Stericycle Annual Report 2008

FY2008 Annual Report · Stericycle

Loading PDF…

Annual Report

Dear Fellow Shareholders:

In 2008, Stericycle continued to set new Company financial
records, to expand our range of service offerings in the U.S.
and to grow internationally.

Revenues in 2008 grew to $1.1 billion, a 16.2% increase over 2007.
Gross margins remained the same as 2007 at 44.8%. Operating
income rose 22.1% to $274.2 million from $224.5 million in 2007.
Operating margins were 25.3% versus 24.1% in 2007.

Under generally accepted accounting principles (“GAAP”), net
income for 2008 increased 25.6%, from $118.4 million to $148.7
million, and diluted earnings per share increased 27.9%, from $1.32
to $1.68 per diluted share. Our 2008 results include the effect of
a partially adverse award in an arbitration settlement in Australia
that reduced 2008 net income by $3.5 million or $0.04 per diluted
share. Our 2007 results included several one-time events that
had a combined effect of reducing 2007 net income by $9.3
million or $0.10 per diluted share due to the net impact of the
following events: a partially adverse award in arbitration
proceedings in Australia, the write-down of a joint venture
investment in Argentina, and the write-down of impaired
intangibles and impaired fixed assets partially offset by the receipt
of insurance proceeds related to the 2005 3CI class action litigation
settlement and the gain recognized on the divestiture of selected
business operations in the United Kingdom. Excluding the impact
of these one-time events and other items on our results in both 2007
and 2008, our non-GAAP net income in 2008 increased 21.6% over
our non-GAAP net income in 2007.

Accomplishments in 2008

We continued to generate strong free cash flow from operations,
which we used to fund growth and improve our balance sheet.
During 2008, we invested $47.5 million of the $210.6 million in
cash generated from operations to expand our capabilities, drive
innovation and better serve the evolving needs of our customers.
In addition, we used $84.9 million for acquisitions and we
repurchased $167.3 million in stock on the open market.

Domestically: We continued to strengthen Stericycle’s leadership
position in regulated waste management and healthcare safety and
compliance services. We successfully increased the penetration of
Steri•SafeSM, our OSHA safety and compliance solution, helping
even more healthcare providers throughout the United States to
create a safer, more compliant workplace. We continued to achieve
strong customer adoption of our Sharps Management Service that
not only reduces the risk of needle sticks for hospital staff, but
also prevents thousands of tons of plastic and corrugated material
from accumulating in landfills. We achieved strong growth in new
accounts for our Returns Management Services business. In 2008,
we completed 14 domestic acquisitions and began their integration
into our existing operations.

Internationally: We continued to establish and strengthen our
position in international markets. We acquired eight businesses
internationally, including entering a country where we had not
previously operated (Chile). We added business that strengthened
our capabilities in Mexico, the United Kingdom, Ireland, Argentina
and Canada.

Priorities for 2009

By building on Stericycle’s industry leadership position in 2008,
we are confident that we have the operating platform that we need to
drive future growth and explore opportunities to serve our customers
better. Our priorities for 2009 are:

Domestic Growth: Our focus will be on our Steri•SafeSM, Bio Systems
and Return Management Services offerings. Our marketing efforts
to small quantity generators will concentrate on our Steri•SafeSM
OSHA safety and compliance services and regulated waste management
services. Our marketing focus for large quantity generators will
be on extending the momentum of our Sharps Management Service
solution and expanding our Return Management Services. We will
focus overall on creating best-in-class customer service and meeting
customer needs with additional service offerings.

International Growth: We will remain focused on integrating the
acquisitions completed and on pursuing attractive international market
opportunities directed to providing value to our shareholders over the
course of the next several years.

Profit Growth: We are committed to extending our track record
of improving our operating margins. We will seek to make further
improvements to our collection route densities, reduce our long-haul
transportation costs and improve efficiency in our processing plants.
Our culture of continuous improvement is focused on streamlining
how we serve customers and encourages the sharing of best practices
and productivity improvement ideas across our entire organization.

Service Innovation and Environmental Leadership: During 2009,
we will maintain our dual commitments to being both responsive to
our customers’ needs and an environmental leader by offering services
suited to the needs of our customers. Our innovative Steri•SafeSM
OSHA safety and compliance services will continue to help our
customers enjoy a safer, more compliant workplace in a cost-effective
manner. The breadth of our Return Management Services offerings
will help our customers protect their brands and reduce liability.
Our other innovative outsourcing programs, such as our Sharps
Management Service featuring reusable containers, offer significant
environmental benefits by reducing waste volume and conserving
valuable natural resources.

• • •
We are excited and confident about our future. Through our many
service offerings, we help our customers protect the safety of their
workforce and reduce risk. We are a clear leader in providing regulated
waste management, safety compliance, sharps management and
return management services. We will focus on the many growth
opportunities that our leadership position affords us. We will continue
to refine the efficiency of our operations and improve our customers’
experience while maintaining our strong focus on safety and
regulatory compliance. We thank you for your support.

Mark C. Miller
Chairman, President and CEO

Jack W. Schuler
Lead Director

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

È ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2008

or
‘ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934
For the transition period from

Commission File Number 0-21229

Stericycle, Inc.

(Exact name of registrant as specified in its charter)

Delaware
(State or other jurisdiction of
incorporation or organization)

36-3640402
(IRS Employer
Identification Number)

28161 North Keith Drive
Lake Forest, Illinois 60045
(Address of principal executive offices including zip code)
(847) 367-5910
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Common stock, par value $.01 per share
(Title of each class)

NASDAQ Stock Market
(Name of each exchange on which registered)

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities

Act. Yes È No ‘

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities

Act of 1934. Yes ‘ No È

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of
the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was
required to file reports), and (2) has been subject to such filing requirements for the past 90 days. Yes È No ‘

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this
chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K, or any amendment to this Form 10-K. È
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer,
or a smaller reporting company. See the definition of “accelerated filer”, “large accelerated filer” and “smaller reporting
company” in Rule 12b-2 of the Exchange Act. (Check one)
Large accelerated filer È Accelerated filer ‘ Non-accelerated filer ‘ Smaller reporting company ‘

Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2 of the

Exchange Act). Yes ‘ No È

State the aggregate market value of voting and non-voting common equity held by non-affiliates computed by
reference to the price at which common equity was last sold as of the last business day of the registrant’s most recently
completed second fiscal quarter (June 30, 2008) was: $4,422,093,531.

On February 13, 2008, there were 85,288,466 shares of the Registrant’s Common Stock outstanding.

Information required by Items 10, 11, 12 and 13 of Part III of this Report is incorporated by reference from the

Registrant’s definitive Proxy Statement for the 2009 Annual Meeting of Stockholders to be held on May 28, 2009.

DOCUMENTS INCORPORATED BY REFERENCE

Protecting People. Reducing Risk.™

Stericycle, Inc.

2008 ANNUAL REPORT ON FORM 10-K

TABLE OF CONTENTS

PART I.

Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.

Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Submission of Matters to a Vote of Security Holders

PART II.

Item 5.

Market Price of and Dividends on the Registrant’s Common Equity and Related

Stockholder Matters

Item 6.
Item 7.

Selected Consolidated Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of

Operations

Item 7A.
Item 8.
Item 9.

Quantitative and Qualitative Disclosures about Market Risk
Consolidated Financial Statements and Supplemental Data
Changes in and Disagreements with Accountants on Accounting and Financial

Disclosure

Item 9A.
Item 9B.

Controls and Procedures
Other Information

PART III.

Item 10.
Item 11.
Item 12.

Directors and Executive Officers of the Registrant
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related

Stockholder Matters

Item 13.
Item 14.

Certain Relationships and Related Transactions
Principal Accountant Fees and Services

PART IV.

Item 15.

Exhibits and Financial Statement Schedules

Signature

Page No.

1
9
12
12
13
13

15
18

19
27
29

58
58
58

59
59

59
59
59

Item 1. Business

PART I.

Unless the context requires otherwise, “we,” “us” or “our” refers to Stericycle, Inc. and its subsidiaries on a

consolidated basis.

Overview

We are in the business of managing regulated waste and providing an array of related services. We operate

in the United States, Canada, Mexico, Argentina, Chile, the United Kingdom and Ireland.

For large-quantity generators of regulated waste such as hospitals and for pharmaceutical companies and

distributors, we offer:

•

our institutional regulated waste management services;

our Bio Systems® sharps management services to reduce the risk of needle sticks;

a variety of products and services for infection control; and

our regulated returns management services for expired or recalled healthcare products.

For small-quantity generators of regulated waste such as doctors’ offices and for retail pharmacies, we offer:

•

our regulated waste management services;

our 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; and

our regulated returns management services for expired or recalled healthcare products.

We operate integrated national regulated waste management networks in the United States, Canada, Mexico,
Argentina, Chile, the United Kingdom and Ireland. Our national networks include a total of 89 processing or
combined processing and collection sites and 97 additional
transfer, collection or combined transfer and
collection sites.

Our

regulated waste processing technologies include autoclaving, our proprietary electro-thermal-

deactivation system (“ETD”), chemical treatment and incineration.

We serve approximately 418,000 customers worldwide, of which approximately 11,000 are large-quantity
generators, such as hospitals, blood banks and pharmaceutical manufacturers, and approximately 407,000 are
small-quantity generators, such as outpatient clinics, medical and dental offices, long-term and sub-acute care
facilities and retail pharmacies.

We benefit from significant customer diversification. No one customer accounts for more than 2% of our

total revenues, and our top 10 customers account for approximately 7% of total revenues.

Industry Overview

Governmental legislation and regulation increasingly requires the proper handling and disposal of regulated
waste which includes such items as medical waste and pharmaceutical waste. Regulated medical waste is
generally any medical waste that can cause an infectious disease and includes: single-use disposable 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.

During 2008, we believe the size of the global regulated waste market for the services we provide was
approximately $10.5 billion. We estimate that our global market share increased to 10.3% in 2008 from 9.3% in
2007. Industry growth is driven by a number of factors. These factors include:

• Aging of Population: The average age of the population in the countries we operate in is rising. As
people age, they typically require more medical attention and a wider variety of tests, procedures and
medications, leading to an increase in the quantity of regulated waste generated.

• Pressure to Reduce Healthcare Costs: The healthcare industry is under pressure to reduce costs. We
believe that our services can help healthcare providers to reduce their handling and compliance costs
and to reduce their potential liability for employee exposure to blood-borne pathogens and other
infectious agents.

• Environmental and Safety Regulation: We believe that many businesses that are not currently using
third party regulated waste services are unaware either of the need for proper training of employees or
of the requirements of the Occupational Safety and Health Administration (“OSHA”) regarding the
handling of regulated waste. These businesses include manufacturing facilities, schools, restaurants,
hotels and other businesses where employees may come into contact with blood-borne pathogens.
Similarly, the proper handling of expired or recalled pharmaceuticals requires an expertise that many
retail pharmacies lack or find inefficient to provide.

•

Shift to Off-Site Treatment: We believe that patient care is continuing to shift from institutional
higher-cost acute-care settings to less expensive, smaller, off-site treatment alternatives, with a
resulting increase in the number of regulated waste generators that cannot treat their own regulated
waste.

• Control of Drug Diversion: The U.S. Drug Enforcement Administration (“DEA”) has recently
emphasized improved control of the handling and shipment of controlled substances to prevent
diversion and counterfeiting,
thus increasing the utility to pharmaceutical manufacturers and
distributors of a returns service for expired or recalled pharmaceuticals.

Competitive Strengths

We believe that we benefit from the following competitive strengths, among others:

• Broad Range of Services: We offer our customers a broad range of services to help them develop
systems and processes to manage their regulated waste safely and efficiently. For example, we have
developed programs to help our customers ensure and maintain compliance with OSHA and HIPAA
regulations.

• Established Network of Treatment and Transportation Locations in Each Country: We believe that

networks like ours would be very expensive and time-consuming for a competitor to develop.

• Diverse Customer Base and Revenue Stability: We have a very diverse customer base in all the
markets in which we operate. We are also generally protected from the cost of regulatory changes and
increases in fuel, insurance and other operating costs because our regulated waste contracts typically
allow us to adjust our prices to reflect these cost increases.

•

Strong Sales Network and Proprietary Database: We use both telemarketing and direct sales efforts to
obtain new regulated waste customers. In addition, we have a large database of potential new small-
quantity customers, which we believe gives us a competitive advantage in identifying and reaching this
higher-margin sector.

• Experienced Senior Management Team: We have experienced leadership. Our six most senior
executives collectively have over 150 years of management experience in the health care, consumer
and waste management industries.

• Ability to Integrate Acquisitions: We have completed 157 acquisitions since 1993 and have

demonstrated a consistent ability to integrate our acquisitions into our operations successfully.

Our goals are to strengthen our position as a leading provider of regulated waste and compliance services

and to continue to improve our profitability. Components of our strategy to achieve these goals include:

• Expand Range of Services and Products: We believe that we continue to have opportunities to expand
our business by increasing the range of products and services that we offer our existing regulated waste
customers. For example, through our Steri-Safe® program, we now offer OSHA compliance services to
small-quantity customers, and an acquisition in 2003 enabled us to market the Bio Systems® sharps
management program to large-quantity customers in new geographic areas. We have expanded our
regulated waste services to pharmaceutical companies and other large-quantity generators through a
series of acquisitions beginning in 2005 of nine businesses engaged in regulated returns and recall
management or related services.

•

Improve Margins: We intend to continue working to improve our margins by increasing our base of
small-quantity customers and focusing on service strategies that more efficiently meet the needs of our
large-quantity customers. We have succeeded in raising the percentage of our revenues from small-
quantity customers from 33% of domestic regulated waste revenues at the fourth quarter of 1996 to
63% for the year ended 2008.

Seek Complementary Acquisitions: We intend to continue to seek opportunities to acquire businesses
that expand our networks in the United States and internationally and increase our customer base. We
believe that selective acquisitions can enable us to improve our operating efficiencies through
increased utilization of our service infrastructure.

Acquisitions

We have substantial experience in evaluating potential acquisitions and determining whether a particular
waste business can be integrated into our operations with minimal disruption. Once a business is acquired, we
implement programs and procedures to improve customer service, sales, marketing, routing, equipment
utilization, employee productivity, operating efficiency and overall profitability.

We completed 157 acquisitions from 1993 through 2008, with 114 in the United States and 43

internationally.

During 2008, we completed 22 acquisitions, of which 12 were domestic regulated waste businesses, two
were domestic return management businesses and eight were international regulated waste businesses in Canada,
Latin America and Europe.

Effective for the month ended March 31, 2008, we dissolved our relationship in a United Kingdom joint
venture, White Rose Sharpsmart Limited, which was formed in October 2001 prior to our acquisition of White
Rose Environmental Limited in June 2004. This joint venture was previously consolidated in our financial
statements.

Services and Operations

Collection and Transportation: In many respects, our regulated waste business is one of logistics.
Efficiency of collection and transportation of regulated waste is a critical element of our operations because it
represents the largest component of our operating costs.

For regulated waste, we supply specially designed reusable leak-and puncture-resistant plastic containers to
most of our large-quantity customers and many of our larger small-quantity customers. To assure regulatory
compliance, we will not accept regulated waste from customers unless it is properly packaged in containers that
we have either supplied or approved.

We collect containers or corrugated boxes of regulated waste from our customers at intervals depending
upon customer requirements, contract terms and volume of waste generated. The waste is then transported
directly to one of our processing facilities or to one of our transfer stations where it is combined with other
regulated waste and transported to a processing facility.

Transfer stations allow us to temporarily hold small loads of waste until they can be consolidated into full
truckloads and transported to a processing facility. Our use of transfer stations in a “hub and spoke”
configuration improves the efficiency of our collection and transportation operations by expanding the
geographic area that a particular processing facility can serve and thereby increasing utilization of the facility by
increasing the volume of waste that it processes.

We collect some expired or recalled pharmaceuticals from pharmacy shelves, but more typically,

pharmacies ship them directly to our processing facilities.

Processing and Disposal: Upon arrival at a processing facility, containers or boxes of regulated waste are
typically scanned to verify that they do not contain any unacceptable substances like radioactive material. Any
container or box that is discovered to contain unacceptable waste is returned to the customer and the appropriate
regulatory authorities are informed.

The regulated waste is then processed using one of our various treatment technologies. Upon completion of
the particular process, the resulting waste or incinerator ash is transported for resource recovery, recycling or
disposal in a landfill operated by an unaffiliated third party. We do not own any landfills. After plastic containers
such as our Steri-Tub® or Bio Systems® containers have been emptied, they are washed, sanitized and returned to
customers for re-use.

Upon receipt at a processing facility, expired or recalled pharmaceuticals are counted and logged, and
controlled substances are stored securely. In accordance with the manufacturer’s instructions, expired or recalled
pharmaceuticals are then returned to the manufacturer or destroyed in compliance with applicable regulations.

Documentation: We provide complete documentation to our customers for all regulated waste that we

collect in accordance with applicable regulations and customer requirements.

Marketing and Sales

Marketing Strategy: We use both telemarketing and direct sales efforts to obtain new customers. In
addition, our drivers may also participate in our regulated waste marketing efforts by actively soliciting small-
quantity customers they service.

Small-Quantity Customers: We target small-quantity customers as a growth area of our regulated waste
business. We believe that small-quantity regulated waste customers view the potential risks of failing to comply
with applicable state and federal regulated waste regulations as disproportionate to the cost of the services that
we provide. We believe that this factor has been the basis for the significantly higher gross margins that we have
achieved with our small-quantity customers relative to our large-quantity customers. We believe that the same
potential exists in processing returns of expired pharmaceuticals for smaller retail pharmacies.

Steri-Safe®: Our Steri-Safe® OSHA compliance program provides an integrated regulated waste
management and compliance-assistance service for small-quantity customers who typically lack the internal
personnel and systems to comply with OSHA blood-borne regulations. Customers for our Steri-Safe® service pay
a predetermined subscription fee in advance for regulated waste collection and processing services and can also
choose from available packages of training and education services and products designed to help them to comply
with OSHA regulations. Approximately 132,000 small-quantity customers are enrolled in this program. We
believe that the implementation of our Steri-Safe® service provides us with an enhanced opportunity to leverage
our existing customer base through the program’s prepayment structure and diversified product and service
offerings.

Mail-Back Program: We also operate a “mail-back” program by which we can reach small-quantity
regulated waste customers located in outlying areas that would be inefficient to serve using our regular route
structure. Our mail-back program has allowed us to service customers as far away as Hawaii, Alaska, Guam and
the Virgin Islands. Mail-back programs are also used in home care patient settings.

Large-Quantity Customers: Our marketing efforts to large-quantity customers are conducted by account
executives who are also able to provide consulting services to assist our large-quantity customers in training their
employees on safety issues and implementing programs to improve waste segregation.

Our Bio Systems® sharps management offering can enhance our revenue and margins per large-quantity
account. The Bio Systems® service can help our large-quantity customers eliminate plastic and cardboard from
their waste stream while providing a safe and cost-effective way for them to deal with the disposal of their sharp
objects (such as needles, syringes, etc.).

We offer hospital pharmacies an onsite collection service to assist them in accounting for and segregating

expired or recalled pharmaceuticals.

National Accounts: As a result of our extensive geographic coverage, we are capable of servicing national
account customers (i.e., customers requiring regulated waste services at various geographically dispersed
locations).

Contracts: We have multi-year contracts with a large majority of our customers. We negotiate individual
contracts with each large-quantity and small-quantity customer. Although we have a standard form of contract,
particularly for small-quantity customers, terms may vary depending upon the customer’s service requirements
and the volume of regulated waste generated and, in some jurisdictions, statutory and regulatory requirements.
Substantially all of our contracts with small-quantity customers contain automatic renewal provisions.

International

We conduct regulated waste operations in Canada, Mexico, Argentina, Chile, the United Kingdom and
Ireland. We began our operations in Canada and Mexico in 1998, Argentina in 1999, the United Kingdom in
2004, Ireland in 2006 and Chile in 2008. We also have technology licensing agreements in Japan, Brazil and
South Africa.

Processing Technologies

We currently use both non-incineration technologies (autoclaving, chemical treatment and our proprietary

ETD technology) and incineration technologies for treating regulated waste.

Stericycle was founded on the belief that there was a need for safe, secure and environmentally responsible
management of regulated waste. From our beginning we have championed the use of non-incineration treatment
technologies such as our ETD process. While we recognize that some state regulations currently in force mandate
that some types of regulated waste must be incinerated, we also know from years of experience working with our
customers that there are ways to reduce the amount of regulated waste that is ultimately incinerated. The most
effective strategy that we have seen involves comprehensive education of our customers in waste minimization
and segregation.

