<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 SEPTEMBER 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 November 9, 2000, there were 14,970,174 shares of the
Registrant's Common Stock outstanding.
<PAGE> 2
STERICYCLE, INC. AND SUBSIDIARIES
INDEX TO FORM 10-Q
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements of Stericycle,
Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
at September 30, 2000 (unaudited) and December 31, 1999 1
Condensed Consolidated Statements of Income for the three
months ended September 30, 2000 and 1999 (unaudited)
and nine months ended September 30, 2000 and 1999 (unaudited) 2
Condensed Consolidated Statements of Cash Flows for the
nine months ended September 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
</TABLE>
<PAGE> 3
STERICYCLE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
SEPTEMBER 30 DECEMBER 31
2000 1999
--------- --------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 2,218 $ 19,344
Short-term investments 546 285
Accounts receivable, less allowance for doubtful
accounts of $2,954 in 2000 and $980 in 1999 61,218 48,284
Parts and supplies 3,398 2,035
Prepaid expenses 1,775 863
Other 11,170 6,729
--------- ---------
Total current assets 80,325 77,540
--------- ---------
Property, plant and equipment:
Land 7,486 7,308
Buildings and improvements 26,157 29,123
Machinery and equipment 52,866 50,011
Office equipment and furniture 5,069 5,182
Construction in progress 4,434 386
--------- ---------
96,012 92,010
Less accumulated depreciation (22,289) (16,898)
--------- ---------
Property, plant and equipment, net 73,723 75,112
--------- ---------
Other assets:
Goodwill, less accumulated amortization of $18,725
in 2000 and $7,974 in 1999 420,009 421,001
Other 18,951 22,133
--------- ---------
Total other assets 438,960 443,134
--------- ---------
Total assets $ 593,008 $ 595,786
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long term debt $ 2,932 $ 5,741
Accounts payable 10,631 14,347
Accrued compensation 4,019 7,569
Accrued acquisition related expenses 1,430 7,101
Accrued liabilities 21,946 15,782
Deferred revenue 335 142
--------- ---------
Total current liabilities 41,293 50,682
--------- ---------
Long-term debt, net of current portion 348,504 355,444
Other liabilities 2,994 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
$108,171 in 2000 and $80,625 in 1999) 71,120 69,195
Common shareholders' equity:
Common stock (par value $.01 per share, 30,000,000 shares
authorized, 14,958,610 issued and outstanding in 2000,
14,665,106 issued and outstanding in 1999) 149 147
Additional paid-in capital 139,244 136,691
Accumulated deficit (10,296) (18,724)
--------- ---------
Total shareholders' equity 129,097 118,114
--------- ---------
Total liabilities and shareholders' equity $ 593,008 $ 595,786
========= =========
</TABLE>
1
<PAGE> 4
The accompanying notes are an integral part of these financial statements.
2
<PAGE> 5
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 NINE
MONTHS ENDED MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------------------- ---------------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues $ 81,066 $ 25,398 $ 238,291 $ 74,285
Costs and expenses:
Cost of revenues 49,151 16,658 144,769 48,998
Selling, general and
administrative expenses 14,765 5,271 43,975 15,541
Acquisition related costs 1,483 -- 2,890 --
------------ ------------ ------------ ------------
Total costs and expenses 65,399 21,929 191,634 64,539
------------ ------------ ------------ ------------
Income from operations 15,667 3,469 46,657 9,746
Other income (expense):
Interest income 177 304 485 576
Interest expense (9,861) (154) (29,671) (689)
Other income (144) 15 (172) 404
------------ ------------ ------------ ------------
Total other income (expense) (9,828) 165 (29,358) 291
------------ ------------ ------------ ------------
Income before income taxes $ 5,839 $ 3,634 $ 17,299 $ 10,037
Income tax expense $ 2,406 752 7,007 2,168
------------ ------------ ------------ ------------
Net income $ 3,433 $ 2,882 $ 10,292 $ 7,869
============ ============ ============ ============
Earnings per share - Basic $ 0.19 $ 0.20 $ 0.56 $ 0.56
============ ============ ============ ============
Earnings per share - Diluted $ 0.17 $ 0.19 $ 0.52 $ 0.54
============ ============ ============ ============
Weighted average number of
common shares outstanding--
Basic 14,872,322 14,605,219 14,809,100 14,073,309
Weighted average number of common
