Annual Report
2015
Dear Fellow Shareholders:
For Stericycle, 2015 was a powerful year of growth and
development. We continued to extend our leadership
position in each of our major service categories, both in
the United States and in our international markets. We
expanded our service offering with the acquisition of
Shred-it International ULC (“Shred-it”), thereby enhancing
our ability to drive value to our customers and our
shareholders. Our success and ongoing organic growth,
especially considering the past year’s increasingly challenging
global business environment, reflects the strength of our
services in solving an expanding range of complex challenges
for our customers. We are proud to offer a superior and
efficient set of solutions that create safer, healthier and
more sustainable businesses. We enable our customers
to focus on their people, the customers they serve, and
the communities they support while being good stewards
of the environment. Our aim is to be a true partner for the
more than one million customers who rely on Stericycle
to safeguard their brands and corporate reputations.
In 2015, we grew our revenues to $2.99 billion, a 16.8%
increase over 2014. Our gross margin was 42.4% in 2015
compared with 42.8% in 2014. Operating income before
acquisition related costs, litigation expenses and other
adjusting items increased to $662.0 million compared
to $615.3 million in 2014. Our operating margin before
acquisition related costs, litigation expenses and other
adjusting items was 22.2% compared with 24.1% in 2014.
In accordance with U.S. Generally Accepted Accounting
Principles (“GAAP”), net income attributable to Stericycle, Inc.
common shareholders for 2015 was $256.9 million compared
to $326.5 million in 2014, primarily reflecting the short-
term costs associated with the significant acquisition related
growth we achieved during the year as well as two litigation
settlements. Our GAAP diluted earnings per share for the year
were $2.98 as compared to $3.79 in 2014.
Our non-GAAP performance reflects the progress we made
during the year. In total, for the full year of 2015, we
identified net earnings adjustments of $1.42 per share. These
adjustments include acquisition related costs, litigation
expenses and other adjusting items. This compares to $0.48
per share of comparable adjustments we identified in 2014.
Excluding the impact of these items from our results in
2015 and 2014, our non-GAAP net income attributable to
Stericycle, Inc. common shareholders grew to $386.2 million
in 2015 from $368.4 million in 2014. Non-GAAP earnings per
diluted share, when adjusted for these same items, increased
to $4.40 from $4.27 in 2014. When taking into account the
negative foreign exchange impact of the stronger US dollar
and the normalization of tax benefits from 2014 not repeating
in 2015, the resulting adjusted non-GAAP earnings per diluted
share was $4.54 in 2015.
Our 2015 financial results reflect the context of a dramatically
stronger US dollar as well as pressure on some of our
customers who serve industrial markets. We regard these
sources of pressure as temporary challenges during cyclical
transitions, although we will continue to seek opportunities to
mitigate the impact of these cycles on our business.
Accomplishments in 2015
In 2015, we generated $275.6 million of free cash flow
from operations. We continued our strategy of deploying
capital to grow and diversify the business, both organically
and through acquisitions as well as to position the business
to generate superior and sustainable rates of growth. We
invested $114.8 million in capital expenditures across a
variety of projects to enhance our operating platforms, to
maintain a technologically driven competitive advantage, to
enhance regulatory compliance and safety, and to ensure that
our customers continue to receive the best possible service.
We also continued to deliver value to our shareholders
through repurchases of our shares by deploying $130.6
million of capital in the open market to repurchase 1.0 million
shares during the year. Finally and most importantly, 2015
was a landmark year for Stericycle’s acquisition program. In
total, we invested $2.5 billion for domestic and international
acquisitions. This included our purchase of Shred-it, the largest
single acquisition in our history.
The Shred-it acquisition and addition of secure information
destruction to our portfolio of compliance services will lead
to powerful synergies, enhancement of our competitive
position, and the creation of new opportunities for growth.
This $2.3 billion strategic transaction was financed through
a combination of senior unsecured debt consisting of a term
loan credit facility, private placement notes, and the issuance
of mandatory convertible preferred stock. This addition
of a strong leader in secure information destruction is an
excellent complement to our business and expands the
range of customer challenges that we can address while
creating new opportunities for efficiency in our operating
model. Shred-it enhances our suite of compliance solutions,
augments our value proposition to customers, increases our
ability to grow through cross-selling services, and creates
new opportunities to leverage our route-based logistics
infrastructure and expertise.
Domestic: In the United States, we posted solid performance
and continued to enhance our leadership in the regulated
waste management, compliance services, and communication
solutions markets. Our core healthcare businesses continued
to grow through increased penetration of our Steri-Safe
Compliance Program as well as expansion of additional
services like our Sharps Management Service and our
Pharmaceutical Waste Management Service. Within our
Environmental Solutions service line, we completed the
integration of PSC Environmental (from April 2014), captured
the anticipated cost synergies, and aligned our network to
pursue continued growth from the retail and healthcare
hazardous waste services lines. A minority portion of the
Environmental Solutions portfolio which supports customers
who serve the energy and mining industries experienced a
slowdown. We view this as a macroeconomic and cyclical
trend, but one that we intend to minimize in the future with
subscription-based services as well as through our continued
focus on growth in our healthcare, retail, and SQ hazardous
waste businesses. During 2015, we completed 19 domestic
acquisitions to expand our customer base.
International: Our International operations accounted for
27.5% of Stericycle’s revenues in 2015. We continued to
build on our foundation of regulated medical waste services
in our international markets and focused on expanding
the service categories to our customers. For example, our
Sharps Management Service featuring BioSystems reusable
containers continued to expand in the United Kingdom and
was introduced into the Latin American market. Our growth
strategy in international markets follows a similar path to that
which we have already demonstrated in the U.S. Our initial
focus is on the large quantity regulated medical waste market
with a focus to develop the small quantity medical waste
base, a segment which drives route density and operational
efficiency. These customer relationships (both SQ and LQ)
then serve as the platform for growth through the addition
of other compliance-focused services that reflect the needs
of local healthcare industry as well as local regulations. We
have proven that our services, our value propositions and
our customer focus are compelling to the full range of our
international customers.
During 2015, we completed 24 international acquisitions,
including Shred-it. With the Shred-it acquisition, we gained
a direct operational presence in 8 additional countries:
Australia, Austria, Belgium, France, Germany, Luxembourg,
Singapore, and South Africa. We also expanded our reach into
the regulated waste market in the Netherlands.
Sustainability: Our corporate reputation and brand identity
are increasingly tied to a commitment to protect the
environment and the delivery of sustainable business
practices. This expectation holds true from both large and
small businesses in the United States and, perhaps even
more so, in large European markets where consumers and
government regulators alike are further down the path
toward prioritizing sustainability. Our support of sustainable,
responsible, environmentally sound business practices has
always been a critical component of our company’s purpose.
From a business perspective, our sustainability strategy
focuses on: 1) driving business growth through differentiated
sustainable solutions for our customers; 2) reducing the cost
of operations; 3) managing risks associated with solutions for
business needs that are highly regulated; and 4) attracting
and retaining motivated, purpose-driven team members.
Priorities for 2016 and Beyond
Our strategic path forward remains clear and consistent.
We will continue to focus on revenue growth and the
capture of efficiencies in our operating platforms. This
objective applies across the many customer categories,
service lines, and geographical regions we serve. In 2016,
our priorities are as follows:
Efficiency: Across our business, we have the leadership
position and the operating platform to drive efficient growth.
We remain focused, as we grow, on incrementally enhancing
our value to customers, our competitive advantage, our
generation of free cash flow, and, ultimately, our ability to
drive shareholder returns.
Domestic Growth: We expect to remain in a leadership
position within the medical waste, hazardous waste, and
secure information destruction markets, all of which remain
highly fragmented. We will continue to focus on both existing
and new small quantity and large quantity customers.
We also expect to become more effective and focused
on moving our customers to adopt multiple services, now
including secure information destruction; this is a path that
creates value for both Stericycle and our customers and
strengthens our relationships. In our Expert Solutions and
Communication Solutions service lines, we expect to remain
highly focused on execution, both with regard to capturing
emerging revenue opportunities and in our service to existing
customers. We also are dedicated to maintaining disciplined
cost management to maximize our profitability.
International Growth: In the year ahead, we will continue
our focus on acquisitions to fuel our growth combined with
a structured integration process to realize efficiencies and
capture synergies. We expect to be a highly competitive
acquirer given our superior ability to achieve a combination of
cost and revenue synergies. We will also continue to advance
our cross selling strategy in international markets to increase
the number of Stericycle services used by our customers and
to drive the expansion of the Regulated Recall and Returns
Management business in Europe.
Profitability Improvement: Our dedication to enhanced
operating performance is foundational to our long-term
vision for Stericycle. We expect to effectively integrate
our acquisitions, including the capture of cost synergies
associated with the Shred-it acquisition. We will continue
to refine our operational cost structure and optimize our
network of transportation and processing assets. Our culture
of proactive, thoughtful cost management and continuous
improvement remain a major driver of our ability to enhance
our margins and cash flow. As we move forward, we are
reinforcing knowledge sharing and the deployment of
best practices across the entire organization. Finally, we
will opportunistically make high-returning investments in
technology that deliver customer value and facilitate greater
profitability.
Organizational Structure: We have had tremendous growth
over the past several years, including the addition of new
service lines and capabilities from acquisitions. A key priority
in 2016 will focus on organizational realignment to ensure
that we are organized to most efficiently achieve our
future growth goals. Leveraging the expertise of a top-tier
consulting firm, we plan to begin the implementation of our
new structure in the second half of the year. These efforts
will help to foster our continued growth and profitability
levels in the years to come.
Leadership in Innovation and Sustainability: During 2016, 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 services while
seeking opportunities to improve our own sustainability.
Our commitment to innovating new practices, delivering
improved service models, and creating an increasingly
efficient operational infrastructure is part of Stericycle’s
core culture. We recognize that our customers’ businesses
are constantly evolving, and we view it as our job to help
them adapt while maintaining a position as a strong steward
of the health, safety, and efficiency for our partners.
In closing, we are pleased with our results from 2015
and remain confident about the multiple opportunities
for growth and efficiency that lie ahead for Stericycle.
We thank you for your continued support on this
exciting journey.
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, 2015
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
NASDAQ Global Select Market
Depositary Shares, each representing a 1/10th ownership
interest in a share of 5.25% Mandatory Convertible Preferred
Stock, Series A, par value $0.01 per share
(Title of each class)
NASDAQ Global Select Market
(Name of each exchange on which registered)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES
NO
Securities registered pursuant to Section 12(g) of the Act: None
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, 2015): $11,358,678,595.
On February 19, 2016, there were 84,647,029 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 2016 Annual Meeting of Stockholders to be held on May 25, 2016.
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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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
Stericycle is a business-to-business services provider with a focus on regulated and compliance
solutions for healthcare, retail, and commercial businesses. This includes the collection and
processing of regulated and specialized waste for disposal and the collection of personal and
confidential information for secure destruction, plus a variety of training, consulting, recall/return,
communication, and compliance services. We operate integrated operations and customer service
networks in the United States and 21 other countries. Our worldwide networks include a total of
253 processing facilities, 358 transfer sites, and 137 other service facilities. Our solutions for
regulated or specialty waste streams include: medical waste disposal, pharmaceutical waste
disposal, hazardous waste management, sustainability solutions for expired or unused inventory,
and secure information destruction of documents and e-media. Our compliance solutions include:
training and consulting through our Steri-Safe® and Clinical Services programs, inbound/outbound
communications, data reporting, and other regulatory compliance services. Our regulated recall
and returns management solutions consist of communication, logistics, and data management
services to support the recall, withdrawal, or return of expired or recalled products.
More specifically, our services and products include:
• Medical waste management services
• Reusable sharps disposal management services
• Pharmaceutical waste services
• Integrated Waste Stream Solutions ("IWSS") program
• Hazardous waste management services
• Sustainability and recycling services for expired or unused inventory
• Shred-it secure information destruction services
• Steri-Safe® and Clinical Services compliances programs
• Regulated recall and returns management services for expired or recalled products
• Communication services
including afterhours answering, appointment scheduling,
appointment reminders, secure messaging, and event registration
• Mailback solutions for regulated medical waste, universal wastes, pharmaceutical wastes,
and other specialty wastes
Customers
Our broad offering of services appeals to a wide range of business customers. While healthcare
businesses (hospitals, physician and dental practices, outpatient clinics, long-term care facilities,
etc.) make the largest portion of customers, we also provide services to retailers, manufacturers,
financial services providers, professional services providers, governmental entities, and other
businesses. The majority of our customers are small businesses generating low volumes of
regulated wastes or materials for disposal or destruction and having compliance needs consistent
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with a small staff or facility. However, we also provide services to large customers, which include
hospitals, manufacturers, and laboratories.
In total, we serve more than 1,000,000 customers worldwide. No single customer accounts
for more than 1.5% of our total revenues, and our top ten customers collectively account for
approximately 8.0% of total revenues. We provide service to the majority of these customers through
multi-year contracts. Although we have several standard forms of contract, terms vary depending
upon the customer’s service requirements, the volume of regulated waste or material generated,
or other factors including statutory and regulatory requirements.
Business Strategy
Focus on Regulated Business-to-Business Operations
We have a focus on business-to-business services in areas of operations that are highly
regulated. By helping our customers maintain compliance with complex regulations, we protect
people and brands, promote health, and safeguard the environment. Governmental legislation and
regulation increasingly requires the proper handling and disposal of items such as medical waste,
hazardous waste, pharmaceutical waste, and personal and confidential information. Regulated
waste can be defined as any material with government-imposed guidelines for handling the material
for transportation or disposal. Medical waste, such as needles, syringes, gloves, cultures and stocks
of infectious agents, blood and blood products, can potentially cause an infectious disease.
Hazardous waste is designated and governed by federal and local environmental protection
agencies but generally includes waste that is considered dangerous or potentially harmful to our
health or the environment. Hazardous wastes can be liquids, solids, gases, or sludges.
Pharmaceutical waste may be hazardous or nonhazardous and consists of expired, recalled, or
otherwise unused pharmaceuticals. Personal and confidential information includes documents and
e-media containing protected healthcare information, financial information, or other confidential
information. Additionally, the regulatory environment related to promoting overall health and
protecting consumers from unsafe products continues to increase, especially in the United States.
Focus on the Small Customer with Recurring Service Need
Our business strategy recognizes that smaller businesses have an even greater need for
support with compliance matters since they tend to lack the specialization of staff resources that
is found among larger businesses. With a small business, regulatory and compliance matters are
often managed by a business owner, office manager, or facility supervisor who manage multiple
functions for the organization and often lack the time and resources to properly investigate and
comply with a wide range of regulations that may impact their operation. In response to this unmet
need of small businesses, we developed comprehensive, no-hassle compliance programs which
feature scheduled service at low, flat monthly fees. This business fundamental has guided us as
we have expanded into additional service offerings including hazardous or pharmaceutical waste
management, communication services, and secure information destruction.
Organic Growth
As a leading provider in regulated and compliance solutions, we continue to focus on enhancing
our service offerings and platforms to exceed customer expectations. We have developed a strong
and loyal customer base, with a revenue retention rate exceeding 90%, and have been able to
leverage these customer relationships to provide additional services. Allocation of our sales
resources has and will continue to focus on driving incremental organic growth from cross selling
and upselling various services in our portfolio.
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Growth through Acquisition
The various regulated waste and compliance services that we provide tend to be in highly
fragmented industries. We have proved that acquisitions are a rapid and efficient way to scale
operations, build critical customer density for transportation and treatment operations, and enter
new markets or geographies, as well as an opportunity to introduce our additional services to the
acquired customers. In our early history, acquisitions were a key strategy to building our customer
base and route density in the United States. Beginning in 1998, we were able to expand
internationally through acquisition and now operate in 21 different markets outside the U.S. Over
our history, Stericycle has completed 435 acquisitions, with 230 in the United States and 205
internationally. During 2015, we completed 43 acquisitions. In addition to the Shred-it acquisition,
which increased our international footprint by adding 8 countries we were not currently operating
in, our acquisitions consisted of 19 domestic businesses and 24 international businesses.
The acquisition of Shred-it International ULC, the largest acquisition in Stericycle’s history, was
completed on October 1, 2015. The acquisition expands our portfolio of services by adding secure
information destruction, a highly complementary service to our regulated waste and compliance
infrastructure bringing
services. Shred-it adds substantially
approximately 2,400 trucks and 5,400 team members based out of more than 200 facilities in 13
countries, including the United States. The acquisition provides operational synergies stemming
from our core competencies in route logistics and lean management systems and a focus on small
and loyal customers providing opportunities for growth from the cross sale of additional services.
to Stericycle’s operational
We expect to continue our acquisition strategy in North America and internationally, remaining
focused on small, highly accretive, tuck in acquisitions that broaden our various service capabilities
while creating value for our shareholders.
Market Size and Growth Potential
We provide a wide range of services across multiple market segments and industries. We
believe that in 2016, the size of the global market for the services we provide, in the geographies
we currently operate in, is approximately $33 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 where we operate
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 medical waste,
hazardous waste, and pharmaceutical waste, as well as an increase in confidential healthcare
records requiring secure destruction.
• 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 and smaller healthcare
practices continue to outsource compliance, communication, and secure information destruction
services which we can provide.
• Enforcement of Regulations: Enforcement of regulations relating to the management of
regulated waste and protected information is increasing. Penalties for violations can be costly as
well as high profile thereby impacting a business’ overall reputation. Greater enforcement combined
with higher penalties results in more compliance by waste generators and a corresponding increase
in potential customers.
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• Safety and Security Regulation: We believe that many businesses that are not currently
using third party regulated waste management or secure information destruction services are
unaware either of the need for proper training of employees or of the regulatory requirements
regarding the handling of such materials. Similarly, the proper handling of expired or recalled
products requires an expertise that many businesses lack or find inefficient to provide.
• Increased Business Focus on Sustainability: Businesses large and small continue to
realize that focus on sustainability is now a business essential in order to operate efficiently and
meet the increasing demands of customers for environmental responsibility. Such pressures are
driving proper disposal of pharmaceuticals, recycling efforts, creative disposal efforts for unused
inventory, shred-all policies for paper, and other initiates supported by our services.
• Shift to Off-Site Healthcare Treatment: We believe that patient care in the U.S. 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 healthcare providers generating regulated
medical waste, pharmaceutical waste, and protected health information requiring secure
destruction.
• Regulation of Privacy and Information Security and Concerns over Data Breaches:
Continued development and growth of the secure information destruction industry have been driven,
in part, by compliance with government regulations in respect of privacy and information security.
These regulations take different forms, with some requiring organizations to establish reasonable
measures to protect against loss, theft and unauthorized access, use and disclosure, and others
imposing data retention requirements that require businesses to destroy or render anonymous
personal information when no longer required for a legal or legitimate business purpose. Secure
information destruction services are increasingly a standard measure that organizations take to
meet their legal safeguarding and retention requirements.
• International Market Development: The development of regulated medical waste
regulations, hazardous waste regulations, and secure information destruction regulations in certain
international markets are at an early stage of development relative to North American and certain
European Markets. As emerging markets continue to advance their healthcare practices,
environmental controls, and their data privacy regulations, we expect to see further demand for our
services on a global scale.
Competitive Strengths
We believe that we benefit from the following competitive strengths, among others:
• Broad Range of Services: We offer our customers a broad range of services. We work
with businesses across a number of industries such as healthcare, manufacturing, and retail to
safely and efficiently dispose of regulated materials, ensure regulatory compliance, improve
employee and customer safety, protect their brands, improve communications with patients, and
manage corporate and personal risk.
• 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.
• Established Network of Processing and Transportation Locations in Each Country:
We believe that our infrastructure network results in a very efficient operation. The network also
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provides redundancy so that we can quickly redirect services or operations to another location
should such needs exist due to severe weather, power outages, or other such situations.
• Industry Leadership and Expertise: We maintain a global leadership position across our
various services lines, including regulated medical waste, retail and healthcare hazardous waste,
secure information destruction, and product recalls and returns. We believe that we maintain the
most experienced teams, the deepest understanding of regulatory climate, and the thought
leadership that drives progress in each of these industries.
• Experienced Senior Management Team: We have experienced leadership. Our seven
most senior executives collectively have over 155 years of management experience in the health
care and waste management industries.
• Ability to Integrate Acquisitions: Since 1993 we have completed 435 acquisitions in the
United States and internationally and have demonstrated a consistent ability to integrate our
acquisitions into our operations successfully.
