UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
(Amendment No. 1)
|
x |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2016 or
|
o |
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 |
|
36-3640402 |
|
(State or other jurisdiction of incorporation or organization) |
|
(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)
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 x NO o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES x NO o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definition of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
|
Large accelerated filer |
x |
|
Accelerated filer |
o |
|
Non-accelerated filer |
o |
|
Smaller reporting company |
o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES o NO x
On April 29, 2016 there were 84,912,603 shares of the Registrant’s Common Stock outstanding.
Stericycle, Inc. (the “Company,” “we” or “our”) is filing this amended Quarterly Report on Form 10-Q/A because the Audit Committee of our Board of Directors has determined that the consolidated financial statements for the quarters ended March 31, 2015, June 30, 2015 and September 30, 2015, originally included in the Company’s Quarterly Reports on Form 10-Q for each of the respective quarterly periods, should no longer be relied upon due to errors in the timing of recognition of certain loss reserves. This Form 10-Q/A is being filed to present the amended and restated financial information for the first fiscal quarter of 2015 and, accordingly, to restate our analysis of the first quarter of 2016 when compared to the first quarter of 2015, as presented in the Company’s Form 10-Q for the first quarter of 2016 filed on May 9, 2016 (the “Original Form 10-Q”), and to disclose additional information regarding the Company’s internal control over financial reporting and disclosure controls and procedures related to these errors.
The errors in timing of recognition of certain loss reserves relate to the Company’s settlement of two previously disclosed litigation matters: first, a class action complaint filed in the Circuit Court of Cook County, Illinois captioned Sawyer v. Stericycle, Inc., et al., Case No. 2015 CH 07190 (the “TCPA Action”), alleging that from 2010 to 2014, the Company violated the Telephone Consumer Protection Act of 1991, as amended by the Junk Fax Prevention Act of 2005; and second, a qui tam action filed in the U.S. District Court for the Northern District of Illinois captioned United States of America ex rel. Jennifer D. Perez v. Stericycle, Inc., Case No. 1:08-cv-2390 (the “Qui Tam Action”), alleging that from January 1, 2003 to June 30, 2014, the Company improperly increased its service price to certain government customers without their consent or contractual authorization, in violation of the False Claims Act and similar state statutes.
The identified accounting errors related to the timing of recognition of loss reserves between quarterly periods and had no effect on the Company’s audited annual results for the fiscal year ended December 31, 2015.
We originally recorded $45.0 million in accrued liabilities related to the TCPA Action in the second quarter of 2015; we are now of the view that this amount should have been recorded in the first quarter of 2015. In addition, we originally recorded $28.5 million in accrued liabilities related to the Qui Tam Action in the third quarter of 2015; we are now of the view that this amount also should have been recorded in the first quarter of 2015.
The impact of the restatement is as follows:
|
|
· |
the estimated loss contingency for the first quarter of fiscal 2015 was understated by $73.5 million, resulting in an overstatement of net income of $46.5 million for the three month period ended March 31, 2015; |
|
|
· |
the estimated loss contingency for the second quarter of fiscal 2015 was overstated by $45.0 million, resulting in an understatement of net income of $27.4 million for the three month period ended June 30, 2015. For the six month period ended June 30, 2015, the estimated loss contingency was understated by $28.5 million, resulting in an overstatement of net income of $19.1 million for the six month period ended June 30, 2015; and |
|
|
· |
the estimated loss contingency for the third quarter of fiscal 2015 was overstated by $28.5 million, resulting in an understatement of net income of $17.2 million for the three month period ended September 30, 2015. |
Accordingly, we are filing this Form 10-Q/A to correct the errors presented in the comparative financial information included in the Original Form 10-Q for the three months ended March 31, 2015.
The errors, including the specific line items on each of the Company’s financial statements that have been restated, are described in greater detail in Note A1 contained in this Form 10-Q/A. We have made necessary conforming changes in Management’s Discussion and Analysis of Financial Condition and Results of Operations in this Form 10-Q/A resulting from this adjustment.
The Company’s controls related to the accounting for loss contingencies were inadequate to ensure that loss reserves were recorded timely in the appropriate period. We are revising the COSO Component – Risk Assessment material weakness described in Item 4 of Part I, Controls and Procedures, to also encompass the accounting for loss contingencies.
