SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended January 3, 1998 OR [ ] 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) MINNESOTA 41-1454591 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 7400 EXCELSIOR BOULEVARD, MINNEAPOLIS, MINNESOTA 55426-4517 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: 612-930-9000 Securities registered pursuant to Section 12(b) of the Act: NONE Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK, WITHOUT PAR VALUE (Title of class) 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. Yes __X__ No ____ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] As of March 26, 1998, the aggregate market value of the voting stock held by nonaffiliates of the registrant, computed by reference to the average of the high and low prices on such date as reported by the Nasdaq SmallCap Market, was $2,842,000. As of March 26, 1998, there were outstanding 1,136,744 shares of the registrant's Common Stock, without par value. DOCUMENTS INCORPORATED BY REFERENCE Portions of the registrant's Annual Report to Shareholders for the fiscal year ended January 3, 1998 are incorporated by reference into Part II hereof and portions of the definitive proxy statement dated March 24, 1998 are incorporated by reference into Part III hereof.
TABLE OF CONTENTS PAGE ---- PART I Item 1. Business............................................................ 3 General........................................................ 3 Industry Background............................................ 3 Company Background............................................. 4 Customers and Source of Supply................................. 5 Company Operations............................................. 6 Principal Product and Services................................. 7 Sales and Marketing............................................ 7 Seasonality.................................................... 7 Competition.................................................... 8 Government Regulation.......................................... 8 Employees...................................................... 9 Item 2. Properties.......................................................... 9 Item 3. Legal Proceedings................................................... 9 Item 4. Submission of Matters to a Vote of Security Holders................. 10 PART II Item 5. Market for the Company's Common Equity and Related Shareholder Matters............................................................. 10 Item 6. Selected Financial Data............................................. 11 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations............................................... 11 Item 7A. Quantitative and Qualitative Disclosure about Market Risk........... 11 Item 8. Financial Statements and Supplementary Data......................... 11 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure................................................ 11 PART III Item 10. Directors and Executive Officers of the Company..................... 11 Item 11. Executive Compensation.............................................. 11 Item 12. Security Ownership of Certain Beneficial Owners and Management...... 12 Item 13. Certain Relationships and Related Transactions...................... 12 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K..... 13 SIGNATURES................................................................... 14 INDEX TO EXHIBITS............................................................ 15
PART I ITEM 1. BUSINESS GENERAL Appliance Recycling Centers of America, Inc., together with its operating subsidiaries ("ARCA" or the "Company"), provides a comprehensive range of services for large-scale collection, resale and recycling of major household appliances in an environmentally sound manner. The Company provides its customers with integrated processes and programs addressing the solid waste management, environmental and energy conservation issues involved with appliance disposal and recycling. The Company generates revenues from fees charged for the disposal of appliances, the sale of materials generated from processed appliances (byproduct revenues) and the sale of reconditioned and distressed appliances through a chain of Company-owned retail stores called Encore(R) Recycled Appliances ("Encore"). The Company was incorporated in Minnesota in 1983, although through its predecessors, it commenced the appliance recycling business in 1976. The Company's principal office is located at 7400 Excelsior Boulevard, Minneapolis, Minnesota 55426-4517. References herein to the Company include its operating subsidiaries. (See Exhibit 21.1.) INDUSTRY BACKGROUND There are more than 500 million major household appliances, such as refrigerators, freezers, ranges, dishwashers, microwaves, washers, dryers, room air conditioners, water heaters and dehumidifiers, currently in use in the United States. It is estimated by the Steel Recycling Institute that in 1995, 42 million major household appliances were taken out of use in the United States. Industry sources estimate that 50 to 55 million major household appliances will be disposed of each year between the years 1997 