Liquidity and Capital Resources

Our cash requirements generally consist of working capital, capital expenditures and debt service. Our primary sources of liquidity are cash flows generated from operations and the various borrowing and factoring arrangements described below, including our revolving credit facility. We actively manage our working capital and associated cash requirements and continually seek more effective use of cash.

As of December 31, 2013 , we held cash and cash equivalents of $1.6 million . We maintain a cash account on deposit with BB&T which serves as collateral for our swap agreements. As of December 31, 2013 , the balance in this account was $75.6 thousand . Other than this balance, our cash accounts are available to us without restriction.

Factoring arrangements

We have entered into factoring agreements with various European financial institutions to sell our accounts receivable under non-recourse agreements. These transactions are accounted for as a reduction in accounts receivable because the agreements transfer effective control over and risk related to the receivables to the buyers. We do not service any factored accounts after the factoring has occurred. We utilize factoring arrangements as an integral part of our financing for working capital. The aggregate gross amount factored under these facilities was $31.9 million, $59.9 million and $99.1 million for the years ended December 31, 2013, 2012 and 2011, respectively. The cost of factoring such accounts receivable for the years ended December 31, 2013, 2012 and 2011 was $121.6 thousand, $199.5 thousand and $342.8 thousand, respectively. Any change in the availability of these factoring arrangements could have a material adverse effect on our financial condition.

Credit facilities and notes payable

On February 21, 2014, the Company entered into a Seventh Amendment to Credit Agreement (the “Seventh Amendment”) with Fifth Third Bank (the “Bank”) which amended the July 30, 2010 Credit Agreement (the “Credit Agreement”), including the First Amendment to Credit Agreement dated as of April 14, 2011, the Second Amendment to Credit Agreement dated as of November 16, 2011, the Third Amendment to Credit Agreement dated as of March 2, 2012, the Fourth Amendment to Credit Agreement dated as of August 13, 2012, the Fifth Amendment to Credit Agreement dated as of November 14, 2012 and the Sixth Amendment to Credit Agreement dated as of April 1, 2013 (collectively, the "Previous Amendments") as follows. Pursuant to the Credit Agreement, as amended, the Bank has provided the Companies a revolving credit facility and a term loan described below. The Seventh Amendment extended the maturity date of both the revolving credit facility and the term loan from April 30, 2014 to July 31, 2015. The Seventh Amendment decreased the interest rate on both the revolving credit facility and term loan by 1.00% to equal the one month LIBOR plus four hundred basis points ( 4.00% ) through June 30, 2014. The interest rate will increase effective July 1, 2014 by 2.00% to equal the one month LIBOR plus six hundred basis points ( 6.00% ) through September 30, 2014. The interest rate will increase effective October 1, 2014 by an additional 2.00% to equal the one month LIBOR plus eight hundred basis points ( 8.00% ) and continuing thereafter. The Seventh Amendment decreased the maximum revolving commitment by $10.0 million to $15.0 million until September 30, 2014. On October 1, 2014, the maximum revolving commitment will decrease by $2.5 million to $12.5 million through the termination date. The Seventh Amendment increased the eligible inventory available for calculating the borrowing base effective February 21, 2014 to 60.0% of up to $12.5 million in eligible inventory. The Seventh Amendment decreased the principal payment on the term loan by $80.0 thousand to $25.0 thousand per month on March 1, and April 1, 2014. Principal payments then increase by $25.0 thousand to $50.0 thousand , payable on the first day of each month until the sale of certain real estate owned by ISA, at which time a new payment will be calculated based on net proceeds from the sale. The Seventh Amendment reduced the ratio of adjusted EBITDA for the preceding twelve months to aggregate cash payments of interest expense and scheduled payment of principal in the preceding twelve months (the "Fixed Charge Coverage Ratio") to no less than 1.0 to 1.0 for the period ending September 30, 2014. The Seventh Amendment also provided a waiver of the Fixed Charge Coverage Ratio covenant default for the quarters ended June 30, September 30 and December 31, 2013.  The Seventh Amendment requires that unfunded capital expenditures should not exceed $500.0 thousand . The Seventh Amendment also requires that the sum of the Company's cash balances plus the amount of unused revolving line of credit availability under the borrowing base equal or exceed a specified amount in the aggregate for certain time periods ("Minimum Liquidity Covenant") as follows: $200.0 thousand for any month end beginning February 28 and ending on June 30, 2014; $500.0 thousand for any month end beginning on July 31 and ending on December 31, 2014; and $1.0 million for any month end beginning on or after January 31, 2015. The Seventh Amendment added a minimum consolidated adjusted EBITDA ("Minimum EBITDA") requirement stating that the Minimum EBITDA shall not fall below (i) $250.0 thousand for the calendar year to date period ending on March 31, 2014, (ii) $500.0 thousand for the calendar year to date period ending on June 30, 2014 (iii) $750.0 thousand for the calendar year to date period ending on September 30, 2014, and (iv) $1.0 million for each calendar year to date ending on or after December 31, 2014. The Seventh Amendment requires ISA to periodically provide the Bank with a business plan and its strategy for obtaining certain growth metrics. In addition, the Company also

agreed to perform other customary commitments and pay a fee totaling $200.0 thousand to the Bank by the end of the year.  All other terms of the Credit Agreement and Previous Amendments remain in effect. In connection with the Seventh Amendment, the Company amended and restated both the term loan not (the "Amended and Restated Term Loan Note") and the revolving loan note (the "Amended and Restated Revolving Loan Note"), issued to the Bank under the Credit Agreement.

On October 15, 2013, WESSCO, LLC ("WESSCO"), a wholly-owned subsidiary of the Company, signed two promissory notes (collectively, the "KY Bank Notes") in favor of The Bank of Kentucky, Inc. ("KY Bank"), one in the amount of $3.0 million (the "Term Note") and one in the amount of $1.0 million (the "Line of Credit Note"). The Company used the proceeds from the Term Note to pay the Bank $3.0 million against the Company’s loan from that bank (the “Fifth Third Loan”). WESSCO expects to use the Line of Credit Note to purchase additional equipment.  The Company is a guarantor of the KY Bank Notes.  The Company has also signed a $3.0 million demand promissory note (the “Company Note”) in favor of WESSCO in exchange for the proceeds of WESSCO’s Term Note.

In connection with these transactions, WESSCO executed a Reaffirmation of Guaranty and Security (the “Fifth Third Security Document”), through which it guarantees the Fifth Third Loan and grants Fifth Third Bank a security interest in its assets.

As security for the KY Bank Notes, WESSCO provided KY Bank a first priority security interest in all of its assets, including the Company Note, pursuant to a Security Agreement (the “Security Agreement”). The KY Bank Notes impose a Fixed Charge Coverage Ratio Covenant on WESSCO under which: (i) the sum of (a) WESSCO’s earnings before interest, taxes, depreciation, rent, and interest expense, less distributions and (b) unfunded capital expenditures, divided by (ii) the sum of (x) the current portion of long term debt due for the period, (y) interest expense and (z) rent expense is required to be at least 1.15 to 1 at all times.  KY Bank will test this ratio annually measured for periods starting January 1 and ending December 31. The Security Agreement also contains other customary covenants.

The interest rate on the KY Bank Notes and the Company Note is equal to the one month LIBOR plus three and one-half percent ( 3.50% ) adjusted automatically on the first day of each month during the term of the KY Bank Notes, which have a final maturity date of October 14, 2019.  As of December 31, 2013, the interest rate was 3.67% . In the event of a default, the interest rate under the KY Bank Notes (but not the Company Note) will increase by five percent ( 5.00% ).  Events of default under the KY Bank Notes include (a) the failure to pay (i) any installment of principal or interest payable pursuant to the Term Note or the Line of Credit Note on the date when due, or (ii) any other amount payable to KY Bank under the KY Bank Notes, the Security Agreement or any of the other Loan Documents within five ( 5 ) days after the date when any such payment is due in accordance with the terms thereof; (b) the occurrence of any default under the Fifth Third Security Document; (c) the occurrence of any default under any of the documents evidencing or securing any other loan made to WESSCO or the Company (except that if there is an event of default under the documents evidencing the Fifth Third Loan, it will not constitute an event of default under the KY Bank Notes if Fifth Third Bank and the Company enter into a forbearance agreement within sixty ( 60 ) days of that event of default); and (d) the occurrence of any other “Event of Default” under the Security Agreement or any of the other Loan Documents. The only event of default under the Company Note is the failure of the Company to pay all funds due to WESSCO on demand.

