Annual Report
We protect what matters.
2018 ANNUAL REPORT
A Message from Cindy Miller
Dear Fellow Shareholders:
During 2018, Stericycle protected the brands and businesses of our more than one million customers
worldwide with our compliance services while executing on a multi-year Business Transformation.
Entering 2019, I am focused on continuing to position the business for the long term, as well as finding
ways to help us serve our customers better, faster and smarter today. As CEO-elect taking on my new
role in the year in which Stericycle celebrates its 30th anniversary, I am excited to lead the Company
during this critical time.
Adapting to Market Evolution
Stericycle is a great company. We hold a market leading
position in our core service lines, maintain a vast infrastructure
unmatched by any of our peers, and enjoy strong, long-term
partnerships with many of our customers and suppliers.
However, our business is facing new challenges as the
markets we serve evolve, and these changes have impacted
our financial performance. Importantly, we have a
comprehensive Business Transformation under way to
improve our results and strengthen our business, as well as
a refreshed leadership team committed to executing this
transformation. We are confident these changes will benefit
our customers, suppliers, team members and, of course,
our shareholders.
2018 Highlights
Revenue: $3,485 million
Adjusted EBITDA: $744 million
Adjusted EPS: $4.45
New Leadership to Drive Culture Change
As we prepare the organization for the opportunities that lie ahead, we have appointed new leaders
to help take us through the journey, including William Seward as Chief Commercial Officer, Richard
Moore as EVP North America, Joseph Reuter as Chief People Officer, and our CFO Dan Ginnetti will
transition to become EVP International. Together, the entire leadership team and I are committed to
transforming Stericycle’s culture to one based on standard processes, data-driven decision-making
and metrics-based accountability. This shift in culture, supported by technology, will enable our team
members to more effectively provide solutions to our customers that protect people and brands,
promote health and safeguard the environment.
Progress on our Business Transformation
As part of the Business Transformation, last year we introduced our plan to implement a global
enterprise resource planning (ERP) platform. Our ERP platform remains on track for implementation
in the U.S. and Canada throughout 2020 and internationally throughout 2021. This platform will deliver
meaningful benefits, including access to more robust and sophisticated real-time data, greater
efficiencies from streamlined processes, the elimination of redundancies, and improvements to the
overall customer experience. For 2019, our focus is on the successful completion of the build, test and
train phases of the ERP platform.
2018 ANNUAL REPORT
In 2018, we achieved our targets for our Business Transformation initiatives, including $64 million
in EBITDA savings and the simplification of our portfolio through the divestitures of three non-core
businesses. In early 2019, we divested a text messaging business in the United Kingdom and are
continuing to pursue strategic alternatives for our Communications and Related Services business as
well as other non-core assets.
Strong Business Fundamentals
Much of our confidence in our ability to adapt, evolve and grow is due to our strong fundamentals
and market outlook for the coming years. Regulatory oversight shows no signs of waning, and the
market size of our core services is growing. Specifically, medical waste demand continues to grow
based on the aging population and increasing consumption of healthcare, and secure information
destruction continues to grow due to increasing concern for data privacy and a continued trend to
outsource this service.
Focused on Driving Shareholder Value in 2018 and Beyond
This is a time of positive change for Stericycle. We recognize that there is substantial work to do
and are confident in our plan to pave the way for a stronger future for Stericycle.
Together with our more than 22,500 team members who work tirelessly on behalf of our
customers day in and day out, we look forward to capturing the opportunity before us, driving
profitable growth across the business, and enhancing shareholder value. Thank you for your
continued support of Stericycle.
Cindy Miller
President and Chief Operating Officer
Chief Executive Officer Elect
2018 ANNUAL REPORT
Directors and Executive Management
B O A R D O F D I R E C T O R S
Robert S. Murley
Chairman
Charles A. Alutto
Chief Executive Officer
Cindy J. Miller
President and Chief Operating Officer
Chief Executive Officer Elect
Brian P. Anderson
Chair – Audit Committee
Lynn Dorsey Bleil
Chair – Nominating and
Governance Committee
Member – Compensation
Committee
E X E C U T I V E O F F I C E R S
Charles A. Alutto
Chief Executive Officer
Cindy J. Miller
President and Chief Operating Officer
Chief Executive Officer Elect
Daniel V. Ginnetti
Executive Vice President and
Chief Financial Officer
William J. Seward
Executive Vice President and
Chief Commercial Officer
Thomas D. Brown
Chair – Compensation Committee
Member – Nominating and
Governance Committee
Thomas F. Chen
Member – Compensation Committee
J. Joel Hackney, Jr.
Member – Nominating and
Governance Committee
Veronica M. Hagen
Member – Audit Committee
Member – Nominating and
Governance Committee
Stephen C. Hooley
Member – Compensation Committee
Mark C. Miller
Former Chairman
and Chief Executive Officer
Kay G. Priestly
Member – Audit Committee
Mike S. Zafirovski
Member – Compensation Committee
Member – Nominating and
Governance Committee
Kurt M. Rogers
Executive Vice President and
General Counsel
Michael S. Weisman
Executive Vice President and
Chief Ethics and Compliance Officer
Joseph A. Reuter
Executive Vice President and
Chief People Officer
Richard M. Moore
Executive Vice President of
North America
David W. Stahl
Executive Vice President and
Chief Information Officer
S. Cory White
Executive Vice President of
Communication and Related Services
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(cid:3)(cid:3) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2018
or
(cid:4)(cid:4) 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.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
36-3640402
(IRS Employer Identification Number)
28161 North Keith Drive
,
Lake Forest, Illinois 60045
(Address of principal executive offices, including zip code)
(
(847) 367-5910
(Registrant’s telephone number, including area code)
)
Securities registered pursuant to Section 12(b) of the Act:
Common stock, par value $.01 per share
(Title of each class)
Nasdaq Global Select Market
(Name of each exchange on which registered)
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES (cid:3)
NO (cid:4)
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. YES
(cid:4) NO (cid:3)
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:3) NO (cid:4)
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be
submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such
shorter period that the registrant was required to submit such files). YES (cid:3) NO (cid:4)
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:4)
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a
smaller reporting company, or an emerging growth company. See the definition of "large accelerated filer", "accelerated
filer" "smaller reporting company," and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer (cid:3)
Smaller reporting company (cid:4)
Accelerated filer (cid:4)
Emerging Growth Company (cid:4)
Non-accelerated filer (cid:4)
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition
period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the
Exchange Act. (cid:4)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). YES (cid:4) NO (cid:3)
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, 2018): $5,596,897,370.
On February 25, 2019, there were 90,703,162 shares of the Registrant’s Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Information required by Items 10, 11, 12 and 13 of Part III of this Report is incorporated by reference from the Registrant’s
definitive Proxy Statement for the 2019 Annual Meeting of Stockholders to be held on May 22, 2019.
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
Purchase 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 Accountant Fees and Services
PART IV.
Item 15. Exhibits and Financial Statement Schedules
Item 16. Form 10-K Summary
SIGNATURES
TABLE OF CONTENTS
Page No.
4
20
34
34
34
34
35
37
39
65
66
120
120
125
126
126
126
127
127
128
135
136
PART I
PART I
Disclosure Regarding Forward-Looking Statements
Unless the context requires otherwise, the “Company”, “Stericycle”, we," "us" or "our" refers to Stericycle,
Inc., a Delaware corporation, and its subsidiaries on a consolidated basis.
This document may contain forward-looking statements that involve risks and uncertainties, some of
which are beyond our control (for example, general economic and market conditions). In particular,
statements pertaining to our acquisition activity, business transformation, future dividend policy, capital
expenditures, cost savings initiatives and remediation efforts with respect to identified material
weaknesses contain forward-looking statements. When we use words such as "believes," "expects,"
"anticipates," "estimates" or similar expressions, we are making forward-looking statements. Actual
results could differ significantly from the results described here. Factors that could cause such differences
include changes in governmental regulation of the collection, transportation, treatment and disposal of
regulated waste or the proper handling and protection of personal and confidential information, the level
of government enforcement of regulations governing regulated waste collection and treatment or the
proper handling and protection of personal and confidential information, decreases in the volume of
regulated wastes or personal and confidential information collected from customers, the ability to
implement our ERP or execute on Business Transformation initiatives and achieve the anticipated benefits
and cost savings, charges related to the portfolio rationalization strategy or the failure of this strategy to
achieve the desired results, failure to consummate a strategic alternative transaction with respect to
Communication and Related Services or other non-core businesses, potential charges related to a
strategic alternative transaction with respect to Communication and Related Services, or the failure of any
such transaction to achieve desired results, the obligations to service substantial indebtedness and
comply with the covenants and restrictions contained in private placement notes and credit agreements,
political, economic, inflationary, currency and other risks related to our foreign operations, the outcome of
pending or future litigation including litigation with respect to the U.S. Foreign Corrupt Practices Act,
changing market conditions in the healthcare industry, competition and demand for services in the
regulated waste and secure information destruction industries, changes in the demand and price for
recycled paper, failure to maintain an effective system of internal control over financial reporting, delays in
implementing remediation efforts with respect to existing material weakness, identification of additional
material weaknesses, failure of current remediation efforts to address existing material weaknesses,
disruptions in or attacks on information technology systems, as well as other factors described in filings
with the U.S. Securities and Exchange Commission, including this Annual Report on Form 10-K and
subsequent Quarterly Reports on Forms 10-Q. As a result, past financial performance should not be
considered a reliable indicator of future performance, and investors should not use historical trends to
anticipate future results or trends. To the extent permitted under applicable law, we make no
commitment to disclose any subsequent revisions to forward-looking statements.
2018 10-K Annual Report
Stericycle, Inc. • 3
PART I
Item 1. Business
Overview
Services
Incorporated in 1989, Stericycle is a multinational business-to-business services provider with a focus on
regulated and compliance solutions. Our core purpose is to help our customers fulfill their promise by
providing solutions that protect people and brands, promote health and safeguard the environment.
Over our nearly 30-year history, Stericycle has developed the scale, expertise and experience to handle
many complicated and often behind-the-scenes services that allow our more than one million customers
to focus on running their business. As of December 31, 2018, we served customers in all 50 states of the
United States (“U.S.”), Puerto Rico, and in 21 other countries.
We are one of the leading providers in our service lines, which include:
Service line
Revenue Service Categoryg y
Medical waste management services
(including reusable sharps disposal
management services)
Pharmaceutical waste services
Compliance programs under the
Steri-Safe®, Clinical Services, First
Practice Management, SeguriMed,
and EnviroAssure brand names
Medical Waste and Compliance
Solutions
Medical Waste and Compliance
Solutions
Medical Waste and Compliance
Solutions
Hazardous waste management
services
Retail and Healthcare - Medical
Waste and Compliance Solutions
Industrial - Manufacturing and
Industrial Services
Secure Information Destruction
Services
Communication and Related Services
Communication and Related Services
Secure information destruction
(including document and hard drive
destruction services)
Live voice and automated
communication services including
afterhours answering, appointment
scheduling, appointment reminders,
secure messaging, and event
registration
Regulated recall and returns
management communication,
logistics, and data management
services for expired, withdrawn or
recalled products
2018 10-K Annual Report
Stericycle, Inc. • 4
PART I
Operations for our full portfolio of services are established in the U.S., Canada, Ireland, the Netherlands,
and Spain. We offer all of our services, except for hazardous waste management, in the United Kingdom
(“U.K.”). Only regulated waste operations are in Argentina, Brazil, Chile, Japan, Mexico, Portugal, Republic
of Korea, and Romania. Only secure information destruction services are provided in Australia, Austria,
Belgium, France, Germany, Luxembourg, and Singapore. Secure information destruction services under
the Shred-it® brand are also provided in the United Arab Emirates through a joint venture with the
Company’s portion of income reported as an equity investment.
Our worldwide network includes leased and owned properties which include the following:
307
Transfer
Sites
251
Processing
Facilities
14
Communication
Centers
67
Office
Locations
2
Landfill
Locations
2018 10-K Annual Report
Stericycle, Inc. • 5
PART I
We are currently headquartered in Lake Forest, Illinois but have recently executed a lease for a new
headquarters in Bannockburn, Illinois, which we expect to occupy beginning in 2019.
Customers
Our broad offering of services appeals to a wide range of small and large business customers. 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.
We serve customers in all 50 U.S. states, Puerto Rico, and 21 other countries worldwide. No single
customer accounts for more than 1.1% of our total revenues, and our top ten customers collectively
account for approximately 6.3% of total revenues. We provide service to the majority of our customers
under multi-year contracts. Although we generally have several standard contracts, terms vary depending
upon the customer’s service requirements, types of services, and geographies.
Segments
Our three operating segments are:
(cid:129) Domestic and Canada Regulated Waste and Compliance Services (“Domestic and Canada RCS”)
(cid:129) International Regulated Waste and Compliance Services (“International RCS”)
(cid:129) Domestic Communication and Related Services (“Domestic CRS”)
Revenues by service for each of the operating segments for the years ended December 31, 2018, 2017,
and 2016, respectively were as follows:
In millions
Domestic and Canada RCS
Medical Waste and Compliance Solutions
Secure Information Destruction Services
Manufacturing and Industrial Services
Communication and Related Services (Canada only)
Total
International RCS
Medical Waste and Compliance Solutions
Secure Information Destruction Services
Manufacturing and Industrial Services
Communication and Related Services
Total
Domestic CRS
Communication and Related Services
$
$
$
$
$
2018
Years ended December 31,
2017
2016
1,496.1
778.3
270.4
29.3
2,574.1
436.5
132.7
58.8
27.1
655.1
$
$
$
$
1,538.5
704.9
275.0
33.5
2,551.9
485.1
118.5
76.1
27.9
707.6
$
$
$
$
1,548.0
634.7
294.3
31.8
2,508.8
515.0
112.8
87.1
36.8
751.7
256.7
$
321.2
$
301.8
2018 10-K Annual Report
Stericycle, Inc. • 6
PART I
Domestic CRS does not consistently meet the quantitative criteria to be a separate reportable segment
and therefore is included in the “All Other” reporting segment along with costs related to our corporate
headquarters and shared services functions.
Item 7.
Financial and other information related to our reporting segments is included in Part II,
Management’s Discussion and Analysis of Financial Condition and Results of Operations and Part II, Item 8.
Financial Statements and Supplementary Data; Note 17 - Segment Reporting.
Our Business Model
Regulated Business-to-Business Operations
We focus on providing 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 confidential information. Regulated waste can be defined as any
material with government-imposed guidelines for handling the material for transportation or disposal.
(cid:129) Medical waste, such as needles, syringes, gloves, cultures, and potentially infectious agents, blood
and blood products, can potentially cause an infectious disease.
(cid:129)
(cid:129) Hazardous waste is designated and governed by federal and local environmental protection
agencies. It generally includes waste that is considered dangerous or potentially harmful to our
health or the environment during transportation and disposal.
Pharmaceutical waste may be hazardous or nonhazardous and consists of expired, recalled, or
otherwise unused pharmaceuticals.
Personal confidential information includes documents and e-media containing protected healthcare
information, financial information, or other confidential information.
(cid:129)
Small Customers with Recurring Service Needs
We also focus on serving smaller businesses which often have an even greater need for support with
compliance matters because they tend to lack the specialized staff that is found at larger businesses. With
a small business, regulatory and compliance matters are often managed by a business owner, office
manager, or facility supervisor who manage multiple functions for the organization and often lack the
time and resources to properly investigate and comply with a wide range of regulations that may impact
their operations.
Organic Growth from New Customers and Additional Services
As a leading provider of 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, we believe, a revenue retention rate of approximately 90% (based on our internal
customer attrition analysis) and have been able to leverage these customer relationships to provide
additional services. Our growth strategy focuses on securing new customer relationships and selling
additional services to existing customers.
2018 10-K Annual Report
Stericycle, Inc. • 7
PART I
Growth through Acquisition
The various regulated waste and compliance, including secure documentation destruction, services that
we provide tend to be in highly fragmented industries. We have proven that acquisitions are a steady and
efficient way to scale operations, build critical customer density for transportation and treatment
operations, and enter new markets or geographies, as well as provide opportunity to introduce our
additional services to the acquired customers. In our early history, acquisitions were a key strategy to
rapidly building our customer base and route density in the United States. We have been able to expand
internationally through acquisition and now serve customers in 20 international markets outside the U.S.
Stericycle has completed over 500 acquisitions, with 21, completed during 2018. 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.
Business Transformation
Stericycle is focused on driving long-term growth and profitability and delivering enhanced shareholder
value. As part of our business strategy, in the third quarter of 2017, we initiated a comprehensive
multiyear Business Transformation with the objective to improve long-term operational and financial
performance. The Business Transformation is based on a strategic vision to build a best-in-class
enterprise performance management (“EPM”) operating model and includes streamlining our portfolio,
realigning our processes and organizational structure to drive efficiency, and implementing an enterprise
resource planning (“ERP”) system.
Key initiatives of the Business Transformation include:
(cid:129) Portfolio Rationalization: Executing on a comprehensive review of the Company’s global service
lines to identify and pursue the divestiture of non-strategic assets.
(cid:129) Operational Optimization: Standardizing route planning logistics, modernizing field operations, and
driving network efficiency across facilities.
(cid:129) Organizational Excellence and Efficiency: Redesigning the Company’s organizational structure to
optimize resources and align around a global shared business services model.
(cid:129) Commercial Excellence: Aligning our sales and service organizations around the customer,
standardizing our customer relationship management process, and expanding customer self-service
options.
(cid:129) Strategic Sourcing: Reducing spend through global procure-to-pay processes and leveraging
organizational scale.
Execution of the Business Transformation began in 2017 with the identification and validation of key
transformational opportunities as well as an organizational restructuring which occurred during the fourth
quarter of 2017. Execution of the Business Transformation is expected to continue with the
implementation of an enterprise resource planning system in the U.S. and Canada during 2020 followed
by the international rollout beginning in 2021.
On August 2, 2018, we announced, as part of the Portfolio Rationalization strategy within Business
Transformation that we are pursuing strategic alternatives for the recall and communications services
which are non-core Communication & Related Services business (“CRS”), demonstrating our commitment
2018 10-K Annual Report
Stericycle, Inc. • 8
PART I
to streamlining our portfolio. The process, which is being conducted with the assistance of financial and
legal advisers, is considering a range of strategic alternatives for CRS, with a focus on pursuing the
outcome that will drive the most value for Stericycle shareholders.
Refer to Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
and Item 8. Financial Statements and Supplementary Data; Note 4 – Restructuring, Divestitures, and Assets
Held For Sale.
Market Size and Growth Potential
We provide a wide range of services across multiple market segments and industries. Based on various
industry studies and management’s estimates, we estimate the size of the global market for the services
we provide, in the geographies where we currently operate is approximately $38 billion (including global
markets with established regulatory frameworks for medical waste plus global markets in which Stericycle
operates for hazardous waste, information destruction and communication services. Growth in this
industry in which we operate is driven by a number of factors, including:
• Aging 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 While 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.
• Enforcement of Waste Regulations: Enforcement of regulations relating to the management of
regulated waste is increasing. Penalties for violations can be costly and 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. We believe that many
businesses are unaware either of the need for proper training of employees or of applicable regulatory
requirements.
• Increased Business Focus on Sustainability: Businesses large and small are continuing to realize
that a 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.
• Regulation of Privacy and Information Security and Concerns 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
2018 10-K Annual Report
Stericycle, Inc. • 9
PART I
purpose. Secure information destruction services are increasingly a standard measure that
organizations use to meet their legal safeguarding and retention requirements.
• Market Expansion Due to Increased Outsourcing: With regard to secure information destruction
services and communication services, we believe significant market growth will come from increased
reliance on outsourced service providers. Many small businesses currently do not use services or
manage these needs with internal resources and solutions. Opportunity exists to convert these
businesses as the trend to outsource support services continues.
Competitive Strengths
We believe that we benefit from the following competitive strengths, among others:
• Strong Service Relationships with Customers: We offer our customers necessary services which
require routine 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 that are often
renewed.
• Established Network of Processing and Transportation Locations in Each Country: We believe
that our infrastructure network results in an efficient operation with alternate treatment or destruction
options for our customers. The scale of our network also provides us the ability to be the single-
source provider for customers with multiple locations across the country and gives us the flexibility to
quickly redirect services or operations to another location if the need arises due to severe weather,
power outages, or other disruptions.
• Routing Logistics: Within our logistics-based services lines, we maintain a vast transportation
network that is focused on route efficiency. This advantage has been built from a deliberate focus on
route density and technological investments to optimize routing at both the individual truck and
geographic market level. Our Business Transformation and ERP implementation will improve our
routing efficiencies by providing the opportunity to leverage our infrastructure across services lines.
• Industry Leadership and Expertise: Based on our infrastructure and revenues, 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. We collaborate
regularly with a wide range of stakeholders and interest groups. We proactively work with
organizations like the CDC, DEA, OSHA, EPA, and many other government and regulatory bodies,
including law enforcement. Our experts are frequent speakers at hospital networks, industry trade
associations, and actively engage in numerous community meetings each year.
• Secure Management of Information for Destruction: With the acquisition of Shred-it, Stericycle is
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., the General Data
2018 10-K Annual Report
Stericycle, Inc. • 10
PART I
Protection Regulation (“GDPR”) covering the European Union (“EU”), and other data security
regulations abroad.
• Broad Range of Services: We leverage our expertise in specialty waste and compliance to offer our
Offering multiple services reduces
customers a broad range of complementary services.
administrative burden for our customers as fewer vendors are required. Additionally, we believe
loyalty among customers is stronger when more than one service is leveraged.
Regulated Waste and Compliance Service Operations
Collection and Transportation
The collection process for regulated waste streams 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 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
Site
Transfer Site
Customer
2018 10-K Annual Report
Stericycle, Inc. • 11
PART I
Processing and Disposal of Regulated Medical Waste
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 is the primary method of medical waste treatment. This process relies on
steam at high temperature and pressure to kill pathogens and render materials non-infectious.
• Alternative Technologies: We use a number of different non-incineration alternatives to autoclaves,
predominantly outside of the U.S. The processes used by these technologies are similar, as the
regulated waste is heated to a specified temperature for a required time to kill the pathogens. This is
not always under pressure. Depending on local requirements, the waste may be shredded before or
after treatment to render it unrecognizable.
• Incineration: Incineration burns regulated waste at elevated temperatures and reduces it to ash.
Incineration reduces the volume of waste, and it is the recommended treatment and disposal option
for some types of regulated waste such as anatomical waste, 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 treatment process, the resulting waste or incinerator ash is transported
for disposal in a landfill owned by unaffiliated third parties. In some countries, where permitted by
regulation, the treated waste is recovered, including recovery as fuel in waste-to-energy processes.
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 or water treatment.
Destruction and Recycling of Secure Information
If not shredded on site in a Shred-it® truck with proprietary information destruction technology,
documents are sent to a shredding facility for secure destruction. Documents are cross-cut shredded and
then baled to be sold as sorted office paper (“SOP”) for recycling.
2018 10-K Annual Report
Stericycle, Inc. • 12
PART I
Communication and Related Services Overview
Our Communication Solutions service line provides a broad range of live voice and automated service
offerings to assist our clients in delivering a best in class communications stream with their patients and
customers. Our team serves as a client representative providing answering services, appointment
scheduling, appointment reminders, event registration, and other necessary communications. 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 proper education levels are critical to our success. We leverage
sophisticated workflow analysis and staffing tools to ensure appropriate resources are in place in order to
handle call volumes quickly and consistently across our multiple call centers during peak volumes.
Our Expert Solutions service line specializes in partnering with automotive, food/beverage, medical device,
pharmaceutical, consumer goods manufacturers, and retailers to support 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 management. 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 regulatory framework imposes a variety
of compliance requirements, including requirements to obtain and maintain government permits. We
maintain numerous governmental permits, registrations, and licenses to conduct our business in the
jurisdictions in which we operate. Our permits vary by jurisdiction based upon our activities within that
jurisdiction and on the applicable laws and regulations of that jurisdiction. These permits grant us the
authority, among other things:
(cid:129) to construct and operate collection, transfer, and processing facilities;
2018 10-K Annual Report
Stericycle, Inc. • 13
PART I
(cid:129) to transport regulated waste within and between relevant jurisdictions; and
(cid:129) to handle particular regulated substances.
Our permits may be subject to modification or revocation by the issuing authority and, in some
jurisdictions, are subject to periodic renewal. Periodic renewals may be 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 regulatory requirements with which we must comply 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, ethical business conduct, and 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
potential release of hazardous substances into the environment, the discharge of pollutants into streams,
rivers, groundwater, and other surface waters, and the emission of pollutants into the air. The principal
environmental laws that govern our operations in the U.S. are state environmental regulatory agencies as
they provide the specific legislative and/or regulatory frameworks which require the management and
treatment of regulated medical waste. Additionally, the Resource Conservation and Recovery Act of 1976
("RCRA"), the Comprehensive Environmental Response, Compensation and Liability Act of 1980
("CERCLA"), and the Clean Air Act of 1970 are the federal regulations that affect management of certain
aspects of regulated medical waste and all RCRA hazardous wastes. CERCLA and state laws similar to it
may impose strict, joint and several 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 10 incinerators we currently operate
in the U.S. must comply with the emissions standards imposed by the applicable states permitting
authorities pursuant to regulations promulgated under the Clean Air Act as well as state and/or municipal
waste permit requirements.
Examples of environmental laws applicable to our international operations include the Waste Framework
Directive, Environmental Liabilities Directive, Industrial Emissions Directive and the Shipments of Waste
Regulations in the 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. Additional environmental laws at the federal and/or local levels apply to
regulated waste management in other markets in which we conduct business.
2018 10-K Annual Report
Stericycle, Inc. • 14
PART I
Employee Health and Welfare
We are 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 U.S. federal laws relating to employee health and welfare applicable to our
business 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 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 and protective
equipment.
Examples of employee health and welfare laws applicable to our international operations include the
European Framework Directive on Safety and Health at Work (Directive 89/391 EEC), 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 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 applicable to our international operations 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 Fair and Accurate Credit Transaction Act (“FACTA”) Final Disposal Rule, the FACTA Red Flag
Rule, the Health Insurance Portability and Accountability Act (“HIPAA”) Privacy Rule, and the Gramm-
Leach Bliley Act (“GLBA”). Furthermore the General Data Protection Regulation (“GDPR”) provides the
framework for data privacy and data protection for companies that conduct business in Europe.
For the transportation of secure information for destruction, we are regulated by the U.S. DOT as a
commercial motor carrier. The processes for the destruction of secure information destruction processes
are not regulated by any government agency. However, the National Association of Information
Destruction (“NAID”) maintains a certification to ensure that destruction processes support the needs of
organizations to meet laws and regulations relating to the protection of confidential information. We
currently hold the NAID AAA Certification for our operations in North America. Further, the Payment Card
2018 10-K Annual Report
Stericycle, Inc. • 15
PART I
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.
Ethical Business Conduct
Various international regulations governing ethical business practices apply to our business, including but
not limited to, the U.S. Foreign Corrupt Practices Act (“FCPA”), the U.K. Bribery Act (“Bribery Act”), and the
Brazilian Clean Companies Act. These laws may apply to our business on both a global and local basis,
and ban unethical behavior such as the payment of bribes to government officials for the purpose of
gaining an improper business advantage, improper maintenance of our books and records, as well as
other financial transparency requirements.
Use of the Mail in the U.S.
The 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/or 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 U.S. and the Home Office Drugs and Firearm Licensing Unit in
the U.K. 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 controlled substance registration in addition to other pharmaceutical licenses and meet
certain criteria in order to collect, process, and dispose of controlled substances. These 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 our other
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 U.S. States and Puerto Rico. Because the U.S. EPA does 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 pursuant to regulations
promulgated by the U.S. Department of Agriculture ("USDA") and Customers and Border Patrol. The
USDA typically inspects our facilities receiving such APHIS waste on a quarterly basis.
2018 10-K Annual Report
Stericycle, Inc. • 16
PART I
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, Trademarks and Proprietary Rights
Stericycle holds eight patents in the U.S., Canada, and Australia for the recovery of reusable medical
devices in a sharps container and holds two patents (U.S. and Canada) for the processing and updating of
event-related information using automated reminders. With the acquisition of Shred-it, we hold patents
in the U.S. and Canada for a three-staged shredder, with one patent application pending in the EU. We
also hold patents in the U.S., Canada, and the EU for Securshield®, our proprietary locks for shredding
containers.
We own federal registrations for a number of trademarks/service marks including Stericycle®, SRCL, Steri-
Safe®, Stericycle ExpertRECALL®, Sustainable Solutions®, CSRX, 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 several insurance coverages including property, workers compensation, general liability,
employer’s liability, pollution liability, privacy and security liability, event management, cyber-liability, and
miscellaneous professional services errors and omissions coverages. We also carry umbrella policies that
cover general liability, auto and employers liability. We regularly evaluate other lines of coverage to
2018 10-K Annual Report
Stericycle, Inc. • 17
PART I
respond to specific business needs but consider our current insurance coverage to be sufficient to meet
regulatory as well as customer requirements and to protect our employees, assets, and operations.
Executive Officers of the Registrant
The following table contains certain information regarding our nine current executive officers:
Name
Charles A. Alutto
Cindy J. Miller
Daniel V. Ginnetti
Kurt M. Rogers
William J. Seward
Joseph A. Reuter
David W. Stahl
Michael S. Weisman
Richard M. Moore
Position
Chief Executive Officer
President and Chief Operating Officer
Executive Vice President and Chief Financial Officer
Executive Vice President, General Counsel and Corporate Secretary
Executive Vice President and Chief Commercial Officer
Executive Vice President and Chief People Officer
Executive Vice President and Chief Information Officer
Executive Vice President and Chief Ethics and Compliance Officer
Executive Vice President of North American Operations
Age
53
56
50
47
51
57
53
60
57
Charlie Alutto has served as Chief Executive Officer since October 2018 and as a Director since
November 2012. From January 2013 until September 2018, he served as our President and Chief Executive
Officer. 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 earned a
bachelor of science degree from Providence College and a masters of business administration from St.
John’s University.
r
Cindy Miller joined us as President and Chief Operating Officer in October, 2018. She was appointed as a
Director effective February 28, 2019. She previously served as President, Global Freight Forwarding for
United Parcel Service (“UPS”) and had a 30-year career with UPS starting as a driver and progressing to
district manager for operating regions in the U.S. and then managing director for regions in Europe, the
Middle East, and Africa before becoming President of the European region. Ms. Miller received a bachelor
of arts degree from Pennsylvania State University and an Executive MBA from the London Business
School.
Dan Ginnetti was appointed Chief Financial Officer (”CFO”) in August, 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 U.S. 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 received a
bachelor of science degree from the University of California, Santa Barbara.
Kurt Rogers was named Executive Vice President, General Counsel and Corporate Secretary in July 2017.
Mr. Rogers previously served as Chief Legal Officer and Secretary of Vonage Holdings Corp., a publicly-
listed software technology and communications company, for more than seven years. Earlier, Mr. Rogers
was a partner with international law firms Bingham McCutchen LLP (now Morgan, Lewis & Bockius LLP)
and Latham & Watkins LLP and as an associate with Rogers & Wells LLP (now Clifford Chance LLP), where
2018 10-K Annual Report
Stericycle, Inc. • 18
PART I
he represented clients in litigation, intellectual property and other matters. Mr. Rogers received a
bachelor of science degree in Industrial and Labor Relations from Cornell University and his juris doctor
degree from Cornell Law School.
Bill Seward joined Stericycle as Executive Vice President and Chief Commercial Officer in February 2019.
Prior to joining Stericycle, Mr. Seward spent 28 years with UPS, most recently as President of UPS' North
American export business since 2016 and President of International Sales from 2012 to 2015. His previous
experience includes three years as Vice President of European Region Sales, two years as Vice President of
Northeast U.S. Regional Sales and previous other sales, marketing, and staff roles. Mr. Seward received a
bachelor of arts degree from the University at Albany (SUNY).
Joe Reuter joined Stericycle as Executive Vice President and Chief People Officer in January 2019.
Previously, Mr. Reuter served as President, International Human Resources at UPS, since April 2016. Prior
to that, he served as Vice President of the Europe Region human resources for three years and Vice
President of Human Resources for the Global Freight Forwarding business for one year. He began his
career as a parcel service provider and supervisor before moving into the human resources field and
supporting UPS operating districts across the U.S. with increasingly larger areas of responsibility. Mr.
Reuter received a bachelor of arts degree from the University of South Dakota.
David Stahl was named Executive Vice President and Chief Information Officer in April 2018 after serving
as Senior Vice President for approximately 18 months. Prior to joining Stericycle, Mr. Stahl served as the
Chief Information Officer at Hillshire Brands Company for two years, where he implemented an IT
transformation, and as Chief Information Officer at Duracell (a Berkshire Hathaway Company) for two
years, where he established a new operating platform for Duracell following its separation from the
Procter & Gamble Company. He also spent eight years with Tellabs, Inc. in roles of increasing
responsibility within quality and IT, as well as quality roles with Underwriters Laboratories, 3Com
Corporation, and Emerson Electronics. Mr. Stahl received a bachelor of science degree from Ohio
Northern University.
Michael Weisman joined Stericycle as Executive Vice President and Chief Ethics and Compliance Officer
in April, 2018. Mr. Weisman previously served as Chief Ethics and Compliance Officer for The Kraft Heinz
Company, a publicly-listed packaged foods company, which he joined through Kraft Foods in July of 2015.
Prior to the merger with Heinz Foods he served as Chief Counsel, Compliance for Kraft Foods from July
2014 and as Vice President, Ethics and Compliance for U.S. Foods and Career Education Corporation from
February, 2013. He was also with the law firm Katten Muchin Rosenman, LLP for more than 10 years, four
as partner, and served as a member of the firm's White Collar Defense, Internal Investigations and
Compliance Practice Group. Mr. Weisman received a bachelor of science degree from the University of
Illinois and his juris doctor degree from Chicago-Kent College of Law.
Rich Moore joined Stericycle as Executive Vice President of North American Operations in January 2019.
Prior to joining Stericycle, Mr. Moore spent 30 years with UPS, most recently as President of UPS' Illinois
District since 2016. Previously he served for three years as Vice President of European Operations, five
years as President of the Northeast District, and three years as District Manager for Utah, Idaho, and
Southern Nevada, in addition to other operations and transportation staff roles. Mr. Moore received a
bachelor of science degree from Manhattan College and a masters of business administration from
National Louis University.
2018 10-K Annual Report
Stericycle, Inc. • 19
PART I
Employees
At December 31, 2018 we had approximately 22,500 full time employees of which approximately 1,700 are
covered by collective bargaining agreements.
Available Information
We maintain an internet website, www.stericycle.com, which provides a variety of information about the
Company and where the Company’s Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q,
Current Reports on Form 8-K, and all amendments to those reports are available free of charge, as soon
as reasonably practicable, following the time they are filed with or furnished to the Securities and
Exchange Commission (“SEC”). Reports and proxy and information statements that are filed electronically
with the SEC are available on the SEC’s website, www.sec.gov.g
y
Item 1A. Risk Factors
Our consolidated results of operations, financial position, cash flows and reputation can be adversely
affected by various risks. These risks include the principal factors listed below and the other matters set
forth in this Form 10-K. There may be additional risks of which we are not presently aware or that we
currently believe are immaterial that could have an adverse impact on our business.
We are subject to extensive governmental regulation, which is frequently difficult, expensive and
time-consuming with which to comply; noncompliance could adversely affect our operations and
efforts to grow our business results.
The regulated waste management and secure information destruction industries are subject to extensive
federal, state and local laws and regulations relating to the collection, transportation, packaging, labeling,
handling, documentation, reporting, treatment and disposal of regulated waste and the proper handling
and protection of personal and confidential information. Our business requires us to obtain many
permits, authorizations, approvals, certificates, and other types of governmental 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.