For the convenience of the reader, this report on Form 10-Q/A sets forth the Original Form 10-Q in its entirety. The following sections of the Original Form 10-Q have been restated:
|
|
1) |
Item 1 of Part I, Financial Statements; |
|
|
2) |
Item 2 of Part I, Management’s Discussion and Analysis of Financial Condition and Results of Operations; |
|
|
3) |
Item 4 of Part I, Controls and Procedures; and |
|
|
4) |
Item 6 of Part II, Exhibits. |
Specifically, the following sections within Item 1 of Part I have been restated or added:
|
|
1) |
Condensed Consolidated Statements of Income; |
|
|
2) |
Condensed Consolidated Statements of Comprehensive Income; |
|
|
3) |
Condensed Consolidated Statements of Cash Flows; |
|
|
4) |
Note A1 – Restatement; |
|
|
5) |
Note 5 – Income Taxes; |
|
|
6) |
Note 8 – Earnings per Common Share; and |
|
|
7) |
Note 12 – Geographic Information. |
The Company has also included the signature page, the certifications of our Chief Executive Officer and Chief Financial Officer in Exhibits 31.3, 31.4, and 32.1, and financial statements formatted in Extensible Business Reporting Language (XBRL) in Exhibits 101.
Except as described above, no other amendments have been made to the Original Form 10-Q. The Company has not updated the disclosures contained herein to reflect events that have occurred since the date of the Original Form 10-Q. Accordingly, this amended quarterly report on Form 10-Q/A should be read in conjunction with the Company’s other filings made with the SEC subsequent to the filing of the Original Form 10-Q.
Stericycle, Inc.
Table of Contents
PART I. – FINANCIAL INFORMATION
STERICYCLE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
|
In thousands, except share and per share data |
|
|||||||
|
|
|
March 31, 2016 |
|
|
December 31, 2015 |
|
||
|
ASSETS |
|
|
|
|
|
|
|
|
|
Current Assets: |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
45,655 |
|
|
$ |
55,634 |
|
|
Short-term investments |
|
|
64 |
|
|
|
69 |
|
|
Accounts receivable, less allowance for doubtful accounts of $22,964 in 2016 and $22,329 in 2015 |
|
|
622,709 |
|
|
|
614,494 |
|
|
Prepaid expenses |
|
|
46,198 |
|
|
|
46,740 |
|
|
Other current assets |
|
|
42,732 |
|
|
|
44,891 |
|
|
Total Current Assets |
|
|
757,358 |
|
|
|
761,828 |
|
|
Property, plant and equipment, less accumulated depreciation of $453,753 in 2016 and $426,019 in 2015 |
|
|
677,525 |
|
|
|
665,602 |
|
|
Goodwill |
|
|
3,790,016 |
|
|
|
3,758,177 |
|
|
Intangible assets, less accumulated amortization of $170,507 in 2016 and $151,025 in 2015 |
|
|
1,840,844 |
|
|
|
1,842,561 |
|
|
Other assets |
|
|
46,801 |
|
|
|
49,282 |
|
|
Total Assets |
|
$ |
7,112,544 |
|
|
$ |
7,077,450 |
|
|
LIABILITIES AND EQUITY |
|
|
|
|
|
|
|
|
|
Current Liabilities: |
|
|
|
|
|
|
|
|
|
Current portion of long-term debt |
|
$ |
114,066 |
|
|
$ |
161,409 |
|
|
Accounts payable |
|
|
133,779 |
|
|
|
149,202 |
|
|
Accrued liabilities |
|
|
218,933 |
|
|
|
197,329 |
|
|
Deferred revenues |
|
|
17,543 |
|
|
|
16,989 |
|
|
Other current liabilities |
|
|
68,192 |
|
|
|
62,420 |
|
|
Total Current Liabilities |
|
|
552,513 |
|
|
|
587,349 |
|
|
Long-term debt, net of current portion |
|
|
3,038,083 |
|
|
|
3,052,639 |
|
|
Deferred income taxes |
|
|
617,011 |
|
|
|
608,272 |
|
|
Other liabilities |
|
|
86,448 |
|
|
|
81,352 |
|
|
Equity: |
|
|
|
|
|
|
|
|
|
Preferred stock (par value $0.01 per share, 1,000,000 shares authorized), Mandatory Convertible Preferred Stock, Series A, 770,000 issued and outstanding in 2016 and 2015 |
|
|
8 |
|
|
|
8 |
|
|
Common stock (par value $0.01 per share, 120,000,000 shares authorized, 84,829,822 issued and outstanding in 2016 and 84,852,584 issued and outstanding in 2015) |
