EX-99.1 2 c07628exv99w1.htm EXHIBIT 99.1 Exhibit 99.1
Exhibit 99.1
AMERICAN REPROGRAPHICS REPORTS RESULTS FOR THIRD QUARTER 2010
    Adjusted EPS of $0.01 per share
 
    Cash from Operating Activities of $10.3 million
WALNUT CREEK, California (November 2, 2010) — American Reprographics Company (NYSE: ARP) (the “Company” or “ARC”), the nation’s leading provider of reprographic services and technology, today reported its financial results for the third quarter ended September 30, 2010.
“Results for the third quarter are in line with our projections announced in October. While revenues remained essentially flat throughout the period, we are encouraged by trends in our performance that suggest we may be at the bottom of the current cycle,” said K. “Suri” Suriyakumar, Chairman, President and CEO. “We were also pleased with the acquisition of several new Global Services accounts in the third quarter, and with our continuing progress in securing new color business through our Riot production centers. While we might hit short-term setbacks as we recover from such a deep financial crisis, I am confident that the steps we have taken are moving us in the right direction.”
“Generating strong cash flow from our existing business and tightening our cost structure has kept us healthy and strong throughout this downturn,” Mr. Suriyakumar continued. “And we have more flexibility in meeting our financial obligations if the need arises. As we’ve noted in the past, reducing the number of our branch locations remains an option should weak economic conditions persist. We are also in an excellent position to explore a more favorable debt structure in the future.”
Management noted that the Company acquired six new Global Services accounts since June, which are projected to generate more than $9 million in sales for 2011. The accounts were won primarily on the strength of ARC’s managed print services offering. The Company also reported that the base of high-profile Riot Creative Imaging clients continued to grow, and that approximately $12 million of costs for the year are being eliminated through its ongoing “Stay Fit” cost reduction program.
Net revenue for the third quarter of 2010 was $109.4 million and gross margin was 32%. ARC reported a net loss for the third quarter of 2010 of $25.2 million, or a loss of $0.56 per diluted share, which included a goodwill impairment charge of $38.3 million based on its annual goodwill impairment assessment conducted as of September 30, 2010 (see description below). Adjusted to exclude the period’s goodwill impairment, net income for the third quarter of 2010 was $0.3 million, or $0.01 per diluted share.

 

 


 

Net revenue for the nine-month period ended September 30, 2010 was $336.7 million and gross margin was 33%. ARC reported a net loss for the first nine months of 2010 of $22.8 million, or $0.50 per diluted share, which included the goodwill impairment noted above. Adjusted to exclude the impairment, net income for the first nine months of 2010 was $2.8 million, or $0.06 per diluted share.
Impairment of Goodwill
The Company assesses goodwill for impairment at least annually as of September 30, or more frequently if events and circumstances indicate that goodwill might be impaired. Based on its annual assessment, the Company recorded a $38.3 million impairment as of September 30, 2010. The Company will not be required to make any current or future cash expenditures as a result of the goodwill impairment. The impairments and any special item charges will be reflected in the Company’s unaudited financial statements included in the Company’s Form 10-Q for the third quarter of 2010 to be filed with the U.S. Securities and Exchange Commission.
Outlook
The Company reaffirmed its revised annual earnings per share and cash flow from operations forecast for 2010, excluding the impairment of goodwill and any other one-time charges that may be incurred through December 31, 2010. EPS for the full year of 2010 is forecast to be in the range of $0.04 to $0.09 on a fully-diluted basis. Cash flow from operations for the same period is projected to be in the range of $50 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 third quarter 2010 and business outlook. The conference call can be accessed by dialing 877-402-8179. The conference ID number is 16959809.
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 16959809.
A Web archive will be made available at http://www.e-arc.com for approximately 90 days following the call’s conclusion.

 

 


 

About American Reprographics Company
American Reprographics Company is the leading reprographics company in the United States providing business-to-business document management technology and services to the architectural, engineering and construction, or AEC industries. The Company provides these services to companies in non-AEC industries, such as technology, financial services, retail, entertainment, and food and hospitality, which also require sophisticated document management services. American Reprographics Company provides its core services through its suite of reprographics technology products, a network of hundreds of locally-branded reprographics service centers across the U.S., Canada and the U.K, on-site at more than 5,000 customer locations, and through UDS, a joint-venture company headquartered in Beijing, China. The Company’s service centers are arranged in a hub and satellite structure and are digitally connected as a cohesive network, allowing the provision of services both locally and nationally to more than 138,000 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 “anticipates,” “projects,” “expect,” “suggests,” 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 downturn, general economic conditions and 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 products and 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
American Reprographics Company
  The Ruth Group
Phone: 925-949-5100
  Phone: 646-536-7003

 

 


 

