Stericycle Chris Ehley Tom Grove Eric Nichols Zhihao Tong December 4, 2007

2 OUTLINE 1 1 Company Background 2 2 Ratio Analysis 3 3 Portfolio considerations 4 4 Valuation & Recommendation

3 OUTLINE cont. Company Overview  Business Overview  History  Process  Industry  Risk Factors

4 Business Overview Stericycle is in the business of managing regulated waste It operates in United States, Canada, Mexico, the United Kingdom, and Argentina It offers collections, transportation, treatment, disposal, and recycling of medical waste to 351,700 customers No single customer accounts for greater than 2% of revenues. Small medical companies are more likely to outsource medical waste and they are easier to up-sell.

5 Business Overview cont. For large-quantity generators of regulated waste such as hospitals, pharmaceutical companies and distributors, Stericycle offers: Institutional regulated waste management services Bio Systems ® sharps management services to reduce the risk of needle sticks A variety of products and services for infection control Regulated returns management services for expired or recalled healthcare products

6 Business Overview cont. For small-quantity generators of regulated waste such as doctors’ offices and for retail pharmacies, Stericycle offers: Regulated waste management services Steri-Safe ® Occupational Safety and Health Act and Health Insurance Portability and Accountability Act (HIPAA) compliance programs A variety of products and services for infection control Regulated returns management services for expired or recalled healthcare products

7 History 1989 – Stericycle was founded to seize opportunities created by the passage of the Medical Waste Tracking Act 1996 – IPO 2000 – Became North America’s largest provider of regulated medical waste management services

8 Business Process Collection of regulated waste Processing Facility Transfer Stations Recycling or Permanent Disposal

9 Business Process Collection of regulated waste Processing Facility Transfer Stations Recycling or Permanent Disposal Supply reusable leak-and puncture- resistant plastic containers Collect containers of regulated waste at intervals specified by contract

10 Business Process Collection of regulated waste Processing Facility Transfer Stations Recycling or Permanent Disposal Allows temporary hold of small loads of waste Consolidated into full truckloads then transported to processing facility

11 Business Process Collection of regulated waste Processing Facility Transfer Stations Recycling or Permanent Disposal Scanned to check for unacceptable hazardous materials Waste is processed via Autoclaving, ETD, Incineration, or Chem-Clav

12 Business Process Collection of regulated waste Processing Facility Transfer Stations Recycling or Permanent Disposal Resulting waste sent to resource recovery, recycling or disposal landfill Extensive documentation throughout

13 Current Strategy Acquisitions Completed 116 acquistions from 1993 though 2006; 89 domestic, 27 international Improve margins Expand range of services and products

14 Competitive Advantages Broad range of services Established national network Diverse customer base and revenue stability Strong sales network and proprietary database Experienced senior management team Ability to integrate acquisitions

15 Industry $3.5 billion domestic and $10.0 billion world market Aging U.S. population Pressure to reduce healthcare costs Environmental and safety concerns and regulations Shift to off-site treatment

16 Risk Factors Governmental regulation Energy costs Technology and patent Competition Foreign exchange

17 Ratio Analysis

18 Ratio Analysis

19 Dupont Analysis

20 Financial Health

21 Ratio Comparison

22 Stericycle Vs Competitors

23 Stericycle Vs WMI Current Ratio ▲ 0.4 up Sales Growth ▲ 13.73% up Net Profit Margin ▲ 5.59% up

24 Portfolio Consideration May 2001 Purchased 200 shares at $19.47 ($3,894) June :1 Split March 2006 sell 200 shares May :1 Split December 2007 Hold 400 shares at $58.85 as of December 2 Market value = $23,540 Effectively paid $9.73 per share

25 Correlation

26 Valuation -Have not been able to increase its revenue from small customers in past few years -Bump in gross margins will result more from domestic handling of prescription pills

27 Valuation -Sources of revenue have rapidly been changing -Margins more affected by customer base make up -Pill recovery does target small customers

28 Growth in Revenue Growth in revenue from foreign acquisitions is affected by depreciation of the dollar Domestic growth has been relatively stable The growth in revenue of prescription pills return service has been explosive

29 Margins Foreign acquisitions appear to have similar margins as domestic business Feel as though margins will stabilize Yet to be seen how much prescription pills return service will affect margins as it grows in % of total revenue

30 DCF WACC Beta from finance institutions: Results in cost of equity ~7% Market has come to enjoy a 30% per annum for past 5 years We feel the market risk (beta) is appropriately low Needs to be adjusted for business risk Large liabilities stemming from nature of business Mitigating this is a history of safe performance, and the always present need for medical facilities of all sorts We adjusted beta up to 1 to reflect the large liability of the business

31 Price Determinants Growth of foreign revenue Growth typical of the past 4 years results in an undervalued stock We do not feel this growth is sustainable Margins The ability to increase small customers The ability to grow the prescription pills service will keeping overhead low Within reasonable margins and growth: Price ranges between $54 – $64

32 Recommendation Hold There is plenty of upside Management has been extremely experienced in acquisitions & mitigating risk Playing with house money Do not want to increase position at this time Would like to see future data of margins of new revenue sources