<PAGE>
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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 Period Ended March 31, 1998.
Commission file number: 0-21229
______________________________________________________________________________
STERICYCLE, INC.
(exact name of registrant as specified in its charter)
DELAWARE 36-3640402
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1419 LAKE COOK ROAD, SUITE 410
DEERFIELD, ILLINOIS 60015
(Address of principal executive offices) (Zip Code)
(847) 945-6550
(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 periods 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
--- ---
As of April 30, 1998 there were 10,518,879 shares of the Registrant's
Common Stock outstanding.
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<PAGE>
STERICYCLE, INC. AND SUBSIDIARIES
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, 1998 and December 31, 1997.................... 1
Condensed Consolidated Statements of Operations
Three months ended March 31, 1998 and 1997.............. 2
Condensed Consolidated Statements of Cash Flows
Three months ended March 31, 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.............. 7
PART II. OTHER INFORMATION
Item 6. Exhibits......................................... 10
<PAGE>
STERICYCLE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
-------- -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 2,914 $ 5,374
Short-term investments 2,335 2,335
Accounts receivable, less allowance for doubtful
accounts of $361 in 1998 and $361 in 1997 11,545 10,286
Parts and supplies 668 660
Prepaid expenses 389 440
Other 602 392
-------- --------
Total current assets 18,453 19,487
-------- --------
Property, plant and equipment:
Land 90 90
Buildings and improvements 5,591 5,561
Machinery and equipment 11,684 11,469
Office equipment and furniture 792 746
Construction in progress 768 614
-------- --------
18,925 18,480
Less accumulated depreciation (7,737) (7,239)
-------- --------
Property, plant and equipment, net 11,188 11,241
-------- --------
Other assets:
Goodwill, less accumulated amortization of $2,352
in 1998 and $2,040 in 1997 29,650 29,458
Other 1,706 1,040
-------- --------
Total other assets 31,356 30,498
-------- --------
Total assets $ 60,997 $ 61,226
-------- --------
-------- --------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current portion of long term debt $ 2,657 $ 3,052
Accounts payable 1,536 1,927
Accrued liabilities 6,314 7,039
Deferred revenue 618 255
-------- --------
Total current liabilities 11,125 12,273
-------- --------
Long-term debt:
Industrial development revenue bonds and other 1,391 1,405
Note payable 2,200 2,070
-------- --------
Total long term debt 3,591 3,475
Other liabilities 439 452
Shareholders' Equity:
Common stock (par value $.01 per share, 30,000,000
shares authorized, 10,516,891 issued and outstanding
in 1998, 10,472,799 issued and outstanding in 1997) 105 105
Additional paid-in capital 83,027 82,986
Notes receivable for common stock purchases (4) (4)
Accumulated deficit (37,286) (38,061)
-------- --------
Total shareholders' equity 45,842 45,026
-------- --------
Total liabilities and shareholders' equity $ 60,997 $ 61,226
-------- --------
-------- --------
</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)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
MARCH 31,
--------------------------
1998 1997
----------- ----------
(UNAUDITED)
<S> <C> <C>
Revenues $ 13,255 $ 9,879
Costs and expenses:
Cost of revenues 9,298 7,911
Selling, general and administrative 3,090 1,969
--------- ---------
Total costs and expenses 12,388 9,880
--------- ---------
Income from Operations 867 (1)
Other income (expense)
Interest income 58 226
Interest expense (62) (123)
--------- ---------
Total other income (expense) (4) 103
--------- ---------
Income before income taxes 863 102
Income tax expense 83 0
--------- ---------
Net income $ 780 $ 102
--------- ---------
--------- ---------
Earnings per share - Basic and Diluted $ 0.07 $ 0.01
--------- ---------
--------- ---------
Weighted average number of
common shares outstanding - Basic 10,480,399 10,001,163
--------- ---------
--------- ---------
Weighted average number of
common shares outstanding - Diluted 11,159,640 10,517,105
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part of these financial statements
<PAGE>
STERICYCLE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
MARCH 31,
--------------------------
1998 1997
----------- ----------
(UNAUDITED)
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 780 $ 102
Adjustments to reconcile net income to net cash used in
operating activities:
Depreciation and amortization 863 690
Change in operating assets and liabilities:
Accounts receivable (1,259) (3,109)
Parts and supplies (8) 27
Prepaid expenses 51 232
Other assets (173) (21)
Accounts payable (391) (84)
Accrued liabilities (1,134) 1,980
Deferred revenue 350 (64)
--------- ---------
Net cash used in operating activities (921) (247)
--------- ---------
INVESTING ACTIVITIES:
Payments for acquisitions, net of cash acquired (670) -
Proceeds from maturity of short-term investments - 4,799
Capital expenditures (497) (163)
--------- ---------
Net cash (used in) provided by investing activities (1,167) 4,636
--------- ---------
FINANCING ACTIVITIES:
Repayment of long term debt (396) (162)
Principal payments on capital lease obligations (13) (55)
Principal payments on notes receivable for common stock purchases - 4
Proceeds from issuance of common stock 37 4
--------- ---------
Net cash used in financing activities (372) (209)
--------- ---------
Net (decrease) increase in cash and cash equivalents (2,460) 4,180
Cash and cash equivalents at beginning of period 5,374 11,950
--------- ---------
Cash and cash equivalents at end of period 2,914 16,130
--------- ---------
--------- ---------
Non-cash activities:
Issuances of notes payable for certain acquisitions $ 130 $ -
</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, 1997, as filed with the Company's 1997
Annual Report on Form 10-K. The results of operations for the three-month
period ended March 31, 1998 are not necessarily indicative of the results
that may be achieved for the entire year ending December 31, 1998.
