STERICYCLE, INC. The following discussion of our financial condition and results of operations should be read in conjunction with our Consolidated Financial Statements and related notes in Part II, Item 8. Financial Statements and Supplementary Data of this 2020 Form 10-K. For further discussion regarding operating and financial data for the year endedDecember 31, 2019 as compared to the year endedDecember 31, 2018 , refer to Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, in our Annual Report on Form 10-K for the fiscal year endedDecember 31, 2019 . In 2020, we updated the presentation of the Company's segment reporting see, Part II, Item 8. Financial Statements and Supplementary Data; Note 18 Segment Reporting in the Consolidated Financial Statements for further information. As a result of these changes in segment reporting, all applicable historical segment information has been recast to conform to the new presentation. We are also presenting amounts for the year endedDecember 31, 2018 in the Results of Operations Revenues and Segment Profitability tables below, but not the comparative discussion as mentioned above. In addition, we updated service lines to reflect the remaining Hazardous Waste Solutions Services and Manufacturing and Industrial Services in RWCS. This reclassification is driven by the divestiture of the Environmental Solutions business, discussed in Part II, Item 8. Financial Statements and Supplementary Data; Note 4 Restructuring, Divestitures, and Impairments, and service line information has been recast to conform to the new presentation. Overview Incorporated in 1989,Stericycle is aU.S. based business-to-business services company and leading provider of compliance-based solutions that protects people, promotes health and safeguards the environment.Stericycle serves customers in theU.S. and 17 other countries worldwide with solutions for regulated waste and compliance services, secure information destruction and patient engagement. To our customers, team members and the communities we serve,Stericycle is a company that protects what matters. Our offering of services appeals to a wide range of 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. While we manage large volumes of waste and other materials, the volume per customer site on average is small. Highlights for the year endedDecember 31, 2020 compared to the prior year include: •Revenues for the year endedDecember 31, 2020 were$2.68 billion , compared to$3.31 billion in 2019. Of the$633.4 million decline, the impact of divestitures was$483.7 million and lower SID revenues, excluding SOP pricing, was$157.1 million , primarily reflecting pandemic-related business disruption. This was partially offset by growth in Regulated Waste and Compliance Services of$36.5 million . •Income from operations for the year endedDecember 31, 2020 was$31.9 million , compared to a loss from operations of$211.9 million in 2019. The change was primarily due to no goodwill impairment in 2020 compared to goodwill impairment of$228.3 million in 2019, offset by net divestiture losses of$123.6 million in 2020 compared to net divestiture losses of$103.0 million in 2019 for a net divestiture difference of$20.6 million . In addition, we continue to see lower charges associated with our key priorities and other significant matters discussed below. •Net loss for the year endedDecember 31, 2020 was$57.3 million , or$0.63 diluted loss per share, compared with$346.8 million , or$3.81 diluted loss per share, in 2019. The difference was related to higher income from operations of$243.8 million , lower interest expense of$36.4 million and lower loss on early extinguishment of debt of$23.1 million , which were partially offset by a higher income tax expense of$16.7 million . •Cash flow from operations for the year endedDecember 31, 2020 was$530.2 million , compared to$248.0 million in 2019, representing a$282.2 million year-over-year improvement. •Cash paid for capital expenditures for the year endedDecember 31, 2020 was$119.5 million compared to$194.2 million for the year endedDecember 31, 2019 , primarily driven by the timing of 2019 investments in the ERP and disciplined capital management throughout 2020. 2020 10-K Annual ReportStericycle, Inc. • 35
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During 2020, we completed the following debt related transactions: a) OnNovember 9, 2020 , we issued$500.0 million at par of aggregate principal Senior Notes, dueJanuary 2029 , which are unsecured and bear interest at 3.875% per annum, payable onJanuary 15 andJuly 15 of each year. b) OnFebruary 25, 2020 , we executed the Fifth Amendment which amended the Credit Agreement to, among other things: •increase the maximum allowable Consolidated Leverage Ratio to 5.00 to 1.00 until the end of the first quarter of 2022 and 4.50 to 1.00 thereafter. •upon the consummation of the divestiture of theESOL Disposal Group , each of the foregoing maximum permitted Consolidated Leverage Ratio levels were stepped down to 4.75 to 1.00 and 4.25 to 1.00, respectively. •allow for continuation of the$200 million of cash add backs to EBITDA throughDecember 31, 2020 and addbacks of$100 million untilDecember 31, 2021 , with no further addbacks thereafter. •increase the leverage ratio pricing tier of greater than 4.50 to 1.00 by 0.125%. •grant a first-priority security interest to the administrative agent for the benefit of the lenders in substantially all of the personal property of the Company and certain of its material domestic subsidiaries, including certain equity interests held by those entities. For additional information, see Part II, Item 8, Financial Statements and Supplementary Data; Note 9 - Debt in the Consolidated Financial Statements. Over the course of 2020, we divested our Environmental Solutions business, Expert Solutions business, both reported primarily in ourNorth America reportable segment and operations inArgentina , in our International reportable segment. Divestiture transactions combined generated$498.9 million in net proceeds during 2020 that was primarily used to repay debt. For additional information, see Part II, Item 8, Financial Statements and Supplementary Data; Note 4 - Restructuring, Divestitures, and Impairments in the Consolidated Financial Statements. COVID-19 Pandemic InMarch 2020 , theWorld Health Organization declared the COVID-19 virus outbreak a pandemic. The COVID-19 pandemic has had a global economic impact, including temporary closure of non-essential businesses worldwide and postponement of elective surgeries and preventative care. The Company continues to maintain operations within all business service offerings, although our maritime waste service offering has been significantly and adversely impacted. We are monitoring future implications of the COVID-19 pandemic and continue to take actions to manage spending to align to operational requirements. The Company's COVID-19 pandemic response has included efforts to protect the health and well-being of our workforce and our customers. We worked proactively with theCenters for Disease, Control and Prevention , theOccupational Safety and Health Administration , theDepartment of Transportation and regulatory agencies around the world to ensure readiness for proper regulated waste management. We have updated and implemented numerous protocols specifically to reduce risk among our front-line team members, and our strategic sourcing team has worked diligently to take measures to provide our field operations employees with appropriate personal protective equipment. We've staggered shift times and dedicated trucks to specific drivers to reduce exposure. We've implemented more rigorous cleaning protocols for all our facilities. Since March of 2020, we had more than 7,000 team members around the globe sheltering in place, all to protect our staff and communities we serve. We will continue to monitor the safety of our team members as a result of the COVID-19 pandemic, but the long-term impact is not known at this point as the scale and severity of the outbreak and related behavioral changes is still uncertain. Additionally, we increased the frequency of our communications with our Board of Directors. At the height of the pandemic, we provided weekly updates to our Board. This communication kept the Board apprised of the evolving impacts of the pandemic to our organization and team members, as well as provided them an opportunity to understand and monitor our response to the pandemic while providing oversight and guidance. The Company has taken a leadership position related to the COVID-19 pandemic to support our customers and provide industry expertise regarding the effective management of COVID-19 waste. 2020 10-K Annual ReportStericycle, Inc. • 36
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The impact of the COVID-19 pandemic across our revenue service categories is as
follows:
Revenue Service Category Services Offered COVID-19 Pandemic Impact
RWCS's transportation and treatment
facilities have remained open to
provide safe and compliant disposal
of regulated waste. As a leader in
this industry, we are helping our
healthcare and retail customers
manage multiple aspects of the
• Regulated waste vaccine rollout. This includes
management services compliant waste collection,
(including reusable transportation, and waste treatment
sharps container of expired vaccines, partially used
disposal management vaccines, sharps, packaging, and
services) expunged syringes with trace
• Pharmaceutical waste amounts of vaccines.
services, including Revenues for RWCS showed growth
controlled substances over last year despite the impact
Regulated Waste and (CsRX, Kiosk, and on maritime waste services from the
Compliance Services Seal/Send) pandemic.
• Compliance programs The COVID-19 pandemic has also
under the Steri-Safe®, created new needs for healthcare
Clinical Services and testing centers for the COVID-19
First Practice virus across America as well as the
Management brand names disposal of non-healthcare waste
• Hazardous waste and and vaccine related waste. We
compliance solutions continue to provide services to
• Maritime waste testing centers and our expanding
services non-healthcare waste customer base
and have begun servicing vaccine
waste. In our international
markets, we have more
transactional-based agreements
which has resulted in revenue
growth as a result of returning
elective surgeries combined with
increased COVID-19 waste volumes.
While still below pre-pandemic
levels, Secure Information
Destruction revenues continued to
improve since the start of the
pandemic in March and remained
• Secure information consistent sequentially with the
destruction (including third quarter despite continued
document and hard drive economic pandemic impacts in the
destruction services) fourth quarter. The revenues and
under the Shred-it® stops in the fourth quarter aligned
Secure Information brand name which with local, regional and country
Destruction Services includes regular level lock-downs. While recent
scheduled services (and shutdowns in the late fourth
processing onsite and quarter have impacted our stops
offsite) and one-time serviced, we expect stops serviced
services (select, to improve as economies re-open.
priority and express) In North America, SID organic
revenues were down 12.9 percent
compared to 2019, which reflects a
decrease in service stops.
Additionally, Internationally, SID
organic revenues were down 21.3
percent compared to 2019.
• Appointment At the end of the first quarter and
reminders, secure through the year ended 2020, we
Communication and messaging, event observed lower demand for services
Related Services registration and other due to the pandemic. When excluding
communications the impact of divestitures and
specifically for foreign exchange, revenues declined
hospitals and IDN's $14.4 million .
Key Business Priorities
•Quality of revenue - We have been executing against our foundational
initiatives we launched to drive revenue quality. These included a formal
cross-functional deal review committee, realignment of sales incentive plans,
re-organization of our commercial leadership team around our service lines, key
customer channels, and implementation of global customer pipeline management
processes for both Regulated Waste and Compliance Services and Secure
Information Destruction. In combination with our quality of revenue initiatives,
we continue to develop and deploy innovative solutions to meet unmet customer
needs, strengthen customer engagement, and drive long-term organic growth. As an
example, during 2020, Regulated Waste and Compliance Services innovated to meet
customer needs during the pandemic by
2020 10-K Annual Report Stericycle, Inc. • 37
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rapidly deploying solutions to support temporary COVID-19 testing centers and to introduce non-health care PPE disposal options. In Secure Information Destruction Services, we deployed express and priority offerings to address unmet customer needs around service speed and predictability during the pandemic.
•Operational efficiencies - As we manage through volatile times, we remain focused on operational efficiencies, modernization and innovation to control variable and discretionary costs and improving performance and efficiencies in our field operations. Our Engineering and Operations teams have and will continue to implement operational process and performance improvements, which have significantly contributed to our gross profit margin expansion of 390 basis points for the year endedDecember 31, 2020 . We are gaining traction on right sizing and balancing our fleet and equipment; driving efficiencies in route and long-haul planning; and optimizing our network and assets. Additionally, we have normalized our workforce following the furloughs experienced earlier this year. •Debt reduction and leverage improvement - We have reduced net debt by approximately$900.0 million during the year endedDecember 31, 2020 . We applied$498.9 million in net proceeds from the divestiture of Expert Solutions, operations inArgentina and Environmental Solutions to the repayment of debt during December, August andApril 2020 , respectively. With the divestitures proceeds and our continued focus on operating margin expansion and free cash flow generation, we reduced our adjusted debt to EBITDA leverage ratio as defined by our Credit Agreement to 3.54 times as ofDecember 31, 2020 . We have$947.2 million as ofDecember 31, 2020 available under our Senior Credit Facility, which matures inNovember 2022 . •Portfolio rationalization - OnDecember 2, 2020 ,Stericycle divested Expert Solutions for approximately$78.0 million in cash. OnAugust 3, 2020 ,Stericycle divested all of our operations inArgentina for approximately$3.9 million in cash. OnApril 6, 2020 , we also divested the Environmental Solutions business for$462.5 million in cash. We expect to continue to evaluate opportunities to further optimize our portfolio of businesses. •ERP implementation - We entered 2020 with a schedule to begin the staged deployment of the commercial, operational and financial systems inNorth America . Our first stage included the implementation of a human capital management system which was completed inJanuary 2020 . However, guided by our commitment to protect what matters, we concluded that the health and travel risks associated with a field deployment in the COVID-19 pandemic environment were substantial, and given our priorities to serve our customers and keep our team members safe, we made the decision to defer the ERP deployment to 2021. In the interim, we are making progress mining data from our legacy systems and tools to gain business insights, build scorecards and improve performance. Additionally, over the past several months, we accelerated the roll-out of certain technologies associated with our North American ERP system, including our new employee travel and expense system and a global tax management system. Key Priorities and Other Significant matters The following table identifies key priorities and other significant matters impacting our business (amounts are stated pre-tax except when noted): 2020 10-K Annual ReportStericycle, Inc. • 38
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In millions
Year Ended December 31,
2020 2019
Pre-tax items:
Included in COR
Business Transformation $ - $ 0.4
Operational Optimization - 9.8
Asset Impairments 6.8 5.2
Total included in COR 6.8 15.4
Included in SG&A
Business Transformation 50.8 67.3
Intangible Amortization 124.9 145.2
Acquisition and Integration - 3.5
Operational Optimization 3.1 4.7
Divestitures 9.4 11.7
Litigation, Settlements and Regulatory Compliance 20.3 28.2
Asset Impairments 8.7 16.9
Other 9.1 39.7
Total included in SG&A 226.3 317.2
Divestiture losses, net of gains 123.6 103.0
Goodwill impairment - 228.3
Total included in Income (loss) from operations 356.7 663.9
Included in Interest expense, net Capital Allocation (debt related) -
3.6
Loss on early extinguishment of debt -
23.1
Included in Other expense, net Other (including highly inflationary exchange loss) 1.2 3.3 Total pre-tax$ 357.9 $ 693.9 After tax items: CARES Act$ (44.4) $ - Total after-tax$ (44.4) $ - The above priorities and other significant matters include the following types of activities: Cash Charges Closure and Exit Consulting and Costs(1) Internal (2) Professional Fees Other (3) Non-Cash Charges (4) Business Transformation ü ü ü ü ü Acquisition and Integration ü ü ü ü ü Operational Optimization ü ü ü ü ü Divestitures ü ü ü Litigation, Settlements and Regulatory Compliance ü ü Other ü (1)Includes employee and contract termination, facility closure and clean-up costs. (2)Includes dedicated resources, including project related incentive compensation and stock-based compensation. 2020 10-K Annual Report Stericycle, Inc. • 39
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(3)Includes other costs related to each priority (e.g. software maintenance fees, changes in contingent consideration and environmental provisions). (4)Includes impairments, accelerated depreciation and/or amortization, gain/loss on disposal and changes in deferred consideration. Business Transformation
For the years presented and for the cumulative period since the inception of
Business Transformation, we have recognized the following, principally reported
in Other:
In millions
Year Ended December 31,
Cumulative Since
2020 2019 Inception
ERP development and implementation
Consulting and professional fees $ 21.8 $ 27.2 $ 65.0
Internal labor 13.1 9.3 31.2
Software usage/maintenance fees 12.1 15.3 34.8
Other related expenses 3.8 4.3 9.7
Operating expenditures 50.8 56.1 140.7
Capital expenditures 51.3 80.6 160.8
Total ERP related 102.1 136.7 301.5
Investment in cost savings and other related matters - 11.6 91.7
Total charges and capital expenditures $ 102.1 Non-cash charges$ 2.0 $ 1.8 $ 15.6 Cash charges and stock based compensation 48.8 65.9 216.8 Total operating expenditures$ 50.8
Through 2019, we had completed activities originally contemplated as part of Business Transformation in the areas of investment in cost savings and business capability and other related matters. We have shifted the planned deployment of the rest of our North American ERP system until 2021. In the interim, we accelerated the deployment of certain technologies associated with our North American ERP system, including our new employee travel and expense system and a new global tax management system. Intangible Amortization See table above of key priorities and other significant matters for intangible amortization expense from acquisitions for the years presented and how they are classified in the Consolidated Statements of Loss. The decrease in amortization expense is a result of the reduction of intangible assets related to divestitures. See Part II, Item 8. Financial Statements and Supplementary Data; Note 7 -Goodwill and Other Intangible Assets in the Consolidated Financial Statements for further information. For intangible amortization by segment see Part II, Item 8. Financial Statements and Supplementary Data; Note 18 - Segment Reporting in the Consolidated Financial Statements. Acquisition and Integration See table above of key priorities and other significant matters for acquisition and integration expense for the years presented, primarily in Other, and how they are classified in the Consolidated Statements of Loss. Details of the acquisition completed in the year endedDecember 31, 2019 can be found in Part II, Item 8. Financial Statements and Supplementary Data; Note 3 - Acquisitions in the Consolidated Financial Statements. 2020 10-K Annual ReportStericycle, Inc. • 40
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Table of Contents PART II Operational Optimization Our organization is focused on operation efficiency, modernization and innovation. The aim of our focus is to achieve a culture of continuous improvement that will enhance efficiency, effectiveness and competitiveness to improve our cost base and cash flow and we have taken a number of actions to reduce operating costs and optimize operations. For example, we believe plant throughput and route density are competitive strengths ofStericycle . We maintain such strengths by making adjustments to our network of transportation and treatment facilities, standardizing containers and right sizing fleet levels in an effort to optimize overall logistics and processing capabilities within a service category while reducing operational costs. As part of these efforts, we seek to reduce network redundancies by consolidating facilities, closing redundant facilities, optimizing containers and fleet levels and restructuring the local organization and operations for efficiency.
We recognized the following Operational Optimization expenses: In millions
Year Ended December 31,
2020 2019
North America
Exit costs - employee termination $ - $ 1.4
Closure and exit costs - other - -
Non-cash charges - 2.4
Other expenses - -
Total - 3.8
International
Exit costs - employee termination - 0.9
Closure and exit costs - other - 2.4
Non-cash charges 2.8 4.9
Other expenses 0.3 2.5
Total 3.1 10.7
Total Operational Optimization $ 3.1 $ 14.5
As we continue to consider each Operational Optimization activity, the amount,
timing and recognition of charges will be affected by the occurrence of
commitments and triggering events as defined under U.S. GAAP, among other
factors. We may incur more charges, cash expenditures, accelerated depreciation
and impairments than estimated and may not realize the expected improvement or
cost savings on the planned time frame or at all. See Part II, Item 8. Financial
Statements and Supplementary Data; Note 4 - Restructuring, Divestitures, and
Impairments in the Consolidated Financial Statements.
Divestitures
We evaluate our 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
decisions regarding divestitures are based upon the following criteria:
•outlook for long-term market conditions;
•potential impact to complementary services or customer relationships;
•ability to leverage infrastructure and customer base for growth;
•potential for margin improvement;
•current divestiture value versus future divestiture value;
•ongoing capital requirements of the business;
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•return on invested capital; •impact on overall leverage, including impact on debt leverage ratio; •implications for our internal control remediation efforts; and •implications for our new ERP system implementation.
