American Reprographics Reports Results for Third Quarter 2010

November 02, 2010

WALNUT CREEK, CA, Nov 02, 2010 (MARKETWIRE via COMTEX) --

American Reprographics Company (NYSE: ARP)

-- Adjusted EPS of $0.01 per share -- Cash from Operating Activities of $10.3 million 

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.

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 Nine Months Ended September 30, 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 Nine Months Ended September 30, 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 and adjusted EBITDA (Dollars in thousands) (Unaudited) Three Months Ended Nine Months Ended September 30, 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 
Contacts: David Stickney American Reprographics Company Phone: 925-949-5100 Joseph Villalta The Ruth Group Phone: 646-536-7003 

SOURCE: American Reprographics Company