NOTE 2. NET INCOME PER COMMON SHARE
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 is effective for fiscal years
beginning after December 15, 1997. The adoption of FAS 130 will have no
impact on the Company's financial position, results of operations, or cash
flows.
<PAGE>
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 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 financial statements for fiscal years
beginning after December 15, 1997. 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 February 1998, the Company acquired select small quantity generator
contracts of Bridgeview, Inc., located in Pennsylvania, and in April 1998,
the Company acquired the customer contracts and selected other assets of
Medisin Inc., located in eastern Kentucky. The purchase price for these
acquisitions was paid by a combination of cash and promissory notes.
Annualized revenues in excess of $.75 million are anticipated as a result of
these two acquisitions.
NOTE 4. STOCK OPTIONS
During the quarter ended March 31, 1998, options to purchase common
stock totaling 248,668 shares were granted to key employees. These options
will vest ratably over a five year period and have an average exercise price
of approximately $13.675 per share. The grant of options was made under the
Company's 1997 Stock Option Plan, which authorized 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.
<PAGE>
NOTE 5. STOCK ISSUANCES
During the quarter ended March 31 1998, options to purchase 44,092
shares of common stock were exercised at prices ranging from $0.53 - $1.99
per share.
NOTE 6. 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. The Company's income tax expense reflects
the federal alternative minimum tax 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 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 MARCH 31, 1998 COMPARED TO THREE MONTHS ENDED
MARCH 31, 1997
REVENUES. Revenues increased $3,376,000, or 34%, to $13,255,000 during
the three months ended March 31, 1998 from $9,879,000 during the comparable
period in 1997 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. During
the three months ended March 31, 1998, acquisitions contributed $3,000,000 to
the increase in revenues as compared to the prior year.
COST OF REVENUES. Cost of revenues increased $1,387,000, or 17.5%, to
$9,298,000 during the three months ended March 31, 1998 from $7,911,000 during
the comparable period in 1997. Cost of revenues as a percentage of revenues
decreased to 70.1% during the three months ended March 31, 1998 from 80.1%
during the comparable period in 1997 due to further integration of new
acquisitions into the existing infrastructure, lower costs relating to the mix
of ACM customers versus core customers, the leveraging of treatment capacity,
and general productivity improvements.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased to $3,090,000 for the three months ended
March 31, 1998 as compared to $1,969,000 for the comparable period in 1997 due
to the continued progress in strengthening the Company's sales and
administrative organizations. Furthermore, during the three months ended March
31, 1997 some services related to the December 1996 acquisition of the major
portion of the medical waste business of Waste Management ("WMI") were
performed by WMI as part of the transition arrangements. This, in turn,
resulted in lower relative costs in the first quarter of 1997. Selling,
general and
<PAGE>
administrative expenses as a percentage of revenues increased to 23.3% during
the three months ended March 31, 1998 from 19.9% during the comparable period
in 1997.
INTEREST EXPENSE AND INTEREST INCOME. Interest expense decreased to
$58,000 during the three months ended March 31, 1998 from $226,000 during the
comparable period in 1997 primarily due to the repayment of debt issued in the
WMI acquisition. Interest income also decreased to $62,000 during the three
months ended March 31, 1998 versus the prior year 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
9.6% for the three months ended March 31, 1998 reflects the utilization of
the Company's net operating losses for income tax purposes, offset by
alternative minimum tax, and state income taxes in states where the company
has no offsetting net operating losses.
NET INCOME. Net income for the three months ended March 31, 1998 was
$780,000 compared to net income of $102,000 in the first quarter of 1997. The
record quarterly results were driven by the Company's strategic acquisitions as
well as by internal growth from the increased investment in sales and
marketing. Earnings per common share increased seven fold to $.07 versus $.01
in the same period in 1997.
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") in August of
1996, 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
raised $31,050,000, excluding offering costs, which has been 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, the Company has available, beginning in
March 1998, a $7,500,000 revolving line of credit secured by accounts
receivable and a security interest in all other assets of the Company. Up to
this point, the revolving line of credit has not been used.
<PAGE>
At March 31, 1998 the Company's working capital was $7,328,000 compared to
working capital of $7,214,000 at December 31, 1997. The increase in working
capital is primarily due to lower cash balances and current liabilities as a
result of the repayment of debt issued in certain acquisitions, partially
offset by higher receivables.
