UNITED STATES
$19,883,683. Refrigerators Room air conditioners Dishwashers Dehumidifiers Microwave ovens Humidifiers We then offered our services for disposing of appliances in an environmentally sound manner to appliance manufacturers and retailers, waste hauling companies, rental property managers, local governments and the public. 2013. Manufacturer Supply services for electric utility energy efficiency programs. ARCA manage all aspects, including advertising, of the appliance recycling or replacement program. Under other contracts, we provide only specified services, such as collection and recycling. 2013. including those from our ApplianceSmart stores and through processing of refrigerators and freezers at AAP. 2011 2010 Retail 57.5 % 66.2 % Recycling 26.1 % 21.1 % Byproduct, including carbon offsets 16.4 % 12.7 % 100.0 % 100.0 % online. Our retail competition comes mainly from new-appliance and other special-buy retailers. Each ApplianceSmart store competes with local and national retail appliance chains, as well as with independently owned retailers. Many of these retailers have been in business longer than we have and may have significantly greater assets. In 2009, our President and Chief Executive Officer, Edward R. (Jack) Cameron, was selected to represent the appliance recycling industry in the Climate Action Reserve’s 23-member workgroup that was tasked with developing the U.S. Ozone-Depleting Substances Project Protocol for the Destruction of Domestic High Global Warming Potential Ozone-Depleting Substances. The Climate Action Reserve is a national offsets program working to ensure integrity, transparency and financial value in the U.S. carbon market. The protocol, which was issued on February 3, 2010, provides guidance to account for, report and verify greenhouse gas emission reductions associated with destruction of high global warming potential ozone-depleting substances that would have otherwise been released to the atmosphere, including those used in both foam and refrigerant applications. A large percentage of our revenues is derived from retail sales. However, we expect recycling and byproduct revenues as a percentage of total revenues will continue to rise in the future. encountered in connection with the start-up of new businesses, and the competitive environment in which AAP operates. There is no assurance that AAP will be able to sustain profitable operations. Each additional RPC that may be established in the future will also be subject to the risks associated with a new venture. Our market share may be adversely impacted at any time by a significant number of competitors.xý Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 31, 201129, 2012oo Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 xý Noxý Noxý Yes o Noxý Yes o Noxý No$4.59$4.18 per share, as of July 2, 2011June 30, 2012 (the last business day of the registrant’s most recently completed second fiscal quarter) was $21,464,570.10, 2012,20, 2013, there were outstanding 5,554,4275,555,927 shares of the registrant’s Common Stock, without par value.20122013 Annual Meeting of Shareholders to be held on May 10, 20129, 2013, are incorporated by reference into Part III hereof.PagePage 8991010111116161718192132335858596060606161626364ITEM 1. BUSINESS . We also provide turnkey appliance recycling and replacement services for electric utilities and other sponsors of energy efficiency programs.programs through our subsidiaries ARCA Recycling, Inc. and ARCA Canada Inc. In addition, we have a 50% interest in a joint venture, ARCA Advanced Processing, LLC (“AAP”), which recycles appliances generated from twelve states in the Northeast and Mid-Atlantic regions of the United States for General Electric Company (“GE”) acting through its GE Appliances business component.1.Retail sales of appliances at our ApplianceSmart stores.2.Fees charged for collecting and recycling appliances for utilities and other sponsors of energy efficiency programs.3.Fees charged for recycling and replacing old appliances with new ENERGY STAR® appliances for energy efficiency programs sponsored by electric utilities.4.Selling byproduct materials, such as metals, from appliances that we recycle, including appliances collected through our ApplianceSmart stores.5.Sale of carbon offsets created by the destruction of ozone-depleting refrigerants acquired through various recycling programs.1. Retail sales of appliances at our ApplianceSmart stores. 2. Fees charged for collecting and recycling appliances for utilities and other sponsors of energy efficiency programs. 3. 4. Selling byproduct materials, such as metals, from appliances that we recycle, including appliances collected through our ApplianceSmart stores and processed at AAP. 5. Sale of carbon offsets created by the destruction of ozone-depleting refrigerants acquired through various recycling programs. RefrigeratorsWashersFreezersDryersWashers Freezers Dryers Ranges/ovens 61.260.7 million major appliances in 20112012 were flat compared to 2010 due mainly to a 19.4 percent increase in year-over-year room air conditioner shipments.with 2011 shipments of 61.2 million. Core categories in kitchen and home laundry appliances declined over 20102.3 percent compared with 2011 shipments.1.Polychlorinated biphenyls (“PCBs”), which have toxic effects on humans and animals. Although the U.S. Environmental Protection Agency (“EPA”) banned the production of PCBs in 1979, it allowed manufacturers to use their remaining inventories of PCB-containing components. Consequently, some old room air conditioners and microwave ovens have capacitors that contain PCBs, which can contaminate groundwater when released.2.Mercury, which easily enters the body through absorption, inhalation or ingestion, potentially causing neurological damage. Mercury-containing components may be found in freezers, washers and ranges.1. Polychlorinated biphenyls (“PCBs”), which have toxic effects on humans and animals. Although the U.S. Environmental Protection Agency (“EPA”) banned the production of PCBs in 1979, it allowed manufacturers to use their remaining inventories of PCB-containing components. Consequently, some old room air conditioners and microwave ovens have capacitors that contain PCBs, which can contaminate groundwater when released. 2. Mercury, which easily enters the body through absorption, inhalation or ingestion, potentially causing neurological damage. Mercury-containing components may be found in freezers, washers and ranges. 3. Chlorofluorocarbon, hydrochlorofluorocarbon, and hydrofluorocarbon (collectively, “CFC”) refrigerants, which cause long-term damage to the earth’s ozone layer and may contribute to global climate change. Refrigerators, freezers, room air conditioners and dehumidifiers commonly contain CFC refrigerants. 4. CFCs having a very high ozone-depletion potential that may also be used as blowing agents in the polyurethane foam insulation of refrigerators and freezers. 5. Other materials, such as oil and sulfur dioxide, that are harmful when released into the environment. 3.Chlorofluorocarbon, hydrochlorofluorocarbon, and hydrofluorocarbon (collectively, “CFC”) refrigerants, which cause long-term damage to the earth’s ozone layer and may contribute to global climate change. Refrigerators, freezers, room air conditioners and dehumidifiers commonly contain CFC refrigerants.4.CFCs having a very high ozone-depletion potential that may also be used as blowing agents in the polyurethane foam insulation of refrigerators and freezers.5.Other materials, such as oil and sulfur dioxide, that are harmful when released into the environment.Approximately twenty-eightMore than 25 percent of all U.SU.S. households currently have a second refrigerator, a rate that is growing at 1 percent per year.1.1. Southern California Edison, to handle refrigerator and freezer recycling operations in 75 percent of their service territory. 2. San Diego Gas & Electric, to provide refrigerator and freezer recycling services for their residential and small commercial customers. 3. Southern California Public Power Authority (“SCPPA”), which sponsors a program to replace and recycle old, inefficient refrigerators for a certain segment of their customers. We currently perform these services for participating members of SCPPA, including the Los Angeles Department of Water and Power. 4. Ontario Power Authority (“OPA”) in Ontario, Canada, to recycle refrigerators, freezers and room air conditioners throughout the province. The program is administered by OPA and managed by approximately seventy local electric distribution companies. 122approximately 150 other utilities across North America.a heightenedcontinued interest from sponsors of energy efficiency initiatives that recognize the effectiveness of recycling and replacing energy inefficient appliances. We are aggressively pursuing electric and gas utilities, public housing authorities and energy efficiency management companies in 20122013 and expect that we will continue to submit proposals for various new appliance recycling and replacement programs throughout the year. However, we still have a limited ability to project revenues from new utility programs. We cannot predict recycling volumes or if we will be successful in obtaining new contracts in 2012.2012,2013, ApplianceSmart was operating twenty19 stores: sixseven in the Minneapolis/St. Paul market; one in Rochester, Minn.; one in St. Cloud, Minn.; four in the Columbus, Ohio, market; sixfour in the Atlanta market; and two in the San Antonio, Texas, market. We are a major household appliance retailer with two main channels: new, innovative appliances, and other affordable options such as close-outs, factory overruns, discontinued models and other special-buy appliances, including out-of-carton merchandise. One example of a special-buy appliance involves manufacturer redesign, in which a current model is updated to include a few new features and is then assigned a new model number. Because the major manufacturers—primarily Whirlpool, General Electric and Electrolux—ship only the latest models to retailers, a large quantity of the older model remains in the manufacturer’s inventory. Special-buy appliances typically are not integrated into the manufacturers’ normal distribution channels and require a different method of management, which we provide.in 2011, the 10 largest retailers of major appliances accountedaccount for more than 85 percent of the sales volume. At the same time, the expansion of big-box retailers that sell appliances has created a dramatican increase in the number of special-buy units, further straining the traditional outlet system for these appliances. Because these special-buy appliances have value, manufacturers and retailers need an efficient management system to recover their worth.2012,2013, are with the following five major manufacturers:1.Bosch2.Danby3.Electrolux4.General Electric5.Whirlpool1. Bosch 2. Electrolux 3. General Electric 4. Samsung 5. Whirlpool 1.1. We have no guarantees for the number or type of appliances that we have to purchase. 2. The agreements may be terminated by either party with 30 days’ prior written notice. 3. We have agreed to indemnify certain manufacturers for certain claims, allegations or losses concerning the appliances we sell. has contributed their existing business to the joint venture. Under the Joint Venture Agreement, the parties formed a new entity known as ARCA Advanced Processing, LLC and each party has a 50% interest in AAP. If additional RPCs incorporating UNTHA Recycling Technology (“URT”) and a shredder system are established, AAP has the right to establish the next two RPCs and will have a right of first refusal to establish subsequent RPCs. We contributed $2.0 million to the joint venture and 4301 contributed their equipment and existing business to the joint venture. The joint venture commenced operations on February 8, 2010.an UNTHA Recycling Technology (“URT”)a URT materials recovery system, for which we are the exclusive North American distributor, to enhance the capabilities of the RPC in Philadelphia. We completed the installation of the URT materials recovery system in the third quarter of 2011. The URT materials recovery system recovers approximately 95 percent of the insulating foam in refrigerators; reduces typical landfill waste of the refrigerator by 85 percent by weight; lowers greenhouse gas and ozone-depleting substance emissions recovered from insulating foam compared towith what typically happens in the industry today; and recovers high-quality plastics, aluminum, copper, steel and even pelletized foam from refrigerators that can be used to make new products.wholly-ownedwholly owned subsidiary formed through a corporate reorganization in July 2011 to hold our business of selling new major household appliances through a chain of Company-owned retail stores. ARCA Canada Inc., a Canadian corporation, is a wholly-ownedwholly owned subsidiary formed in September 2006 to provide turnkey recyclingCalifornia,Recycling, Inc., a California corporation, is a wholly-ownedwholly owned subsidiary formed in November 1991 to provide turnkey recycling services for electric utility energy efficiency programs.Larger facilities offer consumers a wider selection of appliances than smaller stores do and are more efficient for us to operate. For these reasons, we intend to continue to focus our retail sales operations on larger facilities. We would consider opening new stores primarily in markets in which we currently have operations to benefit from operational and marketing efficiencies of scale. However, we will also study other major consumer markets throughout the United States with the possibility of expanding our retail stores to new markets. We evaluate demographic, economic and financial information as well as the facility and proposed lease terms when considering a new store location.appliances. At times, program sponsors may also choose to assist their customersappliances, and in some cases, replacing these inefficient appliances with new, highly efficient ENERGY STAR® models. We believe appliance replacement programs will continue to expand, and we are aggressively pursuing this segment of customers in 2012 and2013. We expect that we will continue to submit proposals for various newmeet with sponsors of appliance recycling and replacement programs.programs and submit proposals highlighting our comprehensive service options.2012,2013, AAP is focusedcontinuing to focus on refining and improving our business with GE at our Philadelphia recycling facility in order to position AAP to respond to what we believe will be strong opportunities for expansion in future years with GE and other potential partners. We optimized our operations by completing the installation of the URT materials recovery system during the third quarter of 2011. Not only willhas the URT system allowallowed us to expand our recycling capabilities to attract new business, it is also a critical component in our strategy to grow our revenue stream in 2012 while improving our margins.Danby, Electrolux, General Electric, Samsung and Whirlpool, to acquire the product we sell at our ApplianceSmart stores. We purchase new, special-buy appliances, such as discontinued models and factory overruns, and sell the product at a significant discount to full retail prices. In addition, our participation in a national buying cooperative enables us to purchase the latest models of new appliances to fill out our mix of product.1.Total number of appliances expected to be processed and/or replaced.2.Length of the contract term.3.Specific services the utility selects us to provide.4.Market factors, including labor rates and transportation costs.1. Total number of appliances expected to be processed and/or replaced. 2. Length of the contract term. 3. Specific services the utility selects us to provide. 4. Market factors, including labor rates and transportation costs. 200150 utilities in 2012.2012.2013. We cannot predict recycling or replacement volumes or if we will be successful in obtaining new contracts.stores.stores and processed at AAP. Carbon offset revenues are created by the destruction of ozone-depleting refrigerants acquired through various recycling programs and from our ApplianceSmart stores. 2012 2011 Retail 62.3 % 57.5 % Recycling 22.1 26.1 Byproduct, including carbon offsets 15.6 16.4 100.0 % 100.0 % 20112012 and 2010,2011, we operated two reportable segments: retail and recycling. The retail segment is comprised of sales generated through our ApplianceSmart stores. Our recycling segment includes all fees charged for collecting, recycling and installing appliances for utilities and other customers and includes byproduct revenue, which is generated primarily through the recycling of appliances. In 20112012 and 2010,2011, we consolidated AAP in our financial statements. Sales generated by AAP are included in byproduct revenues in our recycling segment. Financial information about our segments is included in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations,”Operations” and Note 1513 of “Notes to Consolidated Financial Statements.”online through a shopping cart feature that was added in the fourth quarter of 2011.To evaluate the effectiveness of ApplianceSmart’s advertising venues and messages, we engaged a consulting group in 2010 to help us analyze our branding and marketing efforts. As a result of our findings, we tested revamped branding and advertising messages in select stores in late 2010. Because of the positive response from consumers, we rolled out the new advertising strategies and messages in all of our markets in 2011. Exterior and interior signage was also upgraded in five Minnesota stores and four Georgia stores during 2011 to reflect our commitment to the consumer experience.Utility promotional9
