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 March 31, 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)
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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 May 6, 2005 there were 44,193,194 shares of the Registrant's Common Stock outstanding.
Stericycle, Inc.
Table of Contents
| PART I. Financial Information | Page No. |
| Item 1. Financial Statements |
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Condensed Consolidated Balance Sheets as of March 31, 2005 (Unaudited) and December 31, 2004 |
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Condensed Consolidated Statements of Income for the three months ended March 31, 2005 and 2004 (Unaudited) |
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Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2005 and 2004 (Unaudited) |
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| Notes to Condensed Consolidated Financial Statements (Unaudited) |
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| Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations |
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| Item 3. Qualitative and Quantitative Disclosures about Market Risk |
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| Item 4. Controls and Procedures |
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| PART II. Other Information |
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| Item 1. Legal Proceedings |
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| Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities |
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| Item 6. Exhibits |
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| Signatures |
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| Certifications |
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PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
STERICYCLE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
March 31, December 31,
2005 2004
----------- -----------
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents....................................... $ 13,158 7,850
Short-term investments.......................................... 153 99
Accounts receivable, less allowance for doubtful
accounts of $4,030 in 2005 and $4,188 in 2004................. 73,483 74,888
Parts and supplies.............................................. 4,395 4,259
Prepaid expenses................................................ 7,278 6,716
Notes receivable................................................ 3,173 3,423
Deferred tax asset.............................................. 11,449 13,296
Other........................................................... 7,487 4,961
----------- -----------
Total current assets................................... 120,576 115,492
Property, plant and equipment, net.............................. 136,392 135,512
----------- -----------
Other assets:
Goodwill, net................................................... 516,431 516,808
Intangible assets, less accumulated amortization of
$8,121 in 2005 and $7,951 in 2004............................. 49,908 50,800
Notes receivable................................................ 9,517 9,517
Other........................................................... 6,056 6,012
----------- -----------
Total other assets............................................ 581,912 583,137
----------- -----------
Total assets........................................... $ 838,880 $ 834,141
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long term debt............................... $ 18,692 $ 13,218
Accounts payable................................................ 17,524 17,998
Accrued liabilities............................................. 50,569 44,411
Deferred revenue................................................ 10,104 7,611
----------- -----------
Total current liabilities.............................. 96,889 83,238
----------- -----------
Long-term debt, net of current portion.......................... 187,604 190,431
Deferred income taxes........................................... 61,281 57,477
Other liabilities............................................... 6,812 7,623
Common shareholders' equity:
Common stock (par value $.01 per share, 80,000,000
shares authorized, 44,143,054 issued and outstanding in
in 2005, 44,732,070 issued and outstanding in 2004)........... 442 448
Additional paid-in capital...................................... 267,656 298,046
Accumulated other comprehensive income.......................... 1,964 2,461
Retained earnings............................................... 216,232 194,417
----------- -----------
Total shareholders' equity...................................... 486,294 495,372
----------- -----------
Total liabilities and shareholders' equity.................... $ 838,880 $ 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
March 31,
------------------------
2005 2004
----------- ------------
Revenues........................... $ 140,578 $ 117,556
Costs and expenses:
Cost of revenues................. 75,480 60,853
Selling, general and
administrative expenses........ 20,685 17,222
Depreciation and amortization.... 5,228 4,674
Acquisition related costs........ 90 116
----------- -----------
Total costs and expenses...... 101,483 82,865
----------- -----------
Income from operations............. 39,095 34,691
----------- -----------
Other income (expense):
Interest income.................. 67 52
Interest expense................. (2,343) (2,529)
Other expense.................... (898) (420)
----------- -----------
Total other income (expense).. (3,174) (2,897)
----------- -----------
Income before income taxes......... 35,921 31,794
Income tax expense................. 14,106 12,670
