(800) 643-0240
www.stericycle.com
Annual Report
2012 Annual Report
Annual Report
Dear Fellow Shareholders:
In 2012, Stericycle continued to set new Company financial records and expand our
range of service offerings in the U.S. and 11 international countries in pursuit of our
mission to help our customers protect their people and reduce risk.
Our revenues in 2012 grew to $1.9 billion, a 14.1% increase over 2011. Our gross
margin was 44.8% in 2012 compared with 45.4% in 2011. Operating income before
acquisition-related costs and various adjustments increased 12.2% to $498.7 million
from $444.4 million in 2011. Our operating margin before acquisition-related costs
and various adjustments was 26.1% compared with 26.5% in 2011.
Under U.S. generally accepted accounting principles (“GAAP”), net income
attributable to Stericycle for 2012 increased 14.2%, to $268.0 million from $234.8
million, and diluted earnings per share increased 14.6%, to $3.08 from $2.69 per
diluted share. Our 2012 results included a net reduction in net income of $19.2
million, or $0.22 per diluted share, due to acquisition expenses, litigation settlement
expenses, loss on sale of business, restructuring and plant closure costs, and change
in fair value of contingent consideration. Our 2011 results included a net reduction
in net income of $14.3 million, or $0.16 per diluted share, due to acquisition
expenses, litigation settlement expenses, and restructuring and plant closure costs,
which were offset partially by a change in fair value of contingent consideration
and a net release of prior years’ tax reserves. Excluding the impact of these items on
our results in 2012 and 2011, our non-GAAP net income attributable to Stericycle
grew to $287.2 million in 2012, a 15.3% increase over $249.1 million in 2011.
Non-GAAP earnings per diluted share, when adjusted for various items, increased
15.8% to $3.30 from $2.85 in 2011.
Accomplishments in 2012
In 2012 we continued to generate strong free cash flow from operations, which
we used to fund growth and improve our balance sheet. We invested $65.2 million
in capital expenditures to expand our capabilities, drive innovation, and better
serve the evolving needs of our customers. In addition, we used $229.7 million
for domestic and international acquisitions and $48.0 million for stock repurchases
on the open market.
In the U.S.: We continued to strengthen Stericycle’s leadership position in regulated
waste management, healthcare safety, and compliance services. We continued to
increase the penetration of Steri•SafeSM, our OSHA safety and compliance solution,
which allows healthcare providers throughout the U.S. to create a safe, regulatory-
compliant workplace. We continued to achieve strong customer adoption of our
Sharps Management Service, which not only reduces the risk of needle sticks for
hospital staff, but also prevents thousands of tons of plastic and corrugated material
from accumulating in landfills. We continued to expand our Pharmaceutical Waste
Disposal Program to both hospitals and small quantity customers, helping them
to dispose of pharmaceuticals that are unused or identified as waste in a safe,
compliant and environmentally-responsible manner. In 2012 we completed 17
domestic acquisitions.
Internationally: We continued to establish and strengthen our position in multiple
international markets. We strengthened our capabilities in Argentina, Brazil,
Canada, Chile, Ireland, Japan, Mexico, Portugal, Romania, Spain, and the United
Kingdom. We continued to roll out our Clinical Services offering in select
international markets. Clinical Services is a unique suite of solutions that addresses
various aspects of managing a medical or dental practice, principal among which
is regulated waste services. Clinical Services has a modular architecture which
enables us to continue to market new products and services to both new and existing
customers on an on-going basis. We acquired 24 businesses internationally in 2012.
Sustainability: Corporate responsibility and environmental protection are critical
components of our company’s mission. Stericycle commits to capture new
opportunities for sustainable growth by managing our internal operations in a
socially and environmentally-responsible manner. Highlights of some of our
sustainability programs and their benefits to the environment include:
• In the U.S., the diversion of plastic containers from landfill through the use
of our Sharps Management Service equates to over eight million gallons of
gas not burned and over 150 million pounds of CO2 not emitted into the
atmosphere. We have begun rolling out this service in Canada, Ireland and
the United Kingdom.
• Stericycle’s Pharmaceutical Waste Disposal Program helps keep unused drugs
out of the water system.
• We have begun to add vehicle technology and equipment in our U.S. based
transportation fleet to improve safety and fuel efficiency.
• Our ExpertSUSTAINABILITY services offer product re-use, recycling and
alternative use options, and have diverted over 30 million pounds of waste
from landfills.
• In Ireland, we have diverted 14.7 million pounds of waste from landfill by
sending treated medical waste to cement kilns as an alternative fuel source.
Priorities for 2013
E x e c u t i v e O f f i c e r s
C O R P O R A T E
I N F O R M A T I O N
By building on Stericycle’s industry leadership position in 2012, we are
confident that we have the operating platform that we need to drive future
growth and explore new opportunities to serve our customers better. Our
priorities for 2013 are as follows:
Domestic Growth: Our focus will be on providing our multiple service
offerings to both our small quantity (SQ) and large quantity (LQ) customer
base, and expanding our services to new customers. Our marketing efforts
to SQ customers will concentrate on our Steri•SafeSM OSHA safety and
compliance services, StrongPak regulated waste services for the retail industry,
and Regulated Waste Management Services. Our marketing focus for LQ
customers will continue to be on extending the momentum of our Sharps
Management Services, Pharmaceutical Waste Disposal Program, and Regulated
Waste Management Services, and expanding our StrongPak services and
Regulated Recall and Returns Management Services. We will continue to build
on the Patient Communication Services platform by expanding this offering to
our existing customer base (both SQ and LQ) while simultaneously focusing
on new customer acquisitions.
International Growth: We will remain focused on integrating the acquisitions we
have completed and pursuing attractive international market opportunities directed
at providing value to our customers over the course of the next several years. We
will also focus on expanding and penetrating the international SQ customer market
by leveraging our Clinical Services Program to grow our revenues and margins.
Profit Growth: We remain committed to improving our operating performance.
We will seek to make further improvements to our collection route densities
through the use of routing technology and acquisitions, to reduce our long-haul
transportation costs, and to improve efficiency in our processing plants. Our
culture of continuous improvement is focused on streamlining how we serve
our customers and encourages the sharing of best practices and productivity
improvement ideas across our entire organization. We will continue to invest in
the latest Customer Experience tools to ensure that we serve our customers in a
timely and efficient manner.
Service Innovation and Environmental Sustainability Leadership:
During 2013, we will maintain our dual commitment to being both responsive
to our customers’ evolving needs and an environmental leader by offering
sustainable solutions designed to meet those needs in an environmentally-
responsible way. Our innovative Steri•SafeSM OSHA safety and compliance
services continue to help our customers enjoy a safer, more regulatory-
compliant workplace in a cost-effective manner. The breadth of our Regulated
Recall and Returns Management Services helps our customers protect their
brands and reduce liability. Our Sharps Management Service featuring reusable
containers offers significant sustainability benefits by reducing waste volume
and conserving valuable natural resources. Stericycle’s Pharmaceutical
Waste Disposal Program helps our customers prevent the potential release of
pharmaceuticals with their hazardous waste content from being released into
the water supply. Our Patient Communication Services help our customers
more effectively and proactively communicate with their patients.
• • •
We are excited and confident about our future. Through our many service
offerings, we help our customers protect the safety of their workforce and
reduce risk. We are a leader in providing regulated waste management, safety
compliance, sharps management, pharmaceutical waste disposal, and Regulated
Recall and Returns Management Services to our customers. We will continue to
improve the efficiency of our operations, to enhance our customers’ experience
while maintaining our strong emphasis on safety and regulatory compliance,
and to focus on the many growth opportunities that our leadership position
affords us. We thank you for your support.
Charles A. Alutto
President and CEO
Charles A. Alutto
President and Chief Executive Officer
Mark C. Miller
Executive Chairman
Frank J.M. ten Brink
Chief Financial Officer/CAO
B o a r d o f D i r e c t o r s
Mark C. Miller • Executive Chairman
Jack W. Schuler • Lead Director
Chairman – Nominating and
Governance Committee
Charles A. Alutto • President
and Chief Executive Officer
John Patience
Member – Nominating and
Governance Committee
Member – Audit Committee
Ernst & Young LLP
155 N. Wacker Drive
Chicago, Illinois 60606
O u t s i d e C o u n s e l
Johnson and Colmar
2201 Waukegan Road, Suite 260
Bannockburn, Illinois 60015
T r a n s f e r A g e n t
Wells Fargo Bank N.A.
Shareowner Services
1110 Centre Pointe Curve, Suite #101
Mendota Heights, MN 55120-4100
Richard T. Kogler
Chief Operating Officer
Michael J. Collins
President, Recall and Return Management Services
Jonathan T. Lord, M.D.
Chairman – Compensation
Committee
Member – Nominating
and Governance Committee
Thomas D. Brown
Member – Audit Committee
William K. Hall
Member – Audit Committee
Rodney F. Dammeyer
Chairman – Audit Committee
Member – Nominating
and Governance Committee
Ronald G. Spaeth
Member – Compensation
Committee
Mike S. Zafirovski
Member – Compensation
Committee
Additional copies of this Annual Report or Form 10-K filed with
the Securities and Exchange Commission are available, without
charge, upon request from the company, Investor@stericycle.com
or (800) 643-0240 ext. 2012.
A n n u a l M e e t i n g
The annual meeting of stockholders will be held on
Tuesday, May 21, 2013 at the DoubleTree Hotel Chicago
O’Hare Airport - Rosemont
5460 North River Road, Rosemont, IL 60018.
N a s d a q ® S y m b o l
SRCL
I n d e p e n d e n t A u d i t o r s
F o r m 1 0 - K
20122012 United States
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-K
È ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2012
or
‘ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from
to
Commission File Number 0-21229
Stericycle, Inc.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
36-3640402
(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
(Title of each class)
NASDAQ Global Select Market
(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 È NO ‘
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 ‘ NO È
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 È NO ‘
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding
12 months (or for such shorter period that the registrant was required to submit and post such files). YES È NO ‘
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. È
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 È
Non-accelerated filer ‘
‘
Accelerated filer
Smaller reporting company ‘
Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2 of the
Exchange Act). YES ‘ NO È
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, 2012): $7,835,858,830.
On February 14, 2013, there were 86,089,532 shares of the Registrant’s common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Information required by Items 10, 11, 12 and 13 of Part III of this Report is incorporated by reference from the
Registrant’s definitive Proxy Statement for the 2013 Annual Meeting of Stockholders to be held on May 21, 2013.
Stericycle, Inc.
2012 ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
Market Price for Registrant’s Common Equity, Related Stockholder Matters and
Issuer Purchases of Equity Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of
Operations
Quantitative and Qualitative Disclosures about Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure
Controls and Procedures
Other Information
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accounting Fees and Services
Exhibits and Financial Statement Schedules
PART I.
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
PART II.
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
PART III.
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
PART IV.
Item 15.
Signatures
Page No.
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64
65
66
70
Item 1. Business
PART I.
Unless the context requires otherwise, “we,” “us” or “our” refers to Stericycle, Inc. and its subsidiaries on a
consolidated basis.
Overview
Services
We are in the business of managing regulated waste and providing an array of related and complementary
services. We operate in the United States, Argentina, Brazil, Canada, Chile, Ireland, Japan, Mexico, Portugal,
Romania, Spain, and the United Kingdom.
The regulated waste services we provide include medical waste disposal, our Steri-Safe® medical waste and
compliance program, our Clinical Services program, our Bio Systems® reusable sharps disposal management
services, pharmaceutical waste disposal, and hazardous waste disposal. In addition to our regulated waste
services, we offer regulated recall and returns management services, patient communication services, and
medical safety products. Our regulated recall and returns management services encompass a number of solutions
for a variety of businesses but consist primarily of managing the recall, withdrawal or return of expired or
recalled products and pharmaceuticals. We also provide communication services to healthcare providers to
improve office productivity and communications with patients.
We operate integrated regulated waste management networks in the United States, Argentina, Brazil,
Canada, Chile, Ireland, Japan, Mexico, Portugal, Romania, Spain, and the United Kingdom. Our worldwide
networks include a total of 153 processing facilities, 141 transfer sites, and 64 recall and returns or
communication services facilities. Our regulated waste processing technologies are primarily autoclaving as well
as incineration and our proprietary electro-thermal-deactivation system (“ETD”).
Customers
We serve approximately 541,000 customers worldwide, of which approximately 16,500 are large-quantity
generators, such as hospitals, blood banks and pharmaceutical manufacturers, and approximately 524,500 are
small-quantity generators, such as outpatient clinics, medical and dental offices, long-term and sub-acute care
facilities, veterinary offices, municipalities and retail pharmacies.
For large-quantity generators of regulated waste such as hospitals and for pharmaceutical companies and
distributors, we offer:
•
•
•
•
•
•
•
our regulated waste management services;
our Bio Systems® reusable sharps disposal management services;
our pharmaceutical waste services;
our Integrated Waste Stream Solutions (IWSS) program;
a variety of products and services for infection control;
regulated recall and returns management services for expired or
our
pharmaceuticals; and
recalled products and
a variety of patient communication services.
For small-quantity generators of regulated waste such as doctors’ offices or retail pharmacies, we offer:
•
•
our regulated waste management services;
our Steri-Safe® OSHA, HIPAA compliance, and clinical services programs;
1
•
•
•
a variety of products and services for infection control;
regulated recall and returns management services for expired or
our
pharmaceuticals; and
recalled products and
a variety of patient communication services.
We benefit from significant customer diversification. No one customer accounts for more than 1.1% of our
total revenues, and our top ten customers account for approximately 7.2% of total revenues.
Industry Overview
Governmental legislation and regulation increasingly requires the proper handling and disposal of regulated
waste which includes such items as medical waste, hazardous waste, and pharmaceutical waste. Regulated waste
is generally any medical waste that can cause an infectious disease and includes: single-use disposable items,
such as needles, syringes, gloves and other medical supplies; cultures and stocks of infectious agents; blood and
blood products; hazardous waste; and regulated pharmaceutical waste, which consists of expired or recalled
pharmaceuticals.
We believe that in 2012 the size of the global market for the regulated waste and other services we provide
was approximately $15.0 billion. Industry growth is driven by a number of factors. These factors include:
• Aging of Population: The average age of the population in the countries we operate in is rising. As
people age, they typically require more medical attention and a wider variety of tests, procedures and
medications, leading to an increase in the quantity of regulated waste generated.
• Pressure to Reduce Healthcare Costs: The healthcare industry is under pressure to reduce costs. We
believe that our services can help healthcare providers to reduce their handling and compliance costs
and to reduce their potential liability for employee exposure to bloodborne pathogens and other
infectious agents. In addition, hospital institutions continue to outsource services which we can
provide.
• Environmental and Safety Regulation: We believe that many businesses that are not currently using
third party regulated waste management services are unaware either of the need for proper training of
employees or of the requirements of OSHA and other regulations regarding the handling of regulated
waste. These businesses include manufacturing facilities, schools, restaurants, hotels and other
businesses where employees may come into contact with bloodborne pathogens or handle hazardous
materials. Similarly, the proper handling of expired or recalled products requires an expertise that many
businesses lack or find inefficient to provide.
•
Shift to Off-Site Treatment: We believe that patient care is continuing to shift from institutional
higher-cost acute-care settings to less expensive, smaller, off-site treatment alternatives, with a
resulting increase in the number of regulated waste generators that cannot treat their own regulated
waste.
• Control of Drug Diversion: The U.S. Drug Enforcement Administration (“DEA”) has recently
emphasized improved control of the handling and shipment of controlled substances to prevent
diversion and counterfeiting,
thus increasing the utility to pharmaceutical manufacturers and
distributors of a returns service for expired or recalled pharmaceuticals.
Competitive Strengths
We believe that we benefit from the following competitive strengths, among others:
• Broad Range of Services: We offer our customers a broad range of services. We work with businesses
across a number of industries such as healthcare, manufacturing, and retail to safely and efficiently
dispose of regulated materials, ensure regulatory compliance, improve employee and customer safety,
protect their brands, improve communications with patients, and manage corporate and personal risk.
2
• Established Network of Processing and Transportation Locations in Each Country: We believe that
our network of locations results in a very efficient operation.
• Diverse Customer Base and Revenue and Cost Stability: We have a diverse customer base and
contractual relationships in all the markets in which we operate. We are also generally protected from
the cost of regulatory changes or increases in fuel, insurance or other operating costs because our
regulated waste contracts typically allow us to adjust our prices to reflect these cost changes.
•
Strong Sales Network and Proprietary Database: We use both telemarketing and direct sales efforts to
obtain new customers for our regulated waste and other services. In addition, we have a large database
of potential new small-quantity customers, which we believe gives us a competitive advantage in
identifying and reaching this higher-margin sector.
• Experienced Senior Management Team: We have experienced leadership. Our five most senior
executives collectively have over 130 years of management experience in the health care and waste
management industries.
• Ability to Integrate Acquisitions: Since 1993 we have completed 299 acquisitions in the United States
and internationally and have demonstrated a consistent ability to integrate our acquisitions into our
operations successfully.
Our goals are to strengthen our position as a leading provider of regulated waste and compliance services
and to continue to improve our profitability. Components of our strategy to achieve these goals include:
• Expand Range of Services and Products: We believe that we continue to have opportunities to expand
our business by increasing the range of products and services we offer our existing regulated waste
customers. For example,
to small-quantity customers, we also offer OSHA compliance services
through our Steri-Safe® program and patient communication services; to large-quantity customers, we
also offer our Bio Systems® reusable sharps management program, our pharmaceutical waste disposal
services and patient communication services.
•
•
Improve Margins: We intend to continue working to improve our margins by increasing our base of
small-quantity customers and focusing on service strategies that more efficiently meet the needs of our
large-quantity customers. We have succeeded in raising the percentage of our domestic regulated waste
revenues from small-quantity customers from 33% for the fourth quarter of 1996 to 63% for 2012.
Seek Complementary Acquisitions: We intend to continue to seek opportunities to acquire businesses
that expand our networks and service capabilities in the United States and internationally that will
increase our customer base. We believe that selective acquisitions can enable us to improve our
operating efficiencies through increased utilization of our service infrastructure.
Acquisitions
We have substantial experience in evaluating potential acquisitions and determining whether a particular
business can be integrated into our operations with minimal disruption. Once a business is acquired, we
implement programs and procedures to improve customer service, sales, marketing, routing, equipment
utilization, employee productivity, operating efficiency and overall profitability.
We have completed 299 acquisitions from 1993 through 2012, with 181 in the United States and 118
internationally.
During 2012, we completed 41 acquisitions, of which 17 were domestic businesses and 24 were
international businesses in Latin America, Europe, and Japan.
3
International
We conduct regulated waste operations in Argentina, Brazil, Canada, Chile, Ireland, Japan, Mexico,
Portugal, Romania, Spain, and the United Kingdom. We began our operations in Canada and Mexico in 1998,
Argentina in 1999, the United Kingdom in 2004, Ireland in 2006, Chile in 2008, Romania and Portugal in 2009,
Brazil and Japan in 2010, and Spain in 2011. Our international service offerings are primarily regulated waste
disposal. We also have started an international presence for our Returns and Quality Audit program, which is
managed through recall and returns management services. While our international customers are primarily large
quantity generators, we are expanding our small quantity customer base through programs similar to our Steri-
Safe program such as Stericycle Clinical Services in Canada and select countries in Europe.
Regulated Waste Services and Operations
Collection and Transportation: In many respects, our regulated waste business is one of logistics.
Efficiency of collection and transportation of regulated waste is a critical element of our operations because it
represents the largest component of our operating costs.
For regulated waste, we supply specially designed reusable leak-resistant and puncture-resistant plastic
containers to most of our large-quantity customers and many of our larger small-quantity customers. To assure
regulatory compliance, we will not accept regulated waste from customers unless it complies with our acceptance
protocols and is properly packaged in containers that we have either supplied or approved.
We collect containers or corrugated boxes of regulated waste from our customers depending upon customer
requirements, contract terms and volume of waste generated. The waste is then transported directly to one of our
processing facilities or to one of our transfer stations where it is combined with other regulated waste and
transported to a processing facility.
Transfer stations allow us to temporarily hold small loads of waste until they can be consolidated into full
truckloads and transported to a processing facility. Our use of transfer stations in a “hub and spoke”
configuration improves the efficiency of our collection and transportation operations by expanding the
geographic area that a particular processing facility can serve thereby increasing utilization of the facility by
increasing the volume of waste that it processes.
We collect some expired or recalled products, but more typically, customers ship them directly to our
processing facilities.
Processing and Disposal: Upon arrival at a processing facility, containers or boxes of regulated waste are
typically scanned to verify that they do not contain any unacceptable substances like radioactive material. Any
container or box that is discovered to contain unacceptable waste is returned to the customer and the appropriate
regulatory authorities are informed.
The regulated waste is then processed using one of our various treatment or processing technologies. Upon
completion of the particular process, the resulting waste or incinerator ash is transported for resource recovery,
recycling or disposal in a landfill owned by an unaffiliated third party. After plastic containers such as our
Steri-Tub® or Bio Systems® containers have been emptied, they are washed, sanitized and returned to customers
for re-use.
Upon receipt at a processing facility, expired or recalled products are counted and logged, and controlled
substances are stored securely. In accordance with the manufacturer’s instructions, expired or recalled products
are then returned to the manufacturer or destroyed in compliance with applicable regulations.
Documentation: We provide complete documentation to our customers for all regulated waste that we
collect in accordance with applicable regulations and customer requirements.
4
Processing Technologies
We currently use both non-incineration technologies (autoclaving, our proprietary ETD technology, and
chemical treatment) and incineration technologies for treating regulated waste.
Stericycle was founded on the belief that there was a need for safe, secure and environmentally responsible
management of regulated medical waste. From our beginning, we have encouraged the use of non-incineration
treatment technologies such as autoclaving and our ETD process. While we recognize that some state regulations
currently in force mandate that some types of regulated waste must be incinerated, we also know from years of
experience working with our customers that there are ways to reduce the amount of regulated waste that is
ultimately incinerated. The most effective strategy that we have seen involves comprehensive education of our
customers in waste minimization and segregation.
Autoclaving: Autoclaving treats regulated waste with steam at high temperature and pressure to kill
pathogens. Autoclaving alone does not change the appearance of waste, and some landfill operators may not
accept recognizable regulated waste. In this case, autoclaving may be combined with a shredding or grinding
process to render the regulated waste unrecognizable.
ETD: Our ETD treatment process includes a system for grinding regulated waste. After grinding, ETD uses
an oscillating field of low-frequency radio waves to heat regulated waste to temperatures that destroy pathogens
such as viruses, bacteria, fungi and yeast without melting the plastic content of the waste. ETD does not produce
regulated air or water emissions.
Incineration: Incineration burns regulated waste at elevated temperatures and reduces it to ash. Incineration
reduces the volume of waste, and it is the recommended treatment and disposal option for some types of
regulated waste such as anatomical waste or residues from chemotherapy procedures. Air emissions from
incinerators can contain certain byproducts that are subject to federal, state and, in some cases, local regulation.
In some circumstances, the ash byproduct of incineration may be regulated.
Marketing and Sales
Marketing Strategy: We use both telemarketing and direct sales efforts to obtain new customers. In
addition, our drivers may also participate in our regulated waste marketing efforts by actively soliciting small-
quantity customers they service.
Small-Quantity Customers: We target small-quantity customers as a growth area of our regulated waste
business. We believe that when small-quantity regulated waste customers view the potential risks of failing to
comply with applicable regulations, they appreciate the value of the services that we provide. We consider this
factor to be the basis for the higher gross margins that we have achieved with our small-quantity customers
relative to our large-quantity customers. We believe that the same potential exists in processing returns of
hazardous and expired products for smaller customers.