Competition appliance recycling industry. We generally compete for contracts with several other national appliance recycling businesses, and energy services management companies.companies and new-appliance retailers. We also compete with small hauling or recycling companies based in the program’s service territory. Many of these companies, including used-appliance dealers that call themselves “appliance recyclers,” resell in the secondary market a percentage of the appliances they accept for recycling. The unsalable units may not be properly processed to remove environmentally harmful materials because these companies do not have the capability to offer the full range of services that we provide.1.Existing recycling companies.2.Entrepreneurs entering the appliance recycling business.3.Energy management consultants.4.Major waste hauling companies.5.Scrap metal processors.1. Existing recycling companies. 2. Entrepreneurs entering the appliance recycling business. 3. Management consultants. 4. Major waste hauling companies. 5. Scrap metal processors. National and regional new-appliance retailers. Southern California Edison Company (“SCE”)SCE as the sole recipient of the 2010 Environmental Excellence Award for our “exemplary support and service of SCE’s Appliance Recycling Program” and commitment to providing “the highest levels of performance and service to SCE and programU.S. Department of TransportationDOT licensing requirements. In addition, in 2010, ApplianceSmart became the first independent retailer in the country to partner with the U.S. EPA in the Responsible Appliance Disposal (RAD)(“RAD”) program. Through RAD, partners commit to employing best environmental practices to reduce emissions of ozone-depleting substances and greenhouse gases through the proper disposal of refrigeration appliances at end of life. RAD partners report program results to the EPA annually to help quantify climate protection efforts.Employees20122013 we had 370340 full-time employees and 911 part-time employees, distributed approximately as follows:1.31% of our employees, including management, provide customer service, appliance collection, transportation and processing services at our recycling centers.2.59% of our employees, including management, work in our retail stores.3.10% of our employees are corporate management and support staff.1. 32% of our employees, including management, provide customer service, appliance collection, transportation and processing services at our recycling centers. 2. 60% of our employees, including management, work in our retail stores. 3. 8% of our employees are corporate management and support staff. ITEM 1A. RISK FACTORS Our strategy of opening new retail stores may result in net losses.Our growth strategy includes opening new retail stores. We evaluate demographic, economic and financial information in considering a new store location. We look primarily in markets where we currently have operations to benefit from additional operational and marketing efficiencies of scale. New stores take time to become profitable; we cannot assure you that any individual current or future store will attain or maintain projected profitability. We incurred retail segment operating losses of $0.2 million and $0.8 million in 2011 and 2010, respectively. We have historically experienced improvement in our retail segment as our stores have become established. However, the recent consumer cutback in spending related to the purchase of major household appliances has negatively impacted our retail segment profits. Our full financial information isset out in the consolidated financial statements and related notes and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.”2019 ApplianceSmart stores. Retail revenues typically have lower profit margins than recycling revenues. While we believe that our future economic results will be heavily dependent on our retail stores, we are continuing to see interest in recycling and replacement programs and are pursuing opportunities with providers of energy efficiency services. In fiscal years 20112012 and 2010,2011, approximately 58%62% and 66%57%, respectively, of our revenues were from retail sales. We believe that recycling and byproduct revenues will grow faster than retail revenues as we continue to add new recycling contracts and as a result of the impact of our recycling agreement with GE.have experienced an increase in the number ofcontinue to respond to utility companies requesting bids for upcoming appliance recycling programs, we are still dependent on certain customers for a large portion of our revenues. Generally, recycling revenues have a higher gross profit than retail revenues.17%9% and 13%17% of our total revenues for 20112012 and 2010,2011, respectively. The loss or material reduction of business from any of these major customers could adversely affect our net revenues and profitability. However, we believe we will continue to add new recycling contracts in 20122013 and beyond. and incurred a net loss of $0.1 million in 2010.. AAP is subject to all of the risks associated with a new venture, including the potential for unanticipated expenses, difficulties and delays frequentlywill beis dependent on market prices for recovered materials.will beare driven by the market prices for various recovered materials, which include steel, copper, aluminum, other non-ferrous metals, glass, plastic, oil, and certain types of refrigerants. Market prices for such materials may vary significantly. If market prices for such materials are less than projected, AAP may be unable to achieve profitable operations.developingoperating a chain of retail stores. This commitment will require a significant continuing investment in capital equipment and leasehold improvements and could require additional investment in real estate.2012.2013. Currently, we have twenty19 retail stores and eleven recycling centers, including AAP, in operation. If our revenues are lower than anticipated, our expenses are higher than anticipated or our line of credit cannot be maintained, we will require additional capital to finance our operations. In addition, we may need to provide additional capital to AAP to fund itsoperations or AAP’s operation. Even if we are able to maintain our line of credit, we may need additional equity or other capital in the future. Sources of additional financing, if needed in the future, may include further debt financing or the sale of equity (including the issuance of Preferred Stock) or other securities. We cannot assure you that any additional sources of financing or new capital will be available to us, available on acceptable terms, or permitted by the terms of our current debt. In addition, if we sell additional equity to raise funds, all outstanding shares of Common Stock will be diluted. may vary by market location and include, for example, laws concerning the management of hazardous materials and the 1990 Amendments to the Clean Air Act, which require us to recapture CFC refrigerants from appliances to prevent their release into the atmosphere.2014,2016, if not renewed. The PNC Credit Agreement is collateralized by a security interest in substantially all of our assets, and PNC is also secured by an inventory repurchase agreement with Whirlpool Corporation for Whirlpool purchases only. We also issued a $750,000 letter of credit in favor of Whirlpool Corporation. The PNC Credit Agreement requires starting with the fiscal quarter ending April 2, 2011 and continuing at the end of each fiscal quarter thereafter, that we meet certain financial covenants. On October 23, 2012, we received a minimum fixed charge coverage ratioletter from PNC (“default notice”) notifying us that we had failed to comply with the covenant regarding loans to AAP and that PNC was reserving all rights and remedies available to it under the Credit Agreement or otherwise, but PNC did not increase the interest rate or accelerate the obligations. On March 14, 2013, we executed the third amendment to our PNC Credit Agreement that extended the agreement two additional years until January 24, 2016, waived our prior "events of 1.10:1.00, measured on a trailing twelve-month basis.default," reset our financial covenants and increased our interest rate, among other things. The PNC Credit Agreement limits investments we can purchase, the amount of other debt we can incur and the amount we can spend on fixed assets, along with prohibiting the payment of dividends. On March 10, 2012,20, 2013, borrowings of $7.9$7.3 million were outstanding under the revolving line of credit, and we had unused borrowing capacity of $5.9$3.8 million.current CEO, could adversely affect our business. We do not have employment contracts with present management. We maintain key person life insurance on Mr. Cameron in the amount of $1.0 million.7.1%7.4% of our Common Stock. As of March 10, 2012,20, 2013, our officers and directors together beneficially hold approximately 19.0%18.8% of our Common Stock. Medallion Capital, Inc. owns approximately 8.9% of our outstanding common shares. Perkins Capital Management, Inc. owns approximately 15.3% of our outstanding common shares. Norman and Sandra Pessin own approximately 8.9%15.4% of our outstanding common shares. Because of such ownership, our management and principal shareholders may be able to significantly affect our corporate decisions, including the election of the Board of Directors.15
ITEM 2. | PROPERTIES |
| ||||||||
Market | Opening Date |
| ||||||
Minnesota | June 1998 | 33,000 | ||||||
January 2001 | 24,000 | |||||||
October 2001 | 49,000 | |||||||
February 2003 | 33,000 | |||||||
December 2004 | 30,000 | (Also has 29,000 square feet of warehouse space) | ||||||
May 2008 | 23,000 | |||||||
December 2008 | 31,000 | |||||||
November 2011 | 24,000 | |||||||
August 2012 | 28,000 | |||||||
Ohio | June 1997 | 20,000 | ||||||
May 2001 | 32,000 | |||||||
March 2002 | 30,000 | |||||||
December 2007 | 30,000 | |||||||
Georgia | ||||||||
|
|
| ||||||
November 2004 | 30,000 | (Also has 58,000 square feet of production/warehouse space) | ||||||
December 2006 | 46,000 | |||||||
December 2008 | 33,000 | |||||||
|
| |||||||
Texas |
|
| (Includes production/recycling space) | |||||
|
|
| ||||||
September 2008 | 30,000 |
ITEM 3. | LEGAL PROCEEDINGS |
is in the process of engaging has engaged defense counsel to defend itself and the distributors. We intend to monitorcare monitoring Whirlpool’s defense of the claims.
ITEM 4. MINE SAFETY DISCLOSURES
ITEM 4. | MINE SAFETY DISCLOSURES |
ITEM 5.MARKET FOR OUR COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
ITEM 5. | MARKET FOR OUR COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES |
|
| High |
| Low |
| ||
2011 |
|
|
|
|
| ||
First Quarter |
| $ | 4.61 |
| $ | 3.18 |
|
Second Quarter |
| 4.74 |
| 3.84 |
| ||
Third Quarter |
| 4.72 |
| 3.72 |
| ||
Fourth Quarter |
| 6.57 |
| 4.40 |
| ||
|
|
|
|
|
| ||
2010 |
|
|
|
|
| ||
First Quarter |
| $ | 3.50 |
| $ | 2.10 |
|
Second Quarter |
| 3.90 |
| 2.69 |
| ||
Third Quarter |
| 3.25 |
| 2.09 |
| ||
Fourth Quarter |
| 3.83 |
| 3.02 |
|
High | Low | ||||||
2012 | |||||||
First Quarter | $ | 6.25 | $ | 4.34 | |||
Second Quarter | 4.69 | 3.80 | |||||
Third Quarter | 4.39 | 3.20 | |||||
Fourth Quarter | 3.34 | 1.15 | |||||
2011 | |||||||
First Quarter | $ | 4.61 | $ | 3.18 | |||
Second Quarter | 4.74 | 3.84 | |||||
Third Quarter | 4.72 | 3.72 | |||||
Fourth Quarter | 6.57 | 4.40 |
ITEM 6. SELECTED FINANCIAL DATA
ITEM 6. | SELECTED FINANCIAL DATA |
Fiscal Years |
| 2011 |
| 2010 |
| 2009 |
| 2008 |
| 2007 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Statements of Operations: |
|
|
|
|
|
|
|
|
|
|
| |||||
Total revenues |
| $ | 126,669 |
| $ | 108,162 |
| $ | 101,269 |
| $ | 110,971 |
| $ | 99,754 |
|
Gross profit |
| $ | 36,735 |
| $ | 32,899 |
| $ | 28,377 |
| $ | 35,610 |
| $ | 32,511 |
|
Operating income (loss) |
| $ | 7,244 |
| $ | 3,069 |
| $ | (2,161 | ) | $ | 4,035 |
| $ | 4,142 |
|
Income (loss) from continuing operations |
| $ | 4,461 |
| $ | 2,009 |
| $ | (3,338 | ) | $ | 1,864 |
| $ | 2,476 |
|
Net income (loss) attributable to controlling interest |
| $ | 4,461 |
| $ | 2,009 |
| $ | (3,338 | ) | $ | 360 |
| $ | 2,539 |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Basic income (loss) from continuing operations per common share |
| $ | 0.81 |
| $ | 0.38 |
| $ | (0.73 | ) | $ | 0.41 |
| $ | 0.56 |
|
Basic income (loss) per common share |
| $ | 0.81 |
| $ | 0.38 |
| $ | (0.73 | ) | $ | 0.08 |
| $ | 0.58 |
|
Diluted income (loss) from continuing operations per common share |
| $ | 0.77 |
| $ | 0.37 |
| $ | (0.73 | ) | $ | 0.41 |
| $ | 0.55 |
|
Diluted income (loss) per common share |
| $ | 0.77 |
| $ | 0.37 |
| $ | (0.73 | ) | $ | 0.08 |
| $ | 0.57 |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Basic weighted average number of common shares outstanding |
| 5,497 |
| 5,267 |
| 4,578 |
| 4,571 |
| 4,400 |
| |||||
Diluted weighted average number of common shares outstanding |
| 5,821 |
| 5,491 |
| 4,578 |
| 4,612 |
| 4,475 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Balance Sheet: |
|
|
|
|
|
|
|
|
|
|
| |||||
Working capital |
| $ | 11,445 |
| $ | 1,331 |
| $ | 3,719 |
| $ | 5,772 |
| $ | 5,126 |
|
Total assets |
| $ | 46,809 |
| $ | 39,864 |
| $ | 31,450 |
| $ | 37,415 |
| $ | 35,532 |
|
Long-term liabilities |
| $ | 8,979 |
| $ | 3,841 |
| $ | 4,481 |
| $ | 5,412 |
| $ | 5,215 |
|
Shareholders’ equity |
| $ | 15,180 |
| $ | 10,208 |
| $ | 5,643 |
| $ | 7,989 |
| $ | 7,262 |
|
Total equity |
| $ | 17,380 |
| $ | 12,147 |
| $ | 5,643 |
| $ | 7,989 |
| $ | 7,262 |
|
Fiscal Years | 2012 | 2011 | 2010 (a) | 2009 (a) | 2008 (a) | ||||||||||||||
Statements of Operations: | |||||||||||||||||||
Total revenues | $ | 114,313 | $ | 126,669 | $ | 108,162 | $ | 101,269 | $ | 110,971 | |||||||||
Gross profit | $ | 27,955 | $ | 36,735 | $ | 32,899 | $ | 28,377 | $ | 35,610 | |||||||||
Operating income (loss) | $ | (3,222 | ) | $ | 7,244 | $ | 3,069 | $ | (2,161 | ) | $ | 4,035 | |||||||
Income (loss) from continuing operations | $ | (3,852 | ) | $ | 4,461 | $ | 2,009 | $ | (3,338 | ) | $ | 1,864 | |||||||
Net income (loss) attributable to controlling interest | $ | (3,852 | ) | $ | 4,461 | $ | 2,009 | $ | (3,338 | ) | $ | 360 | |||||||
Basic income (loss) from continuing operations per common share | $ | (0.69 | ) | $ | 0.81 | $ | 0.38 | $ | (0.73 | ) | $ | 0.41 | |||||||
Basic income (loss) per common share | $ | (0.69 | ) | $ | 0.81 | $ | 0.38 | $ | (0.73 | ) | $ | 0.08 | |||||||
Diluted income (loss) from continuing operations per common share | $ | (0.69 | ) | $ | 0.77 | $ | 0.37 | $ | (0.73 | ) | $ | 0.41 | |||||||
Diluted income (loss) per common share | $ | (0.69 | ) | $ | 0.77 | $ | 0.37 | $ | (0.73 | ) | $ | 0.08 | |||||||
Basic weighted average number of common shares outstanding | 5,551 | 5,497 | 5,267 | 4,578 | 4,571 | ||||||||||||||
Diluted weighted average number of common shares outstanding | 5,551 | 5,821 | 5,491 | 4,578 | 4,612 | ||||||||||||||
Balance Sheet: | |||||||||||||||||||
Working capital | $ | 7,631 | $ | 11,445 | $ | 1,331 | $ | 3,719 | $ | 5,772 | |||||||||
Total assets | $ | 41,804 | $ | 46,809 | $ | 39,864 | $ | 31,450 | $ | 37,415 | |||||||||
Long-term liabilities | $ | 7,643 | $ | 8,979 | $ | 3,841 | $ | 4,481 | $ | 5,412 | |||||||||
Shareholders’ equity | $ | 11,638 | $ | 15,180 | $ | 10,208 | $ | 5,643 | $ | 7,989 | |||||||||
Total equity | $ | 13,234 | $ | 17,380 | $ | 12,147 | $ | 5,643 | $ | 7,989 |
(a) | The financial information for fiscal years 2010, 2009 and 2008 have been derived from our audited consolidated financial statements which are not contained in this filing. |
|
| Fiscal 2011 |
| ||||||||||
|
| 1st Quarter |
| 2nd Quarter |
| 3rd Quarter |
| 4th Quarter |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Total revenues |
| $ | 29,926 |
| $ | 32,891 |
| $ | 35,857 |
| $ | 27,995 |
|
Gross profit |
| $ | 8,989 |
| $ | 9,647 |
| $ | 10,091 |
| $ | 8,008 |
|
Operating income |
| $ | 1,528 |
| $ | 2,253 |
| $ | 2,928 |
| $ | 535 |
|
Net income |
| $ | 737 |
| $ | 2,076 |
| $ | 1,706 |
| $ | 203 |
|
Net income attributable to controlling interest |
| $ | 674 |
| $ | 2,028 |
| $ | 1,756 |
| $ | 3 |
|
|
|
|
|
|
|
|
|
|
| ||||
Basic income per common share |
| $ | 0.12 |
| $ | 0.37 |
| $ | 0.32 |
| $ | 0.00 |
|
Diluted income per common share |
| $ | 0.12 |
| $ | 0.35 |
| $ | 0.30 |
| $ | 0.00 |
|
|
|
|
|
|
|
|
|
|
| ||||
Basic weighted average number of common shares outstanding |
| 5,493 |
| 5,493 |
| 5,493 |
| 5,510 |
| ||||
Diluted weighted average number of common shares outstanding |
| 5,769 |
| 5,820 |
| 5,821 |
| 5,876 |
|
|
| Fiscal 2010 |
| ||||||||||
|
| 1st Quarter |
| 2nd Quarter |
| 3rd Quarter |
| 4th Quarter |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Total revenues |
| $ | 27,267 |
| $ | 28,210 |
| $ | 27,338 |
| $ | 25,347 |
|
Gross profit |
| $ | 8,036 |
| $ | 8,668 |
| $ | 8,861 |
| $ | 7,334 |
|
Operating income |
| $ | 394 |
| $ | 1,063 |
| $ | 1,318 |
| $ | 294 |
|
Net income |
| $ | 80 |
| $ | 641 |
| $ | 922 |
| $ | 305 |
|
Net income attributable to controlling interest |
| $ | 102 |
| $ | 719 |
| $ | 885 |
| $ | 303 |
|
|
|
|
|
|
|
|
|
|
| ||||
Basic income per common share |
| $ | 0.02 |
| $ | 0.13 |
| $ | 0.16 |
| $ | 0.06 |
|
Diluted income per common share |
| $ | 0.02 |
| $ | 0.13 |
| $ | 0.16 |
| $ | 0.05 |
|
|
|
|
|
|
|
|
|
|
| ||||
Basic weighted average number of common shares outstanding |
| 4,588 |
| 5,493 |
| 5,493 |
| 5,493 |
| ||||
Diluted weighted average number of common shares outstanding |
| 4,779 |
| 5,718 |
| 5,686 |
| 5,741 |
|
20
Fiscal 2012 | |||||||||||||||
1st Quarter | 2nd Quarter | 3rd Quarter | 4th Quarter | ||||||||||||
Total revenues | $ | 29,432 | $ | 29,342 | $ | 28,976 | $ | 26,563 | |||||||
Gross profit | $ | 7,612 | $ | 7,571 | $ | 6,723 | $ | 6,049 | |||||||
Operating income (loss) | $ | 84 | $ | (193 | ) | $ | (734 | ) | $ | (2,379 | ) | ||||
Net loss | $ | (77 | ) | $ | (551 | ) | $ | (1,159 | ) | $ | (2,669 | ) | |||
Net loss attributable to controlling interest | $ | (66 | ) | $ | (641 | ) | $ | (1,082 | ) | $ | (2,063 | ) | |||
Basic loss per common share | $ | (0.01 | ) | $ | (0.12 | ) | $ | (0.19 | ) | $ | (0.37 | ) | |||
Diluted loss per common share | $ | (0.01 | ) | $ | (0.12 | ) | $ | (0.19 | ) | $ | (0.37 | ) | |||
Basic weighted average number of common shares outstanding | 5,537 | 5,555 | 5,556 | 5,556 | |||||||||||
Diluted weighted average number of common shares outstanding | 5,537 | 5,555 | 5,556 | 5,556 |
Fiscal 2011 | |||||||||||||||
1st Quarter | 2nd Quarter | 3rd Quarter | 4th Quarter | ||||||||||||
Total revenues | $ | 29,926 | $ | 32,891 | $ | 35,857 | $ | 27,995 | |||||||