shares outstanding--Diluted 20,096,123 15,003,105 19,877,865 14,471,191
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE> 6
STERICYCLE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE NINE
MONTHS ENDED
SEPTEMBER 30,
--------------------------
2000 1999
-------- --------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 10,292 $ 7,869
Adjustments to reconcile net income to net cash
provided by operating activities:
Stock compensation expense 120 --
Depreciation and amortization 17,415 5,316
Changes in operating assets and liabilities, net of effect of acquisitions:
Accounts receivable (11,972) (1,864)
Parts and supplies (1,063) 438
Prepaid expenses (1,002) 475
Other assets (1,423) (2,393)
Accounts payable (3,747) (1,755)
Accrued liabilities (3,374) (252)
Deferred revenue 193 (2,000)
-------- --------
Net cash provided by operating activities 5,439 5,834
-------- --------
INVESTING ACTIVITIES:
Payments for acquisitions and international investments,
net of cash acquired (4,203) (11,667)
Proceeds from maturity of short-term investments 237 460
Purchases of short-term investments -- (1,500)
Capital expenditures (7,933) (2,367)
-------- --------
Net cash used in investing activities (11,899) (15,074)
-------- --------
FINANCING ACTIVITIES:
Net proceeds and (repayments) on line of credit 5,000 (16,359)
Repayment of long term debt (15,129) (4,022)
Repayment of subordinated debt -- (2,750)
Payments of deferred financing costs (522) (40)
Principal payments on capital lease obligations (1,280) (154)
Net proceeds from secondary public offering -- 47,158
Proceeds from other issuance of common stock 1,265 141
-------- --------
Net cash provided by (used in) financing activities (10,666) 23,974
-------- --------
Net increase (decrease) in cash and cash equivalents (17,126) 14,734
Cash and cash equivalents at beginning of period 19,344 1,283
-------- --------
Cash and cash equivalents at end of period $ 2,218 $ 16,017
======== ========
Non-cash activities:
Net issuance of common stock and warrants
for certain acquisitions $ 1,260 $ 2,993
Net issuance of notes payable for certain acquisitions $ 263 $ 103
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE> 7
STERICYCLE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 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
nine-month period ended September 30, 2000 are not necessarily indicative of the
results that may be achieved for the entire year ending December 31, 2000.
NOTE 2 --ACQUISITIONS
During the quarter we acquired the customers lists and other assets of
Stick Proof Company in North Carolina, and Environmental Solutions, LLC and JS
Holdings, Inc. d/b/a Sharps Away, both in Minnesota. In addition we acquired the
customer lists from Waste Management of New York LLC in Rochester N.Y. The
purchase price was paid in cash for two of the acquisitions, in a combination of
cash and stock for one of the acquisitions and in a combination of cash, stock
and a note for one of the acquisitions. The total purchase price for all four
acquisitions was $2.6 million.
In addition, on July 1, 2000 we increased our ownership in our Mexico joint
venture, Medam S.A. de C.V. ("Medam"), to 64% from 49% by purchasing an
additional 15% interest from our co-venturer. We paid the purchase price of $1.6
million by a combination of cash installment payments and warrants to purchase
common stock. The increase in ownership changes our accounting method for the
joint venture from the equity to the consolidation method.
NOTE 3--STOCK OPTIONS
During the quarter ended September 30, 2000, options to purchase 15,000
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 $23.66 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. We also issued
warrants to purchase 44,374 shares of common stock in connection with our
acquisition of an additional 15% interest in Medam. Of these warrants, warrants
for 31,128 shares are exercisable immediately, while the remaining 13,246 shares
become exercisable contingently over five years. The exercise price of the
warrants is $17.50 per share.
NOTE 4--STOCK ISSUANCES
5
<PAGE> 8
During the quarter ending September 30, 2000, options to purchase
69,000 shares of common stock were exercised at prices ranging from $.53-$16.625
per share. In addition, warrants to purchase 63,290 shares of common stock were
exercised at the price of $15.77 per share. We also issued 20,410 shares of
common stock in connection with certain acquisitions made in the quarter.
NOTE 5--INCOME TAXES
At September 30, 2000, we had net operating loss carry forwards for
federal income tax purposes of approximately $17.7 million (excluding loss
carryforwards from 3CI Complete Compliance Corporation and Med Tech
Environmental, Inc) 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", to an amount
that we believe is more likely than not of being recovered.
6
<PAGE> 9
NOTE 6 -- CONDENSED CONSOLIDATING FINANCIAL INFORMATION
Payments under our senior subordinated notes (the Notes) are unconditionally
guaranteed, jointly and severally, by all of our wholly-owned domestic
subsidiaries, which include Environmental Control Company, Inc., acquired in May
1997, Waste Systems, Inc., acquired in October 1998, Med-Tech Environmental,
Inc., acquired in December 1998, BFI Medical Waste, Inc. and Browning-Ferris
Industries of Connecticut, Inc., both acquired in November 1999, and certain
other subsidiaries which have insignificant assets and operations
(collectively,"the Guarantors"). Financial information concerning the Guarantors
as of September 30, 2000 and December 31, 1999 and for the three and nine-month
periods ended September 30, 2000 and 1999 is presented below for purposes of
complying with the reporting requirements of the Guarantors. The financial
information concerning the Guarantors is being presented through condensed
consolidating financial statements since we have more than minimal independent
operations and the guarantees are full and unconditional and are joint and
several. Because of commingled operations, however, we are 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 we do not believe that such financial statements are material
to investors.
7
<PAGE> 10
CONDENSED CONSOLIDATING BALANCE SHEET
SEPTEMBER 30, 2000
UNAUDITED
<TABLE>
<CAPTION>
COMBINED
STERICYCLE NON-
GUARANTOR AND GUARANTOR
STERICYCLE, SUBSIDIARIES GUARANTOR SUBSIDIARIES ELIMINATIONS CONSOLIDATED
INC. SUBSIDIARIES
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,083 $ 164 $ 1,247 $ 971 $ -- $ 2,218
Other current assets 67,217 11,503 78,720 6,965 (7,578) 78,107
-------------------------------------------------------------------------------
Total current assets 68,300 11,667 79,967 7,936 (7,578) 80,325
Property, plant and equipment,
net 33,967 26,099 60,066 13,657 -- 73,723
Goodwill, net 223,796 183,843 407,639 12,370 -- 420,009
Investment in subsidiaries 242,445 2,897 245,342 -- (245,342) --
Other assets 21,319 9,451 30,770 133 (11,952) 18,951
-------------------------------------------------------------------------------
Total assets $589,827 $233,957 $823,784 $34,096 $(264,872) $593,008
===============================================================================
LIABILITIES AND SHAREHOLDERS'
EQUITY
Current liabilities:
Current portion of $ 922 $ 468 $ 1,390 $ 1,542 $ -- $ 2,932
long-term debt
Other current liabilities 41,844 1,312 43,156 4,172 (8,967) 38,361
-------------------------------------------------------------------------------
Total current liabilities 42,766 1,780 44,546 5,714 (8,967) 41,293
Long-term debt, net of current
portion 345,140 1,957 347,097 11,930 (10,523) 348,504
Other liabilities 1,704 -- 1,704 1,290 -- 2,994
Convertible preferred stock 71,120 -- 71,120 -- -- 71,120
Common shareholders' equity 129,097 230,220 359,317 15,162 (245,382) 129,097
-------------------------------------------------------------------------------
Total liabilities and
shareholders' equity $589,827 $233,957 $823,784 $34,096 $(264,872) $593,008
===============================================================================
</TABLE>
8
<PAGE> 11
CONDENSED CONSOLIDATING BALANCE SHEET
DECEMBER 31, 1999
AUDITED
<TABLE>
<CAPTION>
COMBINED
STERICYCLE AND NON-
GUARANTOR GUARANTOR GUARANTOR
STERICYCLE, SUBSIDIARIES SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
INC.
----------------------------------------------------------------------------------------
<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>
9
<PAGE> 12
CONDENSED CONSOLIDATING STATEMENT OF INCOME
THREE MONTHS ENDED SEPTEMBER 30, 2000
UNAUDITED
<TABLE>
<CAPTION>
COMBINED
STERICYCLE AND NON-
GUARANTOR GUARANTOR GUARANTOR
STERICYCLE, SUBSIDIARIES SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
INC.