Autoclaving: Autoclaving treats regulated waste with steam at high temperature and pressure to kill
pathogens. Autoclaving alone does not change the appearance of waste, and some landfill operators may not
accept recognizable regulated waste, but autoclaving may be combined with a shredding or grinding process to
render the regulated waste unrecognizable.

ETD: Our ETD treatment process includes a system for grinding regulated waste. After grinding, ETD uses
an oscillating field of low-frequency radio waves to heat regulated waste to temperatures that destroy pathogens
such as viruses, bacteria, fungi and yeast without melting the plastic content of the waste. ETD does not produce
regulated air or water emissions.

Incineration: Incineration burns regulated waste at elevated temperatures and reduces it to ash. Incineration
reduces the volume of waste, and it is the recommended treatment and disposal option for some types of
regulated waste such as anatomical waste or residues from chemotherapy procedures. Air emissions from
incinerators can contain certain byproducts that are subject to federal, state and, in some cases, local regulation.
In some circumstances, the ash byproduct of incineration may be regulated.

Chem-Clav: Chemclaving treats regulated waste using high heat, pressure, and a steam auger to kill
pathogens. The waste is treated in a sealed container while the auger shreds the waste, making it unrecognizable
while exposing more surface area of the waste to the steam. After shredding and treatment, the waste residue is
sterile and safe for landfill.

Competition

The regulated waste industry is highly competitive, and barriers to entry into the regulated waste collection
and disposal business and the pharmaceutical returns business are very low. Our competitors consist of many
different types of service providers, including a large number of regional and local companies. In the regulated
waste industry, another major source of competition is the on-site treatment of regulated waste by some large-
quantity generators, particularly hospitals.

In addition,

in the regulated waste industry we face potential competition from businesses that are
attempting to commercialize alternate treatment technologies or products designed to reduce or eliminate the
generation of regulated waste, such as reusable or degradable medical products.

Governmental Regulation

The regulated waste industry is subject to extensive and frequently changing federal, state and local laws
and regulations. This statutory and regulatory framework imposes a variety of compliance requirements,
including requirements to obtain and maintain government permits. These permits grant us the authority, among
other things:

•

to construct and operate collection, transfer and processing facilities;

to transport regulated waste within and between relevant jurisdictions; and

to handle particular regulated substances.

Our permits must be periodically renewed and are subject to modification or revocation by the issuing

authority.

We are also subject to regulations that govern the definition, generation, segregation, handling, packaging,
transportation, treatment, storage and disposal of regulated waste. We are also subject to extensive regulations
designed to minimize employee exposure to regulated waste.

Domestic Federal Regulation: Five U.S. federal agencies have authority over regulated waste. These
agencies are the U.S. Environmental Protection Agency (“EPA”), OSHA, U.S. Department of Transportation
(“DOT”), the U.S. Postal Service (“USPS”) and DEA. These agencies supervise regulated waste under a variety
of statutes and regulations. The principal statutes and regulations are:

• Medical Tracking Act of 1988. In the late 1980s, the EPA outlined a two-year demonstration program
to the Medical Waste Tracking Act (“MWTA”), which was added to the Resource

pursuant

Conservation and Recovery Act of 1976. In regulations implementing the MWTA, the EPA defined
medical waste and established guidelines for its segregation, handling, containment, labeling and
transport. The MWTA demonstration program expired in 1991, but the MWTA established a model
followed by many states in developing their specific medical waste regulatory framework.

• Occupational Safety and Health Act of 1970. The Occupational Safety and Health Act of 1970
authorizes OSHA to issue occupational safety and health standards. Various standards apply to certain
aspects of our operations and govern such matters as exposure to blood borne pathogens and other
potentially infectious materials.

• Resource Conservation and Recovery Act of 1976. The Resource Conservation and Recovery Act of
1976 (“RCRA”) created standards for the generation, transportation, treatment, storage and disposal of
solid and hazardous wastes. Medical wastes are currently considered non-hazardous solid wastes under
including
RCRA. However, some substances collected by us from some of our customers,
photographic fixer developer solutions, lead foils and dental amalgam, are considered hazardous
wastes.

• Clean Air Act Regulations. In August 1997, the EPA adopted regulations under the Clean Air Act
Amendments of 1990 that limit the discharge into the atmosphere of pollutants released by regulated
waste incineration. These regulations required every state to submit to the EPA for approval a plan to
meet minimum emission standards for these pollutants. We currently operate seven incinerators in the
United States. We believe these incinerators are in compliance with applicable state requirements.

• DOT Regulations. DOT has adopted regulations under the Hazardous Materials Transportation
Authorization Act of 1994 that require us to package and label regulated waste in compliance with
designated standards, and which incorporate blood borne pathogens standards issued by OSHA. Under
these standards, we must, among other things, identify our packaging with a “biohazard” marking on
the outer packaging, and our regulated waste container must be sufficiently rigid and strong to prevent
tearing or bursting. It must also be puncture-resistant, leak-resistant, properly sealed and impervious to
moisture.

Expired or recalled pharmaceuticals are subject to substantially the same DOT regulations as medical
waste. We identify these products by their National Drug Code number and classify them by their
handling, transportation and disposal requirements.

• Comprehensive Environmental Response, Compensation and Liability Act of 1980. The Comprehensive
Environmental Response, Compensation and Liability Act of 1980 (“CERCLA”) established a
regulatory and remedial program to provide for the investigation and cleanup of facilities that have
released or threaten to release hazardous substances into the environment. CERCLA and state laws
similar to it may impose strict, joint and several liability on the current and former owners and
operators of facilities from which releases of hazardous substances have occurred and on the generators
and transporters of the hazardous substances that come to be located at these facilities.

• USPS Regulations. We have obtained permits from the USPS to conduct our “mail-back” program,
pursuant to which customers mail approved containers of “sharps” (needles, knives, broken glass and
the like) directly to our treatment facilities.

• Controlled Substances Act. Our returns service for expired and recalled pharmaceuticals is required to
comply with DEA regulations relating to the approval and permitting of processing facilities,
management of employees engaged in the collection, processing and disposal of controlled substances,
proper documentation and reporting to the DEA.

We use landfills owned and operated by unrelated third parties for the disposal of waste from our
processing facilities.

Domestic State and Local Regulation: We conduct business in all 50 states and Puerto Rico. Each state has
its own regulations related to the handling, treatment and storage of regulated waste. Although there are many

differences among the various state laws and regulations, for regulated waste many states have followed the
model under the MWTA and have implemented programs under RCRA. In each state where we operate a
processing facility or a transfer station, we are required to comply with numerous state and local laws and
regulations as well as our operating plan for each site. In addition, many local governments have ordinances and
regulations, such as zoning and health regulations that affect our operations.

We maintain numerous governmental permits and licenses to conduct our business. Our permits vary from
state to state based upon our activities within that state and on the applicable state and local laws and regulations.

Foreign Regulation: We are subject

to substantial regulation by the governments of the foreign
jurisdictions in which we conduct regulated waste operations. The statutory and regulatory requirements vary
from jurisdiction to jurisdiction.

Patents and Proprietary Rights

We consider the protection of our technology to be important to our business. Our policy is to protect our
technology by a variety of means, including applying for patents in the United States and in other foreign
countries.

We hold seven current United States patents relating to the ETD treatment process and other aspects of
processing regulated waste. We have filed or have been assigned patent applications in several foreign countries
and we have received patents in Australia, Canada, Denmark, France, Ireland, Italy, Japan, Mexico, South Africa,
South Korea, Spain, Sweden and the United Kingdom.

The term of the first-to-end of our existing United States patents relating to our ETD treatment process will

currently end in May 2009 and the term of the last-to-end will currently end in January 2019.

We own federal registrations of the trademarks “Steri-Fuel®”, “Steri-Plastic®”, “Steri-Tub®”, “Direct

Return®”, “Steri-Safe®”, the service mark Stericycle® and a service mark consisting of a nine-circle design.

Potential Liability and Insurance

The regulated waste industry involves potentially significant risks of statutory, contractual, tort and common

law liability claims. Potential liability claims could involve, for example:

•

cleanup costs;

personal injury;

damage to the environment;

employee matters;

property damage; or

alleged negligence or professional errors or omissions in the planning or performance of work.

We could also be subject to fines or penalties in connection with violations of regulatory requirements.

We carry $35 million of liability insurance (including umbrella coverage), and under a separate policy, $10
million of aggregate pollution and legal liability insurance ($5 million per incident), which we consider sufficient
to meet regulatory and customer requirements and to protect our employees, assets and operations.

Employees

As of December 31, 2008, we had 6,567 full-time and 316 part-time employees, of which 4,920 were
employed in the United States and 1,963 internationally. Approximately 381 of our U.S. drivers, transportation

helpers and plant workers are covered by a total of seven collective bargaining agreements with local unions of
the International Brotherhood of Teamsters. These agreements expire at various dates from June 2009 to October
2013. We also have approximately 586 employees in Latin America under various collective bargaining
agreements. We consider our employee relations to be satisfactory.

Website Access

We maintain an Internet website, www.stericycle.com, providing a variety of information about us. Our
annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K that we file with the
Securities and Exchange Commission are available, as soon as reasonably practicable after filing, at the
investors’ page on our website, or by a direct link to our filings on the SEC’s free website, www.sec.gov.

Item 1A. Risk Factors

We are subject to extensive governmental regulation, which is frequently difficult, expensive and time-
consuming to comply with.

industry is subject

The regulated waste management

to extensive federal, state and local

laws and
regulations relating to the collection, transportation, packaging, labeling, handling, documentation, reporting,
treatment and disposal of regulated waste. Our business requires us to obtain many permits, authorizations,
approvals, certificates and other types of governmental permission from every jurisdiction where we operate. We
believe that we currently comply in all material respects with all applicable permitting requirements. State and
local regulations change often, however, and new regulations are frequently adopted. Changes in the regulations
could require us to obtain new permits or to change the way in which we operate under existing permits. We
might be unable to obtain the new permits that we require, and the cost of compliance with new or changed
regulations could be significant.

Many of the permits that we require, especially those to build and operate processing plants and transfer
facilities, are difficult and time-consuming to obtain. They may also contain conditions or restrictions that limit
our ability to operate efficiently, and they may not be issued as quickly as we need them (or at all). If we cannot
obtain the permits that we need when we need them, or if they contain unfavorable conditions, it could
substantially impair our operations and reduce our revenues.

The handling and treatment of regulated waste carries with it the risk of personal injury to employees and
others.

Our business requires us to handle materials that may be infectious or hazardous to life and property in other
ways. While we try to handle such materials with care and in accordance with accepted and safe methods, the
possibility of accidents, leaks, spills, and acts of God always exists. Examples of possible exposure to such
materials include:

•

truck accidents;

damaged or leaking containers;

improper storage of regulated waste by customers;

improper placement by customers of materials into the waste stream that we are not authorized or able
to process, such as certain body parts and tissues; or

• malfunctioning treatment plant equipment.

Human beings, animals or property could be injured, sickened or damaged by exposure to regulated waste.
This in turn could result in lawsuits in which we are found liable for such injuries, and substantial damages could
be awarded against us.

While we carry liability insurance intended to cover these contingencies, particular instances may occur that
are not insured against or that are inadequately insured against. An uninsured or underinsured loss could be
substantial and could impair our profitability and reduce our liquidity.

The handling of regulated waste exposes us to the risk of environmental liabilities, which may not be covered
by insurance.

As a company engaged in regulated waste management, we face risks of liability for environmental
contamination. The federal Comprehensive Environmental Response, Compensation and Liability Act of 1980,
or CERCLA, and similar state laws impose strict liability on current or former owners and operators of facilities
that release hazardous substances into the environment as well as on the businesses that generate those
substances and the businesses that transport them to the facilities. Responsible parties may be liable for
substantial investigation and clean-up costs even if they operated their businesses properly and complied with
applicable federal and state laws and regulations. Liability under CERCLA may be joint and several, which
means that if we were found to be a business with responsibility for a particular CERCLA site, we could be
required to pay the entire cost of the investigation and clean-up even though we were not the party responsible
for the release of the hazardous substance and even though other companies might also be liable.

Our pollution liability insurance excludes liabilities under CERCLA. Thus, if we were to incur liability
under CERCLA and if we could not identify other parties responsible under the law whom we are able to compel
to contribute to our expenses, the cost to us could be substantial and could impair our profitability and reduce our
liquidity. Our customer service agreements make clear that the customer is responsible for making sure that only
appropriate materials are disposed of. If there were a claim against us that a customer might be legally liable for,
we might not be successful in recovering our damages from the customer.

The level of governmental enforcement of environmental regulations has an uncertain effect on our business
and could reduce the demand for our services.

We believe that the government’s strict enforcement of laws and regulations relating to regulated waste
collection and treatment has been good for our business. These laws and regulations increase the demand for our
services. A relaxation of standards or other changes in governmental regulation of regulated waste could increase
the number of competitors or reduce the need for our services.

If we are unable to acquire other regulated waste businesses, our revenue and profit growth may be slowed.

Historically our growth strategy has been based in substantial part on our ability to acquire other regulated

waste businesses. We do not know whether in the future we will be able to:

•

identify suitable businesses to buy;

complete the purchase of those businesses on terms acceptable to us;

improve the operations of the businesses that we do buy and successfully integrate their operations into
our own; or

avoid or overcome any concerns expressed by regulators.

We compete with other potential buyers for the acquisition of other regulated waste companies. This
competition may result in fewer opportunities to purchase companies that are for sale. It may also result in higher
purchase prices for the businesses that we want to purchase.

We also do not know whether our growth strategy will continue to be effective. Our business is significantly

larger than before, and new acquisitions may not have the desired benefits that we have obtained in the past.

The implementation of our acquisition strategy could be affected in certain instances by the concerns of state
regulators, which could result in our not being able to realize the full synergies or profitability of particular
acquisitions.

We may become subject to inquiries and investigations by state antitrust regulators from time to time in the
course of completing acquisitions of other regulated waste businesses. In order to obtain regulatory clearance for
a particular acquisition, we could be required to modify certain operating practices of the acquired business or to
divest ourselves of one or more assets of the acquired business. Changes in the terms of our acquisitions required
by regulators or agreed to by us in order to settle regulatory investigations could impede our acquisition strategy
or reduce the anticipated synergies or profitability of our acquisitions. The likelihood and outcome of inquiries
and investigations from state regulators in the course of completing acquisitions cannot be predicted.

Aggressive pricing by existing competitors and the entrance of new competitors could drive down our profits
and slow our growth.

The regulated waste industry is very competitive because of low barriers to entry, among other reasons. This
competition has required us in the past to reduce our prices, especially to large account customers, and may
require us to reduce our prices in the future. Substantial price reductions could significantly reduce our earnings.

We face direct competition from a large number of small, local competitors. Because it requires very little
money or technical know-how to compete with us in the collection and transportation of regulated waste, there
are many regional and local companies in the industry. We face competition from these businesses, and
competition from them is likely to exist in the new locations to which we may expand in the future. In addition,
large national companies with substantial resources may decide to enter the regulated waste industry. For
example, Waste Management, Inc., a major solid waste company, has begun offering regulated waste
management services to hospitals and possibly other large quantity generators of regulated waste.

Our competitors could take actions that would hurt our growth strategy, including the support of regulations
that could delay or prevent us from obtaining or keeping permits. They might also give financial support to
citizens’ groups that oppose our plans to locate a treatment or transfer facility at a particular location.

Restrictions in our senior unsecured credit facility may limit our ability to pay dividends, incur additional debt,
make acquisitions and make other investments.

Our senior unsecured credit facility contains covenants that restrict our ability to make distributions to

stockholders or other payments unless we satisfy certain financial tests and comply with various financial ratios.

It also contains covenants that limit our ability to incur additional indebtedness, acquire other businesses and
make capital expenditures, and imposes various other restrictions. These covenants could affect our ability to
operate our business and may limit our ability to take advantage of potential business opportunities as they arise.

The loss of our senior executives could affect our ability to manage our business profitably.

We depend on a small number of senior executives. Our future success will depend upon, among other
things, our ability to keep these executives and to hire other highly qualified employees at all levels. We compete
with other potential employers for employees, and we may not be successful in hiring and keeping the executives
and other employees that we need. We do not have written employment agreements with any of our executive
officers, and officers and other key employees could leave us with little or no prior notice, either individually or
as part of a group. Our loss of or inability to hire key employees could impair our ability to manage our business
and direct its growth.

Our expansion into foreign countries exposes us to unfamiliar regulations and may expose us to new obstacles
to growth.

We plan to grow both in the United States and in foreign countries. We have established operations in
Argentina, Canada, Chile, Ireland, Mexico and the United Kingdom. Foreign operations carry special risks.
Although our business in foreign countries has not yet been affected, our business in the countries in which we
currently operate and those in which we may operate in the future could be limited or disrupted by:

•

exchange rate fluctuations;

government controls;

import and export license requirements;

political or economic instability;

trade restrictions;

changes in tariffs and taxes;

our unfamiliarity with local laws, regulations, practices and customs;

restrictions on repatriating foreign profits back to the United States or movement of funds to other
countries;

difficulties in staffing and managing international operations.

Foreign governments and agencies often establish permit and regulatory standards different from those in
the United States. If we cannot obtain foreign regulatory approvals, or if we cannot obtain them when we expect,
our growth and profitability from international operations could be limited. Fluctuations in currency exchange
could have similar effects.

Our earnings could decline if we write-off intangible assets, such as goodwill.

As a result of purchase accounting for our various acquisitions, our balance sheet at December 31, 2008
contains goodwill of $1,135.8 million and other intangible assets, net of accumulated amortization, of $170.6
million (including indefinite lived intangibles of $48.1 million). In accordance with Statement of Financial
Accounting Standards No. 142 “Goodwill and Other Intangible Assets” (“SFAS No. 142”), we evaluate on an
ongoing basis whether facts and circumstances indicate any impairment of the value of indefinite-lived intangible
assets such as goodwill. As circumstances after an acquisition can change, we may not realize the value of these
intangible assets. If we were to determine that a significant impairment has occurred, we would be required to
incur non-cash write-offs of the impaired portion of goodwill and other unamortized intangible assets, which
could have a material adverse effect on our results of operations in the period in which the write-off occurs.

Item 1B. Unresolved Staff Comments

None.

Item 2. Properties

We lease office space for our corporate offices in Lake Forest, Illinois. Domestically, we own or lease two
ETD processing facilities, ten incineration processing facilities, 28 autoclave processing facilities and six other
processing facilities. All of our processing facilities also serve as collection sites. We own or lease 80 additional
transfer and collection sites and nine additional sales/administrative sites. Internationally, we own or lease two
ETD processing facilities, 38 facilities that have autoclave and incineration processing and three other type
processing facilities. We also lease or own 17 transfer and collection sites and 13 additional sales/administrative
sites. We consider that these processing facilities are adequate for our present and anticipated needs.

We do not own or operate any landfills or any other type of disposal site. After processing, all remaining

waste materials are transported to unaffiliated third parties for permanent disposal.

Item 3. Legal Proceedings

We operate in a highly regulated industry and must deal with regulatory inquiries or investigations from
time to time that may be instituted for a variety of reasons. We are also involved in a variety of civil litigation
from time to time.

In April 2008, Stericycle and Daniels Corporation (UK) Limited (“Daniels UK”), a subsidiary of Daniels
Sharpsmart Pty Limited (“Daniels”), and certain affiliated companies entered into a settlement of arbitration
proceedings in the United Kingdom prior to any award by the arbitrator. At the same time, we entered into
settlements with other subsidiaries of Daniels resolving various disputes, and we finalized the payment of the
legal fees that SteriCorp Limited had been awarded under a November 2007 arbitrator’s award. In connection
with these net settlements, we recognized a total pre-tax expense of $5.6 million, or an after-tax expense of $3.5
million for the year-ended December 31, 2008.

In November 2007, the arbitrator issued a final award in arbitration proceedings in Australia with SteriCorp
Limited that we have previously reported. The arbitrator awarded Stericycle $8.2 million USD on our claim
against SteriCorp for payments due under certain convertible notes and awarded SteriCorp $14.5 million USD on
its claim that we failed to supply SteriCorp with equipment conforming to specifications under an equipment
supply agreement. The final award also required us to pay two-thirds of SteriCorp’s arbitration costs. An estimate
of those amounts was made and accrued for in our consolidated financial statements for the year-ended
December 31, 2007. The net effect of the various components of the final arbitration award was a charge of $13.9
million to our income statement identified as “Arbitration award and related costs.”

