10-Q 1 d426411d10q.htm FORM 10-Q Form 10-Q
Table of Contents

 

 

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, 2012 or

[    ]     TRANSITION 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 of incorporation or organization)   (IRS Employer Identification Number)

28161 North Keith Drive

Lake Forest, Illinois 60045

(Address of principal executive offices, including zip code)

(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 of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file reports), and (2) has been subject to such filing requirements for the past 90 days.           YES [X] NO [    ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).                                                                                                                                                        YES [X] NO [    ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definition of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

 

Large accelerated filer [X]

  

Accelerated filer [    ]

 

Non-accelerated filer [    ]

  

Smaller reporting company [    ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

YES [    ] NO [X]

As of November 1, 2012 there were 85,889,501 shares of the registrant’s Common Stock outstanding.

 

 

 


Table of Contents

 

LOGO

Stericycle, Inc.

Table of Contents

 

     Page No.  

PART I.  Financial Information

  

Item 1.  Financial Statements

  

Condensed Consolidated Balance Sheets as of September 30, 2012 (Unaudited) and December  31, 2011 (Audited)

     1   

Condensed Consolidated Statements of Income and Comprehensive Income for the three and nine months ended September 30, 2012 and 2011 (Unaudited)

     2   

Condensed Consolidated Statements of Cash Flows for the nine months ended September  30, 2012 and 2011 (Unaudited)

     3   

Condensed Consolidated Statements of Changes in Equity for the nine months ended September  30, 2012 (Unaudited) and year ended December 31, 2011 (Audited)

     4   

Notes to Condensed Consolidated Financial Statements (Unaudited)

     5   

Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations

     19   

Item 3.  Quantitative and Qualitative Disclosures about Market Risk

     28   

Item 4.  Controls and Procedures

     28   

PART II.  Other Information

  

Item 1.  Legal Proceedings

     30   

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds

     30   

Item 6.  Exhibits

     32   

Signatures

     32   

Certifications

     33   


Table of Contents

PART I. – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

STERICYCLE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

In thousands, except share and per share data

 

     September 30,
2012
    December 31,
2011
 
     (Unaudited)     (Audited)  

ASSETS

    

Current Assets:

    

Cash and cash equivalents

   $ 16,205      $ 22,511   

Short-term investments

     466        416   

Accounts receivable, less allowance for doubtful accounts of $18,711 in 2012 and $18,905 in 2011

     314,577        290,854   

Deferred income taxes

     19,712        19,314   

Prepaid expenses

     26,092        22,466   

Other current assets

     40,333        35,035   
  

 

 

   

 

 

 

Total Current Assets

     417,385        390,596   

Property, Plant and Equipment, net

     328,222        293,912   

Goodwill

     2,005,698        1,913,703   

Intangible assets, less accumulated amortization of $57,855 in 2012 and $42,050 in 2011

     623,418        546,618   

Other assets

     36,873        32,261   
  

 

 

   

 

 

 

Total Assets

   $ 3,411,596      $ 3,177,090   
  

 

 

   

 

 

 

LIABILITIES AND EQUITY

    

Current liabilities:

    

Current portion of long-term debt

   $ 286,636      $ 100,526   

Accounts payable

     80,213        66,635   

Accrued liabilities

     122,010        140,521   

Deferred revenues

     15,248        12,855   

Other current liabilities

     17,216        6,377   
  

 

 

   

 

 

 

Total Current Liabilities

     521,323        326,914   

Long-term debt, net of current portion

     1,010,514        1,284,113   

Deferred income taxes

     356,196        313,733   

Other liabilities

     30,705        25,079   

Equity:

    

Common stock (par value $.01 per share, 120,000,000 shares authorized, 85,924,721 issued and outstanding in 2012 and 84,696,227 issued and outstanding in 2011)

     859        847   

Additional paid-in capital

     84,046        0   

Accumulated other comprehensive loss

     (41,602     (45,984

Retained earnings

     1,434,373        1,243,303   
  

 

 

   

 

 

 

Total Stericycle, Inc.’s Equity

     1,477,676        1,198,166   

Noncontrolling interest

     15,182        29,085   
  

 

 

   

 

 

 

Total Equity

     1,492,858        1,227,251   

Total Liabilities and Equity

   $ 3,411,596      $ 3,177,090   
  

 

 

   

 

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

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STERICYCLE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND

COMPREHENSIVE INCOME (Unaudited)

In thousands, except share and per share data

 

     Three Months Ended
September 30,
    Nine Months Ended
September 30,
 
     2012     2011     2012     2011  

Revenues

   $ 480,484      $ 420,924      $ 1,409,511      $ 1,229,491   
        

Costs and Expenses:

        

Cost of revenues (exclusive of depreciation shown below)

     253,526        220,419        746,540        639,827   

Depreciation - cost of revenues

     11,404        10,450        32,622        30,438   

Selling, general and administrative expenses (exclusive of

depreciation and amortization shown below)

     92,966        79,006        259,246        232,750   

Depreciation – SG&A

     2,480        2,274        6,892        6,447   

Amortization

     5,561        4,209        15,675        11,102   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total Costs and Expenses

     365,937        316,358        1,060,975        920,564   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income from Operations

     114,547        104,566        348,536        308,927   
  

 

 

   

 

 

   

 

 

   

 

 

 
        

Other Income (Expense):

        

Interest income

     117        237        333        484   

Interest expense

     (13,048     (12,034     (38,597     (36,413

Other income/ (expense), net

     (488     (577     (556     (1,659
  

 

 

   

 

 

   

 

 

   

 

 

 

Total Other Expense

     (13,419     (12,374     (38,820     (37,588
  

 

 

   

 

 

   

 

 

   

 

 

 
        

Income Before Income Taxes

     101,128        92,192        309,716        271,339   
        

Income Tax Expense

     35,382        32,448        110,283        99,119   
  

 

 

   

 

 

   

 

 

   

 

 

 
        

Net Income

   $ 65,746      $ 59,744      $ 199,433      $ 172,220   
        

Less: Net Income Attributable to Noncontrolling Interests

     269        497        1,506        1,757   
        

Net Income Attributable to Stericycle, Inc.

   $ 65,477      $ 59,247      $ 197,927      $ 170,463   
  

 

 

   

 

 

   

 

 

   

 

 

 
        

Earnings Per Common Share Attributable to
Stericycle, Inc. Common Shareholders:

        

Basic

   $ 0.76      $ 0.69      $ 2.32      $ 1.99   
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

   $ 0.75      $ 0.68      $ 2.28      $ 1.95   
  

 

 

   

 

 

   

 

 

   

 

 

 
        

Weighted Average Number of Common Shares
Outstanding:

        

Basic

     85,748,998        85,564,682        85,251,002        85,654,097   

Diluted

     87,305,779        87,385,121        86,911,229        87,620,867   
        

Comprehensive Income

   $ 82,452      $ 24,195      $ 204,415      $ 154,635   

Less: Comprehensive (Loss)/ Income Attributable to Noncontrolling Interests

     841        (2,469     2,106        173   
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive Income Attributable to Stericycle, Inc.

   $ 81,611      $ 26,664      $ 202,309      $ 154,462   
  

 

 

   

 

 

   

 

 

   

 

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

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STERICYCLE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

In thousands

                Nine Months Ended September 30,           
       2012      2011  

OPERATING ACTIVITIES:

       

Net income

     $ 199,433       $ 172,220   

Adjustments to reconcile net income to net cash provided by operating activities:

       

Loss on sale of business

       4,867         323   

Change in fair value of contingent consideration

       591         (2,140

Accelerated amortization of term loan financing fees

       0         1,241   

Stock compensation expense

       12,346         11,563   

Excess tax benefit of stock options exercised

       (20,994      (16,614

Depreciation

       39,514         36,885   

Amortization

       15,675         11,102   

Deferred income taxes

       25,462         27,685   

Changes in operating assets and liabilities, net of effect of acquisitions and divestitures:

       

Accounts receivable

       (4,657      (20,288

Accounts payable

       7,246         (11,239

Accrued liabilities

       (972      16,694   

Deferred revenues

       615         (1,241

Other assets and liabilities

       (1,979      (11,015
    

 

 

    

 

 

 

Net cash provided by operating activities

       277,147         215,176   
    

 

 

    

 

 

 
       

INVESTING ACTIVITIES:

       

Payments for acquisitions, net of cash acquired

       (153,390      (467,430

(Purchase of) / proceeds from short-term investments

       (49      15,941   

Proceeds from sale of business and other assets

       764         2,371   

Capital expenditures

       (51,658      (36,981
    

 

 

    

 

 

 

Net cash used in investing activities

       (204,333      (486,099
    

 

 

    

 

 

 
       

FINANCING ACTIVITIES:

       

Repayment of long-term debt and other obligations

       (70,630      (48,768

Borrowings on foreign bank debt

       74,350         39,730   

Repayments on foreign bank debt

       (47,636      (8,256

Borrowings on senior credit facility

       532,701         1,433,405   

Repayments on senior credit facility

       (629,302      (1,163,613

Payments of deferred financing costs

       (148      (3,740

Payments on capital lease obligations

       (2,559      (2,703

Purchase and cancellation of treasury stock

       (2,945      (81,201

Payments to noncontrolling interests

       (398      0   

Proceeds from other issuance of common stock

       44,879         30,487   

Excess tax benefit of stock options exercised

       20,994         16,614   
    

 