and 2000. The disposal of these appliances has become a serious problem as a result of a number of factors including: (i) decreasing landfill capacity in many parts of the country; (ii) the inability of incinerators, composting facilities and other landfill alternatives to process appliances; and (iii) the presence in appliances of certain hazardous and other environmentally harmful materials that require special processing. Legislation affecting appliance disposal has been adopted in more than 30 states. This legislation includes landfill restrictions, disposal bans, advance disposal fees and other types of restrictions. As a result, appliances must be dealt with outside the ordinary municipal solid waste stream. Landfill restrictions arise in part because some appliance components contain certain hazardous and other environmentally harmful materials, including polychlorinated biphenyls (PCBs), mercury, refrigerants such as chlorofluorocarbons (CFCs) and sulfur dioxide, and oils. PCBs are suspected as carcinogens, are resistant to degradation when deposited in landfills and can cause groundwater contamination. The production of PCBs was banned by the EPA in 1979, although businesses were allowed to continue using remaining inventories of components that contained PCBs. Mercury is toxic to humans and can enter the body through inhalation, skin absorption or ingestion, and it vaporizes at high temperatures forming extremely toxic fumes. CFCs are believed to cause long-term damage to the earth's stratospheric ozone layer and may contribute to global warming when released into the atmosphere. The 1990 Amendments to the Clean Air Act prohibit the venting of CFCs and since July 1,
1992 have required the recovery of CFC refrigerants during the service, repair and disposal of appliances. See Business - Government Regulation. In addition to these solid waste management and environmental issues, utility companies, motivated by economic and environmental factors to control energy consumption, sponsor various programs to encourage and assist residential consumers to conserve energy, including programs for turning in surplus, energy-inefficient appliances. Many residential consumers own and operate room air conditioners, freezers or more than one refrigerator, contributing significantly to residential energy use and peak energy demand. In addition, many of the refrigerators manufactured in the 1960s and early 1970s consume up to 1,750 kilowatt-hours of electricity each year. The National Appliance Energy Conservation Act requires that a typical 18-cubic-foot refrigerator manufactured after 1992 have an energy consumption rate not exceeding 700 kilowatt-hours per year. As new, more efficient appliances become available, utility companies have begun to encourage the use of newer models and the disposal of older, less efficient models. The Federal Energy Policy Act of 1992 gives individual states the option of deregulating their electric utility industry. The potential of deregulation has caused uncertainty about the future and form of energy conservation programs sponsored by electric utilities. Some electric utility companies are delaying new energy conservation programs, including the Company's refrigerator recycling program. The Company believes, however, that energy conservation and efficiency programs will remain a long-term component of the nation's electric utility industry. See Business - Government Regulation. During 1997, the Company entered into agreements with Whirlpool Corporation, the nation's largest manufacturer of major household appliances, to develop a program for handling distressed appliances for Whirlpool. Under the agreements, the Company will purchase distressed appliances from Whirlpool, recondition suitable units and sell them through ARCA's network of Encore retail stores. Appliances that cannot be reconditioned are recycled in accordance with all applicable environmental regulations. The Company believes that these contracts will provide a large quantity of high quality appliances that can be sold through its Encore stores. COMPANY BACKGROUND The Company began business in 1976 as a retailer of reconditioned appliances. Initially, the Company contracted with national and regional retailers of appliances such as Sears, Roebuck & Company, Inc. ("Sears") and Montgomery Ward & Co. ("Montgomery Ward") to collect major appliances in Minneapolis/Saint Paul and two other metropolitan areas. As part of their new appliance sales efforts, these customers arrange for the removal of old appliances from consumers' residences. The Company collects old appliances on behalf of its customers, reconditions and sells suitable used appliances through its own retail stores and sells the remaining appliances to scrap metal processors. In the late 1980s, in response to stricter environmental protection laws, the Company developed and marketed programs to process and dispose of appliances in an environmentally sound manner. These programs are offered to new appliance manufacturers and retailers, waste management companies and the general public. See Business - Customers and Source of Supply. In 1989, the Company expanded its appliance recycling concept to the utility industry when it established an appliance processing center in Milwaukee, Wisconsin, pursuant to a contract with a utility company. From 1989 to 1994 the Company focused its resources on the expansion of its business with electric utility companies. During this time period the Company opened nine centers