If we encounter regulatory compliance issues in the course of operating our businesses, we may
experience adverse publicity, which may intensify if such non-compliance results in civil or criminal
liability. This adverse publicity may harm our reputation, and result in difficulties in attracting new
customers, or retaining existing customers.
2018 10-K Annual Report
Stericycle, Inc. • 20
PART I
The level of governmental enforcement of environmental and other 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, the proper handling and protection of personal and confidential information, and recalls and
retrieval of products by governmental authorities can have a positive effect on our business. These laws
and regulations increase the demand for our services. Relaxation of enforcement, government
shutdowns, or other changes in governmental regulation of regulated waste, personal and confidential
information or products to be recalled or retrieved could increase the number of competitors we face or
reduce or delay 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 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.
We may experience difficulties executing on our multiyear Business Transformation.
We began a comprehensive, multiyear Business Transformation during the third quarter of 2017 with the
intent of implementing a global enterprise performance management (“EPM”) operating model. This new
operating model is expected to standardize global end-to-end processes, align the company around key
performance indicators, improve data management and decision making, and improve the Company’s
profitability. A global enterprise resource planning (“ERP”) system is the central component of our
Business Transformation and will become the backbone of our performance management model. With an
ERP, we will integrate our services lines and geographies onto one operating system. In addition to the
implementation of a best-in-class system, there are five key initiatives of the Business Transformation
which include: portfolio rationalization, operational optimization, organizational excellence and efficiency,
commercial excellence, and strategic sourcing.
There is no assurance that the Business Transformation will achieve the anticipated benefits that we
expect. Further, the ERP platform will require significant investment of human and financial resources and
we may experience significant delays, increased costs and other difficulties. If the execution of our
Business Transformation fails to achieve its intended benefits, our business, financial condition, and results
of operation could be adversely affected.
2018 10-K Annual Report
Stericycle, Inc. • 21
PART I
Restrictions in our private placement notes and our Credit Agreement could adversely affect our
business, financial condition, results of operations, ability to make distributions and value of our
securities.
Our private placement notes and Credit Agreement entered as of November 17, 2017 (as amended, the
“Credit Agreement”) contain customary affirmative covenants, including, among others, covenants
pertaining to the delivery of financial statements; certain financial covenants; notices of default and
certain other material events; payment of obligations; preservation of corporate existence, rights,
privileges, permits, licenses, franchises and intellectual property; maintenance of property and insurance
and compliance with laws, as well as customary negative covenants, 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. These covenants could affect our ability to operate our business,
increase the amount of interest expense we ultimately pay pursuant to the Credit Agreement and private
placement notes, 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 and
our Credit Agreement 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 their commitments, cease making further loans, require cash collateralization of letters of credit,
cause their 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 stock could experience a partial or total loss of their investment. See Part II,
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, Liquidity
and Capital Resources.
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, including capital expenditures associated with our Business Transformation, 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:
(cid:129) future operating performance;
(cid:129) general economic conditions;
(cid:129) competition; and
(cid:129) litigation, 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
2018 10-K Annual Report
Stericycle, Inc. • 22
PART I
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.
The amount of our indebtedness could adversely affect our business.
As of December 31, 2018, we had a total of $2.8 billion of outstanding indebtedness, including long-term
debt and short-term debt and not reduced by unamortized debt issuance costs. We also have the ability
to incur additional indebtedness subject to our financial covenants.
Our leverage could have adverse consequences on our business, including the following:
(cid:129) we may be required to dedicate a substantial portion of our available cash to payments of principal
and interest on our indebtedness;
(cid:129) our ability to access credit markets on terms we deem acceptable may be impaired; and
(cid:129) we may be limited in our flexibility to adjust to changing market conditions.
Risks from our international operations could adversely affect our business, financial condition and
results of operations.
We have established operations in the U.S. and 20 other countries. Foreign operations carry special risks
including:
(cid:129) exchange rate and interest rate fluctuations;
(cid:129) substantial inflation in certain markets;
(cid:129) dependence in certain markets on government entities as customers;
(cid:129) delays in the collection of accounts receivable related to certain government funding practices;
(cid:129) government controls;
(cid:129) import and export license requirements;
(cid:129) political or economic instability;
(cid:129) changes in or compliance with U.S., local or other applicable laws and regulations, including laws and
regulations concerning anti-corruption, anti-bribery (i.e. FCPA, U.K. Bribery Act and similar laws), global
trade, trade sanctions, competition, privacy and data protection;
(cid:129) trade restrictions;
(cid:129) changes in tariffs and taxes;
(cid:129) industry or macro-economic trends;
(cid:129) permitting and regulatory standards;
(cid:129) differences in local laws, regulations, practices, and business customs;
(cid:129) restrictions on repatriating foreign profits back to the U.S. or movement of funds to other countries;
(cid:129) difficulties in staffing and managing international operations;
(cid:129) increases and volatility in labor costs; and
(cid:129) property ownership restrictions in certain countries.
2018 10-K Annual Report
Stericycle, Inc. • 23
PART I
Any of the foregoing or other factors associated with doing business abroad could adversely affect our
business, financial condition and results of operations.
We have operations in Latin America, and changes in the business, regulatory, political or social
climate could adversely affect our operations there, which could adversely affect our results of
operations and growth plans.
We have business operations in Argentina, Brazil, Chile and Mexico. Doing business in those countries
exposes us to risks related to political instability, corruption, economic volatility, social unrest, tax and
foreign investment policies, public safety and security, and uncertain application of laws and regulations.
Consequently, actions or events in any of those countries that are beyond our control could restrict our
ability to operate there or otherwise adversely affect the profitability of those operations. Furthermore,
changes in the business, regulatory or political climate in any of those countries, or significant fluctuations
in currency exchange rates, could affect our ability to continue our operations there, which could have a
material adverse impact on our prospects, results of operations and cash flows.
We face continuing risks relating to compliance with the FCPA and other anti-corruption and anti-
bribery laws.
On June 12, 2017, the SEC issued a subpoena to the Company, requesting documents and information
relating to the Company’s compliance with the FCPA or other foreign or domestic anti-corruption laws
with respect to certain of the Company’s operations in Latin America. In addition, the Department of
Justice (“DOJ”) has notified the Company that it is investigating this matter in parallel with the SEC. The
Company is cooperating with these agencies. The Company is also conducting an internal investigation of
these and other matters, including outside of Latin America, under the oversight of the Audit Committee
of the Board of Directors and with the assistance of outside counsel, and this investigation has found
evidence of improper conduct. These matters (and other matters which may arise or of which we become
aware in the future) may be deemed to violate the FCPA and other anti-corruption and anti-bribery laws.
Such determinations could subject us to, among other things, enforcement actions by the SEC or the DOJ
or other regulatory bodies, fines, penalties, or litigation, which could adversely affect our business,
financial condition and results of operations. In addition, any significant 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 Part II, Item 8. Financial
Statements and Supplementary Data; Note 19 – Legal Proceedings in the Consolidated Financial
Statements for more information regarding currently pending legal proceedings.
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 reputation, 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
Item 8. Financiall Statements and
us to restructure or amend the terms of our indebtedness. See Part II, Item 8. Financial Statements and
2018 10-K Annual Report
Stericycle, Inc. • 24
PART I
Supplementaryy Data;
information regarding currently pending legal proceedings.
Note 19 -
Legal Proceedings in the Consolidated Financial Statements for more
Changing market conditions in the healthcare industry, including healthcare consolidation and
healthcare reform, could drive down our profits and slow our growth.
Within the U.S., 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 healthcare providers are focused on cutting costs
within their businesses. These changes exert downward pricing pressure, including the impact of Group
Purchasing Organization (“GPO”) rebates and administrative fees, on services that we provide to
healthcare customers which could adversely affect our profitability and growth. Commitments made in
connection with the settlement of the small quantity medical customer contract class action lawsuits (the
“MDL Action”), as discussed in Part II, Item 8. Financial Statements and Supplementary Data; Note 19 -
Legal Proceedings may affect our ability to increase prices in the future and a deterioration in our
customer relationships as a result of the MDL Action may affect our ability to sell additional services to
our customers, both of which could adversely affect our profitability and growth.
Item 8. Financiall Statements and d Supplementaryy Data;
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, may require
us to reduce our prices in the future or may affect our ability to increase prices in the future. Substantial
price reductions or our inability to increase prices 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 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 U.S., Waste Management, Inc.,
Clean Harbors, Inc., and Iron Mountain Incorporated all offer competing services.
If we fail to maintain an effective system of internal controls over financial reporting, including
remediating known material weaknesses in our internal controls as of December 31, 2018, we may
not be able to report our financial results timely and accurately or prevent fraud, which could
adversely affect investor confidence in our company, our results of operations and our stock price.
As disclosed in more detail in Part II, Item 9A. Controls and Procedures of this Report, we have identified
material weaknesses as of December 31, 2018, in our internal controls over financial reporting. Due to
these material weaknesses, we have also concluded our internal control over financial reporting was
ineffective as of December 31, 2018.
Notwithstanding the material weaknesses that existed as of December 31, 2018, management has
concluded that the consolidated financial statements included 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
2018 10-K Annual Report
Stericycle, Inc. • 25
PART I
periods, presented, in conformity with U.S. GAAP. Our management has taken action to remediate these
material weaknesses, as discussed in more detail under Part II, Item 9A. Controls and Procedures of this
Report, and is 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. Any failure to maintain or implement required new or improved controls, or any difficulties
we encounter in their implementation, could result in additional significant deficiencies or material
weaknesses, and result in material misstatements in our financial statements that could result in a
restatement of financial statements.
Attacks on our information technology systems could damage our reputation, negatively impact
our businesses and expose us to litigation risk.
We use computers in substantially all aspects of our business operations. We also use mobile devices,
social networking and other online activities to connect with our employees and our customers. We rely
heavily on various proprietary and third-party information systems. Our reputation for the secure
handling of customer and other sensitive information is critical to the success of our business. Although
we have implemented safeguards and taken steps to prevent potential cyber incidents and security
breaches, our preventative measures may not be entirely effective as our information technology and
network infrastructure may still be vulnerable to attacks by hackers or breaches due to employee error,
malfeasance, computer viruses, power outages, natural disasters, acts of terrorism or other disruptions. A
cybersecurity incident and breach of our information systems could lead to theft, destruction,
misappropriation or release of sensitive and/or confidential information or intellectual property which
could result in business disruption, negative publicity, violation of privacy laws, loss of customers, brand
damage, adverse financial and operational results, and potential litigation.
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.
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
2018 10-K Annual Report
Stericycle, Inc. • 26
PART I
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 increasing use of
digitalization. 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.
We may incur significant charges as a result of our portfolio optimization strategy; our portfolio
optimization strategy may not achieve the desired results.
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 record significant write-offs, including those related to goodwill and
other intangible assets. In addition, 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 optimization strategy could have a material adverse effect on our
business, financial condition or results of operations.
A change or deterioration in our relations with our employees or an increase in labor and
employment costs could have a materially adverse effect on our business, financial condition and
results of operations.
Labor and employment is one of our highest costs and increases in employment costs could materially
affect our cost structure and our profitability. We compete with other businesses in our markets for
qualified employees and the labor supply is sometimes tight in our markets. A shortage of qualified
employees or further unionization would require us to incur additional costs related to wages and
benefits; inefficiencies in operations; unanticipated costs in sourcing temporary or third party labor; legal
fees and interference with customer relationships.
The Company is a party to 15 collective bargaining agreements in the U.S. and Canada, covering
approximately 700 employees, or approximately 4.0%, of our total U.S. and Canadian workforce and
further agreements and works councils covering approximately 1,000 employees in our other international
locations. These agreements expire on a scheduled basis depending upon the negotiated length of the
contract’s term. Collective bargaining agreement negotiations occur every year depending upon which
agreements expire and whether one or both parties seek the modification of terms.
There can be no assurance that we will be able to negotiate the terms of future agreements with unions in
a manner acceptable to the Company. There is also no guarantee that current non-union employees will
not seek union representation resulting in additional collective bargaining agreements with associated
increased costs to the Company. Potential work disruptions from labor disputes may disrupt our
businesses and adversely affect our brand, customer relations, financial condition and results of
operations.
2018 10-K Annual Report
Stericycle, Inc. • 27
PART I
If we are unable to acquire regulated waste, secure information destruction and other businesses,
our revenue and profit growth may be slowed.
Historically, our growth strategy has been based in part on our ability to acquire and integrate other
businesses. We do not know whether in the future we will be able to:
(cid:129) identify suitable businesses to buy;
(cid:129) complete the purchase of those businesses on terms acceptable to us; and
(cid:129) 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 provide 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, state and foreign 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, state or foreign antitrust or other
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, state or foreign regulators in the course of
completing acquisitions cannot be predicted.
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.
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
2018 10-K Annual Report
Stericycle, Inc. • 28
PART I
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 and valuations and purchase accounting activities. 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
recognized 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.
Market conditions could adversely change and our earnings could decline resulting in charges to
impair intangible assets, such as goodwill.
As a result of our various acquisitions, the Consolidated Balance Sheet at December 31, 2018 contains
goodwill of $3.2 billion and other intangible assets, net of accumulated amortization of $1.6 billion. In
accordance with Accounting Standards Codification Topic 350, Intangibles – Goodwill and Other, we
evaluate on an ongoing basis whether facts and circumstances indicate any impairment to the value of
indefinite-lived intangible assets such as goodwill. As circumstances after an acquisition can change, we
may not realize the value of these intangible assets. During 2018 and 2017, we wrote off $16.0 million
and $21.0 million, respectively, of operating permits, tradenames and customer relationships. Additionally
in 2018, we recognized $358.7 million of non-cash goodwill impairment charges related to our Domestic
CRS and Latin America reporting units. In 2017, we recognized $65.0 million of non-cash goodwill
impairment charges related to our Latin America reporting unit. We recognized these impairments due to
a reduction of forecasted future cash flows in each reporting unit, as discussed in the Impairment section
of Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
and Item 8. Financial Statements and Supplementary Data; Note 6 – Goodwill and Other Intangible
Assets. The recognition of any potential future impairments could have a material adverse impact on our
results of operations.
r
The handling of regulated waste exposes us to the risk of environmental liabilities.
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 our 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
if we were not the party responsible for the release of the hazardous substance and other companies
might also be liable.
Our pollution liability insurance excludes liabilities under CERCLA. Thus, if we were to incur liability under
CERCLA and if we could not identify other parties responsible under the law whom we are able to compel
to contribute to our expenses, the cost to us could be substantial and could impair our profitability and
2018 10-K Annual Report
Stericycle, Inc. • 29
PART I
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, see Item 8. Financial Statements and Supplementary Data; Note 19 – Legal Proceedings.
Tax interpretations and changes in tax regulations and legislation could adversely affect us.
Tax interpretations, regulations and legislation in the various jurisdictions in which we operate are subject
to measurement uncertainty and the interpretations can impact net income, income tax expense or
recovery, and deferred income tax assets or liabilities. Tax rules and regulations, including those relating
to foreign jurisdictions, are subject to interpretation and require judgment by us that may be challenged
by the applicable taxation authorities upon audit. Although we believe our assumptions, judgements and
estimates are reasonable, changes in tax laws or our interpretation of tax laws and the resolution of any
tax audits could significantly impact the amounts provided for income taxes in our consolidated financial
statements.
On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to
as the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act reduced the U.S. federal statutory tax rate,
broadened the corporate tax base through the elimination or reduction of deductions, exclusions, and
credits, limited the ability of U.S. corporations to deduct interest expense, and transitioned to a territorial
tax system which allows for the repatriation of foreign earnings to the U.S. with a 100% federal dividends
received deduction prospectively. In addition, the Tax Act required a one-time transitional tax on foreign
cash equivalents and previously unremitted earnings. Several of the new provisions enacted as part of the
Tax Act require clarification and guidance from the U.S. Internal Revenue Service (“IRS”) and Treasury
Department. These or other changes in U.S. tax laws could impact our profits, effective tax rate, and cash
flows.
We have accumulated net operating losses (“NOLs”) arising from our operations and foreign and
domestic acquisitions of approximately $344.4 million as of December 31, 2018. We have recognized
valuation allowances to reduce these amounts to our current estimate for NOLs that will be recoverable
against future taxable income prior to their expiration in accordance with the appropriate tax regulations.
If our estimates change or we do not generate sufficient taxable income prior to the expiration of these
NOLs we may have to record additional valuation allowances resulting in higher income tax expense.
In addition, we may periodically restructure our legal entities and if taxing authorities were to disagree
with our tax positions in connection with any such restructurings, our effective tax rate could be materially
affected. In connection with such restructurings we could also incur additional charges associated with
consulting fees and other charges.
We face risks associated with project work and services that are provided on a non-recurring basis.
While the majority of our business is based on long-term contracts for regularly scheduled service, we do
have a portion of revenue which is derived from short-term projects or services that 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
2018 10-K Annual Report
Stericycle, Inc. • 30
PART I
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.
The handling, transportation, and treatment of regulated waste carries with it the risk of personal
injury to employees and others.
Our business requires our employees 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 incidents that may present possible exposure to hazardous materials include:
(cid:129) truck accidents;
(cid:129) damaged or leaking containers;
(cid:129) improper storage of regulated waste by customers;
(cid:129) 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
(cid:129) malfunctioning treatment plant equipment, such as power outages, or ineffective backup systems.
Human beings, or animals could be injured or sickened or property could be 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, 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 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 U.S. 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 U.S., the Personal
Information Protection and Electronic Documents Act in Canada and the General Data Protection
Regulation in the EU, require documents to be securely destroyed to avoid identity theft and inadvertent
disclosure 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
2018 10-K Annual Report
Stericycle, Inc. • 31
PART I
increased expenses and operational complexity, and adversely affect our reputation, business, financial
condition and results of operations.
Our participation in multi-employer pension plans may subject us to liabilities that could
materially adversely affect our liquidity, cash flows and results of operations.
We participate in multi-employer pension plans administered by employer and union trustees. To the
extent that those plans are underfunded, the Employee Retirement Income Security Act of 1974, as
amended by the Multi-Employer Pension Plan Amendments Act of 1980 ("ERISA"), may subject us to
substantial liabilities in the event we, whether partially or totally, cease to have obligations to contribute
to the plans. Under current law regarding multi-employer defined benefit plans, circumstances such as a
plan's termination, an employer's partial or complete withdrawal from, or the mass withdrawal of all
contributing employers from, an underfunded multi-employer defined benefit plan can trigger our
obligation to make payments to the plan for our proportionate share of the multi-employer plan's
unfunded vested liabilities. Furthermore, the Pension Protection Act of 2006 added new funding rules
generally applicable to plan years beginning after 2007 for multi-employer plans that are classified as
"endangered," "seriously endangered," or "critical" status. If plans in which we participate are in critical
status or underfunded, we could be required to make additional contributions.
Based upon the information available to us from plan administrators as of March 31, 2018, one of the
multi-employer pension plans in which we participate is underfunded. The Pension Protection Act
requires that underfunded pension plans improve their funding ratios within prescribed intervals based on
the level of their underfunding. We have been notified that one plan is in "critical" status and this plan
may require additional contributions. The amount of additional funds we may be obligated to contribute
in the future cannot be estimated, as such amounts will be based on future levels of employee work that
require the specific use of the union employees covered by these plans, investment returns and the level
of underfunding of such plans. Additional funding could adversely affect our liquidity, cash flows and
Item 8. Financiall Statements and d Supplementary
results of operations. For more information, see Part II, Item 8. Financial Statements and Supplementary
Data;
in the Consolidated Financial
Statements.
Note 12 – Retirement and Other Employee Benefit Programs
Increases in transportation costs may adversely affect our business and reduce our earnings.
We maintain a vast transportation network and an extensive fleet of transportation vehicles. A significant
increase in market prices for trucks or fuel could adversely affect our business through higher
transportation costs and reduce our operating margins and reported earnings.
Some of our customers have suffered financial difficulties affecting their credit risk, which could
negatively impact our operating results.
We provide service to a number of customers, including governmental entities and municipalities, some of
which have suffered significant financial difficulties in recent years. Some of these entities could be
unable to pay amounts owed to us or renew contracts with us at previous or increased rates. The inability
of our customers to pay us in a timely manner or to pay increased prices, particularly large national
accounts, could negatively affect our operating results.
2018 10-K Annual Report
Stericycle, Inc. • 32
PART I
Our success depends on our executive officers and other key personnel. If we lose key personnel or
are unable to hire additional qualified personnel, our business may be harmed.
Our future success depends to a significant degree on the skills, experience and efforts of our executive
officers and key personnel. We have experienced significant turnover in our executive team in recent
periods. The unexpected loss of the services of any of our executive officers could have an adverse effect
on our operations. There can be no assurance that our executive succession planning, retention or hiring
efforts will be successful. Competition for skilled and experienced management personnel is intense, and
our future success will also depend on our ability to attract and retain qualified personnel, and a failure to
attract and retain new qualified personnel could have an adverse effect on our operations.
Natural disasters or other catastrophic events could negatively affect our business, financial
condition and results of operations.
Natural disasters such as hurricanes, typhoons or earthquakes could negatively affect our operations and
financial performance. Such events could result in physical damage to one or more of our facilities or
equipment, the temporary lack of an adequate work force in a market, and the temporary disruption in
transportation services which we rely on to deliver waste to our facilities. These events could prevent or
delay shipments and reduce both volumes and revenue. Weather conditions and other event driven
special projects may also cause variations in our results. We may be required to suspend operations in
some of our locations, which could have a material adverse effect on our business, financial condition and
results of operation.
2018 10-K Annual Report
Stericycle, Inc. • 33
PART I
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
Details regarding our worldwide properties can be found under Item 1. Business. We believe that these
processing and other facilities are adequate for our present and currently anticipated future needs.
Item 3. Legal Proceedings
See Part II, Item 8. Financial Statements and Supplementary Data; Note 19 -
Item 8. Financial l Statements andd Supplementaryy Data;
Consolidated Financial Statements.
Legal Proceedings in the
Item 4. Mine Safety Disclosures
Not Applicable.
2018 10-K Annual Report
Stericycle, Inc. • 34
PART II
PART II
Item 5. Market Price for the Registrant’s Common Equity and Related Stockholder
Matters and Issuer Purchase of Equity Securities
The Company’s common stock is listed on the Nasdaq Global Select Market under the ticker symbol
"SRCL." There were 88 shareholders of record as of February 25, 2019.
We did not declare or pay any cash dividends on our common stock during 2018, 2017 or 2016. We
currently expect that we will retain future earnings for debt repayment and use in the operation and
expansion of our business and do not anticipate paying any cash dividends on our common stock in the
foreseeable future.
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, 2018, we had
purchased a cumulative total of 22,219,146 shares. No common stock purchases were made during 2018.
See Part II, Item 8. Financial Statements and Supplementary Data; Note 14 – Preferred Stock in the
Consolidated Financial Statements for a description of our repurchases of depository shares of mandatory
convertible preferred stock and details of their conversion into common stock during 2018. We applied
the common stock equivalent of repurchases of preferred stock against the number of shares of our
common stock authorized for repurchase by the Board of Directors.
k
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 ended December 31, 2018 with the cumulative total return
for the same period on the S&P 500 Index, the Dow Jones U.S. Waste & Disposal Services Index, the
Nasdaq Global Select Index, and the S&P Mid Cap 400 Index.
The Company has included the Nasdaq Global Select Market Composite Index, replacing the Nasdaq
National Market Composite Index as the Company’s common stock is registered on the Nasdaq Global
Select Market. In addition, the Company’s common stock is no longer included as part of the S&P 500
Index, as of December 31, 2018, and the S&P 500 Index will be excluded from future performance
analysis. Instead the Company is now included as a part of the S&P Mid Cap 400 Index which has been
included in the performance analysis below and will be included in the performance analysis in future
periods.
The graph assumes that $100 was invested on December 31, 2013 in our common stock and in the shares
represented by each of the four indices, and that all dividends were reinvested.
2018 10-K Annual Report
Stericycle, Inc. • 35
The stock price performance of our common stock reflected in the following graph is not necessarily
indicative of future performance.
PART II
Stericycle, Inc.
S&P 500 Index
Nasdaq Global Select index
S&P Mid Cap 400 Index
Dow Jones U.S. Waste & Disposal Services Index
$250.00
$225.00
$200.00
$175.00
$150.00
$125.00
$100.00
$75.00
$50.00
$25.00
12/31/2013
12/31/2014
12/31/2015
12/31/2016
12/31/2017
12/31/2018
2018 10-K Annual Report
Stericycle, Inc. • 36
Item 6. Selected Financial Data
In millions, except per share data
Statements of (Loss) Income Data
Revenues
Depreciation and amortization
Goodwill impairment
(Loss) income from operations (1)
Mandatory convertible preferred stock dividend
Gain on repurchase of preferred stock
Net (loss) income attributable to Stericycle, Inc. common
shareholders
(Loss) earnings per common share attributable to Stericycle,
Inc. common shareholders - diluted (2)
Statements of Cash Flow Data
Net cash from:
Operating activities
Investing activities
Financing activities
Balance Sheet Data
Cash and cash equivalents
Total assets
Long-term debt, net
Stericycle, Inc. equity (1)
PART II
2014
2018
Years Ended December 31,
2016
2017
2015
$
$ 3,485.9
255.9
358.7
(161.1)
(25.5)
16.9
(253.3)
$
3,580.7
249.5
65.0
(7.6)
(36.3)
17.3
23.4
$
3,562.3
252.5
-
433.8
(39.4)
11.3
178.2
$
2,985.9
127.4
-
487.6
(10.1)
-
256.9
2,555.6
104.6
-
556.3
-
-
326.5
$
(2.91) $
0.27
$
2.08
$
2.98
$
3.79
$
165.7
(147.5)
(25.7)
$
34.3
6,455.5
2,663.9
$ 2,587.4
$
$
$
508.6
(193.0)
(321.2)
42.2
6,988.3
2,615.3
2,896.6
$
$
$
560.8
(195.6)
(376.8)
44.2
6,980.1
2,877.3
2,805.8
$
$
$
386.1
(2,533.9)
2,185.4
55.6
7,065.2
3,040.4
2,729.9
$
$
$
448.5
(462.8)
(30.0)
22.2
4,373.3
1,527.2
1,895.0
(1) See Part II, Item 8. Financial Statements and Supplementary Data; Note 1 – Basis of Presentation
and Summary of Significant Accounting Policies.
(2) See Part II, Item 8. Financial Statements and Supplementary Data; Note 15 – (Loss) Earnings per
Common Share ("EPS") in the Consolidated Financial Statements for information concerning the
computation of diluted EPS.
For more details on the items below, see Part II, Item 7. Management’s Discussion and Analysis of Financial
Condition and Results of Operations.
2018 10-K Annual Report
Stericycle, Inc. • 37
PART II
Net (loss) income attributable to Stericycle, Inc. common shareholders (including the total negative impact
to (Loss) earnings per share attributable to Stericycle, Inc. common shareholders), included the following
after-tax effects for each of the years ended December 31, 2018, 2017, 2016, 2015, and 2014, respectively:
In millions
After-tax charges (income)
Business Transformation
Intangible Amortization
Acquisition and Integration
Operational Optimization
Divestitures
Litigation, Settlements and Regulatory Compliance
Impairment
Other
Preferred Stock Dividends
U.S. Tax Reform
Total after-tax impacts
Negative impact to (Loss) earnings per share attributable to
Stericycle, Inc. common shareholders - diluted
2018
Years Ended December 31,
2017
2016
2015
2014
$
$
$
61.2
97.7
7.8
22.9
16.0
74.2
314.5
25.6
27.5
8.8
656.2
7.36
$
$
$
20.0
77.4
26.2
46.8
7.1
203.5
67.2
15.3
36.3
(129.8)
370.0
4.07
$
$
$
-
83.5
38.1
40.4
23.2
4.4
1.4
4.1
39.4
-
234.5
2.45
$
$
$
-
29.8
55.4
24.0
-
39.8
-
-
10.1
-
159.1
$
-
-
27.8
10.1
-
4.0
-
-
-
-
$ 41.9
1.76
$ 0.48
For the purpose of calculating the impact to (Loss) earnings per share attributable to Stericycle, Inc.
common shareholders, of our mandatory convertible preferred stock in the years ended December 31,
2018, 2017, 2016, and 2015, we calculate the impact by excluding the mandatory convertible preferred
stock dividend and using the “if-converted” method of share dilution, weighted in 2018 for the period
prior to its conversion into common stock in September 2018 and weighted in 2015 for the period after
issuance in September 2015.
2018 10-K Annual Report
Stericycle, Inc. • 38
PART II
Item 7. Management’s Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion of Stericycle’s financial condition and results of operations should be read in
conjunction with our Consolidated Financial Statements and related notes in Part II, Item 8. Financial
Statements and Supplementary Data of this Report.
Overview
Stericycle is a multinational business-to-business services provider with a core purpose to help our
customers fulfill their promise by providing solutions that protect people and brands, promote health, and
safeguard the environment. We are focused on driving long-term growth, profitability, and delivering
enhanced shareholder value and operate in highly regulated markets which, we believe will continue to
grow as a result of a number of factors (see Part I – Item 1. Business). We aim to take advantage of that
growth both organically, by focusing on enhancing our service offerings and platforms, and by
acquisitions in what we believe are highly fragmented industries. We serve customers in all 50 states of
the United States (“U.S.”), Puerto Rico, and in 21 other countries. As part of our business strategy, in the
third quarter of 2017, we initiated a comprehensive multi-year Business Transformation (see below).
For further information on the Company’s business, segments, and services, see Part I, Item 1. Business.
Highlights for the year ended December 31, 2018 compared to the prior year include:
(cid:129) Revenues of $3.49 billion, a decrease of 2.6%, driven by the expected declines in the small quantity
(“SQ”) medical waste business and Communication and Related Services (“CRS”), foreign exchange,
and divestitures, partially offset by strong organic growth in Secure Information Destruction.
(cid:129) Gross profit of $1.38 billion, a decrease of 5.9%, primarily attributable to the expected impact of SQ
mix and pricing, non-cash impairment charges and the impact of lower call volumes and smaller recall
events in CRS. We also continue to see challenges with our Latin America business as a result of
prolonged market declines and cost pressures.
(cid:129) Loss per share of $2.91, due to $358.7 million in non-cash goodwill impairment charges related to CRS
and Latin America reporting units, and other items discussed further below.
During the third quarter of 2018, we funded the $295.0 million SQ medical waste customer class action
settlement (the “SQ settlement”). We announced during the fourth quarter of 2018 that we had reached a
proposed resolution with Plaintiffs and their counsel in the pending Securities Class Action Lawsuit. (For
additional information, see Part II, Item 8. Financial Statements and Supplementary Data; Note 19 – Legal
Proceedings in the Consolidated Financial Statements).
Item 8. Financial l Statements and d Supplementaryy Data;
We entered into several amendments to the Credit Agreement, which cover our senior credit facility and
term loan, and the various note purchase agreements which cover the private placement notes. These
amendments adjusted the definition of EBITDA for purposes of the calculation of, and allowed for an
increase in, the permitted Consolidated Leverage Ratio. In addition, terms were added which, under
certain circumstances, would lead to increases in the interest rates charged on the senior credit facility,
term loan and private placement notes. In connection with the underlying terms, we saw an increase of
0.25% in the interest rate charged on our senior credit facility and term loan and total increases of 0.75%
2018 10-K Annual Report
Stericycle, Inc. • 39
PART II
on the interest rates charged on our private placement notes. We expect that the annual impact of these
interest rate increases on our Interest Expense, Net will be approximately $11.8 million. (For additional
information, see Part II, Item 8, Financial Statements and Supplementary Data; Note 8 – Debt in the
Consolidated Financial Statements).
t
Finally, in September 2018, our Series A Mandatory Convertible Preferred Stock (“Series A Preferred
Stock”) was converted, in accordance with the terms of issue, into a total of 4.7 million shares of our
common stock (for additional information, see Part II, Item 8. Financial Statements and Supplementary
Item 8. Financiall Statements andd Supplementary
in the Consolidated Financial Statements).
Data;
Note 14 – Preferred Stock
The following table identifies key strategies and other significant matters impacting our business for the
years ended December 31, 2018, 2017, and 2016, respectively (amounts are stated pre-tax except when
noted):
In millions
Pre-tax items:
Operational Optimization
Impairment (excluding goodwill)
Total included in COR
Included in Selling, general and administrative ("SG&A")
Intangible Amortization
Acquisition and Integration
Operational Optimization
Divestitures
Litigation, Settlements and Regulatory Compliance
Impairment (excluding goodwill)
Other
Total included in SG&A
Goodwill impairment
Included in Other expense, net
Capital Allocation (debt modification fees)
Total included in Other expense, net
Total pre-tax
After tax items:
U.S. Tax Reform
Total after-tax
$
$
$
$
Years Ended December 31,
2018
2017
2016
8.1
-
17.6
25.7
74.5
130.3
9.8
29.4
20.5
93.2
8.9
29.1
395.7
358.7
3.8
2.7
6.5
786.6
25.5
8.8
34.3
$
$
$
$
0.7
0.4
-
1.1
30.6
118.4
40.7
70.7
9.5
327.7
-
24.8
622.4
65.0
-
-
-
688.5
36.3
(129.8)
(93.5)
$
$
$
$
-
9.0
-
9.0
-
129.3
60.9
50.1
27.1
7.2
1.4
8.8
284.8
-
(0.6)
-
(0.6)
293.2
39.4
-
39.4
2018 10-K Annual Report
Stericycle, Inc. • 40
PART II
The above strategies and other significant matters include the following types of activities:
Cash Charges
Closure and Exit
Costs (1)
√
Internal (2)
√
Consulting and
Professional Fees
√
Other (3)
√
Non-Cash
Charges (4)
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
Business Transformation
Acquisition and
Integration
Operational
Optimization
Divestitures
Litigation, Settlements
and Regulatory
Compliance
Other
(1)
(2)
(3)
(4)
Includes employee and contract termination, facility closure and clean up costs.
Includes dedicated resources, including project related incentive compensation and stock based
compensation.
Includes other costs related to each strategy e.g. software maintenance fees, changes in
contingent consideration and environmental provisions.
Includes impairments, accelerated depreciation and/or amortization and gain/loss on disposal.
Business Transformation
The Business Transformation is based on a strategic vision to build a best-in-class enterprise performance
management (“EPM”) operating model to enable the Company to operate more efficiently, provide an
enhanced experience to customers, better capitalize on future growth opportunities and establish greater
controls and oversight to drive more consistent results. Additionally, a key component to the Business
Transformation is the implementation of an enterprise resource planning (“ERP”) system which will
leverage standard processes throughout the organization to accelerate decision making, expedite
acquisition integration, remediate compliance and control issues, and enable real-time analytics.
Key initiatives of the Business Transformation include:
(cid:129) Portfolio Rationalization: Executing on a comprehensive review of the Company’s global service
lines to identify and pursue the divestiture of non-strategic assets (see divestitures section, below for
decision criteria and divestiture related charges).
(cid:129) Operational Optimization: Standardizing route planning logistics, modernizing field operations, and
driving network efficiency across facilities.
(cid:129) Organizational Excellence and Efficiency: Redesigning the Company’s organizational structure to
optimize resources and align around a global shared business services model.
(cid:129) Commercial Excellence: Aligning our sales and service organizations around the customer,
standardizing our customer relationship management process, and expanding customer self-service
options.
(cid:129) Strategic Sourcing: Reducing spend through global procure-to-pay processes and leveraging
organizational scale.
