ARC DOCUMENT SOLUTIONS, INC., 10-Q filed on 5/9/2012
Quarterly Report
Document and Entity Information
3 Months Ended
Mar. 31, 2012
May 1, 2012
Document and Entity Information [Abstract]
 
 
Entity Registrant Name
American Reprographics CO 
 
Entity Central Index Key
0001305168 
 
Document Type
10-Q 
 
Document Period End Date
Mar. 31, 2012 
 
Amendment Flag
false 
 
Document Fiscal Year Focus
2012 
 
Document Fiscal Period Focus
Q1 
 
Current Fiscal Year End Date
--12-31 
 
Entity Filer Category
Accelerated Filer 
 
Entity Common Stock, Shares Outstanding
 
46,245,433 
Condensed Consolidated Balance Sheets (Unaudited) (USD $)
In Thousands, unless otherwise specified
Mar. 31, 2012
Dec. 31, 2011
Current assets:
 
 
Cash and cash equivalents
$ 29,814 
$ 25,437 
Accounts receivable, net of allowances for accounts receivable of $3,412 and $3,309
60,216 
54,713 
Inventories, net
12,542 
12,107 
Prepaid expenses
4,922 
3,999 
Other current assets
6,909 
7,541 
Total current assets
114,403 
103,797 
Property and equipment, net of accumulated depreciation of $196,140 and $191,598
55,775 
55,084 
Goodwill
229,315 
229,315 
Other intangible assets, net
40,644 
45,127 
Deferred financing costs, net
4,936 
4,574 
Deferred income taxes
1,320 
1,368 
Other assets
2,059 
2,092 
Total assets
448,452 
441,357 
Current liabilities:
 
 
Accounts payable
21,254 
21,787 
Accrued payroll and payroll-related expenses
9,461 
7,292 
Accrued expenses
26,208 
19,308 
Current portion of long-term debt and capital leases
14,602 
15,005 
Total current liabilities
71,525 
63,392 
Long-term debt and capital leases
211,862 
211,259 
Deferred income taxes
27,336 
26,447 
Other long-term liabilities
3,306 
3,194 
Total liabilities
314,029 
304,292 
Commitments and contingencies (Note 6)
   
   
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; 46,230 and 46,235 shares issued, and 46,230 and 46,235 shares outstanding
46 
46 
Additional paid-in capital
100,870 
99,728 
Retained earnings
27,756 
32,663 
Accumulated other comprehensive loss
(696)
(1,760)
Total American Reprographics Company stockholders' equity
127,976 
130,677 
Noncontrolling interest
6,447 
6,388 
Total equity
134,423 
137,065 
Total liabilities and equity
$ 448,452 
$ 441,357 
Condensed Consolidated Balance Sheets (Unaudited) (Parenthetical) (USD $)
In Thousands, except Per Share data, unless otherwise specified
Mar. 31, 2012
Dec. 31, 2011
Condensed Consolidated Balance Sheets [Abstract]
 
 
Allowances for accounts receivable
$ 3,412 
$ 3,309 
Accumulated depreciation on property and equipment
$ 196,140 
$ 191,598 
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
46,230 
46,235 
Common stock, shares outstanding
46,230 
46,235 
Condensed Consolidated Statements of Operations (Unaudited) (USD $)
In Thousands, except Per Share data, unless otherwise specified
3 Months Ended
Mar. 31, 2012
Mar. 31, 2011
Net sales
$ 103,573 
$ 106,504 
Cost of sales
71,695 
73,118 
Gross profit
31,878 
33,386 
Selling, general and administrative expenses
23,457 
27,832 
Amortization of intangible assets
4,593 
4,744 
Income from operations
3,828 
810 
Other income
(30)
(26)
Interest expense, net
7,438 
8,167 
Loss before income tax provision (benefit)
(3,580)
(7,331)
Income tax provision (benefit)
1,310 
(3,649)
Net loss
(4,890)
(3,682)
(Income) loss attributable to noncontrolling interest
(17)
39 
Net loss attributable to American Reprographics Company
(4,907)
(3,643)
Loss per share attributable to American Reprographics Company shareholders:
 