• Volume-based Leverage for Disposal, Treatment or Recycling: As the leading service
provider for regulated medical waste, hazardous waste, and secure information destruction, we
can leverage large volumes of wastes, recyclables, and paper to obtain better pricing on final
treatment, disposal and/or recycling.
• Secure Management of Information for Destruction: With the acquisition of Shred-it,
Stericycle is now the global leader in secure information destruction. Our process for managing
information for destruction meet or exceed the NAID AAA Certification and support our customers’
requirements in complying with GLBA, FACTA, and HIPAA in the U.S. and other data security
regulations abroad.
Regulated Waste and Secure Information Destruction Operations
Collection and Transportation
Logistics is a key element of our business, especially in regard to managing regulated waste
and secure information destruction. Efficiency of collection and transportation is a critical element
of our operations because it represents the largest component of our operating costs.
For medical waste, hazardous waste, pharmaceutical waste, or secure information for
destruction, the collection process begins at the customer location with segregation. To assure
regulatory compliance, we will not accept regulated waste from customers unless it complies with
our waste acceptance protocols and is properly stored or packaged in containers that we have
either supplied or approved.
Our fleet of transportation vehicles then collects containers at the customer location. The
majority of collected waste is then transported directly to one of our processing facilities or to one
of our transfer stations for further transport 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 of Regulated Medical Waste
Stericycle was founded on the belief that there was a need for safe, secure and environmentally
responsible management of regulated medical waste. From our beginning, we have encouraged
the use of non-incineration treatment technologies. 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
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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 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. From there, regulated medical waste is processed using one of
several treatments or processing technologies, predominantly at one of our wholly-owned facilities.
• Autoclaving: Autoclaving treats regulated waste with steam at high temperature and
pressure to kill pathogens.
• 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 disposal in a landfill owned by unaffiliated third parties.
Processing and Disposal of Hazardous Wastes
Our technicians receive hazardous wastes either as expired goods requiring deconstruction
or as defined hazardous wastes. Expired goods are deconstructed to recover metals and plastics
for recycling thereby minimizing the total volume of waste disposed of as hazardous waste. Materials
that are predefined as hazardous upon collection are bulked together or consolidated at treatment
storage and disposal facilities for more efficient transport to final disposal or processing. Whenever
possible, we seek sustainability solutions for managing materials including alternative uses,
recovery processes, recycling options, fuel blending, or energy recovery. When sustainability
options do not exist, these wastes are sent to third parties for incineration, landfill and water
treatment.
Destruction and Recycling of Secure Information
If not sorted on site in a proprietary Shred-it information destruction truck, documents are sent
to a shredding facility for secure destruction. Documents are cross-cut shredded and then baled
to be sold as office paper (SOP) for recycling.
Communication Solutions and Expert Solutions Business Overview
Stericycle’s Communication Solutions provide a broad range of services to help our customers
keep in touch with their patients and clients. These services include daytime and after hours
answering, live voice scheduling, online self-scheduling, automated notifications, appointment
follow-up, and on-hold messaging services. On a daily basis, we execute more than 350,000
automated communications and our agents conduct more than 100,000 live conversations on behalf
of our customers. Providing these solutions requires sophisticated information management
systems to redirect calls, store and quickly retrieve live voice protocols, or send automated
communications as well as provide easily accessible reporting and activity details to our customers.
To that end, we have developed a proprietary communications platform which manages call flows,
messaging, and data tracking. This system is being launched during 2016 to connect our multiple
call center locations onto one master information management system.
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Beyond the information management system infrastructure, call center staffing and education
levels are critical to business success. We leverage sophisticated workflow analysis and staffing
tools to ensure redundancies are in place in order to handle call volumes quickly and consistently
across our multiple call centers during peak volumes. Maintaining consistent and quality responses
to our customers’ clients requires an educated staff of call center experts. We rely on a multi-level
certification program that ensures our experts are appropriately suited to manage the dispatch
methodology required for the specific call type. Training, retraining, and quality monitoring systems
are critical to meeting the communication needs of our customers.
Stericycle Expert Solutions acts as a business partner to automotive, food/beverage, medical
device, pharmaceutical, and consumer goods manufacturers as well as retailers to guide them
through a critical recall, retrieval, return, or audit processes. Our comprehensive suite of highly
focused services provides global and local expertise before, during, and after a recall threat. Our
services include:
• Preparation and consulting
• Notification services
• Customer response
• Product retrievals
• Product processing, remedy and response
• Compliance and regulatory reporting
Stericycle entered the recall and returns business in 2006 as a service expansion that leveraged
our expertise in communication, logistics, regulatory management and data tracking. Since that
time, we’ve become an industry leader in outsourced recall management. Our expertise stemming
from handling more than 4,000 recalls has established Stericycle as a foremost thought leader on
recalls handling. This expertise includes a deep understanding of the regulatory climate surrounding
consumer and healthcare products, including those established by the Food and Drug
Administration, the Consumer Product Safety Commission, the National Highway Traffic Safety
Administration, and others.
Competition
The industries and markets in which we operate are highly competitive, and barriers to entry
are low. Our competitors consist of many different types of service providers, including national,
regional and local companies. In the regulated waste and secure information destruction industries,
another major source of competition is on-site treatment. For regulated medical waste, some large-
quantity generators, particularly hospitals may choose an onsite autoclave or other treatment
process. For secure information destruction, many businesses may choose to use small, on-site
shredders for their documents. Similarly, customers could handle recalls or communication solutions
internally.
In addition, we face potential competition from businesses that are attempting to commercialize
a wide range of technologies that directly or indirectly reduce the need for regulated medical waste,
hazardous waste or secure information destruction services.
Governmental Regulation
The regulated medical waste, hazardous waste, and secure information destruction industries
are subject to numerous 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
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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. Periodic renewals are subject to public participation and can lead to additional
regulatory oversight. 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 and secure
information destruction 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, controlled substances and personal and confidential
information.
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 severe liabilities
on the current and former owners and operators of facilities from which release of hazardous
substances has occurred and on the generators and transporters of the hazardous substances that
come to be located at these facilities. The ten incinerators at seven facilities we currently operate
in the U.S. must comply with the emissions standards imposed by the applicable states permitting
authorities pursuant to regulations promulgated under the Clean Air Act as well as state and/or
municipal waste permit requirements.
Examples of environmental laws applicable to our international operations include the Waste
Framework Directive, Environmental Liabilities Directive, Integrated Pollution Prevention and
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Control Directive, and Waste Incineration Directive in the European Union ("EU"), the Waste
Management Act in Ireland, Ley 154 (Residuos Patogenicos) in Argentina, Lei 12.305/2010 (Lei
Ordinária) Institui A Política Nacional De Resíduos Sólidos in Brazil, and the Canadian
Environmental Protection Act and related regulations in Canada.
Employee Health and Welfare
We are also subject to numerous regulations promulgated to protect and promote worker health
and welfare through the implementation and enforcement of standards designed to prevent illness,
injury and death in the workplace. The primary 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 ("OSHA"),
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 hazardous 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. First, 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-ID, etc.), sufficient strength
and rigidity, leak-proof 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 Environmental Protection Agency ("EPA")
classification criteria and identify the proper handling, transportation and disposal requirements.
Second, 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 a cumulative effect on our compliance history and require us to remain in good
standing so as 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.
Document Management
Numerous laws and regulations require proper protection of confidential customer information
by business parties that have access to such information. In the U.S., the most commonly cited
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regulations include FACTA Final Disposal Rule, the FACTA Red Flag Rule, the HIPAA Privacy,
Security, Enforcement, and Breach Notification Rules, and the Gramm-Leach-Bliley Act.
For the transportation of secure information for destruction, we are regulated by the U.S.
Department of Transportation as a commercial motor carrier. The processes for the destruction of
secure information destruction processes are not regulated by any government agency. However,
the National Association for Information Destruction ("NAID") maintains a certification to ensure
that destruction processes support the needs of organizations to meet laws and regulations relating
to the protection of confidential information. We currently hold the NAID AAA Certification. Further,
Payment Card Industry ("PCI") Security Standards Council has developed Data Security Standards
which are imposed upon merchants utilizing credit cards and require destruction of documents and
media in accordance with their standards.
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, mailback management offerings for sharps, medical waste,
and pharmaceutical wastes, 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 wastes to be sent directly
to a treatment facility.
Controlled Substances
In the U.S. our service offerings for the recall, return and destruction of controlled substance
pharmaceuticals are subject to laws and regulations under the Drug Enforcement Administration
("DEA"). These regulations apply to both the closed loop management of controlled substances
from other DEA registrants as well as the return of unused controlled substances from consumers.
These regulations require facilities to obtain a registration from the DEA and meet certain criteria
in order to collect, process, and dispose of controlled substances. The DEA has very strict
requirements for the management of employees, the type of security within facilities, recordkeeping,
and the reporting of all controlled substances managed at the facility. Much like permitting, the
registration must be updated regularly and subjects us to inspection and enforcement by DEA
agents.
U.S. and Foreign Local Regulation
We conduct business in all 50 states and Puerto Rico. Because the federal EPA did not
promulgate regulations for regulated medical waste at a national level, each state has its own
regulations related to the handling, treatment and storage of regulated 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. Regulated Garbage
(sometimes referred to as APHIS waste) is another area of regulatory requirements we are subject
to pursuant to regulations promulgated by the United States Department of Agriculture ("USDA")
and Customers and Border Patrol. The USDA typically inspects our facilities receiving such APHIS
waste on a quarterly basis.
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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
With the acquisition of Shred-it, we hold patents in the U.S. for a two-staged shredder with
patents pending in Canada and Europe. We also hold patents in the U.S., Canada, and Europe for
Securshield, propriety locks for shredding containers.
We own federal registrations for a number of trademarks/servicemarks including Stericycle®,
Steri-Safe®, Stericycle ExpertRECALL®, Sustainable Solutions®, Bio Systems®, Shred-it®, Securit®,
Community Shred-it®, Making Sure it’s Secure®, and our company logo service mark consisting of
a nine-circle design. We also hold international registrations for Stericycle, the nine-circle design
used in our logo, and the Shred-it name and design.
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 $75 million in general liability insurance (including umbrella coverage), and under
separate policies, $25 million in aggregate of pollution legal liability insurance and contractor’s
operations and professional services environmental insurance ($10 million per incident and $15
million excess per incident under each respective policy). We carry comprehensive policies that
include: privacy liability, security liability, event management, cyber-liability and miscellaneous
professional services errors and omissions coverages with the total of $15 million in coverage ($5
million primary with $10 million excess). We consider this insurance sufficient to meet regulatory
and customer requirements and to protect our employees, assets and operations.
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Executive Officers of the Registrant
The following table contains certain information regarding our seven current executive officers:
Name
Mark C. Miller
Charles A. Alutto
Brent Arnold
Daniel V. Ginnetti
Michael J. Collins
John P. Schetz
Brenda Frank
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
Executive Vice President and General Counsel
Executive Vice President and Chief People Officer
Age
60
50
47
47
59
39
46
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
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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 joined Stericycle as President, Recall and Returns Management Services in
June 2006. Prior to joining Stericycle, he was Medical Products Group of Abbott Laboratories. He
joined Abbott in 1982 as a sales representative and later served in various management positions,
including Divisional Vice President, U.S. Sales; Divisional Vice President, U.S. Marketing, Divisional
Vice President and General Manager, MediSense and Corporate Vice President Abbott Diagnostics
Divisions. Mr. Collins was a commissioned officer for the U.S. Marine Corps. He holds a B.S degree
from the University of New Haven and a M.B.A. degree from National University, San Diego.
John Schetz has served as Executive Vice President and General Counsel since April 2015.
Mr. Schetz previously served as Vice President and Senior Counsel from January 2013. He joined
us in June 2009 as Senior Counsel, Mergers and Acquisitions. Prior to joining Stericycle, Mr. Schetz
was a partner at McDermott Will & Emery LLP in Chicago. Mr. Schetz received a B.A. degree from
the University of Michigan and a J.D. degree from the University of Michigan Law School.
Brenda Frank has served as Executive Vice President and Chief People Officer since January
2016. Brenda joined Stericycle with our acquisition of Shred-it in October 2015 where she spent
six years as General Counsel and Executive Vice President of Human Resources and Franchise
Relations. Brenda has spent the last 20 years focusing on people, labor and employment, holding
senior human resources and legal roles at global services companies such as ITOCHU
INTERNATIONAL and Pitney Bowes. Brenda started her career as a labor and employment attorney
and litigator at Wilson Sonsini Goodrich & Rosati and Proskauer Rose. Brenda received her B.S.
in Accounting from S.U.N.Y Albany and her J.D. from New York University Law School.
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.
The regulated waste management and secure information destruction industries are 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
and the proper handling and protection of personal and confidential information. Our business
requires us to obtain many permits, authorizations, approvals, certificates, and other types of
governmental permission from and to comply with various regulations in every jurisdiction in which
we operate. 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 our business. 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
13
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 and the proper handling and protection of personal and confidential information 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 and personal and confidential information could increase the number
of competitors we face or reduce the need for our services.
The amount of our indebtedness could adversely affect our business.
As of December 31, 2015, we had a total of $3.2 billion of outstanding indebtedness, including
long-term debt and short-term debt. We also have the ability to incur a substantial amount of
additional indebtedness, including up to an additional $685.8 million under our revolving credit
facility.
Our annual cash obligations to service our indebtedness are approximately $375 million. In
addition, the aggregate amount of dividends payable on our depositary shares is approximately
$40.4 million on an annual basis. If we are unable to generate sufficient cash to repay or to refinance
our debt as it comes due or to pay dividends on our depositary shares, this would have a material
adverse effect on our business and the market price of our common stock and depositary shares.
Our leverage could have adverse consequences on our business, including the following:
• we may be required to dedicate a substantial portion of our available cash to payments of
principal of and interest on our indebtedness;
• our ability to access credit markets on terms we deem acceptable may be impaired; and
• our leverage may limit our flexibility to adjust to changing market conditions.
Servicing debt and funding other obligations requires a significant amount of cash, and our
ability to generate sufficient cash depends on many factors, some of which are beyond our
control.
Our ability to make payments on and refinance our indebtedness and to fund our operations
and capital expenditures depends on our ability to generate cash flow and secure financing in the
future. Our ability to generate future cash flow depends, among other things, upon:
• future operating performance;
• general economic conditions;
• competition; and
• legislative and regulatory factors affecting our operations and business.
Some of these factors are beyond our control. There is no assurance that our business will
generate cash flow from operations or that future debt or equity financings will be available to us
to enable us to pay our indebtedness or to fund other needs. As a result, we may need to refinance
all or a portion of our indebtedness on or before maturity. There is no assurance that we will be
able to refinance any of our indebtedness on favorable terms, or at all. Any inability to generate
14
sufficient cash flow or refinance our indebtedness on favorable terms could have an adverse effect
on our financial condition.
Restrictions in our private placement notes, the Term Loan Credit Facility and the Revolving
Credit Facility could adversely affect our business, financial condition, results of operations,
ability to make distributions and value of our securities.
The terms of our private placement notes require that we comply with certain covenants and
will include events of default and other terms similar to those in certain of our existing private
placement notes. Each of the Term Loan Credit Facility and Revolving Credit Facility also contains
customary affirmative covenants, including, among others, covenants pertaining to the delivery of
financial statements; notices of default and certain other material events; payment of obligations;
preservation of corporate existence, rights, privileges, permits, licenses, franchises and intellectual
property; maintenance of property and insurance and compliance with laws, as well as customary
negative covenants for facilities of this type, including, among others, limitations on the incurrence
of liens, investments and indebtedness; mergers and certain other fundamental changes;
dispositions of assets; restricted payments; changes in our line of business; transactions with
affiliates and burdensome agreements. Each facility contains a financial covenant requiring
maintenance of a minimum consolidated interest coverage ratio of 3.00 to 1.00 as of the end of
any quarter and a financial covenant requiring maintenance of a maximum consolidated leverage
ratio of between 3.75 and 4.35 to 1.00, depending on factors determined in accordance with the
terms of the applicable facility. 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 ability to comply with the covenants and restrictions contained in the private placement
notes, the Term Loan Credit Facility and the Revolving Credit Facility may be affected by events
beyond our control, including prevailing economic, financial, and industry conditions. If market or
other economic conditions deteriorate, our ability to comply with these covenants may be impaired.
A failure to comply with these provisions could result in a default or an event of default. Upon an
event of default, unless waived, the lenders could elect to terminate its commitments, cease making
further loans, require cash collateralization of letters of credit, cause its loans to become due and
payable in full and force us and our subsidiaries into bankruptcy or liquidation. If the payment of
our debt is accelerated, our assets may be insufficient to repay such debt in full, and the holders
of our units could experience a partial or total loss of their investment.
We will incur significant acquisition-related integration costs in connection with the Shred-
it acquisition.
We have developed and are in the process of executing a plan to integrate the operations of
Shred-it to achieve anticipates synergies of between $20 million to $30 million in connection with
the acquisition by fiscal year 2018. We also expect to incur costs to implement such cost savings
measures. We anticipate that we will incur certain non-recurring charges in connection with this
integration, including costs and charges associated with integrating operations, processes and
systems. We cannot identify the timing, nature and amount of all such charges. The significant
acquisition-related integration costs could adversely affect our results of operations in the period
in which such charges are recorded or our cash flow in the period in which any related costs are
actually paid. Although we believe that the elimination of duplicative costs such as selling, general
and administrative expenses, as well as the realization of other efficiencies related to the integration
of the businesses such as the optimization of logistics, truck and plant utilization, cross-utilization
of fleet, improvements in route density and facility optimization, will offset incremental acquisition-
related costs over time, this net benefit may not be achieved in the near term, or at all. We expect
it will take approximately two years from the closing of the Shred-it acquisition to implement the
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cost savings measures to achieve our anticipated annual cost savings from synergies. We have
identified some, but not all, of the actions necessary to achieve our anticipated cost and operational
savings. Accordingly, the cost and operational savings may not be achievable in our anticipated
amount or timeframe or at all.
We may not realize the synergies and growth opportunities that are anticipated from the
Shred-it acquisition or other acquisitions.
The benefits we expect to achieve as a result of the Shred-it acquisition or other acquisitions
that we complete will depend, in part, on our ability to realize targeted synergies and anticipated
growth opportunities. Our success in realizing these synergies and growth opportunities, and the
timing of this realization, depends on the successful integration of other business and operations
with our pre-existing business and operations. Even if we are able to integrate these businesses
and operations successfully, this integration may not result in the realization of the full benefits of
the synergies and growth opportunities we currently expect within the anticipated time frame or at
all. While we anticipate that certain expenses will be incurred, such expenses are difficult to estimate
accurately, and may exceed current estimates. Accordingly, the benefits from the Shred-it acquisition
or other acquisitions may be offset by unexpected costs incurred or delays in integrating the
companies, which could cause our financial estimates to be inaccurate.
If we are unable to acquire regulated waste, secure information destruction 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 and integrate
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; and
• avoid or overcome any concerns expressed by regulators.
We compete with other potential buyers for the acquisition of regulated waste and secure
information destruction companies and other businesses. This competition may result in fewer
opportunities to purchase companies that are for sale. It may also result in higher purchase prices
for the businesses that we want to purchase.
We also do not know whether our growth strategy will continue to be effective. Our business
is significantly larger than before, and new acquisitions may not have the incremental benefits that
we have obtained in the past.
The implementation of our acquisition strategy could be affected in certain instances by the
concerns of federal and state regulators, which could result in our not being able to realize
the full synergies or profitability of particular acquisitions.
We may become subject to inquiries and investigations by federal or state antitrust regulators
from time to time in the course of completing acquisitions of other regulated waste and secure
information destruction 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.
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Aggressive pricing by existing competitors and the entrance of new competitors could drive
down our profits and slow our growth.
The industries in which we participate are 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 wastes or the secure destruction of personal and confidential information, there are
many regional and local companies in these industries. 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 operate in the markets we serve.
For example, in the United States, Waste Management, Inc., and Clean Harbors, and Iron Mountain
all offer competing services.
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.
Risks from our international operations could impair our ability to expand in certain
international markets and adversely affect our business, financial condition and results of
operations.
