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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________________________________
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 JUNE 30, 1998
[ ] TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO
Commission file number 0-21229
___________________________________________
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. [ x ] Yes [ ] No
As of July 31, 1998, there were 10,718,265 shares of the Registrant's
Common Stock outstanding.
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STERICYCLE, INC. AND SUBSIDIARIES
INDEX TO FORM 10-Q
<TABLE>
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Page
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PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements of Stericycle, Inc.
and Subsidiaries
Condensed Consolidated Balance Sheets at June 30, 1998 and
December 31, 1997 . . . . . . . . . . . . . . . . . . . . . . . . 1
Condensed Consolidated Statements of Operations for the three months
ended June 30, 1998 and 1997 and six months ended June 30, 1998 and
1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Condensed Consolidated Statements of Cash Flows for the six months
ended June 30, 1998 and 1997 . . . . . . . . . . . . . . . . . . . 3
Notes to Condensed Consolidated Financial Statements . . . . . . . 4
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . 6
PART II. OTHER INFORMATION
Item 5. Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . 10
</TABLE>
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STERICYCLE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
JUNE 30 DECEMBER 31
1998 1997
------------ -------------
ASSETS (unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,358 $ 5,374
Short-term investments . . . . . . . . . . . . . . . . . . . . . . . . . . 2,335 2,335
Accounts receivable, less allowance for doubtful
accounts of $347 in 1998 and $361 in 1997 . . . . . . . . . . . . . . . 11,513 10,286
Parts and supplies . . . . . . . . . . . . . . . . . . . . . . . . . . . . 802 660
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 485 440
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 507 392
----------- -----------
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . 19,000 19,487
----------- -----------
Property, plant and equipment:
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90 90
Buildings and improvements . . . . . . . . . . . . . . . . . . . . . . . . 5,699 5,561
Machinery and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . 12,025 11,469
Office equipment and furniture . . . . . . . . . . . . . . . . . . . . . . 854 746
Construction in progress . . . . . . . . . . . . . . . . . . . . . . . . . 821 614
----------- -----------
19,489 18,480
Less accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . (8,268) (7,239)
----------- ------------
Property, plant and equipment, net . . . . . . . . . . . . . . . . . . 11,221 11,241
----------- -----------
Other assets:
Goodwill, less accumulated amortization of $2,692 in 1998
and $2,040 in 1997 . . . . . . . . . . . . . . . . . . . . . . . . . 30,574 29,458
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,743 1,040
----------- -----------
Total other assets . . . . . . . . . . . . . . . . . . . . . . . . . . 32,317 30,498
---------- -----------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . $ 62,538 $ 61,226
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long term debt . . . . . . . . . . . . . . . . . . . . . $ 2,476 $ 3,052
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,125 1,927
Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,186 7,039
Deferred revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 250 255
------------ ------------
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . 11,037 12,273
----------- -----------
Long-term debt:
Industrial development revenue bonds and other . . . . . . . . . . . . . . 1,366 1,405
Notes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,035 2,070
----------- -----------
Total long term debt . . . . . . . . . . . . . . . . . . . . . . . . . 3,401 3,475
----------- -----------
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 427 452
Shareholders' equity:
Common stock (par value $.01 per share, 30,000,000 shares
authorized, 10,615,399 issued and outstanding in 1998,
10,472,799 issued and outstanding in 1997) . . . . . . . . . . . . . . 106 105
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . 83,764 82,986
Notes receivable for common stock purchases . . . . . . . . . . . . . . . . (4) (4)
Accumulated deficit . . . . . . . . . . . . . . . . . . . . . . . . . . . . (36,193) (38,061)
----------- -----------
Total shareholders' equity . . . . . . . . . . . . . . . . . . . . . . 47,673 45,026
----------- -----------
Total liabilities and shareholders' equity . . . . . . . . . . . $ 62,538 $ 61,226
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
1