The principal under the Term Note is payable in sixty ( 60 ) monthly installments as follows: $45.3 thousand for the first year, $47.5 thousand for the second year, $49.9 thousand for the third year, $52.4 thousand for the fourth year, and $54.4 thousand for the eleven months of the final year. Interest will be calculated as noted above and paid each month. The first payment commenced November 1, 2013, and the final unpaid principal amount of $60.0 thousand , together with  all accrued and unpaid interest, charges, fees, or other advances, if any, is to be paid on November 1, 2018. As of December 31, 2013, the outstanding balance on the Term Note was $2.9 million . With respect to the Line of Credit Note, WESSCO may request advances up to $1.0 million for twelve ( 12 ) months after the effective date of the Line of Credit Note (the "Draw Period").  Advances are limited to eighty percent ( 80% ) of the purchase price for equipment.  Advances made to WESSCO that have been repaid may be re-borrowed during the Draw Period. During the Draw Period, interest-only payments in the amount of all accrued and unpaid interest on the principal balance of the Line of Credit Note must be made monthly. The total of all advances, less any repayments, through the end of the Draw Period, will equal the principal balance of the Line of Credit Note, and no further advances may be made after the Draw Period.  At the conclusion of the Draw Period, the principal and interest is payable in sixty ( 60 ) monthly installments commencing on the first day of the month immediately following the end of the Draw Period. Any unpaid principal amount due, together with all accrued and unpaid interest, charges, fees, or other advances, if any, must be paid by October 14, 2019. As of December 31, 2013, the outstanding balance on the Line of Credit Note was $307.7 thousand .

WESSCO cannot make demand for payment of the Company Note before December 31, 2016. In connection with these transactions, WESSCO paid loan fees totaling $20.0 thousand and other customary fees.

The Sixth Amendment extended the maturity date of both the revolving credit facility and the term loan from October 31, 2013 to April 30, 2014. The Sixth Amendment also provided a waiver of the ratio of debt to adjusted EBITDA for the preceding twelve months (the "Senior Leverage Ratio") and the ratio of adjusted EBITDA for the preceding twelve months to aggregate cash payments of interest expense and scheduled payment of principal in the preceding twelve months (the "Fixed Charge Coverage Ratio") covenant defaults for the quarter ended December 31, 2012. The Sixth Amendment eliminated the Senior Leverage Ratio for the remaining term of the loan. The Sixth Amendment reduced our covenant to maintain the Fixed Charge Coverage Ratio to 0.6 to 1.0 for the quarter ended March 31, 2013. This ratio was calculated using a trailing 3 -month basis for that quarter. Beginning with the quarter ended June 30, 2013, the Fixed Charge Coverage Ratio requirement returned to 1.20 to 1.0 and was tested on a trailing 12 -month basis as of each quarter end date. The Sixth Amendment increased our interest rate on both the revolving credit facility and term loan by 1.75% and 1.50% , respectively, to equal the one month LIBOR plus five hundred basis points ( 5.00% ) per annum, adjusted monthly on the first day of each month. For the quarter ended March 31, 2013, the Sixth Amendment required a Minimum Liquidity Covenant of at least $3.0 million . The Sixth Amendment decreased the eligible inventory available for calculating the borrowing base effective April 1, 2013 to 57.5% of eligible inventory up to $12.5 million , and then to 55.0% of eligible inventory up to $12.5 million effective June 18, 2013 upon the delivery of the May 31, 2013 borrowing base certificate.

The Fifth Amendment decreased our maximum revolving commitment by $5.0 million to $25.0 million and provided a waiver of the Senior Leverage Ratio and the Fixed Charge Coverage Ratio covenant defaults for the quarter ended September 30, 2012.

The Fourth Amendment decreased our maximum revolving commitment by $10.0 million to $30.0 million and extended the maturity date of both the revolving credit facility and the term loan from July 31, 2013 to October 31, 2013. The Fourth Amendment also provided a waiver of the Senior Leverage Ratio and Fixed Charge Coverage Ratio covenant defaults for the quarter ended June 30, 2012. The Fourth Amendment also changed our covenant to maintain the Fixed Charge Coverage Ratio from not less than 1.20 to 1 to not less than 1.0 to 1 for the third quarter of 2012, and to not less than 1.50 to 1 for the fourth quarter of 2012. The Fourth Amendment also increased the interest rate for both the revolving credit facility and the term loan by fifty basis points ( 0.50% ) to 3.50% and 3.75% , respectively.

The Third Amendment redefined the calculation period for the purpose of measuring compliance with our Senior Leverage Ratio and Fixed Charge Coverage Ratio such that each ratio would be calculated quarterly for the period beginning January 1, 2012 through the end of each quarter of 2012. Prior to the Third Amendment, the ratios were calculated on a rolling 12 -month basis. The Third Amendment also changed the Senior Leverage Ratio. The Third Amendment also increased the unused line fee by 0.25% to 0.75% and provided a waiver of the Senior Leverage Ratio and Fixed Charge Coverage Ratio covenant defaults for the quarter ended December 31, 2011.

The First Amendment (i) increased the maximum revolving commitment and the maximum amount of eligible inventory advances in the calculation of the borrowing base, (ii) changed the due date of the first excess cash flow payment to April 30, 2012, and (iii) amended certain other provisions of the Credit Agreement and certain of the other loan documents. Under the April Amendment, the Company was permitted to borrow the lesser of $45.0 million (the "Maximum Revolving Commitment") or the borrowing base, consisting of the sum of 85% of eligible accounts plus 60% of eligible inventory up to $18.0 million . The Second Amendment decreased our Maximum Revolving Commitment to $40.0 million .

Under the original Credit Agreement, we were permitted to borrow via a revolving credit facility the lesser of $40.0 million or the borrowing base, consisting of the sum of 85% of eligible accounts plus 60% of eligible inventory up to $17.0 million . Eligible accounts are generally those receivables that are less than ninety days from the invoice date. As security for the revolving credit facility, we provided the Bank a first priority security interest in the accounts receivable from most of our customers and in our inventory. We also cross collateralized the revolving line of credit with an $8.8 million term loan, entered into to replace several notes payable with another bank. Proceeds of the original revolving credit facility in the amount of $33.4 million were used to repay the outstanding principal balance of the prior obligations with another bank. We used additional proceeds of the revolving credit facility to pay closing costs and for funding temporary fluctuations in accounts receivable of most of our customers and inventory.

With respect to the revolving credit facility, the interest rate at December 31, 2013 was one month LIBOR plus five hundred basis points ( 5.00% ) per annum, adjusted monthly on the first day of each month. As of December 31, 2013 , the interest rate was 5.25% . We also paid a fee of 0.75% on the unused portion. Under the Seventh Amendment the revolving credit facility expires on July 31, 2015. As of December 31, 2013 , the outstanding balance on the revolving line of credit was $13.3 million .

Beginning with the Sixth Amendment, the original $8.8 million term loan provides for an interest rate that is equal to the interest rate for the revolving credit facility and was 5.25% as of December 31, 2013 . Principal and interest is payable monthly, originally in 36 consecutive installments of approximately $125.0 thousand . The first such payment commenced September 1, 2010 and continued through February 2014. The Seventh Amendment then changed the payment schedule as described above. In addition, the term loan agreement provides that we are to make an annual payment equal to 25% of (i) our adjusted EBITDA, minus (ii) our aggregate cash payments of interest expense and scheduled payments of principal (including any prepayments of the term loan), minus (iii) any non-financed capital expenditures, in each case for the Company’s prior fiscal year. Based on 2013 operating results, no annual payment will be required in 2014 for the 2013 fiscal year. The next annual payment will be due on April 30, 2015 (or earlier, upon completion of the Companies' financial statements for the fiscal year ending December 31, 2014). Any such payments will be applied to remaining installments of principal under the term loan in the inverse order of maturity and to accrued but unpaid interest thereon. As security for the term loan, we provided the Bank a first priority security interest in all equipment other than the rental fleet that we own. As of December 31, 2013 , the outstanding balance on the term loan was $1.5 million .

In addition, we provided a first mortgage on the property at the following locations: 3409 Campground Road, 6709, 7023, 7025, 7101, 7103, 7110, 7124, 7200 and 7210 Grade Lane, Louisville Kentucky, 1565 East Fourth Street, Seymour, Indiana and 1617 State Road 111, New Albany, Indiana. The Company also cross collateralized the term loan with the revolving credit facility and all other existing debt the Company owes to the Bank.

In our original Credit Agreement with the Bank, we agreed to certain covenants, including (i) maintenance of the Senior Leverage Ratio of not more than 3.50 to 1 (or, if measured as of December 31 of any fiscal year, 4.0 to 1), (ii) maintenance of the Fixed Charge Coverage Ratio of not less than 1.20 to 1, and (iii) a limitation on capital expenditures of $4.0 million in any fiscal year. Pursuant to the Third Amendment, the Senior Leverage Ratio increased to 4.25 to 1 for the period ended March 31, 2012. The Senior Leverage Ratio decreased to 3.50 to 1 for the period ended June 30, 2012. Pursuant to the Fourth Amendment, the Senior Leverage Ratio increased to 4.75 to 1 for the period ended September 30, 2012 and decreased to 3.25 to 1 for the period ended December 31, 2012. The Senior Leverage Ratio was eliminated after December 31, 2013 by the Sixth Amendment. In 2012, the Senior Leverage Ratio was, in each quarter, calculated using a measurement period beginning January 1, 2012 and ending at the end of the quarterly measurement period. The Sixth Amendment reduced the Fixed Charge Coverage Ratio requirements and added a Minimum Liquidity Covenant requirement, as noted above. The Seventh Amendment decreased our Fixed Charge Coverage Ratio, decreased the limitation on capital expenditures, added Minimum Liquidity Covenant requirements and added Minimum EBITDA requirements, as noted above.

