Report
2014
Dear Fellow Shareholders:
In 2014 Stericycle continued to set new Company financial records as we expanded
our range of services in the U.S. and 12 other countries in pursuit of our core purpose
to help our customers fulfill their promise by providing solutions that protect people
and brands, promote health, and safeguard the environment. Stericycle revenues
in 2014 grew to $2.56 billion, a 19.3% increase over 2013. Our gross margin was
42.8% in 2014 compared with 45.0% in 2013. Operating income before acquisition
related costs and other adjusting items increased to $615.3 million from $556.7
million in 2013. Our operating margin before acquisition related costs and other
adjusting items was 24.1% compared with 26.0% in 2013.
Under U.S. generally accepted accounting principles (“GAAP”), net income attributable
to Stericycle for 2014 increased 4.8%, to $326.5 million from $311.4 million in 2013,
and diluted earnings per share increased 6.3%, to $3.79 from $3.56 per diluted share.
From a non-GAAP perspective, our 2014 results included a net reduction in net income
of $41.9 million, or $0.48 per diluted share, due to acquisition and integration expenses,
plant conversion and restructuring expenses, and litigation expenses, which were
partially offset by a change in fair value of contingent consideration. Our 2013 results
included a net reduction in net income of $16.8 million, or $0.19 per diluted share, due
to acquisition and integration expenses, litigation settlement expenses, and restructuring
and plant closure costs, which were partially offset by a change in fair value of
contingent consideration. Excluding the impact of these items from our results in 2014
and 2013, our non-GAAP net income attributable to Stericycle grew to $368.4 million
in 2014, a 12.3% increase over $328.2 million in 2013. Non-GAAP earnings per diluted
share, when adjusted for these items, increased 13.8% to $4.27 from $3.75 in 2013.
Accomplishments in 2014
In 2014, we continued to generate strong free cash flow from operations, which we
used to fund growth and improve our balance sheet. We invested $86.5 million in
capital expenditures to expand our capabilities, drive innovation, and better serve the
evolving needs of our customers. In addition, we used $374.3 million for domestic and
international acquisitions and $194.1 million for stock repurchases on the open market.
In the U.S.: We continued to strengthen Stericycle’s leadership position in regulated
waste management, compliance services, and communication solutions. We
acquired PSC Environmental Services, LLC to expand our retail and hazardous
waste infrastructure, increase our disposal options and reduce our cost position. We
increased the penetration of Steri•Safe,SM our compliance solutions program, which
allows healthcare providers throughout the U.S. to increase OSHA and HIPAA
regulatory compliance. Stericycle expanded 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 added new hospital and small quantity customers to our
Pharmaceutical Waste Disposal Program helping them to dispose of pharmaceuticals
that are unused or identified as waste in a safe, compliant and environmentally-
responsible manner. We increased the penetration of our Communication Solutions
services to both hospitals and small customers supporting their efforts to promote
the health of their patients. During 2014 we completed 17 domestic acquisitions.
Internationally: Our International operations now account for nearly 30% of
Stericycle revenues. We entered the Republic of Korea in 2014 and also continued
to strengthen our position in Argentina, Brazil, Canada, Chile, Ireland, Japan,
Mexico, Portugal, Romania, Spain, and the United Kingdom. Stericycle acquired
27 businesses internationally in 2014.
Although regulated medical waste services are the foundation of our international
business, we continue to seek service expansions that bring value to our customers.
In the UK, our Sharps Management Service is helping England’s National Health
Service (NHS) achieve its mandate to reduce CO2 by 34% by 2020. In many
markets, our Clinical Services offering provides a comprehensive suite of integrated,
cost effective products and services to help ensure patient and employee safety as
well as regulatory compliance at smaller healthcare practices. We designed Clinical
Services with a modular architecture so the program is easily scalable, adaptable and
transportable to other countries and regulatory requirements. Our Dosimetry Service
in Spain and Portugal is an example of a Clinical Services program expansion.
Stericycle’s suite of services – focusing on both waste handling and compliance -
promotes the safety and compliance of thousands of businesses abroad.
Sustainability: Safeguarding the environment is a critical component of our
company’s purpose. Stericycle is committed to sustainable growth through our
sustainability services and 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 last year include:
• In the U.S., use of our Sharps Management Service prevented the need for
57 million pounds of plastic generation and diversion from landfill. We
continue to roll out this service in Canada, Ireland and the United Kingdom.
• Stericycle’s Pharmaceutical Waste Disposal Program helped keep more than
30.5 million pounds of unused drugs out of the water system and the hands
of unauthorized users.
• We realized significant fuel efficiencies in 2014 by completing installation
of vehicle routing technology in our U.S. medical waste transportation fleet
and by adding 22 10-day storage facilities and 12 TSDF facilities to our
hazardous waste network. We estimate more than 2.5 million miles were
avoided, reducing fuel consumption by more than 384,500 gallons.
• In the UK, we successfully diverted all of the treated medical waste for use
in either cement processing or waste-to-energy plants.
• To meet Title V requirements from the Environmental Protection Agency,
we invested in state of the art scrubbers and carbon beds at all of our
domestic incinerator locations to reduce emissions. All new emission control
equipment demonstrated results that were better than the new standards.
Priorities for 2015
Building on Stericycle’s industry leadership position, we are confident that we
have the operating platform needed to drive future growth and explore new
opportunities to better serve our customers. Our priorities for 2015 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 as well
as expanding our services to new customers. Our marketing efforts to SQ
customers will concentrate on our Steri•SafeSM compliance services, retail waste
services, 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, retail waste
services, and Regulated Recall and Returns Management Services. We will
continue to build on the Communication Solutions platform by expanding this
offering to our existing customer base (both SQ and LQ) while concurrently
focusing on new customer acquisitions.
International Growth: We will remain focused on integrating the acquisitions
we have completed and pursuing attractive international market expansion
opportunities that add value to our customers. We will continue to expand
and penetrate the international SQ customer market by leveraging our Clinical
Services Program to grow our revenues and margins. We will also focus on the
expansion of the Regulated Recall and Returns Management business in Europe.
Profit Growth: We remain committed to improving our operating performance.
We will seek to further refine our route efficiencies; to reduce our long-haul
transportation costs; to improve efficiency in our processing plants; and to
proactively manage SG&A costs. 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 organization.
We will continue to invest in the latest customer experience tools and technology
platforms to ensure that we serve our customers in a timely and efficient manner.
Service Innovation and Environmental Sustainability Leadership: During 2015,
we will maintain our commitment to being a service leader of solutions that
meet our customers’ evolving needs and an environmental leader through our
specialized service offerings and our internal operations.
• • •
We are excited and confident about our future given our diverse portfolio
and leadership position. 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
continued support.
Charles A. Alutto
President and CEO
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the fiscal year ended December 31, 2014
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
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
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
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
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.
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
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
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, 2014): $10,038,938,856.
On February 16, 2015, there were 84,940,511 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 2015 Annual Meeting of Stockholders to be held on May 27, 2015.
Stericycle, Inc.
Table of Contents
Page No.
PART I.
Item 1. Business
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Mine Safety Disclosures
PART II.
Item 5. Market Price for Registrant's Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
Item 6. Selected Financial Data
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Item 8. Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A. Controls and Procedures
Item 9B. Other Information
PART III.
Item 10. Directors, Executive Officers and Corporate Governance
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
Item 13. Certain Relationships and Related Transactions, and Director Independence
Item 14. Principal Accounting Fees and Services
PART IV.
Item 15. Exhibits and Financial Statement Schedules
Signatures
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15
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19
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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 providing regulated and compliance solutions to healthcare and commercial
businesses. This includes the collection and processing of specialized waste for disposal, and a variety of
training, consulting, recall/return, communication, and compliance services. We operate integrated regulated
waste management networks in the United States, Argentina, Brazil, Canada, Chile, Ireland, Japan, Mexico,
Portugal, Romania, Republic of Korea, Spain, and the United Kingdom. Our worldwide networks include a
total of 181 processing facilities, 214 transfer sites, and 97 other service facilities. Our regulated waste
processing technology is primarily autoclaving, but we also use incineration and our proprietary electro-
thermal-deactivation system ("ETD").
The regulated solutions we provide include: medical waste disposal, hazardous waste management, our
Steri-Safe® medical waste and compliance program, our Clinical Services program, our Sharps Management
Service featuring Bio Systems® reusable sharps containers, pharmaceutical waste disposal, and medical safety
products. Our compliance solutions include: training, consulting, inbound/outbound communications, data
reporting, and other regulatory compliance services. In addition to our regulated and compliance solutions,
we offer regulated recall and returns management solutions which encompass a number of services for a
variety of businesses, but consist primarily of managing the recall, withdrawal, or return of expired or recalled
products and pharmaceuticals.
Customers
We serve more than 600,000 customers worldwide, including both large-quantity generators, such as
hospitals, blood banks and pharmaceutical manufacturers, and small-quantity generators, such as outpatient
clinics, medical and dental offices, long-term and sub-acute care facilities, veterinary offices, municipalities,
laboratories, and retail pharmacies.
For large-quantity generators of regulated waste such as hospitals and for pharmaceutical companies,
laboratories, 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;
• our regulated recall and returns management services for expired or recalled products and
pharmaceuticals; and
a variety of communication services.
•
For small-quantity generators of regulated waste such as doctors’ offices, dentists, retailers or other
commercial businesses, we offer:
• our regulated waste management services;
• our Bio Systems® reusable sharps disposal management services;
•
a variety of products and services for infection control;
1
• our regulated recall and returns management services for expired or recalled products and
pharmaceuticals; and
a variety of communication services.
•
We benefit from significant customer diversification. No one customer accounts for more than 1.5% of
our total revenues, and our top ten customers account for 7.0% 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 hazardous material; any regulated pharmaceutical waste, which consists
of expired or recalled pharmaceuticals; or any medical waste that can potentially cause an infectious disease
such as needles, syringes, gloves, cultures and stocks of infectious agents, blood and blood products.
We believe that in 2015, the size of the global market for the services we provide is approximately
$19.5 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.
• Enforcement of Environmental Regulations: At both the federal and local levels, enforcement of
regulations relating to the management of regulated waste is increasing. Penalties for violations can
be costly as well as high profile thereby impacting a business’ overall reputation.
• 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 medical waste generators that cannot treat their own
regulated waste.
• Control of Drug Diversion: The U.S. Drug Enforcement Administration ("DEA") is emphasizing
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
2
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.
• Strong Service Relationships with Customers: We offer our customers necessary services which
require access to our customers’ facilities and operating information. This relationship, supported by
a history of service, provides us with access to decision makers to offer additional opportunities.
• Long-term Contracts: The majority of services we provide involve long-term contracts which also
act as a barrier to entry.
• Established Network of Processing and Transportation Locations in Each Country: We believe
that our network of locations results in a very efficient operation. The network also provides
redundancy so that we can quickly redirect waste for treatment or disposal should such needs exist
due to severe weather, power outages, or other such situations.
• 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 140 years of management experience in the health care and waste
management industries.
• Ability to Integrate Acquisitions: Since 1993 we have completed 392 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 customers.
For example, to small-quantity customers, we also offer OSHA compliance services through our
Steri-Safe® and Clinical Services programs as well as communication solutions; to large-quantity
customers, we also offer our Sharps Management Services using Bio Systems® reusable containers,
our pharmaceutical waste disposal services and communication solutions.
• 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.
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.
•
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.
3
We have completed 392 acquisitions from 1993 through 2014, with 211 in the United States and 181
internationally. During 2014, we completed 44 acquisitions, of which 17 were domestic businesses and 27
were international businesses in Latin America, Europe, Canada, Japan, and Republic of Korea.
International
We conduct regulated waste operations in Argentina, Brazil, Canada, Chile, Ireland, Japan, Mexico,
Portugal, Romania, Republic of Korea, 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, Spain in 2011, and Republic of Korea in 2014. Our international
service offerings are primarily regulated waste services. We also have started an international presence for
our returns and quality audit program. 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 the appropriate Department of Transportation approved containers to
our 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.
Our fleet of transportation vehicle then collects containers at the customer location. 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.
Processing and Disposal: 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 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.
Upon arrival at a processing facility, containers or boxes of regulated waste typically undergo a quality
control process to verify that they do not contain any unacceptable substances. Any container or box that is
discovered to contain unacceptable waste goes through a corrective action process which could include
redirecting the waste, returning the waste to the customer, and/or notifying the appropriate regulatory
authorities.
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.
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Hazardous wastes are bulked together or consolidated at treatment storage and disposal facilities for
more efficient transport to final disposal or processing. These wastes are then sent to third parties for
incineration, recycling, landfill, water treatment, or fuel blending.
Regulated medical waste is processed using one of several treatment or processing technologies,
predominately at one of our wholly-owned facilities.
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 and non-
hazardous pharmaceutical waste. 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.
Upon completion of the particular process, the resulting waste or incinerator ash is transported for
resource recovery or disposal in a landfill owned by unaffiliated third parties.
After treatment or consolidation, certain 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. Plastic or
steel drums are sent for recertification for reuse. When possible, corrugated cardboard containers are recycled.
Documentation: We provide complete documentation to our customers for all regulated waste that we
collect in accordance with applicable regulations and customer requirements.
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 understand 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 Communication Solutions: Our domestic Steri-Safe® 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, HIPAA and other 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 implement a specific business compliance program. We believe
5
that the implementation of our Steri-Safe® service provides us with an enhanced opportunity to leverage our
existing customer base through the program’s diversified product and service offerings. In 2010 and 2011,
we introduced a similar program called Clinical Services in Canada, Ireland, Portugal, Spain, and the United
Kingdom. We offer a variety of services to healthcare providers and commercial businesses designed to
enhance office productivity and efficiency, and to improve communications with their patients or customers.
We believe that our communication solutions afford us an additional opportunity to leverage our existing
small-quantity customer base.
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 adviser
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, maintaining a safe work environment for their staff
and patients, and efficiently improving the patient experience through communications.
We offer individual waste stream services, including regulated waste management services, such as
medical waste, pharma waste, hazardous waste, 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.
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 and offer solutions for specific settings like home healthcare or retail.
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, the pharmaceutical returns business, and the communication
solutions business are very low. Our competitors consist of many different types of service providers,
including a large number of national, 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 communication solutions internally.
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.
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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.
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 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 statutes, legislation and regulations concerning environmental protection, employee health and welfare,
transportation, the use of the mail, and proper handling and management of regulated waste streams and
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. CERCLA and state laws similar to it may impose strict, joint
and several liability 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 ten incinerators at seven 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
7
to prevent illness, injury and death in the workplace. The primary federal laws 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 examples
such as 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.
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 according to the EPA classification criteria and identify the proper
handling, transportation and disposal requirements. The 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 federal requirements plus additional state
requirements are closely monitored internally and due to our fleet size we are regularly subject to road side
inspections. These inspections have cumulative effect on our compliance history and require us to remain in
good standing so not to jeopardize our 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 Mail: United States Postal Service ("USPS") has its own set of specific regulations defined
in Publication 52 which governs the use of the postal system for mailing of hazardous, restricted and perishable
materials. More specifically, our sharps and medical waste mailback management offerings, require us to
obtain and maintain authorization permits from the USPS. We have obtained permits from the USPS to
conduct our "mail-back" programs which 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 to be sent directly to a treatment facility.
Controlled Substances: In the U.S., our regulated recall and returns management services business is
subject to laws and regulations under the 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 to DEA regulations. 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.
8
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 medical waste. Many states
have followed requirements similar to the Medical Waste Tracking Act of 1988 or have placed medical waste
regulations under solid waste regulations. Hazardous waste in the U.S. is regulated under the Resource
Recovery and Conservation Act. In addition, certain states may have their own regulations for handling,
treatment and storage of hazardous wastes.
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.
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®,Bio Systems®, 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 $55 million of liability insurance (including umbrella coverage), and under a separate policy,
$25 million of aggregate pollution and legal liability insurance ($10 million per incident and $15 million
excess 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, 2014, we had 16,718 full-time and 1,938 part-time employees, of which 9,969 were
employed in the United States and 8,687 internationally. A total of 16 collective bargaining agreements with
local unions of the International Brotherhood of Teamsters cover approximately 456 of our U.S. drivers,
transportation helpers and plant workers. These agreements expire at various dates through October 2017.
