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8-K - CURRENT REPORT ON FORM 8-K - ARC DOCUMENT SOLUTIONS, INC.d250129d8k.htm

Exhibit 99.1

ARC REPORTS RESULTS FOR THIRD QUARTER 2011

 

   

Adjusted EPS of $0.02 per share

 

   

Quarterly Cash from Operating Activities of $17.6 million

 

   

Gross Margin of 32.4%

WALNUT CREEK, California (Nov 2, 2011) – 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 th 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.

Contacts:

David Stickney

ARC

Phone: 925-949-5114


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
September 30,
    Nine Months Ended
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 income (loss) 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
September 30,
    Nine Months Ended
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