----      ----          ------          -----          ------
Income from operations...............     --        --             344             --             344
                                        ----      ----          ------          -----          ------
Other income (expense):
  Interest income (expense), net.....    (75)      (51)            (11)            --            (137)
  Equity in subsidiaries, net of
     taxes...........................    171       203              --           (374)             --
  Minority interest..................     --        --              (1)            --              (1)
  Other, net.........................     --        --               6             --               6
                                        ----      ----          ------          -----          ------
                                          96       152              (6)          (374)           (132)
                                        ----      ----          ------          -----          ------
Income before income taxes...........     96       152             338           (374)            212
Provision for (benefit from) income
  taxes..............................    (28)      (19)            136             --              89
                                        ----      ----          ------          -----          ------
Income before extraordinary item and
  cumulative effect of change in
  accounting principle...............    124       171             202           (374)            123
Extraordinary item...................     --        --              (1)            --              (1)
Cumulative effect of change in
  accounting principle...............     --        --               2             --               2
                                        ----      ----          ------          -----          ------
Net income...........................   $124      $171          $  203          $(374)         $  124
                                        ====      ====          ======          =====          ======
</Table>

                                        19
<PAGE>
                             WASTE MANAGEMENT, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

                CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
                       THREE MONTHS ENDED MARCH 31, 2002
                                  (UNAUDITED)

<Table>
<Caption>
                                                 PARENT   GUARANTOR   NON-GUARANTORS   ELIMINATIONS   CONSOLIDATION
                                                 ------   ---------   --------------   ------------   -------------
<S>                                              <C>      <C>         <C>              <C>            <C>
Cash flows from operating activities:
  Net income...................................  $ 138      $ 173         $ 199           $(372)          $ 138
  Equity in earnings of subsidiaries, net of
    taxes......................................   (173)      (199)           --             372              --
  Other adjustments and charges................      6          8           284              --             298
                                                 -----      -----         -----           -----           -----
Net cash provided by (used in) operating
  activities...................................    (29)       (18)          483              --             436
                                                 -----      -----         -----           -----           -----
Cash flows from investing activities:
  Acquisitions of businesses, net of cash
    acquired...................................     --         --           (48)             --             (48)
  Capital expenditures.........................     --         --          (180)             --            (180)
  Proceeds from divestitures of businesses, net
    of cash divested, and other sales of
    assets.....................................     --         --            37              --              37
  Other........................................     --         --            60              --              60
                                                 -----      -----         -----           -----           -----
Net cash used in investing activities..........     --         --          (131)             --            (131)
                                                 -----      -----         -----           -----           -----
Cash flows from financing activities:
  New borrowings...............................     --         --            --              --              --
  Debt repayments..............................   (427)        --           (12)             --            (439)
  Stock repurchases............................   (300)        --            --              --            (300)
  Exercise of common stock options and
    warrants...................................     10         --            --              --              10
  (Increase) decrease in intercompany and
    investments, net...........................    308         18          (326)             --              --
                                                 -----      -----         -----           -----           -----
Net cash provided by (used in) financing
  activities...................................   (409)        18          (338)             --            (729)
                                                 -----      -----         -----           -----           -----
Increase (decrease) in cash and cash
  equivalents..................................   (438)        --            14              --            (424)
Cash and cash equivalents at beginning of
  period.......................................    757         --           (27)             --             730
                                                 -----      -----         -----           -----           -----
Cash and cash equivalents at end of period.....  $ 319      $  --         $ (13)          $  --           $ 306
                                                 =====      =====         =====           =====           =====
</Table>

                       THREE MONTHS ENDED MARCH 31, 2001
                                  (UNAUDITED)

<Table>
<S>                                              <C>      <C>         <C>              <C>            <C>
Cash flows from operating activities:
  Net income...................................  $ 124      $ 171         $ 203           $(374)          $ 124
  Equity in earnings of subsidiaries, net of
    taxes......................................   (171)      (203)           --             374              --
  Other adjustments and charges................     16         19           241              --             276
                                                 -----      -----         -----           -----           -----
Net cash provided by (used in) operating
  activities...................................    (31)       (13)          444              --             400
                                                 -----      -----         -----           -----           -----
Cash flows from investing activities:
  Acquisitions of businesses, net of cash
    acquired...................................     --         --           (22)             --             (22)
  Capital expenditures.........................     --         --          (144)             --            (144)
  Proceeds from divestitures of businesses, net
    of cash divested, and other sales of
    assets.....................................     --         --             6              --               6
  Other........................................     --         --            56              --              56
                                                 -----      -----         -----           -----           -----
Net cash used in investing activities..........     --         --          (104)             --            (104)
                                                 -----      -----         -----           -----           -----
Cash flows from financing activities:
  New borrowings...............................    594         --           359              --             953
  Debt repayments..............................   (120)        --          (354)             --            (474)
  Exercise of common stock options and
    warrants...................................     18         --            --              --              18
  (Increase) decrease in intercompany and
    investments, net...........................    307         (1)         (306)             --              --
                                                 -----      -----         -----           -----           -----
Net cash provided by (used in) financing
  activities...................................    799         (1)         (301)             --             497
                                                 -----      -----         -----           -----           -----
Increase (decrease) in cash and cash
  equivalents..................................    768        (14)           39              --             793
Cash and cash equivalents at beginning of
  period.......................................    174         14           (94)             --              94
                                                 -----      -----         -----           -----           -----
Cash and cash equivalents at end of period.....  $ 942      $  --         $ (55)          $  --           $ 887
                                                 =====      =====         =====           =====           =====
</Table>

                                        20
<PAGE>
                             WASTE MANAGEMENT, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

12.  NEW ACCOUNTING PRONOUNCEMENTS

  SFAS NO. 141 AND SFAS NO. 142

     In June 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 141, Accounting for Business Combinations
("SFAS No. 141"), and Statement of Financial Accounting Standards No. 142,
Accounting for Goodwill and Other Intangible Assets ("SFAS No. 142"). SFAS No.
141 requires that all business combinations be accounted for using the purchase
method of accounting and prohibits the pooling-of-interests method for business
combinations initiated after June 30, 2001. According to SFAS No. 142, goodwill
that arose from business combinations after June 30, 2001 cannot be amortized.
In addition, SFAS No. 142 required the continuation of the amortization of
goodwill and all intangible assets through December 31, 2001. The amortization
of existing goodwill ceased on January 1, 2002. SFAS No. 142 requires a two-step
impairment approach for goodwill. Companies must first determine whether
goodwill is impaired and if so, they must value that impairment based on the
amount by which the book value exceeds the estimated fair value. Companies have
six months from the date they initially apply SFAS No. 142 to test goodwill for
impairment and any impairment charge resulting from the initial application of
the new accounting pronouncement must be classified as the cumulative effect of
a change in accounting principle. Thereafter, goodwill must be tested for
impairment annually and impairment losses must be presented in the operating
section of the income statement unless they are associated with a discontinued
operation. In those cases, any impairment losses will be included, net of tax,
within the results of discontinued operations.

     In accordance with the Company's adoption of SFAS No. 141, the Company
utilizes the purchase method of accounting for their business combinations. In
accordance with the Company's adoption of SFAS No. 142, the Company has not
amortized goodwill from any acquisitions that occurred after June 30, 2001. The
Company has no intangible assets, other than goodwill, that have ceased being
amortized upon adoption of SFAS No. 142.

     Adopting SFAS No. 141 required the Company to write-off net negative
goodwill of approximately $2, which was recorded as a credit to cumulative
effect of change in accounting principle in the first quarter of 2002. In
accordance with SFAS No. 142, goodwill is required to be tested for impairment
at the reporting unit, which is defined as a company's operating segment or one
level below the operating segment. For the purposes of applying SFAS No. 142,
the Company has defined its reporting units to be its six individual NASW Groups
and its NASW recycling operations that are not included in any of its NASW
Groups. The Company incurred no impairment of goodwill upon the initial adoption
of SFAS No. 142. There can be no assurance that goodwill will not be impaired at
any time subsequent to the adoption of SFAS No. 142.

                                        21
<PAGE>
                             WASTE MANAGEMENT, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The following schedule reflects the three months ended March 31, 2001
adjusted net income (excluding goodwill and negative goodwill amortization) as
compared to the results of operations for the three months ended March 31, 2002.

<Table>
<Caption>
                                                               THREE MONTHS
                                                              ENDED MARCH 31,
                                                              ---------------
                                                               2002     2001
                                                              ------   ------
<S>                                                           <C>      <C>
Reported net income.........................................  $ 138    $ 124
Add back: goodwill amortization, net of taxes...............     --       31
                                                              -----    -----
Adjusted net income.........................................  $ 138    $ 155
                                                              =====    =====
BASIC EARNINGS PER COMMON SHARE:
Reported net income.........................................  $0.22    $0.20
Goodwill amortization, net of taxes.........................     --     0.05
                                                              -----    -----
Adjusted net income.........................................  $0.22    $0.25
                                                              =====    =====
DILUTED EARNINGS PER COMMON SHARE:
Reported net income.........................................  $0.22    $0.20
Goodwill amortization, net of taxes.........................     --     0.05
                                                              -----    -----
Adjusted net income.........................................  $0.22    $0.25
                                                              =====    =====
</Table>

     The Company's intangible assets as of March 31, 2002 were comprised of the
following:

<Table>
<Caption>
                                                                           LICENSES,
                                                               COVENANTS    PERMITS
                                                                NOT-TO-       AND
                                              CUSTOMER LISTS    COMPETE      OTHER     TOTAL
                                              --------------   ---------   ---------   -----
<S>                                           <C>              <C>         <C>         <C>
Intangible assets...........................       $125          $ 97         $18      $ 240
Less accumulated amortization...............        (65)          (53)         (6)      (124)
                                                   ----          ----         ---      -----
                                                   $ 60          $ 44         $12      $ 116
                                                   ====          ====         ===      =====
</Table>

     Intangible assets are recorded at cost and amortized on a straight-line
basis. Customer lists are generally amortized over five to seven years.
Covenants not-to-compete are amortized over the term of the agreement, which is
generally three to five years. Licenses, permits and other intangible assets are
amortized over the definitive terms of the related agreement or the Company's
estimate of the useful life if there are no definitive terms. The estimated
intangible asset amortization expense for the five years following 2001 is as
follows:

<Table>
<Caption>
2002   2003   2004   2005   2006
----   ----   ----   ----   ----
<S>    <C>    <C>    <C>    <C>
$34    $30    $22    $13     $7
</Table>

     As of March 31, 2002, the amount of goodwill attributable to the Company's
WTI operations was approximately $778. The remaining goodwill balance of
approximately $4,231 was attributable to the Company's other NASW operations.

  SFAS NO. 143

     In June 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 143, Accounting for Asset Retirement
Obligations ("SFAS No. 143"). SFAS No. 143 applies to all legally enforceable
obligations associated with the retirement of tangible long-lived assets and
provides the accounting and reporting requirements for such obligations. Under
this Statement, the amount initially recognized as an asset retirement
obligation is measured at fair value. The recognized asset retirement cost is

                                        22
<PAGE>
                             WASTE MANAGEMENT, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

capitalized as part of the cost of the asset and is depreciated over the useful
life of the asset. The Company expects to adopt SFAS No. 143 beginning January
1, 2003 and to record a cumulative effect of a change in accounting principle.

     SFAS No. 143 will impact the Company's accounting for its landfill
operations. Costs associated with future capping activities that occur during
the operating life of a landfill, which are currently recognized on an
undiscounted basis over the operating life of the landfill as airspace is
consumed, will be accounted for as an asset retirement obligation under SFAS No.
143, on a discounted basis. The Company expects to recognize landfill retirement
obligations, which relate to capping, other closure activities and post-closure,
over the operating life of a landfill as landfill airspace is consumed and the
obligation is incurred. These obligations will be initially measured at
estimated fair value. Fair value will be measured on a present value basis,
using a credit-adjusted, risk-free rate, which will be a higher rate than the
risk-free rate the Company currently utilizes for discounting its final closure
and post-closure obligations. Interest will be accreted on landfill retirement
obligations using the effective interest method. Landfill retirement costs,
which will be capitalized as part of the landfill asset, will be amortized using
the Company's existing landfill accounting practices. The Company has begun to
address which of its other assets could be affected by the provisions of SFAS
No. 143. Though progress is being made, the Company's management has not yet
determined the pro forma, cumulative or future effects of the adoption of SFAS
No. 143 on its results of operations or financial position. Management believes
that adoption of SFAS No. 143 will have no effect on the Company's cash flow.

  SFAS NO. 144

     In August 2001, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standard No. 144, Accounting for the Impairment of
Disposal of Long-Lived Assets ("SFAS No. 144"), which supersedes Statement of
Financial Accounting Standards No. 121. SFAS No. 144 establishes a single
accounting method for long-lived assets to be disposed of by sale, whether
previously held and used or newly acquired, and extends the presentation of
discontinued operations to include more disposal transactions. SFAS No. 144 also
requires that an impairment loss be recognized for assets held-for-use when the
carrying amount of an asset (group) is not recoverable. The carrying amount of
an asset (group) is not recoverable if it exceeds the sum of the undiscounted
cash flows expected to result from the use and eventual disposition of the asset
(group), excluding interest charges. Estimates of future cash flows used to test
the recoverability of a long-lived asset (group) must incorporate a Company's
own assumptions about its use of the asset (group) and must factor in all
available evidence. The Company adopted SFAS No. 144 on January 1, 2002. Upon
initial application of this Statement, certain previously held-for-sale
operations did not meet SFAS No. 144 criteria to be held-for-sale because their
anticipated sale is in 2003. However, under the transition provisions of SFAS
No. 144, the Company has until December 31, 2002 to either sell these assets or
meet the new held-for-sale criteria to avoid reclassifying the assets to
held-for-use.