----------- -----------
Net income......................... $ 21,815 $ 19,124
=========== ===========
Earnings per share - Basic......... $ 0.49 $ 0.44
=========== ===========
Earnings per share - Diluted....... $ 0.48 $ 0.42
=========== ===========
Weighted average number of
common shares outstanding--Basic. 44,559,051 43,154,583
=========== ===========
Weighted average number of common
shares outstanding--Diluted...... 45,510,561 46,045,010
=========== ===========
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 Three
Months Ended March 31,
----------------------
2005 2004
---------- ----------
OPERATING ACTIVITIES:
Net income...................................................... $ 21,815 $ 19,124
Adjustments to reconcile net income to net cash
provided by operating activities:
Stock compensation expense.................................. 18 21
Deferred income taxes....................................... 5,651 (768)
Tax benefit of disqualifying dispositions of stock options
and exercise of non-qualified stock options............... 1,419 2,067
Loss on sale and impairment of property and equipment....... -- 91
Depreciation................................................ 4,932 4,070
Amortization................................................ 296 604
Changes in operating assets and liabilities, net of
effect of acquisitions:
Accounts receivable......................................... 1,405 733
Parts and supplies.......................................... (136) 298
Prepaid expenses and other assets........................... (3,104) 4,319
Accounts payable............................................ (474) (6,154)
Accrued liabilities......................................... 1,899 1,163
Deferred revenue............................................ 2,493 2,637
---------- ----------
Net cash provided by operating activities....................... 36,214 28,205
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INVESTING ACTIVITIES:
Payments for acquisitions and international
investments, net of cash acquired........................... (707) (7,621)
Short-term investments........................................ (54) 307
Proceeds from sale of equipment............................... 16 253
Capital expenditures.......................................... (6,312) (5,347)
---------- ----------
Net cash used in investing activities........................... (7,057) (12,408)
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FINANCING ACTIVITIES:
Net proceeds from issuance of note payable.................... 642 618
Net borrowings/(repayments) of senior credit facility......... 3,000 (18,000)
Repayment of long-term debt................................... (831) (949)
Purchase/cancellation of common stock......................... (29,544) (4,294)
Principal payments on capital lease obligations............... (210) (259)
Proceeds from other issuances of common stock................. 2,243 3,240
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Net cash used in financing activities........................... (24,700) (19,644)
Effect of exchange rate changes on cash......................... 851 (261)
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Net increase (decrease) in cash and cash equivalents............ 5,308 (4,108)
Cash and cash equivalents at beginning of period................ 7,850 7,240
---------- ----------
Cash and cash equivalents at end of period...................... $ 13,158 $ 3,132
========== ==========
Non-cash activities:
Net issuances of common stock for certain acquisitions $ -- $ 70
Net issuances of notes payable for certain acquisitions $ -- $ 5,000
The accompanying notes are an integral part of these financial statements
STERICYCLE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 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 months ended March 31, 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 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 purchase price was not material and the acquisition was not significant to our operations.
NOTE 3--STOCK OPTIONS
During the quarter ended March 31, 2005, options to purchase 639,295 shares of common stock were granted to employees. These options vest ratably over a five-year period 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 vest ratably over a five-year period and have an exercise price of $45.80.
Pro forma information regarding net income and net income per share is required by FAS 123 as if we had accounted for our employee stock options granted subsequent to December 31, 1994 under the fair value method of that statement. Options granted were valued using the Black-Scholes option-pricing model.
Option value models require the input of highly subjective assumptions. Because our employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing method does not necessarily provide a reliable single measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the employee options is amortized to expense over the option-vesting period. Our pro forma information follows (in thousands, except for per share information):
Three Months Ended
March 31,
2005 2004
---------------------
Stock options expense included
in net income.................... $ 11 $ 13
--------- --------
As reported net income............. $ 21,815 $ 19,124
Pro forma impact of stock options,
net of tax....................... 1,749 1,811
--------- --------
Pro forma net income............... $ 20,066 $ 17,313
Earnings per share ========= ========
Basic-as reported............. $ 0.49 $ 0.44
========= ========
Basic-pro forma............... $ 0.45 $ 0.40
========= ========
Diluted-as reported........... $ 0.48 $ 0.42
========= ========
Diluted-pro forma............. $ 0.45 $ 0.38
========= ========
NOTE 4--COMMON STOCK.