 
Basic
$ (0.11)
$ (0.08)
Diluted
$ (0.11)
$ (0.08)
Weighted average common shares outstanding:
 
 
Basic
45,541 
45,322 
Diluted
45,541 
45,322 
Reprographics services
 
 
Net sales
63,016 
70,022 
Facilities management
 
 
Net sales
26,656 
24,203 
Equipment and supplies sales
 
 
Net sales
$ 13,901 
$ 12,279 
Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited) (USD $)
In Thousands, unless otherwise specified
3 Months Ended
Mar. 31, 2012
Mar. 31, 2011
Condensed Consolidated Statements of Comprehensive Income (Loss) [Abstract]
 
 
Net loss
$ (4,890)
$ (3,682)
Other comprehensive income, net of tax:
 
 
Foreign currency translation adjustments, net of tax effect of $31 and $54
320 
289 
Amortization of derivative, net of tax effect of $469 and $569
786 
954 
Other comprehensive income, net of tax
1,106 
1,243 
Comprehensive loss
(3,784)
(2,439)
Comprehensive income (loss) attributable to noncontrolling interest
59 
(7)
Comprehensive loss attributable to American Reprographics Company
$ (3,843)
$ (2,432)
Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited) (Parenthetical) (USD $)
In Thousands, unless otherwise specified
3 Months Ended
Mar. 31, 2012
Mar. 31, 2011
Condensed Consolidated Statements of Comprehensive Income (Loss) [Abstract]
 
 
Tax effect of foreign currency translation adjustments
$ 31 
$ 54 
Tax effect of amortization of derivative
$ 469 
$ 569 
Condensed Consolidated Statements of Cash Flows (Unaudited) (USD $)
In Thousands, unless otherwise specified
3 Months Ended
Mar. 31, 2012
Mar. 31, 2011
Cash flows from operating activities
 
 
Net loss
$ (4,890)
$ (3,682)
Adjustments to reconcile net loss to net cash provided by operating activities:
 
 
Allowance for accounts receivable
240 
180 
Depreciation
7,062 
7,742 
Amortization of intangible assets
4,593 
4,744 
Amortization of deferred financing costs
255 
216 
Amortization of bond discount
147 
132 
Stock-based compensation
444 
1,489 
Excess tax benefit related to stock-based compensation
 
(8)
Deferred income taxes
(325)
2,318 
Deferred tax valuation allowance
1,968 
 
Amortization of derivative, net of tax effect
786 
954 
Other non-cash items, net
(30)
(130)
Changes in operating assets and liabilities, net of effect of business acquisitions:
 
 
Accounts receivable
(5,634)
(8,268)
Inventory
(521)
(1,191)
Prepaid expenses and other assets
(266)
(3,228)
Accounts payable and accrued expenses
8,566 
3,321 
Net cash provided by operating activities
12,395 
4,589 
Cash flows from investing activities
 
 
Capital expenditures
(3,805)
(4,136)
Payment for swap transaction
 
(9,729)
Other
191 
378 
Net cash used in investing activities
(3,614)
(13,487)
Cash flows from financing activities
 
 
Proceeds from stock option exercises
 
41 
Proceeds from issuance of common stock under Employee Stock Purchase Plan
21 
23 
Excess tax benefit related to stock-based compensation
 
Payments on long-term debt agreements and capital leases
(4,388)
(7,540)
Net borrowings under revolving credit facilities
552 
12,800 
Payment of deferred financing fees
(712)
(164)
Net cash (used in) provided by financing activities
(4,527)
5,168 
Effect of foreign currency translation on cash balances
123 
109 
Net change in cash and cash equivalents
4,377 
(3,621)
Cash and cash equivalents at beginning of period
25,437 
26,293 
Cash and cash equivalents at end of period
29,814 
22,672 
Noncash transactions include the following:
 