We plan to continue to grow both domestically and internationally. We have established
operations in the United States and 21 other countries. Foreign operations carry special risks
including:
• exchange rate fluctuations;
• government controls;
• import and export license requirements;
• political or economic instability;
• trade restrictions;
• changes in tariffs and taxes;
• permitting and regulatory standards;
• differences in local laws, regulations, practices, and business customs;
• restrictions on repatriating foreign profits back to the United States or movement of funds
to other countries;
• difficulties in staffing and managing international operations; and
• increases and volatility in labor costs.
Any of the foregoing or other factors associated with doing business abroad could adversely
affect our business, financial condition and results of operations.
We face risks associated with project work and services that are provided on a non-recurring
basis.
While the majority of our business is based on long-term contracts for regularly scheduled
service, we do have a portion of revenue which is derived from short-term projects or services that
17
we provide on a non-recurring basis. Product recall and retrieval events, one-time purge events
for secure information destruction, and certain hazardous waste services that we provide on a
project or non-recurring basis are not predictable in terms of frequency, size or duration. Our
customers’ need for these services could be influenced by regulatory changes, fluctuations in
commodity market performance, natural disasters and acts of God, or other factors beyond our
control. Variability in the demand for these services could adversely affect our business, financial
condition and results of operations.
Fluctuations in the commodity market related to the demand and price for recycled paper
may affect our business, financial condition and results of operations.
We sell nearly all of the shredded paper from our secure information destruction business to
paper companies and recycled paper brokers. Sorted office paper is marketed as a commodity and
is subject to significant demand and price fluctuations beyond our control. Historically, economic
and market shifts, fluctuations in capacity and changes in foreign currency exchange rates have
created cyclical changes in prices, sales volume and margins for pulp and paper products. The
length and magnitude of industry cycles have varied over time and by product, but generally reflect
changes in macroeconomic conditions and levels of industry capacity. The overall levels of demand
for the pulp and paper products, and consequently its sales and profitability, reflect fluctuations in
levels of end-user demand, which depend in part on general macroeconomic conditions in North
America and worldwide, as well as the threat of digitization. As a result, the market demand for
recycled paper can be volatile due to factors beyond our control. Lack of demand for our shredded
paper material could adversely affect our business, financial condition and results of operations.
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, 2015 contains
goodwill of $3.8 billion and other intangible assets, net of accumulated amortization of $1.8 billion.
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 to 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 or 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 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.
We face risks relating to our size and scale.
We have over 800 facilities in 22 countries and more than 25,000 employees worldwide. The
sheer size of our operations exposes us to the risk that systems and practices will not be
implemented uniformly throughout our Company and that information will not be shared across the
locations and countries in a timely and appropriate manner. Any misalignment in strategic initiatives
18
and/or difficulties or delays in transmission of information could adversely affect our business,
financial condition and results of operations.
The handling and treatment of regulated waste carries with it the risk of personal injury to
employees and others.
Our business requires us to handle materials that may be infectious or hazardous to life and
property in other ways. While we try to handle such materials with care and in accordance with
accepted and safe methods, the possibility of accidents, leaks, spills, and acts of God always exists.
Examples of possible exposure to such materials include:
• truck accidents;
• damaged or leaking containers;
• improper storage of regulated waste by customers;
• improper placement by customers of materials into the waste stream that we are not
authorized or able to process, such as certain body parts and tissues; or
• malfunctioning treatment plant equipment.
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.
The handling of secure information for destruction exposes us to potential data security
risks that could result in monetary damages against us and could otherwise damage our
reputation, and adversely affect our business, financial condition and results of operations.
19
The protection of customer, employee, and company data is critical to our business. The
regulatory environment in the United States and Canada surrounding information security and
privacy is increasingly demanding, with the frequent imposition of new and constantly changing
requirements. Certain legislation, including the Fair and Accurate Credit Transactions Act, the Health
Insurance Portability and Accountability Act, and the Economic Espionage Act in the United States
and the Personal Information Protection and Electronic Documents Act in Canada, require
documents to be securely destroyed to avoid identity theft and inadvertent leakage of confidential
and sensitive information. A significant breach of customer, employee, or company data could attract
a substantial amount of media attention, damage our customer relationships and reputation and
result in lost sales, fines, or lawsuits. In addition, an increasing number of countries have introduced
and/or increased enforcement of comprehensive privacy laws, or are expected to do so. The
continued emphasis on information security as well as increasing concerns about government
surveillance may lead customers to request us to take additional measures to enhance security
and/or assume higher liability under our contracts. As a result of legislative initiatives and customer
demands, we may have to modify our operations to further improve data security. Any such
modifications may result in increased expenses and operational complexity, and adversely affect
our business, financial condition and results of operations.
Attacks on our information technology systems could damage our reputation, harm our
businesses and adversely affect our results of operations.
Our reputation for the secure handling of customer and other sensitive information is critical
to the success of our business. We rely heavily on various proprietary and third party information
systems. Although we have implemented safeguards and taken steps to prevent potential security
breaches, our information technology and network infrastructure may be vulnerable to attacks by
hackers or breaches due to employee error, malfeasance, cyber-attacks, computer viruses, power
outages, natural disasters, acts of terrorism or other disruptions. Because techniques used to obtain
unauthorized access or to sabotage systems change frequently and generally are not recognized
until launched against a target, we may be unable to prevent these techniques or to implement
adequate preventative measures. A successful breach of the security of our information systems
could lead to theft or misuse of our customers’ proprietary or confidential information and result in
third party claims against us and reputational harm, all of which could adversely affect our
businesses, financial condition or results of operations.
Our management depends on relevant and reliable information for decision making purposes,
including key performance indicators and financial reporting. A lack of relevant and reliable
information could preclude us from optimizing our overall performance. Any significant loss of data,
failure to maintain reliable data, disruptions affecting our information systems, or delays or difficulties
in transitioning to new systems could adversely affect our business, financial condition and results
of operations. In addition, our ability to continue to operate our businesses without significant
interruption in the event of a disaster or other disruption depends in part on the ability of our
information systems to operate in accordance with our disaster recovery and business continuity
plans. If our information systems fail and our redundant systems or disaster recovery plans are not
adequate to address such failures, or if our business interruption insurance does not sufficiently
compensate us for any losses that we may incur, our revenues and profits could be reduced and
the reputation of our brands and our business could be adversely affected. In addition, remediation
of such problems could result in significant, unplanned capital investments.
Item 1B. Unresolved Staff Comments
None.
20
Item 2. Properties
We lease office space for our corporate offices in Lake Forest, Illinois. Domestically, we own
or lease 114 processing facilities, which are primarily autoclaves for medical waste and shredders
for secure information destruction. All of our processing facilities also serve as collection sites. We
own or lease 218 additional transfer sites, 21 additional sales/administrative sites, and 83 other
service facilities. Internationally, we own or lease 139 processing facilities, the majority of which
use autoclave waste processing technology. We also own or lease 140 additional transfer sites,
62 additional sales/administrative sites, 54 other service facilities, and 3 landfills. We believe that
these processing and other facilities are adequate for our present and anticipated future needs.
Item 3. Legal Proceedings
See Note 19 - Legal Proceedings in the Notes to the Consolidated Financial Statements (Item
8 of Part II).
Item 4. Mine Safety Disclosures
Not Applicable.
PART II
Item 5. Market Price for the Registrant’s Common Equity, Related Stockholder Matters,
and Issuer Purchases of Equity Securities
The Company’s common stock is listed on the NASDAQ Global Select Market under the ticker
symbol "SRCL." There were 103 shareholders of record as of February 19, 2016.
We did not declare or pay any cash dividends during 2015 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.
The holders of our Series A Mandatory Convertible Preferred Stock (the "Series A Preferred
Stock") are entitled to receive quarterly dividends, which accrue at an annual rate of 5.25%.
Dividends of $10.1 million were paid on December 15, 2015 to holders of our Series A Preferred
Stock.
See Item 7 of Part II, "Management’s Discussion and Analysis of Financial Condition and
Results of Operations."
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 2015
Second quarter 2015
Third quarter 2015
Fourth quarter 2015
First quarter 2014
Second quarter 2014
Third quarter 2014
Fourth quarter 2014
$
$
High
Low
140.86 $
141.93
148.26
150.84
120.09 $
118.90
119.98
133.43
130.10
132.76
132.33
113.64
111.96
109.33
115.31
116.15
21
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, 2015, we had purchased a cumulative total of 20,890,819 shares.
The following table provides information about our purchases of shares of our common stock
during the year ended December 31, 2015:
Issuer Purchases of Equity Securities
Period
January 1 - January 31, 2015
February 1 - February 28, 2015
March 1 - March 31, 2015
April 1 - April 30, 2015
May 1 - May 31, 2015
June 1 - June 30, 2015
July 1 – July 31, 2015
August 1 – August 31, 2015
September 1 – September 30, 2015
October 1 - October 31, 2015
November 1 – November 30, 2015
December 1 – December 31, 2015
Total
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
— $
—
100,713
322,800
131,367
120,640
—
68,729
19,647
45,000
76,907
118,561
1,004,364 $
—
—
136.74
135.09
133.26
134.93
—
133.37
137.52
117.61
121.96
117.86
131.10
—
—
100,713
322,800
131,367
120,640
—
68,729
19,647
45,000
76,907
118,561
1,004,364
4,735,185
4,735,185
4,634,472
4,311,672
4,180,305
4,059,665
4,059,665
3,990,936
3,971,289
3,926,289
3,849,382
3,730,821
3,730,821
As of December 31, 2015, there were 9,000 share repurchases that had not yet settled. An
amount of $1.1 million related to these unsettled repurchases was recognized as part of other
accrued liabilities on our Consolidated Balance Sheet at December 31, 2015.
Equity Compensation Plans
The following table summarizes information as of December 31, 2015 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)
5,398,111 $
8,143 $
92.11
45.59
3,317,483
—
Plan Category
Equity compensation plans approved by our security
holders (1)
Equity compensation plans not approved by our security
holders (2)
22
(1) These plans consist of our 2014 Incentive Compensation Plan, 2011 Incentive Compensation
Plan, 2008 Incentive Stock Plan, 2005 Incentive Stock Plan, and the Employee Stock
Purchase Plan.
(2) The only plan in this category is our 2000 Non-statutory Stock Option Plan.
In 2000, our Board of Directors approved the 2000 Non-statutory Stock Option Plan (the "2000
Plan"), which authorized the granting of non-statutory 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.
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, 2015 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, 2010 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.
23
Item 6. Selected Financial Data
In thousands, except per share data
Statement of Income Data
Revenues
Depreciation and amortization
Income from operations
Mandatory convertible preferred stock
dividend
Net income attributable to Stericycle,
Inc. common shareholders
Earnings per common share
attributable to Stericycle, Inc.
common shareholders - diluted
Statements of Cash Flow Data
Net cash flow provided by/(used for):
Operating activities
Investing activities
Financing activities
Balance Sheet Data
Cash, cash equivalents and short-
term investments
Total assets
Long-term debt, net of current portion
Stericycle, Inc. equity
2015
(1)
Years Ended December 31,
2013
2014
2012
2011
$ 2,985,908 $2,555,601 $2,142,807 $1,913,149 $1,676,048
66,046
424,311
104,616
556,336
127,412
487,612
88,408
535,619
76,283
468,836
10,106
—
—
—
—
(2)
256,940
326,456
311,372
267,996
234,751
(2) $
2.98 $
3.79 $
3.56 $
3.08 $
2.69
$ 390,328 $ 448,500 $ 405,307 $ 390,784 $ 306,104
(504,197)
(2,533,904)
137,872
2,181,208
(234,972)
(136,019)
(288,928)
(91,526)
(462,774)
(30,049)
(1)
$
22,616 $
55,703 $
22,927
3,177,090
3,887,973
1,284,113
1,280,663
$ 2,729,891 $1,895,012 $1,750,461 $1,541,793 $1,198,166
3,550,074
1,268,303
7,077,450
3,052,639
4,373,302
1,527,246
67,580 $
35,163 $
(1) See Note 3 - Acquisitions 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,
2015, 2014 and 2013.
•
•
(2) See Note 8 - Earnings per Common Share ("EPS") in the Notes to the Consolidated Financial
Statements (Item 8 of Part II) for information concerning the computation of diluted EPS.
In 2015, net income included the following after-tax effects: $29.0 million of expenses related
to acquisitions, $33.3 million of expenses related to the integration of our acquisitions, $15.9
million of restructuring and plant conversion expenses, $39.8 million of expense related to
litigation expenses, $1.8 million of expense related to the write-down of intangible assets,
and a $0.6 million gain related to the change in fair value of contingent consideration. The
net effect of these adjusting items negatively impacted diluted EPS by $1.38.
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 adjusting items negatively impacted diluted 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 adjusting items negatively impacted diluted EPS by $0.19.
•
24
•
•
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 adjusting items
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 adjusting items negatively impacted diluted EPS by $0.16.
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 a business-to-business services provider with a focus on regulated and compliance
solutions for healthcare, retail, and commercial businesses. This includes the collection and
processing of regulated and specialized waste for disposal and the collection of personal and
confidential information for secure destruction, plus 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 1,000,000 customers throughout the United States, Argentina,
Austria, Australia, Belgium, Brazil, Canada, Chile, France, Germany, Ireland, Japan, Luxembourg,
Mexico, the Netherlands, Portugal, Romania, Republic of Korea, Singapore, South Africa, Spain,
and the United Kingdom.
Our solutions for regulated or specialty waste streams include: medical waste disposal,
pharmaceutical waste disposal, hazardous waste management, sustainability solutions for expired
or unused inventory, and secure information destruction of documents and e-media. Our compliance
solutions include: training and consulting through our Steri-Safe® and Clinical Services programs,
inbound/outbound communications, data reporting, and other regulatory compliance services. Our
regulated recall and returns management solutions consist of communication, logistics, and data
management services to support the recall, withdrawal, or return of expired or recalled products.
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 medical waste management services,
other than our compliances services, and secure information destruction services are recognized
25
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 sales taxes and 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 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.
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, but is subject to
an annual impairment test. 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, 2015, 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. See Note 11 - Goodwill and Other Intangible Assets in the Notes to the
Consolidated Financial Statements, Item 8 of Part II for more information about goodwill and the
annual impairment test.
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 88%.
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, 2015. 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
26
changes in the fair value of contingent consideration, restructuring and plant conversion expense,
and litigation settlements, 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 each 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.
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 more likely
than 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 in the Notes to the Consolidated Financial Statements, Item 8 of Part II for more
information about indefinite lived intangible assets.
In 2015, we impaired $4.2 million of intangibles due to rationalizing certain of our domestic
and international operations. These expenses are reflected as part of "Selling, general and
administrative expenses" on our Consolidated Statements of Income. 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.
Our finite-lived intangible assets are amortized over their useful lives using straight-line method.
We have determined that our customer relationships have useful lives from 10 to 40 years based
upon the type of customer. We have covenants not-to-compete intangibles with useful lives from
5 to 14 years. We have tradename intangibles with useful lives from 15 to 40 years. 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 in the Notes to the Consolidated Financial Statements, Item
8 of Part II for more information about our intangible assets other than goodwill.
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.
27
Our customer relationship valuation model, using the multi-period excess earnings method,
assumes straight-line revenue loss. The calculation of determining a revenue loss rate starts with
a base-line revenue point and then tracks revenue by customer, assuming no further revenue
growth, to a point of zero revenues. A calculation of base-line revenue to zero revenue determines
the useful life of customer relationships. Determining an accurate consumption of benefits from
acquired customer relationships cannot be reliably determined because the services we provide
to acquired customers changes from the base-line revenues over an extended period of time due
to factors such as volume increase, price increase, and complementary service offerings. Therefore
we amortize our finite-lived intangible assets using the straight-line method consistent with our
valuation model.
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.
Accounts Receivable: Accounts receivable consist of amounts due to us from our normal
business activities and are carried at their estimated collectible amounts. Our accounts receivable
balance includes amounts related to VAT and similar international pass-through taxes. We do not
require collateral as part of our standard trade credit policy. Accounts receivable balances are
determined to be past due when the amount is overdue based on the contractual terms with the
customer. We maintain an allowance for doubtful accounts to reflect the expected uncollectability
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 1.5% of our accounts receivable.
Stock-Based Compensation: We issue stock options and restricted stock units ("RSU") to
employees and directors as an integral part of our compensation programs. Stock options cost is
measured at the grant date using the Black-Scholes model and is recognized as expense over the
vesting period. Determining the fair value of stock options at the grant date requires 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. The fair value of RSU 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. If factors change and we
28
employ different assumptions, stock-based compensation expense may differ significantly from
what we have recorded in the past.
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.
Share Repurchases: The purchase price over par value for share repurchases is allocated
to retained earnings.
Year Ended December 31, 2015 Compared to Year Ended December 31, 2014
Highlights for the year ended December 31, 2015 included the following:
• revenues grew to $2.99 billion, a 16.8% increase over $2.56 billion in 2014;
• gross margins decreased to 42.4% in 2015 from 42.8% in 2014;
• operating income decreased 12.4% to $487.6 million from $556.3 million in 2014;
• we incurred $174.4 million in pre-tax expenses related to acquisitions, integration expenses
related to acquisitions, restructuring and plant conversion expenses, litigation expenses,
impairment of intangible assets, and a favorable change in the fair value of contingent consideration;
• cash flow from operations was $390.3 million;
• the acquisition of Shred-it International ULC ("Shred-it"), the largest acquisition in Stericycle’s
history, was completed on October 1, 2015. The aggregate purchase price was $2.3 billion in cash;
• borrowed $1.30 billion under the Term Loan Credit Facility on October 1, 2015 to fund a
portion of the purchase price paid for Shred-it;
• net proceeds of $746.9 million from a registered public offering of Series A Mandatory
Convertible Preferred Stock completed on September 15, 2015 to fund a portion of the purchase
price paid for Shred-it;
• Dividends of $10.1 million were paid on December 15, 2015 to holders of our Series A
Preferred Stock.
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.
29
The following summarizes the Company’s operations:
In thousands, except per share data
Years Ended December 31,
2015
2014
Revenues
Cost of revenues
Depreciation - cost of revenues
Plant conversion expenses
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
Impairment of intangible assets
Restructuring and plant conversion expenses
Litigation expenses
Total SG&A expenses (exclusive of depreciation
and amortization shown below)
Depreciation
Amortization
Income from operations
Net interest expense
Other (income)/expense, net
Income tax expense
Net income
Less: net income attributable to noncontrolling
interests
Net income attributable to Stericycle, Inc.
Less: mandatory convertible preferred stock
dividend
Net income attributable to Stericycle, Inc.
common shareholders
Earnings per share- diluted
$
$
2,985,908
1,656,573
61,642
1,508
1,719,723
1,266,185
539,944
39,138
51,689
(640)
1,781
21,240
59,651
712,803
20,272
45,498
487,612
77,274
(569)
142,894
268,013
967
267,046
10,106
%
100.0 $
55.5
2.1
0.1
57.6
42.4
18.1
1.3
1.7
—
0.1
0.7
2.0
23.9
0.7
1.5
16.3
2.6
—
4.8
9.0
—
8.9
0.3
$
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
—
$
$
256,940
2.98
8.6 $
$
326,456
3.79
%
100.0
54.9
2.2
0.1
57.2
42.8
17.0
0.5
1.0
(0.1)
0.0
0.5
0.3
19.2
0.6
1.3
21.8
2.6
0.1
6.2
12.8
0.1
12.8
—
12.8
Revenues: Our revenues increased $430.3 million, or 16.8%, to $2.99 billion from $2.56
billion in 2014. Domestic revenues increased $376.6 million, or 21.1%, to $2.17 billion from $1.79
billion in 2014. Organic revenue growth for domestic small account customers increased by $69.4
million, or approximately 6.8%, driven by an increase in Steri-Safe® revenues and regulated waste
services for retailers. Organic revenue from domestic large account customers increased by $22.5
million, or approximately 3.6%, as we increased the total number of accounts and expanded our
reusable sharps services and pharmaceutical waste disposal programs. Organic revenues for both
small account customers and large account customers were negatively impacted by lower fuel
surcharges as well as lower hazardous waste volume from our industrial customers. Organic
revenues for recall and returns management services increased by $7.0 million in 2015. 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 $277.7 million to the increase in revenues in 2015.