throughout the U.S. and Canada, primarily serving seventeen electric utility customers. The Company's electric utility business has been negatively impacted by the potential of electric utility industry deregulation. The potential of deregulation has caused electric utilities to decrease their sponsorship of energy conservation programs like the one the Company offers. The Company currently has only one major contract with an electric utility customer. During fiscal year 1997, that customer, Southern California Edison Company ("Edison"), accounted for approximately 38% of the Company's net revenues. In February 1998, Edison entered into a contract with the Company to extend the refrigerator recycling program through September 1998. The Company has participated in that program through its California subsidiary since 1993. Under the terms of the contract, Edison will provide for a minimum number of refrigerators to be recycled during the contract period. The contract generated revenues of $4.3 million in 1997 and will generate at least $3.0 million in revenues in 1998. In response to the decrease in demand for services from electric utilities, the Company has increased its marketing of services to appliance manufacturers and retailers, waste management companies and property management companies. The Company also has increased its focus on the sale of reconditioned appliances. In 1995, under the name Encore(R) Recycled Appliances, the Company began operating a chain of Company-owned retail stores. These stores offer reconditioned and manufacturers' distressed appliances to value-conscious individuals and property managers. During 1996 the Company continued to expand its focus on its Encore retail stores and had more than 30 retail stores open at one point during the year. Due to substantial losses in certain markets, the Company closed centers and stores in three markets in the fourth quarter of 1996. Write-offs and other significant expenses related to these closings caused the Company to report a significantly larger than anticipated loss for the year. The Company currently has four recycling centers, located in Columbus, Ohio; Minneapolis, Minnesota; St. Louis, Missouri; and Los Angeles, California. The Company currently has 14 retail stores in these markets. CUSTOMERS AND SOURCE OF SUPPLY The Company offers its services to entities that as part of their operations become responsible for disposing of large quantities of used appliances. These entities include new appliance manufacturers and retailers, waste management companies, property management companies and utility companies. NEW APPLIANCE MANUFACTURERS AND RETAILERS. The Company began its business by offering appliance recycling programs to Sears, Montgomery Ward and other new appliance retailers to collect appliances from either the retailers' facilities or from their consumers. Recently the Company expanded its existing marketing efforts to new appliance manufacturers, a primary source of product that can be reconditioned and sold in the Company's stores. WASTE MANAGEMENT COMPANIES. The Company provides services to waste management companies and the general public for the collection and recycling of appliances for specified fees. PROPERTY MANAGEMENT COMPANIES. The Company provides comprehensive appliance exchange and recycling services to property managers of apartment complexes as well as local housing authorities.
UTILITY COMPANIES. The Company contracts with utility companies to provide comprehensive appliance recycling services tailored to the needs of the particular utility. The contracts historically have had terms of one to four years, with provisions for renewal at the option of the utility company. Under some contracts, the utility retains the Company to manage all aspects of its appliance recycling program, while under other contracts, the Company provides only specified services. Pricing for the Company's services is on a per-appliance basis and depends upon several factors, including the total number of appliances processed, the length of the contract term and the specific services selected by the utility. Contracts with electric utility customers require that the Company does not recondition for resale appliances received from utility company energy conservation programs. The Company currently has only one major contract with an electric utility customer. The Company believes its sources are adequate to supply the current number of retail stores and allow it to increase the number of retail stores. COMPANY OPERATIONS The Company provides an integrated range of collection, reuse and recycling services. Appliances are collected from a variety of sources, including new appliance retailers and manufacturers, solid waste management companies, property managers, local government and electric utilities. Some appliances are reconditioned