10-Q 1 e10-q.txt FORM 10-Q 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. 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 3 STERICYCLE, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
JUNE 30 DECEMBER 31 2000 1999 --------- --------- (UNAUDITED) 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 ========= =========
The accompanying notes are an integral part of these financial statements. 1 4 STERICYCLE, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) (UNAUDITED)
FOR THE THREE FOR THE SIX MONTHS ENDED MONTHS ENDED JUNE 30, JUNE 30, -------- -------- 2000 1999 2000 1999 ---- ---- ---- ---- 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
The accompanying notes are an integral part of these financial statements. 2 5 STERICYCLE, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 2000 1999 -------- -------- 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
The accompanying notes are an integral part of these financial statements. 3 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 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 8 CONDENSED CONSOLIDATING BALANCE SHEET JUNE 30, 2000 UNAUDITED
COMBINED NON- GUARANTOR STERICYCLE AND GUARANTOR STERICYCLE, SUBSIDIARIES GUARANTOR SUBSIDIARIES ELIMINATIONS CONSOLIDATED INC. SUBSIDIARIES ------------------------------------------------------------------------------ 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 =============================================================================
6 9 CONDENSED CONSOLIDATING BALANCE SHEET DECEMBER 31, 1999 AUDITED
COMBINED NON- GUARANTOR STERICYCLE AND GUARANTOR STERICYCLE, SUBSIDIARIES GUARANTOR SUBSIDIARIES ELIMINATIONS CONSOLIDATED INC. SUBSIDIARIES ------------------------------------------------------------------------------ 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 =============================================================================
7 10 CONDENSED CONSOLIDATING STATEMENT OF INCOME THREE MONTHS ENDED JUNE 30, 2000 UNAUDITED
COMBINED NON- GUARANTOR STERICYCLE AND GUARANTOR STERICYCLE, SUBSIDIARIES GUARANTOR SUBSIDIARIES ELIMINATIONS CONSOLIDATED INC. SUBSIDIARIES --------------------------------------------------------------------------------- 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 ==============================================================================
CONDENSED CONSOLIDATING STATEMENT OF INCOME THREE MONTHS ENDED JUNE 30, 1999 UNAUDITED
COMBINED NON- GUARANTOR STERICYCLE AND GUARANTOR STERICYCLE, SUBSIDIARIES GUARANTOR SUBSIDIARIES ELIMINATIONS CONSOLIDATED INC. SUBSIDIARIES --------------------------------------------------------------------------------- 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 ==============================================================================
8 11 CONDENSED CONSOLIDATING STATEMENT OF INCOME SIX MONTHS ENDED JUNE 30, 2000 UNAUDITED
COMBINED NON- GUARANTOR STERICYCLE AND GUARANTOR STERICYCLE, SUBSIDIARIES GUARANTOR SUBSIDIARIES ELIMINATIONS CONSOLIDATED INC. SUBSIDIARIES -------------------------------------------------------------------------------- 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 ============================================================================
CONDENSED CONSOLIDATING STATEMENT OF INCOME SIX MONTHS ENDED JUNE 30, 1999 UNAUDITED
COMBINED NON- GUARANTOR STERICYCLE AND GUARANTOR STERICYCLE, SUBSIDIARIES GUARANTOR SUBSIDIARIES ELIMINATIONS CONSOLIDATED INC. SUBSIDIARIES -------------------------------------------------------------------------------- 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 ================================================================================
9 12 CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS SIX MONTHS ENDED JUNE 30, 2000 UNAUDITED
COMBINED NON- GUARANTOR STERICYCLE AND GUARANTOR STERICYCLE, SUBSIDIARIES GUARANTOR SUBSIDIARIES ELIMINATIONS CONSOLIDATED INC. SUBSIDIARIES ------------------------------------------------------------------------------- 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 =======
10 13 CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS SIX MONTHS ENDED JUNE 30, 1999 UNAUDITED
COMBINED NON- GUARANTOR STERICYCLE AND GUARANTOR STERICYCLE, SUBSIDIARIES GUARANTOR SUBSIDIARIES ELIMINATIONS CONSOLIDATED INC. SUBSIDIARIES ----------------------------------------------------------------------------------- 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 =============
11 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:
Three Months Ended June 30, 2000 1999 ----- ---- $ % $ % 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
*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 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 16 SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO SIX MONTHS ENDED JUNE 30, 1999 The following summarizes (in thousands) the Company's operations:
Six Months Ended June 30, 2000 1999 ----- ---- $ % $ % 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
*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 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 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 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 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