According to the most recent 10Q California's audit is ongoing and now extends through 2013.
If you assume that 50% of the recycle sales eventually are audited by the various states in which ARCI does business (many states wait for a big boy like California to collect and then try to free ride on their work) and assume an average tax collected of 6% of recycle sales for each of the last three years you get approximately $40ml in taxed sales or $2.4ml in tax due. This assumes no penalties but I doubt there would be penalties in this situation unless there is alot more to the story because of the social good associated with this sales activity.
Anyway, if you added $2.4ml to the current EV of $28.2 you get $30.6ml, with EBITDA of around $7ml, or 4.4x. Regardless of your assumptions, I think this is part of the story.
With the absolute crap quality of new applicances today (designed IMHO to wear out in three or four years instead of the eight to twelve that prevailed just a few years ago) it seems like the opportunity to do more recycling could be on the rise, but of course that is just my specualtion.
I like that management owns about 20% and that their compensation is reasonable, with the top three officers taking home between 10-15% of EBITDA.
I passed on this years ago but am going to look at it again. The CEO is 73 which I find interesting.