Item 4. Submission of Matters to a Vote of Security Holders

No matter was submitted to a vote of our stockholders during the fourth quarter of 2008.

Supplemental Information

Executive Officers of the Registrant

The following table contains certain information regarding our six current executive officers:

Name
Mark C. Miller
Richard T. Kogler
Frank J.M. ten Brink
Richard L. Foss
Michael J. Collins
Richard J. Marasco

Position
Chairman, President and Chief Executive Officer
Executive Vice President and Chief Operating Officer
Executive Vice President and Chief Financial Officer
Executive Vice President, International
President, Return Management Services
Executive Vice President, Mergers and Acquisitions

Age
53
49
52
54
52
52

Mark C. Miller has served as our Chairman, President and Chief Executive Officer since joining us in May
1992. From May 1989 until he joined us, Mr. Miller served as vice president for the Pacific, Asia and Africa in
the International Division of Abbott Laboratories, which he joined in 1976 and where he held a number of
management and marketing positions. Mr. Miller received a B.S. degree in computer science from Purdue
University, where he graduated Phi Beta Kappa.

Richard T. Kogler joined us as Chief Operating Officer in December 1998. From May 1995 through
October 1998, Mr. Kogler was vice president and chief operating officer of American Disposal Services, Inc., a

solid waste management company. From October 1984 through May 1995, Mr. Kogler served in a variety of
management positions with Waste Management, Inc. Mr. Kogler received a B.A. degree in chemistry from St.
Louis University.

Frank J.M. ten Brink has served as our Executive Vice President, Finance and Chief Financial Officer since
June 1997. From 1991 until 1996 he served as chief financial officer of Hexacomb Corporation, and from 1996
until joining us, he served as chief financial officer of Telular Corporation. Prior to 1991, he held various
financial management positions with Interlake Corporation and Continental Bank of Illinois. Mr. ten Brink
received a B.B.A. degree in international business and a M.B.A. degree in finance from the University of
Oregon.

Richard L. Foss has served as our Executive Vice President for Corporate Development since February
2003. From 1999 to 2002, Mr. Foss was a vice president and director of worldwide product marketing in the
personal communication sector at Motorola Inc., and from 1977 until 1999, he held a number of management and
marketing positions at The Procter & Gamble Company, including serving as a vice president and general
manager in the health care segment. Mr. Foss received a B.S. degree in chemistry and an M.B.A degree from
Rensselear Polytechnic Institute.

Michael J. Collins has served as President of our Return Management Services Division since June 2006.
Prior to joining us, he served at Abbott Laboratories, a diversified health care company, which he joined in 1982
and where he held a number of management and marketing positions, most recently as vice president, medical
products group health systems. Mr. Collins received a B.A. degree in business and education from the University
of New Haven and a M.B.A. degree in business administration from National University.

Richard J. Marasco served as Corporate Vice President, Mergers & Acquisitions upon joining us in
September 2007 and became Executive Vice President, Mergers & Acquisitions in July 2008. Prior to joining us,
he served at Abbott Laboratories, which he joined in 1981 and where he served in various management positions,
most recently as Vice President, Europe and Canada and Vice President Pediatric Nutrition with Ross Products.
He holds a B.S. degree in accounting from Drake University and is a licensed certified public accountant.

PART II.

Item 5. Market Price of and Dividends on the Registrant’s Common Equity and Related Stockholder Matters

As of February 13, 2009, we had approximately 177 stockholders of record. The Company’s stock trades on

the NASDAQ National Market under the ticker symbol SRCL.

During the quarter ended June 30, 2007 our shareholders approved an increase in our authorized shares of
common stock from 80,000,000 shares to 120,000,000 shares. In addition, our Board of Directors authorized a
2-for-1 stock split. The stock split was in the form of a stock dividend of one share payable on May 31, 2007 in
respect of each share of common stock outstanding on the record date of May 17, 2007. Historic share and per
share amounts have been adjusted to reflect the stock split.

The following table provides the high and low sales prices of our Common Stock for each calendar quarter

during our two most recent fiscal years:

Quarter
First quarter 2007
Second quarter 2007
Third quarter 2007
Fourth quarter 2007

First quarter 2008
Second quarter 2008
Third quarter 2008
Fourth quarter 2008

High
$41.12
45.59
57.16
$61.87

$62.13
58.91
64.77
$61.13

Low
$36.59
40.78
43.27
$52.04

$50.38
50.82
49.72
$48.83

We did not pay any cash dividends during 2008 and have never paid any dividends on our common stock.
We currently expect that we will retain future earnings for use in the operation and expansion of our business and
do not anticipate paying any cash dividends in the foreseeable future. See Item 7, “Management’s Discussion and
Analysis of Financial Condition and Results of Operations.”

In May 2002 our Board of Directors authorized the Company to repurchase up to 6,000,000 shares of our
common stock, in the open market or through privately negotiated transactions, at times and in amounts in the
Company’s discretion.

In February 2005, at a time when we had purchased a total of 2,956,860 shares, the Board authorized us to

purchase an additional 2,956,860 shares.

In February 2007, at a time when we had purchased an additional 3,142,080 shares since the prior increase

in authorization, the Board authorized us to purchase up to an additional 3,142,080 shares.

In May 2007, at a time when we had purchased an additional 1,187,142 shares since the prior increase in

authorization, the Board authorized us to purchase up to an additional 1,187,142 shares.

In May 2008, at a time when we had purchased an additional 2,938,496 shares since the prior increase in
authorization, the Board authorized us to purchase up to an additional 2,938,496 shares, thereby again giving the
Company the authority to purchase up to a total of 6,000,000 additional shares.

The following table provides information about our purchases of shares of our common stock during the

year ended December 31, 2008:

Issuer Purchase of Equity Securities

Total
Number of Share
(or Units)
Purchased
198,218
891,224
392,743
23,498
231,684
729,351
179,073

—
—
184,257
—
350,511

Average
Price
Paid per
Share
(or Unit)
$54.91
54.10
51.65
53.26
52.23
52.54
50.53
—
—
51.17
—
$50.94

Number of Shares
(or Units)
Purchased as Part
of Publicly
Announced Plans
or Programs
198,218
891,224
392,743
23,498
231,684
729,351
179,073

—
—
184,257
—
350,511

Maximum Number
(or Approximate
Dollar Value) of
Shares (or Units)
that May Yet Be
Purchased Under
the Plans or
Programs
4,600,653
3,709,429
3,316,686
3,293,188
6,000,000
5,270,649
5,091,576
5,091,576
5,091,576
4,907,319
4,907,319
4,556,808

Period
January 1 - January 31, 2008
February 1 - February 29, 2008
March 1 - March 31, 2008
April 1 - April 30, 2008
May 1 - May 31, 2008
June 1 - June 30, 2008
July 1 - July 31, 2008
August 1 - August 31, 2008
September 1 - September 30, 2008
October 1 - October 31, 2008
November 1 - November 30, 2008
December 1 - December 31, 2008

Equity Compensation Plans

The following table summarizes information as of December 31, 2008 relating to our equity compensation
plans pursuant to which stock option grants, restricted stock awards or other rights to acquire shares of our
common stock may be made or issued:

Equity Compensation Plan Information

Plan Category
Equity compensation plans approved by our security

holders(1)

Equity compensation plans not approved by our

security holders(2)

Number of
Securities to be
Issued Upon
Exercise of
Outstanding
Options,
Warrants and
Rights
(a)

5,212,871

2,084,528

Weighted-Average
Exercise Price of
Outstanding Options,
Warrants and Rights
(b)

Number of Securities
Remaining Available for
Future Issuance Under
Equity Compensation
Plans (Excluding
Securities Reflected in
Column (a))
(c)

$34.25

$22.76

5,025,888

410,674

(1) These plans consist of our 2008 Incentive Stock Plan, 2005 Incentive Stock Plan, 1997 Stock Option Plan,
Directors Stock Option Plan, 1995 Incentive Compensation Plan and the Employee Stock Purchase Plan.

(2) The only plan in this category is our 2000 Nonstatutory Stock Option Plan.

In 2000, our Board of Directors approved the 2000 Nonstatutory Stock Option Plan (the “2000 Plan”),
which authorized the granting of nonstatutory stock options for 7,000,000 shares of our common stock to
employees (but not to officers or directors). See Note 13 to the Consolidated Financial Statements for a
description of this plan.

Performance Graph

The following graph compares the cumulative total return (i.e., stock price appreciation plus dividends) on
our common stock over the five-year period ending December 31, 2008 with the cumulative total return for the
same period on the NASDAQ National Market Composite Index, the S&P 500 Index and an index of a peer
group of companies that we selected consisting of Republic Services, Inc., SRI/Surgical Express, Inc. (formerly
Sterile Recoveries, Inc.), Steris Corporation and Waste Management, Inc. The graph assumes that $100 was
invested on December 31, 2003 in our common stock and in the stock represented by each of the three indexes,
and that all dividends were reinvested.

The stock price performance of our common stock reflected in the following graph is not necessarily

indicative of future performance.

Stericycle, Inc.

Nasdaq NM Composite

S&P 500 Index

Peer Group

$270.00

$255.00

$240.00

$225.00

$210.00

$195.00

$180.00

$165.00

$150.00

$135.00

$120.00

$105.00

$90.00

$75.00

$60.00

12/31/2003

12/31/2004

12/31/2005

12/31/2006

12/31/2007

12/31/2008

Item 6. Selected Consolidated Financial Data

In thousands, except per share data

Statement of Income Data(1)
Revenues
Income from operations
Net income
Net income applicable to common stock
Diluted net income per share of common

stock(2)

Depreciation and amortization
Other Data
Cash provided by operating activities
Cash used in investing activities
Cash (used in)/ provided by financing

activities

Balance Sheet Data(1)
Cash, cash equivalents and short-term

investments

Total assets
Long-term debt, net of current portion
Convertible redeemable preferred stock
Shareholders’ equity

Years Ended December 31,

2008

2007

2006 (3)

2005

2004

$1,083,679
274,239
148,708
148,708

$ 932,767
224,544
118,378
118,378

$ 789,637
201,762
105,270
105,270

$ 609,457
166,532
67,154
67,154

$ 516,228
145,655
78,178
78,178

1.68
34,148

1.32
31,137

1.16
27,036

0.74
21,431

0.85
21,803

$ 210,555
(132,930)

$ 174,042
(135,261)

$ 160,162
(201,425)

94,327
(156,001)

$ 114,611
(105,093)

(77,882)

(32,635)

52,547

59,500

(6,941)

10,503
1,759,298
753,846
—
$ 670,480

18,364
1,608,159
613,781
—
$ 714,075

16,040
1,327,906
443,115
—
$ 625,081

8,545
1,047,660
348,841
—
$ 521,634

7,949
834,141
190,431
—
$ 495,372

(1) See Note 4 to the Consolidated Financial Statements for information concerning our acquisitions during the

three years ended December 31, 2008.

(2) See Note 12 to the Consolidated Financial Statements for information concerning the computation of net

income per common share.
•

In 2008, net income includes nonrecurring costs (net of tax) of $3.5 million related to a business
dispute settlement and related costs and a fixed asset write-down of equipment of $0.3 million. These
costs negatively impacted diluted earnings per share (“EPS”) by $0.05.
In 2007, net income includes nonrecurring costs (net of tax) of $9.3 million, of which $7.7 million were
net non-cash items. These costs negatively impacted EPS by $0.10, related to the following:
i. We recognized legal settlement expense related to the arbitration award in Australia, including

•

expected arbitration cost reimbursements to be paid in 2008;

ii. We wrote down our investment in Medam, B.A., an Argentine joint venture. The write down of
our investment in Argentina was a result of the legal restructuring of the business operations;
iii. We wrote down the White Rose Environmental tradename as a result of the name change of our

subsidiary in the United Kingdom;

iv. We wrote down the permit intangible for a treatment facility in the United Kingdom that was no

longer being used;

v. We wrote down equipment that had been permanently idled;
vi. We recorded a gain on the divestiture of selected assets of Sterile Technologies, Ltd., one of our

subsidiaries in the United Kingdom;

vii. We received proceeds from two of our insurance carriers for coverage related to the 3CI Complete

Compliance Corporation (“3CI”) class action litigation settlement;

viii. We divested the over the counter products portion of our Scherer Labs assets which resulted in a

gain.

•

In 2006, net income includes costs (net of tax) related to a fixed asset write-down of equipment of $0.2
million, write-down of an investment in securities of $0.6 million, partially offset by income recorded

•

from insurance proceeds related to the 3CI settlement of $0.6 million. The net amount of $0.2 million
did not affect EPS.
In 2005, net income includes costs (net of tax) related to the 3CI preliminary settlement of class action
litigation of $23.4 million, South Africa note receivable write-down of $1.5 million, fixed asset
impairments of $0.5 million, settlement of licensing litigation of $1.1 million, and items related to debt
restructuring of $0.3 million which negatively impacted EPS by $0.30 per share. Of the total of $26.8
million of such items, $3.4 million were non-cash items.
In 2004, net
income includes fixed asset write-offs of $0.7 million, and items related to debt
restructuring and redemption of senior subordinated debt of $2.8 million that negatively impacted EPS
by $0.04 per share.

(3) On January 1, 2006, we adopted the provisions of SFAS No. 123R, “Share-Based Payment” (“SFAS
No. 123R”) using the modified prospective method to account for stock compensation costs. SFAS
No. 123R requires the measurement and recognition of compensation expense for all stock-based payment
awards made to our employees and directors. During the years ended December 31, 2008, 2007, and 2006,
we recognized stock compensation expense (net of tax) of $7.3 million, $6.6 million and $6.5 million,
respectively. See Note 13 to the Consolidated Financial Statements for additional information related to
stock compensation expense.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

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 Item 8 of this Report.

Introduction

We are in the business of managing regulated waste and providing an array of related services. We operate

in the United States, Canada, Mexico, Argentina, Chile, the United Kingdom and Ireland.

For large-quantity generators of regulated waste such as hospitals and for pharmaceutical companies and
institutional medical waste management services; our Bio Systems® sharps
distributors, we offer: our
management services to reduce the risk of needle sticks; a variety of products and services for infection control;
and our regulated returns management services for expired or recalled products.

For small-quantity generators of regulated waste such as doctors’ offices and for retail pharmacies, we offer:
our medical waste management services; our Steri-Safe® Occupational Safety and Health Act and HIPAA
compliance programs; a variety of products and services for infection control; and our regulated returns services
for expired or recalled products.

Our regulated waste processing technologies include autoclaving, our proprietary ETD, chemical treatment

and incineration.

As of December 31, 2008, we served approximately 418,000 customers worldwide, of which approximately

407,000 were small quantity customers and 11,000 were large quantity customers.

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 with accounting principles generally

accepted in the United States. The preparation of these financial statements requires that we make estimates and
judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and the related disclosure
of contingent assets and liabilities. We believe that of our significant accounting policies (see Note 2 to the
Consolidated Financial Statements), the following ones may involve a higher degree of judgment on our part and
greater complexity of reporting.

Revenue Recognition: We recognize revenues for our regulated waste services at the time of waste
collection. Payments received in advance are deferred and recognized as services are provided. Revenues from
regulated returns management services are recorded at the time services are performed. Royalty revenues are
calculated based on measurements specified in each contract or license and revenues are recognized at the end of
each reporting period when the activity being measured has been completed. Revenues from product sales are
recognized at the time the goods are shipped to the customer. Software licensing revenues are recognized on a
prorated basis over the term of the license agreement. We do not have any contracts in a loss position. Losses
would be recorded when known and estimable for any contracts that should go into a loss position.

Goodwill and Other Identifiable Intangible Assets: Goodwill associated with the excess purchase price
over the fair value of assets acquired is not amortized. We have determined that our permits have indefinite lives
and, accordingly, are not amortized. This position is in accordance with Statement of Financial Accounting
Standards No. 142, “Goodwill and Other Intangible Assets” (“SFAS No. 142”). See Note 10 to the Consolidated
Financial Statements for additional information.

Our balance sheet at December 31, 2008 contains goodwill of $1,135.8 million. In accordance with SFAS
No. 142, we evaluate on at least an annual basis, using the fair value of reporting units, whether goodwill is
impaired. If we were to determine that a significant impairment has occurred, we would be required to incur
non-cash write-offs of the impaired portion of goodwill that could have a material adverse effect on our results of
operations in the period in which the write-off occurs. We use the market value of our stock compared to book as
the current measurement of total fair value of our company. The performance of each of our reporting units is
compared to that fair value ratio, and any unforeseen material drop in our stock price may be an indicator of a
potential impairment of goodwill. The results of the 2008 impairment test conducted in June 2008 did not show
any impairment of goodwill, and no events have occurred since that time that indicates that an impairment
situation exists.

Our permits are currently tested for impairment annually at December 31 or more frequently if
circumstances indicate that they may be impaired. We use a discounted income approach model as the current
measurement of the fair value of the permits. The estimate of income is based upon, among other things, certain
assumptions about expected future operating performance and an appropriate discount rate determined by
management. Our estimates of discounted income may differ from actual income due to, among other things,
inaccuracies in economic estimates. The results of the 2008 impairment test did not show any impairment of our
permits and no events have occurred since that time that would indicate an impairment situation exists.

Other

identifiable intangible assets,

tradenames and covenants
such as customer
not-to-compete, are currently amortized using the straight-line method over their estimated useful lives. We have
determined that our regulated waste customer relationships have between 20-year and 40-year lives based on the
specific type of relationship. This determination was based on an independent study performed on our customer
relationships. Although the regulated waste management business is highly competitive, we have been able to
maintain high customer retention through contracts with automatic renewal provisions and excellent customer
service.

relationships,

The valuation of our contractual customer relationships was derived using a discounted income approach
valuation model similar to the method used for permit impairment testing mentioned earlier. These assets are
reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an
asset may be less than its undiscounted estimated future cash flows. There have been no indicators of impairment
of these intangibles (see Note 10 to the Consolidated Financial Statements).

Income Taxes: Deferred income tax liabilities and assets are determined based on the differences between
the financial statement and income tax basis of assets and liabilities using enacted tax rates in effect for the year
in which the differences are expected to reverse. To provide for certain potential tax exposures, we maintain a
reserve for specific tax contingencies, the balance of which management believes is adequate, in accordance with
Financial Accounting Standards Board (“FASB”) Interpretation No. 48, “Accounting for Uncertainty in Income
Taxes—an interpretation of FASB Statement No. 109” (“FIN 48”).

Accounts Receivable: Accounts receivable consist primarily of amounts due to us from our normal business
activities. Accounts receivable balances are determined to be delinquent when the amount is past due based on
the contractual terms with the customer. We maintain an allowance for doubtful accounts to reflect the expected
uncollectibility of accounts receivable based on past collection history and specific risks identified among
uncollected accounts. Accounts receivable are charged to the allowance for doubtful accounts when we have
determined that the receivable will not be collected and/or when the account has been referred to a third party
collection agency. No single customer accounts for more than 2% of our revenues.

Insurance: Our insurance for worker’s compensation, vehicle liability and physical damage, and employee-
related health care benefits is obtained using high deductible insurance polices. A third-party administrator is
used to process all such claims. We require all workers’ compensation, vehicle liability and physical damage
claims to be reported within 24 hours. As a result, we accrue our worker’s compensation, vehicle and physical
damage liability based upon the claim reserves established by the third-party administrator at the end of each
reporting period. Our employee health insurance benefit liability is based on our historical claims experience
rate. Our earnings would be impacted to the extent that actual claims vary from historical experience. We review
our accruals associated with the exposure to these liabilities for adequacy at the end of each reporting period.

Litigation: We operate in a highly regulated industry and deal with regulatory inquiries or investigations
from time to time that may be instituted for a variety of reasons. We are also involved in a variety of civil
litigation from time to time. Settlements from litigation would be recorded when known, probable and estimable.