Steri-Safe® and Patient Communication Services: Our domestic Steri-Safe® OSHA compliance program
provides an integrated regulated waste management and compliance-assistance service for small-quantity customers
who typically lack the internal personnel and systems to comply with OSHA regulations. Customers for our
Steri-Safe® service pay a predetermined subscription fee in advance for regulated waste collection and processing
services and can also choose from available packages of training and education services and products designed to
help them to comply with OSHA regulations. We believe that the implementation of our Steri-Safe® service
provides us with an enhanced opportunity to leverage our existing customer base through the program’s prepayment
structure and diversified product and service offerings. In 2010 and 2011, we introduced a similar program called
Clinical Services in Canada, Ireland, Portugal, and the United Kingdom. We offer a variety of services to healthcare
providers designed to enhance office productivity and efficiency and to improve communications with patients. We
also serve hospitals and larger facilities. We believe that our patient communication services afford us an additional
opportunity to leverage our existing small-quantity customer base.
5
Mail-Back Program: We also operate a domestic “mail-back” program by which we can reach small-
quantity regulated waste customers located in outlying areas that would be inefficient to serve using our regular
route structure. Our mail-back program has allowed us to service customers as far away as Hawaii, Alaska,
Guam, and the Virgin Islands. Our mail-back program is also used in home care patient settings.
Large-Quantity Customers: Our marketing efforts to large-quantity customers are conducted by account
executives, service specialists and healthcare compliance specialists focused on serving as a trusted advisor to
our customers. In this role, our field resources provide advice, training and consultative services to assist our
large-quantity customers reach their objectives of staying in compliance with local, state, and federal regulations,
reducing their impact on the environment, and maintaining a safe work environment for their staff and patients.
We offer individual waste stream services, including regulated waste management services and Sharps
Management Service featuring our Bio Systems® reusable containers. Additionally, we have the ability to manage
the full spectrum of waste streams generated by a facility with our Integrated Waste Stream Solutions service.
Many of Stericycle’s services for large-quantity customers deliver fully integrated, turnkey solutions which
include program design, clinical staff education, implementation support, onsite service personnel and the
necessary service equipment to support each program.
National Accounts: As a result of our extensive geographic coverage, we are capable of servicing national
account customers (i.e., customers requiring regulated waste management services at various geographically
dispersed locations).
Contracts: We have multi-year contracts with the majority of our customers. We negotiate individual
contracts with each customer. Although we have several standard forms of contract, terms may vary depending
upon the customer’s service requirements and the volume of regulated waste generated and,
in some
jurisdictions, statutory and regulatory requirements. Substantially all of our contracts with small-quantity
customers contain automatic renewal provisions.
Competition
The industries and markets in which we operate are highly competitive, and barriers to entry into the
regulated waste collection and disposal business,
returns business, and the patient
communication business are very low. Our competitors consist of many different types of service providers,
including a large number of regional and local companies. In the regulated waste industry, another major source
of competition is the on-site treatment of regulated waste by some large-quantity generators, particularly
hospitals. Similarly, customers could handle recalls or patient communications internally.
the pharmaceutical
In addition,
in the regulated waste industry we face potential competition from businesses that are
attempting to commercialize alternate treatment technologies or products designed to reduce or eliminate the
generation of regulated waste, such as reusable or degradable medical products.
Governmental Regulation
The regulated waste industry is subject to extensive regulations. In many countries there are multiple
regulatory agencies at the local and national level that affect our services. This statutory and regulatory
framework imposes a variety of compliance requirements, including requirements to obtain and maintain
government permits. We maintain numerous governmental permits, registrations, and licenses to conduct our
business in the jurisdictions in which we operate. Our permits vary by jurisdiction based upon our activities
within that jurisdiction and on the applicable laws and regulations of that jurisdiction. These permits grant us the
authority, among other things:
•
•
•
to construct and operate collection, transfer and processing facilities;
to transport regulated waste within and between relevant jurisdictions; and
to handle particular regulated substances.
6
Our permits must be periodically renewed and are subject to modification or revocation by the issuing
authority.
We are also subject to regulations that govern the definition, generation, segregation, handling, packaging,
transportation, treatment, storage and disposal of regulated waste. In addition, we are subject to extensive
regulations to ensure public and employee health and safety.
U.S. Federal and Foreign Regulation: We are subject to substantial and dynamic regulations enacted and
enforced by the U.S. government and by the governments of the foreign jurisdictions in which we conduct
regulated waste operations. The specific statutory and regulatory requirements we must comply with vary from
jurisdiction to jurisdiction. The laws governing our domestic and international operations generally consist of
legislation and regulations concerning environmental protection, employee health and welfare,
statutes,
transportation, the use of the mail, and proper handling and management of controlled substances.
Environmental Protection: Our business is subject to extensive and evolving environmental regulations in
all of the geographies in which we operate. Generally, the environmental laws we are subject to regulate the
handling, transporting, and disposing of hazardous and non-hazardous waste, the release or threatened release of
hazardous substances into the environment, the discharge of pollutants into streams, rivers, groundwater and
other surface waters, and the emission of pollutants into the air. The principal environmental laws that govern our
operations in the U.S. are state environmental regulatory agencies as they provide the specific legislative and or
regulatory frameworks which require the management and treatment of regulated medical waste. Additionally,
the Resource Conservation and Recovery Act of 1976 (“RCRA”), the Comprehensive Environmental Response,
Compensation and Liability Act of 1980 (“CERCLA”), and the Clean Air Act of 1970 are the federal regulations
that affect management of certain aspects of regulated medical waste and all RCRA hazardous wastes. Though
regulated medical waste is currently considered non-hazardous solid waste under RCRA, some substances we
collect from some of our customers, including pharmaceuticals, retail products, photographic fixer developer
solutions, lead foils and dental amalgam, are considered hazardous waste. CERCLA and state laws similar to it
may impose strict, joint and several liabilities on the current and former owners and operators of facilities from
which release of hazardous substances has occurred and on the generators and transporters of the hazardous
substances that come to be located at these facilities. The eight incinerators at six facilities we currently operate
in the U.S. must comply with the emissions standards imposed by the applicable states pursuant to regulations
promulgated under the Clean Air Act.
Examples of environmental laws applicable to our international operations include the Waste Framework
Directive, Environmental Liabilities Directive, IPPC (Integrated Pollution Prevention and Control) Directive, and
Waste Incineration Directive in the European Union (“EU”), the Waste Management Act in Ireland, Ley 154
(Residuos Patogenicos) in Argentina, Lei 12.305/2010 (Lei Ordinária) Institui A Política Nacional De Resíduos
Sólidos in Brazil, and the Canadian Environmental Protection Act and related regulations in Canada.
Employee Health and Welfare: We are also subject to numerous regulations promulgated to protect and
promote worker health and welfare through the implementation and enforcement of standards designed to
prevent illness, injury and death in the workplace. The primary law relating to employee health and welfare
applicable to our business in the U.S. is the Occupational Safety and Health Act of 1970, which establishes
specific employer responsibilities including engineering controls, administrative controls, training, policies and
programs complying with the regulations and ultimately recordkeeping and reporting, all in an effort to ensure a
safe workplace. Various OSHA standards apply to almost all aspects of our operations and govern such matters
as exposure to bloodborne pathogens, hazard communication, personal protective equipment, etc.
Employee health and welfare laws governing our business in foreign jurisdictions include the Workplace
Health and Safety Directive and the Directive concerning ionizing radiation in the EU, and various provisions of
the Canada Labour Code and related regulations in Canada.
7
Transportation: Various laws regulating the transportation of waste and other potentially dangerous
materials also apply to the services we provide. In the U.S., the Department of Transportation (“DOT”) has
promulgated regulations which deal with two different aspects of transportation: hazardous materials transport
and safety in transportation. The Pipeline Hazardous Materials Safety Administration (“PHMSA”) requires
specific packaging and labeling of regulated hazardous materials and wastes to ensure public safety. For
regulated medical waste PHMSA incorporates the OSHA bloodborne pathogens standard and requires containers
that meet certain specifications including but not limited to: proper markings (biohazard symbol, UN code, etc.),
sufficient strength and rigidity, leakproofness and puncture resistance. Other hazardous materials such as expired
pharmaceuticals, waste chemicals, damaged retail products which are hazardous wastes are also subject to DOT
PHMSA regulations. We identify pharmaceutical products by their National Drug Code number and classify
them by according to the EPA classification criteria and identify the proper handling, transportation and disposal
requirements. Federal Motor Carrier Safety Administration (“FMCSA”) regulates safety of drivers and vehicles
which requires us to ensure driver and vehicle fitness through training, medical surveillance and inspection.
These requirements are closely monitored internally and due to our fleet size we are regularly subject to road side
inspections. These inspections have an accumulative affect on our compliance history and require that we
maintain in good standing so not to risk permits.
Examples of transportation laws we must comply with internationally include the Directive on the Inland
Transportation of Dangerous Goods in the EU and the Transport of Dangerous Goods Act and related regulations
in Canada.
Use of the Mails: United States Postal Service (“USPS”) has their own set of specific regulations under the
Domestic Mail Manual which govern the use of the postal system for mailing of hazardous materials (of which
regulated medical waste is a part). More specifically, our sharps and medical waste mailback management
offering, require us to obtain and maintain authorization permits from the USPS. We have obtained permits from
the USPS to conduct our “mail-back” program, to provide a convenient service for customers who need such a
service with approved containers for “sharps” (needles, knives, broken glass and the like) or other regulated
medical wastes directly to our treatment facilities.
Controlled Substances: In the U.S., our regulated recall and returns management services business is
subject to laws and regulations under the Drug Enforcement Administration (“DEA”) regulating the closed loop
management of controlled substances. Our returns service for expired and recalled pharmaceuticals accepts
controlled substances as part of their service offering and is therefore subject DEA. These regulations require
facilities to obtain a registration from the DEA and meet certain criteria in order to be able to collect, process and
dispose of controlled substances. DEA has very strict requirements for management of employees, the type of
security within facilities, recordkeeping and reporting of all controlled substances managed at the facility. Much
like permitting, the registration must be updated regularly and subjects us to inspection and enforcement by DEA
agents.
U.S. and Foreign Local Regulation: We conduct business in all 50 states and Puerto Rico. Because the
federal EPA did not promulgate regulations for regulated medical waste at a national level, each state has its own
regulations related to the handling, treatment and storage of regulated waste. Many states have followed similar
requirements to the medical waste tracking act of 1989 or have placed medical waste regulations under solid
waste regulations. In each state where we operate a processing facility or a transfer station, we are required to
comply with varying state and local laws and regulations which may also require a specific operating plan. In
addition, many local governments have ordinances and regulations, such as zoning or wastewater regulations that
affect our operations. Similarly, our international operations are subject to regulations enacted and enforced at
the provincial, municipal, and local levels of government in addition to the national regulations with which we
must comply.
8
Patents and Proprietary Rights
We hold United States patents relating to the ETD treatment process and other aspects of processing
regulated waste. We have filed or have been assigned patent applications in several foreign countries. The last of
our current United States patents relating to our ETD treatment process expires in January 2019.
We own federal registrations for a number of trademarks/servicemarks including Stericycle®, Steri-Safe®,
Steri-Fuel®, Steri-Plastic®, Steri-Tub®, Direct Return®, Stericycle ExpertRECALL®, Sustainable Solutions®, and
a service mark consisting of a nine-circle design used in our company logo.
Potential Liability and Insurance
The regulated waste industry involves potentially significant risks of statutory, contractual, tort and common
law liability claims. Potential liability claims could involve, for example:
•
•
•
•
•
•
cleanup costs;
personal injury;
damage to the environment;
employee matters;
property damage; or
alleged negligence or professional errors or omissions in the planning or performance of work.
We could also be subject to fines or penalties in connection with violations of regulatory requirements.
We carry $35 million of liability insurance (including umbrella coverage), and under a separate policy, $10
million of aggregate pollution and legal liability insurance ($10 million per incident). We consider this insurance
sufficient to meet regulatory and customer requirements and to protect our employees, assets and operations.
Employees
As of December 31, 2012, we had 12,598 full-time and 647 part-time employees, of which 7,933 were
employed in the United States and 5,312 internationally. A total of 11 collective bargaining agreements with
local unions of the International Brotherhood of Teamsters cover 437 of our U.S. drivers, transportation helpers
and plant workers. These agreements expire at various dates through June 2015. We also have approximately
1,450 employees in Latin America, 110 employees in Canada, and 40 employees in Europe under collective
bargaining agreements. We consider our employee relations to be satisfactory.
Executive Officers of the Registrant
The following table contains certain information regarding our five current executive officers:
Name
Mark C. Miller
Charles A. Alutto
Richard T. Kogler
Frank J.M. ten Brink
Michael J. Collins
Position
Executive Chairman
President and Chief Executive Officer
Executive Vice President and Chief Operating Officer
Executive Vice President and Chief Financial Officer
Executive Vice President and President, Recall and Returns
Management Services
Age
57
47
53
56
56
Mark C. Miller has served as Executive Chairman since January 2013 and Director as of May 1992. He
became our Chief Executive Officer in May 1992 and Chairman of the Board of Directors in August 2008. From
9
May 1989 until joining us, Mr. Miller served as vice president for the Pacific, Asia and Africa in the international
division of Abbott Laboratories, a diversified health care company, which he joined in 1976 and where he held a
number of management and marketing positions. Mr. Miller formerly served as a director of Ventana Medical
Systems, Inc., a developer and supplier of automated diagnostic systems. He received a B.S. degree in computer
science from Purdue University, where he graduated Phi Beta Kappa. Mr. Miller was selected by Morningstar,
Inc. as its “2009 CEO of the Year”.
Charlie Alutto has served as President and Chief Executive Officer since January 2013 and as a Director
since November 2012. He joined us in May 1997 following our acquisition of the company where he was then
employed. He became an executive officer in February 2011 and served as President, Stericycle USA. He
previously held various management positions with us, including vice president and managing director of SRCL
Europe and corporate vice president of our large quantity generator business unit. Mr. Alutto received a B.S.
degree in finance from Providence College and a M.B.A. degree in finance from St. John’s University.
Richard T. Kogler has served as Executive Vice President, Chief Operating Officer since January 1999.
From 1995 until he joined the Company, Mr. Kogler served as Chief Operating Officer for American Disposal.
Prior to his position at American Disposal, he spent 11 years with Waste Management where he held a number of
management positions prior to being promoted to Vice President of Operations. Mr. Kogler received a B.A.
degree in Chemistry from St. Louis University.
Frank J.M.
ten Brink has served as Executive Vice President, Chief Financial Officer and Chief
Administrative Officer since joining the Company in June 1997. He has over 16 years of finance experience in
high growth environments, mergers and acquisitions. Prior to joining Stericycle, he was Senior Vice President
and Chief Financial Officer with Telular Corporation. Between 1991 and 1995, he was Vice President and Chief
Financial Officer of Hexacomb Corporation. Mr. ten Brink studied International Business at the Netherlands
School of Business and received an M.B.A. degree in Finance from the University of Oregon.
Michael J. Collins has served as President, Recall and Returns Management Services since June 2006. He
was most recently Vice President, Medical Products Group of Abbott Laboratories. He joined Abbott in 1982 as
a sales representative and later served in various management positions, including Divisional Vice President,
U.S. Sales; Divisional Vice President, U.S. Marketing, Divisional Vice President and General Manager,
MediSense and Corporate Vice President Abbott Diagnostics Divisions. Mr. Collins was a commissioned officer
for the U.S. Marine Corps. He earned a bachelor’s degree from the University of New Haven and a master’s
degree in business administration from National University, San Diego.
Website Access
We maintain an Internet website, www.stericycle.com, providing a variety of information about us and the
services we provide. Our annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on
Form 8-K that we file with the Securities and Exchange Commission are available, as soon as practicable after
filing, at the Investors page on our website, or by a direct link to our filings on the SEC’s free website,
www.sec.gov.
10
Item 1A. Risk Factors
We are subject to extensive governmental regulation, which is frequently difficult, expensive and time-
consuming to comply with.
industry is subject
The regulated waste management
to extensive federal, state and local
laws and
regulations relating to the collection, transportation, packaging, labeling, handling, documentation, reporting,
treatment and disposal of regulated waste. Our business requires us to obtain many permits, authorizations,
approvals, certificates, and other types of governmental permission from every jurisdiction where we operate.
We believe that we currently comply in all material respects with all applicable permitting requirements. State
and local regulations change often, however, and new regulations are frequently adopted. Changes in the
regulations could require us to obtain new permits or to change the way in which we operate under existing
permits. We might be unable to obtain the new permits that we require, and the cost of compliance with new or
changed regulations could be significant.
Many of the permits that we require, especially those to build and operate processing plants and transfer
facilities, are difficult and time-consuming to obtain. They may also contain conditions or restrictions that limit
our ability to operate efficiently, and they may not be issued as quickly as we need them (or at all). If we cannot
obtain the permits that we need when we need them, or if they contain unfavorable conditions, it could
substantially impair our operations and reduce our revenues and/or profitability.
The level of governmental enforcement of environmental regulations has an uncertain effect on our business
and could reduce the demand for our services.
We believe that strict enforcement of laws and regulations relating to regulated waste collection and
treatment by governmental authorities has been good for our business. These laws and regulations increase the
demand for our services. A relaxation of standards or other changes in governmental regulation of regulated
waste could increase the number of competitors we face or reduce the need for our services.
If we are unable to acquire regulated waste and other businesses, our revenue and profit growth may be
slowed.
Historically, our growth strategy has been based in part on our ability to acquire regulated waste and other
businesses. We do not know whether in the future we will be able to:
•
•
•
•
identify suitable businesses to buy;
complete the purchase of those businesses on terms acceptable to us;
improve the operations of the businesses that we do buy and successfully integrate their operations into
our own; or
avoid or overcome any concerns expressed by regulators.
We compete with other potential buyers for the acquisition of regulated waste companies and other
businesses. This competition may result in fewer opportunities to purchase companies that are for sale. It may
also result in higher purchase prices for the businesses that we want to purchase.
We also do not know whether our growth strategy will continue to be effective. Our business is significantly
larger than before, and new acquisitions may not have the incremental benefits that we have obtained in the past.
The implementation of our acquisition strategy could be affected in certain instances by the concerns of
federal and state regulators, which could result in our not being able to realize the full synergies or
profitability of particular acquisitions.
We may become subject to inquiries and investigations by federal or state antitrust regulators from time to
time in the course of completing acquisitions of other regulated waste businesses. In order to obtain regulatory
11
clearance for a particular acquisition, we could be required to modify certain operating practices of the acquired
business or to divest ourselves of one or more assets of the acquired business. Changes in the terms of our
acquisitions required by regulators or agreed to by us in order to settle regulatory investigations could impede our
acquisition strategy or reduce the anticipated synergies or profitability of our acquisitions. The likelihood and
outcome of inquiries and investigations from federal or state regulators in the course of completing acquisitions
cannot be predicted.
Aggressive pricing by existing competitors and the entrance of new competitors could drive down our profits
and slow our growth.
The regulated waste industry is very competitive because of low barriers to entry, among other reasons. This
competition has required us in the past to reduce our prices, especially to large account customers, and may
require us to reduce our prices in the future. Substantial price reductions could significantly reduce our earnings.
We face direct competition from a large number of small, local competitors. Because it requires very little
money or technical know-how to compete with us in the collection and transportation of regulated waste, there
are many regional and local companies in the industry. We face competition from these businesses, and
competition from them is likely to exist in the new locations to which we may expand in the future. In addition,
large national companies with substantial resources may decide to enter the regulated waste industry. For
example, in the United States, Waste Management, Inc., a major solid waste company is offering regulated waste
management services to hospitals and other large and small quantity generators of regulated waste.
Our competitors could take actions that would hurt our growth strategy, including the support of regulations
that could delay or prevent us from obtaining or keeping permits. They might also give financial support to
citizens’ groups that oppose our plans to locate a processing or transfer facility at a particular location.
The loss of our senior executives could affect our ability to manage our business profitably.
We depend on a small number of senior executives. Our future success will depend upon, among other
things, our ability to keep these executives and to hire other highly qualified employees at all levels. We compete
with other potential employers for employees, and we may not be successful in hiring and keeping the executives
and other employees that we need. We do not have written employment agreements with any of our executive
officers, and officers and other key employees could leave us with little or no prior notice, either individually or
as part of a group. Our loss of or inability to hire key employees could impair our ability to manage our business
and direct its growth.
Restrictions in our senior unsecured credit facility may limit our ability to pay dividends, incur additional debt,
make acquisitions and make other investments.
Our senior unsecured credit facility and the note purchase agreements for our private placement notes
contain covenants that restrict our ability to make distributions to stockholders or other payments unless we
satisfy certain financial tests and comply with various financial ratios.
They also contain covenants that limit our ability to incur additional indebtedness, acquire other businesses
and make capital expenditures, and imposes various other restrictions. These covenants could affect our ability to
operate our business and may limit our ability to take advantage of potential business opportunities as they arise.
Our expansion into foreign countries exposes us to unfamiliar regulations and may expose us to new obstacles
to growth.
We plan to continue to grow both domestically and internationally. We have established operations in the
United States, Argentina, Brazil, Canada, Chile, Ireland, Japan, Mexico, Portugal, Romania, Spain, and the
12
United Kingdom. Foreign operations carry special risks. Although our business in foreign countries has not yet
been materially affected, our business in the countries in which we currently operate and those in which we may
operate in the future could be limited or disrupted by:
•
•
•
•
•
•
•
•
•
exchange rate fluctuations;
government controls;
import and export license requirements;
political or economic instability;
trade restrictions;
changes in tariffs and taxes;
our unfamiliarity with local laws, regulations, practices and customs;
restrictions on repatriating foreign profits back to the United States or movement of funds to other
countries; and
difficulties in staffing and managing international operations.
Foreign governments and agencies often establish permit and regulatory standards different from those in
the United States. If we cannot obtain foreign regulatory approvals, or if we cannot obtain them when or on terms
we expect, our growth and profitability from international operations could be limited. Fluctuations in currency
exchange could have similar effects.
Our earnings could decline if we write-off intangible assets, such as goodwill.
As a result of our various acquisitions, our balance sheet at December 31, 2012 contains goodwill of $2.1
billion and other intangible assets, net of accumulated amortization of $667.5 million (including indefinite lived
intangibles of $112.9 million). In accordance with Accounting Standards Codification (“ASC”) Topic 350
“Intangibles—Goodwill and Other,” we evaluate on an ongoing basis whether facts and circumstances indicate
any impairment of the value of indefinite-lived intangible assets such as goodwill. As circumstances after an
acquisition can change, we may not realize the value of these intangible assets. If we were to determine that a
significant impairment has occurred, we would be required to incur non-cash charges for the impaired portion of
goodwill and other unamortized intangible assets, which could have a material adverse effect on our results of
operations in the period in which the impairment charge occurs.
The handling and treatment of regulated waste carries with it the risk of personal injury to employees and
others.
Our business requires us to handle materials that may be infectious or hazardous to life and property in other
ways. While we try to handle such materials with care and in accordance with accepted and safe methods, the
possibility of accidents, leaks, spills, and acts of God always exists. Examples of possible exposure to such
materials include:
•
•
•
•
truck accidents;
damaged or leaking containers;
improper storage of regulated waste by customers;
improper placement by customers of materials into the waste stream that we are not authorized or able
to process, such as certain body parts and tissues; or
• malfunctioning treatment plant equipment.
13
Human beings, animals or property could be injured, sickened or damaged by exposure to regulated waste.
This in turn could result in lawsuits in which we are found liable for such injuries, and substantial damages could
be awarded against us.
While we carry liability insurance intended to cover these contingencies, particular instances may occur that
are not insured against or that are inadequately insured against. An uninsured or underinsured loss could be
substantial and could impair our profitability and reduce our liquidity.
The handling of regulated waste exposes us to the risk of environmental liabilities, which may not be covered
by insurance.