|
|
848 |
|
|
|
849 |
|
|
Additional paid-in capital |
|
|
1,172,962 |
|
|
|
1,143,020 |
|
|
Accumulated other comprehensive loss |
|
|
(265,018 |
) |
|
|
(282,631 |
) |
|
Retained earnings |
|
|
1,897,636 |
|
|
|
1,868,645 |
|
|
Total Stericycle, Inc.’s Equity |
|
|
2,806,436 |
|
|
|
2,729,891 |
|
|
Noncontrolling interest |
|
|
12,053 |
|
|
|
17,947 |
|
|
Total Equity |
|
|
2,818,489 |
|
|
|
2,747,838 |
|
|
Total Liabilities and Equity |
|
$ |
7,112,544 |
|
|
$ |
7,077,450 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
1
STERICYCLE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
|
In thousands, except share and per share data |
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|||||
|
|
|
2016
|
|
|
2015 (Restated) |
|
||
|
Revenues |
|
$ |
874,181 |
|
|
$ |
663,319 |
|
|
Costs and Expenses: |
|
|
|
|
|
|
|
|
|
Cost of revenues (exclusive of depreciation shown below) |
|
|
482,356 |
|
|
|
367,340 |
|
|
Depreciation - cost of revenues |
|
|
22,641 |
|
|
|
14,648 |
|
|
Selling, general and administrative expenses (exclusive of depreciation and amortization shown below) |
|
|
202,488 |
|
|
|
214,863 |
|
|
Depreciation – selling, general and administrative expenses |
|
|
7,499 |
|
|
|
4,118 |
|
|
Amortization |
|
|
18,274 |
|
|
|
8,797 |
|
|
Total Costs and Expenses |
|
|
733,258 |
|
|
|
609,766 |
|
|
Income from Operations |
|
|
140,923 |
|
|
|
53,553 |
|
|
Other Income (Expense): |
|
|
|
|
|
|
|
|
|
Interest income |
|
|
21 |
|
|
|
35 |
|
|
Interest expense |
|
|
(24,062 |
) |
|
|
(18,633 |
) |
|
Other expense, net |
|
|
(1,251 |
) |
|
|
(598 |
) |
|
Total Other Expense |
|
|
(25,292 |
) |
|
|
(19,196 |
) |
|
Income Before Income Taxes |
|
|
115,631 |
|
|
|
34,357 |
|
|
Income tax expense |
|
|
38,036 |
|
|
|
5,065 |
|
|
Net Income |
|
|
77,595 |
|
|
|
29,292 |
|
|
Less: net income attributable to noncontrolling interests |
|
|
809 |
|
|
|
352 |
|
|
Net Income Attributable to Stericycle, Inc. |
|
|
76,786 |
|
|
|
28,940 |
|
|
Less: mandatory convertible preferred stock dividend |
|
|
10,106 |
|
|
|
— |
|
|
Net Income Attributable to Stericycle, Inc. Common Shareholders |
|
$ |
66,680 |
|
|
$ |
28,940 |
|
|
Earnings Per Common Share Attributable to Stericycle, Inc. Common Shareholders: |
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.79 |
|
|
$ |
0.34 |
|
|
Diluted |
|
$ |
0.78 |
|
|
$ |
0.34 |
|
|
Weighted Average Number of Common Shares Outstanding: |
|
|
|
|
|
|
|
|
|
Basic |
|
|
84,705,000 |
|
|
|
85,037,823 |
|
|
Diluted |
|
|
85,845,501 |
|
|
|
86,357,006 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
2
STERICYCLE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
|
In thousands |
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|||||
|
|
|
2016
|
|
|
2015 (Restated) |
|
||
|
Net Income |
|
$ |
77,595 |
|
|
$ |
29,292 |
|
|
|
|
|
|
|
|
|
|
|
|
Other Comprehensive Income/ (Loss): |
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments |
|
|
17,164 |
|
|
|
(64,501 |
) |
|
Amortization of cash flow hedge into income, net of tax (($172) and ($54), for the three months ended March 31, 2016 and 2015, respectively) |
|
|
269 |
|
|
|
90 |
|
|
Change in fair value of cash flow hedge, net of tax (($89) and $2,381 for the three months ended March 31, 2016 and 2015, respectively) |
|
|
242 |
|
|
|
(4,424 |
) |
|
Total Other Comprehensive Income/ (Loss) |
|
|
17,675 |
|
|
|
(68,835 |
) |
|
|
|
|
|
|
|
|
|
|
|
Comprehensive Income/ (Loss) |
|
|
95,270 |
|
|
|
(39,543 |
) |
|
Less: comprehensive income/ (loss) attributable to noncontrolling interests |
|
|
871 |
|
|
|
(468 |
) |
|
Comprehensive Income/ (Loss) Attributable to Stericycle, Inc. Common Shareholders |
|
$ |