Stock Option Plans: We have issued stock options to employees and directors as an integral part of our
compensation programs. On January 1, 2006, we adopted the provisions of SFAS No. 123R, “Share-Based
Payment” (“SFAS No. 123R”) using the modified prospective method to account for stock compensation costs.
SFAS No. 123R requires the measurement and recognition of compensation expense for all stock-based payment
awards made to our employees and directors. Under the fair value recognition provisions of SFAS No. 123R,
stock-based compensation cost is measured at the grant date based on the value of the award and is recognized as
expense over the vesting period. Determining the fair value of stock-based awards at the grant date requires
considerable judgment, including estimating expected volatility, expected term and risk-free rate. Our expected
volatility is based upon historical experience. The expected term of the stock options is based upon a measure of
historical volatility of our stock price. The risk-free interest rate assumption is based upon the U.S. Treasury
yield rates of a comparable period. If factors change and we employ different assumptions, stock-based
compensation expense may differ significantly from what we have recorded in the past.

New Accounting Pronouncements: For information about recently issued accounting pronouncements (see

Note 2 to the Consolidated Financial Statements).

Fair Value Considerations: As required by SFAS No. 157, 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 has been considered in the fair value measurements noted below. In addition, under SFAS No.
157, the fair value measurement of a liability must reflect the nonperformance risk of an entity.

At December 31, 2008, we have $9.1 million in cash and cash equivalents and $1.4 million of short-term

investments that we carry on our books at fair value using Level 1 inputs.

We have a cash flow hedge with an objective to offset foreign currency exchange risk to the U.S. dollar
equivalent cash inflows on the settlement of a GBP denominated intercompany loan. The fair value of the hedge
was calculated using Level 2 inputs and was recorded as a current asset of $2.3 million as of December 31, 2008.

In October 2008, Stericycle entered into three interest rate swap contracts, covering $225 million of our
borrowings outstanding under our senior credit facility. The objective of the swap is to reduce the risk of volatile
interest expense by fixing the rate. The fair value of the hedge is calculated using Level 2 inputs and is recorded
as a liability of $4.8 million, of which $2.1 million is current as of December 31, 2008. The fair value was
determined using market data inputs to calculate expected future interest rates. The cash streams attributable to
the difference between expected future rates and the fixed rate payable is discounted to arrive at the fair value of
the three hedges.

There were no movements of items between fair value hierarchies.

Year Ended December 31, 2008 Compared to Year Ended December 31, 2007

The following summarizes the Company’s operations:

In thousands, except per share data

Revenues
Cost of revenues
Depreciation

Total cost of revenues
Gross profit
Selling, general and administrative expenses
Depreciation
Amortization

Total selling, general and administrative expenses
Gain on sale of assets
Impairment of intangible assets
Impairment of fixed assets
Arbitration award and related costs
Acquisition integration expenses

Income from operations
Write-down of investment
Insurance proceeds
Net interest expense
Income tax expense
Net income
Earnings per share – Diluted

Years Ended December 31,

2008

2007

$
$1,083,679
573,554
25,096

100.0 $932,767
52.9
491,789
2.3
23,057

%
100.0
52.7
2.5

598,650
485,029
194,158
5,013
4,039

203,210
—
—
472
5,595
1,513

274,239
—
—
32,174
90,296
$ 148,708
1.68
$

55.2
44.8
17.9
0.5
0.4

18.8
—
—
0.0
0.5
0.1

25.3
—
—
3.0
8.3
13.7

514,846
417,921
168,657
4,423
3,657

176,737
(2,099)
2,269
1,261
13,904
1,305

224,544
2,930
(3,300)
32,375
72,862
$118,378
1.32
$

55.2
44.8
18.1
0.5
0.4

18.9
(0.2)
0.2
0.1
1.5
0.1

24.1
0.3
(0.4)
3.5
7.8
12.7

Revenues: Our revenues increased $150.9 million, or 16.2%, to $1,083.7 million in 2008 from $932.8
million in 2007. Domestic revenues increased $109.4 million, or 15.2%, to $830.8 million from $721.4 million in
2007 as internal growth for domestic small account customers increased by approximately $52.5 million, over
13%, driven by an increase of Steri-Safe customers. Revenues from domestic large account customers increased
approximately $21.9 million, or over 9% as we increased the total number of accounts. Returns Management
Services decreased revenues compared to 2007 by over $10.8 million due to lower than expected recall volumes.
Domestic acquisitions less than one year old added an additional $45.8 million in revenues compared to 2007.

International revenues in 2008 were $252.9 million, compared to $211.4 million in 2007, an increase of
$41.5 million or 19.6%. Internal growth, currency rate fluctuations, acquisitions, and the divestiture of some
plants in the United Kingdom, impact the comparison of 2008 to 2007. Internal growth was $30.8 million. The
effect of exchange rates negatively impacted international 2008 revenues by $11.3 million as foreign currencies
depreciated against the U.S. dollar, acquisitions less than one year old favorably impacted revenues by $23.9
million. The divestiture of selected Sterile Technologies Group, Ltd., (“STG”) plants in the first quarter of 2007
negatively impacted the comparison to 2008 by $1.9 million.

Cost of Revenues: Our 2008 cost of revenues increased $83.8 million, or $16.3%, to $598.6 million
compared to $514.8 million in 2007. Domestic cost of revenues increased $65.1 million, or 17.6%, to $435.0
million in 2008 compared to $369.9 million for 2007. International cost of revenues increased $18.7 million, or
12.9%, to $163.6 million in 2008 compared to $144.9 million in 2007.

Our gross margin percentage remained at 44.8% during 2008 and 2007. Domestic gross margin percentage
decreased 1.1% to 47.6% during 2008 from 48.7% in 2007. Our domestic gross margin decrease was primarily
the result of energy and transportation costs increases in 2008, which were partially offset by higher revenues
related to energy surcharges.

International gross margin increased 3.9% in 2008 compared to 2007, primarily due to integration of
acquisitions and related efficiencies. In general, international gross margins are lower than domestic gross
margins because the international operations have less penetration into the small quantity generator market,
which has a better gross margin. Historically, the international operations have had most of their revenues from
large national healthcare hospitals. As the international segment increases, consolidated gross margins receive
downward pressure due this “business mix” shift, which can be offset by additional international small quantity
market penetration, integration savings and domestic business expansion.

Selling, General and Administrative Expenses: In 2008, our selling, general and administrative (“SG&A”)
expenses increased $26.5 million, or 15.0%, to $203.2 million from $176.7 million in 2007. Amortization and
depreciation expense, as a percentage of revenue, did not change from 2007 to 2008. Domestically, 2008 SG&A
increased $18.1 million, or 12.6%, to $161.2 million from $143.1 million in 2007. The increase was primarily
due to spending related to acquisitions, market penetration for our Bio Systems® sharps management program
and investments in the Steri-Safe and returns management services.

Internationally, our SG&A increased $8.4 million, or 25.0%, in 2008 to $42.0 million from $33.6 million in

2007, mostly due to acquisitions.

Income from Operations: Income from operations increased by $49.7 million, or 22.1%, to $274.2 million
in 2008 from $224.5 million in 2007. Comparisons of income from operations between 2008 and 2007 are
affected by various charges not considered part of our day-to-day operations. During the year ended
December 31, 2008, we recorded expenses of $5.6 million related a business dispute settlement and related costs
and $0.5 million related to fixed asset write-offs. During the year ended December 31, 2007 we had charges
totaling $17.4 million related to permit write-offs, fixed asset write-offs and settlement of arbitration proceedings
in Australia. Those charges were partially offset by gains of $2.1 million from the sale of assets of STG and of
Scherer Labs.

Domestically, our income from operations increased $40.6 million, or 21.1%, to $233.4 million from $192.8
million in 2007. Internationally, our income from operations increased $9.1 million, or 28.7%, to $40.8 million
from $31.7 million in 2006.

Interest Expense and Interest Income: Interest expense slightly decreased to $33.1 million during 2008
from $34.0 million during 2007. The decrease is related to lower interest rates. Interest income was $0.9 million
during 2008 and $1.6 million during 2007.

Write-down of Investment: During 2007 we had a $2.9 million non-cash write-down of our investment in
Medam B.A., an Argentine medical waste processing company. The write-down was due to a legal restructuring
of the Medam B.A. operations. Stericycle now is the sole owner of Medam B.A.

Proceeds from Insurance: During 2007 we received $3.3 million of insurance proceeds related to the 3CI

litigation settled in 2005.

Income Tax Expense: Income tax expense for the years 2008 and 2007 reflects an effective tax rate of

approximately 37.8% and 38.1%, respectively, for federal and state income taxes.

Year Ended December 31, 2007 Compared to Year Ended December 31, 2006

The following summarizes the Company’s operations:

In thousands, except per share data

Revenues
Cost of revenues
Depreciation

Total cost of revenues
Gross profit
Selling, general and administrative expenses
Depreciation
Amortization

Income from operations
Write-down of investment
Insurance proceeds
Net interest expense
Income tax expense
Net income
Earnings per share – Diluted

Years Ended December 31,

2007

2006

$
$932,767
491,789
23,057

%
100.0
52.7
2.5

$
$789,637
419,689
20,081

%
100.0
53.1
2.5

514,846
417,921
168,657
4,423
3,657

176,737
(2,099)
2,269
1,261
13,904
1,305

224,544
2,930
(3,300)
32,375
72,862
$118,378
1.32
$

55.2
44.8
18.1
0.5
0.4

18.9
(0.2)
0.2
0.1
1.5
0.1

24.1
0.3
(0.4)
3.5
7.8
12.7

439,770
349,867
137,411
3,989
2,966

144,366

—
—
300
—
3,439

201,762
1,000
(1,025)
27,061
67,304
$105,270
1.16
$

55.7
44.3
17.4
0.5
0.4

18.3
—
—
0.0
—
0.4

25.6
0.1
(0.1)
3.4
8.5
13.3

Revenues: Our revenues increased $143.1 million, or 18.1%, to $932.8 million in 2007 from $789.6 million
in 2006. Domestic revenues increased $105.0 million, or 17.0%, to $721.4 million from $616.4 million in 2006
as internal growth for domestic small account customers increased by approximately $37.1 million, over 10%,
driven by an increase of Steri-Safe customers. Revenues from domestic large account customers increased
approximately $13.1 million, or over 6% as we increased the total number of accounts and grew Bio Systems®
services. Returns Management Services increased revenues compared to 2006 by over $22.3 million from
internal growth due to larger than expected recall volumes. Domestic acquisitions less than one year old added an
additional $32.5 million in revenues compared to 2006.

International revenues in 2007 were $211.4 million, compared to $173.2 million in 2006, an increase of
$38.1 million or 22.0%. Internal growth, currency rate fluctuations, acquisitions, and the divestiture of some
plants in the United Kingdom, impact the comparison of 2007 to 2006. Internal growth was $16.2 million. The

effect of exchange rates favorably impacted international 2007 revenues by $11.8 million as foreign currencies
appreciated against the U.S. dollar, acquisitions less than one year old favorably impacted revenues by $24.5
million, while the divestiture at a gain of selected STG plants in the first quarter of 2007 negatively impacted the
comparison to 2006 by $14.4 million.

Cost of Revenues: Our 2007 cost of revenues increased $75.1 million, or $17.1%, to $514.8 million
compared to $439.8 million in 2006. Domestic cost of revenues increased $47.4 million, or 14.7%, to $369.9
million in 2007 compared to $322.6 million for 2006. International cost of revenues increased $27.7 million, or
23.6%, to $144.9 million in 2007 compared to $117.2 million in 2006.

Our gross margin percentage increased to 44.8% during 2007 from 44.3% during 2006. Domestic gross
margin percentage improved 1.0% to 48.7% during 2007 from 47.7% in 2006. Our gross margin increase was
primarily the result of increased number of small quantity customers, which have a better gross margin. Domestic
energy and transportation costs increased in 2007, which were partially offset by higher revenues related to
energy surcharges.

International gross margin decreased 0.9% in 2007 compared to 2006, primarily due to acquisitions whose
margins are lower. In general, international gross margins are lower than domestic gross margins because the
international operations have less penetration into the small quantity generator market, which has a better gross
margin. Historically, the international operations have had most of their revenues from large national healthcare
hospitals. As the international segment increases, consolidated gross margins receive downward pressure due this
“business mix”, which can be offset by additional international small quantity market penetration, integration
savings and domestic business expansion.

Selling, General and Administrative Expenses: In 2007, our SG&A expenses increased $32.4 million, or
22.4%, to $176.7 million from $144.4 million in 2006. Amortization and depreciation expense, as a percentage of
revenue, did not change from 2006 to 2007. Domestically, 2007 SG&A increased $26.6 million, or 22.8%, to
$143.1 million from $116.6 million in 2006. The increase was primarily due to spending related to market
penetration for our Bio Systems® sharps management program and investments in the Steri-Safe and returns
management services and acquisitions.

Internationally, our SG&A increased $5.8 million, or 20.7%, in 2007 to $33.6 million from $27.8 million in
2006, mostly due to foreign exchange fluctuations (higher dollar costs as the dollar weakened versus other
currencies) and acquisitions. As a percentage of revenue, international SG&A decreased 0.2%. This decrease
reflects the ongoing efforts to integrate our businesses in the United Kingdom and Argentina.

Income from Operations: Income from operations increased by $22.8 million, or 11.3%, to $224.5 million
in 2007 from $201.8 million in 2006. Comparisons of income from operations between 2007 and 2006 are
affected by various charges not considered part of our day-to-day operations. During the year ended
December 31, 2007 we had charges totaling $17.4 million related to permit write-offs, fixed asset write-offs and
settlement of arbitration proceedings in Australia. Those charges were partially offset by gains of $2.1 million
from the sale of assets of STG and of Scherer Labs. During the year ended December 31, 2006, we recorded
expenses of $0.3 million related to fixed asset write downs.

Domestically, our income from operations increased $17.7 million, or 10.1%, to $192.8 million from $175.1
million in 2006. Internationally, our income from operations increased $5.1 million, or 19.1%, to $31.7 million
from $26.7 million in 2006.

Interest Expense and Interest Income: Interest expense increased to $34.0 million during 2007 from $28.4
million during 2006. The increase of $5.6 million is related to higher debt levels incurred to finance acquisitions
and stock repurchases. Interest income was $1.6 million during 2007 and $1.4 million during 2006.

Proceeds from Insurance: During 2007 we received $3.3 million of insurance proceeds related to the 3CI
litigation settled in 2005. During 2006 we received $1.0 million of insurance proceeds related to the 3CI
litigation settled in 2005.

Income Tax Expense: Income tax expense for the years 2007 and 2006 reflects an effective tax rate of

approximately 38.1% and 39.0%, respectively, for federal and state income taxes.

Liquidity and Capital Resources

Our senior credit facility of $850.0 million maturing in August 2012 requires us to comply with various
financial, reporting and other covenants and restrictions, including a restriction on dividend payments. At
December 31, 2008, we were in compliance with all of our financial debt covenants. At December 31, 2008 the
margin for interest rates on borrowings under our new credit facility was 0.0% on base rate loans (at higher of
(i) the federal funds rate plus 0.5% or (ii) the prime rate) and 0.75% on LIBOR loans.

As of December 31, 2008, we had $439.8 million of borrowings outstanding under our senior unsecured
credit facility, which includes foreign currency borrowings of $11.3 million. In addition, we had $212.3 million
committed to outstanding letters of credit. The weighted average rate of interest on the unsecured revolving
credit facility was 2.70% per annum which includes the amounts under our interest rate hedge. At December 31,
2008 we had $352.9 million in other debt outstanding, which includes promissory notes issued in connection
with acquisitions during 2004 through 2008, seven-year $100 million private placement notes at a fixed rate of
5.64%, other foreign subsidiary bank debt and capital leases.

On April 15, 2008, we entered into a note purchase agreement with nine institutional purchasers pursuant to
which we issued and sold to the purchasers $100 million of our 5.64% senior notes due April 15, 2015 (the
“notes”). The notes bear interest at the fixed rate of 5.64% per annum. Interest is payable in arrears semi-
annually on April 15 and October 15 beginning on October 15, 2008, and principal is payable at the maturity of
the notes on April 15, 2015.

The notes are unsecured obligations and rank pari passu with our obligations under our senior unsecured
credit facility pursuant to our credit agreement with Bank of America, N.A. and the other lenders party to the
credit agreement. We applied the proceeds from the sale of the notes to reduce our borrowings under our
revolving credit facility under our senior unsecured credit facility. The notes contain customary events of default,
including our failure to pay any principal, interest or other amount when due, our violation of our affirmative or
negative covenants or a breach of our representations and warranties. Upon the occurrence of an event of default,
payment of the notes may be accelerated by the holders of the notes.

Working Capital: At December 31, 2008, our working capital decreased $15.8 million to $44.8 million
compared to $60.6 million at December 31, 2007. Current assets increased by $14.2 million primarily due to an
$11.6 million increase in accounts receivable from increased revenues year over year. Current liabilities
increased $29.9 million primarily due to an increase in accrued liabilities of $17.9 million and debt of $16.9
million. The major components contributing to the increase in accrued liabilities is a $12.0 million acquisition
purchase accrual and a $2.5 million accrual for stock repurchases that settled after December 31, 2008. The
major component to the increase in short-term debt is notes issued for acquisitions made in 2008.

Net Cash Provided or Used: Net cash provided by operating activities increased $36.5 million, or 21.0%, to
$210.6 million during 2008 compared to $174.0 million for 2007. The increase in operating cash was primarily
due to collections on higher revenues, which increased 16.2%.

Net cash used in investing activities during 2008 was $132.9 million compared to $135.3 million used in
2007. The difference is due to $26.5 million received from the divestiture of selected plants in the United
Kingdom completed in February 2007, offset by $29.8 million less paid for acquisitions in 2008.

Net cash used in financing activities was $77.9 million during 2008 compared to $32.6 million used in 2007.
As described above, in 2008, we completed the private placement of $100 million in unsecured seven-year notes,
primarily used to pay down our revolver debt. Three was $16.6 million less in repayment of other long-term debt
during 2008 compared to 2007. Offsetting the decrease in debt repayment was an additional $63.7 million for the
purchase of treasury stock in 2008.

Contractual Obligations: The following table summarizes our significant contractual obligations and cash

commitments as of December 31, 2008:

Payments due by period (dollars in thousands)

Long-term debt (1)
Capital lease obligations (1)
Operating leases
Purchase obligations
Other long-term liabilities (1)(2)

Total
$ 881,330
1,312
137,087
2,156
2,070

2009
$58,053
688
37,067
2,146
772

2010-2011
$101,832
618
54,666
10
1,001

2012-2013
$518,341
6
24,924
—
264

2014
and After
$203,104
—
20,430
—
33

Total contractual cash obligations

$1,023,955

$98,726

$158,127

$543,535

$223,567

(1) The long-term debt, capital leases and other long-term liabilities items include both the future principal
payment amount as well as an amount calculated for expected future interest payments. For long-term debt
with floating rate of interest, management used judgment to estimate the future rate of interest.

(2) Other long-term liabilities include amounts related to non-compete agreements. Excludes payments for
unrecognized tax benefits. Based on the contingent and 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 respective
taxing authorities.

At December 31, 2008 we had $212.3 million in stand-by letters of credit issued.

We anticipate that our operating cash flow, together with borrowings under our senior secured credit
facility, will be sufficient to meet our anticipated future operating expenses, capital expenditures and debt service
obligations as they become due during the next 12 months and the foreseeable future.

Guarantees: We have guaranteed a loan to JPMorganChase Bank N.A. on behalf of Shiraishi-Sogyo Co.
Ltd (“Shiraishi”). Shiraishi is a customer in Japan that is expanding their regulated waste management business
and has a one year loan with a current balance of $5.4 million with JPMorgan Chase Bank N.A. that expires in
May 2009. Management currently believes no amount will be paid under the guarantee.

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

We are subject to market risks arising from changes in interest rates. 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 $2.5 million on a pre-tax
basis.

In October 2008, we entered into three interest rate derivative transactions that effectively fix the interest

rate on the applicable notional amounts of our variable rate debt as follows:

In thousands
Notional
Amount
$125,000
$ 75,000
$ 25,000

Fixed
Interest Rate
2.79%
2.79%
2.94%

Variable
Interest Rate
1 Month Libor
1 Month Libor
1 Month Libor

Expiration
Date
October 2009
April 2010
October 2010

The interest rate swaps are designated as cash flow hedges; the notional amounts and all other significant
terms of the swap agreement are matched to the provisions and terms of the variable rate debt hedged. We apply
hedge accounting to account for these instruments.

