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Appliance Recycling Centers of America Reports Fourth Quarter and Annual 2012 Results



Appliance Recycling Centers of America Reports Fourth Quarter and Annual 2012
                                   Results

PR Newswire

MINNEAPOLIS, Feb. 27, 2013

MINNEAPOLIS, Feb. 27, 2013 /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 fourth
quarter and year ended December 29, 2012.

Total revenues decreased 5% to $26.6 million versus $28.0 million for the
fourth quarter of 2011. Overall, the Company reported a consolidated net loss
of $2.1 million, or ($0.37) per diluted share, compared with breakeven results
in the fourth quarter of 2011. During the fourth quarter, the Company's joint
venture, ARCA Advanced Processing, LLC (AAP) recorded a non-cash goodwill
impairment charge of $1.1 million. The Company's share of the goodwill
impairment charge included in the consolidated net loss was $541,000 or
($0.10) per diluted share.

The Company is pleased to report that it has agreed in principle with PNC
Bank, National Association (PNC) to a modification of its credit agreement
that extends the credit agreement two years and waives the default caused by
being out of compliance with two financial covenants. The modification to the
credit agreement has been submitted for approval by PNC. The modified terms do
not impact the total amount of available borrowing, include a resetting of the
financial covenants and require a minimum EBITDA through 2013. The Company
expects the agreement to be completed by mid-March.

"We appreciate PNC Bank's confidence in our business and we're very pleased to
reach this important agreement, including extending our $15 million line of
credit," said Edward R. (Jack) Cameron, president and chief executive officer
of ARCA, Inc. "Their supportive partnership better enables us to meet our
strategic objectives and capitalize on future growth opportunities."

Although retail store sales rebounded modestly in October, total retail store
sales for the fourth quarter of 2012 declined 10% compared with the same
period of 2011. Consumer anxiety about the election, economy and government
spending cuts dampened demand. For fiscal 2012, total retail store revenues
decreased 2.1% to $71.2 million. By comparison, industry shipments of the six
primary appliances sold at ApplianceSmart decreased 2.3% for fiscal 2012
according to the Association of Home Appliance Manufacturers. For fiscal 2012,
the Company's retail stores generated an operating loss before corporate
overhead of $0.7 million, a $2.4 million decline compared with fiscal 2011.
During the fourth quarter of 2012, the Company recorded a $0.5 million
non-cash inventory charge related to aged inventory. Also during the fourth
quarter of 2012, the Company closed two underperforming stores in Georgia that
resulted in a non-cash lease termination charge of $0.2 million. The Company
is implementing strategies for addressing underperforming stores, from
right-sizing showroom space to closure. The Company plans to close another one
or two underperforming stores in 2013.

Recycling revenues, which are comprised of appliance recycling fees and
appliance replacement program revenues, increased to $6.8 million in the
fourth quarter of 2012 from $6.4 million in the same period of 2011.
Replacement program revenues increased $1.8 million while appliance recycling
fees declined $1.4 million. The Company reported a 36% increase in replacement
units and a 25% decline in overall recycling volumes. The increase in
replacement program revenues was partially offset by lower appliance recycling
revenues, resulting in a $0.4 million improvement in operating profit. In
January the Company announced recycling contract extensions into 2015 with two
utilities – Southern California Edison and Ameren Missouri.

Byproduct revenues, excluding AAP and carbon offset sales, decreased to $1.6
million compared with $1.9 million in the fourth quarter of 2011. The decrease
was a direct result of the 25% reduction in overall recycling volumes cited
earlier coupled with a 16% decrease in scrap metal prices compared with the
fourth quarter of 2011. During the fourth quarter of 2011, the Company,
including AAP, recognized $0.4 million in carbon offset revenues by electing
to destroy CFC refrigerants.

Despite ferrous scrap metal prices falling as much as 26% during the quarter,
AAP revenues declined only 7% to $2.9 million compared with the fourth quarter
of 2011. AAP's operating loss for the fourth quarter of 2012, excluding the
impact of the $1.1 million goodwill impairment charge, was $49,000 due
primarily to lower ferrous scrap metal prices along with the accumulation of
CFCs (chlorofluorocarbons) to be sold in the future.

By operating the only UNTHA Recycling Technology (URT) System in the United
States, AAP is uniquely positioned for large-volume refrigerator recycling
including the capture of ozone-depleting CFCs contained in the foam
insulation. Since 2011, AAP's URT system in Philadelphia has recycled over
150,000 refrigerators and freezers.

