<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1997
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO
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COMMISSION FILE NUMBER 0-21229
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STERICYCLE, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 36-3640402
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
1419 LAKE COOK ROAD, SUITE 410, DEERFIELD, ILLINOIS 60015
(Address of principal executive offices)
(847) 945-6550
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
by Section 13 or 15(d) of the Securities Exchange Act 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
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On April 30, 1997, there were 10,007,976 shares of the
Registrant's Common Stock, par value $.01 per share, outstanding.
<PAGE>
STERICYCLE, INC.
INDEX TO FORM 10-Q
Part I. Financial Information: Page
----
Item 1. Condensed Consolidated Financial Statements of
Stericycle, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
March 31, 1997 and December 31, 1996 3
Condensed Consolidated Statements of Operations
Three months ended March 31, 1997 and 1996 4
Condensed Consolidated Statements of Cash Flows
Three months ended March 31, 1997 and 1996 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 11
<PAGE>
STERICYCLE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
(unaudited)
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(in thousands)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................................................. $ 16,130 $ 11,950
Short-term investments................................................................ 1,000 5,799
Accounts receivable, less allowance for doubtful accounts of $184 in 1997 and $178 in
1996................................................................................ 7,865 4,756
Parts and supplies.................................................................... 333 360
Prepaid expenses...................................................................... 194 426
Other................................................................................. 501 490
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Total current assets................................................................ 26,023 23,781
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Property, plant and equipment:
Land.................................................................................. 90 90
Buildings and improvements............................................................ 5,606 5,598
Machinery and equipment............................................................... 10,275 10,702
Office equipment and furniture........................................................ 485 463
Construction in progress.............................................................. 362 362
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16,818 17,215
Less accumulated depreciation......................................................... (5,698) (5,208)
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Property, plant and equipment, net.................................................. 11,120 12,007
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Other assets:
Goodwill, less accumulated amortization of $1,007 in 1997 and $807 in 1996............ 18,634 18,834
Other................................................................................. 543 533
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Total other assets.................................................................. 19,177 19,367
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Total assets............................................................................ $ 56,320 $ 55,155
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long term debt..................................................... $ 2,825 $ 3,215
Accounts payable...................................................................... 1,426 1,510
Accrued liabilities................................................................... 5,749 3,769
Deferred revenue...................................................................... 624 670
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Total current liabilities........................................................... 10,624 9,164
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Long-term debt:
Industrial development revenue bonds and other........................................ 1,879 1,986
Note payable.......................................................................... 2,325 2,605
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Total long term debt................................................................ 4,204 4,591
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Other liabilities....................................................................... 1,368 1,386
Shareholders' Equity:
Common stock (par value $.01 per share, 30,000,000 shares authorized, 10,007,976
issued and outstanding in 1997, 10,000,264 issued and outstanding in 1996).......... 100 100
Additional paid-in-capital............................................................ 79,413 79,409
Notes receivable for common stock purchases........................................... -- (4)
Accumulated deficit................................................................... (39,389) (39,491)
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Total shareholders' equity.......................................................... 40,124 40,014
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Total liabilities and shareholders' equity.............................................. $ 56,320 $ 55,155
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</TABLE>
The accompanying notes are an integral part of these financial statements
<PAGE>
STERICYCLE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share data)
(unaudited)
<TABLE>
<CAPTION>
For the three months
ended
March 31,
------------------------
1997 1996
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<S> <C> <C>
REVENUES............................................................................... $ 9,879 $ 5,578
COSTS AND EXPENSES:
Cost of revenues....................................................................... 7,911 4,337
Selling, general and administrative expenses........................................... 1,969 1,505
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Total costs and expenses............................................................... 9,880 5,842
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Loss from Operations................................................................. (1) (264)
OTHER INCOME (EXPENSE):