We have exposure to currency exchange rate fluctuations between the U.S. dollar and U.K. pound sterling
(“GBP”) related to an eight million GBP inter-company loan to Stericycle International, Ltd., the parent company
of White Rose Environmental, which we hedge with a forward contract. We use cash flow hedge accounting
treatment on our forward contract. Both the inter-company loan balance and the forward contract are marked to
market at the end of each reporting period and the impact on the balances is recorded on the balance sheet to
other comprehensive income. The forward contract expires in July 2009.

We have exposure to commodity pricing for gas and diesel fuel for our trucks and for the purchase of

containers and boxes. We do not hedge these items to manage the exposure.

Item 8. Consolidated Financial Statements and Supplemental Data

Management’s Report on Internal Control Over Financial Reporting

The management of the Company is responsible for establishing and maintaining adequate internal control
over financial reporting. Internal control over financial reporting is defined in Rules 13a-15(f) under the
Securities Exchange Act of 1934 as a process designed by, or under the supervision of, a company’s principal
executive and principal financial officers and effected by the company’s board of directors, management and
other personnel,
to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting
principles. The Company’s internal control over financial reporting includes those policies and procedures that:

(i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the

transactions and dispositions of the assets of the Company;

(ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of
financial statements in accordance with U.S. generally accepted accounting principles, and that receipts and
expenditures of the Company are being made only in accordance with authorizations of management and
directors of the Company; and

(iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition,

use or disposition of the Company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls
may become inadequate because of changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.

The Company’s management assessed the effectiveness of the Company’s internal control over financial
reporting as of December 31, 2008. In making this assessment, management used the criteria set forth by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control–Integrated
Framework.

Based on this assessment and those criteria, management concludes that the Company maintained effective

internal control over financial reporting as of December 31, 2008.

The Company’s independent auditors have issued an attestation report on the Company’s internal control

over financial reporting. That report appears on page 30.

Stericycle, Inc.

Lake Forest, IL
February 26, 2009

Report of Independent Registered Public Accounting Firm
on Internal Control over Financial Reporting

The Board of Directors and Shareholders of Stericycle, Inc.

We have audited Stericycle, Inc.’s internal control over financial reporting as of December 31, 2008, based
on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (the COSO criteria). Stericycle, Inc.’s management is responsible
for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of
internal control over financial reporting included in the accompanying Management’s Report on Internal Control
over Financial Reporting. Our responsibility is to express an opinion on the company’s internal control over
financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance
about whether effective internal control over financial reporting was maintained in all material respects. Our
audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a
material weakness exists, testing and evaluating the design and operating effectiveness of internal control based
on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We
believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. A company’s internal control over financial reporting
includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the
company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.

In our opinion, Stericycle, Inc. maintained, in all material respects, effective internal control over financial

reporting as of December 31, 2008, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States), the consolidated balance sheets of Stericycle, Inc. and Subsidiaries as of December 31, 2008 and
2007, and the related consolidated statements of income, changes in shareholders’ equity, and cash flows for each
of the three years in the period ended December 31, 2008 and our report dated February 26, 2009 expressed an
unqualified opinion thereon.

Chicago, Illinois
February 26, 2009

Ernst & Young LLP

Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders of Stericycle, Inc.

We have audited the accompanying consolidated balance sheets of Stericycle, Inc. and Subsidiaries as of
December 31, 2008 and 2007, and the related consolidated statements of income, changes in shareholders’
equity, and cash flows for each of the three years in the period ended December 31, 2008. Our audits also
included the financial statement schedule listed in the Index at Item 15(a). These financial statements and
schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on
these financial statements and schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the
consolidated financial position of Stericycle, Inc. and Subsidiaries at December 31, 2008 and 2007, and the
consolidated results of their operations and their cash flows for each of the three years in the period ended
December 31, 2008, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the
related financial statement schedule, when considered in relation to the basic financial statements taken as a
whole, presents fairly in all material respects the information set forth herein.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States), Stericycle, Inc.’s internal control over financial reporting as of December 31, 2008, based on
criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission and our report dated February 26, 2009 expressed an unqualified
opinion thereon.

Ernst & Young LLP

Chicago, Illinois
February 26, 2009

STERICYCLE, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

In thousands, except share and per share data

ASSETS
Current Assets:

December 31,

2008

2007

Cash and cash equivalents
Short-term investments
Accounts receivable, less allowance for doubtful accounts of $6,616 in 2008 and

9,095
1,408

17,108
1,256

$6,157 in 2007

Deferred income taxes
Prepaid expenses and other current assets

Total Current Assets

Property, Plant and Equipment, net
Other Assets:
Goodwill
Intangible assets, less accumulated amortization of $14,116 in 2008 and $12,230

in 2007

Other

Total Other Assets

Total Assets

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:

Current portion of long-term debt
Accounts payable
Accrued liabilities
Deferred revenues

Total Current Liabilities
Long-term debt, net of current portion
Deferred income taxes
Other liabilities

Common Shareholders’ Equity:

Common stock (par value $.01 per share, 120,000,000 shares authorized,

85,252,879 issued and outstanding in 2008, 87,410,653 issued and outstanding
in 2007)

Additional paid-in capital
Accumulated other comprehensive income
Retained earnings

Total Shareholders’ Equity

Total Liabilities and Shareholders’ Equity

168,598
16,821
28,508

224,430
207,144

157,435
13,510
20,967

210,276
193,039

1,135,778

1,033,333

170,624
21,322

152,689
18,822

1,327,724

1,204,844

$1,759,298

$1,608,159

38,880
33,612
93,487
13,663

179,642
753,846
147,287
8,043

22,003
40,049
75,571
12,095

149,718
613,781
125,041
5,544

852
67,776
(32,075)
633,927

670,480

874
197,462
30,520
485,219

714,075

$1,759,298 $1,608,159

The accompanying notes are an integral part of these financial statements.

STERICYCLE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

In thousands, except share and per share data

Revenues
Costs and Expenses:
Cost of revenues
Selling, general and administrative expenses
Gain on sale of assets
Impairment of intangible assets
Impairment of fixed assets
Arbitration award and related costs
Acquisition integration expenses

Total Costs and Expenses

Income from Operations

Other Income (Expense):
Interest income
Interest expense
Write-down of investment
Proceeds from insurance
Other expense, net

Total Other Expense

2008

Years Ended December 31,
2007
932,767

$ 1,083,679 $

598,650
203,210
—
—
472
5,595
1,513

809,440

274,239

930
(33,104)
—
—
(3,061)

(35,235)

514,846
176,737
(2,099)
2,269
1,261
13,904
1,305

708,223

224,544

1,590
(33,965)
(2,930)
3,300
(1,299)

(33,304)

2006
789,637

439,770
144,366
—
—
300
—
3,439

587,875

201,762

1,358
(28,419)
(1,000)
1,025
(2,152)

(29,188)

Income Before Income Taxes

239,004

191,240

172,574

Income Tax Expense

Net Income

Earnings Per Common Share:

Basic

Diluted

90,296

72,862

67,304

148,708

118,378

105,270

1.73

1.68

1.35

1.32

1.19

1.16

Weighted Average Number of Common Shares Outstanding:

Basic
Diluted

85,950,192
88,335,832

87,578,650
89,933,242

88,466,990
90,529,998

The accompanying notes are an integral part of these financial statements.

STERICYCLE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

In thousands

Years Ended December 31,
2007

2008

2006

OPERATING ACTIVITIES:
Net income
Adjustments to reconcile net income to net cash provided by operating activities:

148,708

$ 118,378

$ 105,270

Gain on sale of assets
Loss on sale and impairment of fixed assets
Impairment of intangibles
Write-down of investment
Write-off of note receivable related to joint venture
Stock compensation expense
Excess tax benefit of stock options exercised
Depreciation
Amortization
Deferred income taxes

Changes in operating assets and liabilities, net of effect of acquisitions and

divestitures:

Accounts receivable
Accounts payable
Accrued liabilities
Deferred revenues
Other assets and liabilities

Net cash provided by operating activities

INVESTING ACTIVITIES:

Payments for acquisitions and international investments, net of cash acquired
Proceeds from maturity/(purchase) of short-term investments
Proceeds from sale of assets
Proceeds from sale of property and equipment
Capital expenditures

Net cash used in investing activities

FINANCING ACTIVITIES:

Proceeds from issuance of note payable
Repayment of long-term debt
Borrowings on senior credit facility
Repayments of senior credit facility
Proceeds from private placement of long-term note
Principal payments on capital lease obligations
Payments of deferred financing costs
Purchase/ cancellation of treasury stock
Proceeds from other issuance of common stock
Excess tax benefit of stock options exercised

Net cash (used in)/ provided by financing activities
Effect of exchange rate changes on cash

Net (decrease)/ increase in cash and cash equivalents
Cash and cash equivalents at beginning of year

Cash and cash equivalents at end of year

NON-CASH ACTIVITIES:

Net issuance of notes payable for certain acquisitions
Net issuance of common stock for certain acquisitions

—
472
—
—
798
11,755
(9,319)
30,109
4,039
26,522

(2,099)
1,261
2,269
2,930
—
10,714
(8,054)
27,480
3,657
17,265

—
300
—
1,000
—
10,610
(8,427)
24,070
2,966
12,937

(12,998)
(7,041)
19,517
1,597
(3,604)

(11,400)
6,987
1,566
537
2,551

(14,742)
(6,003)
28,107
280
3,794

210,555

174,042

160,162

(84,947)
(463)
—
—
(47,520)

(114,781)
1,301
26,616
—
(48,397)

(164,015)
(1,828)
—
832
(36,414)

(132,930)

(135,261)

(201,425)

—
(13,866)
977,352
(1,000,425)
100,000
(527)
(236)
(167,338)
17,839
9,319

(77,882)
(7,756)

(8,013)
17,108

—
(30,447)
506,472
(428,786)

—
(212)
(606)
(103,679)
16,569
8,054

(32,635)
(2,530)

3,616
13,492

5,953
(30,735)
362,452
(265,988)

—
(816)
(453)
(42,757)
16,464
8,427

52,547
(5,617)

5,667
7,825

9,095

$ 17,108

$ 13,492

106,074
—

$ 112,509
13,667

$ 30,157
750

The accompanying notes are an integral part of these financial statements.

STERICYCLE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
Years Ended December 31, 2008, 2007 and 2006

In thousands

Balance at December 31, 2005
Issuance of common stock for exercise of

options and warrants and employee stock
purchases

Purchase/ Cancellation of treasury stock
Stock compensation expense
Excess tax benefit of disqualifying

dispositions of stock options and exercise
of non-qualified stock options
Currency translation adjustment
Change in fair value of cash flow hedge
Net income

Comprehensive income

Issued and
Outstanding
Shares
88,300

Amount
$884

Additional
Paid-In
Capital
$ 258,633

Retained
Earnings
$261,571

Accumulated
Other
Comprehensive
Income (Loss)

546

Total
Equity
$ 521,634

1,540
(1,336)
—

16
(14)
—

17,198
(42,743)
10,610

—
—
—
—

8,427
—
—
—

—
—
—

105,270

—
—
—

—
4,350
333
—

17,214
(42,757)
10,610

8,427
4,350
333
105,270

109,953

Balance at December 31, 2006

88,504

$886

$ 252,125

$366,841

$ 5,229

$ 625,081

Issuance of common stock for exercise of

options and warrants and employee stock
purchases

Issuance of common stock for acquisitions
Purchase/ Cancellation of treasury stock
Stock compensation expense
Excess tax benefit of disqualifying

dispositions of stock options and exercise
of non-qualified stock options
Currency translation adjustment
Change in fair value of cash flow hedge
Net income

Comprehensive income

1,067
228
(2,388)
—

10
2
(24)
—

16,559
13,665
(103,655)
10,714

—
—
—
—

8,054
—
—
—

—
—
—
—

—
—
—

118,378

—
—
—
—

—
25,125
166
—

16,569
13,667
(103,679)
10,714

8,054
25,125
166
118,378

143,669

Balance at December 31, 2007

87,411

$874

$ 197,462

$485,219

$ 30,520

$ 714,075

Issuance of common stock for exercise of

options and warrants and employee stock
purchases

Purchase/ Cancellation of treasury stock
Stock compensation expense
Excess tax benefit of disqualifying

dispositions of stock options and exercise
of non-qualified stock options
Currency translation adjustment
Change in fair value of cash flow hedge, net

of $1.9 million tax

Net income

Comprehensive income

1,064
(3,222)
—

10
(32)
—

19,049
(169,809)
11,755

—
—

9,319
—

—
—

—
148,708

—
—
—

—
—

—
—
—

19,059
(169,841)
11,755

—
(59,301)

(3,294)
—

9,319
(59,301)

(3,294)
148,708

86,113

Balance at December 31, 2008

85,253

$852

$ 67,776

$633,927

$(32,075)

$ 670,480

The accompanying notes are an integral part of these financial statements.

STERICYCLE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2008

Unless the context requires otherwise, “we”, “us” or “our” refers to Stericycle, Inc. and its subsidiaries on a

consolidated basis.

NOTE 1—DESCRIPTION OF BUSINESS

We were incorporated in 1989 and presently serve approximately 418,000 customers throughout the United
States, Canada, Mexico, Argentina, Chile, the United Kingdom, Ireland and Puerto Rico. Domestically, we have
a fully integrated, national network that includes 46 processing centers and 80 additional transfer and collection
sites. We use this network to provide a broad range of services to our customers related to regulated waste
management services and regulated return management services. Regulated waste management services include
servicing a variety of customers to remove and process waste while regulated return management services are
physical services provided to companies and individual businesses that assist with the handling of products that
are being removed from the supply chain due to recalls and expiration. These services also included advanced
notification technology that is used to communicate specific instructions to the users of the product. Our waste
treatment technologies include autoclaving, incineration, chemical treatment and our proprietary electro-thermal-
deactivation system. Internationally, we have fully integrated networks, which includes 43 processing/collection
centers and 17 additional transfer and collection sites. In addition, we have technology licensing agreements with
companies located in Japan, South Africa and Brazil.

NOTE 2—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation:

The consolidated financial statements include the accounts of Stericycle, Inc. and its wholly owned

subsidiaries.

Revenue Recognition:

We recognize revenues for our regulated waste services at the time of waste collection. Payments received
in advance are deferred and recognized as services are provided. Revenues from regulated returns management
services are recorded at the time services are performed. Royalty revenues, which are not material, are calculated
based on measurements specified in each contract or license and revenues are recognized at the end of each
reporting period when the activity being measured has been completed. Revenues from product sales are
recognized at the time the goods are shipped to the ordering customer. Software licensing revenues, which are
not material, are recognized on a prorated basis over the term of the license agreement. We do not have any
contracts in a loss position. Losses would be recorded when known and estimable for any contracts that should
go into a loss position.

Cash Equivalents and Short-Term Investments:

We consider all highly liquid investments with a maturity of less than three months when purchased to be

cash equivalents. Short-term investments consist of certificates of deposit, which mature in less than one year.

Property, Plant and Equipment:

Property, plant and equipment are stated at cost. Depreciation and amortization, which include the
depreciation of assets recorded under capital leases, are computed using the straight-line method over the
estimated useful lives of the assets as follows:

Building and improvements

Machinery and equipment
Containers

Transportation equipment
Office equipment and furniture

Software

5 to 30 years

10 to 20 years
2 to 20 years

3 to 7 years
3 to 10 years

1 to 7 years

Our containers have a weighted average useful life of 10.0 years.

During the years ended December 31, 2008, 2007 and 2006 we wrote down $0.5 million, $1.3 million and

$0.3 million, respectively, related to equipment that had been permanently idled.

Goodwill and Identifiable Intangibles:

Goodwill and identifiable indefinite lived intangibles are not amortized, but are subject to an annual
impairment test according to Statement of Financial Accounting Standards (“SFAS”) No. 142. Other intangible
assets will continue to be amortized over their useful lives. We have determined that our customer relationships
have useful lives from 20 to 40 years based upon the type of customer, with a weighted average useful life of
38.1 years. We have non-compete intangibles with useful lives from one to ten years, with a weighted average
useful life of 7.9 years. We have tradename intangibles with useful lives from 20 to 40 years, with a weighted
average useful life of 38.3 years. We have software technology intangibles with useful lives from three to five
years, with a weighted average useful life of 4.4 years. We have determined that our permits have indefinite lives
and therefore are not amortized.

Valuation of our intangible customer relationships and permits is derived using a discounted income
approach. Financial information such as revenues, costs, assets and liabilities related to the intangible asset are
input into a standard valuation model to determine a stream of income attributable to that intangible. The income
stream is then discounted to the present to arrive at a valuation. We perform annual impairment tests, in
accordance with SFAS No. 142, on our indefinite lived intangible assets.

Valuation of Intangibles:

Our permits are currently tested for impairment annually at December 31, or more frequently if
circumstances indicate that they may be impaired. We use a discounted income approach model as the current
measurement of the fair value of the permits. The estimate of income is based upon, among other things, certain
assumptions about expected future operating performance and an appropriate discount rate determined by
management. Our estimates of discounted income may differ from actual income due to, among other things,
inaccuracies in economic estimates.

Amortizable identifiable intangible assets, such as customer relationships,

tradenames and covenants
not-to-compete, are currently amortized using the straight-line method over their estimated useful lives. We have
determined that our regulated waste customer relationships have between 20-year and 40-year lives based on the
specific type of relationship. The valuation of our contractual customer relationships was derived using a
discounted income approach valuation model similar to the method used for permit
testing
mentioned earlier. These assets are reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may be less than its undiscounted estimated future cash flows (see
Note 10 to the Consolidated Financial Statements).

impairment

Income Taxes:

Deferred income tax liabilities and assets are determined based on the differences between the financial
statement and income tax basis of assets and liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse.

Accounts Receivable:

Accounts receivable consist primarily of amounts due to us from our normal business activities. We do not
require collateral as part of our standard trade credit policy. Accounts receivable balances are determined to be
past due when the amount is overdue based on the contractual terms with the customer. We maintain an
allowance for doubtful accounts to reflect the expected uncollectibility of accounts receivable based on past
collection history and specific risks identified among uncollected accounts. Accounts receivable are written off
against the allowance for doubtful accounts when we have determined that the receivable will not be collected
and/or when the account has been referred to a third party collection agency. Bad debt expense was $5.0 million,
$4.4 million and $4.2 million for the years ended December 31, 2008, 2007 and 2006, respectively.

Financial Instruments:

Our financial instruments consist of cash and cash equivalents, short-term investments, derivatives, accounts
receivable and payable and long-term debt. At December 31, 2008, the fair value of the Company’s debt
obligations was estimated at $771.5 million, compared to a carrying amount of $792.7 million. This fair value
was estimated using market interest rate for comparable instruments. The Company has no current plans to retire
a significant amount of its debt prior to maturity. Financial instruments, which potentially subject us 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 our customer base. No single customer represents greater than 2% of
total accounts receivable. We perform ongoing credit evaluation of our customers and maintain allowances for
potential credit losses. For any contracts in loss positions, losses are recorded when known and estimable. These
losses, when incurred, have been within the range of our expectations.

Use of Estimates:

The preparation of financial statements in conformity with generally accepted accounting principles requires
the amounts reported in the financial statements and
us to make estimates and assumptions that affect
accompanying notes. Some areas where we make estimates include allowance for doubtful accounts, credit
memo reserve, accrued employee health and welfare benefits, income tax liabilities and accrued auto and
workers’ compensation insurance claims. 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 our
estimates.

Future estimated expenses may fluctuate depending on changes in foreign currency rates. The estimates for
payments due on long-term debt, lease payments under capital leases, amortization expense and rental payments
are based upon foreign exchange rates as of December 31, 2008 (see Notes 7, 10 and 11 to the Consolidated
Financial Statements).

Derivative Instruments:

We have one forward contract for the purchase of Sterling (GBP) as hedging instruments for an
intercompany loan from the parent company to our subsidiary in the United Kingdom, Stericycle International
Ltd, which is described more fully in Note 9 to the Consolidated Financial Statements. The subsidiary borrowed
the funds for the purchase of all the common stock of White Rose Environmental, Ltd. The forward contract
aligns with the anticipated repayment schedule of the loan and expires in July 2009.

In October 2008, Stericycle entered into three interest rate swap contracts, covering $225 million of our
borrowings outstanding under our senior credit facility. The objective of the swap is to reduce the risk of volatile
interest expense by fixing the rate. The fair market of the three hedges is recorded as a liability of $4.8 million, of
which $2.1 million is current (see Note 9 to the Consolidated Financial Statements for more information). The
fair market value was determined using market data inputs to calculate expected future interest rates. The cash
streams attributable to the difference between expected future rates and the fixed rate payable is discounted to
arrive at the fair value of the three hedges.

