ARC DOCUMENT SOLUTIONS, INC., 10-K filed on 3/8/2012
Annual Report
Document and Entity Information (USD $)
12 Months Ended
Dec. 31, 2011
Mar. 1, 2012
Jun. 30, 2011
Document and Entity Information [Abstract]
 
 
 
Entity Registrant Name
American Reprographics CO 
 
 
Entity Central Index Key
0001305168 
 
 
Document Type
10-K 
 
 
Document Period End Date
Dec. 31, 2011 
 
 
Amendment Flag
false 
 
 
Document Fiscal Year Focus
2011 
 
 
Document Fiscal Period Focus
FY 
 
 
Current Fiscal Year End Date
--12-31 
 
 
Entity Well-known Seasoned Issuer
No 
 
 
Entity Voluntary Filers
No 
 
 
Entity Current Reporting Status
Yes 
 
 
Entity Filer Category
Accelerated Filer 
 
 
Entity Public Float
 
 
$ 268,988,189 
Entity Common Stock, Shares Outstanding
 
46,234,747 
 
Consolidated Balance Sheets (USD $)
In Thousands, unless otherwise specified
Dec. 31, 2011
Dec. 31, 2010
Current assets:
 
 
Cash and cash equivalents
$ 25,437 
$ 26,293 
Accounts receivable, net of allowances for accounts receivable of $3,309 and $4,030
54,713 
52,619 
Inventories, net
12,107 
10,689 
Deferred income taxes
7,157 
Prepaid expenses
3,999 
4,074 
Other current assets
7,541 
6,870 
Total current assets
103,797 
107,702 
Property and equipment, net of accumulated depreciation of $191,598 and $211,875
55,084 
59,036 
Goodwill
229,315 
294,759 
Other intangible assets, net
45,127 
62,643 
Deferred financing fees, net
4,574 
4,995 
Deferred income taxes
1,368 
37,835 
Other assets
2,092 
2,115 
Total assets
441,357 
569,085 
Current liabilities:
 
 
Accounts payable
21,787 
23,593 
Accrued payroll and payroll-related expenses
7,292 
7,980 
Accrued expenses
19,308 
30,134 
Current portion of long-term debt and capital leases
15,005 
23,608 
Total current liabilities
63,392 
85,315 
Long-term debt and capital leases
211,259 
216,016 
Deferred income taxes
26,447 
Other long-term liabilities
3,194 
5,072 
Total liabilities
304,292 
306,403 
Commitments and contingencies (Note 7)
   
   
American Reprographics Company stockholders' equity:
 
 
Preferred stock, $0.001 par value, 25,000 shares authorized; 0 shares issued and outstanding
Common stock, $0.001 par value, 150,000 shares authorized; 46,235 and 46,183 shares issued and 46,235 and 45,736 shares outstanding
46 
46 
Additional paid-in capital
99,728 
96,251 
Retained earnings
32,663 
173,459 
Accumulated other comprehensive loss
(1,760)
(5,541)
Total Stockholders Equity Before Adjustment of Treasury Stock
130,677 
264,215 
Less cost of common stock in treasury, 0 and 447 shares
7,709 
Total American Reprographics Company stockholders' equity
130,677 
256,506 
Noncontrolling interest
6,388 
6,176 
Total equity
137,065 
262,682 
Total liabilities and equity
$ 441,357 
$ 569,085 
Consolidated Balance Sheets (Parenthetical) (USD $)
In Thousands, except Per Share data, unless otherwise specified
Dec. 31, 2011
Dec. 31, 2010
Consolidated Balance Sheets [Abstract]
 
 
Allowances for accounts receivable
$ 3,309 
$ 4,030 
Accumulated depreciation on property and equipment
$ 191,598 
$ 211,875 
Preferred stock, par value
$ 0.001 
$ 0.001 
Preferred stock, shares authorized
25,000 
25,000 
Preferred stock, shares issued
Preferred stock, shares outstanding
Common stock, par value
$ 0.001 
$ 0.001 
Common stock, shares authorized
150,000 
150,000 
Common stock, shares issued
46,235 
46,183 
Common stock, shares outstanding
46,235 
45,736 
Treasury stock, shares
447 
Consolidated Statements of Operations (USD $)
In Thousands, except Per Share data, unless otherwise specified
12 Months Ended
Dec. 31, 2011
Dec. 31, 2010
Dec. 31, 2009
Net sales
$ 422,732 
$ 441,639 
$ 501,549 
Cost of sales
288,434 
299,307 
323,360 
Gross profit
134,298 
142,332 
178,189 
Selling, general and administrative expenses
101,315 
107,744 
115,020 
Amortization of intangible assets
18,715 
11,657 
11,367 
Goodwill impairment
65,444 
38,263 
37,382 
Impairment of long-lived assets
 
 
781 
(Loss) income from operations
(51,176)
(15,332)
13,639 
Other income, net
(103)
(156)
(171)
Interest expense, net
31,104 
24,091 
25,781 
Loss on early extinguishment of debt
 
2,509 
 
Loss before income tax provision (benefit)
(82,177)
(41,776)
(11,971)
Income tax provision (benefit)
50,931 
(14,186)
3,018 
Net loss
(133,108)
(27,590)
(14,989)
Loss attributable to noncontrolling interest
21 
88 
104 
Net loss attributable to American Reprographics Company
(133,087)
(27,502)
(14,885)
Loss per share attributable to American Reprographics Company shareholders:
 
 
 
Basic
$ (2.93)
$ (0.61)
$ (0.33)
Diluted
$ (2.93)
$ (0.61)
$ (0.33)
Weighted average common shares outstanding:
 
 
 
Basic
45,401 
45,213 
45,123 
Diluted
45,401 
45,213 
45,123 
Reprographics Services
 
 
 
Net sales
267,531 
294,555 
350,491 
Facilities Management
 
 
 
Net sales
100,682 
89,994 
97,401 
Equipment and Supplies Sales
 
 
 
Net sales
$ 54,519 
$ 57,090 
$ 53,657 
Consolidated Statements of Equity and Comprehensive Loss (USD $)
In Thousands, unless otherwise specified
Total
American Reprographics Company Shareholders Common Stock
American Reprographics Company Shareholders Additional Paid-In Capital
American Reprographics Company Shareholders Deferred Compensation
American Reprographics Company Shareholders Retained Earnings
American Reprographics Company Shareholders Accumulated Other Comprehensive Loss
American Reprographics Company Shareholders Common Stock in Treasury
Noncontrolling Interest
Balance at Dec. 31, 2008
$ 287,902 
$ 46 
$ 85,207 
$ (195)
$ 215,846 
$ (11,414)
$ (7,709)
$ 6,121 
Balance, shares at Dec. 31, 2008
 
45,227 
 
 
 
 
 
 
Stock-based compensation
4,892 
 
4,697 
195 
 
 
 
 
Stock-based compensation, shares
 
396 
 
 
 
 
 
 
Issuance of common stock under Employee Stock Purchase Plan
164 
 
164 
 
 
 
 
 
Issuance of common stock under Employee Stock Purchase Plan, shares
 
30 
 
 
 
 
 
 
Stock options exercised
63 
 
63 
 
 
 
 
 
Stock options exercised, shares
 
12 
 
 
 
 
 
 
Tax deficiency from stock-based compensation, net of tax benefit
(149)
 
(149)
 
 
 
 
 
Comprehensive loss
 
 
 
 
 
 
 
 
Net loss
(14,989)
 
 
 
(14,885)
 
 
(104)
Foreign currency translation adjustments
823 
 
 
 
 
823 
 
 
Gain on derivative, net of tax effect
3,318 
 
 
 
 
3,318 
 
 
Comprehensive loss
(10,848)
 
 
 
 
 
 
 
Balance at Dec. 31, 2009
282,024 
46 
89,982 
200,961 
(7,273)
(7,709)
6,017 
Balance, shares at Dec. 31, 2009
 
45,665 
 
 
 
 
 
 
Stock-based compensation
5,922 
 
5,922 
 
 
 
 
 
Stock-based compensation, shares
 
15 
 
 
 
 
 
 
Issuance of common stock under Employee Stock Purchase Plan
64 
 
64 
 
 
 
 
 
Issuance of common stock under Employee Stock Purchase Plan, shares
 
 
 
 
 
 
 
Stock options exercised
242 
 
242 
 
 
 
 
 
Stock options exercised, shares
 
47 
 
 
 
 
 
 
Tax deficiency from stock-based compensation, net of tax benefit
41 
 
41 
 
 
 
 
 
Comprehensive loss
 
 
 
 
 
 
 
 
Net loss
(27,590)
 
 
 
(27,502)
 
 
(88)
Foreign currency translation adjustments
854 
 
 
 
 
607 
 
247 
Gain on derivative, net of tax effect
1,125 
 
 
 
 
1,125 
 
 
Comprehensive loss
(25,611)
 
 
 
 
 
 
 
Balance at Dec. 31, 2010
262,682 
46 
96,251 
173,459 
(5,541)
(7,709)
6,176 
Balance, shares at Dec. 31, 2010
45,736 
45,736 
 
 
 
 
 
 
Stock-based compensation
4,271 
 
4,271 
 
 
 
 
 
Stock-based compensation, shares
 
470 
 
 
 
 
 
 
Issuance of common stock under Employee Stock Purchase Plan
50 
 
50 
 
 
 
 
 
Issuance of common stock under Employee Stock Purchase Plan, shares
 
12 
 
 
 
 
 
 
Stock options exercised
108 
 
108 
 
 
 
 
 
Stock options exercised, shares
 
17 
 
 
 
 
 
 
Tax deficiency from stock-based compensation, net of tax benefit
(952)
 
(952)
 
 
 
 
 
Retirement of 447 treasury shares
 
 
 
 
(7,709)
 
7,709 
 
Comprehensive loss
 
 
 
 
 
 
 
 
Net loss
(133,108)
 
 
 
(133,087)
 
 
(21)
Foreign currency translation adjustments
449 
 
 
 
 
216 
 
233 
Comprehensive loss
(129,094)
 
 
 
 
 
 
 
Amortization of derivative, net of tax effect
3,565 
 
 
 
 
3,565 
 
 
Balance at Dec. 31, 2011
$ 137,065 
$ 46 
$ 99,728 
$ 0 
$ 32,663 
$ (1,760)
$ 0 
$ 6,388 
Balance, shares at Dec. 31, 2011
46,235 
46,235 
 
 
 
 
 
 
Consolidated Statements of Equity and Comprehensive Loss (Parenthetical)
In Thousands, unless otherwise specified
12 Months Ended
Dec. 31, 2011
American Reprographics Company Shareholders Retained Earnings
 
Treasury shares, retired
447 
American Reprographics Company Shareholders Common Stock in Treasury
 
Treasury shares, retired
447 
Consolidated Statements of Cash Flows (USD $)
In Thousands, unless otherwise specified
12 Months Ended
Dec. 31, 2011
Dec. 31, 2010
Dec. 31, 2009
Cash flows from operating activities
 
 
 
Net loss
$ (133,108)
$ (27,590)
$ (14,989)
Adjustments to reconcile net loss to net cash provided by operating activities:
 
 
 
Allowance for accounts receivable
1,034 
966 
3,044 
Depreciation
29,161 
33,992 
38,176 
Amortization of intangible assets
18,715 
11,657 
11,367 
Amortization of deferred financing fees
887 
1,491 
1,357 
Amortization of bond discount
549 
44 
 
Goodwill impairment
65,444 
38,263 
37,382 
Impairment of long-lived assets
 
 
781 
Stock-based compensation
4,271 
5,922 
4,892 
Excess tax benefit related to stock-based compensation
 
(58)
(18)
Deferred income taxes
673 
(12,657)
(4,477)
Deferred tax valuation allowance
68,546 
 
 
Loss on early extinguishment of debt
 
2,509 
 
Write-off of deferred financing fees
 
 
190 
Amortization of derivative, net of tax effect
3,565 
 
 
Other noncash items, net
(417)
340 
(199)
Changes in operating assets and liabilities, net of effect of business acquisitions:
 