Interest income........................................................................ 226 --
Interest expense....................................................................... (123) (83)
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Total other income (expense)........................................................... 103 (83)
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Net income (loss)...................................................................... $ 102 $ (347)
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Net income (loss) per common share..................................................... $ 0.01 $ (0.05)
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Weighted average number of common shares outstanding................................... 10,517,105 6,577,287
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</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
STERICYCLE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
For the three months
ended March 31,
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1997 1996
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<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $102 ($347)
Adjustments to reconcile net income (loss) to net cash (used in)
provided by operating activities:
Depreciation and amortization 690 479
Change in operating assets and liabilities:
Accounts receivable (3,109) (81)
Parts and supplies 27 48
Prepaid expenses 232 245
Other assets (21) 32
Accounts payable (84) (165)
Accrued liabilities 1,980 63
Deferred revenue (64) 7
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Net cash (used in) provided by operating activities (247) 281
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INVESTING ACTIVITIES:
Payments for acquisitions -- (100)
Proceeds from maturity of short-term investments 4,799 --
Capital expenditures (163) (169)
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Net cash provided by (used in) investing activities 4,636 (269)
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FINANCING ACTIVITIES:
Net proceeds from note payable to bank -- 94
Repayment of long term debt (162) (82)
Principal payments on capital lease obligations (55) (42)
Principal payments on notes receivable for common stock purchases 4 --
Proceeds from issuance of common stock 4 --
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Net cash used in financing activities (209) (30)
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Net increase (decrease) in cash and cash equivalents 4,180 (18)
Cash and cash equivalents at beginning of period 11,950 138
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Cash and cash equivalents at end of period $ 16,130 $ 120
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Supplementary disclosure of cash flow information:
Acquisition of machinery and equipment financed with a capital lease $ -- $364
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</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
STERICYCLE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements have been
prepared pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally included in
annual consolidated financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations; but the Company believes the
disclosures in the accompanying condensed consolidated financial statements
are adequate to make the information presented not misleading. In the opinion
of management, all adjustments necessary for a fair presentation for the
periods presented have been reflected and are of a normal recurring nature.
These condensed consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes thereto for
the three years ended December 31, 1996. The results of operations for the
three-month period ended March 31,1997 are not necessarily indicative of the
results that may be achieved for the entire year ending December 31, 1997.
NOTE 2. NET INCOME (LOSS) PER COMMON SHARE
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, "Earnings per Share" which is required to be adopted on December 31,
1997. At that time, the Company will be required to change the method
currently used to compute net income (loss) per common share, and to restate
all prior periods. Under the new requirements for calculating primary net
income (loss) per common share, the dilutive effect of stock options will be
excluded. The impact of Statement No. 128 on the calculation of primary and
fully diluted net income (loss) per common share for the three-month periods
ended March 31, 1997 and 1996 is not expected to be material.
NOTE 3. ACQUISITIONS
During the quarter ended March 31, 1997, a preliminary adjustment was made to
the value of vehicles purchased in connection with the December 1996
acquisition of the major portion of the medical waste business of Waste
Management, Inc. Based on current estimates, the December 31, 1996 estimated
value of $1,760,000 was reduced to $1,200,000 at March 31, 1997. The related
note payable was adjusted accordingly. Management expects to finalize the
valuation of the vehicles in the second quarter of 1997.
On May 12, 1997 the Company announced the acquisition of Environmental
Control Co., Inc. (ECCO), one of the leading medical
<PAGE>
waste companies in the New York City market. ECCO's annual revenues are
estimated to be $6,500,000. The Company paid $4.2 million in cash; 125,000
shares of stock, assumed debt on vehicles and issued a 10-year promissory
note for the balance of the purchase price.
NOTE 4. STOCK OPTIONS
During the quarter ended March 31, 1997, options to purchase common stock
totaling 252,720 shares were granted to key employees. These options will
vest ratably over a 5 year period and have an exercise price of $8.00 per
share. The grant of options was made under the Company's 1997 Stock Option
Plan, which authorizes the grant of options for a total of 1,500,000 shares
of the Company's common stock. The 1997 Stock Option Plan was approved by the
Company's stockholders in April 1997.
NOTE 5. STOCK ISSUANCES
In March 1997, options to purchase 7,712 shares of common stock were
exercised at a price of $.53 per share.
NOTE 6. INCOME TAXES
The Company has generated historical net operating losses for income tax
purposes. Any benefit resulting from these net operating losses has been
offset by a valuation allowance. As the Company generates future taxable
income, it expects to incur alternative minimum taxes and income taxes in
states where the Company has no offsetting net operating losses.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The Company provides regulated medical waste collection, transportation,
treatment, disposal, reduction, reuse and recycling services to its customers,
together with related training and education programs and consulting services.