Stock-Based Compensation:

On January 1, 2006, we adopted the provisions of SFAS No. 123R, Share-Based Payment (“SFAS
No. 123R”) using the modified prospective method to account for stock compensation costs. SFAS No. 123R
requires the measurement and recognition of compensation expense for all stock-based payment awards made to
our employees and directors. Under the fair value recognition provisions of SFAS No. 123R, stock-based
compensation cost is measured at the grant date based on the value of the award and is recognized as expense
over the vesting period. Determining the fair value of stock-based awards at the grant date requires considerable
judgment, including estimating expected volatility, expected term and risk-free rate. Our expected volatility is
based upon historical experience. The expected term of the stock options is based upon the historical volatility of
our stock price. The risk-free interest rate assumption is based upon the U.S. Treasury yield rates for a
comparable period. If factors change and we employ different assumptions, stock-based compensation expense
may differ significantly from what we have recorded in the past.

Foreign Currency Translation:

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
comprehensive income in shareholders’ equity.

Environmental Matters:

We record a liability for environmental remediation or damages when a cleanup program becomes probable
and the costs or damages can be reasonably estimated. We do not have any environmental liabilities recorded at
December 31, 2008 nor are we aware of any issues at our facilities that could initiate the need for environmental
remediation.

New Accounting Standards:

Effective January 1, 2008, we adopted SFAS No. 157, “Fair Value Measurements” (“SFAS No. 157”), for
all financial assets and liabilities and for nonfinancial assets and liabilities that are recognized or disclosed at fair
value in the financial statements on a recurring basis. Financial Accounting Standards Board (“FASB”) Staff
Position (“FSP”) No. 157-2 delayed the adoption date for nonfinancial assets and liabilities that are measured at
fair value on a non-recurring basis, such as goodwill and identifiable intangible assets until January 1, 2009. We
do not believe the adoption of SFAS No. 157 for our non-financial assets and liabilities, effective January 1,
2009, will have a material impact on our consolidated financial statements. Our adoption of SFAS No. 157 did
not require a cumulative effect adjustment to the opening balance of our retained earnings (see Note 3 to the
Consolidated Financial Statements).

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and
Financial Liabilities—Including an amendment of FASB Statement No. 115” (“SFAS No. 159”). SFAS No. 159
allows measurement at fair value of eligible financial assets and liabilities that are not otherwise measured at fair
value. If the fair value option for an eligible item is elected, unrealized gains and losses for that item are reported

in current earnings at each subsequent reporting date. SFAS No. 159 also establishes presentation and disclosure
requirements designed to draw comparisons between the different measurement attributes that we elect for
similar types of assets and liabilities. SFAS No. 159 became effective for fiscal years beginning after
November 15, 2007. We do not have any financial assets or liabilities for which we elected the fair value option
under SFAS No. 159.

In December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business Combinations” (“SFAS
No. 141(R)”). SFAS No. 141(R) replaces SFAS No. 141, Business Combinations. SFAS No. 141(R) requires the
acquiring entity in a business combination to recognize the full fair value of assets acquired and liabilities
assumed in the transaction; requires certain contingent assets and liabilities acquired to be recognized at their fair
values on the acquisition date; requires contingent consideration to be recognized at its fair value on the
acquisition date and changes in the fair value to be recognized in earnings until settled; requires the expensing of
most transaction and restructuring costs; and generally requires the reversals of valuation allowances related to
acquired deferred tax assets and changes to acquired income tax uncertainties to also be recognized in earnings.
This new accounting standard will require the company to recognize expenses to the income statement that were
previously accounted for as purchase accounting and reflected on the balance sheet. This accounting standard is
effective for financial statements issued for fiscal years beginning after December 15, 2008. Amounts capitalized
in anticipation of a business combination that was not completed by December 31, 2008 will be expensed in
January of 2009. These expenses are approximately $0.6 million. Because of the inherent uncertainty of the
number, structure and complexity of the acquisitions that we may complete in the future and the magnitude of the
transaction expenses that we may incur in completing these acquisitions, the impact of the adoption of SFAS
141(R) is not reasonably estimable.

In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging
Activities” (“SFAS No. 161”), to enhance the disclosure regarding the Company’s derivative and hedging
activities to improve the transparency of financial reporting. This statement is effective for fiscal years beginning
after November 15, 2008. As SFAS No. 161 only requires enhanced disclosures, this standard has no impact on
the financial position, results of operations, or cash flows of the Company.

NOTE 3—FAIR VALUE MEASUREMENTS

We adopted SFAS No. 157 on January 1, 2008, which clarifies that fair value refers to the price that would
be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants in
the market in which the reporting entity transacts. Under SFAS No. 157, fair value should be based on the
assumptions market participants would use when pricing the asset or liability and establishes a fair value
hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of
unobservable inputs when measuring fair value. Observable inputs are inputs that market participants would use
in pricing the asset or liability developed based on market data obtained from sources independent of our
company. Unobservable inputs are those that reflect the company’s assumptions about what market participants
would use in pricing the asset or liability developed based on the best information available in the circumstances.
The three levels of the fair value hierarchy defined by SFAS No. 157 are as follows:

• Level 1—Valuations based on quoted prices in active markets for identical assets or liabilities that the

entity has the ability to access.

• Level 2—Valuations based on quoted prices for similar assets or liabilities, quoted prices in markets
that are not active, or other inputs that are observable or can be corroborated by observable data for
substantially the full term of the assets or liabilities.

• Level 3—Valuations based on inputs that are supported by little or no market activity and that are

significant to the fair value of the assets or liabilities.

As required by SFAS No. 157, 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 has been
considered in the fair value measurements noted below. In addition, under SFAS No. 157, the fair value
measurement of a liability must reflect the nonperformance risk of an entity.

At December 31, 2008, we have $9.1 million in cash and cash equivalents and $1.4 million of short-term

investments that we carry on our books at fair value using Level 1 inputs.

We have three cash flow hedges with the objective to offset variable interest rate expense on a portion of our
revolver debt with fixed rate expense. The notional amount of our three hedges is $225.0 million. The fair value
of the hedge is calculated using Level 2 inputs and is recorded as a liability of $4.8 million, of which $2.1 million
is current as of December 31, 2008.

There were no movements of items between fair value hierarchies.

NOTE 4—ACQUISITIONS AND DIVESTITURE

During 2008, we completed 22 acquisitions, of which 12 were domestic regulated waste businesses, two
domestic return management businesses and eight were international regulated waste businesses in Canada, Latin
America and Europe.

The aggregate net purchase price of all our acquisitions, including adjustments for purchase accounting was
approximately $191.0 million, of which $84.9 million was paid in cash and $106.1 million was paid by the
issuance of promissory notes. The purchase prices of these acquisitions have been primarily allocated to
identifiable intangible assets and goodwill, reflecting the complementary strategic fit that the acquired businesses
brought to us.

During 2007, we completed 19 acquisitions, of which ten were domestic regulated waste businesses, one
was a domestic assembler and distributor of containers that we use in our mail-back program and eight were
international regulated waste businesses in Canada, Latin America and Europe. The two largest acquisitions were
in the United States. In addition, we acquired the remaining minority interest of our Medam S.A. de C.V.
subsidiary in Mexico and became the sole owner of our Medam B.A. subsidiary in Argentina, previously
accounted for as a minority interest using the equity method of accounting. The aggregate net purchase price of
all our 2007 acquisitions, including adjustments for purchase accounting, was approximately $241.0 million, of
which $114.8 million was paid in cash, $112.5 million was paid by the issuance of promissory notes and $13.7
million was paid by the issuance of shares of our common stock.

In February 2007, we sold three incinerators and associated customer contracts in the United Kingdom to
comply with a remedy accepted by United Kingdom Competition Commission, as we reported in our Form 10-K
for 2006. The sales price was $26.5 million and resulted in a gain of approximately $1.9 million.

During the year ended December 31, 2006, we completed 16 acquisitions, of which seven were domestic
and nine were international. The largest of our acquisitions during the year was The Sterile Technologies Group
Limited in Ireland (“STG”). We acquired all of the stock of STG for approximately $131.0 million, of which
$114.0 million was paid in cash and $17.0 million was paid by the assumption of debt. The aggregate net
purchase price of these acquisitions was approximately $194.9 million, of which approximately $164.0 million
was paid in cash, $30.1 million was paid by the issuance of promissory notes and $0.8 million was paid by the
issuance of shares of our common stock.

For financial reporting purposes these acquisitions were accounted for using the purchase method of
accounting. The total purchase price for 2008, 2007 and 2006 of $191.0 million, $241.0 million and $194.9
million, respectively, net of cash acquired, was allocated to the assets acquired and liabilities assumed based on
the estimated fair market value at the date of acquisition. In certain cases, the purchase price is or was subject to
downward adjustment if revenues from customer contracts acquired failed to reach certain specified levels. The
excess of the purchase price over the fair market value of the net assets acquired is reflected in the accompanying
consolidated balance sheets as goodwill. Some allocations are pending completion of certain intangible asset
valuations. Goodwill was recorded in the amounts of $148.9 million, $203.8 million and $119.3 million during
the years 2008, 2007 and 2006, respectively. Tax deductible goodwill, pending final purchase accounting, was
approximately $107.8 million, $84.4 million, and $26.9 million for the years 2008, 2007, and 2006, respectively.
The results of operations of these acquired businesses have been included in the consolidated statements of
income from the date of the acquisition.

We intend to continue to seek opportunities to acquire businesses that expand our national networks in the
United States and internationally and increase our customer base. We believe that our acquisitions will enable us
to improve our operating efficiencies through increased utilization of our service infrastructure.

NOTE 5—PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment at December 31 consist of the following items:

In thousands

Land
Building and improvements
Machinery and equipment
Office equipment and furniture
Internally developed software
Construction in progress

Total property, plant & equipment

Less: Accumulated depreciation and amortization

Property, plant and equipment, net

2008
$ 14,322
66,810
211,153
41,811
6,015
13,610

2007
$ 12,879
59,447
207,145
32,913
4,061
16,648

353,721
(146,577)

333,093
(140,054)

$ 207,144

$ 193,039

Significant components of our income tax expense for the years ended December 31, 2008, 2007 and 2006

NOTE 6—INCOME TAXES

are as follows:

In thousands

Current

U.S. federal
U.S. state
Foreign countries

Deferred

U.S. federal
U.S. state
Foreign countries

Total provision

2008

2007

2006

$49,635
8,053
10,094

$39,440
8,042
3,298

$40,764
7,857
5,235

67,782

50,780

53,856

19,279
4,722
(1,487)
22,514

14,275
2,805
5,002
22,082

9,131
2,534
1,783
13,448

$90,296

$72,862

$67,304

A reconciliation of the income tax provision computed at the federal statutory rate to the effective tax rate

for the years ended December 31, 2008, 2007 and 2006 are as follows:

Federal statutory income tax rate
Effect of:

State taxes, net of federal tax effect

Other

Effective tax rate

2008
2007
35.0% 35.0% 35.0%

2006

3.5% 3.7% 3.9%
(0.8%) (0.6%) 0.1%

37.7% 38.1% 39.0%

Cash payments for income taxes were $52.4 million, $45.9 million and $30.1 million for the years ended

December 31, 2008, 2007 and 2006, respectively.

Our deferred tax liabilities and assets as of December 31, 2008 and 2007 are as follows:

In thousands

Deferred tax liabilities:

Property, plant and equipment
Goodwill and other intangibles

Total deferred tax liabilities
Deferred tax assets:

Accrued liabilities
Other
Net operating tax loss carry forward

Total deferred tax assets

Net deferred tax liabilities

2008

2007

$ (36,610) $ (20,265)
(116,817)
(104,776)

(153,427)

(125,041)

9,158
5,053
8,750

9,146
2,930
1,434

22,961

13,510

$(130,466) $(111,531)

At December 31, 2008, net operating loss carry forwards for U.S. federal and state income tax purposes
have been fully utilized, excluding net operating loss carry forwards related to our acquisitions. The remaining
net operating loss carry forwards from acquisitions are approximately $25.4 million that begin to expire in 2009
and 2016. We expect to fully utilize the net operating losses that would otherwise expire in 2009.

Undistributed earnings of foreign subsidiaries are considered permanently invested, and therefore no U.S.
deferred taxes are recorded thereon. The cumulative amounts of such earnings are $83.5 million at December 31,
2008, and it was not practicable to estimate the U.S. withholding tax thereon assuming repatriation.

In September 2006, FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income
Taxes—an interpretation of FASB Statement No. 109” (“FIN 48”). This interpretation clarifies the accounting
for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with SFAS
No. 109, “Accounting for
Income Taxes”. This interpretation prescribes a recognition threshold and
measurement attribute for the financial statement recognition and measurement of a tax position taken, or
expected to be taken, in a tax return. This interpretation also provides guidance on de-recognition, classification,
interest and penalties, accounting in interim periods, disclosure and transition. We adopted the provisions of FIN
48 on January 1, 2007. The adoption of FIN 48 did not have a material impact on our consolidated financial
statements.

We and our subsidiaries file consolidated U.S. federal income tax returns and income tax returns in various
states and foreign jurisdictions. With a few exceptions, we are no longer subject to U.S. federal, state, local, or

non-U.S. income tax examinations by tax authorities for years before 2002. Subsequent tax years remain open
and subject to examination by the IRS. In addition, our subsidiaries in foreign countries have tax years open
ranging from 2002 through 2007.

The total amount of unrecognized tax positions as of December 31, 2008 is $5.3 million, which includes
immaterial amounts of interest and penalties and is reflected as a liability on the balance sheet. The amount of
unrecognized tax positions that, if recognized, would affect the effective tax rate is approximately $5.3 million.
We recognize interest and penalties accrued related to income tax reserves in income tax expense. This method
of accounting is consistent with prior years.

The following table summarizes the changes in unrecognized tax positions during the year ended

December 31, 2008:

In thousands
Unrecognized tax positions, January 1, 2007
Gross increases- tax positions in prior period
Gross decreases- tax positions in prior period
Gross increase- current period tax positions
Settlement
Lapse of statute of limitations

Unrecognized tax positions, December 31, 2007

Gross increases- tax positions in prior period
Gross decreases- tax positions in prior period
Gross increase- current period tax positions
Settlement
Lapse of statute of limitations

Unrecognized tax positions, December 31, 2008

Long-term debt consists of the following at December 31:

NOTE 7—LONG-TERM DEBT

In thousands

Obligations under capital leases
Senior credit facility
Notes payable and other foreign debt
Private placement

Less: Current portion

Total

$ 4,400
1,228
(188)
—
(925)
(840)

$ 3,675

786
(99)
2,461
(1,414)
(91)

$ 5,318

2008
1,182
439,794
251,750
100,000

792,726
38,880

2007
1,709
465,434
168,641
—

635,784
22,003

$753,846

$613,781

Payments due on long-term debt, excluding capital

lease obligations, during each of the five years

subsequent to December 31, 2008 are as follows:

In thousands
2009
2010
2011
2012
2013
Thereafter

$ 38,274
39,502
27,598
478,405
18,635
189,130

$791,544

We paid interest of $29.1 million, $31.8 million and $27.6 million for the years ended December 31, 2008,

2007 and 2006, respectively.

Property under capital leases included with property, plant and equipment in the accompanying consolidated

balance sheets is as follows at December 31:

In thousands

Buildings
Machinery and equipment
Office equipment
Vehicles
Less: Accumulated depreciation and amortization

Amortization related to these capital leases is included with depreciation expense.

Minimum future lease payments under capital leases are as follows:

In thousands
2009
2010
2011
2012
2013

Total minimum lease payments
Less: Amounts representing interest

Present value of net minimum lease payments
Less: Current portion

Long-term obligations under capital leases

2008

114
176
111
2,760
(1,472)

2007

138
456
62
2,227
(1,198)

$ 1,689

$ 1,685

$ 688
449
169
6

—

1,312
(130)

1,182
(606)

$ 576

Senior Credit Facility

December 31, 2008, we were in compliance with all of our financial debt covenants. At December 31, 2008 the
margin for interest rates on borrowings under our new credit facility was 0.0% on base rate loans (at higher of
(i) the federal funds rate plus 0.5% or (ii) the prime rate) and 0.75% on LIBOR loans.

On April 15, 2008, we entered into a note purchase agreement (the “note purchase agreement”) with nine
institutional purchasers pursuant to which we issued and sold to the purchasers $100 million of our 5.64% senior
notes due April 15, 2015 (the “notes”). The notes bear interest at the fixed rate of 5.64% per annum. Interest is
payable in arrears semi-annually on April 15 and October 15 beginning on October 15, 2008, and principal is
payable at the maturity of the notes on April 15, 2015.

In August 2007, we entered into a new credit agreement. The new credit agreement was in substance an
amendment of our existing credit agreement. The amended credit facility (i) reduced the interest rates that we
were charged by reducing the applicable margin that was added to the relevant interest rate; (ii) increased our
revolving credit facility from $650 million to $850 million, with an additional capacity available up to $200
million upon request; (iii) increased both the letter of credit sublimit and alternative currency sublimit to $300
million from $200 million each; and (iv) the maturity date was extended from July 2011 to August 2012.

As of December 31, 2007, we had $465.4 million of borrowings outstanding under our senior unsecured
credit facility, which includes foreign currency borrowings of $16.0 million. In addition, we had $139.4 million
committed to outstanding letters of credit. As of December 31, 2007 the weighted average rate of interest on the
unsecured revolving credit facility was 5.53% per annum.

Notes Payable and Foreign Subsidiary Debt

At December 31, 2008 we had promissory notes and foreign subsidiary bank debt, primarily issued as a
result of acquisitions, totaling $351.8 million. Of the $351.8 million, $212.3 million of promissory notes was
secured with letters of credit. Of the $351.8 million, $317.4 million had a fixed interest rate and $34.4 million
had a floating interest rate. The weighted average interest rate was 5.05% and the weighted average maturity was
approximately 6.1 years.

At December 31, 2007 we had promissory notes and foreign subsidiary bank debt, primarily issued as a
result of acquisitions, totaling $168.6 million. Of the $168.6 million, $139.4 million of promissory notes was
secured with letters of credit. Of the $168.6 million, $138.6 million had a fixed interest rate and $30.0 million
had a floating interest rate. The weighted average interest rate was 5.79% and the weighted average maturity was
approximately 5.9 years.

Guarantees

We have guaranteed a loan to JPMorganChase Bank N.A. on behalf of Shiraishi-Sogyo Co. Ltd
(“Shiraishi”). Shiraishi is a customer in Japan that is expanding their regulated waste management business and
has a one year loan with a current balance of $5.4 million with JPMorgan Chase Bank N.A. that expires in May
2009. Management currently believes no amount will be paid under the guarantee.

Accrued liabilities at December 31 consist of the following items:

NOTE 8—ACCRUED LIABILITIES

In thousands

Accrued compensation
Accrued insurance
Accrued income tax
Accrued interest
Accrued professional liabilities
Accrued acquisition payment
Accrued liabilities- other

Total accrued liabilities

2008
$19,676
19,524
7,397
4,505
1,364
12,000
29,021

2007
$16,898
16,770
11,446
3,214
5,489
—
21,754

$93,487

$75,571

NOTE 9—DERIVATIVE INSTRUMENTS

In July 2004, we entered into four forward contracts, of which three have settled, to hedge a GBP Sterling-
based intercompany loan between our US-based subsidiary, Stericycle International L.L.C. and our subsidiary in
the United Kingdom, Stericycle International Ltd. The subsidiary borrowed the funds for the purchase of White
Rose. The remaining forward contract aligns with the anticipated repayment schedule of the loan and expires in
July 2009. Initially, we did not elect hedge accounting on the forward contracts and had recognized the change in
value of the hedges through other income (expense). This amount was generally offset by the currency
adjustment to the intercompany receivable.

On October 1, 2005, we prospectively designated these existing forward contracts as cash flow hedges and
are using hedge accounting. The objective of our cash flow hedges is to offset the foreign exchange risk to the
U.S. dollar equivalent cash inflows on the settlement of the GBP denominated intercompany loan. At
December 31, 2008, the fair market value of the hedge was recorded as a current asset of $2.3 million. As of
December 31, 2008, the total notional amount of hedges outstanding is GBP 8.0 million. At December 31, 2008
the hedges were determined to be 100% effective.

