SOURCE: American Reprographics Company

American Reprographics Company

November 02, 2011 16:01 ET

ARC Reports Results for Third Quarter 2011

WALNUT CREEK, CA--(Marketwire - Nov 2, 2011) - ARC (NYSE: ARC)

  • Adjusted EPS of $0.02 per share
  • Quarterly Cash from Operating Activities of $17.6 million
  • Gross Margin of 32.4%

ARC (NYSE: ARC), one of the nation's leading document solutions companies, today reported its financial results for the third quarter ended September 30, 2011.

"As we expected, the U.S. economy remained sluggish through the third quarter. In spite of a year-over-year sales drop of $4.6 million, we maintained a strong gross margin and generated healthy cash flow," said K. "Suri" Suriyakumar, Chairman, President and CEO of ARC. "Meanwhile our efforts to grow sales in adjacent areas are starting to show meaningful results. Substantial MPS growth in the quarter, primarily from our Global Solutions customers, drove a 12.8% increase in our FM revenue category compared to the third quarter of 2010. It is also important to note that at the end of October we paid down to zero the outstanding balance on our revolving debt facility."

Net revenue for the third quarter of 2011 was $104.8 million. ARC's net loss for the third quarter was $41.8 million, or a loss of $0.92 per diluted share, primarily due to the recording of a goodwill impairment charge in the amount of $42.1 million. Excluding this and other non-cash charges, including the previously-disclosed accelerated amortization related to trade names and interest rate swap-related costs, adjusted net income for the second quarter was $1.1 million, or $0.02 per diluted share. The Company's third quarter gross margin was 32.4%. Quarterly cash from operating activities for the period ending September 30, 2011 was $17.6 million.

Net revenue for the first nine months of 2011 was $320.9 million. The Company's gross margin was 32.1% for the same period. ARC's net loss for the first nine months of 2011 was $130.0 million, or a loss of $2.87 per diluted share, caused primarily by the non-cash charges mentioned above. Excluding these non-cash charges, ARC's adjusted net loss for the first nine months of 2011 was $0.8 million, or a loss of $0.02 per diluted share. Cash from operating activities for the same period was $29.5 million.

Goodwill Impairment
In the third quarter, ARC recorded a goodwill impairment charge of $42.1 million. The main factor driving this goodwill impairment charge was an increase in the Company's reporting units' weighted average cost of capital (WACC). This change in WACC was due, in part, to increased uncertainty in the overall economy and a decline in the price of our bonds (resulting in a higher yield) during the third quarter of this fiscal year. The Company will not be required to make any current or future cash expenditures as a result of the impairment.

Outlook
The Company reaffirmed its 2011 annual adjusted EPS forecast of $(0.02) to $0.05 on a fully-diluted basis and projected annual cash flow from operating activities in the range of $35 million to $50 million.

Teleconference and Webcast
ARC 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 2011. The conference call can be accessed by dialing 877-402-8179. The conference ID number is 18695685.

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 855-859-2056. The conference ID number is 18695685.

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

About ARC (NYSE: ARC)
ARC (American Reprographics Company) is one of the nation's leading document solutions companies providing business-to-business document management technology and services primarily to the architectural, engineering and construction, or 'AEC' industries. The Company also provides document management services to companies in non-AEC industries, such as technology, financial services, retail, entertainment, and food and hospitality. ARC provides its services through its suite of reprographics technology products, a network of hundreds of reprographics service centers around the world and on-site at more than 5,500 customer locations. The Company's service centers are digitally connected as a cohesive network, allowing the provision of services both locally and nationally to more than 120,000 active customers.