We also have 1,981 employees in Latin America, 117 employees in Canada, and 111 employees in Europe
under collective bargaining agreements. We consider our employee relations to be satisfactory.
9
Executive Officers of the Registrant
The following table contains certain information regarding our five current executive officers:
Name
Mark C. Miller
Charles A. Alutto
Brent Arnold
Daniel V. Ginnetti
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
59
49
46
46
58
Mark Miller has served as our 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 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 serves as a director
of Accelerate Diagnostics, Inc., a developer of automated diagnostics systems, and 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.
Brent Arnold was named as Chief Operating Officer effective January 1, 2015. He served as Executive
Vice President and President, Stericycle USA/Canada since April 2014. He joined Stericycle in April 2005
and has worked in various leadership positions including Senior Vice President of Operations, Senior Vice
President of Sales & Marketing for the US and Canada and Corporate Vice President of our large and small
quantity business units. He has more than 24 years of experience primarily focused in the healthcare industry.
Prior to joining Stericycle, he held various leadership roles at Baxter International Inc. and Cardinal Health,
Inc. Mr. Arnold received a B.S. degree in marketing from Indiana University.
Daniel Ginnetti was named as Chief Financial Officer effective August 1, 2014. He joined Stericycle
as Area Vice President of Finance in 2003. In 2004 he was promoted to Area Vice President for Stericycle’s
Western, and later, Midwestern business units. Following that, he was promoted to Senior Vice President of
Operations for the United States and Canada. He returned to financial management in 2013 becoming Vice
President of Corporate Finance and then CFO in August 2014. Prior to joining Stericycle, Mr. Ginnetti held
various finance and accounting positions with The Ralph M. Parsons Company, a worldwide engineering
firm, and Ryan Herco Products Corp., a national industrial plastics distributor. Mr. Ginnetti has a B.S. degree
in Business Economics from the University of California, Santa Barbara.
Michael 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
10
commissioned officer for the U.S. Marine Corps. He holds a B.S degree from the University of New Haven
and a M.B.A. degree 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.
Item 1A. Risk Factors
We are subject to extensive governmental regulation, which is frequently difficult, expensive and time-
consuming to comply with.
The regulated waste management industry is subject 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 in which we
operate. We believe that we currently comply in all material respects with all applicable permitting
requirements. Federal, state and local regulations change often, 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 can have a positive effect on our business. These laws and regulations
increase the demand for our services. Relaxation of enforcement 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.
11
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 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 financial investment or technical know-how to compete 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 new locations to which we may expand in the future. In
addition, large national companies with substantial resources may decide to enter the markets in which we
serve. For example, in the United States, Waste Management, Inc., and Clean Harbors, both major regulated
waste companies, offer 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.
12
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, Republic of
Korea, Spain, and the 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;
import and export license requirements;
•
• government controls;
•
• political or economic instability;
•
•
• our unfamiliarity with local laws, regulations, practices, and customs;
•
trade restrictions;
changes in tariffs and taxes;
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 resulting in charges to impair intangible assets, such as goodwill.
As a result of our various acquisitions, our balance sheet at December 31, 2014 contains goodwill of
$2.4 billion and other intangible assets, net of accumulated amortization of $909.6 million (including
indefinite lived intangibles of $253.7 million). In accordance with the FASB Accounting Standards
Codification 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
13
• malfunctioning treatment plant equipment.
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 ("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
64 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 137 additional transfer sites, 19 additional
sales/administrative sites, and 51 other service facilities. Internationally, we own or lease 117 processing
facilities, the majority of which use autoclave waste processing technology. We also own or lease 77 additional
transfer sites, 45 additional sales/administrative sites, 46 other service facilities, and 2 landfills. We believe
that these processing and other facilities are adequate for our present and anticipated future needs.
Item 3. Legal Proceedings
See Note 18 - Legal Proceedings, in the Notes to the Consolidated Financial Statements (Item 8 of Part
II).
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 16, 2015, we had 107 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 2014
Second quarter 2014
Third quarter 2014
Fourth quarter 2014
First quarter 2013
Second quarter 2013
Third quarter 2013
Fourth quarter 2013
$
$
High
Low
$
$
120.09
118.90
119.98
133.43
106.18
113.01
118.72
120.97
111.96
109.33
115.31
116.15
93.91
104.13
110.87
113.69
We did not pay any cash dividends during 2014 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 of Part II,
"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 24,621,640 shares of our common stock on the open market. As of December 31, 2014, we had
purchased a cumulative total of 19,886,455 shares.
The following table provides information about our purchases of shares of our common stock during
the year ended December 31, 2014:
Period
January 1 - January 31, 2014
February 1 - February 28, 2014
March 1 - March 31, 2014
April 1 - April 30, 2014
May 1 - May 31, 2014
June 1 - June 30, 2014
July 1 – July 31, 2014
August 1 – August 31, 2014
September 1 – September 30, 2014
October 1 - October 31, 2014
November 1 – November 30, 2014
December 1 – December 31, 2014
Total
Issuer Purchases of Equity Securities
Total Number of
Shares (or
Units)
Purchased
Average Price
Paid per Share
(or Unit)
Number of Shares
or Units)
Purchased as Part
of Publicly
Announced Plans
or Programs
Maximum Number (or
Approximate Dollar
Value) of Shares (or
Units) that May Yet Be
Purchased Under the
Plans or Programs
115.04
114.11
112.72
111.03
112.82
—
—
—
116.60
115.35
126.87
128.56
115.75
193,172
406,260
86,558
355,603
171,640
—
—
—
198,728
17,223
47,100
200,251
1,676,535
$
$
15
193,172
406,260
86,558
355,603
171,640
—
—
—
198,728
17,223
47,100
200,251
1,676,535
2,134,306
5,812,288
5,725,730
5,370,127
5,198,487
5,198,487
5,198,487
5,198,487
4,999,759
4,982,536
4,935,436
4,735,185
4,735,185
Equity Compensation Plans
The following table summarizes information as of December 31, 2014 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
Number of
Securities to be
Issued Upon
Exercise of
Outstanding
Options
(a)
Weighted-
Average Exercise
Price of
Outstanding
Options
(b)
Number
of Securities
Remaining
Available for
Future Issuance
Under Equity
Compensation
Plans (Excluding
Securities
Reflected in
Column (a))
(c)
5,399,474
41,983
$
$
81.30
33.17
4,268,691
—
Plan Category
Equity compensation plans approved by our security holders
(1)
Equity compensation plans not approved by our security
holders (2)
(1) These plans consist of our 2014 Incentive Compensation Plan, 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, in the Notes to the
Consolidated Financial Statements (Item 8 of Part II) for a description of this plan.
16
Performance Graph
The following graph compares the cumulative total return (i.e., share price appreciation plus dividends)
on our common stock over the five-year period ending December 31, 2014 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, 2009 in our common stock and in the shares 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.
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):
2014
(1)
Years Ended December 31,
2012
2011
2013
2010
$ 2,555,601
556,336
(2)
(2) $
326,456
3.79
104,616
$ 2,142,807
535,619
311,372
3.56
88,408
$
$ 1,913,149
468,836
267,996
3.08
76,283
$
$ 1,676,048
424,311
234,751
2.69
66,046
$
$ 1,439,388
370,683
207,879
2.39
53,885
Operating activities
Investing activities
Financing activities
$
$
448,500
(462,774)
(30,049)
$
405,307
(234,972)
(136,019)
$
390,784
(288,928)
(91,526)
306,104
(504,197)
137,872
$
325,670
(245,482)
(13,565)
(1)
Balance Sheet Data
Cash, cash equivalents and short-term
investments
Total assets
Long-term debt, net of current portion
Stericycle, Inc. equity
$
22,616
4,401,722
1,527,246
$ 1,895,012
$
67,580
3,887,973
1,280,663
$ 1,750,461
$
35,163
3,550,074
1,268,303
$ 1,541,793
$
22,927
3,177,090
1,284,113
$ 1,198,166
$
95,524
2,639,023
1,014,222
$ 1,048,425
(1) See Note 3 - Acquisitions and Divestitures, in the Notes to the Consolidated Financial Statements
(Item 8 of Part II) for information concerning our acquisitions during the three years ended
December 31, 2014, 2013 and 2012.
•
•
(2) See Note 8 - Earnings per Common Share, in the Notes to the Consolidated Financial Statements (Item
8 of Part II) for information concerning the computation of earnings per diluted common share.
In 2014, net income included the following after-tax effects: $12.5 million of expenses related to
acquisitions, $16.8 million of expenses related to the integration of our acquisitions, $10.1 million
of plant conversion and restructuring expenses, $4.0 million of expense related to litigation expenses,
and a $1.5 million gain related to the change in fair value of contingent consideration. The net effect
of these adjustments negatively impacted diluted earnings per share ("EPS") by $0.48.
In 2013, net income included the following after-tax effects: $10.2 million of expenses related to
acquisitions, $4.3 million of expenses related to the integration of our acquisitions, $1.8 million of
restructuring and plant closure costs, $1.4 million of expense related to litigation settlement, $1.3
million of expense related to the write-down of intangible assets, and a $2.2 million gain related to
the change in fair value of contingent consideration. The net effect of these adjustments negatively
impacted diluted earnings per share EPS by $0.19.
In 2012, net income included the following after-tax effects: $7.8 million of expenses related to
acquisitions, $3.1 million of expenses related to the integration of our 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 $0.8 million loss related to the change in fair value of contingent
consideration. The net effect of these adjustments negatively impacted diluted EPS by $0.26.
In 2011, net income included 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.
•
•
18
•
In 2010, net income included 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.
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 providing regulated and compliance solutions to healthcare and commercial
businesses. This includes the collection and processing of specialized waste for disposal, and a variety of
training, consulting, recall/return, communication, and compliance services. We were incorporated in 1989
and presently serve a diverse customer base of more than 600,000 customers throughout the United States,
Argentina, Brazil, Canada, Chile, Ireland, Japan, Mexico, Portugal, Romania, Republic of Korea, Spain, and
the United Kingdom.
The regulated solutions we provide include: medical waste disposal, our Steri-Safe® medical waste
and compliance program, our Clinical Services program, our Sharps Management Service featuring Bio
Systems® reusable sharps containers, pharmaceutical waste disposal, and hazardous waste disposal. Our
compliance solutions include: training, consulting, inbound/outbound communications, data reporting, and
other regulatory compliance services. In addition to our regulated and compliance solutions, we offer regulated
recall and returns management solutions which encompass a number of services for a variety of businesses,
but consist primarily of managing the recall, withdrawal, or return of expired or recalled products and
pharmaceuticals.
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, in the Notes to the Consolidated Financial
Statements, Item 8 of Part II), the following policies 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 hazardous waste services are recorded at the time waste is received at our
processing facility. Revenues from regulated recall and returns management services and communication
solutions 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.
Acquisition Accounting: Acquisition accounting requires us to recognize assets and liabilities at their
fair value. The process of determining the fair value of acquired assets and liabilities requires time to complete,
and accordingly, we make some estimates at the time of acquisition. These estimates are primarily for
19
amortizable intangibles, and if appropriate, an associated deferred tax liability. These estimates are based on
historical experience and allow us to recognize amortization expense until the final valuation is complete.
Goodwill and Other Identifiable Intangible Assets: Goodwill associated with the excess of the
purchase price over the fair value of the net assets acquired is not amortized. We have determined that our
permits have indefinite lives, and accordingly, they are not amortized (see Note 11 - Goodwill and Other
Intangible Assets, in the Notes to the Consolidated Financial Statements, Item 8 of Part II for additional
information).
Our balance sheet at December 31, 2014, contains goodwill of $2.4 billion. In accordance with applicable
accounting standards, we evaluate on at least an annual basis, using the fair value of reporting units, whether
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, 2014, we performed our annual goodwill impairment evaluation for
our three reporting units, Domestic Regulated and Compliance Services, Domestic Regulated Recall and
Returns Management Services, and International Regulated and Compliance Services. 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 in 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 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 size risk premium and
country risk premium. Significant assumptions used in the income approach include realization of future
cash flows and the discount rate used to derive the present value of those cash flows.
The results of our goodwill impairment test using the income approach indicated the fair value of our
Domestic Regulated and Compliance Services and Recall and Returns Management Services reporting units
exceeded 100% of book value by a substantial amount. Our International Regulated and Compliance Services
reporting units' fair value exceeded book value by approximately 85% and had $576.7 million in assigned
goodwill at June 30, 2014.
Market Approach: Our market approach begins by calculating the market capitalization of the Company
using the average stock price for the prior twelve months and the outstanding share count at June 30, 2014.
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 changes in the fair value of contingent
consideration, restructuring and plant closure costs, and litigation settlement, for the prior twelve months.
The calculated market capitalization is divided by the adjusted 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 months' adjusted EBITDA of that reporting unit. The fair value is 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.
20
The results of our goodwill impairment test using the market approach corroborated the results of the
impairment test under the income approach and indicated the fair value of our reporting units exceeded their
respective book values by substantial amounts, in excess of 100% of their respective book values.
Our permits are tested for impairment annually at December 31, or more frequently, if circumstances
indicate that they may be impaired. We use a qualitative assessment, as provided for under the FASB
Accounting Standards Codification Topic 350, Intangibles - Goodwill and Other, to determine if is is more
likely then not that the asset is impaired. If there is an indication of impairment, we test the recoverability
of the asset using either a discounted income or cost savings model to calculate fair value. The calculated
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 2014, we wrote off $9.9 million in operating permits due to rationalizing certain of our domestic and
international operations. These expenses are reflected as part of "Selling, general and administrative
expenses." Under generally accepted accounting principles, a fair value must be assigned to all acquired
assets based on a theoretical "market participant" regardless of the acquirer's intended use for these assets.This
accounting treatment can lead to the recognition of losses when a company disposes of acquired assets.
Other finite-lived intangible assets, such as customer relationships, covenants not-to-compete,
tradenames, and license agreements, are currently amortized using the straight-line method over their
estimated useful lives. We have determined that our customer relationships have useful lives from 10 to 40
years based upon the type of customer. Although the contracted regulated waste services business is highly
competitive, we have been able to maintain high customer retention through the quality of our 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.
In 2014, there were no indicators of impairment of these intangibles (see Note 11 - Goodwill and Other
Intangible Assets, in the Notes to the Consolidated Financial Statements, Item 8 of Part II).
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 basis 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. Undistributed earnings of foreign
subsidiaries are considered permanently reinvested, and therefore no deferred taxes are recorded thereon. 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.
21
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 approximately 1% of our accounts receivable.
Environmental remediation liabilities: We record a liability for environmental remediation when such
liability becomes probable and the costs or damages can be reasonably estimated. We accrue environmental
remediation costs, on an undiscounted basis, associated with identified sites where an assessment has indicated
that cleanup costs are probable and can be reasonably estimated, but the timing of such payments is not fixed
and determinable. Such accruals are based on currently available information, estimated timing of remedial
actions, existing technology, and enacted laws and regulations.
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.
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. Liabilities from litigation are accrued 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 the expected volatility of our
stock, the expected term of the award, and the risk-free rate. Our stock’s expected volatility and the expected
term of the awards are 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, in the Notes to the Consolidated Financial
Statements, Item 8 of Part II.
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.
22
At December 31, 2014, we had $22.2 million in cash and cash equivalents and $0.4 million of short-
term investments that we recorded at fair value using Level 1 inputs and $19.9 million of contingent
consideration related to acquisitions that we recorded at fair value using Level 3 inputs.
At December 31, 2014, we had derivative instruments with fair value liability of $1.9 million which
are not material to our financial statements.
Year Ended December 31, 2014 Compared to Year Ended December 31, 2013
Highlights for the year ended December 31, 2014 included the following:
revenues grew to $2.56 billion, a 19.3% increase over $2.14 billion in 2013;
•
• gross margins decreased to 42.8% in 2014 from 45.0% in 2013;
• operating income was $556.3 million, a 3.9% increase from $535.6 million for 2013;
• we incurred $59.0 million in pre-tax expenses related to acquisitions, integration expenses related to
acquisitions, plant conversion and restructuring expenses, litigation expenses, partially offset by the
gain on changes in the fair value of contingent consideration;
cash flow from operations was $448.5 million.