As of December 31, 2013 , we were not in compliance with the Fixed Charge Coverage ratio for the quarter due to insufficient earnings. As of December 31, 2013 , our ratio of adjusted EBITDA to aggregate cash payments of interest expense and scheduled principal payments was (0.58) and our capital expenditures totaled $1.1 million . As of December 31, 2013 , we have $1.1 million under our existing credit facilities that we can use based on the bank waiver received.

On April 12, 2011, we entered into a Loan and Security Agreement with the Bank pursuant to which the Bank agreed to provide the Company with a Promissory Note (the “April Note”) in the amount of $226.9 thousand for the purpose of purchasing operating equipment. The interest rate is 5.68% per annum. Principal and interest is payable in 48 equal monthly installments of $5.3 thousand , each due on the 20th day of each calendar month. Payment commenced on the 20th day of May, 2011, and the entire unpaid principal amount, together with all accrued and unpaid interest, charges, fees or other advances, if any, comes due on or before April 20, 2015. As security for the April Note, we granted the Bank a first priority security interest in the equipment purchased with the proceeds of the April Note. As of December 31, 2013 , the outstanding balance of the April Note was $75.3 thousand .

On August 9, 2011, we entered into a Loan and Security Agreement (the “August Agreement”) with the Bank pursuant to which the Bank agreed to loan the Company funds pursuant to a Promissory Note (the “August Note”) in the amount of $115.0 thousand for the purpose of purchasing operating equipment. The interest rate is 5.95% per annum. Principal and interest is payable in 48 equal monthly installments of $2.7 thousand . The first such payment commenced on September 12, 2011, and the entire unpaid principal amount, together with all accrued and unpaid interest, charges, fees or other advances, if any, becomes due no later than August 12, 2015. As security for the August Note, we granted the Bank a first priority security interest in the

equipment purchased with the proceeds of the Note. As of December 31, 2013 , the outstanding balance of the August Note was $51.3 thousand .

On October 19, 2010, we entered into a Promissory Note (the “October Note”) with the Bank in the amount of $1.3 million for the purpose of purchasing equipment. The interest rate is 5.20% per annum. Principal and interest is payable in 48 equal monthly installments of $30.5 thousand with the first such payment commencing November 15, 2010, and the final unpaid principal amount due, together with all accrued and unpaid interest, charges, fees, or other advances, if any, to be paid on October 15, 2014. As security for the October Note, we provided the Bank a first priority security interest in the equipment purchased with the proceeds. As of December 31, 2013 , the outstanding balance on the October Note was $297.9 thousand .

Swap agreements

In previous years, we entered into three interest rate swap agreements with BB&T swapping variable rates based on LIBOR for fixed rates. The first swap agreement covers approximately $3.6 million in debt and commenced April 7, 2009 and matures on April 7, 2014. The second swap agreement commenced October 15, 2008 and no longer covers any debt as it matured on May 7, 2013. The third swap agreement commenced October 22, 2008 and no longer covers any debt as it matured on October 22, 2013. The one remaining swap agreement with BB&T fixes our interest rate at 5.89% . At December 31, 2013 , we recorded the estimated fair value of the liability related to the remaining swap at approximately $49.1 thousand . We maintain a cash account on deposit with BB&T which serves as collateral for the swap agreement. As of December 31, 2013 , the balance in this account was $75.6 thousand .

In October 2013, we entered into an interest rate swap agreement with KY Bank swapping a variable rate based on LIBOR for a fixed rate. This swap agreement covers approximately $2.9 million in debt, commenced October 17, 2013 and matures on October 1, 2018. The swap agreement fixes our interest rate at 4.74% . At December 31, 2013, we recorded the estimated fair value of the liability related to this swap at approximately $22.2 thousand .

We entered into the swap agreements for the purpose of hedging the interest rate market risk for the respective notional amounts and forecasted amounts.     See Note 1 – “Summary of Significant Accounting Policies – Derivative and Hedging Activities” in the Notes to Consolidated Financial Statements for additional information about these derivative instruments.

During 2013 , we paid $1.1 million for improvements, property and equipment. We paid $185.0 thousand for dirt, gravel, landscaping, concrete and building improvements. In the recycling segment we paid $213.4 thousand for containers, nitron analyzers, hoppers and other equipment and improvements. In the equipment sales, leasing and service segment, we purchased $614.0 thousand in rental equipment that we located at customer sites. This rental fleet equipment consists of solid waste handling and recycling equipment such as compactors, balers and containers. It is our intention to continue to pursue this market. We put into service an ATM and security system for which we paid $42.0 thousand in the prior year, and we purchased and upgraded vehicles for $74.6 thousand . We received $129.7 thousand in proceeds from the sale of property and equipment. We received $770.0 thousand from the sale of an intangible asset, and we received $500.0 thousand as a deposit for the potential purchase of a piece of real property by a related party.

We expect that existing cash flow from operations and available credit under our existing credit facilities will be sufficient to meet our cash needs for the next year and beyond, assuming compliance with the covenants in our Credit Agreement, as amended or continued waivers thereof and assuming compliance with the covenant in our KY Bank Notes. See “ Financial condition at December 31, 2013 compared to December 31, 2012 ” section for additional discussion and details relating to cash flow from operating, investing, and financing activities. We do not have any material capital expenditure commitments as of December 31, 2013 .

Critical Accounting Policies

In preparing financial statements in conformity with accounting principles generally accepted in the United States ("GAAP"), we make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting period. We believe that we consistently apply judgments and estimates and that such consistent application results in financial statements and accompanying notes that fairly represent all periods presented. However, any errors in these judgments and estimates may have a material impact on our statement of operations and financial condition. Critical accounting policies, as defined by the Securities and Exchange Commission, are those that are most important to the portrayal of our financial condition and results of operations and require our most difficult and subjective judgments and estimates of matters that are inherently uncertain.

Estimates

In preparing the consolidated financial statements in conformity with GAAP, management must make estimates and assumptions. These estimates and assumptions affect the amounts reported for assets, liabilities, revenues and expenses, as well as affecting the disclosures provided. Examples of estimates include the allowance for doubtful accounts, estimates associated with annual impairment tests, estimates of realizability of deferred income tax assets and liabilities, estimates of inventory balances, and estimates of stock option values. The Company also uses estimates when assessing fair values of assets and liabilities acquired in business acquisitions as well as any fair value and any related impairment charges related to the carrying value of inventory and machinery and equipment, and other long-lived assets. Despite the Company’s intention to establish accurate estimates and use reasonable assumptions, actual results may differ from these estimates.

Revenue recognition

We recognize revenues from processed ferrous and non-ferrous scrap metal sales when title passes to the customer, which generally is upon delivery of the related materials. We recognize revenues from services as the service is performed. We accrue sales adjustments related to price and weight differences and allowances for uncollectible receivables against revenues as incurred.

Fair Value of Financial Instruments

We estimate the fair value of our financial instruments using relevant market information and other assumptions. Fair value estimates involve uncertainties and matters of significant judgment regarding interest rates, prepayments and other factors. Changes in assumptions or market conditions could significantly affect these estimates. As of December 31, 2013 , the estimated fair value of our debt instruments approximated book value. The fair value of our debt approximates its carrying value because the majority of our debt bears a floating rate of interest based on the LIBOR rate. There is no readily available market by which to determine fair value of our fixed term debt; however, based on existing interest rates and prevailing rates as of each year end, we have determined that the fair value of our fixed rate debt approximates book value.

We carry certain of our financial assets and liabilities at fair value on a recurring basis. These financial assets and liabilities are composed of cash and cash equivalents and derivative instruments. Long-term debt is carried at cost, and the fair value is disclosed herein. In addition, we measure certain assets, such as goodwill and other long-lived assets, at fair value on a non-recurring basis to evaluate those assets for potential impairment. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

In accordance with applicable accounting standards, we categorize our financial assets and liabilities into the following fair value hierarchy:

Level 1 – Financial assets and liabilities with values based on unadjusted quoted prices for identical assets or liabilities in an active market. Examples of level 1 financial instruments include active exchange-traded equity securities and certain U.S. government securities.