American Reprographics Company
Consolidated Balance Sheets
(Dollars in thousands, except per share data)
(Unaudited)
                 
    September 30,     December 31,  
    2010     2009  
Assets
               
Current assets:
               
Cash and cash equivalents
  $ 29,755     $ 29,377  
Accounts receivable, net
    58,432       53,919  
Inventories, net
    11,034       10,605  
Deferred income taxes
    5,640       5,568  
Prepaid expenses and other current assets
    13,082       7,011  
 
           
Total current assets
    117,943       106,480  
 
               
Property and equipment, net
    60,402       74,568  
Goodwill
    294,759       332,518  
Other intangible assets, net
    66,592       74,208  
Deferred financing costs, net
    2,923       4,082  
Deferred income taxes
    36,816       26,987  
Other assets
    2,157       2,111  
 
           
Total assets
  $ 581,592     $ 620,954  
 
           
 
               
Liabilities and Stockholders’ Equity
               
Current liabilities:
               
Accounts payable
  $ 24,180     $ 23,355  
Accrued payroll and payroll-related expenses
    11,575       8,804  
Accrued expenses
    24,353       24,540  
Current portion of long-term debt and capital leases
    64,444       53,520  
 
           
Total current liabilities
    124,552       110,219  
 
               
Long-term debt and capital leases
    183,802       220,711  
Other long-term liabilities
    9,067       8,000  
 
           
Total liabilities
    317,421       338,930  
 
           
 
               
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; 46,172,122 and 46,112,653 shares issued and 45,724,468 and 45,664,999 shares outstanding in 2010 and 2009, respectively
    46       46  
Additional paid-in capital
    94,550       89,982  
Retained earnings
    178,213       200,961  
Accumulated other comprehensive loss
    (7,078 )     (7,273 )
 
           
 
    265,731       283,716  
Less cost of common stock in treasury, 447,654 shares in 2010 and 2009
    7,709       7,709  
 
           
Total American Reprographics Company stockholders’ equity
    258,022       276,007  
Noncontrolling interest
    6,149       6,017  
 
           
Total stockholders’ equity
    264,171       282,024  
 
           
Total liabilities and stockholders’ equity
  $ 581,592     $ 620,954  
 
           

 

 


 

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,  
    2010     2009     2010     2009  
 
                               
Reprographics services
  $ 72,709     $ 81,989     $ 227,419     $ 274,663  
Facilities management
    22,602       23,395       67,632       75,158  
Equipment and supplies sales
    14,110       13,966       41,619       40,066  
 
                       
Total net sales
    109,421       119,350       336,670       389,887  
Cost of sales
    74,403       78,219       225,346       247,622  
 
                       
Gross profit
    35,018       41,131       111,324       142,265  
Selling, general and administrative expenses
    26,612       27,330       81,912       88,335  
Amortization of intangible assets
    2,466       2,777       7,659       8,674  
Goodwill impairment
    38,263       37,382       38,263       37,382  
Impairment of long-lived assets
          781             781  
 
                       
(Loss) income from operations
    (32,323 )     (27,139 )     (16,510 )     7,093  
Other income, net
    (52 )     (41 )     (129 )     (138 )
Interest expense, net
    5,614       6,428       17,256       18,060  
 
                       
Loss before income tax (benefit) provision
    (37,885 )     (33,526 )     (33,637 )     (10,829 )
Income tax (benefit) provision
    (12,668 )     (5,334 )     (10,862 )     3,520  
 
                       
Net loss
    (25,217 )     (28,192 )     (22,775 )     (14,349 )
Loss attributable to the noncontrolling interest
    73       28       27       39  
 
                       
Net loss attributable to American Reprographics Company
  $ (25,144 )   $ (28,164 )   $ (22,748 )   $ (14,310 )
 
                       
 
                               
Earnings per share attributable to American Reprographics Company shareholders:
                               
Basic
  $ (0.56 )   $ (0.62 )   $ (0.50 )   $ (0.32 )
 
                       
Diluted
  $ (0.56 )   $ (0.62 )   $ (0.50 )   $ (0.32 )
 
                       
 
                               
Weighted average common shares outstanding:
                               
Basic
    45,224,369       45,138,446       45,190,660       45,115,059  
Diluted
    45,224,369       45,138,446       45,190,660       45,115,059  

 

 


 

American Reprographics Company
Non-GAAP Measures
Reconciliation of cash flows provided by operating activities to EBIT and EBITDA

(Dollars in thousands)
(Unaudited)
                                 
    Three Months Ended September 30,     Nine Months Ended September 30,  
    2010     2009     2010     2009  
 