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenues $ 35,488 $ 37,996 $ 73,484 $ 7,913 $ (331) $81,066
Cost of revenues 19,921 24,015 43,936 5,546 (331) 49,151
Selling, general, and
administrative expense 8,809 4,429 13,238 1,527 -- 14,765
Acquisition related expenses 1,483 -- 1,483 -- -- 1,483
---------------------------------------------------------------------------------------
Total costs and expenses 30,213 28,444 58,657 7,073 (331) 65,399
---------------------------------------------------------------------------------------
Income from operations 5,275 9,552 14,827 840 -- 15,667
Equity in net income (loss) of
subsidiaries 6,491 (274) 6,217 -- (6,217) --
Other (expense) income, net (9,359) 126 (9,233) (595) (9,828)
---------------------------------------------------------------------------------------
Income before income taxes 2,407 9,404 11,811 245 (6,217) 5,839
Income tax expense (benefit) (1,026) 3,370 2,344 62 -- 2,406
---------------------------------------------------------------------------------------
Net income $ 3,433 $ 6,034 $ 9,467 $ 183 $(6,217) $ 3,433
=======================================================================================
</TABLE>
10
<PAGE> 13
CONDENSED CONSOLIDATING STATEMENT OF INCOME
THREE MONTHS ENDED SEPTEMBER 30, 1999
UNAUDITED
<TABLE>
<CAPTION>
COMBINED
STERICYCLE AND NON-
GUARANTOR GUARANTOR GUARANTOR
STERICYCLE, SUBSIDIARIES SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
INC.
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenues $ 16,996 $2,702 $ 19,698 $5,983 $ (283) $25,398
Cost of revenues 10,544 1,830 12,374 4,567 (283) 16,658
Selling, general, and
administrative expense 4,114 442 4,556 715 -- 5,271
---------------------------------------------------------------------------------------
Total costs and expenses 14,658 2,272 16,930 5,282 (283) 21,929
---------------------------------------------------------------------------------------
Income from operations 2,338 430 2,768 701 -- 3,469
Equity in net income of
subsidiaries 1,741 1,066 2,807 -- (2,807) --
Other income (expense), net (478) 151 (327) 492 -- 165
---------------------------------------------------------------------------------------
Income before income taxes 3,601 1,647 5,248 1,193 (2,807) 3,634
Income tax expense 719 33 752 -- -- 752
---------------------------------------------------------------------------------------
Net income $ 2,882 $1,614 $ 4,496 $1,193 $(2,807) $ 2,882
=======================================================================================
</TABLE>
11
<PAGE> 14
CONDENSED CONSOLIDATING STATEMENT OF INCOME
NINE MONTHS ENDED SEPTEMBER 30, 2000
UNAUDITED
<TABLE>
<CAPTION>
COMBINED
STERICYCLE AND NON-
GUARANTOR GUARANTOR GUARANTOR
STERICYCLE, SUBSIDIARIES SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
INC.
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenues $ 66,036 $ 151,446 $ 217,482 $ 21,258 $ (449) $238,291
Cost of revenues 37,344 92,436 129,780 15,438 (449) 144,769
Selling, general, and
administrative expense 21,225 18,889 40,114 3,861 -- 43,975
Acquisition related expenses 2,890 -- 2,890 -- -- 2,890
--------------------------------------------------------------------------------------------
Total costs and expenses 61,459 111,325 172,784 19,299 (449) 191,634
--------------------------------------------------------------------------------------------
Income from operations 4,577 40,121 44,698 1,959 -- 46,657
Equity in net income (loss) of
subsidiaries 26,053 (525) 25,528 -- (25,528) --
Other (expense) income, net (28,234) 301 (27,933) (1,425) -- (29,358)
--------------------------------------------------------------------------------------------
Income before income taxes 2,396 39,897 42,293 534 (25,528) 17,299
Income tax expense (benefit) (7,896) 14,841 6,945 62 -- 7,007
--------------------------------------------------------------------------------------------
Net income $ 10,292 $ 25,056 $ 35,348 $ 472 $(25,528) $ 10,292
============================================================================================
</TABLE>
12
<PAGE> 15
CONDENSED CONSOLIDATING STATEMENT OF INCOME
NINE MONTHS ENDED SEPTEMBER 30, 1999
UNAUDITED
<TABLE>
<CAPTION>
COMBINED
STERICYCLE AND NON-
GUARANTOR GUARANTOR GUARANTOR
STERICYCLE, SUBSIDIARIES SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
INC.