The Company also sells ancillary supplies and transports pharmaceuticals,
photographic chemicals, lead foil and amalgam for recycling in selected
geographic service areas.
THREE MONTHS ENDED MARCH 31, 1997 COMPARED TO THREE MONTHS ENDED MARCH 31, 1996
REVENUES. Revenues increased $4,301,000, or 77.1%, to $9,879,000 during the
three months ended March 31, 1997 from $5,578,000 during the comparable
period in 1996 as the Company continued to implement its strategy of focusing
on sales to higher-margin alternate care generators while simultaneously
paring certain higher-revenue but lower-margin accounts with core generators.
This increase also reflects the inclusion of three months of revenues
totaling in excess of $3,000,000 from the Waste Management Inc. ("WMI")
acquisition, which was completed in December 1996, and the Doctors
Environmental Control, Inc. ("DEC") and Sharps Incinerator of Fort, Inc.
("Sharps") acquisitions, both of which were completed in May 1996.
COST OF REVENUES. Cost of revenues increased $3,574,000, or 82.4%, to
$7,911,000 during the three months ended March 31, 1997 from $4,337,000
during the comparable period in 1996. The principal reasons for the increase
were higher processing and transportation costs as a result of the WMI, DEC
and Sharps acquisitions and start-up expenses related to the Company's
expansion into new geographic areas where the Company primarily serves
alternate care generators. Cost of revenues as a percentage of revenues
increased to 80.1% during the three months ended March 31, 1997 from 77.8%
during the comparable period in 1996.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased to $1,969,000 for the three months ended
March 31, 1997 as compared to $1,505,000 for the comparable period in 1996.
Selling, general and administrative expenses as a percentage of revenues
decreased to 19.9% during the three months ended March 31, 1997 from 27.0%
during the comparable period in 1996 primarily due to the improved use of
existing resources to support the WMI business acquired in December 1996.
INTEREST EXPENSE AND INTEREST INCOME. Interest expense increased to
$123,000 during the three months ended March 31, 1997 from $83,000 during
the comparable period in 1996. This increase was primarily attributable to
notes payable issued in connection with the December 1996 WMI acquisition.
Interest income increased to $226,000 during the three months ended March 31,
1997 primarily due to the investment of the proceeds from the Company's
initial public offering (IPO) in August 1996.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company has been financed principally through the sale of stock to
investors. Prior to the Company's initial public offering ("IPO"), purchasers
of stock invested more than $50,137,000 in capital which has been used to
fund research and development, acquisitions, capital expenditures, ongoing
operating losses and working capital requirements. The Company's IPO in
August 1996 raised $31,050,000, excluding offering costs, which will be and
has been used primarily to fund acquisitions. The Company has also been able
to secure plant and equipment leasing or financing in connection with some of
its facilities. These debt facilities are secured by security interests in
the financed assets. In addition, the Company has available through October
31, 1997 a $2,500,000 revolving line of credit secured by accounts receivable
and a secured interest in all other assets of the Company.
At March 31, 1997, the Company's working capital was $15,399,000 compared to
$14,617,000 at March 31, 1996.
Capital expenditures were $163,000 for the three month period ended March 31,
1997, compared to $169,000 for the same period in 1996. The Company did not
open any new treatment facilities during 1996 or 1997. The Company may decide
to build additional treatment facilities or to increase capacity in its
existing treatment facilities, which would require additional capital
expenditures. In addition, capital requirements for transportation equipment
will continue to increase as the Company grows. The amount and level of these
expenditures cannot be determined currently as they will depend upon the
nature and extent of the Company's growth and acquisition opportunities. The
Company currently believes that its cash, cash equivalents and short-term
investments and cash flow from operations will fund its capital requirements
through 1997.
Net cash used in operations was $247,000 for the three months ended March 31,
1997. Net cash provided by operations was $281,000 for the comparable period in
1996. The increased cash usage primarily reflects an increase in accounts
receivable due to the integration of customers acquired in the December 1996
WMI acquisition.
Net cash provided from investing activities was $4,636,000 for the three months
ended March 31,1997. Net cash used in investing activities was $269,000 for the
comparable period in 1996. The difference is primarily attributable to the
maturity of temporary investments of the Company's IPO proceeds.
