-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, LS7hsX3NcdP3xwM4z0vIW47H/htM93p/2T92858sMAvnQRmfVB3+nzy7I0HrpNNu cQ07CMgI+F/BlQ8Mc5as/w== 0000950137-01-501416.txt : 20010514 0000950137-01-501416.hdr.sgml : 20010514 ACCESSION NUMBER: 0000950137-01-501416 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20010331 FILED AS OF DATE: 20010511 FILER: COMPANY DATA: COMPANY CONFORMED NAME: STERICYCLE INC CENTRAL INDEX KEY: 0000861878 STANDARD INDUSTRIAL CLASSIFICATION: HAZARDOUS WASTE MANAGEMENT [4955] IRS NUMBER: 363640402 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-21229 FILM NUMBER: 1629959 BUSINESS ADDRESS: STREET 1: 28161 NORTH KEITH DRIVE STREET 2: SUITE 410 CITY: LAKE FOREST STATE: IL ZIP: 60045 BUSINESS PHONE: 8479456550 MAIL ADDRESS: STREET 1: 1419 LAKE COOK RD STREET 2: STE 410 CITY: DEERFIELD STATE: IL ZIP: 60015 10-Q 1 c62307e10-q.txt QUARTERLY REPORT 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 MARCH 31,2001 [ ] 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 (IRS 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 May 9, 2001 there were 15,374,568 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 March 31, 2001 (unaudited) and December 31, 2000 1 Condensed Consolidated Statements of Income for the three months ended March 31, 2001 and 2000 (unaudited) 2 Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2001 and 2000 (unaudited) 3 Notes to Condensed Consolidated Financial Statements 4 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 6 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K 10 3 STERICYCLE, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
MARCH 31 DECEMBER 31 2001 2000 ---- ---- (UNAUDITED) ASSETS Current assets: Cash and cash equivalents $ 3,160 $ 2,666 Short-term investments 491 281 Accounts receivable, less allowance for doubtful accounts of $3,625 in 2000 and $3,678 in 2001 67,401 71,225 Parts and supplies 3,500 3,216 Prepaid expenses 2,463 1,858 Other 9,921 11,765 --------- --------- Total current assets 86,936 91,011 --------- --------- Property, plant and equipment: Land 7,486 7,486 Buildings and improvements 26,808 26,565 Machinery and equipment 54,571 54,040 Office equipment and furniture 6,672 6,515 Construction in progress 6,444 3,834 --------- --------- 101,981 98,440 Less accumulated depreciation (27,134) (24,532) --------- --------- Property, plant and equipment, net 74,847 73,908 --------- --------- Other assets: Goodwill, less accumulated amortization of $24,507 in 2000 and $28,233 in 2001 414,991 418,790 Other 16,153 14,273 --------- --------- Total other assets 431,144 433,063 --------- --------- Total assets $ 592,927 $ 597,982 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Current portion of long term debt $ 4,906 $ 5,097 Accounts payable 9,848 14,444 Due to seller 1,596 1,631 Accrued compensation 1,521 3,887 Accrued acquisition related expenses 1,141 3,766 Accrued liabilities 21,546 13,783 Deferred revenue 2,406 505 --------- --------- Total current liabilities 42,964 43,113 --------- --------- Long-term debt, net of current portion 336,637 345,104 Other liabilities 3,258 3,628 Redeemable preferred stock Series A convertible preferred stock (par value $.01 share, 75,000 shares authorized, 75,000 outstanding in 2000, 74,625 outstanding in 2001, liquidation preference of $77,883 in 2000 and $78,135 in 2001) 71,690 71,437 Common shareholders' equity Common stock (par value $.01 per share, 30,000,000 shares authorized, 15,208,866 issued and outstanding in 2000, 15,275,592 issued and outstanding in 2001) 153 152 Additional paid-in capital 142,302 141,304 Accumulated other comprehensive (loss) (1,707) - Accumulated deficit (2,370) (6,756) --------- --------- Total shareholders' equity 138,378 134,700 --------- --------- Total liabilities and shareholders' equity $ 592,927 $ 597,982 ========= =========
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 MONTHS ENDED MARCH 31, --------- 2001 2000 ---- ---- Revenues $ 85,835 $ 77,668 Costs and expenses: Cost of revenues 51,771 47,357 Selling, general and administrative expenses 15,828 14,484 Acquisition related costs 238 - ------------ ------------ Total costs and expenses 67,837 61,841 ------------ ------------ Income from operations $ 17,998 $ 15,827 Other income (expense): Interest income 41 196 Interest expense (9,440) (9,855) Other income (172) 112 ------------ ------------ Total other income (expense) (9,571) (9,547) ------------ ------------ Income before income taxes $ 8,427 $ 6,280 Income tax expense $ 3,410 2,507 ------------ ------------ Net income $ 5,017 $ 3,773 ============ ============ Earnings per share - Basic $ 0.29 $ 0.21 ============ ============ Earnings per share - Diluted $ 0.24 $ 0.19 ============ ============ Weighted average number of