11.11.02

11.11.2002: Meldung: Stericycle Inc.: Quartalsbericht (engl.)

STERICYCLE INC (SRCL)

Quarterly Report (SEC form 10-Q)
ITEM 2. MANAGEMENT"S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

We were incorporated in March 1989. We provide regulated medical waste collection, transportation and treatment services to our customers and
related training and education programs and consulting services. We also sell ancillary supplies and transport pharmaceuticals, photographic chemicals, lead foil and amalgam for recycling in selected geographic service areas. We are also expanding into international markets through joint ventures and/or by licensing our proprietary technology and selling associated equipment.


THREE MONTHS ENDED SEPTEMBER 30, 2002 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 2001

The following summarizes (in thousands) the Company"s operations:

Three Months Ended September 30,
-----------------------------------------
2002 2001
------------------ -------------------
$ % $ %
-------- -------- -------- -------
Revenues................................ $101,979 100.0 $ 91,261 100.0
Cost of revenues........................ 59,932 58.8 54,794 60.0
-------- -------- -------- -------
Gross profit............................ 42,047 41.2 36,467 40.0
Selling, general and
administrative expenses............... 15,394 15.1 16,717 18.3
-------- -------- -------- -------
Income from operations before
acquisition related costs............. 26,653 26.1 19,750 21.6
Acquisition related costs............... 48 0.0 20 0.0
-------- -------- -------- -------
Income from operations.................. 26,605 26.1 19,730 21.6
Net income.............................. 12,136 11.9 6,335 6.9
Depreciation and amortization........... 3,901 3.8 6,414 7.0
EBITDA (1).............................. 30,249 29.7 25,831 28.3
Earnings per share-diluted.............. $ 0.27 $ 0.15


Proforma results excluding goodwill amortization (in thousands except earnings-per-share amounts)

---------
Reported net income $ 6,335 6.9%
Add back: Goodwill amortization 2,951 3.2%
Subtract: Tax effect of goodwill amortization (1,181) (1.3%)
--------- ------
Adjusted net income $ 8,105 8.9%
========= ======


Basic earnings-per-share Reported net income $ 0.18 Add back: Goodwill amortization 0.09 Subtract: Tax effect of goodwill amortization (0.03)

---------
Adjusted net income $ 0.24
=========


Diluted earnings-per-share Reported net income $ 0.15 Add back: Goodwill amortization 0.07 Subtract: Tax effect of goodwill amortization (0.03)

---------
Adjusted net income $ 0.19
=========


(1) Calculated for a period as the sum of net income, plus net interest expense, income tax expense, depreciation expense and amortization expense, to the extent deducted in calculating net income.

Revenues. Revenues increased $10.7 million, or 11.7%, to $102.0 million during the quarter ended September 30, 2002 from $91.3 million during the comparable period in 2001 as a result of our continued strategy of focusing on sales to higher-margin small account customers, and revenues from acquisitions completed in the previous quarter. International equipment revenues during the quarter ended September 30, 2002 were $2.2 million. During the quarter ended September 30, 2002, acquisitions less than one year old contributed approximately $4.3 million to the increase in revenues as compared to the prior year. For the quarter, our base internal revenue growth for small account customers increased approximately 10% while revenues from large account customers increased by over 4%.

Cost of revenues. Cost of revenues increased $5.1 million to $59.9 million during the three months ended September 30, 2002 from $54.8 million during the comparable period in 2001. The increase was primarily due to volume growth, acquisitions and higher insurance and employee benefit costs. Our gross margin percentage increased to 41.2% during the three months ended September 30, 2002 from 40.0% during the same period in 2001 as benefits from better margins on our large customer business, the continued success of the Steri-SafeSM OSHA Compliance Program rollout, and lower variable costs offset higher benefit and insurance costs.

Selling, general and administrative expenses. Selling, general and administrative expenses decreased to $15.4 million for the quarter ended September 30, 2002 from $16.7 million for the comparable period in 2001. The decrease was largely the result of discontinued amortization of Goodwill after our adoption of FAS 142 on January 1, 2002, partially offset by higher benefit costs and spending on the Steri-SafeSM OSHA Compliance Program and other strategic marketing investments. Selling, general and administrative expenses as a percent of revenues decreased to 15.1% during the quarter ended September 30, 2002 from 18.3% during the comparable period in 2001. Excluding amortization, selling, general and administrative expenses as a percent of revenue increased to 14.6% during the quarter ended September 30, 2002 from 14.5% during the comparable period in 2001.

Income from operations. Income from operations increased to $26.6 million for the quarter ended September 30, 2002 from $19.8 million for the comparable period in 2001. The increase was due to higher gross profit and margins and lower goodwill amortization expenses, as a result of the adoption of FAS 142, partially offset by higher selling, general and administrative expenses during the quarter. Income from operations as a percentage of revenue increased to 26.1% during the quarter ended September 30, 2002 from 21.6% during the same period in 2001 as a result of better margins, productivity improvements and lower goodwill amortization expense.