  SFAS NO. 145

     In April 2002, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 145, Recission of FASB Statements No. 4, 44,
and 64, Amendment of FASB Statement No. 13, and Technical Corrections ("SFAS No.
145"). SFAS No. 145 requires that gains and losses from extinguishment of debt
be classified as extraordinary items only if they meet the criteria in
Accounting Principles Board Opinion No. 30 ("Opinion No. 30"). Applying the
provisions of Opinion No. 30 will distinguish transactions that are part of an
entity's recurring operations from those that are unusual and infrequent that
meet criteria for classification as an extraordinary item. SFAS No. 145 is
effective for the Company beginning January 1, 2003, but the Company may adopt
the provisions of SFAS No. 145 prior to this date. Upon the adoption of SFAS No.
145, the Company will reclassify its prior period statements of operations to
conform to the presentation required by SFAS No. 145. Under SFAS No. 145, the
Company will report gains and losses on the extinguishment of debt in pre-tax
earnings.

                                        23
<PAGE>

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.

     When we make statements containing projections about our accounting and
finances, about our plans and objectives for the future, about our future
economic performance or containing any other projections or estimates about our
assumptions relating to these types of statements, we are making forward-looking
statements. The statements usually relate to future events and anticipated
revenues, earnings or other aspects of our operations or operating results. We
make these statements in an effort to keep stockholders and the public informed
about our business, and have based them on our current expectations about future
events. You should view such statements with caution. These statements are not
guarantees of future performance or events. All phases of our business are
subject to uncertainties, risks and other influences, many of which the Company
has no control over. Any of these factors, either alone or taken together, could
have a material adverse effect on the Company and could change whether any
forward-looking statement ultimately turns out to be true. Additionally, the
Company assumes no obligation to update any forward-looking statements as a
result of future events or developments.

     Outlined below are some of the risks that the Company faces and that could
affect our business and financial statements for the remainder of 2002 and
beyond. However, they are not the only risks that the Company faces. There may
be additional risks that we do not presently know or that we currently believe
are immaterial which could also impair our business.

     - possible changes in our estimates of site remediation requirements, final
       closure and post-closure obligations, compliance and other audits and
       regulatory developments;

     - the possible impact of regulations on our business, including the cost to
       comply with regulatory requirements and the potential liabilities
       associated with disposal operations, as well as our ability to obtain and
       maintain permits needed to operate our facilities;

     - the effect of limitations or bans on disposal or transportation of
       out-of-state waste or certain categories of waste;

     - possible charges against earnings for certain shut down operations and
       uncompleted acquisitions or development or expansion projects;

     - possible charges to asset impairments or further impairments to
       long-lived assets resulting from changes in circumstances or future
       business events or decisions;

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

     - the effect the weather has on our quarter to quarter results, as well as
       the effect of extremely harsh weather on our operations;

     - the effect that price fluctuations on commodity prices may have on our
       operating revenues;

     - the outcome of litigation or investigations;

     - the effect competition in our industry could have on our ability to
       maintain margins, including uncertainty relating to competition with
       governmental sources that enjoy competitive advantages from tax-exempt
       financing and tax revenue subsidies;

     - our ability to successfully implement our new organization plan, improve
       the productivity of acquired operations and use our asset base and
       strategic position to operate more efficiently;

     - our ability to accurately assess all of the pre-existing liabilities of
       companies we have acquired and to successfully integrate the operations
       of acquired companies with our existing operations;

     - possible diversions of management's attention and increases in operating
       expenses due to efforts by labor unions to organize our employees;

     - possible increases in operating expenses due to fuel price increases or
       fuel supply shortages;
                                        24
<PAGE>

     - the effects of general economic conditions, including the ability of
       insurers to fully or timely meet their contractual commitments;

     - possible defaults under our credit agreements if cash flows are less than
       we expect or capital expenditures are more than we expect, and the
       possibility that we can not obtain additional capital on acceptable terms
       if needed;

     - possible errors or problems with our recently deployed new
       enterprise-wide software systems;

     - the outcome of the hearing that the court will hold regarding whether the
       derivative lawsuit settlement we announced on November 7, 2001 is fair,
       reasonable and adequate;

     - whether, there will be any appeals to the approval of the class action
       lawsuit settlement or to the derivative settlement, if approved; and

     - the number of objectors to the derivative settlement.

  GENERAL

     Waste Management, Inc. is its industry's leading provider of integrated
waste services in North America. Through our subsidiaries, we provide
collection, transfer, recycling and resource recovery, and disposal services. We
are also a leading developer, operator and owner of waste-to-energy facilities
in the United States. Our customers include commercial, industrial, municipal
and residential customers, other waste management companies, governmental
entities and independent power markets.

     In addition to these North America solid waste ("NASW") operations, we
previously reported additional operations, including our WM International and
Non-Solid Waste segments. All of our WM International operations and most of our
Non-Solid Waste operations were sold in 2000 and 2001. Beginning in 2001, we
reported our NASW operations and a segment called "Other," which was comprised
of our remaining non-core operations, which included our geosynthetic
manufacturing and installation services. The geosynthetic manufacturing and
installation services were sold in February 2002. In the third quarter of 2001,
we reclassified all but one of our independent power production plants ("IPPs")
from held-for-sale to held-for-use. In 2002, we reclassified our IPPs from the
"Other" reportable segment to the Wheelabrator Technologies Inc. ("WTI")
segment.

  CRITICAL ACCOUNTING ESTIMATES AND ASSUMPTIONS

     In preparing our financial statements, we make several estimates and
assumptions that affect our reported amounts of assets and liabilities and
revenues and expenses. However, the most difficult, subjective and complex
estimates, and the assumptions that deal with the greatest amount of
uncertainty, are related to our accounting for landfills and environmental
liabilities.

     Landfill Airspace Amortization and Final Closure/Post-Closure Costs -- We
expense amounts for landfill airspace usage and landfill final closure and
post-closure costs for each ton of waste accepted for disposal at our landfills.
In determining the amount to expense for each ton of waste accepted, we estimate
the total cost to develop each landfill site to its final capacity and the total
final closure and post-closure costs for each landfill site. Our engineers also
estimate the tonnage capacity of the landfill. The expense for each ton is then
calculated based on the total costs remaining and the total remaining tonnage
capacity. Estimates for projected landfill site costs and for final closure and
post-closure costs are developed using input from the Company's engineers and
accountants and are reviewed by management, typically at least once per year.
The estimates for landfill final closure and post-closure costs also consider
when the costs would actually be paid and factor in, where appropriate,
inflation and discount rates.

     In determining the amounts to expense for airspace amortization and final
closure and post-closure costs, our engineers estimate the unused permitted
airspace at each landfill. We will also consider expansion airspace in our
estimate of available airspace when we believe the success of obtaining such an
airspace expansion is

                                        25
<PAGE>

probable. The criteria we use for evaluating the probability of obtaining an
expansion permit to landfill airspace at existing sites are as follows:

    - Personnel are actively working to obtain land use and local and state
      approvals for an expansion of an existing landfill;

    - At the time the expansion is added to the permitted site life, it is
      probable that the approvals will be received within the normal application
      and processing time periods for approvals in the jurisdiction in which the
      landfill is located;

    - Either we or the respective landfill owners have a legal right to use or
      obtain land to be included in the expansion plan;

    - There are no significant known technical, legal, community, business, or
      political restrictions or similar issues that could impair the success of
      such expansion;

    - Financial analysis has been completed, and the results demonstrate that
      the expansion has a positive financial and operational impact; and

    - Airspace and related costs, including additional final closure and
      post-closure costs, have been estimated based on conceptual design.

     Additionally, to include airspace associated with an expansion effort, the
expansion permit application must generally be expected to be submitted within
one year, and the expansion permit must be expected to be received within two to
five years. Exceptions to these criteria must be approved through a
landfill-specific approval process that includes the approval from the Chief
Financial Officer and a review by the Audit Committee of the Board of Directors
on a quarterly basis. Of the 105 landfill sites with expansions at March 31,
2002, 25 landfill locations required the Chief Financial Officer to approve an
exception to the criteria. Approximately two-thirds of these exceptions were due
to legal or community issues that could impede the expansion process, while the
remaining were primarily due to permit application processes beyond the one-year
limit, which in most cases were due to state-specific permitting procedures.

     We have generally been successful in receiving approvals for expansions
pursued; however, there can be no assurance that we will be successful in
obtaining landfill expansions in the future. In some cases we may be
unsuccessful in obtaining an expansion permit or we may determine that an
expansion permit that we previously thought was probable becomes unlikely. The
estimates and assumptions used in developing this information are reviewed by
our engineers and accountants at least annually, and we believe them to be
reasonable. However, to the extent that such estimates, or the assumptions used
to make those estimates, prove to be incorrect, or our belief that we will
receive an expansion permit changes to remote, the costs incurred in the pursuit
of the expansion will be charged against earnings, net of any capitalized
expenditures and advances that will be recoverable, through sale or otherwise.
Additionally, the landfill's future operations will typically reflect lower
profitability due to higher amortization rates, final closure and post-closure
rates, and expenses related to the removal of previously included expansion
airspace. The landfill may also become subject to impairment, which could be
material to the results of operations of any individual reporting period.

     Environmental Remediation Liabilities -- Under current laws and
regulations, we may have liability for environmental damage caused by our
operations, or for damage caused by conditions that existed before we acquired a
particular site. We estimate costs required to remediate sites where liability
is probable based on site specific facts and circumstances. Cost estimates to
remediate each specific site are developed by assessing (i) the scope of our
contribution to the environmental matter, (ii) the scope of the anticipated
remediation and monitoring plan, and (iii) the extent of other parties' share of
responsibility.

     Our engineers and accountants also specifically review the estimates and
assumptions related to environmental remediation liabilities at least annually.
In many circumstances the actual costs related to these liabilities which we
have estimated or assumed may not be known for decades into the future. However,
we believe that based on our extensive experience in the environmental services
business and the large number of sites we have dealt with, we have the ability
to reasonably estimate our aggregate liability. As additional information
becomes available, estimates are adjusted as necessary. It is possible that
technological, regulatory or enforcement developments, the results of
environmental studies, the nonexistence or inability of other potentially
responsible third parties to contribute to the settlements of such liabilities,
or other factors could prove our estimates to be inaccurate, necessitating the
recording of additional liabilities, which could have a material adverse impact
on our financial statements.

                                        26
<PAGE>

RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2002 AND 2001

     The following table presents, for the periods indicated, the period to
period change in dollars (in millions) and percentages for the respective
consolidated statements of operations line items.

<Table>
<Caption>
                                                              PERIOD TO PERIOD
                                                               CHANGE FOR THE
                                                                THREE MONTHS
                                                              ENDED MARCH 31,
                                                               2002 AND 2001
                                                              ----------------
<S>                                                           <C>      <C>
STATEMENT OF OPERATIONS:
Operating revenues..........................................  $(110)     (4.0)%
                                                              -----
Costs and expenses:
  Operating (exclusive of depreciation and amortization
     shown below)...........................................    (81)     (4.9)
  Selling, general and administrative.......................     (2)     (0.5)
  Depreciation and amortization.............................    (41)    (12.2)
  Restructuring.............................................     37       N/A
  Asset impairments and unusual items.......................    (11)   (220.0)
                                                              -----
                                                                (98)     (4.1)
                                                              -----
Income from operations......................................    (12)     (3.5)
                                                              -----
Other income (expense):
  Interest expense..........................................     38      24.7
  Interest and other income, net............................    (17)    (73.9)
  Minority interest.........................................     --        --
                                                              -----
                                                                 21      15.9
                                                              -----
Income before income taxes..................................      9       4.2
Provision for income taxes..................................     (5)     (5.6)
                                                              -----
Income before extraordinary items and cumulative effect of
  changes in accounting principle...........................  $  14      11.3%
                                                              =====
</Table>

                                        27
<PAGE>

     The following table presents, for the periods indicated, the percentage
relationship that the respective consolidated statements of operations line
items bear to operating revenues:

<Table>
<Caption>
                                                               THREE MONTHS
                                                              ENDED MARCH 31,
                                                              ---------------
                                                               2002     2001
                                                              ------   ------
<S>                                                           <C>      <C>
STATEMENT OF OPERATIONS:
Operating revenues..........................................  100.0%   100.0%
                                                              -----    -----
Costs and expenses:
  Operating (exclusive of depreciation and amortization
     shown below)...........................................   60.0     60.5
  Selling, general and administrative.......................   14.8     14.3
  Depreciation and amortization.............................   11.3     12.3
  Restructuring.............................................    1.4       --
  Asset impairments and unusual items.......................   (0.2)     0.2
                                                              -----    -----
                                                               87.3     87.3
                                                              -----    -----
Income from operations......................................   12.7     12.7
                                                              -----    -----
Other income (expense):
  Interest expense..........................................   (4.4)    (5.7)
  Interest and other income, net............................    0.2      0.8
  Minority interest.........................................     --       --
                                                              -----    -----
                                                               (4.2)    (4.9)
                                                              -----    -----
Income before income taxes..................................    8.5      7.8
Provision for income taxes..................................    3.2      3.3
                                                              -----    -----
Income before extraordinary items and cumulative effect of
  changes in accounting principle...........................    5.3%     4.5%
                                                              =====    =====
</Table>

                                        28
<PAGE>

  OPERATING REVENUES

     For the three months ended March 31, 2002, our operating revenues decreased
$110 million, or 4.0%, as compared to the first quarter of 2001. Of this amount,
$84 million was attributable to lower operating revenues from our NASW
operations and the remainder was primarily due to divestitures of non-NASW
operations.

     Our NASW operating revenues generally come from fees charged for our
collection, disposal, and transfer station services. A portion of the fees we
charge to our customers for collection services is billed in advance; a
liability for future service is recorded upon receipt of payment and operating
revenues are recognized as services are actually provided. Revenues from our
disposal operations consist of tipping fees charged to third parties based on
volume of waste being disposed of at our disposal facilities and are normally
billed monthly or semi-monthly. Fees charged at transfer stations are 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. Intercompany
revenues between our operations have been eliminated in the consolidated
financial statements.