During the quarter ended March 31, 2005, options to purchase 158,949 shares of common stock were exercised at prices ranging from $6.28- $46.98 per share. During the quarter, we repurchased on the open market and subsequently cancelled 748,600 shares of common stock. The weighted average repurchase price was $45.52 per share. At March 31, 2005 the $4.5 million for the final settlement of purchases made on March 29-31, 2005, which was not required to be paid until April, 2005, was recorded as an accrued liability on the balance sheet.
NOTE 5--NET INCOME PER COMMON SHARE
The following table sets forth the computation of basic and diluted net income per share:
STERICYCLE, INC. AND SUBSIDIARIES
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)
Three Months Ended
March 31,
------------------------
2005 2004
----------- -----------
Numerator:
Numerator for basic earnings per share
net income............................... $ 21,815 $ 19,124
=========== ===========
Denominator:
Denominator for basic earnings per share
Weighted average shares.................. 44,559,051 43,154,583
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Effective of dilutive securities:
Employee stock options................... 946,437 1,060,457
Warrants................................. 5,073 8,587
Convertible preferred stock.............. -- 1,821,383
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Dilutive potential shares.................. 951,510 2,890,427
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Denominator for diluted earnings
per share-adjusted weighted
average shares and assumed
conversions................................ 45,510,561 46,045,010
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Earnings per share - Basic................... $ 0.49 $ 0.44
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Earnings per share - Diluted................. $ 0.48 $ 0.42
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NOTE 6--COMPREHENSIVE INCOME
The components of total comprehensive income are net income and the change in cumulative currency translation adjustments. The following table details the total comprehensive income for the current and prior year periods (in thousands).
Changes in
Balance Sheet
------------------- Total
Net Currency Comprehensie
Income Translation Income
----------------------------------------------
Three months ended March 31, 2004 $ 19,124 $ (194) $ 18,930
Three months ended March 31, 2005 21,815 (497) 21,318
NOTE 7--GUARANTEE
We have guaranteed a loan to the Azoroz Bank in Japan on behalf of Shiraishi-Sogyo Co. Ltd. ("Shiraishi"). Shiraishi is a customer in Japan that is expanding their medical waste management business and has a five year loan with a current balance of $9.3 million with the Azoroa Bank that expires in June 2009.
NOTE 8--GOODWILL
We have two geographical reporting segments, United States and Foreign Countries, both of which have goodwill. The changes in the carrying amount of goodwill, net of amortization, for the three months ended March 31, 2005, was as follows (in thousands):
United Foreign
States Countries Total
---------- --------- ----------
Balance as of January 1, 2005 $ 475,581 $ 41,227 $ 516,808
Change due to currency fluctuations -- (418) (418)
Changes in Goodwill for
2004 acquisitions (286) -- (286)
Goodwill in 2005 acquisitions -- 327 327
---------- --------- ----------
Balance as of March 31, 2005 $ 475,295 $ 41,136 $ 516,431
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NOTE 9--LEGAL PROCEEDINGS
We operate in a highly regulated industry and must deal with regulatory inquiries or investigations from time to time that may be initiated for a variety of reasons.
During the quarter ended March 31, 2005, there were no material developments in any of the litigation that we described in our annual report on Form 10-K for 2004 (which we filed on March 11, 2005) other than what we have already reported in our Form 10-K.