Level 2 – Financial assets and liabilities with values based on quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability. Examples of level 2 financial instruments include commercial paper purchased from the State Street-administered asset-backed commercial paper conduits, various types of interest-rate and commodity-based derivative instruments, and various types of fixed-income investment securities. Pricing models are utilized to estimate fair value for certain financial assets and liabilities categorized in level 2.

Level 3 – Financial assets and liabilities with values based on prices or valuation techniques that require inputs that are both unobservable in the market and significant to the overall fair value measurement. These inputs reflect management’s judgment about the assumptions that a market participant would use in pricing the asset or liability, and are based on the best available information, some of which is internally developed. Examples of level 3 financial instruments include certain corporate debt with little or no market activity and a resulting lack of price transparency.

When determining the fair value measurements for financial assets and liabilities carried at fair value on a recurring basis, we consider the principal or most advantageous market in which we would transact and consider assumptions that market participants would use when pricing the asset or liability. When possible, we look to active and observable markets to price identical assets or liabilities. When identical assets and liabilities are not traded in active markets, we look to market observable data for similar assets and liabilities. Nevertheless, certain assets and liabilities are not actively traded in observable markets, and we use alternative valuation techniques to derive fair value measurements.

We use the fair value methodology outlined in the related accounting standard to value the assets and liabilities for cash, debt and derivatives. All of our cash is defined as Level 1 and all our debt and derivative contracts are defined as Level 2.

In accordance with this guidance, the following tables represent our fair value hierarchy for financial instruments, in thousands, at December 31, 2013 and 2012 :

We have had no transfers in or out of Levels 1 or 2 fair value measurements. Other than the 2013 impairment of intangibles and the 2012 impairment of goodwill, we have had no activity in Level 3 fair value measurements for the years ended December 31, 2013 or 2012. For Level 3 assets, goodwill, if any, is subject to impairment analysis each year end in accordance with ASC guidance. We use an annual capitalized earnings computation to evaluate Level 3 assets for impairment. See also Note 3 –“Goodwill and Intangibles” in the Notes to Consolidated Financial Statements for additional information on third party valuations and the impairment losses for goodwill and intangibles in 2013 and 2012.

Accounts receivable and allowance for doubtful accounts receivable

Accounts receivable consists primarily of amounts due from customers from product and brokered sales. The allowance for doubtful accounts totaled $100.0 thousand at December 31, 2013 and December 31, 2012 . Our determination of the allowance for doubtful accounts includes a number of factors, including the age of the balance, estimated settlement adjustments, past experience with the customer account, changes in collection patterns and general economic and industry conditions. Interest is not normally charged on receivables nor do we normally require collateral for receivables.

Potential credit losses from our significant customers could adversely affect our results of operations or financial condition. General weakness in the steel and metals sectors in the past led to bankruptcy filings by many of our customers, which caused us to recognize additional allowances for doubtful accounts receivable. While we believe our allowance for doubtful accounts is adequate, changes in economic conditions or any weakness in the steel and metals industry could adversely impact our future earnings.

Inventory

Our inventories primarily consist of ferrous and non-ferrous, including stainless steel, scrap metals and fiber scrap and are valued at the lower of average purchased cost or market using the specific identification method based on individual scrap commodities. Quantities of inventories are determined based on our inventory systems and are subject to periodic physical verification using estimation techniques including observation, weighing and other industry methods. We recognize inventory impairment when the market value, based upon current market pricing, falls below recorded value or when the estimated volume is less than the recorded volume of inventory. We record the loss in cost of sales in the period during which we identified the loss. Prices of commodities we own may be volatile. We are exposed to risks associated with fluctuations in the market price for both ferrous and non-ferrous metals, which are at times volatile. We attempt to mitigate this risk by seeking to rapidly turn our inventories.

We make certain assumptions regarding future demand and net realizable value in order to assess whether inventory is properly recorded at the lower of cost or market. We base our assumptions on historical experience, current market conditions and current replacement costs. If the anticipated future selling prices of scrap metal and finished steel products should decline, we would re-assess the recorded net realizable value of our inventory and make any adjustments we feel necessary in order to reduce the value of our inventory (and increase cost of sales) to the lower of cost or market.

In the third quarter of 2013, a continuing reduction in market demand and prices for stainless steel occurred, which led to a reduction in stainless steel sales volumes and average stainless steel selling prices, resulting in ISA recording a net realizable value (“NRV”) inventory write-down of $1.9 million at September 30, 2013. Based on the final sale price of the remaining inventory in the fourth quarter of 2013 and the first quarter of 2014, we recorded an additional NRV inventory write-down of $325.0 thousand at December 31, 2013. As a result of reduced market prices and management's determination to discontinue the production of stainless steel blends, a lower of cost or market assessment was performed for our nickel content inventories as described above. The assessment embodied the assumption of immediate sale of these blends in their current state. A write-down was not necessary in 2012.

As of June 2012, we adopted a new method for estimating residual value amounts for automotive vehicle parts and appliances held in inventory. The new method was adopted due to the ongoing evaluation of our experience with the materials produced from our shredder operations. This change in estimate provides a more accurate value of these residual values in inventory and was applied prospectively in accordance with the Financial Accounting Standards Board's ("FASB") authoritative guidance titled “Accounting Standards Codification ("ASC") Topic 250 - Accounting Changes and Error Corrections." The impact of this change resulted in a one-time increase in the cost of sales of $352.1 thousand during the quarter of implementation.

Property and Equipment

We carry the value of land on our books at cost. We report premises and equipment at cost less accumulated depreciation and amortization. We charge depreciation and amortization for financial reporting purposes to operating expense using the straight-line method over the estimated useful lives of the assets. We depreciate some assets over a one year period. Estimated useful lives are up to 40 years for buildings and leasehold improvements, 1 to 10 years for office and operating equipment, and 5 years for rental equipment. Our determination of estimated useful life includes past experience and normal deterioration. We include maintenance and repairs in selling, general and administrative expenses. We include gains and losses on disposition of premises and equipment in gain (loss) on sale of assets.

Valuation of long-lived assets and goodwill

We regularly review the carrying value of certain long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount may not be realizable. If an evaluation is required, we compare the estimated future undiscounted cash flows associated with the asset to the asset’s carrying amount to determine if an impairment of such asset is necessary. The effect of any impairment would be to expense the difference between the fair value of such asset and its carrying value.

We review goodwill and intangibles at least annually for impairment based on the fair value method prescribed in FASB’s authoritative guidance in ASC Topic 350 - "Intangibles - Goodwill and Other" and ASC Topic 360 - "Property, Plant, and Equipment." In 2012, as a result of changes in our long-term projections for stainless steel sales due to decreasing demand for stainless steel and other nickel-based metals, we recorded a goodwill impairment loss of approximately $6.8 million.

See Note 3 - "Goodwill and Intangible Assets" in the Notes to Consolidated Financial Statements for additional information regarding the goodwill impairment loss.

Intangibles

Purchased intangible assets are initially recorded at cost and finite life intangible assets are amortized over their useful economic lives on a straight line basis. Intangible assets having indefinite lives and intangible assets that are not yet ready for use are not amortized and are reviewed annually for impairment as required by the FASB's ASC.

Intangible assets are considered to have indefinite lives when, based on an analysis of all of the relevant factors, there is no foreseeable limit to the period over which the asset is expected to generate cash flows for the Company. The factors considered in making this determination include the existence of contractual rights for unlimited terms and the life cycles of the products and processes that depend on the asset. The Company has no intangible assets having indefinite lives.

Due to the continued decline in market-dependent variables, including prices of stainless steel materials, management determined the Company should discontinue production of stainless steel blends, a subset of the stainless steel market, in the fourth quarter of 2013. With this change in strategy, management determined the value of the intangible assets related to the stainless steel blend business was fully impaired. The Company recorded an impairment loss of approximately $3.5 million for the remaining value of these intangible assets in that quarter. See also Note 1 – “Summary of Significant Accounting Policies – Intangibles,” and Note 3 –“Goodwill and Intangibles” in the Notes to Consolidated Financial Statements.

Derivative Instruments

Beginning in October 2008, we began to utilize derivative instruments in the form of interest rate swaps to assist in managing our interest rate risk. We do not enter into any interest rate swap derivative instruments for trading purposes. We recognize as an adjustment to interest expense the differential paid or received on interest rate swaps. We include in other comprehensive income the change in the fair value of the interest rate swap, which is established as an effective hedge.

Beginning in July 2012 and ending in October 2012, we briefly used derivative instruments in the form of commodity hedges to assist in managing our commodity price risk. We do not enter into any commodity hedges for trading purposes. We include the gain or loss on the hedged items and the offsetting loss or gain on the related commodity hedge in cost of sales. We assess the effectiveness of a commodity hedge contract based on changes in the contracts fair value. The changes in the market value of such contracts have historically been, and are expected to continue to be, highly effective at offsetting changes in the price of the hedged items. The amounts representing the ineffectiveness of these hedges are not expected to be significant.