We recognized the following Divestitures (including Divestiture losses (gains),
net) in the Consolidated Statements of Loss:
In millions
Year Ended December 31,
2020 2019
North America Segment
Domestic Environmental Solutions business $ 53.8 $ -
CRS business (38.8) 45.5
Total North America charges, net 15.0 45.5
International Segment
CRS business (4.0) -
Argentina operations 112.4 -
Mexico operations (4.9) 43.2
Chile operations 5.1 19.0
U.K. businesses - (4.7)
Total International charges, net 108.6 57.5
Divestiture losses (gains), net 123.6 103.0
Consulting, professional, and other fees (in SG&A) 9.4 11.7
Total Divestitures (including Divestiture losses (gains), net)
For additional information regarding Divestiture losses (gains), including significant impacts of foreign currency translation adjustments, net, see Part II, Item 8. Financial Statements and Supplementary Data; Note 4 - Restructuring, Divestitures, and Impairments in the Consolidated Financial Statements. We continue to evaluate the performance of our entire portfolio of assets and businesses. Divestitures resulting from this evaluation may cause us to record significant charges, including those related to goodwill, other intangible assets, long-lived assets, and cumulative translation adjustments. 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 the portfolio rationalization evaluation could have a material adverse effect on our business, financial condition or results of operations (see Part II, Item 8. Financial Statements and Supplementary Data; Note 4 - Restructuring, Divestitures, and Impairments in the Consolidated Financial Statements). 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 including the items detailed in Part II, Item 8. Financial Statements and Supplementary Data; Note 20 - Legal Proceedings, in the Consolidated Financial Statements. See table above of key priorities and other significant matters for litigation, settlement and regulatory compliance charges, primarily consulting and professional fees, contingent liability provisions and settlements, net of insurance recoveries, impacting our business for the years presented, primarily in Other, and how they are classified in the Consolidated Statements of Loss. 2020 10-K Annual ReportStericycle, Inc. • 42
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Asset and Goodwill Impairments
Impairment charges comprise the following:
In millions
Year Ended December 31,
Asset impairments: 2020 2019
Property plant and equipment $ 6.8 $ 5.2
Impairments included in COR 6.8 5.2
Property plant and equipment 0.2 0.5
Customer lists, permits and tradenames 8.5 16.4
Impairments included in SG&A 8.7 16.9
Total Asset impairments $ 15.5 $ 22.1
Goodwill impairments:
Canada reporting unit $ - $ 126.6
Domestic Environmental Solutions reporting unit - 80.8
Latin America reporting unit - 20.9
Goodwill impairments $ - $ 228.3
Impairment charges may be recognized in future periods to the extent changes in
factors or circumstances occur, including deterioration in the macroeconomic
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 our plans for one or more reporting units or specified long-lived assets,
among other factors.
For additional information on asset and goodwill impairments, see Part II, Item
8. Financial Statements and Supplementary Data; Note 4 - Restructuring,
Divestitures, and Impairments and Note 7 - Goodwill and Other Intangible Assets
in the Consolidated Financial Statements.
Other
See table above of key priorities and other significant matters for other
charges, primarily consulting and professional fees related to internal control
remediation activities as well as the implementation of new accounting
standards, impacting our business, primarily in Other, for the years presented
and how they are classified in the Consolidated Statements of Loss.
See table above of key priorities and other significant matters for the impact
of foreign exchange re-measurement of net monetary assets held in Argentina as a
result of its designation as a highly inflationary economy for the years
presented and how they are classified in the Consolidated Statements of Loss.
Argentina operations were divested in August 2020 .
Capital Allocation
Stericycle aims to maintain a structured capital allocation strategy that
balances investment in the business, debt reduction and returns to shareholders.
Our current capital allocation strategy includes debt reduction and investments
in our business.
For the year ended December 31, 2019 , we incurred a pre-tax loss on early
extinguishment of debt of $23.1 million , comprising a "make-whole" premium of
$20.4 million , due under the terms of certain of the private placement notes and
$2.7 million related to unamortized debt issuance costs, associated with
repayments of our private placement notes.
We also incurred $0.2 million of debt modification charges associated with the
execution of the Fourth Amendment, which are recorded in Interest expense, net
and charges of $3.4 million related to the write-off of the unamortized portion
of premiums associated with interest rate locks executed in connection with the
issuance of certain of the private placement notes, which are recorded in
Interest expense, net.
CARES Act and Tax Reform
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For further discussion, see Part II, Item 8. Financial Statements and
Supplementary Data; Note 10 - Income Taxes in the Consolidated Financial
Statements.
Results of Operations
Revenues (including Segment Revenue):
Our various regulated services share a common infrastructure and customer
base. We market our regulated and compliance services by offering various
pricing options to meet our customers' preferences and customers move between
these different billing paradigms. For example, our customers may contract with
us for regulated 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 waste services with training and education services
for a contracted subscription fee. Another example is a customer that purchases
our regulated waste disposal and sharps disposal management services which
provides the customer with the same regulated services under a different pricing
and billing arrangement.
We do not track the movement of customers between the various types of regulated
services we offer. Although we can identify directional trends in our services,
because the regulated services are similar in nature and there are inherent
inaccuracies in disaggregation, we analyze revenues by revenue service category
and operating segment. 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.
2020 compared to 2019
Year over year movements in Revenues by Service Category and Segment were as
follows:
Year Ended December 31,
In millions Components of Change (%)
Organic
Foreign Exchange
2020 2019 Change ($) Change (%) Growth(1) SOP Pricing Divestitures (2)
Revenue by Service
Regulated Waste and
Compliance Services $ 1,806.6 $ 2,187.8 $ (381.2) (17.4 %) 1.7 % - % (18.4 %) (0.7 %)
Secure Information
Destruction Services 745.3 901.9 (156.6) (17.4 %) (15.8 %) (1.6) % - % 0.1 %
Communication and Related
Services 123.6 219.2 (95.6) (43.6 %) (6.1 %) - % (37.5 %) - %
Total Revenues $ 2,675.5 $ 3,308.9 $ (633.4) (19.1 %) (3.6 %) (0.4) % (14.6 %) (0.5 %)
North America
Regulated Waste and
Compliance Services $ 1,427.6 $ 1,762.8 $ (335.2) (19.0 %) 0.6 % - % (19.5 %) - %
Secure Information
Destruction Services 647.3 769.5 (122.2) (15.9 %) (14.2 %) (1.6) % - % (0.1 %)
Communication and Related
Services 114.3 207.6 (93.3) (44.9 %) (6.9 %) - % (38.0 %) - %
Total North America Segment $ 2,189.2 $ 2,739.9 $ (550.7) (20.1 %) (4.2 %) (0.4) % (15.5 %) - %
International
Regulated Waste and
Compliance Services $ 379.0 $ 425.0 $ (46.0) (10.8 %) 6.2 % - % (13.4 %) (3.6 %)
Secure Information
Destruction Services 98.0 132.4 (34.4) (26.0 %) (24.9 %) (1.8) % - % 0.8 %
Communication and Related
Services 9.3 11.6 (2.3) (19.8 %) 8.6 % - % (28.4 %) - %
Total International Segment
(14.5 %) (1.0 %) (0.4) % (10.6 %) (2.5 %)
(1)Growth is a change in revenues excluding the impact of SOP pricing,
divestitures and foreign exchange.
(2)The comparisons at constant currency rates (foreign exchange) reflect
comparative local currency balances at prior period's foreign exchange rates.
Stericycle calculated these percentages by taking current period reported
Revenues less the respective prior period reported Revenues, divided by the
prior period reported Revenues, all at the respective prior period's foreign
exchange rates. This measure provides information on the change in Revenues
assuming that foreign currency exchange rates have not changed between the prior
and the current period. Management believes the use of this measure aids in the
understanding of changes in Revenues without the impact of foreign currency.
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For the year endedDecember 31, 2020 as compared to the prior year, organic SID and CRS revenues were lower, primarily reflecting COVID-19 pandemic-related business disruption. Organic RWCS revenue was slightly favorable in the current year in comparison to the prior year, primarily reflecting organic growth from our quality of revenue initiatives and sustainable value-added services we provide to customers. RWCS saw COVID-19 pandemic-related headwinds in the maritime waste services business, along with the continued trend of patients deferring elective surgeries. However, these negative trends were largely offset by increased COVID-19 waste and mail-back volume along with our new pop-up testing centers and non-health care PPE service.North America revenues decreased$550.7 million , or 20.1%, for the year endedDecember 31, 2020 to$2,189.2 million from$2,739.9 million for the year endedDecember 31, 2019 . Divestiture of the Environmental Solutions business in the second quarter 2020 and divestiture of components of the CRS business sold in the fourth quarter of 2019, reduced revenues by$423.4 million , or 15.5%. Organic RWCS revenue was slightly favorable, 0.6%, in the current year in comparison to the prior year, primarily reflecting organic growth from our quality of revenue initiatives and sustainable value-added services we provide to customers. RWCS saw COVID-19 pandemic-related headwinds in the maritime waste services business, along with the continued trend of patients deferring elective surgeries. However, these negative trends were largely offset by increased COVID-19 waste and mail-back volume along with our new pop-up testing centers and non-health care PPE service. SID organic revenue, excluding SOP pricing, decreased$109.4 million or 14.2%, which is reflective of a reduction in service stops. Additionally, there was a decrease in revenue due to the impact of SOP pricing of$12.3 million , or 1.6% as compared to the prior year. International revenues decreased$82.7 million , or 14.5%, for the year endedDecember 31, 2020 to$486.3 million from$569.0 million for the year endedDecember 31, 2019 . The decrease in International segment organic revenue, excluding SOP pricing, was$5.5 million , or 1.0%. Additionally, there was a decrease in revenue due to the impact of SOP pricing of$2.4 million , or 1.8% as compared to the prior year. International RWCS organic growth of 6.2% and CRS growth of 8.6% was more than offset by a decline in SID of 24.9%. The majority of International RWCS revenue growth is attributable to supporting our customers through the COVID-19 pandemic while we estimate the underlying business had slight growth being impacted by delayed elective surgeries. The decline in SID was due to closures of non-essential businesses that lasted longer in international locations than in theU.S. Divestiture components of the CRS business sold in the fourth quarter of 2020, divestiture ofArgentina operations in the third quarter 2020, and the divestitures of theU.K. businesses,Chile andMexico operations in fiscal 2019 reduced revenues by$60.3 million , or 10.6%. The effect of foreign exchange rates unfavorably impacted International revenues in 2020 by$14.5 million , or 2.5%, as foreign currencies, notably those inLatin America , declined against theU.S. dollar. 2020 10-K Annual ReportStericycle, Inc. • 45
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2019 compared to 2018
Year Ended December 31 ,
In millions Components of Change (%)
Organic
Divestitures, net of Foreign Exchange
2019 2018 Change ($) Change (%) Growth(1) SOP Pricing acquisitions (2)Revenue by Service Regulated Waste and Compliance Services$ 2,187.8 $ 2,261.8 $ (74.0) (3.3 %) 0.3 % - % (0.9 %) (2.7 %) Secure Information Destruction Services 901.9 911.0 (9.1) (1.0 %) 3.6 % (4.6 %) 0.9 % (0.9 %) Communication and Related Services 219.2 313.1 (93.9) (30.0 %) (16.6 %) - % (13.0 %) (0.4 %) Total Revenues$ 3,308.9 $ 3,485.9 $ (177.0) (5.1 %) (0.4 %) (1.2 %) (1.5 %) (2.0 %)North America Regulated Waste and Compliance Services$ 1,762.8 $ 1,778.5 $ (15.7) (0.9 %) (0.5 %) - % (0.2 %) (0.2 %) Secure Information Destruction Services 769.5 778.6 (9.1) (1.2 %) 2.5 % (4.5 %) 1.1 % (0.3 %) Communication and Related Services 207.6 286.0 (78.4) (27.4 %) (18.0 %) - % (9.2 %) (0.2 %)Total North America Segment$ 2,739.9 $ 2,843.1 $ (103.2) (3.6 %) (1.5 %) (1.2 %) (0.8 %) (0.1 %) International Regulated Waste and Compliance Services$ 425.0 $ 483.3 $ (58.3) (12.1 %) 3.3 % - % (3.7 %) (11.7 %) Secure Information Destruction Services 132.4 132.4 - - % 10.1 % (5.1 %) - % (5.0 %) Communication and Related Services 11.6 27.1 (15.5) (57.2 %) (1.6 %) - % (53.2 %) (2.4 %)Total International Segment$ 569.0 $ 642.8 $ (73.8) (11.5 %) 4.5 % (1.0 %) (5.0 %) (10.0 %) (1)Growth is a change in revenues excluding the impact of SOP pricing, divestitures and foreign exchange. (2)The comparisons at constant currency rates (foreign exchange) reflect comparative local currency balances at prior period's foreign exchange rates.Stericycle calculated these percentages by taking current period reported Revenues less the respective prior period reported Revenues, divided by the prior period reported Revenues, all at the respective prior period's foreign exchange rates. This measure provides information on the change in Revenues assuming that foreign currency exchange rates have not changed between the prior and the current period. Management believes the use of this measure aids in the understanding of changes in Revenues without the impact of foreign currency. Gross Profit In millions Year Ended December 31, 2020 2019 Change 2020 versus 2019 $ % of Revenue $ % of Revenue $ % Gross profit 1,053.1 39.4 % 1,174.5 35.5 % (121.4) (10.3 %) The decrease in Gross profit for the year endedDecember 31, 2020 , as compared to 2019, was primarily due to the divestiture of the Environmental Solutions,Argentina , and Expert Solutions businesses in 2020 and divestitures that occurred during 2019, partially offset by quality of revenue initiatives. In addition, gross profit was lower associated with the COVID-19 pandemic resulting in decreased revenue discussed above specific to SID and CRS. These were partially offset by reductions in variable and discretionary costs, driven by operational efficiency improvements including in transportation and productivity gains. Gross profit as a percentage of revenues has improved as divested businesses historically produced lower margins as compared to core businesses and operational efficiencies noted above. In addition, we continue to see lower charges associated with our key priorities and other significant matters discussed above. International Gross profit as a percentage of revenues is lower than domestic Gross profit as a percentage of Revenues because our international operations have fewer small account customers, which tend to generate higher Gross profit percentages. Our international operations generate most of their revenues from large account 2020 10-K Annual Report Stericycle, Inc. • 46
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customers, such as hospitals, publicly funded healthcare organizations and
government bodies. If our international revenues increase, consolidated Gross
profit percentages may experience downward pressure due to this "business mix"
shift, which may be offset by additional international small account market
penetration, operational optimization and domestic business expansion.
SG&A
In millions
Year Ended December 31,
2020 2019 Change 2020 versus 2019
$ % of Revenue $ % of Revenue $ %
SG&A 897.6 33.5 % 1,055.1 31.9 % (157.5) (14.9 %)
The decrease in SG&A for the year ended December 31, 2020 , as compared to 2019,
was primarily due to disciplined spending on operations and the 2020
divestitures of the Environmental Solutions business, Argentina operations, and
components of the CRS business and other divestitures in 2019. Additionally, the
Company had lower employee costs due to the impact of furloughed team members,
lower commissions and reduced consulting and professional fees related to
divestitures, compliance and material weakness remediation costs. The decreases
referenced above were partially offset by higher incentive compensation.
Further, there was a decrease in intangible asset amortization as assets became
fully amortized. As a percentage of revenue, SG&A increased for the year ended
December 31, 2020 primarily due to higher incentive and stock based
compensation.
Divestitures losses (gains), net
In millions
Year Ended
2020 2019 Change 2020 versus 2019
$ % of Revenue $ % of Revenue $ %
Divestitures loss (gains), net 123.6 4.6 % 103.0 3.1 % 20.6 20.0 %
For additional information regarding Divestiture losses (gains), net, including
significant impacts of foreign currency translation adjustments, see Part II,
Item 8. Financial Statements and Supplementary Data; Note 4 - Restructuring,
Divestitures, and Impairments in the Consolidated Financial Statements.
Goodwill Impairment
In millions
Year Ended December 31,
2020 2019 Change 2020 versus 2019
$ % of Revenue $ % of Revenue $ %
Goodwill impairment - - % 228.3 6.9 % (228.3) (100.0 %)
The Company performed its annual goodwill assessment as of October 1, 2020 and
determined no reporting units' carrying values were in excess of their estimated
fair value.
During 2019, as a result of our annual goodwill impairment and other periodic
assessments, we recognized non-cash goodwill impairment charges for our Canada ,
Environmental Solutions, and Latin America reporting units of $126.6 million ,
$80.8 million , and $20.9 million , respectively.
Segment Profitability
Beginning in the first quarter of 2020, we have changed our measure of segment
profitability to Adjusted Income from Operations - see Part II, Item 8.
Financial Statements and Supplementary Data; Note 18 - 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
income (loss) from operations was as follows:
2020 10-K Annual Report Stericycle, Inc. • 47
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In millions
Year Ended December 31,
2020 2019 2018 Change 2020 versus 2019 Change 2019 versus 2018
% of Segment % of Segment % of Segment
$ Revenues $ Revenues $ Revenues $ % $ %
Adjusted Income from
Operations
North America 606.0 27.7 % 595.0 21.7 % 754.4 26.5 % 11.0 1.8 % (159.4) (21.1 %)
International 46.5 9.6 % 70.7 12.4 % 64.7 10.1 % (24.2) (34.2 %) 6.0 9.3 %
Other (263.9) nm (213.7) nm (200.1) nm (50.2) 23.5 % (13.6) 6.8 %
Total 388.6 14.5 % 452.0 13.7 % 619.0 17.8 % (63.4) (14.0 %) (167.0) (27.0 %)
Reconciliation to Income
(loss) from operations:
Adjusted Income from
Operations 388.6 452.0 619.0
Adjusting Items Total(1) (356.7) (663.9) (780.1)
Income (loss) from
Operations 31.9 (211.9) (161.1)
nm - percentage change not meaningful
(1) See Part II, Item 8. Financial Statements and Supplementary Data; Note 18 -
Segment Reporting
2020 compared to 2019
Adjusted Income from Operations for our North America segment increased $11.0
million , or 1.8%, for the year ended December 31, 2020 to $606.0 million from
$595.0 million for the year ended December 31, 2019 . As a percentage of North
America revenues, Adjusted Income from Operations was 27.7% and 21.7%, for the
years ended December 31, 2020 and 2019, respectively. Adjusted Income from
Operations improved due to reductions in variable and discretionary costs,
driven by operational efficiency improvements including compensation,
transportation and disciplined spending in operations. The increase was
partially offset by 2020 divestitures of the Environmental Solutions business,
Argentina operations, and components of the CRS business and divestitures that
occurred during 2019. Operating margin improved as certain divested businesses
historically produced lower margins as compared to core businesses and
operational efficiencies noted above.
Adjusted Income from Operations for our International segment decreased $24.2
million , or 34.2%, for the year ended December 31, 2020 to $46.5 million from
$70.7 million for the year ended December 31, 2019 . The decline was primarily a
reduction in income from operations due to the COVID-19 pandemic and the related
revenue decreases discussed above. As a percentage of International revenues,
Adjusted Income from Operations was 9.6% and 12.4% for the years ended
December 31, 2020 and 2019, respectively.
Adjusted Loss from Operations for Other increased in the year ended December 31,
2020 compared to the prior year as a result of higher incentive and stock-based
compensation, information technology and corporate insurance, partially offset
by lower worker's compensation expense.
Interest Expense, Net
In millions
Year Ended December 31,
2020 2019 Change 2020 versus 2019
$ % of Revenue $ % of Revenue $ %
Interest expense, net 81.9 3.1 % 118.3 3.6 % (36.4) (30.8 %)
The decrease in the year ended December 31, 2020 as compared to 2019 is a result
of a lower weighted-average debt balance as well as lower interest rates. For
further information see Part II, Item 8. Financial Statements and Supplementary
Data; Note 9 - Debt.
Loss on Early Extinguishment of Debt
During 2019, we incurred a pre-tax loss on early extinguishment of debt of
$23.1 million , relating to the repayment of our private placement notes,
discussed in Capital Allocation above. We did not have any pre-tax loss on early
2020 10-K Annual Report Stericycle, Inc. • 48
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extinguishment of debt in 2020. For further information see Part II, Item 8.