 
Capital lease obligations incurred
$ 3,846 
$ 2,461 
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 nation’s leading document solutions company for the architecture, engineering, and construction (“AEC”) industry. ARC is the largest company of its kind in the United States and offers conventional reprographic services, as well as managed print services, digital color printing, and proprietary document management technology products and 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 interim Condensed Consolidated Financial Statements are prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and in conformity with the requirements of the SEC. As permitted under those rules, certain footnotes or other financial information required by GAAP for complete financial statements have been condensed or omitted. In management’s opinion, the accompanying interim Condensed Consolidated Financial Statements presented reflect all adjustments of a normal and recurring nature that are necessary to fairly present the interim Condensed Consolidated Financial Statements. All material intercompany accounts and transactions have been eliminated in consolidation. The operating results for the three months ended March 31, 2012 are not necessarily indicative of the results that may be expected for the year ending December 31, 2012.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the interim Condensed 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 interim Condensed Consolidated Financial Statements.

These interim Condensed Consolidated Financial Statements and notes should be read in conjunction with the consolidated financial statements and notes included in the Company’s 2011 Form 10-K.

Recent Accounting Pronouncements

In September 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“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 Company is currently evaluating the provisions of ASU 2011-08 to determine if the new guidance will be adopted for the Company’s annual goodwill impairment test in the third quarter of 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 Company adopted provisions of ASU 2011-05 effective January 1, 2012, and has presented a new statement titled “Condensed Consolidated Statements of Comprehensive Income (Loss).”

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 Company adopted provisions of ASU 2011-04 effective January 1, 2012, which did not have a material effect on its Consolidated Financial Statements.

Segment Reporting

The provisions of Accounting Standards Codification (“ASC”) 280, Disclosures about Segments of an Enterprise and Related Information, 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 chief operating decision maker. Based on the fact that operating segments have similar products and services, classes of customers, production processes and performance objectives, the Company is deemed to operate as a single reportable segment.

 

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 construction spending, GDP growth, interest rates, unemployment rates, and office vacancy rates. The effects of the current economic environment in the United States have resulted in a significant reduction of activity in the non-residential portions of the AEC industry, as compared to periods prior to the recent recession. 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.

Future technology advances may further facilitate and improve our customers’ ability to print in their own offices or at a job site. As technology continues to improve, this trend toward printing on an “as needed” basis could result in decreasing printing volumes and declining revenues in the longer term. Failure to offset these potential declines in printing volumes by changing how we charge for our services and develop additional revenue sources could significantly affect our business and reduce our long term revenue, resulting in an adverse effect on our results of operations and financial condition.

Earnings per Share
Earnings per Share

2. Earnings per Share

The Company accounts for earnings per share in accordance with ASC 260, Earnings Per Share. Basic earnings per share is computed by dividing net income attributable to ARC by the weighted-average number of common shares outstanding for the period. Diluted earnings per 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 stock equivalents are excluded from the computation if their effect is anti-dilutive. For the three months ended March 31, 2012 and 2011, stock options for 2.2 million common shares were excluded from the calculation of diluted net income attributable to ARC per common share because they were anti-dilutive.

Basic and diluted earnings per share for the three months ended March 31, 2012 and 2011 were calculated using the following common shares:

 

                 
    Three Months
Ended March 31,
 

(In thousands)

  2012     2011  

Weighted average common shares outstanding - basic

    45,541       45,322  

Effect of dilutive impact on equity-based compensation awards

    —         —    
   

 

 

   

 

 

 

Weighted average common shares outstanding - diluted

    45,541       45,322  
   

 

 

   

 

 

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

3. Goodwill and Other Intangibles Resulting from Business Acquisitions

Goodwill

In connection with acquisitions, the Company applies the provisions of ASC 805, Business Combinations, 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. Since the Company’s previous goodwill impairment analysis as of September 30, 2011, there were no triggering events that required a subsequent interim impairment analysis.