 

    

 

 

 

Net cash (used in)/ provided by financing activities

       (80,694      211,955   

Effect of exchange rate changes on cash

       1,574         3,087   
    

 

 

    

 

 

 

Net decrease in cash and cash equivalents

       (6,306      (55,881

Cash and cash equivalents at beginning of period

       22,511         79,276   
    

 

 

    

 

 

 

Cash and cash equivalents at end of period

     $ 16,205       $ 23,395   
    

 

 

    

 

 

 
       

NON-CASH ACTIVITIES:

       

Net issuance of obligations for acquisitions

     $ 62,262       $ 41,847   

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

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STERICYCLE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

Nine Months Ended September 30, 2012 (Unaudited) and

Year Ended December 31, 2011 (Audited)

 

In thousands                                                 
    Stericycle, Inc. Equity              
    Issued
and
Outstanding
Shares
    Common
Stock
    Additional
Paid-In
Capital
    Retained
Earnings
    Accumulated Other
Comprehensive
Income (Loss)
    Noncontrolling
Interest
    Total Equity  

Balance at December 31, 2010

    85,242      $ 852      $ 46,945      $ 1,017,497      $ (16,869   $ 31,925      $ 1,080,350   

Net income

          234,751          2,592        237,343   

Currency translation adjustment

            (29,456     (3,437     (32,893

Amortization of treasury lock into income, net of tax of $216

            341          341   
             

 

 

 

Comprehensive income

                204,791   

Issuance of common stock for exercise of options and employee stock purchases

    1,016        11        36,394              36,405   

Purchase/ cancellation of treasury stock

    (1,562     (16     (115,095     (8,945         (124,056

Stock compensation expense

        15,367              15,367   

Excess tax benefit of stock options exercised

        17,410              17,410   

Noncontrolling interests acquired from new acquisitions

              10,708        10,708   

Reduction to noncontrolling interests due to additional ownership

        (1,021         (10,210     (11,231

Reduction to noncontrolling interests due to divestiture

              (1,959     (1,959

Payments to noncontrolling interests

              (534     (534
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at December 31, 2011

    84,696      $ 847      $ 0      $ 1,243,303      $ (45,984   $ 29,085      $ 1,227,251   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

          197,927          1,506        199,433   

Currency translation adjustment

            3,837        600        4,437   

Amortization of treasury lock into income, net of tax of $162

            256          256   

Change in fair value of cash flow hedge, net of tax of $193

            289          289   
             

 

 

 

Comprehensive income

                204,415   

Issuance of common stock for exercise of options and employee stock purchases

    1,311        13        48,748              48,761   

Purchase/ cancellation of treasury stock

    (82     (1     0        (6,857         (6,858

Stock compensation expense

        12,346              12,346   

Excess tax benefit of stock options exercised

        20,994              20,994   

Noncontrolling interests acquired from new acquisitions

              4,386        4,386   

Reduction to noncontrolling interests due to additional ownership

        1,958            (19,997     (18,039

Payments to noncontrolling interests

              (398     (398
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at September 30, 2012

    85,925      $ 859      $ 84,046      $ 1,434,373      $ (41,602   $ 15,182      $ 1,492,858   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

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Table of Contents

STERICYCLE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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. However, the Company believes the disclosures included 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 Stericycle, Inc. and Subsidiaries Consolidated Financial Statements and notes thereto for the year ended December 31, 2011, as filed with our Annual Report on Form 10-K for the year ended December 31, 2011. The results of operations for the nine months ended September 30, 2012 are not necessarily indicative of the results that may be achieved for the entire year ending December 31, 2012.

There were no material changes in the Company’s critical accounting policies since the filing of its 2011 Form 10-K. As discussed in the 2011 Form 10-K, the preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make certain estimates and assumptions that affect the amount of reported assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and revenues and expenses during the periods reported. Actual results may differ from those estimates.

Certain amounts in previously issued financial statements have been reclassified to conform to the current period presentation.

NOTE 2 – ACQUISITIONS AND DIVESTITURES

The following table summarizes the locations of our acquisitions for the nine months ended September 30, 2012:

 

Acquisition Locations

        2012  

United States

        12   

Argentina

        1   

Brazil

        1   

Chile

        2   

Japan

        1   

Mexico

        2   

Portugal

        1   

Romania

        2   

Spain

        6   

United Kingdom

        3   
     

 

 

 

Total

        31   
     

 

 

 

 

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During the quarter ended March 31, 2012, we completed eleven acquisitions. Domestically, we acquired 100% of the stock of one regulated waste business, selected assets of one regulated waste business, and selected assets of four patient communication and compliance businesses. We also placed an amount into escrow for a potential future acquisition. In Romania we acquired 100% of the stock of one regulated waste business. In Spain we acquired 100% of the stock of two regulated waste businesses and selected assets of another regulated waste business. In Japan we acquired selected assets of a regulated waste business. We also increased our majority share in a previous acquisition in Brazil to 100%.

During the quarter ended June 30, 2012, we completed eight acquisitions. Domestically we acquired selected assets of one regulated waste business, and selected assets of two patient communication and compliance businesses. In Spain we acquired 100% of the stock of two regulated waste businesses and selected assets of another regulated waste business. In the United Kingdom we acquired selected assets of a patient communication and compliance business. In Argentina we acquired selected assets of a regulated waste business. We also increased our majority share in a previous acquisition in Chile to 90%.

During the quarter ended September 30, 2012, we completed twelve acquisitions. Domestically, we acquired 100% of the stock of a regulated waste business, and selected assets of two regulated waste businesses. In Brazil we acquired 100% stock of a regulated waste business. In Chile we acquired 70% of the stock of two regulated waste businesses. In Mexico we acquired 100% stock of two regulated waste businesses. In Portugal we acquired selected assets of a regulated waste business. In Romania we acquired selected assets of a regulated waste business. In the United Kingdom we acquired 100% of the stock of a regulated waste business and selected assets of another regulated waste business. We also increased our majority share in a previous acquisition in Brazil from 82.5% to 100%.

The following table summarizes the aggregate purchase price paid for acquisitions and other adjustments of consideration to be paid on acquisitions during the nine months ended September 30, 2012:

 

In thousands

 

Cash

   $ 153,390   

Promissory notes

     24,496   

Deferred consideration

     19,181   

Contingent consideration

     18,585   
  

 

 

 

Total purchase price

   $ 215,652   
  

 

 

 

 

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For financial reporting purposes, our 2012 and 2011 acquisitions were accounted for using the acquisition method of accounting. These acquisitions resulted in recognition of goodwill in our financial statements reflecting the premium paid to acquire businesses that we believe are complementary to our existing operations and fit our strategy. During the nine months ended September 30, 2012, we recognized a net increase in goodwill of $87.4 million excluding the effect of foreign currency translation (see Note 10 – Goodwill and Other Intangible Assets, in the Notes to the Condensed Consolidated Financial Statements). A net of $55.8 million was assigned to our United States reporting segment, and $31.6 million was assigned to our International reporting segment. Approximately $56.7 million of the goodwill recognized during the nine months ended September 30, 2012 will be deductible for income taxes.

During the nine months ended September 30, 2012, we recognized a net increase in intangible assets of $98.7 million excluding the effect of foreign currency translation. The changes include $72.5 million in the estimated fair value of acquired customer relationships with amortizable lives of 15-40 years, $23.4 million in permits with indefinite lives, $2.7 million in a tradename with an amortizable life of 15 years, and $0.1 million in other intangible asset with amortizable life of 10 years.

The purchase prices for these acquisitions in excess of acquired tangible assets have been primarily allocated to goodwill and other intangibles and are preliminary pending completion of certain intangible asset valuations and completion accounts. The following table summarizes the preliminary purchase price allocation for current period acquisitions and other adjustments to purchase price allocations during the nine months ended September 30, 2012:

 

In thousands

 

Fixed assets

   $ 21,572   

Intangibles

     98,706   

Goodwill

     87,410   

Net other assets/ (liabilities)

     12,703   

Debt

     (3,348

Net deferred tax liabilities

     (17,002

Noncontrolling interests

     15,611   
  

 

 

 

Total purchase price allocation

   $  215,652   
  

 

 

 

During the nine months ended September 30, 2012 and 2011, the Company incurred $6.2 million and $14.4 million, respectively, of acquisition related expenses. These expenses are included with SG&A on our Condensed Consolidated Statements of Income and Comprehensive Income.

In July 2012, we were required by the United Kingdom Competition Committee to divest a business acquired in 2011. The sale price of the business was $0.7 million and resulted in a pretax loss of $4.9 million which is included in “Selling, general and administrative expenses” (“SG&A”). The following table summarizes the assets sold:

 

In thousands

 

Fixed assets

   $ (393

Intangibles

     (4,060

Goodwill

     (1,178
  

 

 

 

Total divestiture

   $ (5,631 ) 
  

 

 

 

 

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NOTE 3 – NEW ACCOUNTING STANDARDS

Accounting Standards Recently Adopted

Other Comprehensive Income

On January 1, 2012, Stericycle adopted changes issued by the Financial Accounting Standards Board (“FASB”) to guidance on the presentation of comprehensive income. These changes give an entity the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements; the option to present components of other comprehensive income as part of the statement of changes in stockholders’ equity was eliminated. The items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income were not changed. Additionally, no changes were made to the calculation and presentation of earnings per share. Part of the adopted standard related to presentation of reclassification of items out of accumulated other comprehensive income have been deferred. Other than the change in presentation, these changes did not have an impact on our financial statements.

