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, 1996.
[ ] Transition Report pursuant to Section B 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 (I.R.S. Employer
incorporation or organization) Identification No.)
1419 LAKE COOK ROAD, SUITE 410
DEERFIELD, ILLINOIS 60015
(Address of principal executive offices)
(847) 945-6550
(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 periods that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes _X_ No __
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date.
Common Stock, $.01 par value --- 9,998,328 shares as of September 30, 1996
STERICYCLE, INC. AND SUBSIDIARIES
INDEX TO FORM 10-Q
Part I. Financial Information Page
Item 1. Condensed Consolidated Financial Statements 3
Condensed Consolidated Balance Sheets 3
September 30, 1996 and December 31, 1995
Condensed Consolidated Statements of Operations 4
Three months ended September 30, 1995 and 1996
Nine months ended September 30, 1995 and 1996
Condensed Consolidated Statements of Cash Flows 5
Nine months ended September 30, 1995 and 1996
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial 9
Condition and Results of Operations
Part II. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 13
Signature 14
PART I. FINANCIAL INFORMATION
STERICYCLE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
December 31, September 30,
1995 1996
(unaudited)
------------ ------------
(in thousands)
ASSETS
Current Assets:
Cash and cash equivalents $138 $24,265
Accounts receivable, less allowance for doubtful
accounts of $138 in 1995 and $168 in 1996 3,731 4,634
Parts and supplies 468 458
Prepaid expenses 431 276
Other 424 448
------------ ------------
Total current assets 5,192 30,081
------------ ------------
Property, Plant and Equipment:
Land 90 90
Buildings and improvements 5,394 5,475
Machinery and equipment 7,644 8,712
Office equipment and furniture 406 442
Construction in progress 281 325
------------ ------------
13,815 15,044
Less accumulated depreciation (3,587) (4,765)
------------ ------------
Property, plant and equipment, net 10,228 10,279
------------ ------------
Other Assets:
Goodwill, less accumulated amortization of
$417 in 1995 and $695 in 1996 7,517 8,923
Other 554 532
------------ ------------
Total other assets 8,071 9,455
------------ ------------
Total assets $23,491 $49,815
=========== ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current portion of long term debt $297 $1,815
Accounts payable 1,868 1,110
Accrued liabilities 1,956 2,570
Deferred revenue 632 681
------------ ------------
Total current liabilities 4,753 6,176
------------ ------------
Long Term Debt:
Industrial development revenue bonds and other 2,284 2,137
Note payable to bank 858 -
Note payable 2,480 -
------------ ------------
Total long term debt 5,622 2,137
------------ ------------
Other Liablilities 542 543
Shareholders' Equity:
Common stock (par value $.01 per share, 30,000,000 shares
authorized, 5,582,385 issued and outstanding in 1995,
9,998,328 issued and outstanding in 1996) 55 100
Additional paid-in-capital 49,621 79,551
Notes receivable for common stock - (10)
Accumulated deficit (37,102) (38,682)
------------- ------------
Total shareholders' equity 12,574 40,959
------------- ------------
Total Liabilities and Shareholders' Equity $23,491 $49,815
============= ===========
Note: The condensed consolidated balance sheet at December 31, 1995 has been
derived from the audited financial statements at that date but does not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements.
The accompanying notes are an integral part of these financial statements.
STERICYCLE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
For the three months ended For the nine months ended
September 30, September 30,
-------------------------- -------------------------
1995 1996 1995 1996
----------- ------------ ----------- ----------
(in thousands, except share and per share data)
Revenues $5,339 $6,313 $16,095 $17,930
Costs and expenses:
Cost of revenues 4,413 5,011 13,285 14,200
Selling, general & administrative 1,733 1,802 6,396 5,118
------------ ------------ ----------- ----------
Total costs and expenses 6,146 6,813 19,681 19,318
------------ ------------ ----------- ----------
Loss from Operations (807) (500) (3,586) (1,388)
Other income (expense):
Interest income 1 116 7 116
Interest expense (68) (102) (171) (308)
------------ ------------ ----------- ----------
Total other income (expense) (67) 14 (164) (192)
------------ ------------ ----------- ----------
Net loss ($874) ($486) ($3,750) ($1,580)
------------ ------------ ----------- ----------
Net loss per common share ($0.13) ($0.06) ($0.54) ($0.21)
------------ ------------ ----------- ----------
Weighted average number of
common shares outstanding 6,974,820 8,202,555 6,974,820 7,401,916
============ ============ ============ ===========
The accompanying notes are an integral part of these financial statements.
