-- Future downturns in the architectural, engineering and construction
industries could diminish demand for our products and services
-- Competition in our industry and innovation by our competitors may
hinder our ability to execute our business strategy and maintain our
profitability
-- Failure to anticipate and adapt to future changes in our industry
could harm our competitive position
-- Failure to manage our acquisitions, including our inability to
integrate and merge the business operations of the acquired companies, and
failure to retain key personnel and customers of acquired companies could
have a negative effect on our future performance, results of operations and
financial condition
-- Dependence on certain key vendors for equipment, maintenance services
and supplies, could make us vulnerable to supply shortages and price
fluctuations
-- Damage or disruption to our facilities, our technology centers, our
vendors or a majority of our customers could impair our ability to
effectively provide our services and may have a significant impact on our
revenues, expenses and financial condition
-- If we fail to continue to develop and introduce new services
successfully, our competitive positioning and our ability to grow our
business could be harmed.
The foregoing list of risks and uncertainties is illustrative but is by no
means exhaustive. For more information on factors that may affect future
performance, please review our SEC filings, specifically our annual report
on Form 10-K for the year ended December 31, 2006, our final prospectus
supplement dated March 8, 2007, and our quarterly report on Form 10-Q for
the quarter ended March 31, 2007. These documents contain important risk
factors that could cause actual results to differ materially from those
contained in our projections or forward-looking statements. These
forward-looking statements are based on information as of August 8, 2007,
and except as required by law, the Company undertakes no obligation to
update or revise any forward-looking statements.
American Reprographics Company
Consolidated Balance Sheets
(Dollars in thousands, except per share data)
(Unaudited)
December 31, June 30,
----------- -----------
2006 2007
----------- -----------
Assets
Current assets:
Cash and cash equivalents $ 11,642 $ 16,426
Restricted cash 8,491 8,697
Accounts receivable, net 85,277 102,491
Inventories, net 7,899 10,354
Deferred income taxes 10,963 10,967
Prepaid expenses and other current assets 6,796 9,946
----------- -----------
Total current assets 131,068 158,881
Property and equipment, net 60,138 75,704
Goodwill 291,290 351,848
Other intangible assets, net 50,971 73,663
Deferred financing costs, net 895 1,108
Deferred income taxes 11,245 6,748
Other assets 1,974 2,100
----------- -----------
Total assets $ 547,581 $ 670,052
=========== ===========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 33,447 $ 33,814
Accrued payroll and payroll-related expenses 15,666 19,471
Accrued expenses 25,810 25,789
Accrued litigation charge 13,947 14,154
Current portion of long-term debt and capital
leases 21,048 40,332
----------- -----------
Total current liabilities 109,918 133,560
Long-term debt and capital leases 252,097 308,798
Other long-term liabilities 1,322 2,477
----------- -----------
Total liabilities 363,337 444,835
----------- -----------
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.001 par value, 25,000,000
shares authorized; zero and zero shares
issued and outstanding -- --
Common stock, $.001 par value, 150,000,000
shares authorized; 44,346,099 and 45,544,202
shares issued and outstanding 45 45
Additional paid-in capital 75,465 79,381
Deferred stock-based compensation (1,224) (905)
Retained earnings 109,955 146,412
Accumulated other comprehensive income 3 284
----------- -----------
Total stockholders' equity 184,244 225,217
----------- -----------
Total liabilities and stockholders' equity $ 547,581 $ 670,052
=========== ===========
American Reprographics Company
Consolidated Statements of Income
(Dollars in thousands, except per share data)
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
---------------------- ----------------------
2006 2007 2006 2007
---------- ---------- ---------- ----------
Reprographics services $ 114,658 $ 133,257 $ 219,475 $ 253,035
Facilities management 24,691 28,984 47,623 55,340
Equipment and supplies
sales 12,178 15,542 25,231 29,621
---------- ---------- ---------- ----------
Total net sales 151,527 177,783 292,329 337,996
Cost of sales 85,713 102,967 166,156 195,401
---------- ---------- ---------- ----------
Gross profit 65,814 74,816 126,173 142,595
Selling, general and
administrative expenses 33,112 34,499 64,598 68,733
Litigation Reserve 11,262 0 11,262 0
Amortization of intangible
assets 867 2,451 1,652 4,196
---------- ---------- ---------- ----------
Income from operations 20,573 37,866 48,661 69,666
Other income, net 472 0 801 0
Interest expense, net (7,001) (6,642) (11,460) (11,802)
---------- ---------- ---------- ----------
Income before income tax
provision 14,044 31,224 38,002 57,864
Income tax provision 5,617 11,612 15,200 21,407
---------- ---------- ---------- ----------
Net income $ 8,427 $ 19,612 $ 22,802 $ 36,457
========== ========== ========== ==========
Earnings per share:
Basic $ 0.19 $ 0.43 $ 0.51 $ 0.80
========== ========== ========== ==========
Diluted $ 0.18 $ 0.43 $ 0.50 $ 0.80
========== ========== ========== ==========
Weighted average common
shares outstanding:
Basic 44,932,873 45,455,828 44,779,662 45,400,380
Diluted 45,510,158 45,880,187 45,312,592 45,832,024
American Reprographics Company
Non-GAAP Measures
Reconciliation of Net Income to EBIT and EBITDA
(Dollars in thousands)
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
------------------- -------------------
2006 2007 2006 2007
-------- -------- -------- --------
(Dollars in thousands)
Net income $ 8,427 $ 19,612 $ 22,802 $ 36,457
Interest expense, net 7,001 6,642 11,460 11,802
Income tax provision 5,617 11,612 15,200 21,407
-------- -------- -------- --------
EBIT $ 21,045 $ 37,866 $ 49,462 $ 69,666
Depreciation and amortization 6,371 10,029 12,006 18,387
-------- -------- -------- --------
EBITDA $ 27,416 $ 47,895 $ 61,468 $ 88,053
======== ======== ======== ========
See Note 1 for additional information regarding non-GAAP measures.