Financial Statements and Supplementary Data; Note 9 - Debt.
Other Expense, Net
In millions
Year Ended December 31,
2020 2019 Change 2020 versus 2019
$ % of Revenue $ % of Revenue $ %
Other expense, net 6.0 0.2 % 9.5 0.3 % (3.5) (36.8 %)
Other expense, net is primarily comprised of foreign exchange losses including
the re-measurement of net monetary assets held in Argentina , prior to
divestiture in August 2020 , as a result of its designation as a highly
inflationary economy.
Income Tax Benefit
In millions
Year Ended December 31,
2020 2019 Change 2020 versus 2019
$ Effective rate $ Effective rate $ %
Income tax benefit 0.1 0.2 % 16.8 4.6 % (16.7) (99.4 %)
Income tax benefit was $0.1 million in 2020 compared to income tax benefit of
$16.8 million in 2019. The effective tax rates for the years 2020 and 2019 were
0.2% and 4.6%, respectively. In 2020, our effective tax rate was negatively
impacted by valuation allowances and divestitures which was partially offset by
benefits from the CARES Act. In 2019, our effective tax rate was impacted by the
non-deductibility of a portion of the goodwill impairments in certain
jurisdictions, and valuation allowances recognized against net operating losses
in several countries.
For further information, see Part II, Item 8. Financial Statements and
Supplementary Data; Note 10 - Income Taxes in the Consolidated Financial
Statements.
Liquidity and Capital Resources
Details of our outstanding debt obligations can be found in Part II, Item 8.
Financial Statements and Supplementary Data; Note 9 - Debt in the Consolidated
Financial Statements.
The Company believes that it has sufficient liquidity to support its ongoing
operations and to invest in future growth to create value for its shareholders.
Operating cash flows and the Company's $1.20 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 long-term
debt obligations, capital expenditures necessary to support growth and
productivity improvements, including those associated with shareholder
distributions approved by the Board of Directors. To the extent the Company
needs to add additional funding options to meet additional liquidity
requirements or diversify its funding portfolio, the Company could seek
additional financing from alternative sources, including approaching the capital
markets.
The Company generated positive impacts to cash flow from operations in 2020 as a
result of the CARES Act. The Company received $110.0 million , which was
comprised of $48.0 million in July 2020 and $62.0 million in December 2020 , of
cash tax refunds for 2018 and 2019 U.S. net operating loss carryback claim,
respectively. A remaining carryback claims associated with the finalization of
the 2019 U.S. federal income tax return is currently filed with the IRS , and the
anticipated refund is less than $1.0 million . Additionally, starting in the
second quarter of 2020 and continued through the year ended December 31, 2020 ,
the Company deferred payments associated with employer related payroll taxes of
approximately $23.3 million under the CARES Act with expected payments in late
2021 and 2022.
Similar tax provisions and other stimulus measures have been granted either
before or after December 31, 2020 by certain foreign and U.S. state
jurisdictions which the Company continues to evaluate and apply, if
applicable. The Company has benefited in the year ended December 31, 2020 from
non-U.S. indirect tax payment deferrals of approximately $10.0 million , which
will be due in 2021.
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The Credit Agreement and Fifth Amendment contain a number of covenants, including financial covenants. As ofDecember 31, 2020 , the Company was in compliance with the Credit Agreement Debt Leverage Ratio covenant, with an actual ratio of 3.54 to 1.00, which was below the allowed maximum ratio of 4.75 to 1.00 as contained in the Fifth Amendment. OnApril 6, 2020 , the Company completed the divestiture of its Environmental Solutions business. Therefore, effectiveApril 6, 2020 , the Consolidated Leverage Ratio decreased by 0.25 to 4.75 to 1.00 for fiscal quarters ending on or beforeDecember 31, 2021 and 4.25 to 1.00 for fiscal quarters ending on or afterMarch 31, 2022 . Given our current leverage position, we believe we should be able to operate within our covenant thresholds, but due to the unpredictability of the COVID-19 pandemic and situations outside our control, it is reasonably likely that we could exceed this Consolidated Leverage Ratio threshold at some point in the next 12 months. This risk can be mitigated and potentially managed through appropriate spending controls, divestitures, restructuring the Company's existing indebtedness, amending the Credit Agreement, or seeking temporary relief from the Consolidated Leverage Ratio covenant from the Company's lenders. A failure to comply with these covenant provisions could result in an event of default. Upon an event of default, unless waived, the lenders could elect to terminate their commitments, cease making further loans and/or cause their loans to become due and payable in full, foreclose against the assets securing the debt under our Credit Agreement and force us and our subsidiaries into bankruptcy or liquidation. Working Capital AtDecember 31, 2020 , our working capital decreased$94.3 million to a deficit of$144.6 million compared to a deficit of$50.3 million atDecember 31, 2019 . This change is primarily driven by the divestiture of the Environmental Solutions business in 2020. Current assets decreased$154.1 million in 2020 to$552.5 million from$706.6 million in 2019 primarily driven by the divestitures of the Environmental Solutions and Expert Solutions businesses. DSO was 52 days and 60 days as ofDecember 31, 2020 and 2019, respectively. When excluding the divestiture revenues from the trailing 12-month DSO calculation, DSO was relatively consistent at 56 and 55 days in 2020 and 2019, respectively. Current liabilities decreased$59.8 million in 2020 to$697.1 million from$756.9 million in 2019, primarily driven by the divestiture of the Environmental Solutions business in 2020. In millions Year Ended December 31, 2020 2019 Net cash from operating activities$ 530.2 $ 248.0 Net cash from investing activities 381.4 (104.0) Net cash from financing activities (892.5) (141.6) Effect of exchange rate changes on cash and cash equivalents (0.5) (2.0) Net change in cash and cash equivalents $
18.6
Operating Cash Flows: Net cash from operating activities increased$282.2 million in the year ended 2020 to$530.2 million from$248.0 million in 2019. The current period primarily reflects (i)U.S. CARES Act net operating loss carryback refund received in the third and fourth quarters of 2020 for a total of$110.0 million , (ii) lower payments for legal and professional fees, annual incentive compensation and prepaid software of$55.6 million compared to 2019, (iii) government relief tax-related payment deferrals of$30.2 million in 2020, roughly split two-thirdsU.S. and one-third non-U.S. , (iv) lower interest payments of$26.0 million in 2020, (v) advances received on executed service agreements of$19.2 million related to the Environmental Solutions divestiture in the second quarter of 2020 and (vi) lower operating expenditures for ERP and other related matters of approximately$20.0 million compared to 2019. Investing Cash Flows: Net cash from investing activities increased$485.4 million in 2020 to net cash provided of$381.4 million from net cash used of$104.0 million in 2019. Our capital expenditures decreased by$74.7 million to$119.5 million from$194.2 million in 2019, primarily driven by the timing of 2019 investments in the ERP and 2020 disciplined capital management. In 2020, we received$498.9 million in net proceeds from the divestiture of Expert Solutions, operations inArgentina and Environmental Solutions businesses compared to$86.6 million net divestiture proceeds in 2019.
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Financing Cash Flows: Net cash from financing activities increased$750.9 million for the year ended 2020 to$892.5 million from$141.6 million in 2019. The change related to our net repayments on our Senior Credit Facility and term loan for$1,337.4 million principally due to the proceeds received from the new debt issuance of Senior Notes, divestiture of the Environmental Solutions and Expert Solutions businesses and higher net cash from operating activities generated in 2020. Additionally, the Company made payments of other long-term debt and foreign debt of$40.0 million in 2020. The decrease was partially offset by proceeds of$500.0 million associated with debt issuance of the Senior Notes in 2020. During 2019, net borrowings of$114.8 million included repayment of private placement notes and$600.0 million new debt issuance of Senior Notes and additional borrowings on the Senior Credit Facility and term loan. As a result of the 2019 repayment of private placement notes, the Company paid$20.4 million for a make whole premium. Contractual Obligations The following table summarizes our significant contractual obligations and cash commitments atDecember 31, 2020 : Payments due by period (in millions) Total 2021 2022-2023 2024-2025 2026 and After Long term debt (1)$ 1,770.4 $ 87.3 $ 576.5 $ 606.1 $ 500.5 Finance lease liabilities 40.0 3.7 7.7 5.3 23.3 Operating lease liabilities 435.9 86.2 151.5 97.6 100.6 Estimated purchase obligations 114.4 60.5 51.9 2.0 - Total contractual obligations and cash commitments$ 2,360.7 $ 237.7 $
787.6
(1)These amounts represent the scheduled principal payments related to our long-term debt, excluding interest (see Part II, Item 8. Financial Statements and Supplementary Data; Note 9 - Debt in the Consolidated Financial Statements).
The Company establishes asset retirement obligations for the present value of estimated future costs to retire long-lived assets at the termination or expiration of a lease. Asset retirement obligations are not presented above but the timing of such payments is not fixed and determinable (see Part II, Item 8. Financial Statements and Supplementary Data; Note 12 - Commitments and Contingencies in the Consolidated Financial Statements). 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. As ofDecember 31, 2020 , we had$79.5 million of stand-by letters of credit outstanding against our senior credit facility,$37.9 million of surety bonds and$21.2 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 Credit Facility, as amended onFebruary 25, 2020 , will be sufficient to meet our anticipated future operating expenses, key priorities such as our new ERP implementation, 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 withU.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. Our 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 Statements and Supplementary Data; Note 1 - Basis of Presentation and 2020 10-K Annual ReportStericycle, Inc. • 51
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Summary of Significant Accounting Polices in the Consolidated Financial Statements provides a detailed description of all of our material accounting policies; however, we have identified the following as our most critical accounting policies and estimates. Revenue Recognition 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. The Company provides RWCS, which provide collection and processing of regulated and specialized waste, including medical, pharmaceutical and hazardous waste, for disposal and compliance programs; SID Services, which provide for the collection of personal and confidential information for secure destruction and recycling of shredded paper; and CRS which includes communication services such as appointment reminders, secure messaging, event registration and other communications for hospitals and IDN's. 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. We recognize 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 regulated waste and secure information destruction services are recognized upon waste collection. Our compliance services are recognized over the contractual service period. Revenues from communication services are recorded as the services are performed. 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. The Company maintains 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, as well as management's expectation of future economic conditions. If current or expected future economic trends, 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. The adequacy of allowances for uncollectible accounts is reviewed at least quarterly and adjusted as necessary based on such reviews. 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 the Company's customers, historical collection trends, and current and future expected economic trends. Accounts receivable written off in subsequent periods can differ from the allowance for doubtful accounts provided, but historically our provision has been adequate. Allowance for doubtful accounts was$56.2 million and$67.9 million as ofDecember 31, 2020 and 2019, respectively. Impairment of Long-Lived Assets Property, Plant 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 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 impairment, if any, typically requires various estimates and assumptions 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. (For additional information, see Part II, Item 8. Financial Statements and Supplementary Data; Note 5 - Property, Plant and Equipment and Note 7 -Goodwill and Other Intangible Assets in the Consolidated Financial Statements). 2020 10-K Annual ReportStericycle, Inc. • 52
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Intangible Assets (indefinite-lived): Indefinite-lived intangibles consist primarily of permits and tradenames. Indefinite-lived intangibles are assessed for impairment annually, as ofOctober 1 , or more frequently if an event occurs or circumstances change and are 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 is performed. In the fourth quarter of 2020, we performed our 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 that would require non-cash charges and may have a material effect on our financial condition and operating results.Goodwill :Goodwill is assessed for impairment annually as ofOctober 1 of each year, or more frequently if an event occurs or circumstances change that could reduce the value of a reporting until 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 DCF) and validated using a market approach with the involvement of a third-party valuation specialist. Our reporting units are: Domestic RWCS, Domestic SID, Domestic CRS,Canada ,Europe ,Asia Pacific andLatin 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 or divestitures 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. 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 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 but not to exceed the carrying value of any goodwill. We performed our annual goodwill assessment as ofOctober 1, 2020 . As a result of this assessment, no goodwill impairment charges were recognized in 2020. For additional information, see Part II, Item 8. Financial Statements and Supplementary Data; Note 7 -Goodwill and Other Intangible Assets in the Consolidated Financial Statements. 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. As of theOctober 1, 2020 assessment, the estimated fair value of each reporting unit exceeded its carrying value by at least 20%. We performed sensitivity analysis on our estimated fair values, 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 for any of our reporting units. Intangible Assets Lives We have determined that certain of 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. Our finite-lived intangible assets are amortized over their useful lives using the straight-line method. Our customer relationships have useful lives from 10 to 25 years based upon the type of customer. We have non-compete covenant intangibles with useful lives of 5 years. We also have tradename intangibles with useful lives from 15 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 2020 10-K Annual ReportStericycle, Inc. • 53
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amortized over the revised remaining useful life. In the fourth quarter of 2020, we performed the annual assessment of the useful life of our finite-lived intangibles and made no changes to useful lives. Assets and Liabilities Held-for-Sale We classify Long-lived assets or disposal groups as held-for-sale when management having the appropriate authority, generally our Board of Directors or certain of our Executive Officers, commits to a plan of sale, the disposal group is ready for immediate sale, an active program to locate a buyer has been initiated and the sale is probable and expected to be completed within one year. Once classified as held-for-sale disposal groups are valued at the lower of their carrying amount or fair value less estimated selling costs. Where the disposal group constitutes substantially all, generally more than 90% of the assets and liabilities of our operations in a foreign country, the balance in the cumulative currency translation adjustment associated with that country is included in the carrying value of the disposal group. If the carrying value, including any amount associated with the cumulative currency translation, adjustment exceeds the fair value less estimated selling costs a held-for-sale impairment charge is recorded to reduce the carrying value. The estimate for fair value is reviewed at the end of every reporting period that the disposal group is classified as held-for-sale and the carrying value adjusted whenever the estimated fair value less costs to sell is less than the carrying value. Contingencies and Litigation We are subject to various legal proceedings, claims and regulatory matters, the outcomes of which are subject to significant uncertainty. We determine whether to disclose or accrue for loss contingencies based on an assessment of whether the risk of loss is remote, reasonably possible or probable, and whether it can be reasonably estimated. We analyze our litigation and regulatory matters based on available information to assess the potential liabilities. Management's assessment is developed based on an analysis of possible outcomes under various strategies. We record and disclose loss contingencies pursuant to the applicable accounting guidance for such matters (For additional information, see Part II, Item 8. Financial Statements and Supplementary Data; Note 20 - Legal Proceedings in the Consolidated Financial Statements). 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. 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 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. AtDecember 31, 2020 , our estimated gross unrecognized tax benefits were$24.3 million , of which$23.2 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. 2020 10-K Annual ReportStericycle, Inc. • 54
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The Tax Act established GILTI provisions that impose a tax on foreign income in excess of a deemed return on intangible assets of foreign corporations. We recognize the taxes on GILTI as a period expense rather than to recognize deferred taxes for basis differences that are expected to affect the amount of GILTI inclusion upon reversal. For further information see Part II, Item 8. Financial Statements and Supplementary Data; Note 10 - Income Taxes in the Consolidated Financial Statements. Insured and Self-Insured Claims The Company's insurance for workers' compensation, auto/fleet, general liability, property and employee-related health care benefits is obtained using high deductible insurance policies, if any, meaning that the Company has retained a significant portion of the risks related to the claims associated with these programs. The estimated exposure for unpaid claims and associated expenses, including incurred but not reported losses, is based on a calculation performed by a third-party actuarial specialist using the Company's historical claims experience. The accruals for these liabilities could be revised if future occurrences or loss developments significantly differ from the assumptions used. Estimated recoveries associated with insured claims are recognized as assets when 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. 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. 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. We use the Black-Scholes valuation model and the Monte Carlo simulation model to determine the fair value of stock options and PSU's, respectively, once the related performance criteria have been established. The fair value models include various assumptions, including the expected volatility and expected life of the awards. Given the considerable judgment involved in these assumptions and complex modeling, we typically obtain assistance from third-party valuation specialists. The fair value of RSU's is determined based on closing price of our common stock on the date of grant. If an equity award is modified after the grant date, we assess the impact of the modification and where necessary record compensation cost calculated as any incremental fair value of the modified award over the fair value of the original award immediately before the modification. For further detail, see Part II, Item 8. Financial Statements and Supplementary Data; Note 14 - 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, including SOP and diesel fuel and foreign currency rates. We do not specifically hedge our exposure to these risks. 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$6.3 million on a pre-tax basis. We have exposure to foreign currency fluctuations. We have subsidiaries in 17 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 endedDecember 31, 2020 and prevailing exchange rates at that date, a 1% devaluation of all the functional currencies of each of our foreign businesses would result in an approximate$1.9 million increase to the Net loss attributable toStericycle, Inc. reported in our Consolidated Statements of Loss.
2020 10-K Annual Report
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Table of Contents PART II
We have cumulative currency translation adjustment losses as ofDecember 31, 2020 of approximately$187.4 million which are subject to continued fluctuations due to changes in foreign currency rates. In addition, to the extent that we sell substantially all of the operations within one country, similar to the transactions undertaken inArgentina during 2020 andMexico andChile during 2019, we would be required to recognize, in the Statements of Loss, the accumulated currency translation losses or gains associated with that country. TheU.K.'s Financial Conduct Authority , which regulates LIBOR, announced in 2017 that it intends to phase out LIBOR by the end of 2021. The Company's contracts with respect to its borrowings already contain comparable alternative reference rates that would automatically take effect upon the phasing out of LIBOR. Item 8. Financial Statements and Supplementary Data Report of Independent Registered Public Accounting Firm To the Shareholders and the Board of Directors ofStericycle, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets ofStericycle, Inc. (the Company) as ofDecember 31, 2020 and 2019, the related consolidated statements of loss, comprehensive income (loss), changes in equity and cash flows for each of the three years in the period endedDecember 31, 2020 , 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 atDecember 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period endedDecember 31, 2020 , in conformity withU.S. generally accepted accounting principles. We also have audited, in accordance with the standards of thePublic Company Accounting Oversight Board (United States ) (PCAOB), the Company's internal control over financial reporting as ofDecember 31, 2020 , based on criteria established in Internal Control - Integrated Framework issued by theCommittee of Sponsoring Organizations of theTreadway Commission (2013 framework) and our report datedFebruary 25, 2021 expressed an unqualified 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 theU.S. federal securities laws and the applicable rules and regulations of theSecurities 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. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the account or disclosure to which it relates. 2020 10-K Annual ReportStericycle, Inc. • 56
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Valuation of Goodwill
Description of the Matter At December 31, 2020 , the Company's goodwill was $2,819.3 million . As
disclosed in Note 7 to the consolidatedfinancial statements, goodwill
is tested for impairment at the reporting unit level annually as of
October 1 , or more frequently, if a triggering event occurs. The
Company determined no reporting unit's carrying value was in excess of
its respective fair value.
Auditing management's goodwill impairment assessment was complex and
highly judgmental due to the significant estimation required in
determining the fair value of the Company's reporting units. In
particular, the fair value estimates were sensitive to significant
assumptions, such as discount rates,projections of revenue, cost of
revenue and operating expense growth rates, and long-term growth rates
which are affected by expectations about future market or economic
conditions, particularly those in markets with challenging economic
conditions.
How We Addressed the Matter We obtained an understanding, evaluated the design, and tested the
in operating effectiveness of controls over the Company's goodwill
Our Audit impairment review process. For example, we tested controls over
management's review of the significantassumptions discussed above
used to develop the fair value estimates. We also tested management's
controls over the completeness and accuracy of the underlying data
used in the valuation.