 
 
Accounts receivable
(2,582)
469 
21,099 
Inventory
(1,170)
1,344 
Prepaid expenses and other assets
(453)
(4,098)
6,302 
Accounts payable and accrued expenses
(5,947)
2,666 
(8,826)
Net cash provided by operating activities
49,168 
53,924 
97,425 
Cash flows from investing activities
 
 
 
Capital expenditures
(15,553)
(8,634)
(7,506)
Payments for businesses acquired, net of cash acquired and including other cash payments associated with the acquisitions
(823)
(870)
(3,527)
Payment for swap transaction
(9,729)
 
 
Other
923 
1,002 
1,684 
Net cash used in investing activities
(25,182)
(8,502)
(9,349)
Cash flows from financing activities
 
 
 
Proceeds from stock option exercises
108 
242 
63 
Proceeds from issuance of common stock under Employee Stock Purchase Plan
62 
51 
164 
Excess tax benefit related to stock-based compensation
 
58 
18 
Proceeds from bond issuance
 
195,648 
 
Payments on long-term debt agreements and capital leases
(25,179)
(238,989)
(105,008)
Net borrowings (repayments) under revolving credit facility
701 
(1,536)
1,523 
Payment of deferred financing fees
(799)
(4,473)
(2,092)
Net cash used in financing activities
(25,107)
(48,999)
(105,332)
Effect of foreign currency translation on cash balances
265 
493 
91 
Net change in cash and cash equivalents
(856)
(3,084)
(17,165)
Cash and cash equivalents at beginning of period
26,293 
29,377 
46,542 
Cash and cash equivalents at end of period
25,437 
26,293 
29,377 
Cash paid for:
 
 
 
Interest
25,215 
20,627 
24,733 
Income taxes (received) paid, net
(13,488)
1,395 
2,507 
Noncash investing and financing activities:
 
 
 
Capital lease obligations incurred
10,678 
10,305 
16,181 
Liabilities in connection with the acquisition of businesses
548 
231 
466 
Liabilities in connection with deferred financing fees
107 
440 
 
Net gain on derivative, net of tax effect
 
$ 1,125 
$ 3,318 
Description of Business and Basis of Presentation
DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION

1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION

American Reprographics Company (“ARC” or the “Company”) is the largest reprographics company in the United States providing specialized document solutions to businesses of all types, with an emphasis on the non-residential segment of the architectural, engineering and construction (“AEC”) industry. ARC offers conventional reprographic services, as well as managed print services, digital color printing, and proprietary document management technology products and services. In addition to the AEC industry, ARC also provides these services to companies in non-AEC industries, such as retail, aerospace, technology, financial services, entertainment, and healthcare, among others, that require sophisticated document management services. The Company conducts its operations through its wholly-owned operating subsidiary, American Reprographics Company, L.L.C., a California limited liability company, and its subsidiaries.

Basis of Presentation

The accompanying Consolidated Financial Statements include the accounts of the Company and its subsidiaries. All material intercompany accounts and transactions have been eliminated in consolidation.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the amounts reported in the Consolidated Financial Statements and accompanying notes. The Company evaluates its estimates and assumptions on an ongoing basis and relies on historical experience and various other factors that it believes to be reasonable under the circumstances to determine such estimates. Actual results could differ from those estimates and such differences may be material to the Consolidated Financial Statements.

Risk and Uncertainties

The Company generates the majority of its revenue from sales of products and services provided to the AEC industry. As a result, the Company’s operating results and financial condition can be significantly affected by economic factors that influence the AEC industry, such as non-residential and residential construction spending, GDP growth, interest rates, employment rates, and office vacancy rates. The effects of the current economic environment in the United States, and weakness in global economic conditions, have resulted in a significant reduction of activity in the non-residential and residential portions of the AEC industry. The AEC industry generally experiences downturns several months after a downturn in the general economy and there may be a similar delay in the recovery of the AEC industry following a recovery in the general economy. Similar to the AEC industry, the reprographics industry typically lags a recovery in the broader economy. A continued downturn in the AEC industry and the reprographics industry would further diminish demand for some of ARC’s products and services, and would therefore negatively impact revenues and have a material adverse impact on its business, operating results and financial condition.

Summary of Significant Accounting Policies
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Cash Equivalents

Cash equivalents include demand deposits and short-term investments with a maturity of three months or less when purchased. UNIS Document Solutions Co. Ltd. (“UDS”), the Company’s business venture with Unisplendour Corporation Limited (“Unisplendour”), holds $13.1 million of the Company’s cash and cash equivalents.

The Company maintains its cash deposits at numerous banks located throughout the United States, Canada, India, the United Kingdom and China, which at times, may exceed federally insured limits. The Company has not experienced any losses in such accounts and believes it is not exposed to any significant risk on cash and cash equivalents.

Concentrations of Credit Risk and Significant Vendors

Concentrations of credit risk with respect to trade receivables are limited due to a large, diverse customer base. No individual customer represented more than 3% of net sales during the years ended December 31, 2011, 2010 and 2009, respectively.

The Company has geographic concentration risk as sales in California, as a percent of total sales, were approximately 32%, 32% and 33% for the years ended December 31, 2011, 2010 and 2009, respectively.

The Company contracts with various suppliers. Although there are a limited number of suppliers that could supply the Company’s inventory, management believes any shortfalls from existing suppliers would be absorbed from other suppliers on comparable terms. However, a change in suppliers could cause a delay in sales and adversely affect results.

Purchases from the Company’s three largest vendors during the years ended December 31, 2011, 2010 and 2009 comprised approximately 37%, 41%, and 51% respectively, of the Company’s total purchases of inventory and supplies.

Allowance for Doubtful Accounts

The Company performs periodic credit evaluations of the financial condition of its customers, monitors collections and payments from customers, and generally does not require collateral. The Company provides for the possible inability to collect accounts receivable by recording an allowance for doubtful accounts. The Company writes off an account when it is considered uncollectible. The Company estimates the allowance for doubtful accounts based on historical experience, aging of accounts receivable, and information regarding the credit worthiness of its customers. Additionally, the Company provides an allowance for returns and discounts based on historical experience. In 2011, 2010, and 2009 the Company recorded expenses of $1.0 million, $1.0 million and $3.0 million, respectively, related to the allowance for doubtful accounts.

 

Inventories

Inventories are valued at the lower of cost (determined on a first-in, first-out basis; or average cost) or market. Inventories primarily consist of reprographics materials for use and resale, and equipment for resale. On an ongoing basis, inventories are reviewed and adjusted for estimated obsolescence or unmarketable inventories to reflect the lower of cost or market. Charges to increase inventory reserves are recorded as an increase in cost of sales. Estimated inventory obsolescence has been provided for in the financial statements and has been within the range of management’s expectations. As of December 31, 2011 and 2010, the reserves for inventory obsolescence amounted to $0.9 million and $0.7 million, respectively.

Income Taxes

Deferred tax assets and liabilities reflect temporary differences between the amount of assets and liabilities for financial and tax reporting purposes. Such amounts are adjusted, as appropriate, to reflect changes in tax rates expected to be in effect when the temporary differences reverse. A valuation allowance is recorded to reduce the Company’s deferred tax assets to the amount that is more likely than not to be realized. Changes in tax laws or accounting standards and methods may affect recorded deferred taxes in future periods.

When establishing a valuation allowance, the Company considers future sources of taxable income such as future reversals of existing taxable temporary differences, future taxable income exclusive of reversing temporary differences and carryforwards, and tax planning strategies. A tax planning strategy is an action that: is prudent and feasible; an enterprise ordinarily might not take, but would take to prevent an operating loss or tax credit carryforward from expiring unused; and would result in realization of deferred tax assets. In the event the Company determines the deferred tax assets, more likely than not, will not be realized in the future, the valuation adjustment to the deferred tax assets will be charged to earnings in the period in which it makes such a determination. As of June 30, 2011, the Company determined that cumulative losses for the preceding twelve quarters constituted sufficient objective evidence (as defined by ASC 740-10) that a valuation allowance was needed. As of December 31, 2011, the valuation allowance against certain deferred tax assets was $68.5 million.

Management continues to evaluate the Company’s historical results for the preceding twelve quarters and its future projections to determine whether sufficient taxable revenue will be generated in future periods to utilize its deferred tax assets, and whether a partial or full allowance is still required. Should the Company generate sufficient taxable income, however, a portion or all of the then current valuation allowance may be reversed.

The Company calculates its current and deferred tax provision based on estimates and assumptions that could differ from the actual results reflected in income tax returns filed in subsequent years. Adjustments based on filed returns are recorded when identified.

Income taxes have not been provided on certain undistributed earnings of international subsidiaries because such earnings are considered to be permanently reinvested.

The amount of income taxes the Company reports to the various tax jurisdictions is subject to ongoing audits by federal, state and foreign tax authorities. The Company’s estimate of the potential outcome of any uncertain tax issue is subject to management’s assessment of relevant risks, facts, and circumstances existing at that time. The Company uses a more-likely-than-not threshold for financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. The Company records a liability for the difference between the benefit recognized and measured and the tax position taken or expected to be taken on its tax return. To the extent that its assessment of such tax positions changes, the change in estimate is recorded in the period in which the determination is made. The Company reports tax-related interest and penalties as a component of income tax expense.

The Company’s effective income tax rate differs from the statutory tax rate primarily due to the establishment of a valuation allowance on the Company’s deferred tax assets in 2011, state income taxes, stock-based compensation, goodwill and other identifiable intangibles, the Domestic Production Activities Deduction, and other discrete items. See Note 8 “Income taxes” for further information.

Income tax deficiencies and benefits affecting stockholders’ equity are primarily related to employee stock-based compensation.

Property and Equipment

Property and equipment are stated at cost and are depreciated using the straight-line method over their estimated useful lives, as follows:

 

     

Buildings

  10-20 years

Leasehold improvements

  10-20 years or lease term, if shorter

Machinery and equipment

  3-7 years

Furniture and fixtures

  3-7 years

Assets acquired under capital lease arrangements are included in machinery and equipment and are recorded at the present value of the minimum lease payments and are depreciated using the straight-line method over the life of the asset or term of the lease, whichever is shorter. Expenses for repairs and maintenance are charged to expense as incurred, while renewals and betterments are capitalized. Gains or losses on the sale or disposal of property and equipment are reflected in operating income.

The Company accounts for computer software costs developed for internal use in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 350-40, which requires companies to capitalize certain qualifying costs incurred during the application development stage of the related software development project. The primary use of this software is for internal use and, accordingly, such capitalized software development costs are depreciated on a straight-line basis over the economic lives of the related products not to exceed three years. The Company’s machinery and equipment (see Note 5 “Property and Equipment”) includes $0.9 million and $1.5 million of capitalized software development costs as of December 31, 2011 and 2010, respectively, net of accumulated amortization of $16.3 million and $15.5 million as of December 31, 2011 and 2010, respectively. Depreciation expense includes the amortization of capitalized software development costs which amounted to $0.9 million, $1.1 million and $1.2 million during the years ended December 31, 2011, 2010 and 2009, respectively.

Impairment of Long-Lived Assets

The Company periodically assesses potential impairments of its long-lived assets in accordance with the provisions of ASC 360. An impairment review is performed whenever events or changes in circumstances indicate that the carrying value of the assets may not be recoverable. The Company groups its assets at the lowest level for which identifiable cash flows are largely independent of cash flows of the other assets and liabilities. The Company has determined that the lowest level for which identifiable cash flows are available is the divisional level.

 

Factors considered by the Company include, but are not limited to, significant underperformance relative to historical or projected operating results; significant changes in the manner of use of the acquired assets or the strategy for the overall business; and significant negative industry or economic trends. When the carrying value of a long-lived asset may not be recoverable based upon the existence of one or more of the above indicators of impairment, the Company estimates the future undiscounted cash flows expected to result from the use of the asset and its eventual disposition. If the sum of the expected future undiscounted cash flows and eventual disposition is less than the carrying amount of the asset, the Company recognizes an impairment loss. An impairment loss is reflected as the amount by which the carrying amount of the asset exceeds the fair value of the asset, based on the fair value if available, or discounted cash flows, if fair value is not available.