Gross profit | $ | 8,989 | $ | 9,647 | $ | 10,091 | $ | 8,008 | |||||||
Operating income | $ | 1,528 | $ | 2,253 | $ | 2,928 | $ | 535 | |||||||
Net income | $ | 737 | $ | 2,076 | $ | 1,706 | $ | 203 | |||||||
Net income attributable to controlling interest | $ | 674 | $ | 2,028 | $ | 1,756 | $ | 3 | |||||||
Basic income per common share | $ | 0.12 | $ | 0.37 | $ | 0.32 | $ | — | |||||||
Diluted income per common share | $ | 0.12 | $ | 0.35 | $ | 0.30 | $ | — | |||||||
Basic weighted average number of common shares outstanding | 5,493 | 5,493 | 5,493 | 5,510 | |||||||||||
Diluted weighted average number of common shares outstanding | 5,769 | 5,820 | 5,821 | 5,876 |
ITEM 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
sells new appliances directly to consumers and provides affordable ENERGY STAR® options for energy efficiency appliance replacement programs. Our eleven regional recycling centers process appliances at end of life to remove environmentally damaging substances and produce material byproducts for over 150 utilities in the U.S. and Canada. AAP employs advanced technology to refine traditional appliance recycling techniques to achieve optimal revenue-generating and environmental benefits. We are also the exclusive North American distributor for UNTHA Recycling Technology (“URT”), one of the world’s leading manufacturers of technologically advanced refrigerator recycling systems and recycling facilities for electrical household appliances and electronic scrap. AAP operates the only URT refrigerator system in the United States. 2013.ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS “Item“Item 8. Financial Statements and Supplementary Data.” Certain information contained in the discussion and analysis set forth below and elsewhere in this annual report, including information with respect to our plans and strategy for our business and related financing, includes forward-looking statements that involve risk and uncertainties. In evaluating such statements, you should specifically consider the various factors identified in this annual report that could cause results to differ materially from those expressed in such forward-looking statements, including matters set forth in “Item 1A. Risk Factors.”Overview. We areApplianceSmart, Inc., a Minnesota corporation, is a wholly owned subsidiary that was formed through a corporate reorganization in theJuly 2011 to hold our business of selling new major household appliances through a chain of Company-owned stores under the name ApplianceSmart®. We alsoretail stores. ARCA Canada Inc., a Canadian corporation, is a wholly owned subsidiary that was formed in September 2006 to provide turnkey appliance recycling and replacement services for electric utilities and other sponsors ofutility energy efficiency programs. ARCA Recycling, Inc., a California corporation, is a wholly owned subsidiary that was formed in November 1991 to provide turnkey recycling services for electric utility efficiency programs. The operating results of our wholly owned subsidiaries are consolidated in our financial statements.TheOur retail segment is comprised of income generated from the sale of appliances through our ApplianceSmartApplianceSmart® stores includingand includes a portion of our byproduct revenues from collected appliances. Our recycling segment includes all fees charged and costs incurred forincome generated from collecting, recycling and installing appliances for utilities and other customers and includes a significant portion of our byproduct revenue, which is primarily generated through the recycling of appliances. AsOur recycling segment also includes all income generated by AAP and our GE agreement. GE sells its recyclable appliances in certain regions of December 31, 2011,the United States to us and we operated 20 stores. Our 20 stores are locatedcollect, process and recycle the appliances. These appliances include units manufactured by GE as well as by other manufacturers. The agreement requires that we will only recycle, and will not sell for re-use or resale, the recyclable appliances purchased from GE. We have established regional processing centers in convenient, high-traffic locations in Georgia, Minnesota, OhioPhiladelphia and Texas. In 2011, we opened one new store in the St. Cloud, Minnesota, market. As of December 31, 2011, we operated ten processing and recycling centers, which are located in California, Colorado, Illinois, Minnesota, North Carolina, Ohio, Pennsylvania, Texas, Washington and Ontario, Canada. Early in 2012, we expandedLouisville to support our recycling business in Canada and opened aagreement with GE. The regional processing center in Nova Scotia. ThisPhiladelphia is our second processing centeroperated by AAP.Canadathe industry to work together to provide a full array of appliance-related services. ApplianceSmart operates nineteen company-owned stores and our eleventh overall. operating under the name of ApplianceSmart, is similar to many other retailers in that it is seasonal in nature. Historically, the fourth quarter is our weakest quarter in terms of both revenues and earnings. We believe this is primarily because the fourth quarter includes several holidays during which consumers tend to focus less on purchasing major household appliances. In 2011During fiscal year 2012, we closed two underperforming ApplianceSmart stores in our Georgia market and 2010, we enhancedopened one store in our marketingMinnesota market. Fiscal year 2012 was challenging for retail sales and profitability due to rebrand ApplianceSmartconsumer anxiety about the election, economy and we continue to evaluate our overall marketing and the advertising channels we use, including the internet. In 2011, we generated comparable store revenue growth of 2.4% compared to a decline in comparablegovernment spending cuts. Our total retail store revenues decreased 2.1% compared with fiscal year 2011. By comparison, industry shipments of 4.1%the six primary appliances sold at ApplianceSmart decreased 2.3% according to the Association of Home Appliance Manufacturers. We are implementing strategies for addressing our underperforming stores, from right-sizing showroom space to closure. We plan to close another one or two underperforming stores in 2010. the latter part of the first quarter and both the second and third quarters generally having higher levels of revenues and earnings. This seasonalityDuring fiscal year 2012, we experienced an unanticipated decline in energy efficiency program volumes throughout most of our contracts as compared with fiscal year 2011. We believe this was due to economic uncertainty and tighter budgets at electric utilities. Seasonality in the recycling segment is due primarily to our utility customers supporting more marketing and advertising during the spring and summer months. Our customers tend to promote the recycling programs more aggressively during the warmer months because they believe more people want to clean up their garages and basements during that time of the year. However, the addition of the GE agreement and some customers have shiftedshifting to marketing their appliance recycling programs year-round. In 2011,year-round has helped to mitigate some seasonality. We are seeing a California utility customer implemented a summer initiativeshift from straight recycling programs to replaceweatherization programs that include replacing old inefficient refrigerators and washers with new ENERGY STAR® refrigerators. The summer initiative resultedmodels and recycling the old appliances. We expect this trend to continue in replacing over 10,000 refrigerators and contributed to a 45% increase in recycling revenues during 2011.2013.We completed our first transaction related to the sale of carbon offsets, which were created during the first quarter of 2011 through the destruction of ozone-depleting refrigerants acquired through various recycling programs. Throughout 2011, we completed several more carbon offset transactions that resulted in $1.2 million in revenues. We anticipate that we will be able to realize future revenues from the sale of carbon offsets, although the frequency of these transactions will vary based on volume levels and market conditions.Along with continuing to expand our core appliance recycling business with electric utility companies, we commenced operations at ARCA Advanced Processing, LLC in February 2010. AAP provides appliance recycling services for General Electric, acting through its GE Appliances business component. AAP generated revenues of $11.3 million and operating income of $0.9 million in 2011. We believe the AAP model is the future of appliance recycling and expect to open similar centers throughout the United States. We cannot predict when these centers may open or if the appropriate volumes can be obtained to support the AAP model at future locations.
We monitor specific economic factors such as retail trends, consumer confidence, manufacturing by the major appliance companies, sales of existing homes and mortgage interest rates as key indicators of industry demand, particularly in our retail segment. Competition in the home appliance industry is intense in the four retail markets we serve. This includes competition not only from independent retailers, but also from such major retailers as Sears, Best Buy, The Home Depot and Lowe’s. We also closely
Fiscal Year.
Subsidiaries. ApplianceSmart, Inc., a Minnesota corporation, is a wholly-owned subsidiary that was formed through a corporate reorganization in July 2011 to hold our businesssale of selling new major household appliances through a chain of Company-owned retail stores. ARCA Canada Inc., a Canadian corporation, is a wholly-owned subsidiary that was formed in September 2006 to provide turnkey recycling services for electric utility energy efficiency programs. ARCA California, Inc., a California corporation, is a wholly-owned subsidiary that was formed in November 1991 to provide turnkey recycling services for electric utility efficiency programs. The operating resultsthe majority of our wholly-owned subsidiaries are consolidatedaccumulated CFCs until this market stabilized. In January 2013, the California Superior Court rejected a major challenge to California’s cap-and-trade program for reducing greenhouse gases. We cannot predict the impact of this legal case, nor other pending lawsuits, but we believe this court decision indicates growing momentum and stability in this market. In the future, we believe it will become easier and more profitable to monetize our financial statements.
Variable Interest Entity. ARCA Advanced Processing, LLC is a joint venture that was formed in October 2009 between ARCAexisting and 4301 Operations, LLC (“4301”) to support ARCA’s agreement, as amended, with GE. Both ARCA and 4301 have a 50% interest in AAP. GE sells its recyclable appliances generated from twelve states infuture inventory of carbon offsets created by the Northeast and Mid-Atlantic regionsdestruction of the United States to ARCA, which collects, processes and recycles the appliances. These appliances include units manufactured by GE as well as by other manufacturers. The agreement requires that ARCA will only recycle, and will not sell for re-use or resale, the recyclable appliances purchased from GE. AAP established a regional processing center (“RPC”) in Philadelphia, Pennsylvania, at which the recyclable appliances are processed. The term of the agreement is for six years from the first date of appliance collection, which was March 31, 2010. AAP commenced operations in February 2010 and has the exclusive rights to service the GE agreement as a subcontractor for ARCA. The financial position and results of operations of AAP are consolidated in our financial statements based on our conclusion that AAP is a variable interest entity and because we have the ability to significantly influence the economic performance of the entity through our contractual agreement with GE. During the third quarter of 2011, AAP completed the installation of its UNTHA Recycling Technology materials recovery system for refrigerators and freezers to enhance the capabilities of the RPC and as required under the GE Agreement.
22CFCs.
Results of Operations
|
| 2011 |
| 2010 |
|
Revenues: |
|
|
|
|
|
Retail |
| 57.5 | % | 66.2 | % |
Recycling |
| 26.1 |
| 21.1 |
|
Byproduct |
| 16.4 |
| 12.7 |
|
Total revenues |
| 100.0 |
| 100.0 |
|
Cost of revenues |
| 71.0 |
| 69.6 |
|
Gross profit |
| 29.0 |
| 30.4 |
|
Selling, general and administrative expenses |
| 23.3 |
| 27.6 |
|
Operating income |
| 5.7 |
| 2.8 |
|
|
|
|
|
|
|
Other income (expense): |
|
|
|
|
|
Interest expense, net |
| (0.9 | ) | (1.0 | ) |
Investment impairment charge |
| 0.0 |
| (0.2 | ) |
Other income (expense), net |
| 0.0 |
| 0.8 |
|
Income before income taxes and noncontrolling interest |
| 4.8 |
| 2.4 |
|
Provision for income taxes |
| 1.1 |
| 0.6 |
|
Net income |
| 3.7 |
| 1.8 |
|
Net (income) loss attributable to noncontrolling interest |
| (0.2 | ) | 0.1 |
|
Net income attributable to controlling interest |
| 3.5 | % | 1.9 | % |
2012 | 2011 | ||||
Revenues: | |||||
Retail | 62.3 | % | 57.5 | % | |
Recycling | 22.1 | 26.1 | |||
Byproduct | 15.6 | 16.4 | |||
Total revenues | 100.0 | 100.0 | |||
Cost of revenues | 75.5 | 71.0 | |||
Gross profit | 24.5 | 29.0 | |||
Selling, general and administrative expenses | 26.3 | 23.3 | |||
Impairment charge | 0.9 | — | |||
Operating income (loss) | (2.7 | ) | 5.7 | ||
Other income (expense): | |||||
Interest expense, net | (1.0 | ) | (0.9 | ) | |
Other income (expense), net | — | — | |||
Income (loss) before income taxes and noncontrolling interest | (3.7 | ) | 4.8 | ||
Provision for income taxes | 0.1 | 1.1 | |||
Net income (loss) | (3.8 | ) | 3.7 | ||
Net loss (income) attributable to noncontrolling interest | 0.5 | (0.2 | ) | ||
Net income (loss) attributable to controlling interest | (3.3 | )% | 3.5 | % |
|
| 2011 |
| 2010 |
| % Change |
| ||
Revenues: |
|
|
|
|
|
|
| ||
Retail |
| $ | 74.5 |
| $ | 72.8 |
| 2.3 | % |
Recycling |
| 52.2 |
| 35.4 |
| 47.7 | % | ||
Total revenues |
| $ | 126.7 |
| $ | 108.2 |
| 17.1 | % |
|
|
|
|
|
|
|
| ||
Operating income (loss): |
|
|
|
|
|
|
| ||
Retail |
| $ | (0.3 | ) | $ | (0.8 | ) | 70.1 | % |
Recycling |
| 6.9 |
| 3.7 |
| 86.4 | % | ||
Unallocated corporate costs |
| 0.6 |
| 0.2 |
| 249.4 | % | ||
Total operating income |
| $ | 7.2 |
| $ | 3.1 |
| 136.0 | % |
2012 | 2011 | % Change | ||||||
Revenues: | ||||||||
Retail | 72.4 | 74.5 | (2.8 | )% | ||||
Recycling | 41.9 | 52.2 | (19.6 | )% | ||||
Total revenues | 114.3 | 126.7 | (9.8 | )% | ||||
Operating income (loss): | ||||||||
Retail | (2.7 | ) | (0.3 | ) | (997.5 | )% | ||
Recycling | (0.2 | ) | 6.9 | (103.5 | )% | |||
Unallocated corporate costs | (0.3 | ) | 0.6 | (160.1 | )% | |||
Total operating income (loss) | (3.2 | ) | 7.2 | (144.4 | )% |
1. | A 27% decline in utility recycling volumes compared with 2011, resulting in lower revenues of approximately $6.3 million. |
2. | A summer refrigerator replacement initiative in 2011 from a California utility program that resulted in replacing over 10,000 refrigerators that did not occur in 2012, resulting in lower revenues of approximately $2.9 million. |
3. | A decline in carbon offset revenues of $1.1 million compared with 2011. |
1. | The combination of lower retail segment revenues and gross profit percentage compared with 2011 resulted in a $1.8 million decline in operating income. |
2. | An increase in retail segment sales, general and administrative expenses of $1.0 million related to operating two new ApplianceSmart stores that did not exist in 2011, offset by $0.4 million in lower advertising expenses. |
3. | The combination of lower recycling segment volumes, lower scrap metal prices and higher transportation costs per unit compared with 2011 resulted in a $5.8 million decline in operating income. |
4. | A $1.1 million decline of carbon offset revenues in our recycling segment that drop directly to operating income. |
5. | A $1.1 million non-cash goodwill impairment charge related to AAP in our recycling segment. |
Revenues. Revenues for the fiscal years of 20112012 and 20102011 were as follows (dollars in millions):
|
| 2011 |
| 2010 |
| % Change |
| ||
Retail |
| $ | 72.8 |
| $ | 71.6 |
| 1.7 | % |
Recycling |
| 33.1 |
| 22.9 |
| 44.7 | % | ||
Byproduct |
| 20.8 |
| 13.7 |
| 51.5 | % | ||
|
| $ | 126.7 |
| $ | 108.2 |
| 17.1 | % |
2012 | 2011 | % Change | ||||||||
Retail | $ | 71.2 | $ | 72.8 | (2.1 | )% | ||||
Recycling | 25.3 | 33.1 | (23.5 | )% | ||||||
Byproduct | 17.8 | 20.8 | (14.6 | )% | ||||||
$ | 114.3 | $ | 126.7 | (9.8 | )% |
|
| 2011 |
| 2010 |
| % Change |
| ||
Quarter 1 |
| $ | 19.2 |
| $ | 21.2 |
| (9.3 | )% |
Quarter 2 |
| 18.4 |
| 18.6 |
| (0.9 | )% | ||
Quarter 3 |
| 18.8 |
| 16.8 |
| 11.8 | % | ||
Quarter 4 |
| 16.4 |
| 15.0 |
| 9.1 | % | ||
|
| $ | 72.8 |
| $ | 71.6 |
| 1.7 | % |
During the first quarter and a portion
2012 | 2011 | % Change | ||||||||
Quarter 1 | $ | 19.7 | $ | 19.2 | 2.8 | % | ||||
Quarter 2 | 19.0 | 18.4 | 3.1 | % | ||||||
Quarter 3 | 17.3 | 18.8 | (7.8 | )% | ||||||
Quarter 4 | 15.2 | 16.4 | (7.3 | )% | ||||||
$ | 71.2 | $ | 72.8 | (2.1 | )% |
The table below illustrates our recycling revenues by quarter for fiscal years 20112012 and 20102011 (dollars in millions):
|
| 2011 |
| 2010 |
| % Change |
| ||
Quarter 1 |
| $ | 5.7 |
| $ | 4.3 |
| 33.7 | % |
Quarter 2 |
| 9.6 |
| 6.3 |
| 52.0 | % | ||
Quarter 3 |
| 11.4 |
| 6.6 |
| 73.4 | % | ||
Quarter 4 |
| 6.4 |
| 5.7 |
| 11.7 | % | ||
|
| $ | 33.1 |
| $ | 22.9 |
| 44.7 | % |
The revenue increase in the first quarter of 2011 compared to the same period of 2010 was the result of recapturing 25% of the territory under one of our major California utility recycling contracts that we did not have in the first quarter of 2010. The revenue increases in the second and third quarters of 2011 compared to the same periods in 2010 were primarily the result of a summer refrigerator replacement initiative from a California utility program that resulted in replacing over 10,000 refrigerators. The revenue increase in the fourth quarter of 2011 compared to the same period in 2010 was primarily the result of a new refrigerator replacement contract in 2011 with a Washington utility.
