ARC Document Solutions Reports Results for Fourth Quarter and Fiscal Year 2012

ARC Document Solutions Reports Results for Fourth Quarter and Fiscal Year 2012 
WALNUT CREEK, CA -- (Marketwire) -- 02/28/13 --  ARC Document
Solutions, Inc. (NYSE: ARC), the nation's leading document solutions
company for the architecture, engineering, and construction (AEC)
industry, today reported its financial results for the fourth quarter
and full year ended December 31, 2012. 
Business Highlights:  


 
--  Annual cash from operations was $37.6 million
--  Annual gross margin was 30.4%
--  Restructuring activity drove 180 bps expansion in adjusted EBITDA
    margin from 13.1% in the third quarter to 14.9% in the fourth quarter
--  Eight percent annual increase in Onsite Services sales is led by MPS
--  Annual adjusted earnings per share was ($0.04)
--  2013 Annual adjusted earnings per share outlook is $0.03 to $0.07;
    annual cash from operations outlook for 2013 is $38-45 million

  
Financial Highlights: 


 
                                                                            
                                   Three Months Ended   Twelve Months Ended 
                                       December 31          December 31     
                                   ------------------  -------------------- 
 (All dollar figures in millions,    
                                       
            except EPS)              2012      2011       2012       2011   
                                   --------  --------  ---------  --------- 
Net Sales                          $   96.9  $  101.8  $   406.1  $   422.7 
Gross Margin                           29.6%     30.7%      30.4%      31.8%
Net Loss attributable to ARC       $   (5.9) $   (3.1) $   (32.0) $  (133.1)
Adjusted Net Loss attributable to                                           
 ARC                               $   (0.8) $   (0.2) $    (1.7) $    (1.0)
EPS                                $  (0.13) $  (0.07) $   (0.70) $   (2.93)
Adjusted EPS                       $  (0.02) $   0.00  $   (0.04) $   (0.02)
                                                                            
Cash from Operations               $    6.7  $   19.7  $    37.6  $    49.2 
Capital Expenditures               $    6.2  $    3.6  $    20.3  $    15.6 
                                                                            
Debt & Capital Leases (including                                            
 current)                          $  222.5  $  226.3  $   222.5  $   226.3 