Total assets decreased to $60,997,000 at March 31, 1998 compared to
$61,226,000 at December 31, 1997. The decrease of $229,000 was due primarily
to lower cash balances used to finance acquisitions and general working capital
growth, offset by higher receivables and an increase in goodwill.
Net cash USED IN operating activities amounted to $921,000 during the
three months ended March 31, 1998 compared to $247,000 for the comparable
period in 1997. This increase in cash used in operating activities primarily
reflects higher receivables outstanding on higher revenues generated from
acquisitions.
Net cash USED IN investing activities for the period ended March 31, 1998
amounted to $1,167,000 compared to net cash PROVIDED BY investing activities of
$4,636,000 for the same period in 1997. The change is primarily attributable
to the maturity of temporary investments of the Company's IPO proceeds in 1997
versus the use of such funds in 1998. Capital expenditures were $497,000 for
the three months ended March 31, 1998 compared to $163,000 for the same period
in 1997. The increase in capital spending is a result of improvements made to
existing treatment facilities. Payments for acquisitions amounted to $670,000
of the cash used in investing activities in the first quarter of 1998.
Net cash USED IN financing activities was $372,000 during the three months
ended March 31, 1998 compared to $209,000 for the same quarter in 1997. The
difference between the quarters results primarily from the increased repayment
of long term debt in the first quarter of 1998.
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
<PAGE>
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 (March 31, 1998)
27.1 Financial Data Schedule (March 31, 1996 and 1997)
(b) Reports on Form 8-K
There were no reports on Form 8-K filed by the Company for the quarter
ended March 31, 1998.
<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.
By: /s/ Frank J.M. ten Brink
-------------------------------------
Frank J.M. ten Brink
Vice President, Chief Financial Officer
(Principal Financial and Accounting Officer)
Date: May 12, 1998
<PAGE>
EXHIBIT 11
STERICYCLE, INC. AND SUBSIDIARIES
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
MARCH 31,
--------------------------
1998 1997
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(UNAUDITED)
<S> <C> <C>
Weighted average common shares outstanding
- basic earnings per share 10,480,399 10,001,163
Common stock issuable upon assumed conversion
of stock options and warrants 679,241 515,942
---------- ----------
Adjusted weighted average common shares outstanding
- diluted earnings per share 11,159,640 10,517,105
---------- ----------
---------- ----------
Net income (in thousands) $ 780 $ 102
---------- ----------
---------- ----------
Net income per share - basic and diluted $ 0.07 $ 0.01
---------- ----------
---------- ----------
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 2,914
<SECURITIES> 2,335
<RECEIVABLES> 11,906
<ALLOWANCES> 361
<INVENTORY> 668
<CURRENT-ASSETS> 18,453
<PP&E> 18,925
<DEPRECIATION> 7,737
<TOTAL-ASSETS> 60,997
<CURRENT-LIABILITIES> 11,125
<BONDS> 3,591
0
0
<COMMON> 105
<OTHER-SE> 45,737
<TOTAL-LIABILITY-AND-EQUITY> 60,997
<SALES> 0
<TOTAL-REVENUES> 13,255
<CGS> 0
<TOTAL-COSTS> 12,388
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 62
<INCOME-PRETAX> 863
<INCOME-TAX> 83
<INCOME-CONTINUING> 780
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 780
<EPS-PRIMARY> 0.07
<EPS-DILUTED> 0.07
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1996
<PERIOD-START> JAN-01-1997 JAN-01-1996
<PERIOD-END> MAR-31-1997 MAR-31-1996
<CASH> 16,130 121
<SECURITIES> 1,000 0
<RECEIVABLES> 8,049 4,287
<ALLOWANCES> 184 147
<INVENTORY> 333 493
<CURRENT-ASSETS> 26,023 5,506
<PP&E> 16,818 14,436
<DEPRECIATION> 5,698 3,961
<TOTAL-ASSETS> 56,320 24,451
<CURRENT-LIABILITIES> 10,624 4,988
<BONDS> 4,204 1,003
0 0
0 0
<COMMON> 100 55
<OTHER-SE> 40,024 13,568
<TOTAL-LIABILITY-AND-EQUITY> 56,320 24,451
<SALES> 0 0
<TOTAL-REVENUES> 9,879 5,578
<CGS> 0 0
<TOTAL-COSTS> 9,880 5,842
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 123 83
<INCOME-PRETAX> 102 (347)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 102 (347)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 102 (347)
<EPS-PRIMARY> 0.01 (0.05)
<EPS-DILUTED> 0.01<F1> (0.05)<F2>
<FN>
<F1>RESTATED PURSUANT TO STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 128 AND
STAFF ACCOUNTING BULLETIN NO. 98.
<F2>RESTATED PURSUANT TO STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 128 AND
STAFF ACCOUNTING BULLETIN NO. 98.
</FN>
</TABLE>