Net cash used in financing activities increased to $209,000 during the three
months ended March 31, 1997 from $30,000 for the comparable period in 1996. The
increase is primarily due to the repayment of long-term debt associated with
1996 acquisitions.
FROM TIME TO TIME THE COMPANY MAY ISSUE FORWARD-LOOKING STATEMENTS RELATING TO
SUCH THINGS AS ANTICIPATED FINANCIAL PERFORMANCE, BUSINESS PROSPECTS,
ACQUISITION ACTIVITIES AND SIMILAR MATTERS.
<PAGE>
THE COMPANY NOTES THAT A VARIETY OF FACTORS COULD CAUSE THE COMPANY'S ACTUAL
RESULTS AND EXPERIENCE TO DIFFER MATERIALLY FROM THE ANTICIPATED RESULTS OR
OTHER EXPECTATIONS EXPRESSED IN THE COMPANY'S FORWARD-LOOKING STATEMENTS. THE
RISKS AND UNCERTAINTIES THAT MAY AFFECT THE COMPANY'S BUSINESS, FINANCIAL
CONDITION AND RESULTS OF OPERATION INCLUDE DIFFICULTIES AND DELAYS IN
COMPLETING AND INTEGRATING BUSINESS ACQUISITIONS; DELAYS AND DIVERSION OF
ATTENTION RELATING TO PERMITTING AND OTHER REGULATORY COMPLIANCE;
DIFFICULTIES AND DELAYS RELATING TO MARKETING AND SALES ACTIVITIES; AND
GENERAL UNCERTAINTIES ACCOMPANYING THE EXPANSION INTO NEW GEOGRAPHIC SERVICE
AREAS.
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
11 Statement Re: Computation of Per Share Earnings
27 Financial Data Schedule
(b) REPORTS ON FORM 8-K
During the quarter ended March 31, 1997, the Company filed the following
reports under Item 5 of Form 8-K in connection with its acquisition in
December 1996 of the major portion of the regulated medical waste business of
Waste Management, Inc.:
(1) Current Report on Form 8-K, dated December 20, 1996, which was filed on
January 4, 1997;
(2) Current Report (Amended) on Form 8-K/A, dated December 20, 1996, which was
filed on January 23, 1997; and
(3) Current Report (Amended) on Form 8-K/A, dated December 20, 1996, which was
filed on March 5, 1997 and included (a) Waste Management, Inc. Regulated
Medical Waste Business Financial Statements as of December 31, 1996 and the
Years Ended December 31, 1996 and 1995 and (b) the Company's Pro Forma
Condensed Consolidated Financial Statements.
<PAGE>
SIGNATURE
Pursuant to the requirements of the securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Stericycle, Inc.
Date: May 12, 1997
By: /s/ James F. Polark
--------------------------
James F. Polark
Vice President, Chief Financial Officer
(Principal Financial and Accounting Officer)
<PAGE>
STERICYCLE, INC. AND SUBSIDIARIES
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
(unaudited)
For the three months ended
March 31,
-----------------------------
1997 1996
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Weighted average common shares outstanding 10,001,163 5,616,651
Assumed conversion of Safeway note - 98,001
Net effect of dilutive stock options and
warrants based on the treasury stock method
using the mid-point of the offering price of
$9.00 per share until the initial public
offering on August 23, 1996 862,635
Common stock issuable upon assumed conversion
of stock options and warrants 515,942
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Total 10,517,105 6,577,287
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Net income (loss) $102 ($347)
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Per share amount $0.01 ($0.05)
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<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 16,130
<SECURITIES> 1,000
<RECEIVABLES> 8,049
<ALLOWANCES> 184
<INVENTORY> 0
<CURRENT-ASSETS> 26,023
<PP&E> 16,818
<DEPRECIATION> 5,698
<TOTAL-ASSETS> 56,320
<CURRENT-LIABILITIES> 10,624
<BONDS> 4,204
0
0
<COMMON> 100
<OTHER-SE> 40,024
<TOTAL-LIABILITY-AND-EQUITY> 56,320
<SALES> 0
<TOTAL-REVENUES> 9,879
<CGS> 0
<TOTAL-COSTS> 9,880
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 6
<INTEREST-EXPENSE> 123
<INCOME-PRETAX> 102
<INCOME-TAX> 0
<INCOME-CONTINUING> 102
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 102
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
</TABLE>