     The mix of NASW operating revenues for the three months ended March 31,
2002 and 2001 is reflected in the table below. The presentation of prior period
operating revenues has been conformed to the current period presentation:

                                    [CHART]

<Table>
<Caption>
                                                    2002       2001
                                                   -------    -------
<S>                                                <C>        <C>
Collection                                         $1,823     $1,854
Landfill                                           $  595     $  626
Transfer                                           $  316     $  328
WTI (waste-to-energy and IPPs)                     $  182     $  195
Recycling and other                                $  134     $  147
Intercompany                                       $ (449)    $ (465)
Total                                              $2,601     $2,685
</Table>

     We experienced negative internal growth of $95 million, or 3.6%, during the
first quarter of 2002 as compared to the prior year. The most significant factor
causing the negative internal growth was an $88 million, or 3.3%, decline in
revenue associated with reduced volumes. We believe the volume declines are
primarily due to the continued slowing of the economy throughout North America,
which has particularly affected volumes in the higher margin commercial and
industrial collection operations as well as in our landfill operations. We also
experienced a period to period price decline of $7 million, or 0.3%. Negatively
affecting our pricing was recycling commodity price declines of $20 million,
declines in electricity pricing of $15 million and reductions in our fuel
surcharge revenue of $16 million. However, we substantially offset these price
declines with price increases of $44 million, or 1.6%, throughout the remainder
of our NASW operations.

     Offsetting this negative internal growth was an increase in revenues of $18
million due to acquisitions of NASW business during 2002 and the full year
effect of such acquisitions which were completed in 2001. We also experienced a
decrease in revenue of $7 million due to divestitures of NASW operations and
other business factors including the foreign currency fluctuations with the
Canadian dollar.

  OPERATING COSTS AND EXPENSES (EXCLUSIVE OF DEPRECIATION AND AMORTIZATION SHOWN
  BELOW)

     Our operating costs and expenses include direct and indirect labor and
related taxes and benefits, fuel, maintenance and repairs of equipment and
facilities, tipping fees paid to third party disposal facilities and

                                        29
<PAGE>

transfer stations, and accruals for future landfill final closure and
post-closure costs and environmental remediation. Certain direct landfill
development expenditures are capitalized and amortized over the estimated useful
life of a site as capacity is consumed, and include acquisition, engineering,
grading, construction, capitalized interest, and permitting costs. All indirect
expenses, such as administrative salaries and general corporate overhead, are
expensed in the period incurred.

     Operating costs and expenses decreased $81 million, or 4.9%, in the first
quarter of 2002, as compared to the first quarter of 2001 primarily because of
the reductions in waste volumes caused by the slowing economy in North America.
As a percentage of operating revenues, operating costs and expenses decreased
from 60.5% in the first quarter of 2001 to 60.0% in the first quarter of 2002.
Operating costs and expenses as a percentage of operating revenues have
decreased slightly due to our implementation of cost cutting initiatives and the
restructuring of our field based operations to be more efficient.

  SELLING, GENERAL AND ADMINISTRATIVE

     Our selling, general and administrative expenses include management
salaries, clerical and administrative costs, professional services, facility
rentals, provision for doubtful accounts, related insurance costs and costs
related to our marketing and sales force.

     Selling, general and administrative expenses were substantially consistent
in the first quarter of 2002 as compared to the first quarter of 2001. However,
as a percentage of operating revenues, our selling, general and administrative
expenses increased to 14.8% from 14.3% for the three months ended March 31, 2002
and 2001, respectively. This increase in expense as a percentage of revenues is
primarily attributable to the lower operating revenues already described without
a corresponding reduction in selling, general and administrative expenses.
However, we have initiated several cost cutting measures and have restructured
our field based operations and believe that these measures will lower these
expenses as a percentage of operating revenues in future periods.

  DEPRECIATION AND AMORTIZATION

     Depreciation and amortization includes (i) amortization of intangible
assets on a straight-line basis from 3 to 40 years; (ii) depreciation of
property and equipment on a straight-line basis from 3 to 50 years; and (iii)
amortization of landfill costs on a units-of-consumption method as landfill
airspace is consumed over the estimated remaining capacity of a site. In 2001,
depreciation and amortization expense also included the amortization of goodwill
on a straight-line basis over a period of 40 years or less, commencing on the
dates of the respective acquisition.

     Depreciation and amortization expense decreased $41 million, or 12.2%, for
the first quarter of 2002 as compared to the first quarter of 2001. As a
percentage of operating revenues, depreciation and amortization expense was
11.3% and 12.3% for the quarters ended March 31, 2002 and 2001, respectively.
The decrease in depreciation and amortization expense is primarily attributable
to our adoption of the Statement of Financial Accounting Standards No. 142,
Accounting for Goodwill and Other Intangible Assets ("SFAS No. 142"), which
required that the amortization of all goodwill cease on January 1, 2002.
Goodwill amortization for the three months ended March 31, 2001 was $39 million,
or 1.5% of operating revenues. Excluding the effect of goodwill amortization
expense in 2001, depreciation and amortization expense as a percentage of
revenues increased 0.4% from the first quarter of 2001 to the first quarter of
2002. Higher depreciation expense was recorded in the first quarter of 2002
primarily due to significant truck purchases in the last half of 2001. This was
substantially offset by lower landfill airspace amortization expense recorded in
the first quarter of 2002 from reduced tonnage accepted at our landfills as
compared to the first quarter of 2001.

  RESTRUCTURING

     In the first quarter of 2002, we adopted a new organizational structure
that better aligns collection, transport, recycling and disposal resources with
market areas. We believe the new structure will yield a number of benefits,
among them clearer accountability and responsibility for business performance
and profitability in specific markets; simplification of structure; cost savings
through consolidation of duplicate
                                        30
<PAGE>

administrative and other support functions; improved utilization of operating
assets; and better customer responsiveness.

     The new organizational structure does not affect our WTI or Canadian Waste
Services ("CWS") operations. Our remaining operations were restructured to
reduce the number of field layers of management from four to three and the
number of field layers that have administrative and functional staff from four
to two. The new structure refocuses our approximately 1,200 sites into 85 newly
established Market Areas. The sites include waste collection depots, transfer
stations, landfills and recycling facilities. These Market Areas are responsible
for the sales and marketing of the Company's services and for directing the
delivery of service by operating units. The Market Area is also the profit
center, and the districts, all of which used to be profit centers, became cost
centers. Each large Market Area is headed by a Vice President and the others are
headed by a General Manager. The Market Areas consolidate financial reporting
and provide a range of assistance in the areas of finance and accounting,
procurement, people, market planning and development, fleet services, recycling,
legal services, engineering, regulatory compliance, safety and public affairs.
They all report to one of four Groups that divide the United States
geographically, and which were formerly known as our "Areas." WTI and CWS, the
fifth and sixth Areas under the previous structure, continue as the fifth and
sixth Groups under the new structure.

     In March 2002, we recorded a $37 million pre-tax charge for costs
associated with the implementation of the new structure, including $34 million
for employee severance and benefit costs and $3 million related to abandoned
operating lease agreements. Approximately 1,800 field-level administrative and
operational positions were eliminated by this reorganization. The former
employees will receive scheduled severance payments during 2002, and in some
cases, into 2003. During March 2002, we made payments of $3 million for employee
severance and benefits and for abandoned leases.

     We expect to incur an additional $8 million of restructuring expenses
throughout the remainder of 2002 related to the relocation of employees and the
consolidation of facilities to support the new organizational structure. This $8
million in additional costs will be recognized as restructuring expenses when
incurred.

  ASSET IMPAIRMENTS AND UNUSUAL ITEMS

     During the first quarter of 2002, we recorded a net credit to asset
impairments and unusual items, primarily due to a reversal of a loss contract
reserve of approximately $4 million and adjustments of $5 million for revisions
of estimated losses on assets held-for-sale. These amounts were partially offset
by asset impairment charges primarily relating to our 2002 restructuring
efforts.

     In the first quarter of 2001, asset impairments and unusual items were
primarily attributable to our divestiture activities, offset in part by a
reversal of a loss contract reserve that was determined to be excessive after a
favorable renegotiation of that specific contract.

  INTEREST EXPENSE

     Interest expense decreased by $38 million in the first quarter of 2002, as
compared to the first quarter of 2001. Approximately $13 million of this
decrease is due to the decrease in our overall indebtedness. In addition,
interest rate swap contracts reduced interest expense by $20 million and $1
million for the three months ended March 31, 2002 and 2001, respectively. The
remaining decrease in interest expense between the first quarter of 2002 and
2001 is primarily due to the refinancing of debt instruments throughout 2001 and
into 2002 at lower rates.

  PROVISION FOR INCOME TAXES

     We recorded a provision for income taxes of $84 million and $89 million for
the three months ended March 31, 2002 and 2001, respectively. The difference in
federal income taxes computed at the federal statutory rate and reported income
taxes for the three months ended March 31, 2002 is primarily due to state and
local income taxes . For the three months ended March 31, 2001, the difference
is primarily due to state

                                        31
<PAGE>

and local income taxes, non-deductible costs related to acquired intangibles and
non-deductible costs associated with the impairment and divestiture of certain
businesses.

  EXTRAORDINARY ITEMS

     During the first quarter of 2002, we refinanced approximately $49 million
of fixed-rate tax exempt bonds maturing in 2011 with variable-rate tax exempt
bonds maturing in 2022. As a result, we incurred prepayment penalties and other
fees for a total charge, net of tax benefit, of approximately $1 million.

     In the first quarter of 2001, the Company, working with local governmental
authorities, refinanced $339 million of fixed-rate tax-exempt bonds maturing
through 2008 with $326 million of variable-rate tax-exempt bonds maturing
through 2011 and $17 million of fixed-rate bonds that matured in 2001. We
recorded a net extraordinary loss for the remaining unamortized premium and
issuance costs related to the retired debt.

  CUMULATIVE EFFECT OF CHANGES IN ACCOUNTING PRINCIPLE

     As a result of adopting Statement of Financial Accounting Standards
("SFAS") No. 141, "Accounting for Business Combinations," on January 1, 2002, we
were required to write-off amounts of negative goodwill that had been recorded
in prior periods through purchase accounting. The aggregate amount of negative
goodwill was $2 million and was recorded as a credit to cumulative effect of
change in accounting principle in the first quarter of 2002.

     SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities," as amended, became effective for the Company as of January 1, 2001.
Adoption of SFAS 133, as amended, resulted in a gain, net of tax, of
approximately $2 million in the first quarter of 2001.

LIQUIDITY AND CAPITAL RESOURCES

     The Company operates in a capital intensive business and continuing access
to various financing sources is vital to our operations. In the past, we have
been successful in obtaining financing from a variety of sources on terms we
consider attractive. Based on several key factors we believe are considered by
credit rating agencies and financial markets to be important in determining our
future access to financing, we expect to continue to maintain access to capital
sources in the future. These factors include:

     - the essential nature of the services we provide and our large and diverse
       customer base;

     - our ability to generate strong and consistent cash flows;

     - our asset base; and

     - our commitment to maintaining a moderate financial profile and
       disciplined capital allocation.

     In addition to our working capital needs for ongoing operations, we have
capital requirements for (i) capital expenditures for construction and expansion
of landfill sites, as well as new trucks and equipment for collection
operations, (ii) refurbishments and improvements at waste-to-energy facilities
and (iii) business acquisitions.

     Our strategy is to meet our capital needs and contractual obligations first
from internally generated funds. Historically, we have also, when appropriate,
obtained financing from issuing debt and common stock. We currently expect to
spend approximately $1.1 billion for capital expenditures and approximately $200
million for the purchases of businesses during the final three quarters of 2002.

                                        32
<PAGE>

     The following is a summary of our cash balances and cash flows for the
three months ended March 31, 2002 and 2001 (in millions):

<Table>
<Caption>
                                                              THREE MONTHS
                                                                  ENDED
                                                                MARCH 31,
                                                              -------------
                                                              2002    2001
                                                              -----   -----
<S>                                                           <C>     <C>
Cash and cash equivalents at the end of the period..........  $ 306   $ 887
                                                              =====   =====
Cash provided by operating activities.......................  $ 436   $ 400
                                                              =====   =====
Cash used in investing activities...........................  $(131)  $(104)
                                                              =====   =====
Cash provided by (used in) financing activities.............  $(729)  $ 497
                                                              =====   =====
</Table>

     For the quarter ended March 31, 2002, we spent $180 million for capital
expenditures and $48 million for acquisitions of businesses, as well as $439
million for net debt reductions and $300 million for common stock repurchases.
We funded these cash expenditures primarily with cash flows from operations and
cash on hand at the beginning of 2002.

     For the quarter ended March 31, 2001, cash flows from operations of
approximately $400 million was negatively impacted by a use of cash to fund
working capital of approximately $122 million. Included in our investing
activities for this period were capital expenditures of $144 million and
acquisitions of businesses of $22 million, offset in part by proceeds from sales
of assets and other investing activities. Net cash provided by financing
activities were primarily attributable to a debt offering of $600 million in the
first quarter of 2001 completed to retire senior notes maturing in the second
quarter of 2002.

     The following summary of free cash flows has been prepared to highlight and
facilitate understanding of the primary cash flow elements. It is not intended
to replace the consolidated statements of cash flows for the three months ended
March 31, 2002 and 2001, which were prepared in accordance with generally
accepted accounting principles. Adjusted free cash flow in the table below,
which is not a measure of financial performance in accordance with generally
accepted accounting principles, is defined as cash flows from operations less
capital expenditures and then adjusted for certain cash flow activity that the
Company considers as unusual for the respective periods.