In October 2008, Stericycle entered into three interest rate swap contracts covering $225 million of our
borrowings outstanding under our senior credit facility. The objective of the swap is to reduce the risk of volatile
interest expense by fixing the rate. The contracts are as follows:

In thousands
Notional
Amount
$125,000
$ 75,000
$ 25,000

Fixed
Interest Rate
2.79%
2.79%
2.94%

Variable
Interest Rate
1 Month Libor
1 Month Libor
1 Month Libor

Expiration
Date
October 2009
April 2010
October 2010

We entered into the interest rate swaps in order to manage the risk of interest rate changes to our interest
expense. The interest rate swaps are designated as cash flow hedges; the notional amounts and all other

significant terms of the swap agreement are matched to the provisions and terms of the variable rate debt hedged.
The fair market of the three hedges is recorded as a liability of $4.8 million, of which $2.1 million is current. At
December 31, 2008 the hedges were determined to be 100% effective. Gains or losses on hedges are recognized
in other income or expense when realized. The fair market value was determined using market data inputs to
calculate expected future interest rates. The cash streams attributable to the difference between expected future
rates and the fixed rate payable is discounted to arrive at the fair value of the three hedges.

NOTE 10—GOODWILL AND OTHER INTANGIBLE ASSETS

Under SFAS No. 142, goodwill and other indefinite lived intangibles are no longer amortized and are
subject to an annual impairment test, or to more frequent testing if circumstances indicate that they may be
impaired.

We have two geographical reporting segments, “United States” and “Foreign Countries”, both of which
have goodwill. The changes in the carrying amount of goodwill for the years ended December 31, 2008 and 2007
was as follows:

In thousands

Balance as of December 31, 2006
Goodwill acquired during year
Changes due to currency fluctuation

Balance as of December 31, 2007
Goodwill acquired during year
Changes due to currency fluctuation

Balance as of December 31, 2008

United
States
$647,524
195,454
—

842,978
129,497
—

Foreign
Countries
$166,449
8,362
15,544

Total
$ 813,973
203,816
15,544

190,355
19,405
(46,457)

1,033,333
148,902
(46,457)

$972,475

$163,303

$1,135,778

During the quarter ended June 30, 2008 we performed our annual goodwill impairment evaluation for our
three reporting units, Domestic Regulated Waste, Domestic Regulated Returns Management and Foreign
Countries, and determined that none of our recorded goodwill was impaired.

In 2007 we wrote off $2.0 million for the White Rose Environmental tradename as a result of the name
change of our subsidiary in the United Kingdom, and we wrote off $0.2 million for the permit intangible for a
treatment facility in the United Kingdom that was no longer being used. These intangibles were part of the
Foreign Countries segment and the write off is reported in our Statement of Income as impairment of intangible
assets.

At December 31, 2008 and 2007, we had $48.1 million and $52.8 million, respectively, of indefinite lived
intangibles that consist of environmental permits. In 2008 and 2007 we performed our annual permit impairment
evaluation and determined that, other than noted above, there was no impairment.

According to SFAS No. 142, other intangible assets will continue to be amortized over their useful lives. In
2008, we assigned $35.6 million to customer relationships with amortization periods of 20 to 40 years, $3.4
million to facility environmental permits with indefinite lives and we $0.3 million to non-compete agreements
with amortization periods of one to ten years.

In 2007, we assigned $15.9 million to customer relationships with amortization periods of 20 to 40 years,
$16.7 million to facility environmental permits with indefinite lives, $2.5 million to non-compete agreements
with amortization periods of one to ten years, and $0.1 million to proprietary technology with an amortization
periods of three to five years.

As of December 31, the value of the amortizing intangible assets were as follows:

In thousands

Non-compete
Customer relationships
Tradenames
License agreements
Other

Gross
Carrying Amount

Accumulated
Amortization

Net
Carrying Amounts

2008
3,292
129,069
1,200
2,655
441

2007
4,423
103,249
1,200
2,779
441

2008
$ 1,082
9,849
188
2,655
342

2007
$ 1,825
7,349
156
2,687
213

2008
2,210
119,220
1,012
—
99

2007
$ 2,598
95,900
1,044
92
228

Total

$136,657

$112,092

$14,116

$12,230

$122,541

$99,862

During the years ended December 31, 2008, 2007 and 2006 the aggregate amortization expense was $4.0

million, $3.7 million and $3.0 million, respectively.

The estimated amortization expense for each of the next five years is as follows for the years ended

December 31:

In thousands
2009
2010
2011
2012
2013

$3,999
3,976
3,859
3,828
3,774

NOTE 11—LEASE COMMITMENTS

We lease various plant equipment, office furniture and equipment, motor vehicles and office and warehouse
space under operating lease agreements, which expire at various dates over the next 16 years. The leases for most
of the properties contain renewal provisions.

Rent expense for 2008, 2007 and 2006 was $41.2 million, $32.4 million and $28.7 million, respectively.

Minimum future rental payments under non-cancelable operating leases that have initial or remaining terms
in excess of one year as of December 31, 2008 for each of the next five years and in the aggregate are as follows:

In thousands
2009
2010
2011
2012
2013
Thereafter

$ 37,067
31,022
23,644
16,280
8,644
20,430

$137,087

NOTE 12—NET INCOME PER COMMON SHARE

During the quarter ended June 30, 2007 our shareholders approved the increase in our authorized shares of
common stock from 80,000,000 shares to 120,000,000 shares. In addition, the Board of Directors authorized a
2-for-1 stock split. The stock split was in the form of a stock dividend of one share payable on May 31, 2007 in

respect of each share of common stock outstanding on the record date of May 17, 2007. Historic share and per
share amounts have been adjusted to reflect the stock split.

The following table sets forth the computation of basic and diluted net income per share:

In thousands, except share and per share data

Numerator:
Numerator for basic earnings per share net income

Denominator:
Denominator for basic earnings per share-weighted average shares
Effect of diluted securities:
Employee stock options
Warrants

Dilutive potential shares

Denominator for diluted earnings per share-adjusted weighted

Years Ended December 31,

2008

2007

2006

148,708

118,378

105,270

85,950,192

87,578,650

88,466,990

2,385,640
—

2,348,589
6,003

2,062,444
564

2,385,640

2,354,592

2,063,008

average shares and after assumed exercises

88,335,832

89,933,242

90,529,998

Earnings per share – Basic

Earnings per share – Diluted

1.73

1.68

1.35

1.32

1.19

1.16

For additional information regarding outstanding employee stock options and outstanding warrants, see

Note 13 to the Consolidated Financial Statements.

In 2008, 2007 and 2006, options and warrants to purchase 993,352 shares, 279,081 shares and 1,565,864
shares, respectively, at exercise prices of $47.32-$60.53, $38.57-$59.70 and $17.53-$36.26, respectively, were
not included in the computation of diluted earnings per share (“EPS”) because the effect would be antidilutive.

At December 31, 2008 we had no warrants outstanding.

NOTE 13—STOCK BASED COMPENSATION

Stock Plans:

We have adopted six stock option plans:

(i)

the 2008 Incentive Stock Plan, which our stockholders approved in May 2008;

(ii)

the 2005 Incentive Stock Plan, which our stockholders approved in April 2005;

(iii) the 2000 Nonstatutory Stock Option Plan, which our Board of Directors adopted in February 2000;

(iv) the 1997 Stock Option Plan, which expired in January 2007;

(v)

the Directors Stock Option Plan, which expired in May 2006;

(vi) the 1995 Incentive Compensation Plan, which expired in July 2005.

The 2008 Plan authorized awards of stock options and stock appreciation rights for a total of 3,500,000
shares; the 2005 Plan authorizes awards of stock options and stock appreciation rights for a total of 4,800,000
shares; as amended, the 2000 Plan authorizes stock option grants for a total of 7,000,000 shares; the 1997 and
1995 Plans each authorized stock option grants for a total of 6,000,000 shares; and as amended, the Directors
Plan authorized stock option grants for a total of 2,340,000 shares.

Both the 2008 Plan and 2005 Plan provide for the grant of nonstatutory stock options (“NSOs”) and
incentive stock options intended to qualify under section 422 of the Internal Revenue Code (“ISOs”) as well as
stock appreciation rights. In addition, the 2008 Plan provides for the grant of Restricted Stock Awards and RSU
Awards; the 2000 Plan provides for the grant of NSOs; the 1997 and 1995 Plans each provided for the grant of
NSOs and ISOs; and the Directors Plan provided for the grant of NSOs.

The 2008 and 2005 Plans authorize awards to our officers, employees and consultants and, following the
expiration of the Directors Plan in May 2006, to our directors; the 2000 Plan authorizes stock option grants to our
employees and consultants, but not to our officers and directors; the 1997 and 1995 Plans each authorized stock
option grants to our officers, directors, employees and consultants; and the Directors Plan authorized stock option
grants to our outside directors.

As of December 31, 2008, we reserved the following shares for issuance, consisting of both shares available
for option grants under the 2008 Plan, 2005 Plan, 2000 Plan, 1997 Plan and shares granted as options under all
five of our plans, but not yet exercised:

1995 Plan options
1996 Directors Plan options
1997 Plan options
2000 Plan options
2005 Plan options
2008 Plan options
Warrants

Total shares reserved

Employee Stock Purchase Plan:

354,786
258,767
1,218,146
2,084,528
3,381,172
3,500,000
—

10,797,399

In October 2000, our Board of Directors adopted the Employee Stock Purchase Plan (“ESPP”) effective as
of July 1, 2001. Our stockholders approved the ESPP in May 2001. The ESPP authorizes 600,000 shares of our
common stock to be purchased by employees at a 15% discount from the market price of the stock through
payroll deductions during two six-month offerings each year. An employee who elects to participate in an
offering is granted an option on the first day of the offering for a number of shares equal to the employee’s
payroll deductions under the ESPP during the offering period (which may not exceed $5,000) divided by the
option price per share. The option price per share is the lower of 85% of the closing price of a share of our
common stock on the first trading day of the offering period or 85% of the closing price on the last trading day of
the offering period. We recognize compensation expense for the ESPP, which is reflected in the statement of
income. Every employee who has completed six months employment as of the first day of an offering and who is
a full-time employee, or a part-time employee who customarily works at least 20 hours per week, is eligible to
participate in the offering. During 2008, 2007 and 2006, 48,836 shares, 43,777 shares and 40,996, respectively,
were issued through the ESPP.

Stock Based Compensation Expense:

We recognized stock compensation expense in accordance with SFAS No. 123R which we adopted
January 1, 2006. Since the adoption of SFAS No. 123R, there have been no changes to our stock compensation
plans or modifications to outstanding stock-based awards which would change the value of any awards
outstanding. Compensation expense for all stock-based compensation awards granted subsequent to January 1,
2006 was based on the grant-date fair value determined in accordance with the provisions of SFAS No. 123R.
During the years ended December 31, 2008 and 2007, we recognized compensation expense of $11.2 million and
$10.3 million, respectively, for stock options, and $0.6 million and $0.4 million, respectively, for the ESPP,
which is reflected in the statement of income. There were no significant capitalized stock-based compensation
costs at December 31, 2008 and 2007.

The following table presents the total stock-based compensation expense resulting from stock option awards

and the ESPP included in the consolidated statements of income:

In thousands

Cost of revenues—stock option plan
Selling, general and administrative—stock option plan
Selling, general and administrative—ESPP

Total

Years Ended December 31,

2008

403
10,768
584

2007

477
9,818
419

2006

784
9,521
305

$11,755

$10,714

$10,610

As of December 31, 2008, there were $20.1 million of total unrecognized compensation expense, related to

non-vested option awards, which is expected to be recognized over a weighted-average period of 1.56 years.

The following table sets forth the tax benefits related to stock compensation:

In thousands

Tax benefit recognized in income statement
Excess tax benefit realized

Stock Options:

Years Ended
December 31,

2008
$4,341
9,319

2007
$4,207
8,054

Options granted to officers and employees generally vest over five years. During 2008, 2007 and 2006,
options granted to officers and employees generally vested at the rate of 20% of the option shares on each of the
first five anniversaries of the option grant date. Expense related to the graded vesting options is recognized using
the straight-line method over the vesting period.

The exercise price per share of an option granted under any of our stock option plans may not be less than
the closing price of a share of our common stock on the date of grant. The maximum term of an option granted
under any plan may not exceed 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.
Option activity for the years ended December 31, 2008, 2007 and 2006 is summarized as follows:

Outstanding at beginning of year
Granted
Exercised
Forfeited
Cancelled or expired

2008

2007

2006

Weighted
Average
Exercise
Price per
Share
$25.44
53.85
17.38
34.39
5.89

Number of
Options
7,258,795
1,202,964
(987,284)
(175,734)
(1,342)

Weighted
Average
Exercise
Price per
Share
$20.96
40.24
14.86
29.78
26.68

Weighted
Average
Exercise
Price per
Share
$16.62
30.46
10.48
24.57
9.24

Number of
Options
7,185,698
1,744,536
(1,513,216)
(370,100)
(9,608)

Number of
Options
7,037,310
1,472,403
(1,013,290)
(232,533)
(5,095)

Outstanding at end of year

7,297,399

$30.97

7,258,795

$25.44

7,037,310

$20.96

Exercisable at end of year
Available for future grant

3,815,882
5,136,621

$23.36

3,526,237
2,655,845

$18.62

3,348,190
3,899,020

$15.39

The total intrinsic value of options exercised for the years ended December 31, 2008 and 2007 was $39.4
million and $34.6 million, respectively. The total intrinsic value represents the total pre-tax intrinsic value (the
difference between our closing stock price on the last day of trading for the year ended December 31, 2008 and
the exercise price, multiplied by the number of in-the-money options) that would have been received by the
option holders assuming all option holders had exercised their options on December 31, 2008; this amount
changes based on the fair market value of our stock.

Outstanding options at December 31, 2008 and 2007 had a weighted average remaining contractual life of
6.6 years and 6.8 years, respectively, with an aggregate intrinsic value of $156.3 million and $246.5 million,
respectively. Exercisable options at December 31, 2008 and 2007 had a weighted average remaining contractual
life of 5.3 years and 5.4 years, respectively, with an aggregate intrinsic value of $109.7 million and $143.8
million, respectively.

Options outstanding and exercisable as of December 31, 2008 by price range are presented below:

Options Outstanding

Options Exercisable

Range of Exercise Price
$3.188-$17.235
$17.525-$20.500
$20.900-$22.110
$22.485-$22.700
$22.775-$22.900
$22.925-$24.230
$24.300-$29.540
$29.590-$35.590
$35.780-$38.565
$38.905-$60.530

Outstanding
Average
Remaining
Life in Years
2.72
4.06
5.13
5.82
6.12
5.60
7.04
7.33
8.08
9.04

6.57

Weighted
Average
Exercise
Price
$11.44
17.85
22.09
22.66
22.90
23.63
29.35
31.98
38.51
52.24

$30.97

Shares
753,564
600,755
734,015
77,554
903,136
175,474
1,001,055
530,545
1,034,184
1,487,117

7,297,399

Shares
753,564
600,755
674,715
62,006
489,686
172,154
382,203
242,188
196,925
241,686

3,815,882

Weighted
Average
Exercise
Price
$11.44
17.85
22.10
22.66
22.90
23.64
29.24
31.95
38.47
48.49

$23.36

The Black-Scholes option-pricing model was used in determining the fair value of each option grant. The
expected term of options granted is based on historical experience. Expected volatility is based upon historical
volatility. The expected dividend yield is zero. The risk-free interest rate is based upon the U.S. Treasury yield
rates of a comparable period. The assumptions that we used in the Black-Scholes model are as follows:

Stock options granted
Weighted average grant date fair value
Expected term (in years)
Expected volatility
Expected dividend yield
Risk free interest rate

Years Ended December 31,

2008
1,202,964
13.53
5.5
26.29%
0.00%
2.76%

2007
1,472,403
11.43
5.0
27.07%
0.00%
4.52%

2006
1,744,536
8.91
4.5
28.87%
0.00%
4.83%

Preferred Stock:

NOTE 14—PREFERRED STOCK AND WARRANTS

At December 31, 2008 and 2007 we had 1,000,000 authorized shares of preferred stock and no shares issued

or outstanding.

Warrants:

At December 31, 2008 we had no warrants outstanding.

NOTE 15—EMPLOYEE BENEFIT PLAN

We have a 401(k) defined contribution retirement savings plan covering substantially all employees. Each
participant may elect to defer a portion of his or her compensation subject to certain limitations. We may
contribute up to 50% of the first 5% of compensation contributed to the plan by each employee up to a maximum
of $1,500 per annum. Our contributions for the years ended December 31 2008, 2007 and 2006 were
approximately $1.7 million, $1.6 million and $1.5 million, respectively.

The Company has several foreign defined contribution plans, which require the Company to contribute a
regulations. For the years ended
total contributions made by the Company for these plans were

percentage of
December 31, 2008, 2007 and 2006,
approximately $0.7 million, $0.5 million and $0.5 million, respectively.

the participating employee’s salary according to local

The Company has no additional postretirement or postemployment benefit plans.

NOTE 16—JOINT VENTURES

In 2007 we became the 100% owner of the former joint venture, Medam, B.A. Srl, an Argentine
corporation. As part of a legal restructuring of the business operations of Medam, B.A. we recognized a $2.9
million charge related to the impairment of that investment and write-off of an intercompany loan. In 2006 we
recorded $0.5 million of equity losses related to the above joint venture, which were recorded in the other income
(expense).

NOTE 17—LEGAL PROCEEDINGS

In November 2007, the arbitrator issued a final award in arbitration proceedings in Australia with SteriCorp
Limited. The arbitrator awarded Stericycle $8.2 million USD on our claim against SteriCorp for payments due
under certain convertible notes and awarded SteriCorp $14.5 million USD on its claim that we failed to supply
SteriCorp with equipment conforming to specifications under an equipment supply agreement. The final award
also requires us to pay two-thirds of SteriCorp’s arbitration costs. An estimate of those amounts was made and
accrued for in our consolidated financial statements for the year-ended December 31, 2007. The net effect of the
various components of the final arbitration award was a charge of $13.9 million to our income statement
identified as “Arbitration award and related costs.”

NOTE 18 —PRODUCTS AND SERVICES AND GEOGRAPHIC INFORMATION

SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information,” requires segment
information to be reported based on information utilized by executive management
to internally assess
performance and make operating decisions. We have determined that we have three operating segments based on
the organizational structure of our company and information reviewed. These operating segments are Foreign
Regulated Waste Management Services (“Foreign Countries”), Domestic Regulated Waste Management Services

(“United States”) and Domestic Returns Management Services. We have aggregated Domestic Regulated Waste
Management Services and Domestic Returns Management Services into one reportable segment, United States,
based on our consideration of the following aggregation criteria:

•

they have similar economic characteristics;

the same services are provided;

the same types of customers are serviced;

the same types of waste collection, transportation and treatment methods are utilized;

their regulatory environments are similar, but vary based upon country specific regulations; and

they employ the same sales and marketing techniques and activities.

Our two operating segments are United States and Foreign Countries.

Our foreign operations have material revenues and long lived assets in the United Kingdom and Ireland,

(referred to as “Europe” in the following table). Summary information for our reportable segments is as follows:

In thousands

Revenues:

United States
Europe
Other foreign countries

Total foreign countries

Total

Income before income taxes:

United States
Foreign countries

Total

Total assets:

United States
Foreign countries

Total

Long-lived assets:
United States
Europe
Other foreign countries

Total foreign countries

Total

2008

2007

2006

$ 830,813
156,309
96,557

$ 721,408
149,467
61,892

$ 616,436
128,743
44,458

252,866

211,359

173,201

$1,083,679

$ 932,767

$ 789,637

$ 205,183
33,821

$ 167,603
23,637

$ 150,820
21,754

$ 239,004

$ 191,240

$ 172,574

$1,377,486
381,812

$1,304,248
303,911

$1,016,146
311,760

$1,759,298

$1,608,159

$1,327,906

$1,236,160
200,535
98,173
298,708

$1,165,419
132,445
100,019
232,464

$ 895,299
168,007
45,998
214,005

$1,534,868

$1,397,883

$1,109,304

Revenues are attributed to countries based on the location of customers. Intercompany revenues recorded by
the United States for work performed in Canada are eliminated prior to reporting United States revenues. The
same accounting principles and critical accounting policies are used in the preparation of the financial statements
for both reporting segments.