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenues $47,945 $9,135 $57,080 $ 17,569 $ (364) $74,285
Cost of revenues 29,904 5,820 35,724 13,638 (364) 48,998
Selling, general, and
administrative expense 10,772 1,758 12,530 3,011 -- 15,541
------------------------------------------------------------------------------------------
Total costs and expenses 40,676 7,578 48,254 16,649 (364) 64,539
------------------------------------------------------------------------------------------
Income from operations 7,269 1,557 8,826 920 -- 9,746
Equity in net income of
subsidiaries 2,608 732 3,340 -- (3,340) --
Other income (expense), net 53 431 484 (193) -- 291
------------------------------------------------------------------------------------------
Income before income taxes 9,930 2,720 12,650 727 (3,340) 10,037
Income tax expense 2,061 107 2,168 -- -- 2,168
------------------------------------------------------------------------------------------
Net income $ 7,869 $2,613 $10,482 $ 727 $(3,340) $ 7,869
==========================================================================================
</TABLE>
13
<PAGE> 16
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 2000
UNAUDITED
<TABLE>
<CAPTION>
COMBINED
STERICYCLE AND NON-
GUARANTOR GUARANTOR GUARANTOR
STERICYCLE, SUBSIDIARIES SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
INC.
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net cash provided by operating
activities $ 34 $ 3,848 $ 3,882 $ 1,557 $ -- $ 5,439
-----------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Capital expenditures (5,508) (2,077) (7,585) (348) -- (7,933)
Payments for acquisitions and
international investments,
net of cash acquired (3,215) (972) (4,187) (16) -- (4,203)
Proceeds from maturity of
short-term investments 237 -- 237 -- -- 237
-----------------------------------------------------------------------------------------
Net cash used in investing
activities (8,486) (3,049) (11,535) (364) -- (11,899)
-----------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Net proceeds from bank line of
credit 5,000 -- 5,000 -- -- 5,000
Principal payments on capital
lease obligations (118) (881) (999) (281) -- (1,280)
Repayment of long term debt (14,898) -- (14,898) (231) -- (15,129)
Payments of deferred financing
costs (522) -- (522) -- -- (522)
Proceeds from issuance of
common stock 1,265 -- 1,265 -- -- 1,265
-----------------------------------------------------------------------------------------
Net cash used in financing
activities (9,273) (881) (10,154) (512) -- (10,666)
-----------------------------------------------------------------------------------------
Net (decrease) increase in cash
and cash equivalents $(17,725) $ (82) $(17,807) $ 681 $ -- (17,126)
=========================================================================================
Cash and cash
equivalents at
beginning of period 19,344
--------
Cash and cash equivalents at end
of period $ 2,218
</TABLE>
14
<PAGE> 17
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1999
UNAUDITED
<TABLE>
<CAPTION>
COMBINED
STERICYCLE AND NON-
GUARANTOR GUARANTOR GUARANTOR
STERICYCLE, SUBSIDIARIES SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
INC.
