SOURCE: American Reprographics Company

November 05, 2009 16:12 ET

American Reprographics Company Reports Results for Third Quarter 2009

WALNUT CREEK, CA--(Marketwire - November 5, 2009) - American Reprographics Company (NYSE: ARP)

--  Adjusted EPS of $0.06 per share
--  Cash from Operating Activities of $19.6 million
    

American Reprographics Company (NYSE: ARP) (the "Company" or "ARC"), the nation's leading provider of reprographic services and technology, today reported its financial results for the third quarter ended September 30, 2009.

"The Company continues to perform very well despite the ongoing challenges in the end market," said K. "Suri" Suriyakumar, Chairman, President and CEO. "At $19.6 million, our quarterly cash flow from operations remained extraordinarily healthy, and at 19.5%, our EBITDA margin reiterates our ability to remain flexible and available to pursue growth opportunities. We were also gratified to see a stabilizing trend in daily sales continue through the end of the quarter. Knowing how well positioned ARC is in the current environment, we will continue to focus on the future by putting the building blocks in place for new opportunities and new revenue streams as the economy recovers."

Net revenue for the third quarter of 2009 was $119.4 million and gross margin was 34.5%. ARC reported a net loss of income for the third quarter of 2009 of $27.6 million, or a loss of $0.61 per diluted share, which included a goodwill impairment charge of $37.4 million based on its annual goodwill impairment assessment conducted as of September 30, 2009 (see description below). Adjusted to exclude the period's goodwill impairment, an impairment of long-lived assets, and a possible one-time charge associated with our amended credit agreement, net income for the third quarter of 2009 was $2.9 million, or $0.06 per diluted share.

Net revenue for the nine-month period ended September 30, 2009 was $389.9 million and gross margin was 36.5%. ARC reported a net loss for the first nine months of 2009 of $13.7 million, or a loss of $0.30 per diluted share. Adjusted to exclude the impairments and possible one-time charge for the third quarter, net income for the first nine months of 2009 was $16.8 million, or $0.37 per diluted share.

Jonathan Mather, Chief Financial Officer, said, "Our capital structure is showing continual improvement as we make aggressive use of our positive cash flow to reduce our debt. To date, including the pre-payment of $36 million we made as a part of amending our credit agreement in early October, we have addressed more than $90 million of our debt obligations."

Impairment of Goodwill, Long-Lived Assets and Certain One-Time Charges

The Company assesses goodwill for impairment at least annually as of September 30, or more frequently if events and circumstances indicate that goodwill might be impaired. Based on our annual assessment, we recorded a $37.4 million impairment as of September 30, 2009. ARC also recorded an impairment charge of approximately $781,000 against certain of its long-lived assets. In addition, there is a possible one-time charge of $700,000 to $1.3 million related to the Company's interest swap transaction incurred in connection with the Company's amended credit agreement which may be recorded in the financial statements for third quarter of 2009. The Company will not be required to make any current or future cash expenditures as a result of the impairments. The impairments and any one-time charge will be reflected in the Company's unaudited financial statements included in the Company's Form 10-Q for the third quarter of 2009 to be filed with the U.S. Securities and Exchange Commission.

Outlook

The Company reaffirmed its revised annual earnings per share and cash flow from operations forecast for 2009, excluding any one-time financing charge arising from the amendment to its credit agreement in October 2009, and the impairments recorded in the third quarter of 2009. EPS for the full year of 2009 is forecast to be in the range of $0.27 to $0.33 on a fully-diluted basis. Cash flow from operations for the same period is projected to be in the range of $70 million to $90 million.

Teleconference and Webcast

American Reprographics Company will host a conference call and audio webcast today at 2:00 P.M. Pacific Time (5:00 P.M. Eastern Time) to discuss results for the Company's third quarter 2009 and business outlook. The conference call can be accessed by dialing 866-921-3926. The conference ID number is 34405657.

A replay of this call will be available approximately one hour after the call for seven days following the call's conclusion. To access the replay, dial 800-642-1687. The conference ID number is 34405657.