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STERICYCLE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share data)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE FOR THE SIX
MONTHS ENDED MONTHS ENDED
JUNE 30, JUNE 30,
----------------------- ------------------------
1998 1997 1998 1997
---------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues . . . . . . . . . . . . . . . . . . . . . . . . $ 14,763 $ 10,937 $ 28,018 $ 20,816
Costs and expenses:
Cost of revenues . . . . . . . . . . . . . . . . . . . 10,331 8,195 19,629 16,106
Selling, general and administrative expenses . . . . . 3,268 2,636 6,358 4,603
--------- ---------- ---------- ---------
Total costs and expenses . . . . . . . . . . . . . . 13,599 10,831 25,987 20,709
--------- ---------- ---------- ---------
Income from operations . . . . . . . . . . . . . . . . . 1,164 106 2,031 107
Other income (expense):
Interest income . . . . . . . . . . . . . . . . . . . 181 171 239 398
Interest expense . . . . . . . . . . . . . . . . . . . (62) (92) (124) (216)
--------- ---------- ---------- ---------
Total other income (expense) . . . . . . . . . . . . 119 79 115 182
--------- ----------- ---------- ---------
Income before income taxes . . . . . . . . . . . . . . . $ 1,283 $ 185 $ 2,146 $ 289
Income tax expense . . . . . . . . . . . . . . . . . . . $ 195 5 278 7
--------- ---------- ---------- ---------
Net income . . . . . . . . . . . . . . . . . . . . . . . $ 1,088 $ 180 $ 1,868 $ 282
========= ========== ========== =========
Earnings per share--basic . . . . . . . . . . . . . . . . $ 0.10 $ 0.02 $ 0.18 $ 0.03
========= ========== ========== =========
Weighted average number of common shares
outstanding--basic . . . . . . . . . . . . . . . . . . . . 10,539,806 10,142,056 10,511,297 10,071,610
Earnings per share--diluted . . . . . . . . . . . . . . . $ 0.10 $ 0.02 $ 0.17 $ 0.03
========= ========== ========== =========
Weighted average number of common shares
outstanding--diluted . . . . . . . . . . . . . . . . . . . 11,176,777 10,590,769 11,167,492 10,554,140
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
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STERICYCLE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED
JUNE 30,
------------------------
1998 1997
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,868 $ 282
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . 1,733 1,426
Changes in operating assets:
Accounts receivable, net of effect of acquisitions . . . . . . . . . . . . . . (1,152) (4,293)
Parts and supplies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (135) 126
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (45) 98
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (115) 35
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 198 --
Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,429) 2,092
Deferred revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (30) (146)
---------- ---------
Net cash provided by (used in) operating activities . . . . . . . . . . . . . . . . 893 (380)
---------- ---------
INVESTING ACTIVITIES:
Payments for acquisitions, net of cash acquired . . . . . . . . . . . . . . . (1,163) (4,583)
Proceeds from maturity of short-term investments . . . . . . . . . . . . . . . -- 5,799
Purchases of short-term investments . . . . . . . . . . . . . . . . . . . . . -- (2,335)
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (984) (702)
---------- ---------
Net cash used in investing activities . . . . . . . . . . . . . . . . . . . . . . . (2,147) (1,821)
---------- ----------
FINANCING ACTIVITIES:
Repayment of long term debt . . . . . . . . . . . . . . . . . . . . . . . . . (788) (838)
Principal payments on capital lease obligations . . . . . . . . . . . . . . . (57) (150)
Principal payments on notes receivable for common stock purchases . . . . . . -- 4
Proceeds from issuance of common stock . . . . . . . . . . . . . . . . . . . . 83 20
---------- ---------
Net cash used in financing activities . . . . . . . . . . . . . . . . . . . . . . . (762) (964)
---------- ----------
Net decrease in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . (2,016) (3,165)
Cash and cash equivalents at beginning of period . . . . . . . . . . . . . . . . . 5,374 11,950
---------- ---------
Cash and cash equivalents at end of period . . . . . . . . . . . . . . . . . . . . $ 3,358 $ 8,785
========== =========
Non-cash activities:
Issuance of common stock for certain acquisitions . . . . . . . . . . . . . . . $ 697 $ 2,363
Issuance of notes payable for certain acquisitions . . . . . . . . . . . . . . $ 195 $ 1,380
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
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STERICYCLE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998
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, 1997, as filed with the Company s Annual Report on Form 10-K for
1997. The results of operations for the six-month period ended June 30, 1998
are not necessarily indicative of the results that may be achieved for the
entire year ending December 31, 1998.