The reporting units of the Company have been negatively impacted by the decline in commercial and residential construction. Before assessing the Company’s goodwill for impairment, the Company evaluated, as described above, the long-lived assets in its reporting units for impairment in 2011, 2010 and 2009. Based on these assessments, there were no impairments in 2011 or 2010. In 2009 the Company determined that there was an impairment of long-lived assets for its operating segment in the United Kingdom. Accordingly, the Company recorded a pretax, non-cash charge in 2009 to reduce the carrying value of other long-lived intangible assets by $0.8 million.

Goodwill and Other Intangible Assets

In connection with acquisitions, the Company applies the provisions of ASC 805, using the acquisition method of accounting. The excess purchase price over the fair value of net tangible assets and identifiable intangible assets acquired is recorded as goodwill.

The Company assesses goodwill for impairment annually as of September 30, and more frequently if events and circumstances indicate that goodwill might be impaired.

Goodwill impairment testing is performed at the reporting unit level. Goodwill is assigned to reporting units at the date the goodwill is initially recorded. Once goodwill has been assigned to reporting units, it no longer retains its association with a particular acquisition, and all of the activities within a reporting unit, whether acquired or internally generated, are available to support the value of the goodwill.

Goodwill impairment testing is a two-step process. Step one involves comparing the fair value of the reporting units to its carrying amount. If the carrying amount of a reporting unit is greater than zero and its fair value is greater than its carrying amount, there is no impairment. If the reporting unit’s carrying amount is greater than the fair value, the second step must be completed to measure the amount of impairment, if any. Step two involves calculating the implied fair value of goodwill by deducting the fair value of all tangible and intangible assets, excluding goodwill, of the reporting unit from the fair value of the reporting unit as determined in step one. The implied fair value of goodwill determined in this step is compared to the carrying value of goodwill. If the implied fair value of goodwill is less than the carrying value of goodwill, an impairment loss is recognized equal to the difference.

The Company determines the fair value of its reporting units using an income approach. Under the income approach, the Company determined fair value based on estimated discounted future cash flows of each reporting unit. The cash flows are discounted by an estimated weighted-average cost of capital, which is intended to reflect the overall level of inherent risk of a reporting unit. Determining the fair value of a reporting unit is judgmental in nature and requires the use of significant estimates and assumptions, including revenue growth rates and EBITDA margins, discount rates and future market conditions, among others. The Company considered market capitalization in assessing the reasonableness of the fair value under the income approach outlined above.

Other intangible assets that have finite lives are amortized over their useful lives. Customer relationships are amortized using the accelerated method, based on estimated customer attrition rates, over their estimated useful lives of 13 (weighted average) years.

The Company’s non-competition agreements are amortized over their weighted average term on a straight-line basis.

Deferred Financing Fees

Direct costs incurred in connection with debt agreements are capitalized as incurred and amortized based on the effective interest method for the 10.5% senior secured notes due 2016 (the “Notes”) and on the straight line method for the Company’s $50 million credit agreement entered into in December 2010 (the “2010 Credit Agreement”). At December 31, 2011 and 2010, the Company had deferred financing fees of $4.6 million and $5.0 million, respectively, net of accumulated amortization of $958 thousand and $71 thousand, respectively.

In 2011 the Company added $0.5 million of deferred financing fees related to its Notes and 2010 Credit Agreement. In December 2010, the Company wrote off $2.5 million of deferred financing fees due to the extinguishment, in full, of its previous credit agreement, and added $4.9 million of deferred financing fees related to its Notes and 2010 Credit Agreement. During 2009, the Company added $2.1 million of deferred financing fees and wrote off $0.2 million of deferred financing fees related to its previous credit agreement.

Derivative Financial Instruments

Historically, the Company has entered into derivative instruments to manage its exposure to changes in interest rates. These instruments allow the Company to raise funds at floating rates and effectively swap them into fixed rates, without the exchange of the underlying principal amount. Such agreements are designated and accounted for under ASC 815. Derivative instruments are recorded at fair value as either assets or liabilities in the Consolidated Balance Sheets.

Fair Values of Financial Instruments

The following methods and assumptions were used by the Company in estimating the fair value of its financial instruments for disclosure purposes:

Cash equivalents: Cash equivalents are time deposits with a maturity of three months or less when purchased, which are highly liquid and readily convertible to cash. Cash equivalents reported in the Company’s Consolidated Balance Sheets were $10.3 million and $10.8 million as of December 31, 2011 and 2010, respectively, and are carried at cost and approximate fair value due to the relatively short period to maturity of these instruments.

Short- and long-term debt: The carrying amount of the Company’s capital leases reported in the Consolidated Balance Sheets approximates fair value based on the Company’s current incremental borrowing rate for similar types of borrowing arrangements. The carrying amount reported in the Company’s Consolidated Balance Sheet as of December 31, 2011 for its Notes is $200.0 million and $1.2 million for its subordinated notes payable. Using a discounted cash flow technique that incorporates a market interest rate which assumes adjustments for duration, optionality, and risk profile, the Company has determined the fair value of its Notes is $178.0 million as of December 31, 2011 and the fair value and for its subordinated notes payable is $1.0 million as of December 31, 2011.

 

Interest rate hedge agreements: The fair value of the interest rate swap was based on market interest rates using a discounted cash flow model and an adjustment for counterparty risk. See Note 12 “Fair Value Measurements” for further information.

Insurance Liability

The Company maintains a high deductible insurance policy for a significant portion of its risks and associated liabilities with respect to workers’ compensation. The Company’s deductible is $250 thousand. The accrued liabilities associated with this program are based on the Company’s estimate of the ultimate costs to settle known claims, as well as claims incurred but not yet reported to the Company, as of the balance sheet date. The Company’s estimated liability is not discounted and is based upon an actuarial report obtained from a third party. The actuarial report uses information provided by the Company’s insurance brokers and insurers, combined with the Company’s judgments regarding a number of assumptions and factors, including the frequency and severity of claims, claims development history, case jurisdiction, applicable legislation, and the Company’s claims settlement practices.

The Company is self-insured for healthcare benefits, with a stop-loss at $200 thousand. Liabilities associated with the risks that are retained by the Company are estimated, in part, by considering historical claims experience, demographic factors, severity factors and other actuarial assumptions. The Company’s results could be materially impacted by claims and other expenses related to such plans if future occurrences and claims differ from these assumptions and historical trends.

Commitments and Contingencies

In the normal course of business, the Company estimates potential future loss accruals related to legal, workers compensation, healthcare, tax and other contingencies. These accruals require management’s judgment on the outcome of various events based on the best available information. However, due to changes in facts and circumstances, the ultimate outcomes could differ from management’s estimates.

Revenue Recognition

The Company applies the provisions of ASC 605. In general, the Company recognizes revenue when (i) persuasive evidence of an arrangement exists, (ii) shipment of products has occurred or services have been rendered, (iii) the sales price charged is fixed or determinable and (iv) collection is reasonably assured. Net sales include an allowance for estimated sales returns and discounts.

The Company recognizes revenues from reprographics and facilities management services when services have been rendered while revenues from the resale of reprographics supplies and equipment are recognized upon delivery to the customer or upon customer pickup. Revenue from equipment service agreements are recognized over the term of the service agreement.

The Company has established contractual pricing for services provided to certain large national customer accounts (“Global Services”). These contracts generally establish uniform pricing at all operating segments for Global Services. Revenues earned from the Company’s Global Services are recognized in the same manner as non-Global Services revenues.

Included in revenues are fees charged to customers for shipping, handling, and delivery services. Such revenues amounted to $14.8 million, $17.8 million, and $22.6 million for the years ended December 31, 2011, 2010, and 2009 respectively.

Revenues from hosted software licensing activities are recognized ratably over the term of the license. Revenues from membership fees are recognized over the term of the membership agreement. Revenues from software licensing activities and membership revenues comprise less than 1% of the Company’s consolidated revenues during the years ended December 31, 2011, 2010 and 2009.

Management provides for returns, discounts and allowances based on historic experience and adjusts such allowances as considered necessary. To date, such provisions have been within the range of management’s expectations.

Comprehensive Loss

The Company’s comprehensive loss includes foreign currency translation adjustments and the amortized fair value of the Company’s swap transaction, net of taxes. The Amended Swap Transaction was de-designated on December 1, 2010, as it no longer qualified as a cash flow hedge when the cash proceeds from the issuance of the Notes were used to pay off the Company’s previous credit agreement. At that time, the fair value of the Amended Swap Transaction was computed and the effective portion is stored in other comprehensive income and is amortized into income, net of tax effect, on the straight-line method, based on the original notional schedule.

Asset and liability accounts of international operations are translated into the Company’s functional currency, U.S. dollars, at current rates. Revenues and expenses are translated at the weighted-average currency rate for the fiscal year.

Segment and Geographic Reporting

The provisions of ASC 280 require public companies to report financial and descriptive information about their reportable operating segments. The Company identifies operating segments based on the various business activities that earn revenue and incur expense, whose operating results are reviewed by the Company’s Chief Executive Officer and Chief Operating Officer, who, acting jointly, are deemed to be the chief operating decision makers. Based on the fact that operating segments have similar products and services, classes of customers, production processes and economic characteristics, the Company is deemed to operate as a single reportable segment.

The Company recognizes revenues in geographic areas based on the location to which the product was shipped or services have been rendered. Operations outside the United States have been small but growing. See table below for revenues and long-lived assets, net, attributable to the Company’s U.S. operations and foreign operations.

 

                                                                         
    2011     2010     2009  
    U.S.     Foreign
Countries
    Total     U.S.     Foreign
Countries
    Total     U.S.     Foreign
Countries
    Total  

Revenues from external customers

  $ 378,705     $ 44,027     $ 422,732     $ 404,513     $ 37,126     $ 441,639     $ 473,414     $ 28,135     $ 501,549  

Long-lived assets, net

  $ 325,795     $ 10,397     $ 336,192     $ 414,693     $ 8,855     $ 423,548     $ 478,489     $ 8,998     $ 487,487  

Advertising and Shipping and Handling Costs

Advertising costs are expensed as incurred and approximated $1.7 million, $1.9 million, and $2.1 million during the years ended December 31, 2011, 2010 and 2009, respectively. Shipping and handling costs incurred by the Company are included in cost of sales.

Stock-Based Compensation

The Company applies the Black-Scholes valuation model in determining the fair value of share-based payments to employees, which is then amortized on a straight-line basis over the requisite service period. Upon the adoption of FSP FAS 123(R-3), Transition Election Related to Accounting for the Tax Effects of Share-Based Payment Awards, the Company used the “shortcut method” for determining the historical windfall tax benefit.

Total stock-based compensation for the years ended December 31, 2011, 2010 and 2009, was $4.3 million, $5.9 million and $4.9 million, respectively and was recorded in selling, general, and administrative expenses, consistent with the classification of the underlying salaries. In addition, upon the adoption of ASC 718, the excess tax benefit resulting from stock-based compensation, in the Consolidated Statements of Cash Flows, are classified as financing cash inflows.

The weighted average fair value at the grant date for options issued in the fiscal years ended December 31, 2011 and 2009 was $4.43, and $3.34 respectively. The Company did not issue any stock options in the fiscal year ended December 31, 2010. The fair value of each option grant was estimated on the date of grant using the Black-Scholes option-pricing model using the following weighted average assumptions for the years ended December 31, 2011 and 2009:

 

      September 30,       September 30,  
    Year Ended
December 31,
 
    2011     2009  

Weighted average assumptions used:

               

Risk free interest rate

    2.01     0.95

Expected volatility

    48.1     43.1

Expected dividend yield

    0.00     0.00

The Company did not issue any stock options in the fiscal year ended December 31, 2010.