Note 1. Non -GAAP Measures
EBIT and EBITDA and related ratios presented in this report are
supplemental measures of our performance that are not required by or
presented in accordance with 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 flow 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.
We present EBIT and EBITDA 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 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. 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 division-level compensation and use EBITDA to
measure performance for determining consolidated-level compensation. We
also use EBITDA as a metric to manage cash flow from our operating segments
to the corporate level and to determine the financial health of each
operating segment. As noted above, since debt and taxation are managed at
the corporate level the cash flow from each operating segment should be
equal to the corresponding EBITDA of each operating segment, assuming no
other changes to an operating segment's balance sheet. As a result, we
reconcile EBITDA to cash flow monthly as one of our key internal controls.
We also use EBIT and EBITDA to evaluate potential acquisitions and to
evaluate whether to incur capital expenditures.
EBIT, and EBITDA 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 and EBITDA 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 and EBITDA only as
supplements.
American Reprographics Company
Consolidated Statements of Cash Flows
(Dollars in thousands)
(Unaudited)
Six Months Ended
June 30,
--------------------------
2006 2007
----------- -----------
Cash flows from operating activities
Net income $ 22,802 $ 36,457
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 10,354 14,191
Amortization of intangible assets 1,652 4,196
Amortization of deferred financing costs 151 215
Stock-based compensation 1,025 1,569
Excess tax benefit related to stock options
exercised (3,353) (1,534)
Deferred income taxes (3,315) 1,840
Write-off of deferred financing costs 57 -
Litigation Charge 13,539 407
Other non-cash items, net 663 146
Changes in operating assets and
liabilities, net of effect of business
acquisitions:
Accounts receivable (12,675) (9,775)
Inventory (25) (362)
Prepaid expenses and other assets 570 (2,583)
Income Taxes Payable 3,756 (5,464)
Accounts payable and accrued expenses 7,199 6,062
----------- -----------
Net cash provided by operating activities 42,400 45,365
----------- -----------
Cash flows from investing activities
Capital expenditures (3,808) (5,232)
Payments for businesses acquired, net of cash
acquired and including other cash payments
associated with the acquisitions (16,106) (86,546)
Other (202) 283
----------- -----------
Net cash used in investing activities (20,116) (91,495)
----------- -----------
Cash flows from financing activities
Proceeds from stock option exercises 1,665 1,080
Proceeds from issuance of common stock under
Employee Stock Purchase Plan 238 52
Excess tax benefit related to stock options
exercised 3,353 1,534
Proceeds from borrowings under debt agreements 5,000 70,000
Payments on debt agreements and capital leases (31,943) (21,323)
Payment of loan fees (141) (429)
----------- -----------
Net cash (used in) provided by financing
activities (21,828) 50,914
----------- -----------
Net change in cash and cash equivalents 456 4,784
Cash and cash equivalents at beginning of
period 22,643 11,642
----------- -----------
Cash and cash equivalents at end of period $ 23,099 $ 16,426
=========== ===========
Supplemental disclosure of cash flow
information
Noncash investing and financing activities
Noncash transactions include the following:
Capital lease obligations incurred $ 12,222 $ 19,589
Issuance of subordinated notes in connection
with the acquisition of businesses $ 8,815 $ 4,550
Change in fair value of derivatives $ 281 $ 66
Contact Information: Contacts: David Stickney VP of Corporate Communications Phone: 925-949-5100 Email: David Pasquale EVP of The Ruth Group Phone: 646-536-7006 Email: