<PAGE> 1
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, 2000
[ ] 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)
28161 NORTH KEITH DRIVE, LAKE FOREST, ILLINOIS 60045
(Address of principal executive offices)
(847) 367-5910
(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
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 August 9, 2000, there were 14,851,140 shares of the Registrant's
Common Stock outstanding.
<PAGE> 2
STERICYCLE, INC. AND SUBSIDIARIES
INDEX TO FORM 10-Q
PAGE
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements of Stericycle,
Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
at June 30, 2000 (unaudited) and December 31, 1999 1
Condensed Consolidated Statements of Income for the three
months ended June 30, 2000 and 1999 (unaudited)
and six months ended June 30, 2000 and 1999 (unaudited) 2
Condensed Consolidated Statements of Cash Flows for the
six months ended June 30, 2000 and 1999 (unaudited) 3
Notes to Condensed Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 12
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 17
<PAGE> 3
STERICYCLE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
JUNE 30 DECEMBER 31
2000 1999
--------- ---------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 4,613 $ 19,344
Short-term investments 278 285
Accounts receivable, less allowance for doubtful
accounts of $2,920 in 2000 and $980 in 1999 58,307 48,284
Parts and supplies 3,596 2,035
Prepaid expenses 2,007 863
Other 8,520 6,729
--------- ---------
Total current assets 77,321 77,540
--------- ---------
Property, plant and equipment:
Land 7,308 7,308
Buildings and improvements 26,797 29,123
Machinery and equipment 47,164 50,011
Office equipment and furniture 4,164 5,182
Construction in progress 1,898 386
--------- ---------
87,331 92,010
Less accumulated depreciation (16,363) (16,898)
--------- ---------
Property, plant and equipment, net 70,968 75,112
--------- ---------
Other assets:
Goodwill, less accumulated amortization of $14,948
in 2000 and $7,974 in 1999 415,622 421,001
Other 21,596 22,133
--------- ---------
Total other assets 437,218 443,134
--------- ---------
Total assets $ 585,507 $ 595,786
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long term debt $ 2,390 $ 5,741
Accounts payable 11,526 14,347
Accrued compensation 5,640 7,569
Accrued acquisition related expenses 3,156 7,101
Accrued liabilities 16,008 15,782
Deferred revenue 239 142
--------- ---------
Total current liabilities 38,959 50,682
--------- ---------
Long-term debt, net of current portion 349,601 355,444
Other liabilities 1,931 2,351
Redeemable preferred stock
Series A convertible preferred stock (par value $.01 share, 75,000 shares
authorized and outstanding in 2000 and 1999, liquidation preference
of $105,095 in 2000 and $80,625 in 1999) 70,487 69,195
Common shareholders' equity
Common stock (par value $.01 per share, 30,000,000 shares
authorized, 14,827,178 issued and outstanding in 2000,
14,665,106 issued and outstanding in 1999) 148 147
Additional paid-in capital 137,538 136,691
Accumulated deficit (13,157) (18,724)
--------- ---------
Total shareholders' equity 124,529 118,114
--------- ---------
Total liabilities and shareholders' equity $ 585,507 $ 595,786
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
1
<PAGE> 4
STERICYCLE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(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,
-------- --------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues $ 79,557 $ 25,019 $ 157,225 $ 48,887
Costs and expenses:
Cost of revenues 48,261 16,479 95,618 32,340
Selling, general and
administrative expenses 14,726 5,186 29,210 10,270
Acquisition related costs 1,407 -- 1,407 --
--------- --------- --------- ---------
Total costs and expenses 64,394 21,665 126,235 42,610
--------- --------- --------- ---------
Income from operations 15,163 3,354 30,990 6,277
Other income (expense):
Interest income 112 195 308 272
Interest expense (9,955) (172) (19,810) (535)
Other income (140) 6 (28) 389
--------- --------- --------- ---------
Total other income (expense) (9,983) 29 (19,530) 126
--------- --------- --------- ---------
Income before income taxes $ 5,180 $ 3,383 $ 11,460 $ 6,403
Income tax expense $ 2,094 823 4,601 1,416
--------- --------- --------- ---------
Net income $ 3,086 $ 2,560 $ 6,859 $ 4,987
========= ========= ========= =========
Earnings per share - Basic $ 0.17 $ 0.18 $ 0.38 $ 0.36
========= ========= ========= ========
Earnings per share - Diluted $ 0.15 $ 0.17 $ 0.35 $ 0.35
========= ========= ========= ========
Weighted average number of
common shares outstanding--
Basic 14,792,602 14,546,201 14,784,264 13,811,646
Weighted average number of common
shares outstanding--Diluted 19,917,299 14,878,684 19,824,059 14,209,693
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE> 5
