Stericycle Annual Report 2013

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FY2013 Annual Report · Stericycle

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(800) 643-0240

www.stericycle.com

ANNUAL REPORT
ANNUAL REPORT

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ANNUAL REPORT

Dear Fellow Shareholders:
In 2013, Stericycle continued to set new Company financial records and expand our
range of services in the U.S. and 11 other countries in pursuit of our core purpose of
helping our customers fulfill their promise by providing solutions that protect people
and brands, promote health, and safeguard the environment. Our revenues in 2013
grew to $2.14 billion, a 12.0% increase over 2012. Our gross margin was 45.0% in
2013 compared with 44.8% in 2012. Operating income before acquisition-related
costs and various adjustments increased to $554.1 million from $498.5 million in
2012. Our operating margin before acquisition-related costs and various adjustments
was 25.9% compared with 26.1% in 2012.

Under U.S. generally accepted accounting principles (“GAAP”), net income
attributable to Stericycle for 2013 increased 16.2%, to $311.4 million from $268.0
million, and diluted earnings per share increased 15.7%, to $3.56 from $3.08 per
diluted share. Our 2013 results included a net reduction in net income of $16.4
million, or $0.19 per diluted share, due to acquisition and integration expenses,
litigation settlement expenses, restructuring and plant closure costs, which were
partially offset by a change in fair value of contingent consideration. Our 2012
results included a net reduction in net income of $22.4 million, or $0.26 per diluted
share, due to acquisition and integration expenses, litigation settlement expenses,
loss on sale of business, and restructuring and plant closure costs, and change in
fair value of contingent consideration.

Excluding the impact of these items on our results in 2013 and 2012, our
non-GAAP net income attributable to Stericycle grew to $327.8 million in 2013,
a 12.9% increase over $290.4 million in 2012. Non-GAAP earnings per diluted
share,when adjusted for various items, increased 12.4% to $3.75 from $3.34 in 2012.

Accomplishments in 2013

In 2013 we continued to generate strong free cash flow from operations, which we
used to fund growth and improve our balance sheet. We invested $73.1 million in
capital expenditures to expand our capabilities, drive innovation, and better serve the
evolving needs of our customers. In addition, we used $161.9 million for domestic and
international acquisitions and $163.7 million for stock repurchases on the open market.

In the U.S.: We continued to strengthen Stericycle’s leadership position in regulated
waste management, healthcare safety compliance services, and communication
solutions. We increased the penetration of Steri•SafeSM, our compliance solutions
program, which allows healthcare providers throughout the U.S. to create a safe,
regulatory-compliant workplace. We expanded customer adoption of our Sharps
Management Service, which 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 added new hospital and small quantity customers
to our Pharmaceutical Waste Disposal Program helping them to dispose of
pharmaceuticals that are unused or identified as waste in a safe, compliant and
environmentally-responsible manner. We expanded our StrongPak service to more
retail customers providing them with a compliant disposal service for various types
of hazardous waste. We increased the penetration of our Communication Solutions
services to both hospitals and small customers supporting their efforts to promote
the health of their patients. In 2013 we completed 13 domestic acquisitions.

Internationally: We continued to establish and strengthen our position in multiple
international markets. We strengthened our capabilities in Argentina, Brazil, Canada,
Chile, Ireland, Japan, Mexico, Portugal, Romania, Spain, and the United Kingdom.
We continued to roll out our Clinical Services offering in select international markets.
Clinical Services is a unique suite of solutions that addresses various aspects of
managing a medical or dental practice, principal among which is regulated waste
services. Clinical Services has a modular architecture which enables us to continue to
market new products and services to both new and existing customers on an on-going
basis. We acquired 36 businesses internationally in 2013 including a company with
recall expertise and infrastructure in Europe.

Sustainability: Safeguarding the environment is a critical component of our
company’s purpose. Stericycle commits to capture new opportunities for
sustainable growth by managing our internal operations in a socially and
environmentally-responsible manner. Highlights of some of our sustainability
programs and their benefits to the environment include:

• In the U.S., the diversion of plastic containers from landfill through the use of
our Sharps Management Service equates to over 10 million gallons of gas not
burned and nearly 200 million pounds of CO2 not emitted into the atmosphere.
We continue to roll out this service in Canada, Ireland and the United Kingdom.

• Stericycle’s Pharmaceutical Waste Disposal Program helps keep unused drugs

out of the water system.

• We continue to add vehicle technology and equipment in our U.S. based

transportation fleet to improve safety and fuel efficiency.

• Our Sustainability Solutions service offers product re-use, recycling and
alternative use options, and has diverted over 8 million pounds of waste
from landfills in 2013 and over 38 million pounds in total.

• In Ireland, we have diverted 15.6 million pounds of landfill waste in 2013

and 48.7 million pounds in total by sending treated medical waste to cement
kilns as an alternative fuel source.

Priorities for 2014

By building on Stericycle’s industry leadership position in 2013, we are
confident that we have the operating platform that we need to drive future
growth and explore new opportunities to better serve our customers. Our
priorities for 2014 are as follows:

Domestic Growth: Our focus will be on providing our multiple service
offerings to both our small quantity (SQ) and large quantity (LQ) customer
base as well as expanding our services to new customers. Our marketing efforts
to SQ customers will concentrate on our Steri•SafeSM compliance services,
StrongPak regulated waste services for the retail industry, and Regulated Waste
Management Services. Our marketing focus for LQ customers will continue to
be on extending the momentum of our Regulated Waste Management Services,
including our Sharps Management Services, Pharmaceutical Waste Disposal
Program, StrongPak, and Regulated Recall and Returns Management Services.
We will continue to build on the Communications Solutions platform by
expanding this offering to our existing customer base (both SQ and LQ) while
concurrently focusing on new customer acquisitions.

International Growth: We will remain focused on integrating the acquisitions we
have completed and pursuing attractive international market opportunities directed
at providing value to our customers. We will continue to expand and penetrate the
international SQ customer market by leveraging our Clinical Services Program
to grow our revenues and margins. We will also focus on the expansion of the
Regulated Recall and Returns Management business in Europe.

Profit Growth: We remain committed to improving our operating performance.
We will seek to make further improvements to our collection route densities
through the use of routing technology and acquisitions; to reduce our long-haul
transportation costs; and to improve efficiency in our processing plants. Our
culture of continuous improvement is focused on streamlining how we serve
our customers and encourages the sharing of best practices and productivity
improvement ideas across our organization. We will continue to invest in the
latest Customer Experience tools to ensure that we serve our customers in a
timely and efficient manner.

Service Innovation and Environmental Sustainability Leadership:
During 2014, we will maintain our commitment to being a service leader of
solutions that meet our customers’ evolving needs and an environmental leader
through our service offerings and our internal operations. Our innovative
Steri•SafeSM Compliance Program continues to help our customers enjoy a safer,
more regulatory-compliant workplace in a cost-effective manner. The breadth
of our Regulated Recall and Returns Management Services helps our customers
protect their brands and reduce liability. Our Sharps Management Service
featuring reusable containers offers significant sustainability benefits by reducing
waste volume and conserving valuable natural resources. Our Pharmaceutical
Waste Disposal Program and StrongPak service help our customers ensure
proper disposal of unused drugs, chemicals and other hazardous wastes to
safeguard the environment. Our Communication Solutions offering helps our
customers more effectively and proactively communicate with their patients
thereby promoting health.

• • •

We are excited and confident about our future. We are committed to helping our
customers fulfill their promise through a variety of services that protect people
and brands, promote health, and safeguard the environment. We are a leader in
providing regulated waste management and compliance services through our
diverse offering of solutions. We will continue to improve the efficiency of our
operations, to enhance our customers’ experience while maintaining our strong
emphasis on safety and regulatory compliance, and to focus on the many growth
opportunities that our leadership position affords us. We thank you for your
continued support.

Charles A. Alutto
President and CEO

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

Charles A. Alutto

President and Chief Executive Officer

Mark C. Miller

Executive Chairman

Frank J.M. ten Brink

Chief Financial Officer/CAO

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

Mark C. Miller • Executive Chairman

Jack W. Schuler • Lead Director

Chairman – Nominating and

Governance Committee

Charles A. Alutto • President

and Chief Executive Officer

John Patience

Member – Nominating and

Governance Committee

Member – Audit Committee

Ernst & Young LLP

155 N. Wacker Drive

Chicago, Illinois 60606

O u t s i d e C o u n s e l

Johnson and Colmar

2201 Waukegan Road, Suite 260

Bannockburn, Illinois 60015

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

Wells Fargo Bank N.A.

Shareowner Services

1110 Centre Pointe Curve, Suite #101

Mendota Heights, MN 55120-4100

Richard T. Kogler

Chief Operating Officer

Michael J. Collins

President, Recall and Return Management Services

Jonathan T. Lord, M.D.

Chairman – Compensation

Committee

Member – Nominating

and Governance Committee

Thomas D. Brown

Member – Audit Committee

William K. Hall

Member – Audit Committee

Rodney F. Dammeyer

Chairman – Audit Committee

Member – Nominating

and Governance Committee

Ronald G. Spaeth

Member – Compensation

Committee

Mike S. Zafirovski

Member – Compensation

Committee

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

Wednesday, May 21, 2014 at the Hilton Garden Inn

Chicago O’Hare Airport

2930 South River Road, Des Plaines, IL 60018.

N a s d a q ® S y m b o l

SRCL

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

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

FORM 10-K

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

1934

For the fiscal year ended December 31, 2013
or

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT

OF 1934

For the transition period from to

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 Global Select 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

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

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
NO

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted
and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such
files). YES

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K 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.

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

Non-accelerated filer

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

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, 2013): $9,488,205,563.

On February 14, 2014, there were 85,158,773 shares of the Registrant’s Common Stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

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 2014 Annual Meeting of Stockholders to be held on May 21, 2014.

Stericycle, Inc.
2013 ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS

Page No.

PART I.

Item 1. Business

Item 1A. Risk Factors

Item 1B. Unresolved Staff Comments

Item 2. Properties

Item 3. Legal Proceedings

Item 4. Mine Safety Disclosures

PART II.

Item 5. Market Price for Registrant's Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities

Item 6. Selected Financial Data

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

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

Item 8. Financial Statements and Supplementary Data

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

Item 9A. Controls and Procedures

Item 9B. Other Information

PART III.

Item 10. Directors, Executive Officers and Corporate Governance

Item 11. Executive Compensation

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

Item 13. Certain Relationships and Related Transactions, and Director Independence

Item 14. Principal Accounting Fees and Services

PART IV.

Item 15. Exhibits and Financial Statement Schedules

Signatures

PART I

Item 1. Business

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

on a consolidated basis.

Overview

Services

The regulated solutions we provide include: medical waste disposal, our Steri-Safe® medical waste and
compliance program, our Clinical Services program, our Sharps Management Service featuring Bio Systems®
reusable sharps containers, pharmaceutical waste disposal, hazardous waste disposal, and medical safety
products. Our compliance solutions include: training, consulting, inbound/outbound communications, data
reporting, and other regulatory compliance services. In addition to our regulated and compliance solutions,
we offer regulated recall and returns management solutions which encompass a number of services for a
variety of businesses, but consist primarily of managing the recall, withdrawal, or return of expired or recalled
products and pharmaceuticals.

Customers

We serve approximately 566,000 customers worldwide, of which approximately 20,000 are large-
quantity generators, such as hospitals, blood banks and pharmaceutical manufacturers, and approximately
546,000 are small-quantity generators, such as outpatient clinics, medical and dental offices, long-term and
sub-acute care facilities, veterinary offices, municipalities and retail pharmacies.

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

and distributors, we offer:

• our regulated waste management services;
• our Bio Systems® reusable sharps disposal management services;
• our pharmaceutical waste services;
• our Integrated Waste Stream Solutions (IWSS) program;
•
a variety of products and services for infection control;
• our regulated recall and returns management services for expired or recalled products and

pharmaceuticals; and
a variety of communication services.

•

For small-quantity generators of regulated waste such as doctors’ offices, dentists, retailers or other

commercial businesses, we offer:

• our regulated waste management services;
• our Steri-Safe® OSHA, HIPAA compliance, and clinical services programs;
•

a variety of products and services for infection control;

• our regulated recall and returns management services for expired or recalled products and

pharmaceuticals; and
a variety of communication services.

•

We benefit from significant customer diversification. No one customer accounts for more than 1.2% of

our total revenues, and our top ten customers account for 6.3% 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, hazardous waste, and pharmaceutical waste.
Regulated 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; blood and blood products; hazardous waste; and regulated pharmaceutical waste, which
consists of expired or recalled pharmaceuticals.

We believe that in 2013 the size of the global market for the services we provide was approximately

$15.5 billion. 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 bloodborne pathogens and other
infectious agents. In addition, hospital institutions continue to outsource services which we can
provide.

• Environmental and Safety Regulation: We believe that many businesses that are not currently using
third party regulated waste management services are unaware either of the need for proper training
of employees or of the requirements of OSHA and other regulations regarding the handling of regulated
waste. These businesses include manufacturing facilities, schools, restaurants, hotels and other
businesses where employees may come into contact with bloodborne pathogens or handle hazardous
materials. Similarly, the proper handling of expired or recalled products requires an expertise that
many businesses 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. We work with businesses
across a number of industries such as healthcare, manufacturing, and retail to safely and efficiently
dispose of regulated materials, ensure regulatory compliance, improve employee and customer safety,
protect their brands, improve communications with patients, and manage corporate and personal risk.
• Established Network of Processing and Transportation Locations in Each Country: We believe

that our network of locations results in a very efficient operation.

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

• Strong Sales Network and Proprietary Database: We use both telemarketing and direct sales efforts
to obtain new customers for our regulated waste and other services. 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 five most senior
executives collectively have over 135 years of management experience in the health care and waste
management industries.

• Ability to Integrate Acquisitions: Since 1993 we have completed 348 acquisitions in the United States
and internationally 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 we offer our existing customers. For
example, to small-quantity customers, we also offer OSHA compliance services through our Steri-
Safe® program and communication solutions; to large-quantity customers, we also offer our Sharps
Management Services using Bio Systems® reusable containers, our pharmaceutical waste disposal
services and communication solutions.
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.

•

• Seek Complementary Acquisitions: We intend to continue to seek opportunities to acquire businesses
that expand our networks and service capabilities in the United States and internationally that will
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
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 have completed 348 acquisitions from 1993 through 2013, with 194 in the United States and 154
internationally. During 2013, we completed 49 acquisitions, of which 13 were domestic businesses and 36
were international businesses in Latin America, Europe, Canada, and Japan.

International

We conduct regulated waste operations in Argentina, Brazil, Canada, Chile, Ireland, Japan, Mexico,
Portugal, Romania, Spain, and the United Kingdom. We began our operations in Canada and Mexico in 1998,
Argentina in 1999, the United Kingdom in 2004, Ireland in 2006, Chile in 2008, Romania and Portugal in
2009, Brazil and Japan in 2010, and Spain in 2011. Our international service offerings are primarily regulated
waste services. We also have started an international presence for our returns and quality audit program.
While our international customers are primarily large quantity generators, we are expanding our small quantity

customer base through programs similar to our Steri-Safe program such as Stericycle Clinical Services in
Canada and select countries in Europe.

Regulated Waste 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-resistant 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 complies with
our acceptance protocols and is properly packaged in containers that we have either supplied or approved.

We collect containers or corrugated boxes of regulated waste from our customers 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 thereby increasing utilization of the facility by
increasing the volume of waste that it processes.

We collect some expired or recalled products, but more typically, customers 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 or processing technologies.
Upon completion of the particular process, the resulting waste or incinerator ash is transported for resource
recovery, recycling or disposal in a landfill owned by unaffiliated third parties. 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. Some of our regulated waste streams are sent to third parties for processing and ultimate
disposal.

Upon receipt at a processing facility, expired or recalled products are counted and logged, and controlled
substances are stored securely. In accordance with the manufacturer’s instructions, expired or recalled
products 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.

Processing Technologies

We currently use both non-incineration technologies (autoclaving, our proprietary ETD technology, and

chemical treatment) 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 medical waste. From our beginning, we have encouraged the use of

non-incineration treatment technologies such as autoclaving and our ETD process. While we recognize that
some state regulations currently 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. In this case, 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 and non-
hazardous pharmaceutical waste. 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.

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 when small-quantity regulated waste customers understand the potential risks of
failing to comply with applicable regulations, they appreciate the value of the services that we provide. We
consider this factor to be the basis for the 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 hazardous and expired products for smaller customers.

Steri-Safe® and Communication Solutions: Our domestic 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 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. 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 diversified product and service offerings. In 2010 and 2011, we introduced a similar
program called Clinical Services in Canada, Ireland, Portugal, Spain, and the United Kingdom. We offer a
variety of services to healthcare providers designed to enhance office productivity and efficiency, and to
improve communications with patients. We also serve hospitals and larger facilities. We believe that our
communication solutions afford us an additional opportunity to leverage our existing small-quantity customer
base.

Mail-Back Program: We also operate a domestic “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. Our mail-back program is also used in home care patient settings.

Large-Quantity Customers: Our marketing efforts to large-quantity customers are conducted by account
executives, service specialists and healthcare compliance specialists focused on serving as a trusted advisor
to our customers. In this role, our field resources provide advice, training, and consultative services to assist
our large-quantity customers reach their objectives of staying in compliance with local, state, and federal
regulations, reducing their impact on the environment, and maintaining a safe work environment for their
staff and patients.

We offer individual waste stream services, including regulated waste management services, such as
medical waste, pharma waste, hazardous waste, and Sharps Management Service featuring our Bio Systems®
reusable containers. Additionally, we have the ability to manage the full spectrum of waste streams generated
by a facility with our Integrated Waste Stream Solutions service. Many of Stericycle’s services for large-
quantity customers deliver fully integrated, turnkey solutions which include program design, clinical staff
education, implementation support, onsite service personnel, and the necessary service equipment to support
each program.

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

Contracts: We have multi-year contracts with the majority of our customers. We negotiate individual
contracts with each customer. Although we have several standard forms of contract, 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.

Competition

The industries and markets in which we operate are highly competitive, and barriers to entry into the
regulated waste collection and disposal business, the pharmaceutical returns business, and the communication
solutions business are very low. Our competitors consist of many different types of service providers,
including a large number of national, 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. Similarly, customers could handle recalls or communication solutions internally.

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 regulations. In many countries there are multiple
regulatory agencies at the local and national level that affect our services. This statutory and regulatory
framework imposes a variety of compliance requirements, including requirements to obtain and maintain
government permits. We maintain numerous governmental permits, registrations, and licenses to conduct
our business in the jurisdictions in which we operate. Our permits vary by jurisdiction based upon our activities
within that jurisdiction and on the applicable laws and regulations of that jurisdiction. 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. In addition, we are subject to
extensive regulations to ensure public and employee health and safety.

U.S. Federal and Foreign Regulation: We are subject to substantial and dynamic regulations enacted
and enforced by the U.S. government and by the governments of the foreign jurisdictions in which we conduct
regulated waste operations. The specific statutory and regulatory requirements we must comply with vary
from jurisdiction to jurisdiction. The laws governing our domestic and international operations generally
consist of statutes, legislation and regulations concerning environmental protection, employee health and
welfare, transportation, the use of the mail, and proper handling and management of regulated waste streams
and controlled substances.