Detailed information for our United States reporting segment is as follows:
In thousands

Regulated waste management services
Regulated returns management services

Total revenues

Net interest expense
Write-down of investment
Proceeds from insurance
Income before income taxes
Income taxes

Net income

Depreciation and amortization
Capital expenditures

2008
$756,893
73,920

2007
$637,731
83,677

2006
$557,927
58,509

830,813

26,097
—
—
205,183
81,689

721,408

616,436

27,347
—
(3,300)
167,603
64,562

23,406
1,000
(1,025)
150,820
63,524

$123,494

$103,041

$ 87,296

$ 24,296
34,353

$ 22,204
37,222

$ 19,893
25,556

Detailed information for our Foreign Countries reporting segment is as follows:
In thousands

Regulated waste management services
Net interest expense
Write-down of investment
Income before income taxes
Income taxes

Net income

Depreciation and amortization
Capital expenditures

2008
$252,866
6,077
—
33,821
8,607

2007
$211,359
5,028
2,930
23,637
8,300

2006
$173,201
3,655
—
21,754
3,780

$ 25,214

$ 15,337

$ 17,974

9,852
13,167

8,933
11,175

7,143
10,858

NOTE 19—ACCUMULATED OTHER COMPREHENSIVE INCOME

The components of total comprehensive income are net income, the change in cumulative currency
translation adjustments and gains and losses on derivative instruments qualifying as cash flow hedges. The
following table sets forth the components of total comprehensive income for 2008, 2007 and 2006:
In thousands

Beginning balance January 1, 2006
Fiscal 2006 change

Ending balance December 31, 2006
Fiscal 2007 change

Ending balance December 31, 2007
Fiscal 2008 change

Ending balance December 31, 2008

Unrealized
Gains
(Losses)
on Cash
Flow
Hedges
$ (101)
333

232
166

$
398
(3,294)

Currency
Translation
Adjustments
647
$
4,350

$ 4,997
25,125

$ 30,122
(59,301)

$(29,179)

$(2,896)

Total
Accumulated
Other
Comprehensive
Income
$

546
4,683

$ 5,229
25,291

$ 30,520
(62,595)

$(32,075)

The tax impact of the unrealized loss on cash flow hedges in accumulated other comprehensive income at
December 31, 2008 was $1.9 million. The tax impact at December 31, 2006 and 2007 was immaterial.
Translation adjustments are not tax-effected as the Company’s net investment in foreign subsidiaries and all
related foreign earnings are deemed permanently invested.

NOTE 20—SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

The following table summarizes our unaudited consolidated quarterly results of operations as reported for

2008 and 2007:

In thousands, except per share data

Revenues
Gross profit
Impairment of fixed assets
Arbitration award and related costs
Net Income
* Basic earnings per common share
* Diluted earnings per common share

In thousands, except per share data

Revenues
Gross profit
Gain on sale of assets
Impairment of intangible assets
Impairment of fixed assets
Arbitration award and related costs
Write-down of investment
Insurance proceeds
Net Income
* Basic earnings per common share
* Diluted earnings per common share

First
Quarter
2008
$254,784
113,590
—
(5,352)
31,664
0.36
0.35

$
$

Second
Quarter
2008
$277,786
123,154
—
(147)
38,685
0.45
0.44

$
$

Third
Quarter
2008
$277,098
123,029
—
(96)
39,227
0.46
0.45

$
$

Fourth
Quarter
2008
$274,011
125,256
(472)
—
39,132
0.46
0.45

$
$

Year
2008
$1,083,679
485,029
(472)
(5,595)
148,708
1.73
1.68

$
$

First
Quarter
2007
$211,049
94,236
823
—
(650)
—
—
500
29,387
0.33
0.32

$
$

Second
Quarter
2007
$232,845
104,517
1,075
(228)
(611)
—
—
—
31,998
0.37
0.36

$
$

Third
Quarter
2007
$237,323
106,814
—
—
—
—
—
—
32,895
0.38
0.37

$
$

Fourth
Quarter
2007
$251,550
112,354
201
(2,041)
—
(13,904)
(2,930)
2,800
24,098
0.27
0.27

$
$

Year
2007
$932,767
417,921
2,099
(2,269)
(1,261)
(13,904)
(2,930)
3,300
118,378
1.35
$
1.32
$

* EPS calculated on a quarterly basis, and, as such, the amounts may not total the calculated full-year EPS.

STERICYCLE, INC. AND SUBSIDIARIES

SCHEDULE II—VALUATION AND ALLOWANCE ACCOUNTS

In thousands

Allowance for doubtful accounts

Balance
12/31/05
$4,810

Balance
12/31/06
$5,411

Balance
12/31/07
$6,157

Charges to
Expenses
$4,194

Other
Charges (1)
$ 48

Write-offs/
Payments
$(3,641)

Balance
12/31/06
$5,411

Charges to
Expenses
$4,392

Other
Charges (1)
$293

Write-offs/
Payments
$(3,939)

Balance
12/31/07
$6,157

Charges to
Expenses
$5,006

Other
Charges (1)
$ 30

Write-offs/
Payments
$(4,577)

Balance
12/31/08
$6,616

(1) Amounts consist primarily of valuation allowances assumed from acquired companies and currency

translation adjustments.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Statement
Disclosure

None.

Item 9A. Controls and Procedures

(a) Evaluation of disclosure controls and procedures.

Our management, with the participation of our President and Chief Executive Officer and our Chief
Financial Officer, conducted an evaluation of the effectiveness of our disclosure controls and procedures as of
the end of the fiscal year covered by this Report. On the basis of this evaluation, our President and Chief
Executive Officer and our Chief Financial Officer each concluded that our disclosure controls and procedures
were effective.

The term “disclosure controls and procedures” is defined in Rule 13a-14(e) of the Securities Exchange Act
of 1934 as “controls and other procedures designed to ensure that information required to be disclosed by the
issuer in the reports, files or submits under the Act is recorded, processed, summarized and reported, within the
time periods specified in the [Securities and Exchange] Commission’s rules and forms.” Our disclosure controls
and procedures are designed to ensure that material information relating to us and our consolidated subsidiaries is
accumulated and communicated to our management, including our President and Chief Executive Officer and our
Chief Financial Officer, as appropriate to allow timely decisions regarding our required disclosures.

(b) Internal control over financial reporting.

Management’s Report on Internal Control over Financial Reporting and our Independent Registered Public

Accounting Firm’s Attestation Report are included in Item 8.

There were no significant changes in our internal controls or in other factors that could materially affect

those controls during the quarter ended December 31, 2008.

Item 9B. Other Information

None.

Item 10. Directors and Executive Officers of the Registrant

PART III

The information required by this Item regarding our directors is incorporated by reference to the information
contained under the caption “Election of Directors” in our definitive proxy statement for our 2009 Annual
Meeting of Stockholders to be held on May 28, 2009, to be filed pursuant to Regulation 14A.

The information required by this Item regarding our executive officers is contained under the caption

“Executive Officers of the Registrant” in Part I of this Report.

The information required by this Item regarding compliance with Section 16(a) of the Securities Exchange
Act of 1934 is incorporated by reference to the information contained under the caption “Section 16(a) Beneficial
Ownership Reporting Compliance” in our definitive proxy statement for our 2009 Annual Meeting of
Stockholders to be held on May 28, 2009, to be filed pursuant to Regulation 14A.

We have adopted a code of business conduct that applies generally to all of our employees and, in addition,
we have a adopted a finance department code of ethics that applies specifically to our Chairman, President and
Chief Executive Officer, Chief Financial Officer, Vice President-Finance and the members of our finance
department. Both codes are available on our website, www.stericycle.com, under “About Us/Corporate
Overview,” Any amendment to or waiver of the finance department code of ethics will be posted on our website
within five business days after the date of the amendment or waiver.

Item 11. Executive Compensation

The information required by this Item is incorporated by reference to the information contained under the
caption “Compensation Discussion and Analysis” and following sections (up to Item 2) in our definitive proxy
statement for our 2009 Annual Meeting of Stockholders to be held on May 28, 2009, to be filed pursuant to
Regulation 14A.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters

The information required by this Item is incorporated by reference to the information contained under the
captions “Stock Ownership” and “Compensation Discussion and Analysis” and following sections (up to Item 2)
in our definitive proxy statement for our 2009 Annual Meeting of Stockholders to be held on May 28, 2009 to be
filed pursuant to Regulation 14A.

Item 13. Certain Relationships and Related Transactions

The information required by this Item regarding our policies and procedures for the review, approval or
ratification transactions with related persons is incorporated by reference to the information contained under the
caption “Policy and Related Party Transactions” in Item 1 of our definitive proxy statement for our 2009 Annual
Meeting of Stockholders to be held on May 28, 2009, to be filed pursuant to Regulation 14A.

The information required by this Item regarding director independence is incorporated by reference to the
information contained in Item 1 of our definitive proxy statement for our 2009 Annual Meeting of Stockholders
to be held on May 28, 2009, to be field pursuant to Regulation 14A.

Item 14. Principal Accountant Fees and Services

Audit Fees:

The aggregate fees billed by our independent public accountants, Ernst & Young LLP, for professional
services rendered in connection with the audit of our annual financial statements and the audit of our internal

controls over financial reporting, and review of our interim financial statements included in our quarterly reports
on Form 10-Q for the fiscal years ended December 31, 2008 and 2007 were approximately $1.0 million and $1.2
million, respectively.

Audit Related Fees:

In the years ended December 31, 2008 and 2007 Ernst & Young LLP did not bill us for any audit related
fees. Ernst & Young LLP did not perform any other assurance or related services during either of these two fiscal
years.

Tax Fees:

Ernst & Young LLP provided project based tax services to us during 2008 at cost of $350,000. The firm did

not provide any in fiscal year 2007.

All Other Fees:

In 2008, we subscribed to the Ernst & Young online research tool at cost of $1,790.

Ernst & Young LLP did not provide any other services to us during the fiscal years ended December 31,

2008 and 2007.

In accordance with policies adopted by the Audit Committee of our Board of Directors, all audit and
non-audit related services to be performed for us by our independent public accountants must be approved in
advance by the Committee.

Item 15. Exhibits and Financial Statement Schedules

(a) List of Financial Statements, Financial Statement Schedule and Exhibits

PART IV

We have filed the following financial statements and financial statement schedule as part of this report:

Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting
Report of Independent Registered Public Accounting Firm
Consolidated Financial Statements—Stericycle, Inc. and Subsidiaries
Consolidated Balance Sheets as of December 31, 2008 and 2007
Consolidated Statements of Income for Each of the Years in the Three-Year Period Ended

December 31, 2008

Consolidated Statements of Cash Flows for Each of the Years in the Three-Year Period Ended

December 31, 2008

Consolidated Statements of Changes in Shareholders’ Equity for Each of the Years in the Three-Year

Period Ended December 31, 2008

Notes to Consolidated Financial Statements
Schedule II—Valuation and Allowance Accounts

Page
30
31

35
36
58

All other financial statement schedules have been omitted because they are not applicable to us or the

required information is shown in the consolidated financial statements or notes thereto.

Filed with
Electronic
Submission

We have filed the following exhibits with this report:

Exhibit
Index

3.1*

3.2*

3.3*

3.4*

3.5

3.6

4.1*

10.1*

10.2

Description

Amended and restated certificate of incorporation (incorporated by reference to Exhibit
3.1 to our 1996 Form S-1)

First certificate of amendment to amended and restated certificate of incorporation
(incorporated by reference to Exhibit 3.1 to our current report on Form 8-K filed
November 29, 1999)

Second certificate of amendment to amended and restated certificate of incorporation
(incorporated by reference to Exhibit 3.4 to our annual report on Form 10-K for 2002)

Third certificate of amendment to amended and restated certificate of incorporation
(incorporated by reference to Exhibit 3.4 to our registration statement on Form S-4 as
declared effective on October 10, 2007 (Registration No. 333-144613)

Amended and restated bylaws (incorporated by reference to Exhibit 3(ii).1 to our current
report on Form 8-K filed February 22, 2008)

Amended to bylaws (incorporated by reference to Exhibit 3(ii).1 to our current report on
Form 8-K filed August 20, 2008)

Specimen certificate for shares of our common stock, par value $.01 per share
(incorporated by reference to Exhibit 4.1 to our 1996 Form S-1)

Credit Agreement dated as of August 24, 2007 entered into by Stericycle, Inc. and certain
of its subsidiaries as borrowers, Bank of America, N.A., as administrative agent, swing
line lender, a lender and a letter of credit issuer, other lenders party to the Credit
Agreement, JPMorgan Chase Bank, N.A., as syndication agent, and Citibank, N.A., Fortis
Capital Corp. and The Royal Bank of Scotland plc, as co-documentation agents, with
Banc of America Securities LLC and J.P. Morgan Securities Inc., as joint lead arrangers
and joint book managers (incorporated by reference to our current report on Form 8-K
filed August 28, 2007)

Note Purchase Agreement dated as of April 15, 2008 entered into by Stericycle, Inc., as
issuer and seller, and The Northwestern Mutual Life Insurance Company, American
United Life Insurance Company, The State Life Insurance Company, Pioneer Mutual Life
Insurance Company, Knights of Columbus, Principal Life Insurance Company, CUNA
Mutual Insurance Society, CUMIS Insurance Society, Inc. and Modern Woodmen of
America, as purchasers (incorporated by reference to Exhibit 10.1 to our current report on
Form 8-K filed April 18, 2008)

10.3*† Directors Stock Option Plan (Amended and Restated) (“Directors Plan”) (incorporated by

reference to Exhibit 4.1 to our registration statement on Form S-8 filed August 2, 2001
(Registration No. 333-66542))

10.4*†

10.5*†

10.6*†

10.7*†

10.8*†

First amendment to Directors Plan (incorporated by reference to Exhibit 10.9 to our
annual report on Form 10-K for 2001)

Form of stock option agreement for option grant under Directors Plan (incorporated by
reference to Exhibit 10.1 to our quarterly report on Form 10-Q for the quarter ended
September 30, 2004)

1997 Stock Option Plan (“1997 Plan”) (incorporated by reference to Exhibit 10.3 to our
annual report on Form 10-K for 1997)

First amendment to 1997 Plan (incorporated by reference to Exhibit 10.9 to our 1999
Form S-3)

Second amendment to 1997 Plan (incorporated by reference to Exhibit 10.12 to our
annual report on Form 10-K for 2001)

Exhibit
Index

10.9*†

10.10*†

10.11*†

10.12*†

10.13*†

Description

Third amendment to 1997 Plan (incorporated by reference to Exhibit 10.16 to our annual
report on Form 10-K for 2003)

2000 Nonstatutory Stock Option Plan (“2000 Plan”) (incorporated by reference to
Exhibit 10.13 to our annual report on Form 10-K for 2001)

First amendment to 2000 Plan (incorporated by reference to Exhibit 10.14 to our annual
report on Form 10-K for 2001)

Second amendment to 2000 Plan (incorporated by reference to Exhibit 10.15 to our
annual report on Form 10-K for 2001)

Third amendment to 2000 Plan (incorporated by reference to Exhibit 4.2 to our
registration statement on Form S-8 filed December 20, 2002 (Registration
No. 333-102097))

10.14*†

2005 Incentive Stock Plan (“2005 Plan”) (incorporated by reference to Exhibit 4.1 to our
registration statement on Form S-8 filed August 9, 2005 (Registration No. 333-127353)

10.15†

First amendment to 2005 Plan

10.16*†

Form of stock option agreement for option grant under 1997 Plan, 2000 Plan and 2005
Plan (incorporated by reference to Exhibit 10.5 to our annual report on Form 10-K for
2005)

10.17*†

2008 Incentive Stock Plan (incorporated by reference to Exhibit 4.1 to our registration
statement on Form S-8 filed August 8, 2008 (Registration No. 333-152877))

10.18†

Bonus conversion program (2009 plan year)

10.19*†

10.20*†

10.21*†

10.22*†

10.23*†

31.1

31.2

Form of stock option agreement for option grant under bonus conversion program
(incorporated by reference to Exhibit 10.16 to our annual report on Form 10-K for 2007)

Employee Stock Purchase Plan (“ESPP”) (incorporated by reference to Exhibit 4.1 to our
registration statement on Form S-8 filed August 2, 2001 (Registration No. 333-66544)

First amendment to ESPP (incorporated by reference to Exhibit 10.21 to our annual
report on Form 10-K for 2002)

Plan of Compensation for Outside Directors (incorporated by reference to Exhibit 10.1 to
our current report on Form 8-K filed August 11, 2006)

First amendment to Plan of Compensation for Outside Directors (incorporated by
reference to Exhibit 10.19 to our annual report on Form 10-K for 2006)

Code of ethics (incorporated by reference to Exhibit 10.14 to our annual report on
Form 10-K for 2003)

Subsidiaries

Consent of Independent Registered Public Accounting Firm

Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer

Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer

Section 1350 Certification of Chief Executive Officer and Chief Financial Officer

Filed with
Electronic
Submission

Previously filed

*
† Management contract or compensatory plan required to be filed pursuant to Item 601 of Regulation S-K

References to our “1996 Form S-1” are to our registration statement on Form S-1 as declared effective on
August 22, 1996 (Registration No. 333-05665); and references to our “1999 Form S-3” are to our registration
statement on Form S-3 as declared effective on February 4, 1999 (Registration No. 333-60591).

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this

report to be signed on its behalf by the undersigned, thereunto duly authorized.

Dated: February 27, 2009

Name

Title

Date

/s/

JACK W. SCHULER
Jack W. Schuler

/s/ MARK C. MILLER

Mark C. Miller

/s/ FRANK J.M. TEN BRINK

Frank J.M. ten Brink

/s/ ROD F. DAMMEYER

Rod F. Dammeyer

/s/ WILLIAM K. HALL

William K. Hall

/s/

JONATHAN T. LORD, M.D
Jonathan T. Lord, M.D.

/s/

JOHN PATIENCE
John Patience

Lead Director of the Board of
Directors

February 27, 2009

Chairman, President and Chief
Executive Officer

February 27, 2009

Executive Vice President and Chief
Financial Officer (Principal
Financial and Accounting Officer)

February 27, 2009

Director

February 27, 2009

/s/ THOMAS R. REUSCHÉ

Director

February 27, 2009

Thomas R. Reusché

/s/ THOMAS D. BROWN

Director

February 27, 2009

Thomas Brown

/s/ RONALD G. SPAETH

Director

February 27, 2009

Ronald Spaeth

C O R P O R A T E

I N F O R M A T I O N

E x e c u t i v e O f f i c e r s

Mark C. Miller

Richard L. Foss

Chairman, President and Chief Executive Officer

Executive Vice President, International

Frank J.M. ten Brink

Richard J. Marasco

Executive Vice President, Chief Financial Officer/CAO

Executive Vice President, Mergers and Acquisitions

Richard Kogler

Michael Collins

Executive Vice President, Chief Operating Officer

President, Return Management Services

B o a r d o f D i r e c t o r s

Mark C. Miller • Chairman, President & CEO

Jack W. Schuler • Lead Director
Chairman – Nominating and
Governance Committee
Member – Audit Committee

John Patience
Member – Nominating and
Governance Committee
Member – Audit Committee

Jonathan T. Lord, M.D.
Chairman – Compensation
Committee
Member – Nominating
and Governance Committee

Thomas D. Brown
Member – Audit Committee

William K. Hall
Member – Compensation
Committee

Rodney F. Dammeyer
Chairman – Audit Committee
Member – Nominating
and Governance Committee

Thomas R. Reusché
Member – Audit Committee

Ronald G. Spaeth
Member – Compensation
Committee

I n d e p e n d e n t A u d i t o r s

F o r m 1 0 - K

Ernst & Young LLP
Sears Tower
233 S. Wacker Drive
Chicago, Illinois 60606

L e g a l C o u n s e l

Johnson and Colmar
300 S. Wacker Drive, Suite 1000
Chicago, Illinois 60606

T r a n s f e r A g e n t

Wells Fargo Bank N.A.
Shareowner Services
161 N. Concord Exchange
South St. Paul, MN 55075

Additional copies of this Annual Report or Form 10-K filed with
the Securities and Exchange Commission are available, without
charge, upon request from the company, Investor@stericycle.com
or (800) 643-0240 ext. 2012.

A n n u a l M e e t i n g

The annual meeting of stockholders will be held on
Thursday, May 28, 2009 at 11:00 AM at Hilton Garden Inn
26225 N. Riverwoods Boulevard
Mettawa, Il 60045

N a s d a q ® S y m b o l

SRCL

(800) 643-0240