EBITDA. EBITDA increased by 17.1% to $30.2 million or 29.7% of revenue for the quarter ended September 30, 2002, as compared to $25.8 million or 28.3% of revenue for the comparable period in 2001. The increase in EBITDA was primarily due to the factors described above.

Net interest expense. Net interest expense decreased to $6.5 million during the quarter ended September 30, 2002 from $8.9 million during the comparable period in 2001 primarily due to debt prepayments and lower interest rates. During the quarter, we incurred a $1.2 million premium related to the repurchase of $8.9 million of our 12 3/8% senior subordinated notes.

Other expense. Other expense remained unchanged at $0.3 million during the quarter ended September 30, 2002 from $0.3 million during the comparable period in 2001.

Income tax expense. Income tax expense increased to $7.7 million for the quarter ended September 30, 2002 from $4.2 million for the comparable period in 2001. The increase was due to higher taxable income. The tax rate for the quarter ended September 30, 2002 decreased to 38.9% from 40.00% in the comparable period in 2001 as we recognized benefits from our tax planning.

Net income. Net Income increased to $12.1 million for the quarter ended September 30, 2002 from $6.3 million for the comparable period in 2001. The increase was due to higher income from operations and lower interest expense partially offset by higher income tax expense.


NINE MONTHS ENDED SEPTEMBER 30, 2002 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,

The following summarizes (in thousands) the Company"s operations:

Nine Months Ended September 30,
-----------------------------------------
2002 2001
------------------ -------------------
$ % $ %
-------- -------- -------- -------
Revenues................................ $298,312 100.0 $ 265,645 100.0
Cost of revenues........................ 177,149 59.4 159,913 60.2
-------- -------- -------- -------
Gross profit............................ 121,163 40.6 105,732 39.8
Selling, general and
administrative expenses............... 44,957 15.1 48,795 18.4
-------- -------- -------- -------
Income from operations before
acquisition related costs............. 76,206 25.5 56,937 21.4
Acquisition related costs............... 223 0.1 347 0.1
-------- -------- -------- -------
Income from operations.................. 75,983 25.5 56,590 21.3
Net income.............................. 34,290 11.5 16,946 6.4
Depreciation and amortization........... 11,111 3.7 18,737 7.1
EBITDA (1).............................. 85,816 28.8 74,650 28.1
Earnings per share-Diluted.............. 0.76 0.41


Proforma results excluding goodwill amortization (in thousands except earnings-per-share amounts)

---------
Reported net income $ 16,946 6.4%
Add back: Goodwill amortization 8,688 3.3%
Subtract: Tax effect of goodwill amortization (3,507) (1.3%)
--------- ------
Adjusted net income $ 22,127 8.3%
========= ======


Basic earnings-per-share Reported net income $ 0.49 Add back: Goodwill amortization 0.28 Subtract: Tax effect of goodwill amortization (0.11)

---------
Adjusted net income $ 0.66
=========


Diluted earnings-per-share Reported net income $ 0.41 Add back: Goodwill amortization 0.21 Subtract: Tax effect of goodwill amortization (0.09)

---------
Adjusted net income $ 0.53
=========


(1) Calculated for a period as the sum of net income, plus net interest expense, income tax expense, depreciation expense and amortization expense, to
the extent deducted in calculating net income.

Revenues. Revenues increased $32.7 million, or 12.3%, to $298.3 million during the nine months ended September 30, 2002 from $265.6 million during the comparable period in 2001 as a result of our continued strategy of focusing on sales to higher-margin small account customers, slightly higher revenues from international equipment sales, and revenues from acquisitions completed during the nine months. International equipment revenues during the nine months ended September 30, 2002 increased $0.6 million to $6.0 million from $5.4 million during the comparable period in 2001. During the nine months ended September 30, 2002, acquisitions less than one year old contributed approximately $15.9 million to the increase in revenues as compared to the prior year. For the nine months, our base internal revenue growth for small account customers increased approximately 9% while revenues from large account customers increased by over 4%.

Cost of revenues. Cost of revenues increased $17.3 million to $177.2 million during the nine months ended September 30, 2002 from $159.9 million during the comparable period in 2001. The increase was primarily due to increased volume growth, acquisitions, higher insurance and employee benefit costs. The gross margin percentage increased to 40.6% during the nine months ended September 30, 2002 from 39.8% during the same period in 2001 as benefits from better margins on the large quantity customers, productivity improvements and leveraging our infrastructure, exceeded higher insurance and benefit costs.