30
International revenues increased $53.7 million, or 7.0%, to $820.9 million from $767.2 million
in 2014. Organic growth, currency rate fluctuations and acquisitions impact the comparison of 2015
and 2014. Organic growth in the international segment contributed $63.1 million in revenues, or
approximately 8.4%. Organic growth excludes the effect of foreign exchange and acquisitions less
than one year old. The effect of foreign exchange rates unfavorably impacted international revenues
in 2015 by $110.2 million as foreign currencies declined against the U.S. dollar. Revenues from
international acquisitions closed within the preceding twelve months contributed $100.8 million to
the increase in revenues in 2015.
Cost of Revenues: Our 2015 cost of revenues increased $258.5 million, or 17.7%, to $1.72
billion from $1.46 billion in 2014. As a percent of revenues, our costs of revenues increased 0.4%
which resulted in consolidated gross profit of 42.4% in 2015 as compared to 42.8% in 2014. We
incurred $1.5 million and $2.9 million in plant conversion expenses during the years ended
December 31, 2015 and 2014, respectively.
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.
Our domestic cost of revenues increased $220.8 million, or 23.5%, to $1.16 billion from $940.2
million in 2014. Domestic gross profit as a percent of revenues decreased to 46.4% in 2015 from
47.4% in 2014 primarily due to higher operating costs related to the current and more stringent
compliance requirements for medical waste incinerators under Title V. Additionally, less than
anticipated revenues from our industrial customers, which have a higher fixed cost structure, further
unfavorably impacted gross margins.
Our international cost of revenues increased $37.7 million, or 7.2%, to $558.7 million from
$521.0 million in 2014. International gross profit as a percent of revenues decreased to 31.9% in
2015 from 32.1% in 2014 due to a foreign exchange impact on a profitability mix as we experienced
unfavorable foreign exchange impact primarily in areas with higher profitability. Similarly, we
experienced higher compensation costs in areas of high inflation.
Selling, General and Administrative Expenses Exclusive of Adjusting Items,
Depreciation and Amortization ("SG&A"): Our SG&A expenses increased $106.1 million, or
24.4%, to $539.9 million from $433.9 million in 2014 to support our increase in revenues and the
inclusion of our 2015 acquisitions, mainly Shred-it. As a percent of revenues, these costs increased
to 18.1% in 2015 as compared to 17.0% in 2014.
Domestically, SG&A expenses increased $75.0 million, or 25.1%, to $374.2 million from
$299.2 million in 2014 primarily related to increased healthcare benefit costs, higher professional
fees, and increased investments for growth and the inclusion of the Shred-it acquisition in 2015.
As a percent of revenues, SG&A increased to 17.3% in 2015 as compared to 16.7% in 2014. As
a percent of revenues, amortization expense of acquired intangible assets increased to 1.3% in
2015 as compared to 1.0% in 2014.
Internationally, SG&A expenses increased $31.0 million, or 23.0%, to $165.7 million from
$134.7 million in 2014. As a percent of revenues, SG&A increased to 20.2% in 2015 as compared
31
to 17.6% in 2014 primarily related to compensation expenses in support of new business growth
opportunities and the inclusion of the Shred-it acquisition in 2015. As a percent of revenues,
amortization expense of acquired intangible assets increased to 2.0% in 2015 as compared to
1.9% in 2014.
Income from Operations: Income from operations decreased by $68.7 million, or 12.4%,
to $487.6 million from $556.3 million in 2014. Comparison of income from operations between 2015
and 2014 was affected by Adjusting Items as described below.
During the first quarter of 2015, management began executing a realignment of our operations
to reduce labor redundancies and facility costs. As part of this realignment, the Company recorded
charges related to severance, fixed asset impairments, impairment of intangible assets, and
recognition of lease expense for properties no longer used but for which we have a contractual
obligation.
During the year ended December 31, 2015, we recognized $59.7 million in litigation expenses
(mostly due to the $28.5 million settlement of the Qui Tam Action and the $28.2 million settlement
of the Junk Fax Lawsuit described in Note 19 - Legal Proceedings in the Notes to the Consolidated
Financial Statements, Item 8 of Part II), $39.1 million in acquisition expenses, most of which relates
to our recent acquisition of Shred-it, $51.7 million of expenses related to the integration of our
acquisitions, most of which relates to our recent acquisition of Shred-it, $19.1 million in restructuring
expenses (see Note 17 - Restructuring Charges in the Notes to the Consolidated Financial
Statements, Item 8 of Part II), $3.6 million in plant conversion expenses, $1.8 million of impairment
charges on intangible assets, and a $0.6 million favorable change in the fair value of contingent
consideration.
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, $14.6 million in
plant conversion and restructuring expenses related to the impairment 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.
Domestically, our income from operations decreased $41.0 million, or 8.5%, to $441.8 million
from $482.8 million in 2014.
Internationally, our income from operations decreased $27.7 million, or 37.7%, to $45.8 million
from $73.5 million in 2014.
Net Interest Expense: Net interest expense increased to $77.3 million during 2015 from
$66.0 million in 2014, due to increased borrowings to fund the acquisition of Shred-it in the fourth
quarter of 2015, as well as higher interest costs in Latin America.
Income Tax Expense: Income tax expense decreased to $142.9 million during 2015 from
$159.4 million during 2014. The reported tax rates for the years 2015 and 2014 were 34.8% and
32.7%, respectively. The increase in the current year tax rate, when compared to the prior year, is
primarily related to an increase in the State tax rate, partially offset by a benefit from the recognition
of tax deductible goodwill associated with entity mergers in Spain, Brazil, and Chile in the prior
year.
32
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.
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
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 $
$
$
2,142,807
1,125,627
50,003
423
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
52.5
2.3
—
0.1
55.0
45.0
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
33
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 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.
SG&A: 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.
34
Domestically, 2014 SG&A increased $35.9 million, or 13.6%, to $300.5 million 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, 2014 SG&A increased $25.9 million, or 24.1%, to $133.4 million 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%.
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 as described below.
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, $14.6 million in
plant conversion and restructuring expenses related to the impairment 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.
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.
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 impairment 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.
35
Liquidity and Capital Resources:
The following senior credit facility, term loan, and the private placement notes require us to
comply with various financial, reporting and other covenants and restrictions, including a restriction
on dividend payments:
$1.20 billion senior credit facility weighted average rate 1.54%, due in 2019
$1.25 billion term loan weighted average rate 1.71%, due in 2020
$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
$150 million private placement notes 2.89%, due in 2021
$125 million private placement notes 3.26%, due in 2022
$200 million private placement notes 2.72%, due in 2022
$100 million private placement notes 2.79%, due in 2023
$150 million private placement notes 3.18%, due in 2023
The financial debt covenants are the same for the senior credit facility, term loan, and the
private placement notes. At December 31, 2015, we were in compliance with all of our financial
debt covenants. Our senior credit facility, term loan, and the private placement notes rank pari
passu to each other and all other unsecured debt obligations.
On April 30, 2015, we entered into a note purchase agreement with several institutional
purchasers pursuant to which we have issued and sold to the purchasers $200.0 million of our new
seven-year 2.72% unsecured senior notes ("Series A") and $100.0 million of our new eight-year
2.79% unsecured senior notes ("Series B"). Closing of the issuance and sale of the notes occurred
on July 31, 2015.
The Series A notes bear interest at the fixed rate of 2.72% per annum, and the Series B notes
bear interest at the fixed rate of 2.79% per annum. Interest will be payable in arrears semi-annually
on January 1 and July 1 beginning on January 1, 2016. The principal of the Series A notes will be
payable at the maturity of the notes on July 1, 2022, and the principal of the Series B notes will be
payable at the maturity of the notes on July 1, 2023. The notes are unsecured obligations.
The Company entered into a Term Loan Credit Agreement dated as of August 21, 2015 (the
"Term Loan Credit Agreement") with Bank of America, N.A., as the Administrative Agent maturing
on August 21, 2020. The Term Loan Credit Agreement provides for a term loan credit facility ("Term
Loan Credit Facility") under which the Company may obtain loans up to an aggregate amount of
$1.5 billion. Borrowings under the Term Loan Credit Facility may bear interest at a Base Rate or
Eurodollar Rate, respectively, plus the Applicable Rate. The Base Rate is for any day a fluctuating
rate per annum equal to the highest of (i) the Federal Funds Rate plus 1/2 of 1.00%, (ii) the rate
of interest in effect for such day as publicly announced from time to time by Bank of America as its
"prime rate" and (iii) the Eurodollar Rate plus 1.00%. The Applicable Rate depends on the
consolidated leverage ratio for the Company and its subsidiaries as set forth in the most recent
compliance certificate received by the administrative agent. We used the proceeds from the term
loan to fund a portion of the purchase price paid for the Shred-it acquisition (see Note 3 - Acquisitions
in the Notes to the Consolidated Financial Statements for more information).
On October 1, 2015, we issued and sold to the purchasers $150.0 million of new six-year
2.89% unsecured senior notes and $150.0 million of new eight-year 3.18% unsecured senior notes
(collectively, the "Notes"). The Notes bear interest on the unpaid principal thereof from October 1,
2015 at their respective stated rates of interest payable in arrears semi-annually on the first (1st)
36
day of April and October in each year and at maturity, commencing on April 1, 2016. The Notes
are unsecured obligations. We used the proceeds from the unsecured senior notes to fund a portion
of the purchase price paid for the Shred-it acquisition (see Note 3 - Acquisitions in the Notes to the
Consolidated Financial Statements for more information).
At December 31, 2015, we had $353.8 million of borrowings outstanding under our $1.20 billion
senior unsecured credit facility, which includes foreign currency borrowings of $101.8 million. We
also had $160.4 million committed to outstanding letters of credit under this facility. The unused
portion of the revolving credit facility at December 31, 2015 was $685.8 million. At December 31,
2015, our interest rates on borrowings under our revolving credit facility were as follows:
• A fee of 0.1% on our revolving credit facility
• For borrowings less than one month, the higher of the following
Federal funds rate plus 0.5%
Euro Currency rate plus 0.9% or the prime rate
• For borrowings greater than one month: LIBOR plus 0.9%
The weighted average rate of interest on the unsecured revolving credit facility was 1.54% per
annum, which includes the 0.1% facility fee at December 31, 2015.
As of December 31, 2015, we had $1.25 billion outstanding under our $1.50 billion term loan
credit facility, weighted average rate of interest on the unsecured term loan facility was 1.71% per
annum.
As of December 31, 2015, 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.
As of December 31, 2015, 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.
As December 31, 2015, we had outstanding $200.0 million of seven-year 2.72% unsecured
senior notes and $100.0 million of eight-year 2.79% unsecured senior notes issued to several
institutional purchasers in a private placement completed in July 2015. Interest is payable in arrears
semi-annually on January 1 and July 1 beginning on January 1, 2016, and principal is payable at
the maturity of the notes, July 1, 2022 in the case of the seven-year notes and July 1, 2023 in the
case of the eight-year notes.
As December 31, 2015, we had outstanding $150.0 million of six-year 2.89% unsecured senior
notes and $150.0 million of eight-year 3.18% unsecured senior notes issued to several institutional
purchasers in a private placement completed in October 2015. Interest is payable in arrears semi-
annually on April 1 and October 1 beginning on April 1, 2016, and principal is payable at the maturity
of the notes, October 1, 2021 in the case of the six-year notes and October 1, 2023 in the case of
the eight-year notes.
37
As of December 31, 2015, we had $239.7 million in promissory notes issued in connection
with acquisitions during 2008 through 2015, $105.5 million in foreign subsidiary bank debt
outstanding, and $15.0 million in capital lease obligations.
Working Capital: At December 31, 2015, our working capital increased $83.5 million to $174.5
million compared to $91.0 million at December 31, 2014.
Current assets increased by $209.9 million, of which $162.6 million were acquired from Shred-
it (see Note 3 - Acquisitions in the Notes to the Consolidated Financial Statements for more
information). Net accounts receivable excluding acquisitions increased by $13.2 million. Days sales
outstanding ("DSO") was calculated at 64 days at December 31, 2015 and 63 days at December 31,
2014.
Current liabilities increased by $126.4 million in 2015, of which $72.2 million were acquired
from Shred-it. At December 31, 2015, current portion of the new term loan facility was $50 million.
Net Cash Provided or Used: Net cash provided by operating activities decreased $58.2
million, or 13.0%, to $390.3 million during 2015 from $448.5 million in 2014. Cash provided by
operations as a ratio to net income in 2015 and 2014 was 146% and 137% , respectively.
Net cash used in investing activities during 2015 was $2.53 billion compared to $462.8 million
in 2014. We used $2.05 billion more in funds to acquire new businesses in 2015, notably Shred-it
in October 2015. Our capital expenditures increased by $28.3 million in 2015 and, as a percent of
revenues, were at 3.8% and 3.4% in 2015 and 2014, respectively.
Net cash provided by financing activities was $2.18 billion during 2015 compared to $30.0
million net cash used in 2014. In 2015, we had $500 million net proceeds from private placement
notes and $1.25 billion net proceeds from our new term loan, which we used to fund our current
year acquisitions. In September 2015, we completed a registered public offering of Series A
Mandatory Convertible Preferred Stock for total gross proceeds of $770.0 million, or $746.9 million
net of $23.1 million for underwriting discounts, commissions and expenses, see Note 7 - Preferred
Stock in the Notes to the Consolidated Financial Statements, Item 8 of Part II. We used the net
proceeds from this offering to fund a portion of the purchase price paid for our acquisition of Shred-
it. We had share repurchases of $130.6 million in 2015 compared to $194.1 million in 2014, a
decrease of $63.5 million.
Contractual Obligations
The following table summarizes our significant contractual obligations and cash commitments
at December 31, 2015:
Payments due by period (dollars in thousands)
Long-term debt
Capital lease obligations
Operating leases
Purchase obligations
Total contractual cash obligations
2016
Total
2017-2018
2021
and After
(1) $ 3,564,963 $ 242,714 $ 703,115 $ 1,833,787 $ 785,347
419
(1)
47,168
—
$ 4,021,403 $ 374,852 $ 881,522 $ 1,932,095 $ 832,934
16,229
399,675
40,536
4,622
104,958
22,558
7,405
160,548
10,454
3,783
87,001
7,524
2019-2020
(1) The long-term debt, capital leases, and other long-term liabilities items include both the future
principal payment amount as well as an aggregate amount calculated for expected future
interest payments of $366 million on the long-term debt and $1.2 million on the capital leases.
38
Long-term debt that has floating interest rates requires the use of management judgment to
estimate the future rates of interest.
Payments for unrecognized tax benefits are excluded from contractual obligations. 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, 2015, we had $160.4 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 $17.3 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.
39
Item 8. Financial Statements and Supplementary Data
Management’s Report on Internal Control Over Financial Reporting
The management of the Company is responsible for establishing and maintaining adequate internal
control over financial reporting. Internal control over financial reporting is defined in Rules 13a-15(f) under the
Securities Exchange Act of 1934 as a process designed by, or under the supervision of, a company’s principal
executive and principal financial officers and effected by the company’s board of directors, management and
other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with U.S. generally accepted
accounting principles. The Company’s internal control over financial reporting includes those policies and
procedures that:
• pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the Company;
• provide reasonable assurance that transactions are recorded as necessary to permit preparation of
financial statements in accordance with U.S. generally accepted accounting principles, and that receipts and
expenditures of the Company are being made only in accordance with authorizations of management and
directors of the Company; and
• provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition,
use or disposition of the Company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the degree of compliance with
the policies or procedures may deteriorate.
The Company acquired Shred-it International ULC (“Shred-it”) on October 1, 2015. Due to the timing of
the acquisition, the Company has excluded the acquired operations of Shred-it from its assessment of the
effectiveness of the Company’s internal control over financial reporting. Shred-it represented 32% of the
Company’s assets as of December 31, 2015 and 6% of the Company’s revenues for the year ended December
31, 2015.
The Company’s management assessed the effectiveness of the Company’s internal control over financial
reporting as of December 31, 2015. In making this assessment, management used the criteria set forth by
the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) in Internal Control-
Integrated Framework (the “COSO Framework”). Based upon that evaluation, our Chief Executive Officer and
Chief Financial Officer have concluded that there were material weaknesses in internal controls over financial
reporting described below.
COSO Component - Risk Assessment
The Company’s risk assessment process did not operate effectively, resulting in a material weakness
pertaining to this component of the COSO Framework. Specifically, the Company did not sufficiently identify
risks associated with certain routine processes and related information systems, including revenue, and certain
non-routine transactions. In addition, the Company did not properly design and implement appropriate process-
level internal controls at the Environmental Solutions component of the Domestic Regulated and Compliance
Services segment. The Environmental Solutions component primarily consists of the PSC Environmental
Services, LLC component acquired on April 22, 2014, which was excluded from management assessment of
internal controls over financial reporting as of December 31, 2014. The material weakness relating to the risk
assessment component of the internal control framework contributed to the other material weaknesses
described below.
COSO Component - Control Activities
Revenue - The design and operating effectiveness of revenue control activities are inadequate to ensure
that revenue transactions are properly measured and recorded in the appropriate period.
40
Environmental Solutions - The design and operating effectiveness of control activities at the Environmental
Solutions component of the Domestic Regulated and Compliance Services segment of the business were
inadequate to ensure the component’s financial statements were appropriately stated.
Conclusion
Management concluded that there is a reasonable possibility that a material misstatement could occur
in the consolidated financial statements if the control deficiencies were not remediated. Accordingly,
management concluded that the matters described above are material weaknesses in the Company’s internal
control over financial reporting and that the Company did not maintain effective internal control over financial
reporting as of December 31, 2015.
The Company’s independent registered public accounting firm has issued an opinion on the Company’s
internal control over financial reporting. That report appears on page 42.
Stericycle, Inc.
Lake Forest, IL
March 15, 2016
41
Report of Independent Registered Public Accounting Firm on Internal Control Over
Financial Reporting
The Board of Directors and Shareholders of Stericycle, Inc. and Subsidiaries
We have audited Stericycle, Inc. and Subsidiaries’ (the Company) internal control over financial reporting
as of December 31, 2015, based on criteria established in Internal Control-Integrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework). The Company's
management is responsible for maintaining effective internal control over financial reporting, and for its
assessment of the effectiveness of internal control over financial reporting included in the accompanying
Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion
on the Company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether effective internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing
the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of
internal control based on the assessed risk, and performing such other procedures as we considered necessary
in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles. A company’s internal control over
financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that,
in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;
(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that receipts and expenditures
of the company are being made only in accordance with authorizations of management and directors of the
company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the company’s assets that could have a material effect on the financial
statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk
that controls may become inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
As indicated in the accompanying Management’s Report on Internal Control over Financial Reporting,
management’s assessment of and conclusion on the effectiveness of internal control over financial reporting
did not include the internal controls of Shred-it International ULC (“Shred-it”) which is included in the 2015
consolidated financial statements of the Company and constituted 32% of the Company’s assets as of
December 31, 2015 and 6% of the Company’s revenues for the year then ended. Our audit of internal control
over financial reporting of the Company also did not include an evaluation of the internal control over financial
reporting of Shred-it.
A material weakness is a deficiency, or combination of deficiencies, in internal control over financial
reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or
interim financial statements will not be prevented or detected on a timely basis. The following material
weaknesses have been identified and included in management’s assessment. Management has identified
material weaknesses in controls related to the Company’s revenue process, the Environmental Solutions
component of the Domestic Regulated and Compliance Services component of the Domestic Regulated and
Compliance Services segment, and in its risk assessment process pertaining to this component of the COSO
Framework. 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, 2015 and 2014, and the related consolidated statements of income, comprehensive income,
changes in equity, and cash flows for each of the three years in the period ended December 31, 2015, and
our report dated March 15, 2016 expressed an unqualified opinion thereon. The material weaknesses were
42
considered in determining the nature, timing and extent of audit tests applied in our audit of the 2015
consolidated financial statements, and this report does not affect our report dated March 15, 2016, which
expressed an unqualified opinion on those financial statements.
In our opinion, because of the effect of the material weaknesses described above on the achievement
of the objectives of the control criteria, Stericycle, Inc. and Subsidiaries has not maintained effective internal
control over financial reporting as of December 31, 2015, based on the COSO criteria.