94,399 |
|
|
$ |
(39,075 |
) |
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
STERICYCLE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
|
In thousands |
|
|||||||
|
|
|
Three Months Ended March 31, |
|
|||||
|
|
|
2016
|
|
|
2015 (Restated) |
|
||
|
OPERATING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
77,595 |
|
|
$ |
29,292 |
|
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
Stock compensation expense |
|
|
6,105 |
|
|
|
5,487 |
|
|
Excess tax benefit of stock options exercised |
|
|
— |
|
|
|
(8,222 |
) |
|
Depreciation |
|
|
30,140 |
|
|
|
18,766 |
|
|
Amortization |
|
|
18,274 |
|
|
|
8,797 |
|
|
Deferred income taxes |
|
|
6,932 |
|
|
|
(29,939 |
) |
|
Other, net |
|
|
(2,644 |
) |
|
|
5,313 |
|
|
Changes in operating assets and liabilities, net of effect of acquisitions: |
|
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
(3,918 |
) |
|
|
(14,491 |
) |
|
Accounts payable |
|
|
(15,203 |
) |
|
|
5,443 |
|
|
Accrued liabilities |
|
|
21,151 |
|
|
|
109,424 |
|
|
Deferred revenues |
|
|
487 |
|
|
|
(628 |
) |
|
Other assets and liabilities |
|
|
18,030 |
|
|
|
3,312 |
|
|
Net cash provided by operating activities |
|
|
156,949 |
|
|
|
132,554 |
|
|
INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
Payments for acquisitions, net of cash acquired |
|
|
(24,884 |
) |
|
|
(34,210 |
) |
|
Proceeds from investments |
|
|
7 |
|
|
|
257 |
|
|
Proceeds from sale of property and equipment |
|
|
766 |
|
|
|
— |
|
|
Capital expenditures |
|
|
(34,185 |
) |
|
|
(21,356 |
) |
|
Net cash used in investing activities |
|
|
(58,296 |
) |
|
|
(55,309 |
) |
|
FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
Repayments of long-term debt and other obligations |
|
|
(6,879 |
) |
|
|
(9,780 |
) |
|
Proceeds from foreign bank debt |
|
|
15,607 |
|
|
|
4,851 |
|
|
Repayments of foreign bank debt |
|
|
(18,721 |
) |
|
|
(38,252 |
) |
|
Proceeds from term loan |
|
|
— |
|
|
|
250,000 |
|
|
Repayment of term loan |
|
|
(171,000 |
) |
|
|
— |
|
|
Proceeds from senior credit facility |
|
|
457,959 |
|
|
|
394,097 |
|
|
Repayments of senior credit facility |
|
|
(353,520 |
) |
|
|
(670,254 |
) |
|
Payments of capital lease obligations |
|
|
(1,381 |
) |
|
|
(988 |
) |
|
Payment of cash flow hedge |
|
|
— |
|
|
|
(8,833 |
) |
|
Purchases and cancellations of treasury stock |
|
|
(37,693 |
) |
|
|
(11,516 |
) |
|
Proceeds from issuance of common stock |
|
|
22,310 |
|
|
|
27,452 |
|
|
Dividends paid on mandatory convertible preferred stock |
|
|
(10,106 |
) |
|
|
— |
|
|
Excess tax benefit of stock options exercised |
|
|
— |
|
|
|
8,222 |
|
|
Payments to noncontrolling interests |
|
|
(4,997 |
) |
|
|
(2,603 |
) |
|
Net cash used in financing activities |
|
|
(108,421 |
) |
|
|
(57,604 |
) |
|
Effect of exchange rate changes on cash and cash equivalents |
|
|
(211 |
) |
|
|
(3,594 |
) |
|
Net (decrease)/ increase in cash and cash equivalents |
|
|
(9,979 |
) |
|
|
16,047 |
|
|
Cash and cash equivalents at beginning of period |
|
|
55,634 |
|
|
|
22,236 |
|
|
Cash and cash equivalents at end of period |
|
$ |
45,655 |
|
|
$ |
38,283 |
|
|
|
|
|
|
|
|
|
|
|
|
NON-CASH INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
Issuances of obligations for acquisitions |
|
$ |
13,013 |
|
|
$ |
21,543 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
STERICYCLE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
Three Months Ended March 31, 2016 and Year Ended December 31, 2015
(Unaudited)
|
In thousands |
|
|||||||||||||||||||||||||||||||||||
|
|
|
Stericycle, Inc. Equity |
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||
|
|
|
Preferred Stock |
|
|
Common Stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