•
In analyzing our Company’s performance, it is necessary to understand that our various regulated
services share a common infrastructure and customer base. We market our regulated and compliance services
by offering various pricing options to meet our customers’ preferences, and customers move between these
different billing paradigms. For example, our 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 in a subsequent period, the same customer could move to our standard service ("Steri-Safe OSHA
Compliance Program"), which packages the same regulated medical 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 services under a different pricing and billing arrangement. We do not track the movement
of customers between the various types of regulated services we offer. Although we can identify directional
trends in our services, because the regulated 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 organic growth, acquired growth, and changes
due to currency exchange fluctuations.
23
The following summarizes the Company’s operations:
In thousands, except per share data
Years Ended December 31,
2014
2013
Revenues
$
Cost of revenues
Depreciation - cost of revenues
Plant conversion expenses
Litigation settlement
Total cost of revenues
Gross profit
Selling, general and administrative expenses
(exclusive of adjusting items shown below)
Acquisition expenses
Integration expenses
Change in fair value of contingent consideration
Plant conversion and restructuring expenses
Impairment of intangible assets
Litigation expenses
Total SG&A expenses (exclusive of depreciation and
amortization shown below)
Depreciation
Amortization
Income from operations
Net interest expense
Other expense, net
Income tax expense
Net income
Less: net income attributable to noncontrolling
interests
Net income attributable to Stericycle, Inc.
Earnings per share- diluted
$
$
$
2,555,601
1,401,797
56,478
2,915
—
1,461,190
1,094,411
433,865
13,333
25,968
(1,452)
11,649
—
6,574
489,937
15,446
32,692
556,336
66,022
2,746
159,422
328,146
1,690
326,456
3.79
%
$
100.0
54.9
2.2
0.1
—
57.2
42.8
$
2,142,807
1,125,627
50,003
423
2,120
1,178,173
964,634
%
100.0
52.5
2.3
—
0.1
55.0
45.0
17.0
0.5
1.0
(0.1)
0.5
—
0.3
19.2
0.6
1.3
21.8
2.6
0.1
6.2
12.8
0.1
12.8
$
$
372,091
10,275
6,521
(2,278)
2,480
1,405
116
390,610
11,338
27,067
535,619
54,949
2,924
164,662
313,084
1,712
311,372
3.56
17.4
0.5
0.3
(0.1)
0.1
0.1
0.0
18.2
0.5
1.3
25.0
2.6
0.1
7.7
14.6
0.1
14.5
Revenues: Our revenues increased $412.8 million, or 19.3%, to $2.56 billion from $2.14 billion in
2013. Domestic revenues increased $290.2 million, or 19.3%, to $1.80 billion from $1.51 billion in 2013.
Organic revenue growth for domestic small account customers increased by $71.9 million, or approximately
8%, driven by higher revenues from Steri-Safe revenues and regulated waste services for retailers. Organic
revenue from domestic large account customers increased by $35.3 million, or approximately 7%, as we
increased the total number of accounts and expanded our reusable sharps services and pharmaceutical waste
disposal programs as well as strong performance in our specialty waste services. Organic revenues for recall
and returns management services decreased by $17.3 million in 2014. Although our recall and returns
management services had an overall increase in the number of recall events, there were fewer large scale
events. Organic revenues exclude revenue growth attributed to businesses acquired within the preceding
twelve months. Revenues from domestic acquisitions closed within the preceding twelve months contributed
$200.3 million to the increase in revenues in 2014.
International revenues increased $122.6 million, or 19.3%, in 2014, to $758.8 million from $636.2
million in 2013. Organic growth, currency rate fluctuations and acquisitions impact the comparison of 2014
and 2013. Organic growth in the international segment contributed $54.9 million in revenues, or
approximately 9%. Organic growth excludes the effect of foreign exchange and acquisitions less than one
24
year old. The effect of foreign exchange rates unfavorably impacted international revenues in 2014 by $33.6
million as foreign currencies declined against the U.S. dollar. Revenues from international acquisitions closed
within the preceding twelve months contributed $101.3 million to the increase in revenues in 2014.
Cost of Revenues: Our 2014 cost of revenues increased $283.0 million, or 24.0%, to $1,461.2 million
from $1,178.2 million in 2013. During the years ended December 31, 2014 and 2013, we recognized $2.9
million and $0.4 million in plant conversion expenses, respectively. During the year ended December 31,
2013, we recognized $2.1 million in litigation settlement costs.
Our domestic cost of revenues increased $186.7 million, or 24.5%, to $947.3 million in 2014 compared
to $760.6 million in 2013 as a result of costs related to a proportional increase in revenues from acquisitions
and internal growth.
Our international cost of revenues increased $96.3 million, or 23.1%, to $513.9 million in 2014 from
$417.6 million in 2013 as a result of costs related to proportional increase in revenues from acquisitions and
internal growth.
Our consolidated gross profit as a percent of revenues decreased to 42.8% in 2014 from 45.0% in
2013. As identified above, plant conversion expenses negatively impacted our consolidated gross profit. In
general, international gross profits are lower than domestic gross profits because the international operations
have fewer small account customers, which tend to provide higher gross profits. Historically, the international
operations have had most of their revenues from large account customers, such as hospitals. As the
international revenues increase, consolidated gross profits 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.
Domestic gross profit as a percent of revenues decreased to 47.3% in 2014 from 49.5% in 2013 primarily
due to the inclusion of the PSC Environmental acquisition results in 2014 and less contribution from high
margin recall events. International gross profit as a percent of revenues decreased to 32.3% in 2014 from
34.4% in 2013 due to service mix shift on new revenues.
Selling, General and Administrative Expenses: Excluding the effect of acquisition and integration
expenses related to acquisitions, and other items (collectively the "Adjusting Items"), depreciation, and
amortization expenses, our SG&A expenses increased $61.8 million, or 16.6%, in 2014 to $433.9 million
from $372.1 million in 2013 primarily as investment spending supported the increase in revenues and acquired
SG&A expenses. As a percent of revenues, these costs decreased to 17.0% in 2014 from 17.4% in 2013.
Domestically, 2014 SG&A expenses, excluding Adjusting Items, depreciation, and amortization
expenses, increased $35.9 million, or 13.6%, to $300.5 million in 2014 from $264.6 million in 2013. As a
percent of revenues, SG&A decreased to 16.7% in 2014 compared to 17.6% in 2013. As a percent of revenues,
amortization expense of acquired intangible assets did not change and remained at 1.0%.
Internationally, SG&A expenses, excluding Adjusting Items, increased $25.9 million, or 24.1%, to
$133.4 million in 2014 from $107.5 million in 2013. As a percent of revenues, SG&A was at 17.6% in 2014
compared to 16.9% in 2013. As a percent of revenues, amortization expense of acquired intangible assets
did not change and remained at 1.9%.
During the year ended December 31, 2014, we recognized $13.3 million in acquisition expenses, $26.0
million of expenses related to the integration of our acquisitions, $11.6 million in plant conversion and
restructuring expenses related to the write off of permit intangibles in support of plant rationalization and
new plant start up costs, $6.6 million in litigation expenses, partially offset by a $1.5 million gain related to
a change in fair value of contingent consideration.
25
During the year ended December 31, 2013, we recognized $10.3 million in acquisition expenses, $6.5
million of expenses related to the integration of our acquisitions, $2.5 million of restructuring and plant
closure expenses, $1.4 million impairment of intangible assets, $0.1 million in litigation expenses, partially
offset by a $2.3 million gain related to a change in fair value of contingent consideration.
Income from Operations: Income from operations increased by $20.7 million, or 3.9%, to $556.3
million in 2014 from $535.6 million in 2013. Comparison of income from operations between 2014 and 2013
was affected by Adjusting Items described above in the SG&A section.
Domestically, our income from operations increased $34.0 million, or 7.6%, to $482.8 million in 2014
from $448.8 million in 2013. Internationally, our income from operations decreased $13.3 million, or 15.3%,
to $73.5 million in 2014 from $86.8 million in 2013. The decrease in international income from operations
is primarily related to an increase in integration expenses related to acquisitions and restructuring expenses
related to the write off of permit intangibles in support of plant rationalization.
Net Interest Expense: Net interest expense increased to $66.0 million during 2014 from $54.9 million
in 2013, due to increased borrowings and higher interest costs in Latin America as well as increased
borrowings on the senior credit facility to fund the acquisition of PSC Environmental on April 22, 2014.
Income Tax Expense: Income tax expense decreased to $159.4 million during 2014 from $164.7
million during 2013. The reported tax rates for the years 2014 and 2013 were 32.7% and 34.5%, respectively.
The decrease in the current year tax rate is primarily related to a benefit from the recognition of tax deductible
goodwill associated with legal entity mergers in Brazil as well as a reduction of some international statutory
tax rates.
Year Ended December 31, 2013 Compared to Year Ended December 31, 2012
Highlights for the year ended December 31, 2013 included the following:
revenues grew to $2.14 billion, a 12.0% increase over $1.91 billion in 2012;
•
• gross margins increased to 45.0% in 2013 from 44.8% in 2012;
• operating income was $535.6 million, a 14.2% increase from $468.8 million for 2012;
• we incurred $20.6 million in pre-tax expenses related to acquisitions, integration expenses related to
acquisitions, litigation settlement, restructuring and plant closure costs, impairment of intangible
assets, partially offset by the gain on changes in the fair value of contingent consideration;
cash flow from operations was $403.5 million.
•
26
The following summarizes the Company’s operations:
In thousands, except per share data
Years Ended December 31,
2013
2012
Revenues
$
Cost of revenues
Depreciation - cost of revenues
Litigation settlement and restructuring costs
Total cost of revenues
Gross profit
Selling, general and administrative expenses
(exclusive of items shown below)
Acquisition expenses
Integration expenses
Change in fair value of contingent consideration
Restructuring costs and plant closure expense
Impairment of intangible assets
Litigation settlement
Loss on sale of business
Total SG&A expenses (exclusive of depreciation and
amortization shown below)
Depreciation
Amortization
Income from operations
Net interest expense
Other expense, net
Income tax expense
Net income
Less: net income attributable to noncontrolling
interests
Net income attributable to Stericycle, Inc.
Earnings per share- diluted
$
$
$
2,142,807
1,126,050
50,003
2,120
1,178,173
964,634
372,091
10,275
6,521
(2,278)
2,480
1,405
116
—
390,610
11,338
27,067
535,619
54,949
2,924
164,662
313,084
1,712
311,372
3.56
%
$
100.0
52.6
2.3
0.1
55.0
45.0
$
1,913,149
1,011,081
44,631
132
1,055,844
857,305
%
100.0
52.8
2.3
—
55.2
44.8
17.4
0.5
0.3
(0.1)
0.1
0.1
—
—
18.2
0.5
1.3
25.0
2.6
0.1
7.7
14.6
0.1
14.5
$
$
327,131
7,920
4,896
752
5,201
—
6,050
4,867
356,817
9,598
22,054
468,836
51,270
369
147,256
269,941
1,945
267,996
3.08
17.1
0.4
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
Revenues: Our revenues increased $229.7 million, or 12.0%, to $2.14 billion in 2013 from $1.91 billion
in 2012. Domestic revenues increased $135.8 million, or 9.9%, to $1.51 billion from $1.37 billion in 2012
as organic revenue growth for domestic small account customers increased by $66.2 million, or approximately
8%, driven by an increase of Steri-Safe revenues and regulated waste management for retailers. Organic
revenues from domestic large account customers increased by $28.3 million, or approximately 6%, as we
increased the total number of accounts and expanded our reusable sharps services, pharmaceutical waste,
and regulated waste services for retailers. Organic revenues for recall and returns management services
decreased by $18.5 million compared to 2012 due to less large recalls. Organic revenues exclude revenue
growth attributed to businesses acquired within the preceding twelve months. Revenues from domestic
acquisitions closed within the preceding twelve months contributed approximately $59.8 million to the
increase in revenues in 2013.
International revenues in 2013 were $636.2 million, compared to $542.3 million in 2012, an increase
of $93.9 million, or 17.3%. Organic growth, currency rate fluctuations and acquisitions impact the comparison
of 2013 to 2012. Organic growth in the international segment contributed $35.1 million in revenues, or
approximately 7%. Organic growth excludes the effect of foreign exchange and acquisitions and divestitures
less than one year old. Foreign exchange rates unfavorably impacted international revenues in 2013 by $19.0
million as foreign currencies declined against the U.S. dollar. Revenue from international acquisitions, net
27
of business divestitures, closed within the preceding twelve months contributed approximately $77.8 million
to the increase in revenues in 2013.
Cost of Revenues: Our 2013 cost of revenues increased $122.3 million, or 11.6%, to $1.18 billion
compared to $1.06 billion in 2012. During the year ended December 31, 2013, we recognized $2.1 million
in litigation settlement costs. During the year ended December 31, 2012, we recognized $0.1 million of
restructuring costs.
Our domestic cost of revenues increased $61.0 million, or 8.7%, to $760.6 million in 2013 compared
to $699.6 million for 2012 as a result of costs related to a proportional increase in revenues from acquisitions
and organic growth.
Our international cost of revenues increased $61.3 million, or 17.2%, to $417.6 million in 2013 compared
to $356.3 million in 2012 as a result of costs related to a proportional increase in revenues from acquisitions
and organic growth.
Our gross margin percentage increased to 45.0% during 2013, from 44.8% during 2012. Domestic gross
margin percentage increased to 49.5% during 2013 from 49.0% in 2012.
International gross margin increased to 34.4% during 2013, compared to 34.3% in 2012. 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 Adjusting Items, depreciation, and amortization expenses, our SG&A expenses increased $45.0 million,
or 13.7%, to $372.1 million in 2013, from $327.1 million in 2012 primarily as investment spending supported
the increase in revenues and acquired SG&A expenses. As a percentage of revenues, these costs increased
to 17.4% in 2013, from 17.1% in 2012 primarily due to an increase in compensation expense.
Domestically, SG&A expenses, excluding Adjusting Items, depreciation, and amortization expenses,
increased $27.2 million or 11.5%, to $264.6 million in 2013, from $237.4 million in 2012. As a percentage
of revenues, SG&A was at 17.6% in 2013 compare to 17.3% in 2012. As a percentage of revenues, amortization
expense of acquired intangible assets increased by 0.1% in 2013.
Internationally, SG&A expenses, excluding Adjusting Items, depreciation, and amortization expenses,
increased $17.8 million, or 19.8%, in 2013 to $107.5 million from $89.7 million in 2012. As percentage of
revenues, SG&A was at 16.9% in 2013 compare to 16.5% in 2012. As a percentage of revenues, amortization
expense of acquired intangible assets increased by 0.2% in 2013.
During the year ended December 31, 2013, we recognized $10.3 million in acquisition expenses, $6.5
million expenses related to the integration of our acquisitions, $2.5 million of restructuring and plant closure
costs, $1.4 million impairment of intangible assets, $0.1 million in litigation settlement costs, partially offset
by $2.3 million favorable change in fair value of contingent consideration. These Adjusting Items, including
$2.1 million litigation settlement costs described in the Cost of Revenues section above, resulted in $20.6
million of expense on a pre-tax basis during 2013.
During the year ended December 31, 2012, we recognized $7.9 million in acquisition expenses, $4.9
million expense related to the integration of our acquisitions, $6.1 million in litigation settlement costs, $5.2
million of restructuring and plant closure costs, $4.9 million loss related to a divestiture in the United Kingdom,
28
and $0.8 million unfavorable change in fair value of contingent consideration. These Adjusting Items,
including $0.1 million of restructuring costs described in Cost of Revenue section above, resulted in $29.8
million of expense on a pre-tax basis during 2012.
Income from Operations: Income from operations increased by $66.8 million, or 14.2%, to $535.6
million in 2013 from $468.8 million in 2012. Comparison of income from operations between 2013 and 2012
is affected by Adjusting Items described above in the Cost of Revenues and SG&A sections.