The results of the Company’s analysis at September 30, 2011 indicated that nine of its 37 reporting units, eight in the United States and one in Canada, had a goodwill impairment as of September 30, 2011. 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 of 2011, 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.

 

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 six of its 36 reporting units, all of which are located in the United States, had a goodwill impairment 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.

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 information in assessing the reasonableness of the fair value under the income approach outlined above.

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.

The changes in the carrying amount of goodwill from January 1, 2011 through March 31, 2012 are summarized as follows:

 

                         

(In thousands)

  Gross
Goodwill
    Accumulated
Impairment
Loss
    Net
Carrying
Amount
 

January 1, 2011

  $ 405,558     $ 110,799     $ 294,759  

Additions

    —         —         —    

Goodwill impairment

    —         65,444       (65,444
   

 

 

   

 

 

   

 

 

 

December 31, 2011

    405,558       176,243       229,315  

Additions

    —         —         —    

Goodwill impairment

    —         —         —    
   

 

 

   

 

 

   

 

 

 

March 31, 2012

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

 

 

   

 

 

   

 

 

 

See “Critical Accounting Policies” in Management’s Discussion and Analysis of Financial Condition and Results of Operations for further information regarding the process and assumptions used in the goodwill impairment analysis.

Long-lived Assets

The Company periodically assesses potential impairments of its long-lived assets in accordance with the provisions of ASC 360, Accounting for the Impairment or Disposal of Long-lived Assets. 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 the 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. Based on these assessments, there was no impairment in 2011. The Company concluded that no triggering events have occurred during the first quarter of 2012 that would require a long-lived asset impairment test.

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

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 were 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 both the three months ended March 31, 2012 and 2011 was an increase in amortization expense of approximately $2.4 million. Trade names are amortized using the straight-line method. The Company retired the original trade names in April 2012.

Non-competition agreements are amortized over their term on a straight-line basis.

The following table sets forth the Company’s other intangible assets resulting from business acquisitions as of March 31, 2012 and December 31, 2011 which continue to be amortized:

 

                                                 
    March 31, 2012     December 31, 2011  

(In thousands)

  Gross
Carrying
Amount
    Accumulated
Amortization
    Net
Carrying
Amount
    Gross
Carrying
Amount
    Accumulated
Amortization
    Net
Carrying
Amount
 

Amortizable other intangible assets

                                               

Customer relationships

  $ 97,622     $ 58,475     $ 39,147     $ 97,509     $ 56,478     $ 41,031  

Trade names and trademarks

    20,349       18,854       1,495       20,320       16,231       4,089  

Non-competition agreements

    100       98       2       100       93       7  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    $ 118,071     $ 77,427     $ 40,644     $ 117,929     $ 72,802     $ 45,127  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Based on current information, estimated future amortization expense of amortizable intangible assets for the remainder of the 2012 fiscal year, each of the subsequent four fiscal years and thereafter are as follows:

 

         

(In thousands)

     

2012 (excluding the three months ended March 31, 2012)

  $ 6,407  

2013

    6,560  

2014

    5,721  

2015

    5,184  

2016

    4,491  

Thereafter

    12,281  
   

 

 

 
    $ 40,644  
   

 

 

 
Income Taxes
INCOME TAXES

4. Income Taxes

On a quarterly basis, the Company estimates its effective tax rate for the full fiscal year and records a quarterly income tax provision based on the anticipated rate in conjunction with the recognition of any discrete items within the quarter.

The Company recorded an income tax provision of $1.3 million in relation to a pretax loss of $3.6 million for the three months ended March 31, 2012. The income tax provision was primarily due to the impact of amortization of tax basis goodwill in a deferred tax liability position which receives an additional valuation allowance. Included in the Company’s income tax provision for the first quarter of 2012 were immaterial corrections of prior year items related to tax deficiencies from stock-based compensation.

