-- 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
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