Using historical exercise data as a basis, the Company determined that the expected term for stock options issued in 2011 was 6.9 years. Prior to 2011, the expected term of options issued was determined using the “simplified” method as the Company did not have sufficient historical exercise information at that time. Under the “simplified” method, the expected option term was 6.00 years for options vesting over a 3 year period, 6.25 years for options vesting over a 4 year period, 6.5 years for options vesting over a 5 year period, and 5.5 years for options vesting over a 1 year period.

For fiscal year 2011 and 2009, expected stock price volatility is based on a blended rate which combines the Company’s recent historical volatility with that of its peer groups for a period equal to the expected term. This blended method provides better information about future stock-price movements, until the Company has a more reliable historical period to rely upon. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant with an equivalent remaining term. The Company has not paid dividends in the past and does not currently plan to pay dividends in the near future. The Company assumed a forfeiture rate of 0% in 2011, as the options issued during the year were only to key executives for whom a turnover rate of zero is assumed. The Company assumed a forfeiture rate of 6.19% in 2009 based on the Company’s historical forfeiture rate. The Company reviews its forfeiture rate at least on an annual basis.

As of December 31, 2011, total unrecognized stock-based compensation expense related to nonvested stock-based compensation was approximately $4.6 million, which is expected to be recognized over a weighted average period of approximately 3.1 years.

For additional information, see Note 9 “Employee Stock Purchase Plan and Stock Option Plan.”

Research and Development Expenses

Research and development activities relate to costs associated with the design and testing of new technology or enhancements and maintenance to existing technology and are expensed as incurred. In total, research and development amounted to $4.9 million, $4.7 million and $4.0 million during the fiscal years ended December 31, 2011, 2010 and 2009, respectively.

Noncontrolling Interest

The Company accounts for its investment in UDS under the purchase method of accounting, in accordance with ASC 805. UDS is consolidated in the Company’s financial statements from the date of commencement. Noncontrolling interest, which represents the 35 percent non-controlling interest in UDS, is reflected on the Company’s Consolidated Financial Statements.

Sales Taxes

The Company bills sales taxes, as applicable, to its customers. The Company acts as an agent and bills, collects, and remits the sales tax to the proper government jurisdiction. The sales taxes are accounted for on a net basis, and therefore are not included as part of the Company’s revenue.

 

Earnings Per Share

The Company accounts for earnings per share in accordance with ASC 260. Basic earnings per share are computed by dividing net income attributable to ARC by the weighted-average number of common shares outstanding for the period. Diluted earnings per common share is computed similar to basic earnings per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if common shares subject to outstanding options and acquisition rights had been issued and if the additional common shares were dilutive. Common share equivalents are excluded from the computation if their effect is anti-dilutive. There were 2.2 million, 2.2 million and 2.3 million common stock options excluded for anti-dilutive effects for the years ended December 31, 2011, 2010 and 2009, respectively. The Company’s common share equivalents consist of stock options issued under the Company’s 2005 Stock Plan.

Basic and diluted earnings per common share were calculated using the following options for the years ended December 31, 2011, 2010 and 2009:

 

      September 30,       September 30,       September 30,  
    Year Ended December 31,  
    2011     2010     2009  

Weighted average common shares outstanding during the period — basic

    45,401       45,213       45,123  

Effect of dilutive stock options

    —         —         —    
   

 

 

   

 

 

   

 

 

 

Weighted average common shares outstanding during the period — diluted

    45,401       45,213       45,123  
   

 

 

   

 

 

   

 

 

 

There were no adjustments to net loss in calculating basic or diluted earnings per share.

Recently Adopted Accounting Pronouncements

In December 2010, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2010-29. The amendments in this update affect any public entity as defined by ASC 805, Business Combinations, that enters into business combinations that are material on an individual or aggregate basis. The objective in this update is to address diversity in practice about the interpretation of the pro forma revenue and earnings disclosure requirements for business combinations. ASU 2010-29 is effective prospectively for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2010. The Company adopted provisions of ASU 2010-29 effective January 1, 2011, which did not have a material effect on its Consolidated Financial Statements. The Company has not had any material business combinations in 2011.

In December 2010, the FASB issued ASU 2010-28. This update provides amendments to the criteria of ASC 350, Intangibles-Goodwill and Other. The amendments to this update affect all entities that have recognized goodwill and have one or more reporting units whose carrying amount for purposes of performing step one of the goodwill impairment test is zero or negative. ASU 2010-28 is effective for financial statements issued for years beginning after December 15, 2010. Early adoption is not permitted. The Company adopted the provisions of ASU 2010-28 effective January 1, 2011, which did not have a material effect on its Consolidated Financial Statements.

In October 2009, the FASB issued ASU 2009-13. This update provides amendments to the criteria of ASC 605, Revenue Recognition, for separating consideration in multiple-deliverable arrangements. The amendments to this update establish a selling price hierarchy for determining the selling price of a deliverable. ASU 2009-13 is effective for financial statements issued for years beginning on or after June 15, 2010. The Company adopted the provisions of ASU 2009-13 effective January 1, 2011, which did not have a material effect on its Consolidated Financial Statements.

Recent Accounting Pronouncements Not Yet Adopted

In September 2011, the FASB issued ASU 2011-08. The new guidance provides an entity the option, when testing for goodwill impairment, to first perform a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If, after performing a qualitative assessment, an entity determines it is more likely than not that the fair value of a reporting unit is less than its carrying amount, it is required to perform the currently prescribed two-step goodwill impairment test to identify potential goodwill impairment, and measure the amount of goodwill impairment loss to be recognized for that reporting unit (if any). The new guidance is effective for the Company beginning January 1, 2012.

In June 2011, the FASB issued ASU 2011-05. The new guidance eliminates the current option to report other comprehensive income and its components in the statement of changes in equity. Instead, an entity will be required to present either a continuous statement of net income and other comprehensive income or present net income and other comprehensive income in two separate but consecutive statements. The new guidance is effective for the Company beginning January 1, 2012 and will have presentation changes only.

In May 2011, the FASB issued ASU 2011-04 which amends the accounting and disclosure requirements on fair value measurements. The new guidance limits the highest-and-best-use measure to nonfinancial assets, permits certain financial assets and liabilities with offsetting positions in market or counterparty credit risks to be measured at a net basis, and provides guidance on the applicability of premiums and discounts. Additionally, the new guidance expands the disclosures on Level 3 inputs by requiring quantitative disclosure of the unobservable inputs and assumptions, as well as description of the valuation processes and the sensitivity of the fair value to changes in unobservable inputs. The new guidance is effective for the Company beginning January 1, 2012. Other than requiring additional disclosures, the Company does not anticipate material impacts to its Consolidated Financial Statements upon adoption.

Acquisitions
ACQUISITIONS

3. ACQUISITIONS

During 2011, the Company acquired the assets and liabilities of one Chinese company through UDS for $1.4 million in the aggregate.

During 2010, the Company acquired the assets and liabilities of one Chinese company through UDS for $0.6 million in the aggregate.

During 2009, the Company acquired the assets and liabilities of two reprographics companies in the United States and one Chinese reprographics company. The aggregate purchase price of such acquisitions, including related acquisition costs, amounted to approximately $2.9 million, for which the Company paid $2.5 million in cash and issued $0.5 million of notes payable to the former owners of the selling companies.

The results of operations of the companies acquired have been included in the Consolidated Financial Statements from their respective dates of acquisition.

 

For U.S. income tax purposes, $1.2 million of intangibles resulting from acquisitions completed during the year ended December 31, 2011 are amortized over a 15-year period. There was no goodwill or intangibles resulting from the acquisition completed in 2010. None of the Company’s acquisitions were related or contingent upon any other acquisitions.

During 2011, 2010 and 2009, the Company’s acquisitions were not material individually, or in the aggregate.

Certain acquisition agreements entered into by the Company contain earnout agreements which provide for additional consideration to be paid to the former owners if the acquired entity’s results of operations, or sales, exceed certain targeted levels measured on an annual basis generally three years after the acquisition. Accrued expenses in the accompanying Consolidated Balance Sheets included $0.3 million and $0 for earnout payments payable as of December 31, 2011 and 2010, respectively. The increase to goodwill as of December 31, 2011 and 2010 as a result of the earnout payments was $0 and $0.5 million, respectively.

The earnout provisions generally contain limits on the amount of earnout payments that may be payable over the term of the agreement. The Company’s estimate of the aggregate amount of additional consideration that may be payable over the terms of the earnout agreements subsequent to December 31, 2011 is approximately $1.5 million.

The Company made certain adjustments to goodwill as a result of changes to the purchase price of acquired entities. The net increase to goodwill as of December 31, 2011, 2010 and 2009 as a result of purchase price adjustments was $0, $0 and $139 thousand, respectively.

Goodwill and Other Intangibles Resulting From Business Acquisitions
GOODWILL AND OTHER INTANGIBLES RESULTING FROM BUSINESS ACQUISITIONS

4. GOODWILL AND OTHER INTANGIBLES RESULTING FROM BUSINESS ACQUISITIONS

At September 30, 2011, the Company performed its annual goodwill impairment analysis, which indicated that goodwill was impaired at nine of its 37 reporting units, eight in the United States and one in Canada. Accordingly, the Company recorded a pretax, non-cash charge for the three months ended September 30, 2011 to reduce the carrying value of goodwill by $42.1 million. Given the increased uncertainty in the timing of the recovery of the construction industry, and the increased uncertainty in the economy as a whole, as well as the significant decline in the price of the Company’s senior notes (resulting in a higher yield) and a decline of the Company’s stock price during the third quarter, the Company concluded that it was appropriate to increase the estimated weighted average cost of capital (WACC) of its reporting units as of September 30, 2011. The increase in the Company’s WACC was the main driver in the decrease in the estimated fair value of reporting units during the third quarter of 2011, which in turn resulted in the goodwill impairment. Based upon its assessment, the Company concluded that no goodwill impairment triggering events have occurred during the fourth quarter of 2011 that would require an additional impairment test.

Given the current economic environment and the uncertainties regarding the impact on the Company’s business, there can be no assurance that the estimates and assumptions made for purposes of the Company’s goodwill impairment testing in 2011 regarding the duration of the lack of significant new construction activity in the AEC industry, or the timing or strength of general economic recovery, will prove to be accurate predictions of the future. If the Company’s assumptions, including forecasted EBITDA of certain reporting units, are not achieved, the Company may be required to record additional goodwill impairment charges in future periods, whether in connection with the Company’s next annual impairment testing in the third quarter of 2012, or on an interim basis, if any such change constitutes a triggering event (as defined under ASC 805) outside of the quarter when the Company regularly performs its annual goodwill impairment test. It is not possible at this time to determine if any such future impairment charge would result or, if it does, whether such charge would be material.

At June 30, 2011, the Company determined that there were sufficient indicators to trigger an interim goodwill impairment analysis. The indicators included, among other factors: (1) the economic environment, (2) the performance against plan of reporting units which previously had goodwill impairment, and (3) revised forecasted future earnings. The Company’s analysis indicated that goodwill was impaired at six of its 36 reporting units, all of which are located in the United States, as of June 30, 2011. Accordingly, the Company recorded a pretax, non-cash charge for the three and six months ended June 30, 2011 to reduce the carrying value of goodwill by $23.3 million.

The results of the Company’s 2010 goodwill impairment analysis indicated that goodwill was impaired at 13 of its reporting units, 12 in the United States and one in China. Accordingly, the Company recorded a pretax, non-cash charge in 2010 to reduce the carrying value of goodwill by $38.3 million.

The results of the Company’s 2009 goodwill impairment analysis indicated that goodwill was impaired at 11 of its reporting units, nine in the United States, one in the United Kingdom, and one in Canada. Accordingly, the Company recorded a pretax, non-cash charge in 2009 to reduce the carrying value of goodwill by $37.4 million.