To test the estimated fair value of theCompany's reporting units, we
performed audit procedures that included, among others, assessing
methodologies and testing the significant assumptions discussed above
and the underlying data used by the Company in its analysis. We
involved our valuation specialists to review the Company's model,
methods, and the more sensitive assumptions utilized such as the
discount rate and long-term growth assumptions. We compared the
significant assumptions used by management to current industry and
economic trends, changes to the Company's business model, customer
base and other relevant factors. We assessed the historical accuracy
of management's estimates and performed sensitivity analyses of
significant assumptions to evaluate the changes in the fair value of
the reporting units that would result fromchanges in the assumptions.
We reconciled the fair value of the reporting units to their carrying
values, testing the Company's determination of the assets and
liabilities used within the reporting unitsthat are the basis for the
carrying values. In addition, we tested management's reconciliation of
the fair value of all the reporting units to the market capitalization
of the Company and assessed the adequacy of the Company's goodwill
valuation disclosures.
/s/ Ernst & Young LLP
We have served as the Company's auditor since 1991.
Chicago, Illinois
February 25, 2021
2020 10-K Annual Report Stericycle, Inc. • 57
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STERICYCLE, INC.
CONSOLIDATED STATEMENTS OF LOSSIn millions, except per share data
Year
Ended
2020 2019 2018
Revenues $ 2,675.5 $ 3,308.9 $ 3,485.9
Cost of revenues 1,622.4 2,134.4 2,109.9
Gross profit 1,053.1 1,174.5 1,376.0
Selling, general and administrative expenses 897.6 1,055.1 1,165.6
Goodwill impairment - 228.3 358.7
Divestiture losses (gains), net 123.6 103.0 12.8
Income (loss) from operations 31.9 (211.9) (161.1)
Interest expense, net (81.9) (118.3) (106.0)
Loss on early extinguishment of debt - (23.1) -
Other expense, net (6.0) (9.5) (8.3)
Loss before income taxes (56.0) (362.8) (275.4)
Income tax benefit 0.1 16.8 29.8
Net loss (55.9) (346.0) (245.6)
Net (income) loss attributable to noncontrolling
interests (1.4) (0.8) 0.9
Net loss attributable to Stericycle, Inc. (57.3) (346.8) (244.7)
Mandatory convertible preferred stock dividend - - (25.5)
Gain on repurchase of preferred stock - - 16.9
Net loss attributable to Stericycle, Inc. common
shareholders $ (57.3) $ (346.8) $ (253.3)
Loss per common share attributable to Stericycle, Inc.
common shareholders:
Basic $ (0.63) $ (3.81) $ (2.91)
Diluted $ (0.63) $ (3.81) $ (2.91)
Weighted average number of common shares
Outstanding:
Basic 91.5 91.0 87.1
Diluted 91.5 91.0 87.1
See accompanying Notes to Consolidated Financial Statements.
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STERICYCLE, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE
INCOME (LOSS)
In millions
Year Ended December 31,
2020 2019 2018
Net loss $ (55.9) $ (346.0) $ (245.6)
Other comprehensive income (loss):
Currency translation adjustments 44.0 8.8 (80.3)
Cumulative currency translation loss realized through
disposition of
87.2 - -
Cumulative currency translation loss realized through
disposition of
- 18.9 -
Cumulative currency translation loss realized through
disposition of
- 16.8 -
Amortization of cash flow hedge into income, net of tax
expense (
- 0.4 1.0
Change in fair value of cash flow hedge, net of tax
expense (
- 0.3 -
Accelerated amortization of interest rate lock premiums,
net of tax expense (
- 2.3 -
Total other comprehensive income (loss) 131.2 47.5 (79.3)
Comprehensive income (loss) 75.3 (298.5) (324.9)
Less: comprehensive income (loss) attributable to
noncontrolling interests 1.9 1.1 (1.9)
Comprehensive income (loss) attributable to
$ 73.4
See accompanying Notes to Consolidated Financial Statements.
2020 10-K Annual Report
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STERICYCLE, INC.
CONSOLIDATED BALANCE SHEETSIn millions, except per share data
December 31,
2020 2019
ASSETS
Current Assets:
Cash and cash equivalents $ 53.3 $ 34.7
Accounts receivable, less allowance for doubtful accounts of $56.2
in 2020 and $67.9 in 2019 380.7 544.3
Prepaid expenses 63.0 60.7
Other current assets 55.5 66.9
Total Current Assets 552.5 706.6
Property, plant and equipment, less accumulated depreciation of
701.3 798.5
Operating lease right-of-use assets 365.0 435.0
Goodwill 2,819.3 2,982.2
Intangible assets, less accumulated amortization of $641.6 in 2020
and $584.9 in 2019 1,087.4 1,422.4
Other assets 56.4 92.3
Total Assets $ 5,581.9 $ 6,437.0
LIABILITIES AND EQUITY
Current Liabilities:
Current portion of long-term debt $ 91.0 $ 103.1
Bank overdraft - 1.9
Accounts payable 181.2 220.1
Accrued liabilities 289.4 296.6
Operating lease liabilities 86.2 94.8
Other current liabilities 49.3 40.4
Total Current Liabilities 697.1 756.9
Long-term debt, net 1,689.1 2,559.3
Long-term operating lease liabilities 299.0 356.1
Deferred income taxes 380.4 295.1
Long-term tax payable 22.7 70.7
Other liabilities 59.2 64.2
Total Liabilities 3,147.5 4,102.3
Commitments and contingencies
Equity:
Preferred stock (par value
- -
Common stock (par value $0.01 per share, 120.0 shares authorized,
91.6 and 91.2 issued and outstanding in 2020 and 2019, respectively) 0.9 0.9
Additional paid-in capital 1,234.0 1,205.7
Retained earnings 1,382.6 1,442.4
Accumulated other comprehensive loss (187.4) (318.1)
Total Stericycle, Inc.'s Equity 2,430.1 2,330.9
Noncontrolling interests 4.3 3.8
Total Equity 2,434.4 2,334.7
Total Liabilities and Equity $ 5,581.9 $ 6,437.0 See accompanying Notes to Consolidated Financial Statements.
2020 10-K Annual Report
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Table of Contents PART II
STERICYCLE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
In millions
Year Ended December 31,
2020 2019 2018
OPERATING ACTIVITIES:
Net loss $ (55.9) $ (346.0) $ (245.6)
Adjustments to reconcile net loss to net cash from
operating activities:
Depreciation 108.6 127.6 125.6
Intangible amortization 124.9 145.2 130.3Loss on early extinguishment of debt and related charges -
26.5 -
Stock-based compensation expense 25.5 17.1 24.1
Deferred income taxes 32.6 (33.9) (34.1)
Goodwill impairment - 228.3 358.7
Divestiture losses, net of gains 123.6 103.0 12.8
Asset impairments, gain/loss on disposal of property plant and equipment and other charges
18.3 28.1 47.4
Other, net 5.1 2.5 3.8
Changes in operating assets and liabilities, net of the
effects of acquisitions and divestitures:
Accounts receivable 27.4 24.5 3.6
Prepaid expenses 68.9 (18.4) (15.6)
Accounts payable (5.5) (4.6) 9.3
Accrued liabilities 8.2 (33.4) (238.5)
Other assets and liabilities 48.5 (18.5) (16.1)
Net cash from operating activities 530.2 248.0 165.7
INVESTING ACTIVITIES:
Capital expenditures (119.5) (194.2) (130.8)
Payments for acquisitions, net of cash acquired - (0.2) (44.7)
Proceeds from divestitures of businesses 498.9 86.6 25.2
Other, net 2.0 3.8 2.8
Net cash from investing activities 381.4 (104.0) (147.5)
FINANCING ACTIVITIES:
Repayments of long-term debt and other obligations (31.1) (50.4) (64.5)
Proceeds from foreign bank debt 1.8 12.1 12.1
Repayment of foreign bank debt (10.7) (47.8) (17.8)
Proceeds from term loan - 365.0 -
Repayment of term loan (749.7) (95.3) (47.5)
Repayment of private placement of long-term note - (1,075.0) -
Proceeds from senior debt 500.0 600.0 -
Proceeds from senior credit facility 1,210.6 1,752.2 1,657.2
Repayment of senior credit facility (1,798.3) (1,575.6) (1,541.0)
Repayment of bank overdrafts, net (1.7) (12.5) 8.7
Payments of capital lease obligations (4.3) (4.3) (8.2)
Payments of debt issuance costs (7.3) (8.8) (1.7)
Proceeds from issuance of common stock, net of (payments of) taxes from withheld shares
(0.4) 19.9 20.1
Payments on early debt extinguishment - (20.4) -
Payments for repurchase of mandatory convertible
preferred stock - - (17.2)
Dividends paid on mandatory convertible preferred stock - - (25.5)
Payments to noncontrolling interests (1.4) (0.7) (0.4)
Net cash from financing activities (892.5) (141.6) (25.7)
Effect of exchange rate changes on cash and cash
equivalents (0.5) (2.0) (0.4)
Net change in cash and cash equivalents 18.6 0.4 (7.9)
Cash and cash equivalents at beginning of year 34.7 34.3 42.2
Cash and cash equivalents at end of year $ 53.3 SUPPLEMENTAL CASH FLOW INFORMATION: Net issuances of obligations for acquisitions $ -$ 0.3 $ 30.1 Capital expenditures in accounts payable$ 11.7 $ 33.8 $ 30.8 Interest paid during the year, net of capitalized interest$ 75.5 $ 101.5 $ 93.7 Income taxes (refunded) paid during the year, net$ (83.7)
See accompanying Notes to Consolidated Financial Statements.
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STERICYCLE, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
In millions
Stericycle, Inc. Equity
Additional
Paid-In Retained Accumulated Other Noncontrolling
Preferred Stock Common Stock Capital Earnings Comprehensive Loss Interests Total Equity
Shares Amount Shares Amount
Balance as of January 1, 2018 0.7 $ - 85.5 $ 0.9 $ 1,153.2 $ 2,029.5 $ (287.0) $ 12.0 $ 2,908.6
Cumulative effect of new
accounting standard - - - - - 13.0 - - 13.0
Net loss - - - - - (244.7) - (0.9) (245.6)
Currency translation adjustment - - - - - - (79.3) (1.0) (80.3)
Change in qualifying cash flow
hedge, net of tax - - - - - - 1.0 - 1.0
Issuance of common stock for
exercise of options, PSU and RSU
vesting and employee stock
purchases, net - - 0.5 - 19.4 - - - 19.4
Repurchase and cancellation of
convertible preferred stock (0.1) - - - (34.1) 16.9 - - (17.2)
Conversion of convertible
preferred stock to common stock (0.6) - 4.7 - - - - - -
Preferred stock dividend - - - - - (25.5) - - (25.5)
Stock compensation expense - - - - 24.1 - - - 24.1
Changes to noncontrolling
interest - - - - - - - (0.4) (0.4)
Balance as of December 31, 2018 - - 90.7 0.9 1,162.6 1,789.2 (365.3) 9.7 2,597.1
Net loss - - - - - (346.8) - 0.8 (346.0)
Currency translation adjustment - - - - - - 8.5 0.3 8.8
Change in qualifying cash flow
hedge, net of tax - - - - - - 0.7 - 0.7
Accelerated amortization of
interest rate lock premiums, net
of tax - - - - - - 2.3 - 2.3
Issuance of common stock for
exercise of options, PSU and RSU
vesting and employee stock
purchases, net - - 0.5 - 19.7 - - - 19.7
Cumulative currency translation
loss realized through disposition
of Mexico operations - - - - - - 18.9 - 18.9
Cumulative currency translation
loss realized through disposition
of Chile operations - - - - - - 16.8 - 16.8
Stock compensation expense - - - - 17.1 - - - 17.1
Changes to noncontrolling
interest - - - - 6.3 - - (7.0) (0.7)
Balance as of December 31, 2019 - - 91.2 0.9 1,205.7 1,442.4 (318.1) 3.8 2,334.7
Net loss - - - - - (57.3) 1.4 (55.9)
Currency translation adjustment - - - - - - 43.5 0.5 44.0
Issuance of common stock for
exercise of options, PSU and RSU
vesting and employee stock
purchases, net - - 0.4 - 2.8 - - - 2.8
Cumulative currency translation
loss realized through disposition
of Argentina operations - - - - - - 87.2 - 87.2
Stock compensation expense - - - - 25.5 - - - 25.5
Change in accounting principle - - - - - (2.5) - - (2.5)
Changes to noncontrolling
interest - - - - - - - (1.4) (1.4)
Balance as of December 31, 2020 - $ -
91.6
(187.4) $ 4.3 $ 2,434.4 See accompanying Notes to Consolidated Financial Statements.
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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
Incorporated in 1989, Stericycle protects people, safeguards communities and
reduces risk through highly specialized waste management and secure information
destruction services. The Company serves customers in the U.S. and 17 other
countries with a concentration on the growing healthcare industry.
The Company's core business focus is on regulated waste and compliance services
and secure information destruction, and it is the leading provider of these
services in terms of both revenue and operational infrastructure.
For further information on the Company's business, segments and services, see
Note 18 - 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 the Company to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Some areas where the Company makes estimates include
allowance for doubtful accounts, credit memo reserve, accrued employee health
and welfare benefits, contingent liabilities, asset retirement obligations,
stock compensation expense, income tax assets and liabilities, accrued auto, and
workers' compensation insurance claims, leases, intangible asset valuations and
long-lived asset, goodwill and a held for sale 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 these
estimates.
Revenue from Contracts with Customers: 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.
The Company provides RWCS, which provide collection and processing of regulated
and specialized waste, including medical, pharmaceutical and hazardous waste,
for disposal and compliance programs; SID Services, which provide for the
collection of personal and confidential information for secure destruction and
recycling of shredded paper; and CRS which includes communication services such
as appointment reminders, secure messaging, event registration and other
communications for hospitals and IDN's.
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 the Company's right to consideration corresponds directly to the
value provided to the customer for performance to date. Revenues for the
Company's regulated waste and secure information destruction services are
recognized upon waste collection. The Company's compliance services revenues are
recognized over the contractual service period. Revenues from communication
services are recognized as the services are performed.
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Accounts Receivable and Allowance for Doubtful Accounts: Accounts receivable is recorded when billed or when goods or services are provided. The carrying value of the Company's receivables is presented net of an allowance for doubtful accounts. The Company estimates its allowance for doubtful accounts based on past collection history and specific risks identified among uncollected amounts, as well as management's expectation of future economic conditions. If current or expected future economic trends, 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 the Company's internal collection efforts have been exhausted. No single customer accounts for more than approximately 2.1% of the Company's accounts receivable or approximately 1.5% of total revenues. During the year endedDecember 31, 2020 , 2019 and 2018, bad debt expense was$21.7 million ,$25.7 million and$24.9 million , respectively. Contract Liability: The Company records a contract liability when cash payments are received in advance of the Company's 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. Contract Acquisition Costs: Incremental direct costs of obtaining a contract, which primarily represent sales incentives, are deferred and amortized to SG&A over the estimated period of benefit to be derived from the cost. Cash and Cash Equivalents: The Company considers 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: The Company's financial instruments consist of cash and cash equivalents, accounts receivable and payable, and long-term debt. Financial instruments, which potentially subject the Company 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 the Company's customer base, low concentration, and the performance of ongoing credit evaluations of its customers. The Company also maintains allowances for potential credit losses. 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 is computed using the straight-line method over the estimated useful lives of the assets as follows: Building and improvements 2 to 40 years Machinery and equipment 2 to 30 years Containers 2 to 20 years Vehicles 2 to 10 years
Office equipment and furniture 2 to 20 years Software
2 to 10 years
Capitalized Interest: The Company capitalizes interest incurred associated with
projects under construction for the duration of the asset construction period.
During the years ended December 31, 2020 , 2019 and 2018, the Company capitalized
interest of $1.8 million , $5.4 million and $2.9 million , respectively.
Goodwill and Other Identifiable Intangible Assets: Goodwill represents the
excess of the purchase price 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.
Certain permit indefinite-lived intangible assets may become definite-lived to
the extent event and circumstance warrant.
Impairment of Long - Lived Assets:
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 expected to be generated by the asset, or asset groups, to its carrying
value. If the carrying value of the long-lived asset or asset group is not
recoverable on an undiscounted basis, an impairment is recognized to the extent
fair
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value exceeds carrying value. Determining the extent of impairment, if any, typically requires various estimates and assumptions including 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. Intangible Assets (indefinite-lived): Indefinite-lived intangibles consist primarily of permits and tradenames. Indefinite-lived intangibles are assessed for impairment annually as ofOctober 1 , or more frequently if an event occurs or circumstances change, 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 is performed. The Company performs its annual impairment test on indefinite-lived intangibles, using the qualitative approach for certain assets and the quantitative approach for the remaining assets.Goodwill :Goodwill is assessed for impairment at least annually as ofOctober 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. The Company uses a quantitative approach to assess goodwill for impairment. The fair value of each reporting unit is calculated using the income approach (including DCF) and validated using a market approach with the involvement of a third-party valuation specialist. The Company's reporting units are: Domestic RWCS, Domestic SID, Domestic CRS,Canada ,Europe ,Asia Pacific andLatin 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 estimated using management assumptions of growth rates, including long-term growth rates, capital expenditures and cost efficiencies. Future acquisitions or divestitures are not included in the expected future cash flows. The Company uses a discount rate based on a calculated weighted average cost of capital which is adjusted for each of its 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. The Company then reconciles the calculated fair values to its 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 carrying value, an impairment charge is recognized, equivalent to the amount that the carrying value exceeds the fair value but not to exceed the carrying value of the goodwill. 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. The Company believes 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 markets, including the market value of the Company's common shares, deterioration in its performance or its future projections, or changes in its plans for one or more reporting units. Assets and Liabilities Held-for-Sale: Long-lived assets or disposal groups are classified as held-for-sale when management having the appropriate authority, generally the Company's Board of Directors or certain of its Executive Officers, commits to a plan of sale, the disposal group is ready for immediate sale, an active program to locate a buyer has been initiated and the sale is probable and expected to be completed within one year. Once classified as held-for-sale disposal groups are valued at the lower of their carrying amount or fair value less estimated selling costs. Where the disposal group constitutes substantially all of our operations of a foreign country, the balance in the cumulative translation adjustment associated with that country is included in the carrying value of the disposal group. If the carrying value, including any amount associated with the cumulative translation adjustment, exceeds the fair value less estimated selling costs a held-for-sale impairment charge is recorded to reduce the carrying value. 2020 10-K Annual ReportStericycle, Inc. • 65
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The estimate for fair value is reviewed at the end of every reporting period that the disposal group is classified as held-for-sale and the carrying value adjusted whenever the estimated fair value less costs to sell is less than the carrying value. Insurance andSelf-Insurance : The Company's insurance for workers' compensation, auto/fleet, general liability, property, and employee-related health care benefits is obtained using high deductible insurance policies, if any, meaning that the Company has retained a significant portion of the risks related to the claims associated with these programs. The estimated exposure for unpaid claims and associated expenses, including incurred but not reported losses, is based on a calculation performed by a third party actuarial specialist using the Company's historical claims experience. The accruals for these liabilities could be revised if future occurrences or loss developments significantly differ from the assumptions used. Estimated recoveries associated with insured claims are recognized as assets when the receipt of such amounts is probable. 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 beyond a minimum retention period 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 the Company ceases to use the leased facility and no longer derive economic benefit from the contract. All other exit costs are expensed as incurred. Stock-Based Compensation: The Company recognizes stock-based compensation expense based on the estimated grant-date fair value. Expense is generally recognized on a straight-line basis over the service period during which awards are expected to vest. The Company presents stock-based compensation expense within the Consolidated Statements of Loss based on the classification of the respective employees' cash compensation. Income Taxes: The Company is subject to income taxes in both theU.S. and numerous foreign jurisdictions. The Company computes its 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 reverse. Significant judgments are required in order to determine the realizability of these deferred tax assets. In assessing the need for a valuation allowance, the Company evaluates 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, an uncertain 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 interest and penalties on unrecognized tax benefits in the provision for income taxes. Leases: Operating leases are included in Operating lease ROU assets, Operating lease liabilities and Long-term operating lease liabilities on the Company's Consolidated Balance Sheets. Finance leases are included in Property, plant and equipment, Current portion of long-term debt and Long-term debt on the Consolidated Balance Sheets. Operating lease ROU assets, Operating lease liabilities and Long-term operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. Nearly all of the Company's lease contracts do not provide a readily determinable implicit rate. For these contracts, the Company uses an estimated incremental borrowing rate, which is based on information available at lease commencement. The Company's leases generally do not contain material variable lease payments and generally do not contain options to purchase the leased property, any material residual value guarantees, or material restrictive covenants. At commencement, the Operating lease ROU asset is equal to the lease liability and is adjusted for lease incentives and initial direct costs incurred. The Company reviews all options to extend, terminate, or purchase its ROU assets at the commencement of the lease and on an ongoing basis and accounts for these options when they are reasonably certain of being exercised. Lease expense is recognized on a straight-line basis over the lease term. 2020 10-K Annual ReportStericycle, Inc. • 66
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The Company has lease agreements with lease and non-lease components, including payments for common area maintenance and vehicle maintenance costs, which are accounted for separately, based on their underlying nature, for each class of underlying assets. In addition, the Company applies the short-term lease recognition exemption for leases with terms at commencement of not greater than 12 months. Asset Retirement Obligations: 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 the Company's services and the remaining expenses are presented within SG&A on the Consolidated Statements of Loss. 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 that 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. Highly Inflationary Economy: EffectiveJuly 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$1.2 million ,$3.3 million , and$3.8 million during the years endedDecember 31, 2020 , 2019, and 2018, respectively, arising from the re-measurement of its Argentinian peso denominated net monetary assets.Argentina operations were divested inAugust 2020 . Nonmonetary assets, liabilities, and related expenses are measured using historical exchange rates and do not fluctuate with changes in the local exchange rate. Adoption of New Accounting Standards Financial Instrument Credit Losses InJune 2016 , the FASB issued ASU No. 2016-13, "Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments" ("ASU 2016-13") associated with the measurement of credit losses on financial instruments. ASU 2016-13 replaces the prior incurred loss impairment methodology of recognizing credit losses when a loss was 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 was effective for the Company onJanuary 1, 2020 . The Company recognized a net decrease to Retained earnings in the Consolidated Financial Statements of$2.5 million as ofJanuary 1, 2020 for the cumulative effect of adopting ASU 2016-13.
