JanOne Inc. - Quarter Report: 2010 October (Form 10-Q)

Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

x	Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended October 2, 2010
or
o	Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

Commission File No. 0-19621

 

APPLIANCE RECYCLING CENTERS OF AMERICA, INC.

(Exact name of registrant as specified in its charter)

 

 

 

952-930-9000

(Registrant’s telephone number, including area code)

 

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

 

Indicate by check mark whether the registrant has submitted electronically and posted on its Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). o Yes  o No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). o Yes  x No

 

As of November 9, 2010, there were outstanding 5,492,777 shares of the registrant’s Common Stock, without par value.

 

 

Table of Contents

 

APPLIANCE RECYCLING CENTERS OF AMERICA, INC.

INDEX TO FORM 10-Q

 

		Page
PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements	2
	Consolidated Balance Sheets as of October 2, 2010 (unaudited) and January 2, 2010	2
	Unaudited Consolidated Statements of Operations for the Three and Nine Months Ended October 2, 2010 and October 3, 2009	3
	Unaudited Consolidated Statements of Cash Flows for the Nine Months Ended October 2, 2010 and October 3, 2009	4
	Notes to Unaudited Consolidated Financial Statements	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	15
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	23
Item 4.	Controls and Procedures	24
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	25
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	25
Item 3.	Defaults Upon Senior Securities	25
Item 5.	Other Information	25
Item 6.	Exhibits	26
SIGNATURES		27

 

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PART I.                 FINANCIAL INFORMATION

 

Item 1.                    Financial Statements

 

APPLIANCE RECYCLING CENTERS OF AMERICA, INC.

CONSOLIDATED BALANCE SHEETS

(In Thousands)

 

		October 2,			January 2,
		2010			2010
		(unaudited)
Assets
Current assets:
Cash and cash equivalents		$	3,945		$	2,799
Accounts receivable, net of allowance of $41 at each period		6,048			4,252
Inventories, net of reserves of $343 and $519, respectively		16,573			16,785
Other current assets		1,217			532
Deferred income taxes		677			677
Total current assets		28,460			25,045
Property and equipment, net		9,772			4,139
Restricted cash		701			700
Other assets		1,819			1,566
Total assets (a)		$	40,752		$	31,450
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable		$	5,495		$	3,364
Checks issued in excess of cash in bank		—			410
Accrued expenses		5,908			4,401
Line of credit		12,692			12,419
Current maturities of long-term obligations		586			544
Income taxes payable		94			188
Total current liabilities		24,775			21,326
Long-term obligations, less current maturities		2,444			1,963
Deferred gain, net of current portion		1,461			1,827
Deferred income tax liabilities		691			691
Total liabilities (a)		29,371			25,807
Commitments and contingencies		—			—
Shareholders’ equity:
Common Stock, no par value; 10,000 shares authorized; issued and outstanding: 5,493 shares and 4,578 shares, respectively		19,335			17,278
Accumulated deficit		(9,561		)	(11,267		)
Accumulated other comprehensive loss		(330		)	(368		)
Total shareholders’ equity		9,444			5,643
Noncontrolling interest		1,937			—
Total equity		11,381			5,643
Total liabilities and shareholders’ equity		$	40,752		$	31,450

 

(a) Assets and liabilities of the consolidated variable interest entity were $7,419 and $1,850, respectively, as of October 2, 2010.

 

See Notes to Consolidated Financial Statements.

 

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APPLIANCE RECYCLING CENTERS OF AMERICA, INC.

UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS

(In Thousands, Except Per Share Amounts)

 

		Three Months Ended						Nine Months Ended
		October 2, 2010			October 3, 2009			October 2, 2010			October 3, 2009
Revenues:
Retail		$	16,771		$	17,962		$	56,508		$	58,229
Recycling		6,544			7,006			17,159			16,942
Byproduct		4,023			1,037			9,148			2,384
Total revenues		27,338			26,005			82,815			77,555
Costs of revenues		18,477			17,512			57,250			55,148
Gross profit		8,861			8,493			25,565			22,407
Selling, general and administrative expenses		7,543			7,638			22,790			23,378
Operating income (loss)		1,318			855			2,775			(971		)
Other income (expense):
Interest expense, net		(245		)	(325		)	(742		)	(900		)
Other income (expense), net		15			36			5			(35		)
Income (loss) before income taxes and noncontrolling interest		1,088			566			2,038			(1,906		)
Provision for income taxes		166			150			395			51
Net income (loss)		922			416			1,643			(1,957		)
Net (income) loss attributable to noncontrolling interest		(37		)	—			63			—
Net income (loss) attributable to controlling interest		$	885		$	416		$	1,706		$	(1,957	)
Income (loss) per common share:
Basic		$	0.16		$	0.09		$	0.33		$	(0.43	)
Diluted		$	0.16		$	0.09		$	0.32		$	(0.43	)
Weighted average common shares outstanding:
Basic		5,493			4,578			5,191			4,578
Diluted		5,686			4,578			5,400			4,578

 

See Notes to Consolidated Financial Statements.

 

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APPLIANCE RECYCLING CENTERS OF AMERICA, INC.

