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Section 1: 10-K/A (10-K/A)

srcl-10ka_20151231.htm

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-K/A

 

(Amendment No. 1)

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2015

or

o 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 1-37556

 

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)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Common stock, par value $.01 per share

 

NASDAQ Global Select Market

Depositary Shares, each representing a 1/10th ownership interest in a share of 5.25% Mandatory Convertible Preferred Stock, Series A, par value $0.01 per share

 

NASDAQ Global Select Market

(Title of each class)

 

(Name of each exchange on which registered)

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES x NO o

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Act of 1934. YES o NO x

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 o

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 during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES x NO o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K, or any amendment to this Form 10-K. o

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 "accelerated filer", "large accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one)

 

Large accelerated filer x

 

Accelerated filer o

 

 

 

Non-accelerated filer o

 

Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2 of the Exchange Act). YES o NO x

State the aggregate market value of voting and non-voting common equity held by non-affiliates computed by reference to the price at which common equity was last sold as of the last business day of the registrant’s most recently completed second fiscal quarter (June 30, 2015): $11,358,678,595.

On February 19, 2016, there were 84,647,029 shares of the Registrant’s Common Stock outstanding.


EXPLANATORY NOTE

Stericycle, Inc. (the “Company,” “we” or “our”) is filing this amended Annual Report on Form 10-K/A because the Audit Committee of our Board of Directors determined that the consolidated financial statements for the quarters ended March 31, 2015, June 30, 2015 and September 30, 2015, originally included in the Company’s Quarterly Reports on Form 10-Q for each of the respective quarterly periods, should no longer be relied upon due to errors in the timing of recognition of certain loss reserves. This Form 10-K/A is being filed to present amended and restated quarterly financial information in Note 20, Selected Quarterly Financial Data (Unaudited) for 2015, originally included in the Company’s Annual Report on Form 10-K filed on March 15, 2016 (the “Original Form 10-K”), and to disclose additional information regarding the Company’s internal control over financial reporting and disclosure controls and procedures related to these errors.  

The errors in timing of recognition of certain loss reserves relate to the Company’s settlement of two previously disclosed litigation matters:  first, a class action complaint filed in the Circuit Court of Cook County, Illinois captioned Sawyer v. Stericycle, Inc., et al., Case No. 2015 CH 07190  (the “TCPA Action”), alleging that from 2010 to 2014, the Company violated the Telephone Consumer Protection Act of 1991, as amended by the Junk Fax Prevention Act of 2005; and second, a qui tam action filed in the U.S. District Court for the Northern District of Illinois captioned United States of America ex rel. Jennifer D. Perez v. Stericycle, Inc., Case No. 1:08-cv-2390 (the “Qui Tam Action”), alleging that from January 1, 2003 to June 30, 2014, the Company improperly increased its service price to certain government customers without their consent or contractual authorization, in violation of the False Claims Act and similar state statutes.

The identified accounting errors related to the timing of recognition of loss reserves between quarterly periods and had no effect on the Company’s audited annual results for the fiscal year ended December 31, 2015.

We originally recorded $45.0 million in accrued liabilities related to the TCPA Action in the second quarter of 2015; we are now of the view that this amount should have been recorded in the first quarter of 2015. In addition, we originally recorded $28.5 million in accrued liabilities related to the Qui Tam Action in the third quarter of 2015; we are now of the view that this amount also should have been recorded in the first quarter of 2015.  

The impact of the restatement is as follows:

 

·

the estimated loss contingency for the first quarter of fiscal 2015 was understated by $73.5 million, resulting in an overstatement of net income of $46.5 million for the three month period ended March 31, 2015;  

 

·

the estimated loss contingency for the second quarter of fiscal 2015 was overstated by $45.0 million, resulting in an understatement of net income of $27.4 million for the three month period ended June 30, 2015. For the six month period ended June 30, 2015, the estimated loss contingency was understated by $28.5 million, resulting in an overstatement of net income of $19.1 million for the six month period ended June 30, 2015; and

 

·

the estimated loss contingency for the third quarter of fiscal 2015 was overstated by $28.5 million, resulting in an understatement of net income of $17.2 million for the three month period ended September 30, 2015.