2012 | 2011 | % Change | ||||||||
Quarter 1 | $ | 5.3 | $ | 5.7 | (8.2 | )% | ||||
Quarter 2 | 6.2 | 9.6 | (36.0 | )% | ||||||
Quarter 3 | 7.0 | 11.4 | (38.1 | )% | ||||||
Quarter 4 | 6.8 | 6.4 | 7.6 | % | ||||||
$ | 25.3 | $ | 33.1 | (23.5 | )% |
|
| 2011 |
| 2010 |
| % Change |
| ||
Quarter 1 |
| $ | 5.0 |
| $ | 1.8 |
| 117.4 | % |
Quarter 2 |
| 4.9 |
| 3.3 |
| 46.8 | % | ||
Quarter 3 |
| 5.7 |
| 4.0 |
| 43.2 | % | ||
Quarter 4 |
| 5.2 |
| 4.6 |
| 13.2 | % | ||
|
| $ | 20.8 |
| $ | 13.7 |
| 51.5 | % |
2012 | 2011 | % Change | ||||||||
Quarter 1 | $ | 4.4 | $ | 5.0 | (11.2 | )% | ||||
Quarter 2 | 4.2 | 4.9 | (13.5 | )% | ||||||
Quarter 3 | 4.7 | 5.7 | (18.9 | )% | ||||||
Quarter 4 | 4.5 | 5.2 | (13.8 | )% | ||||||
$ | 17.8 | $ | 20.8 | (14.6 | )% |
Recyclingdecline in our overall recycling volumes and increase in utility transportation costs per unit resulted in a $5.1 million reduction in gross profit. AAP's gross profit percentages are typically higher than retaildeclined by $0.8 million compared with 2011 due primarily to lower scrap metal prices. The decline in carbon offset revenue of $1.1 million mentioned previously had a direct impact on our decline in gross profit percentages. profit.
Unless we can significantly increase our appliance purchasing and sales volume, resulting in higher-level rebates, or significantly change our sales mix, we believe our retail gross profit percentages in 2012 will be consistent with 2011. We do not expect our recycling gross profit percentages to change significantly in 2012 as compared to 2011.
Selling, General and Administrative Expenses. Our selling, general and administrative (“SG&A”) expenses of $29.5$30.1 million for 2011 decreased $0.32012 increased $0.6 million or 1.1%2.0% compared to $29.8with $29.5 million in 2010.2011. Our SG&A expenses as a percentage of total revenues decreasedincreased to 26.3% in 2012 compared with 23.3% in 2011 compared to 27.6% in 2010.. Selling expenses decreased $0.8increased $0.3 million to $18.9 million in 2012 compared with $18.6 million in 2011 compared to $19.4 million in 2010.. The decreaseincrease in selling expenses was due primarily to reducingopening two ApplianceSmart stores in 2012, partially offset by a $0.4 million reduction to advertising expense to promote our ApplianceSmart stores. General and administrative expenses increased $0.5$0.3 million to $11.2 million in 2012 compared with $10.9 million in 2011 compared to $10.4 million in 2010.2011. The increase in general and administrative expenses was due primarily to higher operating expenses athealth care costs under our self-funded plan.
Investment Impairment Charge. In December 2010, we concludeddetermined that our investment in DALI was impairedCanada is no longer permanent in duration. In 2012, we recognized a net deferred tax liability of $0.1 million consisting of a deferred liability of $1.0 million for undistributed earnings and a deferred tax assets of $0.9 million for foreign tax credits related to the undistributed earnings. In 2012, we recorded an other-than-temporary impairment chargea valuation allowance of $0.3 million. We$1.2 million primarily against the NOLs generated during the year as it was determined to be more-likely-than-not that we will not recognize the short-term prospects related to DALI’s business were not economically viable.benefit of the net loss incurred in
Other Income (Expense), Net2012.
Provision for Income Taxes. We recorded a $1.4 million provision for income taxes for 2011 compared to $0.7of $1.4 million for 2010.. At January 1, 2011, we recorded a full valuation allowance against our U.S. net deferred tax assets due to the uncertainty of their realization. We regularly evaluate both positive and negative evidence related to retaining a valuation allowance against our deferred tax assets that are more-likely-than-not unable to be realized in future periods. The realization of deferred tax assets is dependent upon sufficient future taxable income during the periods when deductible temporary differences and carryforwards are expected to be available to reduce taxable income. During the second quarter of 2011, we concluded, based on the assessment of all available evidence, including previous three-year cumulative income before infrequent and unusual items, a history of generating income before taxes for six consecutive quarters and estimates of future profitability, that it iswas more-likely-than-not that we willwould be able to realize a portion of our deferred tax assets in the future and recorded a $0.9$0.9 million non-cash reversal of our deferred tax asset valuation allowance. As a result of generatingIn 2011, we recorded $2.0 million and $0.3 million tax provisions related to taxable income for 2011, we recorded a provision for income taxes of $2.3 million. The provision for income taxes wasfrom our U.S. and Canadian operations, respectively, which were partially offset by recording the $0.9 million discrete item related to thenon-cash reversal of a portion of our deferred tax asset valuation allowance during the second quarter of 2011. During 2011, we recognized $0.1 million related to windfall tax benefits from share-based compensation, which were recorded to Common Stock on the consolidated balance sheets. Our provision for income taxes in 2010 of $0.7 million was primarily the result of generating taxable income in our Canadian subsidiary. We did not record a provision for or benefit from income taxes for our U.S. subsidiaries in 2010 due to the available net operating losses which offset taxable income and the full valuation allowance against our U.S. net deferred tax assets due to the uncertainty of their realization at that time.allowance.
26
|
| 2011 |
| 2010 |
| ||
Total cash and cash equivalents provided by (used in): |
|
|
|
|
| ||
Operating activities |
| $ | 1.4 |
| $ | 3.5 |
|
Investing activities |
| (1.1 | ) | (5.6 | ) | ||
Financing activities |
| 1.1 |
| 2.3 |
| ||
Effect of exchange rates on cash and cash equivalents |
| (0.1 | ) | 0.1 |
| ||
Increase in cash and cash equivalents |
| $ | 1.3 |
| $ | 0.3 |
|
2012 | 2011 | ||||||
Total cash and cash equivalents provided by (used in): | |||||||
Operating activities | $ | 0.5 | $ | 1.4 | |||
Investing activities | (0.8 | ) | (1.1 | ) | |||
Financing activities | (1.0 | ) | 1.1 | ||||
Effect of exchange rates on cash and cash equivalents | 0.1 | (0.1 | ) | ||||
Increase (decrease) in cash and cash equivalents | $ | (1.2 | ) | $ | 1.3 |
Financing Activities. Our net cash provided by financing activities was $1.1 million in 2011 compared to $2.3 million in 2010.credit. Net cash provided by financing activities for the year ended December 31, 2011, was related primarily to $9.4 million in proceeds from issuance of debt offset by the payment of $8.3 million on our borrowings. Net cash provided by financing activities for the year ended January 1, 2011 was related primarily to $1.7 million in proceeds from the issuance of Common Stock and $3.8 million in proceeds from the issuance of debt by AAP, which was partially offset by a $2.3 million reduction in our revolving line of credit balance and $0.9 million in payments on our long-term borrowings.
Outstanding Indebtedness. On January 24, 2011, we entered into a Revolving Credit, Term Loan and Security Agreement, as amended, (“Revolving Credit Agreement”) with PNC Bank, National Association (“PNC”) that provides us with a $15.0$15 million revolving line of credit and a $2.55 million Term Loan. The Term Loan is described later in this section.credit. The Revolving Credit Agreement hashad a stated maturity date of January 24, 2014, if not renewed. The Revolving Credit Agreement includes a lockbox agreement and a subjective acceleration clause and, as a result, we have classified the revolving line of credit as a current liability. The Revolving Credit Agreement is collateralized by a security interest in substantially all of our assets, and PNC is also secured by an inventory repurchase agreement with Whirlpool Corporation for Whirlpool purchases only. We also issued a $750,000$750,000 letter of credit in favor of Whirlpool Corporation. The interest rate on the revolving line of credit is PNC Base Rate plus 1.75%, or 1-, 2- or 3-month PNC LIBOR Rate plus 2.75%. The PNC Base Rate shall mean, for any day, a fluctuating per annum rate of interest equal to the highest of (i) the interest rate per annum announced from time to time by PNC at its prime rate, (ii) the Federal Funds Open Rate plus ½ of 1%, and (iii) the one month LIBOR rate plus 100 basis points (1%). As of December 31, 2011, the outstanding balance under the Revolving Credit Agreement was $10.7 million with a weighted average interest rate of 3.72%, which included both PNC LIBOR Rate and PNC Base Rate loans. The amount of revolving borrowings under the Revolving Credit Agreement is based on a formula using accounts receivable and inventories. We may not have access to the full $15.0 million revolving line of credit due to the formula using accounts receivable and inventories, the amount of the letter of credit issued in favor of Whirlpool Corporation and the amount of outstanding loans between PNC and our AAP joint venture. As of December 31, 2011, our available borrowing capacity under the Revolving Credit Agreement was $3.5 million. The Revolving Credit Agreement requires starting with the fiscal quarter ending April 2, 2011 and continuing at the end of each quarter thereafter, that we meet a minimum fixed charge coverage ratio of 1.101.1 to 1.00,1.0, measured on a trailing twelve-monthtwelve-month basis. The fixed charge coverage ratio for the fiscal year ended December 31, 2011 was 10.10 to 1.00. The Revolving Credit Agreement limits investments we can purchase, the amount of other debt and leases we can incur, the amount of loans we can issue to our affiliates and the amount we can spend on fixed assets along with prohibiting the payment of dividends. As of December 31, 2011,29, 2012, we were not in compliance with all the covenants of the Revolving Credit Agreement and received a notice of default from PNC. See additional information under the section “Status of Credit Agreement.” We were in compliance with all the covenants of the Revolving Credit Agreement.
In connection with the Revolving Credit Agreement, we repaid the General Credit and Security Agreement, (“Credit Agreement”)agreement as amended, entered into on August 30, 1996 with Spectrum Commercial Services (“SCS”) that provided us with an $18.0 million line of credit. The Credit Agreement had a stated maturity date of December 31, 2010, if not renewed2011. The interest rate on the revolving line of
In connection with the Revolving Credit Agreement, we also guaranteed a $2.1 million loan between PNC (previously with SCS) and AAP. The guarantee was provided by reducing our availablerevolving borrowings under the Revolving Credit Agreement by $2.1is based on a formula using accounts receivable and inventories. We may not have access to the full
Agreement.”
July 1, 2011. Borrowings under the Term Loans are secured by substantially all of the assets of AAP paid interest only between March 10, 2011along with liens on the business assets and June 30, 2011.certain personal assets of the owners of 4301 Operations, LLC. We are a guarantor of the Term Loans along with 4301 Operations, LLC and its owners.
On December 13, 2010, we guaranteed a 3.00% note, due February 2011, of $0.3 million between Central Bank and AAP. The guarantee was provided by pledging $0.3 million of our cash balance at Central Bank until the loan was repaid by AAP. In connection with the Term Loans AAP entered into with Susquehanna Bank, the $0.3 million loan from Central Bank was repaid by AAP.
|
| December 31, |
| January 1, |
| ||
|
| 2011 |
| 2011 |
| ||
Line of credit |
| $ | 10.7 |
| $ | 10.1 |
|
PNC term loan |
| 2.3 |
| — |
| ||
Mortgage |
| — |
| 1.5 |
| ||
Susquehanna bank term loans (1) |
| 4.5 |
| — |
| ||
Other financing obligations and loans (1) |
| 1.1 |
| 4.7 |
| ||
Capital leases and other financing obligations |
| 0.3 |
| 0.7 |
| ||
|
| 18.9 |
| 17.0 |
| ||
Less: current portion of debt |
| 11.7 |
| 14.5 |
| ||
|
| $ | 7.2 |
| $ | 2.5 |
|
December 29, 2012 | December 31, 2011 | ||||||
Line of credit | $ | 10.6 | $ | 10.7 | |||
PNC term loan | 2.0 | 2.3 | |||||
Susquehanna bank term loans (1) | 4.2 | 4.5 | |||||
Other financing obligations and loans (1) | 0.9 | 1.1 | |||||
Capital leases and other financing obligations | 0.2 | 0.3 | |||||
17.9 | 18.9 | ||||||
Less: current portion of debt | 11.5 | 11.7 | |||||
$ | 6.4 | $ | 7.2 |
Contractual Obligations |
| Total |
| Less Than |
| 1-3 Years |
| 3-5 Years |
| More Than |
| |||||
PNC line of credit |
| $ | 10.7 |
| $ | 10.7 |
| $ | — |
| $ | — |
| $ | — |
|
PNC term loan |
| 2.3 |
| 0.3 |
| 0.5 |
| 0.5 |
| 1.0 |
| |||||
Long-term debt obligations |
| 5.4 |
| 0.5 |
| 1.2 |
| 1.0 |
| 2.7 |
| |||||
Capital lease and other financing obligations |
| 0.5 |
| 0.2 |
| 0.2 |
| 0.1 |
| — |
| |||||
Operating lease obligations (1) |
| 23.2 |
| 5.4 |
| 8.9 |
| 5.1 |
| 3.8 |
| |||||
Total |
| $ | 42.1 |
| $ | 17.1 |
| $ | 10.8 |
| $ | 6.7 |
| $ | 7.5 |
|
Contractual Obligations | Total | Less Than One Year | 1-3 Years | 3-5 Years | More Than Five Years | |||||||||||||||
PNC line of credit | $ | 10.6 | $ | 10.6 | $ | — | $ | — | $ | — | ||||||||||
PNC term loan | 2.0 | 0.2 | 0.5 | 1.3 | — | |||||||||||||||
Long-term debt obligations | 4.8 | 0.6 | 1.1 | 1.0 | 2.1 | |||||||||||||||
Capital lease and other financing obligations | 0.4 | 0.1 | 0.2 | 0.1 | — | |||||||||||||||
Operating lease obligations (1) | 22.3 | 5.6 | 8.2 | 5.0 | 3.5 | |||||||||||||||
Total | $ | 40.1 | $ | 17.1 | $ | 10.0 | $ | 7.4 | $ | 5.6 |
Critical accounting policies are defined as those that are reflective of significant judgments and uncertainties and potentially result in materially different results under different assumptions and conditions. See Note 32 of “Notes to Consolidated Financial Statements” for additional disclosure of the application of these and other accounting policies.
Income Taxes.We account for income taxes under the liability method. Deferred tax liabilities are recognized for temporary differences that will result in taxable amounts in future years. Deferred tax assets are recognized for deductible temporary differences and tax operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using the enacted tax rates expected to apply to taxable income in the periods in which the deferred tax asset or liability is expected to be realized or settled. We assess the likelihood that our deferred tax assets will be recovered from future taxable income and record a valuation allowance to reduce our deferred tax assets to the amounts we believe to be realizable. At January 1, 2011, we concluded thatWe regularly evaluate both positive and negative evidence related to either recording or retaining a full valuation allowance against our U.S. deferred tax assets was appropriate. During the second quarter of 2011, we concluded, based on the assessment of all available evidence, including previous three-year cumulative income before infrequent and unusual items, a history of generating income before taxes for six consecutive quarters and estimates of future profitability, that it was more-likely-than-not that we will be able to realize a portion of our deferred tax assets in the future and recorded a $0.9 million non-cash reversal of our deferred tax asset valuation allowance.assets.