Implementation Costs Incurred in a Cloud Computing Arrangement
InAugust 2018 , the FASB issued ASU 2018-15, "Intangibles -Goodwill and Other -Internal Use Software (Subtopic 350-40): 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 was effective onJanuary 1, 2020 and was adopted prospectively for implementation costs incurred after the date of adoption. The adoption of ASU 2018-15 did not have a material impact on the Consolidated Financial Statements. Accounting Standards Issued But Not Yet Adopted Simplifying the Accounting for Income Taxes InDecember 2019 , the FASB issued ASU 2019-12, "Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes" ("ASU 2019-12"). ASU 2019-12 attempts to simplify aspects of accounting for franchise taxes and enacted changes in tax laws or rates and clarifies the accounting for transactions that result in a step-up in the tax 2020 10-K Annual ReportStericycle, Inc. • 67
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basis of goodwill. ASU 2019-12 is effective for public business entities for fiscal years beginning afterDecember 15, 2020 , including interim periods within that fiscal year. The Company will adopt ASU 2019-12 effectiveJanuary 1, 2021 . The ASU is not expected to have a material impact upon adoption onJanuary 1, 2021 on our Consolidated Financial Statements. NOTE 2 - REVENUES FROM CONTRACTS WITH CUSTOMERS The Company provides RWCS, which provide collection and processing of regulated and specialized waste, including medical, pharmaceutical and hazardous waste, for disposal and compliance programs; SID Services, which provide for the collection of personal and confidential information for secure destruction and recycling of shredded paper; and CRS which includes communication services such as appointment reminders, secure messaging, event registration and other communications for hospitals and IDN's. The Company's 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, 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 after invoicing based upon normal terms and conditions for our business type and the geography of the services performed. Disaggregation of Revenue In millions Year Ended Year Ended December 31, 2020 2019 2018 Revenue by Service Regulated Waste and Compliance Services$ 1,806.6 $ 2,187.8 $ 2,261.8 Secure Information Destruction Services 745.3 901.9 911.0 Communication and Related Services 123.6 219.2 313.1 Total Revenues$ 2,675.5 $ 3,308.9 $ 3,485.9 North America Regulated Waste and Compliance Services$ 1,427.6 $ 1,762.8 $ 1,778.5 Secure Information Destruction Services 647.3 769.5 778.6 Communication and Related Services 114.3 207.6 286.0 Total North America Segment$ 2,189.2 $ 2,739.9 $ 2,843.1 International Regulated Waste and Compliance Services$ 379.0 $ 425.0 $ 483.3 Secure Information Destruction Services 98.0 132.4 132.4 Communication and Related Services 9.3 11.6 27.1 Total International Segment$ 486.3 $ 569.0 $ 642.8 Contract Liabilities Contract liabilities atDecember 31, 2020 and 2019 were$8.8 million and$12.2 million , respectively. Substantially all of the contract liabilities as ofDecember 31, 2020 are expected to be recognized as revenue during the year endingDecember 31, 2021 and substantially all of the balance as ofDecember 31, 2019 was recognized as revenue during the year endedDecember 31, 2020 . Contract Acquisition Costs The Company's incremental direct costs of obtaining a contract, which consist primarily of sales incentives, are deferred and amortized to SG&A over a weighted average estimated period of benefit of 6.4 years. During the year endedDecember 31, 2020 , 2019, and 2018 the Company amortized$10.6 million ,$9.1 million , and$6.9 million , respectively, of deferred sales incentives to SG&A. Total contract acquisition costs, net of accumulated amortization, were classified as follows as ofDecember 31 : 2020 10-K Annual Report Stericycle, Inc. • 68
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In millions
2020 2019
Other current assets $ 11.1 $ 9.5
Other assets 31.1 28.9
Total contract acquisition costs
NOTE 3 - ACQUISITIONS Acquisitions There were no acquisitions in the year endedDecember 31, 2020 . During the years endedDecember 31, 2019 and 2018, the Company completed 1 and 21 acquisitions, respectively. All of the acquisitions, which were primarily in theNorth America segment with revenues in the SID service line, are considered to be complementary to existing operations and fit with the Company's growth strategy. All were accounted for as business combinations under the applicable guidance. The results of operations of these acquired businesses have been included in the Consolidated Statements of Loss 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 endedDecember 31 : In millions 2020 2019 2018 Cash $ -$ 0.2 $ 44.8 Promissory notes - 0.3 30.0 Deferred consideration - - 0.6 Total purchase price $ -$ 0.5 $ 75.4
The fair value of consideration transferred in a business combination is allocated to the net tangible and identifiable intangible assets at the acquisition date, with the remaining unallocated amount recognized as goodwill.
NOTE 4 - RESTRUCTURING, DIVESTITURES, AND IMPAIRMENTS
Stericycle is focused on driving long-term growth, profitability and delivering enhanced shareholder value. Restructuring - Business Transformation In 2017, the Company initiated a comprehensive multi-year Business Transformation. ThroughDecember 31, 2019 , the Company has incurred all the originally anticipated employee termination charges, including incremental charges related principally to executive management, in connection with its initial restructuring estimate. During the year endedDecember 31, 2019 and 2018, the Company recognized$5.5 million and$3.7 million in charges related to executive and employee termination costs, of which the majority in 2019 in Other, and in 2018 in theNorth America segment. In addition, during the year endedDecember 31, 2018 , the Company recognized 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 theNorth America reportable segment, that was included in COR and$1.4 million related to Other, was included in SG&A. Restructuring - 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, and the company has taken a number of actions to reduce operating costs and optimize operations. As part of these efforts, the company seeks to reduce network redundancies by consolidating facilities and restructuring the operations for efficiency. 2020 10-K Annual ReportStericycle, Inc. • 69
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During the year endedDecember 31, 2020 , the Company recognized$3.1 million of Operational Optimization costs within our International segment related to the discontinuation of a service line in the U.K. During the year endedDecember 31, 2019 , the Company recognized$14.5 million of Operational Optimization costs. TheNorth America segment recognized$3.8 million of costs in the RWCS operations primarily related to a site relocation and costs in the Domestic CRS operations related to a headcount reduction and a non-cash impairment of intangible assets as a result of the exit from a business line. The International segment recognized$10.7 million of costs related to site closures and facility exit charges across the EMEA and LATAM regions. Divestitures The Company incurred the following impairments and divestiture losses (gains), net, which are included in the Consolidated Statements of Loss: In millions Year Ended December 31, 2020 2019 2018 North America Segment Domestic Environmental Solutions business$ 53.8 $ - $ - CRS business (38.8) 45.5 - U.S. clean room business - - 6.9Total North America charges, net 15.0 45.5 6.9 International Segment CRS business (4.0) - - Argentina operations 112.4 - - Mexico operations (4.9) 43.2 - Chile operations 5.1 19.0 - U.K. businesses - (4.7) 5.9Total International charges, net 108.6 57.5
5.9
Divestiture losses (gains), net$ 123.6 $ 103.0 $ 12.8 North America Segment: OnDecember 1, 2020 , the Company entered into an agreement and completed the sale of the Company's global product recall business (Expert Solutions) for cash consideration of approximately$78.0 million . Expert Solutions business had revenues of approximately$75.4 million for the year endedDecember 31, 2019 , primarily reported inNorth America , as part of Communication and Related Services. The Company recognized a gain on divestment of$38.8 million inNorth America and$4.0 million in International, inclusive of$2.7 million of related deal costs for the transaction. In connection with the closing, the Company entered into certain additional ancillary agreements, including aTSA . OnApril 6, 2020 , the Company completed the sale of all of the outstanding equity interests of its Environmental Solutions business for approximately$462.5 million , pursuant to the Purchase Agreement, datedFebruary 6, 2020 . The Purchase Agreement provided for the divestiture of the Company's Environmental Solutions business, exclusive of the Company's healthcare hazardous waste services and unused consumer pharmaceutical take-back services. The Environmental Solutions business generated revenue in 2019 of$559.6 million , including approximately$100.0 million related to the Retained Business, which is included in the RWCS revenue category within ourNorth America segment. In connection with the Purchase Agreement, the Company entered into an HSA andTSA with the Buyer for a period of 7 years and 6 months, respectively. The Company allocated and deferred a portion of the Transaction proceeds,$17.7 million related to the HSA and$1.5 million related to theTSA , which will be recognized over the applicable duration of the HSA andTSA periods, subject to specific agreement provisions, thereby offsetting the expenses incurred to deliver the respective services. The allocated proceeds are reflected as an operating cash flow on the Consolidated Statement of Cash Flows, as they are advances received for services to be provided prospectively.
In 2020, the Company recognized impairment charges and subsequent loss on
disposal of
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associated with contingent consideration related to a prior acquisition agreement connected with the divested business (Fair value - Level 3) that is reported in SG&A in the Company's Consolidated Statements of Loss.
In 2019, the Company completed the sale of the TAS business and its retail
pharmaceutical returns business in the
In connection with the sale agreement for the TAS business, the Company entered into aTSA with the buyer for a period of up to 15 months. The Company allocated and deferred$5.1 million of the proceeds, which will be recognized over the duration of theTSA period offsetting the expenses incurred to deliver theTSA services that are not reimbursed by the buyer. In 2018, the Company completed the sale of the non-core clean room business realizing proceeds of$17.0 million , resulting in impairment charges and subsequent loss on disposal totaling$6.9 million . International Segment: InAugust 2020 , the Company entered into an agreement and completed the sale of its operations inArgentina for proceeds of approximately$3.9 million . Revenue ofArgentina operations were approximately 1% of our consolidated annual revenues for 2019. The transaction resulted in a loss on disposal of$112.4 million , of which$87.2 million related to the balance of cumulative currency translation adjustment. Additionally, inDecember 2020 , the Company recognized a$4.9 million gain related to a divestiture of a subsidiary inMexico , and a$5.1 million charge associated with the divested business inChile (see Note 12 - Commitments and Contingencies in the Consolidated Financial Statements). During 2019, the Company had the following divestiture activity: •U.K. based texting business, for proceeds of$14.8 million , resulting in a gain of approximately$5.1 million . •A reduction in the provision against a loan receivable originally arising from the sale of ourU.K. patient transport business, resulting in a$0.3 million gain. •Substantially all of the Company's operations inMexico for nominal consideration, resulting in impairment charges and subsequent loss on disposal totaling$43.2 million , including the realization of a loss of approximately$18.9 million related to the balance of cumulative currency translation adjustment. •The Company's operations inChile for net proceeds of$30.7 million , resulting in a loss of$19.0 million , including the realization of a loss of approximately$16.8 million related to the balance of cumulative currency translation adjustment. During 2018, the Company completed the sale of its hazardous waste business in theU.K. for proceeds of$11.5 million of which$8.2 million was received in cash and$3.0 million was held in escrow, until it was received inAugust 2019 . The Company recognized impairment charges and subsequent loss on disposal totaling$16.5 million including additional charges of$0.7 million in 2019. Impairments: 2020 10-K Annual ReportStericycle, Inc. • 71
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In millions
Year Ended December 31,
2020 2019 2018
Impairments
Operational Optimization - COR $ - $ 5.6 $ -
Operational Optimization - SG&A 2.8 1.7 12.3
Asset Impairment - COR 6.8 5.2 17.6
Asset Impairment - SG&A 8.7 16.9 8.9
Total Impairments $ 18.3 $ 29.4 $ 38.8
North America
Operational Optimization - COR $ - $ 2.0 $ -
Operational Optimization - SG&A - 0.4 1.0
Asset Impairment - COR 6.1 1.6 17.6
Asset Impairment - SG&A 4.2 0.5 -
Total North America Segment $ 10.3
- $ 3.6 $ -
Operational Optimization - SG&A 2.8 1.3 11.3
Asset Impairment - COR 0.7 3.6 -
Asset Impairment - SG&A 4.5 16.4 8.9
Total International Segment $ 8.0 $ 24.9 $ 20.2
Operational optimization impairments are associated with the Company's actions
to reduce operating costs and optimize operations. In the year ended
December 31, 2020 , the Company's International reportable segment includes
charges primarily related to the discontinuation of a service line in the U.K.
In the year ended December 31, 2019 , the Company's International reportable
segment includes charges related to impairments of permits and other long-lived
assets in Europe and Latin America and in our North America reportable segment
for charges associated with a site movement. In the year ended December 31,
2018 , non-cash impairment charges related to customer relationship and permit
intangibles, which were impaired as a result of actual and forecasted business
declines, primarily in LATAM.
Asset impairments in the year ended December 31, 2020 , for the Company's North
America reportable segment includes charges associated with rationalization of
software application assets and intangible assets as a result of a
discontinuation of a certain service line, and the Company's International
reportable segment includes charges associated with certain property, plant and
equipment assets and permits primarily in the U.K. In the year ended
December 31, 2019 , the Company's International reportable segment included
non-cash impairment charges related to customer lists and other long-lived
assets in Brazil associated with an impairment review of its operations. In the
year ended December 31, 2018 , non-cash impairment charges related to software
were in connection with the Company's evolving future information systems
strategy, including the implementation of a global ERP system, and the impact on
currently deployed software as well as rationalization of applications used
within each reportable segment.
2020 10-K Annual Report Stericycle, Inc. • 72
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NOTE 5 - PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following atDecember 31 : In millions 2020 2019 Land and improvements$ 38.7 $ 66.0 Building and improvements 225.0 263.3 Machinery and equipment 323.0 342.4 Vehicles 156.0 177.9 Containers 249.7 246.6 Office equipment and furniture 53.9 111.5
Software and Enterprise Resource Planning system 88.6 84.3 Construction in progress
196.1 174.3
Total property, plant and equipment 1,331.0 1,466.3
Less: accumulated depreciation (629.7) (667.8)
Property, plant and equipment, net$ 701.3 $ 798.5 Depreciation expense was$108.6 million ,$127.6 million , and$125.6 million for the years endedDecember 31, 2020 , 2019, and 2018, respectively. Property, plant and equipment impairment charges included in SG&A and COR for the years endedDecember 31, 2020 , 2019, and 2018, respectively are further described in Note 4 - Restructuring, Divestitures, and Impairments in the Consolidated Financial Statements. NOTE 6 - LEASES The Company has operating leases for vehicles, transfer sites, processing facilities, communication centers, corporate and regional offices, and certain equipment. The components of net lease cost were as follows for the years endedDecember 31 : In millions 2020 2019 Operating lease cost$ 114.2 $ 117.2 Finance lease cost: Amortization of leased assets 4.7 3.5 Interest on lease liabilities 1.9 1.0 Net lease cost$ 120.8 $ 121.7 Short-term lease cost, variable lease cost, and sublease income were not significant during the years endedDecember 31, 2020 and 2019. Supplemental cash flow information related to leases were as follows for the years endedDecember 31 : In millions 2020 2019
Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows from operating leases
$ 117.1 $ 122.4 Operating cash flows from finance leases (interest) 1.9 0.9 Financing cash flows from finance leases (principle) 4.3 4.3 Right-of-use assets obtained in exchange for lease obligations: Operating leases 79.8 203.8 Finance leases 1.1 17.0 2020 10-K Annual Report Stericycle, Inc. • 73
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Finance lease assets, net of accumulated amortization, were$24.8 million and$30.1 million as ofDecember 31, 2020 and 2019, respectively, and are included in Property, Plant and Equipment, net on the Consolidated Balance Sheet. Information regarding lease terms and discount rates as ofDecember 31 were as follows: In millions 2020 2019 Weighted average remaining lease term (years): Operating leases 6.1 6.4 Finance leases 14.4 15.3 Weighted average discount rate: Operating leases 4.07 % 4.11 % Finance leases 5.15 % 5.34 % Maturities of lease liabilities as ofDecember 31, 2020 , were as follows: In millions Operating leases Finance leases 2021 $ 86.2 $ 3.7 2022 83.8 3.7 2023 67.7 4.0 2024 58.0 2.8 2025 39.6 2.5 Thereafter 100.6 23.3 Total lease payments 435.9 40.0 Less: Interest 50.8 15.2 Present value of lease liabilities $ 385.1 $ 24.8 As ofDecember 31, 2020 , the Company had additional operating leases of$1.6 million which have not yet commenced. These operating leases are expected to commence in fiscal year 2021 with lease terms of 10 years. NOTE 7 - GOODWILL AND OTHER INTANGIBLE ASSETS
The changes in the carrying amount of goodwill were as follows: In millions
North America International Total
Balance as of December 31, 2018 $ 2,848.4 $ 373.8 $ 3,222.2
Purchase accounting adjustments (4.3) - (4.3)
Impairments during the year (207.4) (20.9) (228.3)
Divestitures (2.4) (6.2) (8.6)
Changes due to foreign currency fluctuations and other (2.7) 3.9 1.2
Balance as of December 31, 2019 2,631.6 350.6 2,982.2
Divestitures (182.8) (4.0) (186.8)
Changes due to foreign currency fluctuations and other - 23.9 23.9
Balance as of December 31, 2020 $ 2,448.8 $ 370.5 $ 2,819.3
Accumulated non-cash impairment charges by segment as of December 31 were as
follows:
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In millions
2020 2019
North America $ 421.1 $ 501.9
International 175.6 171.6
Total $ 596.7 $ 673.5
2020 Impairments
The Company performed its annual goodwill impairment assessment as of October 1,
2020 and determined no reporting units' carrying values were in excess of their
estimated fair value.