                                        33
<PAGE>

     The analysis of free cash flows for the three months ended March 31, 2002
and 2001 is as follows (in millions):

<Table>
<Caption>
                                                               THREE MONTHS
                                                              ENDED MARCH 31,
                                                              ---------------
                                                               2002     2001
                                                              ------   ------
<S>                                                           <C>      <C>
EBITDA(a)...................................................  $ 657    $ 684
Interest paid...............................................    (93)    (128)
Taxes paid..................................................    (18)     (11)
Change in assets and liabilities, net of effects of
  acquisitions and divestitures, and other..................   (110)    (145)
                                                              -----    -----
Net cash provided by operating activities...................    436      400
Capital expenditures........................................   (180)    (144)
                                                              -----    -----
Free cash flow..............................................    256      256
Adjustments:
  Payments for terminating the WM Holdings' defined benefit
     pension plan...........................................     --       13
  Accounting and consulting services........................     --       39
  Litigation settlements....................................     --        7
  Other.....................................................     --       (6)
                                                              -----    -----
Adjusted free cash flow.....................................  $ 256    $ 309
                                                              =====    =====
</Table>

---------------

(a)  EBITDA is defined herein as income from operations excluding depreciation
     and amortization, asset impairments and unusual items, and restructuring
     related expenses. EBITDA is not a measure of financial performance under
     generally accepted accounting principles, but we have provided it here
     because we understand that such information is used by certain investors
     when analyzing the Company's financial position and performance.

     We have a $750 million syndicated line of credit (the "Line of Credit") and
a $1.75 billion syndicated revolving credit facility (the "Revolver") with no
balances outstanding as of December 31, 2001 or March 31, 2002. The Line of
Credit requires annual renewal by the lender, and if it is not renewed, we have
the option of converting the balance outstanding, if any, as of June 28, 2002
into a one-year term loan. The Revolver matures in June 2006. As of March 31,
2002, we had letters of credit in the aggregate amount of approximately $1.6
billion, (of which approximately $1.5 billion are issued under our Revolver),
that generally have terms allowing automatic renewal after a year. At March 31,
2002 and May 3, 2002, we had unused and available credit capacity under the bank
credit facilities of approximately $988 million and approximately $1.0 billion,
respectively.

     We have $300 million of 6.625% senior notes due July 15, 2002, $285.7
million of 7.7% senior notes due October 1, 2002 and $350 million of 6.5% senior
notes due December 15, 2002. We have classified these borrowings as long-term at
March 31, 2002 based upon our ability to use our Line of Credit and/or Revolver,
which are both considered long-term facilities, to refinance these borrowings.
We intend to pursue other sources of long-term financing to refinance these
borrowings; however, in the event other sources of long-term financing are not
available, we have the intent and ability to use our Line of Credit and/or
Revolver to refinance these borrowings.

     We manage our debt portfolio by using interest rate derivatives to achieve
a desired position of fixed and floating rate debt. At March 31, 2002 and
December 31, 2001, we had interest rate swap contracts with a notional amount of
approximately $1.8 billion. The significant terms of the interest rate contracts
and the underlying debt instrument are identical. Accordingly, changes in fair
value of these interest rate contracts are deferred and recognized as an
adjustment to interest expense over the life of the interest rate contract. At
March 31, 2002 and December 31, 2001, the net negative fair value of these
derivatives was approximately $16 million and $2 million, respectively. In
addition, approximately $41 million and $60 million is included in the senior
notes and debentures classification as of March 31, 2002 and December 31, 2001,
respectively, which primarily consists of the remaining unamortized accumulated
adjustment of interest rate swaps

                                        34
<PAGE>

terminated in 2001. Approximately $2 million is included in the tax-exempt and
project bonds at both March 31, 2002 and December 31, 2001, respectively, for
swaps which were terminated in 2001. For the quarters ended March 31, 2002 and
2001, interest rate contracts reduced interest expense by $20 million and $1
million, respectively.

     In November 2001, we announced that we had entered into an agreement to
settle the class action lawsuits filed against us in July 1999 alleging
violations of the federal securities laws by payment of $457 million to the
class. We expect our net cash outflow, after considering insurance, tax
deductions and related settlement costs, to be approximately $230 to $240
million. The settlement will most likely be paid in the second or third quarter
of 2002, with a minimal level of additional borrowing necessary to fund the
settlement.

     In February 2002, we announced that our Board of Directors had approved a
stock buy back program. Under the program, we will buy back up to one billion
dollars of our common stock each year for the foreseeable future. The purchase
will be made in open market purchases or privately negotiated transactions
primarily using cash flows from operations.

     In March 2002, we entered into an accelerated stock repurchase master
agreement to facilitate the repurchase of our shares of common stock. Pursuant
to the agreement, we may from time to time enter into transactions to purchase
shares of our common stock from the counterparty for a notional amount equal to
the fair market value of the shares on the date that we elect to purchase. Six
months from the date of purchase, we and the counterparty will enter into a
settlement pursuant to which, if the weighted average daily market prices for
the stock during such six month period (other than certain days during which the
Company is entitled to purchase in the market) times the number of shares
initially purchased is greater than the notional amount, we will pay the
counterparty the difference. If the average daily market price for the valuation
period times the number of shares initially purchased is less than the notional
amount, the counterparty will pay us the difference. We have the option of
paying our settlement amount, if any, in shares of our common stock or with
cash.

     We entered into our first transaction to purchase stock under the agreement
in March, purchasing approximately 10.9 million shares at $27.46 per share for a
total of approximately $300 million. We accounted for the initial payment as a
purchase of treasury stock and have classified the future settlement with the
counterparty as an equity instrument. Under the agreement, the number of shares
to be issued by us, if we were required to pay the counterparty and elected to
net settle in shares, is capped at ten million shares. The settlement will not
occur until September 2002, and therefore, we are unable at this time to predict
the number of shares, if any, we would have to issue out of our treasury were we
to elect that payment option.

     Based on our stock price at the end of the first quarter of 2002, we would
receive approximately $8 million in cash from the counterparty to settle the
contracts. However, for every one dollar of change in the average price of our
common stock during the valuation period, the settlement amount would change by
$10.9 million.

SPECIAL PURPOSE ENTITIES

     On June 30, 2000, two limited liability companies ("LLCs") were established
to purchase interests in existing leveraged lease financings at three
waste-to-energy facilities that we operate under an agreement with the owner.
John Hancock Life Insurance Company ("Hancock") has a 99.5% ownership in one of
the LLCs. The second LLC is 99.5% collectively owned by Hancock and the CIT
Group ("CIT"). We have a 0.5% interest in both LLCs. Hancock and CIT made an
initial investment of approximately $167 million in the LLCs. The LLCs used
these proceeds to purchase the three waste-to-energy facilities that we operate
and assumed the seller's indebtedness related to these facilities. Under the LLC
agreements the LLCs shall be dissolved upon the occurrence of any of the
following events: (i) a written decision of all the members of the LLCs to
dissolve the LLCs, (ii) December 31, 2063, (iii) the entry of a decree of
judicial dissolution under the Delaware Limited Liability Company Act, or (iv)
the LLCs cease to own any interest in these waste-to-energy facilities.
Additionally, income, losses and cash flows are allocated to the members based
on their initial capital account balances until Hancock and CIT achieve targeted
returns; thereafter, the amounts will be allocated 20% to Hancock and CIT and
80% to us. We do not expect Hancock and CIT to achieve the
                                        35
<PAGE>

targeted returns in 2002. We account for the underlying leases as operating
leases. As of March 31, 2002, the remaining aggregate lease commitments are $394
million related to these waste-to-energy facilities.

     Under the LLC agreements, if we exercise certain renewal options under the
leases, we will be required to make capital contributions to the LLCs for the
difference, if any, between fair market rents and the scheduled renewal rents.
We are required under certain circumstances to make capital contributions to the
LLCs in the amount of the difference between the stipulated loss amounts and
termination values under the LLC agreements to the extent they are different
from the underlying lease agreements. We believe that the occurrence of these
circumstances is remote.

     We are the manager of the LLCs but there are significant limitations on the
powers of the manager under the LLC agreements. Accordingly, we account for our
interest in the LLCs under the equity method of accounting. These investments
have a carrying value of approximately $1 million at both March 31, 2002 and
December 31, 2001. If we were required to consolidate the LLCs, we would record
approximately $422 million in assets, and $209 million of debt as of March 31,
2002. The remaining balance that would be recorded would primarily be minority
interest. There would be no material net impact to our results of operations if
we consolidated the LLCs instead of accounting for them under the equity method.

SEASONALITY AND INFLATION

     Our operating revenues tend to be somewhat lower in the winter months,
primarily due to the lower volume of construction and demolition waste. The
volumes of industrial and residential waste in certain regions where we operate
also tend to decrease during the winter months. Our first and fourth quarter
results of operations typically reflect this seasonality. In addition,
particularly harsh weather conditions may result in the temporary suspension of
certain of our operations.

     We believe that inflation has not had, and is not expected to have, any
material adverse effect on the results of operations in the near future.

NEW ACCOUNTING PRONOUNCEMENTS

  SFAS NO. 141 AND SFAS NO. 142

     In June 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 141, and Statement of Financial Accounting
Standards No. 142. SFAS No. 141 requires that all business combinations be
accounted for using the purchase method of accounting and prohibits the
pooling-of-interests method for business combinations initiated after June 30,
2001. According to SFAS No. 142, goodwill that arose from purchases after June
30, 2001 cannot be amortized. In addition, SFAS No. 142 required the
continuation of the amortization of goodwill and all intangible assets through
December 31, 2001. The amortization of existing goodwill ceased on January 1,
2002. SFAS No. 142 requires a two-step impairment approach for goodwill.
Companies must first determine whether goodwill is impaired and if so, they must
value that impairment based on the amount by which the book value exceeds the
estimated fair value. Companies have six months from the date they initially
apply SFAS No. 142 to test goodwill for impairment and any impairment charge
resulting from the initial application of the new accounting pronouncement must
be classified as the cumulative effect of a change in accounting principle.
Thereafter, goodwill must be tested for impairment annually and impairment
losses must be presented in the operating section of the income statement unless
they are associated with a discontinued operation. In those cases, any
impairment losses will be included, net of tax, within the results of
discontinued operations.

     In accordance with our adoption of SFAS No. 141, we will continue to use
the purchase method of accounting for our business combinations. In accordance
with our adoption of SFAS No. 142, we have not amortized goodwill from any
acquisitions that occurred after June 30, 2001. We have no intangible assets,
other than goodwill, that have ceased being amortized upon adoption of SFAS No.
142.

     Adopting SFAS No. 141 required us to write-off net negative goodwill of
approximately $2 million, which was recorded as a credit to cumulative effect of
change in accounting principle in the first quarter of 2002. In accordance with
SFAS No. 142, goodwill is required to be tested for impairment at the reporting
unit, which is
                                        36
<PAGE>

defined as a company's operating segment or one level below the operating
segment. For the purposes of applying SFAS No. 142, we have defined our
reporting units to be our six individual NASW Groups and our NASW recycling
operations that are not included in any of our NASW Groups. We incurred no
impairment of goodwill upon the initial adoption of SFAS No. 142. There can be
no assurance that goodwill will not be impaired at any time subsequent to the
adoption of SFAS No. 142.

     The following schedule reflects the three months ended March 31, 2001
adjusted net income (excluding goodwill and negative goodwill amortization) as
compared to the results of operations for the three months ended March 31, 2002
(in millions, except per share amounts).

<Table>
<Caption>
                                                               THREE MONTHS
                                                              ENDED MARCH 31,
                                                              ---------------
                                                               2002     2001
                                                              ------   ------
<S>                                                           <C>      <C>
Reported net income.........................................  $ 138    $ 124
Add back: goodwill amortization, net of taxes...............     --       31
                                                              -----    -----
Adjusted net income.........................................  $ 138    $ 155
                                                              =====    =====
BASIC EARNINGS PER COMMON SHARE:
Reported net income.........................................  $0.22    $0.20
Goodwill amortization, net of taxes.........................     --     0.05
                                                              -----    -----
Adjusted net income.........................................  $0.22    $0.25
                                                              =====    =====
DILUTED EARNINGS PER COMMON SHARE:
Reported net income.........................................  $0.22    $0.20
Goodwill amortization, net of taxes.........................     --     0.05
                                                              -----    -----
Adjusted net income.........................................  $0.22    $0.25
                                                              =====    =====
</Table>

     Our intangible assets as of March 31, 2002 were comprised of the following
(in millions):

<Table>
<Caption>
                                                              COVENANTS   LICENSES,
                                                               NOT-TO-     PERMITS
                                             CUSTOMER LISTS    COMPETE    AND OTHER   TOTAL
                                             --------------   ---------   ---------   -----
<S>                                          <C>              <C>         <C>         <C>
Intangible assets..........................       $125          $ 97         $18      $ 240
Less accumulated amortization..............        (65)          (53)         (6)      (124)
                                                  ----          ----         ---      -----
                                                  $ 60          $ 44         $12      $ 116
                                                  ====          ====         ===      =====
</Table>

     Intangible assets are recorded at cost and amortized on a straight-line
basis. Customer lists are generally amortized over five to seven years.
Covenants not-to-compete are amortized over the term of the agreement, which is
generally three to five years. Licenses, permits and other intangible assets are
amortized over the definitive terms of the related agreement or the Company's
estimate of the useful life if there are no definitive terms. The estimated
intangible asset amortization expense for the five years following 2001 is as
follows (in millions):

<Table>
<Caption>
2002   2003   2004   2005   2006
----   ----   ----   ----   ----
<S>    <C>    <C>    <C>    <C>
$34    $30    $22    $13     $7
</Table>

     As of March 31, 2002, the amount of goodwill attributable to our WTI
operations was approximately $778 million. The remaining goodwill balance of
approximately $4,231 million was attributable to our other NASW operations.

  SFAS NO. 143

     In June 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 143, Accounting for Asset Retirement
Obligations ("SFAS No. 143"). SFAS No. 143 applies to all legally enforceable
obligations associated with the retirement of tangible long-lived assets and
provides

                                        37
<PAGE>

the accounting and reporting requirements for such obligations. Under this
Statement, the amount initially recognized as an asset retirement obligation is
measured at fair value. The recognized asset retirement cost is capitalized as
part of the cost of the asset and is depreciated over the useful life of the
asset. We expect to adopt SFAS No. 143 beginning January 1, 2003 and to record a
cumulative effect of a change in accounting principle.