NOTE 10--GEOGRAPHIC INFORMATION
Management has determined that we have two reportable segments, United States and Foreign Countries based on our consideration of the criteria detailed in FASB Statement No. 131, Disclosures about Segments of an Enterprise and Related Information. Revenues are attributed to countries based on the location of customers. Intercompany revenues recorded by the United States for work performed in Canada, which are immaterial, are eliminated prior to reporting United States revenues. 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:
Three Months Ended
March 31,
---------------------
2005 2004
---------------------
(in thousands)
Medical waste management services...$ 117,575 $ 109,491
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Total Revenues...................... 117,575 109,491
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Net interest expense................ 1,882 2,431
Income before income taxes.......... 34,913 29,526
Income taxes........................ 13,574 12,602
--------- ---------
Net income..........................$ 21,339 $ 16,924
--------- ---------
Depreciation and amortization.......$ 3,759 $ 4,248
========= =========
Detailed information for our Foreign Countries reporting segment is as follows:
Three Months Ended
March 31,
---------------------
2005 2004
---------------------
(in thousands)
Medical waste management services...$ 22,881 $ 5,100
Proprietary equipment and technology
license sales................... 122 2,965
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Total Revenues...................... 23,003 8,065
--------- ---------
Net interest expense................ 394 46
Income before income taxes.......... 1,008 2,268
Income taxes........................ 532 68
--------- ---------
Net income..........................$ 476 $ 2,200
--------- ---------
Depreciation and amortization.......$ 1,469 $ 426
========= =========
NOTE 11--SUBSEQUENT EVENTS
In the first two weeks of April 2005 we completed three acquisitions of medical waste businesses in the United States and one in the United Kingdom. The total purchase price of the four acquisitions was $38.1 million, of which $18.5 million was paid in cash and $19.6 million was paid by promissory notes. None of these acquisitions, either individually or in the aggregate, was significant to our operations.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
We were incorporated in March 1989. We provide compliance services including regulated medical waste collection, transportation and treatment services to our customers and related training and education programs and consulting services. We also sell ancillary supplies and transport pharmaceuticals, photographic chemicals, lead foil and amalgam for recycling in selected geographic service areas. We are also expanding into international markets through acquisitions, joint ventures and/or by licensing our proprietary technology and selling associated equipment.
THREE MONTHS ENDED MARCH 31, 2005 COMPARED TO THREE MONTHS ENDED MARCH 31, 2004
The following summarizes (in thousands) the Company's operations:
Three Months Ended March 31,
-----------------------------------------
2005 2004
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$ % $ %
-------- -------- -------- -------
Revenues............................................. $140,578 100.0 $ 117,556 100.0
Cost of revenues..................................... 75,480 53.7 60,853 51.8
Depreciation......................................... 4,165 3.0 3,548 3.0
-------- -------- -------- -------
Total cost of revenues............................... 79,645 56.7 64,401 54.8
Gross profit......................................... 60,933 43.3 53,155 45.2
Selling, general and
administrative expenses............................ 20,685 14.7 17,222 14.7
Depreciation......................................... 767 0.5 522 0.4
Amortization......................................... 296 0.2 604 0.5
Acquisition related expenses......................... 90 0.1 116 0.1
-------- -------- -------- -------
Total selling, general and administrative expenses... 21,838 15.5 18,464 15.7
Income from operations............................... 39,095 27.8 34,691 29.5
Net income........................................... 21,815 15.5 19,124 16.3
Earnings per share-diluted........................... $ 0.48 $ 0.42
Revenues. Revenues increased $23.0 million, or 19.6%, to $140.6 million during the quarter ended March 31, 2005 from $117.6 million during the comparable quarter in 2004 as a result of acquisitions completed during 2004 and our continued strategy of focusing on sales to higher- margin small quantity customers. International machinery revenues had been $2.8 million during the comparable quarter in 2004 as a result of the delivery of a large portion of an order of ETD equipment to a customer in Japan. During the quarter ended March 31, 2005, acquisitions less than one year old contributed approximately $17.8 million to the increase in our revenues from 2004. For the quarter, our base internal revenue growth for small quantity customers increased approximately 9% and revenues from large quantity customers increased by approximately 3% as we continued to increase our number of Bio Systems customers.
We believe the size of the regulated medical waste market in the United States remained relatively stable during the quarter.
Cost of revenues. Cost of revenues increased by $15.2 million to $79.6 million during the quarter ended March 31, 2005 from $64.4 million during the comparable quarter in 2004. This increase in primarily related to our increased revenues during 2005 compared to 2004. Our gross margin percentage decreased to 43.3% during the quarter from 45.2% during the same quarter in 2004 due to increased revenues from the international acquisitions completed during 2004, which have lower gross margins, and lower revenues from machinery sales, which in combination reduced gross margins by approximately 310 basis points. This was partially offset by an increase in gross margins on our domestic business by approximately 120 basis points as we continued to realize improvements from our ongoing programs to improve the margins on our large quantity business and increased our number of small quantity customers electing our Steri-SafeSM program from 75,000 to 89,000.
