-- Revenue of $184.9 Million; Growth of 4.0% -- Reports Net Income of $18.9 Million, or Fully Diluted EPS of $0.42 -- Gross Margin of 42.8% -- Reaffirms Full-Year Forecast: Revenue of $720-$760, EPS of $1.52-$1.60American Reprographics Company (
-- The current downturn or a future general 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 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, 2007, and our quarterly report on Form 10-Q for the quarter ended March 31, 2008. 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 7, 2008, 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) June 30, December 31, ------------ ------------ 2008 2007 ------------ ------------ Assets Current assets: Cash and cash equivalents $ 16,782 $ 24,802 Restricted cash 13,549 937 Accounts receivable, net 101,754 97,934 Inventories, net 10,973 11,233 Deferred income taxes 5,792 5,791 Prepaid expenses and other current assets 11,782 10,234 ------------ ------------ Total current assets 160,632 150,931 Property and equipment, net 87,985 84,634 Goodwill 387,862 382,519 Other intangible assets, net 81,712 86,349 Deferred financing costs, net 4,204 5,170 Deferred income taxes 7,319 10,710 Other assets 2,193 2,298 ------------ ------------ Total assets $ 731,907 $ 722,611 ============ ============ Liabilities and Stockholders' Equity Current liabilities: Accounts payable $ 32,588 $ 35,659 Accrued payroll and payroll-related expenses 20,919 19,293 Accrued expenses 20,980 22,030 Current portion of long-term debt and capital leases 52,589 69,254 ------------ ------------ Total current liabilities 127,076 146,236 Long-term debt and capital leases 310,484 321,013 Other long-term liabilities 3,338 3,711 ------------ ------------ Total liabilities 440,898 470,960 ------------ ------------ 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; 45,654,726 and 45,561,773 shares issued and outstanding 46 46 Additional paid-in capital 83,073 81,153 Deferred stock-based compensation (415) (673) Retained earnings 216,466 179,092 Accumulated other comprehensive income (452) (258) ------------ ------------ 298,718 259,360 Less cost of common stock in treasury, 447,654 shares in 2008 and 2007 7,709 7,709 ------------ ------------ Total stockholders' equity 291,009 251,651 ------------ ------------ Total liabilities and stockholders' equity $ 731,907 $ 722,611 ============ ============ 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, 2008 2007 2008 2007 ---------- ----------- ---------- ----------- Reprographics services $ 139,211 $ 133,257 $ 281,707 $ 253,035 Facilities management 31,209 28,984 60,760 55,340 Equipment and supplies sales 14,521 15,542 29,917 29,621 ---------- ----------- ---------- ----------- Total net sales 184,941 177,783 372,384 337,996 Cost of sales 105,853 102,967 213,693 195,401 ---------- ----------- ---------- ----------- Gross profit 79,088 74,816 158,691 142,595 Selling, general and administrative expenses 39,499 34,499 79,020 68,733 Amortization of intangible assets 2,813 2,451 6,001 4,196 ---------- ----------- ---------- ----------- Income from operations 36,776 37,866 73,670 69,666 Other income (43) - (245) - Interest expense, net 6,559 6,642 13,705 11,802 ---------- ----------- ---------- ----------- Income before income tax provision 30,260 31,224 60,210 57,864 Income tax provision 11,384 11,612 22,836 21,407 ---------- ----------- ---------- ----------- Net income $ 18,876 $ 19,612 $ 37,374 $ 36,457 ========== =========== ========== =========== Earnings per share: Basic $ 0.42 $ 0.43 $ 0.83 $ 0.80 ========== =========== ========== =========== Diluted $ 0.42 $ 0.43 $ 0.82 $ 0.80 ========== =========== ========== =========== Weighted average common shares outstanding: Basic 45,051,449 45,455,828 45,048,244 45,400,380 Diluted 45,441,766 45,880,187 45,407,309 45,832,024 American Reprographics Company Non-GAAP Measures Reconciliation of Net Income to EBIT and EBITDA (Dollars in thousands, except per share data) (Unaudited) Three Months Ended Six Months Ended June 30, June 30, 2008 2007 2008 2007 -------- -------- -------- -------- Net income $ 18,876 $ 19,612 $ 37,374 $ 36,457 Interest expense, net 6,559 6,642 13,705 11,802 Income tax provision 11,384 11,612 22,836 21,407 -------- -------- -------- -------- EBIT 36,819 37,866 73,915 69,666 Depreciation and amortization 12,216 10,029 24,333 