STERICYCLE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the nine months
ended September 30,
------------------------
1995 1996
---------- -----------
(in thousands)
OPERATING ACTIVITIES:
Net Loss ($3,750) ($1,580)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 1,403 1,500
Asset write down 503 -
Settlement with regulatory agency 273 -
Gain on divestitures (458) -
Changes in operating assets & liabilities:
Accounts receivable 823 (432)
Parts and supplies 112 46
Prepaid expenses and other 127 132
Other assets (160) 7
Accounts payable 166 (828)
Accrued liabilities (535) 623
Deferred revenue 232 47
---------- -----------
Net cash used in operating activities (1,264) (485)
---------- -----------
INVESTING ACTIVITIES:
Acquisitions, net of cash acquired (459) (1,068)
Proceeds from divestitures 792 -
Capital expenditures (282) (626)
---------- -----------
Net cash provided by (used in) investing activities 51 (1,694)
---------- -----------
FINANCING ACTIVITIES:
Net payment of note payable to bank - (858)
Repayment of long term debt (105) (2,088)
Principal payments on capital lease obligations (393) (227)
Proceeds from bridge loans 830 1,000
Proceeds from issuance of common stock 3 28,479
Other (25) -
---------- -----------
Net cash provided by financing activities 310 26,306
---------- -----------
(Decrease) increase in cash and cash equivalents (903) 24,127
Cash and cash equivalents at beginning of period 1,206 138
---------- -----------
Cash and cash equivalents at end of period $303 $24,265
========== ===========
Supplementary disclosure of cash flow information:
Acquisition of machinery and equipment financed with a
capital lease $ - $364
========== ===========
Issuance of common stock in payment of Safeway note $ - $1,488
========== ===========
The accompanying notes are an integral part of these financial statements.
STERICYCLE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 1996
NOTE 1 _ BASIS OF PRESENTATION
The accompanying 1995 and 1996 unaudited interim 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, although
the Company believes these disclosures are adequate to make the information
presented not misleading. During the nine months ended September 30, 1995,
the Company recorded a write-down in the carrying value of a project to
utilize treated regulated medical waste as an alternative fuel in the
production of cement. The Company realized that the viability and completion
of the project were doubtful and that, if the project were completed, the
economic cost would not permit the Company to recover its investment. In the
opinion of management, all adjustments necessary for a fair presentation for
the periods presented have been reflected and, with the exception of the
asset write-down during the nine months ended September 30, 1995, are of a
normal recurring nature. These interim condensed consolidated financial
statements should be read in conjunction with the consolidated financial
statements and notes thereto for the three years ended December 31, 1995. The
results of operations for the nine-month period ended September 30, 1996 are
not necessarily indicative of the results that may be achieved for the entire
year ending December 31, 1996.
NOTE 2 _ ACQUISITIONS
In April 1996, the Company purchased the customer list and certain other
assets, totaling approximately $200,000, of Sharps Incinerator of Fort, Inc.
for $757,000 in cash of which $562,000 was payable at closing and the balance
plus interest (prime plus 1%) is due on November 1, 1996. This transaction
was accounted for using the purchase method of accounting.
In May 1996, the Company purchased the customer list and certain other
assets of Doctors Environmental Control, Inc. for $400,000 in cash and notes
payable issued for $600,000, which were payable on May 1, 1998 with an
interest rate of 6% per annum. In addition, the Company assumed two vehicle
leases totaling $77,000, which were paid off in full in May 1996, and
delivered four option agreements to shareholders of the seller giving them an
option to purchase up to a total of 53,816 shares of the Company's common
stock. The price for the purchase of the common stock upon exercise of each
option was the surrender and cancellation of the note payable. The four
options were exercised in August 1996. The transaction was accounted for
using the purchase method of accounting.