Domestically, our income from operations increased $48.3 million, or 12.0%, to $448.8 million in 2013
from $400.5 million in 2012. Internationally, our income from operations increased $18.5 million, or 27.1%,
to $86.8 million in 2013 from $68.3 million in 2012. Expenses for Adjusting Items decreased by $9.2 million
in 2013 when compared to 2012.
Net Interest Expense: Net interest expense increased to $54.9 million during 2013 from $51.3 million
during 2012 due to higher average borrowing costs in the U.S. caused by the full year impact of the fixed
rate private placement borrowings for 2013 which we entered into in December 2012 and increased
borrowings and higher interest costs in Latin America.
Income Tax Expense: Income tax expense increased to $164.7 million during 2013 from $147.3 million
during 2012. The effective tax rates for the years 2013 and 2012 were 34.5% and 35.3%, respectively. The
decrease in the tax rate for 2013 is primarily related to a reduction of international statutory rates, most
notably in the United Kingdom, and to a decrease in our tax accrual for unrecognized tax benefits due to the
expiration of statute of limitations.
Liquidity and Capital Resources:
Our $1.2 billion senior credit facility maturing in June 2019, 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, 2014, we were in compliance with all of our financial debt
covenants.
On June 3, 2014, we and certain of our subsidiaries entered into a second amended and restated credit
agreement (the "new credit agreement") with Bank of America, N.A., as administrative agent, swingline
lender, a lender and a letter of credit issuer, other lenders party to the new credit agreement, JPMorgan Chase
Bank, N.A. and HSBC Bank USA, National Association, as syndication agents, and Union Bank, N.A. and
Santander Bank, National Association, as co-documentation agents. The new credit agreement amended and
restated our prior amended and restated credit agreement dated as of September 21, 2011. The new credit
agreement increases our unsecured revolving credit facility from $1.0 billion to $1.2 billion and extends the
maturity date of our borrowings from September 21, 2016 to June 3, 2019. We paid $2.1 million in financing
fees which will be amortized to interest expense over the life of the new credit agreement.
At December 31, 2014, we had $460.0 million of borrowings outstanding under our $1.2 billion senior
unsecured credit facility, which includes foreign currency borrowings of $144.5 million. We also had $162.9
million committed to outstanding letters of credit under this facility. The unused portion of the revolving
credit facility at December 31, 2014 was $577.1 million. At December 31, 2014, our interest rates on
borrowings under our revolving credit facility were as follows:
• A fee of 0.125% on our revolving credit facility
29
• For borrowings less than one month, the higher of the following
Federal funds rate plus 0.5%
Euro Currency rate plus 1.0% or the prime rate
• For borrowings greater than one month: LIBOR plus 1.0%
The weighted average rate of interest on the unsecured revolving credit facility was 1.50% per annum,
which includes the 0.125% facility fee at December 31, 2014.
At December 31, 2014, 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. These notes have been classified as long-term debt due to our
intent to pay this obligation by borrowing on our $1.2 billion senior credit facility.
At December 31, 2014, 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 semi-annually 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.
At December 31, 2014, 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 placement completed in December 2012. Interest is payable in arrears semi-annually on June 12 and
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.
At December 31, 2014, we had $279.6 million in promissory notes issued in connection with
acquisitions during 2007 through 2014, $160.5 million in foreign subsidiary bank debt outstanding, and $9.2
million in capital lease obligations.
Working Capital: At December 31, 2014, our working capital decreased $5.4 million to $118.7 million
compared to $124.1 million at December 31, 2013.
Current assets increased by $40.0 million. Net accounts receivable (inclusive of acquisitions) increased
by $76.5 million. Days sales outstanding ("DSO") was calculated at 63 days at both December 31, 2014 and
December 31, 2013, which was affected by acquired receivables of $68.0 million in 2014. Cash and cash
equivalents decreased by $44.9 million in 2014. At December 31, 2013 we had excess cash of $22.7 million,
offset by an equivalent amount in other current liabilities, that was used for recalled product reimbursements
during 2014.
Current liabilities increased by $45.3 million in 2014, of which $25.5 million related to entities showing
"negative cash" due to book to bank differences that we reclass to other current liabilities.
Net Cash Provided or Used: Net cash provided by operating activities increased $43.2 million, or
10.7%, to $448.5 million during 2014 from $405.3 million in 2013. The increase is primarily related to
stronger collections period over period on higher revenues. In 2014, our net cash provided by operating
activities was negatively impacted by $22.7 million that was used for recalled product reimbursement. Cash
provided by operations as a ratio to net income in 2014 and 2013 was 137% and 129% , respectively.
Net cash used in investing activities during 2014 was $462.8 million compared to $235.0 million in
2013. We used $212.4 million more in funds to acquire new businesses in 2014, notably our PSC
Environmental acquisition in April 2014. Our capital expenditures increased by $13.4 million in 2014 and,
as a percent of revenues, were at 3.4% in both 2014 and 2013.
30
Net cash used in financing activities was $30.0 million during the 2014 compared to $136.0 million
in 2013. In 2014, we had $197.0 net borrowings on our senior credit facility which we used to fund our
current year acquisitions. We had share repurchases of $194.1 million in 2014 compared to $163.7 million
in 2013, an increase of $30.4 million.
Contractual Obligations
The following table summarizes our significant contractual obligations and cash commitments at
December 31, 2014:
Payments due by period (dollars in thousands)
Long-term debt
Capital lease obligations
Operating leases
Purchase obligations
Other long-term liabilities
Total contractual cash obligations
Total
(1) $ 1,861,410
(1)
11,436
335,365
9,711
2,218
$ 2,220,140
(1)(2)
$
$
2015
187,029
4,788
81,926
6,141
629
280,513
2016-2017
600,249
$
6,043
128,933
3,570
520
739,315
$
2018-2019
682,582
$
152
80,408
—
—
763,142
$
$
$
2020
and After
391,550
453
44,098
—
1,069
437,170
(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.
(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, 2014, we had $162.9 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.
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 $6.5 million
on a pre-tax basis.
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.
We have exposure to foreign currency fluctuations. We have subsidiaries in twelve foreign countries
whose functional currency is the local currency. Our international subsidiaries use local currency denominated
lines of credit for their funding needs which is has no exposure to currency fluctuations. We translate results
of operations of our international operations using an average exchange rate. Changes in foreign currency
exchange rates could unfavorably impact our consolidated results of operations.
31
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, 2014. In making this assessment, management used the criteria set forth by
the Committee of Sponsoring Organizations of the Treadway Commission (1992 framework) in Internal
Control—Integrated Framework.
The Company acquired PSC Environmental Services, LLC ("PSC Environmental") on April 22, 2014.
PSC Environmental has not been included it management's assessment of the effectiveness of internal control
over financial reporting. Pursuant to the SEC's general guidance that an assessment of a recently acquired
business may be omitted from the scope of an assessment in the year of acquisition, the scope of our assessment
of the effectiveness of internal controls over financial reporting does not include PSC Environmental. PSC
Environmental accounted for approximately 7% of the Company's consolidated net sales for the year ended
December 31, 2014 and approximately 2% of the Company's consolidated total assets at December 31, 2014.
Based on this assessment and those criteria, management concludes that the Company maintained
effective internal control over financial reporting as of December 31, 2014.
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 33.
Lake Forest, IL
March 2, 2015
Stericycle, Inc.
32
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, 2014, based on criteria established in Internal Control—Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (1992 framework). The Company's
management is responsible for maintaining effective internal control over financial reporting, and for its
assessment of the effectiveness of internal control over financial reporting included in the accompanying
Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an
opinion on the Company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether effective internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing
the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of
internal control based on the assessed risk, and performing such other procedures as we considered necessary
in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles. A company’s internal control
over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records
that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation
of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and
directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk
that controls may become inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
In our opinion, the Company maintained, in all material respects, effective internal control over financial
reporting as of December 31, 2014, 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,
2014 and 2013, 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, 2014, and our report dated
March 2, 2015 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Chicago, Illinois
March 2, 2015
33
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, 2014 and 2013, 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, 2014. 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, 2014 and 2013, and the
consolidated results of their operations and their cash flows for each of the three years in the period ended
December 31, 2014, in conformity with U.S. generally accepted accounting principles. Also, in our opinion,
the related financial statement schedule, when considered in relation to the basic financial statements taken
as a whole, presents fairly in all material respects the information set forth therein.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), Stericycle Inc. and Subsidiaries', internal control over financial reporting as of
December 31, 2014, based on criteria established in Internal Control-Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (1992 framework) and our report
dated March 2, 2015 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Chicago, Illinois
March 2, 2015
34
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 $19,083 in 2014 and
$19,134 in 2013
Deferred income taxes
Prepaid expenses
Other current assets
Total Current Assets
Property, Plant and Equipment, less accumulated depreciation of $364,124 in 2014 and
$323,031 in 2013
Goodwill
Intangible assets, less accumulated amortization of $114,922 in 2014 and $88,098 in 2013
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, 84,883,517
issued and outstanding in 2014 and 85,500,037 issued and outstanding in 2013)
Additional paid-in capital
Accumulated other comprehensive loss
Retained earnings
Total Stericycle, Inc.’s Equity
Noncontrolling interest
Total Equity
Total Liabilities and Equity
December 31,
2014
2013
$
$
22,236
380
465,473
28,322
30,632
33,173
580,216
460,408
2,418,832
909,645
32,621
4,401,722
131,969
114,596
131,743
21,624
61,599
461,531
1,527,246
431,643
64,117
849
289,211
(138,419)
1,743,371
1,895,012
22,173
1,917,185
4,401,722
$
$
$
$
$
$
67,167
413
388,996
18,031
28,379
37,279
540,265
358,967
2,231,582
720,035
37,124
3,887,973
150,380
89,146
107,445
18,826
50,387
416,184
1,280,663
396,119
27,469
855
195,110
(56,468)
1,610,964
1,750,461
17,077
1,767,538
3,887,973
The accompanying notes are an integral part of these consolidated financial statements.
35
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 shown below)
Depreciation - cost of revenues
Selling, general and administrative expenses (exclusive of depreciation
and amortization shown below)
Depreciation – selling, general and administrative expenses
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 Attributable to Stericycle, Inc.
Common Shareholders:
Basic
Diluted
Weighted Average Number of Common Shares Outstanding:
Basic
Diluted
Years Ended December 31,
2013
2012
2014
$
2,555,601
$
2,142,807
$
1,913,149
1,404,712
56,478
489,937
15,446
32,692
1,999,265
556,336
1,128,170
50,003
390,610
11,338
27,067
1,607,188
535,619
120
(66,142)
(2,746)
(68,768)
487,568
159,422
328,146
1,690
326,456
3.84
3.79
$
$
$
$
294
(55,243)
(2,924)
(57,873)
477,746
164,662
313,084
1,712
311,372
3.62
3.56
$
$
$
$
$
$
$
$
1,011,213
44,631
356,817
9,598
22,054
1,444,313
468,836
404
(51,674)
(369)
(51,639)
417,197
147,256
269,941
1,945
267,996
3.14
3.08
84,932,792
86,233,612
85,902,550
87,391,988
85,401,365
87,018,473
The accompanying notes are an integral part of these consolidated financial statements.
36
STERICYCLE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
In thousands
Net Income
Years Ended December 31,
2013
2012
2014
$
328,146
$
313,084
$
269,941
Other Comprehensive Income/ (Loss):
Foreign currency translation adjustments
Amortization of cash flow hedge into income, net of tax ($209, $200
and $216) for the years ended December 31, 2014, 2013 and 2012,
respectively)
Change in fair value of cash flow hedge, net of tax ($813, $0 and $193
for the years ended December 31, 2014, 2013 and 2012, respectively)
Total Other Comprehensive Income/ (Loss)
Comprehensive Income
Less: Comprehensive Income/ (Loss) Attributable to
Noncontrolling Interests
Comprehensive Income Attributable to Stericycle, Inc.
$
(82,871)
(19,160)
6,801
339
314
(2,069)
(84,601)
—
(18,846)
339
289
7,429
243,545
294,238
277,370
(960)
244,505
$
270
2,454
293,968
$
274,916
The accompanying notes are an integral part of these consolidated financial statements.
37
STERICYCLE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
In thousands
OPERATING ACTIVITIES:
Net income
Adjustments to reconcile net income to net cash provided by operating
activities:
Stock compensation expense
Excess tax benefit of stock options exercised
Depreciation
Amortization
Deferred income taxes
Loss on sale of business
Change in fair value of contingent consideration
Other, net
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
(Purchases of)/ proceeds from investments
Proceeds from sale of business and other assets
Capital expenditures
Net cash used in investing activities
FINANCING ACTIVITIES:
Repayments 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
Purchases and cancellations of treasury stock
Proceeds from issuance of common stock
Excess tax benefit of stock options exercised
Payments to noncontrolling interests
Net cash used in financing activities
Effect of exchange rate changes on cash and cash equivalents
Net (decrease)/ increase in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
NON-CASH ACTIVITIES:
Issuances of obligations for acquisitions
Issuances of obligations for noncontrolling interest
Years Ended December 31,
2013
2012
2014
$
328,146
$
313,084
$
269,941
17,773
(17,906)
71,924
32,692
16,550
—
(1,452)
10,384
(34,116)
(5,712)
21,279
1,017
7,921
448,500
(374,321)
(1,957)
—
(86,496)
(462,774)
(101,231)
205,086
(193,284)
1,413,026
(1,216,031)
—
(2,280)
(5,826)
(194,066)
51,852
17,906
(5,201)
(30,049)
(608)
(44,931)
67,167
22,236
145,938
—
$
$
17,457
(17,153)
61,341
27,067
30,930
—
(2,278)
3,381
(54,767)
7
4,547
(1,319)
23,010
405,307
(161,936)
73
—
(73,109)
(234,972)
(88,507)
218,968
(201,967)
1,029,718
(984,979)
—
—
(4,024)
(163,700)
42,345
17,153
(1,026)
(136,019)
(1,809)
32,507
34,660
67,167
100,101
6,119
$
$
16,339
(30,161)
54,229
22,054
22,678
4,867
752
1,677
(4,329)
406
24,537
931
6,863
390,784
(224,367)
(89)
764
(65,236)
(288,928)
(102,932)
98,620
(69,454)
863,286
(1,167,595)
250,000
(956)
(3,192)
(48,028)
64,461
30,161
(5,897)
(91,526)
1,819
12,149
22,511
34,660
97,541
8,197
$
$
The accompanying notes are an integral part of these consolidated financial statements.
38
STERICYCLE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
Years Ended December 31, 2014, 2013 and 2012
Stericycle, Inc. Equity
Issued
and
Outstanding
Shares
Common
Stock
Additional
Paid-In
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Noncontrolling
Interest
Total Equity
84,696
$
847
$
— $ 1,243,303
$
(45,984) $
29,085
$
1,227,251
267,996
1,945
509
6,292
628
1,855
(563)
19
(6)
68,444
—
(48,022)
16,339
30,161
1,958
(182)
85,988
860
116,720
1,463,277
(39,064)
311,372
(17,718)
314
973
(1,461)
10
(15)
47,991
—
(163,685)
17,457
17,153
(4,211)
85,500
855
195,110
1,610,964
(56,468)
326,456
(80,221)
(1,730)
1,061
(1,677)
11
(17)
58,551
—
(194,049)
17,773
17,906
(129)
269,941
6,801
628
68,463
(48,028)
16,339
30,161
4,386
4,386
(19,997)
(18,039)
(398)
15,530
1,712
(1,442)
(580)
1,557,323
313,084
(19,160)
314
48,001
(163,700)
17,457
17,153
4,211
4,211
(2,926)
(8)
17,077
1,690
(2,650)
(7,137)
(8)
1,767,538
328,146
(82,871)
(1,730)
58,562
(194,066)
17,773
17,906
6,781
6,781
(725)
(854)
In thousands
Balance at January 1, 2012
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 stock options
exercised
Noncontrolling interests attributable to
acquisitions
Reduction to noncontrolling interests due
to additional ownership
Payments to noncontrolling interests
Balance at December 31, 2012
Net income
Currency translation adjustment
Change in qualifying cash flow hedge, net
of tax
Issuance of common stock for exercise of
options, restricted stock units and
employee stock purchases
Purchase/ cancellation of treasury stock
Stock compensation expense
Excess tax benefit of stock options
exercised
Noncontrolling interests attributable to
acquisitions
Reduction to noncontrolling interests due
to additional ownership
Payments to noncontrolling interests
Balance at December 31, 2013
Net income
Currency translation adjustment
Change in qualifying cash flow hedge, net
of tax
Issuance of common stock for exercise of
options, restricted stock units and
employee stock purchases
Purchase/ cancellation of treasury stock
Stock compensation expense
Excess tax benefit of stock options
exercised
Noncontrolling interests attributable to
acquisitions
Reduction to noncontrolling interests due
to additional ownership
Balance at December 31, 2014
84,884
$
849
$
289,211
$ 1,743,371
$
(138,419) $
22,173
$
1,917,185
The accompanying notes are an integral part of these consolidated financial statements.