common shares outstanding--Basic 15,239,925 14,746,603 Weighted average number of common shares outstanding--Diluted 20,594,986 19,589,090 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 THREE MONTHS ENDED MARCH 31, --------- 2001 2000 ---- ---- OPERATING ACTIVITIES: Net income $ 5,017 $ 3,773 Adjustments to reconcile net income to net cash provided by operating activities: Stock compensation expense 41 40 Depreciation and amortization 6,122 5,783 Changes in operating assets and liabilities, net of effect of acquisitions: Accounts receivable 3,824 (5,133) Parts and supplies (284) (667) Prepaid expenses (605) (342) Other assets 2,336 553 Accounts payable (4,596) (3,039) Accrued liabilities 1,013 2,879 Deferred revenue 1,901 565 -------- -------- Net cash provided by operating activities 14,769 4,412 -------- -------- INVESTING ACTIVITIES: Payments for acquisitions and international investments, net of cash acquired (2,013) (655) Short-term investments (210) 7 Capital expenditures (3,960) (1,158) -------- -------- Net cash used in investing activities (6,183) (1,806) -------- -------- FINANCING ACTIVITIES: Repayment of long term debt (8,296) (844) Principal payments on capital lease obligations (362) (479) Proceeds from issuance of common stock 566 143 -------- -------- Net cash used in financing activities (8,092) (1,180) -------- -------- Net increase in cash and cash equivalents 494 1,426 Cash and cash equivalents at beginning of period 2,666 19,344 -------- -------- Cash and cash equivalents at end of period $ 3,160 $ 20,770 ======== ========
The accompanying notes are an integral part of these financial statements. 3 6 STERICYCLE, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2001 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, 2000, as filed with our 2000 Annual Report on Form 10-K. The results of operations for the three-month period ended March 31, 2001 are not necessarily indicative of the results that may be achieved for the entire year ending December 31, 2001. NOTE 2--STOCK OPTIONS During the quarter ended March 31, 2001, options to purchase 425,680 shares of common stock were granted to employees. These options vest ratably over a five year period and have an exercise price ranging from $28.63-$30.40 per share. NOTE 3--STOCK ISSUANCES During the quarter ending March 31, 2001, options to purchase 52,297 shares of common stock were exercised at prices ranging from $0.53-$18.125 per share. In addition, warrants with rights to purchase 24,836 shares of common stock were exercised at a prices ranging from $14.50-$16.50 per share. NOTE 4--INCOME TAXES At March 31, 2001, we had net operating loss carry forwards for federal income tax purposes of approximately $7.5 million (excluding 3CI and Med-Tech) which expire beginning in 2006. NOTE 5--DERIVATIVE INSTRUMENTS We have entered into interest rate swap agreements that effectively convert a portion of our floating-rate debt to a fixed-rate basis for the next 2 years, thus reducing the impact of interest rate changes on future interest expense. In addition during the year ended December 31, 2000, we entered into an interest rate collar agreement reducing the impact of interest rate changes on future interest expense. This agreement expires in March 2002. Approximately 84% ($125 million) of our outstanding floating-rate debt was designated as the hedged items to interest rate swap/collar agreements at March 31, 2001. The differential to be paid or received is accrued monthly as an adjustment to interest expense. 4 7 We adopted SFAS 133 on January 1, 2001 which requires us to adjust instruments that are designated and qualify as a cash flow hedge. The effective portion of the gain or loss on the derivative instrument is recognized as a component of other comprehensive income (loss) and is reclassified into earnings in the same period during which the hedged transaction affects earnings. The remaining gain or loss in excess of the cumulative change in the present value of future cash flows of the hedged item, if any, is recognized in current earnings during the period of change. Adoption of this new accounting standard resulted in a $.2 million effect of change in accounting principle, which has been recorded as other comprehensive loss. During the quarter ended March 31, 2001, we recognized a net loss of $.1 million related to the ineffective portion of our hedging instruments. NOTE 6-- COMPREHENSIVE INCOME During the three months ended March 31, 2001, total comprehensive income amounted to $4 million. The components of comprehensive income are net income and the cumulative loss on derivative instruments. 