Environmental Protection: Our business is subject to extensive and evolving environmental regulations
in all of the geographies in which we operate. Generally, the environmental laws we are subject to regulate
the handling, transporting, and disposing of hazardous and non-hazardous waste, the release or threatened
release of hazardous substances into the environment, the discharge of pollutants into streams, rivers,
groundwater and other surface waters, and the emission of pollutants into the air. The principal environmental
laws that govern our operations in the U.S. are state environmental regulatory agencies as they provide the
specific legislative and or regulatory frameworks which require the management and treatment of regulated
medical waste. Additionally, the Resource Conservation and Recovery Act of 1976 (“RCRA”), the
Comprehensive Environmental Response, Compensation and Liability Act of 1980 (“CERCLA”), and the
Clean Air Act of 1970 are the federal regulations that affect management of certain aspects of regulated
medical waste and all RCRA hazardous wastes. Though regulated medical waste is currently considered non-
hazardous solid waste under RCRA, some substances we collect from some of our customers, including
pharmaceuticals, retail products, photographic fixer developer solutions, lead foils and dental amalgam, are
considered hazardous waste. CERCLA and state laws similar to it may impose strict, joint and several
liabilities on the current and former owners and operators of facilities from which release of hazardous
substances has occurred and on the generators and transporters of the hazardous substances that come to be
located at these facilities. The eight incinerators at six facilities we currently operate in the U.S. must comply
with the emissions standards imposed by the applicable states pursuant to regulations promulgated under the
Clean Air Act.

Examples of environmental laws applicable to our international operations include the Waste Framework
Directive, Environmental Liabilities Directive, IPPC (Integrated Pollution Prevention and Control) Directive,
and Waste Incineration Directive in the European Union (“EU”), the Waste Management Act in Ireland, Ley
154 (Residuos Patogenicos) in Argentina, Lei 12.305/2010 (Lei Ordinária) Institui A Política Nacional De
Resíduos Sólidos in Brazil, and the Canadian Environmental Protection Act and related regulations in Canada.

Employee Health and Welfare: We are also subject to numerous regulations promulgated to protect
and promote worker health and welfare through the implementation and enforcement of standards designed
to prevent illness, injury and death in the workplace. The primary law relating to employee health and welfare
applicable to our business in the U.S. is the Occupational Safety and Health Act of 1970, which establishes
specific employer responsibilities including engineering controls, administrative controls, training, policies
and programs complying with the regulations and ultimately recordkeeping and reporting, all in an effort to
ensure a safe workplace. Various OSHA standards apply to almost all aspects of our operations and govern
such matters as exposure to bloodborne pathogens, hazard communication, personal protective equipment,
etc.

Employee health and welfare laws governing our business in foreign jurisdictions include examples
such as the Workplace Health and Safety Directive and the Directive concerning ionizing radiation in the
EU, and various provisions of the Canada Labour Code and related regulations in Canada.

Transportation: Various laws regulating the transportation of waste and other potentially dangerous
materials also apply to the services we provide. In the U.S., the Department of Transportation (“DOT”) has
promulgated regulations which deal with two different aspects of transportation: hazardous materials transport
and safety in transportation. The Pipeline Hazardous Materials Safety Administration (“PHMSA”) requires
specific packaging and labeling of regulated hazardous materials and wastes to ensure public safety. For
regulated medical waste PHMSA incorporates the OSHA bloodborne pathogens standard and requires
containers that meet certain specifications including but not limited to: proper markings (biohazard symbol,
UN code, etc.), sufficient strength and rigidity, leakproofness and puncture resistance. Other hazardous
materials such as expired pharmaceuticals, waste chemicals, damaged retail products which are hazardous
wastes are also subject to DOT PHMSA regulations. We identify pharmaceutical products by their National
Drug Code number and classify them by according to the EPA classification criteria and identify the proper
handling, transportation and disposal requirements. Federal Motor Carrier Safety Administration (“FMCSA”)
regulates safety of drivers and vehicles which requires us to ensure driver and vehicle fitness through training,
medical surveillance and inspection. These requirements are closely monitored internally and due to our fleet
size we are regularly subject to road side inspections. These inspections have an accumulative effect on our
compliance history and require that we maintain in good standing so not to risk permits.

Examples of transportation laws we must comply with internationally include the Directive on the Inland
Transportation of Dangerous Goods in the EU and the Transport of Dangerous Goods Act and related
regulations in Canada.

Use of the Mail: United States Postal Service (“USPS”) has their own set of specific regulations under
the Domestic Mail Manual which govern the use of the postal system for mailing of hazardous materials (of
which regulated medical waste is a part). More specifically, our sharps and medical waste mailback
management offering, require us to obtain and maintain authorization permits from the USPS. We have
obtained permits from the USPS to conduct our “mail-back” program, to provide a convenient service for
customers who need such a service with approved containers for “sharps” (needles, knives, broken glass and
the like) or other regulated medical wastes directly to our treatment facilities.

Controlled Substances: In the U.S., our regulated recall and returns management services business is
subject to laws and regulations under the Drug Enforcement Administration (“DEA”) regulating the closed
loop management of controlled substances. Our returns service for expired and recalled pharmaceuticals
accepts controlled substances as part of their service offering and is therefore subject to DEA regulations.
These regulations require facilities to obtain a registration from the DEA and meet certain criteria in order
to be able to collect, process and dispose of controlled substances. DEA has very strict requirements for
management of employees, the type of security within facilities, recordkeeping and reporting of all controlled
substances managed at the facility. Much like permitting, the registration must be updated regularly and
subjects us to inspection and enforcement by DEA agents.

U.S. and Foreign Local Regulation: We conduct business in all 50 states and Puerto Rico. Because
the federal EPA did not promulgate regulations for regulated medical waste at a national level, each state has
its own regulations related to the handling, treatment and storage of regulated waste. Many states have
followed similar requirements to the Medical Waste Tracking Act of 1988 or have placed medical waste
regulations under solid waste regulations. In each state where we operate a processing facility or a transfer
station, we are required to comply with varying state and local laws and regulations which may also require
a specific operating plan. In addition, many local governments have ordinances and regulations, such as
zoning or wastewater regulations that affect our operations. Similarly, our international operations are subject
8

to regulations enacted and enforced at the provincial, municipal, and local levels of government in addition
to the national regulations with which we must comply.

Patents and Proprietary Rights

We hold 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. The
last of our current United States patents relating to our ETD treatment process expires in January 2019.

We own federal registrations for a number of trademarks/servicemarks including Stericycle®, Steri-
Safe®, Steri-Fuel®, Steri-Plastic®, Steri-Tub®, Direct Return®, Stericycle ExpertRECALL®, Sustainable
Solutions®, and a service mark consisting of a nine-circle design used in our company logo.

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 $55 million of liability insurance (including umbrella coverage), and under a separate policy,
$10 million of aggregate pollution and legal liability insurance ($10 million per incident). We consider this
insurance sufficient to meet regulatory and customer requirements and to protect our employees, assets and
operations.

Employees

As of December 31, 2013, we had 14,092 full-time and 832 part-time employees, of which 8,376 were
employed in the United States and 6,548 internationally. A total of 15 collective bargaining agreements with
local unions of the International Brotherhood of Teamsters cover approximately 424 of our U.S. drivers,
transportation helpers and plant workers. These agreements expire at various dates through June 2016. We
also have approximately 1,765 employees in Latin America, 110 employees in Canada, and 65 employees
in Europe under collective bargaining agreements. We consider our employee relations to be satisfactory.

Executive Officers of the Registrant

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

Name
Mark C. Miller
Charles A. Alutto
Richard T. Kogler
Frank J.M. ten Brink
Michael J. Collins

Position
Executive Chairman
President and Chief Executive Officer
Executive Vice President and Chief Operating Officer
Executive Vice President and Chief Financial Officer
Executive Vice President and President, Recall and Returns
Management Services

Age
58
48
54
57
57

Mark C. Miller has served as our Executive Chairman since January 2013 and director as of May 1992.
He became our Chief Executive Officer in May 1992 and Chairman of the Board of Directors in August

2008. From May 1989 until joining us, Mr. Miller served as vice president for the Pacific, Asia and Africa
in the international division of Abbott Laboratories, a diversified health care company, which he joined in
1976 and where he held a number of management and marketing positions. Mr. Miller serves as a director
of Accelerate Diagnostics, Inc., a developer of automated diagnostics systems, and formerly served as a
director of Ventana Medical Systems, Inc., a developer and supplier of automated diagnostic systems. He
received a B.S. degree in computer science from Purdue University, where he graduated Phi Beta Kappa.
Mr. Miller was selected by Morningstar, Inc. as its “2009 CEO of the Year.”.

Charlie Alutto has served as President and Chief Executive Officer since January 2013 and as a Director
since November 2012. He joined us in May 1997 following our acquisition of the company where he was
then employed. He became an executive officer in February 2011 and served as President, Stericycle USA.
He previously held various management positions with us, including vice president and managing director
of SRCL Europe and corporate vice president of our large quantity generator business unit. Mr. Alutto received
a B.S. degree in finance from Providence College and a M.B.A. degree in finance from St. John’s University.

Richard T. Kogler has served as Executive Vice President, Chief Operating Officer since January 1999.
From 1995 until he joined the Company, Mr. Kogler served as Chief Operating Officer for American Disposal.
Prior to his position at American Disposal, he spent 11 years with Waste Management where he held a number
of management positions prior to being promoted to Vice President of Operations. Mr. Kogler received a
B.A. degree in Chemistry from St. Louis University.

Frank J.M. ten Brink has served as Executive Vice President, Chief Financial Officer and Chief
Administrative Officer since joining the Company in June 1997. He has over 17 years of finance experience
in high growth environments, mergers and acquisitions. Prior to joining Stericycle, he was Senior Vice
President and Chief Financial Officer with Telular Corporation. Between 1991 and 1995, he was Vice
President and Chief Financial Officer of Hexacomb Corporation. He serves as a director of Accelerate
Diagnostics, Inc., a developer of automated diagnostics systems. Mr. ten Brink studied International Business
at the Netherlands School of Business and received an M.B.A. degree in Finance from the University of
Oregon.

Michael J. Collins has served as President, Recall and Returns Management Services since June 2006.
He was most recently Vice President, Medical Products Group of Abbott Laboratories. He joined Abbott in
1982 as a sales representative and later served in various management positions, including Divisional Vice
President, U.S. Sales; Divisional Vice President, U.S. Marketing, Divisional Vice President and General
Manager, MediSense and Corporate Vice President Abbott Diagnostics Divisions. Mr. Collins was a
commissioned officer for the U.S. Marine Corps. He earned a bachelor’s degree from the University of New
Haven and a master’s degree in business administration from National University, San Diego.

Website Access

We maintain an Internet website, www.stericycle.com, providing a variety of information about us and
the services we provide. Our annual reports on Form 10-K, quarterly reports on Form 10-Q and current
reports on Form 8-K that we file with the Securities and Exchange Commission are available, as soon as
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.

The regulated waste management industry is subject 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 in which we
operate. We believe that we currently comply in all material respects with all applicable permitting
requirements. State and local regulations change often, 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 and/or profitability.

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 strict enforcement of laws and regulations relating to regulated waste collection and
treatment by governmental authorities 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 we face or reduce the need for our services.

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

Historically, our growth strategy has been based in part on our ability to acquire regulated waste and

other 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 regulated waste companies and other
businesses. 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 incremental benefits that we have
obtained in the past.

The implementation of our acquisition strategy could be affected in certain instances by the concerns of
federal and 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 federal or 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
11

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 federal or 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, in the United States, Waste Management, Inc., a major solid waste company is offering regulated
waste management services to hospitals and other large and small 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 processing or transfer facility at a particular
location.

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.

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 and the note purchase agreements for our private placement notes
contain 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.

They also contain 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.

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

We plan to continue to grow both domestically and internationally. We have established operations in
the United States, Argentina, Brazil, Canada, Chile, Ireland, Japan, Mexico, Portugal, Romania, Spain, and
the United Kingdom. Foreign operations carry special risks. Although our business in foreign countries has

not yet been materially 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;

import and export license requirements;

•
• government controls;
•
• political or economic instability;
•
•
• our unfamiliarity with local laws, regulations, practices and customs;
•

trade restrictions;
changes in tariffs and taxes;

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

• 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 or
on terms 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 our various acquisitions, our balance sheet at December 31, 2013 contains goodwill of
$2.2 billion and other intangible assets, net of accumulated amortization of $720.0 million (including
indefinite lived intangibles of $121.9 million). In accordance with Accounting Standards Codification Topic
350 “Intangibles - Goodwill and Other”, 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 charges for 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 impairment charge occurs.

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 ("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.

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
61 processing facilities, the majority of which use autoclave waste processing technology. All of our
processing facilities also serve as collection sites. We own or lease 97 additional transfer sites, 10 additional
sales/administrative sites, and 52 other service facilities. Internationally, we own or lease 105 processing
facilities, the majority of which use autoclave waste processing technology. We also own or lease 58 additional
transfer sites, 34 additional sales/administrative sites, 18 other service facilities, and we lease two landfills.
We believe that these processing and other facilities are adequate for our present and anticipated future needs.

Item 3. Legal Proceedings

See Note 17 - Legal Proceedings, in the Notes to the Consolidated Financial Statements (Item 8 of Part

II).

Item 4. Mine Safety Disclosures

Not Applicable.

PART II

Item 5. Market Price for the Registrant’s Common Equity, Related Stockholder Matters, and Issuer
Purchases of Equity Securities

As of February 14, 2014, we had 113 stockholders of record. The Company’s stock trades on the

NASDAQ Global Select Market under the ticker symbol SRCL.

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 2013
Second quarter 2013
Third quarter 2013
Fourth quarter 2013

First quarter 2012
Second quarter 2012
Third quarter 2012
Fourth quarter 2012

High

Low

106.18
113.01
118.72
120.97

89.27
91.67
94.52
95.76

93.91
104.13
110.87
113.69

76.72
81.37
89.06
89.06

We did not pay any cash dividends during 2013 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 of Part II,
“Management’s Discussion and Analysis of Financial Condition and Results of Operations”.

Under resolutions that our Board of Directors adopted, we have been authorized to purchase a cumulative
total of 20,537,398 shares of our common stock on the open market. As of December 31, 2013, we had
purchased a cumulative total of 18,209,920 shares.

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

the year ended December 31, 2013:

Period
January 1 – January 31, 2013
February 1 – February 28, 2013
March 1 – March 31, 2013
April 1 – April 30, 2013
May 1 – May 31, 2013
June 1 – June 30, 2013
July 1 – July 31, 2013
August 1 – August 31, 2013
September 1 – September 30, 2013
October 1 – October 31, 2013
November 1 – November 30, 2013
December 1 – December 31, 2013
Total

Issuer Purchases of Equity Securities

Total Number of
Shares (or
Units)
Purchased

Average Price
Paid per Share
(or Unit)

Number of Shares
or Units)
Purchased as Part
of Publicly
Announced Plans
or Programs

Maximum Number (or
Approximate Dollar
Value) of Shares (or
Units) that May Yet Be
Purchased Under the
Plans or Programs

—
95.70
—
107.53
109.55
109.44
115.97
114.83
112.86
116.39
115.47
114.85
112.05

— $

74,820
—
84,130
307,038
149,222
166,247
161,517
93,296
220,000
80,832
123,897
1,460,999

—
74,820
—
84,130
307,038
149,222
166,247
161,517
93,296
220,000
80,832
123,897
1,460,999

3,788,477
3,713,657
3,713,657
3,629,527
3,322,489
3,173,267
3,007,020
2,845,503
2,752,207
2,532,207
2,451,375
2,327,478
2,327,478

Equity Compensation Plans

The following table summarizes information as of December 31, 2013 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

Number of
Securities to be
Issued Upon
Exercise of
Outstanding
Options
(a)

Weighted-
Average Exercise
Price of
Outstanding
Options
(b)

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

5,563,029

135,117

71.44

30.24

2,678,318

—

Plan Category
Equity compensation plans approved by our security holders
(1)

Equity compensation plans not approved by our security
holders (2)

(1) These plans consist of our 2011 Incentive Compensation Plan, 2008 Incentive Stock Plan, 2005
Incentive Stock Plan, 1997 Stock Option Plan, 1996 Directors Stock Option 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 6 - Stock Based Compensation, in the Notes to the
Consolidated Financial Statements (Item 8 of Part II) for a description of this plan.

Performance Graph

The following graph compares the cumulative total return (i.e., share price appreciation plus dividends)
on our common stock over the five-year period ending December 31, 2013 with the cumulative total return
for the same period on the NASDAQ National Market Composite Index, the S&P 500 Index, the Russell
3000 Index, and the Dow Jones US Waste & Disposal index. The graph assumes that $100 was invested on
December 31, 2008 in our common stock and in the shares represented by each of the four indices, 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.

Item 6. Selected Financial Data

In thousands, except per share data

Statement of Income Data
Revenues
Income from operations
Net income attributable to Stericycle, Inc.

Earnings per share—Diluted
Depreciation and amortization
Statements of Cash Flow Data
Net cash flow provided by/(used for):

2013

(1)

Years Ended December 31,
2011

2010

2012

2009

$ 2,142,807
535,619

(2)
(2) $

311,372
3.56
88,408

$ 1,913,149
468,836
267,996
3.08
76,283

$ 1,676,048
424,311
234,751
2.69
66,046

$ 1,439,388
370,683
207,879
2.39
53,885

$ 1,177,736
315,189
175,691
2.03
39,990

Operating activities
Investing activities
Financing activities

403,467
(234,972)
(136,019)

387,448
(288,928)
(91,526)

306,104
(504,197)
137,872

325,670
(245,482)
(13,565)

277,246
(350,189)
81,772

(1)

Balance Sheet Data
Cash, cash equivalents and short-term
investments

Total assets
Long-term debt, net of current portion
Stericycle, Inc. equity

62,404
3,882,797
1,280,663
$ 1,750,461

31,827
3,546,738
1,268,303
$ 1,541,793

22,927
3,177,090
1,284,113
$ 1,198,166

95,524
2,639,023
1,014,222
$ 1,048,425

16,898
2,182,803
910,825
845,695

(1) See Note 3 - Acquisitions and Divestitures, in the Notes to the Consolidated Financial Statements
(Item 8 of Part II) for information concerning our acquisitions during the three years ended
December 31, 2013, 2012 and 2011.

•

(2) See Note 8 - Earnings per Common Share, in the Notes to the Consolidated Financial Statements (Item
8 of Part II) for information concerning the computation of earnings per diluted common share.
In 2013, net income includes the following after-tax effects: $10.2 million of expenses related to
acquisitions, $4.3 million of expenses related to the integration of our acquisitions, $1.8 million of
restructuring and plant closure costs, $1.4 million of expense related to litigation settlement expense,
$1.0 million of expense related to the write-down of intangible assets, and a $2.3 million gain related
to the change in fair value of contingent consideration. The net effect of these adjustments negatively
impacted diluted earnings per share (“EPS”) by $0.19.
In 2012, net income includes the following after-tax effects: $7.8 million of expenses related to
acquisitions, $3.1 million of expenses related to the integration of our acquisitions, $3.3 million of
restructuring and plant closure costs, $3.7 million related to litigation settlement expense, $3.7 million
loss related to the U.K. divestiture, and $0.8 million loss related to the change in fair value of contingent
consideration. The net effect of these adjustments negatively impacted diluted EPS by $0.26.
In 2011, net income includes the following after-tax effects: $15.6 million of expenses related to
acquisitions, $3.2 million of restructuring and plant closure costs, $0.7 million related to litigation
settlement expense, $0.8 million related to accelerated interest expense due to early term loan
repayment, $1.3 million benefit due to a net release of prior years’ tax reserves, and $4.7 million gain
related to the change in fair value of contingent consideration. The net effect of these adjustments
negatively impacted diluted EPS by $0.16.
In 2010, net income includes the following after-tax effects: $8.9 million of expenses related to
acquisitions, $5.2 million of restructuring and plant closure costs, litigation settlement expense of
$0.5 million, $1.8 million gain in sale of assets related to the MedServe divestiture, and $1.2 million
benefit due to a release of prior years’ tax reserve. The net effect of these adjustments negatively
impacted diluted EPS by $0.13.

