Appliance Recycling Centers of America Reports Second Quarter Operating
MINNEAPOLIS, Aug. 5, 2013
MINNEAPOLIS, Aug. 5, 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 second quarter
ended June 29, 2013.
Second quarter summary:
oIncreased total revenues by 9.2% to $32.3 million compared with $29.5
million in the second quarter of 2012.
oGrew total revenues through a 160% increase in appliance replacement
program revenues partially offset by a 6% decline in retail revenues and a
9% decline in ARCA Advanced Processing, LLC (AAP) revenues.
oGenerated consolidated net income of $0.8 million, or $0.13 per diluted
share, compared with a consolidated net loss of $(0.6) million, or $(0.12)
per diluted share, in the second quarter of 2012.
oRecorded a favorable $0.4 million adjustment to the inventory reserve at
oClosed one underperforming ApplianceSmart store in the Minnesota market,
ending the quarter with 18 stores compared with 21 stores at the end of
the second quarter of 2012.
oRestructured and relocated the call center supporting utility contracts,
moving it from California to Minnesota.
oAppointed Mark Eisenschenk to chief operating officer of the Company and
president of ARCA Recycling, Inc.
"We're pleased to build on last quarter's positive momentum with continued
quarterly revenue growth—both sequentially and year-over-year," said Edward R.
(Jack) Cameron, president and chief executive officer of ARCA, Inc. "The
strength of our appliance replacement programs in particular demonstrates both
their growing popularity with utilities and our business model's unique
suitability to capitalize on this trend.
"Across our Company, profitability improvements enabled us to comfortably
satisfy the conditions of our credit agreement with PNC Bank, including the
planned monthly EBITDA covenants," noted Cameron.
In regard to the Company's retail appliance business, ApplianceSmart same
store sales for the second quarter of 2013 declined 3.9% compared with the
same period of 2012. Contributing factors included increased competition from
national chains with expanded inventory offerings and continued economic
softness. Last month the National Retail Federation (NRF) reported that
appliance and electronics stores' sales decreased by 2.3% unadjusted
year-over-year in June; the NRF cited "stagnantly high unemployment, higher
taxes and lingering policy uncertainty." In the second quarter, ApplianceSmart
total retail revenues decreased 6.1% to $17.8 million compared with the same
period of 2012, resulting primarily from the decline in same-store sales and
closure of three stores that were operating in the same period of 2012.
For the Company's appliance recycling business, recycling revenues, which are
comprised of appliance recycling fees and appliance replacement program
revenues, increased 67.0% to $10.3 million in the second quarter of 2013 from
$6.1 million in the same period of 2012. Appliance replacement program
revenues increased $4.4 million while appliance recycling fees declined $0.2
million. The Company reported a 134% increase in appliance replacement units
and a 9% increase in overall recycling volumes compared with the second
quarter of 2012. A strategic benefit of having more than one business line is
that ARCA utilizes its manufacturer relationships with ApplianceSmart to
provide cost-effective solutions to utilities sponsoring appliance replacement
These programs are expected to expand nationally, as evidenced by a 2013 study
commissioned by the U.S. Department of Energy that concluded energy efficiency
programs funded by utility customers are "poised for dramatic growth over the
next 10 to 15 years." Averaging this study's three growth projections results
in a 5% annual growth rate through 2025.
The Company's byproduct revenues, excluding AAP, remained flat at $1.5 million
compared with the second quarter of 2012. The Company's overall increase in
recycling volumes was offset by a decline in steel scrap prices.
Revenues from the AAP joint venture, reported in byproduct revenues, declined
8.9% to $2.7 million compared with $2.9 million in the second quarter of 2012.
The decline was due to lower steel and nonferrous scrap prices. Overall gross
tons received for processing increased 5.4% and average steel scrap prices
declined 11.1% per gross ton compared with the second quarter of 2012. AAP's
gross margin declined to 16.3% compared with 24.8% in the same period of 2012.
AAP's operating loss for the second quarter was $(6,000) compared with
operating income of $264,000 during the same period of 2012. The decline in
gross margin and operating income was primarily the result of lower prices for
steel and non-ferrous scrap and higher depreciation expense.
Overall gross profit as a percentage of total revenues decreased to 26.3% for
the second quarter of 2013 compared with 26.9% 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 a 220 basis point improvement in ApplianceSmart's gross
margin due primarily to the favorable inventory adjustment mentioned
For the six months ended June 29, 2013, total revenues increased 6.3% to $62.7
million, compared with revenues of $59.0 million for the same period in the
prior fiscal year. Overall, the Company reported consolidated net income of
$1.0 million, or $0.17 per diluted share, compared with a consolidated net
loss of $0.7 million, or $0.13 per diluted share, in the first six months of
"At the halfway point of 2013, we've solidified our performance in many key
areas while strengthening our corporate organization with the addition of Mark
Eisenschenk as the Company's chief operating officer and the president of ARCA
Recycling," Cameron concluded. "I believe we have the right organization,
strategic partners and management team in place to capitalize on the growth
opportunities before us."