5 8 NOTE 7--SUBSEQUENT EVENTS On April 2, 2001 we acquired the assets of the medical waste business of Bio-Safe America, Inc. which operated in Florida, for $700,000 in cash. On April 30, 2001 we acquired the assets of the medical waste business of Trans Med, Ltd., which operated in New York, for $1,200,000 in cash. NOTE 8--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., 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 March 31, 2001 and December 31, 2000 and for the three month periods ended March 31, 2001 and 2000 is presented below for purposes of complying with the reporting requirements of the guarantor subsidiaries. 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. Financial statements for the guarantors have not been presented because management does not believe that such financial statements are material to investors. 6 9 CONDENSED CONSOLIDATING BALANCE SHEET MARCH 31, 2001 UNAUDITED
COMBINED STERICYCLE NON- STERICYCLE, GUARANTOR AND GUARANTOR GUARANTOR INC. SUBSIDIARIES SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED ------------------------------------------------------------------------------------- ASSETS Current assets: Cash and cash equivalents $ 1,761 $ 270 $ 2,031 $ 1,129 $ - $ 3,160 Other current assets 72,376 13,851 86,227 8,103 (10,554) 83,776 ------------------------------------------------------------------------------------- Total current assets 74,137 14,121 88,258 9,232 (10,554) 86,936 Property, plant and equipment, net 61,520 296 61,816 13,031 - 74,847 Goodwill, net 393,921 8,705 402,626 12,365 - 414,991 Investment in subsidiaries 45,409 3,927 49,336 - (49,336) - Other assets 21,397 6,420 27,817 122 (11,786) 16,153 ------------------------------------------------------------------------------------- Total assets $596,384 $33,469 $629,853 $34,750 $(71,676) $592,927 ===================================================================================== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Current portion of long-term debt $ 3,643 $ - $ 3,643 $ 1,263 $ - $ 4,906 Other current liabilities 44,737 1,079 45,816 2,988 (10,746) 38,058 ------------------------------------------------------------------------------------- Total current liabilities 48,380 1,079 49,459 4,251 (10,746) 42,964 Long-term debt, net of current portion 336,109 - 336,109 12,122 (11,594) 336,637 Other liabilities 1,827 - 1,827 1,431 - 3,258 Convertible preferred stock 71,690 - 71,690 - - 71,690 Common shareholders' equity 138,378 32,390 170,768 16,946 (49,336) 138,378 ------------------------------------------------------------------------------------- Total liabilities and shareholders' equity $596,384 $33,469 $629,853 $34,750 $(71,676) $592,927 =====================================================================================
7 10 CONDENSED CONSOLIDATING BALANCE SHEET DECEMBER 31, 2000 AUDITED
COMBINED STERICYCLE NON- STERICYCLE, GUARANTOR AND GUARANTOR GUARANTOR INC. SUBSIDIARIES SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED ------------------------------------------------------------------------------------- ASSETS Current assets: Cash and cash equivalents $ 1,408 $ 595 $ 2,003 $ 663 $ - $ 2,666 Other current assets 78,193 12,220 90,413 7,113 (9,181) 88,345 ------------------------------------------------------------------------------------- Total current assets 79,601 12,815 92,416 7,776 (9,181) 91,011 Property, plant and equipment, net 60,165 242 60,407 13,501 - 73,908 Goodwill, net 377,178 29,384 406,562 12,228 - 418,790 Investment in subsidiaries 63,306 3,308 66,614 - (66,614) - Other assets 19,234 6,582 25,816 124 (11,667) 14,273 ------------------------------------------------------------------------------------- Total assets $599,484 $52,331 $651,815 $33,629 $(87,462) $597,982 ===================================================================================== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Current portion of $ 4,035 $ - $ 4,035 $ 1,062 $ - $ 5,097 long-term debt Other current liabilities 43,175 1,233 44,408 2,793 (9,185) 38,016 ------------------------------------------------------------------------------------- Total current liabilities 47,210 1,233 48,443 3,855 (9,185) 43,113 Long-term debt, net of current portion 344,142 - 344,142 12,585 (11,623) 345,104 Other liabilities 1,995 - 1,995 1,633 - 3,628 Convertible preferred stock 71,437 - 71,437 - - 71,437 Common shareholders' equity 134,700 51,098 185,798 15,556 (66,654) 134,700 ------------------------------------------------------------------------------------- Total liabilities and shareholders' equity $599,484 $52,331 $651,815 $33,629 $(87,462) $597,982 =====================================================================================
8 11 CONDENSED CONSOLIDATING STATEMENT OF INCOME THREE MONTHS ENDED MARCH 31, 2001 UNAUDITED