and sold through the Company's retail network of Encore stores. The remaining appliances are disposed of in an environmentally responsible manner at a Company recycling center. Environmentally harmful substances---including CFCs, PCBs and mercury---are removed and properly managed. After all appliance processing is completed, scrap materials are sold for recycling. The Company believes 10 to 15% of all appliances collected can be reconditioned. Appliances identified for resale are thoroughly inspected for wear-and-tear and broken or damaged parts. Worn parts are replaced and appliances are tested to ensure they are fully operational and function safely under proper conditions. Appliances are professionally cleaned and touched-up or repainted. Reconditioned appliances are then sold in the Company's chain of Encore retail stores. Each appliance has a 90-day warranty, with an additional extended warranty available for purchase. The Company offers a money-back guarantee and provides delivery and repair services on products that it sells. Appliances that don't meet the Company's standards are processed and recycled in an environmentally sound manner. Appliances identified to be recycled are processed per federal, state and local environmental regulations. They are inspected and categorized according to the types of hazardous materials they may contain. At the Company's centers, appliances are moved through the processing area on a conveyor system, which eases the handling of heavy and bulky items and promotes employee safety. After the appliances are moved to the processing area, the Company's processing technicians remove electrical capacitors and fluorescent light ballasts that may contain PCB dielectric fluid, and components that may contain mercury. This procedure is conducted at a specially constructed and controlled component removal area. The Company's processing technicians are trained to locate and remove such components from all makes and models of appliances. The technicians place the components in separate, clearly marked containers in the component removal area. When processing at the Company's centers has been completed and the appliances are free of environmentally hazardous components and materials, they are delivered to qualified metals processing facilities for shredding. Shredded materials from the processed appliances are sold to steel mini-mills or other metal recovery facilities for appropriate reuse.
PLANNED EXPANSION. The Company plans to open three to five additional retail stores in 1998 in its existing markets. Management believes that the uncertainties in the electric utility industry regarding deregulation will persist at least through 1998. The reaction to deregulation among states and utilities has been varied. The Company believes, however, that energy conservation and efficiency programs will remain a long-term component of the nation's electric utility industry. The Company believes that the growth and expansion of the business in the near future will likely occur primarily through the expansion of revenues from the Company's current retail stores, the development of contracts with solid waste management companies and appliance retailers, and the generation of revenues from the contract with Edison. PRINCIPAL PRODUCT AND SERVICES The Company generates revenues from three sources: recycling fees, appliance sales and byproduct sales. The following table reflects the percentage of total revenues from each source. 1997 1996 1995 ---- ---- ---- Recycling fees 52.4% 48.4% 75.7% Appliance sales 34.6% 36.7% 11.0% Byproduct sales 13.0% 14.9% 13.3% ----- ----- ----- 100.0% 100.0% 100.0% ====== ====== ====== SALES AND MARKETING The Company uses various means to promote awareness of its services and the need for environmentally sound recycling of appliances and believes it is recognized as a leader in the appliance recycling industry. The Company's strategy for its retail stores is to present an upscale image in convenient, high-traffic locations. Store interiors are modern, bright and clean. In every Encore market, the Company actively promotes its stores through various forms of print advertising, including daily classified ads in major newspapers, telephone yellow pages ads and direct mail. In addition, the Company uses radio and television advertisements in some markets, in addition to other types of promotions. SEASONALITY The Company experiences seasonal fluctuations in operating results, with revenues generally higher during the second and third calendar quarters than in the first and fourth calendar quarters. The lower levels in the first and fourth quarters reflect consumer purchasing cycles, which result in lower sales of major household appliances during such quarters and corresponding reductions in the demand for appliance recycling services. Furthermore, utility companies that sponsor appliance turn-in programs generally reduce their promotional efforts for such programs during the first and fourth calendar quarters. The Company expects that it will continue to experience lower revenues in the first and fourth quarters of future years as compared to the second and third quarters of such years.
