By:Jesal Jobalia Patrick Ripley Recommendation: BUY 200 SHARES @ MKT March 27, 2001

By: Jesal JobaliaPatrick Ripley

Recommendation: BUY 200 SHARES @ MKT

March 27, 2001

STERICYCLE, INC.

Stericycle's Mission:To be the leading company dedicated to the environmentally responsible management of medical waste for the health care community

Who is Stericycle?

Founded in 1989, Stericycle, Inc. has its HQ in Lake Forest, IL Largest provider of regulated medical waste management

services in North America, serving over 251,400 customers throughout the United States, Canada, and Puerto Rico

Network includes 33 treatment/collection centers and 87 additional transfer and collection sites

Services and Operations are comprised of collection, transportation, treatment, disposal and recycling of medical waste

Also integrated with related training and education programs, consulting services, and product sales

Stericycle trades on the Nasdaq, ticker SRCL, and is listed in the waste management services industry

What is Medical Waste?

Generally defined as any waste that can cause an infectious disease or that reasonably can be suspected of harboring human pathogenic organisms

Needles, syringes, gloves, and laboratory, surgical, emergency room and other supplies which have been in contact with infectious agents

Eye Poppers!

Fortune ranks Stericycle No. 10 among America’s fastest-growing

companies (8/21/00)

Only fully integrated medical waste management network

Only company offering medical waste services nationally

Provide the industry's broadest service offering

Stericycle is 20x larger than its nearest competitor

Strong presence in the global market place

Since IPO in 1996, 18 CONSECUTIVE QUARTERS!, have met or

exceeded Wall Street’s expectations for company’s performance

How Has Stericycle Performed?

• Since year end 1996 investors have experienced an average return of 34.83% over the past 4 years

Stericycle Makes a Big Move!

Stericycle has grown primarily through acquisitions– “Roll Up” Mission statement:

To be the leading company dedicated to the environmentally responsible management of medical waste for the health care community

In November 1999, Stericycle completed the acquisition from Allied waste Industries, Inc. (“Allied”) of the medical waste business of Browning-Ferris Industries, Inc. (“BFI”) in the United States, Canada, and Puerto Rico.

Prior to acquisition BFI had been the largest provider of regulated medical waste management services in the US

Business Description

Stericycle divides itself into 4 major lines of business:

Collection and Transportation- Collects containers of medical waste and transports to transfer stations or directly to treatment facilities

Treatment and Disposal – Waste is treated using one of various treatment technologies then transported for resource recovery, recycling, or disposal

Consulting Services- Attempt to “build in” efficiencies that will yield logistical advantages, i.e.) reduce volume of medical waste

Documentation – Provide complete documentation to customers for all medical waste collected – Steri-Safe!

Treatment Technologies

Autoclaving – Treats medical waste with steam at high temperature and

pressure to kill pathogens

65%-70% of medical waste was treated by autoclaving in1999

Incineration – Burns medical waste at elevated temperatures and reduces it

to ash 15% - 20% of medical waste was treated by incineration in

1999

Treatment Technologies

ETD Treatment Process – Electro-thermal deactivation system for grinding medical

waste Uses oscillating fields of low-frequency radio waves to heat

medical waste to temperatures that destroy pathogens Advantages vs. Other conventional treatment technologies

Easier to get permits b/c does not produce fluid or air pollution More cost effective to construct Reduces volume of waste ETD-treated waste may be used for fuel in “waste-to-energy”

electrical plants 10% of medical waste was treated by ETD in 1999

Overview of Medical Waste Management Industry

Industry arose with the Medical Waste Tracking Act of 1988

Large and fragmented

In 1999 estimated size of regulated medical waste market in US

approx. $1.5 billion

Worldwide market approx. $3 billion

In excess of $10 billion when services such as training, education,

product sales, and consulting taken into account

Less susceptible than most industries to effects of a general

economic downturn

Industry Growth Factors

Pressure to Reduce Hospital Costs Leads to Outsourcing –

Health care industry is under pressure to reduce costs and improve efficiency, to accomplish using outside contractors to perform medical waste management

Outsourcing saves up to 50% on average for medium hospitals!!Outsourcing saves up to 50% on average for medium hospitals!!

Aging of Population –

“Baby Boomers” 30% of US population, falling mortality, living longer, require more medical attention, more tests and procedures, all leads inc. generation of medical waste

Industry Growth Factors

Environmental and Safety Regulation –

- Industry is subject to extensive regulation beyond MWTA

- Clean Air Act 1997EPA estimates competitor closings by 2002:

Small waste incinerators – 83-90%

Medium waste incinerators – 60-95%

Large waste incinerators -- 35%

- Occupational Safety and Health Administration “OSHA”• Steri-Safe• Likely to expand beyond traditional health care: ie.) restaurants, casinos,

hotels, etc., anywhere employees come in contact with blood borne pathogens

Stericycle’s Competitive Strengths

Market Leader – largest and only national provider of medical waste management services in US

Vertically Integrated Services - offer broad range of services which allow customers to manage medical waste from point of generation through treatment and disposal