39
STERICYCLE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 more than 600,000
customers throughout the United States, Argentina, Brazil, Canada, Chile, Ireland, Japan, Mexico, Portugal,
Romania, Republic of Korea, Spain, and the United Kingdom.
We lease office space for our corporate offices in Lake Forest, Illinois. Domestically, we own or lease
64 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 137 additional transfer sites, 19 additional
sales/administrative sites, and 51 other service facilities. Internationally, we own or lease 117 processing
facilities, the majority of which use autoclave waste processing technology. We also own or lease 77 additional
transfer sites, 45 additional sales/administrative sites, 46 other service facilities, and 2 landfills.
We are in the business of providing regulated and compliance solutions to healthcare and commercial
businesses. This includes the collection and processing of specialized waste for disposal, and a variety of
training, consulting, recall/return, communication, and compliance services.
The regulated solutions we provide include: medical waste disposal, hazardous waste management, our
Steri-Safe® medical waste and compliance program, our Clinical Services program, our Sharps Management
Service featuring Bio Systems® reusable sharps containers, pharmaceutical waste disposal, and medical safety
products. Our compliance solutions include: training, consulting, inbound/outbound communications, data
reporting, and other regulatory compliance services. In addition to our regulated and compliance solutions,
we offer regulated recall and returns management solutions which encompass a number of services for a
variety of businesses, but consist primarily of managing the recall, withdrawal, or return of expired or recalled
products and pharmaceuticals.
We have 9,969 employees in the United States, of which 456 are covered by collective bargaining
agreements. Internationally, we have 8,687 employees, of which approximately 2,209 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, 2014 and 2013 and the results of our operations,
our cash flows, and our statement of changes in equity for the three years ended December 31, 2014, 2013
and 2012. 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.
Certain amounts in previously issued financial statements have been reclassified to conform to the
current period presentation. At December 31, 2013, the Company recorded an immaterial correction of an
error to reclassify $5.2 million of book overdrafts from cash and cash equivalents to other current liabilities
40
on the Consolidated Balance Sheet. This adjustment had no impact on previously reported Stericycle, Inc.'s
equity, net income, or earnings per share.
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.
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 compliances services such as
Steri-Safe, are recognized at the time of waste collection. Our compliance service revenues are recognized
evenly over the contractual service period. Payments received in advance are deferred and recognized as
services are provided. Revenues from hazardous waste services are recorded at the time waste is received at
our processing facility. Revenues from regulated recall and returns management services and communication
solutions 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
2 to 7 years
2 to 15 years
2 to 7 years
Our containers have a weighted average remaining useful life of 13.1 years.
Acquisition Accounting:
Acquisition accounting requires us to recognize assets and liabilities at their fair value. The process of
determining fair value requires time to complete therefore we will make some estimates at the time of
acquisition. These estimates are primarily for amortizable intangibles and, if appropriate, an associated
deferred tax liability. These estimates are based on historical experience and allow us to recognize amortization
expense until the final valuation is complete.
41
Goodwill and Identifiable Intangibles:
Goodwill and identifiable indefinite lived intangible assets are not amortized, but are subject to an annual
impairment test (see Note 11 - Goodwill and Other Intangible Assets for more information about goodwill
and the annual impairment test). Our finite-lived intangible assets are amortized over their useful lives. We
have determined that our customer relationships have useful lives from 10 to 40 years based upon the type
of customer, with a weighted average remaining useful life of 23.8 years. We have covenants not-to-compete
intangibles with useful lives from 3 to 14 years, with a weighted average remaining useful life of 4.7 years.
We have tradename intangibles with useful lives from 10 to 40 years, with a weighted average remaining
useful life of 15.8 years. We have technology with useful life of 5 years, with a weighted average remaining
useful life of 1.0 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. We also have a tradename
that we have determined has an indefinite life.
Our indefinite lived intangible assets are tested for impairment annually at December 31, or more
frequently, if circumstances indicate that they may be impaired. We use a qualitative assessment, as provided
for under the FASB Accounting Standards Codification Topic 350, Intangibles - Goodwill and Other, to
determine if is is more likely then not that the asset is impaired. If there is an indication of impairment, we
test the recoverability of the asset using either a discounted income or cost savings model to calculate fair
value. The calculated 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 (see Note 11 - Goodwill and Other Intangible Assets for more
information about indefinite lived intangible assets).
Valuation of Intangibles:
Valuation of our intangible assets other than goodwill 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.
We have determined that our customer relationships have lives between 10 and 40 year 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 for more information about
our intangible assets other than goodwill).
Share Repurchases:
Purchase price over par value for share repurchases are allocated to retained earnings.
Income Taxes:
Deferred income tax assets and liabilities 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. Interest and penalties accrued related to unrecognized tax benefits
are recognized as a component of income tax expense.
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
42
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 approximately 1% of our
accounts receivable. Bad debt expense was $9.9 million, $4.8 million and $4.6 million for the years ended
December 31, 2014, 2013 and 2012, respectively.
Environmental Remediation Liabilities:
We record a liability for environmental remediation when such liability becomes probable and the costs
or damages can be reasonably estimated. We accrue environmental remediation costs, on an undiscounted
basis, associated with identified sites where an assessment has indicated that cleanup costs are probable and
can be reasonably estimated, but the timing of such payments is not fixed and determinable. Such accruals
are based on currently available information, estimated timing of remedial actions, existing technology, and
enacted laws and regulations.
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, 2014, the fair value of the Company’s debt
obligations was estimated at $1.67 billion, compared to a carrying amount of $1.66 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
approximately 1% 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.
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, accrued liabilities, contingent
consideration liabilities, intangible assets amortization expense, and rental payments are based upon foreign
exchange rates at December 31, 2014.
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
43
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 accumulated other comprehensive loss in Stericycle, Inc.'s equity.
New Accounting Standards:
Accounting Standards Recently Adopted
Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss,
or a Tax Credit Carryforward Exists
On January 1, 2014, we adopted guidance on the presentation of unrecognized tax benefits when a net
operating loss carryforward, a similar tax loss, or a tax credit carryforward exists at the reporting date. An
unrecognized tax benefit, or a portion of an unrecognized tax benefit, should be presented in the financial
statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or
a tax credit carryforward, except in certain circumstances. To the extent a net operating loss carryforward,
a similar tax loss, or a tax credit carryforward is not available at the reporting date under the tax law of the
applicable jurisdiction to settle any additional income taxes that would result from the disallowance of a tax
position or the tax law of the applicable jurisdiction does not require the entity to use, and the entity does
not intend to use, the deferred tax asset for such purpose, the unrecognized tax benefit should be presented
in the financial statements as a liability and should not be combined with deferred tax assets. The assessment
of whether a deferred tax asset is available is based on the unrecognized tax benefit and deferred tax asset
that exist at the reporting date and should be made presuming disallowance of the tax position at the reporting
date. For example, an entity should not evaluate whether the deferred tax asset expires before the statute of
limitations on the tax position or whether the deferred tax asset may be used prior to the unrecognized tax
benefit being settled. We are applying this guidance on a prospective basis. The implementation of this
guidance did not affect our results of operations or financial liquidity.
Accounting Standards Issued But Not Yet Adopted
Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity
In April 2014, the Financial Accounting Standards Board ("FASB") issued guidance that changes the
threshold for reporting discontinued operations and adds new disclosures. The new guidance defines a
discontinued operation as a disposal of a component or group of components that is disposed of or is classified
as held for sale and "represents a strategic shift that has (or will have) a major effect on an entity's operations
and financial results." For disposals of individually significant components that do not qualify as discontinued
operations, an entity must disclose pre-tax earnings of the disposed component. For public business entities,
this guidance is effective prospectively for all disposals (or classifications as held for sale) of components
of an entity that occur within annual periods beginning on or after December 15, 2014, and interim periods
within those years. Early adoption is permitted, but only for disposals (or classifications as held for sale) that
have not been reported in financial statements previously issued or available for issuance. The Company has
no plans to dispose of a component of our entity and therefore does not expect the adoption of this guidance
to have a material impact on the Company’s financial position or results of operations.
44
Revenue From Contracts With Customers
In May 2014, the FASB issued guidance to provide a single, comprehensive revenue recognition model
for all contracts with customers. The revenue guidance contains principles that an entity will apply to
determine the measurement of revenue and timing of when it is recognized. The underlying principle is that
an entity will recognize revenue to depict the transfer of goods or services to customers at an amount that
the entity expects to be entitled to in exchange for those goods or services. The standard will be effective for
the first interim period within annual reporting periods beginning after December 15, 2016 for public entities,
with no early adoption permitted. The Company is currently evaluating the impact of the adoption of this
guidance on its internal processes, operating results, and financial reporting. The impact is currently not
known or reasonably estimable.
Accounting for Share-Based Payment When the Terms of an Award Provide That a Performance Target Could
Be Achieved After the Requisite Service Period
In June 2014, the FASB issued guidance that applies to all reporting entities that grant their employees
share-based payments in which the terms of the award provide that a performance target that affects vesting
could be achieved after the requisite service period. It requires that a performance target that affects vesting
and that could be achieved after the requisite service period be treated as a performance condition and follows
existing accounting guidance for the treatment of performance conditions. The standard will be effective for
annual periods and interim periods within those annual periods beginning after December 15, 2015, with
early adoption permitted. The Company does not have any share-based payments with a performance target
and therefore does not expect the adoption of this guidance to have a material impact on the Company’s
financial position or results of operations.
NOTE 3 – ACQUISITIONS AND DIVESTITURES
The following table summarizes the locations of our acquisitions for the years ended December 31,
twelve months ended December 31, 2014, 2013 and 2012:
Acquisition Locations
United States
Argentina
Brazil
Canada
Chile
Japan
Mexico
Portugal
Romania
Republic of Korea
Spain
United Kingdom
Total
2014
2013
2012
17
2
3
2
3
2
—
5
3
1
3
3
44
13
3
2
3
1
3
1
2
6
—
3
12
49
17
1
1
—
3
1
2
1
2
—
8
5
41
During 2014, we completed 44 acquisitions, of which 17 were domestic and 27 were international
businesses. Domestically, we acquired 100% of the stock of two regulated waste businesses, selected assets
of eleven regulated waste businesses, three communication services business, and one recall and returns
business.
Internationally, in Argentina, we acquired 100% of the stock of two regulated waste businesses. In
Brazil, we acquired 100% of the stock of two regulated waste business and selected assets of one regulated
45
waste business. In Canada, we acquired 100% of the stock of two communication solution businesses. In
Chile, we acquired 100% of the stock of two regulated waste businesses, and 90% of the stock of another.
In Japan, we acquired 100% of the stock of two regulated waste businesses. In Portugal, we acquired 100%
of the stock of five regulated waste business. In Romania, we acquired selected assets of two regulated waste
businesses and 100% of the stock of another. In Republic of Korea, which represents a new market for us,
we acquired 75.5% of the stock of one regulated waste business. In Spain, we acquired 100% of the stock
of one regulated waste business and selected assets of two regulated waste businesses. In the United Kingdom,
we acquired 100% of the stock of two regulated waste businesses and selected assets of another.
We also increased our majority share in a previous acquisition in Japan to 100%.
The following table summarizes the aggregate purchase price paid for acquisitions and other adjustments
of consideration to be paid for acquisitions during the years ended December 31, 2014, 2013 and 2012:
In thousands
Cash
Promissory notes
Deferred consideration
Contingent consideration
Total purchase price
2014
2013
2012
$
$
374,321
125,229
3,535
17,174
520,259
$
$
161,936
64,581
31,149
4,371
262,037
$
$
224,367
70,670
17,681
9,190
321,908
For financial reporting purposes, our acquisitions were accounted for using the acquisition method of
accounting. These acquisitions resulted in the 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 growth strategy. During the twelve months ended December 31, 2014, we recognized a net increase
in goodwill of $235.6 million excluding the effect of foreign currency translation (see Note 11 – Goodwill
and Other Intangible Assets, in the Notes to the Consolidated Financial Statements). A net increase of $164.9
million was assigned to our United States reportable segment, and a net increase of $70.7 million was assigned
to our International reportable segment. Approximately $125 million of the goodwill recognized during the
twelve months ended December 31, 2014 will be deductible for income taxes.
During the twelve months ended December 31, 2014, we recognized a net increase in intangible assets
from acquisitions of $276.8 million, excluding the effect of foreign currency translation. The changes include
$117.2 million in the estimated fair value of acquired customer relationships with amortizable lives of 10 to
40 years, $158.1 million in permits with indefinite lives, and $1.2 million in tradename with an amortizable
lives of 15 to 20 years, and $0.3 million in other intangibles with an amortizable life of 10 years.
The purchase prices for these acquisitions in excess of acquired tangible assets have been primarily
allocated to goodwill and other intangibles and are preliminary, pending completion of certain intangible
asset valuations and completion accounts. The following table summarizes the preliminary purchase price
allocation for current period acquisitions and other adjustments to purchase price allocations during the years
ended December 31, 2014, 2013 and 2012:
46
In thousands
Fixed assets
Intangibles
Goodwill
Accounts receivable
Accounts payable
Environmental remediation liabilities
Net other (liabilities)/ assets
Debt
Net deferred tax liabilities
Noncontrolling interests
Total purchase price allocation
2014
2013
2012
$
$
98,916
276,798
235,597
68,019
(37,021)
(32,383)
(42,015)
(22,102)
(18,769)
(6,781)
520,259
$
$
15,582
92,398
179,795
19,920
(8,910)
—
(11,030)
(7,512)
(13,995)
(4,211)
262,037
$
$
30,426
150,149
147,156
26,656
(7,423)
—
3,869
(4,353)
(20,186)
(4,386)
321,908
During the twelve months ended December 31, 2014, 2013 and 2012 the Company incurred $13.3
million, $10.3 million, and $7.9 million, respectively, of acquisition related expenses. These expenses are
included with "Selling, general and administrative expenses" ("SG&A") on our Consolidated Statements of
Income.
Included in the acquisitions discussed above for the quarter ended June 30, 2014 is the acquisition of
100% of the stock of PSC Environmental Services, LLC ("PSC Environmental"), which was consummated
on April 22, 2014. Subject to various adjustments, the total consideration for the PSC Environmental
acquisition was $284.2 million, of which $248.2 million was paid in cash, $30.0 million was paid by a two-
year promissory note, and $6.0 million of the total purchase price represents contingent consideration which
is based on Stericycle's expected future utilization of acquired net operating losses. A portion of the cash
payment was applied to pay PSC Environmental’s indebtedness as of the closing date. As part of the PSC
Environmental acquisition, we assumed $32.4 million in environmental remediation liabilities (see Note 13
- Environmental Remediation Liabilities, in the Notes to the Consolidated Financial Statements).
Included in the acquisitions discussed above for the quarter ended September 30, 2014 is the acquisition
of 100% of the stock of Shiraishi-Sogyo Co. Ltd. ("Shiraishi"). Consideration for the acquisition of Shiraishi
included the effective settlement of pre-existing loans we extended to Shiraishi for $15.7 million and the
assumption of Shiraishi's bank debt of $4.7 million.