COMBINED STERICYCLE NON- STERICYCLE, GUARANTOR AND GUARANTOR GUARANTOR INC. SUBSIDIARIES SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED ------------------------------------------------------------------------------------- Revenues $72,786 $4,321 $77,107 $9,057 $ (329) $85,835 Cost of revenues 43,391 2,681 46,072 6,028 (329) 51,771 Selling, general, and administrative expense 14,106 290 14,396 1,432 - 15,828 Acquisition related expenses 238 - 238 - - 238 ------------------------------------------------------------------------------------- Total costs and expenses 57,735 2,971 60,706 7,460 (329) 67,837 ------------------------------------------------------------------------------------- Income from operations 15,051 1,350 16,401 1,597 - 17,998 Equity in net income of subsidiaries 2,635 829 3,464 - (3,464) - Other (expense) income, net (9,444) 174 (9,270) (301) (9,571) ------------------------------------------------------------------------------------- Income before income taxes 8,242 2,353 10,595 1,296 (3,464) 8,427 Income tax expense 3,225 110 3,335 75 - 3,410 ------------------------------------------------------------------------------------- Net income $ 5,017 $2,243 $ 7,260 $1,221 $(3,464) $ 5,017 =====================================================================================
CONDENSED CONSOLIDATING STATEMENT OF INCOME THREE MONTHS ENDED MARCH 31, 2000 UNAUDITED
COMBINED STERICYCLE NON- STERICYCLE, GUARANTOR AND GUARANTOR GUARANTOR INC. SUBSIDIARIES SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED ------------------------------------------------------------------------------------- Revenues $32,863 $38,104 $70,967 $6,727 $ (26) $77,668 Cost of revenues 18,900 23,503 42,403 4,980 (26) 47,357 Selling, general, and administrative expense 8,870 4,408 13,278 1,206 - 14,484 ------------------------------------------------------------------------------------- Total costs and expenses 27,770 27,911 55,681 6,186 (26) 61,841 ------------------------------------------------------------------------------------- Income from operations 5,093 10,193 15,286 541 - 15,827 Equity in net income of subsidiaries 6,738 5 6,743 - (6,743) - Other income (expense), net (9,342) 138 (9,204) (343) (9,547) ------------------------------------------------------------------------------------- Income before income taxes 2,489 10,336 12,825 198 (6,743) 6,280 Income tax (benefit) expense (1,284) 3,791 2,507 - - 2,507 ------------------------------------------------------------------------------------- Net income (loss) $ 3,773 $ 6,545 $10,318 $ 198 $(6,743) $ 3,773 =====================================================================================
9 12 CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS THREE MONTHS ENDED MARCH 31, 2001 UNAUDITED
COMBINED STERICYCLE NON- STERICYCLE, GUARANTOR AND GUARANTOR GUARANTOR INC. SUBSIDIARIES SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED ------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net cash provided by (used in) operating activities $13,981 $ (262) $13,719 $1,050 $ - $14,769 ------------------------------------------------------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (3,756) (63) (3,819) (141) - (3,960) Payments for acquisitions and international investments, (2,013) - (2,013) - - (2,013) net Short-term investments -- - -- (210) - (210) ------------------------------------------------------------------------------------- Net cash used in investing activities (5,769) (63) (5,832) (351) - (6,183) ------------------------------------------------------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES: Principal payments on capital lease obligations (249) - (249) (113) - (362) Repayment of long term debt (8,176) - (8,176) (120) - (8,296) Proceeds from exercise of stock options 566 - 566 - - 566 ------------------------------------------------------------------------------------- Net cash used in financing activities (7,859) - (7,859) (233) - (8,092) ------------------------------------------------------------------------------------- Net increase (decrease) in cash and cash equivalents $ 353 $ (325) $ 28 $ 466 $ - 494 ==================================================================== Cash and cash equivalents at beginning of period 2,666 ----------------- Cash and cash equivalents at end of period $ 3,160 =================
10 13 CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS THREE MONTHS ENDED MARCH 31, 2000