Accordingly, we are filing this Form 10-K/A to correct the errors presented in Note 20 - Selected Quarterly Financial Data (Unaudited) of the Original Form 10-K.

The Company’s controls related to the accounting for loss contingencies were inadequate to ensure that loss reserves were recorded timely in the appropriate period. We are also filing this Form 10-K/A to revise the COSO Component – Risk Assessment material weakness described in Management’s Report on Internal Control Over Financial Reporting as described in our Original Form 10-K to encompass the accounting for loss contingencies. Our Independent Registered Public Accounting Firm has also revised its opinion report with respect to the effectiveness of internal control over financial reporting.  

 



The following sections of the Original Form 10-K have been amended and restated and are included in this Form 10-K/A:

 

1)

Item 8 of Part II, Financial Statements and Supplementary Data;

 

2)

Item 15 of Part IV, Exhibits and Financial Statement Schedules.

Specifically, the following sections within Item 8 of Part II have been amended or restated:

 

1)

Management’s Report on Internal Control Over Financial Reporting;

 

2)

Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting;

 

3)

Note 19 – Legal Proceedings; and

 

4)

Note 20 – Selected Quarterly Financial Data.

The Company has also included the signature page, the certifications of our Chief Executive Officer and Chief Financial Officer in Exhibits 31.3, 31.4, and 32.1, the consent of the independent registered public accounting firm in Exhibit 23.1, and financial statements formatted in Extensible Business Reporting Language (XBRL) in Exhibits 101.

Except as described above, no other amendments have been made to the Original Form 10-K. The Company has not updated the disclosures contained herein to reflect events that have occurred since the date of the Original Form 10-K. Accordingly, this amended annual report on Form 10-K/A should be read in conjunction with the Company’s other filings made with the SEC subsequent to the filing of the Original Form 10-K, including any amendments to those filings.

 



 

 

Stericycle, Inc.

Table of Contents

 

 

Page No.

PART II.

 

 

 

Item 8.  Financial Statements and Supplementary Data

1

 

 

PART IV.

 

 

 

Item 15.  Exhibits and Financial Statement Schedules

41

 

 

Signatures

48

 

 

 


 

PART II

 

Item 8. Financial Statements and Supplementary Data

Management’s Report on Internal Control Over Financial Reporting

The management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rules 13a-15(f) under the Securities Exchange Act of 1934 as a process designed by, or under the supervision of, a company’s principal executive and principal financial officers and effected by the company’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 U.S. generally accepted accounting principles. The Company’s internal control over financial reporting includes those policies and procedures that:

• pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company;

• provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and

• provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

The Company acquired Shred-it International ULC (“Shred-it”) on October 1, 2015. Due to the timing of the acquisition, the Company has excluded the acquired operations of Shred-it from its assessment of the effectiveness of the Company’s internal control over financial reporting. Shred-it represented 32% of the Company’s assets as of December 31, 2015 and 6% of the Company’s revenues for the year ended December 31, 2015.

The Company’s management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2015. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) in Internal Control-Integrated Framework (the “COSO Framework”). Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that there were material weaknesses in internal controls over financial reporting described below.

COSO Component - Risk Assessment

The Company’s risk assessment process did not operate effectively, resulting in a material weakness pertaining to this component of the COSO Framework. Specifically, the Company did not sufficiently identify risks associated with certain routine processes and related information systems, including revenue, and certain non-routine transactions, including the accounting for loss contingencies. In addition, the Company did not properly design and implement appropriate process-level internal controls at the Environmental Solutions component of the Domestic Regulated and Compliance Services segment. The Environmental Solutions component primarily consists of the PSC Environmental Services, LLC component acquired on April 22, 2014, which was excluded from management assessment of internal controls over financial reporting as of December 31, 2014. The material weakness relating to the risk assessment component of the internal control framework contributed to the other material weaknesses described below.