 
Management Commentary: 
"The aggressive and ambitious restructuring plan we announced in
November helped us avoid what could have been a significantly
depressed earnings per share and cash performance in the fourth
quarter of 2012," said K. "Suri" Suriyakumar, Chairman, President and
CEO of ARC Document Solutions. "A timely response was critical to
transition the company in line with the dramatic changes we observed
in our customers' behavior." 
"While our organization continues to strengthen its position as a
leading document solutions provider, I am pleased with the speed and
efficiency with which we implemented our restructuring plan," added
Mr. Suriyakumar. " It not only provided a strong finish for the year,
but our improved cost structure certainly will allow us to deliver
significantly better performance in 2013 even without a full recovery
in the AEC industry." 
CFO John Toth commented, "Throughout 2012 we maintained our strong
cash flow and balance sheet. We absorbed the costs of the
restructuring without drawing on our revolver, and we ended the year
with our highest amount of cash since 2009. And in the fourth
quarter, we took critical steps to improve the quality of our
earnings through diversification across product lines and
importantly, refining our cost structure to support and grow margin
from multiple service lines. This fundamental improvement in our
value proposition -- and in the quality of our earnings -- can be
seen in the expansion of our adjusted EBITDA margin which increased
almost 200 basis points between Q3 and Q4, bucking the historic
trends of margin contraction between Q3 and Q4." 
Sales Reporting Presentation: 
The company announced that beginning with its annual filing on Form
10-K, ARC Document Solutions' statement of operations will reflect
net sales reporting under two categories -- "Service sales" and
"Equipment and supplies sales" -- replacing the historical revenue
categories of "Reprographics services," "Facilities management," and
"Equipment and supplies sales." The broader categories of "Service
sales" and "Equipment and supplies sales" will allow the company to
better assign and report distinct sales recognized from its
traditional reprographics services, onsite services, color printing
services, digital services, and equipment and supplies sales. Under
its previous revenue reporting structure, traditional reprographics,
color, and digital services were blended in "Reprographics services." 
Restructuring Charge 
ARC Document Solutions management recorded a restructuring charge of
$3.3 million as a result of reducing its service center footprint and
headcount during October and November of 2012. The charges pertain
primarily to property lease exit costs and severance payments related
to headcount reductions. 
Outlook: 
 ARC anticipates annual adjusted earnings per share in 2013
to be in the range of $0.03 to $0.07 on a fully-diluted basis, and
annual cash flow from operations to be in the range of $38 million to
$45 million. 
Teleconference and Webcast: 
 ARC will host a conference call and
audio webcast today at 2:00 P.M. Pacific Time (5:00 P.M. Eastern
Time) to discuss results for the Company's fourth quarter and full
year 2012. The conference call can be accessed by dialing (855)
812-4355. The conference ID number is 94854869.  
A live Webcast will also be made available on the investor relations
page of ARC's website at www.e-arc.com. 
A replay will be available approximately one hour after the call for
seven days following the call's conclusion. To access the replay,
dial (855) 859-2056. The conference ID number to access the replay is
94854869. A Web archive will be made available at
http://www.e-arc.com for approximately 90 days following the call's
conclusion. 
About ARC Document Solutions (NYSE: ARC) 
 ARC Document Solutions
provides specialized document solutions to businesses of all types,
with an emphasis on the non-residential segment of the architecture,
engineering and construction ("AEC") industry. The company's products
and services enhance our customers' document workflow, reduce costs,
shorten document processing and distribution time, improve the
quality of document management tasks, and provide a secure,
controlled environment in which to manage, distribute and produce
documents. The company's service centers are digitally connected and
allow the provision of services to tens of thousands of customers all
over the world. ARC is headquartered in California with more than 150
service centers located in major metropolitan markets in the US,
Canada, China, and in select locations in the U.K., Hong Kong,
Australia and India. For more information, visit www.e-arc.com.  
Forward-Looking Statements 
 This press release contains
forward-looking statements that are based on current opinions,
estimates and assumptions of management regarding future events and
the future financial performance of the Company. Words such as "allow
us to deliver," "anticipated," "trends," "opportunities," and similar
expressions identify forward-looking statements and all statements
other than statements of historical fact, including, but not limited
to, any projections regarding earnings, revenues and financial
performance of the Company, could be deemed forward-looking
statements. We caution you that such statements are only predictions
and are subject to certain risks and uncertainties that could cause
actual results to differ materially from those contained in the
forward-looking statements. Factors that could cause our actual
results to differ materially from those set forth in the
forward-looking statements include, but are not limited to, current
economic conditions and downturn in the architectural, engineering
and construction (AEC) industries specifically, and the timing and
nature of any economic recovery; our inability to mitigate revenue
exposure to the cyclical nature of the AEC industries; our inability
to streamline operations and reduce and/or manage costs; our failure
to develop and introduce new services successfully, including
expansion of client service capabilities in our core AEC market;
competition in our industry and innovation by our competitors; our
failure to anticipate and adapt to future changes in our industry;
our failure to take advantage of market opportunities and/or to
complete acquisitions; our dependence on certain key vendors for
equipment, maintenance services and supplies; and damage or
disruption to our facilities, our technology centers, our vendors or
a majority of our customers. The foregoing list of risks and
uncertainties is illustrative but is by no means exhaustive. For more
information on factors that may affect our future performance, please
review our periodic filings with the U.S. Securities and Exchange
Commission, and specifically the risk factors set forth in our most
recent reports on Form 10-K and Form 10-Q. The Company undertakes no
obligation to update or revise any forward-looking statements,
whether as a result of new information, future events, or otherwise,
except as required by law. 


 
                                                                            
ARC Document Solutions, Inc.                                                
Consolidated
 Balance Sheets                                                 
(Dollars in thousands, except per share data)                               
(Unaudited)                                                                 
                                                                            
                                                  December 31, December 31, 
                                                  ------------ ------------ 
                                                      2012         2011     
                                                  ------------ ------------ 
Assets                                                                      
Current assets:                                                             
Cash and cash equivalents                         $     28,021 $     25,437 
Accounts receivable, net of allowances for                                  
 accounts receivable of $2,634 and $3,309               51,855       54,713 
Inventories, net                                        14,251       12,107 
Prepaid expenses                                         3,277        3,999 
Other current assets                                     6,819        7,541 
                                                  ------------ ------------ 
Total current assets                                   104,223      103,797 
                                                                            