Goodwill Impairment Testing

On January 1, 2012, Stericycle adopted changes issued by the FASB to guidance on the testing for impairment of goodwill. Previous guidance required an entity to test goodwill for impairment, on at least an annual basis, by comparing the fair value of a reporting unit with its carrying amount, including goodwill (step one). If the fair value of a reporting unit is less than its carrying amount, then the second step of the test must be performed to measure the amount of the impairment loss, if any. Under the amendments, an entity has the option to use a qualitative assessment, that it is more likely than not (greater than 50%) that the fair value of goodwill is less than its carrying amount. We performed our annual test for goodwill impairment during the second quarter and chose to perform a quantitative assessment.

Fair Value Measurement

On January 1, 2012, Stericycle adopted changes issued by the FASB for additional disclosures concerning the valuation processes used and sensitivity of the fair value measurement to changes in unobservable inputs for those items categorized as Level 3, a reporting entity’s use of a nonfinancial asset in a way that differs from the asset’s highest and best use, and the categorization by level in the fair value hierarchy for items required to be measured at fair value for disclosure purposes only. Other than the change in presentation, these changes did not have an impact on our financial statements.

 

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Accounting Standards Issued But Not Yet Adopted

Testing Indefinite-Lived Intangible Assets for Impairment

On July 27, 2012 the FASB issued guidance allowing a company to perform a qualitative assessment in determining whether an indefinite lived intangible asset is impaired. This new guidance is similar to the previously issued guidance allowing a qualitative assessment when performing annual goodwill impairment testing. The guidance also changes when a company should perform an interim period test for impairment, allowing for positive evidence to offset negative evidence when determining whether an interim impairment test is required. The new guidance should not affect the ultimate outcome of an impairment test; therefore there will be no impact on our financial statements. The effective date of this guidance for our Company is January 1, 2013; however, the guidance allows for early adoption. We are currently evaluating whether we will early adopt this guidance. We perform our annual test for impairment for indefinite lived intangibles in the fourth quarter.

NOTE 4 – FAIR VALUE MEASUREMENTS

Fair value is the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is estimated by applying the following hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement:

Level 1 – Quoted prices in active markets for identical assets or liabilities.

Level 2 – Observable inputs other than quoted prices in active markets for identical assets and liabilities, quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 – Inputs that are generally unobservable and typically reflect management’s estimate of assumptions that market participants would use in pricing the asset or liability.

 

In thousands  
            Fair Value Measurements Using  
     Total as of
September 30, 2012
     Level 1
Inputs
     Level 2
Inputs
     Level 3
Inputs
 

Assets:

           

Cash and cash equivalents

   $ 16,205       $ 16,205       $ 0       $ 0   

Short-term investments

     466         466         0         0   

Fair Value of Hedge

     483         0         483         0   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total assets

   $ 17,154       $ 16,671       $ 483       $ 0   

Liabilities:

           

Contingent consideration

   $ 22,861       $ 0       $ 0       $ 22,861   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total liabilities

   $ 22,861       $ 0       $ 0       $ 22,861   

 

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In thousands  
            Fair Value Measurements Using  
     Total as of
December 31, 2011
     Level 1
Inputs
     Level 2
Inputs
     Level 3
Inputs
 

Assets:

           

Cash and cash equivalents

   $ 22,511       $ 22,511       $ 0       $ 0   

Short-term investments

     416         416         0         0   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total assets

   $ 22,927       $ 22,927       $ 0       $ 0   

Liabilities:

           

Contingent consideration

   $ 9,921       $ 0       $ 0       $ 9,921   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total liabilities

   $ 9,921       $ 0       $ 0       $ 9,921   

We recorded a $0.5 million asset related to the fair value of a treasury lock hedge. The treasury lock hedge locked in the interest rate on the issuance of expected private placement debt and was used to eliminate interest rate risk. The fair value of the hedge was calculated by taking the present value of the difference between the locked rate and treasury rates at September 30, 2012. The hedge will terminate in October 2012 at which time the settlement amount, net of tax, will be recognized in accumulated other comprehensive income and amortized to net interest expense over the life of the underlying debt.

We had contingent consideration liabilities recorded in the amounts of $22.9 million, of which $14.0 million is current, at September 30, 2012, and $9.9 million at December 31, 2011 using Level 3 inputs. Contingent consideration represents amounts to be paid as part of acquisition consideration only if certain future events occur. These events are usually acquisition targets for revenues or earnings. We arrive at the fair value of contingent consideration by applying a weighted probability of potential outcomes to the maximum possible payout. The calculation of these potential outcomes is dependent on both past financial performance and management assumptions about future performance. If the financial performance measures were all fully met, our maximum liability would be $24.9 million. Contingent consideration liabilities are reassessed each quarter and are reflected in the condensed consolidated balance sheets as part of “Other current liabilities” or “Other liabilities”. Changes to contingent consideration are reflected in the table below:

 

In thousands             

Contingent consideration at December 31, 2011

     $ 9,921   

Increases due to acquisitions

       18,585   

Decrease due to payments

       (7,223

Changes due to currency fluctuations

       987   

Changes in fair value reflected in Selling, general, and administrative expenses

       591   
    

 

 

 

Contingent consideration at September 30, 2012

     $ 22,861   
    

 

 

 

Fair Value of Debt: At September 30, 2012, the fair value of the Company’s debt obligations was estimated, using Level 2 inputs, at $1.34 billion compared to a carrying amount of $1.30 billion. At December 31, 2011, the fair value of the Company’s debt obligations was estimated, using Level 2 inputs, at $1.41 billion compared to a carrying amount of $1.38 billion. The fair values were estimated using market interest rates for comparable instruments. The Company has no current plans to retire a significant amount of its debt prior to maturity.

 

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There were no movements of items between fair value hierarchies.

NOTE 5 – INCOME TAXES

We and our subsidiaries file U.S. federal income tax returns and income tax returns in various states and foreign jurisdictions.

The Company has recorded accruals to cover uncertain tax positions taken on previously filed tax returns. Such liabilities relate to additional taxes, interest and penalties the Company may be required to pay in various tax jurisdictions. During the course of examinations by various taxing authorities, proposed adjustments may be asserted. The Company evaluates such items on a case-by-case basis and adjusts the accrual for uncertain tax positions. During the quarter ended September 30, 2012 we had immaterial net decreases to our accruals related to a reassessment of previous and current uncertain tax positions.

NOTE 6 – STOCK BASED COMPENSATION

At September 30, 2012 we had the following stock option and stock purchase plans:

 

   

the 2011 Incentive Stock Plan, which our stockholders approved in May 2011;

 

   

the 2008 Incentive Stock Plan, which our stockholders approved in May 2008;

 

   

the 2005 Incentive Stock Plan, which our stockholders approved in April 2005;

 

   

the 2000 Nonstatutory Stock Option Plan, which expired in February 2010;

 

   

the 1997 Stock Option Plan, which expired in January 2007;

 

   

the 1996 Directors Stock Option Plan, which expired in May 2006;

   

Our Employee Stock Purchase Plan (“ESPP”), which our stockholders approved in May 2001.

The following table presents the total stock-based compensation expense resulting from stock option awards, restricted stock units (“RSU”), and the ESPP included in the Condensed Consolidated Statements of Income and Comprehensive Income:

 

In thousands  
     Three Months Ended
September 30,
     Nine Months Ended
September 30,
 
     2012      2011      2012      2011  

Cost of revenues – stock option plan

   $ 34       $ 33       $ 105       $ 89   

Selling, general and administrative – stock option plan

     3,421         3,336         10,329         10,122   

Selling, general and administrative – restricted stock units

     389         219         1,077         593   

Selling, general and administrative – ESPP

     285         257         835         759   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total pre-tax expense

   $ 4,129       $ 3,845       $ 12,346       $ 11,563   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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As of September 30, 2012, there was $32.8 million of total unrecognized compensation expense, related to non-vested option awards and RSU, which is expected to be recognized over a weighted-average period of 1.81 years.