18,387 -------- -------- -------- -------- EBITDA $ 49,035 $ 47,895 $ 98,248 $ 88,053 ======== ======== ======== ======== Three Months Ended Six Months Ended June 30, June 30, 2008 2007 2008 2007 -------- -------- -------- -------- Cash flows provided by operating activities $ 41,137 $ 33,959 $ 61,485 $ 45,365 Changes in operating assets and liabilities (6,096) (2,711) 6,819 12,121 Non-cash (expenses) income, including depreciation and amortization (16,165) (11,636) (30,930) (21,029) Income tax provision 11,384 11,612 22,836 21,407 Interest expense 6,559 6,642 13,705 11,802 -------- -------- -------- -------- EBIT 36,819 37,866 73,915 69,666 Depreciation and amortization 12,216 10,029 24,333 18,387 -------- -------- -------- -------- EBITDA $ 49,035 $ 47,895 $ 98,248 $ 88,053 ======== ======== ======== ========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. Amortization does not include $1.1 million and $1.0 million of stock based compensation expense, for the three months ended June 30, 2008 and 2007, respectively and $2.0 million and $1.6 million of stock based compensation expense, for the six months ended June 30, 2008 and 2007, respectively. We present EBIT and 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. 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 operating 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 approximately 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, 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 and EBITDA only as supplements. For more information, see our consolidated financial statements and related notes elsewhere in this report. Additionally, please refer to our 2007 Annual Report on Form 10-K.
American Reprographics Company Consolidated Statements of Cash Flows (Dollars in thousands) (Unaudited) Six Months Ended June 30, ------------------ 2008 2007 -------- -------- Cash flows from operating activities Net income $ 37,374 $ 36,457 Adjustments to reconcile net income to net cash provided by operating activities: Allowance for doubtful accounts 1,909 438 Depreciation 18,332 14,191 Amortization of intangible assets 6,001 4,196 Amortization of deferred financing costs 600 215 Stock-based compensation 2,029 1,569 Excess tax benefit related to stock options exercised (54) (1,534) Deferred income taxes 2,239 1,840 Write-off of deferred financing costs 313 - Litigation charge - 407 Other noncash items, net (439) (292) Changes in operating assets and liabilities, net of effect of business acquisitions: Accounts receivable (5,088) (9,775) Inventory 726 (362) Prepaid expenses and other assets (987) (2,583) Accounts payable and accrued expenses (1,470) 598 -------- -------- Net cash provided by operating activities 61,485 45,365 -------- -------- Cash flows from investing activities Capital expenditures (4,332) (5,232) Payments for businesses acquired, net of cash acquired and including other cash payments associated with the acquisitions (5,478) (86,546) Restricted cash (12,612) - Other 785 283 -------- -------- Net cash used in investing activities (21,637) (91,495) -------- -------- Cash flows from financing activities Proceeds from stock option exercises 70 1,080 Proceeds from issuance of common stock under Employee Stock Purchase Plan 25 52 Excess tax benefit related to stock options exercised 54 1,534 Proceeds from borrowings under debt agreements - 50,000 Payments on long-term debt agreements and capital leases (25,254) (12,952) Net (repayments) borrowings under revolving credit facility (22,000) 11,629 Payment of loan fees (726) (429) -------- -------- Net cash (used in) provided by financing activities (47,831) 50,914 -------- -------- Effect of foreign currency translation on cash balances (37) - -------- -------- Net change in cash and cash equivalents (8,020) 4,784 Cash and cash equivalents at beginning of period 24,802 11,642 -------- -------- Cash and cash equivalents at end of period $ 16,782 $ 16,426 ======== ======== Supplemental disclosure of cash flow information Noncash investing and financing activities Noncash transactions include the following: Capital lease obligations incurred $ 18,353 $ 19,589 Issuance of subordinated notes in connection with the acquisition of businesses $ 1,817 $ 4,550 Change in fair value of derivatives, net of tax effects $ (3) $ 66
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