2018 10-K Annual Report
Stericycle, Inc. • 41
PART II
Execution of the Business Transformation began in 2017 with the identification and validation of key
transformational opportunities as well as an organizational restructuring which occurred during the fourth
quarter of 2017. Execution of the Business Transformation is expected to continue through 2022 with the
implementation of an enterprise resource planning system in the U.S. and Canada during 2020 with
remaining international rollouts beginning in 2021.
On August 2, 2018, we announced, as part of the Portfolio Rationalization strategy within Business
Transformation, that we are pursuing strategic alternatives for non-core CRS, demonstrating our
commitment to streamlining our portfolio. The process, which is being conducted with the assistance of
financial and legal advisers, is considering a range of strategic alternatives for CRS, including a divestiture,
with a focus on pursuing the outcome that will drive the most value for Stericycle shareholders. There can
be no assurances as to the form or timing of any transaction or if any transaction will be consummated.
Any potential gain or loss will depend on a number of factors, such as our ability to identify an
appropriate strategic alternative, reach a mutual agreement with any counterparty and satisfy the closing
conditions associated with any proposed transaction.
For the years ended December 31, 2018 and 2017 and since the program’s inception, we have recognized
the following charges and capital expenditures related to the Business Transformation:
In millions
Included in COR
Exit costs - employee termination
Other related expenses
Non-cash charges
Total included in COR
Included in SG&A
Exit costs - employee termination
Internal costs
Consulting and professional fees
Other related expenses
Non-cash charges
Total included in SG&A
Total charges
Non-cash impairment charges
Cash charges (including stock based compensation)
Capital expenditures
Years Ended December 31,
2018
2017
Cumulative Since
Inception
$
$
$
$
$
-
0.4
7.7
8.1
3.7
15.6
44.9
8.9
1.4
74.5
82.6
9.1
73.5
18.0
$
$
$
$
$
0.7
-
-
0.7
10.8
-
16.4
1.0
2.4
30.6
31.3
2.4
28.9
10.9
$
$
$
$
$
0.7
0.4
7.7
8.8
14.5
15.6
61.3
9.9
3.8
105.1
113.9
11.5
102.4
28.9
The Company expects to
incur additional aggregate charges over the duration of Business
Transformation, principally aligned with the ERP implementation timeline discussed above. The amount,
timing and recognition of additional charges over this time period will be affected by the nature of
spending and the occurrence of commitments and triggering events as defined under accounting
principles generally accepted in the U.S. (“GAAP”), among other factors. The asset impairment charges are
non-cash, and the remaining charges are cash costs primarily expensed or capitalized as incurred.
2018 10-K Annual Report
Stericycle, Inc. • 42
PART II
The Company may incur more charges and cash expenditures than estimated and may not realize the
expected improvement or cost savings on its planned time frame or at all.
The non-cash charges incurred in the year ended December 31, 2018 are discussed in Part II, Item 8.
in the Consolidated
Financial l Statements andd Supplementary y Data;
Financial Statements We may incur additional non-cash impairment and/or accelerated depreciation
charges as we continue to evolve our future information technology strategy in conjunction with our ERP
implementation.
Note 5 – Property, Plant And Equipment
Business Transformation charges by reportable segment for the year ended December 31, 2018 were as
follows:
In millions
Total
$
10.8
$
0.7
$
71.1
$
82.6
Domestic and
Canada RCS
International RCS
All Other
Total
Business Transformation charges by reportable segment for the year ended December 31, 2017 were as
follows:
In millions
Total
$
5.5
$
4.0
$
21.8
$
31.3
Domestic and
Canada RCS
International RCS
All Other
Total
As part of our Business Transformation we are undertaking legal entity organizational restructuring
actions to assist with streamlining and simplifying business operations and to help lower general and
administrative costs. Such actions could result in additional charges associated with consulting and
professional services, and increases in potential exposure to U.S. and foreign taxes and foreign exchange
charges.
Intangible Amortization
For the years ended December 31, 2018, 2017, and 2016, the Company recognized $130.3 million, $118.4
million, and $129.3 million, respectively, of intangible amortization expense. The increase is partially due
to the adjustment of the estimated useful lives of some of our customer relationship intangibles (see Part
II, Item 8. Financial Statements and Supplementary Data; Note 6 – Goodwill and Other Intangible Assets
in
the Consolidated Financial Statements) during 2018 with the remaining change arising from acquisitions.
Item 8. Financial l Statements andd Supplementaryy Data;
Acquisition and Integration
We believe that acquisitions are a steady and efficient way to scale operations, build critical customer
density for transportation and treatment operations, and enter new markets or geographies, as well as
provide opportunity to introduce our additional services to the acquired customers. 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.
2018 10-K Annual Report
Stericycle, Inc. • 43
PART II
Details of the acquisitions completed in the years ended December 31, 2018, 2017, and 2016 can be
in the
found in Part II, Item 8. Financial Statements and Supplementary Data; Note 3 – Acquisitions
Consolidated Financial Statements.
Item 8. Financiall Statements andd Supplementary y Data;
Acquisition and integration expenses for the years ended December 31, 2018, 2017, and 2016 were as
follows:
In millions
Acquisition expenses
Integration expenses
Unfavorable (favorable) change in contingent consideration
Total
$
$
7.4
2.2
0.2
9.8
$
$
10.6
30.5
(0.4)
40.7
$
$
9.6
53.3
(2.0)
60.9
2018
Years Ended December 31,
2017
2016
Integration expenses incurred in the years ended December 31, 2018, 2017, and 2016 primarily related to
acquisitions completed in the U.S. and the fourth quarter 2015 Shred-it® acquisition.
Operational Optimization
The Company aims to achieve a culture of continuous improvement that will enhance its efficiency,
effectiveness and competitiveness to improve its cost base and cash flow. As part of its strategy, the
Company has taken a number of actions to reduce operating costs and optimize operations. For example,
we believe plant throughput and route density are competitive strengths of Stericycle. We maintain such
strengths by making adjustments to our network of transportation and treatment facilities to optimize
overall logistics and processing capabilities within a service line while reducing operational costs. As part
of these efforts, we seek to reduce network redundancies by consolidating facilities, closing the redundant
facility, and restructuring the local organization and operation for efficiency.
Projects that are included within the Operational Optimization category were generally commenced prior
to the announcement of our Business Transformation initiative discussed above or have been identified as
additional items over and above those related to Business Transformation.
Operational Optimization expenses, which were all recognized in SG&A, for the year ended December 31,
2018, were as follows:
In millions
Domestic and
Canada RCS
International RCS
All Other
Total
Exit costs - employee termination
Closure and exit costs - other
Non-cash charges
Other expenses
Total
$
$
-
4.2
1.0
-
5.2
$
$
0.2
5.9
11.3
2.0
19.4
$
$
1.1
3.7
-
-
4.8
$
$
1.3
13.8
12.3
2.0
29.4
(cid:129) Domestic and Canada RCS Closure and exit costs - other related to optimizing overall logistics and
sales functions and lease exit costs for the consolidation of call centers in Canada Communication
and Related Services locations and non-cash charges relate to accelerated depreciation associated
with software;
2018 10-K Annual Report
Stericycle, Inc. • 44
PART II
(cid:129)
(cid:129)
International RCS Closure and exit costs - other relate to closure, contract exit and other clean-up
costs, primarily in Latin America and Japan. Non-cash impairment charges related to long-lived
assets, customer relationships, and operating permits, primarily in Latin America and Japan, and
rationalization of a tradename in Europe, and other expenses primarily in Japan; and
All Other Exit costs - other related to lease exit costs for the consolidation of call centers in Domestic
Communication and Related Services locations.
Operational Optimization charges, which, except for $0.4 million recognized in COR, were recognized in
SG&A, for the year ended December 31, 2017, were as follows:
In millions
Domestic and
Canada RCS
International RCS
All Other
Total
Exit costs - employee termination
Closure and exit costs - other
Non-cash charges
Consulting and professional fees
Total
$
$
1.1
16.1
3.1
8.9
29.2
$
$
3.7
8.8
17.0
-
29.5
$
$
0.5
5.8
5.8
0.3
12.4
$
$
5.3
30.7
25.9
9.2
71.1
(cid:129) Domestic and Canada RCS Closure and exit costs - other related to optimizing overall logistics and
sales functions. Non-cash impairment charges related to long lived assets, consulting and professional
fees relate to costs to identify opportunities and reduce operational redundancies;
(cid:129) International RCS Closure and exit costs – employee termination and closure and exit costs - other
included amounts incurred in Latin America for rationalizing our operations and in the U.K. for facility
rationalization and contract exit costs. Non-cash impairment charges related to long-lived assets,
operating permits, and customer relationships in Latin America and Japan; and
(cid:129) All Other closure and exit costs - other related to consolidating of call centers in Domestic
Communication and Related Services locations. Non-cash charges relate to the impairment of a
tradename and consulting and professional fees represented fees incurred to eliminate operational
redundancies.
Operational Optimization charges, which, except for $9.0 million recognized in COR, were recognized in
SG&A, for the year ended December 31, 2016, were as follows:
In millions
Domestic and
Canada RCS
International RCS
All Other
Total
Exit costs - employee termination
Closure and exit costs - other
Consulting and professional fees
Total
$
$
1.7
5.3
10.4
17.4
$
$
1.1
26.5
-
27.6
$
$
1.7
10.8
1.6
14.1
$
$
4.5
42.6
12.0
59.1
2018 10-K Annual Report
Stericycle, Inc. • 45
PART II
(cid:129) Domestic and Canada RCS Exit costs-other related to optimizing overall logistics and sales functions
and the consolidation of call centers in Canadian Communication and Related Services locations.
Consulting and professional fees to identify opportunities and reduce operational redundancies;
(cid:129) International RCS Exit-costs other related to charges to exit certain of our patient transport services
contracts and plant conversion expense in the U.K.; and
(cid:129) All Other Closure and exit costs - other related to the consolidation of call centers in Domestic
Communication and Related Services. Consulting and professional fees were incurred to identify
opportunities and reduce operational redundancies.
As the Company continues to consider each continuous improvement activity, the amount, the timing and
recognition of charges will be affected by the occurrence of commitments and triggering events as
defined under GAAP, among other factors. The Company may incur more charges and cash expenditures
than estimated and may not realize the expected improvement or cost savings on its planned time frame
or at all.
Divestitures
The Company evaluates its portfolio of services on an ongoing basis with a country-by-country and
service line-by-service line approach to assess long-term potential and identify potential business
candidates for divestiture. Our decision for divestiture is based upon the following criteria:
(cid:129) outlook for long-term market conditions,
(cid:129) potential impact to complimentary services or customer relationships,
(cid:129) ability to leverage infrastructure and customer base for growth,
(cid:129) potential for margin improvement,
(cid:129) current divestiture value versus future divestiture value,
(cid:129) return on invested capital, and
(cid:129) implications for ERP system implementation.
During the years ended December 31, 2018, 2017, and 2016, we recognized charges totaling $12.8 million,
$9.5 million and $27.1 million, respectively, associated with the divestitures of businesses. Details of
divestitures undertaken in the years ended December 31, 2018, 2017, and 2016 can be found in Part II,
Item 8. Financiall Statements and d Supplementaryy Data; Note 4 – Restructuring, Divestitures, and Assets Held
for Sale in the Consolidated Financial Statements. In addition to these charges, in 2018 we incurred $7.7
million of consulting and professional fees associated with our Portfolio Rationalization efforts, primarily
the review of strategic alternatives for CRS.
With the anticipated implementation of its ERP system, Stericycle will continue its strategic portfolio
review with the intent of identifying additional non-strategic service lines or markets for divestiture prior
to the implementation of the ERP system.
2018 10-K Annual Report
Stericycle, Inc. • 46
PART II
Litigation, Settlements and Regulatory Compliance
We operate in highly regulated industries and must address regulatory inquiries or respond to
investigations from time to time. We are also involved in a variety of civil litigation from time to time
Item 8. Financiall Statements and d Supplementaryy Data; Note 19 –
including the items detailed in Part II, Item 8. Financial Statements
Legal Proceedings, in the Consolidated Financial Statements.
Our financial results may also include considerations of non-recurring matters including settlements,
environmental remediation, and legal related consulting and professional fees.
For the year ended December 31, 2018, we recognized $93.2 million of legal, settlement and regulatory
compliance expenses, consulting and professional fees, primarily related to certain litigation matters,
including the provision, net of insurance recoveries, for the proposed Securities Class Action Settlement
announced on December 19, 2018.
For the year ended December 31, 2017, we recognized $327.7 million of legal, settlement and regulatory
compliance expenses, consulting and professional fees, primarily related to certain litigation matters, of
which $295.0 million was for the SQ Settlement.
For the year ended December 31, 2016, we recognized $7.2 million in regulatory compliance, consulting
and professional fees, primarily related to certain litigation matters.
See also Item 1A. Risk Factor “We are subject to a number of pending lawsuits.”
Impairment charges comprise the following for the years ended December 31, 2018, 2017, and 2016:
Impairment
In millions
Impairments included in COR
Impairments included in SG&A
Goodwill impairments:
Domestic CRS reporting unit
Latin America reporting unit
Goodwill impairments
2018
Years Ended December 31,
2017
2016
$
$
$
$
17.6
8.9
286.3
72.4
358.7
$
$
$
$
-
-
-
65.0
65.0
$
$
$
$
-
1.4
-
-
-
The impairment charges included in COR for the year ended December 31, 2018 are described in Part II,
Item 8. Financiall Statements andd Supplementaryy Data; Note 5 – Property, Plant And Equipment in the
Consolidated Financial Statements.
As a result of our annual goodwill impairment assessment on October 1 and an interim assessment
performed in the fourth quarter of 2018, we recognized total non-cash goodwill impairment charges of
$358.7 million related to our Domestic CRS and Latin America reporting units. The impairment charges
are discussed further below in the Impairment section of Part II, Item 7. Management’s Discussion and
2018 10-K Annual Report
Stericycle, Inc. • 47
PART II
Analysis of Financial Condition and Results of Operations – Goodwill Impairment. (For additional
information, see Part II, Item 8. Financial Statements and Supplementary Data; Note 6 – Goodwill and Other
Intangible Assets in the Consolidated Financial Statements).
Item 8. Financiall Statements and d Supplementary y Data;
–
Goodwill impairment charges may be recognized in future periods to the extent changes in factors or
circumstances occur, including deterioration in the macro-economic environment or in the equity
markets, including the market value of our common shares, deterioration in our performance or our
future projections, or changes in the Company's plans for one or more reporting units.
Other
During the years ended December 31, 2018, 2017, and 2016, we recognized $29.1 million, $24.8 million,
and $8.8 million, respectively, of consulting and professional fees related to internal control remediation
activities as well as the implementation of new accounting standards which are reflected as part of SG&A
on the Consolidated Statements of (Loss) Income.
For the year ended December 31, 2018, we recognized a foreign exchange loss of $3.8 million, in Other
expense, net on the Consolidated Statements of (Loss) Income, related to the re-measurement of net
monetary assets held in Argentina as a result of its designation as a highly inflationary economy.
Capital Allocation
Stericycle aims to maintain a structured capital allocation strategy that balances investment in the
business, debt reduction, and returns to shareholders.
Our capital allocation items include the following types of activities:
(cid:129)
Stock issuance costs,
(cid:129) Dividends on Preferred Stock,
(cid:129) Debt modification costs in connection with related non-recurring matters,
(cid:129)
Early extinguishment of debt gains and losses, and
(cid:129) Other related expenses.
We declared and paid dividends of $25.5 million, $36.3 million, and $39.4 million to the Series A Preferred
Stock shareholders during the years ended December 31, 2018, 2017, and 2016, respectively. On
September 14, 2018, in accordance with their terms of issuance, all of the Series A Preferred Stock was
converted into common stock and all then outstanding shares of preferred stock and the associated
depositary shares were cancelled.
During the year ended December 31, 2018, we recognized $2.7 million of debt modification charges
related to amending our credit agreements. These charges have been recognized as Interest expense, net
in the Consolidated Statements of (Loss) Income.
2018 10-K Annual Report
Stericycle, Inc. • 48
Tax Reform
PART II
The U.S. Tax Cuts and Jobs Act of 2017 (the “Tax Act”) was signed into law on December 22, 2017 and
introduced changes including, but are not limited to, a corporate income tax rate decrease from 35% to
21% effective for tax years beginning after December 31, 2017, the transition of U.S. international taxation
from a worldwide tax system to a territorial system, and a one-time transition tax on the mandatory
deemed repatriation of cumulative foreign earnings as of December 31, 2017.
The Company calculated the provisional impact of the Tax Act on its year end 2017 income tax
benefit/provision and as a result recognized $129.8 million as an income tax benefit in the fourth quarter
of 2017. Consistent with the requirements of Staff Accounting Bulletin No. 118 (“SAB 118”), the impact
was finalized during 2018, resulting in a charge of $8.8 million. Adjustments may be necessary in future
periods due to potential technical corrections to the Tax Act and/or regulatory guidance that may be
issued by the U.S. Internal Revenue Service. For further discussion, see Part II, Item 8. Financiall Statements
and d Supplementary y Data;
in the Consolidated Financial Statements.
Note 9 – Income Taxes
Results of Operations:
In millions, except per share data
Years Ended December 31,
2018
2017
2016
Change
2018 versus
2017
Change
2017 versus
2016
$
3,485.9
2,109.9
1,376.0
Revenues
Cost of revenues
Gross profit
Selling, general and
1,178.4
administrative expenses
Goodwill impairment
358.7
(Loss) income from operations (161.1)
(106.0)
Interest expense, net
(8.3)
Other expense, net
(Loss) Income before income
taxes
Income tax benefit (expense)
Net (loss) income
(275.4)
29.8
(245.6)
% of
Revenues
% of
Revenues
$
% of
Revenues
$
$
100.0% 3,580.7
60.5% 2,118.2
39.5% 1,462.5
100.0% 3,562.3
59.2% 2,075.4
40.8% 1,486.9
100.0% (94.8)
58.3%
(8.3)
41.7% (86.5)
%
(2.6%)
(0.4%)
(5.9%)
$
18.4
42.8
(24.4)
%
0.5%
2.1%
(1.6%)
33.8% 1,405.1
65.0
10.3%
(7.6)
(4.6%)
(93.7)
(3.0%)
(6.6)
(0.2%)
39.2% 1,053.1
-
433.8
(97.8)
(7.9)
1.8%
(0.2%)
(2.6%)
(0.2%)
29.6% (226.7) (16.1%) 352.0
293.7 451.8% 65.0
–
33.4%
nm
12.2% (153.5)
(2.7%)
(0.2%)
(12.3) 13.1%
(1.7) 25.8%
nm (441.4) (101.8%)
(4.2%)
4.1
(16.5%)
1.3
(7.9%)
(107.9)
0.9% 150.9
43.0
(7.0%)
(3.0%)
328.1
4.2% (120.2)
1.2% 207.9
9.2% (167.5) 155.2% (436.0) (132.9%)
(3.4%) (121.1) (80.3%) 271.1 (225.5%)
(79.3%)
5.8% (288.6)
nm (164.9)
nm - percentage change not meaningful
In analyzing our Company’s performance, it is necessary to understand that our various
Revenues:
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, which packages the same regulated medical waste services with 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.
2018 10-K Annual Report
Stericycle, Inc. • 49
PART II
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 analyze revenues on an aggregated
basis. We analyze our revenue growth by identifying changes related to organic growth, acquisitions,
divestitures and changes due to currency exchange fluctuations. Organic growth excludes the effect of
foreign exchange and acquisitions and divestitures with less than a full year of revenues in the
comparative period.
Year over year movements in Revenues by Service and Segment in 2018 compared to 2017, and 2017
compared to 2016 were as follows:
In millions
Years Ended
December 31,
Percentage Change %
2018
2017 Change Organic Acquisitions Divestitures
Foreign
Exchange
Change
Revenues by Service
Regulated Waste and Compliance
Services
Secure Information Destruction
Services
Communication and Related
Services
Manufacturing and Industrial
Services
Total Revenues
$ 1,932.6 $ 2,023.6 $
(91.0)
(2.8%)
911.0
823.4
87.6
7.8%
313.1
382.6
(69.5)
(18.2%)
329.2
351.1
$ 3,485.9 $ 3,580.7 $
(21.9)
(94.8)
2.8%
(1.5%)
Revenues by Segment
Domestic and Canada RCS
International RCS
All Other
$ 2,574.1 $ 2,551.9 $
655.1
256.7
707.6
321.2
Total Revenues
$ 3,485.9 $ 3,580.7 $
22.2
(52.5)
(64.5)
(94.8)
(0.1%)
1.9%
(20.1%)
(1.5%)
0.3%
2.7%
0.1%
0.2%
0.8%
1.1%
0.4%
–
0.8%
(1.1%)
(0.9%)
(4.5%)
(0.4%)
0.5%
10.6%
–
(0.1%)
(18.2%)
(5.4%)
(1.3%)
(3.8%)
(0.7%)
(6.2%)
(2.6%)
(0.1%)
(5.9%)
–
(1.3%)
–
(3.8%)
–
(0.7%)
0.9%
(7.4%)
(20.1%)
(2.6%)
In millions
Years Ended
December 31,
Percentage Change %
2017
2016 Change Organic Acquisitions Divestitures
Foreign
Exchange
Change
$ 2,023.6 $ 2,063.0 $
(39.4)
(1.0%)
Revenues by Service
Regulated Waste and Compliance
Services
Secure Information Destruction
Services
Communication and Related Services
Manufacturing and Industrial services
823.4
382.6
351.1
747.5
370.4
381.4
Total Revenues
$ 3,580.7 $ 3,562.3 $
Revenues by Segment
Domestic and Canada RCS
International RCS
All Other
$ 2,551.9 $ 2,508.8 $
707.6
321.2
751.7
301.8
Total Revenues
$ 3,580.7 $ 3,562.3 $
75.9
12.2
(30.3)
18.4
43.1
(44.1)
19.4
18.4
7.4%
2.2%
(6.1%)
0.6%
0.8%
(1.8%)
4.8%
0.6%
0.3%
2.9%
1.3%
–
0.9%
0.8%
0.9%
1.6%
0.9%
(0.9%)
(0.3%)
(1.9%)
–
–
(0.8%)
(0.6%)
–
(2.9%)
–
(0.6%)
(0.2%)
(0.2%)
(1.0%)
(0.3%)
10.2%
3.3%
(7.9%)
0.5%
0.1%
(2.1%)
0.0%
(0.3%)
1.7%
(5.9%)
6.4%
0.5%
2018 10-K Annual Report
Stericycle, Inc. • 50
PART II
2018 compared to 2017
On a consolidated basis revenues decreased $94.8 million, or 2.6%, in 2018 to $3.49 billion from $3.58
billion in 2017. The decrease was largely driven by the expected declines in the SQ medical waste
business and CRS, foreign exchange, and divestitures, partially offset by strong organic growth in Secure
Information Destruction.
Domestic and Canada RCS revenues increased $22.2 million, or 0.9%, in 2018 to $2.57 billion from $2.55
billion in 2017. Organic revenues declined $1.5 million, or 0.1%, as we saw declines due to the impact of
SQ pricing. This was partially offset by increases in Secure Information Destruction revenues as a result of
increased pricing and related demand and pricing for recycled paper as well as organic growth from new
customers and growth in Regulated Waste and Compliance revenues from retail and our larger customers.
Acquisitions contributed $27.0 million, or 1.1%, to revenues. Divestitures, primarily related to the U.S.
clean room business, reduced revenues by $3.3 million, or 0.1%.
International RCS revenue decreased $52.5 million, or 7.4%, in 2018 to $655.1 million from $707.6 million
in 2017. The increase in International RCS segment organic revenues was $13.3 million, or 1.9%. Secure
Information Destruction revenues increased as a result of increased pricing and related demand and
pricing for recycled paper as well as organic growth from new customers, and the impact of the new
General Data Protection Regulation laws in Europe. We also saw increases in Medical Waste and
Compliance Revenues as a result of growth in Europe. These increases were offset by declines due to the
exit from our patient transport business in the U.K. and overall economic declines in several Latin America
markets. Acquisitions in the International RCS segment contributed $2.7 million, or 0.4%, to revenues.
Divestitures related to the hazardous waste business in the U.K. and Secure Information Destruction
business in South Africa reduced revenues by $41.7 million, or 5.9%. The effect of foreign exchange rates,
primarily in Latin America, unfavorably impacted international revenues in 2018 by $26.8 million, or 3.8%,
as foreign currencies, notably those in Latin America, declined against the U.S. dollar.
All Other revenues, related to Domestic Communication and Related Services, decreased $64.5 million, or
20.1%, in 2018 to $256.7 million from $321.2 million in 2017. Revenues were impacted by reductions in
CRS volumes due to smaller-sized recall events as compared to multiple large-sized recall events
managed during 2017 and lower call volumes.
2017 compared to 2016
On a consolidated basis revenues increased $18.4 million, or 0.5%, in 2017 to $3.58 billion from $3.56
billion in 2016.
Domestic and Canada RCS revenues increased $43.1 million, or 1.7%, in 2017 to $2.55 billion from $2.51
billion in 2016. Organic revenue growth contributed $19.0 million, or 0.8%, and acquisitions contributed
$20.9 million, or 0.8%, to revenues. Our Secure Information Destruction revenues were strong due to
higher sales activity for both recurring and one-time purge services combined with higher recycling
revenue. The strengthening of the Canadian dollar had a favorable impact on 2017 revenues by $3.2
million, or 0.1%. Revenue related to Manufacturing and Industrial services (“M&I”) experienced a decline
of $19.7 million from 2016, which reduced overall organic growth by 0.9%. This decline was due to lower
activity from on-call services related to softness in the U.S. industrial market. In addition, we have
experienced pricing pressure related to our SQ regulated waste and compliance customers resulting from
hospital consolidation of physician practices and increased competitive activities in the market.
2018 10-K Annual Report
Stericycle, Inc. • 51
PART II
International RCS revenue decreased $44.1 million, or 5.9%, in 2017 to $707.6 million from $751.7 million
in 2016. 2017 organic revenue decline in the International RCS segment was $13.4 million, or 1.8%,
primarily due to exiting certain patient transport service contracts in the U.K. and a decline in M&I
revenue in our Latin American business. Acquisitions in the International RCS segment contributed $6.4
million, or 0.9% to revenues. Divestitures related to the sale of certain assets in the U.K. reduced revenues
by $21.6 million, or 2.9%. The net effect of acquisitions and divestitures resulted in a 2.0% decrease in
revenues in 2017. The effect of foreign exchange rates unfavorably impacted international revenues in
2017 by $15.5 million, or 2.1%, as foreign currencies declined against the U.S. dollar.
All Other revenues, related to Domestic Communication and Related Services, increased $19.4 million, or
6.4%, in 2017 to $321.2 million from $301.8 million in 2016. Organic revenue increased $14.5 million, or
4.8%, primarily due to serving new brands across many industries and several larger non-recurring recall
events in 2017. Acquisitions contributed $4.9 million, or 1.6%.
Gross Profit:
In millions
Years Ended December 31,
2018
2017
2016
Gross profit
$
1,376.0
% of
Revenue
% of
Revenue
$
% of
Revenue
$
39.5% 1,462.5
40.8% 1,486.9
41.7%
Change 2018
versus 2017
Change 2017
versus 2016
$
(86.5)
%
(5.9%)
$
(24.4)
%
(1.6%)
Consolidated Gross profit decreased $86.5 million, or 5.9%, in 2018 to $1.38 billion from $1.46 billion in
2017. As a percentage of revenues, consolidated Gross profit decreased to 39.5% in 2018 compared to
40.8% in 2017. The decline in gross profit was primarily attributable to the expected impact of SQ mix
and pricing, approximately $25.7 million of non-cash impairment charges incurred in the Domestic and
Canada RCS and All Other reportable segments and the impact of lower volumes in CRS. Decreases were
also due to a prolonged declining market trend and cost pressures in Latin America.
Consolidated Gross profit decreased $24.4 million, or 1.6%, in 2017 to $1.46 billion from $1.49 billion in
2016. As a percentage of revenues, consolidated Gross profit decreased to 40.8% in 2017 compared to
41.7% in 2016. The decline in gross profit was primarily due to lower revenues from our M&I customers,
which have a higher fixed cost structure, and approximately $18.0 million of non-cash fixed assets
depreciation increases and write-offs. Domestically, pricing pressure on our SQ regulated waste and
compliance customers negatively impacted our gross profit as a percentage of revenues.
International gross profit is lower than domestic gross profit because our international operations have
fewer small account customers, which tend to generate higher gross profit. Historically, our international
operations generate most of their revenues from large account customers, such as hospitals, publically
funded healthcare organizations and government bodies. As our international revenues increase,
consolidated gross profit percentages experience downward pressure due to this "business mix" shift,
which may be offset by additional international small account market penetration, integration savings, and
domestic business expansions.
2018 10-K Annual Report
Stericycle, Inc. • 52
PART II
SG&A:
In millions
SG&A
Years Ended December 31,
2018
2017
2016
$
1,178.4
% of
Revenue
% of
Revenue
$
% of
Revenue
$
33.8% 1,405.1
39.2% 1,053.1
29.6%
Change 2018
versus 2017
Change 2017
versus 2016
$
(226.7)
%
(16.1%)
$
352.0
%
33.4%
SG&A expenses decreased $226.7 million, or 16.1%, in 2018 to $1.18 billion from $1.41 billion in 2017. As
a percentage of revenues, SG&A decreased to 33.8% in 2018 compared to 39.2% in 2017. The decrease
was primarily attributable to lower charges associated with key strategies and significant matters, which
were $395.7 million in 2018 compared to $622.4 million in 2017. These matters are discussed above.
Additionally, there were also decreases in consulting and professional fees and bad debt expense partially
offset by an increase in incentive based compensation as achievement was at higher overall levels during
2018.
SG&A expenses increased $352.0 million, or 33.4%, in 2017 to $1.41 billion from $1.05 billion in 2016. As
a percentage of revenues, SG&A increased to 39.2% of revenues in 2017 compared to 29.6% in 2016. The
increase was primarily attributable to the impact of the SQ settlement and charges associated with key
strategies and significant matters discussed above, which, in aggregate, contributed $337.6 million of the
increase. In addition, there were increases in consulting and professional fees, partially offset by lower
compensation and bad debt expense.
Goodwill Impairment:
Goodwill impairment was $358.7 million in 2018, compared with $65.0 million in 2017.
In our Form 10-Q for the quarter ended September 30, 2018, we disclosed that we were in the process of
completing the October 1 annual goodwill impairment assessment and that certain of our reporting units,
including Domestic CRS and Latin America, were potentially at risk for impairment based on our
preliminary review of our long range plan (“LRP”) which was in the process of being finalized. We were
also evaluating recent declines in our stock price and the impact on our reconciliation of the aggregate
fair values of our reporting units to our market capitalization.
We performed our annual goodwill assessment as of October 1, 2018, and we continued to update our
assumptions to reflect certain business and strategic developments during the fourth quarter, which
negatively impacted the estimated cash flows of certain of our reporting units and resulted in our decision
to also complete an interim assessment as of December 31, 2018. The Company determined that the
Domestic CRS and Latin America reporting units’ carrying values were in excess of their estimated fair
values.
Factors that contributed to the estimated fair value of the reporting units being below their carrying value
include:
(cid:129)
For Domestic CRS we experienced a progressive decrease in revenues and operating margins in
2018 due to (i) continued declines in large recall events leading to a higher level of the
uncertainty of these occurring in future periods. (ii) recall events that have a smaller number of
2018 10-K Annual Report
Stericycle, Inc. • 53
PART II
units and significantly lower revenue per event than we had experienced in recent years, and (iii)
continued decline in inbound/outbound call volumes for our live voice services. We also gathered
insights from our process of evaluating strategic alternatives that we initiated in 2018;
(cid:129)
For Latin America we continue to experience prolonged challenges and volatility in certain of our
markets due to declining market trends and cost pressures. Revenue increases in our
Manufacturing and Industrial (“M&I”) business due to inflationary price increases in Argentina
have been offset by the impact of currency devaluation and the continuing declines in several
local economies.
These challenges were factored into updates to our forecasted cash-flow assumptions during the fourth
quarter to reflect our current outlook and we made certain adjustments to the discount rates used to
present value these forecasted cash-flows. As a result of these impairment assessments, we recognized
$286.3 million of non-cash goodwill impairment charges to fully impair the goodwill of our Domestic CRS
reporting unit. In addition, we recognized $72.4 million of non-cash goodwill impairment charges related
to our Latin America reporting unit. Following the impairment, the remaining Latin America reporting
unit’s goodwill is $20 million.
During 2017, as a result of our annual impairment assessment of goodwill we recognized a non-cash
goodwill impairment charge for our Latin America reporting unit of $65 million.
Segment Profitability: We use Adjusted EBITDA as the primary measure of profitability for each of our
Reportable Segments – see Part II, Item 8. Financial Statements and Supplementary Data; Note 17 –
Segment Reporting in the Consolidated Financial Statements for an explanation of this measure. Segment
profitability and a reconciliation of the total for segment profitability to (loss) income from operations for
each of the years ended December 31, 2018, 2017, and 2016 respectively was as follows:
Item 8. Financial l Statements andd Supplementaryy Data;
2018 10-K Annual Report
Stericycle, Inc. • 54
PART II
In millions
Adjusted EBITDA
RCS
International RCS
All Other
Total
Years Ended December 31,
2018
2017
2016
% of
Segment
Revenues
$
% of
Segment
Revenues
$
% of
Segment
Revenues
$
Change 2018
versus 2017
Change 2017
versus 2016
$
%
$
%
782.4
95.6
(133.4)
744.6
30.4%
14.6%
(52.0%)
21.4%
809.5
93.7
(91.2)
812.0
31.7%
13.2%
(28.4%)
22.7%
824.9
93.1
(67.2)
850.8
32.9%
12.4%
(22.3%)
23.9%
(27.1)
1.9
(42.2)
(67.4)
(3.3%)
2.0%
46.3%
(8.3%)
(15.4)
0.6
(24.0)
(38.8)
(1.9%)
0.6%
35.7%
(4.6%)
Reconciliation to (Loss)
income from operations:
above
Depreciation
Business Transformation
Intangible Amortization
Acquisition and
Integration
Operational
Optimization
Divestitures
Litigation, Settlements
and Regulatory
Compliance
Impairment
Other
(Loss) income from
operations
744.6
(125.6)
(82.6)
(130.3)
(9.8)
(29.4)
(20.5)
(93.2)
(385.2)
(29.1)
(161.1)
2018 compared to 2017
812.0
(131.1)
(31.3)
(118.4)
(40.7)
(71.1)
(9.5)
(327.7)
(65.0)
(24.8)
(7.6)
850.8
(123.2)
-
(129.3)
(60.9)
(59.1)
(27.1)
(7.2)
(1.4)
(8.8)
433.8
Adjusted EBITDA for our Domestic and Canada RCS reportable segment decreased $27.1 million, or 3.3%,
in 2018 to $782.4 million from $809.5 million in 2017. As a percentage of Domestic and Canada RCS
revenues, Adjusted EBITDA was 30.4% and 31.7%, for 2018 and 2017, respectively. This decrease was
primarily a result of the impact of lower margins caused by the expected impact of pricing on our SQ
medical waste customers as well as the pricing pressures we have experienced from our SQ regulated
waste and compliance customers resulting from hospital consolidation of physician practices and
increased competitive activities, partially offset by the impact of Business Transformation cost savings and
efficiencies. Additionally, the overall decrease was partially offset by the benefits of increased volume and
pricing on recycled paper.