These acquisitions are not significant to results of operations for the
nine months ended September 30, 1996.
NOTE 3 _ BRIDGE LOAN
In May 1996, the Company obtained a $1,000,000 bridge loan from certain
shareholders, directors and officers to provide working capital and to
finance additional acquisitions. The notes were subordinated to bank debt and
bear interest at the rate of 7% per annum unless repaid prior to January
1997. The notes were due in May 1997 or within 30 days after completion of an
initial public offering in which the Company raised at least $20,000,000. In
connection with this loan, the Company issued warrants to members of the
lending group to purchase an aggregate of 226,036 shares of common stock at
$7.96 per share. The warrants expire in May 2001. The bridge loan was repaid
in August 1996.
STERICYCLE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 1996
NOTE 4 _ STOCK OPTIONS
During the quarter ended March 31, 1996 the Board of Directors granted
options to purchase 49,073 shares of common stock to key employees. The
options will vest over 12 to 36 months at an exercise price of $0.53 per
share.
Additionally, during the first quarter the Board approved the options
to purchase 30,826 shares of common stock by various consultants to the
Company. The options carry an exercise price of $2.12 per share.
In April 1996, the Board of Directors granted options to purchase
149,984 shares of common stock to employees. The options will vest over 12 to
48 months and carry an exercise price of $1.99 per share.
In June 1996, the Company's Board of Directors adopted the Directors
Stock Option Plan. The plan authorizes stock options for a total of 285,000
shares of common stock to be granted to eligible directors of the Company,
consisting of directors who are neither officers nor employees of the
Company. Under such plan, each incumbent eligible director automatically
received an option as of the date of closing of the Company's initial public
offering for 8,195 shares of common stock, determined by multiplying 7,000
shares by a fraction, the numerator of which was $12.00 and the denominator
of which was the average of the closing bid and asked prices of a share of
common stock (the "closing price") on the date of grant. As of each annual
meeting of the Company's stockholders after the date of the Company's initial
public offering, each incumbent eligible director who is re-elected as a
director at the annual meeting will automatically receive an option for a
number of shares of common stock determined by multiplying 7,000 shares by a
fraction, the numerator of which is $12.00 and the denominator of which is
closing price on the date of the annual meeting, and each eligible director
who is elected as a director for the first time will automatically receive an
option for a number of shares of Common Stock determined by multiplying
21,000 shares by a fraction, the numerator of which is $12.00 and the
denominator of which is closing price on the date of the annual meeting.
These option grants are subject to a maximum grant of 9,500 shares and a
minimum grant of 4,500 shares (or to a maximum grant of 28,500 shares and a
minimum grant of 13,500 shares in the case an eligible director who is
elected as a director for the first time at an annual meeting). In addition,
each eligible director who is elected as a director for the first time other
than at an annual meeting of the Company's stockholders will automatically
receive, as of the date of his or her election, an option for a number of
shares of common stock equal to three times the number of shares of common
stock for which each incumbent eligible director received an option as of the
last annual meeting. The exercise price of each option will be the closing
price on the date of grant. The term of each option will be six years from
the date of grant and will vest in 16 equal quarterly installments and may be
exercised only when it is vested and only while the holder of the option
remains a director of the Company or during the 90-day period following the
date that he or she ceases to serve as a director. With the approval of the
Company's Board of Directors, the holder of an option may pay the exercise
price by delivering other shares of common stock, by surrendering exercisable
options having a fair market value on the date of exercise equal to the
exercise price, or by directing the Company to withhold shares of common
stock otherwise issuable upon exercise of the option having a fair market
value on the date of exercise equal to the exercise price, or by a
combination of these methods.
