SOURCE: American Reprographics Company

February 23, 2009 16:01 ET

American Reprographics Company Reports Results for Fiscal Year 2008

WALNUT CREEK, CA--(Marketwire - February 23, 2009) - American Reprographics Company (NYSE: ARP):

--  Annual Revenue: $701 million
--  Annual EPS Fully Diluted: $1.30*
--  Fourth Quarter Revenue: $154 million
--  Fourth Quarter EPS Fully Diluted: $0.14*
    

American Reprographics Company (NYSE: ARP) (the "Company"), the nation's leading provider of reprographic services and technology, today reported its financial results for the full year and fourth quarter ended December 31, 2008.

"The Company continues to perform well in light of the continuing economic deterioration," said K. "Suri" Suriyakumar, Chairman, President and CEO. "Strong financial discipline combined with a healthy cash flow allows us to operate successfully during difficult economic circumstances like these. We finished the year with more than $127 million in cash flow from operations, a significant increase over our original internal target of $100 million."

Mr. Suriyakumar continued, "Looking ahead, challenges remain given the state of the economy and the effects of a frail credit market on our customers. We continue to focus, however, on right sizing the Company for the current business environment, keeping the balance sheet healthy with strong cash flow generation, and driving sales hard to acquire greater market share. Being the dominant player in a fragmented industry certainly has its advantages during times like these. While we've trimmed our labor force by approximately 20% in 2008, our decentralized operating model allows us to downsize our production facilities without compromising service to our customers."

Jonathan Mather, Chief Financial Officer, said, "The 25% increase in our cash flow from operations year over year is clear evidence of our ability to operate successfully in a down market. In a market where credit is so severely depressed, generating cash at this level gives us tremendous confidence in our ability to weather the current economic storm. During the last quarter of 2008 and in the early part of 2009, we've also aggressively reduced our production expenses and decreased SG&A. These changes and others have been accomplished quickly and we are already seeing them bear fruit."

Revenue for the full year ended December 31, 2008 was $701 million, compared to $688.4 million for the full year ended December 31, 2007, a 1.8% increase year-over-year. The Company's gross margin for the full year ended December 31, 2008 was 40.7%, compared to 41.7% for the full year ended December 31, 2007. Net income for 2008 was $59 million, or $1.30 per diluted share. Net income for 2007 was $69.1 million, or $1.51 per diluted share. Adjusted to exclude the previously disclosed settlement of the Louis Frey litigation and the after-tax charge for early extinguishment of debt related to the Company's refinancing activities in December 2007, net income for 2007 was $67.9 million, or $1.48 per diluted share. Net cash provided by operating activities in 2008 was $127.2 million, compared to $101.4 million in 2007.

Net revenue for the fourth quarter of 2008 was $154 million, compared to $174.1 million for the fourth quarter of 2007, a decrease of 11.6%. The Company's gross margin for the fourth quarter of 2008 was 36.7%, compared to 41.2% for the same period in 2007. Net income for the fourth quarter of 2008 was $6.5 million, or $0.14 per diluted share, compared to net income for the fourth quarter of 2007 of $16.7 million, or $0.37 per diluted share. Adjusted to exclude the settlement of the Louis Frey litigation and the after-tax charge for early extinguishment of debt, both as noted above, net income for the fourth quarter of 2007 was $15.1 million, or $0.33 per diluted share.

Goodwill Impairment

The financial results for the fourth quarter and full year ended December 31, 2008 do not include a non-cash goodwill impairment charge that the Company has determined it will incur for the fourth quarter of fiscal year 2008. The Company currently estimates the impairment charge to be within a range of $27.6 million to $40.5 million. Due to the precipitous decline in the market, this non-cash impairment charge results from an interim test for impairment under Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets," prompted by a significant decline in the Company's market capitalization during the fourth quarter of fiscal year 2008. The impairment charge will be reflected in the Company's financial statements as of and for the fourth quarter and fiscal year ended December 31, 2008.

Outlook

"Given the current uncertainty of the construction market, attempting to forecast an annual revenue range with any accuracy is likely to be a futile effort," said Mr. Suriyakumar. "Rather than foregoing the exercise entirely as many other companies have done, we have decided to offer an annual EPS forecast of $0.50 to $0.75 on a fully diluted basis, and to project cash flow from operations in the range of $70 million to $90 million."