STERICYCLE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED
JUNE 30,
2000 1999
-------- --------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 6,859 $ 4,987
Adjustments to reconcile net income to net cash
provided by operating activities:
Stock compensation expense 80 --
Depreciation and amortization 11,612 3,545
Changes in operating assets and liabilities, net of effect of acquisitions:
Accounts receivable (10,023) (516)
Parts and supplies (1,039) 555
Prepaid expenses (1,144) 44
Other assets 1,221 (16)
Accounts payable (2,821) (3,245)
Accrued liabilities (5,488) (606)
Deferred revenue 97 (1,952)
-------- --------
Net cash provided by (used in) operating activities (646) 2,796
-------- --------
INVESTING ACTIVITIES:
Payments for acquisitions and international investments,
net of cash acquired (1,624) (7,287)
Proceeds from maturity of short-term investments 237 460
Capital expenditures (3,550) (1,879)
-------- --------
Net cash used in investing activities (4,937) (8,706)
-------- --------
FINANCING ACTIVITIES:
Net proceeds and repayments on line of credit 6,700 (16,359)
Repayment of long term debt (15,129) (3,912)
Net proceeds and repayment of subordinated debt -- (2,750)
Payments of deferred financing costs (522) (40)
Principal payments on capital lease obligations (965) (80)
Net proceeds from secondary public offering -- 47,158
Proceeds from other issuance of common stock 768 172
-------- --------
Net cash provided by (used in) financing activities (9,148) 24,189
-------- --------
Net increase (decrease) in cash and cash equivalents (14,731) 18,279
Cash and cash equivalents at beginning of period 19,344 1,283
-------- --------
Cash and cash equivalents at end of period $ 4,613 $ 19,562
======== ========
Non-cash activities:
Net issuance of common stock for certain acquisitions $ -- $ 1,452
Net issuance of notes payable for certain acquisitions $ 90 $ 73
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE> 6
STERICYCLE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
Unless the context requires otherwise, "we", "us" or "our" refers to
Stericycle, Inc. and its subsidiaries on a consolidated basis.
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 our opinion, 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 year ended December 31, 1999, as filed with
our 1999 Annual Report on Form 10-K. The results of operations for the six-month
period ended June 30, 2000 are not necessarily indicative of the results that
may be achieved for the entire year ending December 31, 2000.
NOTE 2--ACQUISITIONS
There were no material acquisitions during the quarter ended June 30, 2000.
NOTE 3--STOCK OPTIONS
During the quarter ended June 30, 2000, options to purchase 290,000 shares
of common stock were granted to employees under our 2000 Stock Option Plan.
These options vest ratably over a five year period and have an average exercise
price of approximately $20.50 per share. Our 2000 Stock Option Plan, which
authorizes the grant of options for a total of 500,000 shares of common stock,
was approved by our Board of Directors in February 2000. In addition, options to
purchase 136,000 shares of common stock were granted to key employees under our
1995 Stock Option Plan. These options vest ratably over periods of up to four
years and have an average exercise price of $20.25 per share. Options to
purchase 36,000 shares of common stock were also granted to our outside
directors under our 1996 Directors Stock Option Plan. These options have an
average exercise price of $22.50 per share.
NOTE 4--STOCK ISSUANCES
During the quarter ending June 30, 2000, options to purchase 43,641 shares
of common stock were exercised at prices ranging from $.53-$17.25 per share. In
addition, warrants with rights to purchase 18,946 shares of common stock were
exercised at a prices ranging from $7.96-$16.09 per share.
NOTE 5--INCOME TAXES
At June 30, 2000, we had net operating loss carry forwards for federal
income tax purposes of approximately $13,000,000 (excluding 3CI) which expire
beginning in 2006. During the fourth quarter of 1999, we reevaluated the
estimated amount of the valuation allowance required. As a result, we reduced
the valuation allowance on deferred tax assets in accordance with SFAS No. 109,
"Accounting for Income Taxes" (SFAS No. 109), to an amount that we believe is
more likely than not of being recovered.
4
<PAGE> 7
NOTE 6--SUBSEQUENT EVENTS
On August 3, 2000, we announced the formation of a joint venture to service
the medical waste market in South Africa using our patented Electro-Thermal
Deactivation technology. The joint venture company will be headquartered in
Johannesburg, South Africa. Our partner in the joint venture is Evertrade
Infection Control Solutions (Pty) Ltd. We will have a 26.5% equity ownership in
the joint venture.