See also Note 1 - "Summary of Significant Accounting Policies - Derivative and Hedging Activities" in the Notes to Consolidated Financial Statements for additional information regarding these derivative instruments.

Income Taxes

We account for income taxes under the asset and liability method. We recognize deferred tax assets and liabilities for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry-forwards. We measure deferred tax assets and liabilities using enacted tax rates expected to apply to taxable income in the years in which we expect to recover or settle those temporary differences. We recognize the effect on deferred tax assets and liabilities of a change in tax rates in income in the period that includes the enactment date. We recognize interest accrued related to unrecognized tax positions in interest expense and penalties in operating expenses, if appropriate. We use the deferral method of accounting for the available state tax credits relating to the purchase of the shredder equipment.

We recognize uncertain income tax positions using the "more-likely-than-not" approach as defined in the ASC.   The amount recognized is subject to estimate and management’s judgment with respect to the most likely outcome for each uncertain tax position. The amount that is ultimately sustained for an individual uncertain tax position or for all uncertain tax positions in the aggregate could differ from the amount recognized. We have no liability for uncertain tax positions recognized as of December 31, 2013 and 2012 .

See also Note 8 - "Income Taxes" in the Notes to Consolidated Financial Statements for additional information regarding income taxes and related assets.

Stock Option Plans

We have an employee stock option plan under which we may grant options for up to 2.4 million shares of common stock, which are reserved by the board of directors for issuance of stock options. We account for this plan based on FASB’s authoritative guidance titled "ASC Topic 718 - Compensation - Stock Compensation. " We recognize share-based compensation expense for the fair value of the awards, as estimated using the Modified Black-Scholes-Merton Model, on the date granted on a straight-line basis over their vesting term. Compensation expense is recognized only for share-based payments expected to vest. We estimate forfeitures at the date of grant based on our historical experience and future expectations. The maximum term of the option is five years.

Results of Operations

The following table presents, for the years indicated, the percentage relationship that certain captioned items in our Consolidated Statements of Income bear to total revenues and other pertinent data:

The 3.0% increase in cost of sales as a percentage of revenue in 2013 as compared to 2012 is mainly due to the $2.2 million lower of cost or market inventory write down incurred in 2013 as well as a 29.6% decrease in revenue due to continued lower demand of stainless steel and other metals, but only a 27.5% decrease in cost of sales. The lower percentage decrease in cost of sales is partially due to the fact that we did not incur a lower of cost or market inventory write down in 2012 as compared with the $2.2 million write down in 2013. The 1.6% increase in selling, general and administrative expenses as a percentage of revenue in 2013 as compared to 2012 is mainly due to increased management, consulting and legal fees in 2013 as compared to 2012. In 2013, as a result of changes in our long-term strategy to discontinue the production of stainless steel blends, a subset of the stainless steel market, due to continued low demand for stainless steel and other nickel-based metals, we recorded an intangibles impairment loss of $3.5 million . In 2012, as a result of changes in our long-term projections for stainless steel sales due to low demand for stainless steel and other nickel-based metals, the recycling reporting unit's fair value did not exceed its carrying value. We recorded a goodwill impairment loss of $6.8 million.

The 1.3% decrease in cost of sales as a percentage of revenue in 2012 as compared to 2011 is mainly due to a 29.9% decrease in revenue due to continued lower demand of stainless steel and other metals with a 30.9% decrease in cost of sales. The higher percentage decrease in cost of sales is partially due to the fact that we did not incur a lower of cost or market inventory write down in 2012 as compared with the $3.4 million write down in 2011 and we had lower direct labor cost in 2012 as compared to 2011 due to fewer employees, less overtime, and decreased production as a result of continued lower demand of stainless steel and other metal products. We did not record any impairment losses in 2011.

Accumulated Other Comprehensive Income (Loss)

Comprehensive income is net income plus certain other items that are recorded directly to shareholders’ equity. Amounts included in other accumulated comprehensive loss for our derivative instruments are recorded net of the related income tax effects. Refer to Note 1 – “Summary of Significant Accounting Policies - Derivative and Hedging Activities” in the Notes to Consolidated Financial Statements for additional information about our derivative instruments.

The following table gives further detail regarding the composition of other accumulated comprehensive income (loss) at December 31, 2013 and 2012 .

Year Ended December 31, 2013 Compared to Year Ended December 31, 2012

Total revenue decreased $57.4 million or 29.6% to $136.8 million in 2013 compared to $194.2 million in 2012 . With respect to the Recycling segment, Recycling revenue decreased $57.6 million or 30.8% to $129.4 million in 2013 compared to $187.0 million in 2012 . This change was primarily due to a 31.6 million pound or 38.0% decrease in the volume of stainless steel shipments. Substantially all of our stainless steel sales are to one customer. We do not have any long-term contracts with this customer or any other customer. We negotiate sale and purchase orders on a daily and monthly basis in the ordinary course of business. In response to the overall decrease in demand for stainless steel, this customer decreased our sales orders received beginning in the second quarter of 2011 and continuing through 2012 and the first quarter of 2013. Although sales orders received from this customer increased in the second quarter of 2013, they decreased again in the third quarter of 2013. Due to the high level of uncertainty regarding the economic environment and stainless steel market, management does not expect the sales volume of stainless steel blends, a subset of the stainless steel market, to increase in the foreseeable future. In the fourth quarter of 2013, management determined to discontinue the production of these blends, which contributed to the decrease in sales orders in that quarter. The volume of ferrous and nonferrous materials shipments also decreased by 11.5 thousand gross tons, or 8.0%, and 2.3 million pounds, or 6.8%, respectively.

While some scrap buyers provide consistently competitive prices from year to year, others may provide competitive pricing one year but not the next. This market-driven competition causes our preferred buyer base to fluctuate from year to year. In 2013 , sales to repeat Recycling scrap buyers decreased by approximately $57.3 million, or 31.0% as compared to 2012. Within the amount sold to all Recycling scrap buyers in 2013, 3.3% of these sales were to new and competitively-priced, intermittent scrap buyers. In 2012, 5.2% of sales to all Recycling scrap buyers were to new and competitively-priced, intermittent scrap buyers. Sales during 2012 to non-recurring Recycling scrap buyers in 2013 totaled 6.7% of 2013 sales to all Recycling scrap buyers. Sales during 2011 to non-recurring Recycling scrap buyers in 2012 totaled 7.8% of 2012 sales to all Recycling scrap buyers. In addition to the reduction in volume, total revenue was also affected by the decrease in overall average commodity prices for all materials shipped by $172.30 per gross ton, or 21.2%. Specifically, the year-to-date average nickel price per pound on the London Metal Exchange in 2013 decreased 14.0% as compared to the year-to-date average nickel price per pound in 2012. Nickel is a key commodity used in stainless steel blends.

With respect to the Waste Services segment, Waste Services revenue increased $0.2 million or 2.8% to $7.4 million in 2013 compared to $7.2 million in 2012 , primarily due to increased management and rental revenue of approximately $0.2 million in 2013. Many of our customers grew and their business per location increased in 2013, which required higher volumes of service and increased management revenue by $114.3 thousand as compared to 2012. Our rental revenue increased by $82.7 thousand and equipment sales increased by $32.3 thousand in 2013 as compared to 2012. The average cardboard price was $10.21 per ton higher in 2013 as compared to 2012, which also increased cardboard recycling revenue. In general, the timing of services provided or equipment installed will cause fluctuations in Waste Services revenue between periods.

Total cost of sales decreased $51.5 million or 27.3% to $136.8 million in 2013 compared to $188.3 million in 2012 . With respect to the Recycling segment, Recycling cost of sales decreased $51.6 million or 28.2% to $131.4 million in 2013 compared to $183.0 million in 2012 . This decrease was primarily due to decreases in the volume of purchases of stainless steel, ferrous, and nonferrous materials of 37.2 million pounds, or 45.4%, 22.9 thousand gross tons, or 14.6% and 5.9 million pounds, or 15.9%, respectively, along with the decreased volume of shipments noted above.

Other decreases in cost of sales were as follows:

In 2013, we incurred a lower of cost or market write-down of $2.2 million, which partially offset the decreases above. See Note 1 - "Summary of Significant Accounting Policies - Inventories" in the Notes to Consolidated Financial Statements for additional information. These decreases were also partially offset by an increase in the overall average commodity prices for materials purchased of $402.80 per gross ton, or 40.1%, and an increase of $0.3 million in processing costs.

With respect to the Waste Services segment, Waste Services cost of sales increased $0.1 million or 1.9% to $5.4 million in 2013 compared to $5.3 million in 2012 , primarily due to costs related to increased equipment sales as well as an increase in service and repair expenses on equipment sold and rental equipment.

