Appliance Recycling Centers of America Reports First Quarter Operating Results

Appliance Recycling Centers of America Reports First Quarter Operating Results

Company Posts Revenue Increase, Returns to Profitability

PR Newswire

MINNEAPOLIS, May 6, 2013

MINNEAPOLIS, May 6, 2013 /PRNewswire/ -- Appliance Recycling Centers of
America, Inc. (NASDAQ: ARCI), a leading provider of appliance retailing and
recycling services, today reported operating results for the first quarter
ended March 30, 2013.

Total revenues increased 3.3% to $30.4 million versus $29.4 million for the
first quarter of 2012. Overall, the Company reported consolidated net income
of $0.2 million, or $0.03 per diluted share, compared with near-breakeven
results in the first quarter of 2012.

"These results – including our return to profitability – demonstrate solid
progress executing the strategic initiatives we outlined earlier this year,"
said Edward R. (Jack) Cameron, president and chief executive officer of ARCA,
Inc. "In particular, strong replacement program activity helped our recycling
revenues increase 21 percent sequentially and 58 percent over the same period
last year."

Cameron added that the Company was pleased to modify its credit agreement with
PNC Bank, National Association (PNC) during the quarter. The agreement signed
on March 14, 2013, extended the Company's existing credit agreement with PNC
two additional years until January 24, 2016. It also waived the previously
reported default caused by being out of compliance with two financial
covenants and reset the financial covenants. The modified terms did not change
the maximum borrowing amount of $15 million under the revolving line of credit
and require the Company to meet monthly minimum EBITDA targets through 2013.

ApplianceSmart^® same store sales for the first quarter of 2013 declined 7%
compared with the same period of 2012. Factors included delayed 2012 tax
refunds, negative impact of the Easter holiday shifting to the first quarter
this year and a tight housing market that dampened relocation activity and
related appliance purchasing. The National Association of Realtors reported a
17% decline in housing inventories in March 2013 from prior-year levels. The
National Retail Federation blamed a sequential March decrease in electronics
and appliance store sales on colder-than-normal weather and the payroll tax
hike.

In the first quarter, ApplianceSmart total retail revenues decreased 9% to
$18.1 million compared with the same period of 2012, resulting primarily from
the same store sales decrease and closure of two stores late in 2012. During
the first quarter of 2013, ApplianceSmart stores generated an operating income
before corporate overhead of $0.4 million, a $0.2 million decline compared
with the same period in 2012.

"Our retail operations showed quarterly sequential improvements, including
per-store sales and gross margins," explained Brad Bremer, president of
ApplianceSmart. "We're starting to see more out-of-carton product available,
aided by favorable home-construction trends." The housing shortage and
improving economy is spurring construction; new housing starts rose in March
2013 at the fastest seasonally adjusted annual rate in nearly five years. 

Recycling revenues, which are comprised of appliance recycling fees and
appliance replacement program revenues, increased 58% to $8.3 million in the
first quarter of 2013, from $5.3 million in the same period of 2012. The
number of replacement programs remained unchanged, but related revenues
increased $3.8 million while appliance recycling fees declined $0.8 million.
The Company reported a 119% increase in replacement units and a 4% decline in
overall recycling volumes. The increase in replacement program revenues was
partially offset by lower appliance recycling revenues, resulting in a $0.7
million improvement in operating profit compared with the same period in 2012.

Research by the Association of Home Appliance Manufacturers (AHAM) claims the
next opportunities for increases in appliance efficiency will come from smart
appliances and early retirement of existing appliances, such as the 42% of
working refrigerators estimated to remain on the electrical grid after
disposal through secondary use, sale or donation. A 2012 ENERGY STAR^® summary
of energy-efficiency programs includes more than 650 incentive and promotion
programs submitted by over 200 program sponsors across the United States. New
ENERGY STAR requirements take effect in 2014.

The Company's byproduct revenues, excluding AAP, declined to $1.5 million
compared with $1.7 million in the first quarter of 2012. The decrease was a
direct result of the 4% reduction in overall recycling volumes cited earlier
coupled with a 14% decrease in steel scrap prices compared with the first
quarter of 2012. Scrap prices are expected to remain volatile for the balance
of the year and into 2014.

Revenues from the ARCA Advanced Processing (AAP) joint venture, reported in
byproduct revenues, declined 5% to $2.6 million compared with $2.7 million in
the first quarter of 2012. AAP's gross margin declined to 12.2% compared with
19.2% in the same period of 2012. AAP's operating loss for the first quarter
was $53,000 compared with operating income of $65,000 during the same period
of 2012. The decline in gross margin and operating income was primarily the
result of lower prices for steel scrap and higher depreciation expense.

Positive momentum continues in California's cap and trade program for carbon
emissions. In mid-April, California's Air Resources Board approved linking
with a similar program in Quebec, starting in 2014. The Company considers this
an important step toward a more efficient, liquid and stable carbon emissions
market, including possible future linkages to other domestic or global
markets. As previously announced, both ARCA and AAP expect to create carbon
offsets through the destruction of CFCs throughout 2013 and derive revenues
through California's market in the second half of 2013.