1


 

COSO Component - Control Activities

Revenue - The design and operating effectiveness of revenue control activities are inadequate to ensure that revenue transactions are properly measured and recorded in the appropriate period.

Environmental Solutions - The design and operating effectiveness of control activities at the Environmental Solutions component of the Domestic Regulated and Compliance Services segment of the business were inadequate to ensure the component’s financial statements were appropriately stated.

Conclusion

Management concluded that there is a reasonable possibility that a material misstatement could occur in the consolidated financial statements if the control deficiencies were not remediated. Accordingly, management concluded that the matters described above are material weaknesses in the Company’s internal control over financial reporting and that the Company did not maintain effective internal control over financial reporting as of December 31, 2015.  

The Company’s independent registered public accounting firm has issued an opinion on the Company’s internal control over financial reporting. That report appears on page 3.

Stericycle, Inc.

Lake Forest, IL

August 9, 2016

 

 

2


 

Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting

The Board of Directors and Shareholders of Stericycle, Inc. and Subsidiaries

We have audited Stericycle, Inc. and Subsidiaries’ (the Company) internal control over financial reporting as of December 31, 2015, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework). The Company's management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed 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. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

As indicated in the accompanying Management’s Report on Internal Control over Financial Reporting, management’s assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal controls of Shred-it International ULC (“Shred-it”) which is included in the 2015 consolidated financial statements of the Company and constituted 32% of the Company’s assets as of December 31, 2015 and 6% of the Company’s revenues for the year then ended. Our audit of internal control over financial reporting of the Company also did not include an evaluation of the internal control over financial reporting of Shred-it.

A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis. The following material weaknesses have been identified and included in management’s assessment. Management has identified material weaknesses in controls related to the Company’s revenue process, the Environmental Solutions component of the Domestic Regulated and Compliance Services component of the Domestic Regulated and Compliance Services segment, and in its risk assessment process pertaining to this component of the COSO Framework. Specifically, the Company did not sufficiently identify risks associated with certain routine processes and related information systems, including revenue, and certain non-routine transactions, including accounting for loss contingencies. We also have audited, in accordance with the standards of the

3


 

Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Stericycle, Inc. and Subsidiaries as of December 31, 2015 and 2014, and the related consolidated statements of income, comprehensive income, changes in equity, and cash flows for each of the three years in the period ended December 31, 2015, and our report dated March 15, 2016 expressed an unqualified opinion thereon. The material weaknesses were considered in determining the nature, timing and extent of audit tests applied in our audit of the 2015 consolidated financial statements, and this report does not affect our report dated March 15, 2016, which expressed an unqualified opinion on those financial statements.

In our opinion, because of the effect of the material weaknesses described above on the achievement of the objectives of the control criteria, Stericycle, Inc. and Subsidiaries has not maintained effective internal control over financial reporting as of December 31, 2015, based on the COSO criteria.

/s/ Ernst & Young LLP

Chicago, Illinois

 

March 15, 2016, except for the revision to the risk assessment material weakness, to include the accounting for loss contingencies, described in the sixth paragraph above, as to which the date is August 9, 2016

 

4


 

Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders of Stericycle, Inc. and Subsidiaries

We have audited the accompanying consolidated balance sheets of Stericycle, Inc. and Subsidiaries as of December 31, 2015 and 2014, and the related consolidated statements of income, comprehensive income, changes in equity, and cash flows for each of the three years in the period ended December 31, 2015. Our audits also included the financial statement schedule listed in the Index at Item 15(a). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Stericycle, Inc. and Subsidiaries at December 31, 2015 and 2014, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2015, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Stericycle Inc. and Subsidiaries' internal control over financial reporting as of December 31, 2015, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated March 15, 2016, except for the revision to the risk assessment material weakness, to include the accounting for loss contingencies, described in the sixth paragraph of that report, as to which the date is August 9, 2016, expressed an adverse opinion thereon.

