Dear Fellow Shareholders:
During 2016, Stericycle delivered year-over-
year revenue growth of 19.3%, gross margins
greater than 40%, and record free cash flow
generation.
We were proud of these results but disappointed
not to meet the annual goals that we had
established for the company given unfavorable
market conditions in several lines of business.
These challenges included pricing pressure
among small healthcare providers, a slowdown
in the industrial sector, and unfavorable market
conditions in several of our international
operations.
As we look ahead, we remain confident about
the many opportunities that exist for Stericycle.
We continue to focus on refining our strategies
to meet current market conditions, executing
diligently on our plans, and strengthening the
company for a long and successful future.
2016 Financial Highlights
• Revenues for the year were $3.56 billion,
compared to $2.99 billion in 2015.
• Operating income was $433.8 million
compared to $487.6 million in 2015.
• Diluted earnings per share for the year were
$2.08 as compared to $2.98 in 2015.
• We generated $411.1 million of free cash flow
from operations up 49.2% over 2015.
Accomplishments from the Year
Looking back on 2016, Stericycle made
strong progress in the continued evolution
of our company as a leading provider of
business-to-business compliance services.
We continued to grow several of our core
services including medical waste management,
sharps management, compliance services,
pharmaceutical waste, retail hazardous waste,
secure information destruction, communication
solutions, and recall services. We expanded our
sharps management service in Latin America
and further established our position as the
leading provider of global recall services. We
also launched new solutions for consumer
pharmaceutical waste and controlled substances
waste as well as a new compliance program for
Latin America.
Following the acquisition of Shred-it, we
evaluated our organizational structure and
realigned how we operate. With this realignment,
we refocused our commitment to functional
expertise; integrated Shred-it into the Regulated
Waste and Compliance Services; combined
our Communication Services and Regulated
Recall and Returns Management Services into
Communication and Related Services; and
expanded our shared services model for key
business support functions.
We also increased transparency to our
shareholders. By introducing new operating
segments and providing quarterly details on our
global revenue streams, we provided deeper
insights into our business. We also held our first
Investor Day to highlight our market-leading
services, provide insight on key challenges, and
review the company’s long-term strategic plan.
We continued our strategy of deploying capital
to grow and diversify the business, both through
acquisitions and organic growth. We invested
$136.2 million in capital expenditures across a
variety of projects to enhance our operating
platforms, maintain a technologically driven
competitive advantage, and enhance regulatory
compliance and safety. We invested $101.4 million
for 21 domestic and 10 international acquisitions.
Finally, we deployed $71.7 million of capital in
the open market to repurchase 360,914 shares of
common stock and 43,500 shares of mandatory
convertible preferred stock.
Priorities for 2017 and Beyond
Our strategic path forward is clear and consistent
with the business model that built our company.
We will continue to focus on revenue growth
in our core service lines and the capture of
efficiencies in our operating platforms while
executing on a disciplined capital allocation
strategy. These objectives apply across our
many customer categories, service lines, and
geographical regions. For 2017, our priorities
are as follows:
Drive Organic Growth: Stericycle has multiple
opportunities to drive organic growth. In 2017,
we will
• Expand our best-in-class platforms – such as
the Steri-Safe OSHA Compliance Program,
Sharps Management Service, Shred-it secure
information destruction, and the LiveAnswer
self-service communication portal – to our
current customer base as well as to new
customers through our improved outbound
customer acquisition campaigns
• Continue the launch of our innovative
solutions, such as two new pharmaceutical
disposal solutions that address key business
and community concerns for unused
pharmaceuticals
• Invest in sales and marketing to drive the
conversion of the unvended market for
secure information destruction services
• Develop and execute on new strategies to
increase conversion of new customers within
medical waste as well as capitalize on our
recent successes in our retail hazardous
waste service line
• Expand our portfolio of core services into
our existing international markets leveraging
our existing operational infrastructure and
presence
Increase Profitability: Continuous improvement
has been a core value and core competency
of Stericycle for many years. With this spirit
– combined with our expertise and tuck-in
acquisition strategy – Stericycle will drive
increased profitability in the years to come.
Our teams continue to deliver on previously
identified and new synergy opportunities
associated with the acquisition and integration
of the secure information destruction business.
Completing the implementation of operational
platforms in both our hazardous waste and
communication service lines will provide new
efficiencies while improving service levels to our
customers. We will execute on plans to expand
our shared services functions globally, which
will increase process standardization while
reducing SG&A costs. Beyond these, our broad
reaching and relentless pursuit of continuous
improvement will deliver increased profitability
from standardized work, transportation
efficiencies, improved supplier agreements,
and other initiatives.
Focus on Core Service Lines: We remain
committed to continuously evaluating our
service lines for long-term strategic fit. Our
disciplined evaluation process in 2016 identified
several acquired businesses in the UK that no
longer align with our strategic objectives and
we began divesting those assets in the fourth
quarter 2016. We will continue to focus on
and invest in businesses that support our core
service lines and meet or exceed our strategic
objectives. As part of our approach, we will
continue to execute on our tuck-in acquisition
strategy, which allows us to expand our global
reach and service offerings in highly fragmented
markets. We plan to be a highly competitive
acquirer and follow our structured integration
process to realize efficiencies and capture
synergies.
Disciplined Capital Allocation: We will
maintain a balanced capital allocation approach
that allows us to reduce our existing debt,
offset dilution of our stock, and maximize our
acquisition strategy. Following two large strategic
acquisitions in the past three years, we remain
focused on debt reduction to return Stericycle to
its historical debt to EBITDA ratio below 3.0. We
will continue our practice of repurchasing shares
of stock, including our mandatory convertible
preferred stock, to offset dilution of stock options
and opportunistically when favorable market
conditions exist. Additionally, our capital allocation
strategy allows for the continued execution of
strategic tuck-in acquisitions to help us capture
more opportunity within our fragmented markets.
In Closing....
This past year demonstrated that our
customers’ businesses are constantly evolving.
To be successful, Stericycle must evolve with
our customers and help them adapt while
maintaining our position as a strong steward of
health, safety, and efficiency. Our commitment
to innovating new products, delivering improved
service models, and creating an increasingly
efficient operational infrastructure is a result
of Stericycle’s core values and positions us well
to overcome the challenges presented within
the last year.
I would like to thank all Stericycle team
members for their continued hard work and
dedication. It is only through the contributions
and commitments of our team that Stericycle
has become the industry and service excellence
leader for our core solutions. I would also like
to thank our shareholders for their support and
our customers for trusting Stericycle with their
compliance needs. We remain confident about
the growth opportunities that lie ahead for
Stericycle and look forward to sharing with
you our progress in the year ahead.
h l
Charles A. Alutto
President and CEO
l
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(cid:2)(cid:2) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2016
or
(cid:3)(cid:3) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from
to
Commission File Number 1-37556
Stericycle, Inc.
(ExaEE ct name of registrant as specified in its charter)
Delaware
(S(( tate 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
(Regisii trant’s telephone number, including area code)
)
Securities registered pursuant to Section 12(b) of the Act:
Common stock, par value $.01 per share
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
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 (cid:2) NO (cid:3)
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 (cid:3) NO (cid:2)
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 (cid:2) NO (cid:3)
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 (cid:2) NO (cid:3)
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. (cid:3)
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 (cid:2)
Non-accelerated filer (cid:3)
Accelerated filer (cid:3)
Smaller reporting company (cid:3)
Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2 of the Exchange Act).
YES (cid:3) NO (cid:2)
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, 2016): $8,846,584,641.
On March 1, 2017, there were 85,247,156 shares of the Registrant’s Common Stock outstanding.
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 2017 Annual Meeting of Stockholders to be held on May 24, 2017.
DOCUMENTS INCORPORATED BY REFERENCE
TABLE OF CONTENTS
Page No.
Stericycle, Inc.
Table of Contents
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
3
14
22
22
22
22
23
26
27
42
43
81
81
85
86
86
86
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87
88
93
PART I
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 252 processing facilities, 102 other service facilities, 340 transfer sites, and 3 landfills.
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
• Secure information destruction and hard drive destruction services
• Compliance programs under the Steri-Safe®, Clinical Services, SeguriMed and EnviroAssure brand names
• Regulated recall and returns management communication,
logistics, and data management services for
expired, withdrawn or recalled products
• Live voice and automated 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
During 2016, we made certain changes to our organizational structure to integrate the domestic and international
Shred-it operations. In Q2 2016, we changed the composition of our operating segments to further align our
compliance and communication services. Due to this change, part of our Domestic Regulated Waste and
Compliance Services operating segment was combined with the legacy Domestic Regulated Recall and Returns
Management Services operating segment to form a new operating segment, Domestic Communication and
Related Services (“Domestic CRS”).
2016 10-K Annual Report
Stericycle, Inc. • 3
PART I
In Q4 2016, we made an additional change to our organizational structure and management reporting. As a result
of these changes, our Domestic Regulated Waste and Compliance Services (“Domestic RCS”) will now include our
Canadian operations. The operations in Canada had previously been reported as part of the International RCS
operating segment. As a result of these changes, our Domestic RCS operating segment will now become
(“Domestic and Canada RCS”).
Domestic CRS does not meet the quantitative criteria to be a separate reportable segment and therefore is
included in All other. Beginning in Q4 2016, costs related to our corporate headquarter functions are also included
in All other.
Our three operating segments are:
• Domestic and Canada RCS,
• Domestic CRS, and
• International RCS.
Customers
Our broad offering of services appeals to a wide range of small and large business customers. While the majority of
our customers are healthcare businesses (hospitals, physician and dental practices, outpatient clinics, long-term
care facilities, etc.), we also provide services to retailers, manufacturers, financial services providers, professional
services providers, governmental entities, and other businesses.
In total, we serve more than 1,000,000 customers worldwide. No single customer accounts for more than 1.1% of
our total revenues, and our top ten customers collectively account for approximately 7.1% of total revenues. We
provide service to the majority of these customers through multi-year contracts. Although we have several
standard contracts, terms vary depending upon the customer’s service 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
potentially 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.
Focus on the Small Customer with Recurring Service Needs
Our business strategy recognizes that smaller businesses have an even greater need for support with compliance
matters since they tend to lack the specialized staff that is found at larger businesses. With a small business,
2016 10-K Annual Report
Stericycle, Inc. • 4
PART I
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 operations. In response to this need of small
businesses, we developed comprehensive and customized packages to accommodate varying customer
requirements. This business strategy 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. Our growth strategy focuses on selling additional services to existing customers as well
as securing new customer relationships.
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. We have been able to expand internationally
through acquisition and now operate in 21 different markets outside the U.S. Over our history, Stericycle has
completed 466 acquisitions, with 251 in the United States and 215 internationally. During 2016, we completed 31
acquisitions. We expect to continue our acquisition strategy, 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 the size of the
global market for the services we provide,
is expected to be
approximately $37 billion in 2017. Industry growth is driven by a number of factors. These factors include:
in the geographies we currently operate in,
• Agingii
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 WhileWW Improving Outcomes: The healthcare industry is under pressure to
reduce costs and at the same time improve healthcare outcomes for patients served. By outsourcing services
not directly tied to the delivery of healthcare services, these organizations can potentially reduce costs and
improve staff efficiencies. By leveraging third party experts, healthcare organizations may also limit their
potential liability for regulatory compliance.
rr
• Enforcemen
t 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 and a corresponding increase in potential customers.
• Safety and Securityrr
Regulation: We believe that many businesses that are not currently using third party
regulated waste management, secure information destruction, or recall and communication services are
unaware either of the need for proper training of employees or of the regulatory requirements. Similarly,
2016 10-K Annual Report
Stericycle, Inc. • 5
many businesses find the proper handling of expired or recalled products requires an expertise and efficient
processes that they lack.
PART I
ii
• Increased Busines
s Focus on Sustainability: Businesses large and small are continuing to realize that the focus
on sustainability is now essential to operating efficiently and meeting 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 initiatives supported by
our services.
rr
nsrr
Securityrr
CC
and Concer
• Regulation of Privacy and Information
over Data Breaches: The continued
development and growth of the secure information destruction industry has been driven, in part, by the need
for compliance with increasing government regulation with respect to 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 it’s 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.
• Fragmented Markets: The industries in which we operate are highly fragmented with numerous small
competitors operating within a limited geographic area and with a narrow focus on a specific service.
Opportunities exist to drive efficiencies by consolidating operations.
• International Market Development: The medical waste, hazardous waste, and secure information destruction
regulations in certain international markets are at an early stage of development relative to North America and
Europe. As emerging markets continue to advance their healthcare practices, environmental controls, and 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:rr We offer our customers necessary services which require access
to their facilities, operating information, or customer data. This relationship, supported by a history of strong
service, allows us 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 with alternate treatment or destruction options for
our customers. The network also 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 similar situations.
• Routingii
Logistics: We maintain a vast transportation network that is focused on route efficiency. This
advantage has been built over more than two decades with a deliberate focus on building route density as well
as continuous technological
investments to optimize routing at both the individual truck and geographic
market level.
2016 10-K Annual Report
Stericycle, Inc. • 6
PART I
rr
• Industry Leadershi
pii 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 attract and retain highly experienced team members who have a deep
understanding of the industries they serve, the regulatory climate, and the evolving needs of the customers we
serve.
• Volume-based Leverage
: As a leading service provider for regulated
medical waste, hazardous waste, and secure information destruction, we can leverage large volumes of waste,
recyclables, and paper to obtain better pricing on final treatment, disposal and/or recycling.
for Disii posal,ll Treatment or Recyclill ngii
rr
• Secure Management of Information for Destruction: With the acquisition of Shred-it, Stericycle is now the
global leader in secure information destruction. Our processes for managing information for destruction meet
or exceed the requirements of the National Association for Information Destruction (“NAID”) AAA Certification
and support our customers’ requirements to comply with the Gramm-Leach-Bliley Act (“GLBA”), the Fair and
Accurate Credit Transaction Act (“FACTA”), and Health Insurance Portability and Accountability Act (“HIPAA”)
Privacy Rules in the U.S. and other data security regulations abroad.
• Abiliii ty to Integrate Acquisiii tions: Since 1993 we have completed 466 acquisitions in the United States and
internationally and have demonstrated a consistent ability to successfully integrate our acquisitions.
• Experienced Senior Management Team: We have experienced leadership. Our senior management team has
over 120 years of management experience in the health care and specialty waste management industries.
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 critical to our operations because it represents the largest
component of our operating costs.
For medical waste, hazardous waste, pharmaceutical waste, or secure information destruction, the collection
process begins at the customer location with segregation. To assure regulatory compliance, we will not accept
material 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 until it’s
transported to a processing facility. Our use of transfer stations in a "hub and spoke" configuration improves the
efficiency of our collection and transportation operations by expanding the geographic area that a particular
processing facility can serve thereby increasing the utilization of the facility and 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 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.
2016 10-K Annual Report
Stericycle, Inc. • 7
PART I
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.
ii
• Incinerat
ion: 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, 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 the final disposal or processing destination. Whenever possible, we seek sustainable solutions for
managing materials including alternative uses, recovery processes, recycling options, fuel blending, or energy
recovery. When sustainable 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
Communication Solutions service line provides a broad range of live voice or automated services to help our
customers keep in touch with their patients and clients. Our team serves as a client representative providing
answering services, appointment scheduling or reminders, event registration, and other activities. Providing these
solutions requires sophisticated information management systems to redirect calls, store and quickly retrieve live
voice protocols or client data, send automated communications, or provide easily accessible reporting and activity
details to our customers. Beyond the information management system infrastructure, call center staffing and
education levels are critical to 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.
2016 10-K Annual Report
Stericycle, Inc. • 8
PART I
Our Expert Solutions service line acts as a business partner to automotive, food/beverage, medical device,
pharmaceutical, consumer goods manufacturers and retailers to guide them through critical recalls, retrievals, or
audit processes to ensure brand protection. Services could include notification services to impacted customers, call
center services to support a recall or retrieval, removing impacted product from distribution, processing recalled
product and supporting remedy requirements, and compliance reporting. These solutions are highly customized
based on the product being recalled or retrieved and the specific needs of the client.
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
needs 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, secure information destruction, and recall industries are subject to
numerous regulations. In many countries there are multiple regulatory agencies at the local and national level that
affect our customers or our services. This statutory and regulatory framework imposes a variety of compliance
including requirements to obtain and maintain government permits. We maintain numerous
requirements,
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 at the federal, state and local levels.
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
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PART I
proper handling and management of regulated waste streams, controlled substances and personal and
confidential information.
Environmental Protection
Certain service lines within our business are 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.
laws applicable to our international operations include the Waste Framework
Examples of environmental
Directive, Environmental Liabilities Directive,
Industrial Emissions Directive and the Shipments of Waste
Regulations in the European Union ("EU"), 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.
are in 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
blood borne pathogens, hazard communication, personal protective equipment, etc.
Employee health and welfare laws governing our business in global 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 occupational safety and health regulations in the provinces and
territories of 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.
These regulations are defined within the Pipeline Hazardous Materials Safety Administration ("PHMSA") and the
Federal Motor Carrier Safety Administration ("FMCSA"). These federal requirements plus additional state
requirements are closely monitored internally. Due to our fleet size we are regularly subject to road side
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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, and globally the International Maritime Dangerous Goods Code and the IATA Dangerous Goods
Regulations.
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 regulations include the FACTA Final
Disposal Rule, the FACTA Red Flag Rule, the HIPAA Privacy Rule, and the GLBA.
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 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
Our service offerings for the recall, return and destruction of controlled substance pharmaceuticals are subject to
numerous laws and regulations under various international federal agencies, such as the Drug Enforcement
Administration ("DEA") in the US. These regulations apply to both the closed loop management of controlled
substances as well as the return of unused controlled substances from consumers. These regulations typically
require facilities to obtain a registration of license and meet certain criteria in order to collect, process, and
dispose of controlled substances. The regulations have 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.
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 RCRA. 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” taken
from the Animal Plant and Health Inspection Service) is another area of regulatory requirements we are subject to
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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.
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®, LiveAnswer®, 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 and two excess follow form policies with $10 million in coverage). 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
Charles A. Alutto
Brent Arnold
Daniel V. Ginnetti
Ruth Abdulmassih
John P. Schetz
Brenda Frank
Position
President and Chief Executive Officer
Executive Vice President and Chief Operating Officer
Executive Vice President and Chief Financial Officer
Executive Vice President and President,
Communication & Related Services
Executive Vice President and General Counsel
Executive Vice President and Chief People Officer
PART I
Age
51
48
48
55
40
47
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 during 2015. 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, Corporate Vice President of our large and small quantity business units, and Executive Vice
President and President, Stericycle USA. 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 during 2014. He joined Stericycle as Area Vice President of
Finance in 2003. In 2004 he was promoted to Area Vice President for Stericycle’s Western, and later, Midwestern
business units. Following that, he was promoted to Senior Vice President of Operations for the United States and
Canada. He returned to financial management in 2013 becoming Vice President of Corporate Finance and then
CFO in August 2014. Prior to joining Stericycle, Mr. Ginnetti held various finance and accounting positions with The
Ralph M. Parsons Company, a worldwide engineering firm, and Ryan Herco Products Corp., a national industrial
plastics distributor. Mr. Ginnetti has a B.S. degree in Business Economics from the University of California, Santa
Barbara.
Ruth-Ellenll
Abdulmassih was named Executive Vice President, Communication & Related Services during February
of 2017. She joined Stericycle in November 2006 and has worked in various leadership positions in the Expert
Solutions, Environmental Solutions and Communication Solutions businesses. Prior to her appointment, Ms.
Abdulmassih was General Manager of the Communication & Related Services Business. She has 30 years of
experience including working in various leadership roles in multiple businesses of Abbott Laboratories. Ms.
Abdulmassih received a B.S. degree in Business/Marketing from Northwood Institute.
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
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Executive Vice President of Human Resources and Franchise Relations. Ms. Frank 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. She started her career as a labor and employment
attorney and litigator at Wilson Sonsini Goodrich & Rosati and Proskauer Rose. Ms. Frank 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.
g
y
Item 1A. Risk Factors
We are subject to extensive governmental regulation, which is frequently difficult, expensive and time-
consuming to comply.