A Web archive will be made available at http://www.e-arc.com for approximately 90 days following the call's conclusion.

About American Reprographics Company

American Reprographics Company is the leading reprographics company in the United States providing business-to-business document management technology and services to the architectural, engineering and construction, or AEC industries. The Company provides these services to companies in non-AEC industries, such as technology, financial services, retail, entertainment, and food and hospitality, which also require sophisticated document management services. American Reprographics Company provides its core services through its suite of reprographics technology products, a network of hundreds of locally-branded reprographics service centers across the U.S., Canada and the U.K, on-site at more than 5,000 customer locations, and through UDS, a joint-venture company headquartered in Beijing, China. The Company's service centers are arranged in a hub and satellite structure and are digitally connected as a cohesive network, allowing the provision of services both locally and nationally to more than 160,000 active customers.

Forward-Looking Statements

This press release contains forward-looking statements that are based on current opinions and estimates of management regarding future events and the future financial performance of the Company. Words such as "forecast," "outlook," "will," and similar expressions identify forward-looking statements. We caution you that such statements are only predictions and are subject to certain risks and uncertainties that could cause actual results to differ materially from those contained in the forward-looking statements. Factors that could cause our actual results to differ materially from those set forth in the forward-looking statements include, but are not limited to, the current economic recession and downturn in the architectural, engineering and construction industries specifically; our ability to streamline operations and costs; competition in our industry and innovation by our competitors; our failure to anticipate and adapt to future changes in our industry; our failure to pursue growth opportunities and/or to complete acquisitions, or our failure to manage our acquisitions, including our inability to integrate and merge the business operations of acquired companies or our failure to retain key personnel and customers of acquired companies; our dependence on certain key vendors for equipment, maintenance services and supplies; damage or disruption to our facilities, our technology centers, our vendors or a majority of our customers; and our failure to continue to develop and introduce new services successfully. The foregoing list of risks and uncertainties is illustrative but is by no means exhaustive. For more information on factors that may affect our future performance, please review our periodic filings with the U.S. Securities and Exchange Commission, and specifically the risk factors set forth in our most recent reports on Form 10-K and Form 10-Q. The Company undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by law.

American Reprographics Company
Consolidated Balance Sheets
(Dollars in thousands, except per share data)
(Unaudited)

                                              September 30,  December 31,
                                              -------------  -------------
                                                  2009           2008
                                              -------------  -------------
Assets
Current assets:
Cash and cash equivalents                     $      59,179  $      46,542
Accounts receivable, net                             63,749         77,216
Inventories, net                                     11,672         11,097
Deferred income taxes                                 5,827          5,831
Prepaid expenses and other current assets             9,624         11,976
                                              -------------  -------------
Total current assets                                150,051        152,662

Property and equipment, net                          78,169         89,712
Goodwill                                            330,665        366,513
Other intangible assets, net                         76,846         85,967
Deferred financing costs, net                         2,609          3,537
Deferred income taxes                                25,981         25,404
Other assets                                          2,200          2,136
                                              -------------  -------------
Total assets                                  $     666,521  $     725,931
                                              =============  =============

Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable                              $      23,159  $      25,171
Accrued payroll and payroll-related expenses         11,572         13,587
Accrued expenses                                     23,171         24,913
Current portion of long-term debt and capital
 leases                                              79,064         59,193
                                              -------------  -------------
Total current liabilities                           136,966        122,864

Long-term debt and capital leases                   238,521        301,847
Other long-term liabilities                          10,465         13,318
                                              -------------  -------------
Total liabilities                                   385,952        438,029
                                              -------------  -------------