Adjusted EBITDA for our International RCS reportable segment increased $1.9 million, or 2.0%, in 2018 to
$95.6 million from $93.7 million in 2017. As a percentage of International RCS revenues, Adjusted EBITDA
was 14.6% and 13.2% for 2018 and 2017, respectively. We experienced improvements in overall margins
in Europe as a result of our exit from some lower margin businesses. These improvements were partially
offset by lower margins in Latin America due to a prolonged declining market trend and costs pressures.
2018 10-K Annual Report
Stericycle, Inc. • 55
PART II
Adjusted EBITDA for All Other decreased $42.2 million in 2018 to $(133.4) million from $(91.2) million in
2017. The decrease is a result of the lower revenues in our Domestic Communication and Related
Services business combined with disproportionally lower gross profits due to the higher fixed costs nature
for this business.
2017 compared to 2016
Adjusted EBITDA for our Domestic and Canada RCS reportable segment decreased $15.4 million, or 1.9%,
in 2017 to $809.5 million from $824.9 million in 2016. As a percentage of Domestic and Canada RCS
revenues, Adjusted EBITDA was 31.7% and 32.9% for 2017 and 2016, respectively. The decrease was a
result of lower gross profit percentage as a result of the impacts associated with M&I customers, which
have a higher fixed costs structure, and SQ regulated waste and compliance pricing pressures as well as
higher costs related to wages and fuel.
Adjusted EBITDA for our International RCS reportable segment increased $0.6 million, or 0.6%, in 2017 to
$93.7 million from $93.1 million in 2016. As a percentage of International RCS revenues, Adjusted EBITDA
was 13.2% and 12.4% for 2017 and 2016, respectively. The increase was a result of the impacts on gross
margin and SG&A resulting from the divestiture of the lower margin patient transport business in the U.K.
Adjusted EBITDA for All Other decreased $24.0 million, or 35.7%, in 2017 to $(91.2) million from $(67.2)
million in 2016.
Interest Expense, Net: Interest expense, net increased in 2018 to $106.0 million from $93.7 million in
2017 due to an increase in the overall interest rates on our borrowings caused by an increase in the LIBOR
rate and interest rate adjustments related to both our private placement notes and senior credit facility
combined with an overall increase in our average outstanding debt balance primarily due to funding the
SQ settlement payment of $295.0 million using amounts available on our senior credit facility.
In connection with the underlying terms, we saw an increase of 0.25% in the interest rate charged on our
senior credit facility and term loan and total increases of 0.75% on the interest rates charged on our
private placement notes. We expect that the annual impact of these late 2018 interest rate increases on
our Interest expense, net will be approximately $11.8 million.
Interest expense, net decreased in 2017 to $93.7 million from $97.8 million in 2016 due to a reduction of
our average outstanding debt balance, partially offset by an increase in interest rates in the U.S.
Other Expense, Net: Other expense, net increased in 2018 to $8.3 million from $6.6 million in 2017,
primarily due to a $3.8 million foreign exchange loss resulting from the re-measurement of our
Argentinian Peso denominated net monetary assets as a result of the designation, as of July 1, 2018, of
Argentina as a highly inflationary economy.
Other expense, net decreased in 2017 to $6.6 million from $7.9 million in 2016.
Income Tax Benefit (Expense): Income tax benefit was $29.8 million in 2018 compared to $150.9 million
in 2017. The effective tax rates for the years 2018 and 2017 were 10.8% and 139.9%, respectively. During
2017, as a result of the introduction of the Tax Act, the Company recognized an income tax benefit of
$129.8 million arising from the revaluing our U.S. net deferred tax liabilities from 35% to the newly
enacted U.S. corporate income tax rate of 21%, partially offset by a one-time transition tax on our
2018 10-K Annual Report
Stericycle, Inc. • 56
PART II
unremitted foreign earnings and profits which we have elected to pay over an eight-year period, and
expected foreign withholding taxes. During 2018, in accordance with SAB 118, we recognized a charge of
$8.8 million as we completed our analysis associated with the impact of the Tax Act. In addition, in 2018
and 2017 our effective rate was also impacted by the non-deductibility of the goodwill impairments in
certain jurisdictions, and valuation allowances recognized against net operating losses in several countries.
Income tax benefit was $150.9 million in 2017 compared to income tax expense of $120.2 million in 2016.
The effective tax rates for the years 2017 and 2016 were 139.9% and 36.6%, respectively. The change in
2017 rate, when compared to 2016, was primarily due to the impact of the Tax Act discussed above,
partially offset by the impact of the non-deductibility of the goodwill impairment charge recognized
during the year.
Liquidity and Capital Resources
Note 8 – Debt
Details of the Company’s outstanding debt obligations can be found in Part II, Item 8. Financial
Item 8. Financial
in the Consolidated Financial Statements. The
Statements and d Supplementaryy Data;
Company believes it has sufficient liquidity to support its ongoing operations and to invest in future
growth for at least the next twelve months. Operating cash flows and the Company’s $1.2 billion senior
credit facility are the Company’s primary sources of liquidity and are expected to be used for, among
other things, payment of interest and principal on the Company’s debt obligations, acquisitions, capital
expenditures necessary to support growth and productivity improvements, including those associated
with our multiyear Business Transformation.
Working Capital: At December 31, 2018, our working capital increased $170.1 million to $14.1 million
compared to a deficit of $156.0 million at December 31, 2017.
Current assets decreased $66.1 million in 2018 to $747.3 million from $813.4 million in 2017, primarily
driven by a $24.5 million decrease in accounts receivable, a $26.5 million decrease in prepaid expenses
and $20.8 million decrease in assets held for sale. Days sales outstanding (“DSO”) was 63 days at
December 31, 2018 and 2017.
Current liabilities decreased $236.2 million in 2018 to $733.2 million from $969.4 million in 2017, primarily
due to the payment of $295.0 million related to the SQ settlement, which was funded from available
capacity under our senior credit facility, partially offset by a $28.0 million increase in accrued
compensation, primarily as a result of higher incentive compensation accruals in 2018 and the timing of
payroll processing with respect to the year end and a $30.6 million increase in accounts payable in
connection with our efforts to extend vendor terms under our Business Transformation initiatives and a
temporary impact from the implementation of a purchase order system during the latter part of 2018.
Operating Cash Flows: Net cash from operating activities decreased $342.9 million, or 67.4%, in 2018 to
$165.7 million from $508.6 million in 2017. The primary drivers of this decline were the payment of the
$295.0 million SQ settlement and payments related to legal and regulatory compliance and our Business
Transformation initiatives. These amounts were partially offset by lower tax payments as a result of losses
generated in the year and extending vendor payment terms and a temporary impact from the
implementation of a purchase order system during the latter part of 2018.
Investing Cash Flows: Net cash used in investing activities decreased $45.5 million, or 23.6%, in 2018 to
$147.5 million from $193.0 million in 2017. We used $7.8 million less cash for acquisitions in 2018 than in
2018 10-K Annual Report
Stericycle, Inc. • 57
PART II
2017 and generated an additional $24.0 million from the divestiture of businesses during 2018. Our
capital expenditures decreased by $12.2 million in 2018 and were at 3.8% and 4.0% in 2018 and 2017,
respectively, as a percentage of revenues. Higher capital expenditures are expected in 2019, principally
associated with our Business Transformation initiatives.
Financing cash Flows: Net cash used in financing activities decreased $295.5 million, or 92.0%, in 2018 to
$25.7 million from $321.2 million in 2017. We funded the $295.0 million SQ settlement from available
capacity under our senior credit facility resulting in net borrowings of $68.7 million during 2018 compared
to net repayments of $175.6 million on our senior credit facility, private placement, and term loan facility
during 2017. We had net repayments on our other debt, including foreign debt, capital leases, and other
long-term debt of $78.4 million during 2018 compared to $84.3 million during 2017. We had preferred
share repurchases of $17.2 million in 2018 compared to $34.2 million in 2017. Dividends of $25.5 million
and $36.3 million were paid during 2018 and 2017, respectively, to holders of our Series A Preferred Stock.
In accordance with the terms of issue the Series A Preferred Stock was converted to common stock in
September 2018 – see Part II, Item 8. Financial Statements and Supplementary Data; Note 14 – Preferred
Stock in the Consolidated Financial Statements.
Item 8. Financial l Statements andd Supplementary y Data;
Contractual Obligations
The following table summarizes our significant contractual obligations and cash commitments at
December 31, 2018:
Payments due by period (in millions)
Long term debt (1)
Capital leases (1)
Unrecorded Obligations:
Interest on long term debt
Interest on capital leases
Non-cancelable operating lease obligations
Estimated unconditional purchase obligations
Total contractual cash obligations
$
Total
2019
2020-2021
2022-2023
2,758.4
20.3
368.3
3.6
491.9
46.9
3,689.4 $
225.2
4.1
98.2
1.4
107.0
21.3
593.5
6.9
185.4
1.2
161.4
25.6
1,933.4
3.8
84.7
0.6
94.8
-
457.2 $
974.0 $
2,117.3 $
2024 and
After
6.3
5.5
-
0.4
128.7
-
140.9
(1)
These amounts represent the scheduled principal payments related to our long-term debt and
capital leases, excluding interest. Included in amounts due in 2019 is $125 million related to a
private placement note for which the Company has the ability and intent to refinance (see Part II,
Item 8. Financial l Statements andd Supplementary y Data;
in the Consolidated Financial
Statements).
Note 8 – Debt
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.
We had elected to pay our $23.5 million transition tax liability over eight years. We are in a net receivable
position with the U.S. Internal Revenue Service (“IRS”). As the amounts become due they will be offset
with the amounts on deposit with the IRS.
2018 10-K Annual Report
Stericycle, Inc. • 58
PART II
Environmental liabilities are not presented above but are accrued 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 (see Part II,
Item 8. Financial l Statements andd Supplementaryy Data;
in the
Consolidated Financial Statements).
Note 11 – Commitments and Contingencies
As of December 31, 2018, we had $63.1 million of stand-by letters of credit outstanding against our senior
credit facility and a further $52.2 million of stand-by letters of credit outstanding against another facility,
$63.7 million of surety bonds, and $19.5 million of bank guarantees. The bank guarantees are issued
mostly by our international subsidiaries for various purposes, including leases, seller notes, contracts and
permits. The surety bonds are used for performance guarantees. Neither the bank guarantees nor the
surety bonds affect our ability to use our various lines of credit.
We anticipate that our operating cash flows, together with additional borrowings available under our
senior unsecured credit facility, will be sufficient to meet our anticipated future operating expenses,
strategic initiatives such as Business Transformation, capital expenditures and debt service obligations as
they become due during the next 12 months and the foreseeable future.
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 U.S. GAAP. The
preparation of these financial statements requires management to make estimates, assumptions and
judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and the related
disclosure of contingent assets and liabilities. Although management believes that its estimates and
assumptions are reasonable, they are based upon information available when they are made, and
therefore, actual results may differ from these estimates under different assumptions or conditions. The
Company’s most critical accounting policies are those that may be material due to the levels of
subjectivity and judgment necessary to account for highly uncertain matters or the susceptibility of such
matters to change, and those policies that have a material impact on the financial condition or operating
performance of the Company. Part II, Item 8. Financial l Statements andd Supplementary y Data; Note 1 – Basis
of Presentation and Summary of Significant Accounting Polices in the Consolidated Financial Statements
provides a detailed description of all of our material accounting policies, however the Company has
identified the following as its most critical accounting policies and estimates.
Revenue Recognition: The Company’s revenue recognition policy is detailed in Part II, Item 8. Financial
Item 8. Financial
Statements andd Supplementaryy Data; Note 1 – Basis of Presentation and Summary of Significant Accounting
Polices in the Consolidated Financial Statements.
Allowance for Doubtful Accounts: The Company reports accounts receivable at their net realizable
value, which is management’s best estimate of the cash that will ultimately be received. We maintain an
allowance for doubtful accounts to reflect the expected uncollectability of accounts receivable based on
historical collection data and specific risks identified among uncollected accounts. The adequacy of
allowances for uncollectible accounts is reviewed at least quarterly, and adjusted as necessary based on
such reviews. A considerable amount of management’s judgment is required to assess the collectability
of an account, based on detailed analysis of the aging of the receivables, the creditworthiness of our
customers, historical collection trends and current economic trends. Accounts receivable written off in
subsequent periods can differ from the allowance for doubtful accounts provided, but historically our
2018 10-K Annual Report
Stericycle, Inc. • 59
PART II
provision has been adequate. Allowance for doubtful accounts was $71.9 million and $65.2 million as of
December 31, 2018 and 2017, respectively.
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 tradenames. 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:
(cid:129) 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.
(cid:129) 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.
(cid:129) The cost of reproduction new (“CRN”) for 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: Goodwill represents the excess of the purchase price and related costs over the fair value
assigned to the net tangible and identifiable tangibles of a business acquired. Goodwill is not subject to
2018 10-K Annual Report
Stericycle, Inc. • 60
PART II
amortization but is subject to evaluation for impairment annually as of October 1 or when an indicator of
impairment exists.
We used a quantitative approach to assess goodwill for impairment. The fair value of each reporting unit
is calculated using the income approach (including discounted cash flows (“DCF”)) and validated using a
market approach with the involvement of a third party valuation specialist. The Company's reporting units
are: Domestic Healthcare Compliance Services, Domestic Shred-it, Domestic CRS, Domestic Environmental
Solutions, Canada, Europe, Asia Pacific and Latin America. 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
reconcile the calculated fair values to our market capitalization. The fair value is then compared to its
carrying value including goodwill. If the fair value is in excess of its carrying value, the related goodwill is
not impaired. If the fair value is less than its carrying value, we recognize an impairment charge in the
amount that the carrying value exceeds the fair value.
The goodwill impairment testing process involves the use of significant assumptions, estimates and
judgments, and is subject to inherent uncertainties and subjectivity in determination of the fair value of
the reporting units. Estimating a reporting unit's projected cash flows involves the use of significant
assumptions, estimates and judgments with respect to numerous factors, including long-term growth
rates, operating margin, including, selling, general and administrative expense rates, working capital,
capital expenditures, allocation of shared or corporate items, among other factors. These estimates are
based on internal current operating plans and long-term forecasts for each reporting unit. These
projected cash flow estimates are then discounted, which necessitates the selection of an appropriate
discount rate. The discount rates selected reflect market-based estimates of the risks associated with the
projected cash flows of the reporting unit and also include a company specific risk premium. The market
value comparisons of fair value require the selection of appropriate peer group companies. In addition,
we analyze differences between the sum of the fair value of the reporting units and our total market
capitalization for reasonableness, taking into account certain factors including control premiums.
We performed our annual goodwill assessment as of October 1, 2018, and we continued to update our
assumptions to reflect certain business and strategic developments during the fourth quarter, which
negatively impacted the estimated cash flows of certain of our reporting units and resulted in our decision
to also complete an interim assessment as of December 31, 2018.
The outcome of the goodwill impairment assessments are discussed further above in the Goodwill
Impairment section of Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and
Results of Operations - Goodwill Impairment. (For additional information, see Part II, Item 8. Financial
Item 8. Financial
Statements andd Supplementaryy Data;
in the Consolidated
Financial Statements).
Note 6 – Goodwill and Other Intangible Assets
A measure of sensitivity of the amount of goodwill impairment charges to key assumptions is the amount
by which each reporting unit's fair value exceeds their respective carrying value. Subsequent to the
impairment charges incurred through December 31, 2018, the amount of fair value in excess of carrying
value based on reporting unit specific risk premiums considered during the fourth quarter impairment
2018 10-K Annual Report
Stericycle, Inc. • 61
PART II
assessments is as follows: for the Domestic reporting units by no less than ten percent and as much as
approximately ninety percent, for the International reporting units, other than Latin America, by no less
than twenty five percent and as much as approximately sixty percent. For the Latin America reporting
unit, a future reduction in fair value may result in additional impairment charges after consideration of
changes in carrying value at the time of the impairment assessment. We performed sensitivity analysis on
our estimated fair values as of December 31 2018, noting that a 50 basis point increase in the discount
rate or a 50 basis point reduction in the long-term growth rate would not result in impairments, except for
an incremental impairment charge for our Latin America reporting unit of approximately $7 million or $4
million, respectively. Following the impairment charges incurred through December 31, 2018, the
Domestic CRS and Latin America reporting units have recorded goodwill, remaining of zero and $20
million, net of accumulated impairment, respectively.
The use of different assumptions, estimates or judgments in the goodwill impairment testing process may
significantly increase or decrease the estimated fair value of a reporting unit. Generally, changes in DCF
estimates would have a similar effect on the estimated fair value of the reporting unit. We believe that
the estimated fair value used in measuring the impairment was based on reasonable assumptions but
future changes in the underlying assumptions could differ due to the inherent judgment in making such
estimates.
Other Identifiable Intangible Assets: Indefinite life intangibles are also not subject to amortization but
are assessed for impairment in the same manner as goodwill. Indefinite lived intangibles may be assessed
using either a qualitative or quantitative approach. The qualitative approach first determines if it is more-
likely-than-not that the fair value of the asset is less than the carrying value. If no such determination is
made, then the impairment test is complete. If, however, it is determined that there is a likely impairment,
a quantitative assessment must then be made. One factor in our determination of whether to use the
qualitative approach is the time elapsed since the last assessment using the quantitative approach.
We have determined that our operating permits and certain tradenames have indefinite lives due to our
ability to renew them with minimal additional cost, and therefore they are not amortized. In the fourth
quarter of 2018, the Company performed its annual impairment test on indefinite lived intangibles, other
than goodwill, using the qualitative approach for certain assets and the quantitative approach for the
remaining assets. 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.
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.
Our finite-lived intangible assets are amortized over their useful lives using the straight-line method. Our
customer relationships have useful lives from 5 to 25 years based upon the type of customer. We have
non-compete covenant intangibles with useful lives from 5 to 14 years. We also have tradename
intangibles with useful lives from 4 to 40 years.
We evaluate the useful life of our intangible assets annually to determine whether events and
circumstances warrant a revision to their remaining useful life and changes are reflected prospectively as
the intangible asset is amortized over the revised remaining useful life. In the fourth quarter of 2018, the
2018 10-K Annual Report
Stericycle, Inc. • 62
PART II
Company performed its annual assessment of the useful life of its finite-lived intangibles. The Company
updated the useful life of its customer relationship intangibles as a result of analyzing recent quantitative
and qualitative observations in the market and factors impacting our business. The change in estimate
will be accounted for prospectively. The weighted average remaining life was adjusted from
approximately 10.9 to 9.2 years to reflect the new estimated useful lives. We estimate that there will be an
approximately 5-10% increase to annual amortization expense.
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 PRP’s. We routinely review and evaluate sites that require remediation,
considering whether we were an owner, operator, transporter, or generator at the site, the amount and
type of waste hauled to the site and the number of years we contracted with or owned the site. Next, we
review the same information with respect to other named and unnamed PRPs. Estimates of the cost for
the likely remediation are then either developed using our internal resources or by third party
environmental engineers or other service providers. (For additional information, see Part II, Item 8.
Financial l Statements andd Supplementaryy Data;
in the
Consolidated Financial Statements).
Note 11 – Commitments and Contingencies
Income Taxes: We record a provision for income taxes for the anticipated tax consequences of our
reported results of operations using the asset and liability method. Deferred income taxes are recognized
by applying enacted statutory tax rates applicable to future years to differences between the financial
statement carrying amounts of existing assets and liabilities and their respective tax basis as well as net
operating loss and tax credit carryforwards. The effect on deferred tax assets and liabilities of a change in
tax rates is recognized in income in the period that includes the enactment date. The measurement of
deferred tax assets is reduced, if necessary, by a valuation allowance for any tax benefits for which future
realization is uncertain.
Although we believe our assumptions, judgments and estimates are reasonable, changes in tax laws or
our interpretation of tax laws and the resolution of any tax audits could significantly impact the amounts
provided for income taxes in our Consolidated Financial Statements.
In evaluating our ability to recover our deferred tax assets, in full or in part, we consider all available
positive and negative evidence, including our past operating results, and our forecast of future earnings,
future taxable income and prudent and feasible tax planning strategies. The assumptions utilized in
determining future taxable income require significant judgment and are consistent with the plans and
estimates we are using to manage the underlying businesses. Actual operating results in future years
could differ from our current assumptions, judgments and estimates. However, we believe that it is more
likely than not that most of the deferred tax assets recognized on our Consolidated Balance Sheets will
ultimately be realized. We record a valuation allowance to reduce our deferred tax assets to the net
amount that we believe is more likely than not to be realized. At December 31, 2018, the valuation
allowance of $35.3 million was related to foreign net operating losses and tax deductible goodwill that we
are not expected to realize.
We did not recognize certain tax benefits from uncertain tax positions within the provision for income
taxes. We may recognize a tax benefit only if it is more likely than not the tax position will be sustained
2018 10-K Annual Report
Stericycle, Inc. • 63
PART II
on examination by the taxing authorities, based on the technical merits of the position. The tax benefits
recognized in the financial statements from such positions are then measured based on the largest
benefit that has a greater than 50% likelihood of being realized upon settlement. At December 31, 2018,
our estimated gross unrecognized tax benefits were $64.7 million, of which $61.8 million, if recognized,
would favorably impact our future earnings. Due to uncertainties in any tax audit outcome, our estimates
of the ultimate settlement of our unrecognized tax positions may change and the actual tax benefits may
differ significantly from the estimates.
In accordance with SAB 118, the Company calculated, with the involvement of a third party tax specialist
its provisional tax impact of the Tax Act on its year end 2017 income tax provision and as a result
recognized an income tax (benefit) of ($129.8) million in the fourth quarter of 2017, the period in which
the legislation was enacted. During the allowed measurement period, the Company completed its
analysis and recognized adjustments, resulting in a charge of $8.8 million, to the 2017 provisional amount
during 2018.
The Tax Act also establishes global intangible low-taxed income ("GILTI") provisions that impose a tax on
foreign income in excess of a deemed return on intangible assets of foreign corporations. The Company
could elect that its accounting policy will be to recognize deferred taxes for basis differences that are
expected to affect the amount of GILTI inclusion upon reversal or to recognize taxes on GILTI as an
expense in the period incurred and chose to report on the basis that the taxes on GILTI will be recognized
in tax expense in the year it is incurred as a period expense.
For further information see Part II, Item 8. Financial Statements and Supplementary Data; Note 9 – Income
Taxes in the Consolidated Financial Statements.
Insured and Self-Insured Claims: We have retained a significant portion of the risks related to our
employee benefit, auto/fleet, general liability and workers’ compensation claims programs. The exposure
for unpaid claims and associated expenses, including incurred but not reported losses, are based on third
party actuarial valuations and internal estimates. The accruals for these liabilities could be revised if future
occurrences or loss developments significantly differ from our assumptions used. Estimated recoveries
associated with our insured claims are recognized as assets when we believe that the receipt of such
amounts is probable.
Stock Based Compensation: We measure the cost of employee services received in exchange for an
award of equity instruments based on the grant-date fair value of the award or on the fair value of the
liabilities incurred. That cost is recognized over the period during which an employee is required to
provide service in exchange for the award—the requisite service period (usually the vesting period) for
date vesting awards. Performance based awards are recognized consistent with performance metrics and
Accounting Standards Codification Section 718 Compensation – Stock Compensation. No compensation
cost is recognized for equity instruments for which employees do not render the requisite service.
The grant-date fair value of incentive stock options (“ISOs”) and similar instruments are estimated using
option-pricing models adjusted for the unique characteristics of those instruments (unless observable
market prices for the same or similar instruments are available). Option-pricing models (Black Scholes)
include assumptions that are evaluated by a third party valuation specialist and evaluated and approved
by the Vice President and Treasurer based on historical experience, current company trends and
comparative analysis to industry trends. If an equity award is modified after the grant date, incremental
2018 10-K Annual Report
Stericycle, Inc. • 64
PART II
compensation cost will be recognized in an amount equal to the excess of the fair value of the modified
award over the fair value of the original award immediately before the modification.
Restricted shares (“RSUs”) awarded to an employee and Performance-based restricted stock units (“PSUs”)
awarded are measured at its fair value, once the related performance criteria have been established, which
is the same amount for which a similarly restricted share would be issued to third parties. A non-vested
equity share unit awarded to an employee is measured at its fair value as if it were vested and issued on
the grant date.
Forfeitures are accounted for as they occur.
For further detail, see Part II, Item 8. Financial Statements and Supplementary Data; Note 13 – Stock Based
Compensation in the Consolidated Financial Statements.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
In the normal course of business, we are exposed to market risks, including changes in interest rates,
certain commodity prices and foreign currency rates.
We are subject to market risks arising from changes in interest rates which relate primarily to our
financing activities. We performed a sensitivity analysis to determine how market rate changes might
affect the fair value of our market risk-sensitive debt instruments. 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 $15.6
million on a pre-tax basis.
We have exposure to foreign currency fluctuations. We have subsidiaries in 20 foreign countries whose
revenues and expenses are denominated in local currency and who 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. We have quantified and described the impact of foreign currency translation
on our revenues. We estimate, that based upon the amounts reported by individual countries during the
year ended December 31, 2018 and prevailing exchange rates at that date a 1% devaluation of all the
functional currencies of each of our foreign businesses would result in a reduction of approximately $0.5
million in the Net (loss) income attributable to Stericycle, Inc. reported in our Consolidated Statements of
(Loss) Income.
In addition, Argentina is classified as a highly inflationary economy, resulting in foreign exchange gains
and losses arising from the translation of our Argentinian peso denominated net monetary assets being
recognized in net income. The foreign exchange loss recognized for the year ended December 31, 2018,
was $3.8 million. On an ongoing basis, we estimate that, based on our Argentinian Peso denominated net
monetary asset position as of December 31, 2018, we will record additional exchange losses of
approximately $0.1 million for each 1% devaluation from the December 31, 2018 Argentinian Peso rate of
exchange versus the U.S. dollar.
2018 10-K Annual Report
Stericycle, Inc. • 65
PART II
Item 8. Financial Statements and Supplementary Data
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of Stericycle, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Stericycle, Inc. (the Company) as of
December 31, 2018 and 2017, the related consolidated statements of (loss) income, comprehensive (loss)
income, changes in equity and cash flows for each of the three years in the period ended December 31,
2018, and the related notes and financial statement schedule listed in the Index at Item 15(a) (collectively
referred to as the “consolidated financial statements”). In our opinion, the consolidated financial
statements present fairly, in all material respects, the financial position of the Company at December 31,
2018 and 2017, and the results of its operations and its cash flows for each of the three years in the period
ended December 31, 2018, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31,
2018, 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 February
28, 2019 expressed an adverse opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to
express an opinion on the Company’s financial statements based on our audits. We are a public
accounting firm registered with the PCAOB and are required to be independent with respect to the
Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of
the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement, whether due to error or fraud. Our audits included performing procedures
to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and
performing procedures that respond to those risks. Such procedures include examining, on a test basis,
evidence regarding the amounts and disclosures in the financial statements. Our audits also included
evaluating the accounting principles used and significant estimates made by management, as well as
evaluating the overall presentation of the financial statements. We believe that our audits provide a
reasonable basis for our opinion.
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 1991.
Chicago, Illinois
February 28, 2019
2018 10-K Annual Report
Stericycle, Inc. • 66
PART II
STERICYCLE, INC.
CONSOLIDATED STATEMENTS OF (LOSS) INCOME
In millions, except per share data
Revenues
Cost of revenues
Gross profit
Selling, general and administrative expenses
Goodwill impairment
(Loss) Income from operations
Other income (expense):
Interest income
Interest expense
Other expense, net
(Loss) Income before income taxes
Income tax benefit (expense)
Net (loss) income
Net loss (income) attributable to noncontrolling interests
Net (loss) income attributable to Stericycle, Inc.
Mandatory convertible preferred stock dividend
Gain on repurchase of preferred stock
Net (loss) income attributable to Stericycle, Inc. common
shareholders
(Loss) Earnings per common share attributable to Stericycle, Inc.
common shareholders:
Basic
Diluted
Weighted average number of common shares
Outstanding:
Basic
Diluted
$
$
$
$
Years Ended December 31,
2017
2018
2016
3,485.9 $
2,109.9
1,376.0
1,178.4
358.7
(161.1)
0.6
(106.6)
(8.3)
(275.4)
29.8
(245.6)
0.9
(244.7)
(25.5)
16.9
$
3,580.7
2,118.2
1,462.5
1,405.1
65.0
(7.6)
0.3
(94.0)
(6.6)
(107.9)
150.9
43.0
(0.6)
42.4
(36.3)
17.3
3,562.3
2,075.4
1,486.9
1,053.1
-
433.8
-
(97.8)
(7.9)
328.1
(120.2)
207.9
(1.6)
206.3
(39.4)
11.3
(253.3) $
23.4
$
178.2
(2.91) $
(2.91) $
0.27
0.27
$
$
87.1
87.1
85.3
85.6
2.10
2.08
84.9
85.6
See accompanying Notes to Consolidated Financial Statements.
2018 10-K Annual Report
Stericycle, Inc. • 67
PART II
STERICYCLE, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE
(LOSS) INCOME
In millions
Net (loss) income
$
(245.6) $
43.0
$
207.9
Years Ended December 31,
2017
2016
2018
Other comprehensive (loss) income:
Foreign currency translation adjustments
Amortization of cash flow hedge into income, net of tax expense ($0.4,
$0.7, and $0.8 for the years ended December 31, 2018, 2017, and 2016,
respectively)
Change in fair value of cash flow hedge, net of tax expense (benefit)
($0.0, $0.0, and $0.0) for the years ended December 31, 2018, 2017, and
2016, respectively)
Total other comprehensive (loss) income
Comprehensive (loss) income
Less: comprehensive (loss) income attributable to noncontrolling
interests
Comprehensive (loss) income attributable to Stericycle, Inc.
common shareholders
(80.3)
1.0
-
(79.3)
(324.9)
(1.9)
80.5
1.0
0.3
81.8
124.8
1.8
(86.7)
1.1
0.2
(85.4)
122.5
1.2
$
(323.0) $
123.0
$
121.3
See accompanying Notes to Consolidated Financial Statements.
2018 10-K Annual Report
Stericycle, Inc. • 68
STERICYCLE, INC.
CONSOLIDATED BALANCE SHEETS
In millions, except per share data
ASSETS
Current Assets:
Cash and cash equivalents
Accounts receivable, less allowance for doubtful accounts of $71.9 in 2018 and $65.2
in 2017
Prepaid expenses
Other current assets
Assets held for sale
Total Current Assets
Property, plant and equipment, less accumulated depreciation of $678.1 in 2018 and
$603.2 in 2017
Goodwill
Intangible assets, less accumulated amortization of $499.9 in 2018 and $392.5 in 2017
Other assets
Total Assets
LIABILITIES AND EQUITY
Current Liabilities:
Current portion of long-term debt
Bank overdraft
Accounts payable
Accrued liabilities
Other current liabilities
Liabilities held for sale
Total Current Liabilities
Long-term debt, net
Deferred income taxes
Long-term tax payable
Other liabilities
Total Liabilities
Commitments and contingencies
Preferred stock (par value $0.01 per share, 1.0 shares authorized), mandatory
convertible preferred stock, Series A, 0.0 and 0.7 issued and outstanding in 2018 and
2017, respectively (see Note 14)
Common stock (par value $.01 per share, 120.0 shares authorized, 90.7 and 85.5
issued and outstanding in 2018 and 2017, respectively)
Additional paid-in capital
Retained earnings
Accumulated other comprehensive loss
Total Stericycle, Inc.’s Equity
Noncontrolling interests
Total Equity
Total Liabilities and Equity
December 31,
2018
2017
$
34.3
$
599.6
50.0
63.4
-
747.3
743.5
3,222.2
1,637.7
104.8
6,455.5
104.3
14.8
225.8
340.8
47.5
-
733.2
2,663.9
307.3
83.3
70.7
3,858.4
$
$
-
0.9
1,162.6
1,789.2
(365.3)
2,587.4
9.7
2,597.1
6,455.5
$
$
$
$
PART II
42.2
624.1
76.5
49.8
20.8
813.4
741.0
3,604.0
1,791.5
38.4
6,988.3
119.5
7.0
195.2
588.1
54.5
5.1
969.4
2,615.3
371.1
55.8
68.1
4,079.7
-
0.9
1,153.2
2,029.5
(287.0)
2,896.6
12.0
2,908.6
6,988.3
See accompanying Notes to Consolidated Financial Statements.
2018 10-K Annual Report
Stericycle, Inc. • 69
STERICYCLE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
In millions
2018
Years Ended December 31,
2017
2016
PART II
$
(245.6 ) $
43.0
$
OPERATING ACTIVITIES:
Net (loss) income
Adjustments to reconcile net (loss) income to net cash from operating activities:
Depreciation
Amortization
Stock-based compensation expense
Deferred income taxes
Asset impairment charges and loss (gain) on disposal of assets held for sale
Other, net
Changes in operating assets and liabilities, net of the effects of acquisitions and divestitures:
Accounts receivable
Prepaid expenses
Accounts payable
Accrued liabilities
Other assets and liabilities
Net cash from operating activities
INVESTING ACTIVITIES:
Capital expenditures
Payments for acquisitions, net of cash acquired
Proceeds from divestitures of businesses
Other, net
Net cash from investing activities
FINANCING ACTIVITIES:
Repayments of long-term debt and other obligations
Proceeds from foreign bank debt
Repayment of foreign bank debt
Proceeds from term loan
Repayment of term loan
Repayment of private placement of long-term note
Proceeds from senior credit facility
Repayment of senior credit facility
Proceeds from (repayment of) bank overdrafts, net
Payments of capital lease obligations
Payments of deferred financing costs
Payments for repurchase of common stock
Proceeds from issuance of common stock, net of shares withheld for tax
Payments for repurchase of mandatory convertible preferred stock
Dividends paid on mandatory convertible preferred stock
Payments to noncontrolling interests
Net cash from financing activities
Effect of exchange rate changes on cash and cash equivalents
Net change in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
SUPPLEMENTAL CASH FLOW INFORMATION:
Net issuances of obligations for acquisitions
Accrued capital expenditures
Interest paid during the year, net of capitalized interest
Income taxes paid during the year, net of refunds
$
$
$
$
$
125.6
130.3
24.1
(34.1 )
418.9
3.8
3.6
(15.6 )
9.3
(238.5 )
(16.1 )
165.7
(130.8 )
(44.7 )
25.2
2.8
(147.5 )
(64.5 )
12.1
(17.8 )
-
(47.5 )
-
1,657.2
(1,541.0 )
8.7
(8.2 )
(1.7 )
-
20.1
(17.2 )
(25.5 )
(0.4 )
(25.7 )
(0.4 )
(7.9 )
42.2
34.3
30.1
30.8
93.7
26.4
$
$
$
$
$
131.1
118.4
21.3
(290.2 )
112.2
(6.7 )
17.1
(33.9 )
22.9
363.0
10.4
508.6
(143.0 )
(52.5 )
1.2
1.3
(193.0 )
(62.1 )
13.3
(31.9 )
50.0
(100.0 )
(175.0 )
1,739.1
(1,689.7 )
2.4
(3.6 )
(2.7 )
-
10.2
(34.2 )
(36.3 )
(0.7 )
(321.2 )
3.6
(2.0 )
44.2
42.2
16.5
5.0
84.2
128.9
$
$
$
$
$
207.9
123.2
129.3
20.5
7.1
28.5
1.0
(43.1 )
(1.2 )
5.2
28.5
53.9
560.8
(136.2 )
(63.9 )
2.1
2.4
(195.6 )
(89.2 )
76.2
(84.1 )
-
(250.0 )
-
1,464.9
(1,393.3 )
(13.6 )
(5.3 )
(0.6 )
(40.8 )
37.5
(30.9 )
(39.4 )
(8.2 )
(376.8 )
0.2
(11.4 )
55.6
44.2
44.2
6.2
88.8
111.5
See accompanying Notes to Consolidated Financial Statements.