Recently Issued Accounting Pronouncements
Impairment of Goodwill
During December 2010, the Financial Accounting Standards Board (“FASB”) issued a new accounting standard related to goodwill impairment testing. The new standard requires entities with reporting units with zero or negative carrying amounts to perform step 2 of the goodwill impairment test if qualitative factors indicate that it is more likely than not that a goodwill impairment exists. Any goodwill impairment recorded upon the adoption of the new standard is required to be recorded as a cumulative-effect adjustment to beginning equity. The standard is effective for fiscal years beginning after December 15, 2010. The adoption of the new standard did not have a material effect on our results of operations, financial position or cash flows.
Presentation of Comprehensive Income
In June 2011, the FASB issued an Accounting Standards Update (“ASU”) related to the presentation of comprehensive income. This ASU amends the FASB Accounting Standards Codification (“Codification”) to allow an entity the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In both choices, an entity is required to present each component of net income along with total net income, each component of other comprehensive income along with a total for other comprehensive income, and a total amount for comprehensive income. This ASU eliminates the option to present the components of other comprehensive income as part of the statement of changes in shareholders’ equity. The amendments to the Codification in the ASU do not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income. This ASU is effective for fiscal years beginning after December 15, 2011. We elected to early adopt this ASU in the second quarter of 2011 and the adoption did not have a material effect on our results of operations, financial position or cash flows.
Testing for Goodwill Impairment
In September 2011, the FASB issued an ASU that permits an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test. This ASU is effective for fiscal years beginning after December 15, 2011. We do not expect the adoption of this ASU to have a significant impact on our consolidated results of operations, financial position or cash flows.
31
Forward-Looking Statements
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
.ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 31, 201129, 2012, was approximately $17.5$16.8 million. Based on average floating rate borrowings of $17.5$17.1 million, a hypothetical 100 basis point change in the applicable interest rate would have caused our interest expense to change by approximately $0.2 million for the fiscal year ended December 31, 2011.29, 201231, 2011.29, 2012. We do not currently hedge foreign currency fluctuations and do not intend to do so for the foreseeable future.declinesuncertainty in the housing and credit marketsmarket could continue to adversely affect buying habits of our retail segment customers in 2012.322013.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
|
| |
ITEM 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
Description | Page | |
| ||
| ||
| ||
| ||
| ||
|
December 31, January 1, ASSETS Current assets: Cash and cash equivalents $ 4,401 $ 3,065 Accounts receivable, net of allowance of $18 and $44, respectively 7,445 5,030 Inventories, net of reserves of $85 and $286, respectively 18,456 16,593 Other current assets 1,420 519 Deferred income taxes 173 — Total current assets 31,895 25,207 Property and equipment, net 12,535 11,747 Restricted cash — 701 Goodwill 1,120 1,120 Other assets 1,232 1,060 Deferred income taxes 27 29 Total assets (a) $ 46,809 $ 39,864 LIABILITIES AND SHAREHOLDERS’ EQUITY Current liabilities: Accounts payable $ 4,323 $ 4,468 Checks issued in excess of bank balance — 42 Accrued expenses 4,453 4,771 Line of credit 10,685 10,139 Current maturities of long-term obligations 989 4,396 Income taxes payable — 60 Total current liabilities 20,450 23,876 Long-term obligations, less current maturities 7,251 2,501 Deferred gain, net of current portion 853 1,340 Deferred income tax liabilities 875 — Total liabilities (a) 29,429 27,717 Commitments and contingencies — — Shareholders’ equity: Common Stock, no par value; 10,000 shares authorized; issued and outstanding: 5,527 shares and 5,493 shares, respectively 20,338 19,740 Accumulated deficit (4,797 ) (9,258 ) Accumulated other comprehensive loss (361 ) (274 ) Total shareholders’ equity 15,180 10,208 Noncontrolling interest 2,200 1,939 17,380 12,147 Total liabilities and shareholders’ equity $ 46,809 $ 39,864
2011
2011 December 29,
2012 December 31,
2011ASSETS Current assets: Cash and cash equivalents $ 3,174 $ 4,401 Accounts receivable, net of allowance of $8 and $18, respectively 6,256 7,445 Inventories, net of reserves of $682 and $85, respectively 17,274 18,456 Income taxes receivable 522 392 Other current assets 1,332 1,028 Deferred income tax assets — 173 Total current assets 28,558 31,895 Property and equipment, net 12,248 12,535 Goodwill 38 1,120 Other assets 935 1,232 Deferred income tax assets 25 27 Total assets (a) $ 41,804 $ 46,809 LIABILITIES AND SHAREHOLDERS’ EQUITY Current liabilities: Accounts payable $ 4,957 $ 4,323 Accrued expenses 4,310 4,453 Line of credit 10,559 10,685 Current maturities of long-term obligations 955 989 Deferred income tax liabilities 146 — Total current liabilities 20,927 20,450 Long-term obligations, less current maturities 6,357 7,251 Deferred gain, net of current portion 365 853 Deferred income tax liabilities 921 875 Total liabilities (a) 28,570 29,429 Commitments and contingencies — — Shareholders’ equity: Common Stock, no par value; 10,000 shares authorized; issued and outstanding: 5,556 shares and 5,527 shares, respectively 20,577 20,338 Accumulated deficit (8,649 ) (4,797 ) Accumulated other comprehensive loss (290 ) (361 ) Total shareholders’ equity 11,638 15,180 Noncontrolling interest 1,596 2,200 13,234 17,380 Total liabilities and shareholders’ equity $ 41,804 $ 46,809 $11,771$10,045 and $10,207$11,771 as of December 29, 2012, and December 31, 2011 and January 1, 2011,, respectively. Liabilities of AAP for which creditors do not have recourse to the general credit of Appliance Recycling Centers of America, Inc. were $2,186$1,948 and $3,774$2,186 as of December 29, 2012, and December 31, 2011 and January 1, 2011,, respectively.Table of Contents
For the fiscal year ended December 31, January 1, 2011 2011 Revenues: Retail $ 72,773 $ 71,557 Recycling 33,062 22,856 Byproduct 20,834 13,749 Total revenues 126,669 108,162 Cost of revenues 89,934 75,263 Gross profit 36,735 32,899 Selling, general and administrative expenses 29,491 29,830 Operating income 7,244 3,069 Other income (expense): Interest expense, net (1,133 ) (1,046 ) Investment impairment charge — (266 ) Other income (expense), net (22 ) 881 Income before provision for income taxes and noncontrolling interest 6,089 2,638 Provision for income taxes 1,367 690 Net income 4,722 1,948 Net (income) loss attributable to noncontrolling interest (261 ) 61 Net income attributable to controlling interest $ 4,461 $ 2,009 Income per common share: Basic $ 0.81 $ 0.38 Diluted $ 0.77 $ 0.37 Weighted average common shares outstanding: Basic 5,497 5,267 Diluted 5,821 5,491 Net income $ 4,722 $ 1,948 Other comprehensive income (loss), net of tax: Effect of foreign currency translation adjustments (87 ) 94 Total other comprehensive income (loss), net of tax (87 ) 94 Comprehensive income 4,635 2,042 Comprehensive (income) loss attributable to noncontrolling interest (261 ) 61 Comprehensive income attributable to controlling interest $ 4,374 $ 2,103 APPLIANCE For the fiscal year ended December 29,
2012 December 31,
2011Revenues: Retail $ 71,234 $ 72,773 Recycling 25,280 33,062 Byproduct 17,799 20,834 Total revenues 114,313 126,669 Cost of revenues 86,358 89,934 Gross profit 27,955 36,735 Selling, general and administrative expenses 30,095 29,491 Impairment charge 1,082 — Operating income (loss) (3,222 ) 7,244 Other expense: Interest expense, net (1,139 ) (1,133 ) Other expense, net (12 ) (22 ) Income before provision for income taxes and noncontrolling interest (4,373 ) 6,089 Provision for income taxes 83 1,367 Net income (loss) (4,456 ) 4,722 Net (income) loss attributable to noncontrolling interest 604 (261 ) Net income (loss) attributable to controlling interest $ (3,852 ) $ 4,461 Income (loss) per common share: Basic $ (0.69 ) $ 0.81 Diluted $ (0.69 ) $ 0.77 Weighted average common shares outstanding: Basic 5,551 5,497 Diluted 5,551 5,821 Net income (loss) $ (4,456 ) $ 4,722 Other comprehensive income (loss), net of tax: Effect of foreign currency translation adjustments 71 (87 ) Total other comprehensive income (loss), net of tax 71 (87 ) Comprehensive income (loss) (4,385 ) 4,635 Comprehensive (income) loss attributable to noncontrolling interest 604 (261 ) Comprehensive income (loss) attributable to controlling interest $ (3,781 ) $ 4,374 Table of Contents
Accumulated Other Common Stock Comprehensive Accumulated Noncontrolling Shares Amount Income (Loss) Deficit Interest Total Balance at January 2, 2010 4,578 $ 17,278 $ (368 ) $ (11,267 ) $ — $ 5,643 Net income (loss) — — — 2,009 (61 ) 1,948 Other comprehensive income, net of tax — — 94 — — 94 Issuance of Common Stock 915 1,721 — — — 1,721 Share-based compensation — 462 — — — 462 Excess tax benefits related to share-based compensation — 279 — — — 279 Consolidation of variable interest entity — — — — 2,000 2,000 Balance at January 1, 2011 5,493 19,740 (274 ) (9,258 ) 1,939 12,147 Net income — — — 4,461 261 4,722 Other comprehensive loss, net of tax — — (87 ) — — (87 ) Issuance of Common Stock 34 117 — — — 117 Share-based compensation — 428 — — — 428 Excess tax benefits related to share-based compensation — 53 — — — 53 Balance at December 31, 2011 5,527 $ 20,338 $ (361 ) $ (4,797 ) $ 2,200 $ 17,380 Accumulated Other Common Stock Comprehensive Accumulated Noncontrolling Shares Amount Income (Loss) Deficit Interest Total Balance at January 1, 2011 5,493 $ 19,740 $ (274 ) $ (9,258 ) $ 1,939 $ 12,147 Net income — — — 4,461 261 4,722 Other comprehensive loss, net of tax — — (87 ) — — (87 ) Issuance of Common Stock 34 117 — — — 117 Share-based compensation — 428 — — — 428 Excess tax benefits related to share-based compensation — 53 — — — 53 Balance at December 31, 2011 5,527 20,338 (361 ) (4,797 ) 2,200 17,380 Net loss — — — (3,852 ) (604 ) (4,456 ) Other comprehensive income, net of tax — — 71 — — 71 Issuance of Common Stock 29 86 — — — 86 Share-based compensation — 153 — — — 153 Balance at December 29, 2012 5,556 $ 20,577 $ (290 ) $ (8,649 ) $ 1,596 $ 13,234 Table of Contents
For the fiscal year ended December 31, January 1, 2011 2011 Operating activities Net income $ 4,722 $ 1,948 Adjustments to reconcile net income to net cash and cash equivalents provided by operating activities: Depreciation and amortization 1,303 1,402 Amortization of deferred gain (487 ) (487 ) Amortization of deferred financing costs 193 — Share-based compensation 428 462 Investment impairment charge — 266 Reversal of deferred income tax valuation allowance (917 ) — Deferred income taxes 1,621 (43 ) Excess tax benefits from share-based compensation (53 ) (279 ) Other (4 ) (3 ) Changes in assets and liabilities: Accounts receivable (2,417 ) (794 ) Inventories (1,863 ) 192 Other current assets (896 ) 421 Other assets 224 (675 ) Accounts payable and accrued expenses (471 ) 911 Income taxes payable (7 ) 154 Net cash flows provided by operating activities 1,376 3,475 Investing activities Purchase of property and equipment (1,757 ) (5,627 ) Decrease (increase) in restricted cash 701 (1 ) Proceeds from sale of property and equipment 11 35 Net cash flows used in investing activities (1,045 ) (5,593 ) Financing activities Checks issued in excess of cash in bank (42 ) (368 ) Net borrowings (payments) under line of credit 546 (2,280 ) Payments on debt obligations (8,315 ) (860 ) Proceeds from issuance of debt obligations 9,400 3,805 Payment of deferred financing costs (669 ) — Proceeds from issuance of Common Stock, net of fees 117 1,721 Excess tax benefits related to share-based compensation 53 279 Net cash flows provided by financing activities 1,090 2,297 Effect of changes in exchange rate on cash and cash equivalents (85 ) 87 Increase in cash and cash equivalents 1,336 266 Cash and cash equivalents at beginning of period 3,065 2,799 Cash and cash equivalents at end of period $ 4,401 $ 3,065 For the fiscal year ended December 29,
2012 December 31,
2011Operating activities Net income (loss) $ (4,456 ) $ 4,722 Adjustments to reconcile net income (loss) to net cash and cash equivalents provided by operating activities: Depreciation and amortization 1,221 1,303 Impairment charge 1,082 — Share-based compensation 153 428 Amortization of deferred financing costs 197 193 Amortization of deferred gain (488 ) (487 ) Reversal of deferred income tax valuation allowance — (917 ) Deferred income taxes 367 1,621 Excess tax benefits from share-based compensation — (53 ) Other 38 (4 ) Changes in assets and liabilities: Accounts receivable 1,178 (2,417 ) Inventories 1,182 (1,863 ) Other current assets (434 ) (896 ) Other assets 20 224 Accounts payable and accrued expenses 491 (471 ) Income taxes payable — (7 ) Net cash flows provided by operating activities 551 1,376 Investing activities Purchases of property and equipment (818 ) (1,757 ) Decrease in restricted cash — 701 Proceeds from sale of property and equipment — 11 Net cash flows used in investing activities (818 ) (1,045 ) Financing activities Checks issued in excess of cash in bank — (42 ) Net borrowings (payments) under line of credit (126 ) 546 Payments on debt obligations (990 ) (8,315 ) Proceeds from issuance of debt obligations — 9,400 Payment of deferred financing costs — (669 ) Proceeds from issuance of Common Stock 86 117 Excess tax benefits related to share-based compensation — 53 Net cash flows (used in) provided by financing activities (1,030 ) 1,090 Effect of changes in exchange rate on cash and cash equivalents 70 (85 ) Increase (decrease) in cash and cash equivalents (1,227 ) 1,336 Cash and cash equivalents at beginning of year 4,401 3,065 Cash and cash equivalents at end of year $ 3,174 $ 4,401 Table of Contents
For the fiscal year ended December 31, January 1, 2011 2011 Supplemental disclosures of cash flow information Cash payments for interest $ 931 $ 1,034 Cash payments for income taxes, net $ 1,055 $ 580 Non-cash investing and financing activities Loan receivable exchanged for equity in AAP $ — $ 475 Equipment acquired under financing obligations and capital leases $ 253 $ 241 Consolidation of variable interest entity: Fair value of assets acquired $ — $ 5,766 Assumed liabilities $ — $ 1,766 (CONTINUED) For the fiscal year ended December 29
2012 December 31
2011Supplemental disclosures of cash flow information Cash payments for interest $ 935 $ 931 Cash payments (refunds) for income taxes, net $ (154 ) $ 1,055 Non-cash investing and financing activities Equipment acquired under financing obligations and capital leases $ 159 $ 253 Repayment of debt from trade-in of equipment $ 87 $ — Table of Contents
