Exhibit 99.1
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Appliance Recycling Centers of America, Inc.
7400 Excelsior Boulevard,
Minneapolis MN 55426 (952) 930-9000
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FOR
IMMEDIATE RELEASE
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FOR
MORE INFORMATION, CONTACT:
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Edward
R. (Jack) Cameron, CEO, or
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Peter
Hausback, EVP and CFO
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(952) 930-9000
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Appliance Recycling Centers of America Reports Second Quarter
Operating Results
MINNEAPOLIS—AUGUST
11, 2009—Appliance Recycling Centers of America, Inc.
(NASDAQ: ARCI) today reported operating results for the second quarter ended July 4,
2009.
Highlights
of the second quarter included:
· Signing of two new recycling contracts.
· Commencement of a joint venture to operate a
refrigerator recycling program sponsored by the Mexican government.
· Significant reduction of overall net loss
compared to the first quarter of 2009.
· Gross profits for the recycling segment
remaining strong at 34.3% of revenues.
· Implementation of comprehensive cost-saving
measures companywide.
Total
revenues for the second quarter of 2009 decreased 14.4% to $25.4 million from
$29.7 million in the second quarter of 2008. ARCA reported a second quarter
2009 operating loss of $0.1 million compared to operating income of $1.5
million during the same period of 2008. Second quarter comparable store
revenues from the sixteen ApplianceSmart Factory Outlets open for the past
twelve months decreased 19.7%, and total retail revenues decreased 7.9% to
$19.3 million from $21.0 million during the same period of 2008. The decline in
comparable store revenues was due primarily to price compression on product to
remain competitive with other retailers in the current economic environment, along
with lower customer traffic. Revenues from ARCA’s recycling segment decreased
29.8% to $6.0 million in the second quarter of 2009 compared to revenues of
$8.5 million in the same period of 2008. The decrease was due primarily to
lower recycling volumes in California and lower scrap metal prices compared to
the second quarter of 2008. The decrease in the recycling revenues was
primarily the result of a planned volume reduction for one contract and a
second contract starting later than expected.
-more-
Overall
gross profit as a percentage of total revenues declined to 29.9% for the second
quarter of 2009 compared to 32.5% for the second quarter of 2008. The decline
was due primarily to the price compression mentioned previously and to lower
comparable store sales. Gross profit for the retail segment was 28.5% in the
second quarter compared to 32.4% in the same quarter of 2008. Gross profit for
the retail segment for the second quarter of 2009 increased 4.7 percentage
points compared to the first quarter of 2009 due primarily to operational
efficiencies and improved product mix. Gross profit for the recycling segment
was 34.3% for the second quarter of 2009 compared to 32.9% for the same quarter
of 2008. The improvement was due to cost
reductions and operational efficiencies.
Corporate
general and administrative expenses for the second quarter decreased $0.6
million in the second quarter of 2009 to 9.3% of total revenues compared to
$3.0 million or 10.2% of total revenues for the second quarter of 2008. The
Company reported a tax benefit of $0.1 million for the second quarter, which
represents an effective tax rate of 17.0%. The Company recorded a discrete item
in the second quarter of 2009 related to additional Canadian tax deductions
determined by completing a detailed transfer pricing study. The Company
recognized a tax benefit of approximately $0.2 million related solely to its
Canadian operations compared to the original tax provision estimate for fiscal
2008. The Company also recorded a provision for income taxes of $0.1 million
related to the second quarter 2009 taxable income generated by its Canadian
operations, which partially offsets the discrete item recorded in the second
quarter of 2009. The Company’s net loss for the second quarter was $0.4 million
or $0.09 per diluted share compared to net income of $0.8 million or $0.18 per
diluted share for the second quarter of 2008. The net loss for the second
quarter of 2009 included non-cash share-based compensation expense of $0.1
million along with $0.1 million in legal expenses as the Company started the
legal appeal process relating to the JACO lawsuit.
In
January 2009, the Court granted JACO a summary judgment in ARCA’s lawsuit
against the parties. The ruling was made by the same judge who had earlier
denied summary judgment to the defendants. Even though the Court’s ruling will
have no impact on ARCA’s method of recycling or ability to conduct existing or
future business, the Company filed an appeal with the Ninth Circuit Court of
Appeals in California in February 2009 seeking to have the court set aside
the summary judgment. ARCA believes the decision by the trial judge was in
error and contrary to the law relating to unfair competition and false
advertising. The Company believes it is entitled to its day in
-more-
court
against JACO for damages caused by their actions, but a timeline on a decision
of the appeal has not yet been established.