The results of operations of these acquired businesses have been included in the consolidated statements
of income from the date of the acquisition. The pro forma revenues for the twelve months ended December
31, 2014 from the aggregate acquisitions during 2014 was approximately $364.5 million, which includes
$219.5 million estimated impact to 2014 reported revenues. Our pro forma earnings include estimates for
intangible asset amortization expense but does not include estimated synergies as the timing and realizability
of synergies is uncertain. The following consolidated pro forma information on the impact of the 2014
acquisitions to our consolidated revenues is based on the assumption that these acquisitions all occurred on
January 1, 2013:
In thousands
Revenues
Net income
Years Ended December 31,
$
2014
2,700,614
331,330
$
2013
2,507,314
317,609
47
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 – Quoted prices in active markets for identical assets or liabilities.
Level 2 – Observable inputs other than quoted prices in active markets for identical assets and liabilities,
quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are observable
or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3 – Inputs that are generally unobservable and typically reflect management’s estimate of assumptions
that market participants would use in pricing the asset or liability.
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.
In thousands
Assets:
Cash and cash equivalents
Short-term investments
Derivative financial instruments
Total assets
Liabilities:
Contingent consideration
Derivative financial instruments
Total liabilities
In thousands
Assets:
Cash and cash equivalents
Short-term investments
Total assets
Liabilities:
Contingent consideration
Total liabilities
Total as of
December 31, 2014
$
$
$
$
$
22,236
380
515
23,131
19,941
2,408
22,349
Total as of
December 31, 2013
$
$
$
$
67,167
413
67,580
12,527
12,527
48
$
$
$
$
$
$
$
$
$
Fair Value Measurements Using
Level 2
Inputs
Level 3
Inputs
Level 1
Inputs
22,236
380
—
22,616
$
$
— $
— $
— $
— $
—
515
515
$
— $
$
$
2,408
2,408
—
—
—
—
19,941
—
19,941
Fair Value Measurements Using
Level 2
Inputs
Level 3
Inputs
Level 1
Inputs
67,167
413
67,580
$
$
— $
— $
— $
—
— $
— $
— $
—
—
—
12,527
12,527
For our derivative financial instruments we use a market approach valuation technique based on
observable market transactions of spot and forward rates.
We recorded a $0.5 million asset related to the fair value of the U.S. dollar-Canadian dollar foreign
currency swap which was classified as other assets at December 31, 2014. The objective of the swap is to
offset the foreign exchange risk to the U.S. dollar equivalent cash outflows for our Canadian subsidiary.
We recorded a $2.4 million liability related to the fair value of treasury locks which was classified as
current liabilities at December 31, 2014. The purpose was to lock in the treasury rate on the issuance of
expected private placement debt and to eliminate interest rate risk. The fair value of the hedge was calculated
by taking the present value of the difference between the locked rate and the forward rates at December 31,
2014. The hedge will terminate in April 2015 at which time the settlement amount, net of tax, will be
recognized in accumulated other comprehensive income and amortized to net interest expense over the life
of the underlying debt.
We had contingent consideration liabilities recorded using Level 3 inputs in the amount of $19.9 million,
of which $7.9 million was classified as current liabilities at December 31, 2014. Contingent consideration
liabilities were $12.5 million at December 31, 2013. Contingent consideration represents amounts expected
to be paid as part of acquisition consideration only if certain future events occur. These events are usually
targets for revenues or earnings related to the business acquired. 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, our
maximum liability would be $23.8 million at December 31, 2014. Contingent consideration liabilities are
reassessed each quarter and are reflected in the Consolidated Balance Sheets in current liabilities within
"Other current liabilities" and in noncurrent liabilities within "Other liabilities." Changes to contingent
consideration are reflected in the table below:
In thousands
Contingent consideration at January 1, 2014
Increases due to acquisitions
Decrease due to change in noncontrolling interests
Decrease due to payments
Changes due to foreign currency fluctuations
Changes in fair value reflected in Selling, general, and
administrative expenses
Contingent consideration at December 31, 2014
$
$
12,527
17,174
(4,379)
(2,737)
(1,192)
(1,452)
19,941
Fair Value of Debt: At December 31, 2014, the fair value of the Company’s debt obligations was
estimated, using Level 2 inputs, at $1.67 billion compared to a carrying amount of $1.66 billion. At
December 31, 2013, 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 $1.43 billion. The fair values were estimated using an
income approach by applying market interest rates for comparable instruments. The Company has no current
plans to retire a significant amount of its debt prior to maturity.
There were no movements of items between fair value hierarchies.
49
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, 2014, 2013 and 2012:
In thousands
United States
Foreign
Total income before income taxes
2014
2013
2012
$
$
441,029
46,539
487,568
$
$
407,315
70,431
477,746
$
$
357,076
60,121
417,197
Significant components of our income tax expense for the years ended December 31, 2014, 2013 and
2012 are as follows:
In thousands
Current
United States - federal
United States - state and local
Foreign
Deferred
United States - federal
United States - state and local
Foreign
Foreign - changes in statutory rates
Total provision
2014
2013
2012
$
$
118,217
13,023
14,930
146,170
29,730
948
(15,339)
(2,087)
13,252
159,422
$
$
103,751
11,683
24,486
139,920
31,808
5,510
(10,246)
(2,330)
24,742
164,662
$
$
95,864
14,034
17,192
127,090
25,028
3,881
(8,743)
—
20,166
147,256
A reconciliation of the income tax provision computed at the federal statutory rate to the effective tax
rate for the years ended December 31, 2014, 2013 and 2012 are as follows:
Federal statutory income tax rate
Effect of:
State and local taxes, net of federal tax effect
Foreign tax rates
Change in deferred tax assets from an increase in
tax basis of foreign assets
Other
Effective tax rate
2014
2013
2012
35.0 %
35.0 %
35.0 %
1.9 %
(0.5)%
(1.8)%
(1.9)%
32.7 %
2.3 %
(0.8)%
— %
(2.0)%
34.5 %
2.9 %
(1.2)%
— %
(1.4)%
35.3 %
Cash payments for income taxes were $128.1 million, $102.1 million, and $104.7 million for the
years ended December 31, 2014, 2013 and 2012, respectively.
Our deferred tax liabilities and assets at December 31, 2014 and 2013 were as follows:
50
In thousands
Deferred tax liabilities:
Property, plant and equipment
Goodwill and intangibles
Total deferred tax liabilities
Deferred tax assets:
Accrued liabilities
Stock based compensation
Other
Net operating tax loss carry-forwards
Less: valuation allowance
Total deferred tax assets
Net deferred tax liabilities
2014
2013
$
$
(41,071) $
(453,854)
(494,925)
32,664
21,139
17,922
20,017
(56)
91,686
(403,239) $
(43,280)
(387,942)
(431,222)
20,415
20,361
5,264
8,097
(1,122)
53,015
(378,207)
At December 31, 2014, 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 $58 million and
certain of these net operating loss carry-forwards begin to expire in 2017. The tax benefit of these net operating
losses is approximately $20 million at December 31, 2014, on which a valuation allowance of $56 thousand
was recorded offsetting such tax benefit. During 2014, we reversed valuation allowances previously recorded
in Japan, because net operating tax loss carry-forwards are now considered more likely than not to be realized.
The valuation allowance primarily relates to loss carry-forwards for which limitations are in place and
utilization before their expiration is uncertain.
Undistributed earnings of foreign subsidiaries are considered permanently reinvested, and therefore no
deferred taxes are recorded thereon. The cumulative amounts of such earnings are approximately $421 million
at December 31, 2014, 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 2011. In 2014, the Internal Revenue Service
concluded an audit of our 2010 Corporate Income Tax return with no significant adjustments.
The Company has recorded accruals to cover certain unrecognized tax positions. Such unrecognized
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 unrecognized tax positions
as deemed necessary. The estimated amount of liability associated with the Company’s unrecognized tax
positions that may significantly increase or decrease within the next twelve months cannot be reasonably
estimated.
The total amount of unrecognized tax positions at December 31, 2014 is $15.1 million. The amount of
unrecognized tax positions that, if recognized, would affect the effective tax rate is approximately $15.1
million. We recognized interest and penalties accrued related to income tax reserves in the amount of $0.3
million and $0.4 million, for the years ended December 31, 2014 and 2013, respectively, as a component of
income tax expense.
The following table summarizes the changes in unrecognized tax positions during the years ended
December 31, 2014 and 2013:
51
In thousands
Unrecognized tax positions at January 1, 2013
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 at December 31, 2013
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 at December 31, 2014
$
16,104
267
(1,129)
2,514
—
(2,846)
14,910
200
(762)
3,081
(1,165)
(1,169)
15,095
NOTE 6 – STOCK BASED COMPENSATION
At December 31, 2014, we had the following stock option plans:
•
•
•
•
•
•
•
the 2014 Incentive Stock Plan, which our stockholders approved in May 2014;
the 2011 Incentive Stock Plan, which our stockholders approved in May 2011;
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; and
At December 31, 2014, we have reserved a total of 9,450,645 shares for issuance under these plans.
In terms of the stock options authorized, the 2014 Plan, 2011 Plan, 2008 Plan, and the 2005 Plan provide
for the grant of non-statutory stock options ("NSOs") and incentive stock options ("ISOs") intended to qualify
under section 422 of the Internal Revenue Code; 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 2014, 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.
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.
Employee Stock Purchase Plan:
In October 2000, our Board of Directors adopted the Employee Stock Purchase Plan ("ESPP"), which
our stock holders approved in May 2001, and was made effective as of July 1, 2001. The ESPP authorizes
52
900,000 shares of our common stock, which substantially most employees may purchase through payroll
deductions at a price equal to 85% of the lower of the fair market values of the stock as of the beginning or
the end of the six-month offering periods. An employee's payroll deductions, and stock purchase, may not
exceed $5,000 during any offering period. During 2014, 2013 and 2012, 60,189 shares, 52,956 shares, and
56,362 shares respectively, were issued through the ESPP. At December 31, 2014, we had 259,503 shares
available for issuance under ESPP plan.
Stock Based Compensation Expense:
During 2014, 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.
The following table presents the total stock-based compensation expense resulting from stock option
awards, restricted stock units ("RSUs"), and the ESPP included in the Consolidated Statements of Income:
Cost of revenues - stock option plan
Selling, general and administrative - stock option plan
Selling, general and administrative - RSUs
Selling, general and administrative - ESPP
Total pre-tax expense
Years Ended December 31,
2013
2012
2014
$
$
52
$
120
$
15,214
1,267
1,240
15,212
1,116
1,009
17,773
$
17,457
$
136
13,630
1,474
1,099
16,339
The following table sets forth the tax benefits related to stock compensation:
Tax benefit recognized in Statements of Income
Excess tax benefit realized
$
$
4,849
17,906
$
4,518
17,153
5,818
30,161
Years Ended December 31,
2013
2012
2014
Stock Options:
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. Stock option activity for the year ended December 31, 2014, is summarized as
follows:
Outstanding at beginning of year
Granted
Exercised
Forfeited
Canceled or expired
Outstanding at December 31, 2014
Exercisable at December 31, 2014
Vested and expected to vest at December 31, 2014
Weighted
Average
Exercise
Price per
Share
70.29
115.41
53.49
96.43
80.96
80.88
65.54
80.02
Number of
Options
5,540,482
$
981,583
(991,201)
(151,350)
(1,657)
5,377,857
2,719,760
5,176,959
$
$
$
53
At December 31, 2014, there was $44.1 million of total unrecognized compensation expense related to
non-vested option awards, which is expected to be recognized over a weighted average period of 2.81 years.
The following table sets forth the total intrinsic value of options exercised for the years ended December
31:
In thousands
Total exercise intrinsic value of options exercised
$
65,884
$
55,757
$
97,816
2014
2013
2012
The total exercise intrinsic value represents the total pre-tax value (the difference between the sales
price on the trading day the option was exercised and the exercise price associated with the respective option).
The following table sets forth the information related to outstanding and exercisable options for the
years ended December 31:
Weighted average remaining contractual life of
outstanding options (in years)
Total aggregate intrinsic value of outstanding options
(in thousands)
Weighted average remaining contractual life of
exercisable options (in years)
Total aggregate intrinsic value of exercisable options
(in thousands)
$
$
2014
2013
2012
6.10
6.60
6.70
269,900
$
254,200
$
175,200
5.10
5.30
5.50
178,300
$
161,100
$
114,500
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, 2014 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, 2014; this amount changes based
on the fair market value of our stock.
Options outstanding and exercisable at December 31, 2014 by price range are presented below:
Range of Exercise
Price
$22.90 - $46.83
$46.87 - $51.20
$51.55 - $51.55
$51.75 - $83.88
$83.95 - $84.91
$85.00 - $85.00
$85.02 - $86.02
$86.24 - $86.24
$86.83 - $95.03
$95.87 - $132.95
$22.90 - $132.95
Options Outstanding
Outstanding
Average
Remaining
Life in Years
3.03
4.34
5.10
3.95
7.34
6.10
7.18
7.12
6.83
7.73
6.14
Weighted
Average
Exercise Price
41.99
$
49.70
51.55
57.71
84.01
85.00
85.44
86.24
90.13
106.15
80.88
$
Shares
663,353
72,225
539,334
550,039
48,731
614,657
11,450
801,630
179,092
1,897,346
5,377,857
Options Exercisable
Weighted
Average
Exercise Price
42.06
$
49.61
51.55
57.16
83.96
85.00
85.32
86.24
89.22
100.63
65.54
$
Shares
659,353
68,225
380,195
524,647
43,081
327,701
3,300
317,562
124,033
271,663
2,719,760
The Company uses historical data to estimate expected life and volatility. The estimated fair value of
stock options at the time of the grant using the Black-Scholes model option pricing model was as follows:
54
Stock options granted (shares)
Years Ended December 31,
2013
2012
2014
981,583
1,057,630
1,142,205
Weighted average fair value at grant date
$
21.31
$
22.02
$
20.14
Assumptions:
Expected term (in years)
Expected volatility
Expected dividend yield
Risk free interest rate
Restricted Stock Units:
4.76
17.23%
—%
1.53%
5.81
27.03%
—%
1.00%
6.00
27.87%
—%
1.05%
The fair value of Restricted stock units ("RSUs") is based on the closing price of the Company's
common stock on the date of grant and is amortized to expense over the service period. RSUs vest at the end
of three or five years. Our 2008, 2011 and 2014 Plans include a share reserve related to RSUs granted at a
2-1 ratio. The following table sets forth the information related to RSUs for the years ended December 31:
Total aggregate intrinsic value of outstanding units (in
thousands)
$
Per share fair value of units granted
$
8,337
115.67
$
8,185
96.40
6,362
86.24
2014
2013
2012
A summary of the status of our non-vested RSUs and changes during the year ended December 31,
2014, are as follows:
Non-vested at beginning of year
Granted
Vested and released
Forfeited
Non-vested at December 31, 2014
Number of
Units
Weighted
Average Grant
Date Fair
Value
70,457
16,334
(17,288)
(5,903)
63,600
$
$
88.32
115.67
85.00
90.53
96.04
At December 31, 2014, there was $4.1 million of total unrecognized compensation expense related to
RSUs, which is expected to be recognized over a weighted average period of 2.87 years. The fair value of
units that vested during the years ended December 31, 2014, 2013 and 2012 was $2.0 million, $1.2 million,
and $0.4 million, respectively.
NOTE 7 – PREFERRED STOCK
At December 31, 2014 and 2013, we had 1,000,000 authorized shares of preferred stock and no shares
issued or outstanding.
NOTE 8 – EARNINGS PER COMMON SHARE
Basic earnings per share is computed by dividing income available to common shareholders by the
weighted-average number of shares of common stock outstanding during the period. Diluted earnings per
share is computed by dividing income available to common shareholders by the weighted-average number
of shares of common stock outstanding during the period increased to include the number of additional shares
55
of common stock that would have been outstanding if the potentially dilutive securities had been issued.
Potentially dilutive securities include outstanding stock options, shares to be purchased under the Company’s
employee stock purchase plan and RSUs. The effect of potentially dilutive securities is reflected in diluted
earnings per share by application of the treasury stock method. Under the treasury stock method, an increase
in the fair market value of the Company’s common stock can result in a greater dilutive effect from potentially
dilutive securities.