COMPETITION Many factors, including existing and proposed governmental regulation, may affect competition in the waste management and environmental services industry. Recycling of appliances in conformity with recent legislative and regulatory requirements is a relatively new industry. The Company generally competes with two or three other companies which are based in the geographic area to be served under the contract and which generally offer only some of the services provided by the Company. The Company expects its primary competition for contracts with existing or new customers to come from entrepreneurs entering the appliance recycling business, energy management consultants, current recycling companies, major waste hauling companies, scrap metal processors and used appliance dealers. In addition, customers such as utility companies and local governments may operate appliance recycling programs internally rather than contracting with the Company or other third parties. There can be no assurance that the Company will be able to compete profitably in any of its chosen markets. Competition for the Company's retail stores comes from new appliance retailers and other reconditioned and used appliance retailers. Each Encore location will compete not only with local and national chains of new appliance retailers, many of whom have been in business longer than the Company and who may have significantly greater assets than the Company, but will also be required to compete with numerous independently owned retailers of used and reconditioned appliances. GOVERNMENT REGULATION The business of recycling major appliances is subject to certain governmental laws and regulations and is becoming increasingly regulated. These laws and regulations include landfill disposal restrictions, hazardous waste management requirements and air quality standards, as well as special permit and license conditions for the recycling of appliances. In some instances, there are bonding, insurance and other conditions for bidding on appliance recycling contracts. The Company's appliance recycling centers are subject to various federal, state and local laws, regulations and licensing requirements relating to the collection, processing and recycling of household appliances. Requirements for registrations, permits and licenses vary among the Company's market areas. The Company's centers are registered with the EPA as hazardous waste generators and are licensed, where required, by appropriate state and local authorities. The Company has agreements with approved and licensed hazardous waste companies for transportation and disposal of PCBs from its centers. The 1990 Amendments to the Clean Air Act provide for the phaseout of the production of CFCs over a period of years. Effective July 1, 1992, the Act prohibited the venting of CFCs in the course of maintaining, servicing, repairing or disposing of an appliance. The Act also requires the recovery of CFC refrigerants from appliances prior to their disposal or delivery for recycling. In 1995, the venting of CFC substitute refrigerants was also prohibited. In 1992, Congress adopted the Energy Policy Act of 1992 to encourage energy efficiency. Requirements under this act establish, among other things, mandatory energy performance standards that affect the manufacture and sale of major household appliances. Another component of this act allows for deregulation of the nation's energy providers, including the electric utility industry. The ultimate impact of deregulation on the electric utility industry is yet unknown; therefore, there can be
no assurance that the Company will be able to continue certain of its current operations in a deregulated environment. Company management believes that further government regulation of the appliance recycling industry could have a positive effect on the Company's business; however, there can be no assurance what course future regulation could have. Under some circumstances, further regulation could materially increase the costs of the Company's operations and have an adverse effect on the Company's business. In addition, as is the case with all companies handling hazardous materials, under some circumstances, the Company may be subject to contingent liability. EMPLOYEES At March 1, 1998, the Company had 158 full-time employees, of whom approximately 55 percent were involved in the collection, transportation and processing of appliances at the Company's centers and approximately 45 percent were in sales, administration and management. The Company has not experienced any work stoppages and believes its employee relations are good. ITEM 2. PROPERTIES The Company's executive offices are located in Minneapolis, Minnesota, in a Company owned facility which includes approximately 11 acres of land. The building contains approximately 122,000 square feet, including 27,000 square feet of office space and 95,000 square feet of operations and processing space. The Southern California center building, which also is owned by the Company, is located in Compton, California, and consists of 44,000 square feet: 6,000 square feet of office space and 38,000 square feet of warehouse space. In addition, the Company owns a 14,000-square-foot facility in Saint Paul, Minnesota, which contains a retail store at which it sells reconditioned and distressed appliances. All properties owned by the Company currently secure outstanding loans of the Company. The Company generally leases the other facilities it operates. The Company usually attempts to negotiate lease terms that correspond to the term of the principal contract or contracts in connection with which the center is to be operated. The Company's centers typically range in size from 12,000 to 40,000 square feet. The Company's retail stores are typically 2,500 to 5,000 square feet. The Company is negotiating the settlement of one remaining lease from the locations closed in 1996. The Company believes that the facilities and equipment at each of its centers are adequate to meet its anticipated needs for the near term and believes that alternate facilities will readily be available to the Company to meet its future needs. ITEM 3. LEGAL PROCEEDINGS The Company and its subsidiaries are involved in various legal proceedings arising in the normal course of business, none of which is expected to result in any material loss to the Company or any of its subsidiaries.