/s/ Ernst & Young LLP

Chicago, Illinois

March 15, 2016

 

 

5


 

STERICYCLE, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

 

In thousands, except share and per share data

 

 

 

December 31,

 

 

 

2015

 

 

2014

 

ASSETS

 

 

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

55,634

 

 

$

22,236

 

Short-term investments

 

 

69

 

 

 

380

 

Accounts receivable, less allowance for doubtful accounts of $22,329 in 2015 and $19,083 in 2014

 

 

614,494

 

 

 

465,473

 

Prepaid expenses

 

 

46,740

 

 

 

30,632

 

Other current assets

 

 

44,891

 

 

 

33,173

 

Total Current Assets

 

 

761,828

 

 

 

551,894

 

Property, Plant and Equipment, less accumulated depreciation of $426,019 in 2015 and $364,124 in 2014

 

 

665,602

 

 

 

460,408

 

Goodwill

 

 

3,758,177

 

 

 

2,418,832

 

Intangible assets, less accumulated amortization of $151,025 in 2015 and $114,922 in 2014

 

 

1,842,561

 

 

 

909,645

 

Other assets

 

 

49,282

 

 

 

32,523

 

Total Assets

 

$

7,077,450

 

 

$

4,373,302

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

 

 

Current portion of long-term debt

 

$

161,409

 

 

$

131,969

 

Accounts payable

 

 

149,202

 

 

 

114,596

 

Accrued liabilities

 

 

197,329

 

 

 

131,743

 

Deferred revenues

 

 

16,989

 

 

 

21,624

 

Other current liabilities

 

 

62,420

 

 

 

60,975

 

Total Current Liabilities

 

 

587,349

 

 

 

460,907

 

Long-term debt, net of current portion

 

 

3,052,639

 

 

 

1,527,246

 

Deferred income taxes

 

 

608,272

 

 

 

403,847

 

Other liabilities

 

 

81,352

 

 

 

64,117

 

Equity:

 

 

 

 

 

 

 

 

Preferred stock (par value $0.01 per share, 1,000,000 shares authorized), Mandatory Convertible Preferred Stock, Series A, 770,000 issued and outstanding in 2015

 

 

8

 

 

 

 

Common stock (par value $0.01 per share, 120,000,000 shares authorized, 84,852,584 issued and outstanding in 2015 and 84,883,517 issued and outstanding in 2014)

 

 

849

 

 

 

849

 

Additional paid-in capital

 

 

1,143,020

 

 

 

289,211

 

Accumulated other comprehensive loss

 

 

(282,631

)

 

 

(138,419

)

Retained earnings

 

 

1,868,645

 

 

 

1,743,371

 

Total Stericycle, Inc.’s Equity

 

 

2,729,891

 

 

 

1,895,012

 

Noncontrolling interest

 

 

17,947

 

 

 

22,173

 

Total Equity

 

 

2,747,838

 

 

 

1,917,185

 

Total Liabilities and Equity

 

$

7,077,450

 

 

$

4,373,302

 

 

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

 

 

6


 

STERICYCLE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

 

In thousands, except share and per share data

 

 

 

Years Ended December 31,

 

 

 

2015

 

 

2014

 

 

2013

 

Revenues

 

$

2,985,908

 

 

$

2,555,601

 

 

$

2,142,807

 

Costs and Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Cost of revenues (exclusive of depreciation shown below)

 

 

1,658,081

 

 

 

1,404,712

 

 

 

1,128,170

 

Depreciation - cost of revenues

 

 

61,642

 

 

 

56,478

 

 

 

50,003

 

Selling, general and administrative expenses (exclusive of depreciation and amortization shown below)

 

 

712,803

 

 

 

489,937

 

 

 

390,610

 

Depreciation – SG&A

 