As a company engaged in regulated waste management, we face risks of liability for environmental
contamination. The federal Comprehensive Environmental Response, Compensation and Liability Act of 1980,
or CERCLA, and similar state laws impose strict liability on current or former owners and operators of facilities
that release hazardous substances into the environment as well as on the businesses that generate those
substances and the businesses that transport them to the facilities. Responsible parties may be liable for
substantial investigation and clean-up costs even if they operated their businesses properly and complied with
applicable federal and state laws and regulations. Liability under CERCLA may be joint and several, which
means that if we were found to be a business with responsibility for a particular CERCLA site, we could be
required to pay the entire cost of the investigation and clean-up even though we were not the party responsible
for the release of the hazardous substance and even though other companies might also be liable.
Our pollution liability insurance excludes liabilities under CERCLA. Thus, if we were to incur liability
under CERCLA and if we could not identify other parties responsible under the law whom we are able to compel
to contribute to our expenses, the cost to us could be substantial and could impair our profitability and reduce our
liquidity. Our customer service agreements make clear that the customer is responsible for making sure that only
appropriate materials are disposed of. If there were a claim against us that a customer might be legally liable for,
we might not be successful in recovering our damages from the customer.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
We lease office space for our corporate offices in Lake Forest, Illinois. Domestically, we own or lease 59
processing facilities, the majority of which use autoclave waste processing technology. All of our processing
facilities also serve as collection sites. We own or lease 91 additional transfer sites, 12 additional sales/
administrative sites, and 54 recall and returns or communication services facilities. Internationally, we own or
lease 94 processing facilities, the majority of which use autoclave waste processing technology. We also own or
lease 50 additional transfer sites, 41 additional sales/administrative sites, 10 recall and returns services facilities,
and we lease two landfills. We believe that these processing and other facilities are adequate for our present and
anticipated future needs.
Item 3. Legal Proceedings
We operate in a highly regulated industry and must deal with regulatory inquiries or investigations from
time to time that may be instituted for a variety of reasons. We are also involved in a variety of civil litigation
from time to time.
Item 4. Mine Safety Disclosures
Not Applicable.
14
PART II.
Item 5. Market Price for the Registrant’s Common Equity, Related Stockholder Matters, and Issuer
Purchases of Equity Securities
As of February 14, 2013, we had 122 stockholders of record. The Company’s stock trades on the NASDAQ
Global Select Market under the ticker symbol SRCL.
The following table provides the high and low sales prices of our Common Stock for each calendar quarter
during our two most recent fiscal years:
Quarter
First quarter 2012
Second quarter 2012
Third quarter 2012
Fourth quarter 2012
First quarter 2011
Second quarter 2011
Third quarter 2011
Fourth quarter 2011
High
$89.27
91.67
94.52
95.76
$88.82
94.29
93.00
88.41
Low
$76.72
81.37
89.06
89.06
$77.00
84.39
74.09
76.22
We did not pay any cash dividends during 2012 and have never paid any dividends on our common stock.
We currently expect that we will retain future earnings for use in the operation and expansion of our business and
do not anticipate paying any cash dividends in the foreseeable future. See Item 7, “Management’s Discussion and
Analysis of Financial Condition and Results of Operations”.
Under resolutions that our Board of Directors adopted, we have been authorized to purchase a cumulative
total of 20,537,398 shares of our common stock on the open market. As of December 31, 2012, we had purchased
a cumulative total of 16,748,921 shares.
The following table provides information about our purchases of shares of our common stock during the
year ended December 31, 2012:
Issuer Purchases of Equity Securities
Period
January 1 – January 31, 2012
February 1 – February 29, 2012
March 1 – March 31, 2012
April 1 – April 30, 2012
May 1 – May 31, 2012
June 1 – June 30, 2012
July 1 – July 31, 2012
August 1 – August 31, 2012
September 1 – September 30, 2012
October 1 – October 31, 2012
November 1 – November 30, 2012
December 1 – December 31, 2012
Total
Number of
Shares (or
Units)
Purchased
as Part of
Publicly
Announced
Plans or
Programs
38,552
0
0
0
0
0
0
0
43,500
178,000
279,156
0
Maximum Number
(or Approximate
Dollar Value) of
Shares (or Units)
that May Yet Be
Purchased Under
the Plans or
Programs
4,289,133
4,289,133
4,289,133
4,289,133
4,289,133
4,289,133
4,289,133
4,289,133
4,245,633
4,067,633
3,788,477
3,788,477
Total
Number of
Shares (or
Units)
Purchased
38,552
0
0
0
0
0
0
0
43,500
178,000
279,156
0
Average
Price
Paid per
Share
(or Unit)
$76.38
0
0
0
0
0
0
0
89.97
89.97
90.11
0
539,208
$89.07
539,208
3,788,477
15
Equity Compensation Plans
The following table summarizes information as of December 31, 2012 relating to our equity compensation
plans pursuant to which stock option grants, restricted stock awards or other rights to acquire shares of our
common stock may be made or issued:
Equity Compensation Plan Information
Plan Category
Equity compensation plans approved by our security holders (1)
Equity compensation plans not approved by our security
Number of
Securities to be
Issued Upon
Exercise of
Outstanding
Options
(a)
5,451,972
Weighted-
Average
Exercise
Price of
Outstanding
Options
(b)
$63.43
Number of Securities
Remaining Available
for Future Issuance
Under Equity
Compensation Plans
(Excluding Securities
Reflected in
Column (a))
(c)
3,385,640
holders (2)
232,096
$28.27
0
(1) These plans consist of our 2011 Incentive Compensation Plan, 2008 Incentive Stock Plan, 2005 Incentive
Stock Plan, 1997 Stock Option Plan, 1996 Directors Stock Option Plan, and the Employee Stock Purchase
Plan.
(2) The only plan in this category is our 2000 Nonstatutory Stock Option Plan.
In 2000, our Board of Directors approved the 2000 Nonstatutory Stock Option Plan (the “2000 Plan”),
which authorized the granting of nonstatutory stock options for 7,000,000 shares of our common stock to
employees (but not to officers or directors). See Note 6—Stock Based Compensation to the Consolidated
Financial Statements for a description of this plan.
16
Performance Graph
The following graph compares the cumulative total return (i.e., stock price appreciation plus dividends) on our
common stock over the five-year period ending December 31, 2012 with the cumulative total return for the same
period on the NASDAQ National Market Composite Index, the S&P 500 Index, the Russell 3000 Index, and the
Dow Jones US Waste & Disposal index. The graph assumes that $100 was invested on December 31, 2007 in our
common stock and in the stock represented by each of the four indices, and that all dividends were reinvested.
The stock price performance of our common stock reflected in the following graph is not necessarily indicative
of future performance.
Stericycle, Inc.
Russell 3000 Index
Dow Jones US Waste & Disposal
Nasdaq NM Composite
S&P 500 Index
$170.00
$155.00
$140.00
$125.00
$110.00
$95.00
$80.00
$65.00
$50.00
12/31/2007
12/31/2008
12/31/2009
12/31/2010
12/31/2011
12/31/2012
17
Item 6. Selected Financial Data
In thousands, except per share data
Statement of Income Data
Revenues
Income from operations
Net income attributable to Stericycle, Inc.
Earnings per share—Diluted
Depreciation and amortization
Statements of Cash Flow Data
Net cash flow provided by/(used for):
Operating activities
Investing activities
Financing activities
Balance Sheet Data
Cash, cash equivalents and short-term
investments
Total assets
Long-term debt, net of current portion
Stericycle, Inc. equity
(1)
(2)
(2)
(1)
Years Ended December 31,
2012
2011
2010
2009
2008
$1,913,149 $1,676,048 $1,439,388 $1,177,736 $1,083,679
274,239
148,708
1.68
34,148
315,189
175,691
2.03
39,990
468,836
267,996
3.08
76,283
370,683
207,879
2.39
53,885
424,311
234,751
2.69
66,046
$ 387,448 $ 306,104 $ 325,670 $ 277,246 $ 210,555
(132,930)
(77,882)
(245,482)
(13,565)
(350,189)
81,772
(514,649)
148,324
(294,245)
(86,209)
$
31,827 $
22,927 $
10,503
3,546,738
1,759,298
2,639,023
1,268,303
753,846
1,014,222
$1,541,793 $1,198,166 $1,048,425 $ 845,695 $ 670,480
3,177,090
1,284,113
2,182,803
910,825
95,524 $
16,898 $
(1) See Note 3—Acquisitions and Divestitures to the Consolidated Financial Statements for information
concerning our acquisitions during the three years ended December 31, 2012, 2011, and 2010.
(2) See Note 8—Earnings per Common Share to the Consolidated Financial Statements for information
concerning the computation of earnings per diluted common share.
•
•
•
•
•
In 2012, net income includes the following after-tax effects: $7.8 million of expenses related to
acquisitions; $3.3 million of restructuring and plant closure costs; $3.7 million related to litigation
settlement expense; $3.7 million loss related to the U.K. divestiture; and $0.7 million loss related to the
change in fair value of contingent consideration. The net effect of these adjustments negatively
impacted diluted earnings per share (“EPS”) by $0.22.
In 2011, net income includes the following after-tax effects: $15.6 million of expenses related to
acquisitions; $3.2 million of restructuring and plant closure costs; $0.7 million related to litigation
settlement expense; $0.8 million related to accelerated interest expense due to early term loan
repayment; $1.3 million benefit due to a net release of prior years’ tax reserves; and $4.7 million gain
related to the change in fair value of contingent consideration. The net effect of these adjustments
negatively impacted diluted EPS by $0.16.
In 2010, net income includes the following after-tax effects: $8.9 million of expenses related to
acquisitions; $5.2 million of restructuring and plant closure costs; litigation settlement expense of $0.5
million; $1.8 million gain in sale of assets related to the MedServe divestiture; and $1.2 million benefit
due to a release of prior years’ tax reserve. The net effect of these adjustments negatively impacted
diluted EPS by $0.13.
In 2009, net income includes the following after-tax effects: $6.8 million of acquisition expenses; $1.0
million of restructuring costs; and $1.8 million benefit due to a release of prior years’ tax reserve. The
net effect of these adjustments negatively impacted diluted EPS by $0.06.
In 2008, net income includes the following after-tax effects: $3.5 million expense related to a business
dispute settlement; and a fixed asset write-down of equipment of $0.3 million. The net effect of these
adjustments negatively impacted diluted EPS by $0.05.
18
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion of our financial condition and results of operations should be read in conjunction
with our Consolidated Financial Statements and related notes in Item 8 of this Report.
Introduction
We are in the business of managing regulated waste and providing an array of related services. We operate
in the United States, Argentina, Brazil, Canada, Chile, Ireland, Japan, Mexico, Portugal, Romania, Spain, and the
United Kingdom.
For large-quantity generators of regulated waste such as hospitals and for pharmaceutical companies and
distributors, we offer our institutional regulated waste management services; our Bio Systems® reusable sharps
management services to reduce the risk of needle sticks; a variety of products and services for infection control;
our regulated recall and returns management services for expired or recalled products, pharmaceutical waste
disposal services; hazardous waste disposal; and our patient communication services. For small quantity
generators of regulated waste such as doctors’ offices and for retail pharmacies, we offer: our medical and
regulated waste management services; our Steri-Safe® OSHA and HIPAA compliance programs; a variety of
products and services for infection control; our regulated recall and returns management services for expired or
recalled products; and our patient communication services.
We operate integrated national regulated waste management networks domestically and internationally. Our
national networks include a total of 219 processing or combined processing and collection sites and 141
transfer, collection or combined transfer and collection sites. Our regulated waste processing
additional
technologies include autoclaving, our proprietary ETD, chemical
treatment, and incineration. We serve
approximately 541,000 customers worldwide, of which approximately 16,500 are large-quantity generators and
approximately 524,500 are small-quantity generators.
Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and results of operations are based upon our
consolidated financial statements, which have been prepared in accordance with accounting principles generally
accepted in the United States. The preparation of these financial statements requires that we make estimates and
judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and the related disclosure
of contingent assets and liabilities. We believe that of our significant accounting policies (see Note 2—Summary
of Significant Accounting Policies to the Consolidated Financial Statements), the following ones may involve a
higher degree of judgment on our part and greater complexity of reporting.
Revenue Recognition: Revenues for our regulated waste management services, other than our Steri-Safe
service, are recognized at the time of waste collection. Our Steri-Safe revenues are recognized evenly over the
contractual service period. Payments received in advance are deferred and recognized as services are provided.
Revenues from regulated recall and returns management services and patient communication services are
recorded at the time services are performed. Revenues from product sales are recognized at the time the goods
are shipped to the customer. Charges related to international value added tax (“VAT”) and other similar pass
through taxes are not included as revenue.
Goodwill and Other Identifiable Intangible Assets: Goodwill associated with the excess purchase price
over the fair value of assets acquired is not amortized. We have determined that our permits have indefinite lives
and, accordingly, are not amortized (see Note 11—Goodwill and Other Intangible Assets to the Consolidated
Financial Statements for additional information).
Our balance sheet at December 31, 2012 contains goodwill of $2.1 billion. In accordance with applicable
accounting standards, we evaluate on at least an annual basis, using the fair value of reporting units, whether
19
goodwill is impaired. If we were to determine that a significant impairment has occurred, we would be required
to incur non-cash charges of the impaired portion of goodwill that could have a material adverse effect on our
results of operations in the period in which the impairment charge occurs.
During the quarter ended June 30, 2012, we performed our annual goodwill impairment evaluation for our
three reporting units, Domestic Regulated Waste Management Services, Domestic Regulated Recall and Returns
Management Services, and International. We calculate the fair value of our reporting units using an income
method and validate those results using a market approach. Both the income and market approaches indicated no
impairment to goodwill to any of our three reporting units.
Income Approach: The income approach uses expected future cash flows of each reporting unit and
discounts those cash flows to a present value. Expected future cash flows are calculated using management
assumptions of internal growth, capital expenditures, and cost efficiencies. Future acquisitions are not included in
the expected future cash flows. We use a discount rate based on our Company calculated Weighted Average Cost
of Capital which is adjusted for each of our reporting units based on risk size premium and foreign country
premium. Significant assumptions used in the income approach include realization of future cash flows and the
discount rate used to present value those cash flows.
The results of our goodwill impairment test using the income approach indicated the fair value of our
reporting units exceeded book value by a substantial amount; in excess of 100%.
Market Approach: Our market approach begins by calculating the market capitalization of the Company
using the average stock price for the prior 30 days and the outstanding share count at June 30, 2012. We then
look at the Company’s Earnings Before Interest, Tax, Depreciation, and Amortization (“EBITDA”), adjusted for
stock compensation expense and other items, such as a gain or loss on the sale of divested assets, for the prior
twelve months. The calculated market capitalization is divided by the modified EBITDA to arrive at a valuation
multiple. The fair value of each reporting unit is then calculated by taking the product of the valuation multiple
and the trailing twelve month modified EBITDA of that reporting unit. The fair value was then compared to the
reporting units’ book value and determined to be in excess of the book value. We believe that starting with the
fair value of the Company as a whole is a reasonable measure as that fair value is then allocated to each reporting
unit based on that reporting unit’s individual earnings. A sustained drop in our stock price would have a negative
impact to our fair value calculations. A temporary drop in earnings of a reporting unit would have a negative
impact to our fair value calculations.
The results of our goodwill impairment test using the market approach indicated the fair value of our
reporting units exceeded book value by a substantial amount, in excess of 100% of book value.
Our permits are tested for impairment annually at December 31 or more frequently if circumstances indicate
that they may be impaired. We use either a discounted income or cost savings model as the current measurement
of the fair value of the permits. The fair value is based upon, among other things, certain assumptions about
expected future operating performance, internal and external processing costs, and an appropriate discount rate
determined by management. Our estimates of discounted income may differ from actual income due to, among
other things, inaccuracies in economic estimates.
In 2012, we wrote off $1.7 million for the permit intangibles of two facilities due to rationalizing our
operations. Under current acquisition accounting, a fair value must be assigned to all acquired assets based on a
theoretical “market participant” regardless of the acquirers’ intended use for those assets. This accounting
treatment can lead to the recognition of losses if a company disposes of acquired assets.
Other identifiable intangible assets, such as customer relationships, tradenames, and covenants not-to-
compete, are currently amortized using the straight-line method over their estimated useful lives. We have
20
determined that our regulated waste customer relationships have between 14-year and 40-year lives based on the
specific type of
relationship. Although the contracted regulated waste management business is highly
competitive, we have been able to maintain high customer retention through excellent customer service.
The valuation of our contractual customer relationships was derived using a discounted income approach
valuation model. These assets are reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may be more than its undiscounted estimated future cash flows. There have
been no indicators of impairment of these intangibles (see Note 11—Goodwill and Other Intangible Assets to the
Consolidated Financial Statements).
Share Repurchases: The purchase price over par value for share repurchases is allocated to retained
earnings.
Income Taxes: We are subject to income taxes in both the U.S. and numerous foreign jurisdictions. We
compute our provision for income taxes using the asset and liability method, under which deferred tax assets and
liabilities are recognized for the expected future tax consequences of temporary differences between the financial
reporting and tax bases of assets and liabilities and for operating loss and tax credit carry-forwards. Deferred tax
assets and liabilities are measured using the currently enacted tax rates that are expected to apply to taxable
income for the years in which those tax assets and liabilities are expected to be realized or settled. Significant
judgments are required in order to determine the realizability of these deferred tax assets. In assessing the need
for a valuation allowance, we evaluate all significant available positive and negative evidence, including
historical operating results, estimates of future taxable income and the existence of prudent and feasible tax
planning strategies. Changes in the expectations regarding the realization of deferred tax assets could materially
impact income tax expense in future periods. To provide for uncertain tax positions, we maintain a reserve for tax
benefits assumed that do not meet a threshold of “more likely than not” to be sustained. Management believes the
amount provided for uncertain tax positions is adequate. At December 31, 2012, net operating loss carry-
forwards for U.S. federal and state income tax purposes have been fully utilized, excluding net operating loss
carry-forwards related to our acquisitions. The net operating loss carry-forwards from foreign and domestic
acquisitions are approximately $32.1 million and certain of these net operating loss carry-forwards begin to
expire in 2015. Of these, $8.5 million have a valuation allowance offsetting the benefit. The valuation allowance
primarily represents loss carry-forwards for which limitations are in place and utilization before their expiration
is uncertain. Changes in our valuation allowance during 2012 were primarily related to adjustments to acquisition
accounting.
Accounts Receivable: Accounts receivable consists of amounts due to us from our normal business
activities and are carried at their estimated collectible amounts. Our accounts receivable balance includes
amounts related to VAT and similar international pass-through taxes. Accounts receivable balances are
determined to be delinquent when the amount is past due based on the contractual terms with the customer. We
maintain an allowance for doubtful accounts to reflect the expected uncollectibility of accounts receivable based
on past collection history and specific risks identified among uncollected accounts. Accounts receivable are
charged to the allowance for doubtful accounts when we have determined that the receivable will not be
collected. No single customer accounts for more than 2% of our accounts receivable.
Insurance: Our insurance for workers’ compensation, vehicle liability and physical damage, and employee-
related health care benefits is obtained using high deductible insurance policies. A third-party administrator is
used to process all such claims. We require all workers’ compensation, vehicle liability and physical damage
claims to be reported within 24 hours. As a result, we accrue our workers’ compensation, vehicle and physical
damage liability based upon the claim reserves established by the third-party administrator at the end of each
reporting period. Our employee health insurance benefit liability is based on our historical claims experience
rate. Our earnings would be impacted to the extent that actual claims vary from historical experience. We review
our accruals associated with the exposure to these liabilities for adequacy at the end of each reporting period.
21
Litigation: We operate in a highly regulated industry and deal with regulatory inquiries or investigations
from time to time that may be instituted for a variety of reasons. We are also involved in a variety of civil
litigation from time to time. Settlements from litigation are recorded when known, probable and estimable.
Stock Option Plans: We have issued stock options to employees and directors as an integral part of our
compensation programs. Stock-based compensation cost is measured at the grant date based on the value of the
award and is recognized as expense over the vesting period. Determining the fair value of stock-based awards at
the grant date requires considerable judgment, including estimating expected volatility of our stock, expected
term of the award, and the risk-free rate. Our stock’s expected volatility is based upon historical experience. The
expected term of the awards is based upon historical experience. The risk-free interest rate assumption is based
upon the U.S. Treasury yield rates of a comparable period. If factors change and we employ different
assumptions, stock-based compensation expense may differ significantly from what we have recorded in the past.
New Accounting Pronouncements: For information about recently issued accounting pronouncements see
Note 2—Summary of Significant Accounting Policies to the Consolidated Financial Statements.
Fair Value Considerations: Financial assets and liabilities are classified in their entirety based on the
lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a
particular input to the fair value measurement requires judgment, and may affect the valuation of assets and
liabilities and their placement within the fair value hierarchy levels. The impact of our creditworthiness has been
considered in the fair value measurements noted below. In addition, the fair value measurement of a liability
must reflect the nonperformance risk of an entity.
At December 31, 2012, we had $31.3 million in cash and cash equivalents and $0.5 million of short-term
investments that we recorded at fair value using Level 1 inputs and $18.5 million of contingent consideration
related to acquisitions that we recorded at fair value using Level 3 inputs.
At December 31, 2012, we had no derivative instruments.
Year Ended December 31, 2012 Compared to Year Ended December 31, 2011
Highlights for the year ended December 31, 2012 included the following:
•
•
•
revenues grew to $1.91 billion, a 14.1% increase over $1.68 billion in 2011
gross margins decreased to 44.8% in 2012 from 45.4% in 2011;
operating income was $468.8 million, a 10.5% increase from $424.3 million for 2011;
• we incurred $24.9 million in pre-tax expenses related to acquisitions, litigation settlement, restructuring
and plant closure costs, loss on sale of business, and changes in fair value of contingent consideration;
• we incurred $4.9 million in integration expenses related to acquisitions;
•
cash flow from operations was $387.4 million.
In analyzing our Company’s performance, it is necessary to understand that our various regulated waste
services share a common infrastructure and customer base. We market our regulated waste services by offering
various pricing options to meet our customers’ preferences, and customers move between these different billing
paradigms. For example, our regulated waste customers may contract with us for “Medical Waste Disposal”
services that are billed based on the weight of waste collected, processed and disposed during a particular period
and,
the same customer could move to our standard service “Steri-Safe OSHA
Compliance Program,” which packages the same regulated waste services with some training and education
services for a contracted subscription fee. Another example is a customer that purchases our “Medical Waste
Disposal” and “Sharps Disposal Management” services which provides the customer with the same regulated
in a subsequent period,
22
waste services under a different pricing and billing arrangement. We do not track the movement of customers
between the various types of regulated waste services we offer. Although we can identify directional trends in
our services, because the regulated waste services are similar in nature and there are inherent inaccuracies in
disaggregation, we believe that aggregating these revenues communicates the appropriate metric. We analyze our
revenue growth by identifying changes related to internal growth, acquired growth, and changes due to currency
exchange fluctuations.
The following summarizes the Company’s operations:
In thousands, except per share data
Revenues
Cost of revenues
Depreciation—cost of revenues
Restructuring costs
Total cost of revenues
Gross profit
Selling, general and administrative expenses (exclusive of items
shown below)
Acquisition expenses
Change in fair value of contingent consideration
Integration expenses
Restructuring and plant closure costs
Litigation settlement
Loss on sale of business
Total SG&A expenses (exclusive of depreciation and amortization
shown below)
Depreciation—SG&A
Amortization
Income from operations
Net interest expense
Income tax expense
Net income
Less: net income attributable to noncontrolling interests
Net income attributable to Stericycle, Inc.