Due to legal proceedings brought in August 1997 against the Company, its directors and its subsidiary, Appliance Recycling Centers of America-California, Inc. ("ARCA California"), by the minority shareholder of ARCA California, on October 9, 1997 ARCA California filed a voluntary petition for relief seeking a reorganization of the subsidiary under Chapter 11 of the Federal Bankruptcy Act. On November 5, 1997, a cash settlement agreement between ARCA, Inc., ARCA California, its officers and directors, and the minority shareholder was reached in which all claims between the parties were settled and ARCA, Inc. acquired all of the minority shareholder's stock in ARCA California. The agreement was approved by the United States Bankruptcy Court on November 26, 1997 and the Chapter 11 filing was dismissed. ARCA California accounts for all of the revenues from the Edison contract. In addition, the Company is involved in certain legal proceedings arising from the cancellation of leases in connection with the closing of certain facilities. The Company has established a reserve for lease settlements and closing costs. See Note 7 in the "Notes to Consolidated Financial Statements" contained in Exhibit 13.0 to this report. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The Company did not submit any matters to a vote of security holders during the last quarter of the fiscal year covered by this report. PART II ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS The Common Stock Data set forth on page 16 of the Company's 1997 Annual Report to Shareholders, presenting certain information regarding the market for the Company's Common Stock, is incorporated herein by reference. Within the last three years the Company has issued 79,839 (adjusted for 1 for 4 reverse stock split in February 1997) unregistered shares. In August 1995, the Company acquired Major Appliance Pickup Service of St. Louis, Inc. DBA Gateway Appliance Center, Inc. ("Gateway"), a St. Louis, Missouri-based used appliance retailer and recycler, by exchanging 7,143 shares of its Common Stock for 100% ownership of Gateway. In January 1996, the Company acquired Universal Appliance Company, Inc. and Universal Appliance Recycling, Inc., Washington, D.C.-based companies, by exchanging a total of 21,000 shares of its Common Stock for 100% ownership of the respective companies, which merged into a subsidiary of the Company, ARCA-Maryland, Inc. In May 1996, the Company sold, in a privately negotiated transaction, 50,000 shares of its Common Stock at a purchase price of $14.00 per share to a fund owned by Perkins Capital Management Inc. The proceeds of this sale were used to pay off an equipment loan of $480,000 and for additional working capital. In May 1996, the Company agreed to issue 1,696 shares of Common Stock to Tom Harris & Associates, Inc. pursuant to a contract for service with 730 Creative Corporation.