NOTE 2--RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 128, Earnings per Share ("FAS
128"). FAS 128 replaced the calculation of primary and fully diluted earnings
per share with basic and diluted earnings per share. Unlike primary earnings
per share, basic earnings per share excludes the dilutive effects of options,
warrants and convertible securities. Diluted earnings per share is very
similar to the previously reported fully diluted earnings per share. All net
income per common share amounts for all periods have been presented, and where
appropriate, restated to conform to FAS 128 requirements.
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 130, "Reporting Comprehensive Income" ("FAS 130"). FAS 130 establishes
standards for reporting and display of comprehensive income and its components
in financial statements and was effective for the Company beginning January
1, 1998. The adoption of FAS 130 has had no impact on the Company's
financial position, results of operations, or cash flows.
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 131, "Disclosure about Segments of an Enterprise and Related Information"
("FAS 131"). FAS 131 establishes standards for reporting information about
operating segments in annual financial statements and requires reporting
selected
4
<PAGE> 7
information about operating segments in interim financial reports issued to
stockholders. It also establishes standards for related disclosure about
products and services, geographic areas and major customers. FAS 131 is
effective for the Company's annual financial statements for the year ended
December 31, 1998. The Company is evaluating the disclosure requirements of
FAS 131 and has not determined whether its adoption will have a material impact
on its future disclosure requirements.
NOTE 3--ACQUISITIONS
In June 1998, the Company acquired the customer contracts and selected
other assets of Mediwaste Disposal Services LLC., Controlled Medical Disposal,
Inc., and Arizona Hazardous Waste Disposal, located in Texas, New Jersey and
Arizona, respectively, and selected customer contracts and other assets of
Superior of Wisconsin, Inc., located in Wisconsin. The combined purchase price
of approximately $1,006,000 for these acquisitions was paid by a combination of
cash, promissory notes and the issuance of shares of common stock (and, in one
case, the forgiveness of indebtedness).
NOTE 4--SALE OF EQUIPMENT TO JOINT VENTURE
During the three months ended June 30, 1998, the Company sold equipment
utilizing the Company's Electro-Thermal-Deactivation ("ETD") technology to a
Mexican joint venture company, Medam S.A. de C.V. The Company holds a 24.5%
interest in the joint venture. Revenues of $1,202,000 have been recognized in
the condensed consolidated statement of operations for the three months ended
June 30, 1998.
NOTE 5--STOCK OPTIONS
During the quarter ending June 30, 1998, options to purchase common stock
totaling 35,370 shares were granted to the Company's directors. These options
vest ratably over a one-year period and have an average exercise price of
$14.25 per share. The grant of options was made under the Company's Directors
Stock Option Plan, which authorized the grant of options for a total of 285,000
shares of the Company's common stock. The Directors Stock Option Plan was
approved by the Company's stockholders in April 1996.
NOTE 6--STOCK ISSUANCES
During the quarter ending June 30, 1998, options to purchase 54,006
shares of common stock were exercised at prices ranging from $0.53-$8.00 per
share. The Company also issued 48,621 shares of common stock in connection with
certain acquisitions.
NOTE 7--INCOME TAXES
Prior to 1997, the Company had generated net operating losses for income
tax purposes. Any benefit resulting from these net operating losses has been
offset by a valuation allowance. Annual utilization of the Company's net
operating loss carryforward is limited by Internal Revenue Code Section 382.
The Company's 1998 income tax expense reflects federal taxable income expected
in excess of the Section 382 limitation and income taxes in states where the
Company has no offsetting net operating losses. The Company's 1997 income tax
expense reflects the federal alternative minimum tax and income taxes in states
where the Company has no offsetting net operating losses.