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands)

 

		Nine Months Ended
		October 2,			October 3,
		2010			2009
Operating activities
Net income (loss)		$	1,643		$	(1,957	)
Adjustments to reconcile net income (loss) to net cash and cash equivalents provided by operating activities:
Depreciation and amortization		1,062			985
Share-based compensation		336			445
Other		7			149
Amortization of deferred gain		(366		)	—
Changes in assets and liabilities:
Accounts receivable		(1,807		)	398
Inventories		223			900
Other current assets		(283		)	263
Other assets		(868		)	(29		)
Accounts payable and accrued expenses		3,336			501
Income taxes payable		(93		)	(194		)
Net cash flows provided by operating activities		3,190			1,461
Investing activities
Increase in restricted cash		(1		)	(700		)
Consolidation of ARCA Advanced Processing, LLC (AAP)		31			—
Proceeds from sale of property and equipment		11			4,638
Investment in DALI		—			(263		)
Purchases of property and equipment		(3,022		)	(421		)
Net cash flows provided by (used in) investing activities		(2,981		)	3,254
Financing activities
Checks issued in excess of cash in bank		(410		)	516
Net borrowings (payments) under line of credit		273			(2,988		)
Payments on long-term obligations		(679		)	(3,086		)
Proceeds from issuance of Common Stock, net of offering costs		1,721			—
Net cash flows provided by (used in) financing activities		905			(5,558		)
Effect of changes in exchange rate on cash and cash equivalents		32			52
Increase (decrease) in cash and cash equivalents		1,146			(791		)
Cash and cash equivalents at beginning of period		2,799			3,498
Cash and cash equivalents at end of period		$	3,945		$	2,707
Supplemental disclosures of cash flow information
Cash payments for interest		$	732		$	902
Cash payments for income taxes, net		$	488		$	384
Non-cash investing and financing activities
Equipment acquired under capital lease		$	—		$	220
Deferred gain on sale-leaseback of building		$	—		$	2,441
Loan receivable in other assets exchanged for equity in AAP		$	375		$	—
Acquisition of AAP:
Fair value of assets acquired, less cash acquired		$	3,927		$	—
Assumed liabilities		$	1,958		$	—

 

See Notes to Consolidated Financial Statements.

 

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APPLIANCE RECYCLING CENTERS OF AMERICA, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands, Except Per Share Amounts)

 

1.              Nature of Business and Basis of Presentation

 

Appliance Recycling Centers of America, Inc. and subsidiaries (“we,” the “Company” or “ARCA”) are in the business of selling new major household appliances through a chain of Company-owned factory outlet stores under the name ApplianceSmart®.  We also provide turnkey appliance recycling and replacement services for electric utilities and other sponsors of energy efficiency programs.

 

The accompanying consolidated financial statements of the Company are unaudited and have been prepared in accordance with generally accepted accounting principles (“GAAP”) in the United States of America for interim financial information and Article 8 of Regulation S-X promulgated by the United States Securities and Exchange Commission (the “SEC”).  Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements.  In the opinion of management, normal and recurring adjustments and accruals considered necessary for a fair presentation for the periods indicated have been included.  Operating results for the three-month and nine-month periods ended October 2, 2010 and October 3, 2009 are presented using 13-week and 39-week periods, respectively.  The results of operations for any interim period are not necessarily indicative of the results for the year.

 

These financial statements should be read in conjunction with the Company’s audited consolidated financial statements and related notes thereto for the year ended January 2, 2010 included in the Company’s Form 10-K filed with the SEC on March 18, 2010.

 

Principles of consolidation:  The consolidated financial statements include the accounts of Appliance Recycling Centers of America, Inc. and our subsidiaries.  All significant intercompany accounts and transactions have been eliminated in consolidation.

 

ARCA Canada Inc., a Canadian corporation, is a wholly-owned subsidiary.  ARCA Canada was formed in September 2006 to provide turnkey recycling services for electric utility energy efficiency programs.  ARCA California, Inc., a Califormia corporation, is a wholly-owned subsidiary.  ARCA California was formed in November 1991 to provide turnkey recycling services for electric utility efficiency programs.  The operating results of ARCA Canada and ARCA California are consolidated in our financial statements.

 

ARCA Advanced Processing, LLC (“AAP”) is a joint venture that was formed in October 2009 between ARCA and 4301 Operations, LLC (“4301”) to support ARCA’s agreement with General Electric Company acting through its GE Consumer & Industrial business (“GE”).  Both ARCA and 4301 have a 50% interest in AAP.  GE sells all of its recyclable appliances generated in the northeastern United States to ARCA, which collects, processes and recycles the appliances.  The agreement requires that ARCA will only recycle, and will not sell for re-use or resale, the recyclable appliances purchased from GE.  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.

 

2.              Recent Accounting Pronouncements

 

Consolidation of Variable Interest Entities

 

On January 3, 2010, we adopted new accounting guidance related to consolidation of variable interest entities.  The new guidance addresses the effects of eliminating the qualified special purpose entity concept and responds to concerns about the application of accounting guidance related to the consolidation of variable interest entities, including concerns over the transparency of enterprises’ involvement with variable interest entities.  The new guidance is effective for fiscal years beginning after November 15, 2009.  The new guidance did not impact our consolidated financial statements upon adoption on January 3, 2010.  We applied the new guidance in determining whether to consolidate AAP upon the capitalization and commencement of operations on February 8, 2010.

 

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Accounting for Transfers of Financial Assets

 

On January 3, 2010, we adopted new accounting guidance related to accounting for transfers of financial assets.  The new guidance eliminates the concept of a “qualified special-purpose entity,” changes the requirements for derecognizing financial assets and requires additional disclosures in order to enhance information reported to users of financial statements by providing greater transparency about transfers of financial assets, including securitization transactions, and an entity’s continuing involvement in and exposure to the risks related to transferred financial assets.  The new guidance is effective for fiscal years beginning after November 15, 2009.  The new guidance did not have a material impact on the preparation of our consolidated financial statements.