AAP and ARCA were pleased with the California Superior Court decision on
January 25, 2013, rejecting a challenge to California's cap and trade program
for reducing greenhouse gases. Several other suits are pending, but the
Environmental Defense Fund hailed this ruling as "a bright green light…for
further investment" in pollution-reduction projects inside and outside
California. Last week, California's second auction of carbon-emissions
allowances took place; prices rose 36% since the November 2012 auction. The
ongoing accumulation of CFCs at both ARCA and AAP is significant; both
companies expect to create carbon offsets through the destruction of CFCs
throughout 2013 and derive revenues in the second half of 2013.

"The court's decision removes a significant roadblock to California's carbon
offset market and indicates how momentum is growing regionally and globally
for these markets," Cameron noted. The value of the North American carbon
market is expected to more than double during 2013 to $2.5 billion, according
to Thomson Reuters Point Carbon. Bloomberg New Energy Finance states that
trading activity in the world's carbon markets has increased 25% annually
since 2010.

"Our unique ability to capture CFCs from insulating foam benefits the
environment by reducing greenhouse gas emissions and landfill waste, while
also generating revenue for us. It's a win-win all around," said Brian
Conners, president and chief operating officer of AAP.

Overall gross profit as a percentage of total revenues declined to 23% for the
fourth quarter of 2012 compared with 29% during the same period of 2011. The
decline in overall gross profit percentage was primarily the result of lower
byproduct and carbon offset revenues along with the non-cash inventory charge
cited earlier.

"After a challenging quarter and fiscal year, we have taken decisive steps to
improve ARCA's operational execution and profitability in 2013," said Cameron.
"Our strategic initiatives span all aspects of our business, including our
retail stores, regional recycling centers, corporate office and AAP joint
venture. We will be even more nimble this year, better able to capitalize on
new opportunities and weather adversity. Our outlook remains positive,
bolstered by confidence in the long-term synergies across our business units
and some early signs of economic recovery indicated by the housing market."

Last year ended with construction activity and home prices both rising,
according to the National Association of Home Builders (NAHB); the latest NAHB
confidence index is also near its highest level since May 2006. The Company
expects the ripple effects of increased housing market activity to benefit
appliance sales and related recycling volumes. During 2012, building permits
for single-family homes rose 24%; multi-family housing permits climbed 53%.

"In recent months our retail operations have seen a significant increase in
bid requests for multi-family housing projects, although these potential
contracts take time to reach fruition," Cameron noted. "We started this year
with an improved inventory mix – more out-of-carton appliances and a strong
product portfolio to suit a wide range of tastes and budgets."

For the year ended December 29, 2012, total revenues decreased 10% to $114.3
million, compared with revenues of $126.7 million for the 2011 fiscal year.
Overall, the Company reported a consolidated net loss of $3.9 million, or
($0.69) per diluted share, compared with a consolidated net income of $4.5
million, or $0.77 per diluted share, for the year ended December 31, 2011.

Liquidity and Capital Resources

Cash and cash equivalents as of December 29, 2012, were $3.2 million compared
with $4.4 million as of December 31, 2011. As of December 29, 2012, the
Company had $2.5 million of available borrowings under its revolving line of
credit compared with $3.5 million as of December 31, 2011. Based on the
agreement in principle with PNC for modification of the Company's credit
agreement, $1.8 million of borrowings have been classified as long-term
obligations as of December 29, 2012. Net working capital of $7.6 million
decreased $3.8 million as of December 29, 2012, compared with $11.4 million as
of December 31, 2011. The decline was primarily the result of carrying $1.2
million less in cash, $1.3 million less appliance inventory and $1.2 million
in lower receivables.