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 permissions 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 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, 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.
Unfavorable market conditions, including those driven by economic or social trends, may impact the volume of
regulated wastes or personal and confidential information we collect from customers.
The compliance-based services we provide rely on the generation of regulated wastes or personal and confidential
information by our customers. The amount of material generated by our customers may be impacted by macro-
economic trends associated with manufacturing and industrial markets, healthcare market dynamics, and trends
associated with electronic and digital record keeping. Many of our services are provided on a subscription basis
with a monthly fee to minimize short-term or cyclical variability associated with these factors. However, some of
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our services are provided on a transactional basis, and long-term trends resulting from these factors could reduce
the demand for our services, whether we provide them on a subscription or transactional basis.
The amount of our indebtedness could adversely affect our business.
As of December 31, 2016, we had a total of $3.0 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 $654.9 million under our revolving credit facility.
Currently, our annual cash obligations to service our indebtedness are approximately $308 million. In addition, the
aggregate amount of dividends currently payable on our depositary shares is approximately $37 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 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 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
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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 4.00 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 integration costs in connection with our acquisition strategy.
Our business strategy includes growth through acquisition. Each acquisition includes a detailed execution plan to
integrate the acquired operations into Stericycle’s existing infrastructure to achieve synergies. We 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. We believe that synergies will come
from 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,
improvements in route density and facility optimization, and contact center
efficiencies. We also believe such synergies will offset incremental acquisition-related costs over time, but this net
benefit may not be achieved in the near term, or at all.
We may not realize the synergies and growth opportunities that are anticipated from acquisitions.
The benefits we expect to achieve as a result of 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.
We may incur significant charges as a result of our portfolio optimization strategy.
As part of our long-term strategy for improving our profitability and return on invested capital, we continue to
evaluate the performance of our entire portfolio of assets and businesses. Based on this evaluation, we may sell
certain assets or businesses or exit particular markets. Any divestitures resulting from this strategy may cause us to
In addition,
record significant write-offs,
divestitures we complete may not yield the targeted improvements in our business. Any charges that we are
required to record or the failure to achieve the intended financial results associated with our portfolio
including those related to goodwill and other intangible assets.
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optimization strategy could have a material adverse effect on our business, financial condition or results of
operations.
If we are unable to acquire regulated waste, secure information destruction and other businesses, our revenue
and profit growth may be slowed.
torically, 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.
Changing market conditions in the healthcare industry, including healthcare consolidation and healthcare
reform, could drive down our profits and slow our growth.
Within the United States, the healthcare industry is evolving to meet competing demands for increased healthcare
coverage of a growing and aging population and economic pressures to reduce healthcare costs. As a result of
these dynamics, hospital networks are consolidating physician practices into their networks, independent practices
are consolidating together, and all healthcare providers are focused on cutting costs within their businesses. These
changes exert downward pricing pressure on services that we provide to healthcare customers which could
adversely affect our profitability and growth.
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 to our 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 to compete in the collection and transportation of regulated wastes or the secure destruction of
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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., 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 adversely affect our business, financial condition and results of
operations.
We have established operations in the United States and 21 other countries. Foreign operations carry special risks
including:
• exchange rate and interest rate fluctuations;
• dependence in certain markets on government entities as customers;
• delays in the collection of accounts receivable;
• government controls;
• import and export license requirements;
• political or economic instability;
• changes in or violations of U.S., local or other applicable laws and regulations, including laws and regulations
concerning anticorruption, competition, privacy and data protection;
• trade restrictions;
• changes in tariffs and taxes;
• industry or macro-economic trends;
• 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.
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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 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.
a result of our various acquisitions, the Consolidated Balance Sheet at December 31, 2016 contains goodwill of
$3.59 billion and other intangible assets, net of accumulated amortization of $1.86 billion. In accordance with the
FASB Accounting Standards Codification Topic 350, Intangibles - Goodwill and Other,r 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.
We are subject to a number of pending lawsuits.
We are a defendant in a number of pending lawsuits and may be named as a defendant in future lawsuits. These
current and future matters may result in significant liabilities and diversion of our management’s time, attention
and resources. Given the uncertain nature of litigation generally, we are not able in all cases to estimate the
amount or range of loss that could result from an unfavorable outcome in these matters. In view of these
uncertainties, the outcome of these matters may result in charges in excess of any established reserves and, to the
extent available, liability insurance. Protracted litigation, including any adverse outcomes, may have an adverse
impact on our business, financial condition or results of operations. In addition, any significant judgment or
settlement amount may require us to incur additional indebtedness, adversely affect our liquidity and ability to
service our indebtedness, or require us to restructure or amend the terms of our indebtedness. See Note 17 in
Item 8 of this Annual Report on Form 10-K for more information regarding currently pending legal proceedings.
The loss of our senior executives could affect our ability to manage our business profitably.
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
2016 10-K Annual Report
Stericycle, Inc. • 19
PART I
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 more than 750 facilities and 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 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.
2016 10-K Annual Report
Stericycle, Inc. • 20
PART I
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.
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 FACTA, the
HIPAA, 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.
2016 10-K Annual Report
Stericycle, Inc. • 21
PART I
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
We lease office space for our corporate offices in Lake Forest, Illinois. Domestically, we own or lease 111
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 209 additional transfer
sites, 18 additional sales/administrative sites, and 59 other service facilities. Internationally, we own or lease 141
processing facilities, the majority of which use autoclave waste processing technology. We also own or lease 131
additional transfer sites, 50 additional sales/administrative sites, 43 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 17 - Legal Proceedings in the Notes to the Consolidated Financial Statements (Item 8 of Part II).
Item 4. Mine Safety Disclosures
Not Applicable.
2016 10-K Annual Report
Stericycle, Inc. • 22
PART II
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 98 shareholders of record as of March 1, 2017.
We did not declare or pay any cash dividends during 2016 on our common stock. We currently expect that we will
retain future earnings for use in the operation and expansion of our business and do not anticipate paying any cash
dividends in the foreseeable future.
See Item 7 of Part II, "Management’s Discussion and Analysis of Financial Condition and Results of Operations."
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 2016
Second quarter 2016
Third quarter 2016
Fourth quarter 2016
First quarter 2015
Second quarter 2015
Third quarter 2015
Fourth quarter 2015
$
$
High
Low
$
$
126.19
128.20
107.25
80.09
140.86
141.93
148.26
150.84
105.99
93.27
77.01
71.61
130.10
132.76
132.33
113.64
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, 2016, we had purchased a
cumulative total of 21,251,733 shares.
The following table provides information about our purchases of shares of our common stock during the year
ended December 31, 2016:
Issuer Purchases of Equity Securities
Number of
Shares Purchased as
Part of Publicly
Announced Plans or
Programs
Average Price
Paid per Share
116.24
107.69
—
94.75
94.68
113.09
277,952
50,000
—
14,387
18,575
360,914
Maximum Number of
Shares that May Yet Be
Purchased Under
the Plans or Programs
3,452,869
3,402,869
3,402,869
3,388,482
3,369,907
3,369,907
Total Number of
Shares Purchased
277,952
50,000
—
14,387
18,575
360,914
$
$
Period
January 1 - January 31, 2016
February 1 - February 28, 2016
March 1 - March 31, 2016
April 1 - April 30, 2016
May 1 - May 31, 2016
Total
2016 10-K Annual Report
Stericycle, Inc. • 23
PART II
Equity Compensation Plans
The following table summarizes information as of December 31, 2016 relating to our equity compensation plans
pursuant to which stock option grants, restricted stock units (“RSUs”) 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 and Vesting
of RSUs
(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)
5,579,925
3,645
$
$
97.14
49.74
2,524,588
—
Plan Category
Equity compensation plans approved by our security holders (1)
Equity compensation plans not approved by our security holders (2)
(1) These plans consist of our 2014 Incentive Compensation Plan, 2011 Incentive Compensation Plan, 2008
Incentive Stock Plan, 2005 Incentive Stock Plan, 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.
2016 10-K Annual Report
Stericycle, Inc. • 24
PART II
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, 2016 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, 2011 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.
Stericycle, Inc.
Nasdaq NM Composite
Russell 3000 Index
S&P 500 Index
Dow Jones US Waste & Disposal
$225.00
$200.00
$175.00
$150.00
$125.00
$100.00
$75.00
12/31/2011
12/31/2012
12/31/2013
12/31/2014
12/31/2015
12/31/2016
2016 10-K Annual Report
Stericycle, Inc. • 25
Item 6. Selected Financial Data
In thousands, except per share data
Statements of Income Data
Revenues
Depreciation and amortization
Income from operations
Mandatory convertible preferred stock dividend
Gain on repurchase of preferred stock
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 Sheets Data
Cash, cash equivalents and short-term investments
Total assets
Long-term debt, net
Stericycle, Inc. equity
PART II
2012
2016
Years Ended December 31,
2014
2015
2013
$ 3,562,342
252,546
433,775
39,414
(11,285)
$ 2,985,908
127,412
487,612
10,106
—
$ 2,555,601
104,616
556,336
—
—
$ 2,142,807
88,408
535,619
—
—
$ 1,913,149
76,283
468,836
—
—
(1)
178,230
256,940
326,456
311,372
267,996
$
$
(1) $
2.08
$ 547,249
(195,606 )
(363,255)
2.98
$
3.79
$
3.56
$
3.08
390,328
(2,533,904 )
2,181,208
$ 448,500
(462,774)
(30,049)
$ 405,307
(234,972)
(136,019)
$ 390,784
(288,928)
(91,526)
$
44,251
(2) 6,980,061
(2) 2,877,315
$ 2,805,737
$
55,703
7,065,163
3,040,352
$ 2,729,891
$
22,616
4,373,302
1,527,246
$ 1,895,012
$
67,580
3,887,973
1,280,663
$ 1,750,461
$
35,163
3,550,074
1,268,303
$ 1,541,793
(1)
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 2016, net income included the following after-tax effects: $83.5 million of amortization expenses, $6.3
million of expenses related to acquisitions, $55.2 million of expenses related to the integration of our
acquisitions, $3.2 million of restructuring and plant conversion expenses, $7.9 million of litigation and
professional services expenses, $17.9 million of expenses related to exit certain of our patient transport
services contracts in the United Kingdom (“UK”), $26.2 million of asset impairment charges, a $3.1 million gain
as a result of insurance settlement, and a $2.0 million gain related to the change in fair value of contingent
consideration. The net effect of these adjusting items negatively impacted diluted EPS by $2.28.
• In 2015, net income included the following after-tax effects: $29.8 million of amortization expenses, $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 litigation settlement
expense, $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 $1.73.
• 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 a litigation settlement, $1.3 million of expense related to the
2016 10-K Annual Report
Stericycle, Inc. • 26
PART II
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.
• 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.
(2) To conform to the current period balance sheet presentation, we reclassified $12.3 million of debt issuance
costs from other assets to long-term debt on the Consolidated Balance Sheet at December 31, 2015. No
changes in presentation were made at December 31, 2014, 2013 and 2012.
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.
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
• Secure information destruction and hard drive destruction services
• Compliance programs under the Steri-Safe®, Clinical Services, SeguriMed and EnviroAssure brand names
• Regulated recall and returns management communication,
logistics, and data management services for
expired, withdrawn or recalled products
2016 10-K Annual Report
Stericycle, Inc. • 27
PART II
• Live voice and automated 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
During 2016, we made certain changes to our organizational structure to integrate the domestic and international
Shred-it operations. In Q2 2016, we also changed the composition of our operating segments to further align our
compliance and communication services. Due to this change, part of our Domestic Regulated Waste and
Compliance Services operating segment was combined with the legacy Domestic Regulated Recall and Returns
Management Services operating segment to form a new operating segment, Domestic CRS.
In Q4 2016, we made an additional change to our organizational structure and management reporting. As a result
of these changes, our Domestic RCS segment manager will now be responsible for the operations in Canada. The
operations in Canada had previously been reported as part of the International RCS operating segment. As a result
of these changes our Domestic RCS operating segment will now become Domestic and Canada RCS.
Domestic CRS does not meet the quantitative criteria to be a separate reportable segment and therefore is
included in All other. Beginning in Q4 2016, costs related to our corporate headquarter functions are also included
in All other.
Our three operating segments are:
• Domestic and Canada RCS,
• Domestic CRS, and
• International RCS.
The segment information included herein is presented in accordance with the change in reporting structure for all
periods presented.
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.
An accounting policy is deemed to be critical
if it requires an accounting estimate to be made based on
assumptions about matters that are highly uncertain at the time the estimate is made, and if different estimates
that reasonably could have been used, or changes in the accounting estimates that are reasonably likely to occur
periodically, could materially impact the consolidated financial statements. Management believes its critical
accounting policies that reflect its more significant estimates and assumptions are as follows:
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 or delivered to a third party. 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
2016 10-K Annual Report
Stericycle, Inc. • 28
PART II
customer. Charges related to sales taxes and international value added tax ("VAT") and other similar pass through
taxes are not included as revenue.
Intangible Asset Valuations: The methods commonly used to value intangible assets we acquire are the income,
market and cost approaches. The nature and characteristics of the asset indicate which approach is most
appropriate. Based on the analysis performed by the Company, the fair values of intangible assets are generally
estimated using acceptable income approaches.
A multi-period excess earnings method (“MPEEM”) is generally used to determine the fair value of customer
relationships. The fair value is derived by calculating the present value of the estimated after-tax earnings
attributable to the respective intangible assets. Key inputs and assumptions to the valuation model are forecasted
after-tax cash-flows, the identification of contributory assets and the quantification of appropriate returns on
these assets, the discount rate applied to present value the cash-flows and attrition rates. Determining an accurate
consumption of benefits from acquired customer relationships cannot be reliably determined because the services
we provide to acquired customers change 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.
A relief from royalty method is generally used to determine the fair value of trade names. Key inputs and
assumptions to the valuation model are a reasonable approximation of the license rate for the trade name,
forecasted revenues and the discount rate applied to present value the after-tax stream of estimated royalties
avoided by acquiring the trade name.
Tangible Asset Valuation: Trucks, containers and equipment are some of the major asset classes subject to
revaluation as a result of our acquisitions. The indirect and direct methods of the cost approach and the market
approach are used by the Company to value tangible personal property assets. Following is a description of the
methodologies for estimating the fair value of the major tangible fixed asset classes:
• The market approach is used for the valuation of trucks. The market approach is based on market conditions
and transactions. In the market approach, the assets being valued are compared to recent sales and/or asking
prices of comparable properties or assets. In using similar units of comparison, adjustments are made to the
comparable assets to account for factors such as condition, capacity, and age.
• The direct method of the cost approach is used in the valuation of containers. In the direct method of the cost
approach, replacement cost new (“RCN”) is determined through current cost information obtained from
original equipment manufacturers, equipment dealers and vendors, and independent research.
• The cost of reproduction new (“CRN”) of equipment is calculated using the indirect method of the cost
approach. Historical equipment costs and dates are used to calculate the current CRN. In the indirect method
of the cost approach, trend factors are applied to the historical costs to estimate the CRN of the assets. Time-
adjusted trend factors are applied to historical costs using asset category specific cost indices published by
industry sources. The CRN is then adjusted for physical deterioration and functional and economic
obsolescence.
Goodwill and Other Identifiable Intangible Assets: We have historically evaluated goodwill for impairment
annually as of June 30, or when an indicator of impairment exists. During 2016, we changed the date of our annual
goodwill impairment assessment for our reporting units to October 1st. In addition, we changed our annual
impairment test date for other indefinite-lived intangibles from December 31 to October 1. This voluntary change
in the annual indefinite-lived intangible testing dates is a change in accounting principle, which we believe is
preferable as it better aligns the timing of the annual goodwill impairment test with the timing of the Company’s
annual strategic planning and forecasting process which occurs in Q3. The change in the other indefinite-lived
intangible testing date aligns the testing of all indefinite-lived impairment testing to be as of a consistent date. The
voluntary change in accounting principle related to the annual testing dates did not delay, accelerate or avoid an
2016 10-K Annual Report
Stericycle, Inc. • 29
PART II
impairment charge. This change is not applied retrospectively as it is impracticable to do so because retrospective
application would require application of significant estimates and assumptions with the use of hindsight.
Accordingly, the change will be applied prospectively.
As discussed above, we changed the composition of our operating segments in 2016. Due to these changes, part of
our Domestic RCS operating segment was combined with the legacy Domestic Regulated Recall and Returns
Management Services operating segment to form a new operating segment, Domestic CRS in Q2 2016 and the
Domestic RCS is now Domestic and Canada RCS. The operations in Canada had previously been reported as part of
the International RCS operating segment.
During Q4, we determined that our former International RCS reporting unit should be disaggregated into three
new reporting units for goodwill impairment testing purposes which is one level below the operating segment
(referred to as a “component”). In addition, the four components of the Domestic and Canada RCS operating
segment will now be the reporting units. This was primarily a result of some of the business and economic
challenges we have recently faced in M&I and internationally. As a result of the changes, goodwill from the former
International RCS reporting unit was reallocated to the four new reporting units including Canada based on their
relative fair values. We completed a similar reallocation of goodwill for the new Domestic and Canada RCS
reporting units.
Due to the establishment of the new reporting units during Q4 2016 and the change in our annual goodwill
impairment testing date discussed above, we performed a goodwill impairment evaluation for all reporting units as
of October 1, 2016. There was no impairment of goodwill because the fair value of those reporting units exceeded
their carrying values. We also tested the former reporting units for goodwill impairment immediately prior to the
establishment of the new reporting units and there was no impairment of goodwill.
We calculate the fair value of each of our reporting units using the income approach (including discounted cash
flows) and validate those results using a market approach. The income approach uses expected future cash flows
of each reporting unit and discounts those cash flows to present value. Expected future cash flows are calculated
using management assumptions of growth rates, including long-term growth rates, capital expenditures, and cost
efficiencies. Future acquisitions are not included in the expected future cash flows. We use a discount rate based
on a calculated weighted average cost of capital which is adjusted for each of our reporting units based on size,
country and company specific risk premiums.
The market approach compares the valuation multiples of similar companies to that of the associated reporting
unit. We then reconciled the calculated fair values to our market capitalization.
The results of our 2016 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.
We have determined that our permits and certain tradenames have indefinite lives due to our ability to renew
them with minimal additional cost, and therefore they are not amortized. The calculated fair value of our
indefinite-lived intangibles 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.
Based on our impairment test as of October 1, 2016, we recognized an impairment charge of $1.4 million within
Selling, general and administrative expenses on our Consolidated Statements of Income.
Future changes in our assumptions or the interrelationship of the assumptions described above may negatively
impact future valuations. In future measurements of fair value, adverse changes in assumptions could result in
impairments of goodwill or other intangible assets that would require non-cash charges and may have a material
effect on our financial condition and operating results.
2016 10-K Annual Report
Stericycle, Inc. • 30
PART II
Our finite-lived intangible assets are amortized over their useful lives using the straight-line method. We have
determined that our customer relationships have useful lives from 5 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 10 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.
Environmental Remediation Liabilities: Our environmental
remediation liabilities primarily include costs
associated with remediating air, groundwater, surface water, soil contamination, and applicable legal costs. To
estimate our ultimate liability at these sites, we evaluate several factors, including the nature and extent of
contamination at each identified site, the required remediation methods, timing of expenditures, and the
apportionment of responsibility among the potentially responsible parties (“PRPs”) and the financial viability of
those parties. We routinely review and evaluate sites that require remediation, considering whether we were an
owner, operator, transporter, or generator at the site, that amount and type of waste hauled to the site and the
number of years we were connected with the site. Next, we review the same information with respect to other
named and unnamed PRPs. Estimates of the cost for the likely remedy are then either developed using our internal
resources or by third party environmental engineers or other service providers.
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 to be permanently
reinvested, and therefore no deferred taxes are recorded on our outside basis differences. Tax liabilities are
recorded when, in management’s judgment, a tax position does not meet the more likely than not threshold for
recognition. For tax positions that meet the more likely than not threshold, a tax liability may still be recorded
depending on management’s assessment of how the tax position will ultimately be settled. The Company records
interest and penalties on unrecognized tax benefits in the provision for income taxes.