*Excludes effects of the expected non-cash goodwill impairment charge as noted above.

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 fourth quarter and full year 2008 and business outlook. The conference call can be accessed by dialing 201-689-8562.

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 201-612-7415. The account number to access the phone replay is 3055 and the conference ID number is 310418.

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 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., and thousands of on-site installations at their customers' locations. 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 downturn in the economy generally and in the architectural, engineering and construction industries specifically; competition in our industry and innovation by our competitors; our failure to anticipate and adapt to future changes in our industry; our failure to complete acquisitions, or failure to manage our acquisitions, including our inability to integrate and merge the business operations of the acquired companies or 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)

                                                      December   December
                                                         31,        31,
                                                      ---------  ---------
                                                        2008       2007
                                                      ---------  ---------
Assets
Current assets:
Cash and cash equivalents                             $  46,542  $  24,802
Restricted cash                                               -        937
Accounts receivable, net                                 77,216     97,934
Inventories, net                                         11,097     11,233
Deferred income taxes                                     5,565      5,791
Prepaid expenses and other current assets                12,817     10,234
                                                      ---------  ---------
Total current assets                                    153,237    150,931

Property and equipment, net                              89,712     84,634
Goodwill                                                401,667    382,519
Other intangible assets, net                             85,967     86,349
Deferred financing costs, net                             3,537      5,170
Deferred income taxes                                    11,875     10,710
Other assets                                              2,136      2,298
                                                      ---------  ---------
Total assets                                          $ 748,131  $ 722,611
                                                      =========  =========

Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable                                      $  25,171  $  35,659
Accrued payroll and payroll-related expenses             13,587     19,293
Accrued expenses                                         24,916     22,030
Current portion of long-term debt and capital leases     59,193     69,254
                                                      ---------  ---------
Total current liabilities                               122,867    146,236

Long-term debt and capital leases                       301,847    321,013
Other long-term liabilities                              13,318      3,711
Minority interest                                         6,121          -
                                                      ---------  ---------

Total liabilities                                       444,153    470,960
                                                      ---------  ---------

Commitments and contingencies

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; 45,674,810 and 45,561,773 shares
 issued and outstanding                                      46         46
Additional paid-in capital                               85,278     81,153
Deferred stock-based compensation                          (195)      (673)
Retained earnings                                       238,068    179,092
Accumulated other comprehensive income                  (11,510)      (258)
                                                      ---------  ---------
                                                        311,687    259,360
Less cost of common stock in treasury, 447,654 shares
 in 2008 and 2007                                         7,709      7,709
                                                      ---------  ---------
Total stockholders' equity                              303,978    251,651
                                                      ---------  ---------
Total liabilities and stockholders' equity            $ 748,131  $ 722,611
                                                      =========  =========




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

                              Three Months Ended      Twelve Months Ended
                                 December 31,            December 31,
                            ----------------------  ----------------------
                               2008        2007        2008        2007
                            ----------  ----------  ----------  ----------

Reprographics services      $  108,900  $  128,940  $  518,062  $  513,630
Facilities management           29,246      29,267     120,983     113,848
Equipment and supplies
 sales                          15,872      15,939      61,942      60,876
                            ----------  ----------  ----------  ----------
Total net sales                154,018     174,146     700,987     688,354
Cost of sales                   97,452     102,368     415,715     401,317
                            ----------  ----------  ----------  ----------
Gross profit                    56,566      71,778     285,272     287,037
Selling, general and
 administrative expenses        36,907      37,902     154,728     143,811
Litigation reserve (gain)            -      (2,897)          -      (2,897)
Amortization of intangible
 assets                          3,017       2,463      12,004       9,083
                            ----------  ----------  ----------  ----------
Income from operations          16,642      34,310     118,540     137,040
Other income, net                 (218)          -        (517)          -
Interest expense, net            6,004       5,699      25,890      24,373
Loss on early
 extinguishment of debt              -       1,327           -       1,327
                            ----------  ----------  ----------  ----------
Income before minority
 interest and income tax
 provision                      10,856      27,284      93,167     111,340
Minority interest                   64           -          59           -
Income tax provision             4,257      10,547      34,132      42,203
                            ----------  ----------  ----------  ----------
Net income                  $    6,535  $   16,737  $   58,976  $   69,137
                            ==========  ==========  ==========  ==========