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net cash provided by (used
in) operating activities $ (895) $ 238 $ (657) $ 6,409 $ 82 $ 5,834
-------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Capital expenditures (2,254) -- (2,254) (129) 16 (2,367)
Payments for acquisitions
and international
investments, net of cash (11,667) -- (11,667) -- -- (11,667)
acquired
Proceeds from maturity of
short-term investments 460 -- 460 -- -- 460
Purchases of short-term -- -- -- (1,500) -- (1,500)
investments
-------------------------------------------------------------------------------------------
Net cash used in investing (13,461) -- (13,461) (1,629) 16 (15,074)
activities
-------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Net payment on bank lines (16,359) -- (16,359) -- -- (16,359)
of credit
Repayment of long term debt (262) -- (262) (3,760) -- (4,022)
Principal payments on
capital lease obligations (36) (18) (54) (100) -- (154)
Net payments on (2,750) -- (2,750) -- -- (2,750)
subordinated debt
Payment of deferred (40) -- (40) -- -- (40)
financing costs
Net proceeds from secondary
public offering of common 47,158 -- 47,158 -- -- 47,158
stock
Proceeds from other
issuances of common stock 141 -- 141 (5) 5 141
-------------------------------------------------------------------------------------------
Net cash provided by (used in)
financing activities 27,852 (18) 27,834 (3,865) 5 23,974
-------------------------------------------------------------------------------------------
Net increase in cash and cash
equivalents $ 13,496 $ 220 $ 13,716 $ 915 $103 14,734
===========================================================================================
Cash and cash equivalents at
beginning of period 1,283
--------
Cash and cash equivalents at
end of period $ 16,017
========
</TABLE>
16
<PAGE> 18
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 SEPTEMBER 30, 2000 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1999
The following summarizes (in thousands) the Company's operations:
<TABLE>
<CAPTION>
Three Months Ended
September 30,
2000 1999
----- ----
$ % $ %
<S> <C> <C> <C> <C>
Revenues $81,066 100.0 $25,398 100.0
Cost of revenues 49,151 60.6 16,658 65.6
--------------------------------------------
Gross profit 31,915 39.4 8,740 34.4
Selling, general and administrative
expenses 14,765 18.2 5,271 20.8
--------------------------------------------
Income from operations before acquisition
related costs 17,150 21.2 3,469 13.7
Acquisition related costs 1,483 1.8 --
--------------------------------------------
</TABLE>
17
<PAGE> 19
<TABLE>
<S> <C> <C> <C> <C>
Income from operations 15,667 19.3 3,469 13.7
Net income 3,433 4.2 2,882 11.3
Depreciation and amortization 5,803 7.2 1,771 7.0
EBITDA before acquisition related costs* 22,809 28.1 5,255 20.7
Earnings per share-Diluted .17 .19
Earnings per share-Diluted (before tax
adjusted acquisition related costs) .22 .19
Earnings per share-Diluted (fully taxed
at 40% before acquisition related costs) .22 .15
</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 $55.7 million or 219.2%, to $81.1 million
during the three months ended September 30, 2000 from $25.4 million 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 small account customers. International
equipment revenues and revenues from Medam during the three months ended
September 30, 2000 were $2.7 million. During the three months ended September
30, 2000, acquisitions contributed approximately $53.1 million to the increase
in revenues as compared to the prior year. For the quarter, our base internal
revenue growth for small account customers increased over 16% while revenues
from large account customers increased by more than 5%.
Cost of Revenues. Cost of revenues increased $32.5 million to $49.2
million during the three months ended September 30, 2000 from $16.7 million
during the comparable period in 1999. The increase was primarily due to the
substantial increase in revenues during the three months ended September 30,
2000 compared to the same period in 1999. The gross margin percentage increased
to 39.4% during the three months ended September 30, 2000 from 34.4% during the
same period in 1999 as a result of the further integration of the BFI
acquisition and an increase in international equipment revenue.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased to $14.8 million for the three months ended
September 30, 2000 from $5.3 million 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 18.2% during the three months ended September 30, 2000 from 20.8%
during the comparable period in 1999. Excluding amortization, selling, general
and administrative expenses as a percent of revenue decreased to 14.0% during
the three months ended September 30, 2000 from 18.5% during the comparable
period in 1999.
Acquisition related costs. During the three months ended September 30,
2000, we incurred acquisition related costs of $1.5 million 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 334.0%
to $22.8 million or 28.1% of revenue for the three months ended September 30,
2000 as compared to $5.3 million or 20.7% of revenue for the comparable period
in 1999. The increase in EBITDA is primarily due to the factors described above.
18
<PAGE> 20
Interest Expense and Interest Income. Interest expense increased to
$9.9 million during the three months ended September 30, 2000 from $.2 million
during the comparable period in 1999 primarily due to increased interest expense
related to borrowings associated with the BFI acquisition. Interest income
decreased to $.2 million during the three months ended September 30, 2000 from
$.3 million during the comparable period in 1999 primarily due to lower cash
balances.
Income Tax Expense. Income taxes for the three months ended September
30, 2000 reflects an effective tax rate of approximately 41.2% for federal and
state income taxes.