 

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 carryover periods for operating losses and tax credit carryovers; and available tax planning alternatives. During 2011, and the first quarter of 2012, 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 on certain deferred assets was needed. As of March 31, 2012, the Company has a $70.5 million valuation allowance against certain of its deferred tax assets.

Based on the Company’s assessment, the remaining net deferred tax assets of $1.3 million as of March 31, 2012 are considered to be more likely than not to be realized. The valuation allowance of $70.5 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 $4.3 million as of March 31, 2012 included in other current assets in its consolidated balance sheet primarily related to income tax refunds for prior years under audit.

Long-Term Debt
LONG-TERM DEBT

5. Long-Term Debt

Long-term debt consists of the following:

 

                 
    March 31,     December 31,  

(In thousands)

  2012     2011  

Borrowings from foreign revolving credit facility; 6.0% interest rate at March 31, 2012

  $ 1,265     $ 713  

10.5% senior notes due 2016, net of bond discount of $3,612 and $3,759

    196,388       196,241  

Various subordinated notes payable; weighted average interest rate of 6.2%; principal and interest payable monthly through September 2014

    668       1,174  

Various capital leases; weighted average interest rate of 8.3% and 8.5% interest rate at March 31, 2012 and December 31, 2011, respectively; principal and interest payable monthly through December 2016

    28,143       28,136  
   

 

 

   

 

 

 
      226,464       226,264  

Less current portion

    (14,602     (15,005
   

 

 

   

 

 

 
    $ 211,862     $ 211,259  
   

 

 

   

 

 

 

10.5% Senior Notes due 2016

On December 1, 2010, the Company completed a private placement of 10.5% senior unsecured notes due 2016 (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 certain 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.

2012 Credit Agreement

On January 27, 2012, the Company entered into a new Credit Agreement (the “2012 Credit Agreement”) and terminated its previous senior secured 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%, 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. The Company’s obligations under the 2012 Credit Agreement are secured by substantially all of its assets pursuant to a Guaranty and Security Agreement.

As of March 31, 2012, the Company did not have any outstanding debt under the 2012 Credit Agreement.

As of March 31, 2012, standby letters of credit aggregated to $3.0 million, which reduced the Company’s borrowing availability under the 2012 Credit Agreement to $46.0 million.

Foreign Credit Facility

In the second quarter of 2011, in conjunction with its Chinese operations, UNIS Document Solutions Co. Ltd. (“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 March 31, 2012. 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.

Commitments and Contingencies
COMMITMENTS AND CONTINGENCIES

6. Commitments and Contingencies

Operating Leases. The Company has entered into various non-cancelable operating leases primarily related to facilities, equipment and vehicles used in the ordinary course of business.

 

Contingent Transaction Consideration. The Company is subject to earnout obligations entered into in connection with prior acquisitions. If the acquired businesses generate sales and/or operating profits in excess of predetermined targets, the Company is obligated to make additional cash payments in accordance with the terms of such earnout obligations. As of March 31, 2012, the Company has potential future earnout obligations for acquisitions consummated before the adoption of ASC 805, Business Combinations, of approximately $1.5 million through 2014 if predetermined financial targets are met or exceeded, and earnout obligations of $0.3 million through 2014 consummated subsequent to the adoption of ASC 805. Earnout payments prior to the adoption of ASC 805 are recorded as additional purchase price (as goodwill) when the contingent payments are earned and become payable.

Legal Proceedings. 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, L.L.C. 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.

Stock-Based Compensation
Stock-Based Compensation

8. Stock-Based Compensation

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. As of March 31, 2012, 2.4 million shares remain available for issuance under the Stock Plan.

Stock options granted under the Stock Plan generally expire no later than ten years from the date of grant. Options generally vest and become fully exercisable over a period of two to five years from date of award, except that 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 on the date of grant. The Company allows for cashless exercises of vested outstanding options.

The impact of stock-based compensation before income taxes on the interim Condensed Consolidated Statements of Operations was $0.4 million and $1.5 million for the three months ended March 31, 2012 and 2011, respectively.