Commitments and contingencies

Stockholders' equity:
American Reprographics Company stockholders'
 equity:
Preferred stock, $0.001 par value, 25,000,000
 shares authorized;
 zero and zero shares issued and outstanding             --             --
Common stock, $0.001 par value, 150,000,000
 shares authorized;
 45,760,397 and 45,674,810 shares issued and
 45,312,743 and 45,227,156 shares outstanding
 in 2009 and 2008, respectively                          46             46
Additional paid-in capital                           88,806         85,207
Deferred stock-based compensation                         -           (195)
Retained earnings                                   202,151        215,846
Accumulated other comprehensive loss                 (8,807)       (11,414)
                                              -------------  -------------
                                                    282,196        289,490
Less cost of common stock in treasury,
 447,654 shares in 2009 and 2008                      7,709          7,709
                                              -------------  -------------
Total American Reprographics Company
 stockholders' equity                               274,487        281,781
Noncontrolling interest                               6,082          6,121
                                              -------------  -------------
Total stockholders' equity                          280,569        287,902
                                              -------------  -------------
Total liabilities and stockholders' equity    $     666,521  $     725,931
                                              =============  =============






American Reprographics Company
Consolidated Statements of Income
(Dollars in thousands, except per share data)
(Unaudited)

                              Three Months Ended      Nine Months Ended
                                September 30,           September 30,
                            ----------------------  ----------------------
                               2009        2008        2009        2008
                            ----------  ----------  ----------  ----------

Reprographics services      $   81,989  $  127,455  $  274,663  $  409,162
Facilities management           23,395      30,977      75,158      91,737
Equipment and supplies
 sales                          13,966      16,153      40,066      46,070
                            ----------  ----------  ----------  ----------
Total net sales                119,350     174,585     389,887     546,969
Cost of sales                   78,219     104,570     247,622     318,263
                            ----------  ----------  ----------  ----------
Gross profit                    41,131      70,015     142,265     228,706
Selling, general and
 administrative expenses        27,330      38,800      88,335     117,820
Amortization of intangible
 assets                          2,777       2,987       8,674       8,988
Goodwill impairment             37,382           -      37,382           -
Impairment of long-lived
 assets                            781           -         781           -
                            ----------  ----------  ----------  ----------
(Loss) income from
 operations                    (27,139)     28,228       7,093     101,898
Other income, net                  (41)        (55)       (138)       (300)
Interest expense, net            5,468       6,180      17,100      19,885
                            ----------  ----------  ----------  ----------
Income before income tax
 (benefit) provision           (32,566)     22,103      (9,869)     82,313
Income tax (benefit)
 provision                      (4,989)      7,041       3,865      29,877
                            ----------  ----------  ----------  ----------
Net (loss) income              (27,577)     15,062     (13,734)     52,436
Loss attributable to the
 noncontrolling interest            28           5          39           5
                            ----------  ----------  ----------  ----------
Net (loss) income
 attributable to American
 Reprographics Company      $  (27,549) $   15,067  $  (13,695) $   52,441
                            ==========  ==========  ==========  ==========

Earnings per share
 attributable to American
 Reprographics
  Company shareholders:
 Basic                      $    (0.61) $     0.33  $    (0.30) $     1.16
                            ==========  ==========  ==========  ==========
 Diluted                    $    (0.61) $     0.33  $    (0.30) $     1.15
                            ==========  ==========  ==========  ==========

Weighted average common
 shares outstanding:
   Basic                    45,138,446  45,066,654  45,115,059  45,054,425
   Diluted                  45,138,446  45,413,747  45,115,059  45,413,948





American Reprographics Company
Non-GAAP Measures
Reconciliation of cash flows provided by operating activities to EBIT and
 EBITDA
(Dollars in thousands, except per share data)
(Unaudited)

                                 Three Months Ended     Nine Months Ended
                                    September 30,         September 30,
                                --------------------  --------------------
                                  2009       2008       2009       2008
                                ---------  ---------  ---------  ---------


Cash flows provided by
 operating activities           $  19,566  $  33,778  $  75,364  $  95,263
   Changes in operating assets
    and liabilities                 1,306      1,086     (8,249)     7,905
   Non-cash (expenses) income,
    including depreciation and
    amortization                  (48,449)   (19,802)   (80,849)   (50,732)
   Income tax (benefit) provision  (4,989)     7,041      3,865     29,877
   Interest expense                 5,468      6,180     17,100     19,885
   Net loss attributable to the
    noncontrolling interest            28          5         39          5