We have reclassified certain expenses in our income statement to more accurately reflect segment performance and we have reclassified cost of sales and selling, general and administrative expenses for the years ended December 31, 2012 and 2011 to be consistent with current presentation. These reclassifications had no effect on previously reported net loss.

We make certain assumptions regarding future demand, current replacement costs and net realizable value in order to assess that we have properly recorded inventory at the lower of cost or market. We base our assumptions on historical experience, current market conditions and current replacement costs. Due to declines in the anticipated future selling prices of scrap metal and finished steel products, we recorded net realizable value inventory adjustments of $2.2 million in the third quarter of 2013 to reduce the value of our inventory (and increase cost of sales) to the lower of cost or market. No such adjustment was made in 2012.

Selling, general and administrative ("SG&A") expenses decreased $0.3 million or 3.8% to $7.7 million in 2013 compared to $8.0 million in 2012 . The decrease in SG&A expenses was primarily due to the following:

These decreases were partially offset by the following:

As a percentage of total revenue, selling, general and administrative expenses were 5.7% in 2013 compared to 4.1% in 2012 .

Interest expense decreased $0.1 million or 5.0% to $1.9 million in 2013 compared to $2.0 million in 2012 due to lower levels of debt held in 2013 as compared to 2012. The decrease in debt relates to principal payments made on existing debt in 2013 and holding a lower balance on the revolving credit facility with the Bank in 2013 as compared to 2012. The maximum revolving commitment was $25.0 million in 2013 and 2012. This revolving credit facility allows for funding temporary fluctuations in accounts receivable and inventory. We did not purchase any additional equipment using new term debt facilities in 2013 or 2012.

Other income was $74.6 thousand in 2013 compared to zero in 2012 , an increase in other income of $74.6 thousand , as outlined in the table below describing the significant components for each year.

Significant components of other income (expense), in thousands, were as follows:

The income tax benefit decreased $5.6 million to a tax provision of $1.4 million in 2013 compared to a tax benefit of $4.2 million in 2012 . The effective tax rates, including the goodwill and intangible impairment losses and the deferred tax asset valuation allowance, in 2013 and 2012 were (11.2)% and 38.6% , respectively, based on federal and state statutory rates. In 2013, management determined that only a portion of the state recycling equipment tax credit carry forwards would be realized and recorded a reserve for all other net deferred tax assets. This reserve increased income tax expense for the year. In 2011, the Internal Revenue Service conducted an examination of our 2009 income tax return and, per the final report, proposed changes amounting to approximately $735.0 thousand of additional taxes due for which we received an invoice early in 2012. This adjustment arose from our use of bonus depreciation rules for certain additions to shredding equipment which were determined to be disqualified for bonus depreciation. This resulting adjustment to 2009 depreciation deductions allowed us to file an amended U.S. tax return for 2010, pursuant to which we claimed additional depreciation deductions and resulting in a claim for a refund of income taxes paid amounting to approximately $113.0 thousand. The additional tax and refund due were accrued as of December 31, 2011. The payment was netted against the refund received in 2012 due to the 2012 net loss. The refund due was received in 2012 as well. Refer to Note 8 – “Income Taxes” in the Notes to Consolidated Financial Statements.

Financial Condition at December 31, 2013 compared to December 31, 2012

Cash and cash equivalents decreased $0.3 million to $1.6 million as of December 31, 2013 compared to $1.9 million as of December 31, 2012 .

Net cash from operating activities was $5.5 million for the year ended December 31, 2013 . The net cash from operating activities is primarily due to decreases in inventories of $7.7 million, receivables of $1.8 million, income tax receivable of $1.4 million and deferred income taxes of $1.0 million, and an increase in accounts payable of $0.3 million. Although shipping volumes of all materials increased by 705.4 gross tons, or 1.7%, in the fourth quarter of 2013 as compared to the fourth quarter of 2012, the overall average commodity prices for all materials shipped decreased by $121.43 per gross ton, or 17.6% for the same time period, which affected the accounts receivable balance. We also decreased purchasing activity for all materials by 6.7 thousand gross tons, or 16.4%, in the fourth quarter of 2013 as compared to the fourth quarter of 2012. The decrease in

purchasing activity affects the accounts payable balance. Accounts receivable and payable balances are also affected by the timing of shipments, receipts, and payments throughout the quarter. We received tax refunds of $1.0 million in 2013 as compared to tax refunds of $2.8 million during 2012.

Net cash from investing activities was $0.3 million for the year ended December 31, 2013 . During 2013 , we paid $1.1 million for improvements, property and equipment. We paid $185.0 thousand for dirt, gravel, landscaping, concrete and building improvements. In the recycling segment we paid $213.4 thousand for containers, nitron analyzers, hoppers and other equipment and improvements. In the equipment sales, leasing and service segment, we purchased $614.0 thousand in rental equipment that we located at customer sites. This rental fleet equipment consists of solid waste handling and recycling equipment such as compactors, balers and containers. It is our intention to continue to pursue this market. We put into service an ATM and security system for which we paid $42.0 thousand in the prior year, and we purchased and upgraded vehicles for $74.6 thousand . We received $129.7 thousand in proceeds from the sale of property and equipment. We received $770.0 thousand from the sale of an intangible asset, and we received $500.0 thousand as a deposit for the potential purchase of a piece of real property by a related party.

We used net cash in financing activities of $6.2 million in the year ended December 31, 2013 . During 2013 , we made payments on debt obligations of $9.9 million and received $3.3 million in new borrowings. We also received $0.5 million in proceeds from the sale of our common stock. There were no cash dividends paid or common stock repurchases in 2013 or 2012 .

Trade accounts receivable after allowances for doubtful accounts decreased $1.8 million or 13.9% to $11.5 million as of December 31, 2013 compared to $13.3 million as of December 31, 2012 . This change was primarily due to the decreased overall average commodity prices for all materials shipped in the fourth quarter of 2013 as compared to the fourth quarter of 2012. In general, the accounts receivable balance fluctuates due to the timing of shipments and receipt of customer payments.

Recycling accounts receivable decreased $2.0 million or 15.7% to $10.5 million as of December 31, 2013 compared to $12.5 million as of December 31, 2012 . The volume of stainless steel material shipments decreased by 10.5 million pounds, or 63.4%, and the volume of nonferrous material shipments decreased by 84.7 thousand pounds, or 1.0% during the fourth quarter of 2013 as compared to the fourth quarter of 2012. These decreases were partially offset by an increase in the volume of ferrous material shipments of 5.4 thousand gross tons, or 17.9% during the fourth quarter of 2013 as compared to the fourth quarter of 2012. The overall average commodity prices for all materials shipped in the fourth quarter of 2013 as compared to the fourth quarter of 2012 decreased as well.

Waste Services’ accounts receivable decreased $70.0 thousand or 7.9% to $960.0 thousand as of December 31, 2013 compared to $890.0 thousand as of December 31, 2012 . In general, the accounts receivable balance fluctuates due to the timing of services and receipt of customer payments.

Inventories for sale consist principally of stainless steel alloys, ferrous and nonferrous scrap materials and waste equipment machinery held for resale. We value inventory at the lower of cost or market. We use the replacement parts included in inventory within a one-year period as these parts wear out quickly due to the high-volume and intensity of the shredder function. We depreciate these replacement parts over a one-year life. Inventory decreased $7.7 million or 46.9% to $8.8 million as of December 31, 2013 compared to $16.5 million as of December 31, 2012 . As the demand for stainless steel and other metals remained low in 2013, we decreased both shipping and purchasing activity throughout 2013 as compared to 2012, which affects our inventory levels. Specifically, in the fourth quarter of 2013, we decreased the volume of stainless steel and ferrous material purchases by 11.3 million pounds, or 92.9% and 2.2 thousand gross tons, or 11.3, respectively, as compared to the fourth quarter of 2012. Also, we shipped 17.7 million pounds, or 22.7%, of material more than we purchased, which decreased our inventory. Lower demand also put downward pressure on metal prices. The overall average price of commodities purchased in the fourth quarter of 2013 was $112.43, or 17.18%, lower than in the fourth quarter of 2012.

Inventories, in thousands, as of December 31, 2013 and December 31, 2012 consisted of the following:

As of December 31, 2013, stainless steel inventory consisted of 4.0 million pounds at a unit cost of $0.54 per pound. As of December 31, 2012, stainless steel inventory consisted of 11.8 million pounds at a unit cost of $0.777 per pound, which includes processing costs. As of December 31, 2013, ferrous inventory consisted of 6.7 thousand gross tons at a unit cost, including processing costs, of $309.61 per gross ton. As of December 31, 2012, ferrous inventory consisted of 9.6 thousand gross tons at a unit cost, including processing costs, of $365.34 per gross ton. As of December 31, 2013, nonferrous inventory consisted of 1.9 million pounds with a unit cost, including processing costs, of $1.31 per pound. As of December 31, 2012, nonferrous inventory consisted of 1.7 million pounds at a unit cost, including processing costs, of $1.307 per pound.