On August 9, 2000, we announced that we had concluded an agreement with the
Econovation Group of ASO for the first application of our patented
Electro-Thermal Deactivation technology and its associated plastics recycling
and material reuse technologies in the Kyushu area of Japan.
NOTE 7--CONDENSED CONSOLIDATING FINANCIAL INFORMATION
Payments under the Company's senior subordinated notes (the "Notes") are
unconditionally guaranteed, jointly and severally, by all of the Company's
wholly-owned domestic subsidiaries, which include Environmental Control Company,
Inc., acquired in May 1997, Waste Systems, Inc., acquired October 1, 1998,
Med-Tech Environmental, Inc., acquired December 31, 1998, BFI Medical Waste,
Inc. and Browning-Ferris Industries of Connecticut, Inc., both acquired on
November 12, 1999, and certain other subsidiaries which have insignificant
assets and operations (collectively, the "Guarantors"). Financial information
concerning the Guarantors as of June 30, 2000 and December 31, 1999 and for the
three and six-month periods ended June 30, 2000 and 1999 is presented below for
purposes of complying with the reporting requirements of the Guarantor. The
financial information concerning the Guarantors is being presented through
condensed consolidating financial statements since the Company has more than
minimal independent operations and the guarantees are full and unconditional and
are joint and several. Because of commingled operations, however, management is
required to allocate particular items between Stericycle, Inc. and the
Guarantors in the process of preparing the following condensed consolidating
financial statements. These allocations have no effect on the combined results
for Stericycle, Inc. and the Guarantors. Financial statements for the individual
Guarantors have not been presented because management does not believe that such
financial statements are material to investors.
5
<PAGE> 8
CONDENSED CONSOLIDATING BALANCE SHEET
JUNE 30, 2000
UNAUDITED
<TABLE>
<CAPTION>
COMBINED NON-
GUARANTOR STERICYCLE AND GUARANTOR
STERICYCLE, SUBSIDIARIES GUARANTOR SUBSIDIARIES ELIMINATIONS CONSOLIDATED
INC. SUBSIDIARIES
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 3,916 $ 168 $ 4,084 $ 529 $ -- $ 4,613
Other current assets 64,687 11,426 76,113 5,950 (9,355) 72,708
-----------------------------------------------------------------------------
Total current assets 68,603 11,594 80,197 6,479 (9,355) 77,321
Property, plant and equipment, net 12,529 48,845 61,374 9,594 -- 70,968
Goodwill, net 37,881 365,747 403,628 11,994 -- 415,622
Investment in subsidiaries 441,973 3,655 445,628 -- (445,628) --
Other assets 18,321 12,919 31,240 129 (9,773) 21,596
-----------------------------------------------------------------------------
Total assets $ 579,307 $ 442,760 $1,022,067 $ 28,196 $ (464,756) $ 585,507
=============================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 445 $ 962 $ 1,407 $ 983 $ -- $ 2,390
Other current liabilities 37,305 4,181 41,486 3,842 (8,759) 36,569
-----------------------------------------------------------------------------
Total current liabilities 37,750 5,143 42,893 4,825 (8,759) 38,959
Long-term debt, net of current
portion 344,610 4,185 348,795 11,136 (18,330) 349,601
Other liabilities 1,931 -- 1,931 -- -- 1,931
Convertible preferred stock 70,487 -- 70,487 -- -- 70,487
Common shareholders' equity 124,529 433,432 557,961 12,235 (445,667) 124,529
-----------------------------------------------------------------------------
Total liabilities and shareholders'
equity $ 579,307 $ 442,760 $1,022,067 $ 28,196 $ (464,756) $ 585,507
=============================================================================
</TABLE>
6
<PAGE> 9
CONDENSED CONSOLIDATING BALANCE SHEET
DECEMBER 31, 1999
AUDITED
<TABLE>
<CAPTION>
COMBINED NON-
GUARANTOR STERICYCLE AND GUARANTOR
STERICYCLE, SUBSIDIARIES GUARANTOR SUBSIDIARIES ELIMINATIONS CONSOLIDATED
INC. SUBSIDIARIES
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 18,808 $ 246 $ 19,054 $ 290 $ -- $ 19,344
Other current assets 52,928 8,840 61,768 4,648 (8,220) 58,196
----------------------------------------------------------------------------
Total current assets 71,736 9,086 80,822 4,938 (8,220) 77,540
Property, plant and equipment, net 15,029 49,932 64,961 10,151 -- 75,112
Goodwill, net 40,920 369,914 410,834 10,167 -- 421,001
Investment in subsidiaries 441,423 3,627 445,050 -- (445,050) --
Other assets 17,817 13,617 31,434 3,675 (12,976) 22,133
----------------------------------------------------------------------------