Earnings per share—Diluted
Years Ended December 31,
2012
2011
$
$1,913,149
1,011,081
44,631
132
1,055,844
857,305
327,131
7,920
752
4,896
5,201
6,050
4,867
356,817
9,598
22,054
468,836
51,270
147,256
269,941
1,945
$ 267,996
3.08
$
%
$
100.0 $1,676,048
52.8
874,115
2.3
41,135
0.0
54
55.2
44.8
17.1
0.4
0.0
0.3
0.3
0.3
0.3
18.7
0.5
1.2
24.5
2.7
7.7
14.1
0.1
14.0
915,304
760,744
291,468
16,704
(7,221)
4,346
5,021
1,185
19
311,522
8,642
16,269
424,311
48,632
134,981
237,343
2,592
$ 234,751
2.69
$
%
100.0
52.1
2.5
0.0
54.6
45.4
17.4
1.0
-0.4
0.3
0.3
0.1
0.0
18.6
0.5
1.0
25.3
2.9
8.1
14.2
0.2
14.0
Revenues: Our revenues increased $237.1 million, or 14.1%, to $1.91 billion in 2012 from $1.68 billion in
2011. Domestic revenues increased $158.7 million, or 13.1%, to $1.37 billion from $1.21 billion in 2011 as
internal growth for domestic small account customers increased by $71.4 million, approximately 10%, driven by
an increase of Steri-Safe revenues. Revenues from domestic large account customers increased $33.9 million, or
approximately 9%, as we increased the total number of accounts and expanded our reusable sharps services and
pharmaceutical waste disposal programs. Internal revenues for recall and returns management services decreased
by $6.7 million compared to 2011 due to fewer large recalls. Internal revenues exclude revenue growth attributed
to businesses acquired during 2012 and 2011. Total domestic regulated waste and recall and returns management
services acquisitions, less than one year old, contributed approximately $60.1 million to the increase in domestic
revenues in 2012.
23
International revenues in 2012 were $542.3 million, compared to $463.9 million in 2011, an increase of
$78.4 million, or 16.9%. Internal growth, currency rate fluctuations and acquisitions impact the comparison of
2012 to 2011. Internal growth was $20.1 million. The effect of exchange rates unfavorably impacted
international 2012 revenues by $21.8 million as foreign currencies declined against the U.S. dollar. International
revenue growth of $80.1 million is attributed to business acquisitions, net of business divestitures, during 2012
and 2011.
Cost of Revenues: Our 2012 cost of revenues increased $140.5 million, or $15.4%, to $1.06 billion
compared to $915.3 million in 2011. Our domestic cost of revenues increased $86.9 million, or 14.2%, to $699.6
million in 2012 compared to $612.7 million for 2011 as a result of costs related to a proportional increase in
revenues from acquisitions and internal growth.
Our international cost of revenues increased $53.7 million, or 17.7%, to $356.3 million in 2012 compared to
$302.6 million in 2011 as a result of costs related to a proportional increase in revenues from acquisitions and
internal growth.
Our gross margin percentage decreased to 44.8% during 2012 from 45.4% during 2011 due to the inclusion
of lower margin acquired revenues. Domestic gross margin percentage decreased to 49.0% during 2012 from
49.5% in 2011.
International gross margin decreased to 34.3% compared to 34.8% in 2011, primarily due to acquisitions
with lower margins being consolidated. In general, international gross margins are lower than domestic gross
margins because the international operations have fewer small account customers, which tend to provide higher
gross margins. Historically, the international operations have had most of their revenues from large account
customers, such as hospitals. As the international revenues increase, consolidated gross margins receive
downward pressure due to this “business mix” shift, which may be offset by additional international small
account market penetration, integration savings, and domestic business expansion.
Selling, General and Administrative, Depreciation and Amortization Expenses: Excluding the effect of
litigation settlement, acquisition, integration expenses, restructuring and plant closure costs, loss on sale of
business, and other items (collectively the “Acquisition-related Items”), depreciation, and amortization expenses,
our selling, general and administrative (“SG&A”) expenses increased $35.6 million, or 12.2%, to $327.1 million
in 2012 from $291.5 million in 2011 primarily as investment spending supported the increase in revenues and
acquired SG&A expenses. As a percentage of revenues, these costs decreased by 0.3% in 2012 compared to
2011. Depreciation expense as a percentage of revenues was 0.5% in both 2012 and 2011. Amortization expense
as a percentage of revenues increased to 1.2% in 2012 from 1.0% in 2011.
Domestically, SG&A expenses, excluding Acquisition-related Items, depreciation, and amortization
expenses, increased $20.0 million, or 9.2%, to $237.4 million in 2012 from $217.4 million in 2011. As a
percentage of revenues, SG&A was lower at 17.3% in 2012 compare to 17.9% in 2011. As a percentage of
revenues, amortization expense of acquired intangible assets increased by 0.1% in 2012.
Internationally, SG&A expenses, excluding Acquisition-related Items, depreciation, and amortization
expenses, increased $15.6 million, or 21.1%, in 2012 to $89.7 million from $74.1 million in 2011. As percentage
of revenues, SG&A was at 16.5% in 2012 compare to 16.0% in 2011. As a percentage of revenues, amortization
expense of acquired intangible assets increased by 0.3% in 2012.
During the year ended December 31, 2012, we recognized $7.9 million in acquisition expenses, $4.9 million
expense related to the integration of new acquisitions, $6.0 million in litigation settlement costs, $5.3 million of
restructuring and plant closure costs, $4.9 million loss related to a divestiture in the United Kingdom, and $0.8
million unfavorable change in fair value of contingent consideration. These Acquisition-related Items resulted in
$29.8 million of expense on a pre-tax basis during 2012.
24
During the year ended December 31, 2011, we recognized $16.7 million in acquisition expenses, $4.3
million expense related to the integration of new acquisitions, $5.1 million of restructuring and plant closure
costs, and $1.2 million in litigation settlement expense, partially offset by $7.2 million favorable change in fair
value of contingent consideration. These Acquisition-related Items resulted in $20.1 million of net expense on a
pre-tax basis during 2011.
Income from Operations: Income from operations increased by $44.5 million, or 10.5%, to $468.8 million
in 2012 from $424.3 million in 2011. Comparisons of income from operations between 2012 and 2011 are
affected by various charges not considered part of our day-to-day operations described above in SG&A section.
Domestically, our income from operations increased $48.8 million, or 13.9%, to $400.5 million in 2012
from $351.7 million in 2011. Internationally, our income from operations decreased $4.3 million, or 5.9%, to
$68.3 million in 2012 from $72.6 million in 2011.
Interest Expense and Interest Income: Interest expense increased to $51.7 million during 2012 from $49.4
million during 2011 due to a higher rate on our outstanding revolver borrowings. Interest income was $0.4
million during 2012 and $0.8 million during 2011.
Income Tax Expense: Income tax expense increased to $147.3 million during 2012 from $135.0 million
during 2011. The effective tax rates for the years 2012 and 2011 were approximately 35.3% and 36.3%,
respectively, primarily related to lower international tax rates.
Year Ended December 31, 2011 Compared to Year Ended December 31, 2010
Highlights for the year ended December 31, 2011 included the following:
•
•
•
revenues grew to $1.68 billion, a 16.4% increase over $1.44 billion in 2010;
gross margins decreased to 45.4% in 2011 from 46.4% in 2010;
operating income was $424.3 million, a 14.5% increase from $370.7 million for 2010;
• we incurred a net $15.7 million in expenses related to restructuring and plant closure, acquisitions,
changes in fair value of contingent consideration, and litigation settlement;
• we incurred $4.3 million in integration expenses related to acquisitions;
•
cash flow from operations was $306.1 million.
25
The following summarizes the Company’s operations:
In thousands, except per share data
Revenues
Cost of revenues
Depreciation—cost of revenues
Restructuring costs
Total cost of revenues
Gross profit
Selling, general and administrative expenses
(exclusive of items shown below)
Acquisition expenses
Change in fair value of contingent consideration
Integration expenses
Restructuring and plant closure costs
Litigation settlement
Loss/ (gain) on sale of business
Total SG&A expenses (exclusive of depreciation and amortization
shown below)
Depreciation—SG&A
Amortization
Income from operations
Net interest expense
Income tax expense
Net income
Less: net income attributable to noncontrolling interests
Net income attributable to Stericycle, Inc.
Earnings per share—Diluted
Years Ended December 31,
2011
$
$1,676,048
874,115
41,135
54
915,304
760,744
291,468
16,704
(7,221)
4,346
5,021
1,185
19
311,522
8,642
16,269
424,311
48,632
134,981
237,343
2,592
$ 234,751
2.69
$
%
100.0
52.1
2.5
0.0
54.6
45.4
17.4
1.0
-0.4
0.3
0.3
0.1
0.0
18.6
0.5
1.0
25.3
2.9
8.1
14.2
0.2
14.0
2010
$
$1,439,388
733,416
37,025
1,520
771,961
667,427
261,460
9,519
0
4,112
6,851
897
(2,955)
279,884
6,941
9,919
370,683
36,815
121,396
210,457
2,578
$ 207,879
2.39
$
%
100.0
50.9
2.6
0.1
53.6
46.4
18.2
0.7
0.0
0.3
0.5
0.1
-0.2
19.4
0.5
0.7
25.8
2.6
8.4
14.6
0.2
14.4
Revenues: Our revenues increased $236.7 million, or 16.4%, to $1.68 billion in 2011 from $1.44 billion in
2010. Domestic revenues increased $128.5 million, or 11.9%, to $1.21 billion from $1.08 billion in 2010 as
internal growth for domestic small account customers increased by approximately $48.8 million, approximately
8%, driven by an increase of Steri-Safe revenues. Revenues from domestic large account customers increased
approximately $19.4 million, or over 5%, as we increased the total number of accounts and expanded our Sharps
Management and Pharmaceutical Waste Disposal programs. Internal revenues for recall and returns management
services decreased by $19.9 million compared to 2010 because 2010 had more large recalls which resulted in
higher revenues. Internal revenues exclude acquisitions less than one year old. Total domestic regulated waste
and recall and returns management acquisitions, less than one year old, contributed approximately $80.2 million
to the increase in domestic revenues in 2011.
International revenues in 2011 were $463.9 million, compared to $355.8 million in 2010, an increase of
$108.1 million, or 30.4%. Internal growth, currency rate fluctuations and acquisitions impact the comparison of
2011 to 2010. Internal growth was $18.9 million. The effect of exchange rates positively impacted international
2011 revenues by $11.2 million as foreign currencies appreciated against the U.S. dollar. Acquisitions and
divestitures less than one year old contributed an additional $78.0 million in international revenues.
26
Cost of Revenues: Our 2011 cost of revenues increased $143.3 million, or $18.6%, to $915.3 million
compared to $771.9 million in 2010. Our domestic cost of revenues increased $68.0 million, or 12.5%, to $612.7
million in 2011 compared to $544.7 million for 2010 as a result of costs related to a proportional increase in
revenues from acquisitions and internal growth.
Our international cost of revenues increased $75.4 million, or 33.2%, to $302.6 million in 2011 compared to
$227.2 million in 2010 as a result of costs related to a proportional increase in revenues, partially driven by the
impact of exchange rates.
Our gross margin percentage decreased to 45.4% during 2011 from 46.4% during 2010 due to inclusion of
lower margin acquired revenues. Domestic gross margin percentage slightly decreased to 49.5% during 2011
from 49.7% in 2010. Our domestic gross profit was unfavorably impacted by $1.5 million in 2010 from
restructuring costs for our regulated recall and returns management services business.
International gross margin decreased to 34.8% compared to 36.1% in 2010, primarily due to acquisitions
with lower margins being consolidated. In general, international gross margins are lower than domestic gross
margins because the international operations have less penetration into the small account market, which has a
higher gross margin. Historically, the international operations have had most of their revenues from large
hospitals. As the international revenues increase, consolidated gross margins receive downward pressure due to
this “business mix” shift, which may be offset by additional international small account market penetration,
integration savings and domestic business expansion.
Selling, General and Administrative, Depreciation and Amortization Expenses: In 2011, SG&A expenses,
excluding acquisition costs and other items, increased $38.1 million, or 13.7%, to $316.4 million from $278.3
million in 2010. As a percentage of revenues, these costs decreased by 0.4% in 2011 compared to 2010.
Depreciation expense as a percentage of revenues was 0.5% in both 2011 and 2010. Amortization expense as a
percentage of revenues increased to 1.0% in 2011 from 0.7% in 2010 due to larger quantity of acquisitions and
related amortization.
Domestically, SG&A increased $19.5 million, or 9.1%, to $233.7 million in 2011 from $214.2 million in
2010. The increase was primarily due to SG&A expenses related to the acquired revenues and higher
amortization expense. As a percentage of revenues, these costs decreased 0.5% in 2011 compared to 2010.
Internationally, our SG&A increased $18.6 million, or 29.0%, in 2011 to $82.7 million from $64.1 million
in 2010. Increased SG&A was due to increased number of international acquisitions and investment in our
Clinical Services program, partially offset by restructuring of the international management structure and the
continued integration of acquisitions. Higher amortization expense related to recognized intangible assets from
acquisitions. As percentage of revenue, these costs decreased 0.2% in 2011 compared to 2010.
During the year ended December 31, 2011, we recognized $16.7 million in acquisition expenses, $4.3
million related to the integration of new acquisitions, $5.1 million of restructuring and plant closure costs, and
$1.2 million in litigation settlement, partially offset by $7.2 million favorable change in fair value of contingent
consideration. These various adjustments resulted in $20.1 million net expense on a pre-tax basis.
During the year ended December 31, 2010, we recognized $9.5 million in acquisition expenses, $4.1 million
expenses related to integration of new acquisitions, $7.6 million of restructuring cost, $0.8 million plant closure
expenses, and litigation settlement of $0.9 million, partially offset by a $3.0 million gain on sale of assets related
to the MedServe divestiture. These various adjustments resulted in $19.9 million net expense on a pre-tax basis.
Income from Operations: Income from operations increased by $53.6 million, or 14.5%, to $424.3 million
in 2011 from $370.7 million in 2010. Comparisons of income from operations between 2011 and 2010 are
affected by various charges not considered part of our day-to-day operations described above in SG&A section.
27
Domestically, our income from operations increased $41.3 million, or 13.3%, to $351.7 million in 2011
from $310.4 million in 2010. Internationally, our income from operations increased $12.3 million, or 20.4%, to
$72.6 million in 2011 from $60.3 million in 2010.
Interest Expense and Interest Income: Interest expense increased to $49.4 million during 2011 from $37.1
million during 2010 due to higher borrowings in 2011 and higher interest rates. Interest income was $0.8 million
during 2011 and $0.3 million during 2010.
Income Tax Expense: Income tax expense increased to $135.0 million during 2011 from $121.4 million
during 2010. In 2011 and 2010, we recognized a net $1.3 million and $1.2 million, respectively, of tax benefits
related to prior years unrecognized tax positions which positively impacted our diluted earnings per share by
$0.01 in both 2011 and 2010. The effective tax rates for the years 2011 and 2010 were approximately 36.3% and
36.6%, respectively.
Liquidity and Capital Resources:
Our $1.0 billion senior credit facility maturing in September 2016, our $100.0 million private placement
notes maturing April 2015, our $175.0 million private placement notes maturing in October 2017, our $125.0
million private placement notes maturing in December 2019, our $225.0 million private placement notes
maturing in October 2020, and our $125.0 million private placement notes maturing in December 2022 all
require us to comply with various financial, reporting and other covenants and restrictions, including a restriction
on dividend payments. The financial debt covenants are the same for the senior credit facility and the private
placement notes. At December 31, 2012, we were in compliance with all of our financial debt covenants.
As of December 31, 2012, we had $225.9 million of borrowings outstanding under our $1.0 billion senior
unsecured credit facility, which includes foreign currency borrowings of $94.4 million. We also had $157.6
million committed to outstanding letters of credit under our senior credit facility. The unused portion of the
revolving credit facility as of December 31, 2012 was $616.5 million. At December 31, 2012, our interest rates
on borrowings under our revolving credit facility were as follows:
•
•
For short-term borrowing (less than one month): Federal funds rate plus 0.5%, the prime rate or the
Euro Currency rate plus 1%, whichever is higher and a spread of 0.025% plus a 0.225% facility fee.
For borrowing greater than one month: LIBOR plus 1.025% plus a 0.225% facility fee.
The weighted average rate of interest on the unsecured revolving credit facility was 1.62% per annum,
which includes the 0.225% facility fee.
As of December 31, 2012, we had outstanding $100.0 million of seven-year 5.64% unsecured senior notes
issued to nine institutional purchasers in a private placement completed in April 2008. Interest is payable in
arrears semi-annually on April 15 and October 15 beginning on October 15, 2009, and principal is payable at the
maturity of the notes on April 15, 2015.
As of December 31, 2012, we had outstanding $175.0 million of seven-year 3.89% unsecured senior notes
and $225.0 million of 10-year 4.47% unsecured senior notes issued to 39 institutional purchasers in a private
placement completed in October 2010. Interest is payable in arrears on April 15 and October 15 beginning on
April 15, 2011, and principal is payable at the maturity of the notes, October 15, 2017 in the case of the seven-
year notes and October 15, 2020 in the case of the 10-year notes.
As of December 31, 2012, we had outstanding $125.0 million of seven-year 2.68% unsecured senior notes
and $125.0 million of 10-year 3.26% unsecured senior notes issued to 46 institutional purchasers in a private
is payable in arrears semi-annually on June 12 and
placement completed in December 2012. Interest
December 12 beginning on June 12, 2013, and principal is payable at the maturity of the notes, December 12,
2019 in the case of the seven-year notes and December 12, 2022 in the case of the 10-year notes.
28
At December 31, 2012, we had $235.9 million in promissory notes issued in connection with acquisitions
during 2004 through 2012, $139.1 million in foreign subsidiary bank debt outstanding, and $5.2 million in capital
lease obligations.
Working Capital: At December 31, 2012, our working capital increased by $46.5 million to $110.2 million
compared to $63.7 million at December 31, 2011.
Current assets increased primarily due to increase in net accounts receivable of $31.4 million. During 2012
we acquired $26.7 million in accounts receivable. Days sales outstanding (“DSO”) was at 59 days at both
December 31, 2012 and December 31, 2011.
Current liabilities increased by $4.1 million in 2012. We had an increase to the short term portion of
obligations for acquisitions of $11.4 million. Accounts payable increased by $7.6 million, of which $1.0 million
can be attributed to acquisitions in the fourth quarter of 2012, and the remainder related primarily to timing of
payments. Deferred revenues also increased by $5.2 million due to year-end collections ahead of 2013 service.
Accrued liabilities decreased by $5.2 million primarily related to a reduction in our taxes payable of $16.4
million. In addition, our short term debt decreased by $15.8 million as we refinanced a portion of our foreign
bank debt to long term.
Net Cash Provided or Used: Net cash provided by operating activities increased $81.3 million, or 26.6%, to
$387.4 million during 2012 from $306.1 million in 2011. This increase was driven by strong collections and
higher revenues both domestically and internationally. Our DSO was at 59 days in both 2012 and 2011. Cash
provided by operations as a ratio to net income was 144% and 129% for 2012 and 2011, respectively.
Net cash used in investing activities during 2012 was $294.2 million compared to $514.6 million used in
2011. We had a $250.0 million decrease in cash spent to acquire new businesses, which was largely attributable
to our acquisition in April 2011 of Healthcare Waste Solutions, Inc. for $234.4 million in cash. Our capital
expenditures increased by $11.9 million in 2012, and, as a percentage of revenues, it increased to 3.4% in 2012
from 3.2% in 2011.
Net cash used by financing activities was $86.2 million during 2012 compared to $148.3 million net cash
provided by financing activities in 2011. We used the proceeds of our private placement notes of $250.0 million
and other available cash to paydown our senior credit facility, resulting in a year over year net decrease of $325.1
million. We had share repurchases of $48.0 million in 2012 compared to $124.1 million in 2011, a decrease of
$76.0 million.
Contractual Obligations
The following table summarizes our significant contractual obligations and cash commitments as of
December 31, 2012:
Payments due by period (dollars in thousands)
Long-term debt
Capital lease obligations
Operating leases
Purchase obligations
Other long-term liabilities
Total
$1,588,099
5,823
263,938
10,252
3,496
2013
$133,126
2,590
74,464
4,689
802
2014-2015
$384,491
2,361
87,385
5,367
1,103
2016-2017
$517,598
446
53,313
196
1,591
(1)
(1)
(1)(2)
2018
and After
$552,884
426
48,776
0
0
Total contractual cash obligations
$1,871,608
$215,671
$480,707
$573,144
$602,086
(1) The long-term debt, capital leases, and other long-term liabilities items include both the future principal
payment amount as well as an amount calculated for expected future interest payments. Long-term debt that
has floating interest rates requires the use of management judgment to estimate the future rates of interest.
29
(2) Other long-term liabilities include amounts related to covenants not-to-compete agreements and exclude
payments for unrecognized tax benefits. Based on the contingent and uncertain nature of our liability for
unrecognized tax benefits, we are unable to make an estimate of the period of potential settlement, if any,
with the applicable taxing authorities.
At December 31, 2012, we had $157.6 million in stand-by letters of credit issued.
We anticipate that our operating cash flow, together with borrowings under our senior unsecured credit
facility, will be sufficient to meet our anticipated future operating expenses, capital expenditures and debt service
obligations as they become due during the next 12 months and the foreseeable future.
Guarantees: We have guaranteed a loan to JPMorganChase Bank N.A. on behalf of Shiraishi-Sogyo Co.
Ltd (“Shiraishi”). Shiraishi is a customer in Japan that is expanding its medical waste management business and
has a one year loan with a current balance of $5.7 million with JPMorganChase Bank N.A. that matures in May
2013. We also have extended loans to Shiraishi for approximately $15.4 million, reflected in the Consolidated
Balance Sheet as part of long term “Other assets”, in support of its medical waste business. There is a collateral
agreement in place on the assets of Shiraishi and related companies in support of amounts owed.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
We are subject to market risks arising from changes in interest rates. Our potential additional interest
expense over one year that would result from a hypothetical, instantaneous and unfavorable change of 100 basis
points in the interest rate on all of our variable rate obligations would be approximately $3.9 million on a pre-tax
basis.
We have exposure to foreign currency fluctuations. We have subsidiaries in eleven foreign countries whose
functional currency is the local currency. Changes in foreign currency exchange rates could unfavorably impact
our consolidated results of operations. We have exposure to commodity pricing for gas and diesel fuel for our
trucks and for the purchase of containers and boxes. We do not hedge these items to manage the exposure.
30
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’s management assessed the effectiveness of the Company’s internal control over financial
reporting as of December 31, 2012. In making this assessment, management used the criteria set forth by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control—Integrated
Framework.
Based on this assessment and those criteria, management concludes that the Company maintained effective
internal control over financial reporting as of December 31, 2012.
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 32.
Stericycle, Inc.
Lake Forest, IL
February 28, 2013
31
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders of Stericycle, Inc. and Subsidiaries
We have audited Stericycle, Inc. and Subsidiaries’ internal control over financial reporting as of
December 31, 2012, based on criteria established in Internal Control—Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Stericycle, Inc. and
Subsidiaries’ 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.
In our opinion, Stericycle, Inc. and Subsidiaries maintained, in all material respects, effective internal
control over financial reporting as of December 31, 2012, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States), the consolidated balance sheets of Stericycle, Inc. and Subsidiaries as of December 31, 2012 and
2011, 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, 2012 and our report dated February 28, 2013
expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Chicago, Illinois
February 28, 2013
32
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, 2012 and 2011, 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, 2012. 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, 2012 and 2011, and the
consolidated results of their operations and their cash flows for each of the three years in the period ended
December 31, 2012, 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.’s internal control over financial reporting as of December 31, 2012, based on
criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission and our report dated February 28, 2013 expressed an unqualified
opinion thereon.
