Appliance Recycling Centers of America Reports Third Quarter and
Nine-Month Results
MINNEAPOLIS, Nov. 5, 2012 /PRNewswire/ -- Appliance Recycling
Centers of America, Inc. (NASDAQ: ARCI), a leading provider of
appliance retailing and recycling services, today reported sales
and operating results for the third quarter and nine months ended
September 29, 2012.
Total revenues decreased 19% to $29.0
million, versus of $35.9
million for the third quarter of 2011. The Company also
reported a consolidated operating loss of $0.7 million versus consolidated operating income
of $2.9 million in the third quarter
of 2011. Overall, the Company reported a consolidated net loss of
$1.1 million, or $0.19 per diluted share, compared with a
consolidated net income of $1.8
million, or $0.30 per diluted
share, in the third quarter of 2011.
Despite extremely strong ApplianceSmart sales over Labor Day weekend, total retail store revenues
decreased 8% to $17.3 million for the
third quarter of 2012, compared with $18.7
million in the third quarter of 2011. These results are
reflective of a dramatic slowdown in customer traffic beginning
immediately after Labor Day that
plagued appliance retailers nationwide. The Company's retail stores
generated an operating loss of $1.0
million, a $1.2 million
decline compared with the third quarter of 2011, primarily related
to lower sales and profit margins. However, ApplianceSmart sales
began to rebound in early October and continued to improve
throughout the month.
Inventory increased to $20.5
million through the first nine months of 2012 by taking
advantage of opportunity buys from major manufacturers. As a
result, the Company is now well-positioned to meet the needs of
ApplianceSmart customers during the holiday season while lowering
its inventory to improve the Company's cash position and borrowings
under its line of credit.
Recycling revenues, which are comprised of appliance recycling
fees and appliance replacement program revenues, decreased to
$7.0 million in the third quarter of
2012 from $11.4 million in the same
period of 2011. The Company experienced a 32% reduction in
energy-efficiency program volumes compared to the third quarter of
2011, due in part to a single utility initiative in the summer of
2011 that was not repeated this year. This decrease in replacement
program volume combined with lower overall recycling volumes
resulted in a $2.6 million decline in
operating profit compared with the third quarter of 2011.
ARCA Advanced Processing, LLC (AAP) joint venture revenues
declined 3% to $3.0 million compared
with the third quarter of 2011; AAP's operating loss amounted to
$71,000, due primarily to lower
commodity prices in the third quarter and the accumulation of CFCs
(chlorofluorocarbons) to be sold in the future. AAP's processes are
continually being refined and improved, and the ongoing investments
made in building a more efficient infrastructure position AAP to
support market-based solutions to meet the challenges of
responsibly managing appliances at end of life.
Byproduct revenues decreased to $4.7
million compared with $5.8
million in the third quarter of 2011. The decrease was a
direct result of the reduced recycling volumes cited earlier
coupled with a 21% decrease in scrap metal prices.
During the third quarter of the prior fiscal year, the Company
also generated $228,000 in carbon
offset revenues by electing to destroy CFC refrigerants. Arguments
will be heard in a California Superior Court on December 7, 2012 in a lawsuit that seeks to
eliminate carbon offsets. This has created uncertainty in the
marketplace for carbon instruments. In the meantime, the Company
has continued to add and store recovered CFC refrigerants and is
pursuing options to reclaim these refrigerants for future reuse in
the HVAC/refrigeration industry.
Overall gross profit as a percentage of total revenues declined
to 23% for the third quarter of 2012. The decline in overall gross
profit percentage was primarily the result of a shift in retail
product sales, higher product costs from manufacturers and lower
volumes in the Company's energy-efficiency programs.
"Despite a difficult quarter, I am optimistic about our
strategic direction," said Edward (Jack)
Cameron, president and chief executive officer of ARCA, Inc.
"Our unique business model leverages synergies between retail sales
and recycling activity throughout an appliance's life cycle, and
our portfolio of products and services positions us well to
capitalize on long-term conservation trends across the U.S. To that
end, we recently engaged a consulting firm to assist our management
team in refining and expediting the tactical implementation of our
long-term strategy.
"Although we're experiencing the same market uncertainty as
other industry players," continued Cameron, "we're encouraged by
the 11% increase in scrap metal prices after quarter end in AAP's
market combined with recent reports of improved housing-market
activity and its potential impact on new appliance sales and
subsequent recycling levels."
For the nine months ended September 29,
2012, total revenues decreased 11% to $87.7 million, compared with revenues of
$98.7 million for the same period in
the prior fiscal year. Overall, the Company reported a consolidated
net loss of $1.8 million, or
$0.32 per diluted share, compared
with a consolidated net income of $4.5
million, or $0.77 per diluted
share, in the first nine months of 2011.