NOTE 8--COMMITMENT
In July 1998, the Company entered into an agreement to supply and license
its ETD technology to Companhia Auxiliar de Viacao e Obras of Sao Paulo,
Brazil. Under the agreement, the Company will supply the ETD equipment and
license technology and will provide engineering, installation, training, and
start up services.
5
<PAGE> 8
PART I -- FINANCIAL INFORMATION
ITEM 2. 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 in selected geographic service
areas transports pharmaceuticals, photographic chemicals, lead foil and amalgam
for recycling. Internationally, the Company licenses its patented machinery
technology and occasionally might sell equipment.
THREE MONTHS ENDED JUNE 30, 1998 COMPARED TO THREE MONTHS ENDED JUNE 30, 1997
REVENUES. Revenues increased by $3,826,000, or 35.0%, to $14,763,000
for the three months ended June 30, 1998 from $10,937,000 for the comparable
period in 1997. The Company continued to implement its stategy of
acquiring selected businesses and focusing on sales to higher-margin alternate
care generators while simultaneously paring certain higher-revenue but
lower-margin accounts with core generators. Revenues of $1,202,000 were
attributed to the sale of equipment to Medam S.A. de C.V. ("Medam"), a joint
venture that the Company formed in Mexico for the collection, treatment and
disposal of regulated medical waste in the Mexico City market utilizing the
Company's ETD technology. During the three months ended June 30, 1998,
acquisitions contributed approximately $2,054,000 to the increase in revenues
as compared to the prior year.
COST OF REVENUES. Cost of revenues increased $2,136,000 to $10,331,000
during the three months ended June 30, 1998 from $8,195,000 during the
comparable period in 1997. Cost of revenues as a percentage of revenues
decreased to 70.0% during the three months ended June 30, 1998 from 74.9%
during the comparable period in 1997. The decrease is primarily due to further
integration of new acquisitions into the existing infrastructure, lower costs
relating to the mix of alternate care and core customers, increased utilization
of treatment capacity, and general productivity improvements.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased to $3,268,000 for the three months ended June
30, 1998 from $2,636,000 for the comparable period in 1997 due to strengthening
of the Company's sales and administrative organizations. Selling, general and
administrative expenses as a percentage of revenues decreased to 22.1% during
the three months ended June 30, 1998 from 24.1% during the comparable period in
1997. The decrease is primarily attributable to the Company's continued efforts
to eliminate and significantly reduce expenditures.
INTEREST EXPENSE AND INTEREST INCOME. Interest expense decreased to
$62,000 during the three months ended June 30, 1998 from $92,000 during the
comparable period in 1997 primarily due to the repayment of debt issued for
acquisitions. Interest income increased to $181,000 during the three months
ended June 30, 1998 from $171,000 during the comparable period in 1997
primarily due to payment of
6
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interest to the Company on short term investments.
INCOME TAX EXPENSE. The effective tax rate of 15.2% for the three months
ended June 30, 1998 reflects federal taxable income expected in excess of
Internal Revenue Code Section 382 limitations on the annual utilization of the
Company's net operating loss carryforward and state income taxes in states
where the company has no offsetting net operating losses.
SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO SIX MONTHS ENDED JUNE 30, 1997
REVENUES. Revenues increased $7,202,000, or 34.6%, to $28,018,000 during
the six months ended June 30, 1998 from $20,816,000 during the comparable period
in 1997 as the Company continued to implement its strategy of acquiring selected
businesses and focusing on sales to higher-margin alternate care generators
while simultaneously paring certain higher-revenue but lower-margin accounts
with large quantity generators. The increase in revenues also reflects
$1,202,000 from the sale of equipment to Medam S.A. de C.V. ("Medam"), a joint
venture that the Company and others formed in Mexico for the collection,
treatment and disposal of regulated medical waste in Mexico City utilizing the
Company's ETD technology. During the six months ended June 30, 1998,
acquisitions contributed approximately $5,071,000 to the increase in revenues
as compared to the prior year.