ITEM 6. SELECTED FINANCIAL DATA The Selected Financial Data set forth on page 16 of the Company's 1997 Annual Report to Shareholders is incorporated herein by reference. Such data should be read in conjunction with the Consolidated Financial Statements and Notes thereto and Management's Discussion and Analysis appearing in the Company's 1997 Annual Report to Shareholders. See Exhibit 13.0 to this report. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR THE FISCAL YEARS 1997, 1996 AND 1995 Management's Discussion and Analysis set forth on page 4 of the Company's 1997 Annual Report to Shareholders, representing management's discussion and analysis of financial condition and results of operations, is incorporated herein by reference. See Exhibit 13.0 to this report. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK Not applicable. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The Consolidated Financial Statements, Notes to Consolidated Financial Statements and Independent Auditor's Report set forth in the Company's 1997 Annual Report to Shareholders are incorporated herein by reference. See Index to Financial Statements on page 13 of this report and Exhibit 13.0 to this report. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE No changes in or disagreements with accountants have occurred within the two-year period ended January 3, 1998, which required reporting on Form 8-K. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY Information regarding directors and executive officers of the Company is set forth under "Information Concerning Directors, Nominees and Executive Officers" and under "Beneficial Ownership Reporting Compliance" in the Company's definitive Proxy Statement for its 1998 Annual Meeting of Shareholders to be held April 30, 1998 and is incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION Information regarding Executive Compensation set forth under "Executive Compensation" in the Company's definitive Proxy Statement for its 1998 Annual Meeting of Shareholders to be held April 30, 1998, other than the subsections captioned "Report of the Compensation and Benefits Committee" and "Performance Graph," is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Information regarding security ownership of certain beneficial owners and management is set forth under "Beneficial Ownership of Common Stock" in the Company's definitive Proxy Statement for its 1998 Annual Meeting of Shareholders to be held April 30, 1998, and is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Information regarding certain relationships and related transactions is set forth under "Information Concerning Directors, Nominees and Executive Officers" in the Company's definitive Proxy Statement for its 1998 Annual Meeting of Shareholders to be held April 30, 1998, and is incorporated herein by reference.
PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) FINANCIAL STATEMENTS, FINANCIAL STATEMENT SCHEDULES AND EXHIBITS 1. FINANCIAL STATEMENTS The following consolidated financial statements of the Company, included in the Company's 1997 Annual Report to Shareholders, are incorporated herein by reference (See Exhibit 13.0 hereto): <TABLE> <CAPTION> PAGE IN 1997 DESCRIPTION ANNUAL REPORT ----------- ------------- <S> <C> Independent Auditor's Report.................................................15 Consolidated Statements of Operations for the three-year period ended January 3, 1998...............................7 Consolidated Balance Sheets at January 3, 1998 and December 28, 1996..........8 Consolidated Statements of Cash Flows for the three-year period ended January 3, 1998...............................9 Consolidated Statements of Shareholders' Equity for the three-year period ended January 3, 1998..............................10 Notes to Consolidated Financial Statements...................................11 </TABLE> 2. FINANCIAL STATEMENT SCHEDULES The financial statement schedules of the Company are omitted because of the absence of conditions under which they are required, or the information required is available in the financial statements listed above. 3. EXHIBITS See Index to Exhibits on page 15 of this report. (b) REPORTS ON FORM 8-K No reports on Form 8-K were filed during the last quarter of the fiscal year covered by this report.