2018 10-K Annual Report
Stericycle, Inc. • 70
STERICYCLE, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
PART II
Stericycle, Inc. Equity
Common
Stock
Additional
Paid-In
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Loss
Noncontrolling
Interests
84.9 $ 0.8 $
1,143.0 $ 1,868.7 $
(282.6 ) $
Preferred
Stock
0.8 $
-
In millions
Balance as of January 1, 2016
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, net
Repurchase and cancellation of treasury
stock
Repurchase and cancellation of convertible
preferred stock
Preferred stock dividend
Stock compensation expense
Payments to noncontrolling interest
Balance as of December 31, 2016
Net income
Currency translation adjustment
Change in qualifying cash flow hedge, net of
tax
Issuance of common stock for exercise of
options, RSU vesting and employee stock
purchases, net
Repurchase and cancellation of convertible
preferred stock
Preferred stock dividend
Stock compensation expense
Reduction to noncontrolling interests due to
additional ownership
Balance as of December 31, 2017
Net loss
Currency translation adjustment
Change in qualifying cash flow hedge, net of
tax
Issuance of common stock for exercise of
options, RSU vesting and employee stock
purchases, net
Repurchase and cancellation of convertible
preferred stock
Conversion of convertible preferred stock to
common stock
Preferred stock dividend
Stock compensation expense
Payments to noncontrolling interest
Cumulative effect of new accounting
standard (see Note 1)
Balance as of December 31, 2018
(86.3 )
1.3
(367.6 )
79.3
1.3
(287.0 )
(79.3 )
1.0
0.7
(0.4 )
-
-
44.8
(0.1 )
-
(42.2 )
0.7
-
85.2
0.8
1,166.5
206.3
(40.8 )
11.3
(39.4 )
2,006.1
42.4
0.3
0.1
17.2
0.0
-
(51.5 )
17.3
(36.3 )
0.7
-
85.5
0.9
1,153.2
)
2,029.5
(244.7 )
0.5
4.7
-
-
(0.1 )
(0.6 )
-
-
19.4
(34.1 )
16.9
(25.5 )
13.0
Total Equit
y
2,747.9
207.9
(86.7 )
18.0 $
1.6
(0.4 )
(8.6 )
10.6
0.6
1.2
(0.4 )
12.0
(0.9 )
(1.0 )
1.3
(40.8 )
(30.9 )
(39.4 )
(8.2 )
2,816.4
43.0
80.5
1.3
(34.2 )
(36.3 )
(0.7 )
2,908.6
(245.6 )
(80.3 )
1.0
(17.2 )
-
(25.5 )
(0.4 )
(0.4 )
13.0
2,597.1
0.0 $
-
90.7 $ 0.9 $
1,162.6 $ 1,789.2 $
(365.3 ) $
9.7 $
See accompanying Notes to Consolidated Financial Statements.
2018 10-K Annual Report
Stericycle, Inc. • 71
PART II
STERICYCLE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except per share data and unless otherwise indicated)
Unless the context requires otherwise, “Company”, “Stericycle”, "we," "us" or "our" refers to Stericycle, Inc.
and its subsidiaries on a consolidated basis.
NOTE 1 – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
Description of Business
The Company provides regulated and compliance services, which include the collection and processing of
regulated and specialized waste for disposal, the collection of personal and confidential information for
secure destruction, recall and returns (“Expert Solutions”), and communication services.
We were incorporated in 1989 and today serve a diverse customer base across all 50 states of the United
States (“U.S.”), Puerto Rico, and 21 other countries.
For further information on the Company’s business, segments and services, see Part I, Item 1. Business and
Note 17 – Segment Reporting.
Summary of Significant Accounting Policies
Basis of Presentation: The accompanying 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 exercises control. Outside stockholders' interests in
subsidiaries are shown on the consolidated financial statements as “Noncontrolling interests."
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, intangible asset valuations, and goodwill impairment. 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.
Revenue from Contracts with Customers: In accordance with ASU No. 2014-19, “Revenue from Contracts
with Customers” (“ASC 606”), revenue is recognized when a customer obtains control of promised goods
or services. The amount of revenue recognized reflects the consideration to which the Company expects
to be entitled to receive in exchange for these good or services. Revenue is recognized net of revenue-
based taxes assessed by governmental authorities.
2018 10-K Annual Report
Stericycle, Inc. • 72
PART II
The Company provides regulated and compliance services, which include the collection and processing of
regulated and specialized waste for disposal, the collection of personal and confidential information for
secure destruction, and Expert Solutions, and communication services. The associated activities for each
of these are a series of distinct services that are substantially the same and have the same pattern of
transfer over time; therefore, the respective services are treated as a single performance obligation.
The Company recognizes revenue by applying the right to invoice practical expedient as our right to
consideration corresponds directly to the value provided to the customer for performance to date.
Revenues for our Medical Waste Solutions and Secure Information Destruction Services are recognized
upon waste collection. Our Compliance Solution revenues are recognized over the contractual service
period. Revenues from Hazardous Waste Solutions and Manufacturing and Industrial Services are
recognized at the time the waste is received by a facility with an appropriate permit, either our processing
facility or a third party. Revenues from communication services and Expert Solutions are recognized as
the services are performed. Revenues from recycling of shredded paper are recognized upon delivery.
Accounts Receivable and Allowance for Doubtful Accounts: Accounts receivable are recorded when
billed or when goods or services are provided. The carrying value of our receivables is presented net of
an allowance for doubtful accounts. We estimate our allowance for doubtful accounts based on past
collection history and specific risks identified among uncollected amounts. If events or changes in
circumstances indicate that specific receivable balances may be impaired, further consideration is given to
the collectability of those balances and the allowance is adjusted accordingly. Past-due receivable
balances are written off when our internal collection efforts have been exhausted.
No single customer accounts for more than approximately 1.0% of our accounts receivable or
approximately 1.1% of total revenues. During the year ended December 31, 2018, 2017, and 2016, bad
debt expense was $24.9 million, $32.3 million, and $41.8 million, respectively.
Contract Liability: We record a contract liability when cash payments are received or due in advance of
our services being performed which is classified as current in Other current liabilities on the Consolidated
Balance Sheets since the amounts are earned within a year. Substantially all our contract liabilities
outstanding as of December 31, 2017 (presented as deferred revenues on the Consolidated Balance
Sheets prior to the adoption of ASC 606) were recognized as revenues during 2018. The contract liability
at December 31, 2018 was $15.0 million, the substantial portion of which is expected to be recognized as
revenue during 2019.
Contract Acquisition Costs: Incremental direct costs of obtaining a contract, which primarily represent
sales incentives, are deferred and amortized to Selling, general and administrative expenses (“SG&A”) over
the estimated period of benefit to be derived from the cost.
Cash and Cash Equivalents: We consider all highly liquid investments with a maturity of less than three
months when purchased to be cash equivalents. Cash equivalents are carried at cost.
Financial Instruments: Our financial instruments consist of cash and cash equivalents, 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, low concentration and the
performance of ongoing credit evaluations of our customers. We also maintain allowances for potential
credit losses.
2018 10-K Annual Report
Stericycle, Inc. • 73
PART II
Property, Plant and Equipment: Property, plant and equipment is stated at cost. Expenditures for
software purchases and software developed for internal use are capitalized and included in Software. For
software developed for internal use, external direct costs for materials and services and certain internal
payroll and related fringe benefit costs are capitalized as the costs of computer software developed or
obtained for internal use.
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
2 to 40 years
2 to 30 years
2 to 20 years
2 to 10 years
2 to 20 years
2 to 10 years
Upon completion and deployment costs associated with the Enterprise Resource Planning system will be
amortized over an estimated useful life of 10 years.
Capitalized Interest: We capitalize interest incurred associated with projects under construction for the
duration of the asset construction period. During the years ended December 31, 2018 and 2017, we
capitalized interest of $2.9 million and $1.6 million, respectively. No amounts were capitalized in 2016.
Goodwill and Other Identifiable Intangible Assets: Goodwill represents the excess of the purchase
price and related costs over the fair value assigned the net tangible and identifiable tangibles of business
acquired. Intangible assets with definite lives are amortized on a straight-line basis over their estimated
useful lives.
Impairment of Long and Indefinite- Lived Assets:
(cid:129) Property and Equipment and Intangible Assets (definite-lives), Net: Long-lived assets, such as
property, plant and equipment and amortizing intangible assets are reviewed whenever events or
changes in circumstances indicate that the related carrying amounts may not be recoverable.
Impairment of assets with definite-lives
is generally determined by comparing projected
undiscounted cash flows to be generated by the asset, or appropriate grouping of assets, to its
carrying value. If an impairment is identified, a loss is recognized equal to the excess of the asset's
net book value over its fair value, and the cost basis is adjusted. Determining the extent of an
impairment,
including using
management's judgment, cash flows directly attributable to the asset, the useful life of the asset and
residual value, if any. When necessary, the Company uses internal cash flow estimates, quoted market
prices and appraisals as appropriate to determine fair value. Actual results could vary from these
estimates. In addition, the remaining useful life of the impaired asset is revised, if necessary.
if any, typically requires various estimates and assumptions
(cid:129) Intangible Assets (indefinite-lives), Net: Indefinite lived intangibles may be assessed using either a
qualitative or quantitative approach. The qualitative approach first determines if it is more-likely-
than-not that the fair value of the asset is less than the carrying value. If no such determination is
made, then the impairment test is complete. If, however, it is determined that there is a likely
impairment, a quantitative assessment must then be made. One determination on whether to use the
qualitative approach is the time since the last quantitative approach. In the fourth quarter of 2018,
the Company performed its annual impairment test on indefinite lived intangibles, other than
2018 10-K Annual Report
Stericycle, Inc. • 74
PART II
goodwill using the qualitative approach for certain assets and the quantitative approach for the
remaining assets.
(cid:129) Goodwill: Goodwill is tested for impairment at least annually as of October 1 of each year, or more
frequently if an event occurs or circumstances change that would reduce the fair value of a reporting
unit below its carrying value.
We used a quantitative approach to assess goodwill for impairment. The fair value of each reporting
unit is calculated using the income approach (including discounted cash flows (“DCF”)) and validated
using a market approach with the involvement of a third party valuation specialist. The Company's
reporting units are: Domestic Healthcare Compliance Services, Domestic Secure Information
Destruction, Domestic CRS, Domestic Environmental Solutions, Canada, Europe, Asia Pacific and Latin
America. 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 reconcile the calculated fair values to our market capitalization. The fair value is then compared
to its carrying value including goodwill. If the fair value is in excess of its carrying value, the related
goodwill is not impaired. If the fair value is less than its carrying value, we recognize an impairment
charge in the amount that the carrying value exceeds the fair value.
The goodwill impairment testing process involves the use of significant assumptions, estimates and
judgments, and is subject to inherent uncertainties and subjectivity in determination of the fair value
of the reporting units. Estimating a reporting unit's projected cash flows involves the use of
significant assumptions, estimates and judgments with respect to numerous factors, including long-
term growth rates, operating margin, including SG&A expense rates, working capital, capital
expenditures, allocation of shared or corporate items, among other factors. These estimates are
based on internal current operating plans and long-term forecasts for each reporting unit. These
projected cash flow estimates are then discounted, which necessitates the selection of an appropriate
discount rate. The discount rates selected reflect market-based estimates of the risks associated with
the projected cash flows of the reporting unit and also include a Company specific risk premium. The
market value comparisons of fair value require the selection of appropriate peer group companies. In
addition, we analyze differences between the sum of the fair value of the reporting units and our total
market capitalization for reasonableness, taking into account certain factors including control
premiums.
The use of different assumptions, estimates or judgments in the goodwill impairment testing process
may significantly increase or decrease the estimated fair value of a reporting unit. Generally, changes
in DCF estimates would have a similar effect on the estimated fair value of the reporting unit. We
believe that the estimated fair value used in measuring the impairment was based on reasonable
assumptions but future changes in the underlying assumptions could differ due to the inherent
judgment in making such estimates.
Goodwill impairment charges may be recognized in future periods to the extent changes in factors or
circumstances occur, including deterioration in the macro-economic environment or in the equity
2018 10-K Annual Report
Stericycle, Inc. • 75
PART II
markets, including the market value of our common shares, deterioration in our performance or our
future projections, or changes in the Company's plans for one or more reporting units.
For further discussion see Note 6 – Goodwill and Other Intangible Assets.
Long-lived assets or disposal groups classified as held for sale are valued 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.
Insurance: Our insurance for workers’ compensation, auto/fleet, property 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 accrue these liabilities based upon the claim reserves established by the third-
party administrator, operating under our oversight, at the end of each reporting period. Accruals include
an estimate for claims incurred but not yet reported. Our workers compensation and auto/fleet and
employee health insurance benefit liability is based on our historical claims experience.
Restructuring Charges: Involuntary termination benefits are accrued upon the commitment to a
termination plan and when the benefit arrangement is communicated to affected employees, or when
liabilities are determined to be probable and estimable, depending on the existence of a substantive plan
for severance or termination. Costs for one-time termination benefits in which the employee is required
to render service until termination in order to receive the benefits are recognized ratably over the future
service period. Contract termination costs are recognized when contracts are terminated or when we
cease to use the leased facility and no longer derive economic benefit from the contract. All other exit
costs are expensed as incurred. For further discussion, see Note 4 – Restructuring, Divestitures, and Assets
Held For Sale.
Stock-Based Compensation: The Company recognizes stock-based compensation expense based on the
estimate grant-date fair value for all stock-based awards which include stock options, restricted stock
units, and performance stock units. 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 (Loss) Income based on the classification of the respective
employees' cash compensation. For further discussion, see Note 13 – Stock Based Compensation.
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. Tax liabilities are recognized when, in management’s judgment, a tax position does not meet the
more likely than not (i.e. a likelihood of more than fifty percent) threshold for recognition. For tax
positions that meet the more likely than not threshold, a tax liability may still be recognized depending on
management’s assessment of how the tax position will ultimately be settled. The Company records
2018 10-K Annual Report
Stericycle, Inc. • 76
PART II
interest and penalties on unrecognized tax benefits in the provision for income taxes. For further
discussion, see Note 9 – Income Taxes.
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 SG&A on
the Consolidated Statements of (Loss) Income. The Company excludes the portion of executory costs
connected with the leased asset for the purposes of determining minimum lease payments under
Accounting Standard Codification section 840 “Leases” (“
” ASC 840”). 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 recognized 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 (Loss) Income.
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,
net on the Consolidated Statements of (Loss) Income.
Highly Inflationary Economy: Effective July 1, 2018, as a result of the three-year cumulative inflation
exceeding 100%, Argentina was classified as a highly inflationary economy. Accordingly, the Company
recognized, in Other expense, net, a foreign exchange loss of $3.8 million, during the year ended
December 31, 2018, arising from the re-measurement of our Argentinian peso denominated net monetary
assets.
Nonmonetary assets, liabilities and related expenses are measured using historical exchange rates and do
not fluctuate with changes in the local exchange rate.
Reclassifications: There were no material reclassifications during the current year.
2018 10-K Annual Report
Stericycle, Inc. • 77
PART II
New Accounting Standards:
Adoption of New Accounting Standards
Revenue Recognition
g
Effective January 1, 2018, the Company adopted ASC 606 using the modified retrospective method to all
contracts that were not completed as of the date of adoption. The results of operations for reported
periods after January 1, 2018 are presented under this amended guidance, while prior period amounts are
reported in accordance with ASC 605 “Revenue Recognition”, which is also referred to herein as “legacy
U.S. GAAP” or historical guidance.
6
The impact of adopting ASC 606 relates to (i) the deferral of certain costs associated with obtaining
contracts with customers, which were previously expensed as incurred, but under the new guidance are
capitalized as Other current assets and Other assets and amortized to SG&A over the expected period of
benefit to be received, (ii) the write off of deferred installation costs, which were capitalized, as Prepaid
expenses under legacy U.S. GAAP but will be expensed as incurred under ASC 606 and (iii) an increase in
Deferred income tax liabilities with respect to the tax impact associated with these items. We recognized
a net increase to Retained earnings of $13.0 million as of January 1, 2018 for the cumulative effect of
adopting ASC 606. This was comprised of $22.9 million associated with the capitalization of contract
acquisition costs offset by a $4.9 million write off of deferred installation costs and $5.0 million to
recognize Deferred income tax liabilities.
The impact to (Loss) Income from operations from the adoption of ASC 606 was a decrease in SG&A of
$8.8 million for the year ended December 31, 2018.
f
Definition of a Business
f
Effective January 1, 2018, the Company adopted ASU No. 2017-01, “Clarifying the Definition of a Business”
(“ASU 2017-01”), which provides guidance to clarify the definition of a business with the objective of
adding guidance to assist entities with evaluating whether transactions should be accounted for as
acquisitions (or disposals) of assets or businesses. The amendments in ASU 2017-01 provide a screen to
determine when an integrated set of assets and activities (collectively referred to as a “set”) is not a
business. The screen requires that when substantially all of the fair value of the gross assets acquired (or
disposed of) is concentrated in a single identifiable asset or a group of similar identifiable assets, the set is
not a business. This screen reduces the number of transactions that need to be further evaluated. If the
screen is not met, the amendments require that to be considered a business, a set must include, at a
minimum, an input and a substantive process that together significantly contribute to the ability to create
output and remove the evaluation of whether a market participant could replace the missing elements.
The guidance in ASU 2017-01 was applied in evaluating the transactions discussed in Note 3 –
Acquisitions, but did not otherwise impact the accompanying Consolidated Financial Statements. Due to
the number of acquisitions the Company completes in any year, there may be instances where the
acquisition will be determined to be an acquisition of assets instead of a business. The Company expects
that a majority of acquisitions completed in any year will meet the definition of a business under ASU
2017-01 and that there will not be a material impact to our Consolidated Financial Statements.
2018 10-K Annual Report
Stericycle, Inc. • 78
PART II
y
Intra-Entity Transfers of Assets Other Than Inventory
y
f
f
On January 1, 2018, the Company adopted the guidance in ASU No. 2016-16, “Intra-Entity Transfers of
Assets Other Than Inventory” (“ASU 2016-16”). ASU 2016-16 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 Company’s adoption of ASU 2016-16 did not have an
impact on the accompanying Consolidated Financial Statements.
Compensation – Stock Compensation
p
p
On January 1, 2018, the Company adopted ASU No. 2017-09, “Compensation – Stock Compensation (Topic
718): Scope of Modification Accounting” (“ASU 2017-09”). ASU 2017-09 clarifies when to account for a
change to the terms or conditions of a share-based payment award as a modification. Under the new
guidance, modification accounting is required only if the fair value, the vesting conditions, or the
classification of the award (as equity or liability) changes as a result of the change in terms or conditions.
The Company’s adoption of ASU 2017-09 did not have an impact on the accompanying Consolidated
Financial Statements.
Accounting Standards Issued But Not Yet Adopted
Leases
In February 2016, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2016-02, “Leases”
(Topic 842) (“ASU 2016-02”). The amended guidance, which is effective for the Company on January 1,
2019, requires the recognition of lease assets and lease liabilities on the balance sheet for those leases
with terms in excess of 12 months and currently classified as operating leases. Disclosure of key
information about leasing arrangements will also be required. The Company elected the optional
transition method which allows entities to continue to apply historical accounting guidance in the
comparative periods presented in the year of adoption.
At transition, lessees and lessors may elect to apply a package of practical expedients permitting entities
not to reassess: (i) whether any expired or existing contracts are or contain leases; (ii) lease classification
for any expired or existing leases and (iii) whether initial direct costs for any expired or existing leases
qualify for capitalization under the amended guidance. These practical expedients must be elected as a
package and consistently applied. The Company has elected to apply the package of practical expedients
upon adoption.
The Company has identified its leases or other contracts impacted by the new standard and is in the
process of (i) finalizing the implementation of a software solution to manage and account for leases under
the new standard and (ii) updating its business processes and related policies, systems and controls to
support recognition and disclosure under the new standard.
In connection with the adoption of this standard, the Company expects it will record right-of-use assets,
primarily related to buildings and vehicles, amounting to approximately $390.0 million for contracts that
contain operating leases. We currently do not expect the amended guidance to have any other material
impacts on our financial statements.
2018 10-K Annual Report
Stericycle, Inc. • 79
PART II
Derivatives and Hedgingg g
In August 2017, the FASB issued ASU No. 2017-12, “Derivatives and Hedging” (Topic 815): Targeted
Improvements to Accounting for Hedging Activities (“ASU 2017-12”). ASU 2017-12 amends the hedge
accounting recognition and presentation requirements with the objective of improving the financial
reporting of hedging relationships to better portray the economic results of an entity’s risk management
activities in its financial statements and enhance the transparency and understandability of hedge
transactions. In addition, ASU 2017-12 makes improvements to simplify the application of the hedge
accounting guidance. ASU 2017-12 is effective for us on January 1, 2019, with early adoption permitted.
The Company does not expect the adoption to materially impact our Consolidated Financial Statements.
””
Financial Instrument Credit Losses
In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments – Credit Losses” (“ASU 2016-13”)
associated with the measurement of credit losses on financial instruments. ASU 2016-13 replaces the
current incurred loss impairment methodology of recognizing credit losses when a loss is probable, with a
methodology that reflects expected credit losses and requires consideration of a broader range of
reasonable and supportable information to assess credit loss estimates. The amended guidance is
effective for us on January 1, 2020, with early adoption permitted beginning January 1, 2019. We are
evaluating the impact on our Consolidated Financial Statements.
Implementation Costs Incurred in a Cloud Computing Arrangement
p
g
g
p
”
In August 2018, the FASB issued ASU 2018-15, “Goodwill and Other Intangibles- Internal Use Software –
Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a
Service Contract” (“ASU 2018-15”). ASU 2018-15 aligns the requirements for capitalizing implementation
costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing
implementation costs for internal-use software. The accounting for any hosting contract is unchanged.
ASU 2018-15 is effective for us on January 1, 2020 with early adoption permitted, including adoption in
any interim period. We are evaluating the impact on our Consolidated Financial Statements.
NOTE 2 – REVENUES FROM CONTRACTS WITH CUSTOMERS
The Company provides regulated and compliance services, which include the collection and processing of
regulated and specialized waste for disposal, the collection of personal and confidential information for
secure destruction, Expert Solutions, and communication services. The associated activities for each of
these are a series of distinct services that are substantially the same and have the same pattern of transfer
over time; therefore, the respective services are treated as a single performance obligation.
Our customers typically enter into a contract for the provision of services on a regular and scheduled
basis, e.g. weekly, monthly or on an as needed basis over the contract term. Under the contract terms, the
Company receives fees based on a monthly, quarterly or annual rate or fees based on contractual rates
depending upon measures including the volume, weight and type of waste, number and size of bins
collected, weight and type of shredded paper, type of recall service and number of call minutes.
Amounts are invoiced based on the terms of the underlying contract either on a regular basis, e.g.
monthly or quarterly, or as services are performed and are generally due within a short period of time
2018 10-K Annual Report
Stericycle, Inc. • 80
PART II
after invoicing based upon normal terms and conditions for our business type and the geography of the
services performed.
Disaggregation of Revenues
The following table presents our revenues disaggregated by service and primary geographical regions, for
the year ended December 31, 2018, and includes a reconciliation of disaggregated revenue to revenue
reported by our reportable segments, Domestic and Canada Regulated Waste and Compliance Services
(“RCS”) and International RCS:
In millions
Reportable Segment
Domestic and Canada RCS
Year ended December 31, 2018
International RCS
All Other
United
States
United States
Canada
Europe
Others
Total
$
1,142.4 $
39.6
$
250.8 $
185.7
$
-
$
1,618.5
712.6
314.1
247.8
-
-
$
2,416.9 $
65.7
-
22.6
17.3
12.0
157.2
$
120.7
-
16.9
18.4
8.7
415.5 $
12.0
-
41.9
-
-
239.6
$
-
-
-
148.4
108.3
256.7
$
911.0
314.1
329.2
184.1
129.0
3,485.9
Revenues by Service:
Medical Waste and Compliance
Solutions
Secure Information Destruction
Services
Hazardous Waste Solutions
Manufacturing and Industrial Services
Communication Services
Expert Solutions
Total
Contract Liabilities
The contract liability at December 31, 2018 and 2017 was $15.0 million and $17.9 million, respectively.
The balance in contract liability as of December 31, 2017 was recognized as revenue during the year
ended December 31, 2018.
Contract Acquisition Costs
We had $8.5 million and $23.3 million of contract acquisition costs, included in Other current assets and
Other assets, respectively, on the Consolidated Balance Sheets as of December 31, 2018. During the year
ended December 31, 2018, we amortized $6.9 million of sales incentives to SG&A. Contract acquisition
costs are amortized to SG&A over a weighted average life of 6.3 years.
NOTE 3 – ACQUISITIONS
Acquisitions
During the years ended December 31, 2018, 2017, and 2016, the Company completed 21, 30, and 31
acquisitions, respectively. The acquisitions completed during 2018 each met the definition of a business
in ASU 2017-01. All of the acquisitions detailed below are considered to be complementary to our
existing operations and fit with our growth strategy. All were accounted for as business combinations
under the applicable guidance.
2018 10-K Annual Report
Stericycle, Inc. • 81
PART II
The following table summarizes the locations and services of acquisitions by year:
2018 Acquisitions
Acquisition Locations
United States
Total
2017 Acquisitions
Acquisition Locations
United States and Canada
International
Total
2016 Acquisitions
Acquisition Locations
United States and Canada
International
Total
Total Number of
Acquisitions
Regulated Waste
21
21
Total Number of
Acquisitions
Regulated Waste
22
8
30
Service
Secure Information
Destruction
Communication and
Related Services
19
19
-
-
Service
Secure Information
Destruction
Communication and
Related Services
19
3
22
1
-
1
2
2
2
5
7
Total Number of
Acquisitions
Regulated Waste
Service
Secure Information
Destruction
Communication and
Related Services
21
10
31
5
6
11
15
4
19
1
-
1
The results of operations of these acquired businesses have been included in the Consolidated Statements
of (Loss) 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.
The following table summarizes the acquisition date fair value of consideration transferred for acquisitions
completed during the years ended December 31, 2018, 2017, and 2016:
In millions
Cash
Promissory notes
Deferred consideration
Contingent consideration
Total purchase price
2018
2017
2016
$
$
44.8
30.0
0.6
-
75.4
$
$
52.9
25.3
1.1
0.1
79.4
$
$
55.4
40.9
4.1
1.0
101.4
The fair value of consideration transferred in a business combination is allocated to the net tangible and
intangible assets assumed at the acquisition date, with the remaining unallocated amount recognized 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 allocations for current year acquisitions
and adjustments to purchase price allocations for prior year acquisitions. As of December 31, 2018,
purchase accounting had been completed for all of our acquisitions that closed prior to July 1, 2018.
2018 10-K Annual Report
Stericycle, Inc. • 82
In millions
Current Year
Acquisitions
Adjustments to Prior
Year Acquisitions
Total
Fixed assets
Intangibles
Goodwill
Other assets and liabilities, net
Total purchase price allocation
$
$
7.0
34.0
32.2
2.2
75.4
$
$
5.2
10.2
(17.6)
1.6
(0.6)
$
$
PART II
12.2
44.2
14.6
3.8
74.8
During the year ended December 31, 2018, we recognized an increase in the estimated fair value of
acquired customer relationships from current year and prior year acquisitions of $33.5 million, and $9.1
million, respectively, excluding the effect of foreign currency translation, with amortizable lives of 10 to 25
years.
NOTE 4 – RESTRUCTURING, DIVESTITURES, AND ASSETS HELD FOR SALE
Restructuring - Business Transformation
Stericycle is focused on driving long-term growth, profitability and delivering enhanced shareholder value.
As part of our business strategy, in the third quarter of 2017, we initiated a comprehensive multiyear
Business Transformation with the objective to improve long-term operational and financial performance.
The Business Transformation is based on a strategic vision to build a best-in-class enterprise performance
management (“EPM”) operating model to enable the Company to operate more efficiently, provide an
enhanced experience to customers, better capitalize on future growth opportunities and establish greater
controls and oversight to drive more consistent results. Additionally, a key component to the Business
Transformation is the implementation of an enterprise resource planning (“ERP”) system which will
leverage standard processes throughout the organization to accelerate decision making, expedite
acquisition integration, remediate compliance and control issues, and enable real-time analytics.
Key initiatives of the Business Transformation include:
(cid:129) Portfolio Rationalization: Executing on a comprehensive review of the Company’s global service
lines to identify and pursue the divestiture of non-strategic assets.
(cid:129) Operational Optimization: Standardizing route planning logistics, modernizing field operations,
and driving network efficiency across facilities.
(cid:129) Organizational Excellence and Efficiency: Redesigning the Company’s organizational structure
to optimize resources and align around a global shared business services model.
(cid:129) Commercial Excellence: Aligning our sales and service organizations around the customer,
standardizing our customer relationship management process, and expanding customer self-
service options.
(cid:129) Strategic Sourcing: Reducing spend through global procure-to-pay processes and leveraging
organizational scale.
We anticipate we will incur approximately $20.0 million of employee termination charges in connection
with Business Transformation of which $8.0 million and $1.0 million is expected to impact our Domestic
and Canada RCS and International reportable segments, respectively, with the remaining $11.0 million
impacting All Other, see Note 17 – Segment Reporting.
2018 10-K Annual Report
Stericycle, Inc. • 83
PART II
During the year ended December 31, 2018, we incurred $3.7 million, of employee termination charges
related to Business Transformation. The Domestic and Canada RCS and International RCS reportable
segments incurred $3.0 million and $0.3 million, respectively, with the remaining $0.4 million impacting All
Other. These amounts were fully paid as of December 31, 2018.
In addition, during the year ended December 31, 2018, we incurred non-cash impairment charges of $9.1
million, of which $7.4 million related to software and $0.3 million related to other long-term assets in the
Domestic and Canada RCS reportable segment, was included in COR and $1.4 million related to All Other,
was included in SG&A, see Note 5 – Property Plant and Equipment.
During the fourth quarter of 2017, we incurred employee termination charges of $11.5 million and non-
cash impairment charges of $2.4 million related to software. Our Domestic and Canada RCS and
International RCS reportable segments incurred $5.5 million and $3.3 million, respectively, with the
remaining $5.1 million impacting All Other. The remaining liability of $2.2 million at December 31, 2017,
was paid in the first quarter of 2018.
Other Restructuring Charges
During the year ended December 31, 2018, we recognized, in SG&A, employee termination benefits of
approximately $1.3 million, associated with reductions in headcount undertaken as part of non-Business
Transformation related Operational Optimization. The charges were incurred primarily within our All
Other reporting segment and were paid by the end of the fourth quarter of 2018.
There could be additional initiatives in the future to further streamline our operations. As such, the
Company expects to record further charges related to workforce reductions and/or facility rationalization
when those initiatives become probable and the related charges are estimable.
Divestitures
The Company incurred the following non-cash impairment charges and gains or losses, which are
included in SG&A in the Consolidated Statements of (Loss) Income, associated with divestitures executed
during each of the years ended December 31, 2018, 2017, and 2016, respectively:
In millions
Domestic and Canada RCS Segment
Non-cash impairment charges
Total Domestic and Canada RCS charges
International RCS Segment
Non-cash impairment charges
Losses on divestiture of businesses in the U.K.
Gain on divestiture of South Africa business
Total International RCS charges
Total
2018
2017
2016
$
$
$
6.9
6.9
4.2
1.7
-
5.9
12.8
$
$
-
-
6.8
5.7
(3.0)
9.5
9.5
$
-
-
25.5
1.6
-
27.1
27.1
2018 10-K Annual Report
Stericycle, Inc. • 84
PART II
The details associated with each of these amounts are as follows:
Domestic and Canada RCS Segment:
In 2018, we completed, as part of our portfolio rationalization, the sale of our non-core clean room
business realizing proceeds of $17.0 million. We recognized non-cash impairment charges related to
goodwill ($5.8 million) and customer list intangibles ($0.5 million) and a reduction in the fair value of net
assets ($0.6 million) in connection with reclassifying the assets and liabilities as held for sale.
International RCS Segment:
In 2018, we completed the sale of our hazardous waste business in the U.K. for consideration of
approximately $11.5 million of which $8.2 million was received in cash and $3.3 million is held in escrow,
subject to release upon renewal of a lease held by the sold business. Prior to sale, we had recognized
non-cash impairment charges in connection with reclassifying the assets and liabilities as held for sale and
subsequent changes in the fair value of these assets of $4.2 million, $6.8 million and $3.8 million for the
years ended December 31, 2018, 2017, and 2016, respectively.
In 2017, we sold certain assets and liabilities in South Africa for proceeds of $7.3 million, resulting in a
gain of $3.0 million.
In 2017, we sold certain assets associated with our patient transport business in the U.K. for proceeds of
$1.2 million, resulting in a net loss of $5.7 million. Non-cash impairment charges of $21.7 million were
recognized in 2016 when the business was initially classified as held for sale.
In the fourth quarter of 2016, we sold certain assets in the U.K. for proceeds of $0.8 million, resulting in a
loss on sale of $1.6 million.
Assets and Liabilities Held for Sale
As of December 31, 2017, certain of our international operations met the criteria to be classified as held
for sale. This business was subsequently sold in 2018, (see Divestitures above).
The following table presents information related to the major classes of assets and liabilities that were
classified as held for sale in the Consolidated Balance Sheet at December 31, 2017:
In millions
Total current assets
Fixed assets
Goodwill
Intangibles
Other assets
Assets held for sale
Total current liabilities
Deferred income taxes
Liabilities held for sale
2017
7.7
8.5
1.6
2.6
0.4
20.8
4.7
0.4
5.1
$
$
$
$
2018 10-K Annual Report
Stericycle, Inc. • 85
PART II
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.
Subsequent Event
On February 28, 2019, the Company announced that it had closed on an agreement for the divestiture of
the U.K.-based texting business that had been part of Communication and Related Services.
NOTE 5 – PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at December 31, 2018 and 2017 consisted of the following:
In millions
$
Land and improvements
Building and improvements
Machinery and equipment
Vehicles
Containers
Office equipment and furniture
Software and Enterprise Resource Planning system
Construction in progress
Total property, plant and equipment
Less: accumulated depreciation
Property, plant and equipment, net
$
2018
2017
63.8 $
243.5
345.4
178.9
296.6
126.8
65.1
101.5
1,421.6
(678.1)
743.5 $
66.2
227.6
348.2
173.3
261.3
146.3
40.8
80.5
1,344.2
(603.2)
741.0
The net book value of assets held under capital lease was $22.5 million and $11.2 million as of December
31, 2018 and 2017, respectively. The majority of these assets were included in building and
improvements, machinery and equipment, and vehicles.
During the year ended December 31, 2018, we recognized $33.1 million of non-cash impairment charges
related to software and other property plant and equipment. The charges were recognized in and related
to the following reportable segments:
In millions
Included in COR
Year Ended December 31, 2018
Domestic and
Canada RCS
International RCS
All Other
Total
Other property plant and equipment
Total included in COR
Included in SG&A
Other property plant and equipment
Total included in SG&A
Total impairments
$
$
7.4
0.3
7.7
1.0
0.3
1.3
9.0
$
$
-
-
-
-
5.1
5.1
5.1
$
$
$
17.6
-
17.6
1.4
1.4
19.0
$
25.0
0.3
25.3
2.4
5.4
7.8
33.1
The non-cash impairment charges related to software were in connection with our evolving future
information systems strategy, including the implementation of a global ERP system and it’s impact on
2018 10-K Annual Report
Stericycle, Inc. • 86
PART II
currently deployed software as well as rationalization of applications used within each reportable
segment. The non-cash impairment charges related to other property, plant and equipment were as a
result of the rationalization of our operations.