2019 Impairments
The Company performed its annual goodwill impairment assessment as of October 1,
2019 and determined that the Environmental Solutions and Canada reporting units'
carrying values were in excess of their estimated fair value.
Factors that contributed to the estimated fair value of the reporting units
being below their carrying values included:
•Environmental Solutions: During 2019, we experienced higher operating costs,
particularly related to hazardous waste disposal costs. In addition, we
anticipate that the timeline for achieving the betterment plans for both revenue
quality and cost improvements has been extended. The Company also gathered
insights from the process of evaluating Environmental Solutions as part of the
Company's portfolio rationalization criteria.
•Canada: During 2019, we experienced competitive pricing pressure in both SID
and RWCS, lower SOP pricing, higher regulated waste costs including Canada -
based operating costs due to a reliance on third-party disposal, and U.S. -based
enabling support costs. The company expects these challenges to have a prolonged
impact and the company has adjusted them in current year long-range plan.
These challenges were factored into updates to the Company's long-range plan and
forecasted cash-flow assumptions. The Company also made certain adjustments to
the risk premiums within the discount rates used to present value these
forecasted cash-flows. As a result, the Company recognized $80.8 million of
non-cash impairment charges related its Environmental Solutions reporting unit
and $126.6 million to fully impair the goodwill associated with its Canada
reporting unit.
During the first quarter of 2019, there were business and market developments
and insights gathered from the Company's portfolio rationalization
considerations, which negatively impacted the estimated cash flows of the
Company's Latin America reporting unit and triggered an interim assessment as of
March 31, 2019 . The Company determined that the Latin America reporting unit's
carrying value was in excess of its estimated fair value and recognized $20.9
million of non-cash goodwill impairment charges related to the Latin America
reporting unit. Following the impairment, the Latin America reporting unit
goodwill was fully impaired.
2018 Impairments
The Company performed its annual goodwill impairment assessment as of October 1,
2018 and 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 included:
•Domestic CRS: The Company 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 uncertainty of these occurring in future periods,
(ii) recall events that had a smaller number of units and significantly lower
revenue per event than experienced in recent years, and (iii) continued decline
in the volume of inbound/outbound call volumes for the live voice services. The
Company also gathered insights from its portfolio rationalization considerations
which were initiated in 2018.
•Latin America: The Company continued to experience prolonged challenges and
volatility in certain markets due to declining market trends and cost pressures.
Revenue increases in the M&I business due to inflationary price increases in
Argentina were offset by the impact of currency devaluation and the continuing
declines in several local economies.
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These challenges were factored into updates to the Company's forecasted cash-flow assumptions during the fourth quarter of 2018 to reflect its current outlook and the Company made certain adjustments to the discount rates used to present value these forecasted cash-flows. As a result of these impairment assessments, the Company recognized$286.3 million of non-cash goodwill impairment charges to fully impair the Domestic CRS reporting unit. In addition, the Company recognized$72.4 million of non-cash goodwill impairment charges related to theLatin America reporting unit. The fair value of reporting units, used in both the annual and any interim goodwill impairment assessments in 2020, 2019 and 2018, are classified as Level 3 measurements within the fair value hierarchy due to significant unobservable inputs such as discount rates, projections of revenue, cost of revenue and operating expense growth rates, long-term growth rates and income tax rates. The fair value methodology is described further in Note 1 - Basis of Presentation and Summary of Significant Accounting Policies. Other Intangible Assets: AtDecember 31 , the values of other intangible assets were as follows: In millions 2020 2019 Gross Carrying Accumulated Gross Carrying Accumulated Amount Amortization Net Value Amount Amortization Net Value Amortizable intangibles: Customer relationships$ 1,314.9 $ 630.2$ 684.7 $ 1,460.8 $ 575.8$ 885.0 Covenants not-to-compete 3.5 3.0 0.5 4.9 3.8 1.1 Operating permits 11.5 6.5 5.0 4.1 1.6 2.5 Tradenames 3.6 1.3 2.3 3.6 1.1 2.5 Other 0.6 0.6 - 8.6 2.6 6.0 Indefinite-lived intangibles: Operating permits 79.6 - 79.6 211.1 - 211.1 Tradenames 315.3 - 315.3 314.2 - 314.2 Total$ 1,729.0 $ 641.6$ 1,087.4 $ 2,007.3 $ 584.9$ 1,422.4
The changes in the carrying amount of intangible assets were as follows: In millions
Total
Balance as of December 31, 2018 $ 1,637.7
Intangible assets acquired during the year 0.5
Reclassification of capitalized permit costs 7.7
Purchase accounting adjustments for prior year acquisitions 4.2 Divestitures
(67.5)
Impairments during the year (17.7)
Amortization during the year (145.2)
Changes due to foreign currency fluctuations 2.7
Balance as of December 31, 2019 1,422.4
Divestitures (209.8)
Impairments during the year (11.1)
Amortization during the year (124.9)
Changes due to foreign currency fluctuations 10.8
Balance as of December 31, 2020 $ 1,087.4
The Company's indefinite-lived intangible assets include operating permits and
certain tradenames. The Company has determined that certain of 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.
The impairment charges included in SG&A and COR for the years ended December 31,
2020 , 2019, and 2018, respectively, are further described in Note 4 -
Restructuring, Divestitures, and Impairments.
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Finite-lived intangible assets are amortized over their estimated useful lives
using the straight-line method with each category having weighted average
remaining useful lives as follows:
In years
Weighted average
Estimated useful remaining useful
lives lives
Customer relationships 10-25 7.8
Covenants not-to-compete 5 3.0
Operating permits 2 2.0
Tradenames 15-40 16.4
Landfill air rights 5-10 3.2
The useful life of intangible assets is assessed 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 2020, we performed
the annual assessment of the useful life of our finite-lived intangibles and no
changes were required.
During the years ended December 31, 2020 , 2019, and 2018, our aggregate
intangible asset amortization expense was $124.9 million , $145.2 million , and
$130.3 million , respectively.
Our estimated intangible asset amortization expense for each of the next five
years is as follows for the years ended December 31 :
In millions
2021 $ 116.9
2022 115.6
2023 112.2
2024 110.8
2025 90.3
NOTE 8 - ACCRUED LIABILITIES
Accrued liabilities consisted of the following atDecember 31 : In millions 2020 2019 Compensation$ 97.6 $ 68.6 Self-insurance 78.1 74.7 Taxes 51.2 50.7 Interest 19.4 21.3 Professional fees 11.2 22.1 Disposal and landfill liabilities 1.6 18.8 Other 30.3 40.4 Total accrued liabilities$ 289.4 $ 296.6 2020 10-K Annual Report Stericycle, Inc. • 77
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Long-term debt consisted of the following at
2020 2019
$1.2 billion senior credit facility, due in 2022 $ 173.3 $ 758.7
$1.3 billion term loan, due in 2022 422.5 1,172.2
$600 million Senior Notes, due in 2024 600.0 600.0
$500 million Senior Notes, due in 2029 500.0 -
Promissory notes and deferred consideration, weighted average maturity of 2.12 and 2.49 years for 2020 and 2019, respectively 42.3
73.1
Foreign bank debt, weighted average maturity of 1.1 years for 2020 and 1.6 years for 2019
32.3 42.2
Obligations under finance leases (Note 6) 24.8 30.4
Total debt 1,795.2 2,676.6
Less: current portion of total debt 91.0 103.1
Less: unamortized debt issuance costs 15.1 14.2
Long-term portion of total debt $
1,689.1
The weighted average interest rates on long-term debt, excluding finance leases,
as of
2020 2019
1.90 % 3.44 %
$600 million Senior Notes, due in 2024 (fixed rate) 5.38 % 5.38 %
$500 million Senior Notes, due in 2029 (fixed rate) 3.88 % - %
Promissory notes and deferred consideration (fixed rate) 1.79 % 1.81 %
Foreign bank debt (variable rate) 2.03 % 4.43 %
Senior Notes OnNovember 9, 2020 , the Company issued$500.0 million at par of aggregate principal Senior Notes, dueJanuary 2029 , which are unsecured and bear interest at 3.875% per annum, payable onJanuary 15 andJuly 15 of each year. The Senior Notes are fully and unconditionally guaranteed by each of the issuer's current and, subject to certain exceptions, future domestic subsidiaries that guarantee the issuer's senior credit facility, term loan facility, or certain other debt of the issuer or the subsidiary guarantors. The 2020 Senior Notes will be redeemable, in whole or in part, at any time, and from time to time, on or afterNovember 15, 2023 , at the redemption prices specified under "Description of Notes-Optional Redemption", plus accrued and unpaid interest, if any, to, but excluding, such redemption date. At any time and from time to time prior toNovember 15, 2023 , the notes may be redeemed, in whole or in part, at a redemption price of 100% the principal amount thereof, plus a "make-whole" premium, plus accrued and unpaid interest, if any, to, but excluding, the redemption date. In addition, the issuer may redeem up to 40% of the notes at any time and from time to time beforeNovember 15, 2023 , with the net cash proceeds from certain equity offerings at a redemption price equal to 103.875%, plus accrued and unpaid interest, if any, to, but excluding, the redemption date. In connection with the issuance of the 2020 Senior Notes, the Company incurred$5.8 million of direct issuance costs, which have been capitalized in unamortized debt issuance costs and are being amortized to Interest expense, net over the term of the 2020 Senior Notes. During 2019, the Company issued$600.0 million at par of aggregate principal Senior Notes, dueJuly 2024 , which are unsecured and bear interest at 5.375% per annum, payable onJanuary 15 andJuly 15 of each year. The Senior Notes are fully and unconditionally guaranteed by each of the Company's current domestic subsidiaries that guarantee the Company's Senior Credit Facility. The Indenture limits the ability of the Company and its subsidiaries to incur certain liens, enter into certain sale and leaseback transactions, and consolidate, merge or sell all or substantially all of their assets.
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The 2019 Senior Notes will be redeemable, at the option of the Company, in whole or in part, at any time on or afterJuly 15, 2021 , at the redemption prices specified in the Indenture along with accrued interest. At any time prior toJuly 15, 2021 , the Senior Notes may be redeemed, at the option of the Company, in whole or in part, at a redemption price of 100% of the principal amount thereof, plus a "make-whole" premium, and accrued and unpaid interest. In addition, the Company may redeem up to 40% of the Senior Notes at any time beforeJuly 15, 2021 , with the net cash proceeds from certain equity offerings at a redemption price equal to 105.375%, plus accrued and unpaid interest. In connection with the issuance of the 2019 Senior Notes, the Company incurred$7.1 million of debt issuance costs, which have been capitalized in unamortized debt issuance costs and are being amortized to Interest expense, net over the term of the 2019 Senior Notes. In the event of both a change of control of the Company and a rating downgrade by the rating agencies, the Company will be required to offer to repurchase all outstanding 2020 and 2019 Senior Notes at 101% of their principal amount, plus accrued and unpaid interest. The Indentures contains customary events of default, which include (subject in certain cases to customary grace and cure periods), nonpayment of principal or interest; breach of other agreements in the Indenture; failure to pay certain other indebtedness; certain events of bankruptcy or insolvency; failure to pay certain final judgments; and failure of certain guarantees to be enforceable. Credit Agreement The Company maintains a Credit Agreement which, as amended, provided for a term loan facility of$950 million and a revolving credit facility of$1.2 billion . OnFebruary 25, 2020 , the Company executed a Fifth Amendment, which amended the Credit Agreement to, among other things: •increase the maximum allowable Consolidated Leverage Ratio to 5.00 to 1.00 untilDecember 31, 2021 and 4.50 to 1.00 thereafter. •upon the consummation of the divestiture of the Environmental Solutions business, each of the foregoing maximum permitted Consolidated Leverage Ratio levels were reduced to 4.75 to 1.00 untilDecember 31, 2021 and 4.25 to 1.00 thereafter. •allow for continuation of the$200.0 million of cash add backs to EBITDA throughDecember 31, 2020 , and addbacks of$100.0 million untilDecember 31, 2021 , with no further addbacks thereafter. •increase the leverage ratio pricing tier of greater than 4.50 to 1.00 by 0.125%. •grant a first-priority security interest to the administrative agent for the benefit of the lenders in substantially all of the personal property of the Company and certain of its material domestic subsidiaries, including certain equity interests held by those entities. In the year endedDecember 31, 2020 and in connection with the Fifth Amendment, the Company incurred issuance costs of$1.7 million , of which$0.4 million has been charged to Interest expense, net. The remainder was capitalized as unamortized debt issuance costs and is being amortized to Interest expense, net over the remaining term of the Credit Agreement. The Company may make prepayments against the amended Senior Credit Facility, in whole or in part, without premium or penalty. The Company would be required to prepay certain outstanding amounts in the event of certain circumstances or transactions. As ofDecember 31, 2020 , the Company was in compliance with its Credit Agreement Debt Leverage Ratio covenant, with an actual ratio of 3.54 to 1.00, which was below the allowed maximum ratio of 4.75 to 1.00 as set forth in the Fifth Amendment. OnApril 6, 2020 , the Company completed the divestiture of the Environmental Solutions business. Therefore, effectiveApril 6, 2020 , the Consolidated Leverage Ratio decreased by 0.25 to 4.75 to 1.00 for fiscal quarters ending on or beforeDecember 31, 2021 and 4.25 to 1.00 for fiscal quarters ending on or afterMarch 31, 2022 . Given our current leverage position, we believe we should be able to operate within our covenant thresholds, but due to the unpredictability of the COVID-19 pandemic and situations outside our control, it is reasonably likely we could exceed this Consolidated Leverage Ratio threshold at some point in the next 12 months. This risk can be mitigated and potentially managed through appropriate spending controls, divestitures, restructuring the Company's existing indebtedness, amending the Credit Agreement, or seeking temporary relief from the Consolidated Leverage Ratio covenant from the Company's lenders. 2020 10-K Annual ReportStericycle, Inc. • 79
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A failure to comply with these covenant provisions could result in an event of default. Upon an event of default, unless waived, the lenders could elect to terminate their commitments, cease making further loans, and/or cause their loans to become due and payable in full, foreclose against the assets securing the debt under our Credit Agreement, and force us and our subsidiaries into bankruptcy or liquidation. Other Matters Amounts committed to outstanding letters of credit and the unused portion of our Senior Credit Facility atDecember 31 were as follows: In millions 2020
2019
Outstanding letters of credit under Senior Credit Facility
947.2 408.3
Payments due on long-term debt, excluding finance lease obligations, during each of the five years subsequent toDecember 31, 2020 are as follows: In millions 2021$ 87.3 2022 571.4 2023 5.1 2024 605.2 2025 0.9 Thereafter 500.5 Total$ 1,770.4 NOTE 10 - INCOME TAXES
The
2020 2019 2018
United States $ 65.6 $ (150.5) $ (189.1)
Foreign (121.6) (212.3) (86.3)
Total loss before income taxes
Significant components of the Company's income tax benefit (expense) for the years endedDecember 31 , are as follows: In millions 2020 2019 2018
Current
United States - federal$ 108.3 $ - $ -
(6.0) (6.4) (8.5)
99.4 (17.1) (8.9)
Deferred
United States - federal (85.9) 23.9 24.4
United States - state and local (13.7) 8.0 11.2
Foreign 0.3 2.0 3.1
(99.3) 33.9 38.7
Total benefit $ 0.1 $ 16.8 $ 29.8
A reconciliation of the income tax provision computed at the federal statutory
rate to the effective tax rate for the years ended December 31 , are as follows:
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2020 2019 2018
Federal statutory income tax rate 21.0 % 21.0 % 21.0 %
Effect of:
State and local taxes, net of federal tax effect (11.2 %) 1.2 % 4.2 %
Foreign tax rates 14.3 % 5.1 % 4.2 %
Permanent - other items (2.1 %) (4.2 %) 0.5 %
Permanent - goodwill impairment - % (14.1 %) (9.1 %)
CARES Act / Tax Act 79.2 % - % (3.2 %)
Valuation allowance (26.5 %) (1.2 %) (7.5 %)
Divestitures (62.7 %) 1.2 % - %
Stock-based compensation and executive compensation
disallowance (11.9 %) (1.0 %) 1.2 %
Other 0.1 % (3.4 %) (0.5 %)
Effective tax rate 0.2 % 4.6 % 10.8 %
Deferred tax liabilities and assets at
2020 2019
Deferred tax liabilities:
Property, plant and equipment $ (49.0) $ (68.1)
Goodwill and intangibles (391.2) (417.9)
Leases - right of use asset (91.3) (84.5)
Other (17.1) (10.9)
Total deferred tax liabilities (548.6) (581.4)
Deferred tax assets:
Accrued liabilities 63.1 87.8
Leases - right of use liability 96.5 88.7
Net operating tax loss carry-forwards 49.0 116.2 Interest expense carry-forward
11.3 31.2
Other 15.0 11.4
Less: valuation allowance (52.0) (39.4)
Total deferred tax assets 182.9 295.9
Net deferred tax liabilities $ (365.7) $ (285.5)
The valuation allowance increased $12.6 million during the year ended
December 31, 2020 , primarily due to non-benefited foreign losses.
On March 27, 2020 , the President signed into law the CARES Act, which is a
substantial tax-and-spending package intended to provide additional economic
stimulus to address the impact of the COVID-19 pandemic. As a result of the
CARES Act tax law changes, for the year ended December 31, 2020 , we recognized a
$44.4 million tax benefit related to our ability to carryback net operating
losses to prior years that had higher tax rates. In July 2020 , the Company
received a cash refund of $48.0 million , and in December 2020 , the Company
received $64.2 million (of which $62.0 million was the cash refund claim, and
$2.2 million was interest income). A remaining carryback claim associated with
the finalization of the 2019 U.S. federal income tax return is currently filed
with the IRS , and the anticipated refund is less than $1.0 million .
Additionally, in further response to the COVID-19 pandemic, on December 27,
2020 , the President signed the CAA 2021, which provides several business tax
relief provisions, including (1) extension of the CFC look-through rule through
2025, (2) a temporary 100% deduction for business meals paid or incurred in 2021
and 2022, and (3) extension of the WOTC through 2025. Such provisions are
generally not significant to the Company's current tax footprint; however, the
Company will continue to assess the CAA 2021 on an ongoing basis.
On December 22, 2017 , the Tax Act was signed into law making significant changes
to the Internal Revenue Code. Changes included, but were 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 .
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In accordance withSAB 118 and the Company's 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$129.8 million in the fourth quarter of 2017, the period in which the legislation was enacted. The provisional amount related to the re-measurement of certain deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future, the one-time transition tax on the mandatory deemed repatriation of foreign earnings and the related expected foreign withholding taxes on such earnings are reflected in the table below.