                               
Cash flows provided by operating activities
  $ 10,262     $ 19,566     $ 38,008     $ 75,364  
Changes in operating assets and liabilities
    6,166       704       7,443       (8,851 )
Non-cash (expenses) income, including depreciation and amortization
    (41,645 )     (48,462 )     (68,226 )     (80,862 )
Income tax (benefit) provision
    (12,668 )     (5,334 )     (10,862 )     3,520  
Interest expense
    5,614       6,428       17,256       18,060  
Net loss attributable to the noncontrolling interest
    73       28       27       39  
 
                       
 
                               
EBIT
    (32,198 )     (27,070 )     (16,354 )     7,270  
Depreciation and amortization
    10,757       12,185       33,521       37,651  
Stock-based compensation
    1,453       1,403       4,371       3,564  
 
                       
 
                               
EBITDA
  $ (19,988 )   $ (13,482 )   $ 21,538     $ 48,485  
 
                       
American Reprographics Company
Non-GAAP Measures
Reconciliation of net loss attributable to ARC to unaudited adjusted net income attributable to ARC

(Dollars in thousands, except per share data)
(Unaudited)
                                 
    Three Months Ended September 30,     Nine Months Ended September 30,  
    2010     2009     2010     2009  
 
                               
Net loss attributable to ARC
  $ (25,144 )   $ (28,164 )   $ (22,748 )   $ (14,310 )
Goodwill impairment
    38,263       37,382       38,263       37,382  
Impairment of long-lived assets
          781             781  
Ineffective portion of Swap Transaction
    44       960       150       960  
Income tax benefit, related to above items
    (12,838 )     (8,041 )     (12,880 )     (8,041 )
 
                       
Unaudited adjusted net income attributable to ARC
  $ 325     $ 2,918     $ 2,785     $ 16,772  
 
                       
 
                               
Earnings per share attributable to ARC shareholders (actual):        
Basic
  $ (0.56 )   $ (0.62 )   $ (0.50 )   $ (0.32 )
 
                       
Diluted
  $ (0.56 )   $ (0.62 )   $ (0.50 )   $ (0.32 )
 
                       
 
                               
Weighted average common shares outstanding:
                               
Basic
    45,224,369       45,138,446       45,190,660       45,115,059  
Diluted
    45,224,369       45,138,446       45,190,660       45,115,059  
 
                               
Earnings per share attributable to ARC shareholders (adjusted):        
Basic
  $ 0.01     $ 0.06     $ 0.06     $ 0.37  
 
                       
Diluted
  $ 0.01     $ 0.06     $ 0.06     $ 0.37  
 
                       
 
                               
Weighted average common shares outstanding:
                               
Basic
    45,224,369       45,138,446       45,190,660       45,115,059  
Diluted
    45,439,385       45,352,608       45,432,553       45,229,386  

 

 


 

American Reprographics Company
Non-GAAP Measures
Reconciliation of net loss attributable to ARC to EBIT to EBITDA and adjusted EBITDA

(Dollars in thousands)
(Unaudited)
                                 
    Three Months Ended September 30,     Nine Months Ended September 30,  
    2010     2009     2010     2009  
 
                               
Net loss attributable to ARC
  $ (25,144 )   $ (28,164 )   $ (22,748 )   $ (14,310 )
Interest expense, net
    5,614       6,428       17,256       18,060  
Income tax (benefit) provision
    (12,668 )     (5,334 )     (10,862 )     3,520  
 
                       
EBIT
    (32,198 )     (27,070 )     (16,354 )     7,270  
Depreciation and amortization
    10,757       12,185       33,521       37,651  
Stock-based compensation
    1,453       1,403       4,371       3,564  
 
                       
EBITDA
  $ (19,988 )   $ (13,482 )   $ 21,538     $ 48,485  
 
                       
Special items:
                               
Goodwill impairment
    38,263       37,382       38,263       37,382  
Impairment of long-lived assets
          781             781  
 
                       
Adjusted EBITDA
  $ 18,275     $ 24,681     $ 59,801     $ 86,648  
 
                       

 

 


 