Earnings per share:
  Basic                     $     0.14  $     0.37  $     1.31  $     1.52
                            ==========  ==========  ==========  ==========
  Diluted                   $     0.14  $     0.37  $     1.30  $     1.51
                            ==========  ==========  ==========  ==========

Weighted average common
 shares outstanding:
  Basic                     45,078,554  45,397,441  45,060,482  45,421,498
  Diluted                   45,353,789  45,715,483  45,398,086  45,829,010




American Reprographics Company
Non-GAAP Measures
Reconciliation of Net Income to EBIT and EBITDA
(Dollars in thousands, except per share data)
(Unaudited)

                                 Three Months Ended   Twelve Months Ended
                                    December 31,          December 31,
                                --------------------  --------------------
                                  2008       2007       2008       2007
                                ---------  ---------  ---------  ---------


Net income                      $   6,535  $  16,737  $  58,976  $  69,137
  Interest expense, net             6,004      5,699     25,890     24,373
  Loss on early extinguishment
   of debt                              -      1,327          -      1,327
  Income tax provision              4,257     10,547     34,132     42,203

                                ---------  ---------  ---------  ---------
EBIT                               16,796     34,310    118,998    137,040
  Depreciation and amortization    12,939     10,557     50,121     39,445
                                ---------  ---------  ---------  ---------

EBITDA                          $  29,735  $  44,867  $ 169,119  $ 176,485
                                =========  =========  =========  =========


                                 Three Months Ended   Twelve Months Ended
                                    December 31,          December 31,
                                --------------------  --------------------
                                  2008       2007       2008       2007
                                ---------  ---------  ---------  ---------

Cash flows provided by
 operating activities           $  31,931  $  30,266  $ 127,194  $ 101,386
  Changes in operating assets
   and liabilities                (12,070)      (959)    (4,165)    13,856
  Non-cash (expenses) income,
   including depreciation
   and amortization               (13,326)   (12,570)   (64,053)   (46,105)
  Income tax provision              4,257     10,547     34,132     42,203
  Interest expense                  6,004      5,699     25,890     24,373
  Loss on early extinguishment
   of debt                              -      1,327          -      1,327

                                ---------  ---------  ---------  ---------
EBIT                               16,796     34,310    118,998    137,040
  Depreciation and amortization    12,939     10,557     50,121     39,445
                                ---------  ---------  ---------  ---------

EBITDA                          $  29,735  $  44,867  $ 169,119  $ 176,485
                                =========  =========  =========  =========





American Reprographics Company
Non-GAAP Measures
Reconciliation of Net Income to Adjusted Net Income
(Dollars in thousands, except per share data)
(Unaudited)

                              Three Months Ended      Twelve Months Ended
                                 December 31,            December 31,
                            ----------------------- -----------------------
                               2008        2007        2008        2007
                            ----------- ----------  ----------- ----------


Net income                  $     6,535 $   16,737  $    58,976 $   69,137
  Litigation reserve                  -     (2,898)           -     (2,898)
  Interest expense due to
   litigation reserve                 -     (1,029)           -       (417)
  One time loss on early
   extinguishment of debt             -      1,327            -      1,327
  Income tax impact                   -        988            -        755

                            ----------- ----------  ----------- ----------
Unaudited adjusted net
 income                     $     6,535 $   15,125  $    58,976 $   67,904
                            =========== ==========  =========== ==========

Earning Per Share (Actual):
  Basic                     $      0.14 $     0.37  $      1.31 $     1.52
                            =========== ==========  =========== ==========
  Diluted                   $      0.14 $     0.37  $      1.30 $     1.51
                            =========== ==========  =========== ==========

Earning Per Share
 (Adjusted):
  Basic                     $      0.14 $     0.33  $      1.31 $     1.49
                            =========== ==========  =========== ==========
  Diluted                   $      0.14 $     0.33  $      1.30 $     1.48
                            =========== ==========  =========== ==========

Weighted average common
 shares outstanding:
  Basic                      45,078,554 45,397,441   45,060,482 45,421,498
  Diluted                    45,353,789 45,715,483   45,398,086 45,829,010

Non-GAAP Measures

EBIT and EBITDA and related ratios presented in this report are supplemental measures of our performance that are not required by or presented in accordance with 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 flow 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 $1.1 million and $0.9 million of stock based compensation expense, for the three months ended December 31, 2008 and 2007, respectively and $4.3 million and $3.5 million of stock based compensation expense, for the twelve months ended December 31, 2008 and 2007, 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 and 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 division-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 and EBITDA only as supplements. For more information, see our consolidated financial statements and related notes elsewhere in this report.