Forward-Looking Statements
This press release contains forward-looking statements that are based on current opinions, estimates and assumptions of management regarding future events and the future financial performance of the Company. Words such as "assume," "projects," "expect" and similar expressions identify forward-looking statements and all statements other than statements of historical fact, including, but not limited to, any projections regarding earnings, revenues and financial performance of the Company, could be deemed 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, current economic conditions and the downturn in the architectural, engineering and construction industries specifically; our ability to streamline operations and reduce and/or manage 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 take advantage of market opportunities and/or to complete acquisitions; our failure to manage 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)
September 30, December 31,
2011 2010
Assets
Current assets:
Cash and cash equivalents $ 25,954 $ 26,293
Accounts receivable, net 60,956 52,619
Inventories, net 10,880 10,689
Deferred income taxes - 7,157
Prepaid expenses 4,589 4,074
Other current assets 19,609 6,870
Total current assets 121,988 107,702
Property and equipment, net 55,407 59,036
Goodwill 229,315 294,759
Other intangible assets, net 49,701 62,643
Deferred financing costs, net 4,561 4,995
Deferred income taxes 1,347 37,835
Other assets 2,120 2,115
Total assets $ 464,439 $ 569,085
Liabilities and Equity
Current liabilities:
Accounts payable $ 22,931 $ 23,593
Accrued payroll and payroll-related expenses 9,759 7,980
Accrued expenses 24,983 30,134
Current portion of long-term debt and capital leases 26,648 23,608
Total current liabilities 84,321 85,315
Long-term debt and capital leases 211,954 216,016
Deferred income taxes 26,070 -
Other long-term liabilities 3,073 5,072
Total liabilities 325,418 306,403
Commitments and contingencies
Stockholders' equity:
American Reprographics Company stockholders' equity:
Preferred stock, $0.001 par value, 25,000 shares authorized; 0 and 0 shares issued and outstanding -- --
Common stock, $0.001 par value, 150,000 shares authorized; 46,236 and 46,183 shares issued and 46,236 and 45,736 shares outstanding 46 46
Additional paid-in capital 99,698 96,251
Retained earnings 35,720 173,459
Accumulated other comprehensive loss (2,722 ) (5,541 )
132,742 264,215
Less cost of common stock in treasury, 0 and 447 shares - 7,709
Total American Reprographics Company stockholders' equity 132,742 256,506
Noncontrolling interest 6,279 6,176
Total equity 139,021 262,682
Total liabilities and equity $ 464,439 $ 569,085
American Reprographics Company
Consolidated Statements of Operations
(Dollars in thousands, except per share data)
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
2011 2010 2011 2010
Reprographics services $ 65,529 $ 72,709 $ 206,011 $ 227,419
Facilities management 25,505 22,602 75,304 67,632
Equipment and supplies sales 13,758 14,110 39,571 41,619
Total net sales 104,792 109,421 320,886 336,670
Cost of sales 70,868 74,403 217,881 225,346
Gross profit 33,924 35,018 103,005 111,324
Selling, general and administrative expenses 23,533 26,612 78,169 81,912
Amortization of intangible assets 4,654 2,466 14,119 7,659
Goodwill impairment 42,109 38,263 65,444 38,263
Loss from operations (36,372 ) (32,323 ) (54,727 ) (16,510 )
Other income, net (27 ) (52 ) (88 ) (129 )
Interest expense, net 7,743 5,614 23,609 17,256
Loss before income tax (benefit) provision (44,088 ) (37,885 ) (78,248 ) (33,637 )