The net tax benefit recognized during the year ended
In millions Remeasurement of net deferred tax liabilities due to enacted rate reduction$ 167.7 Section 965 transition tax on foreign earnings (24.3) Foreign withholding taxes on such earnings (13.6) Net tax benefit from the Tax Act
During the year endedDecember 31, 2018 , the Company adjusted the Tax Act provisional amounts recognized as ofDecember 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 ofDecember 31, 2018 , the accounting for the various elements of the Tax Act was 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 theU.S. Internal Revenue Service . As ofDecember 31, 2020 , the Company plans to repatriate any undistributed earnings of its first-tier foreign subsidiaries back to theU.S. only to the extent that they were previously taxed under the Tax Act, and future repatriations may take the form as distributions from previously taxed earnings and profits and/or return of capital distributions. All other undistributed earnings, to the extent there are any, will remain permanently reinvested to support existing working capital needs in the foreign subsidiaries. A withholding tax, unrealized foreign exchange gain, and state income tax accrual has been recorded, as applicable. The Company has not provided for deferred taxes on outside basis differences for investments in its 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 outstanding basis difference is not practicable to calculate. AtDecember 31, 2020 , the net operating loss carry-forwards from both foreign and domestic operations are approximately$161.9 million and certain of these net operating loss carry-forwards begin to expire in 2021. The tax benefits of these net operating losses is approximately$49.0 million atDecember 31, 2020 , on which valuation allowances of$25.3 million were recognized offsetting such tax benefits. The Company files income tax returns in theU.S. , in various states and in certain foreign jurisdictions. We generally are no longer subject toU.S. federal, state, local, or non-US income tax examinations by tax authorities for years prior to 2015. 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 total amount of unrecognized tax benefit atDecember 31, 2020 is$24.3 million . The amount of uncertain tax positions that, if recognized, would affect the effective tax rate is approximately$23.2 million . We recognized interest and penalties related to income tax reserves as a benefit in the amount of$1.5 million ,$0.7 million , and charge of$0.8 million for the years endedDecember 31, 2020 , 2019 and 2018, respectively, as a component of income tax expense. It is reasonably possible that our unrecognized tax benefits will decrease by as much as$5.0 million to$10.0 million in the next 12 months primarily due to the progress of federal, state, and international audits. The following table summarizes the aggregate changes in unrecognized tax benefits: 2020 10-K Annual ReportStericycle, Inc. • 82
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In millions Unrecognized tax positions as ofDecember 31, 2018 $ 64.7 Gross increases - tax positions in prior periods 1.2 Gross increases - current period tax positions 4.6 Settlements (0.2) Lapse of statute of limitations (7.6) Unrecognized tax positions as ofDecember 31, 2019 62.7
Gross increases (decreases) - tax positions in prior periods (33.5) Gross increases - current period tax positions
2.4
Settlements (0.8)
Lapse of statute of limitations (6.5)
Unrecognized tax positions as of December 31, 2020 $ 24.3
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 filed a PFA with the IRS related to a claim under Internal Revenue
Code Section 1341 concerning the tax rate to be applied to the SQ Settlement on
the Company's 2018 tax return. As a result of the enactment of the CARES Act,
the Company was able to realize a benefit at the higher tax rate on a portion of
the SQ Settlement. In 2020, in consideration of the CARES Act, we revised the
PFA, a portion of the long-term receivable previously established for the
Section 1341 claim was reclassified to a current income tax receivable, and the
related uncertain tax position has been released as part of the tax benefit for
2020.
Subsequently, we amended the 2018 tax return to reduce the Section 1341 benefit
as a result of discussions with the IRS as part of the PFA program.
Consequently, the remaining long-term receivable established for the Section
1341 claim and the corresponding uncertain tax position has been reclassified to
a current income tax receivable and a current income tax liability,
respectively, as both are expected to settle within one year, and with respect
to the uncertain tax position, to settle in cash. Any additional income tax
benefit resulting from the claim in a future period may be recognized as
appropriate in accordance with the guidance in ASC 740 on the accounting for
uncertain tax positions. There can be no assurance that this amount or any
amount will be recovered as a result of this claim.
NOTE 11 - 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 years presented.
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Our contingent consideration liabilities are reassessed at the end of every
reporting period and are recorded using Level 3 inputs. The amounts are
classified as either other current liabilities or other liabilities and are
presented as follows as of
2020 2019
Other current liabilities $ 0.4 $ 0.6
Other liabilities 5.3 7.4
Total contingent consideration
Contingent consideration represents amounts expected to be paid as part of acquisition consideration only if certain future events occur. The Company arrives at the fair value of contingent consideration by applying a weighted probability of potential payment outcomes. The calculation of these potential outcomes is dependent on both past financial performance and management assumptions about future performance. If the financial performance measures were all fully met, the maximum aggregate liability would be$8.2 million atDecember 31, 2020 . Changes to contingent consideration are reflected in the table below: In millions Contingent consideration as ofJanuary 1, 2018 $ 10.3 Decrease due to payments (2.3)
Contingent consideration as of
(2.1)
Currency Translation Adjustment (0.1)
Decrease due to payments (0.1)
Contingent consideration as of
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, the classification of disposal groups as held-for-sale, or the re-measurement of assets resulting in impairment charges. See Note 3 - Acquisitions, Note 4 - Restructuring, Divestitures, and Impairments, Note 5 Property, Plant and Equipment, and Note 7 - Goodwill And Other Intangible Assets for further discussion of the fair value of assets and liabilities associated with Acquisitions and Assets Held for Sale. These values are generated using Level 3 inputs. Fair Value of Debt: The estimated fair value of the Company's debt obligations, using Level 2 inputs, compared to the carrying amount atDecember 31 was as follows: In billions 2020 2019
Fair value of debt obligations
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 12 - COMMITMENTS AND CONTINGENCIES Environmental Remediation Liabilities The Company records a liability for environmental remediation when such liability becomes probable and the costs or damages can be reasonably estimated. The Company accrues environmental remediation costs, on an undiscounted basis, associated with identified sites where an assessment has indicated that cleanup costs are probable and can be reasonably estimated, but the timing of such payments is not fixed and determinable. Such liabilities are based on currently available information, estimated timing of remedial actions, existing technology, and enacted laws and regulations. 2020 10-K Annual ReportStericycle, Inc. • 84
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Environmental remediation liabilities in total atDecember 31 were presented as follows: In millions 2020 2019 Accrued liabilities - other$ 0.4 $ 4.7 Other long-term liabilities - 27.2
Total environmental liabilities
The reduction in environmental liabilities relates primarily to the Environmental Solutions business, which was sold onApril 6, 2020 and included$27.5 million of environmental remediation liabilities (see Note 4 - Restructuring, Divestitures, and Impairments). Asset Retirement Obligations The Company has asset retirement obligations that it is 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. AtDecember 31, 2020 and 2019, the total asset retirement obligation liabilities recognized were$19.7 million and$19.4 million , respectively and were included in Other long-term liabilities on the Consolidated Balance Sheets. Letters of Credit, Surety Bonds and Bank Guarantees As ofDecember 31, 2020 and 2019, the Company had$79.5 million and$33.0 million , respectively, of stand-by letters of credit outstanding against our senior credit facility (see Note 9 - Debt). As ofDecember 31, 2019 , we had$52.3 million of stand-by letters of credit outstanding against another facility which was entered into during 2019. As ofDecember 31, 2020 , no amounts of stand-by letters of credit were outstanding. In addition, atDecember 31, 2020 and 2019 we had,$37.9 million and$72.3 million , respectively, of surety bonds and$21.2 million and$19.3 million , respectively, of bank guarantees. The bank guarantees are issued mostly by the Company's 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 the Company's ability to use its various lines of credit.
Indemnifications
In the ordinary course of business and in connection with the sale of assets and businesses and other transactions, we often indemnify our counterparties against certain liabilities that may arise in connection with the transaction or that are related to events and activities prior to or following a transaction (see Note 4 - Restructuring, Divestitures, and Impairments). If the indemnified party were to make a successful claim pursuant to the terms of the indemnification, we may be required to reimburse the loss. These indemnifications are generally subject to various restrictions and limitations. Historically, we have not paid material amounts under these provisions and, as ofDecember 31, 2020 , these indemnifications obligations were not material. NOTE 13 - RETIREMENT AND OTHER EMPLOYEE BENEFIT PROGRAMS Defined Contribution Plans: The Company has a 401(k) defined contribution retirement savings plan covering substantially all domestic employees. Each participant may elect to defer a portion of his or her compensation subject to certain limitations. 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 endedDecember 31, 2020 , 2019 and 2018, the Company's contributions were$8.7 million ,$11.0 million and$10.6 million , respectively. 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 endedDecember 31, 2020 , 2019 and 2018, the Company's total contributions were$4.6 million ,$5.0 million and$3.1 million , respectively. Multiemployer Defined Benefit Pension Plans: The Company participates 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 2020 10-K Annual ReportStericycle, Inc. • 85
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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 the Company chooses to stop participating
in any of its Multiemployer Pension Plans or if any event should significantly
reduce or eliminate the need to participate (such as employee layoffs or closure
of a location), the Company 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 the Company participates 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 the Company's participation in Multiemployer
Pension Plans:
Expiration Date of
Company Contributions (4) Collective
Pension Protection Act Zone Status (1), (3) (in millions) Bargaining
Plan Employer ID Number Plan # 2020 2019 FIP/RP Status (2) 2020 2019 Agreements
Pension Plan Private
Sanitation Union, Local 813 Red/ Red/
IBT 13-1975659 1 Critical Critical Implemented $ 0.6 $ 0.6 various dates
Nurses And Local 813 IBT
Retirement Plan 13-3628926 1 Green Green N/A $ 0.1 $ - 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 2020 and 2019 is for the plans' year-end December 31, 2019 .
(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, 2019 . At the date these financial statements were issued, Forms 5500 were
not available for the Multiemployer Pension Plans for the year ended
December 31, 2020 .
NOTE 14 - STOCK BASED COMPENSATION
At December 31, 2020 , the Company had the following incentive stock plans:
•the 2017 Plan;
•the 2014 Plan;
•the 2011 Plan;
•the 2008 Plan; and
•the 2005 Plan;
At December 31, 2020 , the Company had reserved a total of 3,016,597 shares for
issuance under its incentive stock plans.
The Plans provide for the grant of NSOs, ISOs, RSUs and PSUs intended to qualify
under Section 422 of the Internal Revenue Code; and the 2000 Plan provides for
the grant of NSOs. The Plans authorize awards to the Company's officers,
employees and consultants and to the Company's directors.
The exercise price per share of an option granted under any of the Plans may not
be less than the closing price of a share of the Company's common stock on the
date of grant. The maximum term of an option granted under any of the Plans 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.
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Employee Stock Purchase Plan: InOctober 2000 , our Board of Directors adopted the ESPP, which our stockholders approved inMay 2001 and was made effective as ofJuly 1, 2001 . The ESPP authorizes 1,799,999 shares of our common stock, which substantially allU.S. 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 6 months offering period. An employee's payroll deductions and stock purchase, may not exceed$5,000 during any offering period. During 2020, 2019, and 2018, 70,120 shares, 97,669 shares and 131,959 shares, respectively, were issued through the ESPP. AtDecember 31, 2020 , we had 587,705 shares available for issuance under the ESPP plan. Stock-Based Compensation Expense: During 2020, there were no changes to our stock compensation plans or modifications to outstanding stock-based awards which would change the value of any awards outstanding. The following table presents the total stock-based compensation expense resulting from stock option awards, RSUs, PSUs and the ESPP and Canada ESPP included in the Consolidated Statements of Loss: In millions Year Ended December 31, 2020 2019 2018 SG&A - stock option plans$ 3.2 $ 8.0 $ 10.8 SG&A - RSUs 15.6 7.8 7.2 SG&A - PSUs 5.9 0.5 5.1 SG&A - ESPP and Canada ESPP 0.8 0.8 1.0 Total pre-tax expense$ 25.5 $ 17.1 $ 24.1 During the years endedDecember 31, 2020 , 2019 and 2018, the impact of forfeitures was a reduction to expense of$4.9 million ,$6.7 million , and$3.5 million , respectively. Stock Options: Options granted to non-employee directors vest in one year and options granted to officers and employees generally vest over five years. Expense related to options with graded vesting is recognized using the straight-line method over the vesting period. Stock option activity for the year endedDecember 31, 2020 is summarized as follows: Weighted Average Weighted Average Exercise Price Remaining Total Aggregate Number of Options per Share Contractual Life Intrinsic Value (in years) (in millions) Outstanding as of January 1, 2020 3,967,425$ 96.32 Granted - $ - Exercised (49,448)$ 54.21 Forfeited (122,685)$ 71.95 Cancelled or expired (934,824)$ 102.67 Outstanding as of December 31, 2020 2,860,468$ 96.00 2.50 $ 6.7 Exercisable as of December 31, 2020 2,490,182$ 100.50 2.00 $ 2.2 AtDecember 31, 2020 , there was$3.6 million of total unrecognized compensation expense related to stock options, which is expected to be recognized over a weighted average period of 1.6 years. The following table sets forth the intrinsic value of options exercised for the years endedDecember 31 : In millions 2020 2019 2018
Total exercise intrinsic value of options exercised
The exercise intrinsic value represents the total pre-tax intrinsic value (the difference between the fair value on the trading day the option was exercised and the exercise price associated with the respective option). 2020 10-K Annual ReportStericycle, Inc. • 87
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There were no stock options granted in the year endedDecember 31, 2020 . The Company uses historical data to estimate expected life and volatility. The fair value of stock options at the time of grant using the Black-Scholes option pricing model was as follows: Year Ended December
31,
2019 2018
Stock options granted (shares) 340,652
430,337
Weighted average fair value at grant date$ 14.41 $ 16.79 Assumptions: Expected term (in years) 4.34 4.89 Expected volatility 30.99 % 25.52 % Expected dividend yield 0.00 % 0.00 % Risk free interest rate 2.35 % 2.64 % Restricted Stock Units: 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 endedDecember 31, 2020 , is as follows: Weighted Average Weighted Average Grant Date Remaining Total Aggregate Number of Units Fair Value Contractual Life Intrinsic Value (in years) (in millions) Non-vested as of January 1, 2020 439,080 $ 59.09 Granted 574,712 $ 51.82 Vested and Released (326,797) $ 54.63 Forfeited (139,760) $ 55.72 Non-vested as of December 31, 2020 547,235 $ 54.96 1.10 $ 37.9 AtDecember 31, 2020 , there was$19.3 million of total unrecognized compensation expense related to RSUs, which is expected to be recognized over a weighted average period of 1.9 years. The fair value of units that vested during the years endedDecember 31, 2020 , 2019, and 2018 was$18.2 million ,$5.3 million , and$4.2 million , respectively. Performance-Based Restricted Stock Units: Our executive officers PSU program was introduced in 2017. PSUs issued to executive officers in 2018 and 2019 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. Our PSU program was expanded in 2020 to include employees in additional levels below executive officer. PSUs issued beginning in 2020 vest, or not, at the end of the three-year period following the grant date based on the achievement of pre-determined annual earnings per share and annual return on invested capital performance goals as approved by the Compensation Committee (each metric is weighted at 50% of the whole). At the end of the three-year period, the results from each of the three years are averaged to calculate one achievement percentage number, and then a relative total shareholder return (rTSR) modifier is applied to that number in order to determine the final share amount, based onStericycle's stock's market performance relative to performance of the S&P MidCap 400 Index. The modifier can adjust the final shares issued by applying a multiplier of 75% - 125%. 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. 2020 10-K Annual Report Stericycle, Inc. • 88
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PSUs activity during the year ended
Weighted Average
Grant Date
Number of Units Fair Value
Non-vested as of January 1, 2020 116,049 $ 63.77
Granted 109,006 $ 58.09
Vested and Released (38,885) $ 48.23
Forfeited (including performance goal not achieved) (94,128) $ 50.58
Non-vested as of December 31, 2020 92,042 $ 57.79
The table above reflects the number of shares at target which could be granted
upon vesting of the executive and Business Transformation PSU's for which
performance goals related to 2020 have been established. At December 31, 2020 ,
approximately 224,000 of additional PSUs exist which will vest in tranches based
upon achievement of performance goals to be established for fiscal years 2021
and 2022.
NOTE 15 - PREFERRED STOCK
At December 31, 2020 , the Company had 1,000,000 authorized shares of preferred
stock and zero shares issued and outstanding.
Series A Mandatory Convertible Preferred Stock Offering: On September 15, 2015 ,
the Company completed a registered public offering of 7,700,000 depository
shares, each representing a 1/10th interest in a share of 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 $100.0 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 total of 4.7 million
shares of the Company's common stock at a ratio of 7.3394 shares of 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
the Company's 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, $100.0 per share with respect to the depository shares). The
dividends were payable in cash, or subject to certain limitations, in shares of
common stock, or any combination of cash and shares of 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 .
The Company declared and paid dividends of $25.5 million to the Series A
Preferred Stock shareholders during the year ended December 31, 2018 .
The following table provides information about the Company's repurchases of
depository shares of Series A Preferred stock, prior to the conversion
referenced above, during the year ended December 31, 2018 :
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In millions, except share and per share data
Number of
Depository Shares Amount Paid for Average Price
Repurchased Repurchases Paid per Share
January 1, 2018 - January 31, 2018 - $ - $ -
February 1, 2018 - February 28, 2018 151,900 7.4 49.05
March 1, 2018 - March 31, 2019 - - -
April 1, 2018 - April 30, 2018 - - -
May 1, 2018 - May 31, 2018 150,000 7.4 49.24
June 1, 2018 - June 30, 2018 - - -
July 1, 2018 - July 31, 2018 - - -
August 1, 2018 - August 31, 2018 50,000 2.4 47.05
September 1, 2018 - September 30, 2018 - - -
October 1, 2018 - October 31, 2018 - - -
November 1, 2018 - November 30, 2018 - - -
December 1, 2018 - December 31, 2018 - - -
Total 351,900 $ 17.2 $ 48.85
For the year ended December 31, 2018, repurchases of the Company's depository
shares resulted in increases in retained earnings of $16.9 million, because the
Company 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 16 - LOSS PER COMMON SHARE
Basic loss per share is computed by dividing loss 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 Canada 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 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:
2020 10-K Annual Report Stericycle, Inc. • 90
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In millions, except per share data
Year Ended December 31,
2020 2019 2018
Numerator:
Net loss attributable to Stericycle, Inc. $ (57.3) $ (346.8) $ (244.7)
Mandatory convertible preferred stock dividend - - (25.5)
Gain on repurchase of preferred stock - - 16.9
Numerator for basic loss per share attributable to
$ (57.3) $ (346.8) $ (253.3)
Denominator:
Denominator for basic loss per share - weighted average
shares (1) 91.5 91.0 87.1
Effect of dilutive securities:
Stock-based compensation awards (2) - - -
Mandatory convertible preferred stock (3) - - -
Denominator for diluted loss per share - adjusted
weighted average shares and after assumed exercises 91.5 91.0 87.1
Loss per share - Basic $ (0.63) $ (3.81) $ (2.91)
Loss per share - Diluted $ (0.63) $ (3.81) $ (2.91)
(1)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.
(2)For the years ended December 31, 2020, 2019, and 2018 options to purchase
shares and awards (in thousands) of 264, 74, and 124, respectively, were
excluded from the computation of diluted (loss) earnings per share due to the
net loss incurred for the year. In periods of net loss, options, RSUs, and PSUs
are anti-dilutive and therefore excluded from the earnings per share
calculation.