Overall gross profit as a percentage of total revenues decreased to 26% for
the first quarter of 2013 compared with 27% during the same period of 2012.
The decline in overall gross profit percentage resulted primarily from lower
byproduct revenues and the decline in AAP's gross margin. These factors were
partially offset by an 80 basis point improvement in ApplianceSmart's gross
margin.

"We're encouraged by a positive start to the year," Cameron noted. "Our
banking agreement is solidified and we've moved ahead with a number of
corporate actions that are bearing fruit." He concluded, "We're carefully
managing all our operations and we're optimistic about our prospects as the
economy gradually improves throughout 2013."

Liquidity and Capital Resources

Cash and cash equivalents as of March 30, 2013, were $3.9 million compared
with $3.2 million as of December 29, 2012. As of March 30, 2013, the Company
had $3.8 million of available borrowings under its revolving line of credit
compared with $2.5 million as of December 29, 2012. Net working capital of
$7.1 million decreased $0.5 million as of March 30, 2013, compared with $7.6
million as of December 29, 2012. The decline can be attributed to an increase
in accrued liabilities and the net impact of lower appliance inventory and a
reduced line of credit balance.

Conference Call Information

In conjunction with this release, Appliance Recycling Centers of America, Inc.
will host a conference call tomorrow, May 7, 2013, at 10:00 a.m. CDT. To
participate in the conference call, please dial the following number ten
minutes prior to the scheduled time: 888-221-1887. 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 150
utilities in the U.S. and Canada. Eighteen 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)
                       March 30,                             December 29,

                       2013                                  2012
ASSETS                                    (unaudited)
Current assets:
Cash and cash equivalents                 $      3,925 $     
                                                             3,174
Accounts receivable, net of allowance of  6,826              6,256
$12 and $8, respectively
Inventories, net of reserves of $504 and  14,395             17,274
$682, respectively
Income taxes receivable                   518                522
Other current assets                      1,001              1,332
Total current assets                      26,665             28,558
Property and equipment, net               11,946             12,248
Restricted cash                           500                -
Other assets                              1,069              973
Deferred income taxes                     24                 25
Total assets (a)                          $     40,204  $     41,804
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable                          $      5,449 $     
                                                             4,957
Accrued expenses                          5,179              4,310
Line of credit                            7,769              10,559
Current maturities of long-term           1,037              955
obligations
Deferred income tax liabilities           146                146
Total current liabilities                 19,580             20,927
Long-term obligations, less current       6,150              6,357
maturities
Deferred gain, net of current portion     244                365
Deferred income tax liabilities           921                921
Total liabilities (a)                     26,895             28,570
Commitments and contingencies             -                  -
Shareholders' equity:
Common Stock, no par value; 10,000 shares
authorized; issued and outstanding:       20,581             20,577

5,556 shares at both periods
Accumulated deficit                       (8,465)            (8,649)
Accumulated other comprehensive loss      (348)              (290)
Total shareholders' equity                11,768             11,638
Noncontrolling interest                   1,541              1,596
                                          13,309             13,234
Total liabilities and shareholders'       $     40,204  $     41,804
equity

    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 $9,762 and $10,045 as of March 30, 2013, and
(a) December 29, 2012, respectively. Liabilities of AAP for which creditors do
    not have recourse to the general credit of Appliance Recycling Centers of
    America, Inc. were $1,922 and $1,948 as of March 30, 2013, and December
    29, 2012, respectively.

APPLIANCE RECYCLING CENTERS OF AMERICA, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In Thousands, Except Per Share Amounts)
                                                           Three Months Ended
                                                           March 30, March 31,

                                                           2013      2012
Revenues:
 Retail                                                 $ 18,059  $ 19,756
 Recycling                                              8,300     5,265
 Byproduct                                              4,065     4,423
Total revenues                                             30,424    29,444
Costs of revenues                                          22,514    21,500
Gross profit                                               7,910     7,944
Selling, general and administrative expenses               7,485     7,860
Operating income                                           425       84
Other income (expense):
 Interest expense, net                                  (283)     (254)
 Other income (expense), net                            (13)      16
Income (loss) before income taxes and noncontrolling       129       (154)
interest
Benefit of income taxes                                    -         (77)
Net income (loss)                                          129       (77)
Net loss attributable to noncontrolling interest           55        11
Net income (loss) attributable to controlling interest     $ 184     $ (66)
Income (loss) per common share:
Basic                                                      $ 0.03    $ (0.01)
Diluted                                                    $ 0.03    $ (0.01)
Weighted average common shares outstanding:
Basic                                                      5,556     5,537
Diluted                                                    5,678     5,537
Net income (loss)                                          $ 129     $ (77)
Other comprehensive income (loss), net of tax:
Effect of foreign currency translation adjustments         (58)      60
Total other comprehensive income (loss), net of tax        (58)      60
Comprehensive income (loss)                                71        (17)
Comprehensive loss attributable to noncontrolling          55        11
interest
Comprehensive income (loss) attributable to controlling    $ 126     $ (6)
interest



SOURCE Appliance Recycling Centers of America, Inc.

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