 

Fair Value Measurement Disclosures

 

In January 2010, the Financial Accounting Standards Board issued new accounting guidance which requires new disclosures for assets and liabilities measured at fair value.  The requirements include expanded disclosure of valuation methodologies for fair value measurements, transfers between levels of the fair value hierarchy, and gross rather than net presentation of certain changes in Level 3 fair value measurements.  The new required disclosures are effective for interim and annual periods beginning after December 15, 2009, except for requirements related to gross presentation of certain changes in Level 3 fair value measurements, which are effective for interim and annual periods beginning after December 15, 2010.  We implemented the portions of the guidance required on January 3, 2010, and the implementation did not have a material impact on the preparation of our consolidated financial statements.

 

3.     Significant Accounting Policies

 

Cash and cash equivalents:  We consider all highly liquid investments purchased with original maturity dates of three months or less to be cash equivalents.  We maintain our cash in bank deposit and money-market accounts which, at times, exceed federally insured limits.  We have determined that the fair value of our money-market accounts fall within Level 1 of the fair value hierarchy.  We have not experienced any losses in such accounts.

 

Trade receivables:  We carry unsecured trade receivables at the original invoice amount less an estimate made for doubtful accounts based on a monthly review of all outstanding amounts.  Management determines the allowance for doubtful accounts by regularly evaluating individual customer receivables and considering a customer’s financial condition, credit history and current economic conditions.  We write off trade receivables when we deem them uncollectible.  We record recoveries of trade receivables previously written off when we receive them.  We consider a trade receivable to be past due if any portion of the receivable balance is outstanding for more than ninety days.  We do not charge interest on past due receivables.  Our management considers the allowance for doubtful accounts of $41 to be adequate to cover any exposure to loss as of both October 2, 2010 and January 2, 2010.

 

Inventories:  Inventories, consisting principally of appliances, are stated at the lower of cost, determined on a specific identification basis, or market and consist of:

 

		October 2, 2010			January 2, 2010
Finished goods		$	16,755		$	17,304
Work in process		161			—
Less provision for inventory obsolescence		(343		)	(519		)
		$	16,573		$	16,785

 

We provide estimated provisions for the obsolescence of our appliance inventories, including adjustments to market, based on various factors, including the age of such inventory and our management’s assessment of the need for such provisions.  We look at historical inventory agings and margin analysis in determining our provision estimate.  A revised cost basis is used once a provision for obsolescence is recorded.

 

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Property and equipment:  Property and equipment consists of the following:

 

		October 2, 2010			January 2, 2010
Land		$	1,140		$	1,140
Buildings and improvements		3,091			2,990
Equipment (including computer software)		15,567			9,082
		19,798			13,212
Less accumulated depreciation and amortization		(10,026		)	(9,073		)
		$	9,772		$	4,139

 

Software development costs:  We capitalize software developed for internal use and are amortizing such costs over their estimated useful lives of three to five years.  Costs capitalized were $25 and $23 for the three months ended October 2, 2010 and October 3, 2009, respectively.  Costs capitalized were $83 and $171 for the nine months ended October 2, 2010 and October 3, 2009, respectively.

 

Impairment of long-lived assets:  We evaluate long-lived assets such as property and equipment for impairment whenever events or changes in circumstances indicate the carrying value of an asset may not be recoverable.  We assess impairment 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 the three and nine months ended October 2, 2010 and October 3, 2009.

 

Restricted cash:  Restricted cash consists of a reserve account required by our bankcard processor to cover chargebacks, adjustments, fees and other charges that may be due from us.

 

Accounting for leases:  We conduct the majority of our retail and recycling operations from leased facilities.  The majority of our leases require payment of real estate taxes, insurance and common area maintenance in addition to rent.  The terms of our lease agreements typically range from five to ten years.  Most of the leases contain renewal and escalation clauses, and certain store leases require contingent rents based on factors such as revenue.  For leases that contain predetermined fixed escalations of the minimum rent, we recognize the related rent expense on a straight-line basis from the date we take possession of the property to the end of the initial lease term.  We record any difference between straight-line rent amounts and amounts payable under the leases as part of deferred rent in accrued expenses.  Cash or lease incentives (tenant allowances) received upon entering into certain store leases are recognized on a straight-line basis as a reduction to rent from the date we take possession of the property through the end of the initial lease term.

 

Product warranty:  We provide a warranty for the replacement or repair of certain defective units which varies based on the product sold.  Our standard warranty policy requires us to repair or replace certain defective units at no cost to our customers.  We estimate the costs that may be incurred under our warranty and record an accrual in the amount of such costs at the time we recognize product revenue.  Factors that affect our warranty accrual for covered units include the number of units sold, historical and anticipated rates of warranty claims on these units, and the cost of such claims.  We periodically assess the adequacy of our recorded warranty accrual and adjust the amounts as necessary.

 

Changes in our warranty accrual are as follows:

 

		Three Months Ended						Nine Months Ended
		October 2, 2010			October 3, 2009			October 2, 2010			October 3, 2009
Beginning Balance		$	55		$	82		$	67		$	91
Standard accrual based on units sold		10			19			41			60
Actual costs incurred		(4		)	(4		)	(12		)	(12		)
Periodic accrual adjustments		(15		)	(23		)	(50		)	(65		)
Ending Balance		$	46		$	74		$	46		$	74

 

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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.  We concluded that a full valuation allowance against our U.S. deferred tax assets was appropriate as of October 2, 2010 and January 2, 2010.