•

In 2009, net income includes the following after-tax effects: $6.8 million of acquisition expenses,
$1.0 million of restructuring costs, and $1.8 million benefit due to a release of prior years’ tax reserve.
The net effect of these adjustments negatively impacted diluted EPS by $0.06.

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 providing regulated and compliance solutions to healthcare and commercial
businesses. This includes the collection and processing of specialized waste for disposal, and a variety of
training, consulting, recall/return, communication, and compliance services. We operate in the United States,
Argentina, Brazil, Canada, Chile, Ireland, Japan, Mexico, Portugal, Romania, Spain, and the United Kingdom.
The regulated solutions we provide include: medical waste disposal, our Steri-Safe® medical waste and
compliance program, our Clinical Services program, our Sharps Management Service featuring Bio Systems®
reusable sharps containers, pharmaceutical waste disposal, hazardous waste disposal, and medical safety
products. Our compliance solutions are training, consulting, inbound/outbound communications, data
reporting and other regulatory compliance services. In addition to our regulated and compliance solutions,
we offer regulated recall and returns management solutions which encompass a number of services for a
variety of businesses, but consist primarily of managing the recall, withdrawal, or return of expired or recalled
products and pharmaceuticals.

We operate integrated national regulated waste management networks both domestically and
internationally. Our worldwide networks include a total of 166 processing facilities, 155 transfer sites, and
70 other services facilities. Our regulated waste processing technologies include autoclaving, our proprietary
ETD, chemical treatment, and incineration. We serve approximately 566,000 customers worldwide, of which
approximately 20,000 are large-quantity generators, and approximately 546,000 are small-quantity
generators.

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 - Summary of Significant Accounting Policies, in the Notes to the Consolidated Financial
Statements, Item 8 of Part II), the following ones may involve a higher degree of judgment on our part and
greater complexity of reporting:

Revenue Recognition: Revenues for our regulated waste management services, other than our Steri-
Safe service, are recognized at the time of waste collection. Our Steri-Safe revenues are recognized evenly
over the contractual service period. Payments received in advance are deferred and recognized as services
are provided. Revenues from regulated recall and returns management services and communication solutions
are recorded at the time services are performed. Revenues from product sales are recognized at the time the
goods are shipped to the customer. Charges related to international value added tax (“VAT”) and other similar
pass through taxes are not included as revenue.

Acquisition Accounting: Acquisition accounting requires us to recognize assets and liabilities at their
fair value. The process of determining fair value requires time to complete therefore we will make some

estimates at the time of acquisition. These estimates are primarily for amortizable intangibles, and if
appropriate, an associated deferred tax liability. These estimates are based on historical experience and allows
us to recognize amortization expense until the final valuation is complete.

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 (see Note 11 - Goodwill and Other Intangible Assets, in
the Notes to the Consolidated Financial Statements, Item 8 of Part II for additional information).

Our balance sheet at December 31, 2013, contains goodwill of $2.2 billion. In accordance with applicable
accounting standards, 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 charges of the impaired portion of goodwill that could have a material adverse
effect on our results of operations in the period in which the impairment charge occurs.

During the quarter ended June 30, 2013, we performed our annual goodwill impairment evaluation for
our three reporting units, Domestic Regulated and Compliance Services, Domestic Regulated Recall and
Returns Management Services, and International Regulated and Compliance Services. We calculate the fair
value of our reporting units using an income method and validate those results using a market approach.
Both the income and market approaches indicated no impairment to goodwill to any of our three reporting
units.

Income Approach: The income approach uses expected future cash flows of each reporting unit and
discounts those cash flows to a present value. Expected future cash flows are calculated using management
assumptions of organic growth, capital expenditures, and cost efficiencies. Future acquisitions are not
included in the expected future cash flows. We use a discount rate based on our Company calculated Weighted
Average Cost of Capital which is adjusted for each of our reporting units based on risk size premium and
foreign country premium. Significant assumptions used in the income approach include realization of future
cash flows and the discount rate used to present value those cash flows.

The results of our goodwill impairment test using the income approach indicated the fair value of our

reporting units exceeded book value by a substantial amount; in excess of 100%.

Market Approach: Our market approach begins by calculating the market capitalization of the Company
using the average stock price for the prior 30 days and the outstanding share count at June 30, 2013. We then
look at the Company’s Earnings Before Interest, Tax, Depreciation, and Amortization (“EBITDA”), adjusted
for stock compensation expense and other items, such as a gain or loss on the sale of divested assets, for the
prior twelve months. The calculated market capitalization is divided by the modified EBITDA to arrive at a
valuation multiple. The fair value of each reporting unit is then calculated by taking the product of the
valuation multiple and the trailing twelve month modified EBITDA of that reporting unit. The fair value was
then compared to the reporting units’ book value and determined to be in excess of the book value. We believe
that starting with the fair value of the Company as a whole is a reasonable measure as that fair value is then
allocated to each reporting unit based on that reporting unit’s individual earnings. A sustained drop in our
stock price would have a negative impact to our fair value calculations. A temporary drop in earnings of a
reporting unit would have a negative impact to our fair value calculations.

The results of our goodwill impairment test using the market approach indicated the fair value of our

reporting units exceeded book value by a substantial amount; in excess of 100% of book value.

Our permits are tested for impairment annually at December 31, or more frequently, if circumstances
indicate that they may be impaired. We use either a discounted income or cost savings model as the current
measurement of the fair value of the permits. The fair value is based upon, among other things, certain

assumptions about expected future operating performance, internal and external processing costs, 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.

In 2013, we wrote off $2.9 million for the permit intangibles of four facilities due to rationalizing our
operations. Under current acquisition accounting, a fair value must be assigned to all acquired assets based
on a theoretical “market participant” regardless of our intended use for those assets. This accounting treatment
can lead to the recognition of losses if we dispose or close such acquired assets.

Other identifiable intangible assets, such as customer relationships, covenants not-to-compete,
tradenames, and license agreements, are currently amortized using the straight-line method over their
estimated useful lives. We have determined that our customer relationships have between 14-year and 40-
year lives based on the specific type of relationship. Although the contracted regulated waste services business
is highly competitive, we have been able to maintain high customer retention through excellent customer
service.

The valuation of our contractual customer relationships was derived using a discounted income approach
valuation model. These assets are reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may be more than its undiscounted estimated future cash flows.
In 2013, we wrote off $0.4 million of customer relationships due to impairment (see Note 11 - Goodwill and
Other Intangible Assets, in the Notes to the Consolidated Financial Statements, Item 8 of Part II).

Share Repurchases: The purchase price over par value for share repurchases is allocated to retained

earnings.

Income Taxes: We are subject to income taxes in both the U.S. and numerous foreign jurisdictions. We
compute our provision for income taxes using the asset and liability method, under which deferred tax assets
and liabilities are recognized for the expected future tax consequences of temporary differences between the
financial reporting and tax basis of assets and liabilities and for operating loss and tax credit carry-forwards.
Deferred tax assets and liabilities are measured using the currently enacted tax rates that are expected to
apply to taxable income for the years in which those tax assets and liabilities are expected to be realized or
settled. Significant judgments are required in order to determine the realizability of these deferred tax assets.
In assessing the need for a valuation allowance, we evaluate all significant available positive and negative
evidence, including historical operating results, estimates of future taxable income and the existence of
prudent and feasible tax planning strategies. Changes in the expectations regarding the realization of deferred
tax assets could materially impact income tax expense in future periods. Undistributed earnings of foreign
subsidiaries are considered permanently reinvested, and therefore no deferred taxes are recorded thereon. To
provide for uncertain tax positions, we maintain a reserve for tax benefits assumed that do not meet a threshold
of “more likely than not” to be sustained. Management believes the amount provided for uncertain tax
positions is adequate.

Accounts Receivable: Accounts receivable consists of amounts due to us from our normal business
activities and are carried at their estimated collectible amounts. Our accounts receivable balance includes
amounts related to VAT and similar international pass-through taxes. 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. No single customer accounts for more than approximately 2% of our accounts receivable.

Insurance: Our insurance for workers’ compensation, vehicle liability and physical damage, and
employee-related health care benefits is obtained using high deductible insurance policies. 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 workers’ 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 are 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. 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 of our stock,
expected term of the award, and the risk-free rate. Our stock’s expected volatility and expected term of the
awards are based upon historical experience. 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 - Summary of Significant Accounting Policies, in the Notes to the Consolidated Financial
Statements, Item 8 of Part II.

Fair Value Considerations: 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, the fair value measurement of
a liability must reflect the nonperformance risk of an entity.

At December 31, 2013, we had $62.0 million in cash and cash equivalents and $0.4 million of short-
term investments that we recorded at fair value using Level 1 inputs and $12.5 million of contingent
consideration related to acquisitions that we recorded at fair value using Level 3 inputs.

At December 31, 2013, we had no derivative instruments.

Year Ended December 31, 2013 Compared to Year Ended December 31, 2012

Highlights for the year ended December 31, 2013 included the following:

revenues grew to $2.14 billion, a 12.0% increase over $1.91 billion in 2012;

•
• gross margins increased to 45.0% in 2013 from 44.8% in 2012;
• operating income was $535.6 million, a 14.2% increase from $468.8 million for 2012;
• we incurred $20.6 million in pre-tax expenses related to acquisitions, integration expenses related to
acquisitions, litigation settlement, restructuring and plant closure costs, impairment of intangible
assets, partially offset by the gain on changes in the fair value of contingent consideration;
cash flow from operations was $403.5 million.

•

In analyzing our Company’s performance, it is necessary to understand that our various regulated
services share a common infrastructure and customer base. We market our regulated and compliance services
by offering various pricing options to meet our customers’ preferences, and customers move between these
different billing paradigms. For example, our customers may contract with us for “Medical Waste Disposal”
services that are billed based on the weight of waste collected, processed and disposed during a particular
period, and in a subsequent period, the same customer could move to our standard service “Steri-Safe OSHA
Compliance Program”, which packages the same regulated medical waste services with some training and
education services for a contracted subscription fee. Another example is a customer that purchases our
“Medical Waste Disposal” and “Sharps Disposal Management” services which provides the customer with
the same regulated services under a different pricing and billing arrangement. We do not track the movement
of customers between the various types of regulated services we offer. Although we can identify directional
trends in our services, because the regulated services are similar in nature and there are inherent inaccuracies
in disaggregation, we believe that aggregating these revenues communicates the appropriate metric. We
analyze our revenue growth by identifying changes related to organic growth, acquired growth, and changes
due to currency exchange fluctuations.

The following summarizes the Company’s operations:

In thousands, except per share data

Years Ended December 31,

2013

2012

Revenues

Cost of revenues
Depreciation - cost of revenues
Litigation settlement and restructuring costs

Total cost of revenues
Gross profit
Selling, general and administrative expenses (exclusive
of items shown below)

Acquisition expenses
Integration expenses
Change in fair value of contingent consideration
Restructuring costs and plant closure expense
Impairment of intangible assets
Litigation settlement
Loss on sale of business
Total SG&A expenses (exclusive of depreciation and
amortization shown below)

Depreciation
Amortization
Income from operations
Net interest expense
Income tax expense
Net income
Less: net income attributable to noncontrolling interests
Net income attributable to Stericycle, Inc.
Earnings per share- diluted

$
$

2,142,807
1,126,050
50,003
2,120
1,178,173
964,634

372,091
10,275
6,521
(2,278)
2,480
1,405
116

—

390,610
11,338
27,067
535,619
54,949
164,662
313,084
1,712
311,372
3.56

100.0
52.6
2.3
0.1
55.0
45.0

1,913,149
1,011,081
44,631
132
1,055,844
857,305

100.0
52.8
2.3
—
55.2
44.8

17.4
0.5
0.3
(0.1)
0.1
0.1
—

—

18.2
0.5
1.3
25.0
2.6
7.7
14.6
0.1
14.5

$
$

327,131
7,920
4,896
752
5,201
—
6,050
4,867

356,817
9,598
22,054
468,836
51,270
147,256
269,941
1,945
267,996
3.08

17.1
0.4
0.3
—
0.3
—
0.3
0.3

18.7
0.5
1.2
24.5
2.7
7.7
14.1
0.1
14.0

Revenues: Our revenues increased $229.7 million, or 12.0%, to $2.14 billion in 2013 from $1.91 billion
in 2012. Domestic revenues increased $135.8 million, or 9.9%, to $1.51 billion from $1.37 billion in 2012
as organic revenue growth for domestic small account customers increased by $66.2 million, or approximately
23

8%, driven by an increase of Steri-Safe revenues and regulated waste management for retailers. Organic
revenues from domestic large account customers increased by $28.3 million, or approximately 6%, as we
increased the total number of accounts and expanded our reusable sharps services, pharmaceutical waste,
and regulated waste services for retailers. Organic revenues for recall and returns management services
decreased by $18.5 million compared to 2012 due to less large recalls. Organic revenues exclude revenue
growth attributed to businesses acquired within the preceding twelve months. Revenues from domestic
acquisitions closed within the preceding twelve months contributed approximately $59.8 million to the
increase in revenues in 2013.

International revenues in 2013 were $636.2 million, compared to $542.3 million in 2012, an increase
of $93.9 million, or 17.3%. Organic growth, currency rate fluctuations and acquisitions impact the comparison
of 2013 to 2012. Organic growth in the international segment contributed $35.1 million in revenues, or
approximately 7%. Organic growth excludes the effect of foreign exchange and acquisitions and divestitures
less than one year old. Foreign exchange rates unfavorably impacted international revenues in 2013 by $19.0
million as foreign currencies declined against the U.S. dollar. Revenue from international acquisitions, net
of business divestitures, closed within the preceding twelve months contributed approximately $77.8 million
to the increase in revenues in 2013.

Cost of Revenues: Our 2013 cost of revenues increased $122.3 million, or 11.6%, to $1.18 billion
compared to $1.06 billion in 2012. During the year ended December 31, 2013, we recognized $2.1 million
in litigation settlement costs. During the year ended December 31, 2012, we recognized $0.1 million of
restructuring costs.

Our domestic cost of revenues increased $61.0 million, or 8.7%, to $760.6 million in 2013 compared
to $699.6 million for 2012 as a result of costs related to a proportional increase in revenues from acquisitions
and organic growth.

Our international cost of revenues increased $61.3 million, or 17.2%, to $417.6 million in 2013 compared
to $356.3 million in 2012 as a result of costs related to a proportional increase in revenues from acquisitions
and organic growth.

Our gross margin percentage increased to 45.0% during 2013, from 44.8% during 2012. Domestic gross

margin percentage increased to 49.5% during 2013 from 49.0% in 2012.

International gross margin increased to 34.4% during 2013, compared to 34.3% in 2012. In general,
international gross margins are lower than domestic gross margins because the international operations have
fewer small account customers, which tend to provide higher gross margins. Historically, the international
operations have had most of their revenues from large account customers, such as hospitals. As the
international revenues increase, consolidated gross margins receive downward pressure due to this “business
mix” shift, which may be offset by additional international small account market penetration, integration
savings, and domestic business expansion.

Selling, General and Administrative, Depreciation and Amortization Expenses: Excluding the effect
of acquisition and integration expenses, and other items (collectively the “Acquisition-related Items”),
depreciation, and amortization expenses, our selling, general and administrative (“SG&A”) expenses
increased $45.0 million, or 13.7%, to $372.1 million in 2013, from $327.1 million in 2012 primarily as
investment spending supported the increase in revenues and acquired SG&A expenses. As a percentage of
revenues, these costs increased to 17.4% in 2013, from 17.1% in 2012 primarily due to an increase in
compensation expense.

Domestically, SG&A expenses, excluding Acquisition-related Items, depreciation, and amortization
expenses, increased $27.2 million or 11.5%, to $264.6 million in 2013, from $237.4 million in 2012. As a

percentage of revenues, SG&A was at 17.6% in 2013 compare to 17.3% in 2012. As a percentage of revenues,
amortization expense of acquired intangible assets increased by 0.1% in 2013.

Internationally, SG&A expenses, excluding Acquisition-related Items, depreciation, and amortization
expenses, increased $17.8 million, or 19.8%, in 2013 to $107.5 million from $89.7 million in 2012. As
percentage of revenues, SG&A was at 16.9% in 2013 compare to 16.5% in 2012. As a percentage of revenues,
amortization expense of acquired intangible assets increased by 0.2% in 2013.

During the year ended December 31, 2013, we recognized $10.3 million in acquisition expenses, $6.5
million expenses related to the integration of our acquisitions, $2.5 million of restructuring and plant closure
costs, $1.4 million impairment of intangible assets, $0.1 million in litigation settlement costs, partially offset
by $2.3 million favorable change in fair value of contingent consideration. These Acquisition-related Items,
including $2.1 million litigation settlement costs described in the Cost of Revenues section above, resulted
in $20.6 million of expense on a pre-tax basis during 2013.

During the year ended December 31, 2012, we recognized $7.9 million in acquisition expenses, $4.9
million expense related to the integration of our acquisitions, $6.1 million in litigation settlement costs, $5.2
million of restructuring and plant closure costs, $4.9 million loss related to a divestiture in the United Kingdom,
and $0.8 million unfavorable change in fair value of contingent consideration. These Acquisition-related
Items, including $0.1 million of restructuring costs described in Cost of Revenue section above, resulted in
$29.8 million of expense on a pre-tax basis during 2012.

Income from Operations: Income from operations increased by $66.8 million, or 14.2%, to $535.6
million in 2013 from $468.8 million in 2012. Comparison of income from operations between 2013 and 2012
is affected by Acquisition-related Items described above in the Cost of Revenues and SG&A sections.

Domestically, our income from operations increased $48.3 million, or 12.0%, to $448.8 million in 2013
from $400.5 million in 2012. Internationally, our income from operations increased $18.5 million, or 27.1%,
to $86.8 million in 2013 from $68.3 million in 2012. Expenses for Acquisition-related items decreased by
$9.2 million in 2013 when compared to 2012.

Net Interest Expense: Net interest expense increased to $54.9 million during 2013 from $51.3 million
during 2012 due to higher average borrowing costs in the U.S. caused by the full year impact of the fixed
rate private placement borrowings for 2013 which we entered into in December 2012 (see Liquidity and
Capital Resources section below), and increased borrowings and higher interest costs in Latin America.

Income Tax Expense: Income tax expense increased to $164.7 million during 2013 from $147.3 million
during 2012. The effective tax rates for the years 2013 and 2012 were 34.5% and 35.3%, respectively. The
decrease in the current year tax rate is primarily related to a reduction of international statutory rates, most
notably in the United Kingdom, and to a decrease in our tax accrual for unrecognized tax benefits due to the
expiration of statute of limitations.

Year Ended December 31, 2012 Compared to Year Ended December 31, 2011

Highlights for the year ended December 31, 2012 included the following:

revenues grew to $1.91 billion, a 14.1% increase over $1.68 billion in 2011;

•
• gross margins decreased to 44.8% in 2012 from 45.4% in 2011;
• operating income was $468.8 million, a 10.5% increase from $424.3 million for 2011;
• we incurred $24.9 million in pre-tax expenses related to acquisitions, litigation settlement,
restructuring and plant closure costs, loss on sale of business, and changes in fair value of contingent
consideration;

• we incurred $4.9 million in integration expenses related to acquisitions;

•

cash flow from operations was $387.4 million.