Income tax (benefit) provision (2,392 ) (12,668 ) 51,872 (10,862 )
Net loss (41,696 ) (25,217 ) (130,120 ) (22,775 )
(Income) loss attributable to the noncontrolling interest (61 ) 73 90 27
Net loss attributable to American Reprographics Company $ (41,757 ) $ (25,144 ) $ (130,030 ) $ (22,748 )
Loss per share attributable to American Reprographics Company shareholders:
Basic $ (0.92 ) $ (0.56 ) $ (2.87 ) $ (0.50 )
Diluted $ (0.92 ) $ (0.56 ) $ (2.87 ) $ (0.50 )
Weighted average common shares outstanding:
Basic 45,416 45,224 45,366 45,191
Diluted 45,416 45,224 45,366 45,191
American Reprographics Company
Non-GAAP Measures
Reconciliation of cash flows provided by operating activities to EBIT, EBITDA and Adjusted EBITDA
(Dollars in thousands)
(Unaudited)
Three Months Ended September 30, Nine Months Ended September 30,
2011 2010 2011 2010
Cash flows provided by operating activities $ 17,617 $ 10,262 $ 29,490 $ 38,008
Changes in operating assets and liabilities, net of business acquisitions (7,504 ) 6,166 19,078 7,443
Non-cash expenses, including depreciation and amortization (51,809 ) (41,645 ) (178,688 ) (68,226 )
Income tax (benefit) provision (2,392 ) (12,668 ) 51,872 (10,862 )
Interest expense 7,743 5,614 23,609 17,256
Net (income) loss attributable to the noncontrolling interest (61 ) 73 90 27
EBIT (36,406 ) (32,198 ) (54,549 ) (16,354 )
Depreciation and amortization 11,711 10,757 36,363 33,521
EBITDA (24,695 ) (21,441 ) (18,186 ) 17,167
Goodwill impairment 42,109 38,263 65,444 38,263
Stock-based compensation 517 1,453 3,775 4,371
Adjusted EBITDA $ 17,931 $ 18,275 $ 51,033 $ 59,801
American Reprographics Company
Non-GAAP Measures
Reconciliation of net loss attributable to ARC to unaudited adjusted net (loss) income attributable to ARC
(Dollars in thousands, except per share data)
(Unaudited)
Three Months Ended September 30, Nine Months Ended September 30,
2011 2010 2011 2010
Net loss attributable to ARC $ (41,757 ) $ (25,144 ) $ (130,030 ) $ (22,748 )
Goodwill impairment 42,109 38,263 65,444 38,263
Change in trade name impact to amortization 2,368 - 7,106 -
Interest rate swap related costs 1,389 44 4,369 150
Income tax provision, related to above items (6,866 ) (12,838 ) (14,745 ) (12,880 )
Deferred tax valuation allowance and other discrete tax items 3,832 - 67,040 -
Unaudited adjusted net income (loss) attributable to ARC $ 1,075 $ 325 $ (816 ) $ 2,785
Actual:
Loss per share attributable to ARC shareholders:
Basic $ (0.92 ) $ (0.56 ) $ (2.87 ) $ (0.50 )
Diluted $ (0.92 ) $ (0.56 ) $ (2.87 ) $ (0.50 )
Weighted average common shares
outstanding:
Basic 45,416 45,224 45,366 45,191
Diluted 45,416 45,224 45,366 45,191
Adjusted:
Earnings (Loss) per share attributable to ARC shareholders:
Basic $ 0.02 $ 0.01 $ (0.02 ) $ 0.06
Diluted $ 0.02 $ 0.01 $ (0.02 ) $ 0.06
Weighted average common shares
outstanding:
Basic 45,416 45,224 45,366 45,191
Diluted 45,448 45,439 45,366 45,433
American Reprographics Company
Non-GAAP Measures
Reconciliation of net loss attributable to ARC to EBIT, EBITDA and Adjusted EBITDA
(Dollars in thousands)
(Unaudited)
Three Months Ended
September 30,
Nine Months Ended
September 30,
2011 2010 2011 2010
Net loss attributable to ARC $ (41,757 ) $ (25,144 ) $ (130,030 ) $ (22,748 )
Interest expense, net 7,743 5,614 23,609 17,256
Income tax (benefit) provision (2,392 ) (12,668 ) 51,872 (10,862 )
EBIT (36,406 ) (32,198 ) (54,549 ) (16,354 )
Depreciation and amortization 11,711 10,757 36,363 33,521
EBITDA (24,695 ) (21,441 ) (18,186 ) 17,167
Goodwill impairment 42,109 38,263 65,444 38,263
Stock-based compensation 517 1,453 3,775 4,371
Adjusted EBITDA $ 17,931 $ 18,275 $ 51,033 $ 59,801