Selling, general and administrative expenses. Selling, general and administrative expenses decreased to $45.0 million for the nine months ended September 30, 2002 from $48.8 million for the comparable period in 2001. The decrease was largely the result of discontinued amortization of Goodwill after our adoption of FAS 142 on January 1, 2002, partially offset by higher benefit costs and higher spending on other strategic investments. Selling, general and administrative expenses as a percent of revenues decreased to 15.1% during the nine months ended September 30, 2002 from 18.4% during the comparable period in 2001. Excluding amortization, selling, general and administrative expenses as a percent of revenue remained at 14.5% during the nine months ended September 30, 2002, as they were during the comparable period in 2001.

Income from operations. Income from operations increased to $76.0 million for the nine months ended September 30, 2002 from $56.6 million for the comparable period in 2001. The increase was due to higher revenues and lower goodwill amortization expenses, as a result of the adoption of FAS 142, partially offset by higher costs of revenues and selling, general and administrative expenses during the nine months. Income from operations as a percentage of revenue increased to 25.5% during the nine months ended September 30, 2002 from 21.3% during the same period in 2001 as a result of better gross margins and lower goodwill amortization expense.

EBITDA. EBITDA increased by 15.0% to $85.8 million or 28.8% of revenue for the nine months ended September 30, 2002, as compared to $74.7 million or 28.1% of revenue for the comparable period in 2001. The increase in EBITDA was primarily due to the factors described above.

Net interest expense. Net interest expense decreased to $18.0 million during the nine months ended September 30, 2002 from $27.1 million during the comparable period in 2001 primarily due to decreased interest rates and debt repayments. During the nine months, we incurred a $1.5 million premium related to the repurchase of $10.5 million of our 12 3/8% senior subordinated notes, and an additional $0.2 million one-time interest expense related to increasing the available balance on our revolving line of credit from $80.0 million to $105.0 million. During the nine months, in accordance with FAS 133, we recognized a net gain of $0.4 million related to the ineffective portion of our hedging instruments.

Other expense. Other expense increased to $1.3 million during the nine months ended September 30, 2002 from $1.0 million during the comparable period in 2001 primarily due to increased minority interest expense related to our foreign subsidiaries.

Income tax expense. Income tax expense increased to $22.4 million for the nine months ended September 30, 2002 from $11.5 million for the comparable period in 2001. The increase was due to higher taxable income. The tax rate for the nine months ended September 30, 2002 decreased to 39.5% from 40.37% in the comparable period in 2001 as we recognized benefits from our tax planning.

Net income. Net Income increased to $34.3 million for the nine months ended September 30, 2002 from $16.9 million for the comparable period in 2001. The increase was due to higher income from operations and lower interest expense partially offset by higher income tax expense.


LIQUIDITY AND CAPITAL RESOURCES

At September 30, 2002, our working capital was $31.9 million compared to working capital of $34.6 million at December 31, 2001. The decrease in
working capital was primarily due to lower cash, accounts receivable, parts and supplies, account payable and current debt balances partially offset by higher accrued liabilities and accrued income tax. In June 2002 we completed an amendment to our senior loan agreement that increased the amount available on the revolving line of credit from $80.0 million to $105.0 million. The amendment also gave us more flexibility relative to repaying higher cost term loans and to purchasing or redeeming our stock and 12-3/8% senior subordinated notes. At September 30, 2002 we had $31.0 million in borrowings under our revolving line of credit.

Net cash provided by operating activities was $72.9 million during the nine months ended September 30, 2002 compared to $47.0 million for the comparable period in 2001. This increase primarily reflects higher net income, accrued liability and deferred income tax balances, lower accounts receivable, other assets, and parts and supply balances in 2002 versus 2001, offset by lower accounts payable and deferred revenue balances.

Net cash used in investing activities for the nine months ended September 30, 2002 was $22.2 million compared to $24.5 million for the comparable period in 2001. This decrease is primarily attributable to the decrease in investments in acquisitions and lower capital expenditures. Capital expenditures were $11.4 million for the nine months ended September 30, 2002 or 3.8% of revenues, compared to $12.3 million for the same period in 2001. This rate of capital spending is less than the 4-5% of revenues that we anticipated spending during 2002. Consistent with our long-term strategy, we continually evaluate our treatment technology mix. Our preference is to reduce the incineration portion, as customers" preferences, practices and regulations will allow. After the facility upgrades in 2002 are completed, we plan to have less than 15% of our treatment capacity in incineration and more than 85% in non- incineration technologies such as autoclaving and ETD. Cash investments in acquisitions and international joint ventures for the nine months ended September 30, 2002 were $10.9 million versus $13.1 million in the comparable period in 2001.

Net cash used in financing activities was $57.6 million during the nine months ended September 30, 2002 compared to $12.4 million for the comparable period in 2001. During the first nine months of 2002 we made repayments of $93.3 million in debt and capital leases which consisted of approximately $9.6 million in scheduled repayments and $83.7 million in prepayments.
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