The following summarizes the Company’s operations:

In thousands, except per share data

Years Ended December 31,

2012

2011

Revenues

Cost of revenues
Depreciation—cost of revenues
Restructuring costs

Total cost of revenues
Gross profit
Selling, general and administrative expenses (exclusive
of items shown below)

Acquisition expenses
Change in fair value of contingent consideration
Integration expenses
Restructuring and plant closure costs
Litigation settlement
Loss on sale of business
Total SG&A expenses (exclusive of depreciation and
amortization shown below)

Depreciation—SG&A
Amortization
Income from operations
Net interest expense
Income tax expense
Net income
Less: net income attributable to noncontrolling interests
Net income attributable to Stericycle, Inc.
Earnings per share—Diluted

$
$

1,913,149
1,011,081
44,631
132
1,055,844
857,305

327,131
7,920
752
4,896
5,201
6,050
4,867

356,817
9,598
22,054
468,836
51,270
147,256
269,941
1,945
267,996
3.08

100.0
52.8
2.3
—
55.2
44.8

1,676,048
874,115
41,135
54
915,304
760,744

100.0
52.1
2.5
—
54.6
45.4

17.1
0.4
—
0.3
0.3
0.3
0.3

18.7
0.5
1.2
24.5
2.7
7.7
14.1
0.1
14.0

$
$

291,468
16,704
(7,221)
4,346
5,021
1,185
19

311,522
8,642
16,269
424,311
48,632
134,981
237,343
2,592
234,751
2.69

17.4
1.0
(0.4)
0.3
0.3
0.1
—

18.6
0.5
1.0
25.3
2.9
8.1
14.2
0.2
14.0

Revenues: Our revenues increased $237.1 million, or 14.1%, to $1.91 billion in 2012 from $1.68 billion
in 2011. Domestic revenues increased $158.7 million, or 13.1%, to $1.37 billion from $1.21 billion in 2011
as internal growth for domestic small account customers increased by $71.4 million, approximately 10%,
driven by an increase of Steri-Safe revenues. Revenues from domestic large account customers increased
$33.9 million, or approximately 9%, as we increased the total number of accounts and expanded our reusable
sharps services and pharmaceutical waste disposal programs. Internal revenues for recall and returns
management services decreased by $6.7 million compared to 2011 due to fewer large recalls. Internal revenues
exclude revenue growth attributed to businesses acquired during 2012 and 2011. Total domestic regulated
waste and recall and returns management services acquisitions, less than one year old, contributed
approximately $60.1 million to the increase in domestic revenues in 2012.

International revenues in 2012 were $542.3 million, compared to $463.9 million in 2011, an increase
of $78.4 million, or 16.9%. Internal growth, currency rate fluctuations and acquisitions impact the comparison
of 2012 to 2011. Internal growth was $20.1 million. The effect of exchange rates unfavorably impacted
international 2012 revenues by $21.8 million as foreign currencies declined against the U.S. dollar.
International revenue growth of $80.1 million is attributed to business acquisitions, net of business
divestitures, during 2012 and 2011.

Cost of Revenues: Our 2012 cost of revenues increased $140.5 million, or $15.4%, to $1.06 billion
compared to $915.3 million in 2011. Our domestic cost of revenues increased $86.9 million, or 14.2%, to
$699.6 million in 2012 compared to $612.7 million for 2011 as a result of costs related to a proportional
increase in revenues from acquisitions and internal growth.

Our international cost of revenues increased $53.7 million, or 17.7%, to $356.3 million in 2012 compared
to $302.6 million in 2011 as a result of costs related to a proportional increase in revenues from acquisitions
and internal growth.

Our gross margin percentage decreased to 44.8% during 2012 from 45.4% during 2011 due to the
inclusion of lower margin acquired revenues. Domestic gross margin percentage decreased to 49.0% during
2012 from 49.5% in 2011.

International gross margin decreased to 34.3% during 2012 compared to 34.8% in 2011, primarily due
to acquisitions with lower margins being consolidated. In general, international gross margins are lower than
domestic gross margins because the international operations have fewer small account customers, which tend
to provide higher gross margins. Historically, the international operations have had most of their revenues
from large account customers, such as hospitals. As the international revenues increase, consolidated gross
margins receive downward pressure due to this “business mix” shift, which may be offset by additional
international small account market penetration, integration savings, and domestic business expansion.

Selling, General and Administrative, Depreciation and Amortization Expenses: Excluding the effect
of Acquisition-related Items, depreciation, and amortization expenses, our SG&A expenses increased $35.6
million, or 12.2%, to $327.1 million in 2012 from $291.5 million in 2011 primarily as investment spending
supported the increase in revenues and acquired SG&A expenses. As a percentage of revenues, these costs
decreased by 0.3% in 2012 compared to 2011. Depreciation expense as a percentage of revenues was 0.5%
in both 2012 and 2011. Amortization expense as a percentage of revenues increased to 1.2% in 2012 from
1.0% in 2011.

Domestically, SG&A expenses, excluding Acquisition-related Items, depreciation, and amortization
expenses, increased $20.0 million, or 9.2%, to $237.4 million in 2012 from $217.4 million in 2011. As a
percentage of revenues, SG&A was lower at 17.3% in 2012 compared to 17.9% in 2011. As a percentage of
revenues, amortization expense of acquired intangible assets increased by 0.1% in 2012.

Internationally, SG&A expenses, excluding Acquisition-related Items, depreciation, and amortization
expenses, increased $15.6 million, or 21.1%, in 2012 to $89.7 million from $74.1 million in 2011. As
percentage of revenues, SG&A was at 16.5% in 2012 compared to 16.0% in 2011. As a percentage of revenues,
amortization expense of acquired intangible assets increased by 0.3% in 2012.

During the year ended December 31, 2012, we recognized $7.9 million in acquisition expenses, $4.9
million expense related to the integration of new acquisitions, $6.0 million in litigation settlement costs, $5.3
million of restructuring and plant closure costs, $4.9 million loss related to a divestiture in the United Kingdom,
and $0.8 million unfavorable change in fair value of contingent consideration. These Acquisition-related
Items resulted in $29.8 million of expense on a pre-tax basis during 2012.

During the year ended December 31, 2011, we recognized $16.7 million in acquisition expenses, $4.3
million expense related to the integration of new acquisitions, $5.1 million of restructuring and plant closure
costs, and $1.2 million in litigation settlement expense, partially offset by $7.2 million favorable change in
fair value of contingent consideration. These Acquisition-related Items resulted in $20.1 million of net expense
on a pre-tax basis during 2011.

Income from Operations: Income from operations increased by $44.5 million, or 10.5%, to $468.8
million in 2012 from $424.3 million in 2011. Comparisons of income from operations between 2012 and
2011 are affected by various charges not considered part of our day-to-day operations described above in
SG&A section.

Domestically, our income from operations increased $48.8 million, or 13.9%, to $400.5 million in 2012
from $351.7 million in 2011. Internationally, our income from operations decreased $4.3 million, or 5.9%,
to $68.3 million in 2012 from $72.6 million in 2011.

Interest Expense and Interest Income: Interest expense increased to $51.7 million in 2012 from $49.4
million in 2011 due to a higher rate on our outstanding revolver borrowings. Interest income was $0.4 million
in 2012 and $0.8 million in 2011.

Income Tax Expense: Income tax expense increased to $147.3 million in 2012 from $135.0 million in
2011. The effective tax rates for the years 2012 and 2011 were approximately 35.3% and 36.3%, respectively,
primarily related to lower international tax rates.

Liquidity and Capital Resources:

Our $1.0 billion senior credit facility maturing in September 2016, our $100.0 million private placement
notes maturing April 2015, our $175.0 million private placement notes maturing in October 2017, our $125.0
million private placement notes maturing in December 2019, our $225.0 million private placement notes
maturing in October 2020, and our $125.0 million private placement notes maturing in December 2022, all
require us to comply with various financial, reporting and other covenants and restrictions, including a
restriction on dividend payments. The financial debt covenants are the same for the senior credit facility and
the private placement notes. At December 31, 2013, we were in compliance with all of our financial debt
covenants.

As of December 31, 2013, we had $272.4 million of borrowings outstanding under our $1.0 billion
senior unsecured credit facility, which includes foreign currency borrowings of $125.4 million. We also had
$155.0 million committed to outstanding letters of credit under our senior credit facility. The unused portion
of the revolving credit facility as of December 31, 2013 was $572.6 million. At December 31, 2013, our
interest rates on borrowings under our revolving credit facility were as follows:

• For short-term borrowing (less than two weeks): Federal funds rate plus 0.5%, the prime rate or the
Euro Currency rate plus 1%, whichever is higher, and a spread of 0.025% plus a 0.225% facility fee.

• For borrowing greater than two weeks: LIBOR plus 1.025% plus a 0.225% facility fee.

The weighted average rate of interest on the unsecured revolving credit facility was 1.60% per annum,

which includes the 0.225% facility fee at December 31, 2013.

As of December 31, 2013, we had outstanding $100.0 million of seven-year 5.64% unsecured senior
notes issued to nine institutional purchasers in a private placement completed in April 2008. Interest is payable
in arrears semi-annually on April 15, and October 15, beginning on October 15, 2009, and principal is payable
at the maturity of the notes on April 15, 2015.

As of December 31, 2013, we had outstanding $175.0 million of seven-year 3.89% unsecured senior
notes and $225.0 million of 10-year 4.47% unsecured senior notes issued to 39 institutional purchasers in a
private placement completed in October 2010. Interest is payable in arrears on April 15, and October 15,
beginning on April 15, 2011, and principal is payable at the maturity of the notes on October 15, 2017 in the
case of the seven-year notes, and October 15, 2020 in the case of the 10-year notes.

As of December 31, 2013, we had outstanding $125.0 million of seven-year 2.68% unsecured senior
notes and $125.0 million of 10-year 3.26% unsecured senior notes issued to 46 institutional purchasers in a

private placement completed in December 2012. Interest is payable in arrears semi-annually on June 12, and
December 12, beginning on June 12, 2013, and principal is payable at the maturity of the notes on
December 12, 2019 in the case of the seven-year notes, and December 12, 2022 in the case of the 10-year
notes.

At December 31, 2013, we had $252.2 million in promissory notes issued in connection with acquisitions
during 2004 through 2013, $149.1 million in foreign subsidiary bank debt outstanding, and $7.3 million in
capital lease obligations.

Working Capital: At December 31, 2013, our working capital increased by $13.9 million to $124.1

million compared to $110.2 million at December 31, 2012.

Current assets increased by $93.8 million. Net accounts receivable (inclusive of acquisitions) increased
by $66.8 million. Days sales outstanding (“DSO”) was calculated at 63 days at December 31, 2013 and 59
days at December 31, 2012, which was affected by acquired receivables. Cash and cash equivalents at
December 31, 2013 included $22.7 million, offset by an equivalent amount in other current liabilities, that
is to be used for recalled product reimbursement. Current liabilities increased by $79.9 million in 2013,
primarily related to an increase to the short term portion of our acquisition notes and foreign bank debt, and
product reimbursement liability.

Net Cash Provided or Used: Net cash provided by operating activities increased $16.0 million, or 4.1%,
to $403.5 million during 2013 from $387.4 million in 2012. Cash provided by operations as a ratio to net
income in 2013 and 2012, was 129% and 144%, respectively.

Net cash used in investing activities during 2013 was $235.0 million compared to $288.9 million used
in 2012. We used $62.4 million less in funds to acquire new businesses in 2013. Our capital expenditures
increased by $7.9 million in 2013, and as a percentage of revenues stayed at 3.4% in both 2013 and 2012.

Net cash used in financing activities was $136.0 million during 2013 compared to $91.5 million in 2012.
We had share repurchases of $163.7 million in 2013 compared to $48.0 million in 2012, an increase of $115.7
million. In 2013, we had $44.7 million of net borrowings on our senior credit facility compared to $54.3
million of net repayments which includes $250.0 million of proceeds from private placements in 2012.

Contractual Obligations

The following table summarizes our significant contractual obligations and cash commitments as of

December 31, 2013:

Payments due by period (dollars in thousands)

Long-term debt
Capital lease obligations
Operating leases
Purchase obligations
Other long-term liabilities
Total contractual cash obligations

Total

(1) $ 1,624,625
(1)
8,315
272,714
9,153
2,985
$ 1,917,792

(1)(2)

2014
190,823
3,991
66,289
5,212
563
266,878

2015-2016
627,576
$
3,521
102,536
3,898
1,367
738,898

2017-2018
270,798
$
414
63,470
43
—
334,725

2019
and After

535,428
389
40,419
—
1,055
577,291

(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. Long-term
debt that has floating interest rates requires the use of management judgment to estimate the future
rates of interest.

(2) Other long-term liabilities include amounts related to covenants not-to-compete agreements and
exclude 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 the applicable taxing authorities.

At December 31, 2013, we had $155.0 million in stand-by letters of credit issued.

We anticipate that our operating cash flow, together with borrowings under our senior unsecured 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 and loans: Shiraishi-Sogyo Co. Ltd. (“Shiraishi”) is an unrelated party in Japan that is
expanding its medical waste management business. We have guaranteed Shiriashi’s loan of $4.7 million
borrowed from JPMorganChase Bank N.A. which is currently due on May 31, 2014. Based on information
currently available, we have concluded the guarantee is not probable of being called and, therefore, we have
not recorded any contingent liability relating to this guarantee. We have also extended non-interest bearing
loans to Shiraishi for approximately $15.5 million due April 18, 2018, which are reflected in the Consolidated
Balance Sheet as part of long term "Other assets" at December 31, 2013 and 2012. There is a collateral
agreement in place on the assets of Shiraishi and related companies in support of amounts owed to the
Company.

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 $4.2 million
on a pre-tax basis.

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.

We have exposure to foreign currency fluctuations. We have subsidiaries in eleven foreign countries
whose functional currency is the local currency. We have operations in Argentina that has seen an erosion
of the value of the Argentine Peso when compared to the U.S. Dollar. We translate results of operations of
our international operations using an average exchange rate. Changes in foreign currency exchange rates
could unfavorably impact our consolidated results of operations.

Item 8. Financial Statements and Supplementary 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:

• pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the

transactions and dispositions of the assets of the Company;

• 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

• 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, 2013. In making this assessment, management used the criteria set forth by
the Committee of Sponsoring Organizations of the Treadway Commission (1992 framework) 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, 2013.

The Company’s independent registered public accounting firm has issued an opinion on the Company’s

internal control over financial reporting. That report appears on page 32.

Lake Forest, IL
February 28, 2014

Stericycle, Inc.

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

The Board of Directors and Shareholders of Stericycle, Inc. and Subsidiaries

We have audited Stericycle, Inc. and Subsidiaries’ (the Company) internal control over financial
reporting as of December 31, 2013, based on criteria established in Internal Control—Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission (1992 framework).
Stericycle, Inc. and Subsidiaries’ 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. and Subsidiaries maintained, in all material respects, effective internal

control over financial reporting as of December 31, 2013, 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,
2013 and 2012, and the related consolidated statements of income, comprehensive income, changes in equity,
and cash flows for each of the three years in the period ended December 31, 2013, and our report dated
February 28, 2014 expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP

Chicago, Illinois
February 28, 2014

Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders of Stericycle, Inc. and Subsidiaries

We have audited the accompanying consolidated balance sheets of Stericycle, Inc. and Subsidiaries as
of December 31, 2013 and 2012, and the related consolidated statements of income, comprehensive income,
changes in equity, and cash flows for each of the three years in the period ended December 31, 2013. 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, 2013 and 2012, and the
consolidated results of their operations and their cash flows for each of the three years in the period ended
December 31, 2013, 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 therein.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), Stericycle Inc. and Subsidiaries', internal control over financial reporting as of
December 31, 2013, based on criteria established in Internal Control-Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (1992 framework) and our report
dated February 28, 2014 expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP

Chicago, Illinois
February 28, 2014

STERICYCLE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

In thousands, except share and per share data

ASSETS
Current Assets:
Cash and cash equivalents
Short-term investments
Accounts receivable, less allowance for doubtful accounts of $19,134 in 2013 and
$19,443 in 2012
Deferred income taxes
Prepaid expenses
Other current assets

Total Current Assets

Property, plant and equipment, net
Goodwill
Intangible assets, less accumulated amortization of $88,098 in 2013 and $64,215 in 2012
Other assets
Total Assets
LIABILITIES AND EQUITY
Current liabilities:
Current portion of long-term debt
Accounts payable
Accrued liabilities
Deferred revenues
Other current liabilities

Total Current Liabilities

Long-term debt, net of current portion
Deferred income taxes
Other liabilities
Equity:
Common stock (par value $.01 per share, 120,000,000 shares authorized, 85,500,037
issued and outstanding in 2013 and 85,987,883 issued and outstanding in 2012)
Additional paid-in capital
Accumulated other comprehensive loss
Retained earnings

Total Stericycle, Inc.’s Equity

Noncontrolling interest
Total Equity

Total Liabilities and Equity

December 31,

2013

2012

61,991
413

31,324
503

388,996
18,031
28,379
37,279
535,089
358,967
2,231,582
720,035
37,124
3,882,797

150,380
89,146
107,445
18,826
45,211
411,008
1,280,663
396,119
27,469

855
195,110
(56,468)
1,610,964
1,750,461
17,077
1,767,538
3,882,797

322,246
22,995
27,042
37,176
441,286
335,870
2,065,103
667,471
37,008
3,546,738

87,781
80,886
115,992
18,095
28,306
331,060
1,268,303
359,780
30,272

860
116,720
(39,064)
1,463,277
1,541,793
15,530
1,557,323
3,546,738

The accompanying notes are an integral part of these consolidated 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 (exclusive of depreciation shown below)

Depreciation - cost of revenues

Selling, general and administrative expenses (exclusive of depreciation
and amortization shown below)
Depreciation – selling, general and administrative expenses

Amortization

Total Costs and Expenses

Income from Operations

Other Income (Expense):
Interest income

Interest expense

Other expense, net

Total Other Expense

Income Before Income Taxes

Income Tax Expense

Net Income

Less: Net Income Attributable to Noncontrolling Interests

Net Income Attributable to Stericycle, Inc.

Earnings Per Common Share Attributable to Stericycle, Inc.
Common Shareholders:

Basic

Diluted

Weighted Average Number of Common Shares Outstanding:

Basic

Diluted

Years Ended December 31,
2012

2011

2013

2,142,807

1,913,149

1,676,048

1,128,170

50,003

390,610

11,338

27,067

1,607,188

535,619

1,011,213

44,631

356,817

9,598

22,054

1,444,313

468,836

294
(55,243)
(2,924)
(57,873)
477,746

164,662

313,084

1,712

311,372

3.62

3.56

404
(51,674)
(369)
(51,639)
417,197

147,256

269,941

1,945

267,996

3.14

3.08

874,169

41,135

311,522

8,642

16,269

1,251,737

424,311

799
(49,431)
(3,355)
(51,987)
372,324

134,981

237,343

2,592

234,751

2.75

2.69

85,902,550

87,391,988

85,401,365

87,018,473

85,467,421

87,367,712

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

STERICYCLE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

In thousands

Net Income

Other Comprehensive Income/ (Loss):

Foreign currency translation adjustments

Amortization of cash flow hedge into income, net of tax ($200, $216,
and $218) for the years ended December 31, 2013, 2012 and 2011,
respectively)

Change in fair value of cash flow hedge, net of tax ($0, $193, and $0)
for the years ended December 31, 2013, 2012 and 2011, respectively)

Total Other Comprehensive Income/ (Loss)

Comprehensive Income
Less: Comprehensive Income Attributable to Noncontrolling
Interests

Years Ended December 31,
2012

2011

2013

313,084

269,941

237,343

(19,160)

6,801

(32,893)

314

—
(18,846)

339

289

7,429

341

—
(32,552)

294,238

277,370

204,791

270

2,454

(845)
205,636

Comprehensive Income Attributable to Stericycle, Inc.

