UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2005 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 is an accelerated filer (as defined in Exchange Act Rule 12b-2). YES [X] NO [ ],
As of August 8, 2005 there were 44,450,453 shares of the Registrant's Common Stock outstanding.
Stericycle, Inc. Table of Contents
PART I. Financial Information
Page No.
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of June 30, 2005 (Unaudited) and December 31, 2004
STERICYCLE, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
June 30, December 31,
2005 2004
----------- -----------
(unaudited) (audited)
ASSETS
Current assets:
Cash and cash equivalents....................................... $ 10,793 7,850
Short-term investments.......................................... 374 99
Accounts receivable, less allowance for doubtful
accounts of $4,479 in 2005 and $4,188 in 2004................. 86,209 74,888
Parts and supplies.............................................. 4,710 4,259
Prepaid expenses................................................ 11,578 6,716
Notes receivable................................................ 2,773 3,423
Deferred tax asset.............................................. 12,726 13,296
Other........................................................... 9,858 4,961
----------- -----------
Total current assets................................... 139,021 115,492
Property, plant and equipment, net.............................. 124,812 135,512
Other assets:
Goodwill, net................................................... 584,206 516,808
Intangible assets, less accumulated amortization of
$8,488 in 2005 and $7,951 in 2004............................. 50,581 50,800
Notes receivable................................................ 9,517 9,517
Other........................................................... 2,409 6,012
----------- -----------
Total other assets............................................ 646,713 583,137
----------- -----------
Total assets........................................... $ 910,546 $ 834,141
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long term debt............................... $ 8,282 $ 13,218
Accounts payable................................................ 19,371 17,998
Accrued liabilities............................................. 45,933 44,411
Deferred revenue................................................ 11,448 7,611
----------- -----------
Total current liabilities.............................. 85,034 83,238
----------- -----------
Long-term debt, net of current portion.......................... 245,843 190,431
Deferred income taxes........................................... 64,339 57,477
Other liabilities............................................... 6,644 7,623
Shareholders' equity:
Common stock (par value $.01 per share, 80,000,000
shares authorized, 44,210,093 issued and outstanding in
in 2005, 44,732,070 issued and outstanding in 2004)........... 443 448
Additional paid-in capital...................................... 268,652 298,046
Accumulated other comprehensive income.......................... 377 2,461
Retained earnings............................................... 239,214 194,417
----------- -----------
Total shareholders' equity...................................... 508,686 495,372
----------- -----------
Total liabilities and shareholders' equity.................... $ 910,546 $ 834,141
=========== ===========
The accompanying notes are an integral part of these financial statements
STERICYCLE, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) (unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
------------------------ ------------------------
2005 2004 2005 2004
----------- ------------ ----------- ------------
Revenues........................... $ 149,148 $ 123,793 $ 289,726 $ 241,349
Costs and expenses:
Cost of revenues................. 79,863 64,378 155,343 125,231
Selling, general and
administrative expenses........ 21,980 18,330 42,665 35,552
Depreciation and amortization.... 5,142 5,246 10,370 9,920
Write off of fixed assets........ -- 1,155 -- 1,155
Acquisition related costs........ 180 78 270 194
----------- ----------- ----------- -----------
Total costs and expenses...... 107,165 89,187 208,648 172,052
----------- ----------- ----------- -----------
Income from operations............. 41,983 34,606 81,078 69,297
----------- ----------- ----------- -----------
Other income (expense):
Interest income.................. 133 66 200 118
Interest expense................. (3,254) (2,584) (5,597) (5,113)
Write-off deferred financing fees
(2005)/Loan amendment fees (2004) (197) (333) (197) (333)
Other expense.................... (909) (547) (1,807) (967)
----------- ----------- ----------- -----------
Total other income (expense).. (4,227) (3,398) (7,401) (6,295)
----------- ----------- ----------- -----------
Income before income taxes......... 37,756 31,208 73,677 63,002
Income tax expense................. 14,774 12,341 28,880 25,011
----------- ----------- ----------- -----------
Net income......................... $ 22,982 $ 18,867 $ 44,797 $ 37,991
=========== =========== =========== ===========
Earnings per share - Basic......... $ 0.52 $ 0.43 $ 1.01 $ 0.87
=========== =========== =========== ===========
Earnings per share - Diluted....... $ 0.51 $ 0.41 $ 0.99 $ 0.82
=========== =========== =========== ===========
Weighted average number of common
shares outstanding--Basic........ 44,122,836 44,094,824 44,339,738 43,715,767
=========== =========== =========== ===========
Weighted average number of common
shares outstanding--Diluted...... 45,064,080 46,216,242 45,285,644 46,304,672
=========== =========== =========== ===========
The accompanying notes are an integral part of these financial statements
STERICYCLE, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) (unaudited)
For the Six
Months Ended June 30,
----------------------
2005 2004
---------- ----------
OPERATING ACTIVITIES:
Net income...................................................... $ 44,797 $ 37,991
Adjustments to reconcile net income to net cash
provided by operating activities:
Stock compensation expense.................................. 18 21
Write-off deferred financing fees........................... 197 --
Deferred income taxes....................................... 7,432 9,992
Tax benefit of disqualifying dispositions of stock options
and exercise of non-qualified stock options............... 3,291 4,826
Loss on sale and impairment of property and equipment....... -- 1,407
Depreciation................................................ 9,698 8,726
Amortization................................................ 672 1,194
Changes in operating assets and liabilities, net of
effect of acquisitions:
Accounts receivable......................................... (8,496) (2,091)