Selling, general and administrative expenses. Selling, general and administrative expenses, including acquisition related costs, increased to $21.8 million for the quarter ended March 31, 2005 from $18.5 million for the comparable quarter in 2004. The increase was the result of higher spending related to our acquisitions and strategic marketing programs such as BioSystems, Steri-SafeSM and our other new initiatives. Legal expenses increased in the quarter ended March 31, 2005 to $1.8 million from $0.9 million in the comparable quarter in 2004. Amortization expense decreased to $0.3 million during the quarter from $0.6 million in the same quarter in 2004. This decrease was the result of intangible assets being fully amortized during the fourth quarter of 2004. Acquisition related expenses were unchanged at $0.1 million in 2005 as compared to 2004. Selling, general and administrative expenses as a percent of revenues decreased to 15.5% during the quarter from 15.7% during the comparable quarter in 2004.
Income from operations. Income from operations increased to $39.1 million for the quarter ended March 31, 2005 from $34.7 million for the comparable quarter in 2004. The increase was due to higher gross profit, partially offset by the higher selling, general and administrative expenses during the quarter. Income from operations as a percentage of revenue decreased to 27.8% during the quarter from 29.5% during the same quarter in 2004 as a result of our international operations having lower operating margins than our domestic operations.
Net interest expense. Net interest expense decreased to $2.3 million during the quarter ended March 31, 2005 from $2.5 million during the comparable quarter in 2004 due to lower interest rates on our outstanding debt.
Income tax expense. Income tax expense increased to $14.1 million for the quarter ended March 31, 2005 from $12.7 million for the comparable quarter in 2004. The increase was due to higher taxable income partially offset by a lower effective tax rate. The effective tax rates for the quarters ended March 31, 2005 and 2004 were 39.3% and 39.9%, respectively.
LIQUIDITY AND CAPITAL RESOURCES
Our credit facility requires us to comply with various financial, reporting, and other covenants and restrictions, including a restriction on dividend payments. At March 31, 2005 we were in compliance with all of our financial debt covenants. As of March 31, 2005, we had $174.4 million of borrowings outstanding under our senior secured credit facility, consisting of $112.0 million under our $205.0 million revolving credit facility and $62.4 million under our Term A loan facility. In addition we had $33.7 million committed to letters of credit. At March 31, 2005 the margin for interest rates on borrowings under our revolving credit facility and the Term A component was 0.0% on base rate loans and 1.25% on Libor loans.
Working Capital. At March 31, 2005, our working capital was $23.7 million compared to working capital of $32.3 million at December 31, 2004.
Net Cash Provided or Used. Net cash provided by operating activities was $36.2 million during the three months ended March 31, 2005 compared to $28.2 million for the comparable period in 2004. This increase was primarily due to higher deferred tax assets, accounts payable and deferred revenue balances and higher income partially offset by increased other asset balances. Net cash provided by operating activities in 2005 included a $1.4 million tax benefit from disqualifying dispositions of stock options and exercise of non-qualified stock options as compared to a $2.1 million tax benefit in 2004. When the company adopts FAS 123R this tax benefit will be not be recorded under net cash provided by operating activities but will be reclassified to net cash used in financing activities.
Net cash used in investing activities for the three months ended March 31, 2005 was $7.1 million compared to $12.4 million for the comparable period in 2004. This decrease is primarily attributable to a decrease in payments for acquisitions partially offset by an increase in capital expenditures. Cash investments in acquisitions and international joint ventures for the three months ended March 31, 2005 were $0.7 million versus $7.6 million in the comparable period in 2004. Capital expenditures were $6.3 million for the period compared to $5.3 million during the same period in 2004 primarily attributable to the investments being made to rollout the BioSystems program nationwide. At March 31, 2005 we had approximately 10% of our treatment capacity in North America in incineration and approximately 90% in non- incineration technologies such as our proprietary patented ETD technology and autoclaving. The implementation of our commitment to move away from incineration in North America may result in a write-down of the incineration equipment as and when we close incinerators that we are currently operating. Our commitment to move away from incineration in North America is in the nature of a goal to be accomplished over an undetermined number of years. Because of uncertainties relating, among other things, to customer education and acceptance and legal requirements to incinerate portions of the medical waste, we do not have a timetable for this transition or specific plans to close any of our existing incinerators.