     SFAS No. 143 will impact our accounting for our landfill operations. Costs
associated with future capping activities that occur during the operating life
of a landfill, which are currently recognized on an undiscounted basis over the
operating life of the landfill as airspace is consumed, will be accounted for as
an asset retirement obligation under SFAS No. 143, on a discounted basis. We
expect to recognize landfill retirement obligations, which relate to capping,
other closure activities and post-closure, over the operating life of a landfill
as landfill airspace is consumed and the obligation is incurred. These
obligations will be initially measured at estimated fair value. Fair value will
be measured on a present value basis, using a credit-adjusted, risk-free rate,
which will be a higher rate than the risk-free rate the Company currently
utilizes for discounting its final closure and post-closure obligations.
Interest will be accreted on landfill retirement obligations using the effective
interest method. Landfill retirement costs, which will be capitalized as part of
the landfill asset, will be amortized using our existing landfill accounting
practices. We have begun to address which of our other assets could be affected
by the provisions of SFAS No. 143. Though progress is being made, our management
has not yet determined the pro forma, cumulative or future effects of the
adoption of SFAS No. 143 on its results of operations or financial position.
Management believes that adoption of SFAS No. 143 will have no effect on our
cash flow.

  SFAS NO. 144

     In August 2001, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 144, Accounting for the Impairment or
Disposal of Long-Lived Asset ("SFAS No. 144"), which supersedes Statement of
Financial Accounting Standards No. 121. SFAS No. 144 establishes a single
accounting method for long-lived assets to be disposed of by sale, whether
previously held and used or newly acquired, and extends the presentation of
discontinued operations to include more disposal transactions. SFAS No. 144 also
requires that an impairment loss be recognized for assets held-for-use when the
carrying amount of an asset (group) is not recoverable. The carrying amount of
an asset (group) is not recoverable if it exceeds the sum of the undiscounted
cash flows expected to result from the use and eventual disposition of the asset
(group), excluding interest charges. Estimates of future cash flows used to test
the recoverability of a long-lived asset (group) must incorporate the entity's
own assumptions about its use of the asset (group) and must factor in all
available evidence. We adopted SFAS No. 144 on January 1, 2002. Upon initial
application of this Statement, certain previously held-for-sale operations did
not meet SFAS No. 144 criteria to be held-for-sale because their anticipated
sale is in 2003. However, under the transition provisions of SFAS No. 144, the
Company has until December 31, 2002 to either sell these assets or meet the new
held-for-sale criteria to avoid reclassifying the assets to held-for-use.

  SFAS NO. 145

     In April 2002, the Financial Accounting Standards Board issued SFAS No.
145, Recission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement
No. 13, and Technical Corrections ("SFAS No. 145"). SFAS No. 145 requires that
gains and losses from extinguishment of debt be classified as extraordinary
items only if they meet the criteria in Accounting Principles Board Opinion No.
30 ("Opinion No. 30"). Applying the provisions of Opinion No. 30 will
distinguish transactions that are part of an entity's recurring operations from
those that are unusual and infrequent that meet criteria for classification as
an extraordinary item. SFAS No. 145 is effective for the Company beginning
January 1, 2003, but we may adopt the provisions of SFAS No. 145 prior to this
date. Upon the adoption of SFAS No. 145, we will reclassify our prior period
statements of operations to conform to the presentation required by SFAS No.
145. Under SFAS No. 145, the Company will report gains and losses on the
extinguishment of debt in pre-tax earnings.

                                        38
<PAGE>

                                    PART II

ITEM 1.  LEGAL PROCEEDINGS.

     Information regarding our legal proceedings can be found under the
"Litigation" section of Note 7, Commitments and Contingencies, to the
consolidated financial statements.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

     None.

ITEM 5.  OTHER INFORMATION.

     None.

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K.

     (a) Exhibits:

<Table>
<Caption>
EXHIBIT
NUMBER*                                 DESCRIPTION
-------                                 -----------
<S>       <C>   <C>
 10.1     --    Employment agreement dated May 6, 2002 between Waste
                Management, Inc. and David Steiner.
 12       --    Computation of Ratio of Earnings to Fixed Charges.
</Table>

---------------

* In the case of incorporation by reference to documents filed under the
  Securities and Exchange Act of 1934, the Registrant's file number under that
  Act is 1-12154.

     (b) Reports on Form 8-K:

     During the first quarter of 2002, the Company filed a Current Report on
Form 8-K dated March 22, 2002 to announce its selection of Ernst & Young LLP as
its independent auditor for 2002, replacing Arthur Andersen LLP.

                                        39
<PAGE>

                                   SIGNATURES

     Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.

                                          WASTE MANAGEMENT, INC.

                                          By:    /s/ WILLIAM L. TRUBECK
                                            ------------------------------------
                                                     William L. Trubeck
                                                Executive Vice President and
                                                  Chief Financial Officer
                                               (Principal Financial Officer)

                                          WASTE MANAGEMENT, INC.

                                          By:     /s/ ROBERT G. SIMPSON
                                            ------------------------------------
                                                     Robert G. Simpson
                                                     Vice President and
                                                  Chief Accounting Officer
                                               (Principal Accounting Officer)

Date: May 8, 2002

                                        40
<PAGE>

                               INDEX TO EXHIBITS

<Table>
<Caption>
EXHIBIT
NUMBER*                                 DESCRIPTION
-------                                 -----------
<S>       <C>   <C>
 10.1     --    Employment agreement dated May 6, 2002 between Waste
                Management, Inc. and David Steiner.
 12       --    Computation of Ratio of Earnings to Fixed Charges.
</Table>

---------------

* In the case of incorporation by reference to documents filed under the
  Securities and Exchange Act of 1934, the Registrant's file number under that
  Act is 1-12154.

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.1
<SEQUENCE>3
<FILENAME>h96558ex10-1.txt
<DESCRIPTION>EMPLOYMENT AGREEMENT - DAVID STEINER
<TEXT>
<PAGE>
                                                                    EXHIBIT 10.1

                              EMPLOYMENT AGREEMENT

         This EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into on
this 6th day of May, 2002 by and between Waste Management, Inc. (the "Company"),
and David Steiner (the "Executive").

         1. EMPLOYMENT AND TERMINATION OF PREVIOUS EMPLOYMENT AGREEMENT.

         The Company shall employ Executive, and Executive shall be employed by
the Company upon the terms and subject to the conditions set forth in this
Agreement.

         The Company and Executive hereby agree that the certain Employment
Agreement between the two parties dated on or about November 3, 2000 is
terminated, and any and all obligations of the Company and Executive created
thereunder, whether express or implied, shall be null and void and of no further
force or effect, and that the only continuing rights, obligations, and duties
between the Company and Executive shall be those expressly set forth in this
Agreement.

         2. TERM OF EMPLOYMENT.

         The period of Executive's employment under this Agreement shall
commence on July 12, 2001 ("Employment Date"), and shall continue for a period
of two (2) years thereafter, and shall automatically be renewed for successive
one (1) year periods thereafter, unless Executive's employment is terminated in
accordance with Section 5 below. The period during which Executive is employed
hereunder shall be referred to as the "Employment Period."

         3. DUTIES AND RESPONSIBILITIES.

         (a) Executive shall serve as the Company's Senior Vice-President,
General Counsel, and Corporate Secretary. In such capacity, Executive shall
perform such duties and have the power, authority, and functions commensurate
with such position in similarly-sized public companies, and have and possess
such other authority and functions consistent with such position as may be
assigned to Executive from time to time by the Chief Executive Officer,
President, Chief Administrative Officer, or the Board of Directors.

         (b) Executive shall devote substantially all of his working time,
attention and energies to the business of the Company, and its affiliated
entities. Executive may make and manage his personal investments (provided such
investments in other activities do not violate, in any material respect, the
provisions of Section 8 of this Agreement), be involved in charitable and
professional activities, and, with the prior written consent of the Board of
Directors, serve on boards of other for profit entities, provided such
activities do not materially interfere with the performance of his duties
hereunder.

         4. COMPENSATION AND BENEFITS.

         (a) BASE SALARY. During the Employment Period, the Company shall pay
Executive a base salary at the annual rate of Three Hundred Twenty Thousand and
00/100ths Dollars


<PAGE>

($320,000.00) per year, or such higher rate as may be determined from time to
time by the Company ("Base Salary"). Such Base Salary shall be paid in
accordance with the Company's standard payroll practice for its executive
officers. Once increased, Base Salary shall not be reduced.

         (b) ANNUAL BONUS. During the Employment Period, Executive will be
entitled to participate in an annual incentive compensation plan of the Company.
The Executive's target annual bonus will be seventy-five percent (75%) of his
Base Salary in effect for such year (the "Target Bonus"), and his actual annual
bonus may range from 0% to 150% (two times Target Bonus), and will be determined
based upon (i) the achievement of certain corporate performance goals, as may be
established and approved by from time to time by the Compensation Committee of
the Board of Directors, and be (ii) the achievement of personal performance
goals as may be established by the Company's Chief Executive Officer.

         (c) STOCK OPTIONS. Effective the Employment Date, Executive shall be
granted a stock option for Seventy Thousand (70,000) shares of common stock of
Waste Management, Inc., with one-fourth (1/4) of such options vesting on each of
the next four (4) anniversaries of the Employment Date, subject to the approval
of the Compensation Committee of the Board of Directors. The exercise price
shall be the fair market value on the date of grant of the option. The award,
vesting, and exercise of all options shall be subject to and governed by the
provisions of the applicable Waste Management, Inc. Stock Incentive Plan.
Executive shall be eligible to considered for additional stock option grants
under the Company's annual stock option award program as administered by, and at
the discretion of, the Compensation Committee of the Board of Directors.

         (d) BENEFIT PLANS AND VACATION. Subject to the terms of such plans,
Executive shall be eligible to participate in or receive benefits under any
pension plan, profit sharing plan, salary deferral plan, medical and dental
benefits plan, life insurance plan, short-term and long-term disability plans,
or any other health, welfare or fringe benefit plan, generally made available by
the Company to similarly-situated executive employees. The Company shall not be
obligated to institute, maintain, or refrain from changing, amending, or
discontinuing any benefit plan, or perquisite, so long as such changes are
similarly applicable to similarly-situated employees generally.

         During the Employment Period, Executive shall be entitled to vacation
each year in accordance with the Company's policies in effect from time to time,
but in no event less than four (4) weeks paid vacation per calendar year.

         (e) EXPENSE REIMBURSEMENT. The Company shall promptly reimburse
Executive for the ordinary and necessary business expenses incurred by Executive
in the performance of the duties hereunder in accordance with the Company's
customary practices applicable to its executive officers.

         (f) OTHER PERQUISITES. Executive shall be entitled to all perquisites
provided to Senior Vice Presidents of the Company as approved by the
Compensation Committee of the Board of Directors, and as they may exist from
time to time, including the following:


                                       2
<PAGE>

                    1. Automobile allowance in the amount of One Thousand
Dollars ($1,000.00) per month;

                    2. Financial planning services at actual cost, and not to
exceed Ten Thousand Dollars ($10,000.00) annually;

                    3. Club dues and assessments at actual cost, and not to
exceed Twelve Thousand Dollars ($12,000.00) annually; and

                    4. An annual physical examination on a program designated by
the Company.

         5. TERMINATION OF EMPLOYMENT.

         Executive's employment hereunder may be terminated during the
Employment Period under the following circumstances:

         (a) DEATH. Executive's employment hereunder shall terminate upon
Executive's death.

         (b) TOTAL DISABILITY. The Company may terminate Executive's employment
hereunder upon Executive becoming "Totally Disabled." For purposes of this
Agreement, Executive shall be considered "Totally Disabled" if Executive has
been physically or mentally incapacitated so as to render Executive incapable of
performing the essential functions of Executive's position with or without
reasonable accommodation. Executive's receipt of disability benefits under the
Company's long-term disability plan or receipt of Social Security disability
benefits shall be deemed conclusive evidence of Total Disability for purpose of
this Agreement; provided, however, that in the absence of Executive's receipt of
such long-term disability benefits or Social Security benefits, the Company's
Board of Directors may, in its reasonable discretion (but based upon appropriate
medical evidence), determine that Executive is Totally Disabled.

         (c) TERMINATION BY THE COMPANY FOR CAUSE. The Company may terminate
Executive's employment hereunder for "Cause" at any time after providing a
Notice of Termination for Cause to Executive.

          (i)  For purposes of this Agreement, the term "Cause" means any of the
               following: (A) willful or deliberate and continual refusal to
               perform Executive's employment duties reasonably requested by the
               Company after receipt of written notice to Executive of such
               failure to perform, specifying such failure (other than as a
               result of Executive's sickness, illness or injury) and Executive
               fails to cure such nonperformance within ten (10) days of receipt
               of said written notice; (B) breach of any statutory or common law
               duty of loyalty to the Company; (C) has been convicted of, or
               pleaded nolo contendre to, any felony; (D) willfully or
               intentionally caused material injury to the Company, its
               property, or its assets; (E) disclosed to unauthorized person(s)
               proprietary or confidential information of the Company; or (F)
               breach of any of the covenants set forth in Section 8 hereof.




                                       3
<PAGE>

          (ii) For purposes of this Agreement, the phrase "Notice of Termination
               for Cause" shall mean a written notice that shall indicate the
               specific termination provision in Section 5(c)(i) relied upon,
               and shall set forth in reasonable detail the facts and
               circumstances which provide the basis for termination for Cause.
               Further, a Notification of Termination for Cause shall be
               required to include a copy of a resolution duly adopted by at
               least two-thirds (2/3) of the entire membership of the Board of
               Directors at a meeting of the Board which was called for the
               purpose of considering such employment termination, and at which
               Executive and his representative had the right to attend and
               address the Board, finding that, in the good faith belief of the
               Board, Executive engaged in conduct set forth in Section 5(c)(i)
               herein and specifying the particulars thereof in reasonable
               detail. The date of termination for Cause shall be the date
               indicated in the Notice of Termination for Cause. Any purported
               termination for Cause which is held by an arbitrator not to have
               been based on the grounds set forth in this Agreement or not to
               have followed the procedures set forth in this Agreement shall be
               deemed a termination by the Company without Cause.