STERICYCLE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 1996
NOTE 5 _ STOCK ISSUANCES
In May 1996, warrants to purchase 59,128 shares of common stock were
exercised at a price of $1.59 per share. In May and June 1996, options to
purchase 24,233 shares and 459,844 shares of common stock, respectively, were
exercised at prices of $2.12 per share and $0.53 per share, respectively. In
August options to purchase 186,765 shares of common stock were exercised at a
price of $.53 per share. In August and September 1996, warrants to purchase
107,622 shares of common stock were exercised at a price of $1.59 per share.
NOTE 6 _ INCOME TAXES
The Company incurred a net operating loss for the nine months ended
September 30, 1995 and 1996. Any tax benefit resulting from these net
operating losses has been offset by a valuation allowance.
NOTE 7 _ EMPLOYEE STOCK PURCHASE PLAN
Under a plan approved by the Board of Directors for 1995, employees of
Stericycle could purchase shares of common stock at a price of $2.12 per
share. Under terms of the plan employees were allowed to purchase shares by
December 31, 1995 and pay for the stock during 1996. Employees elected to
purchase a total of 30,232 shares of common stock.
NOTE 8 _ STOCK SPLIT
All common shares, per share, weighted average shares outstanding,
stock option and warrant data have been adjusted to reflect a 1-for-5.3089
reverse stock split effective August 19, 1996. In connection with this
reverse stock split, each outstanding share of the Company's Class A and
Class B common stock was redesignated as a share of common stock, and the
Company's authorized common stock was reduced from 58,000,000 to 30,000,000
shares, also effective August 19, 1996.
NOTE 9 _ RELATED PARTIES
In October 1993, the Company entered into an Alliance Agreement
("Alliance") with an investor in the Company. The Alliance gives the investor
the right, under certain limited circumstances which are not within the
investor's control, to require the Company to redeem the investor's 461,028
shares of the Company's common stock. The redemption price upon any such
redemption is currently not defined. This redemption right terminates 180
days from the date of the Company's initial public offering of common stock.
Due to the limited circumstances and remote possibility of a redemption of
these shares, the Company has recorded the investor's investment in
shareholders' equity in the accompanying balance sheet.
NOTE 10 _ INITIAL PUBLIC OFFERING
On August 28, 1996 the Company successfully completed an initial public
offering of three million shares of common stock at $9 per share. On August
30, 1996 the underwriters exercised their option to purchase an additional
450,000 shares. The Company received total proceeds from the offering, net of
offering costs, of $27,726,000.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The Company provides regulated medical waste collection, transportation,
treatment, disposal, reduction, reuse and recycling services to its customers,
together with related training and education programs and consulting services.
The Company also sells ancillary supplies and transports pharmaceuticals,
photographic chemicals, lead foil and amalgam for recycling in selected
geographic service areas.
THREE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 1995
REVENUES. Revenues increased $974,000, or 18.2%, to $6,313,000 during the
three months ended September 30, 1996 from $5,339,000 during the comparable
period in 1995 as the Company continued to implement its strategy of focusing
on sales to higher-margin Alternate Care generators while simultaneously
paring certain higher-revenue but lower-margin accounts with Core generators.
This increase also reflects the inclusion of three months of revenues from
the WMI Medical Services of New England, Inc. ("WMI-NE") acquisition, which
was completed in January 1996, and the Doctors Environmental Control, Inc.
("DEC") and Sharps Incinerator of Fort, Inc. ("Sharps") acquisitions, both of
which were completed in May 1996.
COST OF REVENUES. Cost of revenues increased $598,000, or 13.6%, to
$5,011,000 during the three months ended September 30, 1996 from $4,413,000
during the comparable period in 1995. The principal reasons for the increase
were higher transportation costs as a result of the WMI-NE, DEC and Sharps
acquisitions and start-up expenses related to the Company's expansion into
new geographic areas where the Company primarily serves Alternate Care
generators. Cost of revenues as a percentage of revenues decreased to 79.4%
during the three months ended September 30, 1996 from 82.7% during the
comparable period in 1995.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased to $1,802,000 for the three months ended
September 30, 1996 as compared to $1,733,000 for the comparable period in
1995 due to the increased focus on sales to the alternate care market.