293,968

274,916

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

STERICYCLE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS

In thousands

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

Stock compensation expense
Excess tax benefit of stock options exercised
Depreciation
Amortization
Deferred income taxes
Loss on sale of business
Change in fair value of contingent consideration
Other, net

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, net of cash acquired
Proceeds from/ (purchase of) short-term investments
Proceeds from sale of business and other assets
Capital expenditures
Net cash used in investing activities
FINANCING ACTIVITIES:
Repayment of long-term debt and other obligations
Borrowings on foreign bank debt
Repayments on foreign bank debt
Borrowings on senior credit facility
Repayments on senior credit facility
Proceeds from private placement of long-term note
Payments of deferred financing costs
Payments on capital lease obligations
Purchase and cancellation of treasury stock
Proceeds from issuance of common stock
Excess tax benefit of stock options exercised
Payments to noncontrolling interests
Net cash used in financing activities
Effect of exchange rate changes on cash and cash equivalents
Net increase/ (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period

NON-CASH ACTIVITIES:
Issuance of obligations for acquisitions
Issuance of obligations for noncontrolling interests

Years Ended December 31,
2012

2011

2013

313,084

269,941

237,343

17,457
(17,153)
61,341
27,067
30,930
—
(2,278)
3,381

(54,767)
7
4,547
(1,319)
21,170
403,467

(161,936)
73
—
(73,109)
(234,972)

(88,507)
218,968
(201,967)
1,029,718
(984,979)
—
—
(4,024)
(163,700)
42,345
17,153
(1,026)
(136,019)
(1,809)
30,667
31,324
61,991

100,101
6,119

16,339
(30,161)
54,229
22,054
22,678
4,867
752
1,677

(4,329)
406
24,537
931
3,527
387,448

(224,367)
(89)
764
(65,236)
(288,928)

15,367
(17,410)
49,777
16,269
31,837
19
(7,221)
5,253

(31,821)
(9,132)
36,289
(1,997)
(18,469)
306,104

(469,209)
15,942
2,371
(53,301)
(504,197)

(102,932)
98,620
(69,454)
863,286
(1,167,595)
250,000
(956)
(3,192)
(48,028)
64,461
30,161
(5,897)
(91,526)
1,819
8,813
22,511
31,324

97,541
8,197

(65,546)
42,178
(16,168)
1,643,458
(1,372,631)
—
(3,740)
(3,333)
(124,056)
31,286
17,410
(10,986)
137,872
3,456
(56,765)
79,276
22,511

57,560
779

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

STERICYCLE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
Years Ended December 31, 2013, 2012 and 2011

Stericycle, Inc. Equity

Issued
and
Outstanding
Shares

Common
Stock

Additional
Paid-In
Capital

Retained
Earnings

Accumulated
Other
Comprehensive
Income (Loss)

Noncontrolling
Interest

Total Equity

85,242

852

46,945

$ 1,017,497

(16,869) $

31,925

1,080,350

234,751

2,592

(3,437)

(29,456)

341

1,016

(1,562)

(16)

36,394

(115,095) $

(8,945)

15,367

17,410

(1,021)

84,696

847

— 1,243,303

(45,984)

267,996

6,292

628

1,855

(563)

(6)

68,444

—

(48,022)

16,339

30,161

1,958

(182)

85,988

860

116,720

1,463,277

(39,064)

311,372

(17,718)

314

973

(1,461)

(15)

47,991

—

(163,685)

17,457

17,153

(4,211)

237,343

(32,893)

341

36,405

(124,056)

15,367

17,410

10,708

(10,210)

(11,231)

(1,959)

(534)

29,085

1,945

509

(1,959)

(534)

1,227,251

269,941

6,801

628

68,463

(48,028)

16,339

30,161

4,386

(19,997)

(18,039)

(398)

15,530

1,712

(1,442)

(580)

1,557,323

313,084

(19,160)

314

48,001

(163,700)

17,457

17,153

4,211

(2,926)

(8)

(7,137)

(8)

In thousands

Balance at January 1, 2011

Net income

Currency translation adjustment

Change in qualifying cash flow hedge, net
of tax

Issuance of common stock for exercise of
options and employee stock purchases

Purchase/ cancellation of treasury stock

Stock compensation expense

Excess tax benefit of stock options
exercised

Noncontrolling interests attributable to
acquisitions

Reduction to noncontrolling interests due to
additional ownership

Reduction to noncontrolling interests due to
divestiture

Payments to noncontrolling interests

Balance at December 31, 2011

Net income

Currency translation adjustment

Change in qualifying cash flow hedge, net
of tax

Issuance of common stock for exercise of
options and employee stock purchases

Purchase/ cancellation of treasury stock

Stock compensation expense

Excess tax benefit of stock options
exercised

Noncontrolling interests attributable to
acquisitions

Reduction to noncontrolling interests due to
additional ownership

Payments to noncontrolling interests

Balance at December 31, 2012

Net income

Currency translation adjustment

Change in qualifying cash flow hedge, net
of tax

Issuance of common stock for exercise of
options, restricted stock units and employee
stock purchases

Purchase/ cancellation of treasury stock

Stock compensation expense

Excess tax benefit of stock options
exercised

Noncontrolling interests attributable to
acquisitions

Reduction to noncontrolling interests due to
additional ownership

Payments to noncontrolling interests

Balance at December 31, 2013

85,500

855

195,110

$ 1,610,964

(56,468) $

17,077

1,767,538

The accompanying notes are an integral part of these consolidated financial statements.
38

STERICYCLE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 a diverse customer base of over 566,000 customers
throughout the United States, Argentina, Brazil, Canada, Chile, Ireland, Japan, Mexico, Portugal, Romania,
Spain, and the United Kingdom.

We have 8,376 employees in the United States, of which 424 are covered by collective bargaining
agreements. Internationally, we have 6,548 employees, of which approximately 1,940 are covered by
collective bargaining agreements, primarily in Latin America.

The accompanying consolidated financial statements have been prepared pursuant to the rules and
regulations of the Securities and Exchange Commission (“SEC”) in conformity with accounting principles
generally accepted in the United States. The preparation of financial statements in conformity with these
accounting principles requires us to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements
and the reported amounts of revenue and expenses during the reporting period.

In our opinion, the consolidated financial statements included herein contain all adjustments necessary
to present fairly our financial position as of December 31, 2013 and 2012 and the results of our operations,
our cash flows, and our statement of changes in equity for the three years ended December 31, 2013, 2012
and 2011. Such adjustments are of a normal recurring nature. We have evaluated subsequent events through
the date of filing this Annual Report on Form 10-K.

Certain amounts in previously issued financial statements have been reclassified to conform to the
current period presentation. The following reclassifications were made to our 2012 balance sheet and to our
2012 and 2011 statements of cash flows:

•

related to product reimbursement liabilities

in our balance sheet as of December 31, 2012, $12.7 million was reclassified from accrued
liabilities to other current liabilities;
in our statement of cash flows for 2012, $1.2 million was reclassified within operating activities
from accrued liabilities to other assets and liabilities;
in our statement of cash flows for 2011, $18.0 million was reclassified within operating
activities from accrued liabilities to other assets and liabilities.

• other reclassifications

in our balance sheet as of December 31, 2012, $6.7 million was reclassified from accrued
liabilities to accounts payable;
in our statement of cash flows for 2012, $0.5 million was reclassified within operating activities
from accrued liabilities to accounts payable; $5.3 million was reclassified from investing
activities to financing activities related to purchases of additional noncontrolling interests;
in our statement of cash flows for 2011, $3.4 million was reclassified within operating activities
from accrued liabilities to accounts payable; $10.5 million was reclassified from investing
activities to financing activities related to purchases of additional noncontrolling interests.

The preparation of the consolidated financial statements in conformity with accounting principles
generally accepted in the United States requires management to make certain estimates and assumptions that
affect the amount of reported assets and liabilities and disclosure of contingent assets and liabilities at the
date of the consolidated financial statements and revenues and expenses during the periods reported. Actual
results may differ from those estimates.

NOTE 2—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation:

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

Revenue Recognition:

Revenues for our regulated waste management services, other than our compliances services such as
Steri-Safe, are recognized at the time of waste collection. Our compliance service revenues are recognized
evenly over the contractual service period. Payments received in advance are deferred and recognized as
services are provided. Revenues from regulated recall and returns management services and communication
solutions are recorded at the time services are performed. Revenues from product sales are recognized at the
time the goods are shipped to the ordering customer. Charges related to international value added tax (“VAT”)
and other similar pass through taxes are not included as revenue.

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
Vehicles
Office equipment and furniture
Software

5 to 50 years
3 to 30 years
2 to 20 years
2 to 7 years
2 to 15 years
2 to 7 years

Our containers have a weighted average remaining useful life of 12.5 years.

Acquisition Accounting:

Acquisition accounting requires us to recognize assets and liabilities at their fair value. The process of
determining fair value requires time to complete therefore we will make some estimates at the time of
acquisition. These estimates are primarily for amortizable intangibles, and if appropriate, an associated
deferred tax liability. These estimates are based on historical experience and allow us to recognize amortization
expense until the final valuation is complete.

Goodwill and Identifiable Intangibles:

Goodwill and identifiable indefinite lived intangible assets are not amortized, but are subject to an annual
impairment test. Our finite-lived intangible assets are amortized over their useful lives. We have determined
that our customer relationships have useful lives from 14 to 40 years based upon the type of customer, with
a weighted average remaining useful life of 25.6 years. We have covenants not-to-compete intangibles with
useful lives from 3 to 14 years, with a weighted average remaining useful life of 3.9 years. We have tradename
intangibles with useful lives from 10 to 40 years, with a weighted average remaining useful life of 15.7 years.
We have license agreements with useful life of 5 years, with a weighted average remaining useful life of 1.9
years. We have determined that our permits have indefinite lives due to our ability to renew these permits
with minimal additional cost, and therefore they are not amortized.

Valuation of our intangible customer relationships and permits is derived using a discounted income
and cost savings approach. Financial information such as revenues, costs, assets and liabilities, and other
assumptions 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 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 or cost savings model as the
current measurement of the fair value of the permits. The fair value is based upon, among other things, certain
assumptions about expected future operating performance, internal and external processing costs, 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 customer relationships have between 14 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. 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 11 - Goodwill and Other Intangible Assets, in the Notes to the Consolidated
Financial Statements).

Share Repurchases:

Purchase price over par value for share repurchases are allocated to retained earnings.

Income Taxes:

Deferred income tax assets and liabilities 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. Interest and penalties accrued related to unrecognized tax benefits
are recognized as a component of income tax expense.

Accounts Receivable:

Accounts receivable consist of amounts due to us from our normal business activities and are carried
at their estimated collectible amounts. Our accounts receivable balance includes amounts related to VAT and
similar international pass-through taxes. 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. No single customer accounts for more than approximately 2% of our
accounts receivable. Bad debt expense was $4.8 million, $4.6 million and $7.1 million for the years ended
December 31, 2013, 2012 and 2011, respectively.

Financial Instruments:

Our financial instruments consist of cash and cash equivalents, short-term investments, accounts
receivable and payable and long-term debt. At December 31, 2013, the fair value of the Company’s debt
obligations was estimated at $1.41 billion, compared to a carrying amount of $1.43 billion. This fair value
was estimated using market interest rates 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
approximately 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
probable 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 us to make estimates and assumptions that affect the amounts reported in the financial statements
and accompanying notes. Some areas where we make estimates include allowance for doubtful accounts,
credit memo reserve, accrued employee health and welfare benefits, stock compensation expense, income
tax liabilities, accrued auto and workers’ compensation insurance claims, and intangible asset valuations.
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, accrued liabilities, contingent

consideration liabilities, intangible assets amortization expense, and rental payments are based upon foreign
exchange rates as of December 31, 2013.

Stock-Based Compensation:

We recognize compensation expense for all stock-based awards made to our employees and directors.
Stock-based compensation cost is measured at the grant date based on the value of the award and is recognized
over the vesting period. Determining the fair value of stock-based awards at the grant date requires
considerable judgment, including estimating expected volatility of our stock, expected term of the award,
and the risk-free interest rate. Our stock’s expected volatility is based upon historical experience. The expected
term of options granted is based on historical experience. 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 for new grants 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 Accumulated other comprehensive loss in Stericycle, Inc's equity.

Environmental Matters:

We record a liability for environmental remediation or damages when such liability becomes probable
and the costs or damages can be reasonably estimated. We did not have any environmental liabilities recorded
at December 31, 2013, nor are we aware of any issues at our facilities that could necessitate environmental
remediation.

New Accounting Standards:

Accounting Standards Recently Adopted

Testing Indefinite-Lived Intangible Assets for Impairment

On January 1, 2013, we adopted guidance allowing a company to perform a qualitative assessment
in determining whether an indefinite lived intangible asset is impaired. This new guidance is similar to the
previously issued guidance allowing a qualitative assessment when performing annual goodwill impairment
testing. The guidance also changes when a company should perform an interim period test for impairment,
allowing for positive evidence to offset negative evidence when determining whether an interim impairment
test is required. The new guidance does not affect the ultimate outcome of an impairment test; therefore there
is no impact on our financial statements. We perform our annual test for impairment for indefinite lived
intangibles in the fourth quarter.

Accounting Standards Issued But Not Yet Adopted

Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax
Loss, or a Tax Credit Carryforward Exists

In July of 2013, the Financial Accounting Standards Board ("FASB") issued guidance on the
presentation of unrecognized tax benefits when a net operating loss carryforward, a similar tax loss, or a tax
credit carryforward exists at the reporting date. An unrecognized tax benefit, or a portion of an unrecognized
tax benefit, should be presented in the financial statements as a reduction to a deferred tax asset for a net
operating loss carryforward, a similar tax loss, or a tax credit carryforward, except in certain circumstances.
To the extent a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available
at the reporting date under the tax law of the applicable jurisdiction to settle any additional income taxes that
would result from the disallowance of a tax position or the tax law of the applicable jurisdiction does not

require the entity to use, and the entity does not intend to use, the deferred tax asset for such purpose, the
unrecognized tax benefit should be presented in the financial statements as a liability and should not be
combined with deferred tax assets. The assessment of whether a deferred tax asset is available is based on
the unrecognized tax benefit and deferred tax asset that exist at the reporting date and should be made
presuming disallowance of the tax position at the reporting date. For example, an entity should not evaluate
whether the deferred tax asset expires before the statute of limitations on the tax position or whether the
deferred tax asset may be used prior to the unrecognized tax benefit being settled. Both prospective and
retrospective application may be applied. This guidance becomes effective for us beginning January 1, 2014,
at which time we will apply the guidance on a prospective basis. This update affects presentation only.

NOTE 3 – ACQUISITIONS AND DIVESTITURES

The following table summarizes the locations of our acquisitions for the years ended December 31,

2013, 2012 and 2011:

Acquisition Locations
United States
Argentina
Brazil
Canada
Chile
Ireland
Japan
Mexico
Portugal
Romania
Spain
United Kingdom
Total

2013

2012

2011

13
3
2
3
1
—
3
1
2
6
3
12
49

17
1
1
—
3
—
1
2
1
2
8
5
41

21
1
4
2
1
1
3
—
1
6
2
3
45

During 2013, we completed 49 acquisitions, of which 13 were domestic and 36 were international
businesses. Domestically, we acquired the selected assets of eleven regulated waste businesses, one
communication services business, and 100% of the stock of another communication solutions business.

Internationally, in Argentina, we acquired 100% of the stock of two regulated waste businesses and
selected assets of one regulated waste business. In Brazil, we acquired 100% of the stock of one regulated
waste business and 70% of another regulated waste business. In Canada, we acquired 100% of the stock of
two regulated waste businesses and selected assets of one communication solution business. In Chile, we
acquired 100% of the stock of one regulated waste business. In Japan, we acquired selected assets of three
regulated waste businesses. In Mexico, we acquired 51% stock of a regulated waste business. In Portugal,
we acquired 100% of the stock of one regulated waste business and selected assets of another regulated waste
business. In Romania, we acquired 100% of the stock of two regulated waste businesses and selected assets
of four regulated waste businesses. In Spain, we acquired 100% of the stock of two regulated waste business
and selected assets of another regulated waste business. In the United Kingdom, we acquired 100% of the
stock of seven regulated waste businesses, one recall and returns business, two communication solutions
businesses, and selected assets of two regulated waste businesses.

The following table summarizes the aggregate purchase price paid for acquisitions and other
adjustments of consideration to be paid for acquisitions during the years ended December 31, 2013, 2012
and 2011:

In thousands

Cash
Promissory notes
Deferred consideration
Contingent consideration
Total purchase price

2013

2012

2011

161,936
64,581
31,149
4,371
262,037

224,367
70,670
17,681
9,190
321,908

469,209
38,461
11,695
7,404
526,769

For financial reporting purposes our acquisitions were accounted for using the acquisition method of
accounting. These acquisitions resulted in recognition of goodwill in our financial statements reflecting the
premium paid to acquire businesses that we believe are complementary to our existing operations and fit our
growth strategy. During the twelve months ended December 31, 2013, we recognized a net increase in
goodwill of $179.8 million excluding the effect of foreign currency translation (see Note 11 - Goodwill and
Other Intangible Assets, in the Notes to the Consolidated Financial Statements). A net increase of $61.8
million was assigned to our United States reportable segment, and $118.0 million was assigned to our
International reportable segment. Approximately $84.6 million of the goodwill recognized during the twelve
months ended December 31, 2013 will be deductible for income taxes.

During the twelve months ended December 31, 2013, we recognized a net increase in intangible assets
of $92.4 million, excluding the effect of foreign currency translation. The changes include $77.9 million in
the estimated fair value of acquired customer relationships with amortizable lives of 15 to 40 years, $7.9
million in permits with indefinite lives, $5.8 million in tradename with indefinite life, $0.3 million in
tradenames with amortizable lives of 10 to 20 years, and $0.5 million in non-competes with amortizable lives
of 3 to 5 years.

The purchase prices for these acquisitions in excess of acquired tangible assets have been primarily
allocated to goodwill and other intangibles and are preliminary, pending completion of certain intangible
asset valuations and completion accounts. The following table summarizes the preliminary purchase price
allocation for current period acquisitions and other adjustments to purchase price allocations during the years
ended December 31, 2013, 2012 and 2011:

In thousands

Fixed assets
Intangibles
Goodwill
Net other assets/ (liabilities)
Debt
Net deferred tax liabilities
Noncontrolling interests
Total purchase price allocation

2013

2012

2011

15,582
92,398
179,795
(20)
(7,512)
(13,995)
(4,211)
262,037

30,426
150,149
147,156
23,102
(4,353)
(20,186)
(4,386)
321,908

29,897
206,775
342,486
19,996
(1,240)
(60,437)
(10,708)
526,769

During the twelve months ended December 31, 2013, 2012 and 2011 the Company incurred $10.3
million, $7.9 million and $16.7 million, respectively, of acquisition related expenses. These expenses are
included with with “Selling, general and administrative expenses” (“SG&A”) on our Consolidated Statements
of Income.

The results of operations of these acquired businesses have been included in the consolidated statements
of income from the date of the acquisition. Because we integrate acquisitions into our current structure in
order to achieve cost synergies, the effect of acquisitions on net income is not practical to estimate. The 2013
estimated impact to revenues of these acquisitions was $56.8 million. The estimated annualized revenues

from these acquisitions were approximately $154.3 million. The following consolidated pro forma
information on the impact of these acquisitions to our consolidated revenues is based on the assumption that
these acquisitions all occurred on January 1, 2013 and 2012.