         (d) VOLUNTARY TERMINATION BY EXECUTIVE. Executive may terminate his
employment hereunder with or without Good Reason at any time upon written notice
to the Company.

          (i)  A termination for "Good Reason" means a resignation of employment
               by Executive by written notice ("Notice of Termination for Good
               Reason") given to the Company's Chief Executive Officer within
               ninety (90) days after the occurrence of the Good Reason event,
               unless such circumstances are substantially corrected prior to
               the date of termination specified in the Notice of Termination
               for Good Reason. For purposes of this Agreement, "Good Reason"
               shall mean the occurrence or failure to cause the occurrence, as
               the case may be, without Executive's express written consent, of
               any of the following circumstances: (A) the Company substantially
               changes Executive's core duties or removes Executive's
               responsibility for those core duties, so as to effectively cause
               Executive to no longer be performing the duties of his position
               (except in each case in connection with the termination of
               Executive's employment for Cause or Total Disability or as a
               result of Executive's death, or temporarily as a result of
               Executive's illness or other absence); provided that if the
               Company becomes a fifty percent or more subsidiary of any other
               entity, Executive shall be deemed to have a substantial change in
               the core duties of his position unless he is also Senior
               Vice-President of the ultimate parent entity; (B) removal or the
               non-reelection of the Executive from the officer position with
               the Company specified herein, or removal of the Executive from
               any of his then officer positions; (C) any material breach by the
               Company of any provision of this Agreement, including without
               limitation Section 10 hereof; or (D) failure of any successor to
               the Company (whether direct or indirect and whether by merger,
               acquisition, consolidation or otherwise) to assume in a writing
               delivered to Executive upon the assignee becoming such, the
               obligations of the Company hereunder; or (E) the reassignment of
               Executive to a geographic location more than fifty (50) miles
               from his current business office location.



                                       4
<PAGE>

          (ii) A "Notice of Termination for Good Reason" shall mean a notice
               that shall indicate the specific termination provision relied
               upon and shall set forth in reasonable detail the facts and
               circumstances claimed to provide a basis for Termination for Good
               Reason. The failure by Executive to set forth in the Notice of
               Termination for Good Reason any facts or circumstances which
               contribute to the showing of Good Reason shall not waive any
               right of Executive hereunder or preclude Executive from asserting
               such fact or circumstance in enforcing his rights hereunder. The
               Notice of Termination for Good Reason shall provide for a date of
               termination not less than ten (10) nor more than sixty (60) days
               after the date such Notice of Termination for Good Reason is
               given, provided that in the case of the events set forth in
               Sections 5(d)(i)(A) or (B), the date may be five (5) business
               days after the giving of such notice.

         (e) TERMINATION BY THE COMPANY WITHOUT CAUSE. The Company may terminate
Executive's employment hereunder without Cause at any time upon written notice
to Executive.

         (f) EFFECT OF TERMINATION. Upon any termination of employment for any
reason, Executive shall immediately resign from all Board memberships and other
positions with the Company or any of its subsidiaries held by him at such time.

         6. COMPENSATION FOLLOWING TERMINATION OF EMPLOYMENT.

         In the event that Executive's employment hereunder is terminated,
Executive shall be entitled to the following compensation and benefits upon such
termination:

         (a) TERMINATION BY REASON OF DEATH. In the event that Executive's
employment is terminated by reason of Executive's death, the Company shall pay
the following amounts to Executive's beneficiary or estate:

          (i)   Any accrued but unpaid Base Salary for services rendered to the
                date of death, any accrued but unpaid expenses required to be
                reimbursed under this Agreement, any vacation accrued to the
                date of termination, any earned but unpaid bonuses for any prior
                period, and, to the extent not otherwise paid, a pro-rata bonus
                or incentive compensation payment to the extent payments are
                awarded to senior executives of the Company and paid at the same
                time as senior executives are paid.

          (ii)  Any benefits to which Executive may be entitled pursuant to the
                plans, policies and arrangements (including those referred to in
                Section 4(d) hereof), as determined and paid in accordance with
                the terms of such plans, policies and arrangements.

          (iii) An amount equal to the Base Salary (at the rate in effect as of
                the date of Executive's death) which would have been payable to
                Executive if Executive had continued in employment for two
                additional years. Said payments will be paid to Executive's
                estate or beneficiary at the same time and in the same manner as
                such

                                       5
<PAGE>

                compensation would have been paid if Executive had remained in
                active employment.

          (iv)  As of the date of termination by reason of Executive's death,
                stock options previously awarded to Executive as of the date of
                death shall be fully vested, and Executive's estate or
                beneficiary shall have up to one (1) year from the date of death
                to exercise all such previously-awarded options, provided that
                in no event will any option be exercisable beyond its term. No
                stock options contemplated by this Agreement, but not yet
                awarded to Executive as of the time of his death, shall be
                granted.

         (b) TERMINATION BY REASON OF TOTAL DISABILITY. In the event that
Executive's employment is terminated by reason of Executive's Total Disability
as determined in accordance with Section 5(b), the Company shall pay the
following amounts to Executive:

          (i)   Any accrued but unpaid Base Salary for services rendered to the
                date of termination, any accrued but unpaid expenses required to
                be reimbursed under this Agreement, any vacation accrued to the
                date of termination, and any earned but unpaid bonuses for any
                prior period. Executive shall also be eligible for a pro-rata
                bonus or incentive compensation payment to the extent such
                awards are made to senior executives of the Company for the
                year in which Executive is terminated, and to the extent not
                otherwise paid to the Executive.

          (ii)  Any benefits to which Executive may be entitled pursuant to the
                plans, policies and arrangements (including those referred to in
                Section 4(d) hereof) shall be determined and paid in accordance
                with the terms of such plans, policies and arrangements.

          (iii) An amount equal to the Base Salary (at the rate in effect as of
                the date of Executive's Total Disability) which would have been
                payable to Executive if Executive had continued in active
                employment for two years following termination of employment,
                less any payments under any long-term disability plan or
                arrangement paid for by the Company. Payment shall be made at
                the same time and in the same manner as such compensation would
                have been paid if Executive had remained in active employment
                until the end of such period.

          (iv)  As of the date of termination by reason of Executive's Total
                Disability, stock options previously awarded to Executive as of
                the date of termination shall be fully vested, and Executive or
                his legal guardian shall have up to one (1) year from the date
                of death to exercise all such previously-awarded options,
                provided that in no event will any option be exercisable beyond
                its term. No stock options contemplated by this Agreement, but
                not yet awarded to Executive as of the time of his employment
                termination, shall be granted.

         (c) TERMINATION FOR CAUSE. In the event that Executive's employment is
terminated by the Company for Cause, the Company shall pay the following amounts
to Executive:

                                       6

<PAGE>

          (i)   Any accrued but unpaid Base Salary for services rendered to the
                date of termination, any accrued but unpaid expenses required to
                be reimbursed under this Agreement, any vacation accrued to the
                date of termination, and any earned but unpaid bonuses for any
                prior period.

          (ii)  Any benefits to which Executive may be entitled pursuant to the
                plans, policies and arrangements (including those referred to in
                Section 4(d) hereof up to the date of termination) shall be
                determined and paid in accordance with the terms of such plans,
                policies and arrangements.

          (iii) All options, whether vested or not vested prior to the date of
                such termination of employment, shall be automatically cancelled
                on the date of employment termination. However, it is expressly
                understood and agreed that Executive would have no obligation to
                repay or otherwise reimburse the Company for funds received as a
                result of Executive's having exercised any previously-vested
                stock options prior to his employment termination.

         (d) VOLUNTARY TERMINATION BY EXECUTIVE. In the event that Executive
voluntarily terminates employment other than for Good Reason, the Company shall
pay the following amounts to Executive:

          (i)   Any accrued but unpaid Base Salary for services rendered to the
                date of termination, any accrued but unpaid expenses required to
                be reimbursed under this Agreement, any vacation accrued to the
                date of termination, and any earned but unpaid bonuses for any
                prior period.

          (ii)  Any benefits to which Executive may be entitled pursuant to the
                plans, policies and arrangements (including those referred to in
                Section 4(d) hereof up to the date of termination) shall be
                determined and paid in accordance with the terms of such plans,
                policies and arrangements.

          (iii) Any stock options that have not vested prior to the date of such
                termination of employment shall be automatically cancelled as of
                that date, and Executive shall have ninety (90) days following
                the date of termination of employment to exercise any previously
                vested options; provided that in no event will any option be
                exercisable beyond its term. No stock options contemplated by
                this Agreement, but not yet awarded to Executive as of the time
                of his employment termination, shall be granted.

         (e) TERMINATION BY THE COMPANY WITHOUT CAUSE; TERMINATION BY EXECUTIVE
FOR GOOD REASON. In the event that Executive's employment is terminated by the
Company for reasons other than death, Total Disability or Cause, or Executive
terminates his employment for Good Reason, the Company shall pay the following
amounts to Executive:

          (i)   Any accrued but unpaid Base Salary for services rendered to the
                date of termination, any accrued but unpaid expenses required to
                be reimbursed under

<PAGE>

                this Agreement, any vacation accrued to the date of termination,
                and any earned but unpaid bonuses for any prior period.

          (ii)  Any benefits to which Executive may be entitled pursuant to the
                plans, policies and arrangements referred to in Section 4(d)
                hereof shall be determined and paid in accordance with the terms
                of such plans, policies and arrangements.

          (iii) An amount equal to two times the sum of Executive's Base Salary
                plus his Target Annual Bonus (in each case as then in effect),
                of which one-half shall be paid in a lump sum within ten (10)
                days after such termination and one-half shall be paid during
                the two (2) year period beginning on the date of Executive's
                termination and shall be paid at the same time and in the same
                manner as Base Salary would have been paid if Executive had
                remained in active employment until the end of such period.

          (iv)  The Company at its expense will continue for Executive and
                Executive's spouse and dependents, all health benefit plans,
                programs or arrangements, whether group or individual,
                disability, and other benefit plans, in which Executive was
                entitled to participate at any time during the twelve-month
                period prior to the date of termination, until the earliest to
                occur of (A) two years after the date of termination; (B)
                Executive's death (provided that benefits provided to
                Executive's spouse and dependents shall not terminate upon
                Executive's death); or (C) with respect to any particular plan,
                program or arrangement, the date Executive becomes eligible to
                participate in a comparable benefit provided by a subsequent
                employer. In the event that Executive's continued participation
                in any such Company plan, program, or arrangement is prohibited,
                the Company will arrange to provide Executive with benefits
                substantially similar to those which Executive would have been
                entitled to receive under such plan, program, or arrangement,
                for such period on a basis which provides Executive with no
                additional after tax cost.

          (v)   Executive shall be eligible for a bonus or incentive
                compensation payment, at the same time, on the same basis, and
                to the same extent payments are made to senior executives of
                the Company, pro-rated for the fiscal year in which the
                Executive is terminated.

          (vi)  Executive shall continue to vest in all stock option awards or
                restricted stock awards over the two (2) year period commencing
                on the date of such termination. Executive shall have two (2)
                years and six (6) months after the date of termination to
                exercise all options to the extent then vested, provided that in
                no event may any option be exercisable beyond its term.

         (f) NO OTHER BENEFITS OR COMPENSATION. Except as may be provided under
this Agreement, under the terms of any incentive compensation, employee benefit,
or fringe benefit plan applicable to Executive at the time of Executive's
termination or resignation of employment, Executive shall have no right to
receive any other compensation, or to participate in any other plan, arrangement
or benefit, with respect to future periods after such termination or
resignation.

                                       8

<PAGE>

         (g) NO MITIGATION; NO SET-OFF. In the event of any termination of
employment hereunder, Executive shall be under no obligation to seek other
employment, and there shall be no offset against any amounts due Executive under
this Agreement on account of any remuneration attributable to any subsequent
employment that Executive may obtain. The amounts payable hereunder shall not be
subject to setoff, counterclaim, recoupment, defense or other right which the
Company may have against the Executive or others, except upon obtaining by the
Company of a final non-appealable judgment against Executive.

         7. RESIGNATION BY EXECUTIVE FOR GOOD REASON AND COMPENSATION PAYABLE
FOLLOWING CHANGE IN CONTROL.

         (a) RESIGNATION FOR GOOD REASON FOLLOWING CHANGE IN CONTROL. In the
event a "Change in Control" occurs and Executive terminates his employment for
Good Reason thereafter, or the Company terminates Executive's employment other
than for Cause, or such termination for Good Reason or without Cause occurs in
contemplation of such Change in Control (any termination within six (6) months
prior to such Change in Control being presumed to be in contemplation unless
rebutted by clear and demonstrable evidence to the contrary), the Company shall
pay the following amounts to Executive:

          (i)   The payments and benefits provided for in Section 6(e), except
                that (A) the amount and period with respect to which severance
                is calculated pursuant to Section 6(e)(iii) will be three (3)
                years and the amount shall be paid in a lump-sum and (B) the
                benefit continuation period in Section 6(e)(iv) shall be for
                three (3) years.

          (ii)  In lieu of Section 6(e)(v), Executive will be 100% vested in all
                benefits, awards, and grants (including stock option grants and
                stock awards, all of such stock options exercisable for three
                (3) years following Termination, provided that in no event will
                any option be exercisable beyond its term) accrued but unpaid
                as of the date of termination under any non-qualified pension
                plan, supplemental and/or incentive compensation or bonus plans,
                in which Executive was a participant as of the date of
                termination. Executive shall also receive a bonus or incentive
                compensation payment (the "bonus payment"), payable at 100% of
                the maximum bonus available to Executive, pro-rated as of the
                effective date of the termination. The bonus payment shall be
                payable within five (5) days after the effective date of
                Executive's termination. Except as may be provided under this
                Section 7 or under the terms of any incentive compensation,
                employee benefit, or fringe benefit plan applicable to Executive
                at the time of Executive's termination of employment, Executive
                shall have no right to receive any other compensation, or to
                participate in any other plan, arrangement or benefit, with
                respect to future periods after such resignation or termination.