Total assets $ 586,925 $ 446,176 $1,033,101 $ 28,931 $ (466,246) $ 595,786
=============================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 3,954 $ 892 $ 4,846 $ 895 $ -- $ 5,741
Other current liabilities 43,517 5,084 48,601 4,677 (8,337) 44,941
----------------------------------------------------------------------------
Total current liabilities 47,471 5,976 53,447 5,572 (8,337) 50,682
Long-term debt, net of current
portion 349,794 4,539 354,333 13,970 (12,859) 355,444
Other liabilities 2,351 -- 2,351 -- -- 2,351
Convertible preferred stock 69,195 -- 69,195 -- -- 69,195
Common shareholders' equity 118,114 435,661 553,775 9,389 (445,050) 118,114
----------------------------------------------------------------------------
Total liabilities and shareholders'
equity $ 586,925 $ 446,176 $1,033,101 $ 28,931 $ (466,246) $ 595,786
=============================================================================
</TABLE>
7
<PAGE> 10
CONDENSED CONSOLIDATING STATEMENT OF INCOME
THREE MONTHS ENDED JUNE 30, 2000
UNAUDITED
<TABLE>
<CAPTION>
COMBINED NON-
GUARANTOR STERICYCLE AND GUARANTOR
STERICYCLE, SUBSIDIARIES GUARANTOR SUBSIDIARIES ELIMINATIONS CONSOLIDATED
INC. SUBSIDIARIES
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenues $ 16,994 $ 56,037 $ 73,031 $ 6,618 $ (92) $ 79,557
Cost of revenues 8,367 35,074 43,441 4,912 (92) 48,261
Selling, general, and
administrative expense 5,979 7,619 13,598 1,128 -- 14,726
Acquisition related expenses 1,407 -- 1,407 -- -- 1,407
------------------------------------------------------------------------------
Total costs and expenses 15,753 42,693 58,446 6,040 (92) 64,394
------------------------------------------------------------------------------
Income from operations 1,241 13,344 14,585 578 -- 15,163
Equity in net income (loss) of
subsidiaries 8,670 (256) 8,414 -- (8,414) --
Other (expense) income, net (9,581) 86 (9,495) (488) -- (9,983)
------------------------------------------------------------------------------
Income before income taxes 330 13,174 13,504 90 (8,414) 5,180
Income tax expense (benefit) (2,756) 4,850 2,094 -- -- 2,094
------------------------------------------------------------------------------
Net income $ 3,086 $ 8,324 $ 11,410 $ 90 $ (8,414) $ 3,086
==============================================================================
</TABLE>
CONDENSED CONSOLIDATING STATEMENT OF INCOME
THREE MONTHS ENDED JUNE 30, 1999
UNAUDITED
<TABLE>
<CAPTION>
COMBINED NON-
GUARANTOR STERICYCLE AND GUARANTOR
STERICYCLE, SUBSIDIARIES GUARANTOR SUBSIDIARIES ELIMINATIONS CONSOLIDATED
INC. SUBSIDIARIES
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenues $15,984 $ 3,235 $19,219 $ 5,847 $ (47) $25,019
Cost of revenues 9,872 2,012 11,884 4,642 (47) 16,479
Selling, general, and
administrative expense 3,401 664 4,065 1,121 -- 5,186
------------------------------------------------------------------------------
Total costs and expenses 13,273 2,676 15,949 5,763 (47) 21,665
------------------------------------------------------------------------------
Income from operations 2,711 559 3,270 84 -- 3,354
Equity in net income (loss) of
subsidiaries 371 (146) 225 -- (225) --
Other income (expense), net 264 141 405 (376) -- 29
------------------------------------------------------------------------------
Income (loss) before income taxes 3,346 554 3,900 (292) (225) 3,383
Income tax expense 786 37 823 -- -- 823
------------------------------------------------------------------------------
Net income (loss) $ 2,560 $ 517 $ 3,077 $ (292) $ (225) $ 2,560
==============================================================================
</TABLE>
8
<PAGE> 11
CONDENSED CONSOLIDATING STATEMENT OF INCOME
SIX MONTHS ENDED JUNE 30, 2000
UNAUDITED
<TABLE>
<CAPTION>
COMBINED NON-
GUARANTOR STERICYCLE AND GUARANTOR
STERICYCLE, SUBSIDIARIES GUARANTOR SUBSIDIARIES ELIMINATIONS CONSOLIDATED
INC. SUBSIDIARIES
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenues $ 30,547 $ 113,451 $ 143,998 $ 13,345 $ (118) $ 157,225
Cost of revenues 17,423 68,421 85,844 9,892 (118) 95,618
Selling, general, and
administrative expense 12,416 14,460 26,876 2,334 -- 29,210
Acquisition related expenses 1,407 -- 1,407 -- -- 1,407
---------------------------------------------------------------------------
Total costs and expenses 31,246 82,881 114,127 12,226 (118) 126,235
---------------------------------------------------------------------------
Income (loss) from operations (699) 30,570 29,871 1,119 -- 30,990
Equity in net income (loss) of
subsidiaries 19,561 (251) 19,310 -- (19,310) --