19
<PAGE> 21
NINE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1999
The following summarizes (in thousands) the Company's operations:
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
2000 1999
----- ----
$ % $ %
<S> <C> <C> <C> <C>
Revenues $238,291 100.0 $74,285 100.0
Cost of revenues 144,769 60.8 48,998 66.0
---------------------------------------------
Gross profit 93,522 39.2 25,287 34.0
Selling, general and administrative
expenses 43,975 18.5 15,541 20.9
---------------------------------------------
Income from operations before acquisition
related costs 49,547 20.8 9,746 13.1
Acquisition related costs 2,890 1.2 -- --
---------------------------------------------
Income from operations 46,657 19.6 9,746 13.1
Net income 10,292 4.3 7,869 10.6
Depreciation and amortization 17,415 7.3 5,316 7.2
EBITDA before acquisition related costs* 66,790 28.0 15,466 20.8
Earnings per share-Diluted .52 .54
Earnings per share-Diluted (before
acquisition related costs) .61 .54
Earnings per share-Diluted (fully taxed
at 40% before acquisition related costs) .61 .42
</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 $164 million or 220.8%, to $238.3 million
during the nine months ended September 30, 2000 from $74.3 million during the
comparable period in 1999 as a result of the BFI acquisition and as we continued
to implement our strategy of focusing on sales to higher-margin small account
customers. During the nine months ended September 30, 2000, acquisitions made
during the last 12 months contributed approximately $159 million to the increase
in revenues as compared to the prior year. International equipment revenues and
revenues from Medam were $3.7 million during the nine months ended September 30,
2000.
Cost of Revenues. Cost of revenues increased $95.8 million or 195.5%,
to $144.8 million during the nine months ended September 30, 2000 from $49
million 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 nine months
ended September 30, 2000 from 34.0% during the comparable period in 1999 as a
result of the further integration of the BFI acquisition.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased to $44 million for the nine months ended
September 30, 2000 from $15.5 million for the comparable period in 1999. The
increase was largely the result of increases in selling and marketing expenses
as a result of the
20
<PAGE> 22
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 percentage of revenues
decreased to 18.5% during the nine months ended September 30, 2000 from 20.9%
during the comparable period in 1999. Excluding amortization, selling, general
and administrative expenses as a percent of revenue decreased to 14.2% during
the nine months ended September 30, 2000 from 18.5% during the comparable period
in 1999.
Acquisition related costs. During the nine months ended September 30,
2000, we incurred acquisition related costs of $2.9 million related to the
integration of the BFI acquisition.
EBITDA. Earnings before interest, income taxes, depreciation and
amortization ('EBITDA') before acquisition related costs increased by 331.9% to
$66.8 million or 28.0% of revenues for the nine months ended September 30, 2000
as compared to $15.5 million or 20.8% 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
$29.7 million during the nine months ended September 30, 2000, from $.7 million
during the comparable period in 1999, primarily due to increased interest
expense related to borrowings associated with the BFI acquisition. Interest
income decreased to $.5 million during the nine months ended September 30, 2000,
from $.6 million during the comparable period in 1999 due to lower cash balances
throughout the nine months versus the prior year.
Income Tax Expense. Income taxes for the nine months ended September
30, 2000 reflects an effective tax rate of approximately 40.5% for federal and
state income taxes.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2000, our working capital was $39 million compared to
working capital of $26.9 million 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 million revolving line of credit secured by
our accounts receivable and all of our other assets. At September 30, 2000 we
had $5 million in borrowings under this line.
Net cash provided by operating activities was $5.4 million during the
nine months ended September 30, 2000 compared to net cash provided by operating
activities of $5.8 million 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 .
Net cash used in investing activities for the nine months ended September
30, 2000 was $11.9 million compared to $15.1 million for the comparable period
in 1999. The change is primarily attributable to the decrease in acquisitions
completed in 2000 partially offset by an increase in capital expenditures in
2000. Capital expenditures were $7.9 million for the nine months ended September
30, 2000 compared to $2.4 million for the same period in 1999.
Net cash used in financing activities was $10.7 million during the nine
months ended September 30, 2000 compared to net cash provided by financing
activities of $24 million 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 $47.2 million net of offering
costs, partially offset by the repayment of $23.3 million in debt in the nine
months ended September 30, 1999.
21
<PAGE> 23
During the first nine months of 2000 we made repayments of $16.4 million in debt
which consisted of approximately $3.5 million in scheduled repayments and $12.9
million 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.
22
<PAGE> 24
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 September 30, 2000.
23
<PAGE> 25
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: November 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)
24