Property and equipment, net of accumulated                                  
 depreciation of $197,830 and $191,598                  56,471       55,084 
Goodwill                                               212,608      229,315 
Other intangible assets, net                            34,498       45,127 
Deferred financing costs, net                            4,219        4,574 
Deferred income taxes                                    1,246        1,368 
Other assets                                             2,574        2,092 
                                                  ------------ ------------ 
Total assets                                      $    415,839 $    441,357 
                                                  ============ ============ 
                                                                            
Liabilities and Equity                                                      
Current liabilities:                                                        
Accounts payable                                  $     21,215 $     21,787 
Accrued payroll and payroll-related expenses             6,774        7,292 
Accrued expenses                                        22,321       19,308 
Current portion of long-term debt and capital                               
 leases                                                 13,263       15,005 
                                                  ------------ ------------ 
Total current liabilities                               63,573       63,392 
                                                                            
Long-term debt and capital leases                      209,262      211,259 
Deferred income taxes                                   28,936       26,447 
Other long-term liabilities                              3,231        3,194 
                                                  ------------ ------------ 
Total liabilities                                      305,002      304,292 
                                                  ------------ ------------ 
                                                                            
Commitments and contingencies                                               
                                                                            
Stockholders' equity:                                                       
ARC Document Solutions, Inc. 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; 46,274 and 46,235 shares issued and                            
 46,262 and 46,235 shares outstanding                       46           46 
Additional paid-in capital                             102,510       99,728 
Retained earnings                                          695       32,663 
Accumulated other comprehensive income (loss)              689       (1,760)
                                                  ------------ ------------ 
                                                       103,940      130,677 
Less cost of common stock in treasury, 12 and 0                             
 shares                                                     44            - 
                                                  ------------ ------------ 
Total ARC Document Solutions, Inc.'s equity            103,896      130,677 
Noncontrolling interest                                  6,941        6,388 
                                                  ------------ ------------ 
Total equity                                           110,837      137,065 
                                                  ------------ ------------ 
Total liabilities and equity                      $    415,839 $    441,357 
                                                  ============ ============ 
                                                                            
                                                                            
                                                                            
ARC Document Solutions, Inc.                                                
Consolidated Statements of Operations                                       
(Dollars in thousands, except per share data)                               
(Unaudited)                                                                 
                                       
                                     
                                  Three Months Ended    Twelve Months Ended 
                                     December 31,          December 31,     
                                 --------------------  -------------------- 
                                    2012       2011       2012       2011   
                                 ---------  ---------  ---------  --------- 
                                                                            
Service sales                    $  82,969  $  86,898  $ 350,260  $ 368,213 
Equipment and supplies sales        13,922     14,948     55,858     54,519 
                                 ---------  ---------  ---------  --------- 
Total net sales                     96,891    101,846    406,118    422,732 
Cost of sales                       68,251     70,553    282,599    288,434 
                                 ---------  ---------  ---------  --------- 
Gross profit                        28,640     31,293    123,519    134,298 
Selling, general and                                                        
 administrative expenses            21,727     23,146     93,073    101,315 
Amortization of intangible                                                  
 assets                              1,791      4,596     11,035     18,715 
Goodwill impairment                      -          -     16,707     65,444 
Restructuring expense                3,320          -      3,320          - 
                                 ---------  ---------  ---------  --------- 
Income (loss) from operations        1,802      3,551       (616)   (51,176)
Other income, net                      (21)       (15)      (100)      (103)
Interest expense, net                6,490      7,495     28,165     31,104 
                                 ---------  ---------  ---------  --------- 
Loss before income tax provision                                            
 (benefit)                          (4,667)    (3,929)   (28,681)   (82,177)
Income tax provision (benefit)         939       (941)     2,784     50,931 
                                 ---------  ---------  ---------  --------- 
Net loss                            (5,606)    (2,988)   (31,465)  (133,108)
(Income) loss attributable to                                               
 the noncontrolling interest          (290)       (69)      (503)        21 
                                 ---------  ---------  ---------  --------- 
Net loss attributable to ARC                                                
 Document Solutions, Inc.        $  (5,896) $  (3,057) $ (31,968) $(133,087)
                                 =========  =========  =========  ========= 
                                                                            