/s/ Ernst & Young LLP
Chicago, Illinois
February 28, 2013
33
STERICYCLE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
In thousands, except share and per share data
ASSETS
Current Assets:
Cash and cash equivalents
Short-term investments
Accounts receivable, less allowance for doubtful accounts of $19,443 in 2012 and
$18,905 in 2011
Deferred income taxes
Prepaid expenses
Other current assets
Total Current Assets
Property, plant and equipment, net
Goodwill
Intangible assets, less accumulated amortization of
$64,215 in 2012 and $42,050 in 2011
Other assets
Total Assets
LIABILITIES AND EQUITY
Current Liabilities:
Current portion of long-term debt
Accounts payable
Accrued liabilities
Deferred revenues
Other current liabilities
Total Current Liabilities
Long-term debt, net of current portion
Deferred income taxes
Other liabilities
Equity:
Common stock (par value $.01 per share, 120,000,000 shares authorized, 85,987,883
issued and outstanding in 2012, 84,696,227 issued and outstanding in 2011)
Additional paid-in capital
Accumulated other comprehensive loss
Retained earnings
Stericycle, Inc. Equity
Noncontrolling interest
Total Equity
Total Liabilities and Equity
December 31,
2012
2011
$
31,324
503
$
22,511
416
322,246
22,995
27,042
37,176
290,854
19,314
22,466
35,035
441,286
335,870
2,065,103
390,596
293,912
1,913,703
667,471
37,008
546,618
32,261
$3,546,738
$3,177,090
$
87,781
74,225
135,321
18,095
15,638
331,060
1,268,303
359,780
30,272
$ 100,526
66,635
140,521
12,855
6,377
326,914
1,284,113
313,733
25,079
860
116,720
(39,064)
1,463,277
1,541,793
15,530
847
0
(45,984)
1,243,303
1,198,166
29,085
1,557,323
1,227,251
$3,546,738 $3,177,090
The accompanying notes are an integral part of these consolidated financial statements.
34
STERICYCLE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
In thousands, except share and per share data
Revenues
Costs and Expenses:
Cost of revenues (exclusive of depreciation below)
Depreciation—cost of revenues
Selling, general and administrative expenses (exclusive of
depreciation and amortization below)
Depreciation—SG&A
Amortization
Total Costs and Expenses
Income from Operations
Other Income (Expense):
Interest income
Interest expense
Other expense, net
Total Other Expense
Income Before Income Taxes
Income Tax Expense
Net Income
Less: Net Income Attributable to Noncontrolling Interests
Net Income Attributable to Stericycle, Inc.
Earnings Per Common Share:
Basic
Diluted
Weighted Average Number of Common Shares Outstanding:
Basic
Diluted
Years Ended December 31,
2012
2011
$ 1,913,149 $ 1,676,048
2010
$ 1,439,388
1,011,213
44,631
356,817
9,598
22,054
874,169
41,135
311,522
8,642
16,269
734,936
37,025
279,884
6,941
9,919
1,444,313
1,251,737
1,068,705
468,836
424,311
370,683
404
(51,674)
(369)
(51,639)
417,197
147,256
269,941
1,945
799
(49,431)
(3,355)
(51,987)
372,324
134,981
237,343
2,592
266
(37,081)
(2,015)
(38,830)
331,853
121,396
210,457
2,578
267,996 $
234,751
$
207,879
3.14
3.08
$
$
2.75
2.69
$
$
2.44
2.39
$
$
$
85,401,365
87,018,473
85,467,421
87,367,712
85,057,775
86,962,651
The accompanying notes are an integral part of these consolidated financial statements.
35
STERICYCLE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
In thousands
Years Ended December 31,
Net Income
Other Comprehensive Income/ (Loss):
Foreign currency translation adjustments
Amortization of cash flow hedge into income, net of tax ($226, $216, and $54)
Change in fair value of cash flow hedge, net of tax ($193, $0, and $1,407)
Total Other Comprehensive Income/ (Loss)
2012
2011
$269,941 $237,343 $210,457
2010
6,801
339
289
7,429
(32,893)
341
0
394
85
(2,118)
(32,552)
(1,639)
Comprehensive Income
Less: Comprehensive Income/(Loss) Attributable to Noncontrolling Interests
277,370
2,454
204,791
(845)
208,818
5,516
Comprehensive Income Attributable to Stericycle, Inc.
$274,916 $205,636 $203,302
The accompanying notes are an integral part of these consolidated financial statements.
36
In thousands
STERICYCLE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
OPERATING ACTIVITIES:
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Loss/ (gain) on sale of business
Restructuring and plant closure costs
Write down of other assets
Change in fair value of contingent consideration
Accelerated amortization of term loan financing fees
Stock compensation expense
Excess tax benefit of stock options exercised
Depreciation
Amortization
Deferred income taxes
Changes in operating assets and liabilities, net of effect of acquisitions and divestitures:
Accounts receivable
Accounts payable
Accrued liabilities
Deferred revenues
Other assets and liabilities
Net cash provided by operating activities
INVESTING ACTIVITIES:
Payments for acquisitions, net of cash acquired
(Purchase of)/ proceeds from short-term investments
Proceeds from sale of business and other assets
Capital expenditures
Net cash used in investing activities
FINANCING ACTIVITIES:
Repayment of long-term debt and other obligations
Borrowings on foreign bank debt
Repayments on foreign bank debt
Borrowings on senior credit facility
Repayments on senior credit facility
Proceeds from private placement of long-term note
Payments of deferred financing costs
Payments on capital lease obligations
Purchase and cancellation of treasury stock
Payments to noncontrolling interests
Proceeds from other issuance of common stock
Excess tax benefit of stock options exercised
Net cash (used in)/ provided by financing activities
Effect of exchange rate changes on cash
Net increase/ (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
NON-CASH ACTIVITIES:
Net issuance of obligations for acquisitions
Years Ended December 31,
2012
2011
2010
$
269,941
$
237,343
$
210,457
4,867
1,677
0
752
0
16,339
(30,161)
54,229
22,054
22,678
(4,329)
(107)
26,201
931
2,376
19
2,756
1,256
(7,221)
1,241
15,367
(17,410)
49,777
16,269
31,837
(31,821)
(12,539)
21,656
(1,997)
(429)
(2,955)
5,571
0
0
0
15,298
(24,687)
43,966
9,919
26,312
(20,270)
(165)
56,578
(878)
6,524
387,448
306,104
325,670
(229,684)
(89)
764
(65,236)
(294,245)
(479,661)
15,942
2,371
(53,301)
(190,430)
(14,732)
8,000
(48,320)
(514,649)
(245,482)
(102,932)
98,620
(69,454)
863,286
(1,167,595)
250,000
(956)
(3,192)
(48,028)
(580)
64,461
30,161
(65,546)
42,178
(16,168)
1,643,458
(1,372,631)
0
(3,740)
(3,333)
(124,056)
(534)
31,286
17,410
(55,530)
51,419
(38,266)
1,007,801
(1,350,597)
400,000
(5,757)
(2,894)
(94,335)
0
49,907
24,687
(86,209)
1,819
8,813
22,511
31,324
105,738
$
$
148,324
3,456
(56,765)
79,276
22,511
58,338
$
$
(13,565)
(3,114)
63,509
15,767
79,276
96,295
$
$
The accompanying notes are an integral part of these consolidated financial statements.
37
STERICYCLE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
Years Ended December 31, 2012, 2011 and 2010
In thousands
Balance at December 31, 2009
Net income
Currency translation adjustment
Change in qualifying cash flow hedge, net of tax
Issuance of common stock for exercise of
options and employee stock purchases
Purchase/ cancellation of treasury stock
Stock compensation expense
Excess tax benefit of disqualifying dispositions
of stock options and exercise of non-qualified
stock options
Noncontrolling interests attributed to acquisitions
Reduction to noncontrolling interests due to
additional ownership
Stericycle, Inc. Equity
Issued
and
Outstanding
Shares
84,715
Common
Stock
$847
Additional Paid-
In Capital
$ 47,522
Retained
Earnings
$ 809,618
207,879
Accumulated Other
Comprehensive
Income (Loss)
$(12,292)
(2,544)
(2,033)
Noncontrolling
Interest
$ 11,478
2,578
2,938
Total
Equity
$ 857,173
210,457
394
(2,033)
1,988
(1,461)
20
(15)
50,491
(94,320)
18,565
24,687
50,511
(94,335)
18,565
24,687
18,265
18,265
(3,334)
(3,334)
Balance at December 31, 2010
85,242
$852
$ 46,945
$1,017,497
$(16,869)
$ 31,925
$1,080,350
Net income
Currency translation adjustment
Change in qualifying cash flow hedge, net of tax
Issuance of common stock for exercise of
options and employee stock purchases
Purchase/ cancellation of treasury stock
Stock compensation expense
Excess tax benefit of disqualifying dispositions
of stock options and exercise of non-qualified
stock options
Noncontrolling interests attributed to acquisitions
Reduction to noncontrolling interests due to
additional ownership
Reduction to noncontrolling interests due to
divestiture
Payments to noncontrolling interests
1,016
(1,562)
11
(16)
36,394
(115,095)
15,367
17,410
(1,021)
(29,456)
341
2,592
(3,437)
234,751
(8,945)
237,343
(32,893)
341
36,405
(124,056)
15,367
10,708
17,410
10,708
(10,210)
(11,231)
(1,959)
(534)
(1,959)
(534)
Balance at December 31, 2011
84,696
$847
$
0
$1,243,303
$(45,984)
$ 29,085
$1,227,251
Net income
Currency translation adjustment
Change in qualifying cash flow hedge, net of tax
Issuance of common stock for exercise of
options and employee stock purchases
Purchase/ cancellation of treasury stock
Stock compensation expense
Excess tax benefit of disqualifying dispositions
of stock options and exercise of non-qualified
stock options
Noncontrolling interests attributed to acquisitions
Reduction to noncontrolling interests due to
additional ownership
Payments to noncontrolling interests
1,855
(563)
19
(6)
68,444
0
16,339
30,161
1,958
(182)
6,292
628
1,945
509
267,996
(48,022)
4,386
(19,997)
(398)
269,941
6,801
628
68,463
(48,028)
16,339
30,161
4,386
(18,039)
(580)
Balance at December 31, 2012
85,988
$860
$ 116,720
$1,463,277
$(39,064)
$ 15,530
$1,557,323
The accompanying notes are an integral part of these consolidated financial statements.
38
STERICYCLE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2012
Unless the context requires otherwise, “we”, “us” or “our” refers to Stericycle, Inc. and its subsidiaries on a
consolidated basis.
NOTE 1—DESCRIPTION OF BUSINESS
We were incorporated in 1989 and presently serve a diverse customer base of over 541,000 customers
throughout the United States, Argentina, Brazil, Canada, Chile, Ireland, Japan, Mexico, Portugal, Romania,
Spain, and the United Kingdom.
We lease office space for our corporate offices in Lake Forest, Illinois. Domestically, we own or lease 59
processing facilities, the majority of which use autoclave waste processing technology. All of our processing
facilities also serve as collection sites. We own or lease 91 additional transfer sites, 12 additional sales/
administrative sites, and 54 recall and returns or communication services facilities. Internationally, we own or
lease 94 processing facilities, the majority of which use autoclave waste processing technology. We also own or
lease 50 additional transfer sites, 41 additional sales/administrative sites, 10 recall and returns services facilities,
and we lease two landfills.
We use our fully integrated, national networks to provide a broad range of services to our customers
including regulated waste management services and regulated recall and returns management services. Regulated
waste management services include regulated waste removal services, sharps management services, products and
services for infection control, and safety and compliance programs. Regulated recall and returns management
services are physical services provided to companies and individual businesses that assist with the handling of
products that are being removed from the supply chain due to recalls or expiration. These services also include
advanced notification technology that is used to communicate specific instructions to the users of the product.
Our waste treatment technology is primarily autoclaving, however we also use incineration and our proprietary
electro-thermal-deactivation (“ETD”) system. We also provide communication services to healthcare providers
to improve office productivity and communications with patients.
We have 7,933 employees in the United States, of which 437 are covered by collective bargaining
agreements. Internationally, we have 5,312 employees, of which approximately 1,600 are covered by collective
bargaining agreements, primarily in Latin America.
The accompanying consolidated financial statements have been prepared pursuant
to the rules and
regulations of the Securities and Exchange Commission (“SEC”) in conformity with accounting principles
generally accepted in the United States. The preparation of financial statements in conformity with these
accounting principles requires us to make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the
reported amounts of revenue and expenses during the reporting period.
In our opinion, the consolidated financial statements included herein contain all adjustments necessary to
present fairly our financial position as of December 31, 2012 and 2011 and the results of our operations, our cash
flows, and our statement of changes in equity for the three years ended December 31, 2012, 2011 and 2010. Such
adjustments are of a normal recurring nature. We have evaluated subsequent events through the date of filing this
Annual Report on Form 10-K.
The preparation of the consolidated financial statements in conformity with accounting principles generally
accepted in the United States requires management to make certain estimates and assumptions that affect the amount of
reported assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial
statements and revenues and expenses during the periods reported. Actual results may differ from those estimates.
39
NOTE 2—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation:
The consolidated financial statements include the accounts of Stericycle, Inc. and its subsidiaries.
Revenue Recognition:
Revenues for our regulated waste management services, other than our Steri-Safe service, are recognized at
the time of waste collection. Our Steri-Safe revenues are recognized evenly over the contractual service period.
Payments received in advance are deferred and recognized as services are provided. Revenues from regulated
recall and returns management services and patient communication services are recorded at the time services are
performed. Revenues from product sales are recognized at the time the goods are shipped to the ordering
customer. Charges related to international value added tax (“VAT”) and other similar pass through taxes are not
included as revenue.
Cash Equivalents and Short-Term Investments:
We consider all highly liquid investments with a maturity of less than three months when purchased to be
cash equivalents. Short-term investments consist of certificates of deposit which mature in less than one year.
Property, Plant and Equipment:
Property, plant and equipment are stated at cost. Depreciation and amortization, which include the
depreciation of assets recorded under capital leases, are computed using the straight-line method over the
estimated useful lives of the assets as follows:
Building and improvements
Machinery and equipment
Containers
Vehicles
Office equipment and furniture
Software
5 to 50 years
3 to 30 years
2 to 20 years
3 to 7 years
2 to 15 years
2 to 7 years
Our containers have a weighted average remaining useful life of 12.2 years.
Goodwill and Identifiable Intangibles:
Goodwill and identifiable indefinite lived intangible assets are not amortized, but are subject to an annual
impairment test. Other intangible assets are amortized over their useful lives. We have determined that our
customer relationships have useful lives from 14 to 40 years based upon the type of customer, with a weighted
average remaining useful life of 26.5 years. We have covenants not-to-compete intangibles with useful lives from
4 to 14 years, with a weighted average remaining useful life of 4.6 years. We have tradename intangibles with
useful lives from 10 to 40 years, with a weighted average remaining useful life of 9.6 years. We have determined
that our permits have indefinite lives due to our ability to renew these permits with minimal additional cost, and
therefore they are not amortized.
Valuation of our intangible customer relationships and permits is derived using a discounted income and
cost savings approach. Financial information such as revenues, costs, assets and liabilities and other assumptions
related to the intangible asset are input into a standard valuation model to determine a stream of income
attributable to that intangible. The income stream is then discounted to the present to arrive at a valuation. We
perform annual impairment tests on our indefinite lived intangible assets.
40
Valuation of Intangibles:
Our permits are currently tested for impairment annually at December 31 or more frequently if
circumstances indicate that they may be impaired. We use a discounted income or cost savings model as the
current measurement of the fair value of the permits. The fair value is based upon, among other things, certain
assumptions about expected future operating performance,
internal and external processing costs, and an
appropriate discount rate determined by management. Our estimates of discounted income may differ from actual
income due to, among other things, inaccuracies in economic estimates.
Amortizable identifiable intangible assets, such as customer relationships, tradenames and covenants not-to-
compete, are currently amortized using the straight-line method over their estimated useful lives. We have
determined that our customer relationships have between 14 and 40 year lives based on the specific type of
relationship. The valuation of our contractual customer relationships was derived using a discounted income
approach valuation model. These assets are reviewed for
impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may be less than its undiscounted estimated future
cash flows (see Note 11—Goodwill and Other Intangible Assets to the Consolidated Financial Statements).
Share Repurchases:
Purchase price over par value for share repurchases are allocated to retained earnings.
Income Taxes:
Deferred income tax liabilities and assets are determined based on the differences between the financial
statement and income tax basis of assets and liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse.
Accounts Receivable:
Accounts receivable consist of amounts due to us from our normal business activities and are carried at their
estimated collectible amounts. Our accounts receivable balance includes amounts related to VAT and similar
international pass-through taxes. We do not require collateral as part of our standard trade credit policy. Accounts
receivable balances are determined to be past due when the amount is overdue based on the contractual terms
with the customer. We maintain an allowance for doubtful accounts to reflect the expected uncollectibility of
accounts receivable based on past collection history and specific risks identified among uncollected accounts.
Accounts receivable are written off against the allowance for doubtful accounts when we have determined that
the receivable will not be collected and/or when the account has been referred to a third party collection agency.
No single customer accounts for more than 2% of our accounts receivable. Bad debt expense was $4.6 million,
$7.1 million and $7.5 million for the years ended December 31, 2012, 2011 and 2010, respectively.
Financial Instruments:
Our financial instruments consist of cash and cash equivalents, short-term investments, accounts receivable
and payable and long-term debt. At December 31, 2012, the fair value of the Company’s debt obligations was
estimated at $1.39 billion, compared to a carrying amount of $1.36 billion. This fair value was estimated using
market interest rates for comparable instruments. The Company has no current plans to retire a significant
amount of its debt prior to maturity. Financial instruments, which potentially subject us to concentrations of
credit risk, consist principally of accounts receivable. Credit risk on trade receivables is minimized as a result of
the large size of our customer base. No single customer represents greater than 2% of total accounts receivable.
We perform ongoing credit evaluation of our customers and maintain allowances for potential credit losses. For
any contracts in loss positions, losses are recorded when probable and estimable. These losses, when incurred,
have been within the range of our expectations.
41
Use of Estimates:
The preparation of financial statements in conformity with generally accepted accounting principles requires
us to make estimates and assumptions that affect
the amounts reported in the financial statements and
accompanying notes. Some areas where we make estimates include allowance for doubtful accounts, credit
memo reserve, accrued employee health and welfare benefits, stock compensation expense, income tax liabilities,
accrued auto and workers’ compensation insurance claims, and intangible asset valuations. Such estimates are
based on historical trends and on various other assumptions that are believed to be reasonable under the
circumstances. Actual results could differ from our estimates.
Future estimated expenses may fluctuate depending on changes in foreign currency rates. The estimates for
payments due on long-term debt, lease payments under capital leases, contingent consideration liabilities,
intangible assets amortization expense, and rental payments are based upon foreign exchange rates as of
December 31, 2012 (see Notes 4, 11, 13 and 14 to the Consolidated Financial Statements).
Stock-Based Compensation:
We recognize compensation expense for all stock-based awards made to our employees and directors.
Stock-based compensation cost is measured at the grant date based on the value of the award and is recognized
over the vesting period. Determining the fair value of stock-based awards at the grant date requires considerable
judgment, including estimating expected volatility of our stock, expected term of the award, and the risk-free
interest rate. Our stock’s expected volatility is based upon historical experience. The expected term of options
granted is based on historical experience. The risk-free interest rate assumption is based upon the U.S. Treasury
yield rates for a comparable period. If factors change and we employ different assumptions, stock-based
compensation expense for new grants may differ significantly from what we have recorded in the past.
Foreign Currency Translation:
Assets and liabilities of foreign affiliates that use the local currency as their functional currency are
translated at the exchange rate on the last day of the accounting period, and income statement accounts are
translated at the average rates during the period. Related translation adjustments are reported as a component of
comprehensive income in shareholders’ equity.
Environmental Matters:
We record a liability for environmental remediation or damages when a cleanup program becomes probable
and the costs or damages can be reasonably estimated. We did not have any environmental liabilities recorded at
December 31, 2012 nor are we aware of any issues at our facilities that could necessitate environmental
remediation.
New Accounting Standards:
Accounting Standards Recently Adopted
Comprehensive Income
the total of comprehensive income,
On January 1, 2012, Stericycle adopted changes issued by the Financial Accounting Standards Board
(“FASB”) to guidance on the presentation of comprehensive income. These changes give an entity the option to
present
income, and the components of other
comprehensive income either in a single continuous statement of comprehensive income or in two separate but
consecutive statements; the option to present components of other comprehensive income as part of the statement of
changes in stockholders’ equity was eliminated. The items that must be reported in other comprehensive income or
when an item of other comprehensive income must be reclassified to net income were not changed. Additionally, no
changes were made to the calculation and presentation of earnings per share. Part of the adopted standard related to
presentation of reclassification of items out of accumulated other comprehensive income have been deferred. Other
than the change in presentation, these changes did not have an impact on our financial statements.
the components of net
42
Goodwill Impairment Testing
On January 1, 2012, Stericycle adopted changes issued by the FASB to guidance on the testing for
impairment of goodwill. Previous guidance required an entity to test goodwill for impairment, on at least an
annual basis, by comparing the fair value of a reporting unit with its carrying amount, including goodwill (step
one). If the fair value of a reporting unit is less than its carrying amount, then the second step of the test must be
performed to measure the amount of the impairment loss, if any. Under the amendments, an entity has the option
to use a qualitative assessment, that it is more likely than not (greater than 50%) that the fair value of goodwill is
less than its carrying amount. We performed our annual test for goodwill impairment as of June 30, 2012 and
chose to perform a quantitative assessment.
Fair Value Measurement
On January 1, 2012, Stericycle adopted changes issued by the FASB for additional disclosures concerning
the valuation processes used and sensitivity of the fair value measurement to changes in unobservable inputs for
those items categorized as Level 3, a reporting entity’s use of a nonfinancial asset in a way that differs from the
asset’s highest and best use, and the categorization by level in the fair value hierarchy for items required to be
measured at fair value for disclosure purposes only. Other than the change in presentation, there were no other
impacts.
Accounting Standards Issued But Not Yet Adopted
Testing Indefinite-Lived Intangible Assets for Impairment
On July 27, 2012 the FASB issued guidance allowing a company to perform a qualitative assessment in
determining whether an indefinite lived intangible asset is impaired. This new guidance is similar to the previously
issued guidance allowing a qualitative assessment when performing annual goodwill impairment testing. The
guidance also changes when a company should perform an interim period test for impairment, allowing for positive
evidence to offset negative evidence when determining whether an interim impairment test is required. The new
guidance should not affect the ultimate outcome of an impairment test; therefore there will be no impact on our
financial statements. The effective date of this guidance for our Company is January 1, 2013; however, the guidance
allows for early adoption. We did not early adopt this guidance and are considering using a qualitative approach for
2013. We perform our annual test for impairment for indefinite lived intangibles as of December 31.
NOTE 3—ACQUISITIONS AND DIVESTITURES
The following table summarizes the locations of our acquisitions for the years ended December 31, 2012,
2011 and 2010:
Acquisition Locations
United States
Argentina
Brazil
Canada
Chile
Ireland
Japan
Mexico
Portugal
Romania
Spain
United Kingdom
Total
2012
17
1
1
0
3
0
1
2
1
2
8
5
41
2011
21
1
4
2
1
1
3
0
1
6
2
3
45
2010
13
1
3
0
1
0
2
3
1
1
0
8
33
43
The following table summarizes the aggregate purchase price of our acquisitions during the years ended
December 31, 2012, 2011 and 2010:
In thousands
Cash
Promissory notes
Deferred consideration
Contingent consideration
Total purchase price
2012
$229,684
70,670
19,998
15,070
2011
$479,661
38,461
11,695
8,182
2010
$190,430
77,760
2,474
16,061
$335,422
$537,999
$286,725
During 2012, we completed 41 acquisitions, of which 17 were domestic and 24 were international
businesses. We placed an amount into escrow for a potential future acquisition. We also increased our majority
share in a previous acquisition in Brazil to 100%, and Chile to 90%.