The following table sets forth the computation of basic and diluted earnings per share:
Numerator:
Numerator for basic earnings per share net income
attributable to Stericycle, Inc.
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
Years Ended December 31,
2013
2012
2014
$
326,456
$
311,372
$
267,996
84,932,792
85,902,550
85,401,365
1,300,820
1,489,438
1,617,108
86,233,612
87,391,988
87,018,473
$
$
3.84
3.79
$
$
3.62
3.56
$
$
3.14
3.08
For additional information regarding outstanding employee stock options, see Note 6 - Stock Based
Compensation, in the Notes to the Consolidated Financial Statements.
In 2014, 2013 and 2012, options to purchase 830,755 shares, 846,808 shares, and 1,049,707 shares,
respectively, at exercise prices of $105.12-$132.95, $94.76-$119.19, and $77.49-$94.76 were not included
in the computation of diluted earnings per share because the effect would have been anti-dilutive.
NOTE 9 – ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
The following table sets forth the changes in the components of accumulated other comprehensive
income for 2014, 2013 and 2012:
In thousands
Beginning balance at January 1, 2012
Period change
Ending balance at December 31, 2012
Period change
Ending balance at December 31, 2013
Period change
Ending balance at December 31, 2014
Currency
Translation
Adjustments
$
(43,584) $
6,292
(37,292) $
(17,718)
(55,010) $
(80,221)
(135,231) $
$
$
$
Unrealized
Gains
(Losses) on
Cash Flow
Hedges
Accumulated
Other
Comprehensive
Income/ (Loss)
(2,400) $
628
(1,772) $
314
(1,458) $
(1,730)
(3,188) $
(45,984)
6,920
(39,064)
(17,404)
(56,468)
(81,951)
(138,419)
The tax impact of the unrealized gains/ (losses) on cash flow hedges in accumulated other comprehensive
income at December 31, 2014, 2013 and 2012 was $1.0 million, $0.2 million, and $0.4 million, respectively.
56
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, 2014 and 2013 consisted of the following items:
In thousands
Land and improvements
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
2014
2013
$
$
63,600
142,680
250,684
56,650
155,238
80,158
40,291
35,231
824,532
(364,124)
460,408
$
$
26,818
113,740
214,324
46,579
145,273
68,005
25,676
41,583
681,998
(323,031)
358,967
NOTE 11 – GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill and other identifiable indefinite lived intangibles are not amortized, but are subject to an
annual impairment test, or more frequent testing if circumstances indicate that they may be impaired.
Goodwill:
We have two geographical reportable segments, "United States" and "International," both of which have
goodwill. The changes in the carrying amount of goodwill since January 1, 2013, by reportable segment,
were as follows:
In thousands
Balance at January 1, 2013
Goodwill acquired during year
Purchase accounting allocation adjustments
Changes due to foreign currency fluctuations
Balance at December 31, 2013
Goodwill acquired during year
Purchase accounting allocation adjustments
Changes due to foreign currency fluctuations
Balance at December 31, 2014
United States
1,616,286
$
57,250
4,541
—
1,678,077
169,754
(4,825)
—
1,843,006
$
International
448,817
$
116,534
1,470
(13,316)
553,505
88,263
(17,595)
(48,347)
575,826
$
$
$
Total
2,065,103
173,784
6,011
(13,316)
2,231,582
258,017
(22,420)
(48,347)
2,418,832
Current year adjustments to goodwill for certain 2013 acquisitions are primarily due to the finalization
of intangible asset valuations.
During the quarter ended June 30, 2014, we performed our annual goodwill impairment evaluation for
our three reporting units: Domestic Regulated and Compliance Services, Domestic Regulated Recall and
Returns Management Services, and International Regulated and Compliance Services. We calculated fair
value for our reporting units using an income method and validated those results using a market approach.
57
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 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 size risk premium and
country risk 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
Domestic Regulated and Compliance Services and Recall and Returns Management Services reporting units
exceeded book value by a substantial amount; in excess of 100%. Our International Regulated and Compliance
Services reporting units' fair value exceeded book value by approximately 85% and had $576.7 million in
assigned goodwill at June 30, 2014.
Market Approach: Our market approach begins by calculating the market capitalization of the Company
using the average stock price for the prior twelve months and the outstanding share count at June 30, 2014.
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 changes in the fair value of contingent
consideration, restructuring and plant closure costs, and litigation settlement, 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 months' 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 corroborated the results of the
impairment test under the income approach and indicated the fair value of our reporting units exceeded their
respective book values by substantial amounts, in excess of 100% of their respective book values.
58
Other Intangible Assets:
At December 31, 2014 and 2013, the values of other intangible assets were as follows:
In thousands
Amortizable intangibles:
Covenants not-to-compete
Customer relationships
Trade names
Technology
Other
2014
2013
Gross
Carrying
Amount
Accumulated
Amortization
Net
Value
Gross
Carrying
Amount
Accumulated
Amortization
Net
Value
$
8,474
$
5,688
$
2,786
$
9,405
$
5,366
$
4,039
755,148
6,062
611
539
107,365
1,313
521
35
—
—
114,922
$
647,783
670,889
4,749
90
504
5,283
611
91
81,271
1,031
416
14
589,618
4,252
195
77
247,933
5,800
909,645
116,054
5,800
$ 808,133
$
—
116,054
—
88,098
5,800
$ 720,035
Indefinite lived intangibles:
Operating permits
Trade names
Total
247,933
5,800
1,024,567
$
$
In 2014 and 2013, we wrote off $9.9 million and $2.9 million in operating permits due to rationalizing
certain of our domestic and international operations. These expenses are reflected as part of SG&A expenses.
Under generally accepted accounting principles, a fair value must be assigned to all acquired assets based
on a theoretical "market participant" regardless of the acquirers' intended use for these assets. This accounting
treatment can lead to the recognition of losses when a company disposes of acquired assets. We complete
our annual impairment analysis of our indefinite lived intangibles during the quarter ended December 31 of
each year, or more frequently, if circumstances indicate that they may be impaired.
Our finite-lived intangible assets are amortized over their useful lives. We have determined that our
customer relationships have useful lives from 10 to 40 years based upon the type of customer, with a weighted
average remaining useful life of 23.8 years. We have covenants not-to-compete intangibles with useful lives
from 3 to 14 years, with a weighted average remaining useful life of 4.7 years. We have tradename intangibles
with useful lives from 10 to 40 years, with a weighted average remaining useful life of 15.8 years. We have
technology with a useful life of 5 years, with a weighted average remaining useful life of 1.0 years. We have
determined that our permits have indefinite lives due to our ability to renew these permits with minimal
additional cost, and therefore these are not amortized.
During the years ended December 31, 2014, 2013 and 2012 the aggregate amortization expense was
$32.7 million, $27.1 million and $22.1 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
2015
2016
2017
2018
2019
$
34,431
34,091
33,946
33,891
33,870
59
Future amortization expense may fluctuate depending on changes in foreign currency rates, future
acquisitions, or changes to the estimated amortizable life of the intangibles. The estimates for amortization
expense noted above are based upon foreign exchange rates at December 31, 2014.
NOTE 12 – ACCRUED LIABILITIES
Accrued liabilities at December 31, 2014 and 2013 consisted of the following items:
In thousands
Accrued compensation
Accrued insurance
Accrued taxes
Accrued interest
Accrued professional services liabilities
Accrued liabilities - other
Total accrued liabilities
2014
2013
$
$
37,932
40,387
17,847
9,096
3,703
22,778
131,743
$
$
36,210
29,363
19,538
8,593
3,097
10,644
107,445
NOTE 13 – ENVIRONMENTAL REMEDIATION LIABILITIES
We record a liability for environmental remediation when such liability becomes probable and the costs
or damages can be reasonably estimated. We accrue environmental remediation costs, on an undiscounted
basis, associated with identified sites where an assessment has indicated that cleanup costs are probable and
can be reasonably estimated, but the timing of such payments is not fixed and determinable. Such accruals
are based on currently available information, estimated timing of remedial actions, existing technology, and
enacted laws and regulations. The liability for environmental remediation is included in the Consolidated
Balance Sheets in current liabilities within "Accrued liabilities" and in noncurrent liabilities within "Other
liabilities."
At December 31, 2014, the total environmental remediation liabilities recorded were $32.6 million, of
which $2.9 million was classified as accrued liabilities and $29.7 million was classified as other liabilities.
60
Long-term debt consisted of the following at December 31:
NOTE 14 – DEBT
In thousands
2014
2013
Obligations under capital leases
$
9,185
$
$1.2 billion senior credit facility weighted average rate 1.50%, due in 2019
$100 million private placement notes 5.64%, due in 2015
$175 million private placement notes 3.89%, due in 2017
$125 million private placement notes 2.68%, due in 2019
$225 million private placement notes 4.47%, due in 2020
$125 million private placement notes 3.26%, due in 2022
459,975
100,000
175,000
125,000
225,000
125,000
7,343
272,358
100,000
175,000
125,000
225,000
125,000
Promissory notes and deferred consideration weighted average rate of 4.07%
and weighted average maturity of 3.5 years
279,590
252,195
Foreign bank debt weighted average rate 9.48% and weighted average
maturity of 1.8 years
Total debt
Less: current portion of total debt
Long-term portion of total debt
160,465
1,659,215
131,969
149,147
1,431,043
150,380
$
1,527,246
$
1,280,663
Payments due on long-term debt, excluding capital lease obligations, during each of the five years
subsequent to December 31, 2014 are as follows:
In thousands
2015
2016
2017
2018
2019
Thereafter
$
$
128,339
253,245
263,010
33,907
601,527
370,002
1,650,030
We paid interest of $57.8 million, $51.0 million, and $47.5 million for the years ended December 31,
2014, 2013 and 2012, 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
Less: accumulated depreciation
2014
2013
$
$
174
896
1,230
13,108
(5,375)
10,033
$
$
198
550
2,262
10,530
(3,905)
9,635
Amortization related to these capital leases is included with depreciation expense.
61
Minimum future lease payments under capital leases are as follows:
In thousands
2015
2016
2017
2018
2019
Thereafter
Total minimum lease payments
Less: amounts representing interest
Present value of net minimum lease payments
Less: current portion included in other current liabilities
Long-term obligations under capital leases
$
$
4,788
3,379
2,664
90
62
453
11,436
(2,251)
9,185
(3,630)
5,555
Our $1.2 billion senior credit facility maturing in June 2019, 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, 2014, we were in compliance with all of our financial debt
covenants.
On June 3, 2014, we and certain of our subsidiaries entered into a second amended and restated credit
agreement (the "new credit agreement") with Bank of America, N.A., as administrative agent, swingline
lender, a lender and a letter of credit issuer, other lenders party to the new credit agreement, JPMorgan Chase
Bank, N.A. and HSBC Bank USA, National Association, as syndication agents, and Union Bank, N.A. and
Santander Bank, National Association, as co-documentation agents. The new credit agreement amended and
restated our prior amended and restated credit agreement dated as of September 21, 2011. The new credit
agreement increases our unsecured revolving credit facility from $1.0 billion to $1.2 billion and extends the
maturity date of our borrowings from September 21, 2016 to June 3, 2019. We paid $2.1 million in financing
fees which will be amortized to interest expense over the life of the new credit agreement.
At December 31, 2014 and 2013, we had $162.9 million and $155.0 million, respectively, committed
to outstanding letters of credit under our senior credit facility. The unused portion of the revolving credit
facility was $577.1 million and $572.6 million at December 31, 2014 and 2013, respectively.
Our $100.0 million private placement notes that mature in April 2015 were classified as long-term debt
due to our intent to pay this obligation by borrowing on our $1.2 billion senior credit facility.
NOTE 15 – 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 20 years.
The leases for most of the properties contain renewal provisions.
Rent expense for 2014, 2013 and 2012 was $111.5 million, $92.4 million, and $85.5 million, respectively.
62
Minimum future rental payments under non-cancelable operating leases that have initial or remaining
terms in excess of one year at December 31, 2014 for each of the next five years and in the aggregate are as
follows:
In thousands
2015
2016
2017
2018
2019
Thereafter
$
$
81,926
69,069
59,864
45,680
34,728
44,098
335,365
NOTE 16 – PRODUCTS AND SERVICES AND GEOGRAPHIC INFORMATION
The FASB Accounting Standards Codification Topic 280, Segment Reporting, 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
Domestic Regulated and Compliance Services, Domestic Regulated Recall and Returns Management
Services, and International Regulated and Compliance Services ("International"). We have aggregated
Domestic Regulated and Compliance Services, and Domestic Regulated Recall and Returns Management
Services into one reportable segment, ("United States"), based on our consideration of the following
aggregation criteria:
•
•
•
•
•
•
the long term economics
the nature of the products and services
the nature of the production processes
the type or class of customer for their products and services
the methods used to distribute their products or provide their services
the nature of the regulatory environment.
Management has determined that we have two reportable segments, United States (which includes
Puerto Rico) and International. Revenues are attributed to countries based on the location of customers. The
same accounting principles and critical accounting policies are used in the preparation of the financial
statements for both reportable segments. Summary information for our reportable segments is as follows:
63
In thousands
Revenues:
United States
International:
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
International:
Europe
Other international countries
Total International
Total
Years Ended December 31,
2013
2012
2014
$
1,796,796
$
1,506,587
$
1,370,806
407,082
351,723
758,805
2,555,601
436,229
51,339
487,568
3,008,547
1,393,175
4,401,722
297,558
70,621
92,229
162,850
460,408
$
$
$
$
$
$
$
341,387
294,833
636,220
2,142,807
404,620
73,126
477,746
2,541,323
1,346,650
3,887,973
214,810
74,915
69,242
144,157
358,967
$
$
$
$
$
$
$
301,615
240,728
542,343
1,913,149
359,748
57,449
417,197
2,427,297
1,119,441
3,546,738
207,387
64,690
63,793
128,483
335,870
$
$
$
$
$
$
$
Revenues are attributable 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 reportable segments.
Detailed information for our United States reportable segment is as follows:
In thousands
Regulated and compliance solutions
Recall and returns solutions
Total revenue
Net interest expense
Income before income taxes
Income taxes
Net income attributable to Stericycle, Inc.
Depreciation and amortization
Capital expenditures
$
$
$
$
64
$
$
Years Ended December 31,
2013
1,408,812
97,775
1,506,587
43,131
404,620
152,874
251,746
2014
1,715,437
81,359
1,796,796
44,926
436,229
161,672
274,557
$
$
$
$
2012
1,254,486
116,320
1,370,806
41,084
359,748
138,807
220,941
$
59,888
57,019
$
50,166
43,442
45,234
38,528
Detailed information for our International reportable segment is as follows:
In thousands
Years Ended December 31,
2013
2012
2014
Regulated and compliance solutions
$
758,805
$
636,220
$
542,343
Net interest expense
Income before income taxes
Income taxes
Net income
Less: net income attributable to noncontrolling interests
Net income attributable to Stericycle, Inc.
Depreciation and amortization
Capital expenditures
21,096
51,339
(2,250)
53,589
1,690
51,899
44,728
29,477
$
$
11,818
73,126
11,788
61,338
1,712
59,626
38,242
29,667
$
$
10,186
57,449
8,449
49,000
1,945
47,055
31,049
26,708
$
$
NOTE 17 – 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, 2014,
2013 and 2012 were approximately $3.6 million, $3.0 million, and $2.8 million, respectively.
The Company has several foreign defined contribution plans, which require the Company to contribute
a percentage of the participating employee’s salary according to local regulations. For the years ended
December 31, 2014, 2013 and 2012, total contributions made by the Company for these plans were
approximately $1.9 million, $0.9 million, and $0.8 million, respectively.
NOTE 18 – 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. Liabilities from litigation are accrued when known, probable and estimable.
Class Action Lawsuits. As we have previously disclosed, we were served on March 12, 2013 with a
class action complaint filed in the U.S. District Court for the Western District of Pennsylvania by an individual
plaintiff for itself and on behalf of all other "similarly situated" customers of ours. The complaint alleges,
among other things, that we imposed unauthorized or excessive price increases and other charges on our
customers in breach of our contracts and in violation of the Illinois Consumer Fraud and Deceptive Business
Practices Act. The complaint sought certification of the lawsuit as a class action and the award to class
members of appropriate damages and injunctive relief.
