MINNEAPOLIS, Nov. 6 /PRNewswire-FirstCall/ -- Appliance Recycling Centers of America, Inc. today reported sales of $20,783,000 for the third quarter of 2006 ended September 30, virtually unchanged from $20,706,000 in the year-earlier period. Earnings for this period were $21,000 or $0.00 per diluted share, compared to $47,000 or $0.01 per diluted share in the third quarter of 2005. Third quarter earnings included stock compensation expense of approximately $55,000.
Same-store sales of the 12 ApplianceSmart factory outlets that were open during the complete third quarters of 2006 and 2005 declined 4%, while total retail sales rose 2% to $16,839,000 from the year-earlier level. Third quarter recycling revenues of $3,407,000 were down from $3,757,000 in the comparable period of 2005.
Edward R. (Jack) Cameron, president and chief executive officer, commented: "The performance of our ApplianceSmart retail operation has been affected over the past few quarters by the significant slowdown in the national housing market. Given this difficult economic environment, we are encouraged that our retail sales have remained relatively constant during this period, with purchases by value-conscious customers who are replacing old or broken appliances largely offsetting the decline in the portion of our business related to new home construction and remodeling. Convinced of the fundamental, long-term soundness of ApplianceSmart's value proposition, we have continued expanding our network of stores. We opened our fourteenth factory outlet in August in the Atlanta suburb of Stockbridge, and later in the fourth quarter, we plan to open our fifteenth store in Lithia Springs, also in the Atlanta market. These new stores are strategically important, since Atlanta was our strongest performing retail market in the third quarter, with same-store sales up a strong 16%. The start-up expenses associated with these new stores affected ARCA's third quarter profitability."
Cameron continued: "ARCA's recycling program for Southern California Edison Company performed at planned levels during the third quarter, but overall recycling revenues were affected by the winding down of a program with a Connecticut utility. Given the economic impact of high fuel costs on American consumers, we believe the outlook is very favorable for the type of utility-sponsored residential energy conservation programs that ARCA has been handling for nearly 20 years."
As previously reported, the U.S. District Court for the Central District of California recently denied the motion for summary judgment filed by JACO Environmental, Inc., in which JACO asked the Court to dismiss ARCA's lawsuit that charges JACO with engaging in unfair business practices in violation of federal and California laws by committing fraud on the U.S. Patent Office in order to obtain a patent for a refrigerator recycling method that was previously developed by ARCA. As a result of the Court's action, ARCA's litigation against JACO will proceed. ARCA is seeking permanent injunctive relief barring JACO and its officers from engaging in unlawful business practices by informing customers that it invented refrigerator recycling. ARCA is also seeking monetary damages for JACO's unfair business practices.
Immediately following the denial of JACO's motion for summary judgment, JACO and SEG Umwelt-Service/Basis of Mettlach, Germany (SEG) filed a patent infringement lawsuit in Federal Court on October 24 against ARCA. The suit claims that ARCA has been using refrigerator recycling systems and processes invented by SEG and protected by two U.S. patents issued to SEG and exclusively licensed to JACO.
In commenting on the JACO lawsuit, Cameron said: "We believe JACO's recent patent infringement lawsuit is retaliatory in nature, given the Court's denial of JACO's request to have our litigation dismissed. We intend to vigorously defend ARCA against this baseless suit."
About ARCA
ARCA is one of the nation's largest recyclers of major household appliances for the energy conservation programs of electric utilities. Through its ApplianceSmart operation, 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 virtually new appliances at a discount to full retail, offers a 100% money-back guarantee and provides warranties on parts and labor. As of November 2006, ApplianceSmart was operating 14 factory outlets: five in the Minneapolis/St. Paul market; three in the Columbus, Ohio, market; three in the Atlanta market; two in San Antonio, Texas and one in Los Angeles.
Statements about ARCA's outlook are forward-looking and involve risks and uncertainties, including but not limited to: the strength of recycling programs, the growth of appliance retail sales, the speed at which individual retail stores reach profitability, and other factors discussed in the Company's filings with the Securities and Exchange Commission.
Visit our web sites at http://www.arcainc.com/ and http://www.appliancesmart.com/ .
Appliance Recycling Centers of America, Inc. and Subsidiaries
CONSOLIDATED STATEMENT OF OPERATIONS
3rd Quarter 2006 Results
(000's omitted except for share amounts)
Three months ended Nine months ended
September 30 October 1 September 30 October 1
2006 2005 2006 2005
Revenues
Retail $16,839 $16,513 $48,786 $47,709
Recycling 3,407 3,757 7,685 7,973
Byproduct 537 436 1,389 1,075
Total revenues 20,783 20,706 57,860 56,757
Cost of Revenues 14,068 14,873 40,243 39,667
Gross profit 6,715 5,833 17,617 17,090
Selling, General &
Administrative
Expenses 6,413 5,517 17,969 16,389
Operating income
(loss) 302 316 (352) 701
Other Income (Expense)
Other income 2 2 7 1
Interest expense (283) (259) (773) (672)
Minority interest - (12) - (12)
Net income (loss) $21 $47 $(1,118) $18
Basic Earnings (Loss)
per Common Share $0.00 $0.01 $(0.26) $ 0.00
Diluted Earnings (Loss)
per Common Share $0.00 $0.01 $(0.26) $0.00
Basic Weighted Average
No. of Common Shares
Outstanding 4,341 4,269 4,332 4,242
Diluted Weighted Average
No. of Common Shares
Outstanding 4,388 4,388 4,332 4,353
Appliance Recycling Centers of America, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEET
As of September 30, 2006
(000's)
September 30, December 31,
2006 2005
(Unaudited)
Assets
Current Assets
Cash and cash equivalents $3,214 $2,095
Receivables - net of allowance of $152,000 3,774 2,896
Inventories, net of reserves of $246,000 and
$379,000 respectively 13,313 11,900
Deferred income taxes 393 393
Other current assets 721 449
Total Current Assets 21,415 17,733
Property and Equipment, at cost
Land 1,140 2,050
Building and Improvements 2,307 4,501
Equipment 6,673 6,299
10,120 12,850
Less accumulated depreciation 6,554 6,798
Net property and equipment 3,566 6,052
Asset held for sale, net 2,437 -
Other assets 468 356
Restricted cash - 350
Total Assets $27,886 $24,491
Liabilities and Shareholders' Equity
Current Liabilities
Line of credit $6,583 $6,125
Current maturities of long term obligations 309 262
Accounts payable 7,113 3,868
Accrued expenses 3,536 3,541
Income taxes payable 58 58
Total Current Liabilities 17,599 13,854
Long-Term Obligations, less current maturities 4,745 4,823
Deposit 730 -
Deferred Income Tax Liabilities 393 393
Total Liabilities 23,467 19,070
Shareholders' Equity
Common stock, no par value; authorized
10,000,000 shares; issued and outstanding
4,339,000 and 4,320,000 shares respectively 14,956 14,840
Accumulated Deficit (10,537) (9,419)
Total Shareholders' Equity 4,419 5,421
Total Liabilities and Shareholders' Equity $27,886 $24,491