Loss per share attributable to                                              
 ARC Document Solutions, Inc.'s                                             
 shareholders:                                                              
  Basic                          $   (0.13) $   (0.07) $   (0.70) $   (2.93)
                                 =========  =========  =========  ========= 
  Diluted                        $   (0.13) $   (0.07) $   (0.70) $   (2.93)
                                 =========  =========  =========  ========= 
                                                                            
Weighted average common shares                                              
 outstanding:                                                               
  Basic                             45,749     45,505     45,668     45,401 
  Diluted                           45,749     45,505     45,668     45,401 
                                                                            
                                                                            
                                                                            
ARC Document Solutions, Inc.                                                
Non-GAAP Measures                                                           
Reconciliation of cash flows provided by operating activities to EBIT,      
 EBITDA and Adjusted EBITDA                                                 
(Dollars in thousands)                                                      
(Unaudited)                                                                 
                                                                            
                                  Three Months Ended    Twelve Months Ended 
                                     December 31,          December 31,     
                                 --------------------  -------------------- 
                                    2012       2011       2012       2011   
                                 ---------  ---------  ---------  --------- 
                                                                            
                                                                            
Cash flows provided by operating                                            
 activities (1)                  $   6,673  $  19,678  $  37,552  $  49,168 
  Changes in operating assets                                               
   and liabilities, net of                                                  
   business acquisitions             1,647     (8,926)      (463)    10,152 
  Non-cash expenses, including                                              
   depreciation amortization and                                            
   restructuring                   (13,926)   (13,740)   (68,554)  (192,428)
  Income tax provision (benefit)       939       (941)     2,784     50,931 
  Interest expense                   6,490      7,495     28,165     31,104 
  Net (income) loss attributable                                            
   to the noncontrolling                                                    
   interest                           (290)       (69)      (503)        21 
                                 ---------  ---------  ---------  --------- 
EBIT                                 1,533      3,497     (1,019)   (51,052)
  Depreciation and amortization      9,012     11,513     39,522     47,876 
                                 ---------  ---------  ---------  --------- 
EBITDA                              10,545     15,010     38,503     (3,176)
  Goodwill impairment                    -          -     16,707     65,444 
  Restructuring expense              3,320          -      3,320          - 
  Stock-based compensation             542        496      1,999      4,271 
                                 ---------  ---------  ---------  --------- 
Adjusted EBITDA                  $  14,407  $  15,506  $  60,529  $  66,539 
                                 =========  =========  =========  ========= 
                                                                            
(1) For the three and twelve months ended December 31, 2012 cash flows      
 provided by operating activities includes $1.0 million in cash payments    
 related to restructuring.                                                  
                                                                            
                                                                            
                                                                            
ARC Document Solutio
ns, Inc.                                                
Non-GAAP Measures                                                           
Reconciliation of net loss attributable to ARC Document Solutions, Inc. to  
 unaudited adjusted net loss attributable to ARC                            
Document Solutions, Inc.                                                    
(Dollars in thousands, except per share data)                               
(Unaudited)                                                                 
                                                                            
                                  Three Months Ended    Twelve Months Ended 
                                     December 31,          December 31,     
                                 --------------------  -------------------- 
                                    2012       2011       2012       2011   
                                 ---------  ---------  ---------  --------- 
                                                                            
Net loss attributable to ARC                                                
 Document Solutions, Inc.        $  (5,896) $  (3,057) $ (31,968) $(133,087)
  Goodwill impairment                    -          -     16,707     65,444 
  Change in trade name impact to                                            
   amortization                          -      2,369      3,158      9,475 
  Restructuring expense              3,320          -      3,320          - 
  Interest rate swap related                                                
   costs                               393      1,322      3,440      5,691 
  Income tax provision, related                                             
   to above items                   (1,397)    (1,308)    (7,676)   (16,053)
  Deferred tax valuation                                                    
   allowance and other discrete                                             
   tax items                         2,736        516     11,311     67,556 
                                 ---------  ---------  ---------  --------- 
Unaudited adjusted net loss                                                 
 attributable to ARC Document                                               
 Solutions, Inc.                 $    (844) $    (158) $  (1,708) $    (974)
                                 =========  =========  =========  ========= 
                                                                            
Actual:                                                                     
Loss per share attributable to ARC Document                                 
 Solutions, Inc.'s shareholders:                                            
  Basic                          $   (0.13) $   (0.07) $   (0.70) $   (2.93)
                                 =========  =========  =========  ========= 
  Diluted                        $   (0.13) $   (0.07) $   (0.70) $   (2.93)
                                 =========  =========  =========  ========= 
                                                                            