valuation allowances for accounts receivable, inventories and deferred tax assets, accrued expenses, and the assumptions we use to value share-based compensation. Actual results could differ from those estimates. Inventories: Inventories, consisting principally of appliances, are stated at the lower of cost, determined on a specific identification basis, or market and consist of the following as of December 29, 2012, and December 31, 2011 December 31, January 1, Appliances held for resale $ 18,291 $ 16,785 Processed metals to be sold from recycled appliances 250 94 Less provision for inventory obsolescence (85 ) (286 ) $ 18,456 $ 16,593 : 3 to 30 years. December 31, January 1, Land $ 1,140 $ 1,140 Buildings and improvements 3,303 3,104 Equipment (including computer software) 19,472 12,529 Projects under construction 35 5,220 23,950 21,993 Less accumulated depreciation and amortization (11,415 ) (10,246 ) $ 12,535 $ 11,747 : based on the estimated future net undiscounted cash flows expected to result from the use of the assets, including cash flows from disposition. Should the sum of the expected future net cash flows be less than the carrying value, we recognize an impairment loss at that time. We measure an impairment loss by comparing the amount by which the carrying value exceeds the fair value (estimated discounted future cash flows or appraisal of assets) of the long-lived assets. We recognized no impairment charges during fiscal years 2011 related to long-lived assets. Recycling Balance as of January 2, 2010 $ 38 Goodwill acquired during the year 1,082 Impairment charge — Balance as of January 1, 2011 1,120 Impairment charge — Balance as of December 31, 2011 $ 1,120 Changes in our warranty accrual, included in accrued expenses on the consolidated balance sheets, for the fiscal years ended December 29, 2012, and December 31, 2011 For the fiscal year ended December 31, January 1, Beginning Balance $ 36 $ 67 Standard accrual based on units sold 97 47 Actual costs incurred (16 ) (16 ) Periodic accrual adjustments (46 ) (62 ) Ending Balance $ 71 $ 36 2013. number of common shares outstanding adjusted by the number of additional shares that would have been outstanding had the potentially dilutive common shares been issued. Potentially dilutive shares of Common Stock include unexercised stock options and warrants. Basic per share amounts are computed, generally, by dividing net income by the weighted average number of common shares outstanding. Diluted per share amounts assume the conversion, exercise or issuance of all potential Common Stock instruments unless their effect is anti-dilutive, thereby reducing the loss or increasing the income per common share. In calculating diluted weighted average shares and per share amounts, we included stock options with exercise prices below average market prices, for the respective fiscal years in which they were dilutive, using the Treasury stock method. We calculated the number of additional shares by assuming the outstanding stock options were exercised and that the proceeds from such exercises were used to acquire Common Stock at the average market price during the year. For the fiscal year ended December 31, January 1, 2011 2011 Numerator: Net income attributable to controlling interest $ 4,461 $ 2,009 Denominator: Weighted average common shares outstanding - basic 5,497 5,267 Employee stock options 112 35 Stock warrants 212 189 Weighted average common shares outstanding - diluted 5,821 5,491 Income per common share: Basic $ 0.81 $ 0.38 Diluted $ 0.77 $ 0.37 December 31, January 1, Assets Current assets $ 1,134 $ 439 Property and equipment, net 9,419 8,430 Goodwill 1,082 1,082 Other assets 136 256 Total assets $ 11,771 $ 10,207 Liabilities Accounts payable $ 858 $ 737 Accrued expenses 250 304 Current maturities of long-term debt obligations 593 4,000 Long-term debt obligations, net of current maturities 5,022 832 Other long-term liabilities (a) 647 455 Total liabilities $ 7,370 $ 6,328 For the fiscal year ended December 31, January 1, Revenues $ 11,337 $ 7,562 Gross profit 1,373 199 Operating income (loss) 869 (58 )Subsidiariessubsidiaries (“we,” the “Company” or “ARCA”) are in the business of sellingproviding turnkey appliance recycling and replacement services for electric utilities and other sponsors of energy efficiency programs. We also sell new major household appliances through a chain of Company-owned stores under the name ApplianceSmart®. We also provide turnkey appliance recyclingIn addition, we have a 50% interest in a joint venture operating under the name ARCA Advanced Processing, LLC (“AAP”), which recycles appliances from twelve states in the Northeast and replacement servicesMid-Atlantic regions of the United States for electric utilities andGeneral Electric Company (“GE”) acting through its GE Appliances business component. These appliances include units manufactured by GE as well as by other sponsors of energy efficiency programs.manufacturers.wholly-ownedwholly owned subsidiary that was formed through a corporate reorganization in July 2011 to hold our business of selling new major household appliances through a chain of Company-owned retail stores. ARCA Canada Inc., a Canadian corporation, is a wholly-ownedwholly owned subsidiary that was formed in September 2006 to provide turnkey recycling services for electric utility energy efficiency programs. ARCA California,Recycling, Inc., a California corporation, is a wholly-ownedwholly owned subsidiary that was formed in November 1991 to provide turnkey recycling services for electric utility efficiency programs. The operating results of our wholly-ownedwholly owned subsidiaries are consolidated in our financial statements.ARCA Advanced Processing, LLC (“AAP”)General Electric (“GE”)GE acting through its GE Appliances business component. Both ARCA and 4301 have a 50% interest in AAP. GE sells its recyclable appliances generated from twelve states in the Northeast and Mid-Atlantic regions of the United States to ARCA, which collects, processes and recycles the appliances. These appliances include units manufactured by GE as well as by other manufacturers. The agreement requires that ARCA will only recycle, and will not sell for re-use or resale, the recyclable appliances purchased from GE. AAP established a regional processing center in Philadelphia, Pennsylvania, at which the recyclable appliances are processed. The term of the agreement is for six years from the first date of appliance collection, which was March 31, 2010. AAP commenced operations in February 2010 and has the exclusive rights to service the GE agreement as a subcontractor for ARCA. The financial position and results of operations of AAP are consolidated in our financial statements based on our conclusion that AAP is a variable interest entity and because we have the ability to significantly influence the economic performance of the entity through our contractual agreement with GE.20112012 fiscal year (“2011”2012”) ended on December 31, 201129, 2012, and included 52 weeks. Our 20102011 fiscal year (“2010”2011”) ended on January 1,December 31, 2011, and included 52 weeks.2. Recent Accounting PronouncementsImpairmentdays.days. We do not charge interest on past due receivables. Our management considers the allowance for doubtful accounts of $18$8 and $44$18 to be adequate to cover any exposure to loss as of December 29, 2012, and December 31, 2011 and January 1, 2011,, respectively. and January 1, 2011:
2011
2011 December 29,
2012 December 31,
2011Appliances held for resale $ 17,768 $ 18,291 Processed metals to be sold from recycled appliances 188 250 Less provision for inventory obsolescence (682 ) (85 ) $ 17,274 $ 18,456 the followinga range of estimated useful lives:lives from YearsBuildings and improvements18-30Equipment (including computer software)3-15 and January 1, 2011:
2011
2011On February 8, 2010, we included property and equipment of $3,123 as a result of consolidating AAP in our financial statements, as described in Note 6. During the third quarter of 2011, AAP completed the installation of its UNTHA Recycling Technology materials recovery system and $6,213 was moved from projects under construction to equipment. Useful Life (Years) December 29,
2012 December 31,
2011Land — $ 1,140 $ 1,140 Buildings and improvements 18-30 3,429 3,303 Equipment (including computer software) 3-15 20,158 19,472 Projects under construction — 63 35 24,790 23,950 Less accumulated depreciation and amortization (12,542 ) (11,415 ) $ 12,248 $ 12,535 income.income (loss). Depreciation and amortization expense was $1,223$1,141 and $1,342$1,223 for fiscal years 20112012 and 2010,2011, respectively. Depreciation and amortization included in cost of revenues was $507$591 and $478$507 for fiscal years 20112012 and 2010,2011, respectively.$191$135 and $107$191 for fiscal years 20112012 and 2010,2011, respectively. Amortization$217$150 and $268$217 for fiscal years 20112012 and 2010,2011, respectively. Estimated amortization expenses are $122, $80$124, $79 and $33$17 for fiscal years 2012, 2013, 2014 and 2014,2015, respectively.20112012 and 2010. account required by our bankcard processor to cover chargebacks, adjustments, fees and other charges that may be due from us. On January 4, 2011,December 31, 2012, our bankcard processor released $352informed us that it was exercising its rights under the merchant contract and requiring a $500 reserve. The reserve will accumulate daily by garnishing 10% of our reserve. During the second quarter of 2011, our bankcard processor released the remaining $349 of our reserve.daily collections.valuesvalue for goodwill areis determined based on discounted cash flows, market multiples or appraised values as appropriate. During the fourth quarter of 2012, AAP determined that indicators of impairment existed that made it more-likely-than-not that the carrying value of the reporting entity exceeded its fair value. The future cash flows generated by AAP are significantly below the original investment model due to a higher level of debt service, delays and uncertainty in monetizing CFCs and declining average AMM metal prices. As a result of the goodwill impairment test, AAP recorded a $1,082 impairment charge during the fourth quarter of 2012. We did not have any impairment charges to our goodwill for fiscal years 2011 and 2010.year 2011.2, 20101, 2011, until December 31, 201129, 2012, are as follows:
Segment Balance as of January 1, 2011 $ 1,120 Impairment charge — Balance as of December 31, 2011 1,120 Impairment charge (1,082 ) Balance as of December 29, 2012 $ 38 and January 1, 2011, are as follows:
2011
2011 For the fiscal year ended December 29,
2012 December 31,
2011Beginning Balance $ 71 $ 36 Standard accrual based on units sold 43 97 Actual costs incurred (16 ) (16 ) Periodic accrual adjustments (51 ) (46 ) Ending Balance $ 47 $ 71 -5%-5% forfeiture rate for stock options issued to employees and Board of Directors members, but will continue to review these estimates in future periods. The risk-free rates for the expected terms of the stock options are based on the U.S. Treasury yield curve in effect at the time of the grant. The expected life represents the period that the stock option awards are expected to be outstanding. The expected dividend yield is zero as we have not paid or declared any cash dividends on our Common Stock. Based on these valuations, we recognized share-based compensation expense of $428$153 and $462$428 for fiscal years 20112012 and 2010,2011, respectively. We estimate that shared-basedshare-based compensation expense for fiscal year 20122013 will be approximately $41$4 based on the value of options outstanding as of December 31, 2011.29, 2012. This estimate does not include any expense for additional options that may be granted and vest during 2012.$2,680$2,238 and $3,520$2,680 for fiscal years 20112012 and 2010,2011, respectively.WeFor fiscal year 2012, we excluded 235 and 330795 options and warrants in fiscal years 2011 and 2010, respectively, from the diluted weighted average sharesshare outstanding calculation as the effect of these options and warrants wasis anti-dilutive due to the net loss incurred. For fiscal year 2011, we excluded 235 options and warrants from the diluted weighted average share outstanding calculation as the effect of these options and warrants is anti-dilutive.4. For the fiscal year ended December 29, December 31, 2012 2011 Numerator: Net income (loss) attributable to controlling interest $ (3,852 ) $ 4,461 Denominator: Weighted average common shares outstanding - basic 5,551 5,497 Employee stock options — 112 Stock warrants — 212 Weighted average common shares outstanding - diluted 5,551 5,821 Income (loss) per common share: Basic $ (0.69 ) $ 0.81 Diluted $ (0.69 ) $ 0.77 126,458-square-foot126,458-square-foot facility that includes our corporate offices, a processing and recycling center, and an ApplianceSmart retail store. Pursuant to the agreement entered into on August 11, 2009, we sold the St. Louis Park building for $4,627,$4,627, net of fees, and leased the building back over an initial lease term of five years. The sale of the building provided the Company with $2,032$2,032 in cash after repayment of the $2,595$2,595 mortgage. The sale-leaseback transaction resulted in an adjustment of $2,191$2,191 to the net book value related to the land and building, and we recorded a deferred gain of $2,436.$2,436. Under the terms of the lease agreement, we are classifying the lease as an operating lease and amortizing the gain on a straight-line basis over five years. We amortized $487$488 and $487 of the deferred gain for both fiscal years 20112012 and 2010.2011, respectively. The deferred gain amortization is netted against rent expense as a component of selling, general and administrative expenses in the consolidated statements of comprehensive income.5. Investmentsincome (loss).On June 1, 2009, we completed an initial $263 investment in Diagnostico y Administracion de Logistica Inversa, S.A. de C.V. (“DALI���), a Mexican company. DALI is a joint venture that operates a refrigerator recycling program sponsored by the Mexican government. Our investment represents a 32.7% ownership in the joint venture. The DALI joint venture is accounted for under the equity method and was presented in the consolidated balance sheets as a component of other assets. The results of the joint venture were immaterial for 2010. In December 2010, we concluded that our investment in DALI was impaired due to several factors that appeared to adversely affect the near-term prospects of DALI’s business. As a result, we recorded an other-than-temporary impairment charge of $266.45 In fiscal year 2010, we contributed equity and January 1, 2011::
2011
2011 December 29, 2012 December 31, 2011 Assets Current assets $ 787 $ 1,134 Property and equipment, net 9,109 9,419 Goodwill — 1,082 Other assets 149 136 Total assets $ 10,045 $ 11,771 Liabilities Accounts payable $ 826 $ 858 Accrued expenses 204 250 Current maturities of long-term debt obligations 635 593 Long-term debt obligations, net of current maturities 4,437 5,022 Other liabilities (a) 749 647 Total liabilities $ 6,851 $ 7,370 long-term liabilities represent outstanding loans from ARCA and are eliminated in consolidation.20112012 and 2010:
2011
2011462011: For the fiscal year ended December 29, 2012 December 31, 2011 Revenues $ 11,241 $ 11,337 Gross profit 584 1,373 Operating income (loss) (b) (847 ) 869
The following table summarizes the allocation of the purchase price to the fair value of the assets acquired and liabilities assumed as a result of consolidating AAP as a variable interest entity.
|
| February 8, |
| ||
Assets |
|
|
| ||
Current assets |
| $ | 6 |
| |
Property and equipment |
| 3,123 |
| ||
Goodwill |
| 1,082 |
| ||
Other assets (b) |
| 1,555 |
| ||
Total assets acquired |
| 5,766 |
| ||
Liabilities |
|
|
| ||
Accounts payable |
| (466 | ) | ||
Accrued expenses |
| (97 | ) | ||
Current maturities of long-term debt obligations |
| (376 | ) | ||
Long-term debt obligations, net of current maturities |
| (827 | ) | ||
Total liabilities assumed |
| (1,766 | ) | ||
Equity contribution from ARCA |
| (2,000 | ) | ||
Net assets acquired |
| $ | 2,000 |
| |
(b) Other assets include a receivable of $1,525 from ARCA related to equity contributions made in March 2010 and April 2010, which is eliminated upon consolidation.
7.5. Other Assets
|
| December 31, |
| January 1, |
| ||||
Deposits |
| $ | 400 |
| $ | 443 |
| ||
Recycling contract, net |
| 339 |
| 419 |
| ||||
Deferred financing costs, net |
| 476 |
| — |
| ||||
Patent costs |
| 17 |
| — |
| ||||
Other |
| — |
| 198 |
| ||||
|
| $ | 1,232 |
| $ | 1,060 |
| ||
December 29, 2012 | December 31, 2011 | ||||||
Deposits | 376 | $ | 400 | ||||
Recycling contract, net | 259 | 339 | |||||
Deferred financing costs, net | 279 | 476 | |||||
Patent costs | 21 | 17 | |||||
$ | 935 | 1,232 |
2012 |
| $ | 80 |
|
2013 |
| 80 |
| |
2014 |
| 80 |
| |
2015 |
| 80 |
| |
2016 |
| 19 |
|
47
2013 | $ | 80 | |
2014 | 80 | ||
2015 | 80 | ||
2016 | 19 |
8.Accrued Expenses
|
| December 31, |
| January 1, |
| ||
Compensation and benefits |
| $ | 1,023 |
| $ | 1,472 |
|
Accrued rebate and incentive checks |
| 728 |
| 387 |
| ||
Accrued rent |
| 1,336 |
| 1,423 |
| ||
Warranty expense |
| 71 |
| 36 |
| ||
Accrued payables |
| 408 |
| 445 |
| ||
Current portion of deferred gain on sale-leaseback of building |
| 487 |
| 487 |
| ||
Deferred revenue |
| 96 |
| 91 |
| ||
Other |
| 304 |
| 430 |
| ||
|
| $ | 4,453 |
| $ | 4,771 |
|
In December 2010, we completed an evaluation of our liability for rebate and incentive checks and concluded that our estimated liability of $1,232 needed to be reduced by $845. We recorded the adjustment to other income in the consolidated statements of comprehensive income.
December 29, 2012 | December 31, 2011 | ||||||
Compensation and benefits | $ | 963 | $ | 1,023 | |||
Accrued rebate and incentive checks | 563 | 728 | |||||
Accrued rent | 1,383 | 1,336 | |||||
Warranty expense | 47 | 71 | |||||
Accrued payables | 307 | 408 | |||||
Current portion of deferred gain on sale-leaseback of building | 487 | 487 | |||||
Deferred revenue | 157 | 96 | |||||
Other | 403 | 304 | |||||
$ | 4,310 | $ | 4,453 |
In connection with the Revolving Credit Agreement, we repaid the General Credit$2,531 and Security Agreement, (“Credit Agreement”) as amended, entered into on August 30, 1996 with Spectrum Commercial Services (“SCS”) that provided us with an $18,000 line of credit. The Credit Agreement had a stated maturity date of December 31, 2010, if not renewed or extended, and provided that SCS may demand payment in full of the entire balance at any time. We extended the Credit Agreement until January 24, 2011. As of January 1, 2011, the outstanding balance under the Credit Agreement was $10,139 with a stated interest rate of 6.75% (the greater of prime plus 3.50 percentage points or 6.75%). As of January 1, 2011, our unused borrowing capacity under the Credit Agreement was $425. As of January 1, 2011, we were in compliance with all the covenants of the Credit Agreement.
48$3,505, respectively.
In connection with the Revolving Credit Agreement, we also guaranteed a $2,100 loan between PNC (previously with SCS) and AAP. The guarantee was provided by reducing our available borrowings under the Revolving Credit Agreement by $2,100 until the loan was repaid by AAP on March 10, 2011, as further described in Note 10.