Other (expense) income, net (18,873) 174 (18,700) (831) -- (19,530)
---------------------------------------------------------------------------
Income (loss) before income taxes (11) 30,493 30,482 288 (19,310) 11,460
Income tax expense (benefit) (6,870) 11,471 (18,341) -- -- 4,601
---------------------------------------------------------------------------
Net income $ 6,859 $ 19,022 $ 25,881 $ 288 $ (19,310) $ 6,859
============================================================================
</TABLE>
CONDENSED CONSOLIDATING STATEMENT OF INCOME
SIX MONTHS ENDED JUNE 30, 1999
UNAUDITED
<TABLE>
<CAPTION>
COMBINED NON-
GUARANTOR STERICYCLE AND GUARANTOR
STERICYCLE, SUBSIDIARIES GUARANTOR SUBSIDIARIES ELIMINATIONS CONSOLIDATED
INC. SUBSIDIARIES
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenues $ 30,949 $ 6,433 $ 37,382 $ 11,586 $ (81) $ 48,887
Cost of revenues 19,360 3,990 23,350 9,071 (81) 32,340
Selling, general, and
administrative expense 6,658 1,316 7,974 2,296 -- 10,270
--------------------------------------------------------------------------------
Total costs and expenses 26,018 5,306 31,324 11,367 (81) 42,610
--------------------------------------------------------------------------------
Income from operations 4,931 1,127 6,058 219 -- 6,277
Equity in net income (loss) of
subsidiaries 867 (334) 563 -- (533) --
Other income (expense), net 531 280 811 (685) -- 126
--------------------------------------------------------------------------------
Income (loss) before income taxes 6,329 1,073 7,402 (466) (533) 6,403
Income tax expense 1,342 74 1,416 -- -- 1,416
--------------------------------------------------------------------------------
Net income (loss) $ 4,987 $ 999 $ 5,986 $ (466) $ (533) $ 4,987
================================================================================
</TABLE>
9
<PAGE> 12
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 2000
UNAUDITED
<TABLE>
<CAPTION>
COMBINED NON-
GUARANTOR STERICYCLE AND GUARANTOR
STERICYCLE, SUBSIDIARIES GUARANTOR SUBSIDIARIES ELIMINATIONS CONSOLIDATED
INC. SUBSIDIARIES
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net cash (used in) provided by
operating activities $ (4,335) $ 2,982 $ (1,353) $ 707 $ -- $ (646)
---------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (1,853) (1,446) (3,299) (251) -- (3,550)
Payments for acquisitions and
international investments, net of
cash acquired (642) (982) (1,624) -- -- (1,624)
Proceeds from maturity of short-term
investments 237 -- 237 -- -- 237
---------------------------------------------------------------------------
Net cash used in investing activities (2,258) (2,428) (4,686) (251) -- (4,937)
---------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from bank line of credit 6,700 -- 6,700 -- -- 6,700
Principal payments on capital lease
obligations (84) (632) (716) (249) -- (965)
Repayment of long term debt (15,161) -- (15,161) 32 -- (15,129)
Payments of deferred financing costs (522) -- (522) -- -- (522)
Proceeds from issuance of common
stock 768 -- 768 -- -- 768
---------------------------------------------------------------------------
Net cash used in financing activities (8,299) (632) (8,931) (217) -- (9,148)
---------------------------------------------------------------------------
Net (decrease) increase in cash and
cash equivalents $(14,892) $ (78) $(14,970) $ 239 $ -- (14,731)
===================================================================
Cash and cash equivalents at beginning
of period 19,344
-------
Cash and cash equivalents at end of
period $ 4,613
=======
</TABLE>
10
<PAGE> 13
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1999
UNAUDITED
<TABLE>
<CAPTION>
COMBINED NON-
GUARANTOR STERICYCLE AND GUARANTOR
STERICYCLE, SUBSIDIARIES GUARANTOR SUBSIDIARIES ELIMINATIONS CONSOLIDATED
INC. SUBSIDIARIES
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net cash provided by operating
activities $ 1,410 $ 249 $ 1,659 $ 1,137 $ -- $ 2,796
--------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Capital expenditures (1,644) (1) (1,645) (234) -- (1,879)
Payments for acquisitions and
international investments, net
of cash acquired (7,287) -- (7,287) -- -- (7,287)
Proceeds from maturity of
short-term investments 460 -- 460 -- -- 460
--------------------------------------------------------------------------------
Net cash used in investing (8,471) (1) ((8,472)) (234) -- (8,706)
activities
--------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Net payment on bank lines of
credit (16,359) -- (16,359) -- -- (16,359)
Repayment of long term debt (3,912) -- (3,912) -- -- (3,912)
Principal payments on capital