During 2017, we recognized non-cash impairment charges in SG&A of $7.3 million, related to property,
plant and equipment, due to rationalizing certain of our operations, primarily in the International RCS
segment. There were no property, plant and equipment impairments in 2016.
NOTE 6 – GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill:
The changes in the carrying amount of goodwill for the years ended December 31, 2018 and 2017, by
reportable segment and for the “All Other” category, were as follows:
In millions
Domestic and
Canada RCS
International
RCS
All Other
Total
Balance as of January 1, 2017
Goodwill acquired during year
Purchase accounting adjustments
Impairments during the year
Impairments related to disposition and held for sale
(see Note 4)
Changes due to foreign currency fluctuations
Balance as of December 31, 2017
Goodwill acquired during year
Purchase accounting adjustments
Impairments during the year
Impairments related to disposition and held for sale
(see Note 4)
Changes due to foreign currency fluctuations
Balance as of December 31, 2018
$
$
2,811.8 $
36.9
(10.1)
-
-
11.6
2,850.2
32.2
(16.9)
498.4 $
4.9
1.2
(65.0)
(7.1)
34.4
466.8
-
-
(72.4)
(5.8)
(11.3)
2,848.4 $
-
(20.6)
373.8 $
280.8 $
4.7
1.5
-
-
-
287.0
-
(0.7)
(286.3)
-
-
- $
3,591.0
46.5
(7.4)
(65.0)
(7.1)
46.0
3,604.0
32.2
(17.6)
(358.7)
(5.8)
(31.9)
3,222.2
Accumulated non-cash impairment charges by segment as of December 31, 2018 and 2017 were as
follows:
In millions
International RCS
All Other
Total
2018
2017
$
$
137.4 $
286.3
423.7 $
65.0
-
65.0
In our Form 10-Q for the quarter ended September 30, 2018, we disclosed that we were in the process of
completing the October 1 annual goodwill impairment assessment and that certain of our reporting units,
including Domestic CRS and Latin America, were potentially at risk for impairment based on our
preliminary review of our long range plan (“LRP”) which was in the process of being finalized. We were
also evaluating recent declines in our stock price and market capitalization and the impact on our
reconciliation of the aggregate fair values of our reporting units to our market capitalization.
2018 10-K Annual Report
Stericycle, Inc. • 87
PART II
We performed our annual goodwill assessment as of October 1, 2018, and we continued to update our
assumptions to reflect certain business and strategic developments during the fourth quarter, which
negatively impacted the estimated cash flows of certain of our reporting units and resulted in our decision
to also complete an interim assessment as of December 31, 2018. The Company determined that the
Domestic CRS and Latin America reporting units’ carrying values were in excess of their estimated fair
values.
Factors that contributed to the estimated fair value of the reporting units being below their carrying value
include:
(cid:129) For Domestic CRS we experienced a progressive decrease in revenues and operating margins in 2018
due to (i) continued declines in large recall events leading to a higher level of the uncertainty of these
occurring in future periods. (ii) recall events that have a smaller number of units and significantly lower
revenue per event than we had experienced in recent years, and (iii) continued decline in the volume
of inbound/outbound call volumes for our live voice services. We also gathered insights from our
process of evaluating strategic alternatives that we initiated in 2018;
(cid:129) For Latin America we continue to experience prolonged challenges and volatility in certain of our
markets due to declining market trends and cost pressures. Revenue increases in our Manufacturing
and Industrial (“M&I”) business due to inflationary price increases in Argentina have been offset by the
impact of currency devaluation and the continuing declines in several local economies.
These challenges were factored into updates to our forecasted cash-flow assumptions during the fourth
quarter to reflect our current outlook and we made certain adjustments to the discount rates used to
present value these forecasted cash-flows. As a result of these impairment assessments, we recognized
$286.3 million of non-cash goodwill impairment charges to fully impair our Domestic CRS reporting unit.
In addition, we recognized $72.4 million of non-cash goodwill impairment charges related to our Latin
America reporting unit. Following the impairment, the remaining Latin America reporting unit’s goodwill
is $20 million.
We performed our annual goodwill assessment, as of October 1, 2017 and evaluated the impact of
prolonged declining market trends in Latin America and continued softness in the Company’s
Manufacturing and Industrial regional hazardous waste business. Our estimated cash flows were updated
to reflect these challenging conditions in Latin America and, as a result of the impairment assessment, we
recognized a $65.0 million non-cash goodwill impairment charge. The impairment charge recognized was
the amount by which the carrying value of the Latin America reporting unit exceeded its fair value.
The fair value of reporting units, used in both the annual and any interim goodwill impairment
assessments are classified as Level 3 measurements within the fair value hierarchy due to significant
unobservable inputs such as discount rates, projections of revenue, cost of revenue and operating
expense growth rates, long-term growth rates and income tax rates. The fair value methodology is
described further in Note 1 – Basis of Presentation and Summary of Significant Accounting Policies.
Current year adjustments to goodwill for certain prior year acquisitions are primarily due to the
finalization of intangible asset valuations among other opening balance sheet adjustments.
2018 10-K Annual Report
Stericycle, Inc. • 88
PART II
Other Intangible Assets:
At December 31, 2018 and 2017, the values of other intangible assets were as follows:
In millions
Gross Carrying
Amount
2018
Accumulated
Amortization
Net Value
Gross Carrying
Amount
2017
Accumulated
Amortization
Net Value
Amortizable
intangibles:
Customer relationships $
Covenants not-to-
compete
Tradenames
Other
Indefinite lived
intangibles:
Operating permits
Tradenames
Total
$
1,591.5 $
492.0 $
1,099.5 $
1,613.4 $
381.4 $
1,232.0
5.1
3.9
12.3
3.2
1.2
3.5
1.9
2.7
8.8
7.9
6.0
17.0
5.9
1.8
3.4
2.0
4.2
13.6
212.5
312.3
2,137.6 $
-
-
499.9 $
212.5
312.3
1,637.7 $
222.3
317.4
2,184.0 $
-
-
392.5 $
222.3
317.4
1,791.5
The changes in the carrying amount of intangible assets since January 1, 2017 were as follows:
In millions
Balance as of January 1, 2017
Intangible assets acquired during the year
Valuation adjustments for prior year acquisitions
Reclassification to assets held for sale
Impairments during the year
Amortization during the year
Changes due to foreign currency fluctuations
Balance as of December 31, 2017
Intangible assets acquired during the year
Valuation adjustments for prior year acquisitions
Reclassification to assets held for sale
Impairments during the year
Amortization during the year
Changes due to foreign currency fluctuations
Balance as of December 31, 2018
Total
1,862.0
28.2
7.9
(2.6)
(21.0)
(118.4)
35.4
1,791.5
34.0
10.2
(14.4)
(16.0)
(130.3)
(37.3)
1,637.7
$
$
Our indefinite-lived intangible assets include operating permits and certain tradenames. We have
determined that our operating permits and certain tradenames have indefinite lives due to our ability to
renew them with minimal additional cost, and therefore they are not amortized. We perform our annual
impairment test as of October 1.
During 2018, 2017, and 2016, we recognized non-cash impairment charges of $16.0 million, $21.0 million,
and $1.4 million, respectively. The non-cash impairment charges recognized during the year ended
December 31, 2018 included $10.3 million related to customer relationship and permit intangibles, which
were impaired as a result of actual and forecasted business declines. The remaining non-cash impairment
charges incurred during the year ended December 31, 2018 and the charges in the year ended December
2018 10-K Annual Report
Stericycle, Inc. • 89
PART II
31, 2017 were recognized due to rationalizing certain operations across all segments and were recognized
in the following reportable segments:
In millions
Domestic and Canada RCS
International RCS
All Other
Total Customer Relationships and Operating Permits
$
2018
2017
2016
$
0.5
15.5
—
16.0
$
3.1
12.1
5.8
21.0
-
1.4
-
1.4
Our finite-lived intangible assets are amortized over their estimated useful lives using the straight-line
method with each category having a weighted average remaining useful life as follows:
In years
Customer relationships
Covenants not-to-compete
Tradenames
Landfill air rights
Estimated useful lives
5-25
5-14
4-40
5-26
Weighted average
remaining useful lives
9.2
2.9
17.6
13.4
We evaluate the useful life of our intangible assets annually to determine whether events and
circumstances warrant a revision to their remaining useful life and changes are reflected prospectively as
the intangible asset is amortized over the revised remaining useful life. In the fourth quarter of 2018, the
Company performed its annual assessment of the useful life of its finite-lived intangibles. The Company
updated the useful life of its customer relationship intangibles as a result of analyzing recent quantitative
and qualitative observations in the market and factors impacting our business. The change in estimate
will be accounted for prospectively and there will be an approximately 5-10% increase to annual
amortization expense going forward.
During the years ended December 31, 2018, 2017, and 2016, our aggregate intangible asset amortization
expense was $130.3 million, $118.4 million, and $129.3 million, respectively.
Our estimated intangible asset amortization expense for each of the next five years (based upon foreign
exchange rates at December 31, 2018) is as follows for the years ended December 31:
In millions
2019
2020
2021
2022
2023
$
140.2
139.1
137.1
135.0
132.3
2018 10-K Annual Report
Stericycle, Inc. • 90
PART II
NOTE 7 – ACCRUED LIABILITIES AND OTHER LONG TERM LIABILITIES
Accrued liabilities consisted of the follow at December 31:
In millions
Accrued compensation
Accrued self-insurance
Accrued taxes
Accrued interest
Accrued small quantity medical waste customer class
action legal settlement
Accrued professional services liabilities
Accrued disposal and landfill liabilities
Accrued liabilities – other
–
Total accrued liabilities
$
$
2018
2017
80.0 $
72.8
42.3
14.7
-
40.1
15.9
75.0
340.8 $
Other long term liabilities consisted of the following at December 31:
In millions
Contingent consideration
Environmental liabilities
Asset retirement obligations
Other long term liabilities
Total other long term liabilities
NOTE 8 – DEBT
2018
2017
$
$
7.5 $
28.2
19.1
15.9
70.7 $
52.0
77.9
41.2
13.6
295.0
34.3
13.2
60.9
588.1
7.8
25.1
18.2
17.0
68.1
Long-term debt consisted of the following at December 31:
In millions
$1.2 billion senior credit facility, due in 2022
$950 million term loan, due in 2022
$125 million private placement notes, due in 2019
$225 million private placement notes, due in 2020
$150 million private placement notes, due in 2021
$125 million private placement notes, due in 2022
$200 million private placement notes, due in 2022
$100 million private placement notes, due in 2023
$150 million private placement notes, due in 2023
Promissory notes and deferred consideration, weighted average maturity of 2.74 and
2.9 years for 2018 and 2017
Foreign bank debt, weighted average maturity of 1.9 years for 2018 and 1.7 years for
2017
Obligations under capital leases
Total debt
Less: current portion of total debt
Less: unamortized debt issuance costs
Long-term portion of total debt
$
$
2018
2017
583.3
902.5
125.0
225.0
150.0
125.0
200.0
100.0
150.0
120.9
76.7
20.3
2,778.7
104.3
10.5
2,663.9
$
$
471.7
950.0
125.0
225.0
150.0
125.0
200.0
100.0
150.0
155.9
85.2
9.4
2,747.2
119.5
12.4
2,615.3
2018 10-K Annual Report
Stericycle, Inc. • 91
PART II
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, 2018, we were in compliance with all of our financial debt covenants. Our
senior credit facility, term loan, and private placement notes rank pari passu to each other and all other
unsecured debt obligations.
The weighted average interest rates on long-term debt, excluding capital leases, as of December 31, 2018
and 2017 were as follows:
$1.2 billion senior credit facility, due in 2022
$1.0 billion term loan, due in 2022
$125 million private placement notes, due in 2019
$225 million private placement notes, due in 2020
$150 million private placement notes, due in 2021
$125 million private placement notes, due in 2022
$200 million private placement notes, due in 2022
$100 million private placement notes, due in 2023
$150 million private placement notes, due in 2023
Promissory notes and deferred consideration
Foreign bank debt
2018
2017
3.77%
4.07%
3.43%
5.22%
3.64%
4.01%
3.47%
3.54%
3.93%
1.79%
5.81%
2.55%
2.83%
2.68%
4.47%
2.89%
3.26%
2.72%
2.79%
3.18%
1.49%
6.11%
During the second quarter of 2018, in accordance with the amended terms (see below), the Company
triggered an increase of 0.5% in the interest rates charged on the private placement notes. During the
third quarter of 2018, in accordance with the amended terms (see below), the Company triggered an
increase of 0.25% applicable to the interest rate charged on the senior credit facility. During the fourth
quarter of 2018 in accordance with the amended terms (see below), the Company triggered an increase of
0.25% applied to the interest rates charged on the private placement notes.
Amounts committed to outstanding letters of credit and the unused portion of our senior credit facility as
of December 31, 2018 and 2017 were as follows:
In millions
Outstanding letters of credit under Senior Credit Facility
Unused portion of the Revolving Credit Facility
$
$
63.1
553.6
130.8
597.5
2018
2017
The Company entered into a Credit Agreement (the “Credit Agreement”) dated as of November 17, 2017
that amended, restated and consolidated the Company’s existing revolver agreement dated as of June 4,
2014 and the Company’s existing term loan credit agreement dated as of August 15, 2015. The Credit
Agreement provided for a term loan facility of $950.0 million and a revolving credit facility of $1.2 billion.
The proceeds from this Credit Agreement were used on the closing date to refinance the loans and other
credit extensions made under the existing revolver and term loan credit facilities. The Company applied
the provisions of ASC 470-50, “Modifications and Extinguishments” and accounted for the refinance as a
modification.
”
The obligations under the Credit Agreement are unsecured. The Credit Agreement contained a financial
covenant to maintain a Consolidated Leverage Ratio of 3.75 to 1.00 at the end of any fiscal quarter, which
could have been increased to 4.00 to 1.00 for up to two consecutive quarters in any fiscal quarter ending
on or before September 30, 2018, at the Company’s option, if following the settlement payment with
2018 10-K Annual Report
Stericycle, Inc. • 92
PART II
respect to the small quantity (“SQ”) customer class action lawsuit (see Note 19 – Legal Proceedings), and if
the Consolidated Leverage Ratio, on a pro forma basis, is greater than 3.50 to 1.00. The Company
exercised this option during the third quarter of 2018. The Credit Agreement matures on November 17,
2022.
The Company entered into amendments to the Credit Agreement and the various note purchase
agreements associated with the private placement notes, during the year ended December 31, 2018, as
follows:
(cid:129) An amendment, dated March 23, 2018, which changed the definition of EBITDA (as defined in the
credit agreements), to allow for certain add-backs, up to a maximum of $200.0 million on a trailing
twelve month basis, related to cash charges associated with Business Transformation, operational
optimization and litigation matters, to the calculation of EBITDA for debt covenant compliance
purposes.
The amendment also provided, under certain circumstances, for the adjustment to the interest rates
charged on the senior credit facility and term loan and the private placement notes.
(cid:129) An amendment, dated November 15, 2018 that applies only to the Credit Agreement, which amended
the covenant with respect to permitted acquisitions and dispositions.
(cid:129) An amendment, dated December 19, 2018, which increases the allowable Consolidated Leverage Ratio
to 4.00 to 1.00 and continues to allow the $200.0 million of add backs for any quarter ending before
December 31, 2019. The add back is extended through the first quarter of 2020 to allow up to a
maximum of $90.0 million of aggregate expenses incurred through December 31, 2019 to be added
back. In addition, the amendment requires that the Consolidated Leverage Ratio not be greater than
3.75 to 1.00 for any fiscal quarter ending after December 31, 2019.
In addition to the above, the interest rate charged on the private placement notes is subject to adjustment
as follows:
a)
b)
If at the end of any fiscal quarter the Unadjusted Consolidated Leverage Ratio (prior to taking into
effect the add-backs discussed above) exceeds 3.75 to 1.00 the per annum interest rate applicable
to each series of notes shall increase by 0.50% (the “Adjusted Leverage Elevated Interest Rate”)
If at the end of any fiscal quarter ending on or before March 31, 2020, the unadjusted
Consolidated Leverage Ratio exceeds 3.75 to 1.00 the per-annum interest rate applicable to each
series of notes shall be increased as follows (the “Unadjusted Leverage Elevated Interest Rate”):
i.
ii.
iii.
iv.
if the Company has a rating of BBB+ or better by S&P (or an equivalent rating by
another rating agency) then the Unadjusted Leverage Elevated Interest Rate will be
an additional 0.50%,
if the Company has a rating of BBB by S&P (or an equivalent rating by another rating
agency) then the Unadjusted Leverage Elevated Interest Rate will be an additional
0.75%,
if the Company has a rating of BBB- by S&P (or an equivalent rating by another rating
agency) then the Unadjusted Leverage Elevated Interest Rate will be an additional
1.25%,
if the Company has a rating of BB+ or worse by S&P (or an equivalent rating by
another rating agency) then the Unadjusted Leverage Elevated Interest Rate will be
an additional 2.00%
2018 10-K Annual Report
Stericycle, Inc. • 93
PART II
c) The Adjusted Leverage Elevated Interest Rate and Unadjusted Leverage Elevated Interest rate are
not cumulative with each other and only the greater of the two increases will apply at any given
time.
The Company accounted for each of these refinancings as modifications and as a result recognized,
during the year ended December 31, 2018, $2.8 million of debt modification charges to interest expense.
The Company has the ability and intends to use some of the availability under the revolving credit facility
to refinance the $125 million private placement notes due in 2019, and accordingly has presented the
balance of these notes within the long-term portion of total debt as of December 31, 2018. The amount
is however presented as part of payments due in 2019 in the table below.
Payments due on long-term debt, excluding capital lease obligations, during each of the five years
subsequent to December 31, 2018 are as follows:
In millions
2019
2020
2021
2022
2023
Thereafter
Total
$
$
225.2
342.2
251.3
1,678.6
254.8
6.3
2,758.4
Minimum future lease payments under capital leases are as follows:
$
In millions
2019
2020
2021
2022
2023
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
$
5.4
5.6
2.6
2.3
2.1
5.9
23.9
(3.6)
20.3
(4.1)
16.2
NOTE 9 – INCOME TAXES
The U.S. and International components of (loss) income before income taxes (benefit) expense consisted
of the following for the years ended December 31, 2018, 2017, and 2016:
In millions
United States
Foreign
Total (loss) income before income taxes
2018
2017
2016
$
$
(189.1) $
(86.3)
(275.4) $
(9.6) $
(98.3)
(107.9) $
381.1
(53.0)
328.1
2018 10-K Annual Report
Stericycle, Inc. • 94
PART II
Significant components of our income tax benefit (expense) for the years ended December 31, 2018, 2017,
and 2016 are as follows:
In millions
Current
United States – federal
–
United States - state and local
Foreign
Deferred
United States – federal
–
United States - state and local
Foreign
Total benefit (expense)
2018
2017
2016
$
$
-
(0.4)
(8.5)
(8.9)
24.4
11.2
3.1
38.7
29.8
$
$
(107.0) $
(10.0)
(7.1)
(124.1)
256.1
9.8
9.1
275.0
150.9
$
(102.0)
(11.6)
(10.6)
(124.2)
(19.1)
2.5
20.6
4.0
(120.2)
A reconciliation of the income tax provision computed at the federal statutory rate to the effective tax rate
for the years ended December 31, 2018, 2017, and 2016 are as follows:
Federal statutory income tax rate
Effect of:
State and local taxes, net of federal tax effect
Foreign tax rates
Permanent - other items
Permanent - goodwill impairment
U.S. Tax Reform Act
Valuation allowance
Stock-based compensation
Other
Effective tax rate
2018
2017
2016
21.0%
4.2%
4.2%
0.5%
(9.1%)
(3.2%)
(7.5%)
1.2%
(0.5%)
10.8%
35.0%
3.9%
(2.7%)
(2.1%)
(12.0%)
120.3%
(4.6%)
(0.6%)
2.7%
139.9%
35.0%
1.5%
2.1%
0.8%
-
-
2.1%
(1.8%)
(3.1%)
36.6%
Our deferred tax liabilities and assets at December 31, 2018 and 2017 were as follows:
In millions
Deferred tax liabilities:
Property, plant and equipment
Goodwill and intangibles
Other
Total deferred tax liabilities
Deferred tax assets:
Accrued liabilities
Net operating tax loss carry-forwards
Sec 163j carry-forward
Other
Less: valuation allowance
Total deferred tax assets
Net deferred tax liabilities
2018
2017
$
$
(68.9) $
(395.1)
(22.7)
(486.7)
84.4
88.9
13.4
39.9
(35.3)
191.3
(295.4) $
(56.4)
(490.0)
(17.2)
(563.6)
141.2
38.3
-
38.6
(16.1)
202.0
(361.6)
On December 22, 2017, the U.S. Tax Cuts and Jobs Act of 2017 (the “Tax Act”) was signed into law making
significant changes to the Internal Revenue Code. Changes include, but are not limited to, a corporate
2018 10-K Annual Report
Stericycle, Inc. • 95
PART II
income tax rate decrease from 35% to 21% effective for tax years beginning after December 31, 2017, the
transition of U.S. international taxation from a worldwide tax system to a territorial system, and a one-time
transition tax on the mandatory deemed repatriation of cumulative foreign earnings as of December 31,
2017. The Tax Act results in a related change in assertion on expected foreign withholding taxes.
In accordance with SAB 118 and our understanding of the Tax Act and guidance available, the Company
calculated the provisional estimate of the tax impact of the Tax Act on its year end 2017 income tax
benefit/provision and as a result recognized an income tax (benefit) of ($129.8) million in the fourth
quarter of 2017, the period in which the legislation was enacted. The provisional amount related to the
re-measurement of certain deferred tax assets and liabilities based on the rates at which they are
expected to reverse in the future, the one-time transition tax on the mandatory deemed repatriation of
foreign earnings and the related expected foreign withholding taxes on such earnings are reflected in the
table below.
The net tax benefit recognized during the year ended December 31, 2017, related to the Tax Act was as
follows:
In millions
Remeasurement of net deferred tax liabilities due to enacted rate reduction
Section 965 transition tax on foreign earnings
Foreign withholding taxes on such earnings
Net tax benefit from the Tax Act
$
$
167.7
(24.3)
(13.6)
129.8
During the year ended December 31, 2018, we adjusted the provisional amounts recognized as of
December 31, 2017 for the one-time transition tax, deferred taxes and foreign withholding taxes. These
adjustments resulted in a net charge to the tax provision of $8.8 million. As of December 31, 2018, our
accounting for the various elements of the Tax Act is complete. Adjustments may be necessary in future
periods due to potential technical corrections to the Tax Act and/or regulatory guidance that may be
issued by the U.S. Internal Revenue Service.
Beginning in fiscal 2019, the Tax Act also establishes a provision known as global intangible low-taxed
income ("GILTI") that imposes a tax on certain earnings of foreign subsidiaries. The Company has made
an accounting policy election to treat GILTI taxes as a current period expense.
Prior to the enactment of the Tax Act, the Company treated the undistributed earnings from foreign
subsidiaries as indefinitely reinvested. The Company continues to assert permanent reinvestment in its
first tier subsidiaries, but lifts the assertion on deferred foreign earnings that were taxed under the Tax Act
on lower tier subsidiaries. A withholding tax accrual has been recorded where appropriate. The Company
has not provided for deferred taxes on outside basis differences in our investments in our foreign
subsidiaries that are unrelated to unremitted earnings as these basis differences will be indefinitely
reinvested. A determination of the unrecognized deferred taxes related to these other components of our
outstanding basis difference is not practicable to calculate.
At December 31, 2018, the net operating loss carry-forwards from both foreign and domestic operations
are approximately $350.3 million and certain of these net operating loss carry-forwards began to expire in
2021. The tax benefit of these net operating losses is approximately $88.9 million at December 31, 2018,
on which a valuation allowance of $24.9 million was recognized offsetting such tax benefit.
We file income tax returns in the United States, in various states and in certain foreign jurisdictions.
2018 10-K Annual Report
Stericycle, Inc. • 96
PART II
With a few exceptions, we are no longer subject to U.S. federal, state, local, or non-US income tax
examinations by tax authorities for years prior to 2012. The U.S. Internal Revenue Service has completed
its audit of our 2014 corporate income tax return and made no changes to our reported tax.
The Company has recognized liabilities to cover certain uncertain tax positions. Such uncertain tax
positions relate to additional taxes that the Company may be required to pay in various tax jurisdictions.
During the course of examinations by various taxing authorities, proposed adjustments may be asserted.
The Company evaluates such items on a case-by-case basis and adjusts the accrual for uncertain tax
positions as deemed necessary. The estimated amount of the liability associated with the Company’s
uncertain tax positions that may significantly increase or decrease within the next twelve months cannot
be reasonably estimated.
The total amount of unrecognized tax benefit at December 31, 2018 is $64.7 million. The amount of
uncertain tax positions that, if recognized, would affect the effective tax rate is approximately $61.8
million. We recognized interest and penalties related to income tax reserves in the amount of $0.8
million, $0.3 million, and $1.3 million for the years ended December 31, 2018, 2017, and 2016,
respectively, as a component of income tax expense.
The following table summarizes the aggregate changes in unrecognized tax benefits during the years
ended December 31, 2018 and 2017:
In millions
Unrecognized tax positions as of January 1, 2017
Gross increases - tax positions in prior periods
Gross increases - current period tax positions
Settlement
Lapse of statute of limitations
Unrecognized tax positions as of December 31, 2017
Gross increases - tax positions in prior periods
Gross increases - current period tax positions
Settlement
Lapse of statute of limitations
Unrecognized tax positions as of December 31, 2018
$
$
26.7
0.7
5.1
(0.5)
(4.6)
27.4
1.1
43.5
(2.0)
(5.3)
64.7
The table above includes amounts that relate to uncertain tax positions from acquired companies.
Purchase agreements to acquire the stock of a target generally provide that the seller is liable for and has
indemnified the Company against all income tax liabilities for periods prior to the acquisition. The
Company will be responsible for unrecognized tax benefits and related interest and penalties for periods
after the acquisition.
The Company is considering a claim under Internal Revenue Code Section 1341 concerning the tax rate to
be applied to the small quantity customer class action settlement on the Company’s 2018 tax return. The
Company may request a pre-filing agreement (“PFA”) with the U.S. Internal Revenue Service related to the
treatment of this item. Once the PFA is settled any positive income tax benefit resulting from the PFA will
be recognized at that time.
The Company has established a long term receivable and an amount within the unrecognized tax positons
above to reflect its estimate of the potential refund should its claim be successful. There can be no
assurance that this amount or any amount will be recovered as a result of this claim.
2018 10-K Annual Report
Stericycle, Inc. • 97
PART II
NOTE 10 – 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 as described below:
Level 1 – Quoted prices in active markets for identical assets or liabilities (highest priority).
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 (lowest priority).
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 in the periods presented.
At December 31, 2018 and 2017, we recognized a $0.3 million and a $0.4 million, respectively, asset
related to the fair value, established using Level 2 inputs, of the U.S. dollar-Canadian dollar foreign
currency swap which was classified as Other assets. 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, recorded using Level 3 inputs, in total and the amounts classified
as Other current liabilities and Other liabilities were as follows as of December 31:
In millions
Other current liabilities
Other liabilities (see Note 7)
Total contingent consideration
2018
2017
2.8
7.5
10.3
$
$
4.6
7.8
12.4
$
$
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, earnings, or other
milestones 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.
2018 10-K Annual Report
Stericycle, Inc. • 98
If the financial performance measures were all fully met, our maximum aggregate liability would be $13.4
million at December 31, 2018. 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:
PART II
In millions
Contingent consideration as of January 1, 2017
Increase due to current year acquisitions
Purchase accounting adjustments
Decrease due to payments
Change in fair value reflected in SG&A
Other
Contingent consideration as of December 31, 2017
Increase due to current year acquisitions
Purchase accounting adjustments
Decrease due to payments
Change in fair value reflected in SG&A
Foreign exchange fluctuations
Contingent consideration as of December 31, 2018
$
$
24.1
0.1
(9.6)
(1.5)
(0.4)
(0.3)
12.4
-
(0.4)
(1.3)
0.2
(0.6)
10.3
In addition to assets and liabilities that are recorded at fair value on a recurring basis, the Company is
required to record certain assets and liabilities at fair value on a nonrecurring basis, generally as result of
acquisitions or the re-measurement of assets resulting in impairment charges. See Note 3 – Acquisitions,
Note 4 – Restructuring, Divestitures, and Assets Held for Sale, and Note 6 Goodwill And Other Intangible
Assets for further discussion of the fair value of assets and liabilities associated with Acquisitions and
Assets Held for Sale.
Fair Value of Debt: At December 31, 2018 and 2017, the estimated fair value of the Company’s debt
obligations, using Level 2 inputs, compared to the carrying amount was as follows:
In billions
Fair value of debt obligations
Carrying value of debt obligations
2018
2017
$
2.75 $
2.78
2.74
2.75
The fair values were estimated using an income approach by applying market interest rates for
comparable instruments.
Accounts receivable, accounts payable and accrued liabilities are financial assets and liabilities,
respectively, with carrying values that approximate fair value, using Level 3 inputs.
NOTE 11 – 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
2018 10-K Annual Report
Stericycle, Inc. • 99
PART II
and can be reasonably estimated, but the timing of such payments is not fixed and determinable. Such
accruals are based on currently available information, estimated timing of remedial actions, existing
technology, and enacted laws and regulations. Our liability for environmental remediation is included on
the Consolidated Balance Sheets in current liabilities within Accrued liabilities and in noncurrent liabilities
within Other liabilities see Note 7 – Accrued Liabilities And Other Long term Liabilities.
At December 31, 2018 and 2017, the total environmental remediation liabilities recognized were $33.5
million and $30.8 million, respectively, of which $5.3 million and $5.7 million, respectively, were presented
in Accrued liabilities on the Consolidated Balance Sheets. We project estimated payments over
approximately 30 years.
Asset Retirement Obligations
We have asset retirement obligations that we are required to perform under law or contract once an asset
is permanently taken out of service. Most of these obligations are not expected to be paid until many
years in the future and are expected to be funded from general company resources at the time of
removal.
At December 31, 2018 and 2017, the total asset retirement obligation liabilities recognized were $19.1
million and $18.2 million, respectively, and were included in noncurrent liabilities within Other liabilities
see Note 7 – Accrued Liabilities And Other Long term Liabilities.
Operating Lease Commitments
We lease various plant equipment, office furniture and equipment, motor vehicles, office and warehouse
space, and landfills under operating lease agreements. Our leases have varying terms. The leasesmay
contain renewal or purchase options, escalation clauses, restrictions, penalties or other obligations that we
consider in determining minimum lease payments.
During the years ended December 31, 2018, 2017, and 2016, rent expense, including lease related costs,
month-to-month rentals and leases with an initial lease term of less than one year, was $192.1 million,
$186.2 million, and $181.6 million, respectively, of which $178.7 million, $173.7 million, and $169.8 million,
respectively, was included within COR with the remainder included in SG&A on the Consolidated
Statements of (Loss) Income.
Minimum future rental payments under non-cancelable operating leases that have initial or remaining
terms in excess of one year as of December 31, 2018 (including leases with an inception date but not yet
commenced) for each of the next five years and in the aggregate are as follows:
In millions
2019
2020
2021
2022
2023
Thereafter
$
$
107.0
88.7
72.7
54.8
40.0
128.7
491.9
2018 10-K Annual Report
Stericycle, Inc. • 100
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, 2018, future payments under these
contractual obligations, which are not recognized on the Consolidated Balance Sheets, were as follows:
PART II
In millions
2019
2020
2021
2022
2023
Thereafter
$
$
21.3
20.5
5.1
-
-
-
46.9
Letters of Credit, Surety Bonds and Bank Guarantees
As of December 31, 2018 and 2017, we had $63.1 million and $130.8 million, respectively, of stand-by
letters of credit outstanding against our senior credit facility (see Note 8 – Debt). At December 31, 2018
we also had a further $52.2 million of stand-by letters of credit outstanding against another facility which
was entered into during 2018. In addition, at December 31, 2018 and 2017 we had, $63.7 million and
$19.0 million, respectively, of surety bonds, and $19.5 million and $15.7 million, respectively, of bank
guarantees. The bank guarantees are issued mostly by our international subsidiaries for various purposes,
including leases, seller notes, contracts and permits. The surety bonds are used for performance and
financial guarantees. Neither the bank guarantees nor the surety bonds affect our ability to use our
various lines of credit.
t
NOTE 12 – RETIREMENT AND OTHER EMPLOYEE BENEFIT PROGRAMS
Defined Contribution Plans:
We have a 401(k) defined contribution retirement savings plan (the “Plan”) covering substantially all
domestic employees. 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 $3,000 per annum. During the years ended December 31, 2018,
2017, and 2016, our contributions were $10.6 million, $8.9 million, and $5.9 million, respectively.
Employees associated with the 2015 Shred-it acquisition were allowed to continue to participate in the
former Shred-it 401(k) defined contribution retirement savings plan (the “Shred-it Plan”). During the year
ended December 31, 2016, we made contributions of $3.4 million to the Shred-it Plan, which was officially
closed and all employees converted over to the Plan effective January 1, 2017.
The Company also 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, 2018, 2017, and 2016, total contributions made by the Company for these
plans were approximately $3.1 million, $3.4 million, and $2.6 million, respectively.
2018 10-K Annual Report
Stericycle, Inc. • 101
PART II
Multiemployer Defined Benefit Pension Plans:
We participate in two trustee-managed multiemployer defined benefit pension plans (“Multiemployer
Pension Plans”) for employees who are covered by collective bargaining agreements. The risks of
participating in these Multiemployer Pension Plans are different from single-employer plans in that (i)
assets contributed to the Multiemployer Pension Plan by one employer may be used to provide benefits
to employees or former employees of other participating employers; (ii) if a participating employer stops
contributing to the Multiemployer Pension Plans, the unfunded obligations of the Multiemployer Pension
Plan may be required to be assumed by the remaining participating employers and (iii) if we choose to
stop participating in any of our Multiemployer Pension Plans or if any event should significantly reduce or
eliminate our need to participate (such as employee layoffs or closure of a location), we may be required
to pay those plans a withdrawal amount based on the underfunded status of the plan. Based upon the
most recent information available, one of the plans we participate in is in “critical” status due to an
accumulated funding deficiency and has adopted a rehabilitation plan to address the funding deficiency
position.
The following table outlines our participation in Multiemployer Pension Plans:
Pension Protection
Act Zone Status (1), (3)
Company
Contributions (4)
(in millions)
Plan
Employer ID
Number
Plan #
2018
2017
FIP/RP Status
(2)
2018
2017
Expiration
Date of
Collective
Bargaining
Agreements
Pension Plan Private
Sanitation Union, Local
813 IBT
Nurses And Local 813
IBT Retirement Plan
13-1975659
13-3628926
1
1
Red/
Critical
Red/
Critical
Implemented $
0.6
Green
Green
N/A $
-
6/30/2019 and
3/31/2020
0.6
-
various dates
$
$
(1) Zone status is defined by the Department of Labor and the Pension Protection Act of 2006 and
represents the level at which the plan is funded. Plans in the red zone are less than 65% funded,
while plans in the green zone are at least 80% funded. Status is based on information received
from the Multiemployer Pension Plans and is certified by the pension plans actuary.
(2)
The "FIP/RP Status" column indicates Multiemployer Pension Plans for which a Funding
Improvement Plan ("FIP”) or a Rehabilitation Plan ("RP") has been implemented or is pending.
The most recent Pension Protection Act zone status available in 2018 and 2017 is for the plans’
year-end December 31, 2017 and 2016, respectively.