Long-term debt, capital lease and other financing obligations as of December 29, 2012, and December 31, 2011 and January 1, 2011, consist of the following:
|
| December 31, |
| January 1, |
| ||
6.85% mortgage, due in monthly installments of $15, including interest, paid in full January 2011 |
| $ | — |
| $ | 1,509 |
|
Floating rate term loan, due in monthly installments of $21, plus interest, due February 2021, collateralized by land and building |
| 2,295 |
| — |
| ||
Floating rate term loans, due in monthly installments of $54, including interest, due March 2021, collateralized by equipment |
| 4,537 |
| — |
| ||
2.75% note, due in monthly installments of $3, including interest, due October 2024, collateralized by equipment |
| 440 |
| 468 |
| ||
10.00% note, due in monthly installments of $10, including interest, due December 2014 |
| 400 |
| 440 |
| ||
7.25% note, due on demand, paid in full March 2011 |
| — |
| 2,100 |
| ||
4.00% note, due on demand, paid in full March 2011 |
| — |
| 1,400 |
| ||
3.00% note, paid in full March 2011 |
| — |
| 280 |
| ||
Capital leases and other financing obligations |
| 568 |
| 700 |
| ||
|
| 8,240 |
| 6,897 |
| ||
Less current maturities |
| 989 |
| 4,396 |
| ||
|
| $ | 7,251 |
| $ | 2,501 |
|
December 29, 2012 | December 31, 2011 | ||||||
PNC term loan | 2,040 | 2,295 | |||||
Susquehanna term loans | 4,154 | 4,537 | |||||
2.75% note, due in monthly installments of $3, including interest, due October 2024, collateralized by equipment | 411 | 440 | |||||
10.00% note, due in monthly installments of $10, including interest, due December 2014 | 280 | 400 | |||||
Capital leases and other financing obligations | 427 | 568 | |||||
7,312 | 8,240 | ||||||
Less current maturities | 955 | 989 | |||||
$ | 6,357 | $ | 7,251 |
default.
On December 13, 2010, we guaranteed a 3.00% note, due in February 2011, of $280 between Central Bank and AAP. The guarantee was provided by pledging $280 of our cash balance at Central Bank until the loan was repaid by AAP. The loan was repaid by AAP on March 10, 2011 as described above.
The future annual maturities of borrowings are as follows:
|
| ARCA |
| AAP |
| Total |
| ||||
2012 |
| $ | 396 |
| $ | 593 |
| $ | 989 |
| |
2013 |
| 316 |
| 634 |
| 950 |
| ||||
2014 |
| 312 |
| 679 |
| 991 |
| ||||
2015 |
| 308 |
| 532 |
| 840 |
| ||||
2016 |
| 273 |
| 519 |
| 792 |
| ||||
Thereafter |
| 1,020 |
| 2,658 |
| 3,678 |
| ||||
|
| $ | 2,625 |
| $ | 5,615 |
| $ | 8,240 |
| |
ARCA | AAP | Total | |||||||||
2013 | $ | 320 | $ | 635 | $ | 955 | |||||
2014 | 316 | 679 | 995 | ||||||||
2015 | 311 | 538 | 849 | ||||||||
2016 | 1,293 | 547 | 1,840 | ||||||||
2017 | — | 564 | 564 | ||||||||
Thereafter | — | 2,109 | 2,109 | ||||||||
$ | 2,240 | $ | 5,072 | $ | 7,312 |
|
| ARCA |
| AAP |
| Total |
| |||
2012 |
| $ | 167 |
| $ | 75 |
| $ | 242 |
|
2013 |
| 78 |
| 74 |
| 152 |
| |||
2014 |
| 68 |
| 74 |
| 142 |
| |||
2015 |
| 58 |
| 44 |
| 102 |
| |||
2016 |
| 18 |
| — |
| 18 |
| |||
Total minimum lease and other financing obligation payments |
| 389 |
| 267 |
| 656 |
| |||
Less amount representing interest |
| (59 | ) | (29 | ) | (88 | ) | |||
Present value of minimum payments |
| 330 |
| 238 |
| 568 |
| |||
Less current portion |
| 141 |
| 61 |
| 202 |
| |||
Capital lease and other financing obligations, net of current portion |
| $ | 189 |
| $ | 177 |
| $ | 366 |
|
29, 2012
ARCA | AAP | Total | |||||||||
2013 | $ | 82 | $ | 76 | $ | 158 | |||||
2014 | 72 | 76 | 148 | ||||||||
2015 | 61 | 51 | 112 | ||||||||
2016 | 18 | 30 | 48 | ||||||||
2017 | — | 15 | 15 | ||||||||
Total minimum lease and other financing obligation payments | 233 | 248 | 481 | ||||||||
Less amount representing interest | 33 | 21 | 54 | ||||||||
Present value of minimum payments | 200 | 227 | 427 | ||||||||
Less current portion | 65 | 66 | 131 | ||||||||
Capital lease and other financing obligations, net of current portion | $ | 135 | $ | 161 | $ | 296 |
|
| ARCA |
| AAP |
| Total |
| |||
2012 |
| $ | 5,138 |
| $ | 231 |
| $ | 5,369 |
|
2013 |
| 4,626 |
| 231 |
| 4,857 |
| |||
2014 |
| 3,845 |
| 232 |
| 4,077 |
| |||
2015 |
| 2,710 |
| 233 |
| 2,943 |
| |||
2016 |
| 1,893 |
| 246 |
| 2,139 |
| |||
Thereafter |
| 2,862 |
| 990 |
| 3,852 |
| |||
|
| $ | 21,074 |
| $ | 2,163 |
| $ | 23,237 |
|
ARCA | AAP | Total | |||||||||
2013 | $ | 5,171 | $ | 385 | $ | 5,556 | |||||
2014 | 4,355 | 400 | 4,755 | ||||||||
2015 | 3,100 | 404 | 3,504 | ||||||||
2016 | 2,246 | 425 | 2,671 | ||||||||
2017 | 1,903 | 427 | 2,330 | ||||||||
Thereafter | 2,188 | 1,334 | 3,522 | ||||||||
$ | 18,963 | $ | 3,375 | $ | 22,338 |
Litigation:We are party from time to time to ordinary course disputes that we do not believe to be material or have merit. We intend to vigorously defend ourselves against these ordinary course disputes.
12.
|
| For the fiscal year ended |
| ||||
|
| December 31, |
| January 1, |
| ||
Current tax expense: |
|
|
|
|
| ||
Federal |
| $ | 266 |
| $ | 357 |
|
State |
| 140 |
| 53 |
| ||
Foreign |
| 257 |
| 323 |
| ||
Current tax expense |
| $ | 663 |
| $ | 733 |
|
Deferred tax expense — domestic |
| 702 |
| (43 | ) | ||
Deferred tax expense — foreign |
| 2 |
| — |
| ||
Provision for income taxes |
| $ | 1,367 |
| $ | 690 |
|
For the fiscal year ended | |||||||
December 29, 2012 | December 31, 2011 | ||||||
Current tax expense: | |||||||
Federal | $ | (248 | ) | $ | 266 | ||
State | 26 | 140 | |||||
Foreign | (62 | ) | 257 | ||||
Current tax expense | $ | (284 | ) | $ | 663 | ||
Deferred tax expense — domestic | 365 | 702 | |||||
Deferred tax expense — foreign | 2 | 2 | |||||
Provision for income taxes | $ | 83 | $ | 1,367 |
|
| For the fiscal year ended |
| ||||
|
| December 31, |
| January 1, |
| ||
Income tax expense at statutory rate |
| $ | 1,981 |
| $ | 917 |
|
State tax expense, net of federal tax effect |
| 303 |
| 130 |
| ||
Permanent differences |
| 360 |
| 199 |
| ||
Change in valuation allowance |
| (15 | ) | (635 | ) | ||
Reversal of deferred tax asset valuation allowance |
| (917 | ) | — |
| ||
Adjustment of deferred tax asset related to state net operating losses |
| — |
| 136 |
| ||
Utilization of foreign tax credit |
| (256 | ) | — |
| ||
Foreign rate differential |
| (47 | ) | (5 | ) | ||
Other |
| (42 | ) | (52 | ) | ||
|
| $ | 1,367 |
| $ | 690 |
|
For the fiscal year ended | |||||||
December 29, 2012 | December 31, 2011 | ||||||
Income tax expense at statutory rate | $ | (1,282 | ) | $ | 1,981 | ||
State tax expense, net of federal tax effect | (130 | ) | 303 | ||||
Permanent differences | 194 | 360 | |||||
Change in valuation allowance | 1,154 | (15 | ) | ||||
Recognition of tax effect for the cumulative undistributed earnings from Canada | 114 | — | |||||
Reversal of deferred tax asset valuation allowance | — | (917 | ) | ||||
Adjustment of deferred tax assets | 58 | — | |||||
Utilization of foreign tax credit | — | (256 | ) | ||||
Foreign income tax payable true-up | (57 | ) | — | ||||
Foreign rate differential | — | (47 | ) | ||||
Other | 32 | (42 | ) | ||||
$ | 83 | $ | 1,367 |
Income before provision for income taxes and noncontrolling interest was derived from the following sources for fiscal years 20112012 and 20102011 as shown below:
|
| For the fiscal year ended |
| ||||
|
| December 31, |
| January 1, |
| ||
United States |
| $ | 5,279 |
| $ | 1,756 |
|
Canada |
| 810 |
| 882 |
| ||
|
| $ | 6,089 |
| $ | 2,638 |
|
For the fiscal year ended | |||||||
December 29, 2012 | December 31, 2011 | ||||||
United States | $ | (4,356 | ) | $ | 5,279 | ||
Canada | (17 | ) | 810 | ||||
$ | (4,373 | ) | $ | 6,089 |
|
| December 31, |
| January 1, |
| ||
Deferred tax assets: |
|
|
|
|
| ||
Net operating loss carryforwards |
| $ | 290 |
| $ | 284 |
|
Federal and state tax credits |
| — |
| 336 |
| ||
Reserves |
| 191 |
| 271 |
| ||
Accrued expenses |
| 203 |
| 206 |
| ||
Share-based compensation |
| 227 |
| 153 |
| ||
Deferred gain |
| 521 |
| 720 |
| ||
Investments |
| 103 |
| 105 |
| ||
Property and equipment |
| 201 |
| 29 |
| ||
Total deferred tax assets |
| 1,736 |
| 2,104 |
| ||
|
|
|
|
|
| ||
Deferred tax liabilities: |
|
|
|
|
| ||
Prepaid expenses |
| (69 | ) | (66 | ) | ||
Property and equipment |
| (262 | ) | (168 | ) | ||
Investments |
| (1,049 | ) | (97 | ) | ||
Total deferred tax liabilities |
| (1,380 | ) | (331 | ) | ||
Valuation allowance |
| (1,031 | ) | (1,744 | ) | ||
Net deferred tax assets (liabilities) |
| $ | (675 | ) | $ | 29 |
|
December 29, 2012 | December 31, 2011 | ||||||
Deferred tax assets: | |||||||
Net operating loss carryforwards | $ | 689 | $ | 290 | |||
Federal and state tax credits | 464 | — | |||||
Reserves | 414 | 191 | |||||
Accrued expenses | 254 | 203 | |||||
Share-based compensation | 286 | 227 | |||||
Deferred gain | 331 | 521 | |||||
Investments | — | 103 | |||||
Property and equipment | 25 | 201 | |||||
Total deferred tax assets | 2,463 | 1,736 | |||||
Deferred tax liabilities: | |||||||
Prepaid expenses | (146 | ) | (69 | ) | |||
Property and equipment | (50 | ) | (262 | ) | |||
Investments | (1,124 | ) | (1,049 | ) | |||
Total deferred tax liabilities | (1,320 | ) | (1,380 | ) | |||
Valuation allowance | (2,185 | ) | (1,031 | ) | |||
Net deferred tax liabilities | $ | (1,042 | ) | $ | (675 | ) |
|
| December 31, |
| January 1, |
| ||
Current assets |
| $ | 173 |
| $ | — |
|
Non-current assets |
| 27 |
| 29 |
| ||
Non-current liabilities |
| (875 | ) | — |
| ||
|
| $ | (675 | ) | $ | 29 |
|
We have not recognized a deferred tax liability relating to cumulative undistributed earnings of controlled foreign subsidiaries that are essentially permanent in duration. If some or all of the undistributed earnings of the controlled foreign subsidiaries are remitted to us in the future, income taxes, if any, after the application of foreign tax credits will be provided at that time. During 2011 and 2010, ARCA Canada, our foreign subsidiary, had a receivable from us. We computed income of $501 and $98 for fiscal years 2011 and 2010, respectively, as result of a deemed dividend and related foreign tax credit.
December 29, 2012 | December 31, 2011 | ||||||
Current assets | $ | — | $ | 173 | |||
Non-current assets | 25 | 27 | |||||
Current liabilities | (146 | ) | — | ||||
Non-current liabilities | (921 | ) | (875 | ) | |||
$ | (1,042 | ) | $ | (675 | ) |
At December 31, 2011,29, 2012, we had federal NOL carryforwards of approximately $3,343 ($2,898$2,311 ($1,090 of which is subject to IRC section 382 limitations) and no, alternative minimum tax credits carry forwards.carryforwards of $322 and a foreign tax credit carryforward of $256. We also had state NOL carryforwards of $3,990 ($1,137$6,837 ($713 of which is subject to IRC section 382 limitations). The NOL carryforwards are available to offset future taxable income or reduce taxes payable through 2029. These loss carryforwards began expiring in 2011. We previously wrote off NOLs related to IRC section 382 limits against the valuation allowance. At December 31, 2011,29, 2012, we had $445$1,221 of federal NOL carryforwards not subject to IRC section 382 limitations that begin expiring in 2018.
13.
34 stock options were exercised that resulted in cash proceeds of $117 and had an intrinsic value of $96 .
Table stock options from our 2011 Plan to non-employee directors with an exercise price of Contents
$4.05 per share, a vesting period of six months and a weighted average fair value of $3.57 per share. On August 2, 2012, we granted 8 stock options from our 2011 plan to non-employee directors with an exercise price of $4.01 per share, a vesting period of six months and a weighted average fair value of $3.52 per share.
|
| For the fiscal year ended |
| ||
|
| December 31, |
| January 1, |
|
Expected dividend yield |
| — |
| — |
|
Expected stock price volatility |
| 97.46 | % | 107.44 | % |
Risk-free interest rate |
| 2.93 | % | 2.79 | % |
Expected life of options (years) |
| 8.85 |
| 7.47 |
|
For the fiscal year ended | |||||
December 29, 2012 | December 31, 2011 | ||||
Expected dividend yield | — | — | |||
Expected stock price volatility | 95.46 | % | 97.46 | % | |
Risk-free interest rate | 1.80 | % | 2.93 | % | |
Expected life of options (years) | 10.00 | 8.85 |
|
|
|
| Weighted |
| |
|
|
|
| Average |
| |
|
| Options |
| Exercise |
| |
|
| Outstanding |
| Price |
| |
Balance at January 2, 2010 |
| 413 |
| $ | 4.10 |
|
Granted |
| 143 |
| 3.24 |
| |
Exercised |
| — |
| — |
| |
Cancelled/expired |
| (3 | ) | 5.27 |
| |
Forfeited |
| (1 | ) | 2.22 |
| |
Balance at January 1, 2011 |
| 552 |
| 3.87 |
| |
Granted |
| 73 |
| 4.45 |
| |
Exercised |
| (34 | ) | 3.38 |
| |
Cancelled/expired |
| (1 | ) | 2.22 |
| |
Balance at December 31, 2011 |
| 590 |
| 3.97 |
| |
Options Outstanding | Weighted Average Exercise Price | |||||
Balance at January 1, 2011 | 552 | $ | 3.87 | |||
Granted | 73 | 4.45 | ||||
Exercised | (34 | ) | 3.38 | |||
Cancelled/expired | (3 | ) | 4.76 | |||
Balance at December 31, 2011 | 588 | 3.99 | ||||
Granted | 38 | 4.04 | ||||
Exercised | (29 | ) | 3.03 | |||
Cancelled/expired | (59 | ) | 5.25 | |||
Forfeited | (5 | ) | 4.25 | |||
Balance at December 29, 2012 | 533 | $ | 3.88 |
|
|
|
| Weighted Average |
|
|
|
|
| ||
|
|
|
| Remaining |
|
|
|
|
| ||
|
| Options |
| Contractual Life |
| Weighted Average |
| Aggregate |
| ||
Range of Exercise Prices |
| Outstanding |
| In Years |
| Exercise Price |
| Intrinsic Value |
| ||
$5.05 to $6.41 |
| 216 |
| 3.47 |
| $ | 5.48 |
|
|
| |
$3.55 to $4.69 |
| 183 |
| 6.61 |
| 3.97 |
|
|
| ||
$2.22 to $2.80 |
| 154 |
| 4.01 |
| 2.38 |
|
|
| ||
$1.87 |
| 37 |
| 6.77 |
| 1.87 |
|
|
| ||
|
| 590 |
| 4.80 |
| 3.97 |
| $ | 709 |
| |
Range of Exercise Prices | Options Outstanding | Weighted Average Remaining Contractual Life | Weighted Average Exercise Price | Aggregate Intrinsic Value | ||||||||
$5.05 to $6.41 | 169 | 2.57 | $ | 5.40 | ||||||||
$3.55 to $4.69 | 191 | 6.72 | 4.01 | |||||||||
$2.22 to $2.80 | 138 | 3.28 | 2.35 | |||||||||
$1.87 | 35 | 5.95 | 1.87 | |||||||||
533 | 4.47 | 3.88 | $ | — |
The following table summarizes information about stock options exercisable as of December 31, 201129, 2012 (in thousands, except per share data):
|
| Options |
| Weighted Average |
| Aggregate |
| ||
Range of Exercise Prices |
| Exercisable |
| Exercise Price |
| Intrinsic Value |
| ||
$5.05 to $6.41 |
| 216 |
| $ | 5.48 |
|
|
| |
$3.55 to $4.69 |
| 140 |
| 3.88 |
|
|
| ||
$2.22 to $2.80 |
| 154 |
| 2.38 |
|
|
| ||
$1.87 |
| 37 |
| 1.87 |
|
|
| ||
|
| 547 |
| 3.95 |
| $ | 678 |
| |
Range of Exercise Prices | Options Exercisable | Weighted Average Exercise Price | Aggregate Intrinsic Value | |||||||
$5.05 to $6.41 | 169 | $ | 5.40 | |||||||
$3.55 to $4.69 | 184 | 4.01 | ||||||||
$2.22 to $2.80 | 138 | 2.35 | ||||||||
$1.87 | 35 | 1.87 | ||||||||
526 | 3.88 | $ | — |
29, 2012
The following table summarizes the assumptions used to estimate the fair value of the warrants issued on October 21, 2009 and May 13, 2010 using the Black-Scholes Model:
|
| May 13, |
| October 21, |
|
Expected dividend yield |
| — |
| — |
|
Expected stock price volatility |
| 105.47 | % | 128.27 | % |
Risk-free interest rate |
| 2.98 | % | 3.42 | % |
Expected life of warrants (years) |
| 7.00 |
| 10.00 |
|
14.