The changes in the carrying amount of goodwill for the years ended December 31, 2011 and 2010 are summarized as follows:

 

      September 30,       September 30,       September 30,  
    Gross Goodwill     Accumulated
Impairment
Loss
    Net Carrying
Amount
 

January 1, 2010

  $ 405,054     $ 72,536     $ 332,518  

Additions

    500       —         500  

Goodwill impairment

    —         38,263       (38,263

Translation adjustment

    4       —         4  
   

 

 

   

 

 

   

 

 

 

December 31, 2010

    405,558       110,799       294,759  
   

 

 

   

 

 

   

 

 

 

Additions

    —         —         —    

Goodwill impairment

    —         65,444       (65,444
   

 

 

   

 

 

   

 

 

 

December 31, 2011

  $ 405,558     $ 176,243     $ 229,315  
   

 

 

   

 

 

   

 

 

 

The additions to goodwill include the excess purchase price over fair value of net assets acquired, purchase price adjustments, and certain earnout payments.

During the fourth quarter of 2010, the Company decided to consolidate the various brands that previously represented the Company’s market presence around the country. Beginning in January 2011, each of the Company’s operating segments and their respective locations began to adopt ARC, the Company’s overall brand name. Original brand names will be used in conjunction with the new ARC brand name to reinforce the Company’s continuing presence in the business communities it serves, and ongoing relationships with its customers. Accordingly, the remaining estimated useful lives of the trade name intangible assets were revised down to 18 months. This change in estimate is accounted for on a prospective basis, resulting in increased amortization expense over the revised useful life of each trade name. The impact of this change in 2011 was an increase in amortization expense of approximately $9.5 million. Trade names are amortized using the straight-line method. The latest the Company expects to fully retire original trade names is April 2012.

The following table sets forth the Company’s other intangible assets resulting from business acquisitions as of December 31, 2011 and December 31, 2010, which continue to be amortized:

 

      September 30,       September 30,       September 30,       September 30,       September 30,       September 30,  
    December 31, 2011     December 31, 2010  
    Gross           Net     Gross           Net  
    Carrying     Accumulated     Carrying     Carrying     Accumulated     Carrying  
    Amount     Amortization     Amount     Amount     Amortization     Amount  

Amortizable other intangible assets:

                                               

Customer relationships

  $ 97,509     $ 56,478     $ 41,031     $ 96,359     $ 48,301     $ 48,058  

Trade names and trademarks

    20,320       16,231       4,089       20,294       5,736       14,558  

Non-competition agreements

    100       93       7       100       73       27  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    $ 117,929     $ 72,802     $ 45,127     $ 116,753     $ 54,110     $ 62,643  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Based on current information, estimated future amortization expense of other intangible assets for this fiscal year, and each of the next five fiscal years, and thereafter are as follows:

 

      September 30,  

2012

  $  10,971  

2013

    6,540  

2014

    5,704  

2015

    5,170  

2016

    4,483  

Thereafter

    12,259  
   

 

 

 
    $ 45,127  
   

 

 

 
Property and Equipment
PROPERTY AND EQUIPMENT

5. PROPERTY AND EQUIPMENT

Property and equipment consist of the following:

 

      September 30,       September 30,  
    December 31,  
    2011     2010  

Machinery and equipment

  $ 221,943     $ 245,617  

Buildings and leasehold improvements

    20,047       20,563  

Furniture and fixtures

    4,692       4,731  
   

 

 

   

 

 

 
      246,682       270,911  

Less accumulated depreciation

    (191,598     (211,875
   

 

 

   

 

 

 
    $ 55,084     $ 59,036  
   

 

 

   

 

 

 

Depreciation expense was $29.2 million, $34.0 million, and $38.2 million for the years ended December 31, 2011, 2010, and 2009, respectively.

The two facilities that the Company owns are subject to liens under its credit facility.

Long-Term Debt
LONG-TERM DEBT

6. LONG-TERM DEBT

Long-term debt consists of the following:

 

      September 30,       September 30,  
    December 31,     December 31,  
    2011     2010  

Borrowings from foreign Revolving Credit Facilities; 6.0% interest rate at December 31, 2011

  $ 713     $ —    

10.5% Senior Notes due 2016, net of discount of $3,759 and $4,308 at December 31, 2011 and December 31, 2010, respectively

    196,241       195,692  

Various subordinated notes payable; weighted average 6.2% interest rate at December 31, 2011 and December 31, 2010; principal and interest payable monthly through September 2014

    1,174       8,635  

Various capital leases; weighted average 8.5% and 8.8% interest rate at December 31, 2011 and December 31, 2010, respectively; principal and interest payable monthly through November 2016

    28,136       35,297  
   

 

 

   

 

 

 
      226,264       239,624  

Less current portion

    (15,005     (23,608
   

 

 

   

 

 

 
    $ 211,259     $ 216,016  
   

 

 

   

 

 

 

10.5% Senior Notes due 2016

On December 1, 2010, the Company completed a private placement of the Notes.

 

The Notes have an aggregate principal amount of $200 million. The Notes are general unsecured senior obligations of the Company and are subordinate to all existing and future senior secured debt of the Company to the extent of the assets securing such debt. The Company’s obligations under the Notes are jointly and severally guaranteed by all of the Company’s domestic subsidiaries. The issue price was 97.824% with a yield to maturity of 11.0%. Interest on the Notes accrues at a rate of 10.5% per annum and is payable semiannually in arrears on June 15 and December 15 of each year, commencing on June 15, 2011. The Company will make each interest payment to the holders of record of the Notes on the immediately preceding June 1 and December 1.

The Company received gross proceeds of $195.6 million from the Notes offering. In connection with the issuance of the Notes, the Company entered into an Indenture (the “Indenture”). The Notes were offered only to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”), and outside the United States to non-U.S. persons pursuant to Regulation S under the Securities Act.

Optional Redemption. At any time prior to December 15, 2013, the Company may redeem all or part of the Notes upon not less than 30 nor more than 60 days’ prior notice at a redemption price equal to the sum of (i) 100% of the principal amount thereof, plus (ii) a make-whole premium as of the date of redemption, plus (iii) accrued and unpaid interest, if any, to the date of redemption. In addition, the Company may redeem some or all of the Notes on or after December 15, 2013, at redemption prices set forth in the Indenture, together with accrued and unpaid interest, if any, to the date of redemption. At any time prior to December 15, 2013, the Company may use the proceeds of certain equity offerings to redeem up to 35% of the aggregate principal amount of the Notes, including any permitted additional Notes, at a redemption price equal to 110.5% of the principal amount of the Notes redeemed, plus accrued and unpaid interest, if any, to the date of redemption.

Repurchase upon Change of Control. Upon the occurrence of a change in control (as defined in the Indenture), each holder of the Notes may require the Company to repurchase all of the then-outstanding Notes in cash at a price equal to 101% of the aggregate principal amount of the Notes to be repurchased, plus accrued and unpaid interest, if any, to the date of repurchase.

Other Covenants. The Indenture contains covenants that limit, among other things, the Company’s and certain of its subsidiaries’ ability to (1) incur additional debt and issue preferred stock, (2) make certain restricted payments, (3) consummate specified asset sales, (4) enter into certain transactions with affiliates, (5) create liens, (6) declare or pay any dividend or make any other distributions, (7) make certain investments, and (8) merge or consolidate with another person.

Events of Default. The Indenture provides for customary events of default (subject in certain cases to customary grace and cure periods), which include non-payment, breach of covenants in the Indenture, cross default and acceleration of other indebtedness, a failure to pay certain judgments and certain events of bankruptcy and insolvency. Generally, if an event of default occurs, the Trustee or holders of at least 25% in principal amount of the then outstanding Notes may declare the principal of and accrued but unpaid interest on all of the then-outstanding Notes to be due and payable.

Exchange Offer. Pursuant to a registered exchange offer in May 2011, the Company offered to exchange up to $200 million aggregate principal amount of the Notes, for new notes that were registered under the Securities Act. The terms of the registered notes are the same as the terms of the Notes, except that they are registered under the Securities Act and the transfer restrictions, registration rights and additional interest provisions are not applicable. The Company accepted the exchange of $200 million aggregate principal amounts of the Notes that were properly tendered in the exchange offer.

2010 Credit Agreement

In connection with the issuance of the Notes, the Company and certain of its subsidiaries also entered into the 2010 Credit Agreement and paid off in full amounts outstanding under its prior credit agreement. The 2010 Credit Agreement provides for a $50 million senior secured revolving line of credit. The revolving line of credit is available on a revolving basis until December 1, 2015 and is secured by substantially all of the assets of the Company and certain of its subsidiaries. The Company’s obligations under the 2010 Credit Agreement are guaranteed by its domestic subsidiaries and, subject to certain exceptions, are secured by security interests granted in all of the Company’s and the domestic subsidiaries personal and real property.

Advances under the 2010 Credit Agreement bear interest at LIBOR plus the applicable rate. The applicable rate is determined based upon the consolidated leverage ratio for the Company with a minimum and maximum applicable rate of 1.50% and 2.00%, respectively. The initial applicable rate is 2.00%.

As of December 31, 2011, the Company was in compliance with the financial incurrence based covenants for its Notes and financial covenants with respect to its 2010 Credit Agreement. The Company’s trailing twelve months key financial covenant ratios as of December 31, 2011 were 1.82:1.00 for Minimum Interest Coverage, 3.46:1.00 for Maximum Total Leverage and 0.43:1.00 for Maximum Senior Secured Leverage.

As of December 31, 2011 and 2010, standby letters of credit aggregated to $3.9 million. The standby letters of credit under the 2010 Credit Agreement reduced the Company’s borrowing availability under its 2010 Credit Agreement to $46.1 million as of December 31, 2011.

2012 Credit Agreement

On January 27, 2012, the Company entered into a new Credit Agreement (the “2012 Credit Agreement”) and terminated the 2010 Credit Agreement. The 2012 Credit Agreement provides revolving loans in an aggregate principal amount not to exceed $50.0 million with a Canadian sublimit of $5.0 million, based on inventory, accounts receivable and unencumbered equipment of the Company’s subsidiaries organized in the US and Canada (“Domestic Subsidiaries”) that meet certain eligibility criteria. The 2012 Credit Agreement has a maturity date of June 15, 2016.

Amounts borrowed in US dollars under the 2012 Credit Agreement bear interest, in the case of LIBOR loans, at a per annum rate equal to LIBOR plus the LIBOR Margin, which may range from 1.75% to 2.25%, based on Average Daily Net Availability (as defined in the Credit Agreement). All other amounts borrowed in US dollars that are not LIBOR loans bear interest at a per annum rate equal to (i) the greatest of (A) the Federal Funds rate plus 0.5%, (B) the LIBOR (calculated based upon an interest period of three months and determined on a daily basis), plus 1.0% per annum, and (C) the rate of interest announced, from time to time, within Wells Fargo Bank, National Association at its principal office in San Francisco as its “prime rate,” plus (ii) the Base Rate Margin (as defined in the 2012 Credit Agreement), which may range from 0.75 to 1.25 percent, based on Average Daily Net Availability. Amounts borrowed in Canadian dollars bear interest at a per annum rate equal to the Canadian Base Rate (as defined in the 2012 Credit Agreement) plus the LIBOR Margin, which may range from 1.75% to 2.25%, based on Average Daily Net Availability.

The 2012 Credit Agreement contains various loan covenants that restrict the Company’s ability to take certain actions, including restrictions on incurrence of indebtedness, creation of liens, mergers or consolidations, dispositions of assets, repurchase or redemption of capital stock, making certain investments, entering into certain transactions with affiliates or changing the nature of the Company’s business. In addition, at any time when Excess Availability (as defined in the 2012 Credit Agreement) is less than $10.0 million, the Company is required to maintain a Fixed Charge Coverage Ratio (as defined in the 2012 Credit Agreement) of at least 1.0 to 1.0. The Company’s obligations under the 2012 Credit Agreement are secured by substantially all of its assets pursuant to a Guaranty and Security Agreement.

 

Foreign Credit Agreement

In the second quarter of 2011, in conjunction with its Chinese operations, UDS entered into a one-year revolving credit facility. This facility provides for a maximum credit amount of 8.0 million Chinese Yuan Renminbi. This translates to U.S. $1.3 million as of December 31, 2011. Draws on the facility are limited to 30 day periods and incur a fee of 0.5% of the amount drawn and no additional interest is charged.