 

Share-based compensation:  We recognize share-based compensation expense on a straight-line basis over the vesting period for all share-based awards granted.  We use the Black-Scholes option pricing model to determine the fair value of awards at the grant date.  We calculate the expected volatility for stock awards using historical volatility.  We estimate a 0%-5% forfeiture rate for stock awards issued to all 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 awards 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 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 $143 and $162 for the three months ended October 2, 2010 and October 3, 2009, respectively, and $336 and $445 for the nine months ended October 2, 2010 and October 3, 2009, respectively.  We estimate that the remaining expense for fiscal 2010 and beyond will be approximately $124 and $186, respectively, based on the value of stock awards outstanding as of October 2, 2010.  This estimate does not include any expense for additional awards that may be granted and vest during 2010.

 

Comprehensive income (loss):  Other comprehensive income (loss) refers to revenues, expenses, gains and losses that under generally accepted accounting principles are included in comprehensive income (loss) but are excluded from net income (loss) as these amounts are recorded directly as an adjustment to shareholders’ equity.  Our other comprehensive income (loss) is comprised of foreign currency translation adjustments.

 

A reconciliation of net income (loss) to comprehensive income (loss) is as follows:

 

		Three Months Ended						Nine Months Ended
		October 2, 2010			October 3, 2009			October 2, 2010			October 3, 2009
Net income (loss)		$	922		$	416		$	1,643		$	(1,957	)
Other comprehensive income (loss), net of tax:
Effect of foreign currency translation adjustments		67			112			38			86
Total other comprehensive income, net of tax		67			112			38			86
Comprehensive income (loss)		989			528			1,681			(1,871		)
Comprehensive loss (income) attributable to noncontrolling interest		(37		)	—			63			—
Comprehensive income (loss) attributable to controlling interest		$	952		$	528		$	1,744		$	(1,871	)

 

Revenue recognition:  We recognize revenue from appliance sales in the period the consumer purchases and pays for the appliance, net of an allowance for estimated returns.  We recognize revenue from appliance recycling when we collect and process a unit.  We recognize revenue from appliance replacements when we collect, process and replace the original unit.  We recognize byproduct revenue upon shipment.  We recognize revenue on extended warranties with retained service obligations on a straight-line basis over the period of the warranty.  On extended warranty arrangements that we sell but others service for a fixed portion of the warranty sales price, we recognize revenue for the net amount retained at the time of sale of the extended warranty to the consumer.  We include shipping and handling charges to customers in revenue, which are recognized in the period the consumer purchases and pays for delivery.  Shipping and handling costs that we incur are included in cost of revenues.

 

Basic and diluted income (loss) per share:  Basic income (loss) per common share is computed based on the weighted average number of common shares outstanding.  Diluted income (loss) per common share is computed based on the weighted average number of common shares outstanding adjusted by the number of additional shares that would have been

 

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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 (loss) attributable to controlling interest 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 and warrants with exercise prices below average market prices, for the respective reporting periods 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 three and nine months ended October 2, 2010, we excluded 624 and 532, respectively, options and warrants from the diluted weighted average share outstanding calculation as the effect of these options and warrants is anti-dilutive.  The effect of all options outstanding for the three and nine months ended October 3, 2009 was anti-dilutive.

 

A reconciliation of the denominator in the basic and diluted income or loss per share is as follows:

 

		Three Months Ended						Nine Months Ended
		October 2, 2010			October 3, 2009			October 2, 2010			October 3, 2009
Numerator:
Net income (loss) attributable to controlling interest		$	885		$	416		$	1,706		$	(1,957	)
Denominator:
Weighted average shares outstanding — basic		5,493			4,578			5,191			4,578
Employee stock options		14			—			23			—
Stock warrants		179			—			186			—
Weighted average shares outstanding - diluted		5,686			4,578			5,400			4,578
Income (loss) per share:
Basic		$	0.16		$	0.09		$	0.33		$	(0.43	)
Diluted		$	0.16		$	0.09		$	0.32		$	(0.43	)

 

4.              Sale-Leaseback Transaction

 

On September 25, 2009, we completed the sale-leaseback of our St. Louis Park building.  The building is a 126,458-square-foot facility that includes our corporate office, a processing and recycling center, and an ApplianceSmart Factory Outlet store.  Pursuant to the agreement entered into on August 11, 2009, we sold the St. Louis Park building for $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 in cash after repayment of the $2,595 mortgage.  The sale-leaseback transaction resulted in an adjustment of $2,191 to the net book value related to the land and building, and we recorded a deferred gain of $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 $122 and $366 of the deferred gain for the three months and nine months ended October 2, 2010, respectively.  The deferred gain amortization is netted against rent expense as a component of sales, general and administrative expenses in the consolidated statement of operations.

 

5.              Investments in Joint Venture

 

On June 1, 2009, we completed a $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 is presented in the consolidated balance sheets as a component of other assets.  The results of the joint venture were immaterial for the three and nine months ended October 2, 2010 and October 3, 2009 and for the year ended January 2, 2010.

 

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6.              Variable Interest Entity

 

ARCA Advanced Processing, LLC (“AAP”) is a joint venture that was formed in October 2009 between ARCA and 4301 Operations, LLC (“4301”) to support ARCA’s agreement with General Electric Company acting through its GE Consumer & Industrial business (“GE”).  Both ARCA and 4301 have a 50% interest in AAP.  GE sells all of its recyclable appliances generated in the northeastern United States to ARCA, which collects, processes and recycles the appliances.  The agreement requires that ARCA will only recycle, and will not sell for re-use or resale, the recyclable appliances purchased from GE.  The term of the agreement is for six years from the first date of appliance collection, which was March 31, 2010.  AAP commenced operations on February 8, 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.