|
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
Additional Paid-In Capital |
|
|
Retained Earnings |
|
|
Accumulated Other Comprehensive Income (Loss) |
|
|
Noncontrolling Interest |
|
|
Total Equity |
|
|||||||||
|
Balance at January 1, 2015 |
|
|
— |
|
|
$ |
— |
|
|
|
84,884 |
|
|
$ |
849 |
|
|
$ |
289,211 |
|
|
$ |
1,743,371 |
|
|
$ |
(138,419 |
) |
|
$ |
22,173 |
|
|
$ |
1,917,185 |
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
267,046 |
|
|
|
|
|
|
|
967 |
|
|
|
268,013 |
|
|
Currency translation adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(140,809 |
) |
|
|
161 |
|
|
|
(140,648 |
) |
|
Change in qualifying cash flow hedge, net of tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,403 |
) |
|
|
|
|
|
|
(3,403 |
) |
|
Issuance of common stock for exercise of options, restricted stock units and employee stock purchases |
|
|
|
|
|
|
|
|
|
|
973 |
|
|
|
10 |
|
|
|
68,630 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
68,640 |
|
|
Issuance of mandatory convertible preferred stock |
|
770 |
|
|
8 |
|
|
|
|
|
|
|
|
|
|
|
746,892 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
746,900 |
|
||
|
Purchase and cancellation of treasury stock |
|
|
|
|
|
|
|
|
|
|
(1,004 |
) |
|
|
(10 |
) |
|
|
|
|
|
|
(131,666 |
) |
|
|
|
|
|
|
|
|
|
|
(131,676 |
) |
|
Preferred stock dividend |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,106 |
) |
|
|
|
|
|
|
|
|
|
|
(10,106 |
) |
|
Stock compensation expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21,750 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21,750 |
|
|
Excess tax benefit of stock options exercised |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,897 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,897 |
|
|
Reduction to noncontrolling interests due to additional ownership |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(360 |
) |
|
|
|
|
|
|
|
|
|
|
(5,354 |
) |
|
|
(5,714 |
) |
|
Balance at December 31, 2015 |
|
|
770 |
|
|
|
8 |
|
|
|
84,853 |
|
|
|
849 |
|
|
|
1,143,020 |
|
|
|
1,868,645 |
|
|
|
(282,631 |
) |
|
|
17,947 |
|
|
|
2,747,838 |
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
76,786 |
|
|
|
|
|
|
|
809 |
|
|
|
77,595 |
|
|
Currency translation adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,102 |
|
|
|
62 |
|
|
|
17,164 |
|
|
Change in qualifying cash flow hedge, net of tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
511 |
|
|
|
|
|
|
|
511 |
|
|
Issuance of common stock for exercise of options, restricted stock units and employee stock purchases |
|
|
|
|
|
|
|
|
|
|
305 |
|
|
|
3 |
|
|
|
22,870 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22,873 |
|
|
Purchase and cancellation of treasury stock |
|
|
|
|
|
|
|
|
|
|
(328 |
) |
|
|
(4 |
) |
|
|
|
|
|
|
(37,689 |
) |
|
|
|
|
|
|
|
|
|
|
(37,693 |
) |
|
Preferred stock dividend |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,106 |
) |
|
|
|
|
|
|
|
|
|
|
(10,106 |
) |
|
Stock compensation expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,105 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,105 |
|
|
Reduction to noncontrolling interests due to additional ownership |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
967 |
|
|
|
|
|
|
|
|
|
|
|
(6,765 |
) |
|
|
(5,798 |
) |
|
|
Balance at March 31, 2016 |
|
|
770 |
|
|
$ |
8 |
|
|
|
84,830 |
|
|
$ |
848 |
|
|
$ |
1,172,962 |
|
|
$ |
1,897,636 |
|
|
$ |
(265,018 |
) |
|
$ |
12,053 |
|
|
$ |
2,818,489 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
5
STERICYCLE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Unless the context requires otherwise, "we," "us" or "our" refers to Stericycle, Inc. and its subsidiaries on a consolidated basis.