 

20,272

 

 

 

15,446

 

 

 

11,338

 

Amortization

 

 

45,498

 

 

 

32,692

 

 

 

27,067

 

Total Costs and Expenses

 

 

2,498,296

 

 

 

1,999,265

 

 

 

1,607,188

 

Income from Operations

 

 

487,612

 

 

 

556,336

 

 

 

535,619

 

Other Income (Expense):

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

224

 

 

 

120

 

 

 

294

 

Interest expense

 

 

(77,498

)

 

 

(66,142

)

 

 

(55,243

)

Other income/ (expense), net

 

 

569

 

 

 

(2,746

)

 

 

(2,924

)

Total Other Expense

 

 

(76,705

)

 

 

(68,768

)

 

 

(57,873

)

Income Before Income Taxes

 

 

410,907

 

 

 

487,568

 

 

 

477,746

 

Income tax expense

 

 

142,894

 

 

 

159,422

 

 

 

164,662

 

Net Income

 

 

268,013

 

 

 

328,146

 

 

 

313,084

 

Less: net income attributable to noncontrolling interests

 

 

967

 

 

 

1,690

 

 

 

1,712

 

Net Income Attributable to Stericycle, Inc.

 

 

267,046

 

 

 

326,456

 

 

 

311,372

 

Less: mandatory convertible preferred stock dividend

 

 

10,106

 

 

 

 

 

 

 

Net Income Attributable to Stericycle, Inc. Common Shareholders

 

$

256,940

 

 

$

326,456

 

 

$

311,372

 

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

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

3.02

 

 

$

3.84

 

 

$

3.62

 

Diluted

 

$

2.98

 

 

$

3.79

 

 

$

3.56

 

Weighted Average Number of Common Shares Outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

84,944,841

 

 

 

84,932,792

 

 

 

85,902,550

 

Diluted

 

 

86,162,609

 

 

 

86,233,612

 

 

 

87,391,988

 

 

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

 

 

7


 

STERICYCLE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

 

In thousands

 

 

 

Years Ended December 31,

 

 

 

2015

 

 

2014

 

 

2013

 

Net Income

 

$

268,013

 

 

$

328,146

 

 

$

313,084

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other Comprehensive Income/ (Loss):

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

(140,648

)

 

 

(82,871

)

 

 

(19,160

)

Amortization of cash flow hedge into income, net of tax ($452, $209 and $200) for the years ended December 31, 2015, 2014 and 2013, respectively)

 

 

716

 

 

 

339

 

 

 

314

 

Change in fair value of cash flow hedge, net of tax ($2,623, $813 and $0 for the years ended December 31, 2015, 2014 and 2013, respectively)

 

 

(4,119

)

 

 

(2,069

)

 

 

 

Total Other Comprehensive Loss

 

 

(144,051

)

 

 

(84,601

)

 

 

(18,846

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive Income

 

 

123,962

 

 

 

243,545

 

 

 

294,238

 

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

 

 

1,128

 

 

 

(960

)

 

 

270

 

Comprehensive Income Attributable to Stericycle, Inc. Common Shareholders

 

$

122,834

 

 

$

244,505

 

 

$

293,968

 

 

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

 

8


 

STERICYCLE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

In thousands

 

 

 

Years Ended December 31,

 

 

 

2015

 

 

2014

 

 

2013

 

OPERATING ACTIVITIES:

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

268,013

 

 

$

328,146

 

 

$

313,084

 

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

 

 

 

 

 

 

 

 

 

 

 

 

Stock compensation expense

 

 

21,750

 

 

 

17,773

 

 

 

17,457

 

Excess tax benefit of stock options exercised

 

 

(16,897

)

 

 

(17,906

)

 

 

(17,153

)

Depreciation

 

 

81,914

 

 

 

71,924

 

 

 

61,341

 

Amortization

 

 

45,498

 

 

 

32,692

 

 

 

27,067

 

Deferred income taxes

 

