SRCL Presentation for RCMPBy: Joe Vaccaro, Paul Ripsky, Bilal Rathore, Christina Guang Lu

04/09/2009

Current Position and Recommendation

• Purchased 200 shares in March 2001– 2:1 split twice– Sold 200 shares in March 2006 and again in

November 2008• Currently own 200 shares @ $51.27

– Unrealized gain of $8,307.12• We recommend to sell 100 shares of SRCL at the

market price of $51.80 (4/9)

Company History

• Founded in 1989 after the passage of the Medical Waste Tracking Act

• Launched IPO in 1996• Started International operations in 1998• Emerged as North America's largest provider

of medical waste services in 2000. • Acquired Bio System Sharps in 2003

Company Overview

• Offers collection, transportation, treatment, disposal, and recycling of medical waste

• Full service for nearly 400,000 customers• Foreign customers nearly 23% of revenues• No single customer accounts for greater than

2% of revenues.

Stericycle has two main clients:• Large Quantity Generators (LQGs)

– Hospitals, distributors, and pharmaceutical companies

– Bio Systems aids LQGs in the disposal of needles and syringes

• Small Quantity Generators (SQGs)– Doctors' offices and retail pharmacies– SQGs use SteriSafe to dispose of RMW

(radioactive mixed wastes).

Products and Services

Medical Waste Disposal• Specialize in the collection, treatment and

disposal of medical and bio-hazardous waste • Ensure maximum infection control and

documentation necessary for compliance• Route Managers carry out responsibilities

discreetly, without interrupting operation • Provide staff training and education to help

protect employees and reduce risk

Products and Services

Sharp Disposal• Hospitals

• Private Practices: Medical and dental offices

• Home Sharp Users: Patients with conditions such as arthritis, diabetes and cancer

• Community Collection Programs

*The CDC estimates that over 800,000 needle sticks occur each year among healthcare workers

Business Model

Collection of regulated waste

Transfer Stations

Processing FacilityRecycling or

Permanent Disposal

1. -Supply reusable leak-and puncture-resistant plastic container -Collect containers of regulated waste at intervals specified by contract

2. -Allows temporary hold of small loads of waste -Consolidated into full truckloads then transported to processing facility

3. -Scanned to check for unacceptable hazardous materials4. -Resulting waste sent to resource recovery, recycling or disposal landfill

1.

2.

3.4.

National Coverage

• 45 Treatment stations• 100 Transfer stations• 1200 Route Managers• Uniquely prepared to

respond promptly to natural or internal disaster

Global Presence

Macro-economic Outlook

Medical waste Industry historically less volatile during times of recession

• There is very consistent demand for the service and thus a fairly consistent revenue stream based on the demand. – There will always be a need to collect trash and dispose of it.

• Stericycle has approximately 400,000 customers, which are well diversified internationally

• The medical waste industry is tightly regulated– Stricter regulations imposed on disposing medical waste leads to

greater demand for Stericycle's services. • Long-term as the baby boomers age, more treatment equals more waste.

Macro-economic OutlookPrice of Oil (hedging against risk)

• Most companies that are highly dependent on transportation have seen a large impact to the downside in their stock price due to the volatility of oil– Stericycle has 1200 Route Managers

• Many Waste Services companies have implemented ways to hedge against high oil. – Stericycle has a fuel surcharge program that is designed to

minimize the damage to margins from high and volatile oil.

Management Team

• Over 150 years of management experience in the health care, consumer, and waste management industries by the top 6 executives– Mark C. Miller—Chairman, President, and CEO– Richard T. Kogler—Exec. VP and COO– Frank J.M. ten Brink—Exec. VP and CFO– Richard L. Foss—Exec. VP, International– Michael J. Collins—President, Return Management

Services– Richard J. Marasco—Exec. VP, M&A

Industry Overview• Regulated medical waste is generally any medical waste that can

cause an infectious disease – Items such as needles, syringes, gloves and other medical supplies;

cultures and stocks of infectious agents; and blood and blood products

• Regulated pharmaceutical waste consists of expired or recalled pharmaceuticals

• Global regulated waste industry size in 2008: $10.5 billion• Stericycle’s global market share: 10.3% (increased from 9.3% in

2007)• Highly regulated industry

– U.S. Environmental Protection Agency, U.S. Department of Transportation, U.S. Postal Service, Occupational Safety and Health Administration, Drug Enforcement Administration

• Very fragmented

Industry Growth Factors

• Aging population• Pressure to reduce healthcare costs• Environmental and safety regulations• Shift from institutional higher-cost acute-care

settings to less expensive, smaller, offsite treatment alternatives– Results in increase in the number of regulated

waste generators that cannot treat their own regulated waste

SWOT Analysis• Strengths

– Market leader– Broad range of services– Established network of treatment facilities and

transportation– Revenue stability and noncyclical business– Experienced senior management team– Ability to integrate acquisitions (157 since 1993)– Proprietary technology (i.e. ETD)

SWOT Analysis

• Strengths– Diverse customer base

• Top 10 account for 7% of revenues• No one customer accounts for more than 2% of

revenues• 418,000 customers

– 11,000 large-quantity generators, such as hospitals, blood banks and pharmaceutical manufacturers

– 407,000 small-quantity generators, such as outpatient clinics, medical and dental offices, long-term and sub-acute care facilities and retail pharmacies