 

The following table summarizes the assets and liabilities of the consolidated variable interest entity as of October 2, 2010:

 

Assets
Current assets		$	410
Property and equipment		6,324
Other assets		685
		$	7,419
Liabilities
Current liabilities (a)		$	2,772
Long-term debt obligations, net of current maturities		772
		$	3,544

 

(a) Current liabilities include an intercompany balance of $1,694 that is eliminated in consolidation.

 

Revenues from our consolidated variable interest entity for the three and nine months ended October 2, 2010 were $2,261 and $4,832, respectively.  Operating income (loss) from our consolidated variable interest entity for the three and nine months ended October 2, 2010 were $89 and $(93), respectively.

 

As of October 2, 2010, we contributed $2,000 to AAP, which included $375 we loaned to 4301 as of January 2, 2010.  As of October 2, 2010, we had loaned AAP an additional $1,694 which was used to support AAP’s operations.

 

The financial position and results of operations for AAP are reported in our recycling segment.  The purchase price has been allocated on a preliminary basis as we are still determining the fair value of certain property and equipment and intangible assets acquired.

 

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, 2010
Current assets		$	35
Property and equipment		3,162
Other assets		761
Total assets acquired		3,958
Accounts payable		(302		)
Debt obligations		(1,656		)
Net assets acquired		2,000
Less cash acquired		(31		)
Net cash paid		$	1,969

 

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7.              Other Assets

 

Other assets consist of the following:

 

		October 2,  2010			January 2, 2010
Deposits		$	445		$	407
Investment in DALI		263			263
Loan to 4301 Operations, LLC		—			375
Recycling contract, net		439			479
Other		672			42
		$	1,819		$	1,566

 

8.              Accrued Expenses

 

Accrued expenses consist of the following:

 

		October 2, 2010			January 2, 2010
Compensation and benefits		$	1,609		$	868
Accrued recycling incentive checks		1,232			1,232
Accrued rent		1,315			1,176
Warranty expense		46			67
Accrued payables		652			350
Current portion of deferred gain on sale-leaseback of building		487			488
Other		567			220
		$	5,908		$	4,401

 

9.              Line of Credit

 

On August 30, 1996, we entered into a General Credit and Security Agreement, (“Credit Agreement”) as amended, with Spectrum Commercial Services (the “Lender”) that provides us with an $18,000 line of credit.  The outstanding balance under the Credit Agreement was $12,692 as of October 2, 2010 with a stated interest rate of 6.75% (the greater of prime plus 3.50 percentage points or 6.75%).  The outstanding balance under the Credit Agreement was $12,419 as of January 2, 2010 with a stated interest rate of 6.25% (the greater of prime plus 3.00 percentage points or 6.25%).  The amount of borrowings available under the Credit Agreement is based on a formula using receivables and inventories.  Our unused borrowing capacity under the Credit Agreement was $253 and $56 as of October 2, 2010 and January 2, 2010, respectively. We may not have access to the full $18,000 line of credit due to the formula using our receivables and inventories.  The Credit Agreement has a stated maturity date of December 31, 2010, if not renewed, and provides that the Lender may demand payment in full of the entire outstanding balance of the loan at any time.  The Credit Agreement is collateralized by substantially all our assets and requires minimum monthly interest payments of $58, regardless of the outstanding principal balance.  The Lender is also secured by an inventory repurchase agreement with Whirlpool Corporation for purchases from Whirlpool only.  The Credit Agreement requires that we meet a minimum profitability covenant and a minimum tangible net worth covenant, provides payment penalties for noncompliance and prepayment, limits the amount of other debt we can incur, limits the amount of spending on fixed assets and prohibits payments of dividends.  As of January 2, 2010, the outstanding balance was $12,419 and we were in compliance with all covenants under the Credit Agreement, except the minimum profitability covenant and we received a waiver related to this covenant from the Lender.  As of October 2, 2010, we were in compliance with all the covenants of the Credit Agreement.

 

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10.       Long-Term Obligations

 

Long-term debt and capital lease obligations consist of the following:

 

		October 2, 2010			January 2, 2010
6.85% mortgage, due in monthly installments of $15, including interest, due January 2013, collateralized by land and building		$	1,529		$	1,586
Capital leases and other financing obligations (see below)		545			921
Debt obligations from the consolidation of AAP (see below)		956			—
		3,030			2,507
Less current maturities		586			544
		$	2,444		$	1,963

 

Capital leases and other financing obligations:  We acquire certain equipment under capital leases and other financing obligations.  The cost of the equipment was approximately $1,609 and $1,615 at October 2, 2010 and January 2, 2010, respectively.  Accumulated amortization at October 2, 2010 and January 2, 2010 was approximately $1,128 and $802, respectively.  Depreciation and amortization expense is included in cost of revenues and selling, general and administrative expenses.

 

Debt obligations from the consolidation of AAP:  AAP has several debt obligations with maturity dates ranging from October 2010 to October 2024, interest rates ranging from 0% to 10% and monthly payments ranging from $3 to $10.  One note is collateralized by substantially all of the assets of AAP.

 

11.       Commitments and Contingencies

 

Contracts:  We have entered into material contracts with three appliance manufacturers.  Under the agreements there are no minimum purchase commitments; however, we have agreed to indemnify the manufacturers for certain claims, allegations or losses with respect to appliances we sell.