Minimum future maturities of long-term debt and capital lease obligations as of December 31, 2011 are as follows:

 

      September 30,       September 30,  
    Long-Term Debt     Capital Lease Obligations  

Year ending December 31:

               

2012

  $ 1,645     $ 13,360  

2013

    173       8,533  

2014

    69       4,347  

2015

    —         1,553  

2016

    200,000       343  

Thereafter

    —         —    
   

 

 

   

 

 

 
    $ 201,887     $ 28,136  
   

 

 

   

 

 

 

Interest Rate Swap Transaction

On December 19, 2007, the Company entered into an interest rate swap transaction in order to hedge the floating interest rate risk on the Company’s long term variable rate debt.

In connection with the issuance of the Notes, the swap transaction no longer qualified as a cash flow hedge and was de-designated.

As of December 31, 2010, the swap transaction had a negative fair value of $9.7 million, all of which was recorded in accrued expenses. On January 3, 2011, the swap transaction was terminated and settled. For further information, see Note 11 “Derivatives and Hedging Transactions”.

Commitments and Contingencies
COMMITMENTS AND CONTINGENCIES

7. COMMITMENTS AND CONTINGENCIES

The Company leases machinery, equipment, and office and operational facilities under noncancelable operating lease agreements. Certain lease agreements for the Company’s facilities generally contain renewal options and provide for annual increases in rent based on the local Consumer Price Index. The following is a schedule of the Company’s future minimum lease payments as of December 31, 2011:

 

      September 30,       September 30,       September 30,  
    Third Party     Related Party     Total  

Year ending December 31:

                       

2012

  $ 19,281     $ 1,123     $ 20,404  

2013

    13,199       893       14,092  

2014

    8,505       154       8,659  

2015

    5,912       —         5,912  

2016

    4,210       —         4,210  

Thereafter

    8,672       —         8,672  
   

 

 

   

 

 

   

 

 

 
    $ 59,779     $ 2,170     $ 61,949  
   

 

 

   

 

 

   

 

 

 

Total rent expense under operating leases, including month-to-month rentals, amounted to $28.0 million, $29.6 million, and $34.4 million during the years ended December 31, 2011, 2010 and 2009, respectively. Under certain lease agreements, the Company is responsible for other costs such as property taxes, insurance, maintenance, and utilities.

The Company leases several of its facilities under lease agreements with entities owned by certain of its current and former executive officers which expire through March 2014. Rental expense on these facilities amounted to $1.5 million, $1.5 million and $1.6 million during the years ended December 31, 2011, 2010 and 2009, respectively.

The Company has entered into indemnification agreements with each director and named executive officer which provide indemnification under certain circumstances for acts and omissions which may not be covered by any directors’ and officers’ liability insurance. The indemnification agreements may require the Company, among other things, to indemnify its officers and directors against certain liabilities that may arise by reason of their status or service as officers and directors (other than liabilities arising from willful misconduct of a culpable nature), to advance their expenses incurred as a result of any proceeding against them as to which they could be indemnified, and to obtain officers’ and directors’ insurance if available on reasonable terms. There have been no events to date which would require the Company to indemnify its officers or directors.

On October 21, 2010, a former employee, individually and on behalf of a purported class consisting of all non-exempt employees who work or worked for American Reprographics Company, LLC and American Reprographics Company in the State of California at any time from October 21, 2006 through October 21, 2010, filed an action against the Company in the Superior Court of California for the County of Orange. The complaint alleges, among other things, that the Company violated the California Labor Code by failing to (i) provide meal and rest periods, or compensation in lieu thereof, (ii) timely pay wages due at termination, and (iii) that those practices also violate the California Business and Professions Code. The relief sought includes damages, restitution, penalties, interest, costs, and attorneys’ fees and such other relief as the court deems proper. The Company has not included any liability in its Consolidated Financial Statements in connection with this matter. The Company cannot reasonably estimate the amount or range of possible loss, if any, at this time.

 

In addition to the matter described above, the Company is involved in various additional legal proceedings and other legal matters from time to time in the normal course of business. The Company does not believe that the outcome of any of these matters will have a material adverse effect on its consolidated financial position, results of operations or cash flows.

Income Taxes
INCOME TAXES

8. INCOME TAXES

The following table includes the consolidated income tax provision for federal, state, and local income taxes related to the Company’s total earnings before taxes for 2011, 2010 and 2009:

 

      September 30,       September 30,       September 30,  
    Year Ended December 31,  
    2011     2010     2009  

Current:

                       

Federal

  $ (16,449   $ (1,400   $ 5,767  

State

    353       157       1,442  

Foreign

    48       (286     286  
   

 

 

   

 

 

   

 

 

 
      (16,048     (1,529     7,495  

Deferred:

                       

Federal

    57,249       (10,429     (2,854

State

    8,321       (1,640     (302

Foreign

    1,409       (588     (1,321
   

 

 

   

 

 

   

 

 

 
      66,979       (12,657     (4,477
   

 

 

   

 

 

   

 

 

 

Income tax provision (benefit)

  $ 50,931     $ (14,186   $ 3,018  
   

 

 

   

 

 

   

 

 

 

The consolidated deferred tax assets and liabilities consist of the following:

 

      September 30,       September 30,  
    December 31,  
    2011     2010  

Deferred tax assets:

               

Financial statement accruals not currently deductible

  $ 3,307     $ 3,461  

Deferred revenue

    504       355  

State taxes

    —         61  

Interest rate swap

    —         3,635  

Fixed assets

    6,359       10,341  

Goodwill and other identifiable intangibles

    40,109       34,378  

Stock-based compensation

    6,162       6,054  

Federal tax net operating loss carryforward

    9,541       10,851  

State tax net operating loss carryforward

    1,865       843  

State tax credits

    905       905  

Foreign tax net operating loss carryforward

    1,162       1,614  
   

 

 

   

 

 

 

Gross deferred tax assets

    69,914       72,498  

Less: valuation allowance

    (68,546     —    
   

 

 

   

 

 

 

Net deferred tax assets

    1,368       72,498  
   

 

 

   

 

 

 

Deferred tax liabilities:

               

Goodwill

  $ (26,447 )   $ (27,506 )
   

 

 

   

 

 

 

Net deferred tax (liabilities) and assets

  $ (25,079 )   $ 44,992  
   

 

 

   

 

 

 

A reconciliation of the statutory federal income tax rate to the Company’s effective tax rate is as follows:

 

      September 30,       September 30,       September 30,  
    Year Ended December 31,  
    2011     2010     2009  

Statutory federal income tax rate

    35     35     35

State taxes, net of federal benefit

    2       3       (5

Foreign taxes

    —         (1     4  

Goodwill impairment

    (16     (3     (56 )

Valuation allowance

    (83     —         —    

Non-deductible expenses and other

    (1     (1     (6 )

Domestic Production Activities Deduction tax benefit

    —         —         3  

Discrete item

    1       1       —    
   

 

 

   

 

 

   

 

 

 

Effective income tax rate

    (62 )%      34     (25 )% 
   

 

 

   

 

 

   

 

 

 

In accordance with ASC 740-10, Income Taxes, the Company evaluates its deferred tax assets to determine if a valuation allowance is required based on the consideration of all available evidence using a “more likely than not” standard, with significant weight being given to evidence that can be objectively verified. This assessment considers, among other matters, the nature, frequency and severity of current and cumulative losses, forecasts of future profitability; the length of statutory carryforward periods for operating losses and tax credit carryforwards; and available tax planning alternatives. During 2011, the Company determined that cumulative losses for the preceding twelve quarters constituted sufficient objective evidence (as defined by ASC 740-10) that a valuation allowance was needed, and therefore established a $68.5 million valuation allowance against certain of its deferred tax assets.

 

Based on the Company’s assessment, the remaining net deferred tax assets of $1.4 million as of December 31, 2011 are considered to be more likely than not to be realized. The valuation allowance of $68.5 million may be increased or decreased as conditions change or if the Company is unable to implement certain available tax planning strategies. The realization of the Company’s net deferred tax assets ultimately depend on future taxable income, reversals of existing taxable temporary differences or through a loss carry back. The Company has income tax receivables of $4.6 million as of December 31, 2011 included in other current assets in its consolidated balance sheet primarily relating to 2009.

As of December 31, 2011 , the Company had approximately $27.2 million of consolidated federal, $35.9 million of state and $4.3 million of foreign net operating loss carryforwards available to offset future taxable income, respectively. The federal net operating loss carryforward began in 2011 and will expire in 2031. The state net operating loss carryforwards expire in varying amounts between 2015 and 2031. The foreign net operating loss carryforwards expire in varying amounts between 2015 and 2031.

Goodwill impairment item represents non-deductible goodwill impairment related to stock acquisitions in prior years. Non-deductible other items include meals and entertainment and other items that, individually, are not significant. The discrete item in 2011 and 2010 relates to the decrease in uncertain tax positions reflected in the table below. The Domestic Production Activities Deduction tax benefits in 2009 was a result of a carryback of tax deductions to that tax year.

The Company or one of its subsidiaries files income tax returns in the U.S. federal jurisdiction, and various states and foreign jurisdictions. With few exceptions, the Company is no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities for years before 2006. In 2010, the IRS commenced an examination of the Company’s U.S. income tax return for 2008, which was completed in February of 2011. The IRS did not propose any adjustments to the Company’s 2008 U.S. income tax return. In 2011, the IRS commenced an examination of the Company’s 2009 U.S. income tax return. The IRS has not proposed any adjustments to the Company’s 2009 U.S. income tax return as of December 31, 2011.

A reconciliation of the beginning and ending amount of unrecognized tax is as follows:

 

      September 30,       September 30,       September 30,  
    2011     2010     2009  

Beginning balance at January 1,

  $ 1,549     $ 1,557     $ 1,133  

Additions based on tax positions related to the current year

    —         387       424  

Reductions based on tax positions related to the prior year

    (1,549 )     —         —    

Reductions for tax positions due to expiration of statute of limitations

    —         (395     —    
   

 

 

   

 

 

   

 

 

 

Ending balance at December 31,

  $ —       $ 1,549     $ 1,557  
   

 

 

   

 

 

   

 

 

 

All of the unrecognized tax benefits, reflected above for 2010 and 2009, would have affected the Company’s effective tax rate, if recognized. The Company recognized a tax benefit of $1.5 million in 2011 due to the reduction, reflected above.

The Company recognizes penalties and interest related to unrecognized tax benefits in tax expense. Interest expense of $92 thousand and $202 thousand is included in the ASC 740-10 liability on the Company’s balance sheet as of December 31, 2010 and 2009, respectively.

Employee Stock Purchase Plan and Stock Option Plan
EMPLOYEE STOCK PURCHASE PLAN AND STOCK OPTION PLAN

9. EMPLOYEE STOCK PURCHASE PLAN AND STOCK OPTION PLAN

Employee Stock Purchase Plan

Under the Company’s Employee Stock Purchase Plan (the “ESPP”) eligible employees may purchase up to a calendar year maximum per eligible employee of the lesser of (i) 2,500 shares of common stock, or (ii) a number of shares of common stock having an aggregate fair market value of $25 thousand as determined on the date of purchase at 85% of the fair market value of such shares of common stock on the applicable purchase date. The compensation expense in connection with the ESPP in 2011, 2010 and 2009 was $9 thousand, $11 thousand and $21 thousand, respectively.

Employees purchased the following shares in the periods presented:

 

      September 30,       September 30,       September 30,  
    Year Ended December 31,  
     2011     2010     2009  

Shares purchased

    12       9       30  

Average price per share

  $ 4.22     $ 7.10     $ 5.46  

Stock Plan

The Company’s 2005 Stock Plan provides for the grant of incentive and non-statutory stock options, stock appreciation rights, restricted stock purchase awards, restricted stock awards, and restricted stock units to employees, directors and consultants of the Company. The Stock Plan authorizes the Company to issue up to 5.0 million shares of common stock. This amount automatically increased annually on the first day of the Company’s fiscal year, from 2006 through and including 2010, by the lesser of (i) 1.0% of the Company’s outstanding shares on the date of the increase; (ii) 0.3 million shares; or (iii) such smaller number of shares determined by the Company’s board of directors. At December 31, 2011, 2.3 million shares remain available for grant under the Stock Plan.