         (b) CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY.

          (i)   In the event that the Executive shall become entitled to
                payments and/or benefits provided by this Agreement or any
                other amounts in the "nature of compensation"

                                       9

<PAGE>

                (whether pursuant to the terms of this Agreement or any other
                plan, arrangement or agreement with the Company, any person
                whose actions result in a change of ownership or effective
                control covered by Section 280G(b)(2) of the Code or any
                person affiliated with the Company or such person) as a result
                of such change in ownership or effective control (collectively
                the "Company Payments"), and such Company Payments will be
                subject to the tax (the "Excise Tax") imposed by Section 4999
                of the Code (and any similar tax that may hereafter be imposed
                by any taxing authority) the Company shall pay to the
                Executive at the time specified in subsection (iv) below an
                additional amount (the "Gross-up Payment") such that the net
                amount retained by the Executive, after deduction of any
                Excise Tax on the Company Payments and any U.S. federal,
                state, and for local income or payroll tax upon the Gross-up
                Payment provided for by this Section 7(b), but before
                deduction for any U.S. federal, state, and local income or
                payroll tax on the Company Payments, shall be equal to the
                Company Payments.

          (ii)  For purposes of determining whether any of the Company
                Payments and Gross-up Payments (collectively the "Total
                Payments") will be subject to the Excise Tax and the amount of
                such Excise Tax, (x) the Total Payments shall be treated as
                "parachute payments" within the meaning of Section 280G(b)(2)
                of the Code, and all "parachute payments" in excess of the
                "base amount" (as defined under Code Section 280G[b][3] of the
                Code) shall be treated as subject to the Excise Tax, unless
                and except to the extent that, in the opinion of the Company's
                independent certified public accountants appointed prior to
                any change in ownership (as defined under Code Section
                280G[b][2]) or tax counsel selected by such accountants (the
                "Accountants") such Total Payments (in whole or in part)
                either do not constitute "parachute payments," represent
                reasonable compensation for services actually rendered within
                the meaning of Section 280G(b)(4) of the Code in excess of the
                "base amount" or are otherwise not subject to the Excise Tax,
                and (y) the value of any non-cash benefits or any deferred
                payment or benefit shall be determined by the Accountants in
                accordance with the principles of Section 280G of the Code.

          (iii) For purposes of determining the amount of the Gross-up
                Payment, the Executive shall be deemed to pay U.S. federal
                income taxes at the highest marginal rate of U.S. federal
                income taxation in the calendar year in which the Gross-up
                Payment is to be made and state and local income taxes at the
                highest marginal rate of taxation in the state and locality of
                the Executive's residence for the calendar year in which the
                Company Payment is to be made, net of the maximum reduction in
                U.S. federal income taxes which could be obtained from
                deduction of such state and local taxes if paid in such year.
                In the event that the Excise Tax is subsequently determined by
                the Accountants to be less than the amount taken into account
                hereunder at the time the Gross-up Payment is made, the
                Executive shall repay to the Company, at the time that the
                amount of such reduction in Excise Tax is finally determined,
                the portion of the prior Gross-up Payment attributable to such
                reduction (plus the portion of the Gross-up Payment
                attributable to the Excise Tax and U.S. federal, state and
                local income tax imposed on the portion of the Gross-up
                Payment being repaid by the Executive if such repayment
                results in

                                       10

<PAGE>

                a reduction in Excise Tax or a U.S. federal, state and local
                income tax deduction), plus interest on the amount of such
                repayment at the rate provided in Section 1274(b)(2)(B) of the
                Code. Notwithstanding the foregoing, in the event any portion
                of the Gross-up Payment to be refunded to the Company has been
                paid to any U.S. federal, state and local tax authority,
                repayment thereof (and related amounts) shall not be required
                until actual refund or credit of such portion has been made to
                the Executive, and interest payable to the Company shall not
                exceed the interest received or credited to the Executive by
                such tax authority for the period it held such portion. The
                Executive and the Company shall mutually agree upon the course
                of action to be pursued (and the method of allocating the
                expense thereof) if the Executive's claim for refund or credit
                is denied.

                In the event that the Excise Tax is later determined by the
                Accountant or the Internal Revenue Service to exceed the
                amount taken into account hereunder at the time the Gross-up
                Payment is made (including by reason of any payment the
                existence or amount of which cannot be determined at the time
                of the Gross-up Payment), the Company shall make an additional
                Gross-up Payment in respect of such excess (plus any interest
                or penalties payable with respect to such excess) at the time
                that the amount of such excess is finally determined.

          (iv)  The Gross-up Payment or portion thereof provided for in
                subsection (iii) above shall be paid not later than the
                thirtieth (30th) day following an event occurring which
                subjects the Executive to the Excise Tax; provided, however,
                that if the amount of such Gross-up Payment or portion thereof
                cannot be finally determined on or before such day, the
                Company shall pay to the Executive on such day an estimate, as
                determined in good faith by the Accountant, of the minimum
                amount of such payments and shall pay the remainder of such
                payments (together with interest at the rate provided in
                Section 1274(b)(2)(B) of the Code), subject to further
                payments pursuant to subsection (iii) hereof, as soon as the
                amount thereof can reasonably be determined, but in no event
                later than the ninetieth day after the occurrence of the event
                subjecting the Executive to the Excise Tax. In the event that
                the amount of the estimated payments exceeds the amount
                subsequently determined to have been due, such excess shall
                constitute a loan by the Company to the Executive, payable on
                the fifth day after demand by the Company (together with
                interest at the rate provided in Section 1274(b)(2)(B) of the
                Code).

          (v)   In the event of any controversy with the Internal Revenue
                Service (or other taxing authority) with regard to the Excise
                Tax, the Executive shall permit the Company to control issues
                related to the Excise Tax (at its expense), provided that such
                issues do not potentially materially adversely affect the
                Executive, but the Executive shall control any other issues.
                In the event the issues are interrelated, the Executive and
                the Company shall in good faith cooperate so as not to
                jeopardize resolution of either issue, but if the parties
                cannot agree the Executive shall make the final determination
                with regard to the issues. In the event of any conference with
                any taxing authority as to the Excise Tax or associated income
                taxes, the Executive shall permit the representative of the
                Company to accompany the Executive, and the Executive and the
                Executive's representative shall cooperate with the Company
                and its representative.

                                       11

<PAGE>

          (vi)  The Company shall be responsible for all charges of the
                Accountant.

          (vii) The Company and the Executive shall promptly deliver to each
                other copies of any written communications, and summaries of
                any verbal communications, with any taxing authority regarding
                the Excise Tax covered by this Section 7(b).

         (c) CHANGE IN CONTROL. For purposes of this Agreement, "Change in
Control" means the occurrence of any of the following events:

          (i)   any Person is or becomes the Beneficial Owner, directly or
                indirectly, of securities of the Company (not including in the
                securities beneficially owned by such person any securities
                acquired directly from the Company or its Affiliates)
                representing twenty-five percent (25%) or more of the combined
                voting power of the Company's then outstanding voting
                securities;

          (ii)  the following individuals cease for any reason to constitute a
                majority of the number of directors then serving: individuals
                who, on the Employment Date, constitute the Board and any new
                director (other than a director whose initial assumption of
                office is in connection with an actual or threatened election
                contest, including but not limited to a consent solicitation,
                relating to the election of directors of the Company) whose
                appointment or election by the Board or nomination for
                election by the Company's stockholders was approved or
                recommended by a vote of the at least two-thirds (2/3rds) of
                the directors then still in office who either were directors
                on the Employment Date or whose appointment, election or
                nomination for election was previously so approved or
                recommended;

          (iii) there is a consummated merger or consolidation of the Company
                or any direct or indirect subsidiary of the Company with any
                other corporation, other than (A) a merger or consolidation
                which would result in the voting securities of the Company
                outstanding immediately prior thereto continuing to represent
                (either by remaining outstanding or by being converted into
                voting securities of the surviving or parent entity) more than
                fifty percent (50%) of the combined voting power of the voting
                securities of the Company or such surviving or parent entity
                outstanding immediately after such merger or consolidation or
                (B) a merger or consolidation effected to implement a
                recapitalization of the Company (or similar transaction) in
                which no Person, directly or indirectly, acquired twenty-five
                percent (25%) or more of the combined voting power of the
                Company's then outstanding securities (not including in the
                securities beneficially owned by such person any securities
                acquired directly from the Company or its Affiliates); or

          (iv)  the stock holders of the Company approve a plan of complete
                liquidation of the Company or there is consummated an
                agreement for the sale or disposition by the Company of all or
                substantially all of the Company's assets (or any transaction
                having a similar effect), other than a sale or disposition by
                the Company of all or

                                       12

<PAGE>

                substantially all of the Company's assets to an entity, at
                least fifty percent (50%) of the combined voting power of the
                voting securities of which are owned by stockholders of the
                Company in substantially the same proportions as their
                ownership of the Company immediately prior to such sale.

         For purposes of this Section 7(c), the following terms shall have the
following meanings:

                      (i) "Affiliate" shall mean an affiliate of the Company,
                as defined in Rule 12b-2 promulgated under Section 12 of the
                Securities Exchange Act of 1934, as amended from time to time
                (the "Exchange Act");

                      (ii) "Beneficial Owner" shall have the meaning set forth
                in Rule 13d-3 under the Exchange Act;

                      (iii) "Person" shall have the meaning set forth in
                Section 3(a)(9) of the Exchange Act, as modified and used in
                Sections 13(d) and 14(d) thereof, except that such term shall
                not include (1) the Company, (2) a trustee or other fiduciary
                holding securities under an employee benefit plan of the
                Company, (3) an underwriter temporarily holding securities
                pursuant to an offering of such securities or (4) a
                corporation owned, directly or indirectly, by the stockholders
                of the Company in substantially the same proportions as their
                ownership of shares of Common Stock of the Company.

         8. COVENANTS

         (a) COMPANY PROPERTY. All written materials, records, data, and other
documents prepared or possessed by Executive during Executive's employment with
the Company are the Company's property. All information, ideas, concepts,
improvements, discoveries, and inventions that are conceived, made, developed,
or acquired by Executive individually or in conjunction with others during
Executive's employment (whether during business hours and whether on the
Company's premises or otherwise) which relate to the Company's business,
products, or services are the Company's sole and exclusive property. All
memoranda, notes, records, files, correspondence, drawings, manuals, models,
specifications, computer programs, maps, and all other documents, data, or
materials of any type embodying such information, ideas, concepts, improvements,
discoveries, and inventions are the Company's property. At the termination of
Executive's employment with the Company for any reason, Executive shall return
all of the Company's documents, data, or other Company property to the Company.

         (b) CONFIDENTIAL INFORMATION; NON-DISCLOSURE. Executive acknowledges
that the business of the Company is highly competitive and that the Company has
agreed to provide and immediately will provide Executive with access to
"Confidential Information" relating to the business of the Company and its
affiliates.

         For purposes of this Agreement, "Confidential Information" means and
includes the Company's confidential and/or proprietary information and/or trade
secrets that have been developed or used and/or will be developed and that
cannot be obtained readily by third parties from outside sources. Confidential
Information includes, by way of example and without


                                       13

<PAGE>

limitation, the following information regarding customers, employees,
contractors, and the industry not generally known to the public; strategies,
methods, books, records, and documents; technical information concerning
products, equipment, services, and processes; procurement procedures and pricing
techniques; the names of and other information concerning customers, investors,
and business affiliates (such as contact name, service provided, pricing for
that customer, type and amount of services used, credit and financial data,
and/or other information relating to the Company's relationship with that
customer); pricing strategies and price curves; positions, plans, and strategies
for expansion or acquisitions; budgets; customer lists; research; weather data;
financial and sales data; trading methodologies and terms; evaluations,
opinions, and interpretations of information and data; marketing and
merchandising techniques; prospective customers' names and marks; grids and
maps; electronic databases; models; specifications; computer programs; internal
business records; contracts benefiting or obligating the Company; bids or
proposals submitted to any third party; technologies and methods; training
methods and training processes; organizational structure; personnel information,
including salaries of personnel; payment amounts or rates paid to consultants or
other service providers; and other such confidential or proprietary information.
Information need not qualify as a trade secret to be protected as Confidential
Information under this Agreement, and the authorized and controlled disclosure
of Confidential Information to authorized parties by Company in the pursuit of
its business will not cause the information to lose its protected status under
this Agreement. Executive acknowledges that this Confidential Information
constitutes a valuable, special, and unique asset used by the Company or its
affiliates in their businesses to obtain a competitive advantage over their
competitors. Executive further acknowledges that protection of such Confidential
Information against unauthorized disclosure and use is of critical importance to
the Company and its affiliates in maintaining their competitive position.

         Executive also will have access to, or knowledge of, Confidential
Information of third parties, such as actual and potential customers, suppliers,
partners, joint venturers, investors, financing sources, and the like, of the
Company and its affiliates.

         The Company also agrees to provide Executive with one or more of the
following: access to Confidential Information; specialized training regarding
the Company's methodologies and business strategies, and/or support in the
development of goodwill such as introductions, information and reimbursement of
customer development expenses consistent with Company policy. The foregoing is
not contingent on continued employment, but is contingent upon Executive's use
of the Confidential Information access, specialized training, and goodwill
support provided by Company for the exclusive benefit of the Company and upon
Executive's full compliance with the restrictions on Executive's conduct
provided for in this Agreement.

         In addition to the requirements set forth in Section 5(c)(i), Executive
agrees that Executive will not after Executive's employment with the Company,
make any unauthorized disclosure of any then Confidential Information or
specialized training of the Company or its affiliates, or make any use thereof,
except in the carrying out of his employment responsibilities hereunder.
Executive also agrees to preserve and protect the confidentiality of third party
Confidential Information to the same extent, and on the same basis, as the
Company's Confidential Information.