Liquidity and Capital Resources
Cash and cash equivalents as of September
29, 2012 were $2.8 million
compared with $4.4 million as of
December 31, 2011. As of September 29, 2012, the Company had $1.7 million of available borrowings under its
revolving line of credit compared with $3.5
million as of December 31,
2011. Net working capital of $7.5
million decreased $3.9 million
as of September 29, 2012 compared
with $11.4 million as of December 31, 2011. The decline was primarily the
result of carrying more appliance inventory and reclassifying
$1.8 million of long-term debt to
current liabilities.
As a result of ARCA's third quarter financial performance and
continued investment in AAP, as of September
29, 2012 the Company was out of compliance with covenants
under its credit agreement with PNC Bank, National Association
(PNC) relating to its minimum fixed charge coverage ratio and
scheduled reductions in the outstanding balance of loans to AAP.
The Company has made all required payments of principal and
interest in a timely manner under the credit agreement; however, on
October 23, 2012, the Company
received a letter from PNC notifying it of the failure to comply
with the AAP loan balance covenant and that PNC was not waiving the
default. The Company is currently engaged in discussions with PNC
regarding the Company's plans for regaining compliance with such
covenants.
Conference Call Information
In conjunction with this release, Appliance Recycling Centers of
America, Inc. will host a conference call tomorrow, November 6, 2012, at 10:00
a.m. CST. To participate in the conference call, please dial
the following number ten minutes prior to the scheduled time:
1-800-403-7802. A replay of the conference call will be available
on the Company's website, www.ARCAInc.com, approximately 24-48
hours after the completion of the call.
About ARCA
ARCA's three business components are uniquely positioned in
the industry to work together to provide a full array of
appliance-related services. ARCA Advanced Processing, LLC employs
advanced technology to refine traditional appliance recycling
techniques to achieve optimal revenue-generating and environmental
benefits. ARCA is also the exclusive North American distributor for
UNTHA Recycling Technology (URT), one of the world's leading
manufacturers of technologically advanced refrigerator recycling
systems and recycling facilities for electrical household
appliances and electronic scrap. ARCA's regional centers process
appliances at end of life to remove environmentally damaging
substances and produce material byproducts for recycling for over
200 utilities in the U.S. and Canada. Twenty company-owned stores under the
name ApplianceSmart, Inc.® sell new appliances directly
to consumers and provide affordable ENERGY STAR® options
for energy efficiency appliance replacement programs.
This press release contains statements that are
forward-looking statements as defined within the Private Securities
Litigation Reform Act of 1995, including statements regarding
ARCA's future success. These forward-looking statements are subject
to risks and uncertainties that could cause actual results to
differ materially from the statements made, including the risks
associated with general economic conditions, competition in the
retail and recycling industries and regulatory risks. Other factors
that could cause operating and financial results to differ are
described in ARCA's periodic reports filed with the Securities and
Exchange Commission. Other risks may be detailed from time to time
in reports to be filed with the SEC.
APPLIANCE RECYCLING CENTERS OF AMERICA,
INC.
|
CONSOLIDATED BALANCE SHEETS
|
(In
Thousands)
|
|
|
|
September 29,
2012
|
December 31,
2011
|
ASSETS
|
(unaudited)
|
|
Current
assets:
|
|
|
Cash and cash equivalents
|
$
2,777
|
$
4,401
|
Accounts receivable, net of allowance of $7 and $18,
respectively
|
7,305
|
7,445
|
Inventories, net of reserves of $162 and $85,
respectively
|
20,516
|
18,456
|
Other current assets
|
2,157
|
1,420
|
Deferred tax assets
|
173
|
173
|
Total
current assets
|
32,928
|
31,895
|
Property and equipment, net
|
12,469
|
12,535
|
Goodwill
|
1,120
|
1,120
|
Other assets
|
1,062
|
1,232
|
Deferred income taxes
|
28
|
27
|
Total
assets (a)
|
$
47,607
|
$
46,809
|
|
|
|
LIABILITIES AND SHAREHOLDERS'
EQUITY
|
|
|
Current
liabilities:
|
|
|
Accounts payable
|
$
5,335
|
$
4,323
|
Accrued expenses
|
4,868
|
4,453
|
Line of credit
|
12,457
|
10,685
|
Current maturities of long-term
obligations
|
2,800
|
989
|
Total
current liabilities
|
25,460
|
20,450
|
|
|
|
Long-term obligations, less current
maturities
|
4,754
|
7,251
|
Deferred gain, net of current portion
|
487
|
853
|
Deferred income tax liabilities
|
988
|
875
|
Total
liabilities (a)
|
31,689
|
29,429
|
|
|
|
Commitments and contingencies
|
-
|
-
|
|
|
|
Shareholders' equity:
|
|
|
Common Stock, no par value; 10,000 shares authorized;
issued and outstanding:
5,556 shares and 5,527 shares, respectively
|
20,554
|
20,338
|
Accumulated deficit
|
(6,586)
|
(4,797)
|
Accumulated other comprehensive loss
|
(252)
|
(361)
|
Total
shareholders' equity
|
13,716
|
15,180
|
Noncontrolling interest
|
2,202
|
2,200
|
|
15,918
|
17,380
|
Total
liabilities and shareholders' equity
|
$
47,607
|
$
46,809
|
|
|
|
(a) Assets
of ARCA Advanced Processing, LLC (AAP), ARCA's consolidated
variable interest entity (VIE), that can only be used to settle
obligations of AAP were $11,188 and $11,771 as of September 29,
2012 and December 31, 2011, respectively. Liabilities of AAP for
which creditors do not have recourse to the general credit of
Appliance Recycling Centers of America, Inc. were $1,682 and $2,186
as of September 29, 2012 and December 31, 2011,
respectively.