lease obligations (67) (13) (80) -- -- (80)
Net payments on subordinated debt
(2,750) -- (2,750) -- -- (2,750)
Payment of deferred financing
costs (40) -- (40) -- -- (40)
Net proceeds from secondary
public offering of common stock
47,158 -- 47,158 -- -- 47,158
Proceeds from other issuances of
common stock 172 -- 172 -- -- 172
--------------------------------------------------------------------------------
Net cash provided by (used in)
financing activities 24,202 (13) 24,189 -- -- 24,189
--------------------------------------------------------------------------------
Net increase in cash and cash
equivalents $ 17,141 $ 235 $ 17,376 $ 903 $ -- 18,279
====================================================================
Cash and cash equivalents at
beginning of period 1,283
-------------
Cash and cash equivalents at end of
period $ 19,562
=============
</TABLE>
11
<PAGE> 14
PART I -- FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
We provide regulated medical waste collection, transportation and treatment
services to our customers and related training and education programs and
consulting services. We also sell ancillary supplies and transport
pharmaceuticals, photographic chemicals, lead foil and amalgam for recycling in
selected geographic service areas. We are also expanding into international
markets through joint ventures or by licensing our proprietary technology and
selling associated equipment.
THREE MONTHS ENDED JUNE 30, 2000 COMPARED TO THREE MONTHS ENDED JUNE 30, 1999
The following summarizes (in thousands) the Company's operations:
<TABLE>
<CAPTION>
Three Months Ended
June 30,
2000 1999
----- ----
$ % $ %
<S> <C> <C> <C> <C>
Revenues $79,557 100.0 $25,019 100.0
Cost of revenues 48,261 60.7 16,479 65.9
---------------------------------------
Gross profit 31,296 39.3 8,540 34.1
Selling, general and administrative
expenses 14,726 18.5 5,186 20.7
---------------------------------------
Income from operations before acquisition
related costs 16,570 20.8 3,354 13.4
Acquisition related costs 1,407 1.8 --
---------------------------------------
Income from operations 15,163 19.1 3,354 13.4
Net income 3,086 3.9 2,560 10.2
Depreciation and amortization 5,829 7.3 1,829 7.3
EBITDA before acquisition related costs* 22,259 28.0 5,189 20.7
Earnings per share-Diluted .15 .17
Earnings per share-Diluted (before
acquisition related costs) .20 .17
Earnings per share-Diluted (fully taxed
at 40% before acquisition related costs) .20 .14
</TABLE>
*EBITDA before acquisition related costs is calculated as the sum of net income,
plus net interest expense, income tax expense, depreciation expense,
amortization expense, and acquisition related costs, to the extent deducted in
calculating net income.
12
<PAGE> 15
Revenues. Revenues increased $54,538,000, or 218%, to $79,557,000 during
the three months ended June 30, 2000 from $25,019,000 during the comparable
period in 1999 as a result of the acquisition of the medical waste business of
Browning-Ferris Industries, Inc. (the "BFI acquisition"), which we completed in
November 1999 and as we continued to implement our strategy of focusing on sales
to higher-margin accounts with small account customers. International equipment
revenues during the three months ended June 30, 2000 were $624,000. During the
three months ended June 30, 2000, acquisitions contributed approximately
$53,000,000 to the increase in revenues as compared to the prior year. For the
quarter, our base internal revenue growth for small account customers increased
approximately 17% while revenues from large account customers also increased by
more than 5%.
Cost of Revenues. Cost of revenues increased $31,782,000 to $48,261,000
during the three months ended June 30, 2000 from $16,479,000 during the
comparable period in 1999. The increase was primarily due to the substantial
increase in revenues during the three months ended June 30, 2000 compared to the
same period in 1999. The gross margin percentage increased to 39.3% during the
three months ended June 30, 2000 from 34.1% during the same period in 1999 as a
result of the further integration of the BFI acquisition and synergy savings.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased to $14,726,000 for the three months ended June
30, 2000 from $5,186,000 for the comparable period in 1999. The increase was
largely the result of increases in selling and marketing expenses as a result of
the BFI acquisition, higher amortization of goodwill, expansion of our sales
network, and increased administrative costs related to the higher volume.
