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8-K - FORM 8-K - ARC DOCUMENT SOLUTIONS, INC.c16432e8vk.htm
Exhibit 99.1
AMERICAN REPROGRAPHICS COMPANY REPORTS RESULTS FOR FIRST QUARTER 2011
WALNUT CREEK, California (May 3, 2011) — ARC (NYSE: ARC) (the “Company”), the nation’s leading provider of document management services and technology to the architectural, engineering and construction industries, today reported its financial results for the first quarter ended March 31, 2011.
“First quarter results for 2011 were in line with our expectations, but March sales clearly show that project-related activity, which was at its lowest point during the past several years, will continue to remain a challenge for the rest of the year,” said K. “Suri” Suriyakumar, Chairman, President and CEO. “However, we were extremely gratified to see the progress we are making in some of our newer service offerings like managed print services (MPS), Global Services and our color business. Together, they helped us offset the revenue decline we saw in project-related printing, and we expect these segments of business to continue to grow through the rest of the year.”
Net revenue for the first quarter of 2011 was $106.5 million. The Company’s gross margin was 31.2%. ARC reported a loss in net income of $3.6 million for the first quarter of 2011, or $0.08 per diluted share. Adjusted to exclude the previously announced accelerated amortization of trade names, and interest rate swap-related items associated with our previous debt agreement, the Company’s quarterly loss in net income was $2.1 million or $0.05 per diluted share. Cash from operating activities was $4.6 million.
Management also noted that its restructuring plans are proceeding as previously announced, including the addition of new infrastructure and staff to address the growth in Global Services, MPS, color and Technology Services. The Company continues to restructure its outsourced reprographics service centers, reducing its staff and its branch network related to traditional revenue streams, including duplicate production facilities that were added to the Company in the past through ARC’s aggressive acquisition program. Additional efficiencies will be achieved as a result of the Company’s newly unified brand, which consolidates ARC’s strong footprint in major metropolitan areas around the country. The Company’s restructuring efforts are expected to continue throughout the year with anticipated annualized savings of more than $14 million.

 

 


 

Outlook
The Company reaffirmed its forecast of annual earnings per share in 2011 to be in the range of $0.01 to $0.15 on a fully-diluted basis, and annual cash flow from operations in the range of $40 million to $60 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 first quarter 2011 and business outlook. The conference call can be accessed by dialing 877-402-8179. The conference ID number is 60057717.
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 60057717.
A Web archive will be made available at http://www.e-arc.com for approximately 90 days following the call’s conclusion.
About ARC
ARC (American Reprographics Company) is the leader in business-to-business document management technology and services to the architectural, engineering and construction, or AEC industries, in the United States. 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 “will,” “seems,” “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, the current economic recession and downturn in the architectural, engineering and construction industries specifically, and the timing and nature of any economic recovery; 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
  Joseph Villalta
VP of Corporate Communications
  The Ruth Group
Phone: 925-949-5100
  Phone: 646-536-7003
Email: davidstickney@e-arc.com
  Email: jvillalta@theruthgroup.com

 

 


 

American Reprographics Company
Consolidated Balance Sheets

(Dollars in thousands, except per share data)
(Unaudited)
                 
    March 31,     December 31,  
    2011     2010  
Assets
               
Current assets:
               
Cash and cash equivalents
  $ 22,672     $ 26,293  
Accounts receivable, net
    60,791       52,619  
Inventories, net
    11,824       10,689  
Deferred income taxes
    13,721       7,157  
Prepaid expenses and other current assets
    14,322       10,944  
 
           
Total current assets
    123,330       107,702  
 
               
Property and equipment, net
    57,862       59,036  
Goodwill
    294,759       294,759  
Other intangible assets, net
    57,941       62,643  
Deferred financing costs, net
    4,862       4,995  
Deferred income taxes
    28,816       37,835  
Other assets
    2,024       2,115  
 
           
Total assets
  $ 569,594     $ 569,085  
 
           
 
               
Liabilities and Equity
               
Current liabilities:
               
Accounts payable
  $ 22,869     $ 23,593  
Accrued payroll and payroll-related expenses
    9,801       7,980  
Accrued expenses
    24,121       30,134  
Current portion of long-term debt and capital leases
    33,356       23,608  
 