Chicago, Illinois
March 15, 2016
/s/ Ernst & Young LLP
43
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders of Stericycle, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of Stericycle, Inc. and Subsidiaries as
of December 31, 2015 and 2014, and the related consolidated statements of income, comprehensive income,
changes in equity, and cash flows for each of the three years in the period ended December 31, 2015. Our
audits also included the financial statement schedule listed in the Index at Item 15(a). These financial
statements and schedule are the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant estimates made by management,
as well as evaluating the overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the
consolidated financial position of Stericycle, Inc. and Subsidiaries at December 31, 2015 and 2014, and the
consolidated results of their operations and their cash flows for each of the three years in the period ended
December 31, 2015, in conformity with U.S. generally accepted accounting principles. Also, in our opinion,
the related financial statement schedule, when considered in relation to the basic financial statements taken
as a whole, presents fairly in all material respects the information set forth therein.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), Stericycle Inc. and Subsidiaries' internal control over financial reporting as of December
31, 2015, based on criteria established in Internal Control-Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated March 15,
2016 expressed an adverse opinion thereon.
/s/ Ernst & Young LLP
Chicago, Illinois
March 15, 2016
44
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 $22,329 in 2015 and
$19,083 in 2014
Prepaid expenses
Other current assets
Total Current Assets
Property, Plant and Equipment, less accumulated depreciation of $426,019 in
2015 and $364,124 in 2014
Goodwill
Intangible assets, less accumulated amortization of $151,025 in 2015 and
$114,922 in 2014
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:
Preferred stock (par value $0.01 per share, 1,000,000 shares authorized),
Mandatory Convertible Preferred Stock, Series A, 770,000 issued and
outstanding in 2015
Common stock (par value $0.01 per share, 120,000,000 shares authorized,
84,852,584 issued and outstanding in 2015 and 84,883,517 issued and
outstanding in 2014)
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,
2015
2014
$
55,634 $
69
614,494
46,740
44,891
761,828
22,236
380
465,473
30,632
33,173
551,894
665,602
3,758,177
460,408
2,418,832
1,842,561
49,282
7,077,450 $
909,645
32,523
4,373,302
161,409 $
149,202
197,329
16,989
62,420
587,349
3,052,639
608,272
81,352
131,969
114,596
131,743
21,624
60,975
460,907
1,527,246
403,847
64,117
8
—
849
1,143,020
(282,631)
1,868,645
2,729,891
17,947
2,747,838
7,077,450 $
849
289,211
(138,419)
1,743,371
1,895,012
22,173
1,917,185
4,373,302
$
$
$
The accompanying notes are an integral part of these consolidated financial statements.
45
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 – SG&A
Amortization
Total Costs and Expenses
Income from Operations
Other Income (Expense):
Interest income
Interest expense
Other income/ (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.
Less: mandatory convertible preferred stock dividend
Net Income Attributable to Stericycle, Inc. Common
Shareholders
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,
2014
2,555,601 $
2015
2,985,908 $
2013
2,142,807
1,658,081
1,404,712
1,128,170
61,642
56,478
50,003
712,803
20,272
45,498
2,498,296
487,612
489,937
15,446
32,692
1,999,265
556,336
390,610
11,338
27,067
1,607,188
535,619
224
(77,498)
569
(76,705)
410,907
142,894
268,013
967
267,046
10,106
120
(66,142)
(2,746)
(68,768)
487,568
159,422
328,146
1,690
326,456
—
294
(55,243)
(2,924)
(57,873)
477,746
164,662
313,084
1,712
311,372
—
256,940 $
326,456 $
311,372
3.02 $
2.98 $
3.84 $
3.79 $
3.62
3.56
84,944,841
86,162,609
84,932,792
86,233,612
85,902,550
87,391,988
The accompanying notes are an integral part of these consolidated financial statements.
46
STERICYCLE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
In thousands
Net Income
Years Ended December 31,
2014
2013
2015
$
268,013 $
328,146 $
313,084
Other Comprehensive Income/ (Loss):
Foreign currency translation adjustments
Amortization of cash flow hedge into income, net of tax ($452,
$209 and $200) for the years ended December 31, 2015, 2014
and 2013, respectively)
Change in fair value of cash flow hedge, net of tax ($2,623, $813
and $0 for the years ended December 31, 2015, 2014 and 2013,
respectively)
Total Other Comprehensive Loss
(140,648)
(82,871)
(19,160)
716
339
314
(4,119)
(144,051)
(2,069)
(84,601)
—
(18,846)
Comprehensive Income
Less: comprehensive loss/ (income) attributable to noncontrolling
interests
Comprehensive Income Attributable to Stericycle, Inc.
Common Shareholders
123,962
243,545
294,238
1,128
(960)
270
$
122,834 $
244,505 $
293,968
The accompanying notes are an integral part of these consolidated financial statements.
47
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
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
Proceeds from/ (purchases of) investments
Capital expenditures
Net cash used in investing activities
FINANCING ACTIVITIES:
Repayments of long-term debt and other obligations
Proceeds from foreign bank debt
Repayments of foreign bank debt
Proceeds from term loan
Repayment of term loan
Proceeds from private placement of long-term note
Repayments of private placement of long-term note
Proceeds from senior credit facility
Repayments of senior credit facility
Payments of capital lease obligations
Payments of deferred financing costs
Payment of cash flow hedge
Purchases and cancellations of treasury stock
Proceeds from issuance of mandatory convertible preferred stock
Dividends paid on mandatory convertible preferred stock
Proceeds from issuance of common stock
Excess tax benefit of stock options exercised
Payments to noncontrolling interests
Net cash provided by/ (used in) financing activities
Effect of exchange rate changes on cash and cash equivalents
Net increase/ (decrease) 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,
2014
2013
2015
$
268,013
$
328,146
$
313,084
21,750
(16,897)
81,914
45,498
(10,294)
7,467
(55,890)
26,366
26,060
(4,615)
956
390,328
(2,419,437)
294
(114,761)
(2,533,904)
(93,172)
53,747
(87,308)
1,550,000
(300,000)
600,000
(100,000)
1,907,402
(2,004,385)
(3,865)
(9,903)
(8,833)
(130,576)
746,900
(10,106)
60,124
16,897
(5,714)
2,181,208
(4,234)
33,398
22,236
55,634
80,189
—
$
$
17,773
(17,906)
71,924
32,692
16,550
8,932
(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)
(5,826)
(2,280)
—
(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
1,103
(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
$
$
The accompanying notes are an integral part of these consolidated financial statements.
48
STERICYCLE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
Years Ended December 31, 2015, 2014 and 2013
In thousands
Preferred Stock
Common Stock
Stericycle, Inc. Equity
Shares Amount
Shares Amount
Additional
Paid-In
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Noncontrolling
Interest
Total Equity
— $
— 85,988 $
860
$
116,720
$
1,463,277
$
(39,064) $
15,530
$
1,557,323
311,372
1,712
(1,442)
(17,718)
314
Balance at January 1, 2013
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 and 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, 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 and 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
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
Issuance of mandatory
convertible preferred stock
Purchase and cancellation of
treasury stock
Preferred stock dividend
Stock compensation expense
Excess tax benefit of stock
options exercised
Reduction to noncontrolling
interests due to additional
ownership
973
10
47,991
(1,461)
(15)
(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
11
58,551
(1,677)
(17)
(194,049)
17,773
17,906
(129)
—
— 84,884
849
289,211
1,743,371
(138,419)
267,046
(140,809)
(3,403)
973
10
68,630
770
8
746,892
(1,004)
(10)
(131,666)
(10,106)
21,750
16,897
(360)
313,084
(19,160)
314
48,001
(163,700)
17,457
17,153
4,211
4,211
(2,934)
17,077
1,690
(2,650)
(7,145)
1,767,538
328,146
(82,871)
(1,730)
58,562
(194,066)
17,773
17,906
6,781
6,781
(725)
22,173
967
161
(854)
1,917,185
268,013
(140,648)
(3,403)
68,640
746,900
(131,676)
(10,106)
21,750
16,897
(5,354)
(5,714)
Balance at December 31, 2015
770 $
8
84,853 $
849
$ 1,143,020
$
1,868,645
$
(282,631) $
17,947
$
2,747,838
The accompanying notes are an integral part of these consolidated financial statements.
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
1,000,000 customers throughout the United States, Argentina, Austria, Australia, Belgium, Brazil,
Canada, Chile, France, Germany, Ireland, Japan, Luxembourg, Mexico, the Netherlands, Portugal,
Romania, Republic of Korea, Singapore, South Africa, Spain, and the United Kingdom.
We lease office space for our corporate offices in Lake Forest, Illinois. Domestically, we own
or lease 114 processing facilities, which are primarily autoclaves for medical waste and shredders
for secure information destruction. All of our processing facilities also serve as collection sites. We
own or lease 218 additional transfer sites, 21 additional sales/administrative sites, and 83 other
service facilities. Internationally, we own or lease 139 processing facilities, the majority of which
use autoclave waste processing technology. We also own or lease 140 additional transfer sites,
62 additional sales/administrative sites, 54 other service facilities, and 3 landfills.
We are a business-to-business services provider with a focus on regulated and compliance
solutions for healthcare, retail, and commercial businesses. This includes the collection and
processing of regulated and specialized waste for disposal and the collection of personal and
confidential information for secure destruction, plus a variety of training, consulting, recall/return,
communication, and compliance services.
Our solutions for regulated or specialty waste streams include: medical waste disposal,
pharmaceutical waste disposal, hazardous waste management, sustainability solutions for expired
or unused inventory, and secure information destruction of documents or e-media. Our compliance
solutions include: training and consulting through our Steri-Safe® and Clinical Services programs
as well as inbound/outbound communications, data reporting, and other regulatory compliance
services. Our regulated recall and returns management solutions consist of communication,
logistics, and data management services to support the recall, withdrawal, or return of expired or
recalled products.
We have 14,170 employees in the United States, of which 419 are covered by collective
bargaining agreements. Internationally, we have 11,302 employees, of which approximately 2,703
are covered by collective bargaining agreements, primarily in Latin America.
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 medical waste management services,
other than our compliances services, and secure information destruction services 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
50
to sales taxes and 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 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.
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, but is subject to
an annual impairment test. 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, 2015, 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. See Note 11 - Goodwill and Other Intangible Assets in the Notes to the
Consolidated Financial Statements for more information about goodwill and the annual impairment
test.
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 more likely
than 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 in the Notes to the Consolidated Financial Statements for more information about
indefinite lived intangible assets.
Our finite-lived intangible assets are amortized over their useful lives using straight-line method.
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 19.2 years. We have
covenants not-to-compete intangibles with useful lives from 5 to 14 years, with a weighted average
remaining useful life of 3.7 years. We have tradename intangibles with useful lives from 15 to 40
years, with a weighted average remaining useful life of 17.2 years. Other intangibles mainly consist
of landfill air rights with a weighted average remaining useful life of 19.1 years. 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 -
51
Goodwill and Other Intangible Assets in the Notes to the Consolidated Financial Statements for
more information about our intangible assets other than goodwill.
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.
Our customer relationship valuation model, using the multi-period excess earnings method,
assumes straight-line revenue loss. The calculation of determining a revenue loss rate starts with
a base-line revenue point and then tracks revenue by customer, assuming no further revenue
growth, to a point of zero revenues. A calculation of base-line revenue to zero revenue determines
the useful life of customer relationships. Determining an accurate consumption of benefits from
acquired customer relationships cannot be reliably determined because the services we provide
to acquired customers changes from the base-line revenues over an extended period of time due
to factors such as volume increase, price increase, and complementary service offerings. Therefore
we amortize our finite-lived intangible assets using the straight-line method consistent with our
valuation model.
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.
Accounts Receivable: Accounts receivable consist of amounts due to us from our normal
business activities and are carried at their estimated collectible amounts. Our accounts receivable
balance includes amounts related to VAT and similar international pass-through taxes. We do not
require collateral as part of our standard trade credit policy. Accounts receivable balances are
determined to be past due when the amount is overdue based on the contractual terms with the
customer. We maintain an allowance for doubtful accounts to reflect the expected uncollectability
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 1.5% of our accounts receivable. Bad debt expense was $13.7 million, $9.9 million
and $4.8 million for the years ended December 31, 2015, 2014 and 2013, respectively.
52
Stock-Based Compensation: We issue stock options and restricted stock units ("RSU") to
employees and directors as an integral part of our compensation programs. Stock options cost is
measured at the grant date using the Black-Scholes model and is recognized as expense over the
vesting period. Determining the fair value of stock options at the grant date requires 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. The fair value of RSU 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. If factors change and we
employ different assumptions, stock-based compensation expense may differ significantly from
what we have recorded in the past.
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.
Share Repurchases: Purchase price over par value for share repurchases are allocated to
retained earnings.
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
2 to 30 years
2 to 20 years
2 to 10 years
2 to 20 years
2 to 15 years
Our containers have a weighted average remaining useful life of 12.5 years.
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
53
accruals associated with the exposure to these liabilities for adequacy at the end of each reporting
period.
Financial Instruments: Our financial instruments consist of cash and cash equivalents, short-
term investments, accounts receivable and payable, derivatives, and long-term debt. At
December 31, 2015, the fair value of the Company’s debt obligations was estimated at $3.22 billion,
compared to a carrying amount of $3.21 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 1.5% 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, 2015.
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
Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity
On January 1, 2015, we adopted Accounting Standards Update ("ASU") No. 2014-08,
"Presentation of Financial Statements (Topic 205): Reporting Discontinued Operations and
Disclosures of Disposals of Components of an Entity," guidance on the presentation and disclosures
of reporting discontinued operations. 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. The
Company has not disposed of a component of our entity and therefore the implementation of this
guidance did not affect our financial position, results of operations, or disclosure requirements.
54
Simplifying the Accounting for Measurement-Period Adjustments
As of December 31, 2015, we early adopted ASU No. 2015-16, "Business Combinations (Topic
805): Simplifying the Accounting for Measurement-Period Adjustments," guidance that eliminates
the requirement that an acquirer in a business combination account for measurement-period
adjustments retrospectively. Instead, an acquirer will recognize measurement-period adjustments
during the period in which it determines the amount of the adjustment. The implementation of this
guidance did not materially impact our financial statements.
Balance Sheet Classification of Deferred Taxes
As of December 31, 2015, we early adopted ASU No. 2015-17, "Income Taxes (Topic 740):
Balance Sheet Classification of Deferred Taxes," guidance that requires companies to classify all
deferred tax assets and liabilities as noncurrent on the balance sheet instead of separating deferred
taxes into current and noncurrent amounts. At December 31, 2014, we have reclassified $28.3
million of current deferred tax assets to noncurrent deferred tax liabilities to conform to the current
period balance sheet presentation. Other than the change in balance sheet presentation, there
were no other impacts.
Accounting in the Cloud
As of December 31, 2015, we adopted ASU No. 2015-05, "Intangible - Goodwill and Other -
Internal-Use Software (Subtotal 350-40): Customer's Accounting Fees Paid in a Cloud Computing
Arrangement," guidance to determine whether customers in a cloud computing arrangement should
account for a contract as a software license or as a service contract. The guidance applies only to
internal-use software to which a customer obtains access in a hosting arrangement. The standard
will be effective for financial statements issued for annual periods beginning after December 15,
2015, with early adoption permitted. We have evaluated our contracts and determined that our
cloud computing arrangements do not include a software license criteria and therefore are properly
treated as service contracts.
Accounting Standards Issued But Not Yet Adopted
Interest-Imputation of Interest
In April 2015, the FASB issued ASU No. 2015-03, "Interest - Imputation of Interest (Subtopic
835-30): Simplifying the Presentation of Debt Issuance Costs," guidance that requires debt issuance
costs related to a recognized debt liability to be presented in the balance sheet as a direct deduction
from the debt liability rather than as an asset. The recognition and measurement guidance for debt
issuance costs are not affected by the accounting standard update. 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 revised standard will be adopted by the Company on
January 1, 2016, will be applied retrospectively and will require reclassifications within the
Company’s consolidated balance sheets and statements of cash flows. The revised standard only
affects presentation and therefore will not have an impact on the Company’s results of operations.
Revenue From Contracts With Customers
In May 2014, the FASB issued ASU No. 2014-09, "Revenue from Contracts with
Customers" (Topic 606), 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 amended authoritative guidance associated with revenue recognition is effective for
55
the Company on January 1, 2018. The amended guidance may be applied retrospectively for all
periods presented or retrospectively with the cumulative effect of initially applying the amended
guidance recognized at the date of initial application. We are in the process of assessing the
provisions of the new revenue recognition standard and have not determined whether the adoption
will have a material impact on our consolidated financial statements.
The following table summarizes the locations of our acquisitions for the years ended December
31, 2015, 2014 and 2013:
NOTE 3 – ACQUISITIONS
Acquisition Locations
United States
Argentina
Brazil
Canada
Chile
Ireland
Japan
Mexico
Netherlands
Portugal
Romania
Republic of Korea
Spain
United Kingdom
Total
2015
2014
2013
19
—
2
2
—
1
—
3
2
—
4
6
4
—
43
17
2
3
2
3
—
2
—
—
5
3
1
3
3
44
13
3
2
3
1
—
3
1
—
2
6
—
3
12
49
During 2015, we completed 43 acquisitions, of which 19 were domestic and 24 were
international. Domestically, we acquired selected assets of eleven regulated waste businesses,
100% of the stock of two regulated waste businesses, selected assets of one communication
services business and 100% of the stock of another communication services business. Additionally,
we acquired selected assets of four secure information destruction businesses.
In Brazil, we acquired 100% of the stock of two regulated waste businesses. In Canada, we
acquired 100% of the stock of one communication services and one secure information destruction
business. In Ireland, we acquired 100% of the stock of one regulated waste business. In Mexico,
we acquired 100% of the stock of two regulated waste businesses and selected assets of another.
In the Netherlands, which represents a new market for us, we acquired 100% of the stock of one
regulated waste business and selected assets of another. In Romania, we acquired selected assets
of three regulated waste businesses and 100% of the stock of another. In the Republic of Korea,
we acquired selected assets of six regulated waste businesses. In Spain, we acquired selected
assets of four regulated waste businesses.
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,
2015, 2014 and 2013:
56
In thousands
Cash
Promissory notes
Deferred consideration
Contingent consideration
Total purchase price
2015
2,419,437 $
64,072
3,172
12,945
2,499,626 $
$
$
2014
2013
374,321 $
125,229
3,535
17,174
520,259 $
161,936
64,581
31,149
4,371
262,037
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, 2015, we recognized a net increase in goodwill of $1.42 billion 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 $1.13 billion was assigned to our United
States reportable segment, and a net increase of $289.1 million was assigned to our International
reportable segment. Approximately $528.6 million of the goodwill recognized during the twelve
months ended December 31, 2015 will be deductible for income taxes.
During the twelve months ended December 31, 2015, we recognized a net increase in intangible
assets from acquisitions of $1.05 billion, excluding the effect of foreign currency translation. The
changes include $599.4 million in the estimated fair value of acquired customer relationships with
amortizable lives of 10 to 40 years, $1.4 million in permits with indefinite lives, $423.3 million in
tradenames with indefinite lives, and $27.9 million in other intangibles with amortizable lives of 3
to 20 years.
The purchase prices for these acquisitions in excess of acquired tangible and identifiable
intangible assets have been primarily allocated to goodwill, and are preliminary pending the
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, 2015, 2014 and
2013:
In thousands
Fixed assets
Intangibles
Goodwill
Accounts receivable
Net other assets/ (liabilities)
Environmental remediation liabilities
Current liabilities
Debt
Net deferred tax liabilities
Noncontrolling interests
Total purchase price allocation
2015
2014
2013
$
198,145 $
1,052,016
1,422,673
135,800
18,133
—
(91,522)
(4,966)
(230,653)
—
$
2,499,626 $
98,916 $
276,798
235,597
68,019
(11,702)
(32,383)
(67,334)
(22,102)
(18,769)
(6,781)
520,259 $
15,582
92,398
179,795
19,920
3,260
—
(23,200)
(7,512)
(13,995)
(4,211)
262,037
During the twelve months ended December 31, 2015, 2014 and 2013 the Company incurred
$39.1 million, $13.3 million, and $10.3 million, respectively, of acquisition related expenses. These
expenses are included with "Selling, general and administrative expenses" ("SG&A") on our
Consolidated Statements of Income.