Established National Network – 33 treatment/collection centers and 251,400 customers in 48 states

Low Cost Operator – As a result of vertically-integrated network and broad geographic presence


Diverse Customer Base and Revenue Stability– Top 10 customers account for less than 2.5% of revenues, and no single customer accounts for more than 1% of revenues

Long-Term Customer Relationships – Long-term customer contracts of 1-5 years with substantially all customers

Revenue Predictability – Over 95% of revenues are under long term contracts with automatic renewal (3-5 yrs)

Strong Sales Network and Proprietary Database – Largest most well-established sales force in the medical waste industry, with over 220 sales and marketing personnel


ETD Treatment Process – Electro-thermal deactivation (“ETD”) system for grinding medical waste

Experienced Management Team – Four most senior executives and the Chairman of the Board of Directors collectively have over 45 years of management experience in health care and waste management industries

The Management Team

Jack W. Schuler -- Chairman of the Board of Directors Served in current position since January 1990 From January 1987 to August 1989, he served as President and Chief

Operating Officer of Abbott Laboratories, he joined in 1972 and where he held a number of management and marketing positions and served as a director from April 1985 to August 1989

He also served as a director of Chiron Corporation, Medtronic, Inc., Somatogen, Inc. and Ventana Medical Systems, Inc., and several privately held companies

He is the co-founder of Crabtree Partners, a private investment partnership in Lake Forest, Illinois, which was formed in June 1995

Mark C. Miller – President, CEO, and a Director Served in current positions since joining in May 1992 Vice President for Pacific, Asia, and Africa in the International Division of

Abbott Laboratories from 1976-May 1989 Director of AmericasDoctor.com, and Internet health care company Director of Lake Forest Hospital

The Management Team

Frank J.M. ten Brink -- Executive Vice President, Finance and Chief Financial Officer and Chief Administrative Officer

Present role since joining the Company in June 1997 He has over 16 years of finance experience in high growth environments,

mergers and acquisitions Prior to joining Stericycle, he was Senior Vice President and Chief Financial

Officer with Telular Corporation Between 1991 and 1995, he was Vice President and Chief Financial Officer

of Hexacomb Corporation

Richard T. Kogler -- Executive Vice President, Chief Operating Officer

Present role since December 1998 From 1995 until he joined the Company, Mr. Kogler served as Chief Operating

Officer for American Disposal Prior to his position at American Disposal, he spent 11 years with Waste

Management where he held a number of management positions prior to being promoted to Vice President of Operations

The Management Team

Anthony J. Tomasello -- Executive Vice President and Chief Technical Officer

Present role since March 1999 Joined Stericycle in August 1990 as Vice President, Operations, Five years prior to joining Stericycle, was President and Chief

Operating Officer of Pi Enterprises and Orbital Systems, companies providing process and automation services

From 1980 to 1985, he served as Vice President of Operations for Spang and Company, an operating service firm specializing in resource recovery and recycling for manufacturing and process industries

Weaknesses, Opportunities, and Threats

WEAKNESSES Low margin large generator business Low internal revenue growth Heavily regulated industry

OPPORTUNITIES Well positioned within industry with incredible growth opportunities

20x Larger than nearest competitor Owns only 20% of an estimated $1.5 billion domestic market Big Fish in a Big Pond!

Superior waste treatment and disposal technology (ETD Technology) Growth into global markets likely to continue through licensing of proprietary intellectual

property (ETD Technology) Business mix shift to small waste generator business leading to long-term margin

expansion EPA regulations should result in large hospitals and other smaller medical waste generators

seeking less expensive methods of medical waste disposal rather than incur costs to comply to regulations

Favorable acquisition environment

Weaknesses, Opportunities, and Threats

THREATS Highly competitive industry

Large number of regional and local companies On-site treatment of medical waste by hospitals Businesses who commercialize alternate treatment technologies

Governmental Regulation Federal Regulation: EPA, OSHA, DOT, MWTA, CERCLA State and Local Regulation Foreign and Territorial Regulation\

Patent Expiration Currently hold 9 US patents relating to the ETD treatment process and other aspects

of processing medical waste Potential Liability and Insurance

Significant risks of statutory, contractual, tort, and common law liability claims: clean up costs, personal injury, damage to environment, etc.

Stericycle’s Customer Base

Small Account Customers – Small groups of doctors, dentists, offsite & alternative health

care providers

Existing account base of approximately 247,000 small account customers

Growth Area

Offer higher profit potential vs. other potential customers


Small Account Customers – Very concerned with compliance issues surrounding proper

pick up and disposal of medical waste “Cradle to Grave” Industry Doctors are ultimately responsible if medical waste is not handled

in accordance with state and federal regulations “What are we in the business of doing?” – basis for significantly

higher gross margins vs. large account customers Do not produce sufficient volume of regulated medical waste to justify capital

expenditures on their own medical waste More service sensitive, rely on fully integrated service providers

(waste removal, staff training, record keeping, OSHA compliance consulting—Steri-Safe)


Large Account Customers – Hospitals, blood banks, pharmaceutical manufactures Existing account base of approximately 4,400 large account

customers Have been successful in serving and plan to continue to serve

as long as satisfactory levels of profitability maintained Provide consulting services to health care customers Implementation of more stringent Clean Air Act and other

federal regulations should significantly increase existing account base– “What are we in the business of doing?