(3)For the year ended December 31, 2018, the weighted average common shares (in
thousands) issuable upon the assumed conversion of the Series A Preferred Stock,
totaling 3,367, were excluded from the computation of diluted (loss) earnings
per share as such conversion would have been anti-dilutive.
The following table presents Options and RSUs that were not included in the
computation of diluted loss per share because the effect would have been
anti-dilutive under the treasury stock method.
In thousands
Year Ended December 31,
2020 2019 2018Options excluded from computation of diluted loss per share.
3,017 4,507 4,664
RSUs excluded from computation of diluted loss per share.
4 98 169
PSUs are offered to key employees and are subject to 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. If such goals are not met, no compensation expense is
recognized, and any previously recognized compensation expense is reversed.
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NOTE 17 - ACCUMULATED OTHER COMPREHENSIVE LOSS
The following table sets forth the changes in the components of accumulated
other comprehensive loss:
In millions
Currency Unrealized Gains
Translation (Loss) (Losses) on Cash Flow Accumulated Other
Income Adjustments Hedges Comprehensive Loss
Balance as of January 1, 2018 $ (283.0) $ (4.0) $ (287.0)
Period change (79.3) 1.0 (78.3)
Balance as of December 31, 2018 (362.3) (3.0) (365.3)
Accelerated amortization of interest rate lock premiums 2.3 2.3
Cumulative currency translation loss realized through
disposition of
18.9 - 18.9
Cumulative currency translation loss realized through
disposition of
16.8 - 16.8
Period change 8.5 0.7 9.2
Balance as of December 31, 2019 (318.1) - (318.1)
Cumulative currency translation loss realized through
disposition of
87.2 - 87.2
Period change 43.5 - 43.5
Balance as of December 31, 2020 $ (187.4) $ - $ (187.4)
NOTE 18 - SEGMENT REPORTING
The Company evaluates, oversees and manages the financial performance of two
operating segments - North America and International.
The North America and International segments offer the following services: RWCS,
which provide collection and processing of regulated and specialized waste,
including medical (including reusable sharps disposal management services),
pharmaceutical and hazardous waste, for disposal and compliance programs (under
the Steri-Safe®, Clinical Services, First Practice Management, SeguriMed and
EnviroAssure brand names); SID Services, which provide for the collection of
personal and confidential information for secure destruction and recycling of
shredded paper; and CRS which includes communication services such as
appointment reminders, secure messaging, event registration and other
communications for hospitals and IDN's.
Beginning in 2020, we have changed our measure of segment profitability to
Adjusted Income from Operations. Adjusted Income from Operations is Income
(Loss) from Operations excluding certain specified items, including Intangible
Amortization. Also, beginning in 2020, we presented our operations in Puerto
Rico , which historically had been reported in our International reportable
segment, in our North America reportable segment. Also in 2020, we presented
U.S. CRS, which historically had been reported in Other, in our North America
reportable segment. As a result of these changes in segment reporting, all
applicable historical segment information has been recast to conform to the new
presentation.
The segments were updated to reflect how the chief operating decision maker
evaluates performance, determines resource allocation, and develops and executes
strategies to drive growth and profitability. As a result of these changes in
segment reporting, all applicable historical segment information has been recast
to conform to the new presentation.
Our reportable segments are:
•North America
•International
Other (includes costs related to corporate enabling and shared services
functions, annual incentive compensation, and stock-based compensation)
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The following tables show financial information for the Company's reportable
segments:
In millions
Year Ended December 31,
2020 2019 2018
Revenues
North America $ 2,189.2 $ 2,739.9 $ 2,843.1
International 486.3 569.0 642.8
Total $ 2,675.5 $ 3,308.9 $ 3,485.9
Depreciation (1)
North America $ 78.1 $ 88.7 $ 86.3
International 21.7 27.3 29.3
Other 6.8 9.8 10.0
Total $ 106.6 $ 125.8 $ 125.6
Intangible Amortization
North America $ 98.3 $ 111.1 $ 105.1
International 26.6 34.1 25.2
Other - - -
Total $ 124.9 $ 145.2 $ 130.3
Adjusted Income from Operations
North America $ 606.0 $ 595.0 $ 754.4
International 46.5 70.7 64.7
Other (263.9) (213.7) (200.1)
Total $ 388.6 $ 452.0 $ 619.0
Total Assets
North America $ 4,377.5 $ 5,183.5 $ 5,212.1
International 946.0 980.4 1,100.5
Other 258.4 273.1 142.9
Total $ 5,581.9 $ 6,437.0 $ 6,455.5
(1) Excludes depreciation of $2.0 million and $1.8 million for the year ended
December 31, 2020 and 2019, respectively, which is included as part of Business
Transformation.
The following table reconciles the Company's primary measure of segment
profitability, Adjusted Income from Operations, to Income (loss) from
operations:
In millions
Year Ended December 31,
2020 2019 2018
Total Reportable Segment Adjusted Income from Operations $ 388.6 $ 452.0 $ 619.0
Intangible Amortization (124.9) (145.2) (130.3)
Business Transformation (50.8) (67.7) (82.6)
Acquisition and Integration - (3.5) (9.8)
Operational Optimization (3.1) (14.5) (29.4)Divestitures (including Divestiture Losses, net of Gains)
(133.0) (114.7) (20.5)
Litigation, Settlements and Regulatory Compliance (20.3) (28.2) (93.2)
Asset Impairments (15.5) (22.1) (26.5)
Goodwill Impairment - (228.3) (358.7)
Other (9.1) (39.7) (29.1)
Income (loss) from operations $ 31.9 $ (211.9) $ (161.1)
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NOTE 19 - GEOGRAPHIC AREA
The following table presents consolidated revenues and long-lived assets by
geographic region:
In millions
Year Ended December 31,
2020 2019 2018
Revenues
U.S. $ 2,067.3 $ 2,586.8 $ 2,685.6
International:
Europe 377.7 379.3 415.5
Other international countries 230.5 342.8 384.8
Total international 608.2 722.1 800.3
Total $ 2,675.5 $ 3,308.9 $ 3,485.9
Long-Lived Assets
U.S. $ 4,086.0 $ 4,700.6 $ 4,505.3
International:
Europe 632.5 636.5 612.7
Other international countries 254.5 301.0 485.4
Total international 887.0 937.5 1,098.1
Total $ 4,973.0 $ 5,638.1 $ 5,603.4
NOTE 20 - LEGAL PROCEEDINGS
The Company operates in highly regulated industries and responds 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. The Company is 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 and Opt Out Lawsuits. Beginning on March 12, 2013, the
Company was served with several class action complaints filed in federal and
state courts in several jurisdictions. These complaints asserted, among other
things, that the Company had imposed unauthorized or excessive price increases
and other charges on its customers in breach of its 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
2020 10-K Annual Report Stericycle, Inc. • 94
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of appropriate damages and injunctive relief. These related actions were ultimately transferred to the United States District Court for the Northern District ofIllinois for centralized pretrial proceedings. The parties engaged in discussions through and overseen by a mediator regarding a potential resolution of the matter and reached a settlement agreement, as previously disclosed, which settlement agreement obtained court approval on March 8, 2018 (the "SQ Settlement"). Under the terms of the SQ Settlement, the Company admitted no fault or wrongdoing whatsoever, and it entered into the SQ Settlement to avoid the cost and uncertainty of litigation. Certain class members who have opted out of the Final SQ Settlement have filed lawsuits against the Company, and the Company is defending and expects to resolve those actions. The Company has made an accrual in respect of these collective matters consistent with its accrual policies described above, which is not material. Securities Class Action and Opt Out Lawsuits. On July 11, 2016, two purported stockholders filed a putative class action complaint in theU.S. District Court for the Northern District ofIllinois , which was subsequently amended. As amended, the complaint purported to assert claims on behalf of all purchasers of the Company's publicly traded securities between February 7, 2013 and February 21, 2018, inclusive, and all those who purchased securities in the Company's public offering of depository shares on or around September 15, 2015. The complaint named as defendants the Company, its directors and certain of its current and former officers, and certain of the underwriters in the public offering. The complaint purported 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 alleged, 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. Defendants filed a motion to dismiss. Before the court had ruled on the pending motion to dismiss, the parties engaged in discussions through and overseen by a mediator regarding a potential resolution of the matter and reached a settlement agreement as previously disclosed (the "Securities Class Action Settlement"). The court held a final fairness hearing on July 22, 2019, at which it granted final approval of the Securities Class Action Settlement and took under advisement the amount of attorneys' fees to be awarded to plaintiffs' counsel from the settlement fund. Under the terms of the Securities Class Action Settlement, the Company admitted no fault or wrongdoing whatsoever, and it entered into the Securities Class Action Settlement to avoid the cost and uncertainty of litigation. Certain class members who have opted out of the Final Securities Class Action Settlement filed lawsuits against the Company. On March 6, 2020, the Company filed motions to dismiss these actions. Before the courts had ruled on the pending motions to dismiss, the parties engaged in discussions through and overseen by a mediator and reached a settlement, which is not material, and which was fully paid in December 2020.U.S. Government Investigations. On June 12, 2017, theSEC 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 inLatin America . In addition, the DOJ notified the Company that it was investigating this matter in parallel with theSEC . The Company is cooperating with these agencies and certain foreign authorities. The Company also conducted an internal investigation of these and other matters, including outside ofLatin America , under the oversight of the Audit Committee of the Board of Directors and with the assistance of outside counsel, and this investigation found evidence of improper conduct. As part of the FCPA investigation discussed above, theSEC has requested certain additional information from the Company. On July 29, 2019, theSEC issued a subpoena to the Company requesting documents relating to the Company's pricing practices concerning small quantity customers, as alleged in the Contract Class Actions and in the Securities Class Action. The Company is cooperating with theSEC's request. The Company has been informed that the office ofthe United States Attorney for the Southern District ofNew York is conducting a False Claims Act investigation related toStericycle's collection, transportation and disposal of hazardous waste. The Company is cooperating with this investigation. The Company has separately been informed that the State ofCalifornia Department of Justice has opened an investigation related toStericycle's collection, transportation, and disposal of waste generated by government customers inCalifornia . The Company is cooperating with this investigation. The Company has not accrued any amounts in respect of the foregoing matters, as it cannot estimate any reasonably possible loss or any range of reasonably possible losses that the Company may incur. The Company is unable to make such an estimate because, based on what the Company knows now, in the Company's judgment, 2020 10-K Annual ReportStericycle, Inc. • 95
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the factual and legal issues presented in this matter are sufficiently unique that the Company is unable to identify other circumstances sufficiently comparable to provide guidance in making estimates. Environmental and Regulatory Matters. The Company 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 its business, the Company frequently becomes a party to legal or administrative proceedings involving various governmental authorities and other interested parties. The issues involved in these proceedings generally relate to alleged violations of existing permits and licenses or alleged responsibility under federal or state Superfund laws to remediate contamination at properties owned either by the Company or by other parties to which either the Company or the prior owners of certain of its facilities shipped waste. From time to time, the Company may be subject to fines or penalties in regulatory proceedings relating primarily to waste treatment, storage or disposal facilities. Effective April 6, 2020, the Company completed the divestiture of its Environmental Solutions business, including the facility inRancho Cordova, California , to Harsco Corporation. Pursuant to the Purchase Agreement, the Company may be subject to certain indemnification claims for matters relating to those Environmental Solutions facilities.North Salt Lake, Utah . The Company and the United States DOJ have reached a settlement in principle, subject to Court approval, to resolve an investigation by theEPA into alleged past Clean Air Act and permit violations, as previously alleged in the NOV issued by the State of Utah DAQ. The NOV resulted in the Company's December 2014 settlement with the DAQ, as previously disclosed. The federal settlement is documented in the form of a proposed civil consent decree, which was filed with the United States District Court for the District ofUtah on January 29, 2021. If the Court approves the settlement, the Company will undertake a Supplemental Environmental Project, in which it will provide funds to the localDavis County School District to replace older, higher-emission school buses with new, more efficient buses to reduce pollution and protect the local environment, and pay a civil penalty under the Clean Air Act. The Company has accrued the total amount of the agreement in principle, which is not material.Tabasco, Mexico . In 2016, the ASEA inMexico conducted a permit compliance inspection at a hazardous waste treatment facility acquired by one of the Company's subsidiaries inDos Bocas ,Tabasco, Mexico . The ASEA subsequently claimed that the Company's subsidiary did not comply with the facility's treatment permit and issued an order imposing a fine and directing that the facility be closed and that alleged contamination be remediated. The Company's subsidiary 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. In November 2017, the ASEA rescinded the prior order imposing the fine. After reassessing the evidence and arguments presented, the ASEA issued a new resolution on March 9, 2018, containing a lower 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 order. In December 2018, the ASEA approved the Company's remediation plan. In June 2018, the Company instituted both civil and criminal legal proceedings inMexico against the company from which it acquired the relevant facility, seeking to hold the seller liable for any remediation as well as damages. In November, 2020, the Company entered into an agreement with the prior owners of the facility, which included the transfer and divestment of the facility and entire subsidiary, including related obligations, back to the prior owners, and resolving all pending litigation between the parties. The transaction closed on December 11, 2020. As a result of the transaction, the Company has recognized its disposal of the subsidiary including its prior accrual for the costs necessary to comply with the ASEA order, which were not material.Rancho Cordova, California . On June 25 and 26, 2018, the California DTSC conducted a Compliance Enforcement Inspection of the Company's former Environmental Solutions facility inRancho Cordova, California . On February 14, 2020, DTSC filed an action in the Superior Court for theState of California , Sacramento County Division, alleging violations ofCalifornia's Hazardous Waste Control Law and the facility's hazardous waste permit arising from the inspection. That action is ongoing. Separately, on August 15, 2019, the Company received from DTSC a written Intent to Deny Hazardous Waste Facility Permit application for theRancho Cordova facility. A public hearing was held on September 22, 2019, and the public comment period closed on October 25, 2019. The Company entered a written submission as part of that process. On August 27, 2020, DTSC issued a Notice of Denial of Hazardous Waste Facility Permit Application and on September 25, 2020, the Company filed a Petition for Review, which instituted an administrative appeal of DTSC's action, which is currently pending. 2020 10-K Annual ReportStericycle, Inc. • 96
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The Company has not accrued any amounts in respect of these alleged violations and cannot estimate the reasonably possible loss or the range of reasonably possible losses that it may incur. The Company is unable to make such an estimate because (i) litigation is by its nature uncertain and unpredictable and (ii) in the Company's judgment, the factual and legal allegations asserted by DTSC are sufficiently unique that it is unable to identify other proceedings with circumstances sufficiently comparable to provide guidance in making estimates. DEA Investigation -Rancho Cordova, California andIndianapolis, Indiana . On February 11, 2020, the Company received an administrative subpoena from the DEA, which executed a search warrant at the Company's former Environmental Solutions facility atRancho Cordova, California and an administrative inspection warrant at the Company's former facility inIndianapolis, Indiana for materials related to the former Environmental Solutions business of shipping and destroying controlled substances. On that same day, agents from the DTSC executed a separate search warrant at theRancho Cordova facility. The Company is cooperating with the DEA and DTSC in response to their investigations, including with the government's activity at theRancho Cordova andIndianapolis facilities. The Company has not accrued any amounts in respect of these investigations and cannot estimate the reasonably possible loss or any range of reasonably possible losses that the Company may incur. The Company is unable to make such an estimate because, based on what the Company knows now, in the Company's judgment, the factual and legal issues presented in this matter are sufficiently unique that the Company is unable to identify other circumstances sufficiently comparable to provide guidance in making estimates The Company intends to vigorously defend itself against these allegations and actions. European Retrovirus Investigations. In conjunction with Europol, governmental authorities ofSpain ,Portugal , andRomania have conducted coordinated inspections of a large number of medical waste management facilities, includingStericycle facilities, relating to the transportation, management and disposal of waste that may be infected with the COVID-19 virus, and related matters. The inspections have resulted in proceedings inSpain andPortugal . The Company intends to vigorously defend itself in these proceedings. The Company has not accrued any amounts in respect of these investigations, as it cannot estimate the reasonably possible loss or any range of reasonably possible losses that the Company may incur. The Company is unable to make such an estimate because, based on what the Company knows now, in the Company's judgment, the factual and legal issues presented in this matter are sufficiently unique that the Company is unable to identify other circumstances sufficiently comparable to provide guidance in making estimates. NOTE 21 - QUARTERLY FINANCIAL INFORMATION (UNAUDITED) The following table summarizes our unaudited consolidated quarterly results of operations as reported for 2020 and 2019: In millions, except per share data First Second Third Quarter Fourth Quarter 2020 Quarter 2020 2020 Quarter 2020 Year 2020 Revenues $ 785.0 $ 598.2 $ 636.4 $ 655.9 $ 2,675.5 Gross profit 286.6 229.7 267.3 269.5 1,053.1 Goodwill impairment - - - - - Divestiture losses, net of (gains) 58.3 3.8 104.1 (42.6) 123.6 Net (loss) income attributable to Stericycle, Inc. common shareholders (20.1) (4.5) (81.2) 48.5 (57.3) * Basic loss per common share $ (0.22) $
(0.05) $ (0.89) $ 0.53 $ (0.63) * Diluted loss per common share
$ (0.22) $ (0.05) $ (0.89) $ 0.53 $ (0.63)
2020 10-K Annual Report Stericycle, Inc. • 97
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In millions, except per share data
First Second Third Fourth
Quarter 2019 Quarter 2019 Quarter 2019 Quarter 2019 Year 2019
Revenues $ 830.1 $ 845.8 $ 833.1 $ 799.9 $ 3,308.9
Gross profit 297.1 302.6 295.3 279.5 1,174.5
Goodwill impairment 20.9 - - 207.4 228.3
Divestiture losses, net of (gains) (5.4) 0.3 83.2 24.9 103.0
Loss on early extinguishment of debt - 23.1 - - 23.1
Net (loss) income attributable to
Stericycle, Inc. common shareholders (37.8) (30.5) (59.2) (219.3) (346.8)
* Basic loss per common share $ (0.42) $ (0.33) $ (0.65) $ (2.41) $ (3.81) * Diluted loss per common share
$ (0.42) $ (0.33) $ (0.65) $ (2.41) $ (3.81)
* EPS calculated on a quarterly basis, and, as such, the amounts may not total the calculated full-year EPS. 2020 10-K Annual ReportStericycle, Inc. • 98
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STERICYCLE, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
In millions
Balance
Beginning Charges to Other Charges/ Write-offs/ Balance End
Allowance for doubtful accounts of Period Expenses (Reversals) (1) Payments of Period
2018 $ 65.2 $ 24.9 $ (2.1) $ (16.1) $ 71.9
2019 $ 71.9 $ 25.7 $ (5.8) $ (23.9) $ 67.9
2020 $ 67.9 $ 21.7 $ (9.2) $ (24.2) $ 56.2
(1)Amounts consist primarily of currency translation adjustments and $9.3
million relating to divestitures undertaken during 2020.
In millions
Additions/
(Deductions)
Balance Charged to/
Valuation Allowance on Deferred Tax Beginning of (from) Income Other Changes Balance End of
Assets Period Tax Expense(1) to Reserves (2) Period
2018 $ 16.1 $ 20.6 $ (1.4) $ 35.3
2019 $ 35.3 $ 13.3 $ (9.2) $ 39.4
2020 $ 39.4 $ 17.8 $ (5.2) $ 52.0
(1)2020 amount includes valuation allowances on business operations (including
the U.K. and Brazil )
(2)2020 amount consists primarily of currency translation adjustments. 2019
amount consists primarily of divestiture valuation allowances of Mexico and
Chile . 2018 amount consists 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.
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