SWOT Analysis

• Weaknesses– Subject to extensive governmental regulation,

which is usually difficult, expensive, and time-consuming to comply with

– Exposure to environmental liabilities which may not be covered by insurance

– Patents for ETD start to expire in May 2009– Inability to complete acquisitions may slow down

revenue and profit growth

SWOT Analysis

• Opportunities– Very fragmented industry provides acquisition

opportunities– Growing global market– High demand by small-quantity generators

Income Statement

Revenue Growth

Revenue Breakdown

EBIT Growth

Balance Sheet

DuPont Analysis

Historical Capitalization

DCF Analysis Assumptions2009 Management Forecast in 2008 Q4 Earning Call

– Total revenue: in the range of $1.16 b to $1.18b– Net Income: in the range of $165m to $ 179 m– Free Cash Flow: in the range of $165m to $185m

DCF Analysis Assumptions

DCF Model

• Equity Price: $ 44.90 WACC= 9.86%

Sensitivity Analysis

• Equity Price: $ 41.46 ~ 53.61

Competitors (1)

1. American Ecology Corp. (NasdaqGS:ECOL) American Ecology Corporation, through its subsidiaries, provides radioactive,polychlorinated biphenyls, and hazardous and industrial waste management services inthe United States. It serves commercial and government entities, such as refineries andchemical production facilities, manufacturers, electric utilities, steel mills, medical andacademic institutions, and waste broker/aggregators. The company was founded in 1952and is headquartered in Boise, Idaho.

2. Republic Services Inc. (NYSE:RSG): Republic Services, Inc. provides nonhazardous solid waste collection anddisposal services for commercial, industrial, municipal, and residential customers in theUnited States. The company primarily engages in residential collection operations thatinclude curbside collection of refuse from small containers into collection vehicles fortransport to transfer stations or directly to landfills. Its commercial and industrial collectionoperations include the supply of waste containers of various sizes to construction sitesand rental of compactors to large waste generators, as well as the provision of wastecollection services to industrial and construction facilities on contractual basis. RepublicServices, Inc. was founded in 1996 and is headquartered in Phoenix, Arizona.

Competitors (2)

3. Steris Corp. (NYSE:STE)STERIS Corporation develops, manufactures, and markets infection prevention,

contamination control, microbial reduction, and surgical and critical care support productsand services to healthcare, pharmaceutical, scientific, research, industrial, and governmentalcustomers worldwide. The company, formerly known as Innovative Medical Technologies, wasfounded in 1985 and is headquartered in Mentor, Ohio.

4. Waste Management, Inc. (NYSE:WMI)Waste Management, Inc. provides integrated waste management services in

NorthAmerica. The company offers collection, transfer, recycling, disposal, and waste-to-energyservices. The company also provides additional waste management services, such as in-plantservices, methane gas recovery, and third party sub-contracted and administrative services. Itserves commercial, industrial, municipal, and residential customers, as well as other wastemanagement companies, electric utilities, and governmental entities. The company wasformerly known as USA Waste Services, Inc. and changed its name to Waste Management, Inc.in 1998. Waste Management, Inc. was founded in 1894 and is based in Houston, Texas.

Comparables Analysis

Company Name Enterprise Value ($mm) EV/EBITDA Rev/EBITDA ROE ROAAmerican Ecology Corp. (NasdaqGS:ECOL) 261.1 5.8x 1.5x 24.6% 17.6%Republic Services Inc. (NYSE:RSG) 14,722.0 16.9x 3.9x 1.7% 2.5%Stericycle Inc. (NasdaqGS:SRCL) 5,219.6 16.3x 4.8x 21.5% 10.5%Steris Corp. (NYSE:STE) 1,492.0 6.2x 1.1x 14.8% 9.7%Waste Management, Inc. (NYSE:WMI) 21,209.1 6.1x 1.6x 18.6% 6.9%

High 21,209.1 16.9x 4.8x 24.6% 17.6%Median 5,219.6 6.2x 1.6x 18.6% 9.7%Average 8,580.8 10.3x 2.6x 16.2% 9.4%Low 261.1 5.8x 1.1x 1.7% 2.5%

Multiples Analysis

Football Chart

Stericycle vs. S&P 500

45.0

65.0

85.0

105.0

125.0

145.0

165.0

185.0

4/3/06 7/3/06 10/3/06 1/3/07 4/3/07 7/3/07 10/3/07 1/3/08 4/3/08 7/3/08 10/3/08 1/3/09 4/3/09

Stericycle S&P 500

Stericycle vs. Competitors

40.0

60.0

80.0

100.0

120.0

140.0

160.0

180.0

200.0

4/3/06 7/3/06 10/3/06 1/3/07 4/3/07 7/3/07 10/3/07 1/3/08 4/3/08 7/3/08 10/3/08 1/3/09 4/3/09

Waste Management, Inc. Steris Corp. American Ecology Corp. Republic Services, Inc. Stericycle S&P 500

RMCP Portfolio

SRCL: 3.43%

Before Sale After Sale

SRCL: 1.71%

Correlation

Recommendation

We recommend to SELL 100 shares of our current position at the market price– A re-evaluation of the position should be

considered if the stock falls below $45 (Based on DCF evaluation)

• Questions?• Comments?