57
Included in the acquisitions discussed above, is the acquisition of Shred-it International ULC,
an Alberta unlimited liability corporation ("SII"), Shredit JV LP, an Ontario limited partnership ("Shred-
it JV"), Boost GP Corp., an Ontario corporation ("Boost GP"), and Boost Holdings LP, an Ontario
limited partnership (together with SII, Shred-it JV and Boost GP, "Shred-it"). On October 1, 2015,
we acquired Shred-it for an aggregate purchase price of $2.3 billion in cash. Shred-it is the global
leader in secure information destruction, a highly complementary service to our regulated waste
and compliance services and will provide operational synergies stemming from our core
competencies in route logistics and lean management systems.
The following table summarizes the preliminary purchase price allocation by major asset
acquired and liability assumed, as well as the amount of goodwill recognized for Shred-it acquisition
and in aggregate for all other 2015 acquisitions:
In thousands
Fixed assets
Intangibles
Goodwill
Accounts receivable
Net other assets/ (liabilities)
Current liabilities
Debt
Net deferred tax liabilities
Total purchase price allocation
Shred-it
Acquisition
$
Other
Acquisitions
174,250 $
955,000
1,333,046
117,541
16,738
(72,178)
—
(220,505)
2,303,892 $
$
23,895 $
97,016
89,627
18,259
1,395
(19,344)
(4,966)
(10,148)
195,734 $
Total
198,145
1,052,016
1,422,673
135,800
18,133
(91,522)
(4,966)
(230,653)
2,499,626
The amounts in the table above are subject to change upon finalization of asset valuations
and completion accounts. We used various techniques to determine fair value:
• For fixed assets, we used a Market Approach to make preliminary estimates of fair value.
• For customer relationships, we used an Income Approach using the Multi-Period Excess
Earnings Method ("MPEEM") to make preliminary estimates of fair value of $534.0 million.
• For the Shred-it tradename, we used an Income Approach using the Relief from Royalties
method to make preliminary estimates of fair value of $421.0 million.
The results of operations of these acquired businesses have been included in the consolidated
statements of income from the date of the acquisition. Our revenues for the twelve months ended
December 31, 2015 from the aggregate acquisitions during 2015 was approximately $258.5 million,
of which $177.4 million was from the Shred-it acquisition. 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 pro forma results have been prepared for comparative purposes only and are not
necessarily indicative of the results of operations as they would have been had the acquisitions
occurred on the assumed dates. The following consolidated pro forma information on the impact
of the 2015 acquisitions to our consolidated revenues and net income is based on the assumption
that these acquisitions all occurred on January 1, 2014:
58
In thousands
Revenues
Net income
Years Ended December 31,
$
2015
3,569,490 $
307,994
2014
3,397,646
375,339
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. There were
no movements of items between fair value hierarchies.
In thousands
Total as of
December 31, 2015
Fair Value Measurements Using
Level 2
Inputs
Level 3
Inputs
Level 1
Inputs
Assets:
Cash and cash equivalents
Short-term investments
Derivative financial instruments
Total assets
Liabilities:
Contingent considerations
Derivative financial instruments
Total liabilities
$
$
$
$
55,634 $
69
1,207
56,910 $
25,390 $
—
25,390 $
55,634 $
69
—
55,703 $
— $
—
— $
— $
—
1,207
1,207 $
—
—
—
—
— $
—
— $
25,390
—
25,390
59
In thousands
Total as of
December 31, 2014
Fair Value Measurements Using
Level 2
Inputs
Level 3
Inputs
Level 1
Inputs
Assets:
Cash and cash equivalents
Short-term investments
Derivative financial instruments
Total assets
Liabilities:
Contingent considerations
Derivative financial instruments
Total liabilities
$
$
$
$
22,236 $
380
515
23,131 $
19,941 $
2,408
22,349 $
22,236 $
380
—
22,616 $
— $
—
515
515 $
—
—
—
—
— $
—
— $
— $
2,408
2,408 $
19,941
—
19,941
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 $1.2 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, 2015. The objective
of the swap is to offset the foreign exchange risk to the U.S. dollar equivalent cash outflows for our
Canadian subsidiary.
In March 2015, we cash settled a treasury lock hedge for $8.8 million of which $5.3 million,
net of $3.5 million tax, was recognized in accumulated other comprehensive income. The purpose
was to lock in the interest rate on the issuance of private placement debt in July 2015 and to
eliminate interest rate risk.
We had contingent consideration liabilities recorded using Level 3 inputs in the amount of
$25.4 million, of which $9.1 million was classified as current liabilities at December 31, 2015.
Contingent consideration liabilities were $19.9 million at December 31, 2014. 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 $44.8 million at December 31, 2015. Contingent consideration liabilities are reassessed
each quarter and are reflected in the Consolidated Balance Sheets in current liabilities within "Other
current liabilities" and in non-current liabilities within "Other liabilities." Changes to contingent
consideration are reflected in the table below:
In thousands
Contingent consideration at January 1, 2015
$
Increases due to acquisitions
Decrease due to payments
Changes due to foreign currency fluctuations
Changes in fair value reflected in Selling, general,
and administrative expenses
19,941
12,945
(1,853)
(5,003)
(640)
Contingent consideration at December 31, 2015
$
25,390
Fair Value of Debt: At December 31, 2015, the fair value of the Company’s debt obligations
was estimated, using Level 2 inputs, at $3.22 billion compared to a carrying amount of $3.21 billion.
At December 31, 2014, the fair value of the Company’s debt obligations was estimated, using Level
60
2 inputs, at $1.67 billion compared to a carrying amount of $1.66 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.
The U.S. and International components of income before income taxes consisted of the
following for the years ended December 31, 2015, 2014 and 2013:
NOTE 5 – INCOME TAXES
In thousands
United States
Foreign
Total income before income taxes
2015
2014
2013
$
$
378,815 $
441,029 $
32,092
46,539
410,907 $
487,568 $
407,315
70,431
477,746
Significant components of our income tax expense for the years ended December 31, 2015,
2014 and 2013 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
2015
2014
2013
$
105,941 $
118,217 $
15,544
16,512
137,997
23,762
2,504
(21,369)
—
4,897
142,894 $
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
Total provision
$
A reconciliation of the income tax provision computed at the federal statutory rate to the effective
tax rate for the years ended December 31, 2015, 2014 and 2013 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
2015
2014
2013
35.0 %
35.0 %
35.0 %
3.1 %
(0.4)%
(2.2)%
(0.7)%
34.8 %
1.9 %
(0.5)%
(1.8)%
(1.9)%
32.7 %
2.3 %
(0.8)%
— %
(2.0)%
34.5 %
Cash payments for income taxes were $125.1 million, $128.1 million, and $102.1 million for
the years ended December 31, 2015, 2014 and 2013, respectively.
61
Our deferred tax liabilities and assets at December 31, 2015 and 2014 were as follows:
In thousands
Deferred tax liabilities:
Property, plant and equipment
Goodwill and intangibles
Other
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
2015
2014
$
(44,914) $
(719,789)
(5,747)
(770,450)
69,895
74,794
—
37,976
(17,585)
165,080
(605,370) $
$
(41,071)
(453,854)
—
(494,925)
32,664
21,139
17,922
20,017
(56)
91,686
(403,239)
At December 31, 2015, 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 $120.5 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 $38.0 million at December 31,
2015, on which a valuation allowance of $17.6 million was recorded offsetting such tax benefit.
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 $582 million at December 31, 2015, 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, 2015 is $24.9 million.
Acquisition activity has contributed to this amount. The amount of unrecognized tax positions that,
if recognized, would affect the effective tax rate is approximately $19.6 million. We recognized
interest and penalties accrued related to income tax reserves in the amount of $0.7 million and
$0.3 million, for the years ended December 31, 2015 and 2014, respectively, as a component of
income tax expense.
62
The following table summarizes the changes in unrecognized tax positions during the years
ended December 31, 2015 and 2014:
In thousands
Unrecognized tax positions, January 1, 2014
$
Gross increases—tax positions in prior periods
Gross decreases—tax positions in prior periods
Gross increases—current period tax positions
Settlement
Lapse of statute of limitations
Unrecognized tax positions, December 31, 2014
$
Gross increases—tax positions in prior periods
Gross decreases—tax positions in prior periods
Gross increases—current period tax positions
Settlement
Lapse of statute of limitations
Unrecognized tax positions, December 31, 2015
$
14,910
200
(762)
3,081
(1,165)
(1,169)
15,095
7,239
(793)
5,976
(200)
(2,375)
24,942
The table above reflects $5.3 million in gross increases for tax positions in prior periods, which
relate to recently acquired uncertain tax positions. The securities purchase agreement provides
that the Vendor is liable for and has indemnified Stericycle against all income tax liabilities for
periods prior to the acquisition. Stericycle will be responsible for unrecognized tax benefits and
related interest and penalties for periods after the acquisition.
NOTE 6 – STOCK BASED COMPENSATION
At December 31, 2015, we had the following active 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 Non-statutory Stock Option Plan, which expired in February 2010;
• the Employee Stock Purchase Plan ("ESPP"), which our stockholders approved in May
2001.
At December 31, 2015, we have reserved a total of 8,637,762 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; and the 2000 Plan
provides 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; and
the 2000 Plan authorized awards to our employees and consultants but not to our officers and
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 8 or 10 years. An option may be exercised
63
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 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 2015,
2014 and 2013, 68,039 shares, 60,189 shares, and 52,956 shares respectively, were issued through
the ESPP. At December 31, 2015, we had 191,464 shares available for issuance under the ESPP
plan.
Stock Based Compensation Expense:
During 2015, 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:
In thousands
Years Ended December 31,
2014
2013
2015
Cost of revenues - stock option plan
$
92 $
52 $
120
Selling, general and administrative - stock option
plan
Selling, general and administrative - RSUs
Selling, general and administrative - ESPP
18,541
1,484
1,633
15,214
1,267
1,240
15,212
1,116
1,009
Total pre-tax expense
$
21,750 $
17,773 $
17,457
The following table sets forth the tax benefits related to stock compensation:
In thousands
Years Ended December 31,
2014
2013
2015
Tax benefit recognized in Statements of Income
Excess tax benefit realized
$
5,567 $
4,849 $
16,897
17,906
4,518
17,153
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.
64
Stock option activity for the year ended December 31, 2015, is summarized as follows:
Outstanding at beginning of year
Granted
Exercised
Forfeited
Canceled or expired
Outstanding at December 31, 2015
Exercisable at December 31, 2015
Vested and expected to vest at December 31, 2015
Weighted
Average
Exercise
Price per
Share
80.88
130.56
66.93
111.07
84.52
92.02
73.22
91.00
Number of
Options
5,377,857 $
1,056,490
(906,104)
(188,927)
(4,513)
5,334,803
2,747,266
5,135,286
At December 31, 2015, there was $46.3 million of total unrecognized compensation expense
related to non-vested option awards, which is expected to be recognized over a weighted average
period of 2.86 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
$
62,625 $
65,884 $
55,757
2015
2014
2013
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)
2015
2014
2013
5.70
6.10
6.60
$
162,400 $
269,900 $
254,200
4.70
5.10
5.30
$
130,600 $
178,300 $
161,100
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, 2015
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, 2015; this amount changes based on the fair market value of our stock.
65
Options outstanding and exercisable at December 31, 2015 by price range are presented
below:
Range of Exercise
Price
$29.54 - $51.55
$52.05 - $85.00
$85.02 - $85.76
$86.24 - $86.24
$86.83 - $95.03
$95.87 - $95.87
$95.92 - $115.51
$115.69 - $115.69
$115.82 - $130.11
$130.19 - $141.56
$29.54 - $141.56
Options Outstanding
Outstanding
Average
Remaining
Life in Years
Weighted
Average
Exercise
Price
Shares
912,043
956,708
10,650
604,758
142,097
781,470
162,252
732,411
128,583
903,831
5,334,803
3.15 $
4.22
6.25
6.09
6.02
7.12
7.25
6.14
7.68
7.33
5.70 $
47.61
72.90
85.40
86.24
89.83
95.87
110.41
115.69
122.59
131.20
92.02
Options Exercisable
Weighted
Average
Exercise
Price
47.61
70.84
85.37
86.24
89.11
95.87
109.94
115.69
117.80
133.49
73.22
Shares
912,043 $
817,286
5,750
302,334
110,895
299,599
102,739
147,361
15,954
33,305
2,747,266 $
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:
Stock options granted (shares)
Years Ended December 31,
2014
981,583
2015
1,056,490
2013
1,057,630
Weighted average fair value at grant date
$
22.90
$
21.31
$
22.02
Assumptions:
Expected term (in years)
Expected volatility
Expected dividend yield
Risk free interest rate
Restricted Stock Units:
4.79
16.71%
—%
1.47%
4.76
17.23%
—%
1.53%
5.81
27.03%
—%
1.00%
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 and released 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
$
8,441 $
8,337 $
114.27
115.67
8,185
96.40
2015
2014
2013
66
A summary of the status of our non-vested RSUs and changes during the year ended
December 31, 2015, are as follows:
Non-vested at beginning of year
Granted
Forfeited
Non-vested at December 31, 2015
Number of
Units
Weighted
Average
Grant Date
Fair Value
63,600 $
12,124
(4,273)
71,451
96.04
114.27
101.20
101.29
At December 31, 2015, there was $3.8 million of total unrecognized compensation expense
related to RSUs, which is expected to be recognized over a weighted average period of 2.20 years.
There were no units that vested during the year ended December 31, 2015. The fair value of units
that vested during the years ended December 31, 2014 and 2013 was $2.0 million and $1.2 million,
respectively.
NOTE 7 – PREFERRED STOCK
At December 31, 2015, we had 1,000,000 authorized shares of preferred stock and 770,000
shares issued and outstanding under Mandatory Convertible Preferred Stock. At December 31
2014, we had 1,000,000 authorized shares of preferred stock and no shares issued or outstanding.
Series A Mandatory Convertible Preferred Stock Offering: On September 15, 2015, we
completed a registered public offering of 7,700,000 depositary shares, each representing a 1/10th
interest in a share of our 5.25% Series A Mandatory Convertible Preferred Stock, par value $0.01
per share (the "Series A Preferred Stock"), at a public offering price of $100.00 per depository share
for total gross proceeds of $770.0 million. Net proceeds were $746.9 million after deducting
underwriting discounts, commissions and expenses. We used the net proceeds from this offering
to fund a portion of the purchase price paid for our acquisition of Shred-it (see Note 3 - Acquisitions
in the Notes to the Consolidated Financial Statements for more information).
Unless earlier converted or redeemed, each share of the Series A Preferred Stock will
automatically convert into between 5.8716 and 7.3394 shares of our common stock, subject to
anti-dilution and other adjustments, on the mandatory conversion date, which is expected to be
September 15, 2018. The number of shares of our common stock issuable on conversion will be
determined based on the volume-weighted average price of our common stock over the 20 trading
day period commencing on and including the 23rd scheduled trading day prior to September 15,
2018. Subject to certain restrictions, at any time prior to September 15, 2018, holders of the Series
A Preferred Stock may elect to convert all or a portion of their shares into common stock at the
minimum conversion rate of 5.8716 shares of common stock per share of Series A Preferred Stock,
subject to adjustment.
Dividends on shares of the Series A Preferred Stock are payable on a cumulative basis when,
as and if declared by our board of directors, or an authorized committee thereof, at an annual rate
of 5.25% on the liquidation preference of $1,000 per share (and, correspondingly, $100.00 per
share with respect to the depositary shares). The dividends may be payable in cash, or subject to
certain limitations, in shares of our common stock, or any combination of cash and shares of our
common stock, on March 15, June 15, September 15 and December 15 of each year, commencing
on December 15, 2015, and to, and including, September 15, 2018.
67
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 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, RSUs,
and the assumed conversion of mandatory convertible preferred stock. The effect of potentially
dilutive securities is reflected in diluted earnings per share by application of the "treasury stock
method" for outstanding restricted stock awards and stock options. 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. For the issue of the mandatory convertible preferred
stock, we use "if-converted method." Under the if-converted method, the preferred dividend
applicable to convertible preferred stock is added back to net income attributable to Stericycle, the
numerator. The Mandatory Convertible Preferred shares are assumed to be converted to common
shares at the beginning of the period or, if later, at the time of issuance, and the resulting common
shares are included in the denominator. In applying the if-converted method, conversion shall not
be assumed for purposes of computing diluted EPS if the effect would be anti-dilutive.
The following table sets forth the computation of basic and diluted earnings per share:
Years Ended December 31,
2014
2013
2015
Numerator:
Net income attributable to Stericycle, Inc.
$
267,046 $
326,456 $
311,372
Less: mandatory convertible preferred stock
dividend
Numerator for basic earnings per share
attributable to Stericycle, Inc. common
shareholders
Denominator:
Denominator for basic earnings per share-
weighted average shares
Effect of diluted securities:
Employee stock options
Mandatory convertible preferred stock (1)
Denominator for diluted earnings per share-
adjusted weighted average shares and after
assumed exercises
Earnings per share – Basic
Earnings per share – Diluted
10,106
—
—
256,940
326,456
311,372
84,944,841
84,932,792
85,902,550
1,217,768
1,300,820
1,489,438
—
—
—
86,162,609
86,233,612
$
$
3.02 $
2.98 $
3.84 $
3.79 $
87,391,988
3.62
3.56
(1) In 2015, the weighted average common shares issuable upon the assumed conversion of the
mandatory convertible preferred stock totaling 1,648,318 shares were excluded from the
computation of diluted earnings per share as such conversion would have been anti-dilutive.
In 2015, 2014 and 2013, options to purchase 818,093 shares, 830,755 shares, and 846,808
shares, respectively, at exercise prices of $117.09-$141.56, $105.12-$132.95, and $94.76-$119.19
were not included in the computation of diluted earnings per share because the effect would have
been anti-dilutive.
68
For additional information regarding outstanding employee stock options, see Note 6 - Stock
Based Compensation in the Notes to the Consolidated Financial Statements.
NOTE 9 – ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
The following table sets forth the changes in the components of accumulated other
comprehensive income for 2015, 2014 and 2013:
In thousands
Currency
Translation
Adjustments
Unrealized Gains
(Losses) on Cash
Flow Hedges
Accumulated
Other
Comprehensive
Income/ (Loss)
Beginning balance at January 1, 2013
Period change
Ending balance at December 31, 2013
Period change
Ending balance at December 31, 2014
Period change
Ending balance at December 31, 2015
$
$
$
$
(37,292) $
(17,718)
(55,010) $
(80,221)
(135,231) $
(140,809)
(276,040) $
(1,772) $
314
(1,458) $
(1,730)
(3,188) $
(3,403)
(6,591) $
(39,064)
(17,404)
(56,468)
(81,951)
(138,419)
(144,212)
(282,631)
The net tax impact of the unrealized gains/ (losses) on cash flow hedges in accumulated other
comprehensive income at December 31, 2015, 2014 and 2013 was $2.2 million, $0.6 million, and
$0.2 million, respectively. Translation adjustments are not tax-effected as the Company’s net
investment in foreign subsidiaries and all related foreign earnings are deemed permanently
invested.
NOTE 10 – PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at December 31, 2015 and 2014 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
$
2015
2014
$
65,621 $
166,874
314,252
136,379
190,454
117,632
46,979
53,430
1,091,621
(426,019)
665,602 $
63,600
142,680
250,684
56,650
155,238
80,158
40,291
35,231
824,532
(364,124)
460,408
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.
69
Goodwill:
We have two geographical reportable segments, "United States" and "International," both of
which have goodwill. We have retroactively reclassified $4.3 million of goodwill related to Puerto
Rico from the United States segment to the International segment. The changes in the carrying
amount of goodwill since January 1, 2014, by reportable segment, were as follows:
In thousands
Balance at January 1, 2014
Goodwill acquired during year
Purchase accounting allocation adjustments
Changes due to foreign currency fluctuations
Balance at December 31, 2014
Goodwill acquired during year
Purchase accounting allocation adjustments
Goodwill other changes
Changes due to foreign currency fluctuations
Balance at December 31, 2015
United States
$
International
1,673,810 $
169,754
(4,825)
—
1,838,739
1,177,431
(43,895)
—
—
$
2,972,275 $
557,772 $
88,263
(17,595)
(48,347)
580,093
273,519
15,618
(440)
(82,888)
785,902 $
Total
2,231,582
258,017
(22,420)
(48,347)
2,418,832
1,450,950
(28,277)
(440)
(82,888)
3,758,177
Current year adjustments to goodwill for certain 2014 acquisitions are primarily due to the
finalization of intangible asset valuations.
During the quarter ended June 30, 2015, 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. 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 88% and had $589.3 million in assigned goodwill at June 30, 2015.