(3) A Multiemployer Pension Plan that has been certified as endangered, seriously endangered or
critical may begin to levy a statutory surcharge on contribution rates. Once authorized, the
surcharge is at the rate of 5% for the first 12 months and 10% for any periods thereafter, until
certain conditions are met. Contributing employers, however, may eliminate the surcharge by
entering into a collective bargaining agreement that meets the requirements of the applicable FIP
or RP.
(4)
The Company was listed in the Form 5500 for the Pension Plan Private Sanitation Union Local 813
IBT as individually significant for contributing more than 5% of total contributions to such plan
during the plan years ended December 31, 2017 and 2016. At the date these financial statements
2018 10-K Annual Report
Stericycle, Inc. • 102
PART II
were issued, Forms 5500 were not available for the Multiemployer Pension Plans for the year
ended December 31, 2018.
NOTE 13 – STOCK BASED COMPENSATION
At December 31, 2018, we had the following incentive stock plans:
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
the 2017 Incentive Stock Plan, which our stockholders approved in May 2017;
the 2014 Incentive Stock Plan, which our stockholders approved in May 2014;
the 2011 Incentive Stock Plan, which our stockholders approved in May 2011;
the 2008 Incentive Stock Plan, which our stockholders approved in May 2008;
the 2005 Incentive Stock Plan, which our stockholders approved in April 2005;
the 2000 Non-statutory Stock Option plan, which expired in February 2010;
the Employee Stock Purchase Plan ("ESPP"), which our stockholders approved in May 2001 (as
amended and restated in May 2017), and
the Canadian Employee Stock Purchase Plan (“Canada ESPP”), which our stockholders approved in
May 2016.
At December 31, 2018, we had reserved a total of 2,709,476 shares for issuance under our incentive stock
plans.
In terms of the stock options authorized, the 2017 Plan, 2014 Plan, 2011 Plan, 2008 Plan, and the 2005
Plan provide for the grant of non-statutory stock options ("NSOs"), incentive stock options ("ISOs"),
restricted stock units (“RSUs”), and performance-based restricted stock units (“PSUs”) intended to qualify
under Section 422 of the Internal Revenue Code; and the 2000 Plan provides for the grant of NSOs. Our
Plans authorize awards to our officers, employees and consultants, and to our 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 incentive stock 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 ESPP, which our stockholders approved in May 2001,
and was made effective as of July 1, 2001. The ESPP authorizes 1,299,999 shares of our common stock,
which substantially all employees may purchase through payroll deductions at a price equal to 85% of the
fair market values of the stock as of the end of the six-month offering period. An employee's payroll
deductions, and stock purchase, may not exceed $5,000 during any offering period. During 2018, 2017,
and 2016, 131,959 shares, 109,762 shares, and 88,344 shares, respectively, were issued through the ESPP.
In May 2017, our shareholders approved an amendment to the ESPP which authorizes the issuance of an
additional 300,000 shares. At December 31, 2018, we had 161,372 shares available for issuance under the
ESPP plan.
2018 10-K Annual Report
Stericycle, Inc. • 103
PART II
In March 2016, our Board of Directors approved the Canada ESPP, which our stockholders approved in
May 2016. The Canada ESPP authorizes 100,000 shares of our common stock which substantially all
Canadian employees may purchase through payroll deductions, at a price equal to 95% of the fair market
values of the stock at the end of the six-month offering period. An employee's payroll deductions, and
stock purchase, may not exceed $5,000 during any offering period. During 2018, 2017, and 2016, 2,283
shares, 1,766 shares, and 756 shares, respectively, were issued through the Canada ESPP. At
December 31, 2018, we had 95,195 shares available for issuance under the Canada ESPP plan.
Stock-Based Compensation Expense:
During 2018, 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, PSUs, and the ESPP and Canada ESPP included in the Consolidated Statements of (Loss)
Income:
In millions
Selling, general and administrative - stock option plans
Selling, general and administrative - RSUs
Selling, general and administrative - PSUs
Selling, general and administrative - ESPP and Canada ESPP
Total pre-tax expense
$
$
10.8
7.2
5.1
1.0
24.1
$
$
14.7
5.2
0.2
1.2
21.3
$
$
17.4
0.9
-
2.2
20.5
2018
Years Ended December 31,
2017
2016
Stock Options:
Options granted to non-employee 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. Stock option activity for the year ended
December 31, 2018 is summarized as follows:
Number of Options
Weighted Average
Exercise Price per
Share
Weighted
Average
Remaining
Contractual Life
(in years)
Total
Aggregate
Intrinsic Value
(in millions)
Outstanding as of January 1, 2018
Granted
Exercised
Forfeited
Cancelled or expired
Outstanding as of December 31, 2018
Exercisable as of December 31, 2018
5,393,417
430,337
(312,302)
(267,622)
(347,444)
4,896,386
3,475,528
$
$
$
96.91
60.35
49.78
99.21
106.94
95.85
96.11
4.03
3.39
$
$
-
-
2018 10-K Annual Report
Stericycle, Inc. • 104
PART II
At December 31, 2018, there was $19.0 million of total unrecognized compensation expense related to
stock options, which is expected to be recognized over a weighted average period of 2.59 years.
The following table sets forth the intrinsic value of options exercised for the years ended December 31
2018, 2017, and 2016:
In millions
Total exercise intrinsic value of options exercised
$
4.7
$
4.8
$
26.0
2018
2017
2016
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 Company uses historical data to estimate expected life and volatility. The estimated fair value of
stock options at the time of grant using the Black-Scholes 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:
2018
Years Ended December 31,
2017
$
430,337
16.79
$
456,424
19.46
$
2016
1,100,492
20.16
4.89
25.52%
—%
2.6%
4.82
22.68%
—%
1.9%
4.77
18.28%
—%
1.2%
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. The 2017
Plan includes a share reserve for RSUs granted at a 1-1 ratio while our 2008, 2011, and 2014 Plans reserve
at a 2-1 ratio. No RSUs were granted under the 2005 Plan.
RSUs activity during the year ended December 31, 2018, is as follows:
Number of Units
Weighted Average
Grant Date
Fair Value
Weighted Average
Remaining
Contractual Life
Total Aggregate
Intrinsic Value
(in millions)
Non-vested as of January 1, 2018
Granted
Vested and Released
Forfeited
Non-vested as of December 31, 2018
267,297
312,254
(59,097)
(90,644)
429,810
$
$
89.74
61.64
88.99
75.37
72.02
1.88
$
15.8
At December 31, 2018, there was $23.1 million of total unrecognized compensation expense related to
RSUs, which is expected to be recognized over a weighted average period of 3.52 years. The fair value of
units that vested during the years ended December 31, 2018 and 2017 was $4.2 million and $2.9 million,
respectively. There were no units that vested during the year ended December 31, 2016.
2018 10-K Annual Report
Stericycle, Inc. • 105
PART II
Performance-Based Restricted Stock Units:
Our executive officers PSU program was introduced in 2017. PSUs vest, or not, in three equal annual
installments based on the achievement of pre-determined annual earnings per share performance goals
as approved by the Compensation Committee. Each of the PSU’s granted represent the right to receive
one share of the Company’s common stock at a specified future date.
In addition, certain employees have been granted PSUs which vest, or not, in four equal annual
installments based on the achievement of performance goals related to the Business Transformation, as
approved by the Compensation Committee.
Compensation cost for the executive and Business Transformation PSU’s has been recognized based on
the estimated achievement of the underlying goals. The number of PSU’s that recipients will ultimately
receive will be based upon the Compensation Committee’s review of the actual achievement of these
goals. Each of the PSU’s granted represent the right to receive one share of the Company’s common
stock at a specified future date.
PSUs activity during the year ended December 31, 2018, is as follows:
Non-vested as of January 1, 2018
Granted
Vested and Released
Forfeited (including performance goal underachieving)
Non-vested as of December 31, 2018
Number of Units
Weighted Average
Grant Date
Fair Value
11,149
136,496
-
(32,137)
115,508
$
$
82.85
63.79
-
70.47
63.77
The table above reflects the maximum number of shares which could be granted upon vesting of the
executive and Business Transformation PSU’s for which performance goals related to 2018 have been
established. At December 31, 2018, approximately 311,000 of additional PSUs exist which will vest in
tranches based upon achievement of performance goals to be established for fiscal years 2019 through
2021.
NOTE 14 – PREFERRED STOCK
At December 31, 2018, we had 1,000,000 authorized shares of preferred stock and zero shares issued and
outstanding. At December 31, 2017, we had 1,000,000 authorized shares of preferred stock of which
673,380 shares were 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.
On September 14, 2018, in accordance with their terms of issue, 638,190 shares of the Company’s Series A
Preferred Stock, representing all of the preferred stock outstanding as of that date, were converted into a
2018 10-K Annual Report
Stericycle, Inc. • 106
PART II
total of 4.7 million shares of the Company’s common stock at a ratio of 7.3394 shares of our common
stock for each share of Series A Preferred Stock.
Prior to the conversion referenced above, dividends on shares of the Series A Preferred Stock were
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 were 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 $25.5 million, $36.3 million, and $39.4 million to the Series A Preferred
Stock shareholders during the years ended December 31, 2018, 2017, and 2016, respectively.
The following table provides information about our repurchases of depository shares of Series A Preferred
stock, prior to the conversion referenced above, during the year ended December 31, 2018:
In millions, except share and per share data
January 1 - January 31, 2018
February 1 - February 28 , 2018
March 1 - March 31 , 2018
April 1 - April 30 , 2018
May 1 - May 31 , 2018
June 1 - June 30 , 2018
July 1 - July 31 , 2018
August 1 - August 31 , 2018
September 1 - September 30 , 2018
October 1 - October 31 , 2018
November 1 - November 30 , 2018
December 1 - December 31, 2018
Total
Number of
Depository Shares
Repurchased
Amount Paid for
Repurchases
Average Price Paid
per Share
-
151,900
-
-
150,000
-
-
50,000
-
-
-
-
351,900
$
$
-
7.4
-
-
7.4
-
-
2.4
-
-
-
-
17.2
$
$
-
49.05
-
-
49.24
-
-
47.05
-
-
-
-
48.85
For the years ended December 31, 2018, 2017, and 2016, repurchases of our depository shares resulted in
increases in retained earnings of $16.9 million, $17.3 million, and $11.3 million, respectively, because we
redeemed the depository shares at a discount. The 351,900 depository shares repurchased during 2018
were equivalent to 35,190 shares of Series A Preferred Stock.
NOTE 15 – (LOSS) EARNINGS PER COMMON SHARE
Basic (loss) earnings per share is computed by dividing (loss) 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 ESPP and Canadian ESPP, RSUs, PSUs and, the impact of the Series A
Preferred Stock prior to conversion on September 14, 2018. The effect of potentially dilutive securities is
reflected in diluted earnings per share by application of the "treasury stock method" for outstanding
2018 10-K Annual Report
Stericycle, Inc. • 107
PART II
stock-based compensation awards. 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 Series A Preferred Stock, we used the "if-converted method", weighted for the period
prior to conversion. Under the if-converted method, the preferred dividend applicable to Series A
Preferred Stock was added back as an adjustment to the numerator. The Series A Preferred Stock shares
were assumed to be converted to common shares at the beginning of the period or, if later, at the time of
issuance, and through their conversion on September 14, 2018, for the year ended December 31, 2018,
these common shares are weighted for the period the Series A Preferred Stock was outstanding with the
resulting weighted average common shares included in the denominator. In applying the if-converted
method, conversion is not assumed for purposes of computing diluted earnings per share if the effect
would be anti-dilutive. The numerator was also adjusted for any premium or discount arising from
redemption of the Series A Preferred Stock.
The following table sets forth the computation of basic and diluted (loss) earnings per share:
In millions, except per share data
Numerator:
Net (loss) income attributable to Stericycle, Inc.
Mandatory convertible preferred stock dividend
Gain on repurchase of preferred stock
Numerator for basic (loss) earnings per share attributable to Stericycle,
Inc. common shareholders
Denominator:
Denominator for basic (loss) earnings per share - weighted average
shares (1)
Effect of dilutive securities:
Stock-based compensation awards (2)
Mandatory convertible preferred stock (3)
Denominator for diluted (loss) earnings per share - adjusted weighted
average shares and after assumed exercises
(Loss) earnings per share – Basic
–
(Loss) earnings per share – Diluted
–
$
$
$
$
Years Ended December 31,
2017
2016
2018
(244.7) $
(25.5)
16.9
$
42.4
(36.3)
17.3
206.3
(39.4)
11.3
(253.3) $
23.4
$
178.2
87.1
-
-
87.1
(2.91) $
(2.91) $
85.3
0.3
-
85.6
0.27
0.27
$
$
84.9
0.7
-
85.6
2.10
2.08
(1)
(2)
(3)
For the year ended December 31, 2018, the denominator for basic (loss) earnings per share
includes 1.4 million shares representing the weighted-average impact of the common shares
outstanding as a result of the Series A Preferred Stock conversion on September 14, 2018.
In 2018 options to purchase shares (in thousands) of 124, were excluded from the computation of
diluted (loss) earnings per share due to the net loss incurred for the year.
In 2018, 2017, and 2016, the weighted average common shares (in thousands) issuable upon the
assumed conversion of the Series A Preferred Stock totaling 3,367, 5,104, and 5,528, respectively,
were excluded from the computation of diluted (loss) earnings per share as such conversion
would have been anti-dilutive.
In 2018, 2017, and 2016, options to purchase shares (in thousands) of 4,664, 4,724, and 3,411, respectively,
at exercise prices of $47.52-$141.56, $62.50-$141.56, and $83.49-$141.56, respectively, were not included
in the computation of diluted (loss) earnings per share because the effect would have been anti-dilutive.
In 2018, 2017, and 2016, RSUs (in thousands) of 169, 218, and 48, respectively, were not included in the
computation of diluted (loss) earnings per share because the effect would have been anti-dilutive.
2018 10-K Annual Report
Stericycle, Inc. • 108
PART II
During 2018 and 2017, the Company had outstanding PSUs (in thousands) that were eligible to vest into a
maximum of 116 and 11 shares of common stock, respectively, subject to the achievement of specified
performance conditions. Contingently issuable shares are excluded from the computation of diluted
earnings per share if, based on current period results, the shares would not be issuable if the end of the
reporting period were the end of the contingency period or if the Company incurred a net loss
attributable to its common shareholders. These outstanding PSUs have been excluded from the (loss)
earnings per share calculation for 2018 and 2017 as the performance conditions were not satisfied as of
the end of the respective periods.
NOTE 16 – ACCUMULATED OTHER COMPREHENSIVE LOSS
The following table sets forth the changes in the components of accumulated other comprehensive loss
for 2018, 2017, and 2016:
In millions
Beginning balance as of January 1, 2016
Period change
Ending balance as of December 31, 2016
Period change
Ending balance as of December 31, 2017
Period change
Ending balance as of December 31, 2018
Currency Translation
(Loss) Income
Adjustments
Unrealized Gains
(Losses) on Cash
Flow Hedges
Accumulated Other
Comprehensive
(Loss) Income
$
$
(276.0) $
(86.3)
(362.3)
79.3
(283.0)
(79.3)
(362.3) $
(6.6) $
1.3
(5.3)
1.3
(4.0)
1.0
(3.0) $
(282.6)
(85.0)
(367.6)
80.6
(287.0)
(78.3)
(365.3)
During the years ended December 31, 2018, 2017, and 2016, the unrealized gains on cash flow hedges in
accumulated other comprehensive income stated above are presented net of tax impacts of $0.4 million,
$0.7 million, and $0.8 million, respectively.
NOTE 17 – SEGMENT REPORTING
We evaluate, oversee and manage the financial performance of three operating segments – Domestic and
Canada Regulated Waste and Compliance, International Regulated Waste and Compliance, and Domestic
Communication and Related Services.
Our Domestic and Canada, and International Regulated Waste and Compliance 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.
inbound/outbound
Our Domestic Communication and Related Services
communication, automated patient reminders, online scheduling, notifications, product retrievals, product
Domestic Communication and Related Services does not consistently meet the
quantitative criteria to be a separate reportable segment and therefore is included in the “All Other”
and stock-
reporting segment along with costs related
based compensation.
to corporate support, shared services functions,
includes
segment
2018 10-K Annual Report
Stericycle, Inc. • 109
PART II
Beginning in the first quarter of 2018, we changed our measure of segment profitability to Adjusted
Earnings Before Interest, Tax, Depreciation and Amortization (“Adjusted EBITDA”). Adjusted EBITDA is
Income from operations excluding certain specified items, Depreciation and Intangible Amortization. As a
result of this change in segment reporting, all applicable historical segment information has been revised
to conform to the new presentation.
The following tables show financial information for the Company's reportable segments:
In millions
Revenues
Domestic and Canada RCS
International RCS
All Other
Total
Depreciation
Domestic and Canada RCS
International RCS
All Other
Total
Intangible Amortization
Domestic and Canada RCS
International RCS
All Other
Total
Adjusted EBITDA
Domestic and Canada RCS
International RCS
All Other
Total
Total Assets
Domestic and Canada RCS
International RCS
All Other
Total
2018
Years Ended December 31,
2017
2016
$
$
$
$
$
$
$
$
$
$
2,574.1
655.1
256.7
3,485.9
72.5
29.7
23.4
125.6
96.7
25.3
8.3
130.3
782.4
95.6
(133.4)
744.6
5,062.5
1,110.4
282.6
6,455.5
$
$
$
$
$
$
$
$
$
$
2,551.9
707.6
321.2
3,580.7
80.3
30.9
19.9
131.1
87.6
22.7
8.1
118.4
809.5
93.7
(91.2)
812.0
4,995.0
1,333.1
660.2
6,988.3
$
$
$
$
$
$
$
$
$
$
2,508.8
751.7
301.8
3,562.3
75.4
35.1
12.7
123.2
95.7
25.7
7.9
129.3
824.9
93.1
(67.2)
850.8
5,094.1
1,357.1
528.9
6,980.1
2018 10-K Annual Report
Stericycle, Inc. • 110
The following table reconciles the Company's primary measure of segment profitability (Adjusted EBITDA)
to (Loss) income from operations:
PART II
In millions
2018
Years Ended December 31,
2017
2016
Total reportable segment Adjusted EBITDA
Depreciation
Business Transformation
Intangible Amortization
Acquisition and Integration
Operational Optimization
Divestitures
Litigation, Settlements and Regulatory Compliance
Impairment
Other
(Loss) income from operations
$
$
$
744.6
(125.6)
(82.6)
(130.3)
(9.8)
(29.4)
(20.5)
(93.2)
(385.2)
(29.1)
(161.1) $
$
812.0
(131.1)
(31.3)
(118.4)
(40.7)
(71.1)
(9.5)
(327.7)
(65.0)
(24.8)
(7.6) $
NOTE 18 – GEOGRAPHIC AREA AND SERVICES INFORMATION
The following table presents consolidated revenues and long-lived assets by geographic region:
In millions
Revenues
United States
International:
Europe
Other international countries
Total international
Total
Long-Lived Assets
United States
International:
Europe
Other international countries
Total international
Total
2018
Years Ended December 31,
2017
2016
2,673.6
$
2,716.9
$
415.5
396.8
812.3
3,485.9
4,501.1
612.7
489.6
1,102.3
5,603.4
$
$
$
436.2
427.6
863.8
3,580.7
4,821.6
711.8
603.1
1,314.9
6,136.5
$
$
$
$
$
$
$
The following table presents consolidated revenues by service:
In millions
2018
Years Ended December 31,
2017
2016
Regulated Waste and Compliance Services
Secure Information Destruction Services
Communication and Related Services
Manufacturing and Industrial Services
Revenues
$
$
1,932.6
911.0
313.1
329.2
3,485.9
$
$
2,023.6
823.4
382.6
351.1
3,580.7
$
$
850.8
(123.2)
-
(129.3)
(60.9)
(59.1)
(27.1)
(7.2)
(1.4)
(8.8)
433.8
2,657.4
486.0
418.9
904.9
3,562.3
4,820.5
668.7
687.7
1,356.4
6,176.9
2,063.0
747.5
370.4
381.4
3,562.3
2018 10-K Annual Report
Stericycle, Inc. • 111
PART II
NOTE 19 – LEGAL PROCEEDINGS
We operate in highly regulated industries and respond to regulatory inquiries or investigations from time
to time that may be initiated for a variety of reasons. At any given time, the Company has matters at
various stages of resolution with the applicable government authorities. We are also routinely involved in
actual or threatened legal actions, including those involving alleged personal injuries and commercial,
employment, environmental, tax, and other issues. The outcomes of these matters are not within the
Company’s complete control and may not be known for prolonged periods of time. In some actions,
claimants seek damages, as well as other relief, including injunctive relief, that could require significant
expenditures or result in lost revenue.
In accordance with applicable accounting standards, 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 the reasonable estimate of a probable loss is a range, and no amount within the range is a
better estimate than any other, the minimum amount of the range is accrued. If a loss is not probable or
a probable loss is not reasonably estimable, no liability is recorded. When determining the estimated loss
or range of loss, significant judgment is required to estimate the amount and timing of a loss to be
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. Estimates of probable losses
resulting from litigation and regulatory proceedings are difficult to predict. Legal and regulatory matters
inherently involve significant uncertainties based on, among other factors, the jurisdiction and 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.
Contract Class Action Lawsuits. Beginning on March 12, 2013, we were served with several class action
complaints filed in federal and state courts in several jurisdictions. These complaints asserted, among
other things, that we had 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 complaints sought certification of the lawsuit as a class action and the award
to class members of appropriate damages and injunctive relief. These related actions were ultimately
transferred to the United States District Court for the Northern District of Illinois for centralized pretrial
proceedings (the “MDL Action”).
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 goods 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.”
2018 10-K Annual Report
Stericycle, Inc. • 112
PART II
The parties engaged in discussions through and overseen by a mediator regarding a potential resolution
of the matter and reached an agreement in principle for settlement in July 2017, which was subsequently
documented in a definitive settlement agreement (the “Settlement”) on October 17, 2017. The Settlement
provided a global resolution of all cases and claims against the Company in the MDL Action. It also
provided that the Company would establish a common fund of $295.0 million from which would be paid
all compensation to members of the settlement class, attorneys’ fees to class counsel, incentive awards to
the named class representatives and all costs of notice and administration. It also provided that our
existing contracts with customers would remain in force, while we would also establish as part of the
Settlement guidelines for future price increases and provide customers additional transparency regarding
such increases. Under the terms of the Settlement, the Company admitted no fault or wrongdoing
whatsoever, and it entered into the Settlement to avoid the cost and uncertainty of litigation. The
Settlement provided that, upon final approval by the Court following a fairness hearing, it would fully and
finally resolve all claims against the Company alleged in the MDL Action.
The Court granted preliminary approval of the Settlement following a hearing on October 26, 2017. The
fairness hearing was held on March 8, 2018. The Court granted approval of the Proposed MDL Settlement
that same day. The Court entered final judgment on May 8, 2018. No appeal was filed, and the Proposed
MDL Settlement became finally effective on June 7, 2018 (the “Final Settlement”). The Company funded
the Final Settlement on July 6, 2018.
Certain class members who have opted out of the Final Settlement have filed lawsuits against the
Company, and the Company will defend and resolve those actions. The Company has accrued its estimate
of the probable loss for these collective matters, which is not material.
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, 2016, inclusive, and all those who purchased securities in our public offering of
depositary shares, each 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
2018 10-K Annual Report
Stericycle, Inc. • 113
PART II
material supporting the same legal claims from the prior complaints for a class period from February 7,
2013 through September 18, 2016. Defendants filed a motion to dismiss the Consolidated Amended
Complaint on April 1, 2017. On May 19, 2017, plaintiffs filed a response in opposition to the motion to
dismiss and on June 19, 2017, Defendants filed a reply brief in support of their motion.
On March 31, 2018, plaintiffs filed a further Amended Complaint, alleging additional corrective disclosures
and extending the purported class period through February 21, 2018. Defendants filed a motion to
dismiss the Consolidated Amended Complaint on May 25, 2018. The Motion was fully briefed on July 13,
2018, and awaited a ruling by the Court.
The parties engaged in discussions through and overseen by a mediator regarding a potential resolution
of the matter and reached an agreement in principle for settlement in December 2018 (the “Proposed
Securities Class Action Settlement”).
As we disclosed in a current report on Form 8-K filed on December 20, 2018, the terms of the Proposed
Securities Class Action Settlement provide that the Company will establish a common fund of $45 million,
from which will be paid all compensation to members of the settlement class, attorneys’ fees to class
counsel,
incentive awards to the named class representatives and all costs of notice and
administration. The large majority of the $45 million common fund established pursuant to the Proposed
Securities Class Action Settlement will be paid by the Company’s insurers. In the Proposed Securities
Class Action Settlement, we admitted no fault or wrongdoing whatsoever. We entered into the Proposed
Securities Class Action Settlement in order to avoid the cost and uncertainty of litigation.
On February 14, 2019, the Company executed a definitive written settlement agreement (the
“Settlement”), which incorporated the terms of the agreement in principle announced in December 2018.
The Settlement incorporated the terms of the Proposed Securities Class Action Settlement, described
above, and proposes a global resolution of all cases and claims against the Company in the Securities
Class Action. Under the terms of the Settlement, the Company admitted no fault or wrongdoing
whatsoever, and it entered into the Settlement to avoid the cost and uncertainty of litigation. The
Settlement provided that, upon final approval by the Court following a fairness hearing, it would fully and
finally resolve all claims against the Company alleged in the Securities Class Action.
On February 25, 2019, plaintiffs in the Securities Class Action filed Plaintiffs’ Unopposed Motion for an
Order Preliminarily Approving Class Settlement and Authorizing Dissemination of Notice of Settlement
(the “Preliminary Approval Motion”). The Preliminary Approval Motion asks the Court to preliminarily
approve the Settlement, to approve the manner and content of the notice to be given to potential class
members, and to set a schedule for, among other things, deadlines for potential class members to file
claims, object to the Settlement, or seek exclusion from the Settlement class. The Preliminary Approval
Motion is pending before the Court.
Shareholder Derivative Lawsuits. 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.
2018 10-K Annual Report
Stericycle, Inc. • 114
PART II
On March 1, 2017, 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, in addition to failing to make the required demand on the board of directors, 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.
On June 29, 2017, the Court entered an agreed order consolidating the two putative derivative actions for
all purposes under the caption Kausal Shah v. Charles A. Alutto, et al. On July 11, 2017, the Court entered a
further agreed order appointing lead counsel for plaintiffs and staying the action pending resolution of
the motion to dismiss the securities class action discussed above. Pursuant to the agreed order,
defendants reserved all potential defenses to both actions, should the stay be lifted. On February 14,
2019, the Court entered an Agreed Order to Lift Stay and Set Briefing Schedule, under which the Court
lifted the stay of litigation, granted plaintiffs leave to file an amended complaint on or before April 15,
2019, and set a briefing schedule for a motion to dismiss by the Company.
On March 26, 2018, Alvin Janklow v. Charles A. Alutto, et al., was filed in the Federal District Court for the
District of Delaware. On April 16, 2018, John Brennan v. Charles A. Alutto, et al., was filed in the same
court. On May 16, 2018, the Court entered an order consolidating Brennan and Janklow. On April 18,
Brennan cases, and the Court
2018, the company filed a motion to stay the combined Janklow and
granted the Company’s motion. On January 11, 2019, the parties stipulated to, and the Court entered an
order, lifting the stay to allow the Company to file a motion to dismiss and setting a briefing schedule on
that motion. On January 25, 2019, Stericycle filed its motion to dismiss; on February 25, 2019, Plaintiffs
filed an opposition to the motion; the Company has until March 12, 2019 to file a reply.
w
On April 12, 2018, Rick Siu v. Mark C. Miller, et al., was filed in Delaware Chancery Court. By agreement of
the parties, the Siu case was stayed by order of the Court on May 24, 2018, pending resolution of the
motion to dismiss the securities class action discussed above. The parties subsequently engaged in
discussions through and overseen by a mediator regarding a potential resolution of the matter. On
February 25, 2019, the parties executed and filed with the Court a written Stipulation and Agreement of
Settlement, Compromise, and Release (the “Siu Settlement”). Under the Siu Settlement, the Defendants
will implement and/or maintain certain corporate governance changes for a period of four years following
approval of the settlement. In addition, the Company will receive payment from applicable insurance in
the amount of $7.5 million, less any amounts ordered by the Court to be paid for Plaintiff’s attorneys’ fees
and expenses or as a service award to Plaintiff.
Neither the Company nor the Defendants have admitted any fault or wrongdoing whatsoever in
connection with the Siu Settlement, but have entered into the Siu Settlement in order to avoid the cost
and uncertainty of litigation. The Siu Settlement remains subject to Court approval at a final hearing,
which the Court has not yet scheduled.
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 were similar to those asserted in the Securities
Class Action Lawsuit and the Shareholder Derivative Lawsuits.
2018 10-K Annual Report
Stericycle, Inc. • 115
PART II
The Company’s Board of Directors constituted a Special Demand Review Committee to investigate the
claims made in the demand letter and the Committee retained independent counsel to assist with the
investigation. At the conclusion of its investigation, the Committee’s counsel advised the stockholder that
the Board had completed its investigation and determined not to pursue legal action.
On July 30, 2018, the purported stockholder on whose behalf the demand letter was sent filed a
stockholder derivative action, Damon Turney v. Mark C. Miller, et al., in the Federal District Court of the
Northern District of Illinois, alleging that the demand was wrongfully refused. The company moved to
dismiss the action on December 5, 2018. The motion was fully briefed on February 8, 2019, and is
currently pending before the Court.
On January 22, 2019, the Company received a letter from an attorney purporting to represent another
current stockholder of the Company setting forth allegations and demands substantially similar to those
previously presented in the October 18, 2016 demand letter, the Securities Class Action Lawsuit and the
Shareholder Derivative Lawsuits. The Company’s Board of Directors referred this letter to the Special
Demand Review Committee and its independent counsel for consideration. After the Committee had
considered the January 22, 2019 letter in light of its prior investigation, the Committee’s counsel advised
the stockholder that the Board had determined not to pursue legal action.
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.
We intend to vigorously defend ourselves against each of the derivative lawsuits.
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 permitted plaintiff to obtain some but not all of the requested discovery, and we have provided
additional documents in response to that order.
2018 10-K Annual Report
Stericycle, Inc. • 116
PART II
On April 5, 2017, plaintiff sought leave to file an amended complaint which would add a claim under the
Illinois Automatic Telephone Dialers Act (which does not include an “emergency” exception) and certain
additional allegations. We filed an opposition to this motion on April 28, 2017, contending that the
proposed amendments are futile and that we are entitled to summary judgment. On June 27, 2017, the
court permitted plaintiff to file the amended complaint. We answered plaintiff’s amended complaint,
denying liability, and in light of the amended complaint, withdrew our motion for summary judgment
without prejudice. The parties conducted discovery, which closed on May 15, 2018.
On September 25, 2018, the parties stipulated to dismissal of the case with prejudice, and the Court
dismissed the case with prejudice on October 23, 2018.
FCPA Investigation. On June 12, 2017, the SEC issued a subpoena to the Company, requesting
documents and information relating to the Company’s compliance with the FCPA or other foreign or
domestic anti-corruption laws with respect to certain of the Company’s operations in Latin America. In
addition, the DOJ has notified the Company that it is investigating this matter in parallel with the SEC. The
Company is cooperating with these agencies. The Company is also conducting an internal investigation of
these and other matters, including outside of Latin America, under the oversight of the Audit Committee
of the Board of Directors and with the assistance of outside counsel, and this investigation has found
evidence of improper conduct.
We have not accrued any amounts in respect of this matter, as we cannot estimate any reasonably
possible loss or any range of reasonably possible losses that we may incur. We are unable to make such
an estimate because, based on what we know now, in our judgment, the factual and legal issues
presented in this matter are sufficiently unique that we are unable to identify other 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, the generation, transportation
and disposal of waste, and the cleanup of contaminated soil and groundwater and protection of the
environment. Because of the highly regulated nature of this business, we frequently become a party to
legal or administrative proceedings involving various governmental authorities and other interested
parties. The issues involved in these proceedings generally relate to alleged violations of existing permits
and licenses or alleged responsibility under federal or state Superfund laws to remediate contamination at
properties owned either by 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.
North Salt Lake, Utah. We have continued to toll the statute of limitations with the United States
Attorney’s Office for the District of Utah (the “USAO”) relating to an investigation by the U.S.
Environmental Protection Agency (the “EPA”) into past Clean Air Act emissions and permit requirements,
as previously alleged in the notice of violation (the “NOV”) issued by the State of Utah Division of Air
Quality (the “DAQ”). The NOV resulted in our December 2014 settlement with the DAQ, as previously
disclosed.
The government indicated that the matter will be resolved civilly, not criminally, and the parties have
reached agreement in principle, to be documented in the form of a civil consent decree, under which the
company will undertake a Supplemental Environmental Project and pay a civil penalty under the Clean Air
Act.
2018 10-K Annual Report
Stericycle, Inc. • 117
PART II
The Company has accrued the total amount of the agreement in principle.
Rancho Cordova, California. The California Department of Toxic Substances Control (“DTSC”) alleged
violations of California’s Hazardous Waste Control Law for our hazardous waste facility in Rancho
Cordova, California for the years 2011 through 2017. DTSC referred the matter to the California Attorney
General’s office. On March 3, 2016, we entered into a tolling agreement with the Attorney General’s
office, which was subsequently extended while the parties negotiated a resolution of the matter.
On October 26, 2017, DTSC filed a complaint in California Superior Court in Sacramento County for civil
penalties and injunctive relief for alleged violations of California's Hazardous Waste Control Law. On
October 15, 2018, the parties entered into a Stipulation for Entry of Order and Final Judgment on Consent,
which was entered by the Superior Court of the State of California, Sacramento County, on October 19,
2018. The associated penalty was paid by the Company in November 2018.
Tabasco, Mexico. In late 2016, the National Agency for Industrial Security and the Protection of the
Environment for the Hydrocarbon Sector in Mexico (“ASEA”) conducted a permit compliance inspection at
a hazardous waste treatment facility acquired by one of our subsidiaries in Dos Bocas, Tabasco, Mexico.
ASEA subsequently claimed that the soil treatment process described in the facility’s treatment permit had
not been followed properly and issued an order imposing a fine and directing that the facility be closed
and that alleged contamination on a certain portion of the facility be remediated. Our subsidiary has
engaged a firm of environmental technicians to assess the contamination described in the ASEA order and
to conduct a broader environmental assessment of the facility. The preliminary estimate of the
remediation costs necessary to address the ASEA order was $2.0 million. Our review and assessment of
the overall facility is ongoing. In November 2017, ASEA rescinded the prior order imposing the fine. After
reassessing the evidence and arguments presented, ASEA issued a new resolution on March 9, 2018,
containing a lower, revised fine and including remedial obligations. In March 2018, the Company
submitted a proposal for remedial measures. On April 26, 2018, the Company appealed the fines in the
most recent order.
In December 2018, ASEA approved the Company’s remedial plan for the facility, which will involve an
amendment to the facility’s permit to allow for on-site, in-situ remediation of the one treatment cell
subject to ASEA’s original order.
In June 2018, the Company instituted both civil and criminal legal proceedings in Mexico against the
company from which it acquired the relevant facility, seeking to hold the seller liable for any remediation
as well as lost profits and damages. The defendants named in the civil complaint filed their answers in
September 2018.
The Company has accrued its estimate of the probable loss and costs necessary to comply with the ASEA
order and remediate the treatment cell, which are not material.