As of March 31, 2012, total unrecognized compensation cost related to unvested stock-based payments totaled $4.1 million and is expected to be recognized over a weighted-average period of 2.9 years.

Derivatives and Hedging Transactions
DERIVATIVES AND HEDGING TRANSACTIONS

9. Derivatives and Hedging Transactions

As of March 31, 2012, 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, Derivatives and Hedging, 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 March 31, 2012, $2.2 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 nine months, the Company will amortize $2.2 million from AOCL to interest expense.

 

The following table summarizes the effect of the swap transaction on the interim Condensed Consolidated Statements of Operations for the three months ended March 31, 2012 and 2011:

 

                                 
    Amount of Gain or (Loss) Reclassified from
AOCL into Income
 
    (effective portion)     (ineffective portion)  
    Three Months Ended
March 31,
    Three Months Ended
March 31,
 

(In thousands)

  2012     2011     2012     2011  

Location of Loss Reclassified from AOCL into Income

                               

Interest expense

  $ (1,255 )    $ (1,523   $ —       $ —    

The following table summarizes the loss recognized in income of derivatives, not designated as hedging instruments under ASC 815 for the three months ended March 31, 2012 and 2011:

 

                 
    Amount of Loss Recognized in Income on
Derivative
 
    Three Months Ended     Three Months Ended  

(In thousands)

  March 31, 2012     March 31, 2011  

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

10. Fair Value Measurements

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 maturity of three months or less when purchased, which are highly liquid and readily convertible to cash. Cash equivalents reported in the Company’s Condensed Consolidated Balance Sheets were $11.2 million and $10.3 million as of March 31, 2012 and December 31, 2011, 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 March 31, 2012 for its Notes and its subordinated notes payable is $200.0 million and $0.7 million, respectively. 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 and its subordinated notes payable is $198.0 million and $0.6 million, respectively, as of March 31, 2012.

Condensed Consolidating Financial Statements
Condensed Consolidating Financial Statements

11. Condensed Consolidating 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.

 

Condensed Consolidating Balance Sheet

March 31, 2012

(Unaudited)

 

                                         

(In thousands)

  American
Reprographics
Company
    Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Eliminations     Total  

Assets

                                       

Current assets:

                                       

Cash and cash equivalents

  $ —       $ 14,788     $ 15,026     $ —       $ 29,814  

Accounts receivable, net

    —         53,822       6,394       —         60,216  

Intercompany operations

    295       4,729       (5,024     —         —    

Inventories, net

    —         8,336       4,206       —         12,542  

Prepaid expenses

    56       3,239       1,627       —         4,922  

Other current assets

    16       5,665       1,228       —         6,909  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total current assets

    367       90,579       23,457       —         114,403  

Property and equipment, net

    —         47,412       8,363       —         55,775  

Goodwill

    —         229,315       —         —         229,315  

Investment in subsidiaries

    157,837       12,799       —         (170,636     —    

Other intangible assets, net

    —         38,207       2,437       —         40,644  

Deferred financing costs, net

    4,936       —         —         —         4,936  

Deferred income taxes

    —         —         1,320       —         1,320  

Other assets

    —         1,830       229       —         2,059  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total assets

  $ 163,140     $ 420,142     $ 35,806     $ (170,636   $ 448,452  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Liabilities and Equity

                                       

Current liabilities:

                                       

Accounts payable

  $ 12     $ 18,114     $ 3,128     $ —       $ 21,254  

Accrued payroll and payroll-related expenses

    —         9,063       398       —         9,461  

Accrued expenses

    6,205       16,265       3,738       —         26,208  

Intercompany loans

    (167,441     164,711       2,730       —         —    

Current portion of long-term debt and capital leases

    —         11,993       2,609       —         14,602  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total current liabilities