                                ---------  ---------  ---------  ---------
EBIT                              (27,070)    28,288      7,270    102,203
   Depreciation and
    amortization                   12,185     12,848     37,651     37,181
                                ---------  ---------  ---------  ---------

EBITDA                          $ (14,885) $  41,136  $  44,921  $ 139,384
                                =========  =========  =========  =========








American Reprographics Company
Non-GAAP Measures
Reconciliation of net (loss) income attributable to ARC to unaudited
 adjusted net income attributable to ARC and earnings per share to adjusted
 earnings per share:
(Dollars in thousands, except per share data)
(Unaudited)


                              Three Months Ended      Nine Months Ended
                                September 30,           September 30,
                            ----------------------  ----------------------
                               2009        2008        2009        2008
                            ----------  ----------- ----------  -----------
                              (Dollars in thousands, except share and per
                                              share data)

Net (loss) income
 attributable to ARC        $  (27,549) $    15,067 $  (13,695) $    52,441
   Goodwill impairment          37,382            -     37,382            -
   Impairment of long-lived
    assets                         781            -        781            -
   Income tax benefit           (7,696)           -     (7,696)           -
Unaudited adjusted net
 income
                            ----------  ----------- ----------  -----------
 attributable to ARC        $    2,918  $    15,067 $   16,772  $    52,441
                            ==========  =========== ==========  ===========

Earnings per share
 attributable to ARC
 shareholders (actual):
   Basic                    $    (0.61) $      0.33 $    (0.30) $      1.16
                            ==========  =========== ==========  ===========
   Diluted                  $    (0.61) $      0.33 $    (0.30) $      1.15
                            ==========  =========== ==========  ===========

Earnings per share
 attributable to ARC
 shareholders (adjusted):
   Basic                    $     0.06  $      0.33 $     0.37  $      1.16
                            ==========  =========== ==========  ===========
   Diluted                  $     0.06  $      0.33 $     0.37  $      1.15
                            ==========  =========== ==========  ===========

Weighted average common
 shares
 outstanding:
   Basic                    45,138,446   45,066,654 45,115,059   45,054,425
   Diluted                  45,138,446   45,413,747 45,115,059   45,413,948





American Reprographics Company
Non-GAAP Measures
Reconciliation of net (loss) income attributable to ARC to EBIT, EBITDA and
adjusted EBITDA
(Dollars in thousands)
(Unaudited)


                                 Three Months Ended     Nine Months Ended
                                    September 30,         September 30,
                                --------------------  --------------------
                                  2009       2008       2009       2008
                                ---------  ---------- ---------  ----------
                                          (Dollars in thousands)

Net (loss) income attributable
 to ARC                         $ (27,549) $   15,067 $ (13,695) $   52,441
 Interest expense, net              5,468       6,180    17,100      19,885
 Income tax (benefit) provision    (4,989)      7,041     3,865      29,877
                                ---------  ---------- ---------  ----------
EBIT                              (27,070)     28,288     7,270     102,203
 Depreciation and amortization     12,185      12,848    37,651      37,181
                                ---------  ---------- ---------  ----------
EBITDA                            (14,885)     41,136    44,921     139,384
                                ---------  ---------- ---------  ----------
Special items:
 Goodwill impairment               37,382           -    37,382           -
 Impairment of long-lived
  assets                              781           -       781           -
                                ---------  ---------- ---------  ----------
Adjusted EBITDA                 $  23,278  $   41,136 $  83,084  $  139,384
                                =========  ========== =========  ==========



Non-GAAP Measures

EBIT, EBITDA and related ratios presented in this report are supplemental measures of our performance that are not required by or presented in accordance with accounting principles generally accepted in the United States of America ("GAAP"). These measures are not measurements of our financial performance under GAAP and should not be considered as alternatives to net income, income from operations, or any other performance measures derived in accordance with GAAP or as an alternative to cash flows from operating, investing or financing activities as a measure of our liquidity.