 

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.       Income Taxes

 

We recorded a provision for income taxes of $166 and $395 for the three and nine months ended October 2, 2010, respectively, primarily as a result of generating taxable income in our Canadian subsidiary.  We recorded a provision for income taxes of $150 and $51 for the three and nine months ended October 3, 2009 primarily as the result of taxable income in our Canadian subsidiary.  We did not record a provision for or benefit from income taxes for our U.S. subsidiaries because we have available net operating losses to offset future taxable income and we have recorded full valuation allowances against our U.S. net deferred tax assets due to the uncertainty of their realization.  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.

 

We recognize the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position.  For tax positions meeting the more-likely-than-not threshold, the amount recognized in the consolidated financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority.  As of October 2, 2010 and January 2, 2010, we did not have any material uncertain tax positions.

 

It is our practice to recognize interest related to income tax matters as a component of interest expense and penalties as a component of selling, general and administrative expense.  As of October 2, 2010 and January 2, 2010, we had an immaterial amount of accrued interest and penalties.

 

We are subject to income taxes in the U.S. federal jurisdiction, foreign jurisdictions and various state jurisdictions.  Tax regulations from each jurisdiction are subject to the interpretation of the related tax laws and regulations and require

 

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significant judgment to apply.  With few exceptions, we are no longer subject to U.S. federal, foreign, state or local income tax examinations by tax authorities for the years before 2007.  We are not currently under examination by any taxing jurisdiction.

 

We had no significant unrecognized tax benefits as of October 2, 2010 and January 2, 2010 that would reasonably be expected to affect our effective tax rate during the next twelve months.

 

13.       Shareholders’ Equity

 

Common Stock:  In April 2010 we completed a private placement of 915 shares of our Common Stock at $2.00 per share resulting in net proceeds of $1,721.  The net proceeds were used to capitalize and support AAP, which was formed to establish and operate our regional processing center in Philadelphia.

 

Stock options:  Our 2006 Stock Option Plan (the “2006 Plan”) permits the granting of incentive stock options meeting the requirements of Section 422 of the Internal Revenue Code of 1986, as amended, and nonqualified options that do not meet the requirements of Section 422.  As of October 2, 2010, the 2006 Plan has 63 options remaining to grant from 600 options reserved under the plan.  As of October 2, 2010, 522 options were outstanding to employees and non-employee directors and 15 options have been exercised under the 2006 Plan.  Our Restated 1997 Stock Option Plan (the “1997 Plan”) has expired, but the options outstanding under the expired 1997 Plan continue to be exercisable in accordance with their terms.  As of October 2, 2010, options to purchase an aggregate of 34 shares were outstanding under the 1997 Plan.  Options granted to employees typically vest over two years while grants to non-employee directors vest in six months.  During the second quarter of 2010, we granted 108 stock options with an exercise price of $3.55 per share, vesting periods ranging from six months to one year and a weighted average fair value of $3.08 per share.  During the third quarter of 2010, we granted 35 stock options with an exercise price of $2.30 per share, vesting period of one year and a fair value of $1.94 per share.

 

Warrants:  On October 21, 2009, we issued a warrant to GE to purchase 248 shares of Common Stock at a price of $0.75 per share.  The fair market value of the warrant issued was $479 and is exercisable in full at any time during a term of ten years.  The exercise price may be reduced and the number of shares of Common Stock that may be purchased under the warrant may be increased if the Company issues or sells additional shares of Common Stock at a price lower than the then-current warrant exercise price or the then-current market price of the Common Stock.  The shares underlying the warrant include legal restrictions regarding the transfer or sale of the shares.  As a result of our private placement offering in April 2010, the number of shares of Common Stock underlying the warrant increased to 254 shares and the exercise price decreased to $0.73 per share as defined in the agreement.  There was no accounting charge as a result of the change in warrant shares or exercise price due to the treatment of the warrant as permanent equity.  On May 13, 2010, we issued warrants to non-employees to purchase 24 shares of Common Stock at a price of $3.55 per share, vesting period of two years and a fair value of $3.03 per share.

 

The following table summarizes the assumptions used to estimate the fair value of options and warrants granted during the second and third quarters of 2010 using the Black-Scholes Model:

 

		Q2 2010		Q3 2010
Expected dividend yield		0.0%		0.0	%
Expected stock price volatility		105.5% - 119.9%		104.2	%
Risk-free interest rate		3.0% - 3.6%		2.0	%
Expected life of options		7 - 10 years		7 years

 

Preferred Stock:  Our amended Articles of Incorporation authorize two million shares of Preferred Stock that may be issued from time to time in one or more series having such rights, powers, preferences and designations as the Board of Directors may determine.  To date no such preferred shares have been issued.

 

14.       Segment Information

 

We operate within targeted markets through two reportable segments: retail and recycling.  The retail segment is comprised of income generated through our ApplianceSmart Factory Outlet stores, which includes appliance sales and byproduct revenues from collected appliances.  The recycling segment includes all fees charged and costs incurred for collecting, recycling and installing appliances for utilities and other customers and includes byproduct revenue, which is primarily generated through the recycling of appliances.  We have included the results from consolidating AAP in our recycling segment.  The nature of

 

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products, services and customers for both segments varies significantly.  As such, the segments are managed separately.  Our Chief Executive Officer has been identified as the Chief Operating Decision Maker (“CODM”).  The CODM evaluates performance and allocates resources based on revenues and income from operations of each segment.  Income from operations represents revenues less cost of revenues and operating expenses, including certain allocated selling, general and administrative costs.  There are no inter-segment sales or transfers.