Year Ended December 31, 2016 Compared to Year Ended December 31, 2015
Highlights for the year ended December 31, 2016 included the following:
• revenues grew to $3.56 billion, a 19.3% increase over $2.99 billion in 2015;
• gross profit as a percentage of revenue decreased to 42.2% in 2016 from 42.4% in 2015;
• operating income decreased 11.0% to $433.8 million from $487.6 million in 2015;
• we incurred $164.5 million in pre-tax expenses related to acquisitions and integration expenses, litigation and
professional services expenses, plant conversion expenses, contract exit costs, asset impairment charges, and a
favorable change in the fair value of contingent consideration;
• amortization expense increased to $129.3 million from $45.5 million in 2015, primarily due to the completion
of intangible valuations for our Shred-it acquisition resulting in a true-up of amortization expense;
• cash flows from operations were $547.2 million; and
2016 10-K Annual Report
Stericycle, Inc. • 31
PART II
• dividends of $39.4 million were paid during 2016 to holders of our Series A Preferred Stock.
During 2016, we made certain changes to our organizational structure to integrate the domestic and international
Shred-it operations into our Domestic Regulated Waste and Compliance Services and International Regulated
Waste and Compliance Services operating segments, respectively.
Our Canadian operations were integrated with domestic operations and are now reviewed as a new combined
segment. Management determined that Stericycle’s Regulated Waste and Compliance Services operating segment
changed so that the Canadian and Domestic Regulated Waste and Compliance Services operations form one
segment (“Domestic and Canada RCS”) and the International Regulated Waste and Compliance Services segment
now excludes Canada (“International RCS”).
We also changed the composition of our operating segments to further align our compliance and communication
services. Due to this change, part of our Domestic Regulated Waste and Compliance Services operating segment
was combined with the legacy Domestic Regulated Recall and Returns Management Services operating segment to
form a new operating segment, Domestic Communication and Related Services does not meet the quantitative
criteria to be a separate reportable segment and therefore is included in All other. Additionally, costs related to
other business activities, primarily corporate headquarter functions, are disclosed separately from the operating
segments and is also included in All other.
Our sales organization was realigned to focus on growing our healthcare customer base, expanding national
account relationships, converting the un-vended secure information destruction market and expanding our
multiple services across new and existing customers.
We also established one field operations management organization for our regulated waste, compliance services
and secure information destruction services. By having these operations aligned under one leadership team, we
will drive best practices across the organization and provide best-in-class service to our customers. This will also
enable us to drive long-term efficiencies and margin improvement. In addition, we have combined our recall and
communication solutions services under one operating segment. Since a large portion of our recall services is call
center related, we have consolidated the operations, sales and marketing and client service functions under one
leadership team.
Finally, we are developing a long-term plan to expand our shared services model across all of our services. Some of
these shared services include IT,
financial support, human resources and strategic sourcing. When fully
implemented, this plan will enable us to better leverage best practices and SG&A. We believe this will allow us to
better serve our customers and provide long-term sustainable growth.
2016 10-K Annual Report
Stericycle, Inc. • 32
PART II
The following summarizes the Company’s operations:
In thousands, except per share data
Revenues
Cost of revenues
Depreciation - cost of revenues
Contract exit costs
Plant conversion expenses
Total cost of revenues
Gross profit
Selling, general and administrative expenses (exclusive of adjusting items shown
below)
Acquisition expenses
Integration expenses
Litigation and professional services expenses
Change in fair value of contingent consideration
Restructuring and plant conversion expenses
Contract exit costs
Asset impairment charges
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.
Mandatory convertible preferred stock dividend
Gain on repurchase of preferred stock
Net income attributable to Stericycle, Inc. common shareholders
Earnings per share- diluted
Years Ended December 31,
2016
$
3,562,342
1,962,801
88,546
8,281
760
2,060,388
1,501,954
748,671
9,646
87,587
12,904
(2,051)
3,226
15,724
28,472
904,179
34,700
129,300
433,775
97,709
7,921
120,246
207,899
1,540
206,359
39,414
(11,285)
178,230
2.08
%
100.0
55.1
2.5
0.2
0.0
57.8
42.2
21.0
0.3
2.5
0.4
(0.1)
0.1
0.4
0.8
25.4
1.0
3.6
12.2
2.7
0.2
3.4
5.8
—
5.8
1.1
(0.3)
5.0
$
$
$
2015
$
2,985,908
1,656,573
61,642
—
1,508
1,719,723
1,266,185
539,944
39,138
51,689
59,651
(640)
21,240
—
1,781
712,803
20,272
45,498
487,612
77,274
(569)
142,894
268,013
967
267,046
10,106
—
256,940
2.98
%
100.0
55.5
2.1
0.0
0.1
57.6
42.4
18.1
1.3
1.7
2.0
—
0.7
0.0
0.1
23.9
0.7
1.5
16.3
2.6
—
4.8
9.0
—
8.9
0.3
0.0
8.6
$
$
$
Revenues: 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.
Our consolidated revenues increased $576.4 million, or 19.3%, to $3.56 billion from $2.99 billion in 2015. Overall
organic revenue growth contributed $94.6 million, or 3.2% in revenues. Organic growth excludes the effect of
foreign exchange and acquisitions and divestitures with less than a full year of revenues in the comparative period.
Revenues from acquisitions contributed $570.1 million to the increase in revenues in 2016. Divestitures negatively
2016 10-K Annual Report
Stericycle, Inc. • 33
impacted current year revenues by $0.2 million. The effect of foreign exchange rates unfavorably impacted total
revenues in 2016 by $88.0 million, or 2.9%, as foreign currencies declined against the U.S. dollar.
PART II
g
p
Domestic and Canada Regulated Waste and Compliance Services (“Domestic and Canada RCS”) revenues increased
$509.7 million, or 25.5%, to $2.51 billion from $2.00 billion in 2015. Acquisitions contributed $476.1 million, and
organic growth contributed $35.8 million, or 1.8% in revenues. The Canadian dollar weakened and negatively
affected 2016 revenue by $2.3 million. Services related to Manufacturing and Industrial (“M&I”) waste experienced
a reduction of $15.0 million negatively impacting overall organic growth by 1.7%. This reduction was due to fewer
on call services (project work) and softness in the U.S. M&I market. In addition, we have experienced pricing
pressure on our small quantity regulated waste and compliance customers resulting from hospital consolidation of
physician practices and increased competitive activities in the market.
)
(
g
p
(
International Regulated Waste and Compliance Services (“International RCS”) revenues increased $34.9 million, or
4.9%, to $751.7 million from $716.8 million in 2015. Organic growth, currency rate fluctuations and acquisitions
impact the comparison of 2016 and 2015. Organic growth in the International RCS segment contributed $33.1
million in revenues, or 4.6%. The costs we incurred to exit certain of our patient transport services contracts in the
UK negatively impacted our organic growth in 2016. Organic growth excludes the effect of foreign exchange and
acquisitions and divestitures with less than a full year of revenues in the comparative period. The effect of foreign
exchange rates unfavorably impacted international revenues in 2016 by $85.7 million, or 12.0%, as foreign
currencies declined against the U.S. dollar. Revenue from international acquisitions contributed $87.8 million to
the increase in revenues in 2016. Divestitures negatively impacted current year revenues by $0.2 million.
)
Other revenues related to Domestic Communication and Related Services increased $31.9 million, or 11.8%, to
$301.8 million from $269.9 million in 2015, primarily driven by a significant recall event in Q4 2016.
Cost of Revenues: Our consolidated 2016 cost of revenues increased $340.7 million, or 19.8%, to $2.06 billion from
$1.72 billion in 2015. As a percentage of revenues, consolidated gross profit was 42.2% in 2016 as compared to
42.4% in 2015. We incurred $0.8 million and $1.5 million in plant conversion expenses during the years ended
December 31, 2016 and 2015, respectively. In 2016, we also incurred $8.3 million in costs to exit certain of our
patient transport services contracts in the UK. In general, international gross profit is lower than domestic gross
profits because the international operations have fewer small account customers, which tend to provide higher
gross profits. Historically, our international operations generate most of their revenues from large account
customers, such as hospitals. As our international revenues increase as a percentage of consolidated revenues,
consolidated gross profit experiences 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 and Canada RCS cost of revenues increased $297.1 million, or 27.3%, to $1.38 billion from $1.09 billion in
2015. Gross profit as a percentage of revenues decreased to 44.8% in 2016 from 45.6% in 2015 primarily due to
less than anticipated revenues from our M&I customers, which have a higher fixed cost structure. Additionally,
higher disposal costs for some of our industrial waste project work in the year unfavorably impacted domestic
gross profit.
International RCS cost of revenues increased $36.7 million, or 7.6%, to $523.2 million from $486.4 million in 2015.
International gross profit as a percentage of revenues decreased to 30.4% in 2016 from 32.1% in 2015 due to the
negative impact of higher costs related to servicing certain government contracts and charges incurred to exit
some of the contracts in our UK patient transport services business, partially offset by the inclusion of the 2015
Shred-it acquisition, which has a higher average gross profit. In addition, our international gross profit was
negatively impacted by the inability to pass full costs on to customers in areas of high inflation.
Selling, General and Administrative Expenses Exclusive of Adjusting Items, Depreciation and Amortization
("SG&A"): Our consolidated SG&A expenses increased $208.7 million, or 38.7%, to $748.7 million from $539.9
million in 2015 to support our increase in revenues and the inclusion of the 2015 Shred-it acquisition. During the
Q4 2016, we increased our allowance for doubtful accounts due to market and economic conditions as we
continued to experience challenges internationally and in our M&I waste services.
2016 10-K Annual Report
Stericycle, Inc. • 34
PART II
Domestic and Canada RCS SG&A expenses increased $147.3 million, or 53.7%, to $421.4 million from $274.2
million in 2015 primarily related to the inclusion of the 2015 Shred-it acquisition, increased compensation and
marketing expenses, and an increase in our allowance for doubtful accounts based on our historical collection
experience. As a percentage of revenues, SG&A increased to 16.8% in 2016 as compared to 13.7% in 2015.
International RCS SG&A expenses increased $34.7 million, or 25.0%, to $173.4 million from $138.7 million in 2015.
As a percentage of revenues, SG&A increased to 23.1% in 2016 as compared to 19.3% in 2015. The following
factors negatively impacted our international SG&A during 2016: the inclusion of the 2015 Shred-it acquisition,
increased compensation expense in support of new business growth opportunities, and an increase in our
allowance for doubtful accounts driven by market and economic conditions as we continued to experience
challenges in International RCS.
Income from Operations: Consolidated income from operations decreased by $53.8 million, or 11.0%, to $433.8
million from $487.6 million in 2015. Comparison of income from operations between 2016 and 2015 was affected
by the Adjusting Items described below.
During the year ended December 31, 2016, we recognized $9.6 million in acquisition expenses, $87.6 million of
expenses related to the integration of our acquisitions, mainly Shred-it, $12.9 million in litigation and professional
services expenses, $4.0 million in plant conversion expense, $24.0 million of costs to exit certain of our patient
transport services contracts in the UK, $28.5 million of asset impairment charges mostly from write-down of
certain assets in the UK either sold for a loss or classified as assets held for sale as of December 31, 2016, and a
$2.1 million favorable change in fair value of contingent consideration.
During the year ended December 31, 2015, we recognized $39.1 million in acquisition expenses, most of which
related to the acquisition of Shred-it, $51.7 million of expenses related to the integration of our acquisitions, $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), $22.7 million in restructuring and plant conversion expenses, $1.8
million of intangible asset impairment, and a $0.6 million favorable change in the fair value of contingent
consideration.
Consolidated depreciation and amortization expense increased to $252.5 million in 2016 compared to $127.4
million in 2015, primarily due to the inclusion of the Shred-it acquisition, which has a higher level of depreciation
expense, and to the completion of the customer relationships intangible valuation related to the Shred-it
acquisition resulting in a true-up of amortization expense. As a percentage of revenue, depreciation and
amortization expense increased to 7.1% as compared to 4.3% in 2015.
Domestic and Canada RCS income from operations increased $31.9 million, or 6.3%, to $536.6 million from $504.7
million in 2015.
During the year ended December 31, 2016, we recognized $56.0 million in acquisition, integration, and plant
conversion expenses.
During the year ended December 31, 2015, we recognized $104.0 million in acquisition, integration, restructuring,
litigation expense, and intangible asset impairment charges.
Domestic and Canada RCS depreciation and amortization expense increased to $169.4 million in 2016 compared to
$65.8 million in 2015, primarily due to the inclusion of the Shred-it acquisition, which has a higher level of
depreciation expense, and to the completion of the customer relationships intangible valuation related to the
Shred-it acquisition resulting in a true-up of amortization expense. As a percentage of revenue, depreciation and
amortization expense increased to 6.8% as compared to 3.3% in 2015.
International RCS income from operations decreased $77.2 million to $28.0 million loss from $49.2 million income
in 2015.
2016 10-K Annual Report
Stericycle, Inc. • 35
PART II
During the year ended December 31, 2016, we recognized $51.2 million in acquisition,
integration, plant
conversion expenses, costs to exit certain of our UK patient transport services contracts, asset impairments
charges mostly from the write-down of certain assets in the UK either sold for a loss or classified as assets held for
sale as of December 31, 2016, and a favorable change in the fair value of contingent consideration.
During the year ended December 31, 2015, we recognized $23.4 million in acquisition, integration, restructuring
and plant conversion expenses, a favorable adjustment to litigation expenses, and a favorable change in the fair
value of contingent consideration.
International RCS depreciation and amortization expense increased to $60.8 million in 2016 compared to $42.3
million in 2015, primarily due to the inclusion of the Shred-it acquisition, which has a higher level of depreciation
expense, and to the completion of the customer relationships intangible valuation related to the Shred-it
acquisition resulting in a true-up of amortization expense. As a percentage of revenues, depreciation and
amortization expense increased to 8.1% in 2016 as compared to 5.9% in 2015.
Net Interest Expense: Net interest expense increased to $97.7 million during 2016 from $77.3 million in 2015, due
to increased borrowings to fund the acquisition of Shred-it in Q4 2015.
Income Tax Expense: Income tax expense decreased to $120.2 million during 2016 from $142.9 million during
2015. The effective tax rates for the years 2016 and 2015 were 36.6% and 34.8%, respectively. The increase in the
current year tax rate, when compared to the prior year, is primarily related to the recognition of tax benefits in
2015 as well as a higher proportion of pre-tax income in the United States which has a higher statutory tax rate,
compared to international operations.
Year Ended December 31, 2015 Compared to Year Ended December 31, 2014
We have revised our 2015 10-K disclosure to align with the 2016 change in segments.
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,
acquisitions, restructuring and plant conversion expenses,
intangible assets, and a favorable change in the fair value of contingent consideration;
litigation settlement expense,
integration expenses related to
impairment of
• cash flows from operations were $390.3 million;
• the acquisition of 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 and funded as follows:
o we borrowed $1.30 billion under a Term Loan Credit Facility on October 1, 2015 to fund a portion
of the purchase price paid for Shred-it
o
net proceeds of $746.9 million were received 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
o we issued and sold $300 million of our new six-year and eight-year unsecured senior notes
• dividends of $10.1 million were paid on December 15, 2015 to holders of our Series A Preferred Stock.
2016 10-K Annual Report
Stericycle, Inc. • 36
PART II
The following summarizes the Company’s operations:
In thousands, except per share data
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
Litigation and professional services expenses
Change in fair value of contingent consideration
Restructuring and plant conversion expenses
Asset impairment charges
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.
Mandatory convertible preferred stock dividend
Net income attributable to Stericycle, Inc. common shareholders
Earnings per share- diluted
Years Ended December 31,
2015
$
2,985,908
1,656,573
61,642
1,508
1,719,723
1,266,185
539,944
39,138
51,689
59,651
(640)
21,240
1,781
712,803
20,272
45,498
487,612
77,274
(569)
142,894
268,013
967
267,046
10,106
256,940
2.98
%
100.0
55.5
2.1
0.1
57.6
42.4
18.1
1.3
1.7
2.0
—
0.7
0.1
23.9
0.7
1.5
16.3
2.6
—
4.8
9.0
—
8.9
0.3
8.6
$
$
2014
$
2,555,601
1,401,797
56,478
2,915
1,461,190
1,094,411
433,865
13,333
25,968
6,574
(1,452)
11,649
—
489,937
15,446
32,692
556,336
66,022
2,746
159,422
328,146
1,690
326,456
—
326,456
3.79
%
100.0
54.9
2.2
0.1
57.2
42.8
17.0
0.5
1.0
0.3
(0.1)
0.5
0.0
19.2
0.6
1.3
21.8
2.6
0.1
6.2
12.8
0.1
12.8
—
12.8
$
$
Revenues: Our consolidated revenues increased $430.3 million, or 16.8%, to $2.99 billion from $2.56 billion in
2014. Overall organic revenue growth contributed $162.0 million, or 6.5% in revenues. Revenues from acquisitions
contributed $378.5 million to the increase in revenues in 2015. The effect of foreign exchange rates unfavorably
impacted total revenues in 2015 by $110.2 million, or 4.3%, as foreign currencies declined against the U.S. dollar.
Domestic and Canada RCS revenues increased $331.8 million, or 19.9%, to $2.00 billion from $1.67 billion in 2014.
Acquisitions contributed $265.8 million, and organic growth contributed $82.5 million, or 4.9% in revenues.
Canadian dollar weakened and negatively affected 2015 revenue by $16.5 million. Services related to M&I waste
experienced a reduction of $13.5 million negatively impacting overall organic growth by 0.8%. This reduction was
due lower fuel surcharges as well as lower hazardous waste volume from our industrial customers.
International RCS revenues increased $52.9 million, or 8.0%, to $716.8 million from $663.9 million in 2014. Organic
growth, currency rate fluctuations and acquisitions impact the comparison of 2015 and 2014. Organic growth in
the International RCS segment contributed $59.9 million in revenues, or 9.0%. The effect of foreign exchange rates
unfavorably impacted international revenues in 2015 by $93.7 million, or 14.1%, as foreign currencies declined
against the U.S. dollar. Revenue from international acquisitions contributed $86.7 million to the increase in
revenues in 2015.
Other revenues related to Domestic Communication and Related Services increased $45.6 million, or 20.3%, to
$269.9 million from $224.4 million in 2014.
Cost of Revenues: Our consolidated 2015 cost of revenues increased $258.5 million, or 17.7%, to $1.72 billion from
$1.46 billion in 2014. As a percentage of revenues, consolidated gross profit was 42.4% in 2015 as compared to
2016 10-K Annual Report
Stericycle, Inc. • 37
PART II
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.
Domestic and Canada RCS cost of revenues increased $192.1 million, or 21.5%, to $1.09 billion from $894.8 million
in 2014. Gross profit as a percentage of revenues decreased to 45.6% in 2015 from 46.3% 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, unfavorably impacted gross margins.
International RCS cost of revenues increased $38.9 million, or 8.7%, to $486.4 million from $447.5 million in 2014.
Gross profit as a percentage of revenues decreased to 32.1% in 2015 from 32.6% 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.
SG&A: Our consolidated SG&A expenses increased $106.0 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
percentage of revenues, these costs increased to 18.1% in 2015 as compared to 17.0% in 2014.
Domestic and Canada RCS SG&A expenses increased $96.0 million, or 53.8%, to $274.2 million from $178.2 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 percentage of revenues, SG&A increased to
13.7% in 2015 as compared to 10.7% in 2014.
International RCS SG&A expenses increased $23.5 million, or 17.0%, to $138.7 million from $115.2 million in 2014.
As a percentage of revenues, SG&A increased to 19.3% in 2015 as compared to 17.3% in 2014 primarily related to
compensation expenses in support of new business growth opportunities and the inclusion of the Shred-it
acquisition in 2015.
Income from Operations: Consolidated 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 the Adjusting Items described below.