EBIT represents net income before interest and taxes. EBITDA represents net income before interest, taxes, depreciation and amortization. Amortization does not include $1.4 million and $1.1 million of stock based compensation expense, for the three months ended September 30, 2009 and 2008, respectively, and $3.6 million and $3.1 million of stock based compensation expense, for the nine months ended September 30, 2009 and 2008, respectively. EBIT margin is a non-GAAP measure calculated by dividing EBIT by net sales. EBITDA margin is a non-GAAP measure calculated by dividing EBITDA by net sales.

We present EBIT, EBITDA and related ratios because we consider them important supplemental measures of our performance and liquidity. We believe investors may also find these measures meaningful, given how our management makes use of them. The following is a discussion of our use of these measures.

We use EBIT and EBITDA to measure and compare the performance of our operating segments. Our operating segments' financial performance includes all of the operating activities except for debt and taxation which are managed at the corporate level for U.S. operating segments. As a result, EBIT is the best measure of divisional profitability and the most useful metric by which to measure and compare the performance of our operating segments. We also use EBIT to measure performance for determining operating segment-level compensation and use EBITDA to measure performance for determining consolidated-level compensation. We also use EBIT and EBITDA to evaluate potential acquisitions and to evaluate whether to incur capital expenditures.

EBIT, EBITDA and related ratios have limitations as analytical tools, and you should not consider them in isolation, or as a substitute for analysis of our results as reported under GAAP. Some of these limitations are as follows:

- They do not reflect our cash expenditures, or future requirements for capital expenditures and contractual commitments;

- They do not reflect changes in, or cash requirements for, our working capital needs;

- They do not reflect the significant interest expense, or the cash requirements necessary, to service interest or principal payments on our debt;

- Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and EBITDA does not reflect any cash requirements for such replacements; and

- Other companies, including companies in our industry, may calculate these measures differently than we do, limiting their usefulness as comparative measures.

Because of these limitations, EBIT, EBITDA, and related ratios should not be considered as measures of discretionary cash available to us to invest in business growth or to reduce our indebtedness. We compensate for these limitations by relying primarily on our GAAP results and using EBIT, EBITDA and related ratios only as supplements. For more information, see our interim Condensed Consolidated Financial Statements and related notes on our 2009 third quarter report on Form 10-Q. Additionally, please refer to our 2008 Annual Report on Form 10-K.

We have presented adjusted net income attributable to ARC and adjusted earnings per share attributable to ARC shareholders for the three and nine months ended September 30, 2009 and 2008 to reflect the exclusion of the goodwill and long-lived assets impairment charges. This presentation facilitates a meaningful comparison of our operating results for the three and nine months ended September 30, 2009 and 2008. We presented adjusted EBITDA in the three and nine months ended September 30, 2009 to exclude the non-cash goodwill and long-lived assets impairment total charges of $38.2 million as we believe this was a result of the current macroeconomic environment and not indicative of our operations. The exclusion of the goodwill and long-lived assets impairment charges to arrive at adjusted EBITDA is consistent with the definition of adjusted EBITDA in the amendment to the Credit Agreement, therefore we believe this information is useful to investors in assessing our ability to meet our debt covenants.


American Reprographics Company
Consolidated Statements of Cash Flows
(Dollars in thousands)
(Unaudited)