    (161,224     220,146       12,603       —         71,525  

Long-term debt and capital leases

    196,388       13,564       1,910       —         211,862  

Deferred income taxes

    —         27,336       —         —         27,336  

Other long-term liabilities

    —         1,259       2,047       —         3,306  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities

    35,164       262,305       16,560       —         314,029  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Commitments and contingencies

                                       
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total equity

    127,976       157,837       19,246       (170,636     134,423  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities and equity

  $ 163,140     $ 420,142     $ 35,806     $ (170,636   $ 448,452  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

Condensed Consolidating Balance Sheet

December 31, 2011

(Unaudited)

 

                                         

(In thousands)

  American
Reprographics
Company
    Guarantor
Subsidiaries
    Non-Guarantor
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  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

Condensed Consolidating Statement of Operations

Three Months Ended

March 31, 2012

(Unaudited)

 

                                         

(In thousands)

  American
Reprographics
Company
    Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Eliminations     Total  

Net sales

  $ —       $ 91,554     $ 12,019     $ —       $ 103,573  

Cost of sales

    —         62,294       9,401       —         71,695  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

    —         29,260       2,618       —         31,878  

Selling, general and administrative expenses

    2       21,517       1,938       —         23,457  

Amortization of intangible assets

    —         4,491       102       —         4,593  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

(Loss) income from operations

    (2     3,252       578       —         3,828  

Other income

    —         (38     8       —         (30

Interest expense (income), net

    5,722       1,737       (21     —         7,438  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

    (5,724     1,553       591       —         (3,580

Equity in earnings of subsidiaries

    (817     (430     —         1,247       —    

Income tax provision

    —         1,166       144       —         1,310  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net (loss) income

    (4,907     817       447       (1,247     (4,890

Loss attributable to noncontrolling interest

    —         —         (17     —         (17
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net (loss) income attributable to American Reprographics Company

  $ (4,907   $ 817     $ 430     $ (1,247   $ (4,907
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

Condensed Consolidating Statement of Operations

Three Months Ended

March 31, 2011

(Unaudited)

 

                                         

(In thousands)

  American
Reprographics
Company
    Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Eliminations     Total  

Net sales

  $ —       $ 97,990     $ 8,514     $ —       $ 106,504  

Cost of sales

    —         66,615       6,503       —         73,118  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

    —         31,375       2,011       —         33,386  

Selling, general and administrative expenses

    —         25,827       2,005       —         27,832  

Amortization of intangible assets

    —         4,678       66       —         4,744  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from operations

    —         870       (60     —         810  

Other income

    —         (26     —         —         (26

Interest expense (income), net

    5,740       2,442       (15     —         8,167  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss before equity earnings of subsidiaries and income tax benefit

    (5,740     (1,546     (45     —         (7,331

Equity in earnings of subsidiaries

    50       (2     —         (48     —    

Income tax benefit

    (2,147     (1,494     (8     —         (3,649
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net (loss) income

    (3,643     (50     (37     48       (3,682

Loss attributable to noncontrolling interest

    —         —         39       —         39  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net (loss) income attributable to American Reprographics Company

  $ (3,643   $ (50   $ 2     $ 48     $ (3,643
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

Condensed Consolidating Statement of Comprehensive Income (Loss)

Three Months Ended

March 31, 2012

(Unaudited)

 

                                         

(In thousands)

  American
Reprographics
Company
    Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Eliminations     Total  

Net (loss) income

  $ (4,907   $ 817     $ 447     $ (1,247   $ (4,890

Other comprehensive income, net of tax:

                                       

Foreign currency translation adjustments, net of tax

    —         —         320       —         320  

Amortization of derivative, net of tax

    —         786       —         —         786  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income, net of tax

    —         786       320       —         1,106  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive (loss) income

    (4,907     1,603       767       (1,247     (3,784

Comprehensive income attributable to noncontrolling interest

    —         —         59       —         59  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive (loss) income attributable to American Reprographics Company