Liquidity and Capital Resources
Cash and cash equivalents as of June 29, 2013, were $2.7 million, compared
with $3.2 million as of December 29, 2012. As of June 29, 2013, the Company
had $4.3 million of available borrowings under its revolving line of credit
compared with $2.5 million as of December 29, 2012. Net working capital of
$7.7 million increased $0.1 million as of June 29, 2013, compared with $7.6
million as of December 29, 2012. The increase was due primarily to a lower
outstanding balance under the Company's revolving line of credit.
Conference Call Information
In conjunction with this release, Appliance Recycling Centers of America, Inc.
will host a conference call tomorrow, August 6, 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: 800-354-6885. 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.
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
approximately 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
June 29, December 29,
Cash and cash equivalents $ 2,659 $ 3,174
Accounts receivable, net of allowance of 9,337 6,256
$50 and $8, respectively
Inventories, net of reserves of $149 and 14,040 17,274
Income taxes receivable 511 522
Other current assets 1,301 1,332
Total current assets 27,848 28,558
Property and equipment, net 11,728 12,248
Restricted cash 500 –
Other assets 1,033 973
Deferred income taxes 24 25
Total assets (a) $ 41,133 $ 41,804
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable $ 5,912 $ 4,957
Accrued expenses 4,727 4,310
Line of credit 8,058 10,559
Current maturities of long-term 1,204 955
Income taxes payable 91 –
Deferred income tax liabilities 146 146
Total current liabilities 20,138 20,927
Long-term obligations, less current 5,940 6,357
Deferred gain, net of current portion 122 365
Deferred income tax liabilities 921 921
Total liabilities (a) 27,121 28,570
Commitments and contingencies – –
Common Stock, no par value; 10,000
shares authorized; issued and
outstanding: 20,636 20,577
5,556 shares at both periods
Accumulated deficit (7,697) (8,649)
Accumulated other comprehensive loss (426) (290)
Total shareholders' equity 12,513 11,638
Noncontrolling interest 1,499 1,596
Total liabilities and shareholders' $ 41,133 $ 41,804
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 $9,793 and $10,045 as of June 29, 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 $2,216 and $1,948 as of June 29, 2013, and December 29,
APPLIANCE RECYCLING CENTERS OF AMERICA, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In Thousands, Except Per Share Amounts)
Three Months Ended Six Months Ended
June 29, June 30, June 29, June 30,
2013 2012 2013 2012
Retail $ $ $ $
17,801 18,964 35,860 38,720
Recycling 10,260 6,145 18,560 11,410
Byproduct 4,212 4,434 8,277 8,857
Total revenues 32,273 29,543 62,697 58,987
Costs of revenues 23,778 21,606 46,292 43,106
Gross profit 8,495 7,937 16,405 15,881
Selling, general and 7,295 8,130 14,780 15,990
Operating income (loss) 1,200 (193) 1,625 (109)
Interest expense, net (322) (279) (605) (533)
Other expense, net (7) (25) (20) (9)
Income (loss) before income
taxes and noncontrolling 871 (497) 1,000 (651)
Provision for (benefit of) 145 54 145 (23)
Net income (loss) 726 (551) 855 (628)
Net (income) loss
attributable to 42 (90) 97 (79)
Net income (loss) $ $ $ $
attributable to controlling 768 (641) 952 (707)
Income (loss) per common
Basic $ $ $ $
0.14 (0.12) 0.17 (0.13)
Diluted $ $ $ $
0.13 (0.12) 0.17 (0.13)
Weighted average common
Basic 5,556 5,555 5,556 5,546
Diluted 5,709 5,555 5,696 5,546
Net income (loss) $ $ $ $
726 (551) 855 (628)
Other comprehensive income
(loss), net of tax:
Effect of foreign currency (78) (71) (136) (11)
Total other comprehensive (78) (71) (136) (11)
income (loss), net of tax
Comprehensive income (loss) 648 (622) 719 (639)
Comprehensive loss (income)
attributable to 42 (90) 97 (79)
Comprehensive income (loss) $ $ $ $
attributable to controlling 690 (712) 816 (718)
SOURCE Appliance Recycling Centers of America, Inc.
Contact: Edward R. (Jack) Cameron, CEO, (952) 930-9000
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