Selling, general and administrative expenses as a percentage of revenues
decreased to 28.5% during the three months ended September 30, 1996 from
32.5% during the comparable period in 1995.
INTEREST EXPENSE AND INTEREST INCOME. Interest expense increased to $102,000
during the three months ended September 30, 1996 from $68,000 during the
comparable period in 1995. This increase was primarily attributable to higher
indebtedness under the Company's revolving credit facility. Interest income
increased to $116,000 during the three months ended September 30, 1996 from
$1,000 during the comparable period in 1995 primarily due to the investment
of the proceeds from the initial public offering in August 1996.
NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1995
REVENUES. Revenues increased $1,835,000, or 11.4%, to $17,930,000 during the
nine months ended September 30, 1996 from $16,095,000 during the comparable
period in 1995 as the Company continued to focus on sales to higher-margin
Alternate Care generators. This increase also reflects the inclusion of nine
months of revenues from the Safetech Health Care, Inc. ("Safetech")
acquisition, which was completed in June 1995, eight months of revenues from
the WMI-NE acquisition, and five months of revenues from the DEC and Sharps
acquisitions. The increase in revenues was partially offset by a decline in
revenues from miscellaneous product sales during the nine months ended
September 30, 1996 and the sales in April and July 1995 of certain
unprofitable customer accounts and related assets obtained through
acquisitions.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
COST OF REVENUES. Cost of revenues increased $915,000, or 6.9%, to
$14,200,000 during the nine months ended September 30, 1996 from $13,285,000
during the comparable period in 1995. The principal reasons for the increase
were higher transportation costs as a result of the Safetech, WMI-NE, DEC and
Sharps acquisitions and start-up expenses related to the Company's expansion
into new geographic areas where the Company primarily serves Alternate Care
generators. Cost of revenues as a percentage of revenues decreased to 79.2%
during the nine months ended September 30, 1996 from 82.5% during the
comparable period in 1995.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses decreased to $5,118,000 during the nine months ended
September 30, 1996 from $6,396,000 during the comparable period in 1995. This
decrease was primarily attributable to a reduction in expenditures to develop
treated medical waste as an alternate fuel for the production of cement and
to savings from the integration into the Company's operations of the Safe Way
Disposal Systems, Inc. ("Safe Way") acquisition in 1994. These savings
resulted from the elimination of redundant employee and staff positions and
the reallocation of resources to Alternate Care generators. In addition,
corporate costs and permitting expenses were at lower levels during the
current period than they were during the comparable period in 1995. Selling,
general and administrative expenses as a percentage of revenues decreased to
28.5% during the nine months ended September 30, 1996 from 39.7% during the
comparable period in 1995.
INTEREST EXPENSE AND INTEREST INCOME. Interest expense increased to $308,000
during the nine months ended September 30, 1996 from $171,000 during the
comparable period in 1995 due to higher indebtedness under the Company's
revolving credit facility. Interest income increased to $116,000 during the
nine months ended September 30, 1996 from $7,000 during the comparable period
in 1995 due to the investment of the proceeds from the initial public
offering in August 1996.
LIQUIDITY AND CAPITAL RESOURCES
On August 28, 1996 the Company successfully completed an initial
public offering of 3 million shares of common stock at $9 per share. On
August 30, 1996 the underwriters exercised their option to purchase an
additional 450,000 shares. The Company received total proceeds from the
offering, net of offering costs, of $27,726,000.
Prior to the initial public offering, the Company was financed
principally through the sale of preferred stock to investors. Purchasers of
preferred stock have invested more than $50,137,000 in capital which has been
used to fund research and development, acquisitions, capital expenditures,
ongoing operating losses and working capital requirements. The Company has
also been able to secure plant and equipment leasing or financing in
connection with some of its facilities. These debt facilities are secured by
security interests in the financed assets. In addition, during 1995 the
Company was able to obtain a $2,500,000 revolving line of credit secured by
accounts receivable and a security interest in all other assets of the
Company.