NOTE A1 — RESTATEMENT
The unaudited quarterly financial data for the quarter ended March 31, 2015 has been restated for errors related to the timing of recognition of loss reserves between quarterly periods associated with the Company’s previously disclosed settlement of the TCPA Action and Qui Tam Action. The Company determined that the estimated loss contingency for the first quarter of fiscal 2015 was understated by $73.5 million, resulting in an overstatement of net income of $46.5 million for the three month period ended March 31, 2015.
The Company’s Condensed Consolidated Statements of Income; Condensed Consolidated Statements of Comprehensive Income; Condensed Consolidated Statements of Cash Flows; Note 5 - Income Taxes; Note 8 - Earnings Per Common Share; and Note 12 - Geographic Information; included in this Form 10-Q/A have been restated to correct the misstatements described above.
The following are previously reported and restated balances of affected line items in the Condensed Consolidated Statement of Income and Condensed Consolidated Statement of Comprehensive Income, and the Condensed Consolidated Statement of Cash Flows for the three months ended March 31, 2015 (Unaudited).
|
Condensed Consolidated Statement of Income |
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2015 |
|
|||||||
|
|
As Reported |
|
Adjustment |
|
Restated |
|
|||
|
Selling, general and administrative expenses (exclusive of depreciation and amortization) |
$ |
141,363 |
|
$ |
73,500 |
|
$ |
214,863 |
|
|
Total costs and expenses |
|
536,266 |
|
|
73,500 |
|
|
609,766 |
|
|
Income from operations |
|
127,053 |
|
|
(73,500 |
) |
|
53,553 |
|
|
Income before income taxes |
|
107,857 |
|
|
(73,500 |
) |
|
34,357 |
|
|
Income tax expense |
|
32,047 |
|
|
(26,982 |
) |
|
5,065 |
|
|
Net income |
|
75,810 |
|
|
(46,518 |
) |
|
29,292 |
|
|
Net income attributable to Stericycle, Inc. |
|
75,458 |
|
|
(46,518 |
) |
|
28,940 |
|
|
EPS – basic |
|
0.89 |
|
|
(0.55 |
) |
|
0.34 |
|
|
EPS – diluted |
|
0.87 |
|
|
(0.53 |
) |
|
0.34 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidated Statement of Comprehensive Income |
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2015 |
|
|||||||
|
|
As Reported |
|
Adjustment |
|
Restated |
|
|||
|
Net income |
$ |
75,810 |
|
$ |
(46,518 |
) |
$ |
29,292 |
|
|
Comprehensive income/ (loss) |
|
6,975 |
|
|
(46,518 |
) |
|
(39,543 |
) |
|
Comprehensive income/ (loss)attributable to Stericycle, Inc. |
|
7,443 |
|
|
(46,518 |
) |
|
(39,075 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidated Statement of Cash Flows |
Three Months Ended March 31, 2015 |
|
|||||||
|
|
As Reported |
|
Adjustment |
|
Restated |
|
|||
|
Net income |
$ |
75,810 |
|
$ |
(46,518 |
) |
$ |
29,292 |
|
|
Deferred income taxes |
|
(2,957 |
) |
|
(26,982 |
) |
|
(29,939 |
) |
|
Accrued liabilities |
|
35,924 |
|
|
73,500 |
|
|
109,424 |
|
The restatement had no impact on net cash used in or provided by operating, investing and financing activities and there was no change to the reported net increase in cash and cash equivalents.
6
NOTE 1 – BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in annual consolidated financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. However, the Company believes the disclosures included in the accompanying condensed consolidated financial statements are adequate to make the information presented not misleading. In our opinion, all adjustments necessary for a fair presentation for the periods presented have been reflected and are of a normal recurring nature. These condensed consolidated financial statements should be read in conjunction with the Stericycle, Inc. and Subsidiaries Consolidated Financial Statements and notes thereto for the year ended December 31, 2015, as filed with our Annual Report on Form 10-K for the year ended December 31, 2015. The results of operations for the three months ended March 31, 2016 are not necessarily indicative of the results that may be achieved for the entire year ending December 31, 2016.
There were no material changes in the Company’s significant accounting policies since the filing of its 2015 Form 10-K. As discussed in the 2015 Form 10-K, the preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make certain estimates and assumptions that affect the amount of reported assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and revenues and expenses during the periods reported. Actual results may differ from those estimates.