COMBINED STERICYCLE NON- STERICYCLE, GUARANTOR AND GUARANTOR GUARANTOR INC. SUBSIDIARIES SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED ------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net cash provided by operating activities $ 3,312 $ 899 $ 4,211 $ 201 $ - $ 4,412 ------------------------------------------------------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (660) (287) (947) (211) - (1,158) Payments for acquisitions and international investments, net (298) (357) (655) - - (655) Short-term investments 7 - 7 - - 7 ------------------------------------------------------------------------------------- Net cash used in investing activities (951) (644) (1,595) (211) - (1,806) ------------------------------------------------------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES: Repayment of long term debt (1,180) - (1,180) 336 - (844) Principal payments on capital lease obligations (40) (279) (319) (160) - (479) Proceeds from issuance's of common stock 143 - 143 - - 143 ------------------------------------------------------------------------------------- Net cash (used in) provided by financing activities (1,077) (279) (1,356) 176 - (1,180) ------------------------------------------------------------------------------------- Net increase (decrease) in cash and cash equivalents $ 1,284 $ (24) $ 1,260 $ 166 $ - 1,426 ======================================================================= Cash and cash equivalents at beginning of period 19,344 -------------- Cash and cash equivalents at end of period $ 20,770 ==============
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 MARCH 31, 2001 COMPARED TO THREE MONTHS ENDED MARCH 31, 2000 The following summarizes (in thousands) the Company's operations: Three Months Ended March 31, 2001 2000 ---- ---- $ % $ % Revenues $85,835 100.0 $77,668 100.0 Cost of revenues 51,771 60.3 47,357 61.0 ------------------------------------ Gross profit 34,064 39.7 30,311 39.0 Selling, general and administrative expenses 15,828 18.4 14,484 18.6 Income from operations before acquisition related costs 18,236 21.2 15,827 20.4 Acquisition related costs 238 0.3 - - ------------------------------------ Income from operations 17,998 20.9 15,827 20.4 Net income 5,017 5.8 3,773 4.9 Depreciation and amortization 6,122 7.1 5,783 7.4 EBITDA before acquisition related costs* 24,186 28.2 21,722 28.0 Earnings per share-diluted, fully taxed, before acquisition related costs .25 .19 Cash flow per share** .46 .42 *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. ** Cash flow per share includes the benefit of 15-year goodwill amortization for tax purposes versus 25 to 40-year goodwill amortization for book purposes and excludes acquisition related costs. Revenues. Revenues increased $8.2 million, or 10.5%, to $85.8 million during the three months ended March 31, 2001 from $77.7 million during the comparable period in 2000 as a result of our continued strategy of focusing on sales to higher-margin small account customers, higher international equipment sales and higher revenues by 3CI Complete Compliance Corporation, of which our wholly-owned subsidiary, Waste Systems, Inc. is a majority shareholder. International equipment revenues during the three months ended March 31, 2001 12 15 increased $1.7 million to $2.1 million from $0.4 million during the comparable period in 2000. During the three months ended March 31, 2001, acquisitions contributed approximately $0.6 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 approximately 8% while revenues from large account customers also increased by approximately 2%. Cost of Revenues. Cost of revenues increased $4.4 million to $51.8 million during the three months ended March 31, 2001 from $47.4 during the comparable period in 2000. The increase was primarily due to higher energy, supply, and labor costs and volume growth. The gross margin percentage increased to 39.7% during the three months ended March 31, 2001 from 39.0% during the same period in 2000 as a result of productivity improvements offsetting the higher energy, supply and labor costs. Selling, General and Administrative Expenses. Selling, general and administrative expenses increased to $15.8 million for the three months ended March 31, 2001 from $14.4 million for the comparable period in 2000. The increase was largely the result of higher administrative expenses related to the international business and spending on the Steri-safe compliance program and other strategic marketing investments. Selling, general and administrative expenses as a percent of revenues decreased to 18.4% during the three months ended March 31, 2001 from 18.6% during the comparable period in 2000. Excluding amortization, selling, general and administrative expenses as a percent of revenue increased to 14.4% during the three months ended March 31, 2001 from 14.3% during the comparable period in 2000. Acquisition related costs. During the three months ended March 31, 2001, we incurred acquisition-related costs of $0.2 million related to the integration of the BFI acquisition. EBITDA. Earnings before interest, income taxes, depreciation and amortization (`EBITDA') before the acquisition related charges increased by 11.3% to $24.2 million or 28.2% of revenue for the three months ended March 31, 2001 as compared to $21.7 million or 28.0% of revenue for the comparable period in 2000. The increase in EBITDA is primarily due to the factors described above. Interest Expense and Interest Income. Interest expense decreased to $9.4 million during the three months ended March 31, 2001 from $9.9 million during the comparable period in 2000 primarily due to decreased interest rates related to borrowings associated with the BFI acquisition. Interest income decreased to $.04 million during the three months ended March 31, 2001 from $.2 million during the comparable period in 2000 primarily due to lower cash balances. Income Tax Expense. Income taxes for the three months ended March 31, 2001 reflects an effective tax rate of approximately 40% for federal and state income taxes. 13 16 LIQUIDITY AND CAPITAL RESOURCES At March 31, 2001, our working capital was $44.0 million compared to working capital of $47.9 at December 31, 2000. The decrease in working capital is primarily due to lower accounts receivable balances. We have available a $50,000,000 revolving line of credit secured by our accounts receivable and all of our other assets. At March 31, 2001 we had $5.0 million in borrowings under this line. Net cash provided by operating activities was $14.8 million during the three months ended March 31, 2001 compared to $4.4 million for the comparable period in 2000. This increase primarily reflects lower accounts receivable and other assets balances and higher net income, depreciation and amortization expenses, accrued liability and deferred revenue balances partially offset by a lower accounts payable balance. Net cash used in investing activities for the three months ended March 31, 2001 was $6.2 million compared to $1.8 million for the comparable period in 2000. This increase is primarily attributable to the increase in capital expenditures and investments in international joint ventures. Capital expenditures were $4.0 million for the three months ended March 31, 2001 compared to $1.2 million for the same period in 2000. This rate of capital spending is within the 4-5% of revenues that we anticipated spending on infrastructure upgrades during 2001. After the upgrades are completed we will have 15-22% of our treatment capacity in incineration and 78-85% in non-incineration technologies such as autoclave and ETD. Investments in acquisitions and international joint ventures for the three months ended March 31, 2001 were $2.0 million versus $0.7 million in the comparable period in 2000. Net cash used in financing activities was $8.1 million during the three months ended March 31, 2001 compared to $1.2 million for the comparable period in 2000. During the first three months of 2001 we made repayments of $8.3 million in debt which consisted of approximately $0.1 million in scheduled repayments and $8.2 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 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. 14 17 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 (b) Reports on Form 8-K We did not file any Current Reports on Form 8-K during the quarter ended March 31, 2001. 15 18 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: May 11, 2001. STERICYCLE, INC. By /s/ FRANK J.M. TEN BRINK Frank J.M. ten Brink Vice President, Chief Financial Officer (Principal Financial and Accounting Officer) 16 EX-11 2 c62307ex11.txt STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS 1 EXHIBIT 11 STERICYCLE, INC. AND SUBSIDIARIES STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) (UNAUDITED) FOR THE THREE MONTHS ENDED MARCH 31, --------- 2001 2000 ---- ---- Numerator: Net Income $ 5,017 $ 3,773 Preferred stock dividends (645) (660) ------------ ------------ Numerator for basic earnings per share $ 4,372 $ 3,113 Effective of dilutive securities: Preferred stock dividends 645 660 ------------ ------------ Numerator for diluted earnings per share income available to common shareholders after assumed conversions $ 5,017 $ 3,773 ------------ ------------ Denominator: Denominator for basic earnings per share Weighted average shares 15,239,925 14,746,603 Effective of dilutive securities: Employee stock options 798,564 414,040 Warrants 88,922 105.006 Convertible preferred stock 4,467,575 4,323,441 ------------ ------------ Dilutive potential shares 5,355,061 4,842,487 Denominator for diluted earnings per share adjusted weighted average shares and assumed conversions 20,594,986 19,589,090 ============ ============ Earnings per share - Basic $ 0.29 $ 0.21 ============ ============ Earnings per share - Diluted $ 0.24 $ 0.19 ============ ============ -----END PRIVACY-ENHANCED MESSAGE-----