COST OF REVENUES. Cost of revenues increased $3,523,000, or 21.9%, to
$19,629,000 during the six months ended June 30, 1998 from $16,106,000 during
the comparable period in 1997. This increase was primarily due to the
substantial increase in revenues during 1998 compared to 1997. The gross margin
percentage increased to 29.9% during the six months ended June 30, 1998 from
22.6% during the comparable period in 1997 due to further integration of new
acquisitions into the existing infrastructure, lower costs relating to the mix
of alternate care versus large quantity customers, increased utilization of
treatment capacity and general productivity improvements.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased to $6,358,000 for the six months ended June
30, 1998 from $4,603,000 for the comparable period in 1997 due to the continued
progress in strengthening the Company's sales and administrative organizations.
Moreover, during the six months ended June 30, 1997 some services related to
the December 1996 acquisition of the major portion of the regulated medical
waste business of Waste Management, Inc. ("WMI acquisition") were performed by
WMI as part of the transition arrangements, which resulted in lower relative
costs in the first six months of 1997. Selling, general and administrative
expenses as a percentage of revenues increased to 22.7% during the six months
ended June 30, 1998 from 22.1% during the comparable period in 1997.
INTEREST EXPENSE AND INTEREST INCOME. Interest expense decreased to
$124,000 during the six months ended June 30, 1998, from $216,000 during the
comparable period in 1997, primarily due to the repayment of debt issued in the
WMI acquisition. Interest income also decreased to $239,000 during the six
months ended June 30, 1998, from $398,000 during the comparable period in 1997,
primarily due to lower cash balances as a result of acquisitions and repayment
of debt.
INCOME TAX EXPENSE. The estimated effective tax rate of approximately 13.0%
for the six months ended June 30, 1998 reflects federal taxable income expected
in excess of Internal Revenue Code Section 382 limitations on the annual
utilization of the Company's net operating loss carryforward and state income
taxes in states where the Company has no offsetting net operating losses.
7
<PAGE> 10
LIQUIDITY AND CAPITAL RESOURCES
The Company has been financed principally through the sale of stock to
investors. Prior to the Company's IPO, purchasers of stock invested more than
$50,137,000 in capital which has been used to fund research and development,
acquisitions, capital expenditures, operating losses and working capital
requirements. The Company's IPO in August 1996 raised $31,050,000, excluding
offering costs, which has been or will be used primarily to fund acquisitions
and for general working capital. 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, in October 1995, the Company obtained a $2,500,000 revolving line
of credit secured by a security interest in the Company's accounts receivable
and other assets, and in March 1998, the Company increased this line of credit
to $7,500,000. The Company has no outstanding borrowings under its line of
credit.
The Company's other financial obligations include industrial development
revenue bonds issued on behalf of and guaranteed by the Company to finance its
Woonsocket, Rhode Island treatment facility and equipment. These bonds, which
had an outstanding aggregate balance of $1,161,000 as of June 30, 1998 at fixed
interest rates ranging from 6.000% to 7.375%, are due in various amounts
through June 2017. In addition, the Company has issued various promissory notes
in connection with acquisitions during 1996, 1997 and 1998, primarily a
10-year note for $2,300,000 as part of the Company's acquisition of
Environmental Control Company Co., Inc. ("ECCO") and a $1,797,000 note due in
December 1998 as part of the WMI acquisition.
At June 30, 1998, the Company's working capital was $7,963,000. At December
31, 1997, the Company's working capital was $7,214,000 compared to $14,617,000
and $439,000 at December 31, 1996 and 1995, respectively. The increase in
working capital at June 30, 1998 compared to December 31, 1997 was primarily due
to a decrease in current liabilities as a result of the repayment of debt issued
in connection with certain acquisitions and the decrease of accrued liabilities.
The decrease at December 31, 1997 compared to 1996 was primarily due to lower
balances of cash, cash equivalents and short-term investments, which decreased
by $10,040,000 to finance acquisitions partially offset by other working capital
growth. The increase in working capital in 1996 compared to 1995 was due to
higher cash balances shortly after the Company's IPO offset by an increase in
debt as a result of the WMI acquisition in December 1996.