  $ (4,907   $ 1,603     $ 708     $ (1,247   $ (3,843
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Condensed Consolidating Statement of Comprehensive Income (Loss)

Three Months Ended

March 31, 2011

(Unaudited)

 

                                         

(In thousands)

  American
Reprographics
Company
    Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Eliminations     Total  

Net (loss) income

  $ (3,643   $ (50   $ (37   $ 48     $ (3,682

Other comprehensive income, net of tax:

                                       

Foreign currency translation adjustments, net of tax

    —         —         289       —         289  

Amortization of derivative, net of tax

    —         954       —         —         954  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income, net of tax

    —         954       289       —         1,243  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive (loss) income

    (3,643     904       252       48       (2,439

Comprehensive loss attributable to noncontrolling interest

    —         —         (7     —         (7
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive (loss) income attributable to American Reprographics Company

  $ (3,643   $ 904     $ 259     $ 48     $ (2,432
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

Condensed Consolidating Statement of Cash Flows

Three Months Ended

March 31, 2012

(Unaudited)

 

                                         

(In thousands)

  American
Reprographics
Company
    Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Eliminations     Total  

Cash flows from operating activities

                                       

Net cash (used in) provided by operating activities

  $ (53   $ 11,790     $ 658     $ —       $ 12,395  

Cash flows from investing activities

                                       

Capital expenditures

    —         (3,331     (474     —         (3,805

Other

    —         182       9       —         191  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash used in investing activities

    —         (3,149     (465     —         (3,614
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash flows from financing activities

                                       

Proceeds from issuance of common stock under Employee Stock Purchase Plan

    —         21       —         —         21  

Payments on long-term debt agreements and capital leases

    —         (3,992     (396     —         (4,388

Net borrowings under revolving credit facilities

    —         —         552       —         552  

Payment of deferred financing fees

    (712     —         —         —         (712

Advances to/from subsidiaries

    765       (1,588     823       —         —    
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) financing activities

    53       (5,559     979       —         (4,527
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Effect of foreign currency translation on cash balances

    —         —         123       —         123  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net change in cash and cash equivalents

    —         3,082       1,295       —         4,377  

Cash and cash equivalents at beginning of period

    —         11,706       13,731       —         25,437  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash and cash equivalents at end of period

  $ —       $ 14,788     $ 15,026     $ —       $ 29,814  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

Condensed Consolidating Statement of Cash Flows

Three Months Ended

March 31, 2011

(Unaudited)

 

                                         

(In thousands)

  American
Reprographics
Company
    Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Eliminations     Total  

Cash flows from operating activities

                                       

Net cash (used in) provided by operating activities

  $ (2,587   $ 7,220     $ (44   $ —       $ 4,589  

Cash flows from investing activities

                                       

Capital expenditures

    —         (3,851     (285     —         (4,136

Payment for swap transaction

    —         (9,729     —         —         (9,729

Other

    —         319       59       —         378  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash used in investing activities

    —         (13,261     (226     —         (13,487
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash flows from financing activities

                                       

Proceeds from stock option exercises

    —         41       —         —         41  

Proceeds from issuance of common stock under Employee Stock Purchase Plan

    —         23       —         —         23  

Excess tax benefit related to stock-based compensation

    —         8       —         —         8  

Payments on long-term debt agreements and capital leases

    —         (7,049     (491     —         (7,540

Net borrowings under revolving credit facility

    12,800       —         —         —         12,800  

Payment of deferred financing fees

    (164     —         —                 (164

Advances to/from subsidiaries

    (10,049     11,051       (1,002     —         —    
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) financing activities

    2,587       4,074       (1,493     —         5,168  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Effect of foreign currency translation on cash balances

    —         —         109       —         109  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net change in cash and cash equivalents

    —         (1,967     (1,654     —         (3,621

Cash and cash equivalents at beginning of period

    —         12,587       13,706       —         26,293  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash and cash equivalents at end of period

  $ —       $ 10,620     $ 12,052     $ —       $ 22,672