Appliance Recycling Centers of America Reports Third Quarter and Nine-Month Results

 Appliance Recycling Centers of America Reports Third Quarter and Nine-Month

PR Newswire

MINNEAPOLIS, Nov. 5, 2012

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

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

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

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

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

"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,,
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

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.

(In Thousands)
                                        September 29,       December 31,

                                        2012                2011
ASSETS                                  (unaudited)
Current assets:
Cash and cash equivalents               $      2,777  $      4,401
Accounts receivable, net of allowance   7,305               7,445
of $7 and $18, respectively
Inventories, net of reserves of $162    20,516              18,456
and $85, respectively
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
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         2,800               989
Total current liabilities               25,460              20,450
Long-term obligations, less current     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:                            20,554              20,338
5,556 shares and 5,527 shares,
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'     $     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.

(In Thousands, Except Per Share Amounts)
                          Three Months Ended         Nine Months Ended
                          September 29, October 1,   September 29, October 1,

                          2012          2011         2012          2011
 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      7,457         7,163        22,749        22,018
administrative expenses
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          (1,046)       2,706        (1,697)       5,811
noncontrolling interest
Provision for (benefit    113           1,000        90            1,292
of) income taxes
Net income (loss)         (1,159)       1,706        (1,787)       4,519
Net loss (income)
attributable to           77            50           (2)           (61)
noncontrolling interest
Net income (loss)         $       $       $       $     
attributable to           (1,082)       1,756        (1,789)       4,458
controlling interest
Income (loss) per common
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
Effect of foreign
currency translation      120           (225)        109           (140)
Total other comprehensive 120           (225)        109           (140)
income (loss), net of tax
Comprehensive income      (1,039)       1,481        (1,678)       4,379
Comprehensive loss
(income) attributable to  77            50           (2)           (61)
noncontrolling interest
Comprehensive income      $       $       $       $     
(loss) attributable to     (962)      1,531        (1,680)       4,318
controlling interest

SOURCE Appliance Recycling Centers of America, Inc.

Contact: Edward R. (Jack) Cameron, CEO, +1-952-930-9000