In 2012, we recognized a net increase in goodwill of $147.2 million related to current year acquisitions and
prior year allocation adjustments and excluding the effect of foreign currency translation (see Note 11—
Goodwill and Other Intangible Assets to the Consolidated Financial Statements). A net of $109.9 million was
assigned to our United States reporting segment and $37.3 million was assigned to our International reporting
segment. Tax deductible goodwill, pending final acquisition accounting, was approximately $80.4 million,
$50.6 million and $49.6 million for the years 2012, 2011 and 2010, respectively.
In 2012, we recognized a net increase in intangible assets of $150.1 million excluding the effect of foreign
currency translation. The changes include $124.7 million in the estimated fair value of acquired customer
relationships with amortizable lives of 15 to 40 years, $22.7 million in permits with indefinite lives, $2.6 million
in tradenames with amortizable lives of 10 to 15 years, and $0.1 million in other intangible assets with
amortizable life of 10 years. The allocation of acquisition price is preliminary pending completion of certain
intangible asset valuations and completion accounts.
The following table summarizes purchase price allocation for our acquisitions for the years ended
December 31, 2012, 2011 and 2010:
In thousands
Fixed assets
Intangibles
Goodwill
Net other assets
Debt
Net deferred tax liabilities
Noncontrolling interests
2012
$ 30,426
150,149
147,156
16,619
(4,353)
(20,186)
15,611
2011
$ 29,897
206,775
342,486
21,016
(1,240)
(60,437)
(498)
2010
$ 19,020
113,632
203,003
11,491
(22,774)
(22,716)
(14,931)
$335,422
$537,999
$286,725
For financial reporting purposes, our 2012 and 2011 acquisitions were accounted for using the acquisition
method of accounting. These acquisitions resulted in recognition of goodwill in our financial statements
reflecting the premium paid to acquire businesses that we believe are complementary to our existing operations
and fit our strategy. The Company incurred $7.9 million and $16.7 million of acquisition related expenses during
the years ended December 31, 2012 and 2011, respectively. These expenses are included with “Selling, general
and administrative expenses” (“SG&A”) on our Consolidated Statements of Income.
The results of operations of these acquired businesses have been included in the consolidated statements of
income from the date of the acquisition. Because we integrate acquisitions into our current structure in order to
44
achieve cost synergies, the effect of acquisitions on net income is not practical to estimate. The 2012 estimated
impact to revenues of these acquisitions was $60.1 million. The estimated annualized revenues from these
acquisitions were approximately $145.6 million. The following consolidated pro forma information on the
impact of these acquisitions to our consolidated revenues is based on the assumption that these acquisitions all
occurred on January 1, 2012 and 2011.
In thousands
Revenue
2012
$1,998,649
2011
$1,771,248
In July 2012, we were required by the United Kingdom Competition Committee to divest a business
acquired in 2011. The sale price of the business was $0.7 million and resulted in a pretax loss of $4.9 million
which is included in SG&A. The following table summarizes the assets sold:
In thousands
Fixed assets
Intangibles
Goodwill
Total divestiture
$ (393)
(4,060)
(1,178)
$(5,631)
NOTE 4—FAIR VALUE MEASUREMENTS
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants at the measurement date. The fair value hierarchy distinguishes
between (1) market participant assumptions developed based on market data obtained from independent sources
(observable inputs) and (2) an entity’s own assumptions about market participant assumptions developed based
on the best information available in the circumstances (unobservable inputs). The fair value hierarchy consists of
three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical
assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair
value hierarchy are described below:
• Level 1—Valuations based on quoted prices in active markets for identical assets or liabilities that the
entity has the ability to access.
• Level 2—Valuations based on quoted prices for similar assets or liabilities, quoted prices in markets
that are not active, or other inputs that are observable or can be corroborated by observable data for
substantially the full term of the assets or liabilities.
• Level 3—Valuations based on inputs that are supported by little or no market activity and that are
significant to the fair value of the assets or liabilities.
45
Financial assets and liabilities are classified in their entirety based on the lowest level of input that is
significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value
measurement requires judgment, and may affect the valuation of assets and liabilities and their placement within
the fair value hierarchy levels. The impact of our creditworthiness has been considered in the fair value
measurements noted below.
the
nonperformance risk of an entity.
the fair value measurement of a liability must
In addition,
reflect
In thousands
Assets:
Cash and cash equivalents
Short-term investments
Total assets
Liabilities:
Contingent consideration
Total liabilities
In thousands
Assets:
Cash and cash equivalents
Short-term investments
Total assets
Liabilities:
Contingent consideration
Total liabilities
Total as of
December 31,
2012
Fair Value Measurements
Using
Level 1
Inputs
Level 2
Inputs
Level 3
Inputs
$31,324
503
$31,324
503
$31,827
$31,827
$18,511
$18,511
$
$
0
0
$0
0
$0
$0
$0
$
$
0
0
0
$18,511
$18,511
Total as of
December 31,
2011
Fair Value Measurements
Using
Level 1
Inputs
Level 2
Inputs
Level 3
Inputs
$22,511
416
$22,511
416
$22,927
$22,927
$ 9,921
$ 9,921
$
$
0
0
$0
0
$0
$0
$0
$
$
0
0
0
$9,921
$9,921
We had contingent consideration liabilities recorded in the amounts of $18.5 million, of which $13.6 million
is current, at December 31, 2012, and $9.9 million at December 31, 2011 using Level 3 inputs. Contingent
consideration represents amounts to be paid as part of acquisition consideration only if certain future events
occur. These events are usually acquisition targets for revenues or earnings. We arrive at the fair value of
contingent consideration by applying a weighted probability of potential outcomes to the maximum possible
payout. The calculation of these potential outcomes is dependent on both past financial performance and
management assumptions about future performance. If the financial performance measures were all fully met, the
maximum liability would be $20.8 million. Contingent consideration liabilities are reassessed each quarter and
are reflected in the balance sheet as part of “Other current liabilities” or “Other liabilities”. Changes to contingent
consideration are reflected in the table below:
In thousands
Contingent consideration at December 31, 2011
Increases due to acquisitions
Decreases due to payments
Changes due to currency fluctuations
Changes in fair value reflected in income statement (SG&A)
Contingent consideration at December 31, 2012
$ 9,921
15,070
(8,207)
975
752
$18,511
46
Fair Value of Debt: At December 31, 2012, the fair value of the Company’s debt obligations was estimated
at $1.39 billion compared to a carrying amount of $1.36 billion. At December 31, 2011, the fair value of the
Company’s debt obligations was estimated, using Level 2 inputs, at $1.41 billion compared to a carrying amount
of $1.38 billion. The fair values were estimated using market interest rates for comparable instruments. The
Company has no current plans to retire a significant amount of its debt prior to maturity.
There have been no movements of items between fair value hierarchies.
NOTE 5—INCOME TAXES
The U.S. and International components of income before income taxes consisted of the following for the
years ended December 31, 2012, 2011 and 2010:
In thousands
United States
International
Total income before income taxes
2012
$357,076
60,121
2011
$307,909
64,415
2010
$273,891
57,962
$417,197
$372,324
$331,853
Significant components of our income tax expense for the years ended December 31, 2012, 2011 and 2010
are as follows:
In thousands
Current
United States—federal
United States—state and local
International
Deferred
United States—federal
United States—state and local
International
Total provision
2012
2011
2010
$ 95,864
14,034
17,192
$ 99,481
10,205
11,906
$ 72,733
9,356
15,864
127,090
121,592
97,953
25,028
3,881
(8,743)
7,690
2,589
3,110
20,166
13,389
19,834
3,254
355
23,443
$147,256
$134,981
$121,396
A reconciliation of the income tax provision computed at the federal statutory rate to the effective tax rate
for the years ended December 31, 2012, 2011 and 2010 are as follows:
Federal statutory income tax rate
Effect of:
State and local taxes, net of federal tax effect
Foreign tax rates
Other
Effective tax rate
2012
35.0%
2011
35.0%
2.9%
2.2%
(1.2)% (1.6)%
(1.4)%
0.7%
35.3%
36.3%
2010
35.0%
2.5%
(1.2)%
0.3%
36.6%
Cash payments for income taxes were $104.7 million, $76.6 million and $66.5 million for the years ended
December 31, 2012, 2011 and 2010, respectively.
47
Our deferred tax liabilities and assets as of December 31, 2012 and 2011 were as follows:
In thousands
Deferred tax liabilities:
Property, plant and equipment
Goodwill and intangibles
Total deferred tax liabilities
Deferred tax assets:
Accrued liabilities
Other
Net operating tax loss carry-forwards
Less: operating tax loss valuation allowance
Total deferred tax assets
Net deferred tax liabilities
2012
2011
$ (37,112) $ (34,699)
(357,453)
(318,624)
(394,565)
(353,323)
24,251
23,896
12,973
(3,340)
57,780
22,124
22,296
18,259
(3,775)
58,904
$(336,785) $(294,419)
At December 31, 2012, net operating loss carry-forwards for U.S. federal and state income tax purposes
have been fully utilized, excluding net operating loss carry-forwards related to our acquisitions. The net
operating loss carry-forwards from foreign and domestic acquisitions are approximately $32.1 million and certain
of these net operating loss carry-forwards begin to expire in 2015. Of these, $8.5 million have a valuation
allowance offsetting the benefit. The valuation allowance primarily represents loss carry-forwards for which
limitations are in place and utilization before their expiration is uncertain. Changes in our valuation allowance
during 2012 were primarily related to adjustments to acquisition accounting.
Undistributed earnings of foreign subsidiaries are considered permanently reinvested, and therefore no
deferred taxes are recorded thereon. The cumulative amounts of such earnings are $159.2 million at
December 31, 2012, and it is not practicable to estimate the amount of tax that may be payable upon distribution
assuming repatriation.
We and our subsidiaries file U.S. federal income tax returns and income tax returns in various states and
foreign jurisdictions. With a few exceptions, we are no longer subject to U.S. federal, state, local, or non-U.S.
income tax examinations by tax authorities for years before 2008.
The Company has recorded accruals to cover certain uncertain tax positions. Such uncertain tax positions
relate to additional taxes that the Company may be required to pay in various tax jurisdictions. During the course
of examinations by various taxing authorities, proposed adjustments may be asserted. The Company evaluates
such items on a case-by-case basis and adjusts the accrual for uncertain tax positions as deemed necessary. The
estimated amount of liability associated with the Company’s uncertain tax positions that may change within the
next twelve months cannot be reasonably estimated.
The total amount of unrecognized tax positions as of December 31, 2012 is $16.1 million. The amount of
unrecognized tax positions that, if recognized, would affect the effective tax rate is approximately $15.3 million.
We recognized interest and penalties accrued related to income tax reserves in the amount of $0.3 million and
$0.7 million, for the years ended December 31, 2012 and 2011, respectively, as a component of income tax
expense.
48
The following table summarizes the changes in unrecognized tax positions during the years ended
December 31, 2012 and 2011:
In thousands
Unrecognized tax positions, December 31, 2010
Gross increases—tax positions in prior period
Gross decreases—tax positions in prior period
Gross increases—current period tax positions
Settlement
Lapse of statute of limitations
Unrecognized tax positions, December 31, 2011
Gross increases—tax positions in prior period
Gross decreases—tax positions in prior period
Gross increases—current period tax positions
Settlement
Lapse of statute of limitations
Unrecognized tax positions, December 31, 2012
$ 9,239
242
0
2,609
(108)
(1,210)
$10,772
2,284
0
4,119
0
(1,071)
$16,104
NOTE 6—STOCK BASED COMPENSATION
Stock Plans:
We have adopted six stock option plans:
•
•
•
•
•
•
the 2011 Incentive Compensation Plan, which expires in May 2021;
the 2008 Incentive Stock Plan, which our stockholders approved in May 2008;
the 2005 Incentive Stock Plan, which our stockholders approved in April 2005;
the 2000 Nonstatutory Stock Option Plan, which expired in February 2010;
the 1997 Stock Option Plan, which expired in January 2007;
the 1996 Directors Stock Option Plan, which expired in May 2006.
The 2011 Incentive Compensation Plan authorizes awards of stock options, stock appreciation rights,
restricted stock, and restricted stock units for a total of 3,000,000 shares; the 2008 Plan authorizes awards of
stock options, stock appreciation rights, restricted stock, and restricted stock units for a total of 3,500,000 shares;
the 2005 Plan authorizes awards of stock options and stock appreciation rights for a total of 4,800,000 shares; the
2000 Plan authorizes stock option grants for a total of 7,000,000 shares; the 1997 Plan authorized stock option
grants for a total of 6,000,000 shares; and the Directors Plan authorized stock option grants for a total of
2,340,000 shares.
In terms of the stock options authorized, the 2011 Plan, 2008 Plan, and the 2005 Plan provide for the grant
of non-statutory stock options (“NSOs”) and incentive stock options intended to qualify under section 422 of the
Internal Revenue Code (“ISOs”); the 2000 Plan provides for the grant of NSOs; the 1997 Plan provided for the
grant of NSOs and ISOs; and the Directors Plan provided for the grant of NSOs.
The 2011, 2008 and 2005 Plans authorize awards to our officers, employees and consultants, and following
the expiration of the Directors Plan in May 2006, to our directors; the 2000 Plan authorized awards to our
employees and consultants but not to our officers and directors; the 1997 Plan authorized awards to our officers,
directors, employees and consultants; and the Directors Plan authorized awards to our outside directors.
49
As of December 31, 2012, we reserved the following shares for issuance, consisting of both shares available
for awards under the 2011 Plan, 2008 Plan, 2005 Plan, 2000 Plan, and 1997 Plan and shares issuable under
outstanding stock option grants and restricted stock unit awards:
1996 Directors Plan shares
1997 Plan shares
2000 Plan shares
2005 Plan shares
2008 Plan shares
2011 Plan shares
Total shares reserved
40,784
54,522
232,096
2,384,111
3,285,547
3,000,000
8,997,060
Employee Stock Purchase Plan:
In October 2000, our Board of Directors adopted the Employee Stock Purchase Plan (“ESPP”) effective as
of July 1, 2001. Our stockholders approved the ESPP in May 2001. The ESPP authorizes 600,000 shares of our
common stock to be purchased by employees at a 15% discount from the market price of the stock through
payroll deductions during two six-month offerings each year. An employee who elects to participate in an
offering is granted an option on the first day of the offering for a number of shares equal to the employee’s
payroll deductions under the ESPP during the offering period (which may not exceed $5,000) divided by the
option price per share. The option price per share is the lower of 85% of the closing price of a share of our
common stock on the first trading day of the offering period or 85% of the closing price on the last trading day of
the offering period. We recognize compensation expense for the ESPP, which is reflected in the statement of
income. Every U.S. employee who has completed six months employment as of the first day of an offering and
who is a full-time employee, or a part-time employee who customarily works at least 20 hours per week, is
eligible to participate in the offering. During 2012, 2011, and 2010, 56,362 shares, 53,213 shares, and 61,573
shares respectively, were issued through the ESPP.
Stock Based Compensation Expense:
During 2012, there were no changes to our stock compensation plans or modifications to outstanding stock-
based awards which would change the value of any awards outstanding. Compensation expense for all stock-
based compensation awards granted subsequent to January 1, 2006 is based on the grant-date fair value
determined in accordance with the provisions of FASB accounting standards for share-based payments. During
the years ended December 31, 2012, 2011 and 2010, we recognized compensation expense of $15.2 million,
$14.4 million and $14.4 million, respectively, for stock options, and $1.1 million, $1.0 million and $0.9 million,
respectively, for the ESPP, which is reflected in the statement of income. There were no significant capitalized
stock-based compensation costs at December 31, 2012, 2011 and 2010.
The following table presents the total stock-based compensation expense resulting from stock option awards
and the ESPP included in the consolidated statements of income:
In thousands
Cost of revenues—stock option plan
Selling, general and administrative—stock option plan
Selling, general and administrative—restricted stock unit
Selling, general and administrative—ESPP
Total
50
Years Ended December 31,
2012
2011
2010
$
136
13,630
1,474
1,099
$
121
13,428
811
1,007
$
224
13,914
304
856
$16,339
$15,367
$15,298
As of December 31, 2012, there were $28.9 million of total unrecognized compensation expenses related to
non-vested option awards, which is expected to be recognized over a weighted-average period of 1.63 years.
The following table sets forth the tax benefits related to stock compensation:
In thousands
Tax benefit recognized in income statement
Excess tax benefit realized
Stock Options:
Years Ended December 31,
2012
$ 5,818
30,161
2011
$ 6,091
17,410
2010
$ 7,359
24,687
Options granted to directors vest in one year and options granted to officers and employees generally vest
over five years. Expense related to the graded vesting options is recognized using the straight-line method over
the vesting period.
The exercise price per share of an option granted under any of our stock option plans may not be less than
the closing price of a share of our common stock on the date of grant. The maximum term of an option granted
under any plan may not exceed 10 years. An option may be exercised only when it is vested and, in the case of an
option granted to an employee (including an officer), only while he or she remains an employee and for a limited
period following the termination of his or her employment. New shares are issued upon exercise of stock options.
Option activity for the years ended December 31, 2012, 2011 and 2010 is summarized as follows:
Outstanding at beginning of year
Granted
Exercised
Forfeited
Cancelled or expired
Outstanding at end of year
Exercisable at end of year
Available for future grant
2012
2011
2010
Weighted
Average
Exercise
Price per
Share
$50.06
86.63
36.30
63.12
75.29
Weighted
Average
Exercise
Price per
Share
$41.86
85.28
32.41
53.49
28.93
Number of
Options
6,508,833
1,050,226
(963,218)
(244,378)
(9,126)
Weighted
Average
Exercise
Price per
Share
$35.43
54.13
26.95
47.07
55.50
Number of
Options
7,387,753
1,388,846
(2,106,156)
(156,269)
(5,341)
Number of
Options
6,342,337
1,142,205
(1,803,601)
(136,518)
(759)
5,543,664
$61.69
6,342,337
$50.06
6,508,833
$41.86
2,674,411
3,312,992
$50.48
3,406,594
4,396,346
$40.31
3,099,479
2,240,937
$34.49
The total exercise intrinsic value represents the total pre-tax intrinsic value (the difference between the sales
price on that trading day in the year ended December 31, 2012 and the exercise price associated with the
respective option).
In thousands
Total exercise intrinsic value of options exercised
Years Ended December 31,
2012
$97,816
2011
$52,939
2010
$78,500
The total aggregate intrinsic value represents the total pre-tax intrinsic value (the difference between our
closing stock price on the last day of trading for the year ended December 31, 2012 and the exercise price,
multiplied by the number of in-the-money options) that would have been received by the option holders
assuming all option holders had exercised their options on December 31, 2012; this amount changes based on the
fair market value of our stock.
51
The following tables set forth the information related to outstanding options for the years ended
December 31, 2012, 2011 and 2010:
In years
Weighted average remaining contractual life of outstanding options
In thousands
Total aggregate intrinsic value of outstanding options
2012
2011
2010
6.7
6.5
6.7
2012
$175,200
2011
$184,300
2010
$254,200
The following tables set forth the information related to exercisable options:
In years
Weighted average remaining contractual life of exercisable options
In thousands
Total aggregate intrinsic value of exercisable options
2012
2011
2010
5.5
5.3
5.3
2012
$114,500
2011
$128,900
2010
$143,900
Options outstanding and exercisable as of December 31, 2012 by price range are presented below:
Range of Exercise Price
$17.525-$38.565
$38.905-$43.330
$43.340-$46.830
$46.870-$50.820
$50.890-$51.550
$51.750-$54.590
$54.600-$84.910
$85.000-$85.000
$85.020-$86.140
$86.240-$94.760
Options Outstanding
Options Exercisable
Outstanding
Average
Remaining
Life in Years
3.29
4.36
6.02
6.01
7.07
5.10
7.35
8.11
9.12
9.10
Weighted
Average
Exercise
Price
$32.32
42.90
46.82
48.99
51.54
53.26
66.90
85.00
85.52
87.05
Weighted
Average
Exercise
Price
$32.35
42.90
46.81
49.19
51.54
53.27
62.87
85.00
86.02
87.60
Shares
834,746
70,362
321,543
84,882
330,343
434,889
253,244
207,227
400
136,775
6.71
$61.69
2,674,411
$50.48
Shares
846,746
70,362
648,422
114,322
865,481
578,345
431,837
828,915
15,250
1,143,984
5,543,664
The Black-Scholes option-pricing model was used in determining the fair value of each option grant. The
expected term of options granted is based on historical experience. Expected volatility is based upon historical
volatility. The expected dividend yield is zero. The risk-free interest rate is based upon the U.S. Treasury yield
rates for a comparable period. The assumptions that we used in the Black-Scholes model are as follows:
Stock options granted (shares)
Weighted average grant date fair value
Expected term (in years)
Expected volatility
Expected dividend yield
Risk free interest rate
52
Years Ended December 31,
$
$
2012
1,142,205
20.14
6.00
27.87%
0.00%
1.05%
2011
1,050,226
21.07
5.75
27.42%
0.00%
2.21%
$
2010
1,388,846
13.74
5.75
28.31%
0.00%
2.33%
Restricted Stock Units:
Restricted stock units (“RSUs”) activity for the years ended December 31, 2012, 2011 and 2010 is
summarized as follows below. RSUs vest at the end of three or five years. Our 2008 and 2011 Plans include a
share reserve related to RSUs granted at a 2-1 ratio.
2012
2011
2010
Weighted
Average
Remaining
Contractual
Life
(in years)
2.58
0.00
Number
of Units
34,738
39,237
(4,000)
(1,773)
68,202
0
Number of
Units
20,000
18,488
0
(3,750)
34,738
0
Weighted
Average
Remaining
Contractual
Life
(in years)
1.63
0.00
Number
of Units
0
20,000
0
0
20,000
0
Weighted
Average
Remaining
Contractual
Life
(in years)
2.12
0.00
Outstanding at beginning of year
Granted
Released
Forfeited
Outstanding at end of year
Exercisable at end of year
In thousands
Total aggregate intrinsic value of outstanding units
2012
$6,362
2011
$2,707
2010
$1,618
The per share fair value of RSUs granted for the years ended December 31, 2012, 2011 and 2010 was
$86.24, $85.00 and $51.65, respectively.
At December 31, 2012 and 2011, we had 1,000,000 authorized shares of preferred stock and no shares
issued or outstanding.
NOTE 7—PREFERRED STOCK
NOTE 8—EARNINGS PER COMMON SHARE
The following table sets forth the computation of basic and diluted earnings per share:
In thousands, except share and per share data
Years Ended December 31,
2012
2011
2010
Numerator:
Numerator for basic earnings per share net income attributable to
Stericycle, Inc.
$
267,996
$
234,751
$
207,879
Denominator:
Denominator for basic earnings per share-weighted average shares
Effect of diluted securities:
Employee stock options
Denominator for diluted earnings per share-adjusted weighted
average shares and after assumed exercises
Earnings per share—Basic
Earnings per share—Diluted
85,401,365
85,467,421
85,057,775
1,617,108
1,900,291
1,904,876
87,018,473
87,367,712
86,962,651
$
$
3.14
3.08
$
$
2.75
2.69
$
$
2.44
2.39
53
For additional
information regarding outstanding employee stock options, see Note 6—Stock Based
Compensation to the Consolidated Financial Statements.
In 2012, 2011 and 2010, options to purchase 1,049,707 shares, 879,266 shares and 133,535 shares,
respectively, at exercise prices of $77.49-$94.76, $77.00-$94.24 and $51.55-$80.92, respectively, were not
included in the computation of diluted earnings per share (“EPS”) because the effect would have been anti-
dilutive.