In Q1 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
impairment, intangible asset impairment, 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), $39.1
million in acquisition expenses, most of which related to the 2015 acquisition of Shred-it, $51.7 million of expenses
related to the integration of our acquisitions, most of which relates to the acquisition of Shred-it, $22.7 million in
restructuring and 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 startup
costs, $6.6 million in litigation expenses, partially offset by a $1.5 million gain related to a change in the fair value
of contingent consideration.
Consolidated depreciation and amortization expense increased to $127.4 million in 2015 compare to $104.6
million in 2014, primarily due to the inclusion of the Shred-it acquisition in the last quarter of 2015. As a
percentage of revenue, depreciation and amortization expense increased to 4.3% as compared to 4.1% in 2014.
2016 10-K Annual Report
Stericycle, Inc. • 38
PART II
Domestic and Canada RCS income from operations decreased $53.9 million, or 9.7%, to $504.7 million from $558.6
million in 2014.
During the year ended December 31, 2015, we recognized $104.0 million in acquisition, integration, restructuring,
litigation expense, and intangible asset impairment charges.
During the year ended December 31, 2014, we recognized $20.0 million in acquisition, integration, restructuring
and plant conversion expenses.
Domestic and Canada RCS depreciation and amortization expense increased to $65.8 million in 2015 compare to
$44.9 million in 2014, primarily due to the inclusion of the Shred-it acquisition in the last quarter of 2015. As a
percentage of revenue, depreciation and amortization expense increased to 3.3% as compared to 2.2% in 2014.
International RCS income from operations decreased $17.4 million, or 26.2%, to $49.2 million from $66.6 million in
2014.
During the year ended December 31, 2015, we recognized $23.4 million in acquisition, integration, restructuring
and plant conversion expense, a favorable adjustment to litigation expenses, and a favorable change in the fair
value of contingent consideration.
During the year ended December 31, 2014, we recognized $18.6 million in acquisition, integration, restructuring
and plant conversion expenses, and a favorable change in the fair value of contingent consideration.
International RCS depreciation and amortization expense increased to $42.3 million in 2015 compare to $41.5
million in 2014, primarily due to the inclusion of the Shred-it acquisition in the last quarter of 2015. As a
percentage of revenue, depreciation and amortization expense increased to 5.9% as compared to 5.8% 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 Q4 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.
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:
$1.2 billion senior credit facility weighted average rate 2.14%, due in 2019
$1.0 billion term loan weighted average rate 2.07%, due in 2020
$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, 2016, we were in compliance with all of our financial debt covenants. Our senior credit
2016 10-K Annual Report
Stericycle, Inc. • 39
PART II
facility, term loan, and the private placement notes rank pari passu to each other and all other unsecured debt
obligations.
At December 31, 2016, we had $407.1 million of borrowings outstanding under our $1.20 billion senior unsecured
credit facility, which includes foreign currency borrowings of $120.9 million. We also had $138.0 million
outstanding letters of credit under this facility. The unused portion of the revolving credit facility at December 31,
2016 was $654.9 million. At December 31, 2016, our interest rates on borrowings under our revolving credit facility
were as follows:
• A fee of 0.2% on our revolving credit facility
• For borrowings less than one month, prime rate plus 0.3%
• For borrowings greater than one month: LIBOR plus 1.3%
The weighted average rate of interest on the unsecured revolving credit facility was 2.14% per annum, which
includes the 0.2% facility fee at December 31, 2016.
As of December 31, 2016, we had $1.0 billion outstanding under our term loan credit facility. The weighted
average rate of interest on the unsecured term loan facility was 2.07% per annum.
As of December 31, 2016, we had $175.0 million of seven-year 3.89% unsecured senior notes and $225.0 million of
10-year 4.47% unsecured senior notes outstanding 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 on October 15, 2017 for the seven-year notes and October 15, 2020 for the
10-year notes. We have classified our $175.0 million private placement notes that mature in October 2017 as long-
term debt due to our intent to settle this obligation by borrowing on our $1.2 billion senior credit facility due in
2019.
As of December 31, 2016, we had $125.0 million of seven-year 2.68% unsecured senior notes and $125.0 million of
10-year 3.26% unsecured senior notes outstanding 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 on December 12, 2019 and December 12, 2022, respectively.
As December 31, 2016, we had $200.0 million of seven-year 2.72% unsecured senior notes and $100.0 million of
eight-year 2.79% unsecured senior notes outstanding 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 on July 1, 2022 and July 1, 2023, respectively.
As December 31, 2016, we had $150.0 million of six-year 2.89% unsecured senior notes and $150.0 million of
eight-year 3.18% unsecured senior notes outstanding 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 on October 1, 2021 and October 1, 2023, respectively.
As of December 31, 2016, we had $191.6 million in promissory notes outstanding issued in connection with
acquisitions during 2008 through 2016, $99.4 million in foreign subsidiary bank debt outstanding, and $11.1 million
in capital lease obligations.
Working Capital: At December 31, 2016, our working capital increased $56.3 million to $230.8 million compared
to $174.5 million at December 31, 2015.
Current assets increased by $11.8 million, driven by a $20.4 million increase in accounts receivable, offset by an
$11.4 million reduction in cash. Days sales outstanding ("DSO") was 64 days at December 31, 2016 and 2015.
2016 10-K Annual Report
Stericycle, Inc. • 40
PART II
Current liabilities decreased by $44.5 million in 2016, primarily related to an $88.6 million decrease in the current
debt, offset by a $31.2 million increase in accrued liabilities.
Net Cash Provided or Used: Net cash provided by operating activities increased $156.9 million, or 40.2%, to $547.2
million during 2016 from $390.3 million in 2015. Cash provided by operations as a ratio to net income in 2016 and
2015 was 263% and 146%, respectively.
On January 1, 2016, the Company adopted the guidance in Accounting Standards Update ("ASU") No. 2016-
09, “Compensation - Stock Compensation (Topic 718) - Improvements to Employee Share-Based Payment
Accounting.” ASU 2016-09 requires that all income tax-related cash flows resulting from share-based payments be
reported as operating activities in the statement of cash flows. Previously, income tax benefits at settlement of an
award were reported as a reduction to operating cash flows and an increase to financing cash flows to the extent
that those benefits exceeded the income tax benefits reported in earnings during the award's vesting period. The
Company has elected to apply that change in cash flow classification on a prospective basis, leaving previously
reported net cash provided by operating activities and net cash used in financing activities in the accompanying
Consolidated Statements of Cash Flows for the period ended December 31, 2015 unchanged.
Net cash used in investing activities during 2016 was $195.6 million compared to $2.53 billion in 2015. We used
$2.3 billion to acquire Shred-it in October 2015. Our capital expenditures increased by $21.4 million in 2016 and, as
percentage of revenues, were at 3.8% in 2016 and 2015.
Net cash used in financing activities was $363.3 million during 2016 compared to $2.18 billion net cash provided by
financing activities in 2015. 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. We used the net proceeds from this offering to fund a portion
of the purchase price paid for our acquisition of Shred-it. In 2016, we repaid $178.4 million, net, of our senior
credit facility and term loan facility. This compares to $1.25 billion of net proceeds from our new term loan and
$500.0 million of net proceeds from our private placement notes, which were used to fund our 2015 acquisitions
including Shred-it in October 2015. We had common and preferred share repurchases of $71.7 million in 2016
compared to $130.6 million in 2015. Dividends of $39.4 million were paid during 2016 to holders of our Series A
Preferred Stock.
Contractual Obligations
The following table summarizes our significant contractual obligations and cash commitments at December 31,
2016:
Payments due by period (dollars in thousands)
Total
2017
2018-2019
2020-2021
2022 and After
Recorded Obligations:
Covenants not-to-compete agreements
Expected environmental liabilities (1)
Total debt (2)
Unrecorded Obligations:
t on debt and capital leases (3)
Non-cancelable operating lease obligations (4)
Unconditional purchase obligations (5)
Total contractual cash obligations
$
$
750
30,857
2,959,316
—
304,724
458,087
80,054
3,833,788
$
$
— $
2,448
72,822
83,981
116,473
31,840
307,564
$
375
5,822
1,257,265
137,023
174,802
32,359
1,607,646
$
$
375
4,473
1,043,359
63,087
103,429
15,855
1,230,578
$
$
—
18,114
585,870
20,633
63,383
—
688,000
(1) Environmental liabilities are presented above on an undiscounted basis and are 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.
(2) These amounts represent the scheduled principal payments related to our long-term debt and capital leases,
excluding interest.
2016 10-K Annual Report
Stericycle, Inc. • 41
PART II
(3)
Interest on our fixed-rate debt was calculated based on contractual rates. Interest on debt with floating
interest rates requires the use of management judgment to estimate the future rates of interest.
(4) Operating lease obligations include various plant equipment, office furniture and equipment, motor
vehicles, office and warehouse space, and landfill leasing arrangements. Operating lease obligations expire
at various dates with the latest maturity in 2035.
(5) Purchase obligations primarily represent noncancelable contractual obligations related to information
technology products and services that we generally incur in the ordinary course of our business.
Payments for unrecognized tax benefits are excluded from contractual obligations. Based on the 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, 2016, we had $138.0 million of outstanding stand-by letters of credit.
We anticipate that our operating cash flows, 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 $15.1 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. 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.
2016 10-K Annual Report
Stericycle, Inc. • 42
PART II
Item 8. Financial Statements and Supplementary Data
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, 2016 and 2015, 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, 2016. 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, 2016 and 2015, and the consolidated results
of their operations and their cash flows for each of the three years in the period ended December 31, 2016, 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, 2016,
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 14, 2017 expressed an
adverse opinion thereon.
/s/ Ernst & Young LLP
Chicago, Illinois
March 14, 2017
2016 10-K Annual Report
Stericycle, Inc. • 43
PART II
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 $49,645 in 2016 and $22,329
in 2015
Prepaid expenses
Assets held for sale
Other current assets
Total Current Assets
Property, plant and equipment, less accumulated depreciation of $495,215 in 2016 and
$426,019 in 2015
Goodwill
Intangible assets, less accumulated amortization of $271,568 in 2016 and $151,025 in 2015
Other assets
Total Assets
LIABILITIES AND EQUITY
Current Liabilities:
Current portion of long-term debt
Accounts payable
Accrued liabilities
Deferred revenues
Liabilities held for sale
Other current liabilities
Total Current Liabilities
Long-term debt, net
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, 726,500 issued and outstanding in 2016 and 770,000
issued and outstanding in 2015
Common stock (par value $.01 per share, 120,000,000 shares authorized, 85,152,700 issued
and outstanding in 2016 and 84,852,584 issued and outstanding in 2015)
Additional paid-in capital
Accumulated other comprehensive loss
Retained earnings
Total Stericycle, Inc.’s Equity
Noncontrolling interests
Total Equity
Total Liabilities and Equity
December 31,
2016
2015
44,189
62
$
634,902
46,214
9,134
39,117
773,618
723,894
3,591,020
1,861,973
29,556
6,980,061
72,822
152,881
228,526
17,902
2,858
67,864
542,853
2,877,315
645,371
98,136
$
$
55,634
69
614,494
46,740
—
44,891
761,828
665,602
3,758,177
1,842,561
36,995
7,065,163
161,409
149,202
197,329
16,989
—
62,420
587,349
3,040,352
608,272
81,352
7
8
852
1,166,457
(367,643)
2,006,064
2,805,737
10,649
2,816,386
6,980,061
$
849
1,143,020
(282,631)
1,868,645
2,729,891
17,947
2,747,838
7,065,163
$
$
$
$
The accompanying notes are an integral part of these consolidated financial statements.
2016 10-K Annual Report
Stericycle, Inc. • 44
PART II
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 (expense)/income, 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.
Mandatory convertible preferred stock dividend
Gain on repurchase of preferred stock
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
2016
Years Ended December 31,
2015
2014
$
3,562,342
$
2,985,908
$
2,555,601
1,971,842
88,546
904,179
34,700
129,300
3,128,567
433,775
78
(97,787)
(7,921)
(105,630)
328,145
120,246
207,899
1,540
206,359
39,414
(11,285)
178,230
2.10
2.08
$
$
$
1,658,081
61,642
712,803
20,272
45,498
2,498,296
487,612
224
(77,498)
569
(76,705)
410,907
142,894
268,013
967
267,046
10,106
—
256,940
3.02
2.98
$
$
$
1,404,712
56,478
489,937
15,446
32,692
1,999,265
556,336
120
(66,142)
(2,746)
(68,768)
487,568
159,422
328,146
1,690
326,456
—
—
326,456
3.84
3.79
84,932,402
85,610,219
84,944,841
86,162,609
84,932,792
86,233,612
$
$
$
The accompanying notes are an integral part of these consolidated financial statements.
2016 10-K Annual Report
Stericycle, Inc. • 45
PART II
STERICYCLE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
thousands
Net Income
2016
Years Ended December 31,
2015
2014
$
207,899
$
268,013
$
328,146
Other Comprehensive Income/ (Loss):
Foreign currency translation adjustments
Amortization of cash flow hedge into income, net of tax expense ($687,
$452 and $209 for the years ended December 31, 2016, 2015 and 2014,
respectively)
Change in fair value of cash flow hedge, net of tax expense/ (benefit) ($90,
($2,623) and ($813) for the years ended December 31, 2016, 2015 and
2014, respectively)
Total Other Comprehensive Loss
Comprehensive Income
Less: comprehensive loss/(income) attributable to noncontrolling interests
Comprehensive Income Attributable to Stericycle, Inc. Common
Shareholders
(86,575)
(140,648)
(82,871)
1,070
716
339
258
(85,247)
122,652
1,305
(4,119)
(144,051)
123,962
1,128
(2,069)
(84,601)
243,545
(960)
$
121,347
$
122,834
$
244,505
The accompanying notes are an integral part of these consolidated financial statements.
2016 10-K Annual Report
Stericycle, Inc. • 46
STERICYCLE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
PART II
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
Asset impairment charges
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
Proceeds from insurance settlement
Proceeds from sale of business
Proceeds from sale of property and equipment
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 for hedge
Payments for repurchase of common stock
Payments for repurchase of mandatory convertible preferred stock
Proceeds from issuance of mandatory convertible preferred stock
Proceeds from issuance of common stock
Dividends paid on mandatory convertible preferred stock
Excess tax benefit of stock options exercised
Payments to noncontrolling interests
Net cash (used in)/ provided by financing activities
Effect of exchange rate changes on cash and cash equivalents
Net (decrease)/ increase in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
NON-CASH ACTIVITIES:
Issuances of obligations for acquisitions
$
$
2016
Years Ended December 31,
2015
2014
207,899
$
268,013
$
328,146
20,455
—
123,246
129,300
7,078
28,472
975
(43,136 )
4,624
28,527
1,383
38,426
547,249
(63,917 )
7
2,358
790
1,316
(136,160 )
(195,606 )
(89,215 )
76,237
(84,114 )
—
(250,000 )
—
—
1,464,902
(1,393,323 )
(5,313 )
(605 )
—
(40,814 )
(30,910 )
—
37,504
(39,414 )
—
(8,190 )
(363,255 )
167
(11,445 )
55,634
44,189
44,230
$
$
21,750
(16,897 )
81,914
45,498
(10,294 )
1,781
5,686
(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
60,124
(10,106 )
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
The accompanying notes are an integral part of these consolidated financial statements.
2016 10-K Annual Report
Stericycle, Inc. • 47
PART II
Total Equity
1,767,538
328,146
(82,871 )
(1,730 )
58,562
(194,066 )
17,773
17,906
(854 )
1,917,185
268,013
(140,648 )
(3,403 )
68,640
746,900
(131,676 )
(10,106 )
21,750
16,897
STERICYCLE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
YEARS ENDED DECEMBER 31, 2016, 2015 and 2014
In thousands
Preferred Stock
Common Stock
Stericycle, Inc. Equity
Shares
Amount
—
— $
Shares
85,500
Amount
855
Additional
Paid-In
Capital
195,110
Retained
Earnings
1,610,964
326,456
Accumulated
Other
Comprehensive
Income (Loss)
(56,468 )
(80,221 )
(1,730 )
Noncontrolling
Interests
17,077
1,690
(2,650 )
1,061
11
58,551
(1,677 )
(17 )
(194,049 )
17,773
17,906
6,781
6,781
—
—
84,884
849
(129 )
289,211
1,743,371
267,046
(725 )
22,173
967
161
(138,419 )
(140,809 )
(3,403 )
973
10
68,630
770
8
746,892
(1,004 )
(10 )
(131,666 )
(10,106 )
21,750
16,897
(360 )
1,143,020
770
8
84,853
849
1,868,645
206,359
(282,631 )
(86,340 )
1,328
(44 )
(1 )
661
(361 )
6
(3 )
44,763
(42,194 )
20,455
(40,811 )
11,285
(39,414 )
(5,354 )
17,947
1,540
(235 )
(5,714 )
2,747,838
207,899
(86,575 )
1,328
44,769
(40,814 )
(30,910 )
(39,414 )
20,455
Balance at January 1, 2014
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, 2014
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
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
Balance at December 31, 2015
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
Purchase and cancellation of
convertible preferred stock
Preferred stock dividend
Stock compensation expense
Reduction to noncontrolling
interests due to additional
ownership
Balance at December 31, 2016
726 $
7
85,153 $
852
413
$ 1,166,457
$ 2,006,064
$
(367,643 ) $
(8,603 )
10,649
(8,190 )
$ 2,816,386
The accompanying notes are an integral part of these consolidated financial statements.
2016 10-K Annual Report
Stericycle, Inc. • 48
PART II
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 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.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation: The consolidated financial statements include the accounts of Stericycle, Inc. and its
subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. The Company's
consolidated financial statements were prepared in accordance with U.S. GAAP and include the assets, liabilities,
revenue and expenses of all wholly-owned subsidiaries and majority-owned subsidiaries over which the Company
interests in subsidiaries are shown on the consolidated financial
exercises control. Outside stockholders'
statements as “Noncontrolling interests."
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 or delivered to a third party. 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.
Goodwill and Other Identifiable Intangible Assets: We have historically evaluated goodwill for impairment
annually as of June 30, or when an indicator of impairment exists. During 2016, we changed the date of our annual
goodwill impairment assessment for our reporting units to October 1st. This voluntary change in the annual
goodwill testing date is a change in accounting principle, which we believe is preferable as it better aligns the
timing of the assessment with the timing of the Company’s annual strategic planning and forecasting process. This
change in assessment date was applied prospectively and did not delay, accelerate or avoid a potential impairment
charge. We evaluated for retrospective application to be impractical as it would require significant estimates and
assumptions with the use of hindsight.
The Company has the option to assess goodwill for impairment by first performing a qualitative assessment to
determine whether it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount.
If the Company determines that it is not more-likely-than-not that the fair value of a reporting unit is less than its
2016 10-K Annual Report
Stericycle, Inc. • 49
PART II
carrying amount, then the two-step goodwill impairment test is not required to be performed. If the Company
determines that it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount, or
if the Company does not elect the option to perform an initial qualitative assessment, the Company performs the
two-step goodwill impairment test. In the first step, the fair value of the reporting unit is compared to its book
value including goodwill. If the fair value of the reporting unit is in excess of its book value, the related goodwill is
not impaired and no further analysis is necessary. If the fair value of the reporting unit is less than its book value,
there is an indication of potential impairment and a second step is performed. When required, the second step of
testing involves calculating the implied fair value of goodwill for the reporting unit. The implied fair value of
goodwill is determined in the same manner as goodwill recognized in a business combination, which is the excess
of the fair value of the reporting unit determined in step one over the fair value of its net assets, including
identifiable intangible assets, as if the reporting unit had been acquired. If the carrying value of the reporting unit's
goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to
that excess.
We have historically tested our indefinite lived intangible assets for impairment annually at December 31, or more
frequently, if circumstances indicate that they may be impaired. During 2016, we changed the date of our annual
indefinite-lived intangible asset impairment assessment to October 1st. This voluntary change in the testing date is
a change in accounting principle, which we believe is preferable as it better aligns the timing of the assessment
with the timing of the Company’s annual strategic planning and forecasting process and it aligns the testing of all
indefinite-lived impairment testing to be as of a consistent date. This change in assessment date was applied
prospectively and did not delay, accelerate or avoid a potential impairment charge. We evaluated for retrospective
application to be impractical as it would require significant estimates and assumptions with the use of hindsight.