 

(10,294

)

 

 

16,550

 

 

 

30,930

 

Other, net

 

 

7,467

 

 

 

8,932

 

 

 

1,103

 

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

 

 

 

 

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(55,890

)

 

 

(34,116

)

 

 

(54,767

)

Accounts payable

 

 

26,366

 

 

 

(5,712

)

 

 

7

 

Accrued liabilities

 

 

26,060

 

 

 

21,279

 

 

 

4,547

 

Deferred revenues

 

 

(4,615

)

 

 

1,017

 

 

 

(1,319

)

Other assets and liabilities

 

 

956

 

 

 

7,921

 

 

 

23,010

 

Net cash provided by operating activities

 

 

390,328

 

 

 

448,500

 

 

 

405,307

 

INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

 

 

 

 

Payments for acquisitions, net of cash acquired

 

 

(2,419,437

)

 

 

(374,321

)

 

 

(161,936

)

Proceeds from/ (purchases of) investments

 

 

294

 

 

 

(1,957

)

 

 

73

 

Capital expenditures

 

 

(114,761

)

 

 

(86,496

)

 

 

(73,109

)

Net cash used in investing activities

 

 

(2,533,904

)

 

 

(462,774

)

 

 

(234,972

)

FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

 

 

 

 

Repayments of long-term debt and other obligations

 

 

(93,172

)

 

 

(101,231

)

 

 

(88,507

)

Proceeds from foreign bank debt

 

 

53,747

 

 

 

205,086

 

 

 

218,968

 

Repayments of foreign bank debt

 

 

(87,308

)

 

 

(193,284

)

 

 

(201,967

)

Proceeds from term loan

 

 

1,550,000

 

 

 

 

 

 

 

Repayment of term loan

 

 

(300,000

)

 

 

 

 

 

 

Proceeds from private placement of long-term note

 

 

600,000

 

 

 

 

 

 

 

Repayments of private placement of long-term note

 

 

(100,000

)

 

 

 

 

 

 

Proceeds from senior credit facility

 

 

1,907,402

 

 

 

1,413,026

 

 

 

1,029,718

 

Repayments of senior credit facility

 

 

(2,004,385

)

 

 

(1,216,031

)

 

 

(984,979

)

Payments of capital lease obligations

 

 

(3,865

)

 

 

(5,826

)

 

 

(4,024

)

Payments of deferred financing costs

 

 

(9,903

)

 

 

(2,280

)

 

 

 

Payment of cash flow hedge

 

 

(8,833

)

 

 

 

 

 

 

Purchases and cancellations of treasury stock

 

 

(130,576

)

 

 

(194,066

)

 

 

(163,700

)

Proceeds from issuance of mandatory convertible preferred stock

 

 

746,900

 

 

 

 

 

 

 

Dividends paid on mandatory convertible preferred stock

 

 

(10,106

)

 

 

 

 

 

 

Proceeds from issuance of common stock

 

 

60,124

 

 

 

51,852

 

 

 

42,345

 

Excess tax benefit of stock options exercised

 

 

16,897

 

 

 

17,906

 

 

 

17,153

 

Payments to noncontrolling interests

 

 

(5,714

)

 

 

(5,201

)

 

 

(1,026

)

Net cash provided by/ (used in) financing activities

 

 

2,181,208

 

 

 

(30,049

)

 

 

(136,019

)

Effect of exchange rate changes on cash and cash equivalents

 

 

(4,234

)

 

 

(608

)

 

 

(1,809

)

Net increase/ (decrease) in cash and cash equivalents

 

 

33,398

 

 

 

(44,931

)

 

 

32,507

 

Cash and cash equivalents at beginning of period

 

 

22,236

 

 

 

67,167

 

 

 

34,660

 

Cash and cash equivalents at end of period

 

$

55,634

 

 

$

22,236

 

 

$

67,167

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NON-CASH ACTIVITIES:

 

 

 

 

 

 

 

