johnheiderscheit

They are now doing a managed audit with CA. Based on the lack of support so far from their customers I would raise my estimated cost of settlement to $4-5ml because I think interest if not penalties are now likely. I notice there are now several shareholder suits pending . . . doubt they will go anywhere given the fact that the stock hasn't dropped since the non-reliance announcement. Still don't think the business is cheap enough.

Although it goes somewhat against the grain of this website, I would say (I am 52) that I wish I had paid attention to asset allocation earlier and less attention to stock picking. I had money at an early age because of some good deals I did in the 1980s and 1990s and being a good saver. I picked decent small and micro cap stocks overall, probably beating the averages by a couple of points a year. But I was waaaaay underallocated to stocks and overallocated to bonds so the result is my compounding is okay but nothing like what should have been achieved over the past twenty years. Oh yeah, and never, ever, ever fight the Fed.

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.

Isn't it fairly obvious that student loan debt is going to join the debt of underwater homeowners, Greece and (eventually) California and Illinois in the "they can never pay it back so let's just extend and pretend" category? For $20-40 bl you could really clean up the problem and as long as the Fed is picking up the tab, who cares?