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, 2015. 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 conversion expense,
and litigation settlements, 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'
70
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.
Other Intangible Assets:
At December 31, 2015 and 2014, the values of other intangible assets were as follows:
In thousands
2015
2014
Gross
Carrying
Amount
Accumulated
Amortization
Net
Value
Gross
Carrying
Amount
Accumulated
Amortization
Net
Value
Amortizable intangibles:
Customer relationships
Covenants not-to-compete
Tradenames
Other
Indefinite lived
intangibles:
Operating permits
Tradenames
Total
$1,304,388 $
6,878
3,819
18,902
233,101
426,498
$1,993,586 $
144,020 $1,160,368 $ 755,148 $
1,737
5,141
8,474
948
916
2,871
17,986
6,062
1,150
107,365 $ 647,783
2,786
5,688
1,313
556
4,749
594
—
—
233,101
426,498
247,933
5,800
—
—
247,933
5,800
151,025 $1,842,561 $1,024,567 $
114,922 $ 909,645
The changes in the carrying amount of intangible assets since January 1, 2014 were as follows:
In thousands
Balance as of January 1, 2014
Intangible assets acquired during the year
Impairments during the year
Amortization during the year
Changes due to foreign currency fluctuations
Balance as of December 31, 2014
Intangible assets acquired during the year
Impairments during the year
Amortization during the year
Changes due to foreign currency fluctuations
Balance at December 31, 2015
Total
720,035
277,041
(9,863)
(32,692)
(44,876)
909,645
1,052,016
(4,177)
(45,498)
(69,425)
1,842,561
$
$
In 2015 and 2014, $4.2 million and $9.9 million of intangibles were impaired, respectively, due
to rationalizing certain of our domestic and international operations. Intangibles impaired in 2015
included $0.2 million of customer relationships, $1.3 million of tradenames and $2.7 million of
operating permits. These expenses are reflected as part of SG&A on our Consolidated Statements
of Income. 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
71
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 19.2 years. We have covenants not-to-
compete intangibles with useful lives from 5 to 14 years, with a weighted average remaining useful
life of 3.7 years. We have tradename intangibles with useful lives from 15 to 40 years, with a
weighted average remaining useful life of 17.2 years. Other intangibles mainly consist of landfill
air rights with a weighted average remaining useful life of 19.1 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. We also have a tradename that we have determined
has an indefinite life.
During the years ended December 31, 2015, 2014 and 2013 the aggregate amortization
expense was $45.5 million, $32.7 million and $27.1 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
2016
2017
2018
2019
2020
$
72,174
71,507
71,459
71,302
71,012
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,
2015.
Accrued liabilities at December 31, 2015 and 2014 consisted of the following items:
NOTE 12 – ACCRUED LIABILITIES
In thousands
Accrued compensation
Accrued insurance
Accrued taxes
Accrued interest
Accrued professional services liabilities
Accrued liabilities - other
Total accrued liabilities
2015
2014
$
62,721 $
43,390
27,363
13,829
6,948
43,078
$
197,329 $
37,932
40,387
17,847
9,096
3,703
22,778
131,743
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
72
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, 2015, the total environmental remediation liabilities recorded were $30.8
million, of which $2.1 million was classified as accrued liabilities and $28.7 million was classified
as other liabilities.
Long-term debt consisted of the following at December 31:
NOTE 14 – DEBT
In thousands
Obligations under capital leases
$1.20 billion senior credit facility weighted average rate 1.54%, due in
2019
$1.25 billion term loan weighted average rate 1.71%, due in 2020
$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
$150 million private placement notes 2.89%, due in 2021
$125 million private placement notes 3.26%, due in 2022
$200 million private placement notes 2.72%, due in 2022
$100 million private placement notes 2.79%, due in 2023
$150 million private placement notes 3.18%, due in 2023
2015
2014
$
15,024 $
9,185
353,763
1,250,000
—
175,000
125,000
225,000
150,000
125,000
200,000
100,000
150,000
459,975
—
100,000
175,000
125,000
225,000
—
125,000
—
—
—
Promissory notes and deferred consideration weighted average rate of
2.54% and weighted average maturity of 3.4 years
239,731
279,590
Foreign bank debt weighted average rate 8.98% and weighted
average maturity of 2.1 years
Total debt
Less: current portion of total debt
Long-term portion of total debt
105,530
3,214,048
161,409
3,052,639 $
160,465
1,659,215
131,969
1,527,246
$
Our $1.20 billion senior credit facility maturing in June 2019, our $1.25 billion term loan maturing
in August 2020, 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, our $150.0 million private placement maturing in October 2021,
our $125.0 million private placement notes maturing in December 2022, our $200.0 million private
placement notes maturing July 2022, our $100.0 million private placement notes maturing in July
2023, and our $150.0 million private placement notes maturing in October 2023 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, term
loan, and the private placement notes. At December 31, 2015, we were in compliance with all of
our financial debt covenants. Our senior credit facility, term loan, and the private placement notes
rank pari passu to each other and all other unsecured debt obligations.
At December 31, 2015 and 2014, we had $160.4 million and $162.9 million, respectively,
committed to outstanding letters of credit under our senior credit facility. The unused portion of the
73
revolving credit facility was $685.8 million and $577.1 million at December 31, 2015 and 2014,
respectively.
On April 30, 2015, we entered into a note purchase agreement with several institutional
purchasers pursuant to which we have issued and sold to the purchasers $200.0 million of our new
seven-year 2.72% unsecured senior notes ("Series A") and $100.0 million of our new eight-year
2.79% unsecured senior notes ("Series B"). Closing of the issuance and sale of the notes occurred
on July 31, 2015.
The Series A notes bear interest at the fixed rate of 2.72% per annum, and the Series B notes
bear interest at the fixed rate of 2.79% per annum. Interest will be payable in arrears semi-annually
on January 1 and July 1 beginning on January 1, 2016. The principal of the Series A notes will be
payable at the maturity of the notes on July 1, 2022, and the principal of the Series B notes will be
payable at the maturity of the notes on July 1, 2023. The notes are unsecured obligations.
The Company entered into a Term Loan Credit Agreement dated as of August 21, 2015 (the
"Term Loan Credit Agreement") with Bank of America, N.A., as the Administrative Agent maturing
on August 21, 2020. The Term Loan Credit Agreement provides for a term loan credit facility ("Term
Loan Credit Facility") under which the Company may obtain loans up to an aggregate amount of
$1.5 billion. Borrowings under the Term Loan Credit Facility may bear interest at a Base Rate or
Eurodollar Rate, respectively, plus the Applicable Rate. The Base Rate is for any day a fluctuating
rate per annum equal to the highest of (i) the Federal Funds Rate plus 1/2 of 1.00%, (ii) the rate
of interest in effect for such day as publicly announced from time to time by Bank of America as its
"prime rate" and (iii) the Eurodollar Rate plus 1.00%. The Applicable Rate depends on the
consolidated leverage ratio for the Company and its subsidiaries as set forth in the most recent
compliance certificate received by the administrative agent. We used the proceeds from the term
loan to fund a portion of the purchase price paid for the Shred-it acquisition (see Note 3 - Acquisitions
in the Notes to the Consolidated Financial Statements for more information).
On October 1, 2015, we issued and sold to the purchasers $150.0 million of new six-year
2.89% unsecured senior notes and $150.0 million of new eight-year 3.18% unsecured senior notes
(collectively, the "Notes"). The Notes bear interest on the unpaid principal thereof from October 1,
2015 at their respective stated rates of interest payable in arrears semi-annually on the first (1st)
day of April and October in each year and at maturity, commencing on April 1, 2016. The Notes
are unsecured obligations. We used the proceeds from the unsecured senior notes to fund a portion
of the purchase price paid for the Shred-it acquisition (see Note 3 - Acquisitions in the Notes to the
Consolidated Financial Statements for more information).
Payments due on long-term debt, excluding capital lease obligations, during each of the five
years subsequent to December 31, 2015 are as follows:
In thousands
2016
2017
2018
2019
2020
Thereafter
$
$
157,227
345,342
215,549
862,803
875,159
742,944
3,199,024
We paid interest of $68.0 million, $57.8 million, and $51.0 million for the years ended
December 31, 2015, 2014 and 2013, respectively.
74
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
2015
2014
157 $
804
6,105
15,925
(7,148)
15,843 $
174
896
1,230
13,108
(5,375)
10,033
$
$
Amortization related to these capital leases is included with depreciation expense.
Minimum future lease payments under capital leases are as follows:
In thousands
2016
2017
2018
2019
2020
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
$
$
4,622
5,364
2,041
2,226
1,557
419
16,229
(1,205)
15,024
(4,182)
10,842
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 2015, 2014 and 2013 was $139.0 million, $111.5 million, and $92.4 million,
respectively.
Minimum future rental payments under non-cancelable operating leases that have initial or
remaining terms in excess of one year at December 31, 2015 for each of the next five years and
in the aggregate are as follows:
In thousands
2016
2017
2018
2019
2020
Thereafter
$
$
104,958
89,284
71,264
52,923
34,078
47,168
399,675
75
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
two operating and reportable segments based on the organizational structure of our Company and
information reviewed by our Chief Operating Decision Maker. These operating and reportable
segments are Domestic Regulated and Compliance Services ("Domestic") and International
Regulated and Compliance Services ("International"). We are in the process of determining the
integration of the Shred-it organization within Stericycle. Currently the operations of Shred-it are
part of our Domestic Regulated and Compliance Services and International operating segments,
based on the the location of the revenue producing customer.
We have retroactively reclassified immaterial amounts related to Puerto Rico from the United
States segment to the International segment.
Summary information for our reportable segments is as follows:
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,
2014
2013
2015
$
2,165,030 $
1,788,390 $
1,498,347
441,231
379,647
820,878
2,985,908 $
407,082
360,129
767,211
2,555,601 $
341,387
303,073
644,460
2,142,807
382,692 $
436,958 $
28,215
50,610
410,907 $
487,568 $
405,403
72,343
477,746
5,173,779 $
1,903,671
7,077,450 $
2,916,296 $
1,457,006
4,373,302 $
2,557,224
1,330,749
3,887,973
434,202 $
284,788 $
212,518
95,771
135,629
231,400
665,602 $
70,621
104,999
175,620
460,408 $
74,915
71,534
146,449
358,967
$
$
$
$
$
$
$
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.
76
Detailed information for our United States reportable segment is as follows:
In thousands
Regulated and compliance solutions
Recall and returns solutions
Total revenues
Net interest expense
Income before income taxes
Income taxes
Net income attributable to Stericycle, Inc.
Depreciation and amortization
Capital expenditures
$
$
$
$
Years Ended December 31,
2014
1,707,031 $
81,359
1,788,390 $
44,850
436,958
161,497
275,461 $
2015
2,062,204 $
102,826
2,165,030 $
51,680
382,692
145,815
236,877 $
2013
1,400,572
97,775
1,498,347
43,012
405,403
152,753
252,650
78,587 $
53,495
59,389 $
56,507
49,725
42,760
Detailed information for our International reportable segment is as follows:
In thousands
Years Ended December 31,
2014
2013
2015
Revenues - Regulated and compliance solutions
$
820,878 $
767,211 $
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
25,594
28,215
(2,921)
31,136
21,172
50,610
(2,075)
52,685
$
$
967
30,169 $
1,690
50,995 $
48,825 $
45,227 $
61,266
29,989
644,460
11,937
72,343
11,909
60,434
1,712
58,722
38,683
30,349
NOTE 17 – RESTRUCTURING CHARGES
During the first quarter of 2015, management began executing a realignment of our operations
to reduce labor redundancies and facility costs. As part of this realignment, the Company recorded
charges related to severance, fixed asset and intangible assets impairments, and recognition of
lease expense for properties no longer used but for which we have a contractual obligation. The
recorded restructuring liabilities are expected to be paid primarily within the current year. While the
Company believes the recorded restructuring liabilities are adequate, revisions to current estimates
may be recorded in future periods based on new information as it becomes available. There could
be additional initiatives in the future to further streamline our operations. As such, the Company
expects further expenses related to workforce reductions and other facility rationalization costs
when those restructuring plans are finalized and related expenses are estimable.
The following table below highlights $19.1 million of pre-tax restructuring charges by reporting
segment for the year ended December 31, 2015, which are reflected as part of SG&A on our
Consolidated Statements of Income:
77
In thousands
Year Ended December 31, 2015
Employee severance and related costs
Other costs
Non-cash items:
Fixed assets impairment
Intangible assets impairment
Other
Total pre-tax restructuring expenses
$
United States
$
4,284 $
2,963
3,133
2,167
—
12,547 $
International
Total
Charges to
Income
4,275 $
1,494
70
247
445
6,531 $
8,559
4,457
3,203
2,414
445
19,078
The following table summarizes restructuring activity during 2015 which is reflected in the
Consolidated Balance Sheets as part of "Accrued liabilities:"
In thousands
Liability balance at January 1, 2015
Charges to income
Payments
Other
Liability balance at December 31, 2015
Employee
Severance
and Related
Costs
Other Costs
Total
$
$
— $
— $
8,559
(7,469)
14
1,104 $
4,457
(2,891)
—
1,566 $
—
13,016
(10,360)
14
2,670
NOTE 18 – EMPLOYEE BENEFIT PLAN
We have two 401(k) defined contribution retirement savings plans (the “plan(s)”), one of which
was part of the recent Shred-it acquisition, covering substantially all domestic employees. The
following describes our two domestic plans:
• Each participant may elect to defer a portion of his or her compensation subject to certain
limitations. The Company 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. Our contributions for the years ended
December 31, 2015, 2014 and 2013 were $4.8 million, $3.6 million, and $3.0 million, respectively.
• Each participant may elect to defer a portion of his or her compensation subject to certain
limitations. They Company may contribute up to 100% of the first 3% of the employee's eligible
earnings, plus up to 50% of the next 2% of the employee's eligible earnings, subject to IRS limits.
Our contribution for the fourth quarter of 2015 was $0.9 million.
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, 2015, 2014 and 2013, total contributions made by the Company
for these plans were approximately $2.1 million, $1.9 million, and $0.9 million, respectively.
NOTE 19 – 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.
78
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.
Qui Tam Action. As disclosed in our current report on Form 8-K filed on October 14, 2015,
we entered into a settlement agreement on October 8, 2015 to resolve all claims made against us
in the previously disclosed qui tam (or "whistle blower") action filed in the United States District
Court for the Northern District of Illinois captioned United States of America ex rel. Jennifer D. Perez
v. Stericycle, Inc., Case No. 1:08-cv-2390 (the "Qui Tam Action"). Originally filed under seal on April
28, 2008 by a former employee of ours ("Relator") on behalf of the federal government, the Qui
Tam Action was amended on June 28, 2010 to add the States of California, Delaware, Florida,
Illinois, Indiana, Nevada, New Hampshire, New Jersey, New York, North Carolina, Rhode Island,
Tennessee, the Commonwealths of Massachusetts and Virginia, and the District of Columbia
(except for New Hampshire and New York, the "Government Entities"). The Qui Tam Action was
further amended on July 23, 2013 to allege certain claims on behalf of the Government Entities
and to drop any claims on behalf of the State of New Hampshire. The State of New York pursued
its own investigation under the New York False Claims Act resulting in our settlement announced
by the New York Attorney General’s office on January 8, 2013. Brought under the federal False
Claims Act and comparable state statutes, the Qui Tam Action alleged that, from January 1, 2003
to June 30, 2014, we improperly increased our service price to certain government customers
without their consent or contractual authorization. We have denied all liability for the claims made
in the Qui Tam Action but have agreed to settle to avoid the expense, burden and inherent risk and
uncertainty of litigation.
Under the terms of the settlement agreement entered into with Relator (the "Settlement"), we
paid (i) $26.75 million to a third-party administrator to be allocated among the Government Entities
as determined by the Government Entities themselves without any involvement by us and (ii) $1.75
million in full satisfaction of any claims by Relator and Relator’s counsel for attorneys’ fees, expenses
and costs. We did not admit in the Settlement to any of the allegations in the Qui Tam Action, and
the Settlement cannot be used as an admission of wrongdoing or liability on our part. In addition,
we are completely released from any and all claims brought by Relator and the Government Entities.
In view of the Settlement, we recorded a pre-tax charge of $28.5 million during the third quarter
2015 which is included in SG&A expenses on our Consolidated Statement of Income. We made
the payments described above on October 21, 2015 in accordance with the terms of the settlement
agreement. On February 1, 2016, the Qui Tam Action was dismissed with prejudice pursuant to
the Settlement.
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 arose out of the Qui
Tam Action described above.
79
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 granted our Motion to Transfer these related actions to the United States
District Court for the Northern District of Illinois for centralized pretrial proceedings (the "MDL
Action"). On December 10, 2013, we filed our answer to the Amended Consolidated Class Action
Complaint in the MDL Action, generally denying the allegations therein.
On January 29, 2016, the plaintiffs’ attorneys filed a Second Amended Consolidated Complaint
and a Motion for Class Certification in the MDL Action. The Motion requests that the court certify
a class of plaintiffs consisting of certain of our small quantity customers who received rate increases.
We intend to strongly contest the Motion.
We believe that we have operated in accordance with the terms of our customer contracts and
that these complaints are without merit. We will continue to vigorously defend ourselves against
each of these lawsuits.
We have not accrued any amounts in respect of these class action 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) we do not know whether the court will certify any class of plaintiffs or, if any class
is certified, how the class would be defined, and (iii) in our judgment, there are no comparable
proceedings against other defendants that might provide guidance in making estimates.
Junk Fax Lawsuit. As previously disclosed, on May 20, 2015, we entered into a settlement
agreement to resolve all claims made against us and certain of our subsidiaries in Sawyer v.
Stericycle, et al., Case No. 2015 CH 07190 (the "TCPA Action"), a class action complaint filed in
the Circuit Court of Cook County, Illinois (the "Court"). The TCPA Action was the successor lawsuit
to the class action complaint filed in the U.S. District Court for the Northern District of Illinois (Case
1:14-cv-02070) that we have previously disclosed and that was dismissed pursuant to the parties’
joint stipulation of dismissal. The TCPA Action alleged that from 2010 to 2014 we violated the
Telephone Consumer Protection Act of 1991, as amended by the Junk Fax Prevention Act of 2005,
by sending facsimile advertisements to plaintiffs or putative class members that either were
unsolicited and/or did not contain a valid opt-out notice. We have denied all liability for the claims
made in the TCPA Action but have agreed to settle to avoid the expense, burden and inherent risk
and uncertainty of litigation.
Under the terms of the settlement agreement entered into with the two class representatives,
we agreed to make available a fund of $45.0 million (the "Settlement Fund") to pay class members
who submit a valid claim form within a 90-day period, to pay an incentive award to each of the class
representatives, to pay attorneys’ fees and expenses to plaintiffs’ attorneys, and to pay fees and
costs of a third-party settlement administrator (the "TCPA Settlement"). The plaintiffs’ attorneys
sought attorneys’ fees of one-third of the Settlement Fund, plus out-of-pocket expenses, to be paid
from the Settlement Fund. As part of the TCPA Settlement, we did not admit to any of the allegations
in the TCPA Action and are completely released from any claims related to faxes sent by us or on
our behalf from March 25, 2010 through April 30, 2015. On August 27, 2015, the TCPA Action was
dismissed with prejudice.
Based on the claims filed in connection with the TCPA Settlement, we recorded a pre-tax
charge of $28.2 million during 2015 which is included in SG&A expenses on our Consolidated
Statement of Income. We made payments totaling $15.2 million in respect of the incentive awards
80
to each of the class representatives and the attorneys’ fees and expenses of plaintiffs’ attorneys
during August 2015. In December 2015, we paid a total of $13.0 million in respect of valid claims
submitted by class members within the claims period.
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 may be subject to 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 February 29, 2016, we entered into a statute of limitations tolling agreement with the United
States Attorney’s Office for the District of Utah relating to that Office’s investigation of the same
facts underlying the notice of violation (the "NOV") issued by the State of Utah Division of Air Quality
(the "DAQ") that resulted in our December 2014 settlement with the DAQ that we have previously
disclosed. The U.S. Attorney’s Office is investigating whether the matters forming the basis of the
NOV constitute violations of the Clean Air Act and other federal statutes. Under the tolling
agreement, the period from March 1, 2016 through July 31, 2016 will be excluded from any
calculation of time for the purpose of determining the statute of limitations concerning any charges
that we violated federal statutes. The agreement does not constitute an admission of guilt or
wrongdoing on our part and cannot be construed as a waiver of any other rights or defenses that
we may have in any resulting action or proceeding. We will continue to cooperate with the
investigation.