During 1995 the Company's stockholders approved a plan of
recapitalization, pursuant to which all of the Company's outstanding shares
of preferred stock were reclassified as shares of new Class A common stock.
As a result, the Company was able to eliminate any liability for accrued but
unpaid dividends on its preferred stock and the preferential rights on
liquidation of holders of preferred stock.
At September 30, 1996, the Company's working capital was $23,905,000
compared to $(570,000) at September 30, 1995. The increase was primarily due
to the proceeds from the initial public offering in August 1996. During the
nine months ended September 30, 1996, the Company's depreciation and
amortization expense of $1,500,000 exceeded its loss from operations of
$1,388,000, resulting in cash flow from operations of $112,000 excluding
changes in working capital accounts.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The Company will use its line of credit as appropriate to fund cash
requirements of any future acquisitions. In August 1996 the Company paid down
the balance due on the line of credit of $1,846,000. The revolving credit
facility matures in October 1997. The facility requires the Company to
maintain certain financial ratios and consult with the bank on acquisitions
and also includes a prohibition on the payment of dividends.
In May 1996, the Company borrowed $1,000,000 under a short-term loan
from a lending group comprised of certain officers, directors and
stockholders of the Company to provide working capital. The subordinated
notes issued in connection with this loan were interest-free if paid when
due, subject to certain exceptions, and were due within 30 days after
completion of the initial public offering. This loan was paid in full on
August 30, 1996.
The Company's other financial obligations include industrial
development revenue bonds issued on behalf of and guaranteed by the Company
to finance its Woonsocket, Rhode Island treatment facility and equipment.
These bonds, which had an outstanding aggregate balance of $1,526,000 as of
September 30, 1996 at fixed interest rates ranging from 5.8% to 7.4%, are due
in various amounts through June 2017. An agreement entered into by the
Company in connection with the issuance of these bonds requires the Company
to maintain specified levels of working capital and other debt and net worth
ratios. As of December 31, 1995, the Company reclassified its reusable
containers as long-term assets based upon their expected useful lives, which
resulted in a violation of the Company's requirement to maintain a specified
current ratio on December 31, of each year. The Company received a waiver of
this requirement for December 31, 1995, to the extent of any violation as a
result of the Company's reclassification of its reusable containers. Any
violation of this or the other requirements of the Company's agreement in
connection with the issuance of the industrial development revenue bonds
would constitute a default under the Company's revolving credit facility with
Silicon Valley Bank.
In connection with the Safe Way acquisition, the Company issued a note
to Safe Way for $2,480,000 which did not bear interest and was due upon
completion of the Company's initial public offering. The Safe Way Note was
payable in cash for 40% of its face amount, or $992,000, and 60% in stock, or
98,001 shares of Common Stock. The stock was issued in August 1996 in payment
of the stock portion of this note. The Company has deferred payment of the
cash portion of this note pending changes to the escrow agreement between
Safe Way and its principal lender.
The Company has an obligation to pay the Rhode Island Air and Water
Protection Fund $35,000 each year from 1995 to 1998, $50,000 in 1999, $60,000
in 2000 and $150,000 in 2001. Without admitting liability, the Company agreed
to make these payments as part of a settlement of two notices of violations
issued by the Rhode Island Department of Environmental Management in 1994 and
1995. Although the Company disputed both the nature and extent of the alleged
violations, the Company entered into the settlement in order to resolve the
matter in the best interests of the Company and its customers in a timely
manner. The Company recorded the present value of all payments to the Air and
Water Protection Fund and the Company's legal fees relating to the matter as
expenses in 1995. Under the settlement agreement, the Company is also
required to perform certain community service and educational projects,
including conducting environmental management seminars. The Company has
accrued the expenses associated with conducting these activities.