                                 Three Months Ended     Nine Months Ended
                                    September 30,         September 30,
                                --------------------  --------------------
                                  2009       2008       2009       2008
                                ---------  ---------  ---------  ---------
Cash flows from operating
 activities
Net (loss) income               $ (27,577) $  15,062  $ (13,734) $  52,436
Adjustments to reconcile net
 income to net cash provided by
 operating activities:
   Allowance for accounts
    receivable                        299      1,255      2,842      3,164
   Depreciation                     9,408      9,861     28,977     28,193
   Amortization of intangible
    assets                          2,777      2,987      8,674      8,988
   Amortization of deferred
    financing costs                   317        336        972        936
   Goodwill impairment             37,382          -     37,382          -
   Impairment of long-lived
    assets                            781          -        781          -
   Stock-based compensation         1,403      1,114      3,564      3,143
   Excess tax benefit related
    to stock options exercised        (13)       (48)       (18)      (102)
   Deferred income taxes           (3,942)     4,259     (2,271)     6,498
   Write-off of deferred
    financing costs                     -          -          -        313
   Litigation charge (gain)             -          -          -          -
   Other noncash items, net            37         38        (54)      (401)
   Changes in operating assets
    and liabilities, net of
    effect of business
    acquisitions:
      Accounts receivable           5,503      6,988     11,237      1,900
      Inventory                      (563)       525        355      1,251
      Prepaid expenses and other
       assets                      (1,918)    (3,808)     3,236     (4,795)
      Litigation settlement
       payment                          -          -          -          -
      Accounts payable and
       accrued expenses            (4,328)    (4,791)    (6,579)    (6,261)
                                ---------  ---------  ---------  ---------
Net cash provided by operating
 activities                        19,566     33,778     75,364     95,263
                                ---------  ---------  ---------  ---------
Cash flows from investing
 activities
Capital expenditures               (1,928)    (2,027)    (5,852)    (6,359)
Payments for businesses
 acquired, net of cash acquired
 and including other cash
  payments associated with
 the acquisitions                  (1,102)   (12,738)    (2,023)   (18,216)
Restricted cash                         -     11,590          -     (1,022)
Other                                 274        161        716        946
                                ---------  ---------  ---------  ---------
Net cash used in investing
 activities                        (2,756)    (3,014)    (7,159)   (24,651)
                                ---------  ---------  ---------  ---------
Cash flows from financing
 activities
Proceeds from stock option
 exercises                             46        107         63        177
Proceeds from issuance of
 common stock under Employee
 Stock Purchase Plan                   70          2        116         27
Treasury stock repurchase               -          -          -          -
Excess tax benefit related to
 stock options exercised               13         48         18        102
Proceeds from borrowings under
 debt agreements                        -          -          -          -
Payments on long-term debt
 agreements and capital leases    (14,632)   (13,253)   (55,838)   (38,507)
Net repayments under revolving
 credit facility                        -          -          -    (22,000)
Payment of loan fees                    -          -        (44)      (726)
                                ---------  ---------  ---------  ---------
Net cash used in financing
 activities                       (14,503)   (13,096)   (55,685)   (60,927)
                                ---------  ---------  ---------  ---------
Effect of foreign currency
 translation on cash balances         (14)       179        117        142
                                ---------  ---------  ---------  ---------
Net change in cash and cash
 equivalents                        2,293     17,847     12,637      9,827
Cash and cash equivalents at
 beginning of period               56,886     16,782     46,542     24,802
                                ---------  ---------  ---------  ---------
Cash and cash equivalents at
 end of period                  $  59,179  $  34,629  $  59,179  $  34,629
                                =========  =========  =========  =========

 Supplemental disclosure of
  cash flow information
Noncash investing and financing
 activities
Noncash transactions include
 the following:
 Capital lease obligations
  incurred                      $   2,411  $   8,258  $  12,134  $  26,611
 Issuance of subordinated notes
  in connection with the
   acquisition of businesses    $       -  $   5,836  $     246  $   7,653
 Accrued liabilities in
  connection with acquisition
  of businesses                 $    (500) $       -  $       -  $       -
 Stock issued for acquisition   $       -  $       -  $       -  $       -
 Accrued liabilities in
  connection with deferred
  financing fees                $       -  $       -  $       -  $       -
 Change in fair value of
  derivative, net of tax
  effects                       $    (312) $    (777) $   1,875  $    (780)
 Contribution from
  noncontrolling interest       $       -  $   6,062  $       -  $   6,062


Contact Information

  • Contacts:
    David Stickney
    American Reprographics Company
    Phone: 925-949-5100

    Joseph Villalta
    The Ruth Group
    Phone: 646-536-7003