Impairment of Long-Lived Assets: Long-lived assets, such as property, plant and equipment and intangible assets
which are amortized, are reviewed for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset or asset group may not be recoverable. If circumstances require that a long-lived asset
or asset group to be held and used be tested for possible impairment, the Company first compares the
undiscounted cash flows expected to be generated by that long-lived asset or asset group to its carrying amount. If
the carrying amount of the long-lived asset or asset group is not recoverable on an undiscounted cash flow basis,
an impairment is recognized to the extent that the carrying amount exceeds its fair value.
Long-lived assets or disposal groups classified as held for sale are recorded at the lower of their carrying amount or
fair value less estimated selling costs. Long-lived assets are not depreciated or amortized while classified as held
for sale.
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 to be permanently
reinvested, and therefore no deferred taxes are recorded on our outside basis differences. Tax liabilities are
recorded when, in management’s judgment, a tax position does not meet the more likely than not threshold for
recognition. For tax positions that meet the more likely than not threshold, a tax liability may still be recorded
depending on management’s assessment of how the tax position will ultimately be settled. The Company records
interest and penalties on unrecognized tax benefits in the provision for income taxes.
2016 10-K Annual Report
Stericycle, Inc. • 50
PART II
Accounts Receivable: Accounts receivable consist of amounts due to us from our normal business activities. 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 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 1.4% of our
accounts receivable. During the years ended December 31, 2016, 2015 and 2014, bad debt expense was $41.8
million, $13.7 million and $9.9 million, respectively.
Stock-Based Compensation: We measure stock-based compensation cost at fair value. Expense is generally
recognized on a straight-line basis over the service period during which awards are expected to vest. We present
stock-based compensation expense within the Consolidated Statements of Income based on the classification of
the respective employees' cash compensation.
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 is stated at cost. Depreciation and amortization,
which includes the depreciation of assets recorded under capital
leases, is 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 7 years
2 to 20 years
2 to 7 years
Our containers have a weighted average remaining useful life of 12.2 years.
Lease and Asset Retirement Obligations: The Company classifies leases at their inception as either operating or
capital leases and may receive renewal or expansion options, rent holidays, and leasehold improvement or other
incentives on certain lease agreements. The Company recognizes operating lease costs on a straight-line basis,
taking into account adjustments for free or escalating rental payments and deferred payment terms. Additionally,
lease incentives are accounted for as a reduction of lease costs over the lease term. Rent expense associated with
operating lease obligations that relate to the delivery of our services is presented in Cost of revenues (“COR”) and
the remaining is classified within Selling, general and administrative expenses (“SG&A”) on the Consolidated
Statements of Income. Minimum lease payments made under capital leases are apportioned between interest
expense and a reduction of the related capital lease obligations, which are classified within Accrued liabilities and
Current portion of long-term debt on the Consolidated Balance Sheets.
The Company establishes assets and liabilities for the present value of estimated future costs to retire long-lived
assets at the termination or expiration of a lease. Such assets are amortized over the lease term, and the recorded
liabilities are accreted to the future value of the estimated retirement costs. The related amortization and
accretion expenses are presented within COR if the leased asset is used in the delivery of our services and the
remaining expenses are presented within SG&A on the Consolidated Statements of Income.
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
2016 10-K Annual Report
Stericycle, Inc. • 51
PART II
based upon the claim reserves established by the third-party administrator at the end of each reporting period
includes an estimate for claims incurred but not yet reported. Our employee health insurance benefit liability is
based on our historical claims experience.
Financial Instruments: Our financial instruments consist of cash and cash equivalents, short-term investments,
accounts receivable and payable, derivatives, and long-term debt. 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 1.4% of total accounts receivable. We perform ongoing credit evaluation of our customers and
maintain allowances for potential credit losses.
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 our allowance for doubtful
accounts, credit memo reserve, accrued employee health and welfare benefits, environmental liabilities, 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.
Foreign Currency: 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 on the Consolidated Balance Sheets. Foreign currency gains and losses
resulting from transactions which are denominated in currencies other than the entity’s functional currency,
including foreign currency gains and losses on intercompany balances that are not of a long-term investment
nature, are included within Other (expense)/income, net on the Consolidated Statements of Income.
Reclassifications: Certain amounts in previously issued financial statements have been reclassified to conform to
the current period presentation.
New Accounting Standards:
Adoption of New Accounting Standards
Going Concern
g
The Company adopted the guidance in Accounting Standards Update (“ASU”) 2014-15, Presentation of Financial
Statements – Going Concern (Subto
pic 205-40) – Disclosure of Uncertainties about an Entity’s Ability to Continue as
a Going Concern, as of December 31, 2016. This ASU requires management to assess a company’s ability to
continue as a going concern and to provide related disclosures in certain circumstances. Based on the results of the
Company’s analysis, no additional disclosures were required.
((
Compensation - Stock Compensation
p
p
On January 1, 2016, the Company adopted the guidance in Accounting Standards Update (ASU) No. 2016-
09, “Compensation – Stock Compensation (Topic 718) – Improvements to Employee Share-Based Payment
Accounting.” Under this ASU, entities are permitted to make an accounting policy election to either estimate
forfeitures on share-based payment awards, as previously required, or to recognize forfeitures as they occur. The
Company has elected to recognize forfeitures as they occur and the impact of that change in accounting policy has
been evaluated and determined to be insignificant and resulted in no cumulative-effect change to the Company’s
retained earnings. Additionally, ASU 2016-09 requires that all income tax effects related to settlements of share-
based payment awards be reported in earnings as an increase or decrease to income tax expense (benefit), net.
2016 10-K Annual Report
Stericycle, Inc. • 52
PART II
Previously, income tax benefits at settlement of an award were reported as an increase (or decrease) to additional
paid-in capital to the extent that those benefits were greater than (or less than) the income tax benefits reported
in earnings during the award's vesting period. The requirement to report those income tax effects in earnings has
been applied on a prospective basis to settlements occurring on or after January 1, 2016. The impact of applying
that guidance was $6.0 million to the Company’s Consolidated Statements of Income for the year ended December
31, 2016. ASU 2016-09 also requires that all income tax-related cash flows resulting from share-based payments be
reported as operating activities in the statement of cash flows. Previously, income tax benefits at settlement of an
award were reported as a reduction to operating cash flows and an increase to financing cash flows to the extent
that those benefits exceeded the income tax benefits reported in earnings during the award's vesting period. The
Company has elected to apply that change in cash flow classification on a prospective basis, leaving previously
reported net cash provided by operating activities and net cash used in financing activities in the accompanying
Consolidated Statements of Cash Flows for the period ended December 31, 2015 and 2014 unchanged. The
remaining provisions of ASU 2016-09 did not have a material impact on the accompanying consolidated financial
statements.
Interest-Imputation of Interest
p
f
The Company adopted the guidance in ASU No. 2015-03, "Interest – Imputation of Interest (Subtopic 835-30):
Simplifyiff ng the Presentation of Debt Issuance Costs" 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 guidance for recognition and measurement for debt issuance costs are not affected by the accounting
standard update. The revised standard only affects presentation and therefore did not have an impact on the
Company’s results of operations. The adoption resulted in a reclassification that reduced other assets and long-
term debt by $12.3 million on the Consolidated Balance Sheet at December 31, 2015.
Accounting Standards Issued But Not Yet Adopted
Revenue From Contractstt With Customers
In May 2014, the FASB issued ASU No. 2014-09, "Revenue from Contractstt with Customers" (Topic 606), guidance to
provide a single and 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 the Company
on January 1, 2018. The Company currently anticipates adopting this ASU using the modified retrospective
method. While the Company continues to evaluate the impacts of this ASU on our consolidated financial
statements, the Company currently expects that incremental contract acquisition costs of obtaining revenue
generating contracts, such as sales commissions paid in connection with multi-year service contracts, would be
capitalized and amortized over the economic life of the contract. Under the current guidance, the Company
expenses such costs when incurred. Accordingly, the amount of contract consideration allocated to the
performance obligations under some contracts would be different under the new standard than the amount
allocated under the current standard. As the Company completes its evaluation of this new standard, new
information may arise that could change the Company's current understanding of the impact to revenue and
expense recognized. Additionally, the Company will continue to monitor industry activities and any additional
guidance provided by regulators, standards setters, or the accounting profession and to adjust the Company’s
assessment and implementation plans accordingly.
Leases
In February 2016, the FASB issued ASU No. 2016-02, “Leases” (Topic 842). This guidance will require lessees to
record a right-of-use asset and lease liability on the balance sheet for all leases with terms of more than 12
2016 10-K Annual Report
Stericycle, Inc. • 53
PART II
months. Recognition, measurement and presentation of expenses will depend on classification as a finance or
operating lease. This ASU also requires certain quantitative and qualitative disclosures. Accounting guidance for
lessors is largely unchanged. The amendments should be applied on a modified retrospective basis. ASU 2016-02 is
effective for us beginning January 1, 2019. We have not yet begun to evaluate the impact that the adoption of ASU
2016-02 will have on our consolidated financial statements and related disclosures. We will begin our evaluation of
the adoption of the new standard in 2017.
f
Statement of Cash Flows
In August 2016, the FASB issued ASU No. 2016-15 “Statement of Cash Flows” (Topic 230). This guidance clarifies
diversity in practice on where in the Statement of Cash Flows to recognize certain transactions, including the
classification of payment of contingent consideration for acquisitions between Financing and Operating activities.
ASU 2016-15 is effective for us beginning January 1, 2018. The adoption of this guidance is not expected to have a
significant impact on our financial statements, as our treatment of the relevant affected items within the
Consolidated Statement of Cash Flows is consistent with the requirements of this guidance.
Intra-Entity Transfersrr of Assets Other ThanTT
y
f
f
y
Inventory
In October 2016, the FASB issued ASU No. 2016-16, “Intra-Entityt Transfers
of Assets Other Than Inventory.” This
guidance requires the income tax consequences of an intra-entity transfer of an asset other than inventory to be
recognized when the transfer occurs, instead of when the asset is sold to an outside party. The pronouncement is
effective for annual reporting periods beginning after December 15, 2017, including interim reporting periods
within those annual reporting periods, with early adoption permitted. We do not expect the adoption to have a
material impact on our financial statements.
s
Intangibles – Goodwill and Other – Simplifying the Test for Goodwill Impairment
p fy g
g
p
f
In January 2017, the FASB issued ASU 2017-04, Intangibles – Goodwill and Other (Topic 350) – Simplifying
the Test
for Goodwill Impairment. This guidance eliminates Step 2 of the goodwill impairment test and requires a goodwill
impairment to be measured as the amount by which a reporting unit’s carrying amount exceeds its fair value, not
to exceed the carrying amount of its goodwill. The ASU is effective for annual or any interim goodwill impairment
tests in fiscal years beginning after December 15, 2019. We do not expect the adoption to have a material impact
on our financial statements.
i
NOTE 3 – ACQUISITIONS, DIVESTITURES, AND ASSETS HELD FOR SALE
Acquisitions
tically, we acquired selected assets and liabilities of fifteen secure information destruction businesses,
selected assets and liabilities of three regulated waste businesses, one communication services business, and 100%
of the stock of two regulated waste businesses.
Internationally, we acquired selected assets and liabilities of regulated waste businesses: one in the Republic of
Korea, two in Spain, two in Romania, and one in the United Kingdom. We also acquired selected assets and
liabilities of three secure information destruction businesses in Australia, and 100% of the stock of another in
Spain.
The acquisitions were all considered to be business combinations under the guidance.
2016 10-K Annual Report
Stericycle, Inc. • 54
The following table summarizes the locations of our acquisitions for the years ended December 31, 2016, 2015 and
2014:
PART II
Acquisition Locations
United States
Argentina
Australia
Brazil
Canada
Chile
Ireland
Japan
Mexico
Netherlands
Portugal
Republic of Korea
Romania
Spain
United Kingdom
Total
2016
2015
2014
21
—
3
—
—
—
—
—
—
—
—
1
2
3
1
31
19
—
—
2
2
—
1
—
3
2
—
6
4
4
—
43
17
2
0
3
2
3
—
2
—
—
5
1
3
3
3
44
The following table summarizes the acquisition date fair value of consideration transferred for acquisitions
completed during the years ended December 31, 2016, 2015 and 2014:
In thousands
Cash
Promissory notes
Deferred consideration
Contingent consideration
Total purchase price
2016
2015
2014
$
$
55,388
40,938
4,094
988
101,408
$
$
2,420,764
64,124
3,172
10,070
2,498,130
$
$
373,820
125,245
3,889
17,174
520,128
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 year ended December 31, 2016, we recognized an increase in goodwill of $52.8 million related to
current year acquisitions, excluding the effect of foreign currency translation. Approximately $40.3 million of the
goodwill recognized during the year ended December 31, 2016 will be deductible for income taxes.
During the year ended December 31, 2016, we recognized an increase in intangible assets from current year
acquisitions of $35.6 million, excluding the effect of foreign currency translation. We recognized $34.6 million for
the estimated fair value of acquired customer relationships with amortizable lives of 10 to 40 years and $1.0
million for covenant not-to-compete agreements with amortizable lives of 5 years.
The fair value of consideration transferred in a business combination is allocated to the tangible and intangible
assets assumed at the acquisition date, with the remaining unallocated amount recorded as goodwill. The
allocations of the acquisition price for recent acquisitions have been prepared on a preliminary basis, pending
completion of certain intangible asset valuations and finalization of the opening balance sheet. The following table
summarizes the preliminary purchase price allocation for current period acquisitions during the year ended
December 31, 2016:
2016 10-K Annual Report
Stericycle, Inc. • 55
In thousands
Fixed assets
Intangibles
Goodwill
Accounts receivable
Net other assets/ (liabilities)
Current liabilities
Debt
Environmental remediation liabilities
Net deferred tax liabilities
Noncontrolling interest
Total purchase price allocation
$
$
2016
2015
2014
13,079
35,564
52,769
3,155
171
(933)
(188)
—
(2,209)
—
101,408
$
$
196,164
1,016,774
1,450,950
135,758
18,843
(90,133)
(4,955)
—
(225,271)
—
2,498,130
$
$
PART II
96,868
249,414
258,017
65,509
(11,359)
(64,396)
(22,423)
(32,383)
(12,338)
(6,781)
520,128
During the years ended December 31, 2016, 2015 and 2014, the Company incurred $9.6 million, $39.1 million, and
$13.3 million, respectively, of acquisition related expenses. These expenses are included within SG&A on the
Consolidated Statements of Income. The results of operations of these acquired businesses have been included on
the Consolidated Statements of Income from the date of the acquisition. Pro forma results of operations for these
acquisitions are not presented because the pro forma effects, individually or in the aggregate, were not material to
the Company’s consolidated results of operations.
On October 1, 2015, we acquired Shred-it International ULC, an Alberta unlimited liability corporation ("SII"),
Shredit JV LP, an Ontario limited partnership ("Shredit 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").
Shred-it is the global leader in secure information destruction, a highly complementary service to our regulated
waste and compliance services and provides operational synergies stemming from our core competencies in route
logistics and lean management systems. The aggregate purchase price was $2.3 billion in cash.
The following table summarizes the adjustments to the consideration transferred for prior year acquisitions and
primarily includes $9.5 million of additional cash consideration paid in March 2016 as part of the final working
capital adjustments for the 2015 Shred-it acquisition:
In thousands
Cash
Promissory notes
Total purchase price
$
$
8,529
(1,790)
6,739
During 2016, we recorded various adjustments to our provisional amounts related to the Shred-it and other prior
year acquisitions. The following table summarizes these adjustments by major assets acquired and liabilities
assumed:
In thousands
Fixed assets
Intangibles
Goodwill
Accounts receivable
Net other assets/ (liabilities)
Current liabilities
Net deferred tax liabilities
Total purchase price allocation
Shred-it Acquisition
Other Prior Year
Acquisitions
Total
$
$
45,423
153,056
(152,833)
(3,585)
(65)
(13,348)
(19,006)
9,642
$
$
7,215
15,923
(8,356)
(2,898)
(756)
(2,177)
(11,854)
(2,903)
$
$
52,638
168,979
(161,189)
(6,483)
(821)
(15,525)
(30,860)
6,739
2016 10-K Annual Report
Stericycle, Inc. • 56
The following table summarizes the completed purchase price allocation by major asset acquired and liabilities
assumed for the acquisition of Shred-it:
PART II
In thousands
Fixed assets
Intangibles
Goodwill
Accounts receivable
Net other assets/ (liabilities)
Current liabilities
Net deferred tax liabilities
Total purchase price allocation
Shred-it Acquisition
219,673
1,108,056
1,180,213
113,956
16,673
(85,526)
(239,511)
2,313,534
$
$
As of December 31, 2016, purchase accounting has been completed for all of our 2015 acquisitions.
Divestitures
In Q4 2016, we sold certain assets in the United Kingdom for $0.8 million resulting in a pretax loss of $1.6 million
($1.3 million, net of tax) which is included in SG&A on the Consolidated Statements of Income.
Assets and Liabilities Held for Sale
As of December 31, 2016, certain of our international operations met the criteria to be classified as held for sale.
We recorded a $25.5 million impairment charge in SG&A on the Consolidated Statements of Income to adjust the
carrying value of the asset groups to their fair value less estimated costs to sell. The assets and liabilities of the
disposal groups are presented in assets held for sale and liabilities held for sale on the consolidated balance sheet.
The following table presents information related to the major classes of assets and liabilities that were classified as
held for sale on the Consolidated Balance Sheet at December 31, 2016:
In thousands
Accounts receivable
Inventory
Prepaid expenses
Fixed assets
Goodwill
Intangibles
Other assets
Assets held for sale
Current portion of l-t debt
Account payable
Accrued liabilities
Other current liabilities
Deferred income taxes
Liabilities held for sale
$
$
$
$
2,556
223
271
4,915
80
753
336
9,134
998
928
605
1
326
2,858
We determined that the operations included in the table above did not meet the criteria to be classified as
discontinued operations under the applicable guidance.
2016 10-K Annual Report
Stericycle, Inc. • 57
PART II
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 and non-performance risk has been considered in the fair
value measurements noted below. There were no movements of items between fair value hierarchies.
The following table summarizes the bases used to measure financial assets and liabilities that are carried at fair
value on a recurring basis in the Consolidated Balance Sheets:
In thousands
Total as of
December 31, 2016
Level 1
Inputs
Fair Value Measurements Using
Level 2
Inputs
Level 3
Inputs
Assets:
Short-term investments
Derivative financial instruments
Total assets
Liabilities:
Contingent consideration
Total liabilities
$
$
$
$
In thousands
62
816
878
24,119
24,119
Total as of
December 31, 2015
Assets:
Short-term investments
Derivative financial instruments
Total assets
Liabilities:
Contingent consideration
Total liabilities
$
$
$
$
69
1,207
1,276
25,390
25,390
$
$
$
$
$
$
$
$
62
—
62
$
$
— $
— $
— $
816
816
$
— $
— $
Level 1
Inputs
Fair Value Measurements Using
Level 2
Inputs
Level 3
Inputs
69
—
69
$
$
— $
— $
— $
1,207
1,207
$
— $
— $
—
—
—
24,119
24,119
—
—
—
25,390
25,390
For our derivative financial instruments, we use a market approach valuation technique based on observable
market transactions of spot and forward rates.
2016 10-K Annual Report
Stericycle, Inc. • 58
PART II
We recorded a $0.8 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, 2016. The objective of the swap is to offset the foreign
exchange risk to the U.S. dollar equivalent cash outflows for our Canadian subsidiary.
Our contingent consideration liabilities are recorded using Level 3 inputs and were $24.1 million as of December
31, 2016, of which $8.1 million was classified as current liabilities. Contingent consideration liabilities were $25.4
million at December 31, 2015, of which $9.1 million was classified as current liabilities. 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 payment outcomes. 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 $25.4 million at December 31, 2016. Contingent consideration liabilities are reassessed each
reporting period and are reflected on the Consolidated Balance Sheets as part of Other current liabilities and Other
liabilities.