The following table sets forth the tax benefits related to stock compensation:

 

In thousands

 
     Three Months Ended
September 30,
     Nine Months Ended
September 30,
 
     2012      2011      2012      2011  

Tax benefit recognized in income Statement

   $ 1,631       $ 291       $ 4,239       $ 2,468   

Excess tax benefit realized

     9,471         2,065         20,994         16,614   

The Black-Scholes option-pricing model is used in determining the fair value of each option grant. The expected term of options granted is based on historical experience. Expected volatility is based upon historical volatility. The expected dividend yield is zero. The risk-free interest rate is based upon the U.S. Treasury yield rates for a comparable period. The assumptions that we used in the Black-Scholes model are as follows:

 

     Three Months Ended
September 30,
    Nine Months Ended
September 30,
 
     2012     2011     2012     2011  

Expected term (in years)

     6.00        5.75        6.00        5.75   

Expected volatility

     27.52     27.70     27.90     27.41

Expected dividend yield

     0.00     0.00     0.00     0.00

Risk free interest rate

     0.79     1.38     1.06     2.23

The weighted average grant date fair value of the stock options granted during the three and nine months ended September 30, 2012 and 2011 was as follows:

 

     Three Months Ended
September 30,
     Nine Months Ended
September 30,
 
     2012      2011      2012      2011  

Weighted average fair value at grant date

   $ 20.68       $ 19.94       $ 20.09       $ 21.09   

Stock option activity for the nine months ended September 30, 2012, was as follows:

 

     Number of
Options
    Weighted
Average
Exercise
Price per
Share
     Weighted
Average
Remaining
Contractual
Life
    Aggregate
Intrinsic
Value
 
          (in years  

Outstanding at December 31, 2011

     6,342,337      $ 50.06        

Granted

     1,072,101        86.17        

Exercised

     (1,286,860     35.88        

Cancelled or expired

     (86,249     63.43        
  

 

 

        

Outstanding at September 30, 2012

     6,041,329      $ 59.24         6.71      $ 188,774,934   
  

 

 

        

Exercisable at September 30, 2012

     3,153,374      $ 48.18         5.48      $ 133,406,484   

Vested and expected to vest in the future at September 30, 2012

     5,433,451      $ 57.38         6.52      $ 179,928,576   

 

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The total exercise intrinsic value represents the total pre-tax value (the difference between the sales price on that trading day in the quarter and nine months ended September 30, and the exercise price associated with the respective option).

 

     Three Months Ended
September 30,
     Nine Months Ended
September 30,
 
      2012      2011      2012      2011  

Total exercise intrinsic value of options exercised

   $ 28,558       $ 6,387       $ 68,582       $ 51,876   

Restricted stock units (“RSUs”) activity for the nine months ended September 30, 2012 is summarized below. RSUs vest at the end of three or five years. Our 2008 and 2011 Plans include a share reserve related to RSUs granted at a 2-1 ratio.

 

      Number of
Units
    Weighted
Average
Remaining
Contractual
Life
    Aggregate
Intrinsic
Value
 
       (in years  

Outstanding at December 31, 2011

     34,738       

Granted

     39,237       

Forfeited

     (1,773    
  

 

 

     

Outstanding at September 30, 2012

     72,202        2.69      $ 6,533,061   
  

 

 

     

Exercisable at September 30, 2012

     0        0.00      $ 0.00   

Vested and expected to vest in the future at September 30, 2012

     50,067        2.22      $ 4,530,198   

NOTE 7 – COMMON STOCK

The following table provides information about our repurchase of shares of our common stock during the nine months ended September 30, 2012.

 

      Number of
Shares
Repurchased
and
Cancelled
     Amount Paid
for
Repurchases
(000’s)
     Average
Price Paid
per Share
 

Three months ended March 31, 2012

     38,552       $ 2,945       $ 76.38   

Three months ended June 30, 2012

     0         0         0   

Three months ended September 30, 2012

     43,500         3,913         89.97   
  

 

 

    

 

 

    

Nine months ended September 30, 2012

     82,052       $ 6,858       $ 83.58   
  

 

 

    

 

 

    
        

Three months ended March 31, 2011

     0       $ 0       $ 0   

Three months ended June 30, 2011

     50,675         4,302         84.90   

Three months ended September 30, 2011

     962,181         76,899         79.92   
  

 

 

    

 

 

    

Nine months ended September 30, 2011

     1,012,856       $ 81,201       $ 80.17   
  

 

 

    

 

 

    

 

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NOTE 8 – NET INCOME PER COMMON SHARE

The following table sets forth the computation of basic and diluted net income per share:

 

In thousands, except share and per share data  
      Three Months Ended
September 30,
     Nine Months Ended
September 30,
 
      2012      2011      2012      2011  

Numerator:

           

Numerator for basic earnings per share

           

Net income attributable to Stericycle, Inc.

   $ 65,477       $ 59,247       $ 197,927       $ 170,463   
  

 

 

    

 

 

    

 

 

    

 

 

 

Denominator:

           

Denominator for basic earnings per
share weighted average shares

     85,748,998         85,564,682         85,251,002         85,654,097   

Effect of diluted securities:

           

Employee stock options

     1,556,781         1,820,439         1,660,227         1,966,770   
  

 

 

    

 

 

    

 

 

    

 

 

 

Denominator for diluted earnings per
share-adjusted weighted averag
e shares and after assumed conversions

     87,305,779         87,385,121         86,911,229         87,620,867   
  

 

 

    

 

 

    

 

 

    

 

 

 
           

Earnings per share – Basic

   $ 0.76       $ 0.69       $ 2.32       $ 1.99   
  

 

 

    

 

 

    

 

 

    

 

 

 
           

Earnings per share – Diluted

   $ 0.75       $ 0.68       $ 2.28       $ 1.95   
  

 

 

    

 

 

    

 

 

    

 

 

 

NOTE 9 – COMPREHENSIVE INCOME

The components of total comprehensive income are net income, the change in cumulative currency translation adjustments, reclassifications from other comprehensive income to net income, and gains and losses on derivative instruments qualifying as cash flow hedges. The following table sets forth the components of total comprehensive income for the three months and nine months ended September 30, 2012 and 2011:

 

In thousands  
      Three Months  Ended
September 30,
    Nine Months Ended
September 30,
 
      2012      2011     2012      2011  

Net income

   $ 65,746       $ 59,744      $ 199,433       $ 172,220   
          

Other comprehensive income/ (loss):

          

Currency translation adjustments

     16,332         (35,634     4,437         (17,841

Amortization of treasury lock into income, net of tax $162

     85         85        256         256   

Change in fair value of cash flow hedge, net of tax $193

     289         0        289         0   
  

 

 

    

 

 

   

 

 

    

 

 

 

Other comprehensive income/ (loss)

     16,706         (35,549     4,982         (17,585
  

 

 

    

 

 

   

 

 

    

 

 

 
          

Comprehensive income

     82,452         24,195        204,415         154,635   

Less: comprehensive income/ (loss) attributable to
noncontrolling interests

     841         (2,469     2,106         173   
  

 

 

    

 

 

   

 

 

    

 

 

 

Comprehensive income attributable to Stericycle, Inc.

   $ 81,611       $ 26,664      $ 202,309       $ 154,462   
  

 

 

    

 

 

   

 

 

    

 

 

 

 

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NOTE 10 – GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill and identifiable indefinite lived intangible assets are not amortized, but are subject to an annual impairment test. Other intangible assets are amortized over their useful lives. We have determined that our customer relationships have useful lives from 14 to 40 years based upon the type of customer, with a weighted average remaining useful life of 30.0 years. We have covenants not-to-compete intangibles with useful lives from 4 to 14 years, with a weighted average remaining useful life of 4.8 years. We have tradename intangibles with useful lives from 15 to 40 years, with a weighted average remaining useful life of 16.8 years. We have determined that our permits have indefinite lives due to our ability to renew these permits with minimal additional cost, and therefore they are not amortized.

We have two geographical reporting segments, “United States” and “International”, both of which have goodwill. The changes in the carrying amount of goodwill since December 31, 2010, by reportable segment, were as follows:

 

In thousands

 
     United
States
    International     Total  

Balance as of December 31, 2010

   $ 1,279,758      $ 316,006      $ 1,595,764   

Goodwill acquired during year

     232,850        120,750        353,600   

Goodwill allocation adjustments

     (6,192     (4,922     (11,114

Sale of business

     0        (2,887     (2,887

Changes due to currency fluctuation

     0        (21,660     (21,660
  

 

 

   

 

 

   

 

 

 

Balance as of December 31, 2011

   $ 1,506,416      $ 407,287      $ 1,913,703   
  

 

 

   

 

 

   

 

 

 

Goodwill acquired during year

     56,506        57,583        114,089   

Goodwill allocation adjustments

     (723     (25,956     (26,679

Sale of business

     0        (1,178     (1,178

Changes due to currency fluctuation

     0        5,763        5,763   
  

 

 

   

 

 

   

 

 

 

Balance as of September 30, 2012

   $ 1,562,199      $ 443,499      $ 2,005,698   
  

 

 

   

 

 

   

 

 

 

Current year adjustments to goodwill for 2011 acquisitions are primarily due to the finalization of intangible asset valuations.

 

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Table of Contents

As of September 30, 2012 and December 31, 2011, the values of the intangible assets were as follows:

 

In thousands

 
      September 30, 2012      December 31, 2011  
      Gross
Carrying
Amount
     Accumulated
Amortization
     Net
Value
     Gross
Carrying
Amount
     Accumulated
Amortization
     Net
Value
 

Amortizable intangibles:

                 

Covenants not-to-compete

   $ 10,978       $ 5,496       $ 5,482       $ 10,903       $ 4,350       $ 6,553   

Customer relationships

     550,045         51,288         498,757         480,033         36,994         443,039   

Tradenames

     4,919         675         4,244         2,556         391         2,165   

License agreements

     720         394         326         720         315         405   

Other

     89         2         87         0         0         0   

Indefinite lived intangibles:

                 

Operating permits

     114,522         0         114,522         94,456         0         94,456   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 681,273       $ 57,855       $ 623,418       $ 588,668       $ 42,050       $ 546,618   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

During the quarters ended September 30, 2012 and 2011, the aggregate amortization expense was $5.6 million and $4.2 million, respectively. For the nine months ended September 30, 2012 and 2011, the aggregate amortization expense was $15.7 million and $11.1 million, respectively.