 

The following tables present our segment information for periods indicated:

 

		Three Months Ended						Nine Months Ended
		October 2, 2010			October 3, 2009			October 2, 2010			October 3, 2009
Revenues:
Retail		$	17,114		$	18,123		$	57,517		$	58,561
Recycling		10,224			7,882			25,298			18,994
Total revenues		$	27,338		$	26,005		$	82,815		$	77,555
Operating income (loss):
Retail		$	(197	)	$	(161	)	$	(201	)	$	(2,126	)
Recycling		1,713			1,064			3,322			1,207
Unallocated corporate		(198		)	(48		)	(346		)	(52		)
Total operating income (loss)		$	1,318		$	855		$	2,775		$	(971	)
Assets:
Retail		$	16,428		$	19,693		$	16,428		$	19,693
Recycling		14,899			7,810			14,899			7,810
Corporate assets not allocable		9,425			5,880			9,425			5,880
Total assets		$	40,752		$	33,383		$	40,752		$	33,383
Cash capital expenditures:
Retail		$	26		$	41		$	58		$	170
Recycling		1,392			5			2,808			9
Corporate assets not allocable		48			18			156			242
Total cash capital expenditures		$	1,466		$	64		$	3,022		$	421
Depreciation and amortization:
Retail		$	97		$	108		$	296		$	315
Recycling		104			87			359			241
Unallocated corporate		136			142			407			429
Total depreciation and amortization		$	337		$	337		$	1,062		$	985
Interest expense:
Retail		$	185		$	201		$	546		$	592
Recycling		50			55			152			165
Unallocated corporate		10			69			46			145
Total interest expense		$	245		$	325		$	744		$	902

 

15.       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.

 

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Item 2.                   Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

Forward-Looking and Cautionary Statements

 

This quarterly report contains statements that are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Act of 1934, as amended.  Any statements contained in this quarterly report that are not purely historical or relate to our future operations, performance and results, and anticipated liquidity are forward looking.  These forward-looking statements are based on information available to us on the date of this quarterly report, but are subject to risks and uncertainties, including, but not limited to, those discussed herein.  Our actual results could differ materially from those discussed in this quarterly report.

 

The forward-looking statements contained in this quarterly report, and other written and oral forward-looking statements made by us from time to time, are subject to risks and uncertainties that could cause actual results to differ materially from those anticipated in the forward-looking statements.  Any forward-looking information regarding our operations will be affected primarily by the speed at which individual retail outlets reach profitability, the volume of appliance sales and the strength of energy conservation recycling programs.  Any forward-looking information will also be affected by our continued ability to purchase product from our suppliers at acceptable prices, the ability of individual retail stores to meet planned revenue levels, the number of retail stores, costs and expenses being realized at higher than expected levels, our ability to secure an adequate supply of special-buy appliances for resale, the ability to secure appliance recycling and replacement contracts with sponsors of energy efficiency programs, the ability of customers to supply units under their recycling contracts with us, the performance of our consolidated variable interest entity and the continued availability of our current line of credit.  Other factors that might cause such a difference include, but are not limited to, those discussed in Item 1A “Risk Factors” in our annual report on Form 10-K for the year ended January 2, 2010.

 

The following discussion and analysis provides information that we believe is relevant to an assessment and understanding of our operations and financial condition.  This discussion should be read with the consolidated financial statements appearing in Item 1.

 

Overview

 

We are in the business of selling new major household appliances through a chain of Company-owned factory outlet stores under the name ApplianceSmart®.  We also provide turnkey appliance recycling and replacement services for electric utilities and other sponsors of energy efficiency programs.

 

Subsidiaries.  ARCA Canada Inc., a Canadian corporation, is a wholly-owned subsidiary.  ARCA Canada 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.  ARCA California was formed in November 1991 to provide turnkey recycling services for electric utility efficiency programs.  The operating results of ARCA Canada and ARCA California have been consolidated in our financial statements.

 

Joint Ventures.  On June 1, 2009, we completed a $0.3 million 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 is presented in the consolidated balance sheets as a component of other assets.  The results of the joint venture were immaterial for the three and nine months ended October 2, 2010 and October 3, 2009 and for the year ended January 2, 2010.  We are in the process of evaluating the long-term prospects and strategic importance of the investment as it relates to the current recycling program sponsored by the Mexican government.

 

On October 21, 2009, we entered into a Joint Venture Agreement with 4301 Operations, LLC, (“4301”) to establish and operate a Regional Processing Center (“RPC”) in Philadelphia.  4301 has substantial experience in the recycling of major household appliances and contributed its existing business to the joint venture.  Under the Joint Venture Agreement, the parties formed an entity known as ARCA Advanced Processing, LLC (“AAP”) and each party has a 50% interest in the entity.  AAP has the exclusive rights as a subcontractor to service our GE agreement.  The GE agreement is contingent on our ability to raise additional financing to purchase and install UNTHA Recycling Technology (“URT”) equipment, which will enhance the capabilities of the RPC.  We are the exclusive distributor of URT equipment for North America.  The joint venture plans to raise additional debt financing to purchase the URT equipment, but there is no assurance that the financing will be available or on terms acceptable to the joint venture.

 

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AAP commenced operations on February 8, 2010 and collected the first load of recyclable appliances from GE on March 31, 2010.  As of October 2, 2010, we had invested $2.0 million in AAP, which included $0.4 million we loaned to 4301 as of January 2, 2010.  As of October 2, 2010, we had loaned AAP an additional $1.7 million which was used to support AAP’s operations.  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.

 

Reporting Period.  Operating results for the three- and nine-month periods ended October 2, 2010 and October 3, 2009 are presented using 13- and 39-week periods, respectively.  The results of operations for any interim period are not necessarily indicative of the results for the year.