In thousands

Revenues

Years Ended December 31,

2013
2,240,302

2012
2,010,644

NOTE 4 – FAIR VALUE MEASUREMENTS

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability
in an orderly transaction between market participants at the measurement date. The fair value hierarchy
distinguishes between (1) market participant assumptions developed based on market data obtained from
independent sources (observable inputs) and (2) an entity's own assumptions about market participant
assumptions developed based on the best information available in the circumstances (unobservable inputs).
The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted
prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable
inputs (Level 3). The three levels of the fair value hierarchy are described below:

Level 1 – Quoted prices in active markets for identical assets or liabilities.

Level 2 – Observable inputs other than quoted prices in active markets for identical assets and liabilities,
quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are observable
or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 – Inputs that are generally unobservable and typically reflect management’s estimate of assumptions
that market participants would use in pricing the asset or liability.

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, the fair value measurement of a liability must reflect
the nonperformance risk of an entity.

In thousands

Assets:

Cash and cash equivalents
Short-term investments

Total assets
Liabilities:

Contingent consideration

Total liabilities

Total as of
December 31, 2013

Fair Value Measurements Using
Level 2
Inputs

Level 3
Inputs

Level 1
Inputs

$
$

61,991
413
62,404

12,527
12,527

$
$

61,991
413
62,404

— $
— $

— $
—
— $

— $
— $

—
—
—

12,527
12,527

In thousands

Assets:

Cash and cash equivalents
Short-term investments

Total assets
Liabilities:

Contingent consideration

Total liabilities

Total as of
December 31, 2012

Fair Value Measurements Using
Level 2
Inputs

Level 3
Inputs

Level 1
Inputs

$
$

31,324
503
31,827

18,511
18,511

$
$

31,324
503
31,827

— $
— $

— $
—
— $

— $
— $

—
—
—

18,511
18,511

We had contingent consideration liabilities recorded using Level 3 inputs in the amount of $12.5 million
(of which $9.2 million is classified as current liabilities at December 31, 2013), and $18.5 million at
December 31, 2012. Contingent consideration represents amounts to be paid as part of acquisition
consideration only if certain future events occur. These events are usually acquisition targets for revenues or
earnings. We arrive at the fair value of contingent consideration by applying a weighted probability of potential
outcomes to the maximum possible payout. The calculation of these potential outcomes is dependent on both
past financial performance and management assumptions about future performance. If the financial
performance measures were all fully met, our maximum liability would be $16.0 million at December 31,
2013. Contingent consideration liabilities are reassessed each quarter and are reflected in the Consolidated
Balance Sheets as part of “Other current liabilities” or “Other liabilities”. Changes to contingent consideration
are reflected in the table below:

In thousands
Contingent consideration at December 31, 2012

Increases due to acquisitions

Increase due to additional ownership of noncontrolling interests
Decrease due to payments
Changes due to currency fluctuations
Changes in fair value reflected in Selling, general, and administrative expenses

Contingent consideration at December 31, 2013

18,511
4,371
4,006
(11,068)
(1,015)
(2,278)
12,527

Fair Value of Debt: At December 31, 2013, the fair value of the Company’s debt obligations was
estimated, using Level 2 inputs, at $1.41 billion compared to a carrying amount of $1.43 billion. At
December 31, 2012, the fair value of the Company’s debt obligations was estimated, using Level 2 inputs,
at $1.39 billion compared to a carrying amount of $1.36 billion. The fair values were estimated using an
income approach by applying market interest rates for comparable instruments. The Company has no current
plans to retire a significant amount of its debt prior to maturity.

There were no movements of items between fair value hierarchies.

NOTE 5—INCOME TAXES

The U.S. and International components of income before income taxes consisted of the following for

the years ended December 31, 2013, 2012 and 2011:

In thousands

United States
International

Total income before income taxes

2013

2012

2011

407,315
70,431
477,746

357,076
60,121
417,197

307,909
64,415
372,324

Significant components of our income tax expense for the years ended December 31, 2013, 2012 and

2011 are as follows:

In thousands

Current

United States - federal
United States - state and local
International

Deferred

United States - federal
United States - state and local
International
International - changes in statutory rates

Total provision

2013

2012

2011

103,751
11,683
24,486
139,920

31,808
5,510
(10,246)
(2,330)
24,742
164,662

95,864
14,034
17,192
127,090

25,028
3,881
(8,743)
—
20,166
147,256

99,481
10,205
11,906
121,592

7,690
2,589
4,879
(1,769)
13,389
134,981

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

rate for the years ended December 31, 2013, 2012 and 2011 are as follows:

Federal statutory income tax rate
Effect of:

State and local taxes, net of federal tax effect
Foreign tax rates
Other

Effective tax rate

2013

2012

2011

35.0 %

2.3 %
(0.8)%
(2.0)%
34.5 %

2.9 %
(1.2)%
(1.4)%
35.3 %

2.2 %
(1.6)%
0.7 %
36.3 %

Cash payments for income taxes were $102.1 million, $104.7 million and $76.6 million for the years

ended December 31, 2013, 2012 and 2011, respectively.

Our deferred tax liabilities and assets as of December 31, 2013 and 2012 were as follows:

In thousands

Deferred tax liabilities:

Property, plant and equipment
Goodwill and intangibles

Total deferred tax liabilities
Deferred tax assets:

Accrued liabilities
Other
Net operating tax loss carry-forwards

Less: valuation allowances
Total deferred tax assets
Net deferred tax liabilities

2013

2012

(43,280) $
(387,942)
(431,222)

20,415
25,625
8,097
(1,122)
53,015
(378,207) $

(37,112)
(357,453)
(394,565)

24,251
23,896
12,973
(3,340)
57,780
(336,785)

At December 31, 2013, 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 net
operating loss carry-forwards from foreign and domestic acquisitions are approximately $21.8 million and
certain of these net operating loss carry-forwards begin to expire in 2016. The tax benefit of these net operating
losses is approximately $8.1 million at December 31, 2013, on which a valuation allowance of $1.1 million
was recorded offsetting such tax benefit. The valuation allowance primarily relates to loss carry-forwards
for which limitations are in place and utilization before their expiration is uncertain. During 2013, we reversed
valuation allowances previously recorded in Japan, because net operating tax loss carry-forwards are now
considered more likely than not to be realized. Other changes in our valuation allowance during 2013 were
not material.

Undistributed earnings of foreign subsidiaries are considered permanently reinvested, and therefore no
deferred taxes are recorded thereon. The cumulative amounts of such earnings are $372.7 million at
December 31, 2013, and it is not practicable to estimate the amount of tax that may be payable upon
distribution assuming repatriation.

On September 13, 2013, the IRS released final tangible property regulations under Sections 162(a) and
263(a) of the Internal Revenue Code regarding the deduction and capitalization of expenditures related to
tangible property as well as dispositions of tangible property. Taxpayers may elect to apply them to tax years
beginning on or after January 1, 2012. We have elected to implement this regulation as of January 1, 2013,
which resulted in an immaterial reduction to our current year tax expense.

We and our subsidiaries file 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 2010. In 2013 the Internal Revenue Service
commenced an audit of our 2010 Corporate Income Tax return. That audit is still active at the date of this
filing and we expect no material changes as a result of the examination.

The Company has recorded accruals to cover certain unrecognized tax positions. Such unrecognized
tax positions relate to additional taxes that the Company may be required to pay in various tax jurisdictions.
During the course of examinations by various taxing authorities, proposed adjustments may be asserted. The
Company evaluates such items on a case-by-case basis and adjusts the accrual for unrecognized tax positions
as deemed necessary. The estimated amount of liability associated with the Company’s unrecognized tax
positions that may significantly increase or decrease within the next twelve months cannot be reasonably
estimated.

The total amount of unrecognized tax positions as of December 31, 2013 is $14.9 million. The amount
of unrecognized tax positions that, if recognized, would affect the effective tax rate is approximately $14.9
million. We recognized interest and penalties accrued related to income tax reserves in the amount of $0.4
million and $0.3 million, for the years ended December 31, 2013 and 2012, respectively, as a component of
income tax expense.

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

December 31, 2013 and 2012:

In thousands
Unrecognized tax positions, December 31, 2011

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

Unrecognized tax positions, December 31, 2012

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

Unrecognized tax positions, December 31, 2013

10,772
2,284
—
4,119
—
(1,071)
16,104
267
(1,129)
2,514
—
(2,846)
14,910

NOTE 6 – STOCK BASED COMPENSATION

At December 31, 2013, we had the following stock option and stock purchase plans:

•
•
•
•
•
•
•

the 2011 Incentive Stock Plan, which our stockholders approved in May 2011;
the 2008 Incentive Stock Plan, which our stockholders approved in May 2008;
the 2005 Incentive Stock Plan, which our stockholders approved in April 2005;
the 2000 Nonstatutory Stock Option Plan, which expired in February 2010;
the 1997 Stock Option Plan, which expired in January 2007;
the 1996 Directors Stock Option Plan, which expired in May 2006; and
the Employee Stock Purchase Plan (“ESPP”), which our stockholders approved in May 2001.

The 2011 Incentive Stock Plan authorizes awards of stock options, stock appreciation rights, restricted
stock, and restricted stock units for a total of 3,000,000 shares; the 2008 Plan authorizes awards of stock
options, stock appreciation rights, restricted stock, and restricted stock units 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;
the 2000 Plan authorizes stock option grants for a total of 7,000,000 shares; the 1997 Plan authorized stock
option grants for a total of 6,000,000 shares; and the Directors Plan authorized stock option grants for a total
of 2,340,000 shares.

In terms of the stock options authorized, the 2011 Plan, 2008 Plan, and the 2005 Plan provide for the
grant of non-statutory stock options (“NSOs”) and incentive stock options (“ISOs”) intended to qualify under
section 422 of the Internal Revenue Code; the 2000 Plan provides for the grant of NSOs; the 1997 Plan
provided for the grant of NSOs and ISOs; and the Directors Plan provided for the grant of NSOs.

The 2011, 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 authorized awards

to our employees and consultants but not to our officers and directors; the 1997 Plan authorized awards to
our officers, directors, employees and consultants; and the Directors Plan authorized awards to our outside
directors.

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.

As of December 31, 2013, we reserved the following shares for issuance, consisting of both shares
available for awards under the 2011 Plan, 2008 Plan, 2005 Plan, 2000 Plan, and 1997 Plan and shares issuable
under outstanding stock option grants and restricted stock unit awards:

1996 Directors Plan shares
1997 Plan shares
2000 Plan shares
2005 Plan shares
2008 Plan shares
2011 Plan shares
Total shares reserved

28,744
3,384
135,117
1,843,929
3,045,598
3,000,000
8,056,772

Employee Stock Purchase Plan:

In October 2000, our Board of Directors adopted the Employee Stock Purchase Plan ("ESPP"), which
our stock holders approved in May 2001, and was made effective as of July 1, 2001. The ESPP authorizes
900,000 shares of our common stock, which substantially most employees may purchase through payroll
deductions at a price equal to 85% of the lower of the fair market values of the stock as of the beginning or
the end of the six-month offering periods. An employee's payroll deductions, and stock purchase, may not
exceed $5,000 during any offering period. During 2013, 2012 and 2011, 52,956 shares, 56,362 shares and
53,213 shares respectively, were issued through the ESPP.

Stock Based Compensation Expense:

During 2013, there were 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 is based on the grant-date fair
value determined in accordance with the provisions of FASB accounting standards for share-based payments.

The following table presents the total stock-based compensation expense resulting from stock option
awards, restricted stock units (“RSUs”), and the ESPP included in the Consolidated Statements of Income:

In thousands

Years Ended December 31,
2012

2013

2011

Cost of revenues - stock option plan
Selling, general and administrative - stock option plan
Selling, general and administrative - RSUs
Selling, general and administrative - ESPP
Total pre-tax expense

120
15,212
1,116
1,009
17,457

136
13,630
1,474
1,099
16,339

121
13,428
811
1,007
15,367

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

In thousands

Tax benefit recognized in Statement of Income
Excess tax benefit realized

4,518
17,153

5,818
30,161

6,091
17,410

Years Ended December 31,
2012

2011

2013

Stock Options:

Options granted to directors vest in one year and options granted to officers and employees generally
vest over five years. Expense related to the graded vesting options is recognized using the straight-line method
over the vesting period. Stock option activity for the year ended December 31, 2013, is summarized as
follows:

Outstanding at beginning of year

Granted

Exercised

Forfeited

Canceled or expired

Outstanding at end of year

Exercisable at end of year

Vested and expected to vest

Number of
Options

Weighted
Average
Exercise Price
per Share

5,543,664

1,057,630
(923,688)
(135,371)
(1,753)
5,540,482

2,739,717

4,965,902

61.69

97.09

48.17

79.22

20.60

70.29

57.35

68.16

As of December 31, 2013, there was $27.2 million of total unrecognized compensation expense related
to non-vested option awards, which is expected to be recognized over a weighted average period of 1.49
years.

The total exercise intrinsic value represents the total pre-tax value (the difference between the sales
price on that trading day in the year ended December 31, 2013 and the exercise price associated with the
respective option).

In thousands

Total intrinsic value of options exercised

55,757

97,816

52,939

2013

2012

2011

The total aggregate 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, 2013 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, 2013; this amount changes based
on the fair market value of our stock.

The following table sets forth the information related to outstanding and exercisable options for the

years ended December 31:

Weighted average remaining contractual life of
outstanding options (in years)

Total aggregate intrinsic value of outstanding options
(in thousands)

Weighted average remaining contractual life of
exercisable options (in years)

Total aggregate intrinsic value of exercisable options
(in thousands)

2013

2012

2011

6.60

6.70

6.50

254,200

175,200

184,300

5.30

5.50

5.30

161,100

114,500

128,900

Options outstanding and exercisable as of December 31, 2013 by price range are presented below:

Range of Exercise
Price
$22.110 - $38.565
$38.905 - $49.760
$50.020 - $51.550
$51.750 - $58.820
$58.900 - $84.910
$85.000 - $85.000
$85.020 - $86.020
$86.240 - $86.240
$86.830 - $95.030
$95.870 - $119.190
$22.110 - $119.190

Options Outstanding
Outstanding
Average
Remaining
Life in Years
2.46
4.98
6.09
4.57
7.32
7.11
8.11
8.12
8.08
9.16
6.58

Weighted
Average
Exercise Price
33.46
$
46.79
51.53
54.44
77.06
85.00
85.50
86.24
90.48
97.14
70.29

573,918
602,910
744,346
563,083
176,926
768,426
13,850
862,195
211,946
1,022,882
5,540,482

Options Exercisable

Weighted
Average
Exercise Price
33.50
$
46.74
51.52
54.43
78.54
85.00
85.55
86.24
88.85
96.56
57.35

565,918
436,174
401,501
550,667
119,462
321,318
2,450
187,983
115,370
38,874
2,739,717

The Company uses historical data to estimate expected life and volatility. The estimated fair value of

stock options at the time of the grant using the Black-Scholes model option pricing model was as follows:

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

Restricted Stock Units:

Years Ended December 31,
2012
1,142,205
20.14

2013
1,057,630
22.02

5.81
27.03%
—%
1.00%

6.00
27.87%
—%
1.05%

2011
1,050,226
21.07

5.75
27.42%
—%
2.21%

Restricted stock units ("RSUs") vest at the end of three or five years, and our 2008 and 2011 Plans
include a share reserve related to RSUs granted at a 2-1 ratio. The following table sets forth the information
related to RSUs for the years ended December 31:

Total aggregate intrinsic value of outstanding units (in
thousands)

Per share fair value of units granted

8,185
96.40

6,362
86.24

2,707
85.00

2013

2012

2011

A summary of the status of our non-vested RSUs and changes during the year 2013 are as follows:

Non-vested at beginning of year
Granted
Vested and released
Forfeited
Non-vested at end of year

Number of
Shares

Weighted
Average Grant
Date Fair
Value

68,202
17,900
(12,750)
(2,895)
70,457

79.45
96.40
51.65
90.75
88.32

As of December 31, 2013, there was $3.6 million of total unrecognized compensation expense related
to RSUs, which is expected to be recognized over a weighted average period of 2.62 years. The fair value
of units that vested during the years ended December 31, 2013 and 2012 was $1.2 million and $0.4 million,
respectively. No units vested in 2011.

At December 31, 2013 and 2012, we had 1,000,000 authorized shares of preferred stock and no shares

issued or outstanding.

NOTE 7—PREFERRED STOCK

NOTE 8 – EARNINGS PER COMMON SHARE

Basic earnings per share is computed by dividing income available to common shareholders by the
weighted-average number of shares of common stock outstanding during the period. Diluted earnings per
share is computed by dividing income available to common shareholders by the weighted-average number
of shares of common stock outstanding during the period increased to include the number of additional shares
of common stock that would have been outstanding if the potentially dilutive securities had been issued.
Potentially dilutive securities include outstanding stock options, shares to be purchased under the Company’s
employee stock purchase plan and RSUs. The dilutive effect of potentially dilutive securities is reflected in
diluted earnings per share by application of the treasury stock method. Under the treasury stock method, an
increase in the fair market value of the Company’s common stock can result in a greater dilutive effect from
potentially dilutive securities.

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

In thousands, except share and per share data

Numerator:
Numerator for basic earnings per share net income
attributable to Stericycle, Inc.
Denominator:
Denominator for basic earnings per share-weighted
average shares
Effect of diluted securities:
Employee stock options
Denominator for diluted earnings per share-adjusted
weighted average shares and after assumed exercises
Earnings per share – Basic
Earnings per share – Diluted

Years Ended December 31,
2012

2011

2013

311,372

267,996

234,751

85,902,550

85,401,365

85,467,421

1,489,438

1,617,108

1,900,291

87,391,988
3.62
3.56

$
$

87,018,473
3.14
3.08

$
$

87,367,712
2.75
2.69

$
$

For additional information regarding outstanding employee stock options, see Note 6 - Stock Based

Compensation, in the Notes to the Consolidated Financial Statements.

In 2013, 2012 and 2011, options to purchase 846,808 shares, 1,049,707 shares and 879,266 shares,
respectively, at exercise prices of $94.76-$119.19, $77.49-$94.76 and $77.00-$94.24 were not included in
the computation of diluted earnings per share because the effect would have been anti-dilutive.

NOTE 9—ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

The following table sets forth the changes in the components of accumulated other comprehensive

income for 2013, 2012 and 2011:

In thousands

Beginning balance January 1, 2011
Period change
Ending balance December 31, 2011
Period change
Ending balance December 31, 2012
Period change
Ending balance December 31, 2013

Currency
Translation
Adjustments
$

(14,128) $
(29,456)
(43,584) $
6,292
(37,292) $
(17,718)
(55,010) $

Unrealized
Gains
(Losses) on
Cash Flow
Hedges

Accumulated
Other
Comprehensive
Income/ (Loss)

(2,741) $
341
(2,400) $
628
(1,772) $
314
(1,458) $

(16,869)
(29,115)
(45,984)
6,920
(39,064)
(17,404)
(56,468)

The tax impact of the unrealized gains/ (losses) on cash flow hedges in accumulated other comprehensive
income at December 31, 2013, 2012 and 2011 was $0.2 million, $0.4 million, and $0.2 million, respectively.
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 10—PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment at December 31, 2013 and 2012 consisted of the following items:

In thousands

Land
Building and improvements
Machinery and equipment
Vehicles
Containers
Office equipment and furniture
Software
Construction in progress
Total property, plant & equipment
Less: accumulated depreciation
Property, plant and equipment, net

2013

2012

26,818
113,740
214,324
46,579
145,273
68,005
25,676
41,583
681,998
(323,031)
358,967

26,198
106,388
200,805
39,468
132,094
56,515
19,495
30,925
611,888
(276,018)
335,870

NOTE 11 – GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill and other identifiable indefinite lived intangibles are not amortized, but are subject to an

annual impairment test, or more frequent testing if circumstances indicate that they may be impaired.