The estimated amortization expense for each of the next five years, assuming no additional amortizable intangible assets, is as follows for the years ended December 31:

 

In thousands

 

2012

   $     21,213   

2013

     22,924   

2014

     22,767   

2015

     22,444   

2016

     22,307   

Future amortization expense may fluctuate depending on changes in foreign currency rates, future acquisitions, or changes to the estimated amortizable life of the intangibles. The estimates for amortization expense noted above are based upon foreign exchange rates as of September 30, 2012.

During the quarter ended June 30, 2012, we performed our annual goodwill impairment evaluation for our three reporting units, Domestic Regulated Waste, Domestic Regulated Returns and Recall Management Services, and International. We calculated fair value for our reporting units using two methods, one a market approach and the other an income approach. Both the market and income approaches indicated no impairment to goodwill to any of our three reporting units.

Market Approach: Our market approach begins by calculating the market capitalization of the Company using the average stock price for the prior 30 days and the outstanding share count at June 30, 2012. We then look at the Company’s Earnings Before Interest, Tax, Depreciation, and Amortization (“EBITDA”), adjusted for stock compensation expense and other items, such as change in fair value of contingent consideration, restructuring costs and plant closure expenses, for the prior twelve months. The calculated market capitalization is divided by the modified EBITDA to arrive at a valuation multiple. The fair value of each reporting unit is then calculated by taking the product of the valuation multiple and the trailing twelve month modified EBITDA of that reporting unit. The fair value was then compared to the reporting units’ book value and determined to be in excess of the book value. We believe that starting with the fair value of the company as a whole is a reasonable measure as that fair value is then allocated to each reporting unit based on that reporting unit’s individual earnings. A sustained drop in our stock price would have a negative impact to our fair value calculations. A temporary drop in earnings of a reporting unit would have a negative impact to our fair value calculations.

 

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The results of our goodwill impairment test using the market approach indicated the fair value of our reporting units exceeded book value by a substantial amount, in excess of 100% of book value.

Income Approach: The income approach uses expected future cash flows of each reporting unit and discounts those cash flows to present values. Expected future cash flows are calculated using management assumptions of internal growth, capital expenditures, and cost efficiencies. Future acquisitions are not included in the expected future cash flows. We use a discount rate based on our Company calculated weighted average cost of capital which is adjusted for each of our reporting units based on size risk premium and country risk premium. Significant assumptions used in the income approach include realization of future cash flows and the discount rate used to present value those cash flows.

The results of our goodwill impairment test using the income approach indicated the fair value of our reporting units exceeded book value by a substantial amount; in excess of 100%.

We perform our annual impairment analysis of our indefinite lived intangibles (facility permits) during the quarter ended December 31 of each year.

NOTE 11 – DEBT

Long-term debt consisted of the following:

 

In thousands

  

     September 30,
2012
     December 31,
2011
 

Obligations under capital leases

   $ 4,435       $ 4,679   

$1 billion revolver weighted average rate 1.71%, due in 2016

     231,804         527,884   

$100 million Private Placement notes 5.64%, due in 2015

     100,000         100,000   

$200 million Term Loan with rate of 1.09% due Dec 2012

     200,000         0   

$175 million Private Placement notes 3.89%, due in 2017

     175,000         175,000   

$225 million Private Placement notes 4.47%, due in 2020

     225,000         225,000   

Acquisition notes weighted average rate of 2.96% and

weighted average maturity of 3.9 years

     220,096         240,138   

Foreign bank debt weighted average rate 5.94% and

Weighted average maturity of 2.0 years

     140,815         111,938   
  

 

 

    

 

 

 

Total debt

     1,297,150         1,384,639   

Less: current portion of total debt

     286,636         100,526   
  

 

 

    

 

 

 

Long-term portion of total debt

   $ 1,010,514       $ 1,284,113   
  

 

 

    

 

 

 

Our $1.0 billion senior credit facility maturing in September 2016, our $100.0 million private placement notes maturing April 2015, our $175.0 million private placement notes maturing in October 2017, and our $225.0 million private placement notes maturing in October 2020, all require us to comply with various financial, reporting

 

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and other covenants and restrictions, including a restriction on dividend payments. The financial debt covenants are the same for the senior credit facility and the private placement notes. At September 30, 2012, we were in compliance with all of our financial debt covenants.

As of September 30, 2012 and December 31, 2011, we had $158.4 million and $159.1 million, respectively, committed to outstanding letters of credit under our senior credit facility. The unused portion of the revolving credit facility as of September 30, 2012 and December 31, 2011 was $609.8 million and $313.0 million, respectively.

As of September 30, 2012 we had $200.0 million outstanding under a short term loan agreement. Proceeds from the Term Loan were used to pay down our senior credit facility. This loan matures in December 2012.

Guarantees

We have guaranteed a loan to JPMorganChase Bank N.A. on behalf of Shiraishi-Sogyo Co. Ltd (“Shiraishi”). Shiraishi is a customer in Japan that is expanding its medical waste management business and has a one year loan with a current balance of $6.3 million with JPMorganChase Bank N.A. that matures on May 31, 2013. We also have extended loans to Shiraishi for $15.4 million in support of its medical waste business. These amounts are collateralized with the assets of Shiraishi and related companies.

NOTE 12 – GEOGRAPHIC INFORMATION

Management has determined that we have two reportable segments, United States (which includes Puerto Rico) and International. Revenues are attributed to countries based on the location of customers. The same accounting principles and critical accounting policies are used in the preparation of the financial statements for both reporting segments.

Detailed information for our United States reporting segment is as follows:

 

In thousands

 
     Three Months Ended
September 30,
     Nine Months Ended
September 30,
 
     2012      2011      2012      2011  

Regulated waste management services

   $ 319,465       $ 278,748       $ 921,772       $ 807,383   

Regulated returns and recall management services

     28,741         25,106         93,482         87,814   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total revenue

     348,206         303,854         1,015,254         895,197   
  

 

 

    

 

 

    

 

 

    

 

 

 

Net interest expense

     10,221         9,333         30,807         29,866   

Income before income taxes

     92,590         78,761         269,046         224,049   

Income taxes

     31,566         27,820         98,450         83,913   
  

 

 

    

 

 

    

 

 

    

 

 

 

Net income attributable to Stericycle, Inc.

   $ 61,024       $ 50,941       $ 170,596       $ 140,136   
  

 

 

    

 

 

    

 

 

    

 

 

 
           

Depreciation and amortization

   $ 11,429       $ 10,375       $ 32,932       $ 30,007   

 

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Detailed information for our International reporting segment is as follows:

 

In thousands

 
     Three Months Ended
September 30,
     Nine Months Ended
September 30,
 
     2012      2011      2012      2011  

Regulated waste management services

   $ 132,278       $ 117,070       $ 394,257       $ 334,294   

Net interest expense

     2,710         2,464         7,457         6,063   

Income before income taxes

     8,538         13,431         40,670         47,290   

Income taxes

     3,816         4,628         11,833         15,206   

Net income

     4,722         8,803         28,837         32,084   

Less: net income attributable to noncontrolling interests

     269         497         1,506         1,757   
  

 

 

    

 

 

    

 

 

    

 

 

 

Net income attributable to Stericycle, Inc.

   $ 4,453       $ 8,306       $ 27,331       $ 30,327   
  

 

 

    

 

 

    

 

 

    

 

 

 
           

Depreciation and amortization

   $ 8,016       $ 6,558       $ 22,257       $ 17,980   

NOTE 13 – LEGAL PROCEEDINGS

We operate in a highly regulated industry and must deal with regulatory inquiries or investigations from time to time that may be instituted for a variety of reasons. We are also involved in a variety of civil litigation from time to time.

NOTE 14 – SUBSEQUENT EVENT

The Company evaluated subsequent events through the date of filing this Quarterly Report on Form 10-Q.

On October 22, 2012, we entered into a note purchase agreement with 46 institutional purchasers pursuant to which we will issue and sell to the purchasers $125.0 million of our new 2.68% seven-year unsecured senior notes (the “Series A notes”) and $125.0 million of our new 10-year 3.26% unsecured senior notes (the “Series B notes”).

Interest will be payable in arrears semi-annually on June 12, and December 12, beginning on June 12, 2013. The principal of the Series A notes will be payable at the maturity of the notes on December 12, 2019, and the principal of the Series B notes will be payable at the maturity of the notes on December 12, 2022. The notes will be unsecured obligations.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

We were incorporated in 1989 and presently serve a diverse customer base of over 537,000 customers throughout the United States, Argentina, Brazil, Canada, Chile, Ireland, Japan, Mexico, Portugal, Romania, Spain, and the United Kingdom. We have fully integrated networks including processing centers, and transfer and collection sites. We use these networks to provide a broad range of services to our customers including

 

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regulated waste services, regulated returns and recall management services, patient communications services, and medical safety products. The regulated waste services we provide include medical waste disposal, our Steri-Safe® medical waste and compliance program, our Clinical Services program, our Bio Systems® reusable sharps disposal management services, pharmaceutical waste disposal, and hazardous waste disposal. Our regulated returns and recall management services help pharmacies and manufacturers handle the return of unused and expired pharmaceuticals. Through ExpertRECALL™, we manage all aspects of a product recall or withdrawal for pharmaceutical, medical device, and consumer product manufacturers in a manner compliant with applicable regulations. ExpertRETRIEVAL/QA™ performs retail quality audits, consumer complaint retrieval and product retrieval services, and brand integrity monitoring for retailers, manufacturers, and other businesses. We also provide communications services to healthcare providers to improve office productivity and communications with patients. Our waste treatment technologies include autoclaving, incineration, chemical treatment, and our proprietary electro-thermal-deactivation system.

There were no material changes in the Company’s critical accounting policies since the filing of its 2011 Form 10-K. As discussed in the 2011 Form 10-K, the preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make certain estimates and assumptions that affect the amount of reported assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and revenues and expenses during the periods reported. Actual results may differ from those estimates.

Highlights of the three months ended September 30, 2012:

   

revenues grew to $480.5 million, a 14.2% increase over $420.9 million from the third quarter last year;

   

third quarter gross margins decreased to 44.9% in 2012 from 45.2% in 2011;

   

we incurred $9.6 million in pre-tax expenses related to acquisitions, loss on sale of business, and restructuring and plant closure costs;

   

we incurred $1.2 million in pre-tax integration expenses related to acquisitions;

   

operating income was $114.5 million, a 9.5% increase over $104.6 million from the third quarter last year;

   

cash flow from operations was $88.3 million.

Highlights of the nine months ended September 30, 2012:

   

revenues grew to $1.41 billion, a 14.6% increase over $1.23 billion from 2011;

   

gross margins decreased to 44.7% in 2012 from 45.5% in 2011;

   

we incurred $15.1 million in pre-tax expenses related to acquisitions, loss on sale of business, change in fair value of contingent consideration, and restructuring and plant closure costs;

   

we incurred $3.5 million in integration pre-tax expenses related to acquisitions;

   

operating income was $348.5 million, a 12.8% increase over $308.9 million from 2011;

   

cash flow from operations was $277.1 million.

 

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THREE MONTHS ENDED SEPTEMBER 30, 2012 COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 2011

The following summarizes the Company’s operations:

 

In thousands, except per share data

 
      Three Months Ended September 30,  
     2012      2011  
     $     %      $      %  

Revenues

   $ 480,484        100.0       $ 420,924         100.0   

Cost of revenues

     253,526        52.8         220,419         52.4   

Depreciation

     11,404        2.4         10,450         2.5   
  

 

 

   

 

 

    

 

 

    

 

 

 

Total cost of revenues

     264,930        55.1         230,869         54.8   

Gross profit

     215,554        44.9         190,055         45.2   

Selling, general and administrative expenses

     82,176        17.1         72,582         17.2   

Depreciation

     2,480        0.5         2,274         0.5   

Amortization

     5,561        1.2         4,209         1.0   
  

 

 

   

 

 

    

 

 

    

 

 

 

Total selling, general and administrative expenses (excluding items below)

     90,217        18.8         79,065         18.8   

Acquisition expenses

     2,467        0.5         3,195         0.8   

Change in fair value of contingent consideration

     (11     0.0         0         0.0   

Integration expenses

     1,217        0.3         1,813         0.4   

Restructuring costs and plant closure expense

     2,250        0.5         633         0.2   

Litigation Settlement

     0        0.0         460         0.1   

Loss on sale of business

     4,867        1.0         323         0.1   
  

 

 

   

 

 

    

 

 

    

 

 

 

Income from operations

     114,547        23.8         104,566         24.8   

Net interest expense

     12,931        2.7         11,797         2.8   

Income tax expense

     35,382        7.4         32,448         7.7   

Net income

     65,746        13.7         59,744         14.2   

Less: net income attributable to noncontrolling interests

     269        0.1         497         0.1   
  

 

 

   

 

 

    

 

 

    

 

 

 

Net income attributable to Stericycle, Inc.

   $ 65,477        13.6       $ 59,247         14.1   

Earnings per share- diluted

   $ 0.75         $ 0.68      

Revenues: Our revenues increased $59.5 million, or 14.2%, in the third quarter of 2012 to $480.5 million from $420.9 million in the same period in 2011. Domestic revenues increased $44.3 million, or 14.6%, to $348.2 million from $303.9 million in the same period in 2011. Internal revenue growth for domestic small account customers increased by $19.2 million, or approximately 11%, and internal revenue growth for large quantity customers increased by $9.6 million, or approximately 9%. Internal revenues for returns and recall management services increased by $3.0 million in 2012. Internal revenues excludes acquisitions less than one year old. Total regulated waste and returns management domestic acquisitions less than one year old contributed approximately $12.5 million to the increase in revenues.

International revenues increased $15.2 million, or 13.0%, to $132.3 million from $117.1 million in the same period in 2011. Internal growth in the international segment contributed $4.2 million in increased revenues, or approximately 4%. Internal growth

 

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excludes the effect of foreign exchange and acquisitions and divestitures less than one year old. The effect of exchange rate fluctuations unfavorably impacted international revenues approximately $8.0 million while acquisitions net of divestitures less than one year old contributed an additional $19.0 million in international revenues.

Cost of Revenues: Our cost of revenues increased $34.1 million, or 14.8%, in the third quarter of 2012 to $264.9 million from $230.9 million in the same period in 2011. Our domestic cost of revenues increased $24.3 million, or 15.8%, in the third quarter of 2012 to $178.0 million from $153.7 million in the same period in 2011 as a result of costs related to a proportional increase in revenues from acquisitions and internal growth.

Our international cost of revenues increased $9.8 million, or 12.7%, in the third quarter of 2012 to $87.0 million from $77.2 million in the same period in 2011 as a result of costs related to proportional increase in revenues from acquisitions and internal growth and partially impacted by changes in exchange rates.

Our consolidated gross margin percentage decreased to 44.9% during the third quarter of 2012 from 45.2% during the same period in 2011 primarily due to lower margins on newly acquired revenues offset partially by improvements in the base business margins.

Selling, General and Administrative Expenses: Excluding the effect of acquisition and integration expenses, restructuring costs, loss on sale of business, and other items (“Acquisition-related Items”), selling, general and administrative (“SG&A”) expenses increased approximately $11.1 million, or 14.1%, in the third quarter of 2012 to $90.2 million from $79.1 million in the same period in 2011 primarily as investment spending supported the increase in revenues and acquired SG&A expenses. As a percentage of revenue, these costs remained at 18.8% for the third quarter 2012 and 2011.

Domestically, third quarter SG&A expenses, excluding Acquisition-related Items, increased $7.5 million, or 12.9%, to $65.6 million from $58.1 million in the same period in 2011. As percentage of revenues, SG&A was lower at 18.9% in the third quarter of 2012 compared to 19.1% in 2011. As a percentage of revenues, amortization expense of acquired intangible assets increased by 0.1%.

Internationally, third quarter SG&A expenses, excluding Acquisition-related Items, increased $3.6 million, or 17.1%, to $24.6 million from $21.0 million in the same period in 2011. As a percentage of revenues, these costs were 18.6% in 2012 compared to 17.9% in 2011. The increase in SG&A was primarily due to the increased number of international acquisitions partially offset by cost savings from the restructuring of the international management structure and the continued integration of acquisitions. SG&A expense excluding Acquisition-related Items, as a percentage to revenue, was up due to a higher ratio of amortization expense to revenues and the inclusion of stock compensation expense.

Income from Operations: Income from operations increased $10.0 million, or 9.5%, in the third quarter of 2012 to $114.5 million from $104.6 million in same period in 2011. During the quarter ended September 2012, we recognized $2.5 million in

 

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acquisition expenses, $1.2 million of expense related to the integration of new acquisitions, $2.3 million of restructuring expenses, and a $4.9 million loss related to a divestiture in the United Kingdom.

During the quarter ended September 2011, we recognized $3.2 million in acquisition expenses, $1.8 million related to the integration of new acquisitions, $0.6 million of restructuring costs, $0.5 million in litigation settlement, and $0.3 million loss related to a divestiture in Mexico.

Net Interest Expense: Net interest expense increased to $12.9 million during the third quarter in 2012 from $11.8 million during the same period in 2011. Our interest expense was higher in the third quarter of 2012 due primarily to a higher interest rate from the renewal of our senior credit facility in September 2011.

Income Tax Expense: Income tax expense increased to $35.4 million in the third quarter of 2012 from $32.4 million in the same period in 2011. The tax rates for the quarters ended September 30, 2012 and 2011 were 35.0% and 35.2%, respectively.

NINE MONTHS ENDED SEPTEMBER 30, 2012 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 2011

The following summarizes the Company’s operations:

 

In thousands, except per share data

 
      Nine Months Ended September 30,  
      2012      2011  
      $      %      $     %  

Revenues

   $ 1,409,511         100.0       $ 1,229,491        100.0   

Cost of revenues

     746,540         53.0         639,773        52.0   

Depreciation

     32,622         2.3         30,438        2.5   

Restructuring costs

     0         0.0         54        0.0   
  

 

 

    

 

 

    

 

 

   

 

 

 

Total cost of revenues

     779,162         55.3         670,265        54.5   

Gross profit

     630,349         44.7         559,226        45.5   

Selling, general and administrative expenses

     240,635         17.1         214,815        17.5   

Depreciation

     6,892         0.5         6,447        0.5   

Amortization

     15,675         1.1         11,102        0.9   
  

 

 

    

 

 

    

 

 

   

 

 

 

Total selling, general and administrative expenses (excluding items below)

     263,202         18.7         232,364        18.9   

Acquisition expenses

     6,213         0.4         14,394        1.2   

Change in fair value of contingent consideration

     591         0.0         (2,140     -0.2   

Integration expenses

     3,540         0.3         3,866        0.3   

Restructuring costs and plant closure expense

     3,400         0.2         1,032        0.1   

Litigation settlement

     0         0.0         460        0.0   

Loss on sale of business

     4,867         0.3         323        0.0   
  

 

 

    

 

 

    

 

 

   

 

 

 

Income from operations

     348,536         24.7         308,927        25.1   

Net interest expense

     38,264         2.7         35,929        2.9   

Income tax expense

     110,283         7.8         99,119        8.1   

Net income

     199,433         14.1         172,220        14.0   

Less: net income attributable to noncontrolling interests

     1,506         0.1         1,757        0.1   
  

 

 

    

 

 

    

 

 

   

 

 

 

Net income attributable to Stericycle, Inc.

   $ 197,927         14.0       $ 170,463        13.9   

Earnings per share- diluted

   $ 2.28          $ 1.95     

 

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Revenues: Our revenues increased $180.0 million, or 14.6%, for the nine months ended September 30, 2012 to $1.41 billion from $1.23 billion in same period in 2011. Domestic revenues increased $120.0 million, or 13.4%, to $1.02 billion from $895.2 million in 2011 as internal revenue growth for domestic small account customers increased by $52.1 million, or approximately 10%, and internal revenue growth for large quantity customers increased by $24.7 million, or approximately 8%. Internal revenues for returns and recall management services decreased by $0.2 million. Internal revenues exclude acquisitions less than one year old. Total domestic regulated waste and returns management acquisitions less than one year old contributed approximately $43.4 million to the increase in domestic revenues.

International revenues increased $60.0 million, or 17.9%, to $394.3 million in 2012 from $334.3 million in 2011. Internal growth in the international segment contributed $13.8 million, or approximately 4%, in increased revenues. Internal growth excludes the effect of foreign exchange and acquisitions and divestitures less than one year old. The effect of exchange rate fluctuations unfavorably impacted international revenues approximately $19.5 million and acquisitions and divestitures less than one year old contributed an additional $65.7 million to international revenues.

Cost of Revenues: Our cost of revenues increased $108.9 million, or 16.2%, for the nine months ended September 30, 2012 to $779.2 million from $670.3 million during the same period in 2011. Our domestic cost of revenues increased $67.5 million, or 14.9%, to $520.1 million from $452.6 million in the same period in 2011 as a result of costs related to a proportional increase in revenues from acquisitions and internal growth.

Our international cost of revenues increased $41.4 million, or 19.0%, to $259.1 million from $217.7 million in same period in 2011 as a result of costs related to proportional increase in revenues from acquisitions and partially driven by the impact of exchange rates.

Our consolidated gross margin percentage decreased to 44.7% during 2012 from 45.5% during 2011 due to lower margins on newly acquired revenues offset partially by improvements in the base business margins.

Selling, General and Administrative Expenses: Excluding Acquisition-related Items, SG&A expenses increased $30.8 million, or 13.3%, in the nine months ended September 30, 2012 to $263.2 million from $232.4 million in the same period in 2011. As a percentage of revenue, these costs decreased by 0.2% for the nine months ended September 30, 2012 compared to the same period in 2011.

 

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Domestically, SG&A, excluding Acquisition-related Items, increased $16.4 million in 2012, or 9.5%, to $189.9 million from $173.5 million in the same period in 2011. The increase was primarily due to SG&A expenses related to the acquired revenues, higher amortization, market penetration for our Sharps Management and Pharmaceutical Waste programs, investment in the Steri-Safe services, and compliance related services.

Internationally, SG&A, excluding Acquisition-related Items, increased $14.4 million in 2012, or 24.4%, to $73.3 million from $58.9 million in the same period in 2011. As a percentage of revenues, these costs were 18.6% in 2012 and 17.6% in 2011. The increase in SG&A was due to the increased number of international acquisitions partially offset by restructuring of the international management structure and the continued integration of acquisitions. SG&A expense, as a percentage of revenue, was up due to a higher ratio of amortization expense to revenues and the inclusion of stock compensation expense.

Income from Operations: Income from operations increased $39.6 million, or 12.8%, in the nine months ended September 30, 2012 to $348.5 million from $308.9 million in the same period in 2011. During the nine months ended September 30, 2012, we recognized $6.2 million in acquisition expenses, $3.5 million related to the integration of new acquisitions, $3.4 million of restructuring and plant closure costs, $4.9 million loss related to the U.K. divestiture, and $0.6 million of expense related to a change in fair value of contingent consideration.

During the nine months ended September 30, 2011, we recognized $14.4 million in acquisition expenses, $3.9 million related to the integration of new acquisitions, $1.1 million of restructuring costs, $0.5 million in litigation settlement, and $0.3 million loss related to the Mexico divestiture, partially offset by $2.1 million related to a change in fair value of contingent consideration.

Net Interest Expense: Net interest expense increased to $38.3 million in the nine months ended September 30, 2012 from $35.9 million during the same period in 2011 due to increased borrowings. Our interest expense was higher in 2012 due to a higher rate on our revolver borrowings and higher debt levels, partially offset by an additional interest expense of $1.2 million in the second quarter of 2011 due to the acceleration of amortization of finance fees related to our term loan that was repaid prior to scheduled maturity of June 2012.

Income Tax Expense: Income tax expense increased to $110.3 million for the nine months ended September 30, 2012 from $99.1 million for the comparable period in 2011. The increase was due to higher taxable income. The tax rates for the nine months ended September 30, 2012 and 2011 were 35.6% and 36.5%, respectively.

LIQUIDITY AND CAPITAL RESOURCES

Our $1.0 billion senior credit facility maturing in September 2016, our $100.0 million private placement notes maturing April 2015, our $175.0 million private placement notes maturing in October 2017, and our $225.0 million private placement notes maturing in October 2020, all require us to comply with various financial, reporting

 

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and other covenants and restrictions, including a restriction on dividend payments. The financial debt covenants are the same for the senior credit facility and the private placement notes. At September 30, 2012, we were in compliance with all of our financial debt covenants.

As of September 30, 2012, we had $231.8 million of borrowings outstanding under our $1.0 billion senior unsecured credit facility, which includes foreign currency borrowings of $81.3 million. We also had $158.4 million committed to outstanding letters of credit under this facility. The unused portion of the revolving credit facility as of September 30, 2012 was $609.8 million. At September 30, 2012, our interest rates on borrowings under our revolving credit facility, including our facility fee, were as follows:

 

   

For short-term borrowing (overnight): Federal funds rate plus 0.75%, the Eurocurrency rate plus 1.25% or prime rate plus 0.375%, whichever is higher; and

   

For borrowings greater than one month: LIBOR plus 1.375%.

The weighted average rate of interest on the unsecured revolving credit facility was 1.71% per annum at September 30, 2012.

As of September 30, 2012, we had outstanding $100.0 million of seven-year 5.64% unsecured senior notes issued to nine institutional purchasers in a private placement completed in April 2008. Interest is payable in arrears semi-annually on April 15 and October 15 beginning on October 15, 2009, and principal is payable at the maturity of the notes on April 15, 2015.

As of September 30, 2012, we had outstanding $175.0 million of seven-year 3.89% unsecured senior notes and $225.0 million of 10-year 4.47% unsecured senior notes issued to 39 institutional purchasers in a private placement completed in October 2010. Interest is payable in arrears on April 15 and October 15 beginning on April 15 2011, and principal is payable at the maturity of the notes, October 15, 2017 in the case of the seven-year notes and October 15, 2020 in the case of the 10-year notes.

As of September 30, 2012, we had $365.3 million in other debt outstanding, which includes promissory notes issued in connection with acquisitions during 2004 through 2012, other foreign subsidiary bank debt, and capital lease obligations.

As of September 30, 2012, we had a $200.0 million term loan, with a rate of 1.09%, due in December 2012. We used the proceeds from this short term loan to pay down long term debt under our senior credit facility.

Working Capital: At September 30, 2012, our working capital decreased $167.6 million to negative $103.9 million compared to $63.7 million at December 31, 2011. The negative working capital is due to a short term loan of $200.0 million, proceeds of which were used to pay down long term debt. Working capital, excluding the $200.0 million short term loan, increased by $32.4 million with increases in current assets of $26.8 million and decreases in current liabilities of $5.6 million.

 

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Current assets increased primarily due to an increase in accounts receivable of $23.7 million. During the nine months ended September 30, 2012 we acquired $18.7 million in accounts receivable, of which $6.3 million was acquired in the third quarter, compared to only $0.2 million was acquired in the fourth quarter of 2011. Days sales outstanding (“DSO”) was calculated at 59 days at December 31, 2011 and 60 days at September 30, 2012 which was affected by both acquired receivables and the number of collection days in September 2012.