We make certain assumptions regarding future demand and net realizable value in order to assess whether inventory is properly recorded at the lower of cost or market. We base our assumptions on historical experience, current market conditions and current replacement costs. Due to declines in the anticipated future selling prices of scrap metal and finished steel products, we recorded non-cash net realizable value (NRV) inventory adjustments totaling $2.2 million in the third and fourth quarters of 2013 to reduce the value of our inventory (and increase cost of sales) to the lower of cost or market. No adjustment was made in 2012.

Inventory in the "Over 90 days" category as of December 31, 2012 included several materials that were bought in bulk that had intrinsic values for stainless steel blends. We purchased a majority of the bulk materials in the second quarter of 2011 in anticipation of continued high demand for stainless steel shipments as well as other specialty metal shipments. These materials are low value items that can only be used in limited quantities. With continued low demand for stainless steel blends, we recorded an adjustment of $2.2 million to lower our stainless steel inventory to market value as of December 31, 2013. We sold the remaining stainless steel inventory in this category of approximately $1.2 million in the first quarter of 2014. This balance also includes $0.3 million in older automobile inventory held at the ISA Pick.Pull.Save automobile yard ("PPS") for continued harvesting of parts by retail customers and $0.3 million in an item we intend to process and sell.

Accounts payable trade increased $0.2 million or 3.5% to $6.6 million as of December 31, 2013 compared to $6.4 million as of December 31, 2012 . Recycling accounts payable decreased $0.4 million or 7.8% to $4.7 million as of December 31, 2013 compared to $5.1 million as of December 31, 2012 . This decrease was primarily due to decreased purchasing activity for stainless steel and ferrous materials near the end of the year. The volume of purchases of stainless steel, ferrous, and nonferrous materials decreased by 11.3 million pounds, or 92.9% and 2.2 thousand gross tons, or 11.3%, respectively, in the fourth quarter of 2013 as compared to the same period in 2012. The overall average commodity purchase prices for all materials decreased by $112.43 per gross ton, or 17.2%. Our accounts payable payment policy in the recycling segment is consistent between years. In general, the timing of payments made to our vendors will also affect the accounts payable balance.

Waste Services accounts payable decreased $0.1 million or 8.3% to $1.1 million as of December 31, 2013 compared to $1.2 million as of December 31, 2012 . This change was primarily due to the timing of payments.

Working capital decreased $12.3 million to $12.8 million as of December 31, 2013 compared to $25.1 million as of December 31, 2012 . Decreases in inventories of $7.7 million, in net accounts receivable of $1.8 million, in income taxes receivable of $1.4 million, in deferred tax assets of $0.3 million, in cash of $0.3 million and in prepaid expenses of $0.2 million, and increases in current maturities of long-term debt of $0.5 million, in related party deposits of $0.5 million, and in accounts payable of $0.2 million were positive contributors to working capital in 2013 , partially offset by a decrease in the interest rate swaps of $0.2 million. During 2013 , we used the positive working capital contributors to purchase property and equipment of $1.1 million and to decrease our term loans and revolving debt.

We also lease equipment from K&R for which monthly payments of $5.5 thousand are due through October 2015 and monthly payments of $5.0 thousand are due through April 2016.

We lease a management services operations facility and various pieces of equipment in Dallas, Texas for which monthly payments of $1.0 thousand are due through September 2014.

We subleased the Lexington property to an unaffiliated third party for a term that commenced March 1, 2007 and ended January 31, 2012 for $4.5 thousand per month. We leased this property from an unrelated party for $4.5 thousand per month. The lease terminated on February 10, 2012.

We lease a lot in Louisville, KY for a term that commenced in March 2012 and ends in February 2016. The monthly payment amount from March 2012 through February 2014 was $3.5 thousand . The monthly payment amount then increased to $3.8 thousand for the remaining term.

Year Ended December 31, 2012 Compared to Year Ended December 31, 2011

Total revenue decreased $83.0 million or 29.9% to $194.2 million in 2012 compared to $277.2 million in 2011. With respect to the Recycling segment, Recycling revenue decreased $82.8 million or 30.7% to $187.0 million in 2012 compared to $269.8 million in 2011. This change was primarily due to a 24.7 million pound or 23.0% decrease in the volume of stainless steel shipments due to a decrease in worldwide stainless steel demand beginning in the second quarter of 2011 and continuing throughout 2012. Substantially all of our stainless steel sales are to one customer. In response to the overall decrease in demand for stainless steel, this customer decreased our sales orders received beginning in the second quarter of 2011 and continuing through 2012. The volume of ferrous materials shipments also decreased by 63.7 thousand gross tons, or 30.5%.

While some scrap buyers provide consistently competitive prices from year to year, others may provide competitive pricing one year but not the next. This market-driven competition causes our preferred buyer base to fluctuate from year to year. In 2012, sales to repeat Recycling scrap buyers decreased by approximately $87.6 million, or 33.5% as compared to 2011. Within the amount sold to all Recycling scrap buyers in 2012, 5.2% of these sales were to new and competitively-priced, intermittent

scrap buyers. In 2011, 6.1% of sales to all Recycling scrap buyers were to new and competitively-priced, intermittent scrap buyers. Sales during 2011 to non-recurring Recycling scrap buyers in 2012 totaled 7.8% of 2012 sales to all Recycling scrap buyers. Sales during 2010 to non-recurring Recycling scrap buyers in 2011 totaled 2.6% of 2011 sales to all Recycling scrap buyers. In addition to the reduction in volume, total revenue was also affected by the decrease in overall average commodity prices for all materials shipped by $75.78 per gross ton, or 8.5%. Specifically, the year-to-date average nickel price per pound on the London Metal Exchange in 2012 decreased 23.6% as compared to the year-to-date average nickel price per pound in 2011. Nickel is a key commodity used in stainless steel blends. These decreases were partially offset by a 3.4 million pound, or 11.2%, increase in the volume of nonferrous shipments.

With respect to the Waste Services segment, Waste Services revenue decreased $0.2 million or 2.7% to $7.2 million in 2012 compared to $7.4 million in 2011, primarily due to lower rental revenue, which decreased by $174.6 thousand in 2012 as compared to 2011. One customer was taken over by another company which decided they no longer needed the containers the customer was renting through us beginning in May of 2012. The average cardboard price was $19.79 per ton lower in 2012 as compared to 2011, which also decreased cardboard recycling revenue. In general, the timing of services provided or equipment installed will cause fluctuations in Waste Services revenue between periods.

Total cost of sales decreased $84.2 million or 30.9% to $188.3 million in 2012 compared to $272.5 million in 2011. Recycling cost of sales decreased $84.0 million or 31.5% to $183.0 million in 2012 compared to $267.0 million in 2011. This decrease was primarily due to decreases in the volume of purchases of stainless steel, ferrous, and nonferrous materials of 8.3 million pounds, or 9.1%, 87.9 thousand gross tons, or 35.1% and 4.6 million pounds, or 11.0%, respectively, along with the decreased volume of shipments noted above. Also, in 2011, we incurred a lower of cost or market write-down of $3.4 million, which we did not in 2012. Other decreases in cost of sales were as follows:

These decreases were partially offset by an increase in the overall average commodity prices for materials purchased of $14.15 per gross ton, or 1.9%, as well as the following:

Waste Services cost of sales decreased $0.2 million or 3.6% to $5.3 million in 2012 compared to $5.5 million in 2011, primarily due to lower rental expense beginning in May of 2012 when we no longer needed to rent certain containers for one customer's use. That customer was taken over by another company which determined they no longer needed the containers the customer was renting through us. Also, depreciation expense for our rental equipment decreased by $80.3 thousand in 2012 as compared to 2011 as 61.1% of the rental equipment was fully depreciated as of December 31, 2012 and 57.2% of the rental equipment was fully depreciated as of December 31, 2011.

We have reclassified certain expenses in our income statement to more accurately reflect segment performance and we have reclassified cost of sales and selling, general and administrative expenses for the years ended December 31, 2012 and 2011 to be consistent with current presentation. These reclassifications had no effect on previously reported net loss.

We make certain assumptions regarding future demand, current replacement costs and net realizable value in order to assess that we have properly recorded inventory at the lower of cost or market. We base our assumptions on historical experience, current market conditions and current replacement costs. Due to declines in the anticipated future selling prices of scrap metal and finished steel products, we recorded non-cash net realizable value inventory adjustments of $3.4 million in the third quarter of 2011 to reduce the value of our inventory (and increase cost of sales) to the lower of cost or market. No such adjustment was made in 2012.

Selling, general and administrative ("SG&A") expenses decreased $1.0 million or 11.5% to $7.7 million in 2012 compared to $8.7 million in 2011. The decrease in SG&A expenses was primarily due to the following:

These decreases were partially offset by a net increase in labor, benefits and bonus expenses of $0.5 million.