We have evaluated subsequent events through the date of filing this quarterly report on Form 10-Q. No events have occurred that would require adjustment to or disclosure in the condensed consolidated financial statements.
NOTE 2 – ACQUISITIONS
The following table summarizes the locations of our acquisitions for the three months ended March 31, 2016
|
Acquisition Locations |
|
2016 |
|
|
|
United States |
|
|
5 |
|
|
Romania |
|
|
1 |
|
|
Spain |
|
|
1 |
|
|
Total |
|
|
7 |
|
During the quarter ended March 31, 2016, we completed seven acquisitions. Domestically, we acquired 100% of the stock of one regulated waste business and selected assets of four secure information destruction businesses. Internationally, we acquired selected assets of one regulated waste business in Romania and one in Spain.
The following table summarizes the aggregate purchase price paid for acquisitions and other adjustments of consideration to be paid for acquisitions during the three months ended March 31:
|
In thousands |
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|||||
|
|
|
2016 |
|
|
2015 |
|
||
|
Cash |
|
$ |
24,884 |
|
|
$ |
34,210 |
|
|
Promissory notes |
|
|
11,595 |
|
|
|
7,618 |
|
|
Deferred consideration |
|
|
1,361 |
|
|
|
624 |
|
|
Contingent consideration |
|
|
57 |
|
|
|
13,301 |
|
|
Total purchase price |
|
$ |
37,897 |
|
|
$ |
55,753 |
|
During the three months ended March 31, 2016, we recognized a net increase in goodwill of $25.5 million, excluding the effect of foreign currency translation (see Note 9 – Goodwill and Other Intangible Assets). A net increase of $23.7 million was assigned to our United States reportable segment, and a net increase of $1.8 million was assigned to our International reportable segment. Approximately $20.7 million of the goodwill recognized during the three months ended March 31, 2016 will be deductible for income taxes.
7
During the three months ended March 31, 2016, we recognized a net increase in intangible assets from acquisitions of $8.4 million, excluding the effect of foreign currency translation. The changes include $7.7 million in the estimated fair value of acquired customer relationships with amortizable lives of 10 to 40 years and $0.7 million in covenant not-to-compete with an amortizable life of 5 years.
The purchase prices for these acquisitions in excess of acquired tangible and identifiable intangible assets have been primarily allocated to goodwill, and are preliminary, pending completion of certain intangible asset valuations and finalization of the opening balance sheet. The following table summarizes the preliminary purchase price allocation for current period acquisitions and other adjustments to purchase price allocations during the three months ended March 31:
|
In thousands |
|
|||||||
|
|
|
Three Months Ended March 31, |
|
|||||
|
|
|
2016 |
|
|
2015 |
|
||
|
Fixed assets |
|
$ |
3,345 |
|
|
$ |
(1,477 |
) |
|
Intangibles |
|
|
8,436 |
|
|
|
19,791 |
|
|
Goodwill |
|
|
25,519 |
|
|
|
41,190 |
|
|
Accounts receivable |
|
|
1,715 |
|
|
|
4,217 |
|
|
Net other assets/ (liabilities) |
|
|
133 |
|
|
|
59 |
|
|
Current liabilities |
|
|
(201 |
) |
|
|
(4,650 |
) |
|
Net deferred tax liabilities |
|
|
(1,050 |
) |
|
|
(3,377 |
) |
|
Total purchase price allocation |
|
$ |
37,897 |
|
|
$ |
55,753 |
|
During the three months ended March 31, 2016 and 2015, the Company incurred $3.0 million and $3.3 million, respectively, of acquisition related expenses. These expenses are included with “Selling, general and administrative expenses” (“SG&A”) on our Condensed Consolidated Statements of Income. The results of operations of these acquired businesses have been included in the Condensed Consolidated Statements of Income from the date of the acquisition.