NOTE 9—ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
The components of total comprehensive income are net income, the change in cumulative currency
translation adjustments and gains and losses on derivative instruments qualifying as cash flow hedges. The
following table sets forth the components of total comprehensive income for 2012, 2011 and 2010:
In thousands
Beginning balance January 1, 2010
Period change
Ending balance December 31, 2010
Period change
Ending balance December 31, 2011
Period change
Ending balance December 31, 2012
Currency
Translation
Adjustments
$(11,584)
(2,544)
$(14,128)
(29,456)
$(43,584)
6,292
Unrealized
Gains
(Losses) on
Cash Flow
Hedges
$ (708)
(2,033)
$(2,741)
341
$(2,400)
628
Accumulated
Other
Comprehensive
Income/ (Loss)
$(12,292)
(4,577)
$(16,869)
(29,115)
$(45,984)
6,920
$(37,292)
$(1,772)
$(39,064)
The tax impact of the unrealized gains/ (losses) on cash flow hedges in accumulated other comprehensive
income at December 31, 2012, 2011 and 2010 was $0.4 million, $0.2 million, and $1.4 million, respectively.
Translation adjustments are not tax-effected as the Company’s net investment in foreign subsidiaries and all
related foreign earnings are deemed permanently invested.
NOTE 10—PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at December 31, 2012 and 2011 consisted of the following items:
In thousands
Land
Building and improvements
Machinery and equipment
Vehicles
Containers
Office equipment and furniture
Software
Construction in progress
Total property, plant & equipment
Less: accumulated depreciation
Property, plant and equipment, net
54
2012
$ 26,198
106,388
200,805
39,468
132,094
56,515
19,495
30,925
2011
$ 21,325
100,765
174,230
33,499
114,705
48,136
14,912
18,645
611,888
(276,018)
526,217
(232,305)
$ 335,870
$ 293,912
NOTE 11—GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill and other indefinite lived intangibles are not amortized, but are subject to an annual impairment
test, or to more frequent testing if circumstances indicate that they may be impaired.
We have two geographical reporting segments, “United States” and “International”, both of which have
goodwill. The changes in the carrying amount of goodwill for the years ended December 31, 2012 and 2011 were
as follows:
In thousands
Balance as of December 31, 2010
Goodwill acquired during year
Goodwill allocation adjustments
Sale of assets
Changes due to currency fluctuation
Balance as of December 31, 2011
Goodwill acquired during year
Goodwill allocation adjustments
Sale of assets
Changes due to currency fluctuation
Balance as of December 31, 2012
United
States
$1,279,758
232,850
(6,192)
0
0
International
$316,006
120,750
(4,922)
(2,887)
(21,660)
Total
$1,595,764
353,600
(11,114)
(2,887)
(21,660)
$1,506,416
$407,287
$1,913,703
114,931
(5,061)
0
0
62,145
(24,859)
(1,178)
5,422
177,076
(29,920)
(1,178)
5,422
$1,616,286
$448,817
$2,065,103
During the quarter ended June 30, 2012, we performed our annual goodwill impairment evaluation for our
three reporting units, Domestic Regulated Waste, Domestic Regulated Recall and Returns Management Services,
and International. We calculate fair value for our reporting units using two methods, one a market approach and
the other an income approach. Both the market and income approaches indicated no impairment to goodwill to
any of our three reporting units.
Market Approach: Our market approach begins by calculating the market capitalization of the Company using the
average stock price for the prior 30 days and the outstanding share count at June 30, 2012. We then look at the
Company’s Earnings Before Interest, Tax, Depreciation, and Amortization (“EBITDA”), adjusted for stock
compensation expense and other items, such as a gain on sale of divested assets, for the prior twelve months. The
calculated market capitalization is divided by the modified EBITDA to arrive at a valuation multiple. The fair value of
each reporting unit is then calculated by taking the product of the valuation multiple and the trailing twelve month
modified EBITDA of that reporting unit. The fair value was then compared to the reporting units’ book value and
determined to be in excess of the book value. We believe that starting with the fair value of the company as a whole is
a reasonable measure as that fair value is then allocated to each reporting unit based on that reporting unit’s individual
earnings. A sustained drop in our stock price would have a negative impact to our fair value calculations. A temporary
drop in earnings of a reporting unit would have a negative impact to our fair value calculations.
The results of our goodwill impairment test using the market approach indicated the fair value of our
reporting units exceeded book value by a substantial amount, in excess of 100% of book value.
Income Approach: The income approach uses expected future cash flows of each reporting unit and
discounts those cash flows to a present values. Expected future cash flows are calculated using management
assumptions of internal growth, capital expenditures, and cost efficiencies. Future acquisitions are not included in
the expected future cash flows. We use a discount rate based on our Company calculated Weighted Average Cost
of Capital which is adjusted for each of our reporting units based on risk size premium and foreign country
premium. Significant assumptions used in the income approach include realization of future cash flows and the
discount rate used to present value those cash flows.
55
The results of our goodwill impairment test using the income approach indicated the fair value of our
reporting units exceeded book value by a substantial amount; in excess of 100%.
In 2012 and 2011, we wrote off $1.7 million and $2.8 million, respectively, for the permit intangibles of
facilities due to rationalizing our domestic and international operations. These expenses are reflected as part of
“Selling, general and administrative expenses”. Under current acquisition accounting, a fair value must be
assigned to all acquired assets based on a theoretical “market participant” regardless of the acquirers’ intended
use for those assets. This accounting treatment can lead to the recognition of losses if a company disposes of
acquired assets.
We complete our annual impairment analysis of our indefinite lived intangibles (facility permits) during the
quarter ended December 31 of each year. In 2012 and 2011, we performed our annual permit impairment
evaluation and determined that, other than as noted above, there was no impairment.
Our intangible assets, other than indefinite lived goodwill and permits, are amortized over their useful lives.
In 2012, we assigned $124.7 million to customer relationships with amortizable lives of 15 to 40 years, $22.7
million in permits with indefinite lives, $2.6 million in a tradenames with amortizable lives of 10 to 15 years, and
$0.1 million in other intangible assets with amortizable life of 10 years.
In 2011, we assigned $190.4 million to customer relationships with amortizable lives of 14 to 40 years and
$14.5 million to permits with indefinite lives.
As of December 31, the values of the intangible assets were as follows:
In thousands
Amortizable intangibles:
Covenants not-to-compete
Customer relationships
Tradenames
License agreements
Other
Indefinite lived intangibles:
Operating permits
Gross
Carrying
Amount
$ 10,993
602,095
4,922
720
89
2012
2011
Accumulated
Amortization
Net
Value
Gross
Carrying
Amount
Accumulated
Amortization
Net
Value
$ 5,843
57,236
712
420
4
$
5,150
544,859
4,210
300
85
$ 10,903
480,033
2,556
720
0
$ 4,350
36,994
391
315
0
$
6,553
443,039
2,165
405
0
112,867
0
112,867
94,456
0
94,456
Total
$731,686
$64,215
$667,471
$588,668
$42,050
$546,618
During the years ended December 31, 2012, 2011 and 2010, the aggregate amortization expense was $22.1
million, $16.3 million and $9.9 million, respectively.
The estimated amortization expense for each of the next five years, assuming no additional amortizable
intangible assets, is as follows for the years ended December 31:
In thousands
2013
2014
2015
2016
2017
$25,874
25,641
25,460
25,170
25,031
56
NOTE 12—ACCRUED LIABILITIES
Accrued liabilities at December 31, 2012 and 2011 consisted of the following items:
In thousands
Accrued compensation
Accrued insurance
Accrued taxes
Accrued interest
Accrued professional services liabilities
Accrued product reimbursement
Accrued liabilities—other
Total accrued liabilities
2012
$ 38,801
31,146
11,870
9,045
6,930
10,225
27,304
2011
$ 33,312
30,376
28,310
9,037
2,011
9,361
28,114
$135,321
$140,521
NOTE 13—DEBT
New Debt
On October 22, 2012, we entered into a note purchase agreement with 46 institutional purchasers pursuant
to which we issued $125 million of the “Series A” seven-year 2.68% unsecured senior notes and $125 million of
the “Series B” 10-year 3.26% unsecured senior notes. Interest will be payable in arrears semi-annually on
June 12 and December 12 beginning on June 12, 2013. The principal of the Series A notes will be payable at the
maturity of the notes on December 12, 2019, and the principal of the Series B notes will be payable at the
maturity of the notes on December 12, 2022.
Long-term debt consisted of the following at December 31:
In thousands
Obligations under capital leases
$1 billion revolver weighted average rate 1.62%, due in 2016
$100 million Private Placement notes 5.64%, due in 2015
$175 million Private Placement notes 3.89%, due in 2017
$125 million Private Placements notes 2.68% due in 2019
$225 million Private Placement notes 4.47%, due in 2020
$125 million Private Placements notes 3.26% due in 2022
Acquisition notes weighted average rate of 2.60% and weighted average maturity of
3.8 years
Foreign bank debt weighted average rate 5.83% and Weighted average maturity of 2.0
years
Less: current portion
Total
$
2012
5,234
225,931
100,000
175,000
125,000
225,000
125,000
$
2011
4,679
527,884
100,000
175,000
0
225,000
0
235,856
240,138
139,063
111,938
1,356,084
87,781
1,384,639
100,526
$1,268,303
$1,284,113
57
Payments due on long-term debt, excluding capital
lease obligations, during each of the five years
subsequent to December 31, 2012 are as follows:
In thousands
2013
2014
2015
2016
2017
Thereafter
$
85,421
147,524
159,050
266,276
196,672
495,907
$1,350,850
We paid interest of $47.5 million, $43.5 million and $28.6 million for the years ended December 31, 2012,
2011 and 2010, respectively.
Property under capital leases included with property, plant and equipment in the accompanying consolidated
balance sheets is as follows at December 31:
In thousands
Land
Buildings
Machinery and equipment
Vehicles
Office equipment and furniture
Less: accumulated depreciation
Amortization related to these capital leases is included with depreciation expense.
Minimum future lease payments under capital leases are as follows:
In thousands
2013
2014
2015
2016
2017
Thereafter
Total minimum lease payments
Less: amounts representing interest
Present value of net minimum lease payments
Less: current portion
Long-term obligations under capital leases
2012
2011
$
190 $
528
2,451
7,377
123
(4,059)
186
768
3,381
5,114
45
(2,845)
$ 6,610 $ 6,649
$ 2,590
1,633
728
354
92
426
5,823
(589)
5,234
(2,360)
$ 2,874
Our $1.0 billion senior credit facility maturing in September 2016, our $100.0 million private placement
notes maturing April 2015, our $175.0 million private placement notes maturing in October 2017, our $125.0
million private placement notes maturing in December 2019, our $225.0 million private placement notes
maturing in October 2020, and our $125.0 million private placement notes maturing in December 2022, all
58
require us to comply with various financial, reporting and other covenants and restrictions, including a restriction
on dividend payments. The financial debt covenants are the same for the senior credit facility and the private
placement notes. At December 31, 2012, we were in compliance with all of our financial debt covenants.
As of December 31, 2012 and 2011, we had $157.6 million and $159.1 million, respectively, committed to
outstanding letters of credit under our senior credit facility. The unused portion of the revolving credit facility as
of December 31, 2012 and 2011 was $616.5 million and $313.0 million, respectively.
Guarantees
We have guaranteed a loan to JPMorganChase Bank N.A. on behalf of Shiraishi-Sogyo Co. Ltd
(“Shiraishi”). Shiraishi is a customer in Japan that is expanding its medical waste management business and has a
one year loan with a current balance of $5.7 million with JPMorganChase Bank N.A. that matures on in May
2013. We also have extended loans to Shiraishi for approximately $15.4 million, reflected in the Consolidated
Balance Sheet as part of long term “Other assets”, in support of its medical waste business. There is a collateral
agreement in place on the assets of Shiraishi and related companies in support of amounts owed.
NOTE 14—LEASE COMMITMENTS
We lease various plant equipment, office furniture and equipment, motor vehicles, office and warehouse
space, and landfills under operating lease agreements, which expire at various dates over the next 22 years. The
leases for most of the properties contain renewal provisions.
Rent expense for 2012, 2011 and 2010 was $85.5 million, $75.3 million and $57.9 million, respectively.
Minimum future rental payments under non-cancelable operating leases that have initial or remaining terms
in excess of one year as of December 31, 2012 for each of the next five years and in the aggregate are as follows:
In thousands
2013
2014
2015
2016
2017
Thereafter
$ 74,464
47,969
39,416
29,828
23,485
48,776
$263,938
NOTE 15—PRODUCTS AND SERVICES AND GEOGRAPHIC INFORMATION
FASB ASC Topic 280 requires segment information to be reported based on information utilized by
executive management to internally assess performance and make operating decisions. We have determined that
we have three operating segments based on the organizational structure of our company and information
reviewed. These operating segments are International Waste Management Services (“International”), Domestic
Regulated Waste Management Services (“United States”) and Domestic Regulated Recall and Returns
Management Services. We have aggregated Domestic Regulated Waste Management Services and Domestic
Regulated Recall and Returns Management Services into one reportable segment, United States, based on our
consideration of the following aggregation criteria:
•
•
•
they have similar economic characteristics;
the same services are provided;
the same types of customers are serviced;
59
•
•
•
the same types of waste collection, transportation and treatment methods are utilized;
their regulatory environments are similar, but vary based upon country specific regulations; and
they employ the same sales and marketing techniques and activities.
Our two reportable segments are United States (which includes Puerto Rico) and International. Summary
information for our reportable segments is as follows:
In thousands
Revenues:
United States
Europe
Other international countries
Total International
Total
Income before income taxes:
United States
International
Total
Total assets:
United States
International
Total
Property, Plant and Equipment, net:
United States
Europe
Other international countries
Total International
Total
2012
2011
2010
$1,370,806
301,615
240,728
$1,212,111
252,620
211,317
$1,083,565
199,304
156,519
542,343
463,937
355,823
$1,913,149
$1,676,048
$1,439,388
$ 359,748
57,449
$ 316,156
56,168
$ 277,486
54,367
$ 417,197
$ 372,324
$ 331,853
$2,427,297
1,119,441
$2,208,152
968,938
$1,919,424
719,599
$3,546,738
$3,177,090
$2,639,023
$ 207,387
64,690
63,793
$ 197,118
52,604
44,190
$ 188,936
38,833
40,202
128,483
96,794
79,035
$ 335,870
$ 293,912
$ 267,971
Revenues are attributed to countries based on the location of customers. Intercompany revenues recorded by
the United States for work performed in Canada 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:
In thousands
Regulated waste management services
Regulated recall and returns management services
Total revenues
Net interest expense
Income before income taxes
Income tax expense
Net income attributable to Stericycle, Inc.
Depreciation and amortization
Capital expenditures
60
2012
$1,254,486
116,320
2011
$1,094,928
117,183
2010
$ 957,398
126,167
1,370,806
1,212,111
1,083,565
41,084
359,748
138,807
40,048
316,156
119,982
31,079
277,486
105,065
$ 220,941
$ 196,174
$ 172,421
$
45,234
38,528
$
40,689
36,270
$
35,769
33,737
Detailed information for our International reporting segment is as follows:
In thousands
Regulated waste management services revenue
Net interest expense
Income before income taxes
Income tax expense
Net income
Less: net income attributable to noncontrolling interests
Net income attributable to Stericycle, Inc.
Depreciation and amortization
Capital expenditures
2012
$542,343
10,186
57,449
8,449
49,000
1,945
2011
$463,937
8,584
56,168
14,999
41,169
2,592
2010
$355,823
5,736
54,367
16,331
38,036
2,578
$ 47,055
$ 38,577
$ 35,458
$ 31,049
26,708
$ 25,357
17,031
$ 18,116
14,583
NOTE 16—EMPLOYEE BENEFIT PLAN
We have a 401(k) defined contribution retirement savings plan covering substantially all domestic
employees. Each participant may elect to defer a portion of his or her compensation subject to certain limitations.
We may contribute up to 50% of the first 5% of compensation contributed to the plan by each employee up to a
maximum of $1,750 per annum. Our contributions for the years ended December 31, 2012, 2011 and 2010 were
approximately $2.8 million, $2.6 million and $2.3 million, respectively.
The Company has several foreign defined contribution plans, which require the Company to contribute a
regulations. For the years ended
total contributions made by the Company for these plans were
percentage of
December 31, 2012, 2011 and 2010,
approximately $0.8 million, $0.8 million and $0.7 million, respectively.
the participating employee’s salary according to local
NOTE 17—LEGAL PROCEEDINGS
We operate in a highly regulated industry and must deal with regulatory inquiries or investigations from
time to time that may be instituted for a variety of reasons. We are also involved in a variety of civil litigation
from time to time.
NOTE 18—SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
The following table summarizes our unaudited consolidated quarterly results of operations as reported for
2012 and 2011:
In thousands, except per share data
Revenues
Gross profit
Restructuring costs and plant closure expense
Litigation settlement
Loss on sale of business
Acquisition expenses
Change in fair value of contingent consideration
Integration expenses
Net income attributable to Stericycle, Inc.
* Basic earnings per common share
* Diluted earnings per common share
First
Quarter
2012
$460,077
205,307
(86)
0
0
(1,539)
(1,204)
(1,279)
64,857
0.76
0.75
$
$
Second
Quarter
2012
$468,950
209,488
(1,064)
0
0
(2,207)
602
(1,044)
67,593
0.79
0.78
$
$
Third
Quarter
2012
$480,484
215,554
(2,250)
0
(4,867)
(2,467)
11
(1,217)
65,477
0.76
0.75
$
$
Fourth
Quarter
2012
$503,638
226,956
(1,933)
(6,050)
0
(1,707)
(161)
(1,356)
70,069
0.82
0.80
$
$
Year
2012
$1,913,149
857,305
(5,333)
(6,050)
(4,867)
(7,920)
(752)
(4,896)
267,996
3.14
3.08
$
$
61
In thousands, except per share data
Revenues
Gross profit
Restructuring costs and plant closure expense
Litigation settlement
(Loss)/ gain on sale of business
Acquisition expenses
Change in fair value of contingent consideration
Integration expenses
Net income attributable to Stericycle, Inc.
* Basic earnings per common share
* Diluted earnings per common share
First
Quarter
2011
$398,126
182,430
(258)
0
0
(5,938)
2,140
(766)
55,674
0.65
0.64
$
$
Second
Quarter
2011
$410,441
186,741
(195)
0
0
(5,261)
0
(1,287)
55,542
0.65
0.63
$
$
Third
Quarter
2011
$420,924
190,055
(633)
(460)
(323)
(3,195)
0
(1,813)
59,247
0.69
0.68
$
$
Fourth
Quarter
2011
$446,557
201,518
(3,989)
(725)
304
(2,310)
5,081
(480)
64,288
0.76
0.74
$
$
Year
2011
$1,676,048
760,744
(5,075)
(1,185)
(19)
(16,704)
7,221
(4,346)
234,751
2.75
2.69
$
$
* EPS calculated on a quarterly basis, and, as such, the amounts may not total the calculated full-year EPS.
NOTE 19—SUBSEQUENT EVENTS
We have evaluated subsequent events through the date of filing our annual report on Form 10-K. No events
have occurred that would require adjustment to or disclosure in the consolidated financial statements.
62
STERICYCLE, INC. AND SUBSIDIARIES
SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS
In thousands
Allowance for doubtful accounts
2010
2011
2012
Balance
Beginning
of Period
$ 8,709
$10,845
$18,905
Charges to
Expenses
$7,524
$7,079
$4,634
Other Charges/
(Reversals) (1)
$ (190)
$6,807
$ 414
Write-offs/
Payments
$(5,198)
$(5,826)
$(4,510)
Balance End of
Period
$10,845
$18,905
$19,443
(1) Amounts consist primarily of valuation allowances assumed from acquired companies and currency
translation adjustments.
Valuation Allowance on Deferred Tax Assets
2010
2011
2012
Balance
Beginning of
Period
$ 7,249
$11,973
$ 3,775
Additions/
(Deductions)
Charged to/
(from) Income
Tax Expense
$
0
$(663)
0
$
Other Changes
to Reserves (2)
$ 4,724
$(7,535)
$ (435)
Balance End of
Period
$11,973
$ 3,775
$ 3,340
(2) Amounts consist primarily of valuation allowances on acquired deferred tax assets from business
combinations.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
(a) Evaluation of disclosure controls and procedures.
Our management, with the participation of our Chairman and Chief Executive Officer and our Chief Financial
Officer, conducted an evaluation of the effectiveness of our disclosure controls and procedures as of the end of the
fiscal year covered by this Report. On the basis of this evaluation, our Chairman and Chief Executive Officer and
our Chief Financial Officer each concluded that our disclosure controls and procedures were effective.
The term “disclosure controls and procedures” is defined in Rule 13a-15(e) of the Securities Exchange Act of
1934 as “controls and other procedures of an issuer that are designed to ensure that information required to be disclosed
by the issuer in the reports that it files or submits under the Act is recorded, processed, summarized and reported,
within the time periods specified in the [Securities and Exchange] Commission’s rules and forms.” Our disclosure
controls and procedures are designed to ensure that material information relating to us and our consolidated
subsidiaries is accumulated and communicated to our management, including our Chairman and Chief Executive
Officer and our Chief Financial Officer, as appropriate to allow timely decisions regarding our required disclosures.
(b) Internal control over financial reporting.
Management’s Report on Internal Control over Financial Reporting and our Independent Registered Public
Accounting Firm’s Attestation Report are included in Item 8.
(c) Changes in internal controls.
There were no changes in our internal controls or in other factors that could materially affect those controls
during the quarter ended December 31, 2012.
Item 9B. Other Information
None.
63
PART III
Item 10. Directors, Executive Officers and Corporate Governance
The information required by this Item regarding our directors is incorporated by reference to the information
contained under the caption “Election of Directors” in our definitive proxy statement for our 2013 Annual
Meeting of Stockholders to be held on May 21, 2013, to be filed pursuant to Regulation 14A.
The information required by this Item regarding our executive officers is contained under the caption
“Executive Officers of the Registrant” in Item 1 of Part I of this Report.
The information required by this Item regarding compliance with Section 16(a) of the Securities Exchange
Act of 1934 is incorporated by reference to the information contained under the caption “Section 16(a) Beneficial
Ownership Reporting Compliance” in our definitive proxy statement for our 2013 Annual Meeting of
Stockholders to be held on May 21, 2013, to be filed pursuant to Regulation 14A.
We have adopted a code of business conduct that applies to all of our employees. The code of business
conduct is available on our website, www.stericycle.com, under “About Us/Our Vision & Mission”. We intend to
satisfy the disclosure requirement under Item 5.05 of Form 8-K regarding any amendments to, or waiver from, a
provision of our code of conduct by posting such information on our website.
The information required by this Item regarding certain corporate governance matters is incorporated by
reference to the information contained under the caption “Election of Directors” in our definitive proxy statement
for our 2013 Annual Meeting of Stockholders to be held on May 21, 2013, to be filed pursuant to Regulation
14A.
Item 11. Executive Compensation
The information required by this Item is incorporated by reference to the information contained under the
caption “Compensation Discussion and Analysis” and following sections (up to Item 2) in our definitive proxy
statement for our 2013 Annual Meeting of Stockholders to be held on May 21, 2013, to be filed pursuant to
Regulation 14A.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
The information required by this Item is incorporated by reference to the information contained under the
captions “Stock Ownership” and “Compensation Discussion and Analysis” and following sections (up to Item 2)
in our definitive proxy statement for our 2013 Annual Meeting of Stockholders to be held on May 21, 2013, to be
filed pursuant to Regulation 14A.
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information required by this Item regarding our policies and procedures for the review, approval or
ratification transactions with related persons is incorporated by reference to the information contained under the
caption “Policy on Related Party Transactions” in Item 1 of our definitive proxy statement for our 2013 Annual
Meeting of Stockholders to be held on May 21, 2013, to be filed pursuant to Regulation 14A.
The information required by this Item regarding director independence is incorporated by reference to the
information contained in Item 1 of our definitive proxy statement for our 2013 Annual Meeting of Stockholders
to be held on May 21, 2013, to be filed pursuant to Regulation 14A.
64
Item 14. Principal Accounting Fees and Services
Fees for professional services provided by our independent public accountants, Ernst & Young LLP, in each
of the last two fiscal years, in each of the following categories are:
In thousands
Audit fees
Audit-related fees
Tax fees
All other fees
2012
$1,353
0
347
0
2011
$1,426
0
321
0
$1,700
$1,747
Fees for audit services include fees rendered in connection with the audit of our annual financial statements
and the audit of our internal controls over financial reporting, and review of our interim financial statements
included in our quarterly reports on Form 10-Q.