Options granted under the Stock Plan generally expire no later than ten years from the date of grant. Options generally vest over a period of three to five years, except options granted to non-employee directors may vest over a shorter time period. The exercise price of options must be equal to at least 100% (110% in the case of an incentive stock option granted to a 10% stockholder) of the fair market value of the Company’s common stock as of the date of grant. The Company allows for cashless exercises and grants new authorized shares upon the exercise of a vested stock option.

In 2011, the Company granted options to acquire a total of 55 thousand shares of the Company’s common stock to certain key employees with an exercise price equal to the fair market value of the Company’s common stock on the respective dates of grant.

Stock Option Exchange Program. On April 22, 2009, the Company commenced a stock option exchange program to allow certain of its employees the opportunity to exchange all or a portion of their eligible outstanding stock options for an equivalent number of new, replacement options. In connection with the exchange program, the Company issued 1.5 million nonstatutory stock options with an exercise price of $8.20, equal to the closing price of the Company’s common stock on the New York Stock Exchange on May 21, 2009. Generally, all employees who held options upon expiration of the exchange program, other than the Company’s board members, were eligible to participate in the program.

The number of shares of Company common stock subject to outstanding options did not change as a result of the exchange offer. New options issued as part of the exchange offer are subject to a two-year vesting schedule, with 50% of the shares subject to an option vesting on the one-year anniversary of the date of grant of the replacement option, and the remaining 50% of the shares subject to an option vesting on the two-year anniversary of the date of grant of the replacement option. The new options will expire 10 years from the date of grant of the replacement options, unless earlier terminated. In accordance with ASC 718, the Company measured the new fair value of the replacement options and also revalued the original options as of the date of modification. The excess fair value of the replacement options over the re-measured value of the original options represents incremental compensation cost. The total incremental cost of the replacement options is approximately $2.4 million, of which $0.5 million, $1.2 million and $0.7 million were recognized for the years ended December 31, 2011, 2010 and 2009, respectively.

The following is a further breakdown of the stock option activity under the Stock Plan:

 

      September 30,       September 30,       September 30,       September 30,  
    Year Ended December 31, 2011  
                Weighted        
          Weighted     Average     Aggregate  
          Average     Contractual     Intrinsic  
          Exercise     Life     Value  
    Shares     Price     (In years)     (In thousands)  

Outstanding at December 31, 2009

    2,252     $ 7.76                  

Granted

    —       $ —                    

Exercised

    (47   $ 5.14                  

Forfeited

    (48   $ 8.20                  
   

 

 

   

 

 

                 

Outstanding at December 31, 2010

    2,157     $ 7.81                  

Granted

    55     $ 8.72                  

Exercised

    (17   $ 6.37                  

Forfeited

    (29   $ 8.20                  
   

 

 

   

 

 

   

 

 

   

 

 

 

Outstanding at December 31, 2011

    2,166     $ 7.83       5.50     $ —    
   

 

 

   

 

 

   

 

 

   

 

 

 

Vested or expected to vest at December 31, 2011

    2,166     $ 7.83       5.50     $ —    
   

 

 

   

 

 

   

 

 

   

 

 

 

Exercisable at December 31, 2011

    2,087     $ 7.83       5.38     $ —    
   

 

 

   

 

 

   

 

 

   

 

 

 

The aggregate intrinsic value in the table above represents the total pretax intrinsic value (the difference between the closing stock price on December 31, 2011 and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all the option holders exercised their options on December 31, 2011. This amount changes based on the fair market value of the common stock. Total intrinsic value of options exercised during the years ended December 31, 2011, 2010 and 2009 was $45 thousand, $152 thousand and $45 thousand, respectively.

A summary of the Company’s non-vested stock options as of December 31, 2011, and changes during the fiscal year then ended is as follows:

 

      September 30,       September 30,  
          Weighted  
          Average Grant Date  

Non-vested Options

  Shares     Fair Market Value  

Non-vested at December 31, 2010

    754     $ 3.33  

Granted

    55     $ 4.43  

Vested

    (701   $ 3.35  

Forfeited

    (29   $ 3.37  
   

 

 

         

Non-vested at December 31, 2011

    79     $ 3.88  
   

 

 

         

The following table summarizes certain information concerning outstanding options at December 31, 2011:

 

      September 30,  
Range of Exercise   Options Outstanding at  

Price                    

  December 31, 2011  

$4.88 – $5.85

    589  

$6.11 – $9.03

    1,527  

$23.85 – $35.42

    50  
   

 

 

 

$4.88 – $35.42

    2,166  
   

 

 

 

Restricted Stock

The Stock Plan provides for automatic grants of restricted stock awards to non-employee directors of the Company, as of each annual meeting of the Company’s stockholders having a then fair market value equal to $50 thousand.

In 2011, the Company granted 465 thousand shares of restricted stock to certain key employees, and approximately 6 thousand shares of restricted stock to each of the Company’s six non-employee members of its Board of Directors at a price per share equal to the closing price of the Company’s common stock on the respective dates the restricted stock was granted. The shares of restricted stock granted to certain key employees will vest ratably over four years. The shares of restricted stock granted to the non-employee board members will vest on the one-year anniversary of the grant date.

In 2010, the Company granted approximately 5 thousand shares of restricted stock to each of the Company’s six non-employee members of its Board of Directors at a price per share equal to the closing price of the Company’s common stock on the respective dates the restricted stock was granted. The shares of restricted stock granted to the non- employee board members vested on the one-year anniversary of the grant date.

 

The Company recognized compensation expense from restricted stock of $2.1 million, $1.3 million and $0.9 million in 2011, 2010 and 2009, respectively.

Retirement Plans
RETIREMENT PLANS

10. RETIREMENT PLANS

The Company sponsors a 401(k) Plan, which covers substantially all employees of the Company who have attained age 21. Under the Company’s 401(k) Plan, eligible employees may contribute up to 75% of their annual eligible compensation (or in the case of highly compensated employees, up to 6% of their annual eligible compensation), subject to contribution limitations imposed by the Internal Revenue Service. During a portion 2009, the Company made an employer matching contribution equal to 20% of an employee’s contributions, up to a total of 4% of that employee’s compensation. In July 2009, the Company amended its 401(k) Plan to eliminate the mandatory company contribution and to provide for discretionary company contributions. An independent third party administers the Company’s 401(k) Plan. In 2011 and 2010, the Company made no discretionary contributions to the 401(k) Plan. The Company’s total expense under these plans amounted to $400 thousand during the year ended December 31, 2009.

Derivatives and Hedging Transactions
DERIVATIVES AND HEDGING TRANSACTIONS

11. DERIVATIVES AND HEDGING TRANSACTIONS

As of December 31, 2011, the Company was not party to any derivative or hedging transactions.

As of December 31, 2010, the Company was party to a swap transaction, in which the Company exchanged its floating-rate payments for fixed-rate payments. As of December 1, 2010, the swap transaction was de-designated upon issuance of the Notes and payoff of the Company’s previous credit agreement. The swap transaction no longer qualified as a cash flow hedge under ASC 815, as all the floating-rate debt was extinguished. The swap transaction qualified as a cash flow hedge up to November 30, 2010. On January 3, 2011, the Company terminated and settled the swap transaction.

As of December 31, 2011, $3.4 million is deferred in Accumulated Other Comprehensive Loss (“AOCL”) and will be recognized in earnings over the remainder of the original term of the swap transaction which was scheduled to end in December 2012. Over the next 12 months, the Company will amortize $3.4 million from AOCL to interest expense.

The following table summarizes the fair value and classification on the Consolidated Balance Sheets of the swap transaction as of December 31, 2011 and 2010:

 

    September 30,     September 30,       September 30,  
        Fair Value  
    Balance Sheet   Year Ended December 31,  
    Classification   2011     2010  

Derivative not designated as hedging instrument under ASC 815

                   

Swap Transaction

  Accrued expenses   $ —       $ 9,729  

The following table summarizes the gain (loss) recognized in AOCL of derivatives, designated and qualifying as cash flow hedges for the year ended December 31, 2011 and 2010:

 

      September 30,       September 30,  
    Amount of Gain or (Loss) Recognized in
AOCL on Derivative
 
    Year Ended December 31,  
    2011     2010  

Derivative in ASC 815 Cash Flow Hedging Relationship

               

Swap Transaction

  $ —       $ 1,763  

Tax effect

    —         (638
   

 

 

   

 

 

 

Swap Transaction, net of tax effect

  $ —       $ 1,125  
   

 

 

   

 

 

 

The following table summarizes the effect of the Amended Swap Transaction on the Consolidated Statements of Operations for the year ended December 31, 2011, 2010 and 2009:

 

      September 30,       September 30,       September 30,       September 30,       September 30,       September 30,  
    Amount of Loss     Amount of Loss  
    Reclassified from AOCL into Income     Recognized in Income  
    (effective portion)     (ineffective portion)  
    Year Ended December 31,     Year Ended December 31,  
    2011     2010     2009     2011     2010     2009  

Location of Loss Reclassified from AOCL into Income

                                               

Interest expense

  $  5,691     $  7,724     $  8,247     $  —       $  574     $  24  

 

The following table summarizes the loss recognized in income of derivatives, not designated as hedging instruments under ASC 815 for the year ended December 31, 2011 and 2010:

 

      September 30,       September 30,  
    Amount of Gain or (Loss) Recognized in AOCL
on Derivative
 
    Year Ended December 31,  
    2011     2010  

Derivative not designated as hedging instrument under ASC 815

               

Swap Transaction

  $ (120   $ —    

Tax effect

    45       —    
   

 

 

   

 

 

 

Swap Transaction, net of tax effect

  $ (75   $ —    
   

 

 

   

 

 

 
Fair Value Measurements
FAIR VALUE MEASUREMENTS

12. FAIR VALUE MEASUREMENTS

In accordance with ASC 820, the Company has categorized its assets and liabilities that are measured at fair value into a three-level fair value hierarchy as set forth below. If the inputs used to measure fair value fall within different levels of the hierarchy, the categorization is based on the lowest level input that is significant to the fair value measurement. The three levels of the hierarchy are defined as follows:

Level 1—inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.

Level 2—inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.

Level 3—inputs to the valuation methodology are unobservable and significant to the fair value measurement.

The following table sets forth, by level within the fair value hierarchy, the Company’s financial assets and liabilities that were accounted for at fair value on a recurring basis as of December 31, 2011 and 2010. As required by ASC 820, financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement requires judgment, and may affect the valuation of fair value assets and liabilities and their placement within the fair value hierarchy levels.

 

      September 30,       September 30,  
    Significant Other Observable Inputs  
    Level 2  
    December 31,  
    2011     2010  

Recurring Fair Value Measure

               

Amended Swap Transaction

  $ —       $ 9,729  
   

 

 

   

 

 

 

The Company has also included additional required disclosures about the Company’s swap transaction in Note 11 “Derivatives and Hedging Transactions.”

The swap transaction is valued at fair value with the use of an income approach based on current market interest rates using a discounted cash flow model and an adjustment for counterparty risk. This model reflects the contractual terms of the derivative instrument, including the time to maturity and debt repayment schedule, and market-based parameters such as interest rates and yield curves. This model does not require significant judgment, and the inputs are observable. Thus, the derivative instrument is classified within Level 2 of the valuation hierarchy. The Company terminated and settled the swap transaction on January 3, 2011.