The Pennsylvania class action complaint was filed in the wake of a settlement with the State of New
York of an investigation under the New York False Claims Act (which the class action complaint describes
at some length). The New York investigation arose out of a qui tam (or "whistle blower") complaint under
the federal False Claims Act and comparable state statutes which was filed under seal in the U.S. District
Court for the Northern District of Illinois in April 2008 by a former employee of ours. The qui tam complaint
was filed on behalf of the United States and 14 states and the District of Columbia. On September 4, 2013,
we filed our answer to Plaintiff-Relator’s Second Amended Complaint, generally denying the allegations
65
therein. Also, as previously disclosed, Tennessee, Massachusetts, Virginia and North Carolina have issued
civil investigative demands to explore the allegations made on their behalf in the qui tam complaint but have
not yet decided whether to join the Illinois action. The qui tam case is in the early stages of discovery.
Following the filing of the Pennsylvania class action complaint, we were served with class action
complaints filed in federal court in California, Florida, Illinois, Mississippi and Utah and in state court in
California. These complaints asserted claims and allegations substantially similar to those made in the
Pennsylvania class action complaint. All of these cases appear to be follow-on litigation to our settlement
with the State of New York. On August 9, 2013, the Judicial Panel on Multidistrict Litigation ("MDL")
granted our Motion to Transfer these related actions to the Northern District of Illinois for centralized pretrial
proceedings. On December 10, 2013, we filed our answer to the Amended Consolidated Class Action
Complaint in the MDL action, generally denying the allegations therein. The MDL action is in the early
stages of discovery.
We believe that we have operated in accordance with the terms of our customer contracts and that these
complaints are without merit. We intend to vigorously defend ourselves against each of these lawsuits.
We have not accrued any amounts in respect of these lawsuits, and we cannot estimate the reasonably
possible loss or the range of reasonably possible losses that we may incur. We are unable to make such an
estimate because (i) litigation is by its nature uncertain and unpredictable, (ii) the proceedings are at an early
stage and (iii) in our judgment, there are no comparable proceedings against other defendants that might
provide guidance in making estimates.
Utah Proceedings. As previously disclosed, on December 3, 2014, we entered into an administrative
settlement order (the "Settlement") with the State of Utah Division of Air Quality (the "DAQ") concerning
a notice of violation and order to comply issued by the DAQ on May 28, 2013 and superseded by an amended
notice of violation and order to comply issued on August 28, 2013 (the "NOV"). Under the Settlement,
without admitting to any of the allegations contained in the NOV, we agreed to pay a civil penalty of
$2,322,536, of which half, or $1,161,268, was paid within 30 days after December 3, 2014. The remaining
$1,161,268 will not be paid but instead will be credited to us as a Supplemental Environmental Project credit
when we permanently close our North Salt Lake incineration facility which is required to occur no later than
three years after we receive all permits and approvals necessary to commence construction of a new
incineration facility to be located in Tooele County, Utah. The Settlement provides full and final resolution
of any and all claims under the authority of the DAQ arising out of the allegations contained in the NOV and
cannot be used by other parties to allege violations or negligence on our part in any other litigation or
proceeding.
Junk Fax Lawsuit. On April 2, 2014, we were served with a class action complaint filed in the U.S.
District Court for the Northern District of Illinois (Case 1:14-cv-02070) by an individual plaintiff for himself
and on behalf of all other “similarly situated” persons. The complaint alleges, among other things, that we
sent facsimile transmissions of unsolicited advertisements to plaintiff and others similarly situated in violation
of the Telephone Consumer Protection Act of 1991, as amended by the Junk Fax Prevention Act of 2005 (the
"TCPA"). The complaint seeks certification of the lawsuit as a class action and the award to class members
of the greater of actual damages or the sum of $500 for each violation and injunctive and other relief. Under
the TCPA, the statutory remedy of $500 per violation may be trebled if the Court finds the violations to be
willful or knowing. On May 22, 2014, we filed our answer to the complaint, generally denying the allegations
therein. Discovery in the case is proceeding.
We have not accrued any amounts in respect of the TCPA action, and we cannot estimate the reasonably
possible loss or the range of reasonably possible losses that we may incur. We are unable to make such an
estimate because (i) the proceedings are at an early stage and discovery is ongoing and (ii) other reported
66
TCPA claims have resulted in a broad range of outcomes, with each case being dependent on its own unique
facts and circumstances.
We review all of our outstanding legal proceedings with counsel quarterly, and we will disclose an
estimate of any reasonably possible loss or range of reasonably possible losses if and when we are able to
make such an estimate and the reasonably possible loss or range of reasonably possible losses is material to
our financial statements.
Environmental Matters.
On April 22, 2014, we completed our acquisition of PSC Environmental Services, LLC ("PSC
Environmental") and consequently became subject to the legal proceedings in which PSC Environmental
was a party on that date. PSC Environmental’s operations are regulated by federal, state and local laws enacted
to regulate the discharge of materials into the environment, remediate contaminated soil and groundwater or
otherwise protect the environment. As a result of this continuing regulation, PSC Environmental frequently
becomes a party to legal or administrative proceedings involving various governmental authorities and other
interested parties. The issues involved in these proceedings generally relate to alleged violations of existing
permits and licenses or alleged responsibility under federal or state Superfund laws to remediate
contamination at properties owned either by PSC Environmental or by other parties to which either PSC
Environmental or the prior owners of certain of its facilities shipped wastes.
From time to time, PSC Environmental pays fines or penalties in regulatory proceedings relating
primarily to waste treatment, storage or disposal facilities. We believe that the fines or other penalties that
PSC Environmental may pay in connection with any pending regulatory proceedings of this nature will not,
individually or in the aggregate, be material to our financial statements.
On September 18, 2014, our wholly-owned subsidiary, Stericycle Specialty Waste Solutions, Inc.,
received a notice of violation ("NOV") from the New Mexico Environment Department ("NMED")
concerning our 10-day transfer facility in Albuquerque. The violations alleged in the NOV generally relate
to the management of Conditionally Exempt Small Quantity Generator ("CESQG") waste under a CESQG
agreement that we have with NMED, as well as some recordkeeping matters. We have met with NMED and
are currently in discussions regarding a resolution of the matters alleged in the NOV. We believe that the
penalties ultimately assessed under the NOV could exceed $100,000 but that, in any event, they will not be
material to our financial statements.
67
NOTE 19 – SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
The following table summarizes our unaudited consolidated quarterly results of operations as reported
for 2014 and 2013:
In thousands, except per share data
Revenues
Gross profit
Acquisition expenses
Integration expenses
Change in fair value of contingent
consideration
Plant conversion and restructuring expenses
Litigation expenses
Net income attributable to Stericycle, Inc.
* Basic earnings per common share
* Diluted earnings per common share
In thousands, except per share data
Revenues
Gross profit
Acquisition expenses
Integration expenses
Change in fair value of contingent
consideration
Restructuring costs and plant closure expense
Impairment of intangible assets
Litigation settlement
Net income attributable to Stericycle, Inc.
* Basic earnings per common share
* Diluted earnings per common share
First
Quarter
2014
569,955
255,469
(3,221)
(2,485)
(4,789)
(574)
(1,505)
79,149
0.93
0.91
First
Quarter
2013
513,804
232,094
(1,803)
(896)
—
—
—
(106)
74,617
0.87
0.85
$
$
$
$
$
$
Second
Quarter
2014
640,822
275,304
(3,979)
(4,679)
836
(1,115)
(396)
81,936
0.97
0.95
Second
Quarter
2013
526,525
237,852
(2,324)
(1,383)
122
(104)
—
2
78,044
0.91
0.89
$
$
$
$
$
$
Third
Quarter
2014
667,877
278,669
(3,472)
(7,461)
—
(2,380)
(1,342)
82,845
0.98
0.96
Third
Quarter
2013
534,579
241,403
(2,111)
(1,423)
185
(787)
—
(12)
80,547
0.94
0.92
$
$
$
$
$
$
$
$
$
$
$
$
Fourth
Quarter
2014
676,947
284,969
(2,661)
(11,343)
Year
2014
$ 2,555,601
1,094,411
(13,333)
(25,968)
5,405
(10,495)
(3,331)
82,526
0.97
0.96
$
$
1,452
(14,564)
(6,574)
326,456
3.84
3.79
Fourth
Quarter
2013
567,899
253,285
(4,037)
(2,819)
Year
2013
$ 2,142,807
964,634
(10,275)
(6,521)
1,971
(2,012)
(1,405)
(2,120)
78,164
0.91
0.90
$
$
2,278
(2,903)
(1,405)
(2,236)
311,372
3.62
3.56
*
EPS calculated on a quarterly basis, and, as such, the amounts may not total the calculated full-year EPS.
NOTE 20 – 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.
68
STERICYCLE, INC. AND SUBSIDIARIES
SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS
In thousands
Allowance for doubtful
accounts
2012
2013
2014
Balance
Beginning of
Period
$
$
$
18,905
19,443
19,134
$
$
$
Charges to
Expenses
Other
Charges/
(Reversals)
(1)
Write-offs/
Payments
Balance End
of Period
4,634
4,823
9,869
$
$
$
414
322
842
$
$
$
(4,510) $
(5,454) $
(10,762) $
19,443
19,134
19,083
(1) Amounts consist primarily of valuation allowances assumed from acquired companies and currency
translation adjustments.
In thousands
Valuation Allowance on Deferred Tax
Assets
2012
2013
2014
Balance
Beginning of
Period
Additions/
(Deductions)
Charged to/
(from) Income
Tax Expense
Other
Changes
to Reserves (2)
Balance End
of Period
$
$
$
3,775
3,340
1,122
$
$
$
— $
(1,451) $
— $
(435) $
(767) $
(1,066) $
3,340
1,122
56
(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 President and Chief Executive Officer and our Chief
Financial Officer, conducted an evaluation of the effectiveness of our disclosure controls and procedures as
of the end of the fiscal year covered by this Report. On the basis of this evaluation, our President and Chief
Executive Officer and our Chief Financial Officer each concluded that our disclosure controls and procedures
were effective.
The term "disclosure controls and procedures" is defined in Rule 13a-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 President 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.
69
(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, 2014.
Item 9B. Other Information
None.
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
2015 Annual Meeting of Stockholders to be held on May 27, 2015, 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 2015 Annual
Meeting of Stockholders to be held on May 27, 2015, 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 Culture." 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 2015 Annual Meeting of Stockholders to be held on May 27, 2015, 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 2015 Annual Meeting of Stockholders to be held on May 27, 2015, 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 2015 Annual Meeting of Stockholders to be held on
May 27, 2015, 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 of 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
2015 Annual Meeting of Stockholders to be held on May 27, 2015, to be filed pursuant to Regulation 14A.
70
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 2015 Annual Meeting of
Stockholders to be held on May 27, 2015, to be filed pursuant to Regulation 14A.
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
2014
2013
$
$
2,000
—
310
10
2,320
$
$
1,500
—
210
—
1,710
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.
PART IV
Item 15. Exhibits and Financial Statement Schedules
(a) List of Financial Statements, Financial Statement Schedule and Exhibits
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, 2014 and 2013
Consolidated Statements of Income for Each of the Years in the Three-Year Period Ended
December 31, 2014
Consolidated Statements of Comprehensive Income for Each of the Years in the Three-Year Period
Ended December 31, 2014
Consolidated Statements of Cash Flows for Each of the Years in the Three-Year Period Ended
December 31, 2014
Consolidated Statements of Changes in Equity for Each of the Years in the Three-Year Period
Ended December 31, 2014
Notes to Consolidated Financial Statements
Schedule II - Valuation and Qualifying Accounts
Page
32
33
35
36
37
38
39
40
69
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.
71
Filed with
Electronic
Submission
We have filed the following exhibits with this report:
Exhibit Index
3.1*
3.2*
3.3*
3.4*
3.5*
3.6*
3.7*
3.8*
3.9*
3.10*
3.11*
4.1*
10.1*
10.2*
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))
Fourth certificate of amendment to amended and restated certificate of incorporation
(incorporated by reference to Exhibit 3(i).1 to our quarterly report on Form 10-Q filed
August 7, 2014)
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)
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)
Amended and restated bylaws (incorporated by reference to Exhibit 3(ii).1 to our current
report on Form 8-K filed September 3, 2014)
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))
Second Amended and Restated Credit Agreement dated as of June 3, 2014 entered into by
Stericycle, Inc. and certain of its 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 credit agreement, JPMorgan Chase Bank, N.A. and HSBC Bank USA, National
Association, as syndication agents, and Union Bank, N.A. and Santander Bank, National
Association, as co-documentation agents (incorporated by reference to Exhibit 10.1 to our
current report on Form 8-K filed June 4, 2014)
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)
72
10.3*
10.4*
10.5*†
10.6*†
10.7*†
10.8*†
10.9*†
10.10*†
10.11*†
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 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)
73
10.12*†
10.13*†
10.14*†
10.15*†
10.16*†
10.17*†
10.18*†
10.19*†
10.20*†
10.21*†
10.22*†
10.23*†
10.24*†
10.25†
10.26*†
10.27*†
10.28*†
14*
21
23
31.1
31.2
32
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))
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))
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)
Amendment to 1997 Plan, 2000 Plan, 2005 Plan and 2008 Plan (incorporated by reference
to Exhibit 10.21 to our annual report on Form 10-K for 2012)
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))
2014 Incentive Stock Plan (incorporated by reference to Exhibit 4.1 to our registration
statement on Form S-8 filed December 23, 2014 (Registration No. 333-201236)
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 (2015 plan year)
Employee Stock Purchase Plan (incorporated by reference to Exhibit 4.1 to our registration
statement on Form S-8 filed November 8, 2013 (Registration No. 333-192235))
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
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
74
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Dated: March 2, 2015
STERICYCLE, INC.
(Registrant)
By: /s/ DANIEL V. GINNETTI
Daniel V. Ginnetti
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: March 2, 2015
Name
Title
/s/ CHARLES A. ALUTTO
Charles A. Alutto
President, Chief Executive Officer and
Director (Principal Executive Officer)
/s/ DANIEL V. GINNETTI
Daniel V. Ginnetti
Executive Vice President and Chief
Financial Officer (Principal Financial
and Accounting Officer)
/s/ MARK C. MILLER
Mark C. Miller
Executive Chairman of the Board of
Directors
Date
March 2, 2015
March 2, 2015
March 2, 2015
/s/ JACK W. SCHULER
Jack W. Schuler
/s/ THOMAS D. BROWN
Thomas D. Brown
/s/ THOMAS F. CHEN
Thomas F. Chen
/s/ ROD F. DAMMEYER
Rod F. Dammeyer
/s/ WILLIAM K. HALL
William K. Hall
/s/ JOHN PATIENCE
John Patience
/s/ MIKE S. ZAFIROVSKI
Mike S. Zafirovski
Lead Director of the Board of Directors
March 2, 2015
March 2, 2015
March 2, 2015
March 2, 2015
March 2, 2015
March 2, 2015
March 2, 2015
Director
Director
Director
Director
Director
Director
75
[THIS PAGE INTENTIONALLY LEFT BLANK]
C O R P O R A T E
I N F O R M A T I O N
2014
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
Daniel V. Ginnetti
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
Brent Arnold
Chief Operating Officer
Michael J. Collins
President, Recall and Return Management Services
John P. Schetz
General Counsel
Thomas F. Chen
Member – Audit Committee
Mike S. Zafirovski
Member – Compensation
Committee
William K. Hall
Chairman – Compensation
Committee
Thomas D. Brown
Member – Compensation
Committee
Rodney F. Dammeyer
Chairman – Audit Committee
Member – Nominating
and Governance 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
Wednesday, May 27, 2015 at the DoubleTree Hotel
Chicago O’Hare Airport
5460 North River Road, Rosemont, IL 60018.
N a s d a q ® S y m b o l
SRCL
(800) 643-0240
www.stericycle.com