Goodwill

We have two geographical reportable segments, “United States” and “International”, both of which
have goodwill. The changes in the carrying amount of goodwill since December 31, 2011, by reportable
segment, were as follows:

In thousands

Balance as of December 31, 2011
Goodwill acquired during year
Goodwill allocation adjustments
Sale of business
Changes due to currency fluctuation
Balance as of December 31, 2012
Goodwill acquired during year
Goodwill allocation adjustments
Changes due to currency fluctuation
Balance as of December 31, 2013

United States
1,506,416
$
114,931
(5,061)
—
—
1,616,286
57,250
4,541
—
1,678,077

International
407,287
$
62,145
(24,859)
(1,178)
5,422
448,817
116,534
1,470
(13,316)
553,505

Total
1,913,703
177,076
(29,920)
(1,178)
5,422
2,065,103
173,784
6,011
(13,316)
2,231,582

Current year adjustments to goodwill for certain 2012 acquisitions are primarily due to the finalization

of intangible asset valuations.

During the quarter ended June 30, 2013, we performed our annual goodwill impairment evaluation
for our three reporting units, Domestic Regulated and Compliance Services, Domestic Regulated Recall and
Returns Management Services, and International Regulated and Compliance Services. We calculate the fair
value of our reporting units using an income method and validate those results using a market approach.
Both the income and market approaches indicated no impairment to goodwill to any of our three reporting
units.

Market Approach: Our market approach begins by calculating the market capitalization of the Company
using the average stock price for the prior twelve months and the outstanding share count at June 30, 2013.
We then look at the Company's Earnings Before Interest, Tax, Depreciation, and Amortization (“EBITDA”),
adjusted for stock compensation expense and other items, such as change in fair value of contingent
consideration, restructuring and plant closure costs, and litigation settlement for the prior twelve months.
The calculated market capitalization is divided by the modified EBITDA to arrive at a valuation multiple.
The fair value of each reporting unit is then calculated by taking the product of the valuation multiple and
the trailing twelve month modified EBITDA of that reporting unit. The fair value was then compared to the
reporting units' book value and determined to be in excess of the book value. We believe that starting with
the fair value of the company as a whole is a reasonable measure as that fair value is then allocated to each
reporting unit based on that reporting unit's individual earnings. A sustained drop in our stock price would
have a negative impact to our fair value calculations. A temporary drop in earnings of a reporting unit would
have a negative impact to our fair value calculations.

The results of our goodwill impairment test using the market approach indicated the fair value of our

reporting units exceeded book value by a substantial amount; in excess of 100%.

Income Approach: The income approach uses expected future cash flows of each reporting unit and
discounts those cash flows to present values. Expected future cash flows are calculated using management
assumptions of internal growth, capital expenditures, and cost efficiencies. Future acquisitions are not
included in the expected future cash flows. We use a discount rate based on our Company calculated weighted
average cost of capital which is adjusted for each of our reporting units based on size risk premium and
country risk premium. Significant assumptions used in the income approach include realization of future
cash flows and the discount rate used to present value those cash flows.

The results of our goodwill impairment test using the income approach indicated the fair value of our

reporting units exceeded book value by a substantial amount; in excess of 100%.

Other Intangible Assets

As of December 31, 2013 and 2012 the values of other intangible assets were as follows:

In thousands

Amortizable intangibles:
Covenants not-to-compete
Customer relationships
Tradenames
License agreements
Other
Indefinite lived intangibles:
Operating permits
Tradenames
Total

2013

2012

Gross
Carrying
Amount

Accumulated
Amortization

Net
Value

Gross
Carrying
Amount

Accumulated
Amortization

Net
Value

9,405
670,889
5,283
611
91

116,054
5,800
808,133

5,366
81,271
1,031
416
14

—
—
88,098

4,039
589,618
4,252
195
77

10,993
602,095
4,922
720
89

116,054
5,800
720,035

112,867
—
$ 731,686

5,843
57,236
712
420
4

5,150
544,859
4,210
300
85

—
—
64,215

112,867
—
$ 667,471

In 2013 and 2012, we wrote off $2.9 million and $1.7 million, respectively, for the permit intangibles
of facilities due to rationalizing our domestic and international operations. These expenses are reflected as
part of "Selling, general and administrative expenses". Under current acquisition accounting, a fair value
must be assigned to all acquired assets based on a theoretical "market participant" regardless of the acquirers'
intended use for those assets. This accounting treatment can lead to the recognition of losses when a company
disposes of acquired assets. In 2013, we wrote off $0.4 million of customer relationships due to impairment.

We complete our annual impairment analysis of our indefinite lived intangibles during the quarter
ended December 31 of each year. In 2013 and 2012, we performed our annual permit impairment evaluation
and determined that, other than as noted above, there was no impairment.

Our finite-lived intangible assets are amortized over their useful lives. We have determined that our
customer relationships have useful lives from 14 to 40 years based upon the type of customer, with a weighted
average remaining useful life of 25.6 years. We have covenants not-to-compete intangibles with useful lives
from 3 to 14 years, with a weighted average remaining useful life of 3.9 years. We have tradename intangibles
with useful lives from 10 to 40 years, with a weighted average remaining useful life of 15.7 years. We have
license agreements with useful life of 5 years, with a weighted average remaining useful life of 1.9 years.
We have determined that our permits have indefinite lives due to our ability to renew these permits with
minimal additional cost, and therefore these are not amortized.

During the years ended ended December 31, 2013, 2012 and 2011, the aggregate amortization expense

was $27.1 million, $22.1 million and $16.3 million, respectively.

The estimated amortization expense for each of the next five years, assuming no additional amortizable

intangible assets, is as follows for the years ended December 31:

In thousands
2014
2015
2016
2017
2018

29,087
28,895
28,548
28,402
28,072

Future amortization expense may fluctuate depending on changes in foreign currency rates, future
acquisitions, or changes to the estimated amortizable life of the intangibles. The estimates for amortization
expense noted above are based upon foreign exchange rates as of December 31, 2013.

NOTE 12—ACCRUED LIABILITIES

Accrued liabilities at December 31, 2013 and 2012 consisted of the following items:

In thousands

Accrued compensation
Accrued insurance
Accrued taxes
Accrued interest
Accrued professional services
Others
Total accrued liabilities

2013

2012

36,210
29,363
19,538
8,593
3,097
10,644
107,445

38,801
31,146
11,870
9,045
6,930
18,200
115,992

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

NOTE 13 – DEBT

In thousands

Obligations under capital leases
$1 billion senior credit facility weighted average rate 1.60%, due in 2016
$100 million private placement notes 5.64%, due in 2015
$175 million private placement notes 3.89%, due in 2017
$125 million private placement notes 2.68%, due in 2019
$225 million private placement notes 4.47%, due in 2020
$125 million private placement notes 3.26%, due in 2022
Acquisition notes weighted average rate of 2.26% and weighted average
maturity of 3.6 years
Foreign bank debt weighted average rate 8.37% and weighted average
maturity of 1.6 years
Total debt
Less: current portion of total debt
Long-term portion of total debt

2013

2012

7,343
272,358
100,000
175,000
125,000
225,000
125,000

5,234
225,931
100,000
175,000
125,000
225,000
125,000

252,195

235,856

149,147
1,431,043
150,380
1,280,663

139,063
1,356,084
87,781
1,268,303

Payments due on long-term debt, excluding capital lease obligations, during each of the five years

subsequent to December 31, 2013 are as follows:

In thousands
2014
2015
2016
2017
2018
Thereafter

146,908
211,744
344,556
204,971
20,688
494,833
1,423,700

We paid interest of $51.0 million, $47.5 million and $43.5 million for the years ended December 31,

2013, 2012 and 2011, 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

Land
Buildings
Machinery and equipment
Vehicles
Office equipment and furniture
Less: accumulated depreciation

2013

2012

198
550
2,262
10,530
—
(3,905)
9,635

190
528
2,451
7,377
123
(4,059)
6,610

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

Minimum future lease payments under capital leases are as follows:

In thousands
2014

2015

2016

2017

2018

Thereafter
Total minimum lease payments

Less: amounts representing interest

Present value of net minimum lease payments

Less: current portion included in other current liabilities

Long-term obligations under capital leases

3,991

2,448

1,073

374

389

8,315
(972)
7,343
(3,472)
3,871

the private placement notes. At December 31, 2013, we were in compliance with all of our financial debt
covenants.

As of December 31, 2013 and 2012, we had $155.0 million and $157.6 million, respectively, committed
to outstanding letters of credit under our senior credit facility. The unused portion of the revolving credit
facility as of December 31, 2013 and 2012 was $572.6 million and $616.5 million, respectively.

Guarantees and loans

Shiraishi-Sogyo Co. Ltd. (“Shiraishi”) is an unrelated party in Japan that is expanding its medical
waste management business. We have guaranteed Shiriashi’s loan of $4.7 million borrowed from
JPMorganChase Bank N.A. which is currently due on May 31, 2014. Based on information currently
available, we have concluded the guarantee is not probable of being called and, therefore, we have not
recorded any contingent liability relating to this guarantee. We have also extended non-interest bearing loans
to Shiraishi for approximately $15.5 million due April 18, 2018, which are reflected in the Consolidated
Balance Sheet as part of long term "Other assets" at December 31, 2013 and 2012. There is a collateral
agreement in place on the assets of Shiraishi and related companies in support of amounts owed to the
Company.

NOTE 14—LEASE COMMITMENTS

We lease various plant equipment, office furniture and equipment, motor vehicles, office and warehouse
space, and landfills under operating lease agreements, which expire at various dates over the next 21 years.
The leases for most of the properties contain renewal provisions.

Rent expense for 2013, 2012 and 2011 was $92.4 million, $85.5 million and $75.3 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, 2013 for each of the next five years and in the aggregate are
as follows:

In thousands
2014
2015
2016
2017
2018
Thereafter

66,289
56,509
46,027
37,411
26,059
40,419
272,714

NOTE 15 – PRODUCTS AND SERVICES AND GEOGRAPHIC INFORMATION

FASB Accounting Standards Codification Topic 280 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 Domestic Regulated and
Compliance Services, Domestic Regulated Recall and Returns Management Services, and International
Regulated and Compliance Services (“International”). We have aggregated Domestic Regulated and
Compliance Services and Domestic Regulated Recall and Returns Management Services into one reportable
segment, ("United States"), based on our consideration of the following aggregation criteria:

•

the long term economics

•
•
•
•
•

the nature of the products and services
the nature of the production processes
the type or class of customer for their products and services
the methods used to distribute their products or provide their services
the nature of the regulatory environment.

Management has determined that we have two reportable segments, United States (which includes
Puerto Rico) and International. Revenues are attributed to countries based on the location of customers. The
same accounting principles and critical accounting policies are used in the preparation of the financial
statements for both reportable segments. Summary information for our reportable segments is as follows:

In thousands

Revenues:

United States

Europe
Other international countries

Total International

Total
Income before income taxes:

United States
International

Total
Total assets:

United States
International

Total
Property, Plant and Equipment, net:

United States

Europe
Other international countries

Total International

Total

2013

2012

2011

1,506,587
341,387
294,833
636,220
2,142,807

404,620
73,126
477,746

2,537,611
1,345,186
3,882,797

214,810
74,915
69,242
144,157
358,967

1,370,806
301,615
240,728
542,343
1,913,149

359,748
57,449
417,197

2,427,297
1,119,441
3,546,738

207,387
64,690
63,793
128,483
335,870

1,212,111
252,620
211,317
463,937
1,676,048

316,156
56,168
372,324

2,208,152
968,938
3,177,090

197,118
52,604
44,190
96,794
293,912

Revenues are attributable 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 reportable segments.

Detailed information for our United States reportable segment is as follows:

In thousands

Regulated and compliance services
Recall and returns services
Total revenue
Net interest expense
Income before income taxes
Income taxes
Net income attributable to Stericycle, Inc.

Depreciation and amortization
Capital expenditures

2013
1,408,812
97,775
1,506,587
43,131
404,620
152,874
251,746

50,166
43,442

2012
1,254,486
116,320
1,370,806
41,084
359,748
138,807
220,941

45,234
38,528

2011
1,094,928
117,183
1,212,111
40,048
316,156
119,982
196,174

40,689
36,270

Detailed information for our International reportable segment is as follows:

In thousands

Regulated and compliance services

Net interest expense

Income before income taxes

Income taxes

Net income

Less: net income attributable to noncontrolling interests
Net income attributable to Stericycle, Inc.

Depreciation and amortization

Capital expenditures

2013

2012

2011

636,220

542,343

463,937

11,818

73,126

11,788

61,338
1,712

59,626

38,242

29,667

10,186

57,449

8,449

49,000
1,945
47,055

31,049

26,708

8,584

56,168

14,999

41,169
2,592
38,577

25,357

17,031

NOTE 16—EMPLOYEE BENEFIT PLAN

We have a 401(k) defined contribution retirement savings plan covering substantially all domestic
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 $1,750 per annum. Our contributions for the years ended December 31, 2013,
2012 and 2011 were approximately $3.0 million, $2.8 million and $2.6 million, respectively.

The Company has several foreign defined contribution plans, which require the Company to contribute
a percentage of the participating employee’s salary according to local regulations. For the years ended
December 31, 2013, 2012 and 2011, total contributions made by the Company for these plans were
approximately $0.9 million, $0.8 million and $0.8 million, respectively.

NOTE 17 – 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.

As we have previously disclosed, we were served on March 12, 2013 with a class action complaint
filed in the U.S. District Court for the Western District of Pennsylvania by an individual plaintiff for itself
62

and on behalf of all other “similarly situated” customers of ours. The complaint alleges, among other things,
that we imposed unauthorized or excessive price increases and other charges on our customers in breach of
our contracts and in violation of the Illinois Consumer Fraud and Deceptive Business Practices Act. The
complaint sought certification of the lawsuit as a class action and the award to class members of appropriate
damages and injunctive relief.

The Pennsylvania class action complaint was filed in the wake of a settlement with the State of New
York of an investigation under the New York False Claims Act (which the class action complaint describes
at some length). The New York investigation arose out of a qui tam (or “whistle blower”) complaint under
the federal False Claims Act and comparable state statutes which was filed under seal in the U.S. District
Court for the Northern District of Illinois in April 2008 by a former employee of ours. The complaint was
filed on behalf of the United States and 14 states and the District of Columbia. On September 4, 2013, we
filed our answer to Plaintiff-Relator’s Second Amended Complaint, generally denying the allegations therein.
Also, as previously disclosed, Tennessee, Massachusetts, Virginia and North Carolina have issued civil
investigative demands to explore the allegations made on their behalf in the qui tam complaint but have not
yet decided whether to join the Illinois action.

Following the filing of the Pennsylvania class action complaint, we were served with class action
complaints filed in federal court in California, Florida, Illinois and Utah and in state court in California.
These complaints asserted claims and allegations substantially similar to those made in the Pennsylvania
class action complaint. All of these cases appear to be follow-on litigation to our settlement with the State
of New York. On August 9, 2013, the Judicial Panel on Multidistrict Litigation (MDL) granted our Motion
to Transfer these related actions to the Northern District of Illinois for centralized pretrial proceedings. On
December 10, 2013, we filed our answer to the Amended Consolidated Class Action Complaint in the MDL
action, generally denying the allegations therein.

We believe that we have operated in accordance with the terms of our customer contracts and that
these complaints are without merit. We intend to vigorously defend ourselves against each of these lawsuits.

On May 28, 2013, we received a notice of violation and order to comply from the State of Utah Division
of Air Quality alleging violations of certain conditions of the operating permit for our incineration facility
in North Salt Lake relating to emissions and emissions testing at the facility. We have subsequently completed
testing, in accordance with protocols approved by the Division of Air Quality, that demonstrates that the
facility is currently operating in compliance with applicable emissions standards and our permit conditions.
We filed a formal response to the notice of violation on September 27, 2013 and remain in discussions with
the Division of Air Quality regarding a resolution of this matter.

NOTE 18—SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

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

for 2013 and 2012:

In thousands, except per share data

Revenues
Gross profit
Acquisition expenses
Integration expenses
Change in fair value of contingent consideration
Restructuring costs and plant closure expense
Impairment of intangible assets
Litigation settlement
Net income attributable to Stericycle, Inc.
* Basic earnings per common share
* Diluted earnings per common share

In thousands, except per share data

Revenues
Gross profit
Acquisition expenses
Integration expenses
Change in fair value of contingent consideration
Restructuring costs and plant closure expense
Litigation settlement
Loss on sale of business
Net income attributable to Stericycle, Inc.
* Basic earnings per common share
* Diluted earnings per common share

First
Quarter
2013
513,804
232,094
(1,803)
(896)
—
—
—
(106)
74,617
0.87
0.85

First
Quarter
2012
460,077
205,307
(1,539)
(1,279)
(1,204)
(86)
—
—
64,857
0.76
0.75

$
$

Second
Quarter
2013
526,525
237,852
(2,324)
(1,383)
122
(104)
—
2
78,044
0.91
0.89

Second
Quarter
2012
468,950
209,488
(2,207)
(1,044)
602
(1,064)
—
—
67,593
0.79
0.78

$
$

Third
Quarter
2013
534,579
241,403
(2,111)
(1,423)
185
(364)
—
(12)
80,547
0.94
0.92

Third
Quarter
2012
480,484
215,554
(2,467)
(1,217)
11
(2,250)
—
(4,867)
65,477
0.76
0.75

$
$

Fourth
Quarter
2013
567,899
253,285
(4,037)
(2,819)
1,971
(2,012)
(1,405)
(2,120)
78,164
0.91
0.90

Fourth
Quarter
2012
503,638
226,956
(1,707)
(1,356)
(161)
(1,933)
(6,050)
—
70,069
0.82
0.80

$
$

Year
2013
$ 2,142,807
964,634
(10,275)
(6,521)
2,278
(2,480)
(1,405)
(2,236)
311,372
3.62
3.56

$
$

Year
2012
$ 1,913,149
857,305
(7,920)
(4,896)
(752)
(5,333)
(6,050)
(4,867)
267,996
3.14
3.08

$
$

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

NOTE 19—SUBSEQUENT EVENTS

We have evaluated subsequent events through the date of filing our annual report on Form 10-K. No
events have occurred that would require adjustment to or disclosure in the consolidated financial statements.

STERICYCLE, INC. AND SUBSIDIARIES
SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS

In thousands

Allowance for doubtful
accounts
2011
2012
2013

Balance
Beginning of
Period

$
$
$

10,845
18,905
19,443

$
$
$

Charges to
Expenses

Other
Charges/
(Reversals)
(1)

Write-offs/
Payments

Balance End
of Period

7,079
4,634
4,823

$
$
$

6,807
414
322

$
$
$

(5,826) $
(4,510) $
(5,454) $

18,905
19,443
19,134

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

translation adjustments.

In thousands

Valuation Allowance on Deferred Tax
Assets
2011
2012
2013

Balance
Beginning of
Period

Additions/
(Deductions)
Charged to/
(from) Income
Tax Expense

Other
Changes
to Reserves (2)

Balance End
of Period

$
$
$

11,973
3,775
3,340

$
$
$

(663) $
— $
(1,451) $

(7,535) $
(435) $
(767) $

3,775
3,340
1,122

(2) Amounts consist primarily of valuation allowances on acquired deferred tax assets from business

combinations.

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

None.

Item 9A. Controls and Procedures

(a) Evaluation of disclosure controls and procedures.

Our management, with the participation of our Chairman 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 Chairman 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-15(e) of the Securities Exchange
Act of 1934 as “controls and other procedures of an issuer that are designed to ensure that information required
to be disclosed by the issuer in the reports that it 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 Chairman 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 changes in our internal controls or in other factors that could materially affect those

controls during the quarter ended December 31, 2013.

