3. Significant Contracts
The Company had a Surplus Contract with the DLA Disposition Services, which expired on December 17, 2008. Under the terms of the original Contract, the Company distributed to the DLA Disposition Services a fixed percentage of the profits realized from the ultimate sale of the inventory, after deduction for allowable expenses and profit-sharing distributions, as provided for under the terms of the Contract. Profit-sharing distributions to the DLA Disposition Services for the years ended September 30, 2011, 2010 and 2009 were $0, $385,000, and $18,009,000, respectively, including accrued amounts of $0, 169,000 and $207,000 as of September 30, 2011, 2010 and 2009, respectively.
The Company responded to a RFP and was awarded the new Surplus Contract. Significant operations began under the new Surplus Contract during February 2009. The new Contract has a base term expiring in February 2012 with two one year renewal options. The DoD has exercised the first renewal option. Under the new Surplus Contract, the Company is required to purchase all usable surplus property offered to the Company by the Department of Defense at a fixed percentage equal to 1.8% of the DoD's original acquisition value. 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. The new Surplus Contract contains a provision providing for a mutual termination of the contract for convenience.
As a result of the Surplus Contract, the Company is the sole remarketer of all DoD surplus turned into the DLA Disposition Services available for sale within the United States, Puerto Rico, and Guam.
The Company has a Scrap Contract with the DLA Disposition Services in which the base term expires in June 2012 with three one year renewal options. The DoD has exercised the first renewal option. Under the terms of the Scrap Contract, the Company is required to purchase all scrap government property referred to it by the DLA Disposition Services. The Company distributes to the DLA Disposition Services 77% of the profits realized from the ultimate sale of the inventory, after deduction for allowable expenses, as provided for under the terms of the contract. The Contract also has a performance incentive that allows it to receive up to an additional 2% of the profit sharing distribution. This incentive is measured annually on June 30th, and is applied to the prior 12 months. The Company earned a performance incentive for the years ended September 30, 2011, 2010 and 2009 of approximately $1,601,000, $1,286,000, and $975,000, respectively. For the years ended September 30, 2011, 2010 and 2009, profit-sharing distributions to the DLA Disposition Services under the Scrap Contract were $49,318,000, $40,926,000, and $25,713,000, including accrued amounts, as of September 30, 2011, 2010, and 2009, of $7,203,000, $5,349,000 and $4,407,000, respectively. The Scrap Contract may be terminated by either the Company or the DLA Disposition Services if the rate of return performance ratio does not exceed specified benchmark ratios for two consecutive quarterly periods and the preceding twelve months. The Company has performed in excess of the benchmark ratios throughout the contract period through September 30, 2011.
As a result of the Scrap Contract, the Company is the sole remarketer of all U.S. Department of Defense scrap turned into the DLA Disposition Services available for sale within the United States, Puerto Rico, and Guam. |