           
Total current liabilities
    90,147       85,315  
 
               
Long-term debt and capital leases
    214,485       216,016  
Other long-term liabilities
    3,175       5,072  
 
           
Total liabilities
    307,807       306,403  
 
           
 
               
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; 46,193,156 and 46,183,463 shares issued and 45,745,502 and 45,735,809 shares outstanding in 2011 and 2010, respectively
    46       46  
Additional paid-in capital
    97,795       96,251  
Retained earnings
    169,816       173,459  
Accumulated other comprehensive loss
    (4,330 )     (5,541 )
 
           
 
    263,327       264,215  
Less cost of common stock in treasury, 447,654 shares in 2011 and 2010
    7,709       7,709  
 
           
Total American Reprographics Company stockholders’ equity
    255,618       256,506  
Noncontrolling interest
    6,169       6,176  
 
           
Total equity
    261,787       262,682  
 
           
Total liabilities and equity
  $ 569,594     $ 569,085  
 
           

 

 


 

American Reprographics Company
Consolidated Statements of Operations

(Dollars in thousands, except per share data)
(Unaudited)
                 
    Three Months Ended  
    March 31,  
    2011     2010  
 
               
Reprographics services
  $ 70,022     $ 76,257  
Facilities management
    24,203       22,403  
Equipment and supplies sales
    12,279       13,501  
 
           
Total net sales
    106,504       112,161  
Cost of sales
    73,118       75,310  
 
           
Gross profit
    33,386       36,851  
Selling, general and administrative expenses
    27,832       27,131  
Amortization of intangible assets
    4,744       2,636  
 
           
Income from operations
    810       7,084  
Other income, net
    (26 )     (43 )
Interest expense, net
    8,167       5,888  
 
           
(Loss) income before income tax (benefit) provision
    (7,331 )     1,239  
Income tax (benefit) provision
    (3,649 )     530  
 
           
Net (loss) income
    (3,682 )     709  
Loss attributable to the noncontrolling interest
    39       8  
 
           
Net (loss) income attributable to American Reprographics Company
  $ (3,643 )   $ 717  
 
           
 
               
Earnings per share attributable to American Reprographics Company shareholders:
               
Basic
  $ (0.08 )   $ 0.02  
 
           
Diluted
  $ (0.08 )   $ 0.02  
 
           
 
               
Weighted average common shares outstanding:
               
Basic
    45,322,092       45,150,483  
Diluted
    45,322,092       45,356,871  

 

 


 

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 March 31,  
    2011     2010  
 
               
Cash flows provided by operating activities
  $ 4,589     $ 9,468  
Changes in operating assets and liabilities
    9,366       5,083  
Non-cash expenses, including depreciation and amortization
    (17,637 )     (13,842 )
Income tax (benefit) provision
    (3,649 )     530  
Interest expense
    8,167       5,888  
Net loss attributable to the noncontrolling interest
    39       8  
 
           
EBIT
    875       7,135  
Depreciation and amortization
    12,486       11,656  
 
           
EBITDA
    13,361       18,791  
Stock-based compensation
    1,489       1,461  
 
           
Adjusted EBITDA
  $ 14,850     $ 20,252  
 
           

 

 


 

American Reprographics Company
Non-GAAP Measures
Reconciliation of net (loss) income attributable to ARC to unaudited adjusted net (loss) income attributable to ARC

(Dollars in thousands, except per share data)
(Unaudited)
                 
    Three Months Ended March 31,  
    2011     2010  
 
Net (loss) income attributable to ARC
  $ (3,643 )   $ 717  
Change in trade name impact to amortization
    2,369        
Amortization of derivative
    1,523        
Income tax provision, related to above items
    (1,382 )      
Tax discrete items
    (978 )        
 
           
Unaudited adjusted net (loss) income attributable to ARC
  $ (2,111 )   $ 717  
 
           
 
               
Earnings per share attributable to ARC shareholders (actual):
               
Basic
  $ (0.08 )   $ 0.02  
 
           
Diluted
  $ (0.08 )   $ 0.02  
 
           
 
               
Weighted average common shares outstanding:
               