The following table summarizes the bases used to measure certain assets and liabilities at fair value on a nonrecurring basis in the consolidated financial statements as of and for the year ended December 31, 2011 and 2010:

 

      September 30,       September 30,       September 30,       September 30,  
    Significant Other Unobservable Inputs  
    December 31,  
    2011     2010  
    Level 3     Total Losses     Level 3     Total Losses  

Nonrecurring Fair Value Measure

  

                       

Goodwill

  $ 229,315     $ 65,444     $ 294,759     $ 38,263  

 

In accordance with the provisions of ASC 350, goodwill was written down to its implied fair value of $229.3 million and $294.8 million as of December 31, 2011 and 2010, respectively, resulting in an impairment charge of $65.4 million and $38.3 million during the year ended December 31, 2011 and 2010. See Note 2, “Summary of Significant accounting policies” and Note 4, “Goodwill and other intangibles resulting from business acquisitions” for further information regarding the process of determining the implied fair value of goodwill and change in goodwill.

Condensed Financial Statements
CONDENSED FINANCIAL STATEMENTS

13. CONDENSED FINANCIAL STATEMENTS

The Notes are fully and unconditionally guaranteed, on a joint and several basis, by all of the Company’s domestic subsidiaries (the “Guarantor Subsidiaries”). The Company’s foreign subsidiaries have not guaranteed the Notes (the “Non-Guarantor Subsidiaries”). Each of the Guarantor Subsidiaries is 100% owned, directly or indirectly, by the Company. There are no significant restrictions on the ability of the Company to obtain funds from any of the Guarantor Subsidiaries by dividends or loan. In lieu of providing separate audited financial statements for the Guarantor Subsidiaries, condensed consolidating financial information is presented below.

Consolidating Condensed Balance Sheet

December 31, 2011

(Dollars in thousands)

 

      September 30,       September 30,       September 30,       September 30,       September 30,  
    American                          
    Reprographics     Guarantor     Non-Guarantor              
    Company     Subsidiaries     Subsidiaries     Eliminations     Total  

Assets

                                       
           

Current assets:

                                       

Cash and cash equivalents

  $ —       $ 11,706     $ 13,731     $ —       $ 25,437  

Accounts receivable, net

    —         49,435       5,278       —         54,713  

Intercompany operations

    295       4,667       (4,962     —         —    

Inventories, net

    —         7,772       4,335       —         12,107  

Prepaid expenses

    77       3,145       777       —         3,999  

Other current assets

    —         6,637       904       —         7,541  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total current assets

    372       83,362       20,063       —         103,797  

Property and equipment, net

    —         47,431       7,653       —         55,084  

Goodwill

    —         229,315       —         —         229,315  

Investment in subsidiaries

    154,813       12,973       —         (167,786     —    

Other intangible assets, net

    —         42,625       2,502       —         45,127  

Deferred financing costs, net

    4,574       —         —         —         4,574  

Deferred income taxes

    —         —         1,368       —         1,368  

Other assets

    —         1,850       242       —         2,092  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total assets

  $ 159,759     $ 417,556     $ 31,828     $ (167,786   $ 441,357  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
           

Liabilities and Equity

                                       
           

Current liabilities:

                                       

Accounts payable

  $ 113     $ 19,965     $ 1,709     $ —       $ 21,787  

Accrued payroll and payroll-related expenses

    —         6,807       485       —         7,292  

Accrued expenses

    933       15,327       3,048       —         19,308  

Intercompany loans

    (168,206     166,361       1,845       —         —    

Current portion of long-term debt and capital leases

    —         13,078       1,927       —         15,005  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total current liabilities

    (167,160     221,538       9,014       —         63,392  

Long-term debt and capital leases

    196,241       13,496       1,522       —         211,259  

Deferred income taxes

    —         26,447       —         —         26,447  

Other long-term liabilities

    —         1,262       1,932       —         3,194  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities

    29,081       262,743       12,468       —         304,292  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Commitments and contingencies

                                       
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total equity

    130,678       154,813       19,360       (167,786     137,065  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities and equity

  $ 159,759     $ 417,556     $ 31,828     $ (167,786   $ 441,357  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

Consolidating Condensed Balance Sheet

December 31, 2010

(Dollars in thousands)

 

      September 30,       September 30,       September 30,       September 30,       September 30,  
    American
Reprographics
Company
    Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Eliminations     Total  

Assets

                                       
           

Current assets:

                                       

Cash and cash equivalents

  $ —       $ 12,587     $ 13,706     $ —       $ 26,293  

Accounts receivable, net

    —         48,283       4,336       —         52,619  

Intercompany operations

    295       2,717       (3,012     —         —    

Inventories, net

    —         8,090       2,599       —         10,689  

Deferred income taxes

    —         7,157       —         —         7,157  

Prepaid expenses

    72       2,799       1,203       —         4,074  

Other current assets

    —         5,942       928       —         6,870  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total current assets

    367       87,575       19,760       —         107,702  

Property and equipment, net

    —         52,376       6,660       —         59,036  

Goodwill

    —         294,759       —         —         294,759  

Investment in subsidiaries

    257,838       16,065       —         (273,903     —    

Other intangible assets, net

    —         60,585       2,058       —         62,643  

Deferred financing costs, net

    4,995       —         —         —         4,995  

Deferred income taxes

    708       34,453       2,674       —         37,835  

Other assets

    —         1,978       137       —         2,115  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total assets

  $ 263,908     $ 547,791     $ 31,289     $ (273,903   $ 569,085  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
           

Liabilities and Equity

                                       
           

Current liabilities:

                                       

Accounts payable

  $ —       $ 21,137     $ 2,456     $ —       $ 23,593  

Accrued payroll and payroll-related expenses

    —         7,643       337       —         7,980  

Accrued expenses

    2,210       25,563       2,361       —         30,134  

Intercompany loans

    (190,500     190,241       259       —         —    

Current portion of long-term debt and capital leases

    —         22,787       821       —         23,608  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total current liabilities

    (188,290     267,371       6,234       —         85,315  

Long-term debt and capital leases

    195,692       19,201       1,123       —         216,016  

Other long-term liabilities

    —         3,381       1,691       —         5,072  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities

    7,402       289,953       9,048       —         306,403  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Commitments and contingencies

                                       

Total equity

    256,506       257,838       22,241       (273,903     262,682  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities and equity

  $ 263,908     $ 547,791     $ 31,289     $ (273,903   $ 569,085  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

Consolidating Condensed Statement of Operations

December 31, 2011

(Dollars in thousands)

 

      September 30,       September 30,       September 30,       September 30,       September 30,  
    American                          
    Reprographics     Guarantor     Non-Guarantor              
    Company     Subsidiaries     Subsidiaries     Eliminations     Total  

Net sales

  $ —       $ 378,705     $ 44,027     $ —       $ 422,732  

Cost of sales

    —         253,415       35,019       —         288,434  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

    —         125,290       9,008       —         134,298  

Selling, general and administrative expenses

    —         93,093       8,222       —         101,315  

Amortization of intangible assets

    —         18,447       268       —         18,715  

Goodwill impairment

    —         65,444       —         —         65,444  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

(Loss) income from operations

    —         (51,694     518       —         (51,176

Other expense (income), net

    —         546       (649 )     —         (103

Interest expense (income), net

    22,802       8,411       (109     —         31,104  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

(Loss) income before equity in earnings of subsidiaries and income tax benefit

    (22,802     (60,651     1,276       —         (82,177

Equity in earnings of subsidiaries

    109,577       160       —         (109,737     —    

Income tax provision

    708       48,766       1,457       —         50,931  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net (loss) income

    (133,087     (109,577     (181     109,737       (133,108

Loss attributable to noncontrolling interest

    —         —         21       —         21  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net (loss) income attributable to American Reprographics Company

  $ (133,087   $ (109,577   $ (160   $ 109,737     $ (133,087
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Consolidating Condensed Statement of Operations

December 31, 2010

(Dollars in thousands)

 

      September 30,       September 30,       September 30,       September 30,       September 30,  
    American
Reprographics
Company
    Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Eliminations     Total  

Net sales

  $ —       $ 404,513     $ 37,126     $ —       $ 441,639  

Cost of sales

    —         269,304       30,003       —         299,307  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

    —         135,209       7,123       —         142,332  

Selling, general and administrative expenses

    —         100,294       7,450       —         107,744  

Amortization of intangible assets

    —         11,368       289       —         11,657  

Goodwill impairment

    —         36,697       1,566       —         38,263  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss from operations

    —         (13,150     (2,182     —         (15,332

Other (income) expense, net

    —         (805     649       —         (156

Interest expense (income), net

    1,895       22,215       (19     —         24,091  

Loss on early extinguishment of debt

    —         2,509       —         —         2,509  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss before equity in earnings of subsidiaries and income tax benefit

    (1,895     (37,069     (2,812     —         (41,776

Equity in earnings of subsidiaries

    26,315       1,849       —         (28,164     —    

Income tax benefit

    (708     (12,603     (875     —         (14,186
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net (loss) income

    (27,502     (26,315     (1,937     28,164       (27,590

Loss attributable to noncontrolling interest

    —         —         88       —         88  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net (loss) income attributable to American Reprographics Company

  $ (27,502   $ (26,315   $ (1,849   $ 28,164     $ (27,502
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Consolidating Condensed Statement of Operations

December 31, 2009

(Dollars in thousands)

 

      September 30,       September 30,       September 30,       September 30,       September 30,  
    American
Reprographics
Company
    Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Eliminations     Total  

Net sales

  $ —       $ 473,414     $ 28,135     $ —       $ 501,549  

Cost of sales

    —         300,957       22,403       —         323,360  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

    —         172,457       5,732       —         178,189  

Selling, general and administrative expenses

    —         108,049       6,971       —         115,020  

Amortization of intangible assets

    —         11,077       290       —         11,367  

Goodwill impairment

    —         35,148       2,234       —         37,382  

Impairment of long-lived assets

    —         781       —         —         781  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from operations

    —         17,402       (3,763     —         13,639  

Other (income) expense, net

    —         (619     448       —         (171

Interest expense, net

    —         25,755       26       —         25,781  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss before equity in earnings of subsidiaries and income tax provision (benefit)

    —         (7,734     (4,237     —         (11,971

Equity in earnings of subsidiaries

    14,885       3,098       —         (17,983     —    

Income tax provision (benefit)

    —         4,053       (1,035     —         3,018  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net (loss) income

    (14,885     (14,885     (3,202     17,983       (14,989

Loss attributable to noncontrolling interest

    —         —         104       —         104  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net (loss) income attributable to American Reprographics Company

  $ (14,885   $ (14,885   $ (3,098   $ 17,983     $ (14,885
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

Consolidating Condensed Statement of Cash Flows

December 31, 2011

(Dollars in thousands)

 

      September 30,       September 30,       September 30,       September 30,       September 30,  
    American
Reprographics
Company
    Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Eliminations     Total  

Cash flows from operating activities

                                       

Net cash (used in) provided by operating activities

  $ (21,495   $ 67,372     $ 3,291     $ —       $ 49,168  
           

Cash flows from investing activities

                                       

Capital expenditures

    —         (14,118     (1,435     —         (15,553

Payments for businesses acquired, net of cash acquired and including other cash payments associated with the acquisitions

    —         —         (823     —         (823

Payment for swap transaction

    —         (9,729     —         —         (9,729

Other

    —         1,038       (115     —         923  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash used in investing activities

    —         (22,809     (2,373     —         (25,182
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
           

Cash flows from financing activities

                                       

Proceeds from stock option exercises

    —         108       —         —         108  

Proceeds from issuance of common stock under Employee Stock Purchase Plan

    —         62       —         —         62  

Payments on long-term debt agreements and capital leases

    —         (23,684     (1,495     —         (25,179

Net borrowings under revolving credit facility

    —         —         701       —         701  

Payment of deferred financing fees

    (799     —         —         —         (799

Advances to/from subsidiaries

    22,294       (21,930     (364     —         —    
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) financing activities

    21,495       (45,444     (1,158     —         (25,107
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Effect of foreign currency translation on cash balances

    —         —         265       —         265  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net change in cash and cash equivalents

    —         (881     25       —         (856

Cash and cash equivalents at beginning of period

    —         12,587       13,706       —         26,293  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash and cash equivalents at end of period

  $ —       $ 11,706     $ 13,731     $ —       $ 25,437