We have presented adjusted net income and adjusted earnings per share for the three and twelve months ended December 31, 2007 to reflect the exclusion of the one-time litigation charge and corresponding gain on settlement related to the Louis Frey bankruptcy litigation and the loss on the early extinguishment of debt. This presentation facilitates a meaningful comparison of our operating results for the three and twelve months ended December 31, 2008 and 2007.

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

                                                          Twelve Months
                                                              Ended
                                                           December 31,
                                                        ------------------
                                                          2008      2007
                                                        --------  --------
Cash flows from operating activities
Net income                                              $ 58,976  $ 69,137
Adjustments to reconcile net income to net cash
 provided by operating activities:
   Allowance for accounts receivable                       4,966     1,315
   Depreciation                                           38,117    30,362
   Amortization of intangible assets                      12,004     9,083
   Amortization of deferred financing costs                1,267       515
   Minority interest                                          59         -
   Stock-based compensation                                4,289     3,469
   Excess tax benefit related to stock options
    exercised                                               (102)   (1,563)
   Deferred income taxes                                   3,424     5,318
   Write-off of deferred financing costs                     313     1,327
   Litigation charge (gain)                                    -    (3,315)
   Other noncash items, net                                 (284)     (406)
   Changes in operating assets and liabilities, net of
    effect of business acquisitions:
     Accounts receivable                                  21,556      (446)
     Inventory                                             3,134       694
     Prepaid expenses and other assets                    (1,838)       44
     Litigation settlement payment                             -   (10,500)
     Accounts payable and accrued expenses               (18,687)   (3,648)
                                                        --------  --------
Net cash provided by operating activities                127,194   101,386
                                                        --------  --------
Cash flows from investing activities
Capital expenditures                                      (9,033)   (8,303)
Payments for businesses acquired, net of cash acquired
 and including other cash payments associated with
 the acquisitions                                        (23,916) (132,739)
Restricted cash                                              937     7,911
Other                                                      1,205       443
                                                        --------  --------
Net cash used in investing activities                    (30,807) (132,688)
                                                        --------  --------
Cash flows from financing activities
Proceeds from stock option exercises                         177     1,108
Proceeds from issuance of common stock under Employee
 Stock Purchase Plan                                          35       100
Treasury stock repurchase                                      -    (7,709)
Excess tax benefit related to stock options exercised        102     1,563
Proceeds from borrowings under debt agreements                 -   325,000
Payments on long-term debt agreements and capital
 leases                                                  (51,850) (292,685)
Net (repayments) borrowings under revolving credit
 facility                                                (22,000)   22,000
Payment of loan fees                                        (726)   (5,024)
                                                        --------  --------
Net cash (used in) provided by financing activities      (74,262)   44,353
                                                        --------  --------
Effect of foreign currency translation on cash balances     (385)      109
                                                        --------  --------
Net change in cash and cash equivalents                   21,740    13,160
Cash and cash equivalents at beginning of period          24,802    11,642
                                                        --------  --------
Cash and cash equivalents at end of period              $ 46,542  $ 24,802
                                                        ========  ========

 Supplemental disclosure of cash flow information
Noncash investing and financing activities
Noncash transactions include the following:
 Capital lease obligations incurred                     $ 34,561  $ 35,263
 Issuance of subordinated notes in connection with the
  acquisition of businesses                             $ 10,411  $ 23,758
 Accrued liabilities in connection with acquisition of
  businesses                                            $    100  $    570
 Accrued liabilities in connection with deferred
  financing fees                                        $      -  $    663
 Change in fair value of derivative, net of tax effects $ (9,262) $   (937)
 Contribution from minority owner                       $  6,062  $      -

Contact Information

  • Contacts:

    David Stickney
    VP of Corporate Communications
    Phone: 925-949-5100
    Email: Email Contact

    Joseph Villalta
    The Ruth Group
    Phone: 646-536-7003
    Email:jvillalta@theruthgroup.com