Selling, general and administrative expenses as a percent of revenues decreased
to 18.5% during the three months ended June 30, 2000 from 20.7% during the
comparable period in 1999. Excluding amortization, selling, general and
administrative expenses as a percent of revenue decreased to 14.3% during the
three months ended June 30, 2000 from 18.3% during the comparable period in
1999.
Acquisition related costs. During the three months ended June 30, 2000, we
incurred acquisition related costs of $1,407,000 related to the integration of
the BFI acquisition.
EBITDA. Earnings before interest, income taxes, depreciation and
amortization (`EBITDA') before the acquisition related costs increased by
329.0% to $22,259,000 or 28.0% of revenue for the three months ended June 30,
2000 as compared to $5,189,000 or 20.7% of revenue for the comparable period in
1999. The increase in EBITDA is primarily due to the factors described above.
Interest Expense and Interest Income. Interest expense increased to
$9,955,000 during the three months ended June 30, 2000 from $172,000 during the
comparable period in 1999 primarily due to increased interest expense related to
borrowings associated with the BFI acquisition. Interest income decreased to
$112,000 during the three months ended June 30, 2000 from $195,000 during the
comparable period in 1999 primarily due to lower cash balances.
Income Tax Expense. Income taxes for the three months ended June 30, 2000
reflects an effective tax rate of approximately 40% for federal and state income
taxes.
13
<PAGE> 16
SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO SIX MONTHS ENDED JUNE 30, 1999
The following summarizes (in thousands) the Company's operations:
<TABLE>
<CAPTION>
Six Months Ended
June 30,
2000 1999
----- ----
$ % $ %
<S> <C> <C> <C> <C>
Revenues $157,225 100.0 $48,887 100.0
Cost of revenues 95,618 60.8 32,340 66.2
---------------------------------------
Gross profit 61,607 39.2 16,547 33.8
Selling, general and administrative
expenses 29,210 18.6 10,270 21.0
---------------------------------------
Income from operations before acquisition
related costs 32,397 20.6 6,277 12.8
Acquisition related costs 1,407 0.9 --
---------------------------------------
Income from operations 30,990 19.7 6,277 12.8
Net income 6,859 4.4 4,987 10.2
Depreciation and amortization 11,612 7.4 3,545 7.3
EBITDA before acquisition related costs* 43,981 28.0 10,211 20.9
Earnings per share-Diluted .35 .35
Earnings per share-Diluted (before
acquisition related costs) .39 .35
Earnings per share-Diluted (fully taxed
at 40% before acquisition related costs) .39 .27
</TABLE>
*EBITDA before acquisition related costs is calculated as the sum of net income,
plus net interest expense, income tax expense, depreciation expense,
amortization expense, and acquisition related costs, to the extent deducted in
calculating net income.
Revenues. Revenues increased $108,338,000, or 221.6%, to $157,225,000
during the six months ended June 30, 2000 from $48,887,000 during the comparable
period in 1999 as a result of the acquisition of the medical waste business of
Browning-Ferris Industries, Inc. and as we continued to implement our strategy
of focusing on sales to higher-margin accounts with small account customers.
During the six months ended June 30, 2000, acquisitions made during the last 12
months contributed approximately $105,000,000 to the increase in revenues as
compared to the prior year. International sales of machinery were $1,026,000
during the six months ended June 30, 2000.
Cost of Revenues. Cost of revenues increased $63,278,000 or 195.7%, to
$95,618,000 during the six months ended June 30, 2000 from $32,340,000 during
the comparable period in 1999. This increase was primarily due to the
substantial increase in revenues during 2000 compared to the same period in
1999. The gross margin percentage increased to 39.2% during the six months ended
June 30, 2000 from 33.8% during the comparable period in 1999 as a result of the
further integration of the BFI acquisition and synergy savings.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased to $29,210,000 for the six months ended June
30, 2000 from $10,270,000 for the comparable period in 1999. The increase was
largely the result of increases in selling and marketing expenses as a result
the BFI acquisition, higher amortization of goodwill, expansion of our sales
network, and
14
<PAGE> 17
increased administrative costs related to the higher volume. Selling, general
and administrative expenses as a percentage of revenues decreased to 18.6%
during the six months ended June 30, 2000 from 21.0% during the comparable
period in 1999. Excluding amortization, selling, general and administrative
expenses as a percent of revenue decreased to 14.3% during the six months ended
June 30, 2000 from 18.6% during the comparable period in 1999.
Acquisition related costs. During the six months ended June 30, 2000, we
incurred acquisition related costs of $1,407,000 related to the integration of
the BFI acquisition.
