CAN RESIDENTIAL RECYCLING WORK IN THE U.S.? Bill Caesar, CEO WCA

The problems with residential recycling today  Commodity prices  Contamination  Processing costs  Commercial terms 2

The problems with residential recycling today  Commodity prices  Contamination  Processing costs  Commercial terms *2014*Change OCC $ 153 $ % ONP $ 133 $ % MXP $ 110 $ % UBC $ 1,602 $ 1, % Steel $ 276 $ % HDPEn $ 678 $ % HDPEc $ 492 $ % PET $ 645 $ % *Commodity prices are the average price for the year

The problems with residential recycling today  Commodity prices  Contamination  Processing costs  Commercial terms 4 Sources of contamination Single stream – trade-off between volume, collection efficiencies, and contamination “New” recycling areas “Monstrous hybrids” Glass

The problems with residential recycling today  Commodity prices  Contamination  Processing costs  Commercial terms 5 Poor processing yield (and cost to dispose of residue) Shortage of experienced managers Hard to find competent (and legal) labor Limited equipment innovation

The problems with residential recycling today  Commodity prices  Contamination  Processing costs  Commercial terms 6 Haulers use recycling as a “loss leader” on muni contracts Munis demand outrageous terms (and we agree...) ̵ Fixed/floor pricing (above zero) ̵ Unlimited contamination ̵ No cost for glass in blend value

Residential SS MRF Economics – not so attractive Processing Economics  Single-stream “on the tip floor at the MRF”  Processing cost  Disposal (10% trash)  SG&A Total Costs  Commodity sale  Inclusive of “claims”  Inclusive of -25/ton EBITDA 7 Investment Economics  Land (lease)  Building (buy)  Processing equipment and balers*  Yellow iron All-in ~$12 million $ 0/ton $60/ton $ 5/ton $85/ton $ 5/ton $70/ton $15/ton sold For a ~10K ton/month MRF, the payback is ~7.5 years with current prices/costs *30-40 TPH system with two balers $50/ton T&D for disposal; 30% glass by inbound volume 2x10 hour shifts, 6 days, 80% uptime Depreciation of $7M over 10 years = $60K/month ($135K/month)

What has to change to make recycling sustainable? Recyclers have to earn a reasonable return over a business cycle How? Manage the things they have control over:  Price inbound material properly  Manage contamination  Improve operating efficiencies Hope for strong commodity markets... 8 Prerequisites Communities have to want to recycle (and “recycle right”) – regulation? Communities have to be willing to pay for it Global demand for commodities Technical innovation