Stericycle’s Business Model

Target Higher Margin, Small Account Customers – Actively target and increase base of higher margin, small

account customers

Capitalize on Outsourcing due to newly enacted Clean Air Regulations –

Clean Air Act 1997 expected increase capital costs required to bring existing incinerators into compliance

Increased EPA regulations Anticipated movement by hospitals to outsource medical

waste treatment presents significant growth opportunities

Stericycle’s Business Model

Expand Range of Services and Products – Inclusion of collection and treatment of materials like

photographic chemicals, lead foils, and amalgam Expand operations Globally through joint ventures and

licensing of Proprietary ETD Treatment Technology Offer broad range of OSHA compliance and consulting to

dental and other types of customers Steri-SafeSteri-Safe

Continue the Evaluation and Integration of Acquisitions –

Have completed 43 acquisitions BFI Projected approximately 24 in 2001

Stericycle’s Successful Growth Through Its Business Model

The overall business mix stands at 57% small-quantity generator revenue and 43% large quantity generator revenue

Base internal growth excluding acquisitions and international revenue was up 7% in Q4 2000 vs. Q4 1999

Sequential 10.3% growth of small account customers in Q3 2000 brought the total number of small account customers to 247,000

This number of small account customers remained level in Q4 2000, reflecting a 9% revenue growth in small accounts vs. Q4 1999

Selected Operating Statistics

1996A 1997A 1998A 1999A 3Q2000 4Q2000Small Generator Contracts 26,370 40,270 76,600 233,000 247,000 247,000Revenues 8,099 21,464 32,360 NA 42,218 NAGrowth 167% 49% NM NM NM

Large Generator Contracts 630 730 1,200 4,200 4,300 4,400Revenues 16,443 24,520 28,420 NA 31,848 NAGrowth 49% 16% NM NM NM


There were 4,300 new small account service agreements signed in Q3 2000

Gross margins for small account customers are high, ranging from 15%-55%

Growth in large account customers revenue was up 5% in Q4 2000 vs. Q4 1999

Gross margins for large account customers range from 12%-13% Management feels with EPA Regulations pending gross margins

for large account customers should reach 20% Base internal growth stronger at 7% vs. historical levels of 5%

Implies management cutting unprofitable contracts, and strengthening pricing


International Environment International Revenue grew substantially up $2.1 million sequentially

to $2.7 million in Q3 2000

Stericycle has also established a strong presence in the global marketplace

Management is excited at its ability to leverage intellectual property of patents (ETD Treatment Tech.) to create value for shareholders without having to put major stake holds in various geographic areas

Stericycle has entered into joint ventures and licensing agreements in Argentina, Brazil, South Africa, Canada, Japan, and Mexico

Plan to open first facility in Kyushu area of Japan by yr end 2001


Acquisition Opportunities Consummated 3 small tuck-in acquisitions, with annual revenue $0.2

million in Q3 2000

Management has estimated up to $7.5 million in tuck-in acquisitions in 2001, “…north of 2 dozen…”

2,000 companies with revenues of $65-70 million that represent pipeline for Stericycle

Tight on acquisition criteria, favorable pricing of 3-4 times EBITDA

Completed successful integration of BFI on schedule at yr end 2000


STERI-SAFE Dental offices and other customers must address a complex and often baffling array

of OSHA safety issues - especially regarding medical and hazardous wastes. The Stericycle Steri-Safe™ Program offers comprehensive compliance services for dental offices (and other types of customers) and is designed to keep your office in total compliance - guaranteed.

Steri-Safe™ Components Blood borne Pathogens Training CD-ROM OSHA Compliance Manual Complete Material Safety Data Sheets on CD-ROM Quarterly Audio Safety Meetings on CD-ROM OSHA Hazard Identification & Communication Poster OSHA Hazard Communication Labels Annual OSHA Training with Continuing Education Units Mock OSHA Inspection Hazardous* and Medical Waste** Containment and Collection

“Cradle to Grave” Process!!


STERI-SAFE Management is planning aggressive nation-wide roll out of

Steri-Safe program in 2001 Potential to re-shape fundamental business

Has seen very strong acceptance from existing customers Vehicle for additional revenues Changes billing paradigm to payment in advance vs. payment in

arrears Currently only 2% penetration into current customer base Profitability– 55%-60% Gross Margins Range

Management sees these margins only increasing as program gains critical mass with national customer base!!

Going to Excel

Ratio Comparison

Discounted Cash Flow Model

Recommendation

Buy 250 shares at the market Given yesterday’s closing

price of $38.25, this will be a

total outflow of ~ $10,000 This will give us the flexibility to take an

“additional bite” in the future if we deem necessary

Documents

By:Jesal Jobalia Patrick Ripley Recommendation: BUY 200 SHARES @ MKT March 27, 2001