Non-GAAP Measures
EBIT, EBITDA and related ratios presented in this report are supplemental measures of our performance that are not required by or presented in accordance with accounting principles generally accepted in the United States of America (“GAAP”). These measures are not measurements of our financial performance under GAAP and should not be considered as alternatives to net income, income from operations, or any other performance measures derived in accordance with GAAP or as an alternative to cash flows from operating, investing or financing activities as a measure of our liquidity.
EBIT represents net income before interest and taxes. EBITDA represents net income before interest, taxes, depreciation, amortization and stock-based compensation. Deducting stock-based compensation in calculating EBITDA is consistent with the definition of EBITDA in our amended credit and guaranty agreement, therefore we believe this information is useful to investors in assessing our ability to meet our debt covenants. 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.
We use EBIT and EBITDA to measure and compare the performance of our operating segments. Our operating segments’ financial performance includes all of the operating activities except for debt and taxation which are managed at the corporate level for U.S. operating segments. As a result, EBIT is the best measure of divisional profitability and the most useful metric by which to measure and compare the performance of our operating segments. We also use EBIT to measure performance for determining operating segment-level compensation and 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 2010 third quarter report on Form 10-Q. Additionally, please refer to our 2009 Annual Report on Form 10-K.
We have presented adjusted net loss attributable to ARC and adjusted earnings per share attributable to ARC shareholders for the three and nine months ended September 30, 2010 and 2009 to reflect the exclusion of the goodwill impairment charges, long-lived assets impairment charge and the ineffective portion of the Swap Transaction. This presentation facilitates a meaningful comparison of our operating results for the three and nine months ended September 30, 2010 and 2009. We presented adjusted EBITDA in the three and nine months ended September 30, 2010 and 2009 to exclude the non-cash goodwill and long-lived assets impairment total charges of $38.3 million and $38.2 million, respectively, as we believe this was a result of the current macroeconomic environment and not indicative of our operations. The exclusion of the goodwill and long-lived assets impairment charges to arrive at adjusted EBITDA is consistent with the definition of adjusted EBITDA in the amendment (the “Amended Credit Agreement”) to the Credit Agreement, therefore we believe this information is useful to investors in assessing our ability to meet our debt covenants.

 

 


 

American Reprographics Company
Consolidated Statements of Cash Flows

(Dollars in thousands)
(Unaudited)
                                 
    Three Months Ended     Nine Months Ended  
    September 30,     September 30,  
    2010     2009     2010     2009  
Cash flows from operating activities
                               
Net loss
  $ (25,217 )   $ (28,192 )   $ (22,775 )   $ (14,349 )
Adjustments to reconcile net loss to net cash provided by operating activities:
                               
Allowance for accounts receivable
    281       299       598       2,842  
Depreciation
    8,291       9,408       25,862       28,977  
Amortization of intangible assets
    2,466       2,777       7,659       8,674  
Amortization of deferred financing costs
    389       317       1,159       972  
Goodwill impairment
    38,263       37,382       38,263       37,382  
Impairment of long-lived assets
          781             781  
Stock-based compensation
    1,453       1,403       4,371       3,564  
Excess tax benefit related to stock-based compensation
          (13 )     (38 )     (18 )
Deferred income taxes
    (9,914 )     (3,929 )     (9,750 )     (2,258 )
Other noncash items, net
    416       37       102       (54 )
Changes in operating assets and liabilities, net of effect of business acquisitions:
                               
Accounts receivable
    751       5,503       (5,033 )     11,237  
Inventory
    829       (563 )     (456 )     355  
Prepaid expenses and other assets
    (3,582 )     (1,479 )     (5,516 )     3,675  
Accounts payable and accrued expenses
    (4,164 )     (4,165 )     3,562       (6,416 )
 
                       
Net cash provided by operating activities
    10,262       19,566       38,008       75,364  
 
                       
Cash flows from investing activities
                               
Capital expenditures
    (2,919 )     (1,928 )     (5,696 )     (5,852 )
Payments for businesses acquired, net of cash acquired and including other cash payments associated with the acquisitions
    (500 )     (1,102 )     (500 )     (2,023 )
Other
    (91 )     274       754       716  
 
                       
Net cash used in investing activities
    (3,510 )     (2,756 )     (5,442 )     (7,159 )
 
                       
Cash flows from financing activities
                               
Proceeds from stock option exercises
          46       125       63  
Proceeds from issuance of common stock under Employee Stock Purchase Plan
    21       70       37       116  
Excess tax benefit related to stock-based compensation
          13       38       18  
Payments on long-term debt agreements and capital leases
    (10,607 )     (14,632 )     (32,203 )     (55,838 )
Net borrowings (repayments) under revolving credit facility
    (327 )           (450 )      
Payment of loan fees
                      (44 )
 
                       
Net cash used in financing activities
    (10,913 )     (14,503 )     (32,453 )     (55,685 )
 
                       
Effect of foreign currency translation on cash balances
    243       (14 )     265       117  
 
                       
Net change in cash and cash equivalents
    (3,918 )     2,293       378       12,637  
Cash and cash equivalents at beginning of period
    33,673       56,886       29,377       46,542  
 
                       
Cash and cash equivalents at end of period
  $ 29,755     $ 59,179     $ 29,755     $ 59,179  
 
                       
 
                               
Supplemental disclosure of cash flow information
                               
Noncash investing and financing activities
                               
Noncash transactions include the following:
                               
Capital lease obligations incurred
  $ 2,408     $ 2,411     $ 6,802     $ 12,134  
Issuance of subordinated notes in connection with the acquisition of businesses
  $     $     $     $ 246  
Net gain (loss) on derivative
  $ 55     $ 289     $ (119 )   $ 2,476