Current liabilities, excluding the $200.0 million short term loan, decreased by $5.6 million. Accounts payable increased by $13.6 million, of which $2.1 million can be attributed to acquisitions in the third quarter of 2012 and the remainder related primarily to timing of payments. Accrued liabilities decreased by $18.5 million primarily related to a reduction in our taxes payable. Other current liabilities increased by $10.8 million primarily related to an increase in acquisition payments due.

Net Cash Provided or Used: Net cash provided by operating activities increased $62.0 million, or 28.8%, to $277.1 million during the nine months ended September 30, 2012 compared to $215.2 million for the comparable period in 2011. This increase was driven by strong collections and higher revenues both domestically and internationally. Our days sales outstanding (“DSO”) was at 60 days in 2012 and 58 days for the comparable period 2011, while our DSO at December 31, 2011 was at 59 days. This increase was primarily due to acquisitions completed in 2011. Cash provided by operations as a ratio to net income is 139% and 125% for the nine months ended September 30, 2012 and 2011, respectively.

Net cash used in investing activities for the nine months ended September 30, 2012 was $204.3 million compared to $486.1 million in the comparable period in 2011. We had $314.0 million decrease in cash spent to acquire new businesses; during April of 2011 we acquired Healthcare Waste Solutions, Inc. for $237.0 million in cash. Our capital expenditures increased $14.7 million and, as a percentage of revenue, it increased to 3.7% in 2012 from 3.0% for the comparable period 2011.

Net cash used in financing activities was $80.7 million during the nine months ended September 30, 2012 compared to $212.0 million net cash provided in the comparable period in 2011. A change of $366.4 million related to increase in net repayments of our senior credit facility, and partially offset by share repurchases of $2.9 million compared to $81.2 million in 2011, a decrease of $78.3 million.

Guarantees: We have guaranteed a loan to JPMorganChase Bank N.A. on behalf of Shiraishi-Sogyo Co. Ltd (“Shiraishi”). Shiraishi is a customer in Japan that is expanding its medical waste management business and has a one year loan with a current balance of $6.3 million with JPMorganChase Bank N.A. that matures on May 31, 2013. We also have extended loans to Shiraishi for $15.4 million in support of its medical waste business. These amounts are collateralized with the assets of Shiraishi and related companies.

Annual Impairment Test: We completed our annual goodwill impairment test during the second quarter of 2012. We chose to perform a quantitative assessment using

 

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both a market approach and an income approach to determine the fair value of our reporting units. The market approach compares the market capitalization of the Company as a whole, which is the fair value, and allocates a portion of that fair value to each reporting unit based on that reporting unit’s historic cash flows, as measured by a modified Earnings Before Interest, Taxes, Depreciation, and Amortization. The income approach uses estimates of future cash flows discounted to a present value to arrive at a fair value. Both the market and income approaches indicated no impairment to any of our three reporting units.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are subject to market risks arising from changes in interest rates. Our potential additional interest expense over one year that would result from a hypothetical, instantaneous and unfavorable change of 100 basis points in the interest rate on all of our variable rate obligations would be approximately $5.6 million on a pre-tax basis.

We have exposure to foreign currency fluctuations. We have subsidiaries in eleven foreign countries whose functional currency is the local currency. Changes in foreign currency exchange rates could unfavorably impact our consolidated results of operations.

We have exposure to commodity pricing for gas and diesel fuel for our trucks and for the purchase of containers and boxes. We do not hedge these items to manage the exposure.

ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

Our management, with the participation of our Chairman and Chief Executive Officer and our Chief Financial Officer, conducted an evaluation of the effectiveness of our disclosure controls and procedures as of the end of the fiscal quarter covered by this Report. On the basis of this evaluation, our Chairman and Chief Executive Officer and our Chief Financial Officer each concluded that our disclosure controls and procedures were effective.

The term “disclosure controls and procedures” is defined in Rule 13a-15(e) of the Securities Exchange Act of 1934 as “controls and other procedures designed to ensure that information required to be disclosed by the issuer in the reports, files or submits under the Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms.” Our disclosure controls and procedures are designed to ensure that material information relating to us and our consolidated subsidiaries is accumulated and communicated to our management, including our Chairman and Chief Executive Officer and our Chief Financial Officer, as appropriate to allow timely decisions regarding our required disclosures.

 

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Internal Control Over Financial Reporting

The term internal control over financial reporting is defined as a process designed by, or under the supervision of, the issuers’ principal executive and principal financial officers, and effected by the issuer’s Board of Directors, management, and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. During the quarter ended September 30, 2012, there were no changes in our internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

FROM TIME TO TIME WE ISSUE FORWARD-LOOKING STATEMENTS RELATING TO SUCH THINGS AS ANTICIPATED FINANCIAL PERFORMANCE, BUSINESS PROSPECTS, ACQUISITION ACTIVITIES AND SIMILAR MATTERS.

THESE FORWARD-LOOKING STATEMENTS MAY INVOLVE RISKS AND UNCERTAINTIES, SOME OF WHICH ARE BEYOND OUR CONTROL (FOR EXAMPLE, GENERAL ECONOMIC CONDITIONS). OUR ACTUAL RESULTS COULD DIFFER SIGNIFICANTLY FROM THE RESULTS DESCRIBED IN THE FORWARD-LOOKING STATEMENTS. FACTORS THAT COULD CAUSE SUCH DIFFERENCES INCLUDE DIFFICULTIES IN COMPLETING THE INTEGRATION OF ACQUIRED BUSINESSES, CHANGES IN GOVERNMENTAL REGULATION OF MEDICAL WASTE COLLECTION AND TREATMENT, AND INCREASES IN TRANSPORTATION AND OTHER OPERATING COSTS, AS WELL AS VARIOUS OTHER FACTORS.

 

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PART II. – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

See Note 13 - Legal Proceedings, in the Notes to the Condensed Consolidated Financial Statements (Item 1 of Part I).

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF

PROCEEDS

 

   

In May 2002 our Board of Directors authorized the Company to repurchase up to 6,000,000 shares of our common stock, in the open market or through privately negotiated transactions, at times and in amounts in the Company’s discretion.

   

In February 2005, at a time when we had purchased a total of 2,956,860 shares, the Board authorized us to purchase an additional 2,956,860 shares.

   

In February 2007, at a time when we had purchased an additional 3,142,080 shares since the prior increase in authorization, the Board authorized us to purchase up to an additional 3,142,080 shares.

   

In May 2007, at a time when we had purchased an additional 1,187,142 shares since the prior increase in authorization, the Board authorized us to purchase up to an additional 1,187,142 shares.

   

In May 2008, at a time when we had purchased an additional 2,938,496 shares since the prior increase in authorization, the Board authorized us to purchase up to an additional 2,938,496 shares.

   

In November 2010, at a time when we had purchased an additional 4,312,820 shares since the prior increase in authorization, our Board of Directors authorized us to purchase up to an additional 4,312,820 shares, thereby again giving the Company the authority to purchase up to a total of 6,000,000 additional shares.

Under resolutions that our Board of Directors adopted, we have been authorized to purchase a cumulative total of 20,537,398 shares of our common stock on the open market. As of September 30, 2012, we had purchased a cumulative total of 16,291,765 shares.

 

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The following table provides information about our purchases during the nine months ended September 30, 2012 of shares of our common stock:

Issuer Purchase of Equity Securities

 

Period    Total
Number
of Share
(or Units)
Purchased
     Average
Price
Paid per
Share
(or Unit)
     Number of
Shares (or
Units)
Purchased
as Part of
Publicly
Announced
Plans or
Programs
     Maximum
Number (or
Approximate
Dollar Value) of
Shares (or Units)
that May Yet Be
Purchased
Under the Plans
or Programs
 

January 1 - January 31, 2012

     38,552       $ 76.38         38,552         4,289,133   

February 1 - February 29, 2012

     0         0         0         4,289,133   

March 1 - March 31, 2012

     0         0         0         4,289,133   

April 1 - April 30, 2012

     0         0         0         4,289,133   

May 1 - May 31, 2012

     0         0         0         4,289,133   

June 1 - June 30, 2012

     0         0         0         4,289,133   

July 1 – July 31, 2012

     0         0         0         4,289,133   

August 1 – August 31, 2012

     0         0         0         4,289,133   

September 1 – September 30, 2012

     43,500         89.97         43,500         4,245,633   

 

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ITEM 6. EXHIBITS

 

31.1    Rules 13a-14(a)/15d-14(a) Certification of Mark C. Miller, Chairman and Chief Executive Officer
31.2    Rule 13a-14(a)/15d-14(a) Certification of Frank J.M. ten Brink, Executive Vice President and Chief Financial Officer
32    Section 1350 Certification of Mark C. Miller, Chairman and Chief Executive Officer, and Frank J.M. ten Brink, Executive Vice President and Chief Financial Officer

 

101.INS XBRL    Instance Document
101.SCH XBRL    Taxonomy Extension Schema Document
101.CAL XBRL    Taxonomy Extension Calculation Linkbase Document
101.DEF XBRL    Taxonomy Definition Linkbase Document
101.LAB XBRL    Taxonomy Extension Label Linkbase Document
101.PRE XBRL    Taxonomy Extension Presentation Linkbase Document

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Dated: November 8, 2012

 

STERICYCLE, INC.

(Registrant)

By:    /s/ Frank J.M. ten Brink

Frank J.M. ten Brink

Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)

 

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