We were incorporated in 1989 and presently serve a very diverse customer base of approximately 420,000 customers throughout the United States, United Kingdom, Canada, Mexico, Ireland, Argentina, Chile and Puerto Rico. We have fully integrated networks including processing centers and transfer and collection sites. We use these networks to provide a broad range of services to our customers including regulated medical waste management services and regulated return management services. Regulated medical waste management services include servicing a variety of customers to remove and process waste while regulated return management services are physical services provided to companies and individual businesses that assist with the handling of products that are being removed from the supply chain due to recalls and expiration.

Other than the adoption of SFAS No. 141 (R) Business Combinations, (see Note 11
- New Accounting Standards, for the impact on the financial statements), there were no material changes in the Company's critical accounting policies since the filing of its 2008 Form 10-K. As discussed in the 2008 Form 10-K, the preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make certain estimates and assumptions that affect the amount of reported assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and revenues and expenses during the periods reported. Actual results may differ from those estimates.

THREE MONTHS ENDED MARCH 31, 2009 COMPARED TO THREE MONTHS ENDED MARCH 31, 2008


The following summarizes the Company's operations:


In thousands, except per share data
                                          Three Months Ended March 31,
                                         2009                       2008
                                    $            %             $            %
Revenues                       $ 277,090       100.0     $  254,784       100.0
Cost of revenues                 149,287        53.9        141,194        55.4
Gross profit                     127,803        46.1        113,590        44.6
Selling, general and
administrative expenses           52,993        19.1         48,750        19.1
Arbitration settlement and
related expenses                      --          --          5,352         2.1
Acquisition related
transaction expenses                  610         0.2            --          --
Income from operations            74,200        26.8         59,488        23.3
Net interest expense               7,925         2.9          7,726         3.0
Income tax expense                24,811         9.0         19,655         7.7
Net income                     $  40,655        14.7      $  31,664        12.4
Earnings per share- diluted    $    0.47                 $     0.35

Revenues: Our revenues increased $22.3 million, or 8.8%, to $277.1 million in 2009 from $254.8 million in 2008. Domestic revenues increased $27.8 million or 14.3% to $222.0 million from $194.3 million in 2008 as internal revenue growth for domestic small account customers increased by approximately $10.9 million, or 10%, and internal revenue growth for large quantity customers increased by approximately $4.0 million, or 6%. Internal revenue growth for returns management decreased by $2.0 million, and domestic acquisitions less than one year old contributed approximately $14.9 million to the increase in domestic revenues.

Cost of Revenues: Our cost of revenues increased $8.1 million, or 5.7%, to $149.3 million during 2009 from $141.2 million during 2008. Our domestic cost of revenues increased $12.5 million, or 12.3%, to $113.8 million from $101.3 million in 2008 as a result of costs related to a proportional increase in revenues from acquisitions and internal growth. Our international cost of revenues decreased $4.4 million, or 11.0% to $35.5 million from $39.9 million in 2008 as a result of costs related to proportional decrease in revenues primarily driven by the impact of exchange rates. Our company wide gross margin percentage increased to 46.1% during 2009 from 44.6% during 2008 due to a decrease in fuel and energy costs.

Selling, General and Administrative Expenses: Selling, general and administrative expenses, including acquisition related costs, increased $4.2 million, or 8.7%, to $53.0 million, for the quarter ended March 31, 2009 from $48.8 million for the comparable quarter in 2008. As a percentage of revenue, these costs were flat for the quarter ended March 31, 2009 compared to the same period in 2008.

Income from Operations: Income from operations increased to $74.2 million for the quarter ended March 31, 2009 from $59.5 million for the comparable quarter in 2008, an increase of 24.7%. This increase is partially attributed to a business dispute settlement and related costs that were recognized during the quarter ended March 31, 2008 of $5.4 million, which did not repeat during 2009.

Net Interest Expense: Net interest expense slightly increased to $7.9 million during the quarter ended March 31, 2009 from $7.7 million during the comparable quarter in 2008 due to increased borrowings partially offset by lower interest rates.

Income Tax Expense: Income tax expense increased to $24.8 million for the quarter ended March 31, 2009 from $19.7 million for the comparable quarter in 2008. The increase was due to higher taxable income. The effective tax rates for the quarters ended March 31, 2009 and 2008 were 37.9% and 38.3%, respectively.

Our senior credit facility of $850.0 million maturing in August 2012 requires us to comply with various financial, reporting and other covenants and restrictions, including a restriction on dividend payments. At March 31, 2009, we were in compliance with all of our financial debt covenants. At March 31, 2009 the margin for interest rates on borrowings under our new credit facility was 0.0% on base rate loans (at higher of (i) the federal funds rate plus 0.5% or (ii) the prime rate) and 0.75% on LIBOR loans.

On April 15, 2008, we entered into a note purchase agreement (the "note purchase agreement") with nine institutional purchasers pursuant to which we issued and sold to the purchasers $100,000,000 of our 5.64% senior notes due April 15, 2015 (the "notes"). The notes bear interest at the fixed rate of 5.64% per annum. Interest is payable in arrears semi-annually on April 15 and October 15 beginning on October 15, 2009, and principal is payable at the maturity of the notes on April 15, 2015.

The notes are unsecured obligations and rank pari passu with our obligations under our senior unsecured credit facility pursuant to our credit agreement with Bank of America, N.A. and the other lenders party to the credit agreement. We applied the proceeds from the sale of the notes to reduce our borrowings under our revolving credit facility under our senior unsecured credit facility. The notes contain customary events of default, including our failure to pay any principal, interest or other amount when due, our violation of our affirmative or negative covenants or a breach of our representations and warranties. Upon the occurrence of an event of default, payment of the notes may be accelerated by the holders of the notes.

Working Capital: At March 31, 2009, our working capital decreased $8.3 million to $36.5 million compared to $44.8 million at December 31, 2008. Of the decrease in working capital, $9.9 million relates to a decrease in accounts receivable from an increase in collections. Total accrued liabilities decreased approximately $2.5 million (which is an increase to working capital) with large offsetting movements related to an acquisition payment of $12.0 million that was accrued for in December while accrued income taxes increased by $14.5 million due to the timing of tax payments.

Net Cash Provided or Used: Net cash provided by operating activities increased $12.7 million, or 19.9%, to $76.3 million during the quarter ended March 31, 2009 compared to $63.6 million for the comparable period in 2008. The increase in operating cash was primarily due to higher earnings and increased collections on receivables.

Net cash used in investing activities for the quarter ended March 31, 2009 was $26.1 million compared to net cash used of $18.0 million in the comparable period in 2008. The difference is mainly due to $16.3 million paid for acquisitions and international investments in 2009, compared to $7.8 million for the same period in the prior year partially offset by lower capital expenditures which decreased during the current period by $2.9 million when compared to same period of the prior year.

Net cash used in financing activities was $52.0 million during the quarter ended March 31, 2009 compared to $48.0 million for the comparable period in 2008.

Guarantees: We have guaranteed a loan to JPMorganChase Bank N.A. on behalf of Shiraishi-Sogyo Co. Ltd ("Shiraishi"). Shiraishi is a customer in Japan that is expanding their medical waste management business and has a six month loan with a current balance of $5.1 million with JPMorganChase Bank N.A. that expires in May 2009. The loan with JPMorganChase and our associated guarantee is in the process of being extended beyond May 2010.