Item 9B. Other Information

None.

PART III

Item 10. Directors, Executive Officers and Corporate Governance

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
2014 Annual Meeting of Stockholders to be held on May 21, 2014, 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 Item 1 of 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 2014 Annual
Meeting of Stockholders to be held on May 21, 2014, to be filed pursuant to Regulation 14A.

We have adopted a code of business conduct that applies to all of our employees. The code of business
conduct is available on our website, www.stericycle.com, under “About Us/Our Culture”. We intend to satisfy
the disclosure requirement under Item 5.05 of Form 8-K regarding any amendments to, or waiver from, a
provision of our code of conduct by posting such information on our website.

The information required by this Item regarding certain corporate governance matters is incorporated
by reference to the information contained under the caption “Election of Directors” in our definitive proxy
statement for our 2014 Annual Meeting of Stockholders to be held on May 21, 2014, to be filed pursuant to
Regulation 14A.

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 2014 Annual Meeting of Stockholders to be held on May 21, 2014, 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 2014 Annual Meeting of Stockholders to be held on
May 21, 2014, to be filed pursuant to Regulation 14A.

Item 13. Certain Relationships and Related Transactions, and Director Independence

The information required by this Item regarding our policies and procedures for the review, approval
or ratification of transactions with related persons is incorporated by reference to the information contained

under the caption “Policy on Related Party Transactions” in Item 1 of our definitive proxy statement for our
2014 Annual Meeting of Stockholders to be held on May 21, 2014, 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 2014 Annual Meeting of
Stockholders to be held on May 21, 2014, to be filed pursuant to Regulation 14A.

Item 14. Principal Accounting Fees and Services

Fees for professional services provided by our independent public accountants, Ernst & Young LLP, in

each of the last two fiscal years, in each of the following categories are:

In thousands

Audit fees
Audit-related fees
Tax fees
All other fees

2013

2012

1,500
—
210
—
1,710

1,353
—
347
—
1,700

Fees for audit services include fees 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.

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 Audit Committee.

PART IV

Item 15. Exhibits and Financial Statement Schedules

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

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

Report of Independent Registered Public Accounting Firm

Consolidated Financial Statements of Stericycle, Inc. and Subsidiaries

Consolidated Balance Sheets as of December 31, 2013 and 2012

Consolidated Statements of Income for Each of the Years in the Three-Year Period Ended
December 31, 2013

Consolidated Statements of Comprehensive Income for Each of the Years in the Three-Year Period
Ended December 31, 2013

Consolidated Statements of Cash Flows for Each of the Years in the Three-Year Period Ended
December 31, 2013

Consolidated Statements of Changes in Equity for Each of the Years in the Three-Year Period
Ended December 31, 2013

Notes to Consolidated Financial Statements

Schedule II - Valuation and Qualifying Accounts

Page

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.

We have filed the following exhibits with this report:

Exhibit Index
3.1*

Description
Amended and restated certificate of incorporation (incorporated by reference to
Exhibit 3.1 to our registration statement on Form S-1 declared effective on August 22,
1996 (Registration No. 333-05665))

Filed with
Electronic
Submission

3.2*

3.3*

3.4*

3.5*

3.6*

3.7*

3.8*

3.9*

4.1*

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

Amendment to amended and restated bylaws (incorporated by reference to Exhibit 3(ii).1
to our current report on Form 8-K filed March 11, 2011)

Amendment to amended and restated bylaws (incorporated by reference to Exhibit 3(ii).1
to our current report on Form 8-K filed February 16, 2012)

Amendment to amended and restated bylaws (incorporated by reference to Exhibit 3(ii).1
to our current report on Form 8-K filed November 19, 2012)

Specimen certificate for shares of our common stock, par value $.01 per share
(incorporated by reference to Exhibit 4.1 to our registration statement on Form S-1
declared effective on August 22, 1996 (Registration No. 333-05665))

10.1*

10.2*

10.3*

10.4*

10.5*

Amended and Restated Credit Agreement dated as of September 21, 2011 entered into by
us and certain of our subsidiaries as borrowers, Bank of America, N.A., as administrative
agent, swingline lender, a lender and a letter of credit issuer, other lenders party to the
amended and restated credit agreement, JPMorgan Chase Bank, N.A., as syndication
agent, and HSBC Bank USA, National Association, Lloyds Securities, Inc., and Union
Bank, N.A., as co-documentation agents (incorporated by reference to Exhibit 10.1 to
our current report on Form 8-K filed September 23, 2011)

First Amendment, dated as of October 18, 2012, to Amended and Restated Credit
Agreement (incorporated by reference to Exhibit 10.2 to our annual report on Form 10-K
for 2012)

Note Purchase Agreement dated as of April 15, 2008 entered into by us, 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)

Note Purchase Agreement dated as of August 18, 2010 entered into by us, as issuer and
seller, and Metropolitan Life Insurance Company, MetLife Insurance Company of
Connecticut, Union Fidelity Life Insurance Company, Allstate Life Insurance Company,
Allstate Life Insurance Company of New York, American Heritage Life Insurance
Company, New York Life Insurance Company, New York Life Insurance and Annuity
Corporation, New York Life Insurance and Annuity Corporation Institutionally Owned
Life Insurance Separate Account (BOLI 30C), Forethought Life Insurance Company,
Hartford Life Insurance Company, Hartford Life and Accident Insurance Company,
Hartford Fire Insurance Company, Physicians Life Insurance Company, Nationwide Life
Insurance Company, Nationwide Life and Annuity Insurance Company, Massachusetts
Mutual Life Insurance Company, C.M. Life Insurance Company, RiverSource Life
Insurance Company, Thrivent Financial for Lutherans, The Lincoln National Life
Insurance Company, The Northwestern Mutual Life Insurance Company, Jackson
National Life Insurance Company, Allianz Life Insurance Company of North America,
MONY Life Insurance Company, AXA Equitable Life Insurance Company, CUNA
Mutual Insurance Society, Southern Farm Bureau Life Insurance Company, Phoenix Life
Insurance Company, PHL Variable Insurance Company, Modern Woodmen of America,
United of Omaha Life Insurance Company, Companion Life Insurance Company, Mutual
of Omaha Insurance Company, Woodmen of the World Life Insurance Society, Knights
of Columbus, Physicians Insurance A Mutual Company, Seabright Insurance Company
and Country Life Insurance Company, as purchasers (incorporated by reference to our
current report on Form 8-K filed August 27, 2010)

Note Purchase Agreement dated as of October 22, 2012 entered into by us, as issuer and
seller, and The Northwestern Mutual Life Insurance Company, Northwestern Long Term
Care Insurance Company, The Lincoln National Life Insurance Company, ING USA
Annuity and Life Insurance Company, ING Life Insurance and Annuity Company,
Reliastar Life Insurance Company, Reliastar Life Insurance Company of New York,
Principal Life Insurance Company, Penn Mutual Life Insurance Company, Symetra Life
Insurance Company, Jackson National Life Insurance Company, Reassure America Life
Insurance Company, Aviva Life and Annuity Company, Royal Neighbors of America,
Thrivent Financial for Lutherans, AXA Equitable Life Insurance Company, MONY Life
Insurance Company, RiverSource Life Insurance Company (944), RiverSource Life
Insurance Co. of New York (904), Western-Southern Life Assurance Company,
Columbus Life Insurance Company, Integrity Life Insurance Company, Integrity Life
Insurance Company Separate Account GPO, National Integrity Life Insurance Company
Separate Account GPO, Great-West Life & Annuity Insurance Company, Great-West
Life & Annuity Insurance Company of South Carolina, Hartford Life Insurance
Company, The Guardian Life Insurance Company of America, Modern Woodmen of
America, National Life Insurance Company, Trinity Universal Insurance Company,
Catholic United Financial, Occidental Life Insurance Company of North Carolina,
Western Fraternal Life Association, Southern Farm Bureau Life Insurance Company,
Woodmen of the World Life Insurance Society, Americo Financial Life & Annuity
Insurance Company, American United Life Insurance Company, Ameritas Life Insurance
Corp. of New York, Acacia Life Insurance Company, The Union Central Life Insurance
Company, USAA Life Insurance Company, Country Life Insurance Company,
ProAssurance Indemnity Company, Inc, ProAssurance Casualty Company, and State of
Wisconsin Investment Board, as purchasers (incorporated by reference to our current
report on Form 8-K filed October 26, 2012)

10.6*†

10.7*†

10.8*†

10.9*†

10.10*†

10.11*†

10.12*†

10.13*†

10.14*†

10.15*†

10.16*†

10.17*†

10.18*†

10.19*†

10.20*†

10.21*†

10.22*†

10.23*†

10.24*†

10.25†

10.26†

10.27*†

10.28*†

10.29*†

14*

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))

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
registration statement on Form S-3 declared effective on February 4, 1999 (Registration
No. 333-60591))

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

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))

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))

First amendment to 2005 Plan (incorporated by reference to Exhibit 10.15 to our annual
report on Form 10-K for 2008)

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

First amendment to 2008 Plan (incorporated by reference to Exhibit 10.19 to our annual
report on Form 10-K for 2009)

Amendment to 1997 Plan, 2000 Plan, 2005 Plan and 2008 Plan (incorporated by
reference to Exhibit 10.21 to our annual report on Form 10-K for 2012)

2011 Incentive Stock Plan (“2011 Plan”) (incorporated by reference to Exhibit 4.1 to our
registration statement on Form S-8 filed August 9, 2011 (Registration No. 333-176165))

Form of agreement for stock option grant under 2005, 2008 and 2011 Plans (incorporated
by reference to Exhibit 10.20 to our annual report on Form 10-K for 2011)

Form of agreement for restricted stock unit award under 2008 and 2011 Plans
(incorporated by reference to Exhibit 10.21 to our annual report on Form 10-K for 2011)

Bonus conversion program (2014 plan year)

Form of agreement for stock option grant under bonus conversion program for 2014 plan
year

Employee Stock Purchase Plan (incorporated by reference to Exhibit 4.1 to our
registration statement on Form S-8 filed November 8, 2013 (Registration No.
333-192235))

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

31.1

31.2

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

x
*

Filed herewith
Previously filed

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

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 28, 2014

STERICYCLE, INC.
(Registrant)
By: /s/ Frank J.M. ten Brink
Frank J.M. ten Brink
Executive Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below

by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

Dated: February 28, 2014

Name

Title

/s/ CHARLES A. ALUTTO

Charles A. Alutto

President, Chief Executive Officer and
Director (Principal Executive Officer)

/s/ FRANK J.M. TEN BRINK

Frank J.M. ten Brink

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

Date

February 28, 2014

/s/ MARK C. MILLER

Mark C. Miller

Executive Chairman of the Board of
Directors

February 28, 2014

/s/ JACK W. SCHULER

Jack W. Schuler

/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

/s/ MIKE S. ZAFIROVSKI

Mike S. Zafirovski

/s/ THOMAS D. BROWN

Thomas D. Brown

/s/ RONALD G. SPAETH

Ronald G. Spaeth

Lead Director of the Board of Directors

February 28, 2014

Director

ANNUAL REPORT

Dear Fellow Shareholders:

In 2013, Stericycle continued to set new Company financial records and expand our

range of services in the U.S. and 11 other countries in pursuit of our core purpose of

helping our customers fulfill their promise by providing solutions that protect people

and brands, promote health, and safeguard the environment. Our revenues in 2013

grew to $2.14 billion, a 12.0% increase over 2012. Our gross margin was 45.0% in

2013 compared with 44.8% in 2012. Operating income before acquisition-related

costs and various adjustments increased to $554.1 million from $498.5 million in

2012. Our operating margin before acquisition-related costs and various adjustments

was 25.9% compared with 26.1% in 2012.

Under U.S. generally accepted accounting principles (“GAAP”), net income

attributable to Stericycle for 2013 increased 16.2%, to $311.4 million from $268.0

million, and diluted earnings per share increased 15.7%, to $3.56 from $3.08 per

diluted share. Our 2013 results included a net reduction in net income of $16.4

million, or $0.19 per diluted share, due to acquisition and integration expenses,

litigation settlement expenses, restructuring and plant closure costs, which were

partially offset by a change in fair value of contingent consideration. Our 2012

results included a net reduction in net income of $22.4 million, or $0.26 per diluted

share, due to acquisition and integration expenses, litigation settlement expenses,

loss on sale of business, and restructuring and plant closure costs, and change in

fair value of contingent consideration.

Excluding the impact of these items on our results in 2013 and 2012, our

non-GAAP net income attributable to Stericycle grew to $327.8 million in 2013,

a 12.9% increase over $290.4 million in 2012. Non-GAAP earnings per diluted

share,when adjusted for various items, increased 12.4% to $3.75 from $3.34 in 2012.

Accomplishments in 2013

In 2013 we continued to generate strong free cash flow from operations, which we

used to fund growth and improve our balance sheet. We invested $73.1 million in

capital expenditures to expand our capabilities, drive innovation, and better serve the

evolving needs of our customers. In addition, we used $161.9 million for domestic and

international acquisitions and $163.7 million for stock repurchases on the open market.

In the U.S.: We continued to strengthen Stericycle’s leadership position in regulated

waste management, healthcare safety compliance services, and communication

solutions. We increased the penetration of Steri•SafeSM, our compliance solutions

program, which allows healthcare providers throughout the U.S. to create a safe,

regulatory-compliant workplace. We expanded customer adoption of our Sharps

Management Service, which 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 added new hospital and small quantity customers

to our Pharmaceutical Waste Disposal Program helping them to dispose of

pharmaceuticals that are unused or identified as waste in a safe, compliant and

environmentally-responsible manner. We expanded our StrongPak service to more

retail customers providing them with a compliant disposal service for various types

of hazardous waste. We increased the penetration of our Communication Solutions

services to both hospitals and small customers supporting their efforts to promote

the health of their patients. In 2013 we completed 13 domestic acquisitions.

Internationally: We continued to establish and strengthen our position in multiple

international markets. We strengthened our capabilities in Argentina, Brazil, Canada,

Chile, Ireland, Japan, Mexico, Portugal, Romania, Spain, and the United Kingdom.

We continued to roll out our Clinical Services offering in select international markets.

Clinical Services is a unique suite of solutions that addresses various aspects of

managing a medical or dental practice, principal among which is regulated waste

services. Clinical Services has a modular architecture which enables us to continue to

market new products and services to both new and existing customers on an on-going

basis. We acquired 36 businesses internationally in 2013 including a company with

recall expertise and infrastructure in Europe.

Sustainability: Safeguarding the environment is a critical component of our

company’s purpose. Stericycle commits to capture new opportunities for

sustainable growth by managing our internal operations in a socially and

environmentally-responsible manner. Highlights of some of our sustainability

programs and their benefits to the environment include:

• In the U.S., the diversion of plastic containers from landfill through the use of

our Sharps Management Service equates to over 10 million gallons of gas not

burned and nearly 200 million pounds of CO2 not emitted into the atmosphere.

We continue to roll out this service in Canada, Ireland and the United Kingdom.

• Stericycle’s Pharmaceutical Waste Disposal Program helps keep unused drugs

out of the water system.

• We continue to add vehicle technology and equipment in our U.S. based

transportation fleet to improve safety and fuel efficiency.

• Our Sustainability Solutions service offers product re-use, recycling and

alternative use options, and has diverted over 8 million pounds of waste

from landfills in 2013 and over 38 million pounds in total.

• In Ireland, we have diverted 15.6 million pounds of landfill waste in 2013

and 48.7 million pounds in total by sending treated medical waste to cement

kilns as an alternative fuel source.

Priorities for 2014

By building on Stericycle’s industry leadership position in 2013, we are

confident that we have the operating platform that we need to drive future

growth and explore new opportunities to better serve our customers. Our

priorities for 2014 are as follows:

Domestic Growth: Our focus will be on providing our multiple service

offerings to both our small quantity (SQ) and large quantity (LQ) customer

base as well as expanding our services to new customers. Our marketing efforts

to SQ customers will concentrate on our Steri•SafeSM compliance services,

StrongPak regulated waste services for the retail industry, and Regulated Waste

Management Services. Our marketing focus for LQ customers will continue to

be on extending the momentum of our Regulated Waste Management Services,

including our Sharps Management Services, Pharmaceutical Waste Disposal

Program, StrongPak, and Regulated Recall and Returns Management Services.

We will continue to build on the Communications Solutions platform by

expanding this offering to our existing customer base (both SQ and LQ) while

concurrently focusing on new customer acquisitions.

International Growth: We will remain focused on integrating the acquisitions we

have completed and pursuing attractive international market opportunities directed

at providing value to our customers. We will continue to expand and penetrate the

international SQ customer market by leveraging our Clinical Services Program

to grow our revenues and margins. We will also focus on the expansion of the

Regulated Recall and Returns Management business in Europe.

Profit Growth: We remain committed to improving our operating performance.

We will seek to make further improvements to our collection route densities

through the use of routing technology and acquisitions; to reduce our long-haul

transportation costs; and to improve efficiency in our processing plants. Our

culture of continuous improvement is focused on streamlining how we serve

our customers and encourages the sharing of best practices and productivity

improvement ideas across our organization. We will continue to invest in the

latest Customer Experience tools to ensure that we serve our customers in a

timely and efficient manner.

Service Innovation and Environmental Sustainability Leadership:

During 2014, we will maintain our commitment to being a service leader of

solutions that meet our customers’ evolving needs and an environmental leader

through our service offerings and our internal operations. Our innovative

Steri•SafeSM Compliance Program continues to help our customers enjoy a safer,

more regulatory-compliant workplace in a cost-effective manner. The breadth

of our Regulated Recall and Returns Management Services helps our customers

protect their brands and reduce liability. Our Sharps Management Service

featuring reusable containers offers significant sustainability benefits by reducing

waste volume and conserving valuable natural resources. Our Pharmaceutical

Waste Disposal Program and StrongPak service help our customers ensure

proper disposal of unused drugs, chemicals and other hazardous wastes to

safeguard the environment. Our Communication Solutions offering helps our

customers more effectively and proactively communicate with their patients

thereby promoting health.

• • •

We are excited and confident about our future. We are committed to helping our

customers fulfill their promise through a variety of services that protect people

and brands, promote health, and safeguard the environment. We are a leader in

providing regulated waste management and compliance services through our

diverse offering of solutions. We will continue to improve the efficiency of our

operations, to enhance our customers’ experience while maintaining our strong

emphasis on safety and regulatory compliance, and to focus on the many growth

opportunities that our leadership position affords us. We thank you for your

continued support.

Charles A. Alutto

President and CEO

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

Charles A. Alutto

President and Chief Executive Officer

Mark C. Miller

Executive Chairman

Frank J.M. ten Brink

Chief Financial Officer/CAO

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

Mark C. Miller • Executive Chairman

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

Charles A. Alutto • President
and Chief Executive Officer

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

Richard T. Kogler

Chief Operating Officer

Michael J. Collins

President, Recall and Return Management Services

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

Thomas D. Brown
Member – Audit Committee

William K. Hall
Member – Audit Committee

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

Ronald G. Spaeth
Member – Compensation
Committee

Mike S. Zafirovski
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
155 N. Wacker Drive
Chicago, Illinois 60606

O u t s i d e C o u n s e l

Johnson and Colmar
2201 Waukegan Road, Suite 260
Bannockburn, Illinois 60015

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

Wells Fargo Bank N.A.
Shareowner Services
1110 Centre Pointe Curve, Suite #101
Mendota Heights, MN 55120-4100

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
Wednesday, May 21, 2014 at the Hilton Garden Inn
Chicago O’Hare Airport
2930 South River Road, Des Plaines, IL 60018.

N a s d a q ® S y m b o l

SRCL

(800) 643-0240

www.stericycle.com

ANNUAL REPORT