XML 23 R10.htm IDEA: XBRL DOCUMENT v3.7.0.1
Significant Contracts
9 Months Ended
Jun. 30, 2017
Contractors [Abstract]  
Significant Contracts
Significant Contracts

The Company has a Surplus contract with the Defense Logistics Agency Disposition Services (DLA). Under this contract, the Company is the remarketer of substantially all Department of Defense (DoD) non-rolling stock surplus turned into the DLA and available for sale within the United States, Puerto Rico, and Guam. The Surplus contract requires the Company to purchase substantially all usable surplus property offered to the Company by the DoD at a fixed percentage of the DoD's original acquisition value (OAV). This fixed percentage is 4.35%; prior to the date the current Surplus contract became effective, this fixed percentage was 1.8%. The Company retains 100% of the profits from the resale of the property and bears all of the costs for the merchandising and sale of the property. Included in accrued expenses and other current liabilities in the Consolidated Balance Sheet is a liability to the DoD of $8.0 million and $16.1 million for inventory as of June 30, 2017 and September 30, 2016, respectively. The Surplus contract permits either party to terminate the contract for convenience. The initial two-year base period ended in December 2016. On December 6, 2016, the DLA notified the Company that it was exercising the first 1-year extension option. The Surplus contract now extends through December 14, 2017. There are three remaining one-year options to extend, exercisable by the DLA. Notwithstanding the options to extend, the DLA held a pre-proposal conference on August 2, 2017 in which the DLA explained a plan to conduct a solicitation for the disposal of surplus DoD assets in the near future. The DLA has not yet issued a formal solicitation.

The Company currently earns fees for services provided under the Surplus contract.  Service fees may vary month-to-month based on services rendered, agreed pricing and volume of goods. The Company anticipates service fee revenue over several quarters to decline as we anticipate pricing declines for the services we provide to the DOD.  Revenue under the Surplus contract was negatively affected for the quarter ended June 30, 2017 as a result of an approximately $0.7 million decrease in service revenues due to new pricing compared to the pricing in effect as of March 31, 2017. Applying the lower service fees currently planned, revenue under the Surplus contract would have been lower by $1.7 million for the quarter ended June 30, 2017. The company anticipates that the results of the second quarter of fiscal 2018 will fully reflect the impact of the new reduced service fees. Assuming the exercise of the next option year, the Company anticipates that the results of the second quarter of fiscal 2018 will fully reflect the impact of the new reduced service fees.

Revenue from the Surplus contract accounted for 26.4% and 30.9% of the Company's consolidated revenue for the three months ended June 30, 2017 and 2016, respectively, and 27.8% and 31.0% of the Company's consolidated revenue for the nine months ended June 30, 2017 and 2016, respectively.

The Company has a Scrap contract with the DLA under which the Company is the remarketer of substantially all DoD non-electronic scrap turned into the DLA available for sale within the United States, Puerto Rico, and Guam.

The Scrap contract was awarded to the Company in April 2016. The contract is a three-year contract with two, one-year renewal options. The base period of the Scrap contract will expire on September 30, 2019. The Company pays a revenue-sharing payment to the DLA under this contract equal to 64.5% of the gross resale proceeds of the scrap property, and the Company bears all of the costs for the sorting, merchandising and sale of the property. The contract contains a provision permitting the DLA to terminate the contract for convenience upon written notice to the Company. The Company commenced operations under this contract in the quarter ended December 31, 2016.

The original Scrap contract was structured as a profit-sharing arrangement, whereby the profit sharing percentage to the DLA was 65.0%. As a result of moving from a profit-sharing arrangement to a revenue-sharing arrangement, the Company re-named the balance sheet line item from Profit-sharing distributions payable to Distributions payable during the first quarter of fiscal 2017.

Revenue from the Scrap contract accounted for approximately 12.3% and 8.6% of the Company's consolidated revenue for the three months ended June 30, 2017 and 2016, respectively, and 10.9% and 9.8% of the Company's consolidated revenue for the nine months ended June 30, 2017 and 2016, respectively.

Additionally, the Company has a contract with a commercial client under which it acquires and sells commercial merchandise. Revenue generated from the arrangement represented approximately 16.1% and 9.1% of the Company's consolidated revenue for the three months ended June 30, 2017 and 2016, respectively, and 15.2% and 9.4% of the Company's consolidated revenue for the nine months ended June 30, 2017 and 2016, respectively.