Net cash provided by operating activities was $893,000 during the six
months ended June 30, 1998 compared to net cash used in operating activities of
$380,000 for the comparable period in 1997. This change from cash used in
operating activities to cash provided by operating activities primarily reflects
an increase in the Company's profitability offset by other working capital
changes. Cash used in operations was $100,000 during the year ended December 31,
1997, compared to cash provided by operations of $57,000 during the year ended
December 31, 1996 and cash used in operations of $871,000 during the year ended
December 31, 1995. The change primarily reflects the Company's profitability in
1997 offset by a higher working capital investment in receivables.
Net cash used in investing activities for the six months ended June 30,
1998 was $2,147,000 compared to $1,821,000 for the comparable period in 1997.
The change is primarily attributable to the net maturity of temporary
investments in 1997 and an increase in capital expenditures offset by a
reduction in cash used for acquisitions. Capital expenditures were $984,000 for
the six months ended June 30, 1998 compared to $702,000 for the comparable
period in 1997. The increase in capital spending is a result of improvements
made to existing treatment facilities. Payments for acquisitions accounted for
$1,163,000 of the cash used in investing activities in the first six months of
1998. Net cash used in investing activities was $3,323,000 during the year ended
December 31, 1997 compared to $13,310,000 during the year ended December 31,
1996. The decrease in 1997 was the result of a $5,552,000 payment for the
acquisition of ECCO as well as several smaller acquisitions and joint ventures,
offset by net proceeds from short-term investments of $3,464,000 in 1997 versus
purchases of $5,799,000 in short-term investments in 1996. Capital expenditures
for the year ended December 31, 1997 were $1,235,000, primarily for improvements
to existing facilities, containers and transportation equipment. Capital
expenditures were $995,000 in 1996 and $726,000 in 1995. The Company may decide
to build additional treatment facilities as volumes increase in the Company's
current geographic service areas or as the Company enters new areas. The Company
also may elect 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 believes that its cash, cash equivalents, short-term
investments, revolving bank line, cash from operations and proceeds from this
Offering will fund its capital requirements through 1998.
Net cash used in financing activities was $762,000 during the six months
ended June 30, 1998 compared to $964,000 for the comparable period in 1997. The
difference between the two periods results primarily from the decreased
repayment of long-term debt and decreased payments on capital leases during the
first six months of 1998. Net cash used in financing activities was $3,153,000
during the year ended December 31, 1997 compared to net cash provided by
financing activities of $25,065,000 during the year ended December 31, 1996. The
change was the result of $28,535,000 of proceeds received in 1996 primarily from
the Company's IPO and repayments in 1997 of $2,905,000 of long-term debt
relating primarily to a note issued in connection with the December 1996 WMI
acquisition.
In 1997, cash and cash equivalents decreased by $6,576,000 primarily due to
investment and acquisition activities of $3,323,000 and repayments of notes and
leases of $3,153,000.
YEAR 2000 ISSUES
The Company has developed a plan to modify its information technology for
the Year 2000 and has begun converting critical data processing systems. The
Company currently expects the project to be substantially completed by June 1999
at a cost not material to the Company's business, financial condition or results
of operations. As of June 30, 1998, there had been no amounts expensed in
converting the Company's data processing systems for the Year 2000.
<PAGE> 11
FROM TIME TO TIME THE COMPANY ISSUES FORWARD-LOOKING STATEMENTS RELATING
TO SUCH THINGS AS ANTICIPATED FINANCIAL PERFORMANCE, BUSINESS PROSPECTS,
ACQUISITION ACTIVITIES AND SIMILAR MATTERS.
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.
9
<PAGE> 12
PART II -- OTHER INFORMATION
ITEM 5. OTHER INFORMATION
Dates for Submission of Stockholder Proposals:
Any stockholder of the Company who wishes to present a proposal to be
considered at the 1999 Annual Meeting of Stockholders and who, pursuant to Rule
14a-8 of the Securities and Exchange Commission, wishes to have the proposal
included in the Company's proxy statement and form of proxy for that meeting,
must submit the proposal in writing to the Company at 1419 Lake Cook Road,
Suite 410, Deerfield, Illinois 60015, so that it is received by November 26,
1998.