NOTE 3 – NEW ACCOUNTING STANDARDS
Accounting Standards Recently Adopted
Compensation - Stock Compensation
On January 1, 2016, the Company adopted the guidance in Accounting Standards Update ("ASU") No. 2016-09, “Compensation - Stock Compensation (Topic 718) - Improvements to Employee Share-Based Payment Accounting.” Under this ASU, entities are permitted to make an accounting policy election to either estimate forfeitures on share-based payment awards, as previously required, or to recognize forfeitures as they occur. The Company has elected to recognize forfeitures as they occur and the impact of that change in accounting policy has been evaluated and determined to be insignificant and resulted in no cumulative-effect change to the Company’s retained earnings. Additionally, ASU 2016-09 requires that all income tax effects related to settlements of share-based payment awards be reported in earnings as an increase or decrease to income tax expense (benefit), net. Previously, income tax benefits at settlement of an award were reported as an increase (or decrease) to additional paid-in capital to the extent that those benefits were greater than (or less than) the income tax benefits reported in earnings during the award's vesting period. The requirement to report those income tax effects in earnings has been applied on a prospective basis to settlements occurring on or after January 1, 2016 and the impact of applying that guidance was $2.9 million to the condensed consolidated financial statements for the period ended March 31, 2016. ASU 2016-09 also requires that all income tax-related cash flows resulting from share-based payments be reported as operating activities in the statement of cash flows. Previously, income tax benefits at settlement of an award were reported as a reduction to operating cash flows and an increase to financing cash flows to the extent that those benefits exceeded the income tax benefits reported in earnings during the award's vesting period. The Company has elected to apply that change in cash flow classification on a prospective basis, leaving previously reported net cash provided by operating activities and net cash used in financing activities in the accompanying Condensed Consolidated Statement of Cash Flows for the period ended March 31, 2015 unchanged. The remaining provisions of ASU 2016-09 did not have a material impact on the accompanying condensed consolidated financial statements.
8
Accounting Standards Issued But Not Yet Adopted
Revenue From Contracts With Customers
In May 2014, the FASB issued ASU No. 2014-09, "Revenue from Contracts with Customers" (Topic 606), guidance to provide a single and comprehensive revenue recognition model for all contracts with customers. The revenue guidance contains principles that an entity will apply to determine the measurement of revenue and timing of when it is recognized. The underlying principle is that an entity will recognize revenue to depict the transfer of goods or services to customers at an amount that the entity expects to be entitled to in exchange for those goods or services. The amended authoritative guidance associated with revenue recognition is effective for the Company on January 1, 2018. The amended guidance may be applied retrospectively for all periods presented or retrospectively with the cumulative effect of initially applying the amended guidance recognized at the date of initial application. We are in the process of assessing the provisions of the new revenue recognition standard and have not determined whether the adoption will have a material impact on our consolidated financial statements.
Leases
In February 2016, the FASB issued ASU No. 2016-02, “Leases” (Topic 842). This ASU will require lessees to record a right-of-use asset and lease liability on the balance sheet for all leases with terms of more than 12 months. Recognition, measurement and presentation of expenses will depend on classification as a finance or operating lease. This ASU also requires certain quantitative and qualitative disclosures. Accounting guidance for lessors is largely unchanged. The amendments should be applied on a modified retrospective basis. ASU 2016-02 is effective for us beginning January 1, 2019. We are beginning to evaluate the impact that the adoption of ASU 2016-02 will have on our consolidated financial statements and related disclosures.
NOTE 4 – FAIR VALUE MEASUREMENTS
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value hierarchy distinguishes between (1) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and (2) an entity's own assumptions about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs). The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy are described below:
Level 1 – Quoted prices in active markets for identical assets or liabilities.
Level 2 – Observable inputs other than quoted prices in active markets for identical assets and liabilities, quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3 – Inputs that are generally unobservable and typically reflect management’s judgment about the assumptions that market participants would use in pricing the asset or liability.
Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement requires judgment, and may affect the valuation of assets and liabilities and their placement within the fair value hierarchy levels. The impact of our creditworthiness has been considered in the fair value measurements noted below. In addition, the fair value measurement of a liability must reflect the nonperformance risk of an entity. There were no movements of items between fair value hierarchies.
9
|
In thousands |
|
|||||||||||||||
|
|
|
|
|
|
|
Fair Value Measurements Using |
|
|||||||||
|
|
|
Total as of March 31, 2016 |
|
|
Level 1 Inputs |
|
|
Level 2 Inputs |
|
|
Level 3 Inputs |
|
||||
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
45,655 |
|
|
$ |
45,655 |
|
|
$ |
— |
|
|
$ |
— |
|
|
Short-term investments |
|
|
64 |
|
|
$ |
64 |
|
|
|
— |
|
|
|
— |
|
|
Derivative financial instruments |
|
|
954 |
|
|
|
— |
|
|
|
954 |
|
|
|
— |
|
|
Total assets |
|
$ |
46,673 |
|
|
$ |
45,719 |
|
|
$ |
954 |
|
|
$ |
||