EBITDA. Earnings before interest, income taxes, depreciation and
amortization (`EBITDA') before acquisition related costs increased by 330.7%
to $43,981,000 or 28.0% of revenues for the six months ended June 30, 2000 as
compared to $10,211,000 or 20.9% of revenues for the comparable period in 1999.
The increase in EBITDA is primarily due to the factors described above.
Interest Expense and Interest Income. Interest expense increased to
$19,810,000 during the six months ended June 30, 2000, from $535,000 during the
comparable period in 1999, primarily due to increased interest expense related
to borrowings associated with the BFI acquisition. Interest income also
increased to $308,000 during the six months ended June 30, 2000, from $272,000
during the comparable period in 1999 due to higher cash balances throughout the
six months versus the prior year.
Other Income and Expense. Other expense of $28,000 was reported during the
six months ended June 30, 2000 versus other income of $389,000 reported during
the comparable period in 1999. During the six months ended June 30, 1999 a
one-time gain of $656,000 on the sale of routes by 3CI Complete Compliance
Corporation of which Waste Systems Inc. (a wholly owned subsidiary of
Stericycle) is majority shareholder, was partially offset by a one-time non-cash
expense of $192,000 for warrants issued with bridge loan borrowings in December
1998 and January 1999.
Income Tax Expense. Income taxes for the three months ended June 30, 2000
reflects an effective tax rate of approximately 40% for federal and state income
taxes.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 2000, our working capital was $38,362,000 compared to working
capital of $26,858,000 at December 31, 1999. The increase in working capital is
primarily due to higher accounts receivable balances due to the BFI acquisition.
We have available a $50,000,000 revolving line of credit secured by our accounts
receivable and all of our other assets. At June 30, 2000 we had $6,700,000 in
borrowings under this line.
Net cash used in operating activities was $646,000 during the six months
ended June 30, 2000 compared to net cash provided by operating activities of
$2,796,000 for the comparable period in 1999. This decrease primarily reflects
higher accounts receivable and lower accounts payable and accrued liabilities
partially offset by higher net income, depreciation and amortization expense.
The changes to accounts receivable, accounts payable and accrued liabilities
resulted primarily from a payment during the quarter ended June 30, 2000 of
$12,000,000 made to Allied Waste Industries, Inc. for a working capital
settlement in accordance with the BFI acquisition purchase agreement. In
addition, the decrease in accrued liabilities was also impacted by a semi annual
interest payment of approximately $7,900,000 on our senior subordinated notes
made during the quarter ended June 30, 2000.
15
<PAGE> 18
Net cash used in investing activities for the six months ended June 30,
2000 was $4,937,000 compared to $8,706,000 for the comparable period in 1999.
The change is primarily attributable to the decrease in acquisitions completed
in 2000. Capital expenditures were $3,550,000 for the six months ended June 30,
2000 compared to $1,879,000 for the same period in 1999.
Net cash used in financing activities was $9,148,000 during the six months
ended June 30, 2000 compared to net cash provided by financing activities of
$24,189,000 for the comparable period in 1999. The difference between the two
periods results primarily from the completion of our second public offering of
common stock, which raised $47,158,000 net of offering costs, partially offset
by the repayment of $23,101,000 in debt in the first half of 1999. During the
first six months of 2000 we made repayments of $16,094,000 in debt which
consisted of approximately $3,200,000 in scheduled repayments and $12,900,000 in
prepayments.
FROM TIME TO TIME WE ISSUE FORWARD-LOOKING STATEMENTS RELATING TO SUCH
THINGS AS ANTICIPATED FINANCIAL PERFORMANCE, BUSINESS PROSPECTS, ACQUISITION
ACTIVITIES AND SIMILAR MATTERS.
A VARIETY OF FACTORS COULD CAUSE OUR ACTUAL RESULTS AND EXPERIENCE TO
DIFFER MATERIALLY FROM THE ANTICIPATED RESULTS OR OTHER EXPECTATIONS EXPRESSED
IN THE OUR FORWARD-LOOKING STATEMENTS. THE RISKS AND UNCERTAINTIES THAT MAY
AFFECT THE OUR 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.
16
<PAGE> 19
PART II -- OTHER INFORMATION
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
(b) Reports on Form 8-K
We did not file any Current Reports on Form 8-K during the quarter
ended June 30, 2000.
17
<PAGE> 20
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 10, 2000.
STERICYCLE, INC.
By /s/ FRANK J.M. TEN BRINK
Frank J.M. ten Brink
Vice President, Chief Financial
Officer (Principal Financial
and Accounting Officer)
18