2018 10-K Annual Report
Stericycle, Inc. • 118
PART II
NOTE 20 – QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following table summarizes our unaudited consolidated quarterly results of operations as reported for
2018 and 2017:
In millions, except per share data
Revenues
Gross profit
Goodwill impairment
Net (loss) income attributable to Stericycle, Inc.
Preferred stock dividend
Net (loss) income attributable to Stericycle, Inc.
common shareholders
* Basic earnings (loss) per common share
* Diluted earnings (loss) per common share
In millions, except per share data
Revenues
Gross profit
Goodwill impairment
Net income (loss) attributable to Stericycle, Inc.
Preferred stock dividend
Net income (loss) attributable to Stericycle, Inc.
common shareholders
* Basic earnings (loss) per common share
* Diluted earnings (loss) per common share
First
Quarter
2018
Second
Quarter
2018
Third
Quarter
2018
Fourth
Quarter
2018
Year 2018
895.0 $
358.5
-
22.5
(8.8)
21.0
0.25 $
0.25 $
883.3 $
353.3
-
27.7
(8.3)
26.6
0.31 $
0.31 $
854.9 $
335.5
-
23.5
(8.4)
17.5
0.20 $
0.20 $
852.7 $
328.7
358.7
(318.4)
-
(318.4)
(3.51) $
(3.51) $
3,485.9
1,376.0
358.7
(244.7)
(25.5)
(253.3)
(2.91)
(2.91)
First
Quarter
2017
Second
Quarter
2017
Third
Quarter
2017
Fourth
Quarter
2017
Year 2017
892.4 $
368.7
-
58.2
(9.4)
53.4
0.63 $
0.62 $
917.7 $
381.8
-
(144.0)
(9.2)
(148.8)
(1.74) $
(1.74) $
882.8 $
368.0
-
39.0
(8.9)
35.5
0.42 $
0.41 $
887.8 $
344.0
65.0
89.2
(8.8)
83.3
0.98 $
0.97 $
3,580.7
1,462.5
65.0
42.4
(36.3)
23.4
0.27
0.27
$
$
$
$
$
$
*
EPS calculated on a quarterly basis, and, as such, the amounts may not total the calculated full-
year EPS.
2018 10-K Annual Report
Stericycle, Inc. • 119
PART II
STERICYCLE, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
In millions
Allowance for doubtful
accounts
2016
2017
2018
$
$
$
Balance
Beginning
of Period
Charges to
Expenses
Other Charges/
(Reversals) (1)
Write-offs/
Payments
Balance End
of Period
$
22.3
$
49.6
65.2 $
$
41.8
$
32.3
24.9 $
$
2.7
$
2.7
(2.1) $
(17.2) $
(19.4) $
(16.1) $
49.6
65.2
71.9
(1) Amounts consist primarily of currency translation adjustments.
In millions
Valuation Allowance on Deferred
Tax Assets
2016
2017
2018
$
$
$
Balance
Beginning of
Period
Additions/
(Deductions)
Charged to/
(from) Income
Tax Expense
Other Changes
to Reserves (2)
Balance End of
Period
17.6
15.4
16.1
$
$
$
6.9
4.5
20.6
$
$
$
(9.1) $
(3.8) $
(1.4) $
15.4
16.1
35.3
(2) 2018 amount consists primarily of release of valuation allowance on net operating losses that
ceased upon merger. 2017 and 2016 amounts consist primarily of valuation allowances on
acquired deferred tax assets from business combinations.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
Item 9A. Controls and Procedures
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 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 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 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.
2018 10-K Annual Report
Stericycle, Inc. • 120
PART II
Management’s Report on 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, 2018 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, 2018, material weaknesses continue to exist in our Control Environment and Control
Activity components of the COSO Framework. Management has identified material weaknesses in
controls related to (a) not fully designing, implementing and monitoring general information technology
controls in the areas of user access and program change-management for systems supporting all of the
Company’s internal control processes; and (b) the aggregation of open control deficiencies across our
financial reporting processes because the controls were not fully designed and operating effectively.
As a result of the material weaknesses described above, management has concluded that, as of
December 31, 2018, our internal control over financial reporting was ineffective. Ernst & Young LLP, the
independent registered accounting firm that has audited the consolidated financial statements included in
this report, has issued an attestation report relating to our internal control over financial reporting as of
December 31, 2018, which is included below under the heading "Report of Independent Registered Public
Accounting Firm.”
Changes in internal controls.
As described below, we have undertaken and continue to undertake significant remediation actions to
address the material weaknesses in our internal controls over financial reporting. These remediation
actions continued throughout the quarter ended December 31, 2018 but have not materially affected our
internal control over financial reporting.
Controls need to be properly designed and operating effectively for acceptable periods of time. We have
now designed a significant number of controls that we are evaluating or awaiting additional testing
samples to evaluate operating effectiveness. Due to the nature of the remediation process and the need
to allow adequate time after implementation to evaluate and test the effectiveness of the controls, no
assurance can be given as to the timing of remediation, but management intends to continue to pursue
significant remediation efforts during 2019.
Remediation activities.
Consistent with Stericycle’s Business Transformation, the Company has advanced an Internal Control
Transformation Program to address historical material weaknesses. The Company has previously
2018 10-K Annual Report
Stericycle, Inc. • 121
PART II
communicated certain completed and expected remediation efforts through prior Form 10-K and Form
10-Q filings and will highlight below additional significant remediation activities undertaken in 2018.
Financial Reporting Controls:
In connection with our Internal Control Transformation Program advanced in 2018, including incremental
progress in the fourth quarter of 2018, Stericycle has continued to focus on improving our overall control
environment and establishing a strong, sustainable foundation for transition into SAP in 2020. Our
remediation actions related to improving the controls over our financial statement preparation and
reporting process include the following:
(cid:129)
(cid:129)
(cid:129)
Frequent communications between our Audit Committee and management regarding our
financial reporting and internal control environment.
Expanded Corporate and Business Unit Finance, Accounting and Reporting and Information
Technology teams through the addition of experienced and qualified resources.
Aligned incentive plans with sustained effective internal controls over financial reporting and
management continuous control monitoring.
(cid:129) Delivery of additional internal controls training, as well as policy and control standardization
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
where possible.
Re-designed and harmonized control objectives across all processes and locations as part of our
SOX program standardization efforts to drive accountability and efficiency.
Re-designed and enhanced delegation of authority policy and processes, including
implementation of a systematic enabled work flow.
Issued significant and critical accounting policies at the end of 2017 and provided training to
assist our finance organization with accounting for transactions appropriately and on a timely
basis along with compliance expectations.
Implemented a central repository for policies, quarterly checklists to confirm adherence with
policies, account reconciliations and month end close checklists and dashboarding.
Instituted monthly legal entity and management reporting reviews of financial statements
disaggregated by key business units, regions and functional areas, to evaluate results, observe
adherence to policies and agree on necessary actions to be taken before considering the period
closed. Management of the respective areas meet with our corporate executives monthly in
connection with these reviews.
Expanded our technical accounting group within the Controllership function with responsibility to
ensure that the accounting for complex or non-routine transactions is appropriate.
Expanded the use of specialist involvement in highly complex and technical areas of accounting,
valuation and new accounting standards adoption.
Enhanced our Disclosure Committee processes and reviews by adding experienced and
knowledgeable members to the committee, implementing disclosure surveys to capture input
from appropriate areas and levels throughout the organization and evolving and expanding
existing processes.
General Information Technology Controls (GITCs):
During the course of 2018, Stericycle made progress in advancing foundational elements of our general
information technology controls. These elements are providing value as we are leveraging them in the
design of our future state processes and controls within SAP, which is expected to go-live in 2020. Our
remediation actions related to our GITC environment include the following:
2018 10-K Annual Report
Stericycle, Inc. • 122
PART II
(cid:129)
(cid:129)
(cid:129)
Established policies, delivered training and implemented policies and procedures over logical
access and general information technology controls.
Automated user access reviews.
Implemented policies and mitigating controls over incompatible segregation of duties within our
IT systems.
Further, material weaknesses in our general information technology environment negatively impact our
ability to rely on financial data flowing through all of our business process controls, contributing to the
overall ineffective Control Environment. As a result, we have taken steps to reduce the risk associated with
data flowing through all of our business process controls.
We have designed our internal controls over financial reporting environment, including our standardized
and harmonized risk and control matrices, assuming that we would achieve effective GITCs. Until we
remediate our GITC environment, we will incur incremental effort to address the risks associated with data
flowing through all of our business process controls.
Monitoring Activities
Our remediation actions related to monitoring our internal controls over financial reporting include the
following:
(cid:129)
Enhanced control activities within our process to recognize revenue, also known as the Quote to
Cash cycle, that include:
o
o
Leveraging advanced technology to substantively evaluate and monitor revenue,
accounts receivable, cash receipts and other accounts and activities associated with
revenue recognition.
Implementing a monitoring control which leverages advanced analytical processes to
evaluate the appropriateness of revenue related transactions across key business units
making up a material portion of the consolidated financial statements.
Implemented systematic segregation of duties through system enabled work flow.
(cid:129)
(cid:129) Developed and implemented continuous monitoring of global financial reporting controls.
Management continues to advance the design of financial reporting controls to ensure that the level of
precision is adequate to address the assessed risks at an assertion level and the period of operation is
sufficient to conclude on the operating effectiveness of the controls.
When fully implemented and operational, we believe the controls we have designed or plan to design will
remediate the control deficiencies that have led to the material weaknesses we have identified and
strengthen our internal controls over financial reporting.
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 U.S. GAAP.
2018 10-K Annual Report
Stericycle, Inc. • 123
PART II
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of Stericycle, Inc.
Opinion on Internal Control over Financial Reporting
We have audited Stericycle, Inc.’s (the Company) internal control over financial reporting as of December
31, 2018, based on criteria established in Internal Control - Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO
criteria). In our opinion, because of the effect of the material weaknesses described below on the
achievement of the objectives of the control criteria, the Company has not maintained effective internal
control over financial reporting as of December 31, 2018, based on the COSO criteria.
A material weakness is a deficiency, or combination of deficiencies, in internal control over financial
reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual
or interim financial statements will not be prevented or detected on a timely basis. The following material
weaknesses have been identified and included in management’s assessment. Management has identified
material weaknesses in controls related to (a) not fully designing, implementing and monitoring general
information technology controls in the areas of user access and program change-management for
systems supporting all of the Company’s internal control processes; and (b) the aggregation of open
control deficiencies across the Company’s financial reporting processes because the controls were not
fully designed and operating effectively.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2018
and 2017, the related consolidated statements of (loss) income, comprehensive (loss) income, changes in
equity and cash flows for each of the three years in the period ended December 31, 2018, and the related
notes and financial statement schedule listed in the Index at Item 15(a). These material weaknesses were
considered in determining the nature, timing and extent of audit tests applied in our audit of the 2018
consolidated financial statements, and this report does not affect our report dated February 28, 2019,
which expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial
reporting and for its assessment of the effectiveness of the internal control over financial reporting
including 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 are a public accounting firm registered with the PCAOB and are required to be
independent with respect to the Company in accordance with the U.S. federal securities laws and the
applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. 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
2018 10-K Annual Report
Stericycle, Inc. • 124
PART II
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.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles. A company’s internal
control over financial reporting includes those policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the
assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted accounting principles,
and that receipts and expenditures of the company are being made only in accordance with
authorizations of management and directors of the company; and (3) provide reasonable assurance
regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the
risk that controls may become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
/s/ Ernst & Young LLP
Chicago, Illinois
February 28, 2019
Item 9B. Other Information
None.
2018 10-K Annual Report
Stericycle, Inc. • 125
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
2019 Annual Meeting of Stockholders to be held on May 22, 2019, 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 2019 Annual
Meeting of Stockholders to be held on May 22, 2019, 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 and Ethics 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 Business Conduct and Ethics 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 2019 Annual Meeting of Stockholders to be held on May 22, 2019, 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 2019 Annual Meeting of Stockholders to be held on May 22, 2019, 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 2019 Annual Meeting of Stockholders to be held on
May 22, 2019, to be filed pursuant to Regulation 14A.
Equity Compensation Plans
The following table summarizes information as of December 31, 2018 relating to our equity compensation
plans pursuant to which stock option grants, restricted stock units, performance based restricted stock
units or other rights to acquire shares of our common stock may be made or issued:
2018 10-K Annual Report
Stericycle, Inc. • 126
Equity Compensation Plan Information
p
q
y
In millions, except per share data
Plan Category
Equity compensation plans approved by our security holders (1)
PART III
Number
of Securities
Remaining
Available for
Future Issuance
Under Equity
Compensation
Plans (Excluding
Securities
Reflected in
Column (a))
(c)
Number of
Securities to be
Issued Upon
Exercise of
Outstanding
Options and
Vesting of RSUs
(a)
Weighted-Average
Exercise Price
of Outstanding
Options
(b)
5.8
$
92.38
3.0
(1)
These plans consist of our 2017 Incentive Compensation Plan, 2014 Incentive Compensation Plan,
2011 Incentive Compensation Plan, 2008 Incentive Stock Plan, 2005 Incentive Stock Plan, the
Employee Stock Purchase Plan and the Canadian Employee Stock Purchase Plan.
Item 13. Certain Relationships and Related Transactions, and Director
Independence
The information required by this Item regarding our policies and procedures for the review, approval or
ratification of transactions with related persons is incorporated by reference to the information contained
under the caption "Policy on Related Party Transactions" in Item 1 of our definitive proxy statement for
our 2019 Annual Meeting of Stockholders to be held on May 22, 2019, 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 2019 Annual Meeting of
Stockholders, to be held on May 22, 2019, 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 definitive proxy statement for our 2019 Annual Meeting of
Stockholders, to be held on May 22, 2019, to be filed pursuant to Regulation 14A.
2018 10-K Annual Report
Stericycle, Inc. • 127
PART IV
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 Statements of (Loss) Income for Each of the Years in the Three-Year Period
Ended December 31, 2018
Consolidated Statements of Comprehensive (Loss) Income for Each of the Years in the
Three-Year Period Ended December 31, 2018
Consolidated Balance Sheets as of December 31, 2018 and 2017
Consolidated Statements of Cash Flows for Each of the Years in the Three-Year Period
Ended December 31, 2018
Consolidated Statements of Changes in Equity for Each of the Years in the Three-Year
Period Ended December 31, 2018
Notes to Consolidated Financial Statements
Schedule II - Valuation and Qualifying Accounts
Report of Independent Registered Public Accounting Firm on Internal Control Over
Financial Reporting
g
Page
66
67
68
69
70
71
72
120
124
All other financial statement schedules have been omitted because they are not applicable to us or the
required information is shown on the Consolidated Financial Statements or notes thereto.
We have filed the following exhibits with this report:
Exhibit Index Description
Filed with
Electronic
Submission
3(i).1*
3(i).2*
3(i).3*
Amended and restated certificate of incorporation (incorporated by reference to Exhibit 3.1 to our
registration statement on Form S-1 declared effective on August 22, 1996 (Registration No. 333-
05665))
First certificate of amendment to amended and restated certificate of incorporation (incorporated by
reference to Exhibit 3.1 to our current report on Form 8-K filed November 29, 1999)
Second certificate of amendment to amended and restated certificate of incorporation (incorporated
by reference to Exhibit 3.4 to our annual report on Form 10-K for 2002)
2018 10-K Annual Report
Stericycle, Inc. • 128
PART IV
3(i).4*
3(i).5*
3(i).6*
3(i).7*and
4.2*
3(i).8* and
4.3*
3(i).8* and
4.4*
3(ii).1*
4.1*
4.5*
4.6*
4.7*
10.1*
10.2*
10.3*
10.4*
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 Designation setting forth the specific rights, preferences, limitations, restrictions and
other terms and conditions of the Series A Convertible Preferred Stock, par value $0.01 per share
(incorporated by reference to Exhibit 3.2 to our Current Report on Form 8-K filed November 29, 1999)
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)
Certificate of Elimination of the Certificate of Designations relating to 5.25% Series A Mandatory
Convertible Preferred Stock (incorporated by reference to Exhibit 3.9 to our Quarterly Report on Form
10-Q filed November 11, 2018)
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).8 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 4.6)
Credit Agreement, dated as of November 17, 2017, among Stericycle, Inc. and certain subsidiaries as
borrowers, Bank of America, N.A., as administrative agent, swing line lender, a lender and a letter of
credit issuer, other lenders party to the credit agreement, JP Morgan Chase Bank, N.A., and HSBC
Securities (USA) Inc., as syndication agents, The Bank of Tokyo-Mitsubishi UFJ, Ltd., Sumitomo Mitsui
Banking Corporation, and Wells Fargo Bank, National Association as co-documentation agents, and
Merrill Lynch, Pierce, Fenner & Smith Inc., HSBC Securities (USA) Inc., and JP Morgan Chase Bank, N.A.,
as joint lead arrangers and joint bookrunners (incorporated by reference to Exhibit 10.1 to our current
report on Form 8-K filed November 20, 2017)
First Amendment, dated as of March 23, 2018, to the Credit Agreement, dated as of November 17,
2017, entered into by Stericycle Inc. and certain subsidiaries as borrowers, Bank of America, N.A., as
administrative agent, swing line lender, a lender and a letter of credit issuer and other lenders party
thereto (incorporated by reference to Exhibit 10.1 to our Current Report on Form 8 K filed March 26,
2018)
Second Amendment, dated as of November 15, 2018, to the Credit Agreement, dated as of November
17, 2017, entered into by Stericycle, Inc. and certain subsidiaries as borrowers, Bank of America, N.A.,
as administrative agent, swing-line lender, a lender and a letter of credit issuer and other lenders party
thereto
Third Amendment, dated as of December 19, 2018, to the Credit Agreement, dated as of November
17, 2017, as amended, entered into by Stericycle Inc. and certain subsidiaries as borrowers, Bank of
America, N.A., as administrative agent, swing line lender, a lender and a letter of credit issuer and
other lenders party thereto (incorporated by reference to Exhibit 10.1 to our Current Report on Form
8-K filed December 20, 2018)
x
2018 10-K Annual Report
Stericycle, Inc. • 129
PART IV
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 Exhibit 10.1 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)
Second Amendment, dated as of July 28, 2017, to the Note Purchase Agreement dated as of August
18, 2010, as amended, 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 10.3 to our
current report on Form 8-K filed August 2, 2017)
Third Amendment, dated as of March 23, 2018, to the Note Purchase Agreement, dated as of August
18, 2010, as amended, entered into by Stericycle, Inc. and the holders of the notes party thereto
(incorporated by reference to Exhibit 10.2 to our Current Report on Form 8-K filed March 26, 2018)
10.5*
10.6*
10.7*
10.8*
2018 10-K Annual Report
Stericycle, Inc. • 130
PART IV
10.9*
10.10*
10.11*
Fourth Amendment, dated as of December 19, 2018, to the Note Purchase Agreement, dated as of
August 18, 2010, as amended, entered into by Stericycle, Inc. and the holders of the notes party
thereto (incorporated by reference to Exhibit 10.2 to our Current Report on Form 8-K filed December
20, 2018)
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 Exhibit 10.1 to our current
report on Form 8-K filed October 26, 2012)
First Amendment, dated as of August 13, 2015, to the Note Purchase Agreement dated as of October
22, 2012, entered into by Stericycle, Inc. and The Northwestern Mutual Life Insurance Company,
Northwestern Long Term Care Insurance Company, The Lincoln National Life Insurance Company,
Penn Mutual Life Insurance Company, Principal Life Insurance Company, Symetra Life Insurance
Company, Jackson National Life Insurance Company, Reassure America Life Insurance Company,
Athene Annuity and Life Company (f/k/a Aviva Life and Annuity Company), Royal Neighbors of
America, Thrivent Financial for Lutherans, AXA Equitable Life Insurance Company, RiverSource Life
Insurance Company, RiverSource Life Insurance Co. of New York, Western-Southern Life Assurance
Company, Columbus Life Insurance Company, Integrity Life Insurance Company, Integrity Life
Insurance Company Separate Account GPO, National Integrity Life Insurance Company Separate
Account GPO, Great-West Life & Annuity Insurance Company, Great-West Life & Annuity Insurance
Company of South Carolina, Hartford Life Insurance Company, The Guardian Life Insurance Company
of America, Modern Woodmen of America, National Life Insurance Company, Trinity Universal
Insurance Company, Catholic United Financial, Occidental Life Insurance Company of North Carolina,
Western Fraternal Life Association, Southern Farm Life Insurance Company, Woodmen of the World
Life Insurance Society, American United Life Insurance Company, Ameritas Life Insurance Corp.
successor by merger to Acacia Life Insurance Company, Ameritas Life Insurance Corp. successor by
merger to The Union Central Life Insurance Company, Ameritas Life Insurance Corp. of New York,
USAA Life Insurance Company, Country Life Insurance Company, ProAssurance Casualty Company,
ProAssurance Indemnity Company, Inc. and State of Wisconsin Investment Board (incorporated by
reference to Exhibit 2.3 to our current report on Form 8-K filed August 19, 2015)
2018 10-K Annual Report
Stericycle, Inc. • 131
PART IV
Second Amendment, dated as of July 28, 2017, to the Note Purchase Agreement dated as of October
22, 2012, as amended, 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 10.4 to our current report on Form 8-K filed August 2, 2017)
Third Amendment, dated as of March 23, 2018, to the Note Purchase Agreement, dated as of October
22, 2012, as amended, entered into by Stericycle, Inc. and the holders of the notes party thereto
(incorporated by reference to Exhibit 10.3 to our Current Report on Form 8-K filed March 26, 2018)
Fourth Amendment, dated as of December 19, 2018, to the Note Purchase Agreement, dated as of
October 22, 2012, as amended, entered into by Stericycle, Inc. and the holders of the notes party
thereto (incorporated by reference to Exhibit 10.3 to our Current Report on Form 8-K filed December
20, 2018)
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)
10.12*
10.13*
10.14*
10.15*
10.16*
2018 10-K Annual Report
Stericycle, Inc. • 132
PART IV
Third Amendment, dated as of July 28, 2017, to the Note Purchase Agreement dated as of April 30,
2015, as amended, 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 10.5 to our current report on Form 8-K filed August 2, 2017)
Fourth Amendment, dated as of March 23, 2018, to the Note Purchase Agreement, dated as of April
30, 2015, as amended, entered into by Stericycle, Inc. and the holders of the notes party thereto
(incorporated by reference to Exhibit 10.4 to our Current Report on Form 8-K filed March 26, 2018)
Fifth Amendment, dated as of December 19, 2018, to the Note Purchase Agreement, dated as of April
30, 2015, as amended, entered into by Stericycle, Inc. and the holders of the notes party thereto
(incorporated by reference to Exhibit 10.4 to our Current Report on Form 8-K filed December 20, 2018)
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
2.1 to our current report on Form 8-K filed. October 7, 2015)
First Amendment, dated as of July 28, 2017, to the 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 10.6 to our current report on Form 8-K filed August 2,
2017)
Second Amendment, dated as of March 23, 2018, to the Note Purchase Agreement, dated as of
October 1, 2015, as amended, entered into by Stericycle, Inc. and the holders of the notes party
thereto (incorporated by reference to Exhibit 10.5 to our Current Report on Form 8-K filed March 26,
2018)
Third Amendment, dated as of December 19, 2018, to the Note Purchase Agreement, dated as of
October 1, 2015, as amended, entered into by Stericycle, Inc. and the holders of the notes party
thereto (incorporated by reference to Exhibit 10.5 to our Current Report on Form 8-K filed December
20, 2018)
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)
10.17*
10.18*
10.19*
10.20*
10.21*
10.22*
10.23*
10.24*†
2018 10-K Annual Report
Stericycle, Inc. • 133
PART IV
x
x
10.25*†
10.26*†
10.27*†
10.28*†
10.29*†
10.30*†
10.31*†
10.32*†
10.33*†
10.34*†
10.35*†
10.36†
10.37*†
10.38*†
10.39*†
10.40*†
10.41*†
10.42*†
10.43*†
10.44*†
10.45*†
10.46†
10.47†
10.48*†
10.49*†
10.50†
10.51*†
10.52*†
10.53*†
First amendment to 2000 Plan (incorporated by reference to Exhibit 10.14 to our annual report on
Form 10-K for 2001)
Second amendment to 2000 Plan (incorporated by reference to Exhibit 10.15 to our annual report on
Form 10-K for 2001)
Third amendment to 2000 Plan (incorporated by reference to Exhibit 4.2 to our registration statement
on Form S-8 filed December 20, 2002 (Registration No. 333-102097))
2005 Incentive Stock Plan ("2005 Plan") (incorporated by reference to Exhibit 4.1 to our registration
statement on Form S-8 filed August 9, 2005 (Registration No. 333-127353))
First amendment to 2005 Plan (incorporated by reference to Exhibit 10.15 to our annual report on
Form 10-K for 2008)
2008 Incentive Stock Plan ("2008 Plan") (incorporated by reference to Exhibit 4.1 to our registration
statement on Form S-8 filed August 8, 2008 (Registration No. 333-152877))
First amendment to 2008 Plan (incorporated by reference to Exhibit 10.19 to our annual report on
Form 10-K for 2009)
Amendment to 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))
Stericycle, Inc. 2017 Long-Term Incentive Plan ("2017 Plan") (incorporated by reference to Exhibit B to
our Definitive Proxy Statement on Schedule 14A filed April 14, 2017)
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
(incorporated by reference to Exhibit 10.24 to our annual report on Form 10-K for 2016)
Form of Agreement for Stock Option Grant under 2008 Plan (incorporated by reference to Exhibit 10.1
to our Current Report on Form 8-K filed March 15, 2018)
Form of Agreement for Stock Option Grant under 2011 Plan (incorporated by reference to Exhibit 10.2
to our Current Report on Form 8-K filed March 15, 2018)
Form of Agreement for Stock Option Grant under 2014 Plan (incorporated by reference to Exhibit 10.3
to our Current Report on Form 8-K filed March 15, 2018)
Form of Agreement for Stock Option Grant under 2017 Plan (incorporated by reference to Exhibit 10.4
to our Current Report on Form 8-K filed March 15, 2018)
Form of Agreement for Restricted Stock Unit Award under 2017 Plan (incorporated by reference to
Exhibit 10.5 to our Current Report on Form 8-K filed March 15, 2018)
Form of Agreement for Performance-Based Restricted Stock Unit Award under 2017 Plan
(incorporated by reference to Exhibit 10.6 to our Current Report on Form 8-K filed March 15, 2018)
Form of Agreement for Performance-Based Restricted Stock Unit Award (Business Transformation)
under 2017 Plan (incorporated by reference to Exhibit 10.7 to our Current Report on Form 8-K filed
March 15, 2018)
Form on Agreement of Stock Option Grant under 2017 Plan
Form on Agreement of Stock Option Grant under 2017 Plan
Bonus conversion program (2018 plan year) (incorporated by reference to Exhibit 10.28 to our annual
report on Form 10-K for 2017)
Amended and Restated Employee Stock Purchase Plan effective May 24, 2017 (incorporated by
reference to Exhibit A to our Definitive Proxy Statement on Schedule 14A filed April 14, 2017)
Canadian Employee Stock Purchase Plan (incorporated by reference to Exhibit A to our 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 Director Restricted Stock Unit Award under 2017 Plan (incorporated by reference to Exhibit
10.32 to our annual report on Form 10-K for 2017)
Form of Indemnification Agreement for Directors and Officers (incorporated by reference to Exhibit
10.29 to our annual report on Form 10-K for 2016)
2018 10-K Annual Report
Stericycle, Inc. • 134
10.54*†
10.55*†
14*
21
23
31.1
31.2
32
99.1
101.INS
101.SCH
101.CAL
101.DEF
101.LAB
101.PRE
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
Settlement Agreement dated October 17, 2017 (incorporated by reference to Exhibit 99.1 to our
Current Report on Form 8-K filed October 18, 2017)
XBRL Instance Document
XBRL Taxonomy Extension Schema Document
SBRL Taxonomy Extension Calculation Linkbase Document
XBRL Taxonomy Definition Linkbase Document
XBRL Taxonomy Extension Label Linkbase Document
XBRL Taxonomy Extension Presentation Linkbase Document
x
*
†
Filed herewith
Previously filed
Management contract or compensatory plan required to be filed pursuant to Item 601 of Regulation S-K
Item 16. Form 10-K Summary
None.
PART IV
x
x
x
x
x
x
x
x
x
x
x
2018 10-K Annual Report
Stericycle, Inc. • 135
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
SIGNATURES
Dated: February 28, 2019
STERICYCLE, INC.
(Registrant)
By: /s/ DANIEL V. GINNETTI
Daniel V. Ginnetti
Executive Vice President and Chief Financial Officer
STERICYCLE, INC.
(Registrant)
By: /s/ Richard J. Hoffman
Richard Hoffman
Senior Vice President and Chief Accounting
Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below
by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Dated: February 28, 2019
Name
Title
Date
/s/ CHARLES A. ALUTTO
Charles A. Alutto
/s/ DANIEL V. GINNETTI
Daniel V. Ginnetti
/s/ RICHARD J. HOFFMAN
Richard J. Hoffman
/s/ ROBERT S. MURLEY
Robert S. Murley
/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
Chief Executive Officer and Director (Principal Executive
Officer)
February 28, 2019
Executive Vice President and Chief Financial Officer (Principal
Financial Officer)
February 28, 2019
Senior Vice President and Chief Accounting Officer (Principal
Accounting Officer)
February 28, 2019
Chairman of the Board of Directors
February 28, 2019
Director
Director
Director
Director
February 28, 2019
February 28, 2019
February 28, 2019
February 28, 2019
2018 10-K Annual Report
Stericycle, Inc. • 136
/s/ VERONICA M. HAGEN
Veronica M. Hagen
/s/ CINDY J. MILLER
Cindy J. Miller
/s/ MARK C. MILLER
Mark C. Miller
/s/ KAY G. PRIESTLY
Kay G. Priestly
/s/ MIKE S. ZAFIROVSKI
Mike S. Zafirovski
Director
Director
Director
Director
Director
SIGNATURES
February 28, 2019
February 28, 2019
February 28, 2019
February 28, 2019
February 28, 2019
2018 10-K Annual Report
Stericycle, Inc. • 137
2018 ANNUAL REPORT
Our Company
At A Glance
Stericycle is a global business-to-business services company. We provide
an array of highly specialized solutions serving healthcare organizations
and commercial businesses of every size. Since our founding in 1989,
we have grown from a small start-up in medical waste management into
a leader across a range of increasingly complex and highly regulated
arenas, such as:
• Regulated waste management and compliance solutions
• Secure information destruction
• Environmental and sustainable solutions
• Brand protection solutions
• Patient and customer communication solutions
Every organization today must comply with increasingly strict
regulatory requirements and quality controls in the delivery of their
core products or services. Large or small, businesses can’t always
do it on their own. They seek out Stericycle to help them. We have the
expertise and passion to take on many complicated and often
behind-the-scenes services our clients don’t always know how to do
well but that ultimately make their businesses better.
O U R P U R P O S E :
To help our customers fulfill their
promises by providing solutions
that protect people and brands,
promote health and safeguard
the environment.
1989
FOUNDED IN 1989
HEADQUARTERS
LAKE FOREST, IL
2018 REVENUE OF
$3.5 BILLION
640+ locations
IN 21 COUNTRIES
MORE THAN
ONE MILLION CUSTOMERS
WORLDWIDE
22,500+
TEAM MEMBERS
2018 ANNUAL REPORT
Stericycle’s Global
Sustainability Highlights
Stericycle provides essential sustainability services that help protect communities from harmful wastes,
enable recycling and alternative use opportunities, and lead to greater consumer safety and satisfaction.
Here is sample of the global impact we made in 2018 to protect what matters:
Medical Waste Management
1.8 BILLION POUNDS
of Medical Waste Safely Treated
Secure Information Destruction
1.5 BILLION POUNDS
of Paper Recycled
Pharmaceutical Waste Disposal
85 MILLION POUNDS
of Drugs Safely Disposed
Hazardous Waste Service
1.2 BILLION POUNDS
of RCRA Wastes Properly Managed
Sharps Management
56 MILLION POUNDS
of Plastic Diverted from Landfills
Sustainable Solutions
84 MILLION POUNDS
of Wastes Diverted from Landfills
Maritime Solutions
83 MILLION POUNDS
of Maritime Wastes Diverted from Landfills
Learn more about our sustainability efforts at
stericycle.com/about-us/sustainability.
2018 ANNUAL REPORT
Corporate Information
C O M P A N Y H E A D Q U A R T E R S
I N V E S T O R R E L A T I O N S
Stericycle, Inc.
28161 North Keith Drive
Lake Forest, IL 60045
800-643-0240
stericycle.com
For information on the company, additional copies
of this Annual Report or other information, please
contact Stericycle at Investor@stericycle.com or
800-643-0240 ext. 2012. You may also visit the
Investor section on the Company website at
Investors.stericycle.com.
I N D E P E N D E N T A U D I T O R S
A N N U A L M E E T I N G
Ernst & Young LLP
155 N. Wacker Drive
Chicago, Illinois 60606
The annual meeting of stockholders will be held
at 8:30am CT on Wednesday, May 22, 2019 at:
Loews Chicago O’Hare Hotel
5300 North River Road
Rosemont, IL 60018
T R A N S F E R A G E N T
N A S D A Q® S Y M B O L
EQ Shareowner Services
1110 Centre Pointe Curve, Suite #101
Mendota Heights, MN 55120-4100
SRCL
S A F E H A R B O R S T A T E M E N T
This document may contain forward-looking statements that involve risks and uncertainties, some of which are beyond our control (for example, general economic
and market conditions). In particular, statements pertaining to our acquisition activity, business transformation, future dividend policy, capital expenditures, cost
savings initiatives and remediation efforts with respect to identified material weaknesses contain forward-looking statements. When we use words such as “believes,”
“expects,” “anticipates,” “estimates” or similar expressions, we are making forward-looking statements. Actual results could differ significantly from the results
described here. Factors that could cause such differences include changes in governmental regulation of the collection, transportation, treatment and disposal of
regulated waste or the proper handling and protection of personal and confidential information, the level of government enforcement of regulations governing
regulated waste collection and treatment or the proper handling and protection of personal and confidential information, decreases in the volume of regulated wastes
or personal and confidential information collected from customers, the ability to implement our ERP or execute on Business Transformation initiatives and achieve
the anticipated benefits and cost savings, charges related to the portfolio rationalization strategy or the failure of this strategy to achieve the desired results, failure
to consummate a strategic alternative transaction with respect to Communication and Related Services or other non-core businesses, potential charges related to a
strategic alternative transaction with respect to Communication and Related Services, or the failure of any such transaction to achieve desired results, the obligations
to service substantial indebtedness and comply with the covenants and restrictions contained in private placement notes and credit agreements, political, economic,
inflationary, currency and other risks related to our foreign operations, the outcome of pending or future litigation including litigation with respect to the U.S. Foreign
Corrupt Practices Act, changing market conditions in the healthcare industry, competition and demand for services in the regulated waste and secure information
destruction industries, changes in the demand and price for recycled paper, failure to maintain an effective system of internal control over financial reporting, delays in
implementing remediation efforts with respect to existing material weakness, identification of additional material weaknesses, failure of current remediation efforts to
address existing material weaknesses, disruptions in or attacks on information technology systems, as well as other factors described in filings with the U.S. Securities
and Exchange Commission, including our Annual Report on Form 10-K and subsequent Quarterly Reports on Forms 10-Q. As a result, past financial performance
should not be considered a reliable indicator of future performance, and investors should not use historical trends to anticipate future results or trends. To the extent
permitted under applicable law, we make no commitment to disclose any subsequent revisions to forward-looking statements.
28161 N. Keith Drive
Lake Forest, IL 60045
800-643-0240 | stericycle.com
© 2019 Stericycle, Inc. All rights reserved.