In accordance with policies adopted by the Audit Committee of our Board of Directors, all audit and non-
audit related services to be performed for us by our independent public accountants must be approved in advance
by the Audit Committee.
65
Item 15. Exhibits and Financial Statement Schedules
(a) List of Financial Statements, Financial Statement Schedule and Exhibits
PART IV
We have filed the following financial statements and financial statement schedule as part of this report:
Report of Independent Registered Public Accounting Firm
Report of Independent Registered Public Accounting Firm
Consolidated Financial Statements of Stericycle, Inc. and Subsidiaries
Consolidated Balance Sheets as of December 31, 2012 and 2011
Consolidated Statements of Income for Each of the Years in the Three-Year Period Ended
December 31, 2012
Consolidated Statements of Comprehensive Income for Each of the Years in the Three-Year Period
Ended December 31, 2012
Consolidated Statements of Cash Flows for Each of the Years in the Three-Year Period Ended
December 31, 2012
Consolidated Statements of Changes in Equity for Each of the Years in the Three-Year Period Ended
December 31, 2012
Notes to Consolidated Financial Statements
Schedule II—Valuation and Qualifying Accounts
Page
32
33
34
35
36
37
38
39
63
All other financial statement schedules have been omitted because they are not applicable to us or the
required information is shown in the consolidated financial statements or notes thereto.
We have filed the following exhibits with this report:
Filed with
Electronic
Submission
Exhibit
Index
3.1*
3.2*
3.3*
3.4*
3.5*
3.6*
3.7*
3.8*
Description
Amended and restated certificate of incorporation (incorporated by reference to
Exhibit 3.1 to our registration statement on Form S-1 declared effective on August 22,
1996 (Registration No. 333-05665))
First certificate of amendment to amended and restated certificate of incorporation
(incorporated by reference to Exhibit 3.1 to our current report on Form 8-K filed
November 29, 1999)
Second certificate of amendment to amended and restated certificate of incorporation
(incorporated by reference to Exhibit 3.4 to our annual report on Form 10-K for 2002)
Third certificate of amendment to amended and restated certificate of incorporation
(incorporated by reference to Exhibit 3.4 to our registration statement on Form S-4
declared effective on October 10, 2007 (Registration No. 333-144613))
Amended and restated bylaws (incorporated by reference to Exhibit 3(ii).1 to our current
report on Form 8-K filed February 22, 2008)
Amendment to amended and restated bylaws (incorporated by reference to Exhibit 3(ii).1
to our current report on Form 8-K filed August 20, 2008)
Amendment to amended and restated bylaws (incorporated by reference to Exhibit 3(ii).1
to our current report on Form 8-K filed March 11, 2011)
Amendment to amended and restated bylaws (incorporated by reference to Exhibit 3(ii).1
to our current report on Form 8-K filed February 16, 2012)
66
Exhibit
Index
3.9*
4.1*
10.1*
10.2
10.3*
10.4*
10.5*
Filed with
Electronic
Submission
Description
Amendment to amended and restated bylaws (incorporated by reference to Exhibit 3(ii).1
to our current report on Form 8-K filed November 19, 2012)
Specimen certificate for shares of our common stock, par value $.01 per share
(incorporated by reference to Exhibit 4.1 to our registration statement on Form S-1
declared effective on August 22, 1996 (Registration No. 333-05665))
Amended and Restated Credit Agreement dated as of September 21, 2011 entered into by
us and certain of our subsidiaries as borrowers, Bank of America, N.A., as administrative
agent, swingline lender, a lender and a letter of credit issuer, other lenders party to the
amended and restated credit agreement, JPMorgan Chase Bank, N.A., as syndication
agent, and HSBC Bank USA, National Association, Lloyds Securities, Inc., and Union
Bank, N.A., as co-documentation agents (incorporated by reference to Exhibit 10.1 to our
current report on Form 8-K filed September 23, 2011)
First Amendment, dated as of October 18, 2012, to Amended and Restated Credit
Agreement
x
Note Purchase Agreement dated as of April 15, 2008 entered into by us, as issuer and
seller, and The Northwestern Mutual Life Insurance Company, American United Life
Insurance Company, The State Life Insurance Company, Pioneer Mutual Life Insurance
Company, Knights of Columbus, Principal Life Insurance Company, CUNA Mutual
Insurance Society, CUMIS Insurance Society, Inc. and Modern Woodmen of America, as
purchasers (incorporated by reference to Exhibit 10.1 to our current report on Form 8-K
filed April 18, 2008)
Note Purchase Agreement dated as of August 18, 2010 entered into by us, as issuer and
seller, and Metropolitan Life Insurance Company, MetLife Insurance Company of
Connecticut, Union Fidelity Life Insurance Company, Allstate Life Insurance Company,
Allstate Life Insurance Company of New York, American Heritage Life Insurance
Company, New York Life Insurance Company, New York Life Insurance and Annuity
Corporation, New York Life Insurance and Annuity Corporation Institutionally Owned
Life Insurance Separate Account (BOLI 30C), Forethought Life Insurance Company,
Hartford Life Insurance Company, Hartford Life and Accident Insurance Company,
Hartford Fire Insurance Company, Physicians Life Insurance Company, Nationwide Life
Insurance Company, Nationwide Life and Annuity Insurance Company, Massachusetts
Mutual Life Insurance Company, C.M. Life Insurance Company, RiverSource Life
Insurance Company, Thrivent Financial for Lutherans, The Lincoln National Life
Insurance Company, The Northwestern Mutual Life Insurance Company, Jackson
National Life Insurance Company, Allianz Life Insurance Company of North America,
MONY Life Insurance Company, AXA Equitable Life Insurance Company, CUNA
Mutual Insurance Society, Southern Farm Bureau Life Insurance Company, Phoenix Life
Insurance Company, PHL Variable Insurance Company, Modern Woodmen of America,
United of Omaha Life Insurance Company, Companion Life Insurance Company, Mutual
of Omaha Insurance Company, Woodmen of the World Life Insurance Society, Knights
of Columbus, Physicians Insurance A Mutual Company, Seabright Insurance Company
and Country Life Insurance Company, as purchasers (incorporated by reference to our
current report on Form 8-K filed August 27, 2010)
Note Purchase Agreement dated as of October 22, 2012 entered into by us, as issuer and
seller, and The Northwestern Mutual Life Insurance Company, Northwestern Long Term
Care Insurance Company, The Lincoln National Life Insurance Company, ING USA
Annuity and Life Insurance Company, ING Life Insurance and Annuity Company,
Reliastar Life Insurance Company, Reliastar Life Insurance Company of New York,
Principal Life Insurance Company, Penn Mutual Life Insurance Company, Symetra Life
67
Exhibit
Index
Description
Filed with
Electronic
Submission
Insurance Company, Jackson National Life Insurance Company, Reassure America Life
Insurance Company, Aviva Life and Annuity Company, Royal Neighbors of America,
Thrivent Financial for Lutherans, AXA Equitable Life Insurance Company, MONY Life
Insurance Company, RiverSource Life Insurance Company (944), RiverSource Life
Insurance Co. of New York (904), Western-Southern Life Assurance Company,
Columbus Life Insurance Company, Integrity Life Insurance Company, Integrity Life
Insurance Company Separate Account GPO, National Integrity Life Insurance Company
Separate Account GPO, Great-West Life & Annuity Insurance Company, Great-West
Life & Annuity Insurance Company of South Carolina, Hartford Life Insurance
Company, The Guardian Life Insurance Company of America, Modern Woodmen of
America, National Life Insurance Company, Trinity Universal Insurance Company,
Catholic United Financial, Occidental Life Insurance Company of North Carolina,
Western Fraternal Life Association, Southern Farm Bureau Life Insurance Company,
Woodmen of the World Life Insurance Society, Americo Financial Life & Annuity
Insurance Company, American United Life Insurance Company, Ameritas Life Insurance
Corp. of New York, Acacia Life Insurance Company, The Union Central Life Insurance
Company, USAA Life Insurance Company, Country Life Insurance Company,
ProAssurance Indemnity Company, Inc, ProAssurance Casualty Company, and State of
Wisconsin Investment Board, as purchasers (incorporated by reference to our current
report on Form 8-K filed October 26, 2012)
Directors Stock Option Plan (Amended and Restated) (“Directors Plan”) (incorporated
by reference to Exhibit 4.1 to our registration statement on Form S-8 filed August 2,
2001 (Registration No. 333-66542))
First amendment to Directors Plan (incorporated by reference to Exhibit 10.9 to our
annual report on Form 10-K for 2001)
Form of stock option agreement for option grant under Directors Plan (incorporated by
reference to Exhibit 10.1 to our quarterly report on Form 10-Q for the quarter ended
September 30, 2004)
1997 Stock Option Plan (“1997 Plan”) (incorporated by reference to Exhibit 10.3 to our
annual report on Form 10-K for 1997)
First amendment to 1997 Plan (incorporated by reference to Exhibit 10.9 to our
registration statement on Form S-3 declared effective on February 4, 1999 (Registration
No. 333-60591))
Second amendment to 1997 Plan (incorporated by reference to Exhibit 10.12 to our
annual report on Form 10-K for 2001)
Third amendment to 1997 Plan (incorporated by reference to Exhibit 10.16 to our annual
report on Form 10-K for 2003)
2000 Nonstatutory Stock Option Plan (“2000 Plan”) (incorporated by reference to
Exhibit 10.13 to our annual report on Form 10-K for 2001)
First amendment to 2000 Plan (incorporated by reference to Exhibit 10.14 to our annual
report on Form 10-K for 2001)
Second amendment to 2000 Plan (incorporated by reference to Exhibit 10.15 to our
annual report on Form 10-K for 2001)
Third amendment to 2000 Plan (incorporated by reference to Exhibit 4.2 to our
registration statement on Form S-8 filed December 20, 2002 (Registration
No. 333-102097))
10.6*†
10.7*†
10.8*†
10.9*†
10.10*†
10.11*†
10.12*†
10.13*†
10.14*†
10.15*†
10.16*†
10.17*†
2005 Incentive Stock Plan (“2005 Plan”) (incorporated by reference to Exhibit 4.1 to our
registration statement on Form S-8 filed August 9, 2005 (Registration No. 333-127353))
68
Exhibit
Index
10.18*†
10.19*†
10.20*†
Description
First amendment to 2005 Plan (incorporated by reference to Exhibit 10.15 to our annual
report on Form 10-K for 2008)
2008 Incentive Stock Plan (“2008 Plan”) (incorporated by reference to Exhibit 4.1 to our
registration statement on Form S-8 filed August 8, 2008 (Registration No. 333-152877))
First amendment to 2008 Plan (incorporated by reference to Exhibit 10.19 to our annual
report on Form 10-K for 2009)
10.21†
Amendment to 1997 Plan, 2000 Plan, 2005 Plan and 2008 Plan
10.22*†
10.23*†
10.24*†
10.25†
10.26†
10.27*†
10.28*†
10.29†
10.30†
10.31*†
10.32*†
14*
21
23
31.1
31.2
32
2011 Incentive Stock Plan (“2011 Plan”) (incorporated by reference to Exhibit 4.1 to our
registration statement on Form S-8 filed August 9, 2011 (Registration No. 333-176165))
Form of agreement for stock option grant under 2005, 2008 and 2011 Plans (incorporated
by reference to Exhibit 10.20 to our annual report on Form 10-K for 2011)
Form of agreement for restricted stock unit award under 2008 and 2011 Plans
(incorporated by reference to Exhibit 10.21 to our annual report on Form 10-K for 2011)
Bonus conversion program (2013 plan year)
Form of agreement for stock option grant under bonus conversion program for 2013 plan
year
Employee Stock Purchase Plan (“ESPP”), as amended and restated May 16, 2007 and
amended May 28, 2008 (incorporated by reference to Exhibit 10.23 to our annual report
on Form 10-K for 2009)
Second amendment to ESPP (incorporated by reference to Exhibit 10.24 to our annual
report on Form 10-K for 2009)
Third amendment to ESPP
Fourth amendment to ESPP
Plan of Compensation for Outside Directors (incorporated by reference to Exhibit 10.1 to
our current report on Form 8-K filed August 11, 2006)
First amendment to Plan of Compensation for Outside Directors (incorporated by
reference to Exhibit 10.19 to our annual report on Form 10-K for 2006)
Code of ethics (incorporated by reference to Exhibit 10.14 to our annual report on
Form 10-K for 2003)
Subsidiaries
Consent of Independent Registered Public Accounting Firm
Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer
Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer
Section 1350 Certification of Chief Executive Officer and Chief Financial Officer
Filed with
Electronic
Submission
x
x
x
x
x
x
x
x
x
x
x Filed herewith
* Previously filed
† Management contract or compensatory plan required to be filed pursuant to Item 601 of Regulation S-K
69
Pursuant to the requirements of Section 13 or 15(d) 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.
SIGNATURES
STERICYCLE, INC.
(Registrant)
By:
/s/ FRANK J.M. TEN BRINK
Frank J.M. ten Brink
Executive Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by
the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Dated: February 28, 2013
Name
Title
Date
/s/ CHARLES A. ALUTTO
President, Chief Executive Officer
February 28, 2013
Charles A. Alutto
and Director (Principal
Executive Officer)
/s/ FRANK J.M. TEN BRINK
Executive Vice President and Chief
February 28, 2013
Frank J.M. ten Brink
/s/ MARK C. MILLER
Mark C. Miller
/s/
JACK W. SCHULER
Jack W. Schuler
/s/ ROD F. DAMMEYER
Rod F. Dammeyer
/s/ WILLIAM K. HALL
William K. Hall
/s/
JONATHAN T. LORD, M.D
Jonathan T. Lord, M.D.
/s/
JOHN PATIENCE
John Patience
Financial Officer (Principal
Financial and Accounting
Officer)
Executive Chairman of the Board
February 28, 2013
of Directors
Lead Director of the Board of
February 28, 2013
Directors
Director
Director
Director
Director
February 28, 2013
February 28, 2013
February 28, 2013
February 28, 2013
/s/ MIKE S. ZAFIROVSKI
Director
February 28, 2013
Mike S. Zafirovski
/s/ THOMAS D. BROWN
Director
February 28, 2013
Thomas D. Brown
/s/ RONALD G. SPAETH
Director
February 28, 2013
Ronald G. Spaeth
70
Annual Report
Annual Report
C O R P O R A T E
I N F O R M A T I O N
Priorities for 2013
E x e c u t i v e O f f i c e r s
Charles A. Alutto
President and Chief Executive Officer
Mark C. Miller
Executive Chairman
Richard T. Kogler
Chief Operating Officer
Michael J. Collins
President, Recall and Return Management Services
in fair value of contingent consideration. Our 2011 results included a net reduction
compliance services, StrongPak regulated waste services for the retail industry,
Frank J.M. ten Brink
Chief Financial Officer/CAO
B o a r d o f D i r e c t o r s
Mark C. Miller • Executive Chairman
Jack W. Schuler • Lead Director
Chairman – Nominating and
Governance Committee
Charles A. Alutto • President
and Chief Executive Officer
John Patience
Member – Nominating and
Governance Committee
Member – Audit Committee
Jonathan T. Lord, M.D.
Chairman – Compensation
Committee
Member – Nominating
and Governance Committee
Thomas D. Brown
Member – Audit Committee
William K. Hall
Member – Audit Committee
Rodney F. Dammeyer
Chairman – Audit Committee
Member – Nominating
and Governance Committee
Ronald G. Spaeth
Member – Compensation
Committee
Mike S. Zafirovski
Member – Compensation
Committee
I n d e p e n d e n t A u d i t o r s
F o r m 1 0 - K
Ernst & Young LLP
155 N. Wacker Drive
Chicago, Illinois 60606
O u t s i d e C o u n s e l
Johnson and Colmar
2201 Waukegan Road, Suite 260
Bannockburn, Illinois 60015
T r a n s f e r A g e n t
Wells Fargo Bank N.A.
Shareowner Services
1110 Centre Pointe Curve, Suite #101
Mendota Heights, MN 55120-4100
Additional copies of this Annual Report or Form 10-K filed with
the Securities and Exchange Commission are available, without
charge, upon request from the company, Investor@stericycle.com
or (800) 643-0240 ext. 2012.
A n n u a l M e e t i n g
The annual meeting of stockholders will be held on
Tuesday, May 21, 2013 at the DoubleTree Hotel Chicago
O’Hare Airport - Rosemont
5460 North River Road, Rosemont, IL 60018.
N a s d a q ® S y m b o l
SRCL
Dear Fellow Shareholders:
In 2012, Stericycle continued to set new Company financial records and expand our
range of service offerings in the U.S. and 11 international countries in pursuit of our
mission to help our customers protect their people and reduce risk.
Our revenues in 2012 grew to $1.9 billion, a 14.1% increase over 2011. Our gross
margin was 44.8% in 2012 compared with 45.4% in 2011. Operating income before
acquisition-related costs and various adjustments increased 12.2% to $498.7 million
from $444.4 million in 2011. Our operating margin before acquisition-related costs
and various adjustments was 26.1% compared with 26.5% in 2011.
Under U.S. generally accepted accounting principles (“GAAP”), net income
attributable to Stericycle for 2012 increased 14.2%, to $268.0 million from $234.8
million, and diluted earnings per share increased 14.6%, to $3.08 from $2.69 per
diluted share. Our 2012 results included a net reduction in net income of $19.2
million, or $0.22 per diluted share, due to acquisition expenses, litigation settlement
expenses, loss on sale of business, restructuring and plant closure costs, and change
• Our ExpertSUSTAINABILITY services offer product re-use, recycling and
alternative use options, and have diverted over 30 million pounds of waste
from landfills.
• In Ireland, we have diverted 14.7 million pounds of waste from landfill by
sending treated medical waste to cement kilns as an alternative fuel source.
By building on Stericycle’s industry leadership position in 2012, we are
confident that we have the operating platform that we need to drive future
growth and explore new opportunities to serve our customers better. Our
priorities for 2013 are as follows:
Domestic Growth: Our focus will be on providing our multiple service
offerings to both our small quantity (SQ) and large quantity (LQ) customer
base, and expanding our services to new customers. Our marketing efforts
to SQ customers will concentrate on our Steri•SafeSM OSHA safety and
in net income of $14.3 million, or $0.16 per diluted share, due to acquisition
expenses, litigation settlement expenses, and restructuring and plant closure costs,
which were offset partially by a change in fair value of contingent consideration
and Regulated Waste Management Services. Our marketing focus for LQ
customers will continue to be on extending the momentum of our Sharps
Management Services, Pharmaceutical Waste Disposal Program, and Regulated
and a net release of prior years’ tax reserves. Excluding the impact of these items on
Waste Management Services, and expanding our StrongPak services and
our results in 2012 and 2011, our non-GAAP net income attributable to Stericycle
grew to $287.2 million in 2012, a 15.3% increase over $249.1 million in 2011.
Regulated Recall and Returns Management Services. We will continue to build
on the Patient Communication Services platform by expanding this offering to
Non-GAAP earnings per diluted share, when adjusted for various items, increased
our existing customer base (both SQ and LQ) while simultaneously focusing
15.8% to $3.30 from $2.85 in 2011.
on new customer acquisitions.
Accomplishments in 2012
In 2012 we continued to generate strong free cash flow from operations, which
we used to fund growth and improve our balance sheet. We invested $65.2 million
in capital expenditures to expand our capabilities, drive innovation, and better
serve the evolving needs of our customers. In addition, we used $229.7 million
for domestic and international acquisitions and $48.0 million for stock repurchases
on the open market.
In the U.S.: We continued to strengthen Stericycle’s leadership position in regulated
waste management, healthcare safety, and compliance services. We continued to
increase the penetration of Steri•SafeSM, our OSHA safety and compliance solution,
which allows healthcare providers throughout the U.S. to create a safe, regulatory-
compliant workplace. We continued to achieve strong customer adoption of our
Sharps Management Service, which not only reduces the risk of needle sticks for
hospital staff, but also prevents thousands of tons of plastic and corrugated material
from accumulating in landfills. We continued to expand our Pharmaceutical Waste
Disposal Program to both hospitals and small quantity customers, helping them
to dispose of pharmaceuticals that are unused or identified as waste in a safe,
compliant and environmentally-responsible manner. In 2012 we completed 17
domestic acquisitions.
Internationally: We continued to establish and strengthen our position in multiple
international markets. We strengthened our capabilities in Argentina, Brazil,
Canada, Chile, Ireland, Japan, Mexico, Portugal, Romania, Spain, and the United
Kingdom. We continued to roll out our Clinical Services offering in select
international markets. Clinical Services is a unique suite of solutions that addresses
various aspects of managing a medical or dental practice, principal among which
is regulated waste services. Clinical Services has a modular architecture which
enables us to continue to market new products and services to both new and existing
customers on an on-going basis. We acquired 24 businesses internationally in 2012.
Sustainability: Corporate responsibility and environmental protection are critical
components of our company’s mission. Stericycle commits to capture new
opportunities for sustainable growth by managing our internal operations in a
socially and environmentally-responsible manner. Highlights of some of our
sustainability programs and their benefits to the environment include:
• In the U.S., the diversion of plastic containers from landfill through the use
of our Sharps Management Service equates to over eight million gallons of
gas not burned and over 150 million pounds of CO2 not emitted into the
atmosphere. We have begun rolling out this service in Canada, Ireland and
the United Kingdom.
out of the water system.
• Stericycle’s Pharmaceutical Waste Disposal Program helps keep unused drugs
• We have begun to add vehicle technology and equipment in our U.S. based
transportation fleet to improve safety and fuel efficiency.
International Growth: We will remain focused on integrating the acquisitions we
have completed and pursuing attractive international market opportunities directed
at providing value to our customers over the course of the next several years. We
will also focus on expanding and penetrating the international SQ customer market
by leveraging our Clinical Services Program to grow our revenues and margins.
Profit Growth: We remain committed to improving our operating performance.
We will seek to make further improvements to our collection route densities
through the use of routing technology and acquisitions, to reduce our long-haul
transportation costs, and to improve efficiency in our processing plants. Our
culture of continuous improvement is focused on streamlining how we serve
our customers and encourages the sharing of best practices and productivity
improvement ideas across our entire organization. We will continue to invest in
the latest Customer Experience tools to ensure that we serve our customers in a
timely and efficient manner.
Service Innovation and Environmental Sustainability Leadership:
During 2013, we will maintain our dual commitment to being both responsive
to our customers’ evolving needs and an environmental leader by offering
sustainable solutions designed to meet those needs in an environmentally-
responsible way. Our innovative Steri•SafeSM OSHA safety and compliance
services continue to help our customers enjoy a safer, more regulatory-
compliant workplace in a cost-effective manner. The breadth of our Regulated
Recall and Returns Management Services helps our customers protect their
brands and reduce liability. Our Sharps Management Service featuring reusable
containers offers significant sustainability benefits by reducing waste volume
and conserving valuable natural resources. Stericycle’s Pharmaceutical
Waste Disposal Program helps our customers prevent the potential release of
pharmaceuticals with their hazardous waste content from being released into
the water supply. Our Patient Communication Services help our customers
more effectively and proactively communicate with their patients.
• • •
We are excited and confident about our future. Through our many service
offerings, we help our customers protect the safety of their workforce and
reduce risk. We are a leader in providing regulated waste management, safety
compliance, sharps management, pharmaceutical waste disposal, and Regulated
Recall and Returns Management Services to our customers. We will continue to
improve the efficiency of our operations, to enhance our customers’ experience
while maintaining our strong emphasis on safety and regulatory compliance,
and to focus on the many growth opportunities that our leadership position
affords us. We thank you for your support.
Charles A. Alutto
President and CEO
20122012 (800) 643-0240
www.stericycle.com
Annual Report
2012