SIGNATURES Pursuant to the requirements of Section 13 or Section 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized. Dated: March 27, 1998 APPLIANCE RECYCLING CENTERS OF AMERICA, INC. (Registrant) By /s/ Edward R. Cameron ------------------------------------- Edward R. Cameron President and Chief Executive Officer By /s/ Kent S. McCoy ------------------------------------- Kent S. McCoy Chief Financial Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. SIGNATURE TITLE DATE - --------- ----- ---- /s/ Edward R. Cameron Chairman of the Board, President and March 27, 1998 - ----------------------- Chief Executive Officer Edward R. Cameron /s/ Kent S. McCoy Chief Financial Officer March 27, 1998 - ----------------------- (Principal Accounting Officer) Kent S. McCoy /s/ George B. Bonniwell Director March 27, 1998 - ----------------------- George B. Bonniwell /s/ Duane S. Carlson Director March 27, 1998 - ----------------------- Duane S. Carlson /s/ Harry W. Spell Director March 27, 1998 - ----------------------- Harry W. Spell
INDEX TO EXHIBITS 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 Registration Statement on Form S-18 (Registration No. 33-43182C) and incorporated herein by reference]. 3.2 Restated Articles of Incorporation as amended June 3, 1993 [filed as Exhibit 19.2 to the Company's Form 10-Q for the quarter ended June 30, 1993 (File No. 0-19621) and incorporated herein by reference]. 3.3 Articles of Amendment of Articles of Incorporation of Appliance Recycling Centers of America, Inc. dated February 7, 1997 [filed as Exhibit 3.3 to the Company's Form 10-K for the year ended December 28, 1996 (File No. 0-19621) and incorporated herein by reference]. +3.4 Articles of Amendment of Articles of Incorporation of Appliance Recycling Centers of America, Inc. dated April 24, 1997. 3.5 Bylaws of Appliance Recycling Centers of America, Inc. [filed as Exhibit 3.2 to the Company's Registration Statement on Form S-18 (Registration No. 33-43182C) and incorporated herein by reference]. *10.1 Restated 1989 Stock Option Plan, as amended [filed as Exhibit 10.7 to the Company's Registration Statement on Form S-1 (Registration No. 33-58338) and incorporated herein by reference]. 10.2 Amendment dated May 14, 1992, to lease between Six Brainard Associates Limited Partnership and ARCA Connecticut, Inc. [filed as Exhibit 10.11 to the Company's Registration Statement on Form S-1 (Registration No. 33-58338) and incorporated herein by reference]. *10.3 Amended Appliance Recycling Centers of America, Inc. 1989 Stock Option Plan [filed as Exhibit 19.3 to the Company's Form 10-Q for the quarter ended June 30, 1993 (File No. 0-19621) and incorporated herein by reference]. 10.4 Agreement dated December 17, 1992, between Appliance Recycling Centers of America, Inc. and TCF Savings Bank [filed with the Company's Form 8-K, dated December 17, 1992 (File No. 0-19621) and incorporated herein by reference]. 10.5 Agreement dated January 19, 1994, between Appliance Recycling Centers of America, Inc. and Standard Insurance Corporation [filed as Exhibit 10.29 to the Company's Form 10-K for the year ended December 31, 1993 (File No.0-19621) and incorporated herein by reference]. 10.6 Line of credit dated August 30, 1996, between Appliance Recycling Centers of America, Inc. and Spectrum Commercial Services, a division of Lyons Financial Services, Inc. [filed
as exhibit 10.15 to the Company's Form 10-Q for the quarter ended September 28, 1996 (File No. 0-19621) and incorporated herein by reference]. 10.7 Amended line of credit dated November 8, 1996, between Appliance Recycling Centers of America, Inc. and Spectrum Commercial Services, a division of Lyons Financial Services, Inc. [filed as exhibit 10.16 to the Company's Form 10-Q for the quarter ended September 28, 1996 (File No. 0-19621) and incorporated herein by reference]. +10.8 Agreement dated February 11, 1998, between Appliance Recycling Centers of America, Inc. and Southern California Edison Company. *10.9 1997 Stock Option Plan and Amendment [filed as exhibits 28.1 and 28.2 to the Company's Registration Statement on Form S-8 (Registration No. 333-28571) and incorporated herein by reference]. +10.10 Amended line of credit dated February 12, 1998 between Appliance Recycling Centers of America, Inc. and Spectrum Commercial Services, a division of Lyons Financial Services, Inc., Amended Revolving Note and Amended Guarantor Acknowledgments. +10.11 Agreement dated February 13, 1998 between Western Bank and Appliance Recycling Centers of America, Inc. *10.12 Amendment, effective April 24, 1997, to 1989 Stock Option Plan [filed as exhibit 28.2 to the Company's Registration Statement on Form S-8 (Registration No. 33-68890) and incorporated herein by reference]. +13.0 Portions of the Annual Report to Shareholders for the fiscal year ended January 3, 1998: Common Stock Data; Selected Financial Data; Management Discussion and Analysis; Financial Statements. +21.1 Subsidiaries of Appliance Recycling Centers of America, Inc. +23.1 Consent of McGladrey & Pullen, LLP, Independent Public Accountants. +27.0 Financial Data Schedule. - ----------------- * Items that are management contracts or compensatory plans or arrangements required to be filed as an exhibit pursuant to Item 14(c) of this Form 10-K. + Filed herewith.