New
Appliance Recycling Contracts
During
the second quarter, the Company signed new appliance recycling contracts to
support programs sponsored by Xcel Energy and Baltimore Gas and Electric. Both
of these programs will commence operations in the third quarter of 2009.
Cost
Containment Initiatives
During
the second quarter, the Company implemented various cost-reduction initiatives
with the plan of saving approximately $2.6 million annually in operating and
general and administrative level costs. Additionally, the Company has engaged
the services of a consultant with retail lease expertise to negotiate with
landlords to reduce the Company’s rental obligations. The Company has initially
obtained rent concessions of $0.2 million from two landlords.
Mexico
Joint Venture
In
June 2009, the Company completed a $0.3 million investment in Diagnostico
y Administracion de Logistica Inversa, S.A. de C.V. (DALI), a Mexican company.
DALI is a joint venture that operates a refrigerator recycling program
sponsored by the Mexican government. The recycling program is a four-year
program that is funded annually with plans to recycle a total of 1.6 million
refrigerators. The results of the joint venture were immaterial for the second
quarter of 2009.
Year-to-Date
Total
revenues for the first six months of 2009 were $51.5 million compared to $55.4
million for the same period of 2008. This overall decrease is the net effect of
a 1.1% increase in total retail revenues offset by a 27.4% decrease in
recycling and byproduct revenues. Year-to-date comparable retail store revenues
decreased 14.6% but were offset by the revenues from stores that opened during
the past year. Recycling revenues and byproduct revenues decreased $4.2 million
primarily as a result of lower recycling revenues in the Company’s California
market combined with this year’s later-than-anticipated start of a major
utility’s annual appliance replacement program.
-more-
Overall
gross profit as a percentage of total revenues was 27.0% for the first six months
of 2009 compared to 32.0% for the comparable period of 2008. The decline was
due primarily to price compression on product to remain competitive during the
current economic downturn. Gross profit for the retail segment was 26.1% in the
first six months of 2009 compared to 33.9% in the same period of 2008. Gross
profit for the recycling segment was 30.4% for the first six months of 2009
compared to 26.9% for the same period of 2008. The increase in gross profit for
recycling was due primarily to cost-saving efforts in several areas, including
labor and transportation.
The
Company’s net loss for the first six months of 2009 was $2.4 million or $0.52
per diluted share compared to net income of $1.0 million or $0.21 per diluted
share for the comparable period of 2008. The earnings for the first six months
of 2009 included non-cash share-based compensation expense of $0.3 million
compared to $0.2 million for the same period of 2008.
Edward
R. (Jack) Cameron, President and Chief Executive Officer, commented: “The
second quarter of 2009 reflected improvement in our overall business compared
to the first quarter of this year. While our ApplianceSmart Factory Outlets
performed relatively well in the Minnesota and Ohio markets, the Georgia and
Texas markets continued to be very challenging. However, we did see some
improvement in our retail store margins between the first and second quarters,
although margins remain depressed given the overall slump in the retail market.
Our recycling segment remains strong, and we actually increased margin levels
during the second quarter.”
Cameron
added, “Various cost-saving initiatives have been implemented throughout the
company at both the operating and corporate levels and the company is confident
that the savings expected to be achieved will help the company not only in the
short term, but will also position it well for the long term. We are starting
to benefit from these cost-reduction measures as evidenced by the increase in
recycling segment margins and the decrease in corporate overhead during the
second quarter, and we expect to achieve the majority of anticipated savings
during the next four quarters.”
About
ARCA
ARCA
(www.arcainc.com) is one of the nation’s largest recyclers of major household
appliances for the energy conservation programs of electric utilities. The
Company 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
-more-
electrical
household appliances and electronic scrap. Through its ApplianceSmart operation
(www.appliancesmart.com), ARCA also is one of the nation’s leading retailers of
special-buy household appliances, primarily those manufactured by Maytag, GE,
Frigidaire and Whirlpool. These special-buy appliances, which include
close-outs, factory overruns and scratch-and-dent units, typically are not
integrated into the manufacturer’s normal distribution channel. ApplianceSmart
sells these new appliances at a discount to full retail, offers a 100%
money-back guarantee and provides warranties on parts and labor. As of August 2009,
ApplianceSmart was operating 20 factory outlets: six in the Minneapolis/St.
Paul market; one in the Rochester, Minn., market; four in the Columbus, Ohio,
market; six in the Atlanta market; and three in San Antonio, Texas.