Net cash used in financing activities was $24.7 million during the three months ended March 31, 2005 compared to $19.6 million for the comparable period in 2004. This is primarily the result of the repurchase of 748,600 shares of common stock in the quarter ended March 31, 2005.
In addition at March 31, 2005 we had $17.1 million outstanding related to promissory notes issued in connection with acquisitions during 2002 and 2004, consisting primarily of a 3 year note issued as part of the White Rose Environmental Ltd., acquisition, which had an outstanding balance of $10.7 million at March 31, 2005.
Guarantees: We have guaranteed a loan to the Azoroa Bank in Japan on behalf of Shiraishi-Sogyo Co. Ltd ("Shiraishi"). Shiraishi is a customer in Japan that is expanding their medical waste management business and has a five-year loan with a current balance of $9.3 million with the Azoroa Bank that expires in June 2009. Management currently believes no amount will be paid under the guarantee.
We are subject to market risks arising from changes in interest rates on our senior secured credit facility. Our interest rate exposure results from changes in LIBOR or the base rate, which are used to determine the applicable interest rates under our term loans and revolving credit facility. Our potential loss 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 $1.7 million. Fluctuations in interest rates will not affect the interest payable on our senior subordinated notes, which is fixed.
We have exposure to currency exchange rate fluctuations between the US dollar (USD) and UK pound sterling (GBP) related to a 15 million GBP intercompany loan with White Rose Environmental. We have attempted to hedge this exposure by purchasing forward contracts for the future sale of GBP that align with the repayment terms of the intercompany loan. The contracts are marked to market at the end of each reporting period and the gain or loss, along with the currency gain or loss on the underlying loan balance, is recorded in the other income/expense line of the income statement.
We have exposure to commodity pricing for gas and diesel fuel for our trucks. 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 President 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 President 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-14(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 President and Chief Executive Officer and our Chief Financial Officer, as appropriate to allow timely decisions regarding our required disclosures.
Internal Control Over Financial Reporting
During the quarter ended March 31, 2005, there were no changes in our internal controls over financial reporting that have materially affected, or are reasonably likely materially to 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.
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See Note 9, Legal Proceedings, in the Notes to the Condensed Consolidated Financial Statements. (Item 1 of Part 1).
ITEM 2. CHANGES IN SECURITIES, USES OF PROCEEDS AND ISSUER PURCHASES OF EQUITY SECURITIES
The following table provides information about our purchases during the three months ended March 31, 2005 of shares of our common stock.
Issuer Purchases of Equity Securities
Maximum
Number (or
Approximate
Dollar
Value) of
Total Shares (or
Number of ShareUnits) that
Average (or Units) May Yet Be
Total Price Purchased as Pa Purchased
Number of Share Paid per of Publicly Under the
(or Units) Share Announced Plans Plans or
Period Purchased (or Unit) or Programs Programs
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January 1-January 31, 2005 -- -- -- 1,868,570
February 1-February 28, 2005 544,000 45.88 544,000 2,803,000
March 1-March 31, 2005 204,600 44.56 204,600 2,598,400
The shares were repurchased as part of the plan announced on May 16, 2002, authorizing the repurchase of up to 3,000,000 shares of our common stock and amended in February 2005 to authorize the repurchase of an additional 1,478,430 shares. The plan does not have an expiration date.
ITEM 6. EXHIBITS
31.1 Rule 13a-14(a)/15d-14(a) Certification of Mark C. Miller, President 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, President and Chief Executive Officer, and Frank J.M. ten Brink, Executive Vice President and Chief Financial Officer
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: May 9, 2005.
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STERICYCLE, INC. |
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(Registrant) |
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By: |
/s/ Frank J.M. ten Brink |
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Frank J.M. ten Brink |
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Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) |
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