55
|
| For the fiscal year ended |
| ||||
|
| December 31, |
| January 1, |
| ||
Revenues: |
|
|
|
|
| ||
Retail |
| $ | 74,478 |
| $ | 72,828 |
|
Recycling |
| 52,191 |
| 35,334 |
| ||
Total revenues |
| $ | 126,669 |
| $ | 108,162 |
|
|
|
|
|
|
| ||
Operating income (loss): |
|
|
|
|
| ||
Retail |
| $ | (241 | ) | $ | (806 | ) |
Recycling |
| 6,926 |
| 3,715 |
| ||
Unallocated corporate costs |
| 559 |
| 160 |
| ||
Total operating income |
| $ | 7,244 |
| $ | 3,069 |
|
|
|
|
|
|
| ||
Assets: |
|
|
|
|
| ||
Retail |
| $ | 20,100 |
| $ | 15,952 |
|
Recycling |
| 20,537 |
| 16,499 |
| ||
Corporate assets not allocable |
| 6,172 |
| 7,413 |
| ||
Total assets |
| $ | 46,809 |
| $ | 39,864 |
|
|
|
|
|
|
| ||
Cash capital expenditures: |
|
|
|
|
| ||
Retail |
| $ | 181 |
| $ | 66 |
|
Recycling |
| 1,335 |
| 5,367 |
| ||
Corporate |
| 241 |
| 194 |
| ||
Total cash capital expenditures |
| $ | 1,757 |
| $ | 5,627 |
|
|
|
|
|
|
| ||
Depreciation and amortization expense: |
|
|
|
|
| ||
Retail |
| $ | 331 |
| $ | 390 |
|
Recycling |
| 524 |
| 475 |
| ||
Corporate |
| 448 |
| 537 |
| ||
Total depreciation and amortization expense |
| $ | 1,303 |
| $ | 1,402 |
|
|
|
|
|
|
| ||
Interest expense: |
|
|
|
|
| ||
Retail |
| $ | 299 |
| $ | 755 |
|
Recycling |
| 589 |
| 241 |
| ||
Corporate |
| 250 |
| 53 |
| ||
Total interest expense |
| $ | 1,138 |
| $ | 1,049 |
|
For the fiscal year ended | |||||||
December 29, 2012 | December 31, 2011 | ||||||
Revenues: | |||||||
Retail | $ | 72,360 | $ | 74,478 | |||
Recycling | 41,953 | 52,191 | |||||
Total revenues | $ | 114,313 | $ | 126,669 | |||
Operating income (loss): | |||||||
Retail | $ | (2,645 | ) | $ | (241 | ) | |
Recycling | (241 | ) | 6,926 | ||||
Unallocated corporate costs | (336 | ) | 559 | ||||
Total operating income (loss) | $ | (3,222 | ) | $ | 7,244 | ||
Assets: | |||||||
Retail | $ | 18,476 | $ | 20,100 | |||
Recycling | 18,658 | 20,537 | |||||
Corporate assets not allocable | 4,670 | 6,172 | |||||
Total assets | $ | 41,804 | $ | 46,809 | |||
Cash capital expenditures: | |||||||
Retail | $ | 228 | $ | 181 | |||
Recycling | 332 | 1,335 | |||||
Corporate | 258 | 241 | |||||
Total cash capital expenditures | $ | 818 | $ | 1,757 | |||
Depreciation and amortization expense: | |||||||
Retail | $ | 226 | $ | 331 | |||
Recycling | 609 | 524 | |||||
Corporate | 386 | 448 | |||||
Total depreciation and amortization expense | $ | 1,221 | $ | 1,303 | |||
Interest expense: | |||||||
Retail | $ | 377 | $ | 299 | |||
Recycling | 468 | 589 | |||||
Corporate | 298 | 250 | |||||
Total interest expense | $ | 1,143 | $ | 1,138 |
16.Benefit Contribution Plan
17. Subsequent Events
In preparing the accompanying consolidated financial statements, the Company evaluated material subsequent events requiring recognition or disclosure herein and determined no such events existed.
ITEM 9.$3,852CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE compared with generating a net income attributable to controlling interest of $4,461 for the year ended December 31, 2011. The $8,313 decline in our operating results had a direct impact on our covenant compliance and liquidity.
2012 | 2011 | ||||||
Cash and cash equivalents | $ | 3,174 | $ | 4,401 | |||
Working capital | 7,631 | 11,445 | |||||
Available borrowing under our line of credit | 2,531 | 3,505 |
ITEM 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE |
ITEM 9A. CONTROLS AND PROCEDURES
.ITEM 9A. CONTROLS AND PROCEDURES officerofficer) and acting principalChief Financial Officer (principal financial officer), to allow timely decisions regarding required disclosure.31, 2011.29, 2012. Based on that evaluation, our Chief Executive Officer concluded that, at December 31, 2011,29, 2012, our disclosure controls and procedures were effective at the reasonable assurance level.31, 2011.29, 201231, 2011,29, 2012, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.58
Information regarding directors and executive officers of the Company is set forth under the headings “Nominees” and “Information Concerning Officers and Key Employees Who Are Not Directors” and “Section ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE16 (a)16(a) Beneficial Ownership Reporting Compliance” in our Proxy Statement for our 20122013 Annual Meeting of Shareholders to be held May 10, 20129, 2013 and is incorporated herein by reference.www.arcainc.comwww.ArcaInc.com under “Investor Relations — Corporate Governance.”
Information regarding executive compensation is set forth under the ITEM 11. EXECUTIVE COMPENSATION ITEM 11. EXECUTIVE COMPENSATIONheadings “Compensation Committee Report” andheading “Executive Compensation” in our Proxy Statement for our 20122013 Annual Meeting of Shareholders to be held May 10, 20129, 2013, and is incorporated herein by reference.ITEM 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER MATTERS
ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER MATTERS |
|
| (a) |
| (b) |
| (c) |
| |
|
|
|
|
|
| Number of Securities |
| |
|
|
|
|
|
| Available for Future |
| |
|
| Number of Securities |
| Weighted Average |
| Issuance Under Equity |
| |
|
| to be Issued |
| Exercise Price of |
| Compensation Plans, |
| |
|
| Upon Exercise of |
| Outstanding Options, |
| Excluding Securities |
| |
|
| Outstanding Options |
| Warrants and Rights |
| Reflected in Column (a) |
| |
Equity compensation plans approved by shareholders |
| 590,050 |
| $ | 3.97 |
| 685,000 |
|
|
|
|
|
|
|
|
|
|
Equity compensation plans not approved by shareholders |
| 23,500 |
| $ | 3.55 |
| — |
|
|
|
|
|
|
|
|
|
|
Total |
| 613,550 |
| $ | 3.96 |
| 685,000 |
|
29, 2012
(a) | (b) | (c) | |||||||
Number of Securities to be Issued Upon Exercise of Outstanding Options and Warrants | Weighted Average Exercise Price of Outstanding Options, Warrants and Rights | Number of Securities Available for Future Issuance Under Equity Compensation Plans, Excluding Securities Reflected in Column (a) | |||||||
Equity compensation plans approved by shareholders | 533,050 | $ | 3.88 | 647,500 | |||||
Equity compensation plans not approved by shareholders | 23,500 | $ | 3.55 | — | |||||
Total | 556,550 | $ | 3.87 | 647,500 |
ITEM 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE |
ITEM 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Information regarding director independence and certain relationships and related transactions is set forth under the headings “Director Independence” and “Review, Approval or Ratification of Transactions with Related Persons” in our Proxy Statement for our 20122013 Annual Meeting of Shareholders to be held May 10, 20129, 2013, and is incorporated herein by reference.
Information regarding principal accounting fees and services is set forth under the heading “Independent Registered Public Accounting Firm” in our Proxy Statement for our ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES20122013 Annual Meeting of Shareholders to be held May 10, 20129, 2013, and is incorporated herein by reference.
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
| |
ITEM 15. | EXHIBITS AND FINANCIAL STATEMENT SCHEDULES |
(a) | Financial Statements, Financial Statement Schedules and Exhibits | ||||
1 | Financial Statements | ||||
|
| ||||
See Index to Financial Statements under Item 8 of this report. | |||||
2 |
| Financial Statement Schedules | |||
None. | |||||
| Exhibits | ||||
|
| ||||
See Index to Exhibits on page |
| ||
March | APPLIANCE RECYCLING CENTERS OF AMERICA, INC. (Registrant) | |
By | /s/ Edward R. Cameron | |
Edward R. Cameron | ||
President and Chief Executive Officer | ||
| ||
By | /s/ Jeffrey A. Cammerrer | |
Jeffrey A. Cammerrer | ||
Chief Financial Officer |
|
|
| ||||||
Signature | Title | Date | ||||||
/s/ Edward R. Cameron | Chairman of the Board, President and | March | ||||||
Edward R. Cameron | Chief Executive Officer | |||||||
/s/ Jeffrey A. Cammerrer | Chief Financial Officer | March 22, 2013 | ||||||
Jeffrey A. Cammerrer | ||||||||
/s/ Duane S. Carlson | Director | March | ||||||
Duane S. Carlson | ||||||||
/s/ Stanley Goldberg | Director | March | ||||||
Stanley Goldberg | ||||||||
|
|
| ||||||
| ||||||||
/s/ Steve Lowenthal | Director | March | ||||||
Steve Lowenthal | ||||||||
/s/ Randy Pearce | Director | March 22, 2013 | ||||||
Randy Pearce | ||||||||
/s/ Dean R. Pickerell | Director | March | ||||||
Dean R. Pickerell | ||||||||
|
|
| ||||||
|
|
| |||
| ||||
Exhibit No. | Description | |||
3.1 | Restated Articles of Incorporation of Appliance Recycling Centers of America, Inc. [filed as Exhibit 3.1 to the Company’s Form 10-K for the fiscal year ended January 2, 1999 (File No. 0-19621) and incorporated herein by reference]. | |||
3.2 | ||||
| Bylaws of Appliance Recycling Centers of America, Inc. as amended December 26, 2007 [filed as Exhibit 3.2 to the Company’s Form 8-K filed on January 2, 2008 (File No. 0-19621) and incorporated herein by reference]. | |||
10.1* | ||||
| Amended and Restated 1997 Stock Option Plan, effective April 25, 2002 [filed as Exhibit 28.1 to Post-Effective Amendment to the Company’s Registration Statement on Form S-8 (File No. 333-28571) and incorporated herein by reference]. | |||
10.2* | ||||
| 2006 Stock Option Plan [filed as Exhibit 99.1 to the Company’s Registration Statement on Form S-8 (File No. 333-163804) and incorporated herein by reference]. | |||
10.3* | ||||
| 2011 Stock Compensation Plan [filed as Exhibit 99.1 to the Company’s Registration Statement on Form S-8 (File No. 333-176591) and incorporated herein by reference]. | |||
10.4 | ||||
| Lease Agreement for Leaseback of St. Louis Park Building [filed as Exhibit No. 10.37 to the Company’s Form 10-Q for the quarter ended October 3, 2009 (File No. 0-19621) and incorporated herein by reference]. | |||
10.5‡ | ||||
| Appliance Sales and Recycling Agreement dated October 21, 2009, between General Electric Company and the Company [filed as Exhibit No. 10.38 to the Company’s Form 10-K for the year ended January 2, 2010 (File No. 0-19621) and incorporated herein by reference]. | |||
10.6 | ||||
| Warrant to Purchase Common Stock of the Company for the Purchase of 248,189 shares of Common Stock in favor of General Electric Company, dated October 21, 2009 [filed as Exhibit No. 10.39 to the Company’s Form 10-K for the year ended January 2, 2010 (File No. 0-19621) and incorporated herein by reference]. | |||
10.7 | ||||
| Revolving Credit, Term Loan and Security Agreement dated January 24, 2011, between PNC Bank, National Association and the Company [filed as Exhibit No. 10.11 to the Company’s Form 10-K for the year ended January 1, 2011 (File No. 0-19621) and incorporated herein by reference]. | |||
10.8 | ||||
| Amendment No. 1, dated December 30, 2011, to Revolving Credit, Term Loan and Security Agreement dated January 24, 2011, between PNC Bank, National Association and the | |||
10.9 | Amendment No. 2, dated March 22, 2012, to Revolving Credit, Term Loan and Security Agreement dated January 24, 2011, between PNC Bank, National Association and the Company [filed as Exhibit No. 10.1 to the Company's Form 10-Q for the quarter ended March 31, 2012 (File No. 0-19621) and incorporated herein by reference]. | |||
| Amendment No. 3, dated March 14, 2013, to Revolving Credit, Term Loan and Security Agreement dated January 24, 2011, between PNC Bank, National Association and the Company. | |||
10.11 | Term Loan dated January 24, 2011, between PNC Bank, National Association and ARCA Advanced Processing, LLC [filed as Exhibit No. 10.12 to the Company’s Form 10-K for the year ended January 1, 2011 (File No. 0-19621) and incorporated herein by reference]. | |||
10.12 | ||||
| Term Loan facility dated March 10, 2011, between Susquehanna Bank and ARCA Advanced Processing, LLC, pursuant to the guidelines of the U.S. Small Business Administration 7(a) Loan Program, including $2,100,000 term loan, $1,400,000 term loan and $1,250,000 term loan, guaranties by the Company and others, and security agreements [filed as Exhibit No. 10.13 to the Company’s Form 10-Q for the quarter ended April 2, 2011 (File No. 0-19621) and incorporated herein by reference]. | |||
21.1+ | ||||
| Subsidiaries of Appliance Recycling Centers of America, Inc. | |||
23.1+ | ||||
| Consent of Baker Tilly Virchow Krause, LLP, Independent Registered Public Accounting Firm. |
31.1+ | Certification by | |
31.2+ | Certification by Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
32.1† | Certification by Chief Executive Officer | |
32.2† | Certification by Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
101** | ||
| The following materials from our Annual Report on Form 10-K for the fiscal year ended December |
* | Items that are management contracts or compensatory plans or arrangements required to be filed as an exhibit pursuant to Item 14(a)3 of this Form 10-K. | |
+ | Filed herewith. | |
|
| |
‡ | ||
|
| |
| Portions of this exhibit have been omitted pursuant to a request for confidential treatment. | |
** | ||
| Pursuant to Rule 406T of Regulation S-T, the XBRL related information in Exhibit 101 to this Annual Report on Form 10-K shall not be deemed to be “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, and shall not be deemed part of a registration statement, prospectus or other document filed under the Securities Act or the Exchange Act, except as shall be expressly set forth by specific reference in such filings. |