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.
-more-
APPLIANCE
RECYCLING CENTERS OF AMERICA, INC.
UNAUDITED
CONSOLIDATED STATEMENTS OF OPERATIONS
(In
Thousands, Except Per Share Amounts)
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Three Months Ended
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Six Months Ended
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July 4,
2009
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June 28,
2008
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July 4,
2009
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June 28,
2008
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Revenues:
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Retail
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$
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19,327
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$
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20,976
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$
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40,267
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$
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39,834
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Recycling
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5,374
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7,288
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9,936
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13,232
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Byproduct
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691
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1,398
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1,347
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2,298
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Total
revenues
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25,392
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29,662
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51,550
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55,364
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Costs
of revenues
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17,807
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20,016
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37,636
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37,657
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Gross
profit
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7,585
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9,646
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13,914
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17,707
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Selling,
general and administrative expenses
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7,729
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8,106
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15,740
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15,560
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Operating
income (loss)
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(144
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)
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1,540
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(1,826
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2,147
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Other
income (expense):
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Interest
expense, net
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(256
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)
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(327
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)
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(575
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)
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(724
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)
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Other
expenses, net
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(95
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)
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—
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(71
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)
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—
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Income
(loss) from continuing operations before income taxes
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(495
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)
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1,213
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(2,472
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)
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1,423
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Provision
for (benefit of) income taxes
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(84
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)
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293
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(99
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)
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176
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Income
(loss) from continuing operations
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(411
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)
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920
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(2,373
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)
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1,247
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Loss
from discontinued operations, net of tax
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—
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(83
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)
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—
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(293
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)
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Net
income (loss)
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$
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(411
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)
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$
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837
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$
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(2,373
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)
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$
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954
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Basic
income (loss) per share:
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Continuing
operations
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$
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(0.09
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)
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$
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0.20
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$
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(0.52
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)
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$
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0.27
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Discontinued
operations
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—
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(0.02
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)
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—
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(0.06
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)
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Net
income (loss)
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$
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(0.09
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)
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$
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0.18
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$
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(0.52
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)
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$
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0.21
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Diluted
income (loss) per share:
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Continuing
operations
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$
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(0.09
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)
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$
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0.20
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$
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(0.52
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)
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$
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0.27
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Discontinued
operations
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—
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(0.02
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)
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—
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(0.06
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)
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Net
income (loss)
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$
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(0.09
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)
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$
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0.18
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$
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(0.52
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)
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$
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0.21
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Weighted
average number of shares outstanding:
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Basic
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4,578
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4,571
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4,578
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4,563
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Diluted
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4,578
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4,632
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4,578
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4,627
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APPLIANCE RECYCLING CENTERS OF AMERICA, INC.
CONSOLIDATED BALANCE SHEETS
(In Thousands)
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July 4,
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January 3,
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2009
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2009
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(unaudited)
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Assets
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Current assets:
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Cash and cash equivalents
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$
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1,738
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$
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3,498
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Accounts receivable, net of allowance of $98 and
$292, respectively
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5,306
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6,056
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Inventories, net of reserves of $301 and $115,
respectively
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16,345
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18,834
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Other current assets
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598
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950
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Deferred income taxes
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448
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448
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Total current assets
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24,435
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29,786
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Property and equipment, net
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6,741
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6,967
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Deferred income taxes
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186
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177
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Other assets
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752
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485
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Total assets
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$
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32,114
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$
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37,415
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Liabilities and Shareholders’ Equity
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Current liabilities:
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Accounts payable
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$
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4,376
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$
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4,473
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Accrued expenses
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3,650
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4,073
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Line of credit
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12,361
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14,527
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Current maturities of long-term obligations
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616
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579
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Income taxes payable
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—
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362
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Total current liabilities
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21,003
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24,014
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Long-term obligations, less current maturities
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4,714
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4,892
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Deferred income tax liabilities
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524
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|
520
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Total liabilities
|
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26,241
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|
29,426
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Commitments and contingencies
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|
—
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—
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Shareholders’ equity:
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Common Stock, no par value; 10,000 shares
authorized; issued and outstanding: 4,578 shares
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16,504
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16,221
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Accumulated deficit
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(10,302
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)
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(7,929
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)
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Accumulated other comprehensive loss
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(329
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)
|
(303
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)
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Total shareholders’ equity
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5,873
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|
7,989
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Total liabilities and shareholders’ equity
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$
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32,114
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$
|
37,415
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