                                       14

<PAGE>

         (c) UNFAIR COMPETITION RESTRICTIONS. Upon Executive's Employment Date,
the Company agrees to and shall provide Executive with immediate access to
Confidential Information. Ancillary to the rights provided to Executive
following employment termination, the Company's provision of Confidential
Information, specialized training, and/or goodwill support to Executive, and
Executive's agreements, regarding the use of same, and in order to protect the
value of the above-referenced stock options, training, goodwill support and/or
the Confidential Information described above, the Company and Executive agree to
the following provisions against unfair competition. Executive agrees that for a
period of two (2) years following the termination of employment for any reason
("Restricted Term"), Executive will not, directly or indirectly, for Executive
or for others, anywhere in the United States (including all parishes in
Louisiana) (the "Restricted Area") do the following, unless expressly authorized
to do so in writing by the Chief Executive Officer of the Company:

                  Engage in, or assist any person, entity, or business engaged
                  in, the selling or providing of products or services that
                  would displace the products or services that (i) the Company
                  is currently in the business of providing and was in the
                  business of providing, or was planning to be in the business
                  of providing, at the time Executive was employed with the
                  Company, and (ii) that Executive had involvement in or
                  received Confidential Information about in the course of
                  employment; the foregoing is expressly understood to include,
                  without limitation, the business of the collection, transfer,
                  recycling and resource recovery, or disposal of solid waste,
                  including the operation of waste-to-energy facilities.

         It is further agreed that during the Restricted Term, Executive cannot
engage in any of the enumerated prohibited activities in the Restricted Area by
means of telephone, telecommunications, satellite communications,
correspondence, or other contact from outside the Restricted Area. Executive
further understands that the foregoing restrictions may limit his ability to
engage in certain businesses during the Restricted Term, but acknowledges that
these restrictions are necessary to protect the Confidential Information the
Company has provided to Executive.

         A failure to comply with the foregoing restrictions will create a
presumption that Executive is engaging in unfair competition. Executive agrees
that this Section defining unfair competition with the Company does not prevent
Executive from using and offering the skills that Executive possessed prior to
receiving access to Confidential Information, confidential training, and
knowledge from the Company. This Agreement creates an advance approval process,
and nothing herein is intended, or will be construed as, a general restriction
against the pursuit of lawful employment in violation of any controlling state
or federal laws. Executive shall be permitted to engage in activities that would
otherwise be prohibited by this covenant if such activities are determined in
the sole discretion of the Chief Executive Officer of the Company to be no
material threat to the legitimate business interests of the Company.

         (d) NON-SOLICITATION OF CUSTOMERS. For a period of two (2) years
following the termination of employment for any reason, Executive will not call
on, service, or solicit competing business from customers of the Company or its
affiliates whom Executive, within the

                                      15

<PAGE>

previous twelve (12) months, (i) had or made contact with, or (ii) had access to
information and files about, or induce or encourage any such customer or other
source of ongoing business to stop doing business with Company.

         (e) NON-SOLICITATION OF EMPLOYEES. During Executive's employment, and
for a period of two (2) years following the termination of employment for any
reason, Executive will not, either directly or indirectly, call on, solicit,
encourage, or induce any other employee or officer of the Company or its
affiliates whom Executive had contact with, knowledge of, or association within
the course of employment with the Company to terminate his or her employment,
and will not assist any other person or entity in such a solicitation.

         (f) NON-DISPARAGEMENT. Executive covenants and agrees that Executive
shall not engage in any pattern of conduct that involves the making or
publishing of written or oral statements or remarks (including, without
limitation, the repetition or distribution of derogatory rumors, allegations,
negative reports or comments) which are disparaging, deleterious or damaging to
the integrity, reputation or good will of the Company, its management, or of
management of corporations affiliated with the Company.

         9. ENFORCEMENT OF COVENANTS.

         (a) TERMINATION OF EMPLOYMENT AND FORFEITURE OF COMPENSATION. Executive
agrees that any breach by Executive of any of the covenants set forth in Section
8 hereof during Executive's employment by the Company, shall be grounds for
immediate dismissal of Executive for Cause pursuant to Section 5(c)(i), which
shall be in addition to and not exclusive of any and all other rights and
remedies the Company may have against Executive.

         (b) RIGHT TO INJUNCTION. Executive acknowledges that a breach of the
covenants set forth in Section 8 hereof will cause irreparable damage to the
Company with respect to which the Company's remedy at law for damages will be
inadequate. Therefore, in the event of breach or anticipatory breach of the
covenants set forth in this section by Executive, Executive and the Company
agree that the Company shall be entitled to seek the following particular forms
of relief, in addition to remedies otherwise available to it at law or equity:
(A) injunctions, both preliminary and permanent, enjoining or restraining such
breach or anticipatory breach and Executive hereby consents to the issuance
thereof forthwith and without bond by any court of competent jurisdiction; and
(B) recovery of all reasonable sums as determined by a court of competent
jurisdiction expended and costs, including reasonable attorney's fees, incurred
by the Company to enforce the covenants set forth in this section.

         (c) SEPARABILITY OF COVENANTS. The covenants contained in Section 8
hereof constitute a series of separate but ancillary covenants, one for each
applicable State in the United States and the District of Columbia, and one for
each applicable foreign country. If in any judicial proceeding, a court shall
hold that any of the covenants set forth in Section 8 exceed the time,
geographic, or occupational limitations permitted by applicable laws, Executive
and the Company agree that such provisions shall and are hereby reformed to the
maximum time, geographic, or occupational limitations permitted by such laws.
Further, in the event a court shall hold unenforceable any of the separate
covenants deemed included herein, then such unenforceable covenant or covenants
shall be deemed eliminated from the provisions of this

                                       16

<PAGE>

Agreement for the purpose of such proceeding to the extent necessary to permit
the remaining separate covenants to be enforced in such proceeding. Executive
and the Company further agree that the covenants in Section 8 shall each be
construed as a separate agreement independent of any other provisions of this
Agreement, and the existence of any claim or cause of action by Executive
against the Company whether predicated on this Agreement or otherwise, shall not
constitute a defense to the enforcement by the Company of any of the covenants
of Section 8.

         10. INDEMNIFICATION.

         The Company shall indemnify and hold harmless Executive to the fullest
extent permitted by Delaware law for any action or inaction of Executive while
serving as an officer and director of the Company or, at the Company's request,
as an officer or director of any other entity or as a fiduciary of any benefit
plan. This provision includes the obligation and undertaking of the Executive to
reimburse the Company for any fees advanced by the Company on behalf of the
Executive should it later be determined that Executive was not entitled to have
such fees advanced by the Company under Delaware law. The Company shall cover
the Executive under directors and officers liability insurance both during and,
while potential liability exists, after the Employment Period in the same amount
and to the same extent as the Company covers its other officers and directors.

         11. DISPUTES AND PAYMENT OF ATTORNEY'S FEES.

         If at any time during the term of this Agreement or afterwards there
should arise any dispute as to the validity, interpretation or application of
any term or condition of this Agreement, the Company agrees, upon written demand
by Executive (and Executive shall be entitled upon application to any court of
competent jurisdiction, to the entry of a mandatory injunction, without the
necessity of posting any bond with respect thereto, compelling the Company) to
promptly provide sums sufficient to pay on a current basis (either directly or
by reimbursing Executive) Executive's costs and reasonable attorney's fees
(including expenses of investigation and disbursements for the fees and expenses
of experts, etc.) incurred by Executive in connection with any such dispute or
any litigation, provided that Executive shall repay any such amounts paid or
advanced if Executive is not the prevailing party with respect to at least one
material claim or issue in such dispute or litigation. The provisions of this
Section 11, without implication as to any other section hereof, shall survive
the expiration or termination of this Agreement and of Executive's employment
hereunder.

         12. WITHHOLDING OF TAXES.

         The Company may withhold from any compensation and benefits payable
under this Agreement all applicable federal, state, local, or other taxes.

         13. SOURCE OF PAYMENTS.

         All payments provided under this Agreement, other than payments made
pursuant to a plan which provides otherwise, shall be paid from the general
funds of the Company, and no special or separate fund shall be established, and
no other segregation of assets made, to assure

                                       17

<PAGE>

payment. Executive shall have no right, title or interest whatever in or to any
investments which the Company may make to aid the Company in meeting its
obligations hereunder. To the extent that any person acquires a right to receive
payments from the Company hereunder, such right shall be no greater than the
right of an unsecured creditor of the Company.

         14. ASSIGNMENT.

         Except as otherwise provided in this Agreement, this Agreement shall
inure to the benefit of and be binding upon the parties hereto and their
respective heirs, representatives, successors and assigns. This Agreement shall
not be assignable by Executive (but any payments due hereunder which would be
payable at a time after Executive's death shall be paid to Executive's
designated beneficiary or, if none, his estate) and shall be assignable by the
Company only to any financially solvent corporation or other entity resulting
from the reorganization, merger or consolidation of the Company with any other
corporation or entity or any corporation or entity to or with which the
Company's business or substantially all of its business or assets may be sold,
exchanged or transferred, and it must be so assigned by the Company to, and
accepted as binding upon it by, such other corporation or entity in connection
with any such reorganization, merger, consolidation, sale, exchange or transfer
in a writing delivered to Executive in a form reasonably acceptable to Executive
(the provisions of this sentence also being applicable to any successive such
transaction).

         15. ENTIRE AGREEMENT; AMENDMENT.

         This Agreement shall supersede any and all existing oral or written
agreements, representations, or warranties between Executive and the Company or
any of its subsidiaries or affiliated entities relating to the terms of
Executive's employment by the Company. It may not be amended except by a written
agreement signed by both parties.

         16. GOVERNING LAW.

         This Agreement shall be governed by and construed in accordance with
the laws of the State of Texas applicable to agreements made and to be performed
in that State, without regard to its conflict of laws provisions.

         17. REQUIREMENT OF TIMELY PAYMENTS.

         If any amounts which are required, or determined to be paid or payable,
or reimbursed or reimbursable, to Executive under this Agreement (or any other
plan, agreement, policy or arrangement with the Company) are not so paid
promptly at the times provided herein or therein, such amounts shall accrue
interest, compounded daily, at an 8% annual percentage rate, from the date such
amounts were required or determined to have been paid or payable, reimbursed or
reimbursable to Executive, until such amounts and any interest accrued thereon
are finally and fully paid, provided, however, that in no event shall the amount
of interest contracted for, charged or received hereunder, exceed the maximum
non-usurious amount of interest allowed by applicable law.

                                       18

<PAGE>

         18. NOTICES.

         Any notice, consent, request or other communication made or given in
connection with this Agreement shall be in writing and shall be deemed to have
been duly given when delivered or mailed by registered or certified mail, return
receipt requested, or by facsimile or by hand delivery, to those listed below at
their following respective addresses or at such other address as each may
specify by notice to the others:

          To the Company:    Waste Management , Inc.
                             1001 Fannin, Suite 4000
                             Houston, Texas 77002
                             Attention: Corporate Secretary

          To Executive:      At the address for Executive set forth below.

         19. MISCELLANEOUS.

         (a) WAIVER. The failure of a party to insist upon strict adherence to
any term of this Agreement on any occasion shall not be considered a waiver
thereof or deprive that party of the right thereafter to insist upon strict
adherence to that term or any other term of this Agreement.

         (b) SEPARABILITY. Subject to Section 9 hereof, if any term or provision
of this Agreement is declared illegal or unenforceable by any court of competent
jurisdiction and cannot be modified to be enforceable, such term or provision
shall immediately become null and void, leaving the remainder of this Agreement
in full force and effect.

         (c) HEADINGS. Section headings are used herein for convenience of
reference only and shall not affect the meaning of any provision of this
Agreement.

         (d) RULES OF CONSTRUCTION. Whenever the context so requires, the use of
the singular shall be deemed to include the plural and vice versa.

         (e) COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which so executed shall be deemed to be an original, and
such counterparts will together constitute but one Agreement.

                                       19

<PAGE>



         IN WITNESS WHEREOF, this Agreement is EXECUTED and EFFECTIVE as of the
day set forth above.

                                      DAVID STEINER
                                      ("Executive")



                                             /s/ David Steiner
                                      --------------------------------------
                                      David Steiner

                                                                       (Address)
                                      ---------------------------------

                                      ------------------------------------------




                                      WASTE MANAGEMENT, INC.

                                      (The "Company")

                                      By:    /s/ A. Maurice Myers
                                          --------------------------------------
                                          A. Maurice Myers
                                          President and Chief Executive Officer


                                       20

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-12
<SEQUENCE>4
<FILENAME>h96558ex12.txt
<DESCRIPTION>COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
<TEXT>
<PAGE>
                                                                      EXHIBIT 12

                             WASTE MANAGEMENT, INC.

                COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
                          (IN MILLIONS, EXCEPT RATIOS)
                                   (UNAUDITED)


<Table>
<Caption>
                                                   Three Months Ended
                                                        March 31,
                                                  ---------------------
                                                     2002        2001
                                                  ---------   ---------
<S>                                               <C>         <C>
Income before income taxes, extraordinary
    items, cumulative effect of changes in
    accounting principle and minority interests   $     222   $     213
                                                  ---------   ---------
Fixed charges deducted from income:
  Interest expense                                      116         154
  Implicit interest in rents                             14          17
                                                  ---------   ---------
                                                        130         171
                                                  ---------   ---------
    Earnings available for fixed charges          $     352   $     384
                                                  =========   =========

Interest expense                                  $     116   $     154
Capitalized interest                                      3           5
Implicit interest in rents                               14          17
                                                  ---------   ---------
    Total fixed charges                           $     133   $     176
                                                  =========   =========

    Ratio of earnings to fixed charges                  2.6         2.2
                                                  =========   =========
</Table>




</TEXT>
</DOCUMENT>
</SUBMISSION>