In connection with the Sharps acquisition, the Company issued a note
payable to Sharps for $195,000 due on November 1, 1996 and bearing interest
at the rate of prime rate plus 1%. The Company has deferred payment on this
note pending adjustments to the purchase price.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Capital expenditures for 1996 are currently estimated to be
approximately $2,350,000, of which approximately $1,600,000 is for the
construction and equipping of a treatment facility at the Company's San
Leandro, California transfer station and approximately $750,000 is for
containers and transportation equipment. Capital expenditures were $626,000
for the nine month period ended September 30, 1996, compared to $282,000 for
the same period in 1995. This increase was primarily due to plant projects at
the Woonsocket, Rhode Island and Morton, Washington facilities. The Company
did not open any new treatment facilities during 1995. The Company may decide
to build additional treatment facilities as volumes increase in the Company's
current geographic services areas or as the Company enters new areas. The
Company also may elect to increase capacity in its existing treatment
facilities, which would require additional capital expenditures. In addition,
capital requirements for transportation equipment will continue to increase
as the Company grows. The amount and level of these expenditures cannot be
determined currently as they will depend upon the nature and extent of the
Company's growth and acquisition opportunities. The Company believes that
cash flow from operations and funds provided from the initial public offering
will fund its capital requirements through 1997.
Net cash used for operations decreased to $485,000 for the nine month
period ended September 30, 1996 from $1,264,000 for the comparable period in
1995. The reduced cash usage reflects a smaller net loss, higher depreciation
and amortization expenses and increased accrued liabilities, which was
partially offset by increased accounts receivable collections and decreases
in accounts payable.
Net cash used in investing activities was $1,694,000 for nine months
ended September 30, 1996. Net cash provided from investing activities was
$51,000 for the comparable period in 1995. The increase in the usage of cash
was due to the WMI-NE, DEC and Sharps acquisitions in 1996 and the benefit
from the sale in April 1995 of certain unprofitable customer accounts and
related assets obtained through acquisitions.
Net cash provided by financing activities increased to $26,306,000 for
the nine months ended September 30, 1996 from $310,000 for the comparable
period in 1995. The difference is primarily attributable to the initial
public offering in August 1996.
FROM TIME TO TIME THE COMPANY MAY ISSUE FORWARD-LOOKING STATEMENTS
RELATING TO SUCH THINGS AS ANTICIPATED FINANCIAL PERFORMANCE, BUSINESS
PROSPECTS, ACQUISITION ACTIVITIES AND SIMILAR MATTERS. THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995 PROVIDES A SAFE HARBOR FOR FORWARD-LOOKING
STATEMENTS. IN ORDER TO COMPLY WITH THE TERMS OF THE SAFE HARBOR, THE COMPANY
NOTES THAT A VARIETY OF FACTORS COULD CAUSE THE COMPANY'S ACTUAL RESULTS AND
EXPERIENCE TO DIFFER MATERIALLY FROM THE ANTICIPATED RESULTS OR OTHER
EXPECTATIONS EXPRESSED IN THE COMPANY'S FORWARD-LOOKING STATEMENTS. THE RISKS
AND UNCERTAINTIES THAT MAY AFFECT THE COMPANY'S BUSINESS, FINANCIAL CONDITION
AND RESULTS OF OPERATION INCLUDE: DIFFICULTIES AND DELAYS IN COMPLETING AND
INTEGRATING BUSINESS ACQUISITIONS; DELAYS AND DIVERSION OF ATTENTION RELATING
TO PERMITTING AND OTHER REGULATORY COMPLIANCE; DIFFICULTIES AND DELAYS
RELATING TO MARKETING AND SALES ACTIVITIES; AND GENERAL UNCERTAINTIES
ACCOMPANYING THE EXPANSION INTO NEW GEOGRAPHIC SERVICE AREAS.
PART II. OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
11 Statement Re: Computation of Per Share Earnings
27 Financial Data Schedule
(b) REPORTS ON FORM 8-K
There were no reports on Form 8-K filed by the Company for the
quarter ended September 30, 1996.
SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Stericycle, Inc.
Date: November 13, 1996 By: /s/ James F. Polark
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James F. Polark
Vice President, Chief Financial Officer
(Principal Financial and Accounting
Officer)