 

Key Components of Results of Operations

 

Revenues.  We generate revenues from three sources: retail, recycling and byproduct.  Retail revenues are generated through the sale of new appliances at our ApplianceSmart Factory Outlet stores.  Recycling revenues are generated by charging fees for collecting and recycling appliances for utilities and other sponsors of energy efficiency programs.  Recycling revenues also include fees charged for recycling and replacing old refrigerators with new energy efficient refrigerators for low-income housing programs sponsored by electric utilities.  Byproduct revenues are generated by selling recovered materials, such as metals and plastics, and reclaimed chlorofluorocarbons (“CFC”) refrigerants, from appliances we collect and recycle, including appliances from our ApplianceSmart Factory Outlet stores and AAP.

 

Cost of Revenues.  Cost of revenues includes all costs related to the purchase of inventory, including freight, costs related to receiving and distribution of inventory, and costs related to delivery and service of inventory after it is sold to the consumer. The costs related to recycling appliances, such as customer service, transportation and processing, and the cost of refrigerators purchased for our replacement programs, are included in the cost of revenues.  Depreciation expense related to buildings and equipment from our recycling centers is presented in cost of revenues.

 

Selling, General and Administrative Expenses.  Selling, general and administrative expenses are comprised primarily of employee compensation and benefits (including share-based compensation), occupancy costs, advertising, bank processing charges, professional services and depreciation.

 

Interest Expense.  Interest expense is comprised of interest charges related to borrowings under our line of credit, our mortgage on our California building and other long-term obligations, primarily capital leases and debt obligations of AAP.  In September 2009, we paid off the mortgage on our Minnesota building in connection with the sale-leaseback of the property.

 

Segments.  We operate two reportable segments: retail and recycling.  The retail segment is comprised of income generated through our ApplianceSmart Factory Outlet stores.  Our recycling segment includes all fees charged and costs incurred for collecting, recycling and installing appliances for utilities and other customers and includes byproduct revenue, which is primarily generated through the recycling of appliances.  Retail revenues typically have lower profit margins than recycling revenues.

 

Retail Segment.  We operated nineteen factory outlet stores as of October 2, 2010 and eighteen factory outlet stores as of October 3, 2009.  We believe our nineteen factory outlet stores are located in convenient, high-traffic locations in Georgia, Minnesota, Ohio and Texas.  In November 2009, we opened one new factory outlet store in Cumming, Georgia, and in August 2009, terminated the lease and closed one store in Stockbridge, Georgia, and closed one store in San Antonio, Texas, when the lease expired.

 

Recycling Segment.  We operate eight processing and recycling centers, which are located in Minnesota, California, Texas, Illinois, Colorado, Washington, North Carolina and Ontario, Canada.  The regional processing center in Philadelphia, Pennsylvania, operated by AAP is also included in our recycling segment.

 

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Results of Operations

 

The following table sets forth our consolidated operating results for the periods indicated as a percentage of total revenues:

 

		Three Months Ended				Nine Months Ended
		October 2, 2010		October 3, 2009		October 2, 2010		October 3, 2009
Revenues		100.0	%	100.0	%	100.0	%	100.0	%
Cost of revenues		67.6		67.3		69.1		71.1
Gross profit		32.4		32.7		30.9		28.9
Selling, general and administrative expenses		27.6		29.4		27.5		30.1
Operating income (loss)		4.8		3.3		3.4		(1.2	)
Other income (expense):
Interest expense, net		(0.9	)	(1.2	)	(0.9	)	(1.2	)
Other income (expense), net		0.1		0.1		0.0		(0.0	)
Income (loss) before income taxes and noncontrolling interest		4.0		2.2		2.5		(2.4	)
Provision for income taxes		0.6		0.6		0.5		0.1
Net income (loss)		3.4		1.6		2.0		(2.5	)
Net loss (income) attributable to noncontrolling interests		(0.1	)	0.0		0.1		0.0
Net income (loss) attributable to controlling interests		3.3	%	1.6	%	2.1	%	(2.5	)%

 

For the Three Months Ended October 2, 2010 and October 3, 2009

 

The following table sets forth the key results of operations by segment for the three months ended October 2, 2010 and October 3, 2009 (dollars in millions):

 

		2010			2009			% Change
Revenues:
Retail		$	17.1		$	18.1		(5.6	)%
Recycling		10.2			7.9			29.7	%
Total revenues		$	27.3		$	26.0		5.1	%
Operating income (loss):
Retail		$	(0.2	)	$	(0.2	)	(22.4	)%
Recycling		1.7			1.1			61.0	%
Unallocated corporate costs		(0.2		)	—			(312.5	)%
Total operating income (loss)		$	1.3		$	0.9		54.2	%

 

Revenues.  Revenues for the three months ended October 2, 2010 and October 3, 2009 are as follows (dollars in millions):

 

		2010			2009			% Change
Retail		$	16.8		$	18.0		(6.6	)%
Recycling		6.5			7.0			(6.6	)%
Byproduct		4.0			1.0			287.9	%
		$	27.3		$	26.0		5.1	%

 

Our total revenues for the third quarter ended October 2, 2010 increased $1.3 million or 5.1% from $26.0 million in the third quarter of 2009.  Retail segment revenues accounted for 62.6% of total revenues in the third quarter of 2010 compared to 69.7% in the third quarter of 2009.  The increase in third quarter 2010 revenues was attributed primarily to the addition of new recycling contracts and the inclusion of revenues from AAP.  In the third quarter of 2010, retail segment revenues decreased 5.6% to $17.1 million compared to $18.1 million in the third quarter of 2009.  Recycling segment revenues in the

 

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