|
|
|
|
|
APPLIANCE RECYCLING CENTERS OF AMERICA,
INC.
|
UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE
INCOME (LOSS)
|
(In
Thousands, Except Per Share Amounts)
|
|
|
Three
Months Ended
|
|
Nine
Months Ended
|
|
September 29,
2012
|
October
1,
2011
|
|
September 29,
2012
|
October
1,
2011
|
Revenues:
|
|
|
|
|
|
Retail
|
$
17,286
|
$
18,745
|
|
$
56,006
|
$
56,349
|
Recycling
|
7,025
|
11,350
|
|
18,435
|
26,700
|
Byproduct
|
4,665
|
5,762
|
|
13,309
|
15,265
|
Total
revenues
|
28,976
|
35,857
|
|
87,750
|
98,674
|
|
|
|
|
|
|
Costs of
revenues
|
22,253
|
25,766
|
|
65,844
|
69,947
|
Gross
profit
|
6,723
|
10,091
|
|
21,906
|
28,727
|
Selling,
general and administrative expenses
|
7,457
|
7,163
|
|
22,749
|
22,018
|
Operating
income (loss)
|
(734)
|
2,928
|
|
(843)
|
6,709
|
|
|
|
|
|
|
Other
expense:
|
|
|
|
|
|
Interest expense, net
|
(299)
|
(278)
|
|
(832)
|
(880)
|
Other expense, net
|
(13)
|
56
|
|
(22)
|
(18)
|
Income
(loss) before income taxes and noncontrolling interest
|
(1,046)
|
2,706
|
|
(1,697)
|
5,811
|
Provision
for (benefit of) income taxes
|
113
|
1,000
|
|
90
|
1,292
|
Net income
(loss)
|
(1,159)
|
1,706
|
|
(1,787)
|
4,519
|
Net loss
(income) attributable to noncontrolling interest
|
77
|
50
|
|
(2)
|
(61)
|
Net income
(loss) attributable to controlling interest
|
$
(1,082)
|
$
1,756
|
|
$
(1,789)
|
$
4,458
|
|
|
|
|
|
|
Income
(loss) per common share:
|
|
|
|
|
|
Basic
|
$
(0.19)
|
$
0.32
|
|
$
(0.32)
|
$
0.81
|
Diluted
|
$
(0.19)
|
$
0.30
|
|
$
(0.32)
|
$
0.77
|
|
|
|
|
|
|
Weighted
average common shares outstanding:
|
|
|
|
|
|
Basic
|
5,556
|
5,493
|
|
5,549
|
5,493
|
Diluted
|
5,556
|
5,821
|
|
5,549
|
5,809
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
(loss)
|
$
(1,159)
|
$
1,706
|
|
$
(1,787)
|
$
4,519
|
Other
comprehensive income (loss), net of tax:
|
|
|
|
|
|
Effect of foreign currency translation
adjustments
|
120
|
(225)
|
|
109
|
(140)
|
Total
other comprehensive income (loss), net of tax
|
120
|
(225)
|
|
109
|
(140)
|
Comprehensive income (loss)
|
(1,039)
|
1,481
|
|
(1,678)
|
4,379
|
Comprehensive loss (income) attributable to
noncontrolling interest
|
77
|
50
|
|
(2)
|
(61)
|
Comprehensive income (loss) attributable to
controlling interest
|
$
(962)
|
$
1,531
|
|
$
(1,680)
|
$
4,318
|
|
|
|
|
|
|
SOURCE Appliance Recycling Centers of America, Inc.