Weighted average common shares                                              
 outstanding:                                                               
  Basic                             45,749     45,505     45,668     45,401 
  Diluted                           45,749     45,505     45,668     45,401 
                                                                            
Adjusted:                                                                   
Loss per share attributable to ARC Document                                 
 Solutions, Inc.'s shareholders:                                            
  Basic                          $   (0.02) $   (0.00) $   (0.04) $   (0.02)
                                 =========  =========  =========  ========= 
  Diluted                        $   (0.02) $   (0.00) $   (0.04) $   (0.02)
                                 =========  =========  =========  ========= 
                                                                            
Weighted average common shares                                              
 outstanding:                                                               
  Basic                             45,749     45,505     45,668     45,401 
  Diluted                           45,749     45,505     45,668     45,401 
                                                                            
                                                                            
                                                                            
ARC Document Solutions, Inc.                                                
Non-GAAP Measures                                                           
Reconciliation of net loss attributable to ARC to EBIT, EBITDA and Adjusted 
 EBITDA                                                                     
(Dollars in thousands)                                                      
(Unaudited)                                                                 
                                                                            
                                  Three Months Ended    Twelve Months Ended 
                                     December 31,          December 31,     
                                 --------------------  -------------------- 
                                    2012       2011       2012       2011   
                                 ---------  ---------  ---------  --------- 
                                                                            
Net loss attributable to ARC                                                
 Document Solutions, Inc.        $  (5,896) $  (3,057) $ (31,968) $(133,087)
  Interest expense, net              6,490      7,495     28,165     31,104 
  Income tax provision (benefit)       939       (941)     2,784     50,931 
                                 ---------  ---------  ---------  --------- 
EBIT                                 1,533      3,497     (1,019)   (51,052)
  Depreciation and amortization      9,012     11,513     39,522     47,876 
                                 ---------  ---------  ---------  --------- 
EBITDA                              10,545     15,010     38,503     (3,176)
  Goodwill impairment                    -          -     16,707     65,444 
  Restructuring expense              3,320          -      3,320          - 
  Stock-based compensation             542        496      1,999      4,271 
                                 ---------  ---------  ---------  --------- 
Adjusted EBITDA                  $  14,407  $  15,506  $  60,529  $  66,539 
                                 =========  =========  =========  ========= 
                                                                            
                                                                            
                                                                            
ARC Document
 Solutions, Inc.                                                
Net Sales by Product Line                                                   
(Dollars in thousands)                                                      
(Unaudited)                                                                 
                                                                            
                                      Three Months Ended Twelve Months Ended
                                         December 31,        December 31,   
                                     ------------------- -------------------
                                        2012      2011      2012      2011  
                                     --------- --------- --------- ---------
                                                                            
Service sales                                                               
  Traditional reprographics          $  28,357 $  32,820 $ 126,785 $ 145,449
  Color                                 19,241    19,355    79,080    84,062
  Digital                                7,816     9,345    35,578    38,020
                                     --------- --------- --------- ---------
    Subtotal (1)                        55,414    61,520   241,443   267,531
  Onsite services (2)                   27,555    25,378   108,817   100,682
                                     --------- --------- --------- ---------
    Total service sales                 82,969    86,898   350,260   368,213
                                                                            
Equipment and supplies sales            13,922    14,948    55,858    54,519
                                     --------- --------- --------- ---------
Total net sales                      $  96,891 $ 101,846 $ 406,118 $ 422,732
                                     ========= ========= ========= =========
                                                                            
(1) For comparison purposes this subtotal agrees with reprographics services
 historically reported.                                                     
(2) Represents work done at our customers' sites which includes Facilities  
 Management ("FM") and Managed Print Services ("MPS")                       