As a percentage of total revenue, selling, general and administrative expenses were 5.5% in 2012 compared to 4.2% in 2011.

Interest expense decreased $0.5 million or 20.0% to $2.0 million in 2012 compared to $2.5 million in 2011 due to lower levels of debt held in 2012 as compared to 2011. The decrease in debt relates to principal payments made on existing debt in 2012 and holding a lower balance on the revolving credit facility with the Bank in 2012 as compared to 2011. The maximum revolving commitment was decreased to $25.0 million in November of 2012 from $40.0 million in 2011. This revolving credit facility allows for funding temporary fluctuations in accounts receivable and inventory. We did not purchase any additional equipment using new term debt facilities in 2012; however, in 2011, we purchased operating equipment totaling $331.9 thousand using new term debt facilities.

Other income was zero in 2012 compared to other loss of $566.0 thousand in 2011, a decrease in other loss of $566.0 thousand, as outlined in the table below describing the significant components for each year. The $566.0 thousand decrease in other expense in 2012 resulted primarily from the need to cancel purchase contracts due to the decrease in demand for stainless steel in the second quarter of 2011. These contracts required us to pay $500.0 thousand in termination fees in 2011 that we did not need to pay in 2012. Management chose to terminate these purchase contracts because the purchase contracts canceled were valued at approximately $2.4 million, an amount well above the prevailing market price of the underlying commodities. Because we could purchase these commodities in the market at lower cost when needed to fill new shipment orders, management determined that we could benefit from market volatility by canceling these contracts, even after paying the termination fees.

Significant components of other income (expense), in thousands, were as follows:

The income tax benefit decreased $1.1 million to a credit of $4.2 million in 2012 compared to a credit of $3.0 million in 2011. Excluding the $6.8 million goodwill impairment loss, we reported a smaller loss in 2012 as compared to 2011, which included the inventory write-down of $3.4 million in 2011. The effective tax rates, including the goodwill impairment loss, in 2012 and 2011 were 38.6% and 43.9%, respectively, based on federal and state statutory rates. In 2011, the Internal Revenue Service conducted an examination of our 2009 income tax return and, per the final report, proposed changes amounting to approximately $735.0 thousand of additional taxes due for which we received an invoice early in 2012. This adjustment arose from our use of bonus depreciation rules for certain additions to shredding equipment which were determined to be disqualified

for bonus depreciation. This resulting adjustment to 2009 depreciation deductions allowed us to file an amended U.S. tax return for 2010, pursuant to which we claimed additional depreciation deductions and resulting in a claim for a refund of income taxes paid amounting to approximately $113.0 thousand. The additional tax and refund due were accrued as of December 31, 2011. The payment was netted against the refund received in 2012 due to the 2012 net loss. The refund due was received in 2012 as well. Refer to Note 8 – “Income Taxes” in the Notes to Consolidated Financial Statements.

Financial Condition at December 31, 2012 compared to December 31, 2011

Cash and cash equivalents decreased $0.4 million to $1.9 million as of December 31, 2012 compared to $2.3 million as of December 31, 2011.

Net cash from operating activities was $5.0 million for the year ended December 31, 2012. The net cash from operating activities is primarily due to decreases in receivables of $3.8 million, income tax receivable of $2.5 million and inventories of $2.0 million, partially offset by decreases in accounts payable of $4.3 million and a decrease in deferred income taxes of $4.2 million. The decrease in receivables relates to the decrease in shipping volumes of all materials of 31.1 million pounds, or 25.1%, in the fourth quarter of 2012 as compared to the fourth quarter of 2011. We also decreased purchasing activity for all materials by 129.1 million pounds, or 24.3%, in the fourth quarter of 2012 as compared to the fourth quarter of 2011. The decrease in purchasing activity affects the accounts payable balance. Accounts receivable and payable balances are also affected by the timing of shipments, receipts, and payments throughout the quarter. We received tax refunds of $2.8 million during 2012. No refunds were received in 2011.

We used net cash in investing activities of $1.6 million for the year ended December 31, 2012. During 2012, we paid $1.7 million for improvements, property and equipment. We paid $730.3 thousand for fencing, road and building improvements. In the recycling segment we paid $371.2 thousand for cranes, balers, trucks, trailers, racks, ramps, forklifts, containers, and other operating equipment and improvements. In the equipment sales, leasing and service segment, we purchased $380.5 thousand in rental equipment that we located at customer sites. This rental fleet equipment consists of solid waste handling and recycling equipment such as compactors, balers, containers, boxes and carts. It is our intention to continue to pursue this market. We purchased $113.1 thousand in office equipment, cameras, and software, and we purchased and upgraded vehicles for $90.6 thousand. We paid deposits of $42.0 thousand on machinery and equipment.

We used net cash in financing activities of $3.7 million in the year ended December 31, 2012. During 2012, we made payments on debt obligations of $3.5 million. There were no cash dividends paid or common stock repurchases in 2012 or 2011.

Trade accounts receivable after allowances for doubtful accounts decreased $3.9 million or 22.7% to $13.3 million as of December 31, 2012 compared to $17.2 million as of December 31, 2011. This change was primarily due to the decreased volume of shipments in the fourth quarter of 2012 as compared to the volume of shipments in the fourth quarter of 2011. In general, the accounts receivable balance fluctuates due to the timing of shipments and receipt of customer payments.

Recycling accounts receivable decreased $3.8 million or 23.3% to $12.5 million as of December 31, 2012 compared to $16.3 million as of December 31, 2011. The volume of stainless steel material shipments decreased by 2.8 million pounds, or 11.3%, and the volume of ferrous material shipments decreased by 12.8 thousand gross tons, or 29.9% during the fourth quarter of 2012 as compared to the fourth quarter of 2011. These decreases were partially offset by an increase in nonferrous material shipments of 446.7 thousand pounds, or 5.1%, and an overall average cost increase for materials shipped of $69.75 per gross ton, or 9.2%, in the fourth quarter of 2012 compared to the same period in 2011.

Waste Services’ accounts receivable decreased $50.0 thousand or 5.3% to $890.0 thousand as of December 31, 2012 compared to $940.0 thousand as of December 31, 2011. In general, the accounts receivable balance fluctuates due to the timing of services and receipt of customer payments.

Inventories for sale consist principally of stainless steel alloys, ferrous and nonferrous scrap materials and waste equipment machinery held for resale. We value inventory at the lower of cost or market. We use the replacement parts included in inventory within a one-year period as these parts wear out quickly due to the high-volume and intensity of the shredder function. We depreciate these replacement parts over a one-year life. Inventory decreased $2.0 million or 10.8% to $16.5 million as of December 31, 2012 compared to $18.5 million as of December 31, 2011. As the demand for stainless steel and other metals remained low in 2012, we decreased both shipping and purchasing activity throughout 2012 as compared to 2011, which affects our inventory levels. Specifically, in the fourth quarter of 2012, we decreased the volume of stainless steel, ferrous and nonferrous material purchases by 3.6 million pounds, or 22.8%, 10.7 thousand gross tons, or 23.5%, and 3.8 million pounds, or 33.8%, respectively, as compared to the fourth quarter of 2011. Also, we shipped 972.2 million pounds, or 1.1%, of material more than

we purchased, which decreased our inventory. Lower demand also put downward pressure on metal prices. The overall average price of commodities purchased in the fourth quarter of 2012 was $52.84, or 7.5%, lower than in the fourth quarter of 2011.

Inventories, in thousands, as of December 31, 2012 and December 31, 2011 consisted of the following:

As of December 31, 2012, stainless steel inventory consisted of 11.8 million pounds at a unit cost of $0.777 per pound, which includes processing costs. As of December 31, 2011, stainless steel inventory consisted of 14.3 million pounds at a unit cost of $0.691 per pound, which includes processing costs. As of December 31, 2012, ferrous inventory consisted of 9.6 thousand gross tons at a unit cost, including processing costs, of $365.34 per gross ton. As of December 31, 2011, ferrous inventory consisted of 9.9 thousand gross tons at a unit cost, including processing costs, of $449.74 per gross ton. As of December 31, 2012, nonferrous inventory consisted of 1.7 million pounds at a unit cost, including processing costs, of $1.307 per pound. As of December 31, 2011, nonferrous inventory consisted of 2.3 million pounds with a unit cost, including processing costs, of $1.087 per pound.

We make certain assumptions regarding future demand and net realizable value in order to assess whether inventory is properly recorded at the lower of cost or market. We base our assumptions on historical experience, current market conditions and current replacement costs. Due to declines in the anticipated future selling prices of scrap metal and finished steel products, we recorded a non-cash net realizable value (NRV) inventory adjustment of $3.4 million in the third quarter 2011 to reduce the value of our inventory (and increase cost of sales) to the lower of cost or market. No adjustment was made in 2012.