 

 

 

 

 

Issuances of obligations for acquisitions

 

$

80,189

 

 

$

145,938

 

 

$

100,101

 

Issuances of obligations for noncontrolling interest

 

 

 

 

 

 

 

 

6,119

 

 

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

 

 

 

9


 

STERICYCLE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

Years Ended December 31, 2015, 2014 and 2013

 

In thousands

 

 

 

Stericycle, Inc. Equity

 

 

 

 

 

 

 

 

 

 

 

Preferred Stock

 

 

Common Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Additional

Paid-In

Capital

 

 

Retained

Earnings

 

 

Accumulated Other

Comprehensive

Income (Loss)

 

 

Noncontrolling

Interest

 

 

Total Equity

 

Balance at January 1, 2013

 

 

 

 

$

 

 

 

85,988

 

 

$

860

 

 

$

116,720

 

 

$

1,463,277

 

 

$

(39,064

)

 

$

15,530

 

 

$

1,557,323

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

311,372

 

 

 

 

 

 

 

1,712

 

 

 

313,084

 

Currency translation adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(17,718

)

 

 

(1,442

)

 

 

(19,160

)

Change in qualifying cash flow hedge, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

314

 

 

 

 

 

 

 

314

 

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

 

 

 

 

 

 

 

 

 

 

973

 

 

 

10

 

 

 

47,991

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

48,001

 

Purchase and cancellation of treasury stock

 

 

 

 

 

 

 

 

 

 

(1,461

)

 

 

(15

)

 

 

 

 

 

 

(163,685

)

 

 

 

 

 

 

 

 

 

 

(163,700

)

Stock compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

17,457

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

17,457

 

Excess tax benefit of stock options exercised

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

17,153

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

17,153

 

Noncontrolling interests attributable to acquisitions

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4,211

 

 

 

4,211

 

Reduction to noncontrolling interests due to additional ownership

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(4,211

)

 

 

 

 

 

 

 

 

 

 

(2,934

)

 

 

(7,145

)

Balance at December 31, 2013

 

 

 

 

 

 

 

 

85,500

 

 

 

855

 

 

 

195,110

 

 

 

1,610,964

 

 

 

(56,468

)

 

 

17,077

 

 

 

1,767,538

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

326,456

 

 

 

 

 

 

 

1,690

 

 

 

328,146

 

Currency translation adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(80,221

)

 

 

(2,650

)

 

 

(82,871

)

Change in qualifying cash flow hedge, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,730

)

 

 

 

 

 

 

(1,730

)

Issuance of common stock for exercise of options, restricted stock units and employee stock purchases

 

 

 

 

 

 

 

 

 

 

1,061

 

 

 

11

 

 

 

58,551

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

58,562

 

Purchase and cancellation of treasury stock

 

 

 

 

 

 

 

 

 

 

(1,677

)

 

 

(17

)

 

 

 

 

 

 

(194,049

)

 

 

 

 

 

 

 

 

 

 

(194,066

)

Stock compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

17,773

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

17,773

 

Excess tax benefit of stock options exercised

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

17,906

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

17,906

 

Noncontrolling interests attributable to acquisitions

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6,781

 

 

 

6,781

 

Reduction to noncontrolling interests due to additional ownership

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(129

)

 

 

 

 

 

 

 

 

 

 

(725

)

 

 

(854

)

Balance at December 31, 2014

 

 

 

 

 

 

 

 

84,884

 

 

 

849

 

 

 

289,211

 

 

 

1,743,371

 

 

 

(138,419

)

 

 

22,173

 

 

 

1,917,185

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

267,046

 

 

 

 

 

 

 

967

 

 

 

268,013

 

Currency translation adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(140,809

)

 

 

161

 

 

 

(140,648

)

Change in qualifying cash flow hedge, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3,403

)

 

 

 

 

 

 

(3,403

)

Issuance of common stock for exercise of options, restricted stock units and employee stock purchases