Any stockholder of the Company who wishes to present a proposal to be
considered at the 1999 Annual Meeting of Stockholders, but to do so outside of
the processes of Rule 14a-8, must submit the proposal in writing to the Company
at 1419 Lake Cook Road, Suite 410, Deerfield, Illinois 60015, so that it is
received by March 13, 1998.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The following exhibits are filed with this Report:
11 Statement Re: Computation of Per Share Earnings
27.1 Financial Data Schedule
27.2 Financial Data Schedule
(b) Reports on Form 8-K
The Company did not file any Current Reports on Form 8-K during the
quarter ended June 30, 1998.
10
<PAGE> 13
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.
Date: August 4, 1998.
STERICYCLE, INC.
By /s/ Frank J.M. ten Brink
------------------------------
Frank J.M. ten Brink
Vice President, Chief Financial
Officer (Principal Financial
and Accounting Officer)
11
<PAGE> 1
EXHIBIT 11
STERICYCLE, INC. AND SUBSIDIARIES
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
(unaudited)
<TABLE>
<CAPTION>
FOR THE THREE FOR THE SIX
MONTHS ENDED MONTHS ENDED
JUNE 30, JUNE 30,
------------------------------ ------------------------------
1998 1997 1998 1997
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Weighted average common shares
outstanding--basic earnings per
share 10,539,806 10,142,056 10,511,297 10,071,610
Common stock issuable upon
assumed conversion of stock
options and warrants 636,971 448,713 656,195 482,530
-------------- -------------- -------------- --------------
Adjusted weighted average common
shares outstanding--diluted earnings
per share 11,176,777 10,590,769 11,167,492 10,554,140
============== ============== ============== =============
Net income (in thousands) $ 1,088 $ 180 $ 1,868 $ 282
============== ============== ============== =============
Net income per share--basic $ 0.10 $ 0.02 $ 0.18 $ 0.03
============== ============== ============== ==============
Net income per share--diluted $ 0.10 $ 0.02 $ 0.17 $ 0.03
============== ============== ============== ==============
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> APR-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 3358
<SECURITIES> 2335
<RECEIVABLES> 11860
<ALLOWANCES> 347
<INVENTORY> 0
<CURRENT-ASSETS> 19000
<PP&E> 19489
<DEPRECIATION> 8268
<TOTAL-ASSETS> 62538
<CURRENT-LIABILITIES> 11037
<BONDS> 3401
0
0
<COMMON> 106
<OTHER-SE> 47567
<TOTAL-LIABILITY-AND-EQUITY> 62538
<SALES> 0
<TOTAL-REVENUES> 28018
<CGS> 0
<TOTAL-COSTS> 25987
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 124
<INCOME-PRETAX> 2146
<INCOME-TAX> 278
<INCOME-CONTINUING> 1868
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1868
<EPS-PRIMARY> 0.18
<EPS-DILUTED> 0.17
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> APR-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 8785
<SECURITIES> 2335
<RECEIVABLES> 10482
<ALLOWANCES> 222
<INVENTORY> 0
<CURRENT-ASSETS> 22489
<PP&E> 17717
<DEPRECIATION> 6196
<TOTAL-ASSETS> 61849
<CURRENT-LIABILITIES> 12329
<BONDS> 5514
0
0
<COMMON> 103
<OTHER-SE> 42579
<TOTAL-LIABILITY-AND-EQUITY> 61849
<SALES> 0
<TOTAL-REVENUES> 20816
<CGS> 0
<TOTAL-COSTS> 20709
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 216
<INCOME-PRETAX> 289
<INCOME-TAX> 7
<INCOME-CONTINUING> 282
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 282
<EPS-PRIMARY> 0.03<F1>
<EPS-DILUTED> 0.03<F1>
<FN>
<F1>RESTATED PURSUANT TO STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 128
AND STAFF ACCOUNTING BULLETIN NO. 98
</FN>
</TABLE>