Non-GAAP Financial 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 $0.5 million and $3.8 million of stock-based compensation expense recorded in selling, general and administrative expenses, for the three and nine months ended September 30, 2011, respectively. Amortization does not include $1.5 million and $4.4 million of stock-based compensation expense recorded in selling, general and administrative expenses, for the three and nine months ended September 30, 2010, 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 debt and taxation which are managed at the corporate level for U.S. operating segments. As a result, EBIT is the best measure of operating segment 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 we use EBITDA to measure performance for determining consolidated-level compensation. In addition, we use EBIT and EBITDA to evaluate potential acquisitions and potential capital expenditures.

EBIT, EBITDA and related ratios have limitations as analytical tools, and should not be considered 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 2011 third quarter report on Form 10-Q. Additionally, please refer to our 2010 Annual Report on Form 10-K.

Our presentation of adjusted net income and adjusted EBITDA over certain periods is an attempt to provide meaningful comparisons to our historical performance for our existing and future investors. The unprecedented changes in our end markets over the past several years have required us to take measures that are unique in our history and specific to individual circumstances. Comparisons inclusive of these actions make normal financial and other performance patterns difficult to discern under a strict GAAP presentation. Each non-GAAP presentation, however, is explained in detail in the reconciliation tables above.

Specifically, we have presented adjusted net income (loss) attributable to ARC and adjusted earnings (loss) per share attributable to ARC shareholders for the three and nine months ended September 30, 2011 and 2010 to reflect the exclusion of the goodwill impairment charge, amortization impact related to the change in useful lives of trade names, interest rate swap related costs, the valuation allowance related to certain deferred tax assets and other discrete tax items. This presentation facilitates a meaningful comparison of our operating results for the three and nine months ended September 30, 2011 and 2010. We believe these charges were the result of the current macroeconomic environment, our capital restructuring, or other items which are not indicative of our actual operating performance.

We presented adjusted EBITDA in the three and nine months ended September 30, 2011 to exclude the non-cash goodwill impairment charges of $42.1 million and $65.4 million, respectively, and stock-based compensation expense of $0.5 million and $3.8 million, respectively. We presented adjusted EBITDA in the three and nine months ended September 30, 2010 to exclude the non-cash goodwill impairment charge of $38.3 million and stock-based compensation expense of $1.5 million and $4.4 million, respectively. The exclusion of the goodwill impairment charges and stock-based compensation expense to arrive at adjusted EBITDA is consistent with the definition of adjusted EBITDA in our previous and current credit agreements; 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,
2011 2010 2011 2010
Cash flows from operating activities
Net loss $ (41,696 ) $ (25,217 ) $ (130,120 ) $ (22,775 )
Adjustments to reconcile net loss to net cash provided by operating activities:
Allowance for accounts receivable 329 281 746 598
Depreciation 7,057 8,291 22,244 25,862
Amortization of intangible assets 4,654 2,466 14,119 7,659
Amortization of deferred financing costs 225 389 662 1,159
Amortization of bond discount 140 - 407 -
Goodwill impairment 42,109 38,263 65,444 38,263
Stock-based compensation 517 1,453 3,775 4,371
Excess tax benefit related to stock-based compensation - - (31 ) (38 )
Deferred income taxes (5,009 ) (9,914 ) 3,506 (9,750 )
Deferred tax valuation allowance 1,379 - 65,719 -
Amortization of derivative, net of tax effect 871 - 2,737 -
Other noncash items, net (463 ) 416 (640 ) 102
Changes in operating assets and liabilities, net of effect of business acquisitions:
Accounts receivable 206 751 (8,499 ) (5,033 )
Inventory 1,084 829 36 (456 )
Prepaid expenses and other assets 942 (3,582 ) (13,105 ) (5,516 )
Accounts payable and accrued expenses 5,272 (4,164 ) 2,490 3,562
Net cash provided by operating activities 17,617 10,262 29,490 38,008
Cash flows from investing activities
Capital expenditures (4,316 ) (2,919 ) (11,938 ) (5,696 )
Payments for businesses acquired, net of cash acquired and including other cash payments associated with the acquisitions - (500 ) - (500 )
Payment for swap transaction - - (9,729 ) -
Other 278 (91 ) 925 754
Net cash used in investing activities (4,038 ) (3,510 ) (20,742 ) (5,442 )
Cash flows from financing activities
Proceeds from stock option exercises - - 108 125
Proceeds from issuance of common stock under Employee Stock Purchase Plan 8 21 31 37
Excess tax benefit related to stock-based compensation - - 31 38
Payments on long-term debt agreements and capital leases (5,618 ) (10,607 ) (19,719 ) (32,203 )
Net (repayments) borrowings under revolving credit facilities (3,798 ) (327 ) 10,822 (450 )
Payment of loan fees (127 ) - (668 ) -
Net cash used in financing activities (9,535 ) (10,913 ) (9,395 ) (32,453 )
Effect of foreign currency translation on cash balances 3 243 308 265
Net change in cash and cash equivalents 4,047 (3,918 ) (339 ) 378
Cash and cash equivalents at beginning of period 21,907 33,673 26,293 29,377
Cash and cash equivalents at end of period $ 25,954 $ 29,755 $ 25,954 $ 29,755
- - - -
Supplemental disclosure of cash flow information
Noncash investing and financing activities
Noncash transactions include the following:
Capital lease obligations incurred $ 2,023 $ 2,408 $ 7,476 $ 6,802
Liabilities in connection with acquisition of businesses $ 1,371 $ - $ 1,371 $ -
Net gain (loss) on derivative, net of tax effect $ - $ 55 $ - $ (119 )

Contact Information

  • Contacts:
    David Stickney
    ARC
    Phone: 925-949-5114