Parts and supplies.......................................... (419) 12
Prepaid expenses and other assets........................... (6,166) 4,828
Accounts payable............................................ 1,174 (5,848)
Accrued liabilities......................................... 1,093 (14,223)
Deferred revenue............................................ 3,837 47
---------- ----------
Net cash provided by operating activities....................... 57,128 46,882
---------- ----------
INVESTING ACTIVITIES:
Payments for acquisitions and international
investments, net of cash acquired........................... (34,390) (55,941)
Short-term investments........................................ (275) 539
Proceeds from sale of equipment............................... 79 61
Capital expenditures.......................................... (13,816) (15,013)
---------- ----------
Net cash used in investing activities........................... (48,402) (70,354)
---------- ----------
FINANCING ACTIVITIES:
Net proceeds from issuance of note payable.................... 642 618
Net borrowings of 2001 senior credit facility................. 27,500 32,000
Repayment of 2001 senior credit facility...................... (198,853) --
Borrowings on 2005 senior credit facility..................... 198,853 --
Repayment of long-term debt................................... (1,739) (2,104)
Payments of deferred financing costs.......................... (97) --
Purchase/cancellation of common stock......................... (39,243) (5,660)
Principal payments on capital lease obligations............... (425) (498)
Proceeds from other issuances of common stock................. 6,535 7,549
---------- ----------
Net cash (used in) provided by financing activities............. (6,827) 31,905
Effect of exchange rate changes on cash......................... 1,044 (607)
---------- ----------
Net increase in cash and cash equivalents....................... 2,943 7,826
Cash and cash equivalents at beginning of period................ 7,850 7,240
---------- ----------
Cash and cash equivalents at end of period...................... $ 10,793 $ 15,066
========== ==========
Non-cash activities:
Net issuances of common stock for certain acquisitions $ -- $ 70
Net issuances of notes payable for certain acquisitions $ 24,650 $ 14,788
The accompanying notes are an integral part of these financial statements
STERICYCLE, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS June 30, 2005
Unless the context requires otherwise, "we", "us" or "our" refers to Stericycle, Inc. and its subsidiaries on a consolidated basis.
NOTE 1--BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in annual consolidated financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations; but the Company believes the disclosures in the accompanying condensed consolidated financial statements are adequate to make the information presented not misleading. In our opinion, all adjustments necessary for a fair presentation for the periods presented have been reflected and are of a normal recurring nature. These condensed consolidated financial statements should be read in conjunction with the Consolidated Financial Statements and notes thereto for the year ended December 31, 2004, as filed with our Annual Report on Form 10-K for the year ended December 31, 2004. The results of operations for the three and six months ended June 30, 2005 are not necessarily indicative of the results that may be achieved for the entire year ending December 31, 2005.
NOTE 2--ACQUISITIONS
During the quarter ended June 30, 2005, we completed six acquisitions of medical waste businesses and one acquisition of a pharmaceutical returns (reverse distribution) business, our Mexican subsidiary completed two acquisitions of medical waste businesses, and our United Kingdom subsidiary completed one acquisition of a medical waste business.
In April, we completed four acquisitions of medical waste businesses, consisting of selected assets of Envirotech of America, Inc. which operated in central New York, Medical Systems, Inc., which operated in Missouri, BioClean, Inc., which operated in western New York, and all of the stock of Sanford Motors, Inc. and two affiliated companies, which operated in eastern Pennsylvania and New Jersey. We also acquired all of the stock of Automated Health Technologies, Inc., a pharmaceutical returns company based in Florida. In May, we acquired selected assets of Five Star Waste, Inc., which operated a medical waste business in Florida, and in June, we acquired selected assets of Bio-Med Tec Inc. and an affiliated company, which operated a medical waste business in West Virginia and southern Ohio.
In addition, in April our United Kingdom subsidiary, Stericycle International, Ltd., acquired all of the stock of Healthcare Waste Limited (formerly known as Select Environmental Limited), which operated a medical waste business in southern England, and our Mexican subsidiary, Medam S.A. de C.V., completed the acquisition of the stock of Planta Incineradora de Residuos Biologicos Infecciosos, S.A. de C.V. and Soluciones Ecologicas Integrales, S.A. de C.V.
During the quarter ended March 31, 2005, our Mexican subsidiary, Medam S.A. de C.V. acquired selected assets of Servicios Ecologicos PEGE y Asociados S. De R.L. de C.V.
The aggregate net purchase price of our acquisitions during the six months ended June 30, 2005 was approximately $59.0 million, of which $34.4 million was paid in cash and $24.6 million was paid by the issuance of promissory notes. These acquisitions were not significant to our operations, either individually or in the aggregate. The purchase price allocations for these acquisitions are preliminary pending completion of certain intangible asset valuations.
NOTE 3--STOCK OPTIONS
During the quarter ended June 30, 2005, options to purchase 40,600 shares of common stock were granted to employees. These options vest over a five-year period in annual increments of 20% of the option shares and have exercise prices of $44.05-$49.68 per share. In addition options to purchase 38,496 shares of common stock were granted to outside directors. These options vest on the first anniversary of their grant and have an exercise price of $48.01 per share.
During the quarter ended March 31, 2005, options to purchase 639,295 shares of common stock were granted to employees. These options vest over a five-year period in annual increments of 20% of the option shares and have exercise prices of $44.25-$46.02 per share. In addition, in February 2005 warrants to purchase 900 shares of common stock were granted to an outside consultant. These warrants become exercisable over a five-year period in annual increments of 20% of the shares and have an exercise price of $45.80 per share.
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