81
NOTE 20 – SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
The following table summarizes our unaudited consolidated quarterly results of operations as
reported for 2015 and 2014:
In thousands, except per share data
Revenues
Gross profit
Acquisition expenses
Integration expenses
Change in fair value of contingent
consideration
Impairment of intangible assets
Restructuring and plant conversion
expenses
Litigation expenses
Net income attributable to Stericycle, Inc.
Mandatory convertible preferred stock
Net income attributable to Stericycle, Inc.
common shareholders
First
Quarter
2015
Second
Quarter
2015
Third
Quarter
2015
$ 663,319 $ 715,689 $ 718,596 $ 888,304 $ 2,985,908
1,266,185
(39,138)
(51,689)
281,331
(3,296)
(8,886)
380,355
818
(20,432)
299,675
(33,674)
(13,447)
304,824
(2,986)
(8,924)
Fourth
Quarter
2015
Year
2015
675
—
(12,302)
(2,123)
75,458
—
(35)
—
(3,058)
(44,827)
60,449
—
—
—
(2,721)
(12,056)
52,263
—
—
(1,781)
(4,667)
(645)
78,876
(10,106)
75,458
60,449
52,263
68,770
640
(1,781)
(22,748)
(59,651)
267,046
(10,106)
256,940
3.02
2.98
* Basic earnings per common share
* Diluted earnings per common share
$
$
0.89 $
0.87 $
0.71 $
0.70 $
0.62 $
0.60 $
0.81 $
0.80 $
In thousands, except per share data
Revenues
Gross profit
Acquisition expenses
Integration expenses
Change in fair value of contingent
consideration
Restructuring and plant conversion
expenses
Litigation expenses
Net income attributable to Stericycle, Inc.
* Basic earnings per common share
* Diluted earnings per common share
Second
Quarter
2014
First
Quarter
2014
Third
Quarter
2014
$ 569,955 $ 640,822 $ 667,877 $ 676,947 $ 2,555,601
1,094,411
(13,333)
(25,968)
255,469
(3,221)
(2,485)
284,969
(2,661)
(11,343)
278,669
(3,472)
(7,461)
275,304
(3,979)
(4,679)
Fourth
Quarter
2014
Year
2014
(4,789)
836
—
5,405
1,452
(574)
(1,505)
79,149
(1,115)
(396)
81,936
(2,380)
(1,342)
82,845
(10,495)
(3,331)
82,526
$
$
0.93 $
0.91 $
0.97 $
0.95 $
0.98 $
0.96 $
0.97 $
0.96 $
(14,564)
(6,574)
326,456
3.84
3.79
*
EPS calculated on a quarterly basis, and, as such, the amounts may not total the calculated full-year EPS.
82
STERICYCLE, INC. AND SUBSIDIARIES
SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS
In thousands
Allowance for doubtful
accounts
2013
2014
2015
Balance
Beginning
of Period
Charges to
Expenses
Other
Charges/
(Reversals)
(1)
Write-offs/
Payments
Balance End
of Period
$
$
$
19,443 $
19,134 $
19,083 $
4,823 $
9,869 $
13,650 $
322 $
842 $
3,054 $
(5,454) $
(10,762) $
(13,458) $
19,134
19,083
22,329
(1) Amounts consist primarily of valuation allowances assumed from acquired companies and
currency translation adjustments.
In thousands
Valuation Allowance on
Deferred Tax Assets
2013
2014
2015
Balance
Beginning of
Period
$
$
$
3,340 $
1,122 $
56 $
Additions/
(Deductions)
Charged to/
(from) Income
Tax Expense
Other
Changes
to Reserves
(2)
Balance End
of Period
(1,451) $
— $
13 $
(767) $
(1,066) $
17,516 $
1,122
56
17,585
(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.
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.
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. Based upon that evaluation,
our President and Chief Executive Officer and Chief Financial Officer have concluded that our
disclosure controls and procedures were not effective as of the end of the period covered by this
annual report, because of material weaknesses in internal control over financial reporting described
in our Management’s Report on Internal Control over Financial Reporting.
83
(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.
Planned Remediation of Material Weaknesses
We are committed to remediating the control deficiencies that gave rise to the material
weaknesses described in Management’s Report on Internal Control over Financial Reporting by
implementing changes to strengthen our risk assessment process and accountability for our internal
control over financial reporting. Management is responsible for implementing changes and
improvements in our internal control over financial reporting and for remediating the control
deficiencies that gave rise to these material weaknesses.
To remediate the material weaknesses in our internal control over financial reporting described
in Management’s Report on Internal Control over Financial Reporting , we will review, analyze, and
properly document our processes related to internal controls over financial reporting, starting with
our revenue processes. We will create standard policies and procedures related to internal control
over financial reporting to be implemented throughout the organization. These measures will also
include the implementation of financial reporting risk assessment and review processes to ensure
the related significant accounting policies are implemented and applied properly under U.S.
generally accepted accounting principles on a consistent basis throughout the Company.
(c) Changes in internal controls.
There were no changes in our internal control over financial reporting during the quarter ended
December 31, 2015 that have materially affected, or are reasonably likely to materially affect, our
internal control over financial reporting.
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 2016 Annual Meeting of Stockholders to be held on May 25, 2016, 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 2016 Annual Meeting of Stockholders to be held on May 25, 2016, 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
84
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 2016 Annual Meeting of Stockholders to be held on May 25,
2016, 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 2016 Annual Meeting of Stockholders to be held on May 25,
2016, 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 2016 Annual Meeting of Stockholders
to be held on May 25, 2016, 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 2016 Annual Meeting of Stockholders to be held on May 25, 2016,
to be filed pursuant to Regulation 14A.
The information required by this Item regarding director independence is incorporated by
reference to the information contained in Item 1 of our definitive proxy statement for our 2016
Annual Meeting of Stockholders to be held on May 25, 2016, 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
2015
2014
5,415 $
—
765
—
6,180 $
2,036
—
316
—
2,352
$
$
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.
85
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.
86
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, 2015 and 2014
Consolidated Statements of Income for Each of the Years in the Three-Year Period Ended
December 31, 2015
Consolidated Statements of Comprehensive Income for Each of the Years in the Three-
Year Period Ended December 31, 2015
Consolidated Statements of Cash Flows for Each of the Years in the Three-Year Period
Ended December 31, 2015
Consolidated Statements of Changes in Equity for Each of the Years in the Three-Year
Period Ended December 31, 2015
Notes to Consolidated Financial Statements
Schedule II - Valuation and Qualifying Accounts
Page
40
42
45
46
47
48
49
50
83
All other financial statement schedules have been omitted because they are not applicable to
us or the required information is shown in the consolidated financial statements or notes thereto.
We have filed the following exhibits with this report:
Exhibit Index Description
1.1*
Underwriting Agreement, dated September 9, 2015, among the Registrant, Inc.,
Merrill Lynch, Pierce, Fenner & Smith Incorporated, Goldman, Sachs & Co. and
J.P. Morgan Securities LLC, as representatives of the underwriters named therein
(incorporated by reference to Exhibit 1.1 to our current report on Form 8-K filed
September 15, 2015)
Filed with
Electronic
Submission
2.1*
2.2*
Securities Purchase Agreement, dated as of July 15, 2015, among CC Shredding
Holdco LLC, CC Dutch Shredding Holdco BV, Birch Hill Equity Partners
Management Inc., in its own capacity and in its capacity as the Vendors’
Representative, Shred-it International Inc., certain Funds listed on Appendix A to
the Securities Purchase Agreement, certain Co-Investors listed on Appendix B to
the Securities Purchase Agreement, certain Management Shareholders listed on
Appendix C to the Securities Purchase Agreement, the Option Participants in Boost
GP Corp., Shred-it JV LP, Boost GP Corp., Boost Holdings LP, Stericycle, Inc.,
1908223 Alberta ULC and 1908249 Alberta ULC (incorporated by reference to
Exhibit 2.1 to our current report on Form 8-K filed July 21, 2015)
Amendment No. 1 dated as of October 1, 2015 to the Securities Purchase
Agreement, dated as of July 15, 2015, among CC Shredding Holdco LLC, CC Dutch
Shredding Holdco BV, Birch Hill Equity Partners Management Inc., in its own
capacity and in its capacity as the Vendors’ Representative, Shred-it International
Inc., certain Funds listed on Appendix A to the Securities Purchase Agreement,
certain Co-Investors listed on Appendix B to the Securities Purchase Agreement,
certain Management Shareholders listed on Appendix C to the Securities Purchase
Agreement, the Option Participants in Boost GP Corp., Shred-it JV LP, Boost GP
Corp., Boost Holdings LP, Stericycle, Inc., 1908223 Alberta ULC and 1908249
Alberta ULC (incorporated by reference to Exhibit 2.1 to our current report on Form
8-K filed October 7, 2015)
87
3(i).1*
3(i).2*
3(i).3*
3(i).4*
3(i).5*
3(i).6*
and
4.2*
3(i).7*
and
4.3*
3(ii).1*
4.1*
4.4*
4.5*
4.6*
10.1*
10.2*
10.3*
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)
Certificate of Elimination of the Certificate of Designations relating to Series A
Convertible Preferred Stock, par value 0.01 per share (incorporated by reference
to Exhibit 3.1 and 4.1 to our current report on Form 8-K filed September 15, 2015)
Certificate of Designations setting forth the specific rights, preferences, limitations,
restrictions and other terms and conditions of the Mandatory Convertible Preferred
Stock (incorporated by reference to Exhibit 4.1 to our Registration Statement on
Form 8-A filed September 15, 2015)
Amended and restated bylaws (incorporated by reference to Exhibit 3(ii).1 to our
current report on Form 8-K filed February 17, 2016)
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))
Form of certificate representing the Mandatory Convertible Preferred Stock (see
Exhibits 3(i).7 and 4.3)
Deposit Agreement, dated as of September 15, 2015, between the Registrant, Wells
Fargo Bank, N.A., acting as depositary, and the holders from time to time of the
Depositary Shares (incorporated by reference to Exhibit 4.3 to our Registration
Statement on Form 8-A filed September 15, 2015)
Form of Depositary Share (included in Exhibit 4.5)
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)
Second Amendment, dated as of August 13, 2015, to the 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, lender and letter of credit issuer, JPMorgan
Chase Bank, N.A., HSBC Bank USA, National Association and Sumitomo Mitsui
Banking Corporation, as lenders and letter of credit issuers, MUFG Union Bank,
N.A., Santander Bank, N.A., Sumitomo Mitsui Banking Corporation, U.S. Bank
National Association, U.S. Bank National Association, Canada Branch, BMO Harris
Financing Inc., COBANK, ACB, The Northern Trust Company, Citibank, N.A.,
Compass Bank, PNC Bank, National Association, SunTrust Bank, Unicredit Bank
AG, New York Branch, and Wells Fargo Bank, National Association, as lenders
(incorporated by reference to Exhibit 2.1 to our current report on Form 8-K filed
August 19, 2015)
Term Loan Credit Agreement dated as of August 21, 2015, among Stericycle, Inc.,
as borrower, Bank of America, N.A., as Administrative Agent and as a lender, and
Goldman Sachs Bank USA, JPMorgan Chase Bank, N.A., Santander Bank, N.A.,
MUFG Union Bank, N.A., Sumitomo Mitsui Banking Corporation, U.S. Bank
National Association, BMO Harris Bank N.A., Wells Fargo Bank, National
Association, HSBC Bank USA, National Association, HSBC Bank plc, CoBank,
ACB, The Northern Trust Company, Compass Bank, PNC Bank, National
Association and UniCredit Bank AG, New York Branch, as lenders (incorporated
by reference to Exhibit 10.1 to our current report on Form 8-K filed August 27, 2015)
88
10.4*
10.5*
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)
First Amendment, dated as of August 13, 2015, to the Note Purchase Agreement
dated as of August 18, 2010, entered into by Stericycle, Inc. 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), Hartford Life Insurance Company, Hartford Life and
Accident Insurance Company, Hartford Fire Insurance Company, Nationwide Life
Insurance Company,
Insurance Company, Nationwide Life and Annuity
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, AXA Equitable Life Insurance Company, 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, CSAA Insurance Exchange
and Country Life Insurance Company (incorporated by reference to Exhibit 2.4 to
our current report on Form 8-K filed August 19, 2015)
89
10.6*
10.7*
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)
First Amendment, dated as of August 13, 2015, to the Note Purchase Agreement
dated as of October 22, 2012, entered into by Stericycle, Inc. and The Northwestern
Mutual Life Insurance Company, Northwestern Long Term Care Insurance
Company, The Lincoln National Life Insurance Company, Penn Mutual Life
Insurance Company, Principal Life Insurance Company, Symetra Life Insurance
Company, Jackson National Life Insurance Company, Reassure America Life
Insurance Company, Athene Annuity and Life Company (f/k/a Aviva Life and Annuity
Company), Royal Neighbors of America, Thrivent Financial for Lutherans, AXA
Equitable Life Insurance Company, RiverSource Life Insurance Company,
RiverSource Life Insurance Co. of New York, 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
Life Insurance Company, Woodmen of the World Life Insurance Society, American
United Life Insurance Company, Ameritas Life Insurance Corp. successor by
merger to Acacia Life Insurance Company, Ameritas Life Insurance Corp. successor
by merger to The Union Central Life Insurance Company, Ameritas Life Insurance
Corp. of New York, USAA Life Insurance Company, Country Life Insurance
Company, ProAssurance Casualty Company, ProAssurance Indemnity Company,
Inc. and State of Wisconsin Investment Board (incorporated by reference to Exhibit
2.3 to our current report on Form 8-K filed August 19, 2015)
90
10.8*
10.9*
10.10*
10.11*†
10.12*†
10.13*†
10.14*†
10.15*†
Note Purchase Agreement dated as of April 30, 2015 entered into by Stericycle,
Inc., as issuer and seller, and 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 3-2), The
Northwestern Mutual Life Insurance Company, The Northwestern Life Insurance
Company for its Group Annuity Separate Account, State Farm Life Insurance
Company, State Farm Life and Accident Assurance Company, Thrivent Financial
for Lutherans, AXA Equitable Life Insurance Company, Great-West Life & Annuity
Insurance Company, the Guardian Life Insurance Company of America,
Metropolitan Life Insurance Company, MetLife Insurance Company USA, General
American Life Insurance Company, First MetLife Investors Insurance Company,
MetLife Insurance K.K., Nationwide Life Insurance Company, RiverSource Life
Insurance Company, RiverSource Life Insurance Company, RiverSource Life
Insurance Co. of New York, Life Insurance Company of the Southwest, State of
Wisconsin Investment Board, Catholic Financial Life, GuideOne Mutual Insurance
Company and GuideOne Property & Casualty Insurance Company (incorporated
by reference to Exhibit 10.1 to our current report on Form 8-K filed May 4, 2015)
Second Amendment, dated as of August 13, 2015, to the Note Purchase Agreement
dated as of April 30, 2015, entered into by Stericycle, Inc. and 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 3-2), The Northwestern Mutual Life Insurance Company,
The Northwestern Life Insurance Company for its Group Annuity Separate Account,
State Farm Life Insurance Company, State Farm Life and Accident Assurance
Company, Thrivent Financial for Lutherans, AXA Equitable Life Insurance
Company, Great-West Life & Annuity Insurance Company, The Guardian Life
Insurance Company of America, Metropolitan Life Insurance Company, MetLife
Insurance Company USA, General American Life Insurance Company, First MetLife
Investors Insurance Company, MetLife Insurance K.K., Nationwide Life Insurance
Company, RiverSource Life Insurance Company, RiverSource Life Insurance Co.
of New York, Life Insurance Company of the Southwest, State of Wisconsin
Investment Board, Catholic Financial Life, GuideOne Mutual Insurance Company
and GuideOne Property & Casualty Insurance Company (incorporated by reference
to Exhibit 2.2 to our current report on Form 8-K filed August 19, 2015)
Note Purchase Agreement dated as of October 1, 2015, entered into by Stericycle,
Inc. and Metropolitan Life Insurance Company, General American Life Insurance
Company, MetLife Insurance Company USA, Erie Family Life Insurance Company,
The Northwestern Mutual Life Insurance Company, The Northwestern Mutual Life
Insurance Company for its Group Annuity Separate Account, 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 3), The Bank of New York Mellon, State Farm Life
Insurance Company, State Farm Life and Accident Assurance Company,
Nationwide Life Insurance Company, Thrivent Financial for Lutherans, Principal
Life Insurance Company, State of Wisconsin Investment Board, Auto-Owners
Insurance Company, Auto-Owners Life Insurance Company, American United Life
Insurance Company, The State Life Insurance Company, Ameritas Life Insurance
Corp., Ameritas Life Insurance Corp. of New York, PHL Variable Insurance
Company, Woodmen of the World Life Insurance Society, Horizon Blue Cross Blue
Shield of New Jersey and Southern Farm Bureau Life Insurance Company
(incorporated by reference to Exhibit 2.2 to our current report on Form 8-K filed.
October 7, 2015)
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))
91
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*†
10.29*†
10.30*†
10.31†
10.32*†
10.33*†
10.34*†
14*
21
23
31.1
31.2
32
x
*
†
Second amendment to 1997 Plan (incorporated by reference to Exhibit 10.12 to
our annual report on Form 10-K for 2001)
Third amendment to 1997 Plan (incorporated by reference to Exhibit 10.16 to our
annual report on Form 10-K for 2003)
2000 Non-statutory 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 ("2014 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, 2011 and 2014 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, 2011 and 2014 Plans
(incorporated by reference to Exhibit 10.21 to our annual report on Form 10-K for
2011)
Bonus conversion program (2016 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
Filed herewith
Previously filed
Management contract or compensatory plan required to be filed pursuant to Item 601 of Regulation S-K
92
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.
SIGNATURES
Dated: March 15, 2016
STERICYCLE, INC.
(Registrant)
By: /s/ DANIEL V. GINNETTI
Daniel V. Ginnetti
Executive Vice President and Chief Financial Offi
cer (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 15, 2016
Name
Title
/s/ CHARLES A. ALUTTO
Charles A. Alutto
/s/ DANIEL V. GINNETTI
Daniel V. Ginnetti
President, Chief Executive Officer
and Director (Principal Executive
Officer)
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
/s/ JACK W. SCHULER
Jack W. Schuler
Lead Director of the Board of
Directors
/s/ LYNN D. BLEIL
Lynn D. Bleil
Director
/s/ THOMAS D. BROWN
Director
Thomas D. Brown
/s/ THOMAS F. CHEN
Thomas F. Chen
Director
/s/ ROD F. DAMMEYER
Director
Rod F. Dammeyer
/s/ WILLIAM K. HALL
Director
William K. Hall
/s/ JOHN PATIENCE
Director
John Patience
/s/ MIKE S. ZAFIROVSKI
Director
Mike S. Zafirovski
Date
March 15, 2016
March 15, 2016
March 15, 2016
March 15, 2016
March 15, 2016
March 15, 2016
March 15, 2016
March 15, 2016
March 15, 2016
March 15, 2016
March 15, 2016
93
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Annual Report
2015
C O R P O R A T E
I N F O R M A T I O N
E x e c u t i v e O f f i c e r s
Charles A. Alutto
Brent Arnold
President and Chief Executive Officer
Chief Operating Officer
John P. Schetz
General Counsel
Mark C. Miller
Executive Chairman of the Board
Daniel V. Ginnetti
Chief Financial Officer
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
Michael J. Collins
President, Recall and
Return Management Services
Brenda R. Frank
Chief People Officer
William K. Hall
Chairman – Compensation
Committee
Thomas D. Brown
Member – Compensation
Committee
Rodney F. Dammeyer
Chairman – Audit Committee
Member – Nominating
and Governance Committee
Thomas F. Chen
Member – Audit Committee
Mike S. Zafirovski
Member – Compensation
Committee
Lynn Dorsey Bleil
Member – Audit 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 25, 2016 at:
DoubleTree Hotel Chicago O’Hare Airport – Rosemont
5460 North River Road, Rosemont, IL 60018
N a s d a q ® S y m b o l
SRCL
(800) 643-0240
www.stericycle.com