Conference Call Information

In conjunction with this release, Appliance Recycling Centers of America, Inc.
will host a conference call tomorrow, February 28, 2013, at 10:00 a.m. CST. To
participate in the conference call, please dial the following number ten
minutes prior to the scheduled time: 1-800-671-7004. 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. Nineteen 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)
                                               December 29,       December 31,
                                               2012
                                                                  2011
ASSETS                                         (unaudited)
Current assets:
Cash and cash equivalents                      $            3,174 $          
                                                                   4,401
Accounts receivable, net of allowance of $8    6,256              7,445
and $18, respectively
Inventories, net of reserves of $682 and $85,  17,274             18,456
respectively
Income taxes receivable                        522                392
Other current assets                           1,332              1,028
Deferred income tax assets                     -                  173
Total current assets                           28,558             31,895
Property and equipment, net                    12,248             12,535
Goodwill                                       38                 1,120
Other assets                                   935                1,232
Deferred income taxes assets                   25                 27
Total assets (a)                               $          41,804  $        
                                                                   46,809
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable                               $            4,957 $          
                                                                   4,323
Accrued expenses                               4,310              4,453
Line of credit                                 10,559             10,685
Current maturities of long-term obligations    955                989
(b)
Deferred income tax liabilities                146                -
Total current liabilities                      20,927             20,450
Long-term obligations, less current maturities 6,357              7,251
(b)
Deferred gain, net of current portion          365                853
Deferred income tax liabilities                921                875
Total liabilities (a)                          28,570             29,429
Commitments and contingencies                  -                  -
Shareholders' equity:
Common Stock, no par value; 10,000 shares
authorized; issued and outstanding: 5,556      20,577             20,338
shares and 5,527 shares, respectively
Accumulated deficit                            (8,649)            (4,797)
Accumulated other comprehensive loss           (290)              (361)
Total shareholders' equity                     11,638             15,180
Noncontrolling interest                        1,596              2,200
                                               13,234             17,380
Total liabilities and shareholders' equity     $          41,804  $        
                                                                   46,809

     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 $10,045 and $11,771 as of December 29, 2012, and
(a)  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 $1,948 and $2,186 as of December 29, 2012, and
     December 31, 2011, respectively.
     Based on the agreement in principle with PNC Bank, National Association
(b)  (PNC) for modification of the Company's credit agreement, $1,785 of
     borrowings have been classified as long-term obligations as of December
     29, 2012.

 

APPLIANCE RECYCLING CENTERS OF AMERICA, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In Thousands, Except Per Share Amounts)
                         Three Months Ended          Year Ended
                         December 29,  December 31,  December 29, December 31,

                         2012          2011          2012         2011
Revenues:
   Retail                $      15,228 $     16,424  $            $     72,773
                                                     71,234
   Recycling             6,845         6,362         25,280       33,062
   Byproduct             4,490         5,209         17,799       20,834
Total revenues           26,563        27,995        114,313      126,669
Costs of revenues        20,514        19,987        86,358       89,934
Gross profit             6,049         8,008         27,955       36,735
Selling, general and     7,346         7,473         30,095       29,491
administrative expenses
Impairment charge        1,082         -             1,082        -
Operating income (loss)  (2,379)       535           (3,222)      7,244
Other expense:
   Interest expense, net (307)         (253)         (1,139)      (1,133)
   Other income          10            (4)           (12)         (22)
(expense), net
Income (loss) before
income taxes and         (2,676)       278           (4,373)      6,089
noncontrolling interest
Provision for (benefit   (7)           75            83           1,367
of) income taxes
Net income (loss)        (2,669)       203           (4,456)      4,722
Net loss (income)
attributable to          606           (200)         604          (261)
noncontrolling interest
Net income (loss)                      $             $            $      
attributable to          $     (2,063)   3           (3,852)       4,461
controlling interest
Income (loss) per common
share:
Basic                    $             $             $            $        
                         (0.37)           -          (0.69)       0.81
Diluted                  $             $             $            $        
                         (0.37)           -          (0.69)       0.77
Weighted average common
shares outstanding:
Basic                    5,556         5,510         5,551        5,493
Diluted                  5,556         5,876         5,551        5,809
Net income (loss)        $     (2,669) $             $            $      
                                       203            (4,456)     4,722
Other comprehensive
income (loss), net of
tax:
Effect of foreign
currency translation     (38)          53            71           (87)
adjustments
Total other
comprehensive income     (38)          53            71           (87)
(loss), net of tax
Comprehensive income     (2,707)       256           (4,385)      4,635
(loss)
Comprehensive loss
(income) attributable to 606           (200)         604          (261)
noncontrolling interest
Comprehensive income                   $             $            $      
(loss) attributable to   $     (2,101) 56             (3,781)     4,374
controlling interest

SOURCE Appliance Recycling Centers of America, Inc.

Website: http://www.ARCAInc.com
Contact: Edward R. (Jack) Cameron, CEO, +1-952-930-9000
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