Changes to contingent consideration are reflected in the table below:
In thousands
Contingent consideration at January 1, 2016
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
Contingent consideration at December 31, 2016
$
$
25,390
988
(3,057)
2,849
(2,051)
24,119
Fair Value of Debt: At December 31, 2016, the fair value of the Company’s debt obligations was estimated, using
Level 2 inputs, at $2.97 billion compared to a carrying amount of $2.96 billion. 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. The fair values were estimated using an income approach by applying market
interest rates for comparable instruments.
NOTE 5 – INCOME TAXES
The U.S. and International components of income before income taxes consisted of the following for the years
ended December 31, 2016, 2015 and 2014:
In thousands
United States
Foreign
Total income before income taxes
2016
2015
2014
$
$
381,100
(52,955)
328,145
$
$
378,815
32,092
410,907
$
$
441,029
46,539
487,568
2016 10-K Annual Report
Stericycle, Inc. • 59
PART II
Significant components of our income tax expense for the years ended December 31, 2016, 2015 and 2014 are as
follows:
In thousands
Current
United States - federal
United States - state and local
Foreign
Deferred
United States - federal
United States - state and local
Foreign
Foreign - changes in statutory rates
Total provision
2016
2015
2014
$
$
102,050
11,615
10,601
124,266
19,052
(2,466)
(20,606)
—
(4,020)
120,246
$
$
105,941
15,544
16,512
137,997
23,762
2,504
(21,369)
—
4,897
142,894
$
$
118,217
13,023
14,930
146,170
29,730
948
(15,339)
(2,087)
13,252
159,422
A reconciliation of the income tax provision computed at the federal statutory rate to the effective tax rate for the
years ended December 31, 2016, 2015 and 2014 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
2016
2015
2014
35.0%
1.6%
2.1%
—
(2.1)%
36.6%
35.0%
3.1%
(0.4)%
(2.2)%
(0.7)%
34.8%
35.0%
1.9%
(0.5)%
(1.8)%
(1.9)%
32.7%
Cash payments for income taxes were $111.5 million, $125.1 million, and $128.1 million for the years ended
December 31, 2016, 2015 and 2014, respectively.
Our deferred tax liabilities and assets at December 31, 2016 and 2015 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
Net operating tax loss carry-forwards
Less: valuation allowance
Total deferred tax assets
Net deferred tax liabilities
2016
2015
$
$
(78,478)
(690,387)
(7,906)
(776,771)
93,706
17,861
38,254
(15,392)
134,429
(642,342)
$
$
(44,914)
(719,789)
(5,747)
(770,450)
69,895
74,794
37,976
(17,585)
165,080
(605,370)
At December 31, 2016, 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 $121.7 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 $38.2 million at December 31, 2016, on which a valuation allowance of $15.4 million was recorded
offsetting such tax benefit.
2016 10-K Annual Report
Stericycle, Inc. • 60
PART II
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 $542.2 million at
December 31, 2016, 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 the 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, 2016 is $26.7 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 $21.4 million. We recognized interest and penalties accrued related to income
tax reserves in the amount of $1.3 million and $0.7 million, for the years ended December 31, 2016 and 2015,
respectively, as a component of income tax expense.
The following table summarizes the changes in unrecognized tax positions during the years ended December 31,
2016 and 2015:
In thousands
Unrecognized tax positions, January 1, 2015
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
Gross increases - tax positions in prior periods
Gross increases - current period tax positions
Settlement
Lapse of statute of limitations
Unrecognized tax positions, December 31, 2016
$
$
$
15,095
7,239
(793)
5,976
(200)
(2,375)
24,942
809
2,876
(218)
(1,751)
26,658
The table above includes amounts that relate to acquired uncertain tax positions. The securities purchase
agreement provides that the seller 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, 2016, we had the following incentive stock 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;
2016 10-K Annual Report
Stericycle, Inc. • 61
PART II
•
•
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, 2016, we have reserved a total of 8,054,670 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"), incentive stock options ("ISOs"), and Restricted Stock Units (“RSUs”)
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 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 1,000,000 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 2016, 2015 and 2014, 89,100 shares, 68,039 shares, and 60,189 shares respectively, were issued through
the ESPP. At December 31, 2016, we had 202,364 shares available for issuance under the ESPP plan.
Stock Based Compensation Expense:
During 2016, 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.
The following table presents the total stock-based compensation expense resulting from stock option awards,
RSUs, and the ESPP included on the Consolidated Statements of Income:
In thousands
Cost of revenues - stock option plan
Selling, general and administrative - stock option plan
Selling, general and administrative - RSUs
Selling, general and administrative - ESPP
Total pre-tax expense
$
$
63
17,344
896
2,152
20,455
$
$
92
18,541
1,484
1,633
21,750
$
$
52
15,214
1,267
1,240
17,773
2016
Years Ended December 31,
2015
2014
Stock Options:
Options granted to directors vest in one year and options granted to officers and employees generally vest over
five years. Expense related to options with graded vesting is recognized using the straight-line method over the
vesting period.
2016 10-K Annual Report
Stericycle, Inc. • 62
PART II
Stock option activity for the year ended December 31, 2016, is summarized as follows:
Outstanding at beginning of year
Granted
Exercised
Forfeited
Canceled or expired
Outstanding at December 31, 2016
Exercisable at December 31, 2016
Number of Options
Weighted Average Exercise
Price per Share
5,334,803
1,100,492
(573,799)
(339,889)
(52,875)
5,468,732
2,999,940
$
$
$
92.02
110.26
65.71
115.07
104.98
96.90
83.60
At December 31, 2016, there was $38.0 million of total unrecognized compensation expense related to stock
options, which is expected to be recognized over a weighted average period of 2.88 years.
The following table sets forth the intrinsic value of options exercised for the years ended December 31:
In thousands
Total exercise intrinsic value of options exercised
$
25,974
$
62,625
$
65,884
2016
2015
2014
The exercise intrinsic value represents the total pre-tax intrinsic value (the difference between the fair value 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)
$
$
2016
2015
2014
5.25
25,100
4.40
25,100
$
$
5.70
162,400
4.70
130,600
$
$
6.10
269,900
5.10
178,300
The 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, 2016 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, 2016.
Options outstanding and exercisable at December 31, 2016 by price range are presented below:
Range of Exercise
Price
$38.57 - $51.55
$52.05 - $85.00
$85.02 - $87.04
$87.26 - $95.74
$95.87 - $95.87
$96.11 - $110.14
$111.12 - $111.12
$111.20 - $115.54
$115.69 - $115.69
$115.82 - $141.56
$38.57 - $141.56
Shares
688,413
790,945
547,178
112,302
651,362
96,758
847,751
135,502
660,918
937,603
5,468,732
Options Outstanding
Outstanding
Average Remaining
Life in Years
Options Exercisable
Weighted Average
Exercise Price
Shares
Weighted Average
Exercise Price
2.54
3.37
5.04
4.98
6.07
7.57
7.10
6.48
5.12
6.42
5.25
$
$
49.22
74.35
86.25
90.15
95.87
101.37
111.12
112.19
115.69
129.90
96.90
688,413
776,730
406,676
98,496
357,219
20,460
325
99,661
268,217
283,743
2,999,940
$
$
49.22
74.21
86.26
89.79
95.87
101.12
111.12
112.25
115.69
129.58
83.60
2016 10-K Annual Report
Stericycle, Inc. • 63
PART II
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)
Weighted average fair value at grant date
Assumptions:
Expected term (in years)
Expected volatility
Expected dividend yield
Risk free interest rate
Restricted Stock Units:
2016
Years Ended December 31,
2015
$
1,100,492
20.16
$
1,056,490
22.90
$
2014
981,583
21.31
4.77
18.28%
—%
1.21%
4.79
16.71%
—%
1.47%
4.76
17.23%
—%
1.53%
The fair value of RSUs is based on the closing price of the Company's common stock on the date of grant and is
amortized to expense over the service period. RSUs vest at the end of three or five years. Our 2008, 2011 and 2014
Plans include a share reserve related to RSUs granted at a 2-1 ratio.
The following table sets forth the information related to RSUs for the years ended December 31:
Total aggregate intrinsic value of outstanding units (in thousands)
Per share fair value of units granted
$
8,847
106.01
$
8,441
114.27
$
8,337
115.67
2016
2015
2014
A summary of the status of our non-vested RSUs and changes during the year ended December 31, 2016, are as
follows:
Non-vested at beginning of year
Granted
Forfeited
Non-vested at December 31, 2016
Number of Units
Weighted Average
Grant Date Fair Value
$
71,451
78,237
(34,850)
114,838
101.29
106.01
102.25
104.22
At December 31, 2016, there was $7.4 million of total unrecognized compensation expense related to RSUs, which
is expected to be recognized over a weighted average period of 2.86 years. There were no units that vested during
the years ended December 31, 2016 and 2015. The fair value of units that vested during the year ended
December 31, 2014 was $2.0 million.
NOTE 7 – PREFERRED STOCK
At December 31, 2016, we had 1,000,000 authorized shares of preferred stock and 726,500 shares issued and
outstanding of mandatory convertible preferred stock. At December 31 2015, we had 1,000,000 authorized shares
of preferred stock and 770,000 shares issued and 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.
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
2016 10-K Annual Report
Stericycle, Inc. • 64
PART II
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.
We declared and paid dividends of $39.4 million to the preferred stock shareholders during 2016.
The following table provides information about our repurchases of depository shares of mandatory convertible
preferred stock during the year ended December 31, 2016:
Three months ended June 30, 2016
Three months ended September 30, 2016
Three months ended December 31, 2016
Total
Number of Depository
Shares Repurchased
Amount Paid for
Repurchases
(in thousands)
Average Price Paid per
Share
65,000
265,000
105,000
435,000
$
$
5,025
19,238
6,647
30,910
$
$
77.31
72.60
63.30
71.06
Repurchases of our mandatory convertible preferred stock resulted in a $11.3 million increase to Retained
earnings, because we redeemed the preferred stock at a discount. The 435,000 depository shares are equivalent to
43,500 units of preferred stock.
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 the "if-converted method." Under the if-converted
method, the preferred dividend applicable to convertible preferred stock is added back as an adjustment to 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 numerator is also adjusted for any premium or discount arising
from redemption of the preferred stock.
2016 10-K Annual Report
Stericycle, Inc. • 65
PART II
The following table sets forth the computation of basic and diluted earnings per share:
In thousands, except share and per share data
Numerator:
Net income attributable to Stericycle, Inc.
Mandatory convertible preferred stock dividend
Gain on repurchase of preferred stock
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
2016
Years Ended December 31,
2015
2014
$
$
$
$
206,359
39,414
(11,285)
178,230
$
267,046
10,106
—
256,940
326,456
—
—
326,456
84,932,402
84,944,841
84,932,792
677,817
—
1,217,768
—
1,300,820
—
85,610,219
86,162,609
86,233,612
2.10
2.08
$
$
3.02
2.98
$
$
3.84
3.79
(1)
In 2016, the weighted average common shares issuable upon the assumed conversion of the mandatory
convertible preferred stock totaling 5,528,257 shares were excluded from the computation of diluted
earnings per share as such conversion would have been anti-dilutive.
In 2016, 2015 and 2014, options to purchase 3,411,370 shares, 818,093 shares, and 830,755 shares, respectively,
at exercise prices of $83.49-$141.56, $117.09-$141.56, and $105.12-$132.95 were not included in the computation
of diluted earnings per share because the effect would have been anti-dilutive.
In 2016, 48,042 RSUs were not included in the computation of diluted earnings per share because the effect would
have been anti-dilutive.
NOTE 9 – ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
he following table sets forth the changes in the components of accumulated other comprehensive income for
2016, 2015 and 2014:
In thousands
Beginning balance at January 1, 2014
Period change
Ending balance at December 31, 2014
Period change
Ending balance at December 31, 2015
Period change
Ending balance at December 31, 2016
Currency Translation
Adjustments
Unrealized Gains
(Losses) on Cash Flow
Hedges
Accumulated Other
Comprehensive
Income/ (Loss)
$
$
$
$
(55,010)
(80,221)
(135,231)
(140,809)
(276,040)
(86,340)
(362,380)
$
$
$
$
(1,458)
(1,730)
(3,188)
(3,403)
(6,591)
1,328
(5,263)
$
$
$
$
(56,468)
(81,951)
(138,419)
(144,212)
(282,631)
(85,012)
(367,643 )
During the years ended December 31, 2016, 2015 and 2014, the net tax impact of the unrealized gains/ (losses) on
cash flow hedges in accumulated other comprehensive income was $(0.8) million, $2.2 million, and $0.6 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.
2016 10-K Annual Report
Stericycle, Inc. • 66
PART II
NOTE 10 – PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at December 31, 2016 and 2015 consisted of the following:
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
2016
2015
$
$
66,335
197,608
314,288
173,169
226,733
146,780
38,886
55,310
1,219,109
(495,215)
723,894
$
$
65,621
166,874
314,252
136,379
190,454
117,632
46,979
53,430
1,091,621
(426,019)
665,602
NOTE 11 – GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill:
As discussed in Note 15 – Segment Reporting, we changed the composition of our operating segments. Due to
these changes, part of our Domestic Regulated Waste and Compliance Services operating segment was combined
with the legacy Domestic Regulated Recall and Returns Management Services operating segment to form a new
operating segment, Domestic Communication and Related Services (“Domestic CRS”) in Q2 2016 and the Domestic
Regulated Waste and Compliance Solutions operating segment (“Domestic RCS") will now become Domestic and
Canada Regulated Waste and Compliance services. The operations in Canada had previously been reported as part
of the International RCS operating segment.
In Q4, we determined that our former International RCS reporting unit should be disaggregated into three new
reporting units for goodwill impairment testing purposes which is one level below the operating segment (referred
to as a “component”). In addition, the four components of the Domestic and Canada RCS operating segment will
now be the reporting units. This was primarily a result of some of the business and economic challenges we have
recently faced in M&I and internationally. As a result of the changes, goodwill from the former International RCS
reporting unit was reallocated to the four new reporting units including Canada based on their relative fair values.
We completed a similar reallocation of goodwill for the new Domestic and Canada RCS reporting units.
Due to the establishment of the new reporting units in Q4 2016 and the change in our annual goodwill impairment
testing date discussed in Note 2 – Summary of Significant Accounting Policies, we performed a goodwill
impairment evaluation for all reporting units as of October 1, 2016. There was no impairment of goodwill because
the fair value of those reporting units exceeded their carrying values. We also tested the former reporting units for
goodwill
impairment immediately prior to the establishment of the new reporting units and there was no
impairment of goodwill.
2016 10-K Annual Report
Stericycle, Inc. • 67
The changes in the carrying amount of goodwill since January 1, 2015, by reportable segment and for the “Other”
category, were as follows:
PART II
In thousands
Balance at January 1, 2015 (1)
Goodwill acquired during year
Purchase accounting adjustments
Other changes
Changes due to foreign currency fluctuations
Balance at December 31, 2015
Goodwill acquired during year
Purchase accounting adjustments
Goodwill write-offs related to disposition and assets
held for sale
Changes due to foreign currency fluctuations
Balance at December 31, 2016
$
$
Other
Total
Domestic and
Canada RCS
1,638,529
1,231,219
(8,072)
—
(18,965)
2,842,711
41,517
(77,247)
$
International RCS
521,338
$
192,737
(17,221)
(440)
(63,923)
632,491
8,381
(78,894)
$
258,965
26,994
(2,984)
—
—
282,975
2,871
(5,048)
—
4,820
2,811,801
$
(7,486)
(56,071)
498,421
$
—
—
280,798
$
2,418,832
1,450,950
(28,277)
(440)
(82,888)
3,758,177
52,769
(161,189)
(7,486)
(51,251)
3,591,020
(1) The January 1, 2015 balances have been recast to reflect the new organizational strucrr
ture. Domestic and
Canada RCS goodwill from the International RCS and Other includes resulting from the changes described.
Other Intangible Assets:
At December 31, 2016 and 2015, the values of other intangible assets were as follows:
In thousands
Amortizable intangibles:
Customer relationships
Covenants not-to-
compete
Tradenames
Other
Indefinite lived
intangibles:
Operating permits
Tradenames
Total
Gross Carrying
Amount
2016
Accumulated
Amortization
Net Value
Gross Carrying
Amount
2015
Accumulated
Amortization
Net Value
$
1,553,398
$
261,306
$
1,292,092
$
1,304,388
$
144,020
$
1,160,368
9,491
5,708
19,076
6,371
1,365
2,526
3,120
4,343
16,550
6,878
3,819
18,902
5,141
948
916
1,737
2,871
17,986
229,396
316,472
2,133,541
$
$
—
—
271,568
$
229,396
316,472
1,861,973
$
233,101
426,498
1,993,586
$
—
—
151,025
$
233,101
426,498
1,842,561
2016 10-K Annual Report
Stericycle, Inc. • 68
The changes in the carrying amount of intangible assets since January 1, 2015 were as follows:
PART II
In thousands
Balance as of January 1, 2015
Intangible assets acquired during the year
Valuation adjustments for prior year acquisitions
Impairments during the year
Amortization during the year
Changes due to foreign currency fluctuations
Balance as of December 31, 2015
Intangible assets acquired during the year
Valuation adjustments for prior year acquisitions
Intangible write-offs due to disposition and assets held for sale
Impairments during the year
Amortization during the year
Changes due to foreign currency fluctuations
Balance at December 31, 2016
$
$
Total
909,645
1,016,775
35,241
(4,177)
(45,498)
(69,425)
1,842,561
35,564
168,979
(15,961)
(1,406)
(129,300)
(38,464)
1,861,973
Our indefinite-lived intangible assets include permits and certain tradenames. We have determined that our
permits and certain tradenames have indefinite lives due to our ability to renew them with minimal additional
cost, and therefore these are not amortized. We changed our annual impairment testing date for indefinite-lived
intangibles from December 31 to October 1 as described in Note 2 – Summary of Significant Accounting Policies. In
2016 and 2015, we recognized $1.4 million and $4.2 million, respectively, of impairment charge as part of SG&A on
the Consolidated Statements of Income as a result of the testing performed.
Our finite-lived intangible assets are amortized over their useful lives. We have determined that our customer
relationships have useful lives ranging from 5 to 40 years based upon the type of customer and a weighted average
remaining useful life of 15.2 years. We have covenants not-to-compete intangibles with useful lives ranging from 5
to 14 years and a weighted average remaining useful life of 3.5 years. We have tradename intangibles with useful
lives ranging from 10 to 40 years and a weighted average remaining useful life of 17.6 years. Other intangibles
mainly consist of landfill air rights with a weighted average remaining useful life of 17.4 years.
During the years ended December 31, 2016, 2015 and 2014, the aggregate intangible amortization expense was
$129.3 million, $45.5 million and $32.7 million, respectively.
The estimated amortization expense for each of the next five years is as follows for the years ended December 31:
In thousands
2017
2018
2019
2020
2021
$
116,265
116,127
115,738
115,045
113,919
The estimates for amortization expense noted above are based upon foreign exchange rates at December 31,
2016.