Basic
    45,322,092       45,150,483  
Diluted
    45,322,092       45,356,871  
 
               
Earnings per share attributable to ARC shareholders (adjusted):
               
Basic
  $ (0.05 )   $ 0.02  
 
           
Diluted
  $ (0.05 )   $ 0.02  
 
           
 
               
Weighted average common shares outstanding:
               
Basic
    45,322,092       45,150,483  
Diluted
    45,322,092       45,356,871  

 

 


 

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 March 31,  
    2011     2010  
Net (loss) income attributable to ARC
  $ (3,643 )   $ 717  
Interest expense, net
    8,167       5,888  
Income tax (benefit) provision
    (3,649 )     530  
 
           
EBIT
    875       7,135  
Depreciation and amortization
    12,486       11,656  
 
           
EBITDA
    13,361       18,791  
Stock-based compensation
    1,489       1,461  
 
           
Adjusted EBITDA
  $ 14,850     $ 20,252  
 
           

 

 


 

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 $1.5 million of stock-based compensation expense recorded in selling, general and administrative expenses, for the three months ended March 31, 2011 and 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 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 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. 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 2011 first 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, as required in the reconciliation tables above.
Specifically, we have presented adjusted net income attributable to ARC and adjusted earnings per share attributable to ARC shareholders for the three months ended March 31, 2011 to reflect the exclusion of amortization impact related to the change in trade name, amortization of derivative and discrete tax items. We believe these charges were the result of our capital restructuring, or other items which have little bearing on our actual operating performance.
We present adjusted EBITDA for the three months ended March 31, 2011 and 2010 to exclude stock-based compensation expense. This presentation is consistent with the definition of EBITDA in our previous and current credit agreements.

 

 


 

American Reprographics Company
Consolidated Statements of Cash Flows

(Dollars in thousands)
(Unaudited)
                 
    Three Months Ended  
    March 31,  
    2011     2010  
Cash flows from operating activities
               
Net (loss) income
  $ (3,682 )   $ 709  
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
               
Allowance for accounts receivable
    180       261  
Depreciation
    7,742       9,020  
Amortization of intangible assets
    4,744       2,636  
Amortization of deferred financing costs
    216       384  
Amortization of bond discount
    132        
Stock-based compensation
    1,489       1,461  
Excess tax benefit related to stock-based compensation
    (8 )     (3 )
Deferred income taxes
    2,318       274  
Amortization of derivative, net of tax effect
    954        
Other noncash items, net
    (130 )     (191 )
Changes in operating assets and liabilities, net of effect of business acquisitions:
               
Accounts receivable
    (8,268 )     (5,419 )
Inventory
    (1,191 )     156  
Prepaid expenses and other assets
    (3,228 )     (2,515 )
Accounts payable and accrued expenses
    3,321       2,695  
 
           
Net cash provided by operating activities
    4,589       9,468  
 
           
Cash flows from investing activities
               
Capital expenditures
    (4,136 )     (1,217 )
Payment for swap transaction
    (9,729 )      
Other
    378       551  
 
           
Net cash used in investing activities
    (13,487 )     (666 )
 
           
Cash flows from financing activities
               
Proceeds from stock option exercises
    41       16  
Proceeds from issuance of common stock under Employee Stock Purchase Plan
    23       0  
Excess tax benefit related to stock-based compensation
    8       3  
Payments on long-term debt agreements and capital leases
    (7,540 )     (11,202 )
Net borrowings (repayments) under revolving credit facility
    12,800       (814 )
Payment of loan fees
    (164 )      
 
           
Net cash provided by (used in) financing activities
    5,168       (11,997 )
 
           
Effect of foreign currency translation on cash balances
    109       1  
 
           
Net change in cash and cash equivalents
    (3,621 )     (3,194 )
Cash and cash equivalents at beginning of period
    26,293       29,377  
 
           
Cash and cash equivalents at end of period
  $ 22,672     $ 26,183  
 
           
 
               
Supplemental disclosure of cash flow information
               
Noncash investing and financing activities
               
Noncash transactions include the following:
               
Capital lease obligations incurred
  $ 2,461     $ 1,930  
Net loss on derivative, net of tax effect
  $     $ (313 )