-- A downturn 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 complete acquisitions, or failure to manage our
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, 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, and June 30, 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
November 1, 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, September 30,
------------ ------------
2006 2007
------------ ------------
Assets
Current assets:
Cash and cash equivalents $ 11,642 $ 20,157
Restricted cash 8,491 8,802
Accounts receivable, net 85,277 103,737
Inventories, net 7,899 10,588
Deferred income taxes 10,963 10,969
Prepaid expenses and other current assets 6,796 7,473
------------ ------------
Total current assets 131,068 161,726
Property and equipment, net 60,138 79,064
Goodwill 291,290 356,084
Other intangible assets, net 50,971 73,665
Deferred financing costs, net 895 970
Deferred income taxes 11,245 7,730
Other assets 1,974 2,135
------------ ------------
Total assets $ 547,581 $ 681,374
============ ============
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 33,447 $ 34,285
Accrued payroll and payroll-related expenses 15,666 16,880
Accrued expenses 25,810 19,117
Accrued litigation charge 13,947 14,358
Current portion of long-term debt and capital
leases 21,048 107,615
------------ ------------
Total current liabilities 109,918 192,255
Long-term debt and capital leases 252,097 244,280
Other long-term liabilities 1,322 2,380
------------ ------------
Total liabilities 363,337 438,915
------------ ------------
Commitments and contingencies
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; 44,346,099 and
45,558,629 shares issued and outstanding 45 46
Additional paid-in capital 75,465 80,328
Deferred stock-based compensation (1,224) (789)
Retained earnings 109,955 162,357
Accumulated other comprehensive income 3 517
------------ ------------
Total stockholders' equity 184,244 242,459
------------ ------------
Total liabilities and stockholders' equity $ 547,581 $ 681,374
============ ============
American Reprographics Company
Consolidated Statements of Income
(Dollars in thousands, except per share data)
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------- -----------------------
2006 2007 2006 2007
---------- ----------- ----------- -----------
Reprographics services $ 111,176 $ 131,655 $ 330,652 $ 384,690
Facilities management 25,814 29,241 73,437 84,581
Equipment and supplies
sales 15,548 15,316 40,778 44,937
---------- ----------- ----------- -----------
Total net sales 152,538 176,212 444,867 514,208
Cost of sales 85,531 103,548 251,686 298,948
---------- ----------- ----------- -----------
Gross profit 67,007 72,664 193,181 215,260
Selling, general and
administrative expenses 34,516 37,175 99,113 105,908
Litigation reserve 0 0 11,262 0
Amortization of intangible
assets 1,574 2,423 3,227 6,619
---------- ----------- ----------- -----------
Income from operations 30,917 33,066 79,579 102,733
Other (expense) income, net (358) 0 442 0
Interest expense, net 5,810 6,872 17,270 18,675
---------- ----------- ----------- -----------
Income before income tax
provision 24,749 26,194 62,751 84,058
Income tax provision 8,993 10,249 24,193 31,656
---------- ----------- ----------- -----------
Net income $ 15,756 $ 15,945 $ 38,558 $ 52,402
========== =========== =========== ===========
Earnings per share:
Basic $ 0.35 $ 0.35 $ 0.86 $ 1.15
========== =========== =========== ===========
Diluted $ 0.35 $ 0.35 $ 0.85 $ 1.14
========== =========== =========== ===========
Weighted average common
shares outstanding:
Basic 45,177,627 45,486,012 44,923,884 45,429,238
Diluted 45,663,040 45,865,453 45,483,702 45,848,177
American Reprographics Company
Non-GAAP Measures
Reconciliation of Net Income to EBIT and EBITDA
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,
-------------------- --------------------
2006 2007 2006 2007
--------- --------- --------- ---------
(Dollars in thousands)
Net income $ 15,756 $ 15,945 $ 38,558 $ 52,402
Interest expense, net 5,810 6,872 17,270 18,675
Income tax provision 8,993 10,249 24,193 31,656
--------- --------- --------- ---------
EBIT $ 30,559 $ 33,066 $ 80,021 $ 102,733
Depreciation and amortization 7,461 10,500 19,467 28,887
--------- --------- --------- ---------
EBITDA $ 38,020 $ 43,566 $ 99,488 $ 131,620
========= ========= ========= =========
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- --------------------
2006 2007 2006 2007
--------- --------- --------- ---------
(Dollars in thousands)
Cash flows provided by
operating activities $ 30,180 $ 25,754 $ 72,580 $ 71,120
Changes in operating assets
and liabilities (4,958) 2,695 (3,783) 14,817
Non-cash (expenses) income,
including depreciation and
amortization (9,466) (12,504) (30,239) (33,535)
Income tax provision 8,993 10,249 24,193 31,656
Interest expense 5,810 6,872 17,270 18,675
--------- --------- --------- ---------
EBIT $ 30,559 $ 33,066 $ 80,021 $ 102,733
Depreciation and amortization 7,461 10,500 19,467 28,887
--------- --------- --------- ---------
EBITDA $ 38,020 $ 43,566 $ 99,488 $ 131,620
========= ========= ========= =========
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)
Nine Months Ended
September 30,
------------------
2006 2007
-------- --------
Cash flows from operating activities
Net income $ 38,558 $ 52,402
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 16,240 22,268
Amortization of intangible assets 3,227 6,619
Amortization of deferred financing costs 294 357
Stock-based compensation 1,454 2,578
Excess tax benefit related to stock options
exercised (3,591) (1,541)
Deferred income taxes (1,334) 2,278
Write-off of deferred financing costs 117 -
Litigation charge 13,743 612
Other noncash items, net 89 364
Changes in operating assets and liabilities, net
of effect of business acquisitions:
Accounts receivable (13,755) (10,837)
Inventory 909 (488)
Prepaid expenses and other assets 507 654
Income taxes payable 9,851 (6,243)
Accounts payable and accrued expenses 6,271 2,097
-------- --------
Net cash provided by operating activities 72,580 71,120
-------- --------
Cash flows from investing activities
Capital expenditures (6,043) (7,112)
Payments for businesses acquired, net of cash acquired
and including other cash payments associated with
the acquisitions (59,179) (97,831)
Restricted cash (7,460) -
Other (203) 345
-------- --------
Net cash used in investing activities (72,885) (104,598)
-------- --------
Cash flows from financing activities
Proceeds from stock option exercises 1,807 1,098
Proceeds from issuance of common stock under Employee
Stock Purchase Plan 290 82
Excess tax benefit related to stock options exercised 3,591 1,541
Proceeds from borrowings under debt agreements 41,000 75,000
Payments on debt agreements and capital leases (55,071) (35,525)
Payment of loan fees (435) (433)
-------- --------
Net cash (used in) provided by financing activities (8,818) 41,763
-------- --------
Effect of foreign currency translation on cash balances - 230
-------- --------
Net change in cash and cash equivalents (9,123) 8,515
Cash and cash equivalents at beginning of period 22,643 11,642
-------- --------
Cash and cash equivalents at end of period $ 13,520 $ 20,157
======== ========
Supplemental disclosure of cash flow information
Noncash investing and financing activities
Noncash transactions include the following:
Capital lease obligations incurred $ 17,339 $ 28,738
Issuance of subordinated notes in connection with
the acquisition of businesses $ 11,432 $ 7,342
Stock issued for acquisition $ 8,500 $ -
Change in fair value of derivatives $ (100) $ (95)
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:dpasquale@theruthgroup.com