2016 10-K Annual Report
Stericycle, Inc. • 69
NOTE 12 – ACCRUED LIABILITIES
Accrued liabilities at December 31, 2016 and 2015 consisted of the following items:
PART II
In thousands
Accrued compensation
Accrued insurance
Accrued taxes
Accrued interest
Accrued professional services liabilities
Accrued liabilities - other
Total accrued liabilities
NOTE 13 – DEBT
2016
2015
$
$
64,586
53,637
18,289
14,123
10,109
67,782
228,526
$
$
62,721
43,390
27,363
13,829
6,948
43,078
197,329
Long-term debt consisted of the following at December 31:
In thousands
Obligations under capital leases
$1.2 billion senior credit facility weighted average rate 2.14%, due in 2019
$1.0 billion term loan weighted average rate 2.07%, due in 2020
$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
Promissory notes and deferred consideration weighted average rate of 2.43% and weighted
average maturity of 3.2 years
Foreign bank debt weighted average rate 6.51% and weighted average maturity of 2.1 years
Total debt
Less: current portion of total debt
Less: unamortized debt issuance costs
Long-term portion of total debt
$
$
2016
2015
11,121
407,119
1,000,000
175,000
125,000
225,000
150,000
125,000
200,000
100,000
150,000
191,648
99,428
2,959,316
72,822
9,179
2,877,315
$
$
15,024
353,763
1,250,000
175,000
125,000
225,000
150,000
125,000
200,000
100,000
150,000
239,731
105,530
3,214,048
161,409
12,287
3,040,352
Our senior credit facility, term loan, and the private placement notes all require us to comply with the same
financial, reporting and other covenants and restrictions,
including a restriction on dividend payments. At
December 31, 2016, 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, 2016 and 2015, we had $138.0 million and $160.4 million, respectively, committed to outstanding
letters of credit under our senior credit facility. The unused portion of the revolving credit facility was $654.9
million and $685.8 million at December 31, 2016 and 2015, respectively.
We classified our $175.0 million private placement notes that mature in October 2017 as long-term debt due to
our intent to settle this obligation by borrowing on the available and unused capacity on our $1.2 billion senior
credit facility due in 2019.
2016 10-K Annual Report
Stericycle, Inc. • 70
Payments due on long-term debt, excluding capital lease obligations, during each of the five years subsequent to
December 31, 2016 are as follows:
PART II
In thousands
2017
2018
2019
2020
2021
Thereafter
$
$
70,017
208,328
1,044,598
878,011
161,474
585,767
2,948,195
During the years ended December 31, 2016, 2015 and 2014, we paid interest of $88.8 million, $68.0 million, and
$57.8 million for the, respectively.
Property under capital leases included within property, plant and equipment on the Consolidated Balance Sheets is
as follows at December 31:
In thousands
Land
Buildings
Machinery and equipment
Vehicles
Less: accumulated depreciation
2016
2015
$
$
151
775
6,634
9,907
(5,523)
11,944
$
$
157
804
6,105
15,925
(7,148)
15,843
Amortization related to these capital leases is included within depreciation expense.
Minimum future lease payments under capital leases are as follows:
In thousands
2017
2018
2019
2020
2021
Thereafter
Total minimum lease payments
Less: amounts representing interest
Present value of net minimum lease payments
Less: current portion included in current portion of long-term debt
Long-term obligations under capital leases
$
$
3,692
2,759
2,614
2,093
2,119
106
13,383
(2,262)
11,121
(2,805)
8,316
NOTE 14 –COMMITMENTS AND CONTINGENCIES
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
2016 10-K Annual Report
Stericycle, Inc. • 71
PART II
regulations. The liability for environmental remediation is included on the Consolidated Balance Sheets in current
liabilities within Accrued liabilities and in noncurrent liabilities with Other liabilities.
At December 31, 2016 and 2015, the total environmental remediation liabilities recorded were $30.9 million and
$30.8 million of which $2.4 million and $2.1 million were presented in Accrued liabilities on the Consolidated
Balance Sheets, respectively. We project costs over approximately 30 years.
Operating 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 Operating lease obligations expire at
various dates with the latest maturity in 2035. The leases for most of the properties contain renewal provisions.
During the years ended December 31, 2016, 2015 and 2014, rent expense was $181.6 million, $139.0 million, and
$111.5 million, respectively, included within COR & SG&A on the Consolidated Statements of Income.
Minimum future rental payments under non-cancelable operating leases that have initial or remaining terms in
excess of one year at December 31, 2016 for each of the next five years and in the aggregate are as follows:
In thousands
2017
2018
2019
2020
2021
Thereafter
$
$
116,473
96,215
78,587
59,571
43,858
63,383
458,087
Unconditional Purchase Commitments
The Company has entered into non-cancelable arrangements with third-parties, primarily related to information
technology products and services. As of December 31, 2016, future payments under these contractual obligations,
not recognized in the Consolidated Balance Sheets, were as follows:
In thousands
2017
2018
2019
2020
2021
Thereafter
$
$
31,840
16,370
15,989
15,855
—
—
80,054
NOTE 15 – SEGMENT REPORTING
In 2016, we made certain changes to our organizational structure to integrate the domestic and international
operations of our 2015 Shred-it acquisition. During Q2 2016, we also changed the composition of our operating
segments to further align our compliance and communication services. Due to this change, part of our Domestic
Regulated Waste and Compliance Services operating segment was combined with the legacy Domestic Regulated
Recall and Returns Management Services operating segment to form a new operating segment, Domestic
Communication and Related Services (“Domestic CRS”).
2016 10-K Annual Report
Stericycle, Inc. • 72
PART II
In Q4 2016, we made an additional change to our organizational structure and management reporting. As a result
of these changes, our Domestic Regulated Waste and Compliance Services (“Domestic RCS”) segment will now also
be responsible for the operations in Canada. The operations in Canada had previously been reported as part of the
International RCS operating segment. As a result of these changes our Domestic RCS operating segment will now
become (“Domestic and Canada RCS”).
Domestic CRS does not meet the quantitative criteria to be a separate reportable segment and therefore is
included in All other. Beginning in Q4 2016, costs related to our corporate headquarter functions are also included
in All other.
Our three operating segments are:
• Domestic and Canada RCS,
• Domestic CRS, and
• International RCS.
Our Domestic and Canada,a and International Regulated Waste and Complianc
e Services segments include
medical waste disposal, pharmaceutical waste disposal, hazardous waste management, sustainability solutions for
expired or unused inventory, secure information destruction of documents and e-media, training and consulting
through our Steri-Safe® and Clinical Services programs, and other regulatory compliance services.
ll
Our Domestic Communication and Related Services segment consists of inbound/outbound communication,
automated patient reminders, online scheduling, notifications, product retrievals, product returns, and quality
audits.
Our two reportable segments are:
• Domestic and Canada RCS,
• International RCS.
In connection with changes made to our management reporting to align with the new operating segments, we
have also changed our measure of segment profit to earnings before interest, tax and amortization (“EBITA”),
adjusted for various items. As a result of these changes in segment reporting, all historical segment information
has been revised to conform to the new presentation.
2016 10-K Annual Report
Stericycle, Inc. • 73
The following tables show financial information for the Company's reportable segments:
In thousands
Revenues
Domestic and Canada RCS
International RCS
All other
Total
Gross Profit
Domestic and Canada RCS
International RCS
All other
Total
Amortization
Domestic and Canada RCS
International RCS
All other
Total
EBITA
Domestic and Canada RCS
International RCS
All other
Total
Total Assets
Domestic and Canada RCS
International RCS
All other
Total
2016
Years Ended December 31,
2015
2014
$
$
$
$
$
$
$
$
$
$
2,508,865
751,677
301,800
3,562,342
1,124,815
228,484
148,655
1,501,954
95,640
25,730
7,930
129,300
688,161
58,027
(18,564)
727,624
5,094,107
1,357,047
528,907
6,980,061
$
$
$
$
$
$
$
$
$
$
1,999,196
716,771
269,941
2,985,908
912,220
230,323
123,642
1,266,185
22,714
14,926
7,858
45,498
631,395
89,064
(12,982)
707,477
4,913,485
1,636,382
515,296
7,065,163
$
$
$
$
$
$
$
$
$
$
PART II
1,667,353
663,889
224,359
2,555,601
772,518
216,377
105,516
1,094,411
12,728
13,298
6,666
32,692
594,204
98,494
(44,683)
648,015
2,616,751
1,291,671
464,880
4,373,302
The following table reconciles the Company's primary measure of segment profitability (EBITA) to income from
operations:
In thousands
Domestic and Canada RCS EBITA
International RCS EBITA
Subtotal reportable segments
All other EBITA
Amortization expenses
Acquisition expenses
Integration expenses
Litigation and professional services expenses
Change in fair value of contingent consideration
Restructuring and plant conversion expenses
Contract exit costs
Asset impairment charges
Income from operations
2016
Years Ended December 31,
2015
2014
$
$
688,161
58,027
746,188
(18,564)
(129,300)
(9,646)
(87,587)
(12,904)
2,051
(3,986)
(24,005)
(28,472)
433,775
$
$
631,395
89,064
720,459
(12,982)
(45,498)
(39,138)
(51,689)
(59,651)
640
(22,748)
—
(1,781)
487,612
$
$
594,204
98,494
692,698
(44,683)
(32,692)
(13,333)
(25,968)
(6,574)
1,452
(14,564)
—
—
556,336
2016 10-K Annual Report
Stericycle, Inc. • 74
PART II
The following table shows consolidated revenue by service:
In thousands
Regulated Waste and Compliance Services
Secure Information Destruction Services
Communication and Related Services
Manufacturing and Industrial Services
Revenues
Geographic Data
2016
Years Ended December 31,
2015
2014
$
$
2,061,416
747,510
370,500
382,916
3,562,342
$
$
2,064,866
178,085
334,142
408,815
2,985,908
$
$
1,955,761
—
268,565
331,275
2,555,601
The following table shows consolidated revenue and property, plant and equipment split geographically:
In thousands
Revenues
United States
International:
Europe
Other international countries
Total international
Total
Long-Lived Assets
United States
International:
Europe
Other international countries
Total international
Total
2016
Years Ended December 31,
2015
2014
2,657,452
$
2,165,030
$
1,788,390
485,975
418,915
904,890
3,562,342
499,070
89,007
135,817
224,824
723,894
$
$
$
441,231
379,647
820,878
2,985,908
434,202
95,771
135,629
231,400
665,602
$
$
$
407,082
360,129
767,211
2,555,601
284,788
70,621
104,999
175,620
460,408
$
$
$
$
NOTE 16 – 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 compensation contributed to the plan by each employee up to a
maximum of $2,000. During the years ended December 31, 2016, 2015 and 2014, our contributions were $5.9
million, $4.8 million, and $3.6 million, respectively.
• Each participant may elect to defer a portion of his or her compensation subject to certain limitations. The
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 contributions for the years ended
December 31, 2016 and 2015 were $3.3 million and $0.9 million, respectively.
The Company has several foreign defined contribution plans, which require the Company to contribute a
percentage of the participating employee’s salary according to local regulations. During the years ended
December 31, 2016, 2015 and 2014, total contributions made by the Company for these plans were approximately
$2.6 million, $2.1 million, and $1.9 million, respectively.
2016 10-K Annual Report
Stericycle, Inc. • 75
PART II
NOTE 17 – LEGAL PROCEEDINGS
We operate in a highly regulated industry and must deal with regulatory inquiries or investigations from time to
time that may be initiated for a variety of reasons. We are also involved in a variety of civil litigation from time to
time.
The Company establishes an accrued liability for loss contingencies related to legal and regulatory matters when
the loss is both probable and reasonably estimable. If a loss is not probable or a probable loss is not reasonably
estimable, no liability is recorded. These accruals represent management's best estimate of probable losses and, in
such cases, there may be an exposure to loss in excess of the amounts accrued. Legal and regulatory matters
inherently involve significant uncertainties based on, among other factors, the stage of the proceedings,
developments in the applicable facts or law, and the unpredictability of the ultimate determination of the merits of
any claim, any defenses the Company may assert against that claim and the amount of any damages that may be
awarded. The Company's accrued liabilities for loss contingencies related to legal and regulatory matters may
change in the future as a result of new developments, including, but not limited to, the occurrence of new legal
matters, changes in the law or regulatory environment, adverse or favorable rulings, newly discovered facts
relevant to the matter, or changes in the strategy for the matter. Regardless of the outcome, litigation can have an
adverse impact on the Company because of defense and settlement costs, diversion of management resources and
other factors.
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 (or “whistle blower”) action
captioned United States of America ex rel. Jennifer D. Perez v. Stericycle, Inc., Case No. 1:08-cv-2390 which was
settled in the fourth quarter of 2015 as previously disclosed.
Following the filing of the Pennsylvania class action complaint, we were served with class action complaints filed in
federal and state courts in several jurisdictions. 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. Plaintiffs subsequently filed a Second Amended Consolidated Complaint on March 8, 2016, and we filed an
answer to that pleading on March 25, 2016, generally denying the allegations therein and asserting a variety of
affirmative defenses.
Plaintiffs filed a motion for class certification on January 29, 2016. On February 16, 2017, the Court entered an
order granting Plaintiffs’ motion for class certification. The Court certified a class of “[a]ll persons and entities that,
between March 8, 2003 through the date of trial resided in the United States (except Washington and Alaska),
were identified by Stericycle as ‘Small Quantity’ or ‘SQ’ customer, and were charged and paid more than their
contractually-agreed price for Stericycle’s medical waste disposal good and services pursuant to Stericycle’s
automated price increase policy. Governmental entities whose claims were asserted in United States ex rel. Perez
v. Stericycle Inc. shall be excluded from the class.” The case remains ongoing.
2016 10-K Annual Report
Stericycle, Inc. • 76
PART II
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
class currently certified by the Court will remain certified through trial and judgment, or whether or how the class
definition might be altered, (iii) we do not know how many individual plaintiffs will be determined to meet the
court’s definition of the class, (iv) we do not know what the ultimate disposition on the merits of any class claim as
well as our defenses to that claim may be, and (v) in our judgment, the factual and legal allegations asserted by
plaintiffs are sufficiently unique that we are unable to identify other proceedings with circumstances sufficiently
comparable to provide guidance in making estimates.
Securities Class Action Lawsuit. On July 11, 2016, two purported stockholders filed a putative class action
complaint in the U.S. District Court for the Northern District of Illinois. The plaintiffs purported to sue for
themselves and on behalf of all purchasers of our publicly traded securities between February 7, 2013 and April 28,
inclusive, and all those who purchased securities in our public offering of depositary shares, each
2016,
representing a 1/10th interest in a share of our mandatory convertible preferred stock, on or around September
15, 2015. The complaint named as defendants the Company, our directors and certain of our current and former
officers, and certain of the underwriters in the public offering. The complaint purports to assert claims under
Sections 11, 12(a)(2) and 15 of the Securities Act of 1933 and Sections 10(b) and 20(a) of the Securities Exchange
Act of 1934, as well as SEC Rule 10b-5, promulgated thereunder. The complaint alleges, among other things, that
the Company imposed unauthorized or excessive price increases and other charges on its customers in breach of
its contracts, and that defendants failed to disclose those alleged practices in public filings and other statements
issued during the proposed class period beginning February 7, 2013 and ending April 28, 2016.
On August 4, 2016, plaintiffs filed an Amended Complaint that purports to assert additional misrepresentations in
public statements through July 28, 2016, and therefore to change the putative class period to the period from
February 7, 2013 to July 28, 2016, inclusive. On October 21, 2016, plaintiffs filed a Corrected Amended Complaint
adding the Company as a named defendant in plaintiff’s claim under Section 11 of the Securities Act, which had
previously been asserted only against the Underwriters and certain officers and directors.
On November 1, 2016, the Court appointed the Public Employees’ Retirement System of Mississippi and the
Arkansas Teacher Retirement System as Lead Plaintiffs and their counsel as Lead Counsel. On February 1, 2017,
Lead Plaintiff filed a Consolidated Amended Complaint with additional purported factual material supporting the
same legal claims from the prior complaints. Under the Court’s current schedule, defendants have until April 1,
2017 to answer or file a motion to dismiss the action.
We intend to vigorously defend ourselves against this lawsuit.
We have not accrued any amounts in respect of this lawsuit, 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, the factual and
legal allegations asserted by plaintiffs are sufficiently unique that we are unable to identify other proceedings with
circumstances sufficiently comparable to provide guidance in making estimates.
Shareholder Derivative Lawsuit. On September 1, 2016, a purported stockholder filed a putative derivative action
complaint in the Circuit Court of Cook County, Illinois against certain officers and directors of the Company,
naming the Company as nominal defendant. The complaint alleges that defendants breached their fiduciary duties
to the Company and its stockholders by causing the Company to allegedly overcharge certain customers in breach
of
those customers’ contracts, otherwise provide unsatisfactory customer service and injure customer
relationships, and make materially false and misleading statements and omissions regarding the Company’s
business, operational and compliance policies between February 7, 2013 and the present. On March 1, 2017,
2016 10-K Annual Report
Stericycle, Inc. • 77
PART II
another purported stockholder filed a putative derivative action complaint containing substantially similar
allegations in the Circuit Court of Cook County, Illinois against certain officers and directors of the Company,
naming the Company as nominal defendant. The Company notes, among other things, that both of these filings are
in violation of the Company’s Bylaws, which require any such actions to be brought in a court in Delaware. None of
the defendants in either of these derivative actions has been served with the applicable complaint.
We have not accrued any amounts in respect of these lawsuits, and we cannot estimate the reasonably possible
loss or the range of reasonably possible losses that we may incur. We are unable to make such an estimate
because (i) litigation is by its nature uncertain and unpredictable and (ii) in our judgment, the factual and legal
allegations asserted by plaintiffs are sufficiently unique that we are unable to identify other proceedings with
circumstances sufficiently comparable to provide guidance in making estimates.
Shareholder Demand Letter. On October 18, 2016, the Company received a letter from an attorney purporting to
represent a current stockholder of the Company demanding, pursuant to Del. Ct. Ch. R. 23.1, that the Company’s
Board of Directors take action to remedy alleged breaches of fiduciary duties by certain officers and directors of
the Company. The factual allegations set forth in the letter are similar to those asserted in the Securities Class
Action Lawsuit and the Shareholder Derivative Lawsuit. The letter asserts breaches of fiduciary duty in connection
with the management, operation and oversight of the Company’s business and in connection with alleged false,
misleading and/or incomplete statements regarding the Company’s business practices.
The Company’s Board of Directors has constituted a Special Demand Review Committee to investigate the claims
made in the demand letter, which investigation is ongoing.
TCPA Lawsuit. On June 3, 2016, a plaintiff filed a putative class action, captioned Ibrahim v. Stericycle, Inc., No. 16-
cv-4294 (N.D. Ill.), against us and our wholly-owned subsidiary, Stericycle Communication Solutions, Inc., under the
Telephone Consumer Protection Act (“TCPA”), asserting that the defendants called plaintiff and others in violation
of that statute. Plaintiff challenges our use of pre-recorded messages that urge the owners of recalled products to
return or obtain repairs for those products.
Plaintiff seeks certification of two nationwide classes. One class includes people who received one or more cellular
telephone calls from Stericycle featuring a prerecorded or artificial voice message relating to a product recall,
where the called party was not the same individual who, according to Stericycle’s records, was the intended
recipient of the call. The second class includes people who received one or more cellular telephone calls from
Stericycle featuring a prerecorded or artificial voice message relating to a product recall after such person had
communicated to Stericycle that Stericycle did not have consent to make any such calls to their cellular telephone
number.
On July 28, 2016, we answered the complaint, denying the material allegations and raising certain affirmative
defenses. Among the asserted defenses is the “emergency” exception to the TCPA, which exempts calls made to
promote public health and safety. On December 19, 2016, before any substantial discovery in the case, we filed a
motion for summary judgment primarily on the basis of the “emergency” exception. On February 1, 2017, plaintiff
responded to our motion by requesting additional discovery. The court has responded that it will permit some but
not all of the requested discovery.
We have not accrued any amounts in respect of this lawsuit, 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, the factual and
legal allegations asserted by plaintiff are sufficiently unique that we are unable to identify other proceedings with
circumstances sufficiently comparable to provide guidance in making estimates.
Environmental Matters. Our Environmental Solutions business is 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, we frequently become a party to legal
2016 10-K Annual Report
Stericycle, Inc. • 78
PART II
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 us
or by other parties to which either we or the prior owners of certain of its facilities shipped wastes. From time to
time, we 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 we 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. On February 7, 2017, we extended the tolling agreement to April 30, 2017. Under the tolling agreement
as extended, the period from March 1, 2016 through April 30, 2017 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.
On April 8, 2016, the State of Missouri through the Missouri Department of Natural Resources (“MDNR”) filed an
Amended Verified Petition in the Circuit Court of the City of St. Louis, Missouri alleging that we had violated certain
provisions of the Solid Waste Permit relating to our facility located in St. Louis by failing to treat or transport
certain waste within 24 hours or to transfer certain waste within 24 hours. The Petition also alleged that certain
record keeping requirements had not been met. On May 27, 2016 a First Amended Verified Petition was filed with
essentially the same allegations. MDNR originally filed its Petition on October 16, 2014. On October 31, 2016, we
entered into a Consent Judgment that requires us to timely treat or transfer waste received, to keep proper
records and to pay a civil penalty of $130,000. On November 22, 2016, we paid the civil penalty of $130,000.
NOTE 18 – SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
The following table summarizes our unaudited consolidated quarterly results of operations as reported for 2016
and 2015:
In thousands, except per share data
Revenues
Gross profit
Amortization expenses
Acquisition expenses
Integration expenses
Litigation and professional services expenses
Change in fair value of contingent consideration
Plant conversion expenses
Contract exit costs (1)
Asset impairment charges (2)
Net income attributable to Stericycle, Inc.
Net income attributable to Stericycle, Inc.
common shareholders
* Basic earnings per common share
* Diluted earnings per common share
$
$
$
First Quarter
2016
874,181
369,184
(18,274)
(2,990)
(19,268)
(1,300)
2,644
(241)
—
—
76,786
Second
Quarter 2016
891,621
$
381,095
(50,909)
(2,607)
(22,578)
(2,664)
—
(929)
(12,708)
—
46,034
Third Quarter
2016
Fourth Quarter
2016
Year 2016
$
$
890,144
379,260
(33,128)
(2,265)
(19,162)
(1,481)
(559)
(487)
(10,110)
(4)
64,795
$
906,396
372,415
(26,989)
(1,784)
(26,579)
(7,459)
(34)
(2,329)
(1,187)
(28,468)
18,744
3,562,342
1,501,954
(129,300)
(9,646)
(87,587)
(12,904)
2,051
(3,986)
(24,005)
(28,472)
206,359
66,680
0.79
0.78
$
$
37,293
0.44
0.43
$
$
61,536
0.72
0.72
$
$
12,721
0.15
0.15
$
$
178,230
2.10
2.08
2016 10-K Annual Report
Stericycle, Inc. • 79
PART II
In thousands, except per share data
Revenues
Gross profit
Amortization expenses
Acquisition expenses
Integration expenses
Litigation expenses (3)
Change in fair value of contingent consideration
Restructuring and plant conversion expenses
Asset impairment charges
Net income attributable to Stericycle, Inc.
Net income attributable to Stericycle, Inc.
common shareholders
* Basic earnings per common share
* Diluted earnings per common share
$
$
$
First Quarter
2015
663,319
281,331
(8,797)
(3,296)
(8,886)
(75,623)
675
(12,302)
—
28,940
Second
Quarter 2015
715,689
$
304,824
(8,921)
(2,986)
(8,924)
173
(35)
(3,058)
—
87,830
Third Quarter
2015
Fourth Quarter
2015
Year 2015
$
$
718,596
299,675
(9,239)
(33,674)
(13,447)
16,444
—
(2,721)
—
69,449
$
888,304
380,355
(18,541)
818
(20,432)
(645)
—
(4,667)
(1,781)
80,827
2,985,908
1,266,185
(45,498)
(39,138)
(51,689)
(59,651)
640
(22,748)
(1,781)
267,046
28,940
0.34
0.34
$
$
87,830
1.03
1.02
$
$
69,449
0.82
0.81
$
$
70,721
0.83
0.82
$
$
256,940
3.02
2.98
(1) 2016 charges incurred to exit some of the contracts in our UK patient transport services business
(2) Q4 2016 charges mostly from write-down of certain assets in the UK either sold for a loss or classified as
assets held for sale
(3) Q1 2015 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
*EPS calculated on a quarterly basis, and, as such, the amounts may not total the calculated full-year EPS.
STERICYCLE, INC. AND SUBSIDIARIES
SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS
In thousands
Allowance for doubtful
accounts
2014
2015
2016
Balance Beginning
of Period
Charges to
Expenses
Other Charges/
(Reversals) (1)
Write-offs/
Payments
Balance End
of Period
$
$
$
19,134
19,083
22,329
$
$
$
9,869
13,650
41,769
$
$
$
842
3,054
2,696
$
$
$
(10,762)
(13,458)
(17,149)
$
$
$
19,083
22,329
49,645
(1) Amounts consist primarily currency translation adjustments.
In thousands
Valuation Allowance on Deferred Tax
Assets
2014
2015
2016
Balance Beginning of
Period
$
$
$
1,122
56
17,585
$
$
$
Additions/
(Deductions)
Charged to/
(from) Income
Tax Expense
Other Changes
to Reserves (2)
Balance End of
Period
— $
$
13
$
6,853
(1,066)
17,516
(9,046)
$
$
$
56
17,585
15,392
(2) Amounts consist primarily of valuation allowances on acquired deferred tax assets from business
combinations.
2016 10-K Annual Report
Stericycle, Inc. • 80
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
PART II
ne.
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 below.
(b) Internal control over financial reporting.
Management of Stericycle is responsible for establishing and maintaining adequate internal control over financial
reporting (as defined in Rules 13a-15(f) and 15d(f) under the Exchange Act). 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 reporting purposes in accordance with United States generally
accepted accounting principles (US GAAP). 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. A material weakness is a deficiency, or a
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.
Stericycle conducted an assessment of the effectiveness of its internal control over financial reporting as of
December 31, 2016 based on the criteria established by Internal Control-Integrated Framework (2013) issued by
the Committee of Sponsoring Organizations of the Treadway Commission (“COSO Framework”).
As of December 31, 2015, we had identified three material weaknesses: (1) the design and operating effectiveness
of revenue control activities were inadequate to ensure that revenue transactions were properly measured and
recorded in the appropriate period; (2) 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 and (3) the Company’s
risk assessment process did not operate effectively. During 2016, the Company’s assessment included the global
Shred-it business. Shred-it was acquired late in 2015 and resulted in significant integration activities throughout
2016 10-K Annual Report
Stericycle, Inc. • 81
PART II
2016 with a broad impact across the organization. While the Company made progress in certain of the areas
identified in the prior year, additional material weaknesses were identified. As a result, as of December 31, 2016,
Stericycle management has identified material weaknesses related to: a lack of a framework to identify risks of
material misstatement to the organization’s financial statements and appropriately designed controls to mitigate
those risks; a lack of robust accounting policies to assist our finance organization with accounting for transactions
appropriately and on a timely basis; insufficient design and communication of general information technology
controls to support the effective operation of financial controls; and an insufficiently staffed finance organization
with the requisite skills and ability to focus on ICFR matters to respond to the risks to the financial statements.
These material weaknesses in the control environment, risk assessment, and control activity components of the
COSO framework as of December 31, 2016 are pervasive across our internal control processes and also include the
material weaknesses previously disclosed in our Form 10-K/A for the fiscal year ended as of December 31, 2015.
Planned Remediatdd
ion of Material Weaknesses
In 2016, Stericycle invested considerable time and resources towards redesigning our internal controls over
financial reporting. This effort can be summarized as follows:
• We engaged consultants to help review and make recommendation with respect to the redesign of our
internal controls over financial reporting;
• We added additional resources and enhanced existing positions in accounting, finance, tax, and
information technology to support the redesigned controls;
• We engaged subject matter experts to perform an information technology infrastructure and architecture
•
assessment; and
Those subject matter experts then developed a strategic information technology infrastructure and
architecture roadmap.
Remediation of control deficiencies that gave rise to the material weaknesses described above can be a multi-year
process. We remain committed to continue investing significant time and resources and taking actions to
remediate the material weaknesses in our internal control over financial reporting as we work to further integrate
acquisitions, streamline disparate information technology systems, and enhance our control environment.
Below we have described the remedial actions we are taking to address the identified material weaknesses and
enhance our overall control environment.
Control Environment
• We are developing, enhancing, and implementing standardized policies in the areas of accounting,
information technology and to enforce individual accountability for performance of internal
general
control responsibilities across the Company.
• We are creating new roles and hiring additional accounting personnel with appropriate backgrounds and
skill sets.
• We are establishing a technical accounting group within the Controllership function with responsibility to
ensure that the accounting for complex or non-routine transactions is appropriate.
• We are expanding the training of our employees to reinforce the importance of a strong control
environment, to emphasize the technical requirements for controls that are designed, implemented and
operating effectively and to set the appropriate expectations on internal controls through establishing the
related policies and procedures.
Risk Assessment
• We have engaged external service providers to assist with performing a comprehensive risk assessment
including the risk of fraud.
• We are reviewing, analyzing, and properly documenting our processes related to internal controls over
financial reporting.
2016 10-K Annual Report
Stericycle, Inc. • 82
PART II
• We are implementing a financial reporting risk assessment and review process to ensure our significant
accounting policies are implemented and applied properly under US GAAP on a consistent basis
throughout the Company.
• We are developing an internal control framework which will ensure we are appropriately identifying and
assessing changes that could significantly impact the system of internal control.
Control Activities
• We are designing and implementing effective review and approval controls over the accurate recording,
presentation, and disclosure of revenue and related costs.
• We are designing and implementing effective review and approval controls. This includes hiring
professionals with the appropriate technical accounting expertise to support the adequacy of the review
and approval of complex or non-routine transactions such as those involving impairments and purchase
accounting.
• We are also designing and implementing effective review and approval controls over account
reconciliations,
journal entries, and management estimates across our remaining internal control
processes. These controls will address the accuracy and completeness of the data used in the
performance of the respective control.
• We are establishing policies over the segregation of incompatible duties within our IT systems and
implementing such policies across the Company.
• We are implementing standardized policies to address the completeness and accuracy of data used in the
performance of controls and information technology controls across the Company.
• We are working to standardize and simplify the Company’s disparate information systems.
When fully implemented and operational, we believe the measures described above will remediate the control
deficiencies that have led to the material weaknesses we have identified and strengthen our internal controls over
financial reporting. We are committed to continuing to improve our internal control processes and we will
continue to review our financial reporting controls and procedures. As we continue to evaluate and work to
improve our internal controls over financial reporting, we may determine to take additional measures to address
control deficiencies or modify certain activities of the remediation measures described above.
Notwithstanding the existence of the material weaknesses as described above, we believe that the consolidated
financial statements in this Annual Report fairly present, in all material respects, our financial position, results of
operations and cash flows as of the dates, and for the periods, presented, in conformity with US GAAP.
Conclusion
As a result of the material weaknesses described above, management has concluded that, as of December 31,
2016, our internal control over financial reporting was ineffective. The "Report of Independent Registered Public
Accounting Firm" relating to internal control over financial reporting as of December 31, 2016, is included below.
(c) Changes in internal controls.
As described above in the “Management’s Report on Internal Control over Financial Reporting” section, we have
undertaken strategic remedial actions to address the material weaknesses in our internal controls over financial
reporting. These remedial actions continued throughout the quarter ended December 31, 2016 but have not
materially affected our internal control over financial reporting.
2016 10-K Annual Report
Stericycle, Inc. • 83
PART II
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, 2016, 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.
its inherent limitations,
Because of
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.
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
related to: a lack of a framework to identify risks of material misstatement to the organization’s financial
statements and appropriately designed controls to mitigate those risks; a lack of robust accounting policies to
assist the finance organization with accounting for transactions appropriately and on a timely basis; insufficient
information technology controls to support the effective operation of
design and communication of general
financial controls; and an insufficiently staffed finance organization with the requisite skills and ability to focus on
ICFR matters to respond to the risks to the financial statements. These material weaknesses in the control
environment, risk assessment, and control activity components of the COSO framework as of December 31, 2016
are pervasive across the Company’s internal control processes. 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, 2016 and 2015, 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
2016 10-K Annual Report
Stericycle, Inc. • 84
PART II
December 31, 2016, and our report dated March 14, 2017 expressed an unqualified opinion thereon. The material
weaknesses were considered in determining the nature, timing and extent of audit tests applied in our audit of the
2016 consolidated financial statements, and this report does not affect our report dated March 14, 2017, 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, 2016, based on the COSO criteria.
/s/ Ernst & Young LLP
Chicago, Illinois
March 14, 2017
Item 9B. Other Information
None.
2016 10-K Annual Report
Stericycle, Inc. • 85
PART III
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 2017 Annual Meeting
of Stockholders to be held on May 24, 2017, 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 2017 Annual Meeting of Stockholders
to be held on May 24, 2017, to be filed pursuant to Regulation 14A.
We have adopted a code of business conduct that applies to all of our employees. The code of business conduct is
available on our website, www.stericycle.com, under "About Us/Our Culture." We intend to satisfy the disclosure
requirement under Item 5.05 of Form 8-K regarding any amendments to, or waiver from, a provision of our code of
conduct by posting such information on our website.
y
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 2017 Annual Meeting of Stockholders to be held on May 24, 2017, 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 2017 Annual Meeting of Stockholders to be held on May 24, 2017, 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 2017 Annual Meeting of Stockholders to be held on May 24, 2017, 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
2016 10-K Annual Report
Stericycle, Inc. • 86
PART III
"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 24, 2017, 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 2017 Annual Meeting of Stockholders to
be held on May 24, 2017, to be filed pursuant to Regulation 14A.
Item 14. Principal Accounting Fees and Services
Incorporated by reference from the information under the caption "Ratification of the Independent Registered
Public Accounting Firm" in our Proxy Statement for our 2017 Annual Meeting of Stockholders, which will be filed
with the SEC within 120 days of December 31, 2016.
2016 10-K Annual Report
Stericycle, Inc. • 87
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
Consolidated Financial Statements of Stericycle, Inc. and Subsidiaries
Consolidated Balance Sheets as of December 31, 2016 and 2015
Consolidated Statements of Income for Each of the Years in the Three-Year Period Ended
December 31, 2016
Consolidated Statements of Comprehensive Income for Each of the Years in the Three-Year Period
Ended December 31, 2016
Consolidated Statements of Cash Flows for Each of the Years in the Three-Year Period Ended
December 31, 2016
Consolidated Statements of Changes in Equity for Each of the Years in the Three-Year Period
Ended December 31, 2016
Notes to Consolidated Financial Statements
Schedule II - Valuation and Qualifying Accounts
Report of Independent Registered Public Accounting Firm on Internal
Reporting
rr
Control Over Financial
PART IV
Page
43
44
45
46
47
48
49
80
84
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
2016 10-K Annual Report
Stericycle, Inc. • 88
PART IV
2.1*
2.2*
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*
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)
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 June 1, 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)
2016 10-K Annual Report
Stericycle, Inc. • 89
PART IV
10.4*
10.5*
10.6*
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,
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, 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)
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)
2016 10-K Annual Report
Stericycle, Inc. • 90
PART IV
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)
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)
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)
10.7*
10.8*
10.9*
10.10*
10.11*†
10.12*†
10.13*†
2016 10-K Annual Report
Stericycle, Inc. • 91
PART IV
10.14*†
10.15*†
10.16*†
10.17*†
10.18*†
10.19*†
10.20*†
10.21*†
10.22*†
10.23*†
10.24†
10.25†
10.26*†
10.27*†
10.28*†
10.29†
10.30*†
10.31*†
14*
21
23
31.1
31.2
32
101.INS
101.SCH
101.CAL
101.DEF
101.LAB
101.PRE
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 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)
Form of agreement for performance-based restricted stock unit award under 2011 and 2014 Plans
Bonus conversion program (2017 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))
Canadian Employee Stock Purchase Plan (incorporated by reference to Exhibit A to the
registrant’s Definitive Proxy Statement on Schedule 14A filed April 15, 2016)
Plan of Compensation for Outside Directors (incorporated by reference to Exhibit 10.1 to our quarterly report
on Form 10-Q filed August 9, 2016)
Form of Indemnification Agreement for Directors and Officers
Executive Severance and Change in Control Plan (incorporated by reference to Exhibit 10.1 to our current report
on Form 8-K filed August 30, 2016)
Supplemental Retirement Plan (incorporated by reference to Exhibit 10.1 to our current report on Form 8-K
filed December 30, 2016)
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
XBRL Instance Document
XBRL Taxonomy Extension Schema Document
XBRL Taxonomy Extension Calculation Linkbase Document
XBRL Taxonomy Definition Linkbase Document
XBRL Taxonomy Extension Label Linkbase Document
XBRL Taxonomy Extension Presentation Linkbase Document
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
*
†
Filed herewith
Previously filed
Management contract or compensatory plan required to be filed pursuant to Item 601 of Regulation S-K
2016 10-K Annual Report
Stericycle, Inc. • 92
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
Dated: March 14, 2017
SIGNATURES
nt)
/s/ DANIEL V. GINNETTI
STERICYCLE, INC.
ii
(Registra
By:
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 14, 2017
Name
Title
Date
/s/ CHARLES A. ALUTTO
Charles A. Alutto
/s/ DANIEL V. GINNETTI
Daniel V. Ginnetti
/s/ MARK C. MILLER
Mark C. Miller
/s/
JACK W. SCHULER
Jack W. Schuler
/s/ BRIAN P. ANDERSON
Brian P. Anderson
/s/
LYNN D. BLEIL
Lynn D. Bleil
/s/ THOMAS D. BROWN
Thomas D. Brown
/s/ THOMAS F. CHEN
Thomas F. Chen
/s/ ROD F. DAMMEYER
Rod F. Dammeyer
/s/ WILLIAM K. HALL
William K. Hall
/s/ ROBERT S. MURLEY
Robert S. Murley
/s/
JOHN PATIENCE
John Patience
/s/ MIKE S. ZAFIROVSKI
Mike S. Zafirovski
President, Chief Executive Officer and Director (Principal
Executive Officer)
March 14, 2017
Executive Vice President and Chief Financial Officer (Principal
Financial and Accounting Officer)
March 14, 2017
Chairman of the Board of Directors
March 14, 2017
Lead Director of the Board of Directors
March 14, 2017
Director
Director
Director
Director
Director
Director
Director
Director
Director
March 14, 2017
March 14, 2017
March 14, 2017
March 14, 2017
March 14, 2017
March 14, 2017
March 14, 2017
March 14, 2017
March 14, 2017
2016 10-K Annual Report
Stericycle, Inc. • 93
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(This page intentionally leftff blank)
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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
Daniel V. Ginnetti
Chief Financial Officer
Ruth-Ellen Abdulmassih
Brenda R. Frank
Executive Vice President
Communication & Related Services
Chief People Officer
B o a r d o f D i r e c t o r s
Mark C. Miller • Chairman
Jack W. Schuler • Lead Director
Charles A. Alutto • President
and Chief Executive Officer
Brian P. Anderson
Member–rr Audit Committee
Lynn Dorsey Bleil
Member–rr Compensation
Committee
Chair–rr Nominating and
Governance Committee
Thomas D. Brown
Member–rr Compensation
Committee
Member–rr Nominating and
Governance Committee
Thomas F. Chen
Member–rr Audit Committee
Member–rr Nominating and
Governance Committee
Rodney F. Dammeyer
Chair–rr Audit Committee
William K. Hall
Chair–rr Compensation
Committee
Robert S. Murley
Member–rr Audit Committee
John Patience
Member–rr Audit Committee
Mike S. Zafirovski
Member–rr Compensation
Committee
Member–rr Nominating and
Governance Committee
I n d e p e n d e n t A u d i t o r s
F o r m 1 0 - K
Ernst & Young LLP
155 N. Wacker Drive
Chicago, Illinois 60606
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.
T r a n s f e r A g e n t
A n n u a l M e e t i n g
Wells Fargo Bank N.A.
Shareowner Services
1110 Centre Pointe Curve, Suite #101
Mendota Heights, MN 55120-4100
The annual meeting of stockholders will be held
at 2:00pm on Wednesday, May 24, 2017 at:
Hilton Garden Inn Chicago O’Hare
2930 South River Road, Des Plaines, IL 60018
N a s d a q ® S y m b o l
SRCL
28161 N. Keith Drive
Lake Forest, IL 60045
(800) 643-0240
www.stericycle.com