 
Non-GAAP Financial Measures.
 EBIT, EBITDA and related ratios
presented in this report are supplemental measures of our performance
that are not required by or presented in accordance with accounting
principles generally accepted in the United States of America
("GAAP"). These measures are not measurements of our financial
performance under GAAP and should not be considered as alternatives
to net income, income from operations, or any other performance
measures derived in accordance with GAAP or as an alternative to cash
flows from operating, investing or financing activities as a measure
of our liquidity. 
EBIT represents net income before interest and taxes. EBITDA
represents net income before interest, taxes, depreciation and
amortization. EBIT margin is a non-GAAP measure calculated by
dividing EBIT by net sales. EBITDA margin is a non-GAAP measure
calculated by dividing EBITDA by net sales. 
We present EBIT, EBITDA and related ratios because we consider them
important supplemental measures of our performance and liquidity. We
believe investors may also find these measures meaningful, given how
our management makes use of them. The following is a discussion of
our use of these measures. 
We use EBIT and EBITDA to measure and compare the performance of our
operating segments. Our operating segments' financial performance
includes all of the operating activities except debt and taxation
which are managed at the corporate level for U.S. operating segments.
As a result, we believe EBIT is the best measure of operating segment
profitability and the most useful metric by which to measure and
compare the performance of our operating segments. We also use EBIT
to measure performance for determining operating segment-level
compensation and we use EBITDA to measure performance for determining
consolidated-level compensation. In addition, we use EBIT and EBITDA
to evaluate potential acquisitions and potential capital
expenditures. 
EBIT, EBITDA and related ratios have limitations as analytical tools,
and should not be considered in isolation, or as a substitute for
analysis of our results as reported under GAAP. Some of these
limitations are as follows: 


 
--  They do not reflect our cash expenditures, or future requirements for
    capital expenditures and contractual commitments;
    
    
--  They do not reflect changes in, or cash requirements for, our working
    capital needs;
    
    
--  They do not reflect the significant interest expense, or the cash
    requirements necessary, to service interest or principal payments on
    our debt;
    
    
--  Although depreciation and amortization are non-cash charges, the
    assets being depreciated and amortized will often have to be replaced
    in the future, and EBITDA does not reflect any cash requirements for
    such replacements; and
    
    
--  Other companies, including companies in our industry, may calculate
    these measures differently than we do, limiting their usefulness as
    comparative measures.

  
Because of these limitations, EBIT, EBITDA, and related ratios should
not be considered as measures of discretionary cash available to us
to invest in business growth or to reduce our indebtedness. We
compensate for these limitations by relying primarily on our GAAP
results and using EBIT, EBITDA and related ratios only as
supplements. 
Our presentation of adjusted net income and adjusted EBITDA over
certain periods is an attempt to provide meaningful comparisons to
our historical performance for our existing and future investors. The
unprecedented changes in our end markets over the past several years
have required us to take measures that are unique in our history and
specific to individual circumstances. Comparisons inclusive of these
actions make normal financial and other performance patterns
difficult to discern under a strict GAAP presentation. Each non-GAAP
presentation, however, is explained in detail in the reconciliation
tables above. For more information, see our 2011 Annual Report on
Form 10-K. 
Specifically, we have presented adjusted net loss attributable to ARC
and adjusted loss per share attributable to ARC shareholders for the
three and twelve months ended December 31, 2012 and 2011 to reflect
the exclusion of goodwill impairment charges, the amortization impact
related specifically to the change in useful lives of trade names,
restructuring expense, interest rate swap related costs, the
valuation allowance related to certain deferred tax assets and other
discrete tax items. This presentation facilitates a meaningful
comparison of our operating results for the three and twelve months
ended December 31, 2012 and 2011. We believe these charges were the
result of our capital restructuring, or other items which are not
indicative of our actual operating performance. 
We presented adjusted EBITDA in the three months ended December 31,
2012 to exclude restructuring expense of $3.3 million, and
stock-based compensation expense of $0.5 million. We presented
adjusted EBITDA in the twelve months ended December 31, 2012 to
exclude the non-cash goodwill impairment charge of $16.7 million,
restructuring expense of $3.3 million, and stock-based compensation
expense of $2.0 million. We presented adjusted EBITDA for the three
and twelve months ended December 31, 2011 to exclude stock-based
compensation expense of $0.5 million and $4.3 million, respectively,
and a non-cash goodwill impairment charge of $65.4 million for the
twelve months ended December 31, 2011. The adjustments to EBITDA for
non-cash items are consistent with the definition of adjusted EBITDA
in our credit agreement; therefore, we believe this information is
useful to investors in assessing our financial performance. 


 
                                                                            
ARC Document Solutions, Inc.                                                
Consolidated Statements of Cash Flows                                       
(Dollars in thousands)                                                      
(Unaudited)                                                                 
                                                                            
                                  Three Months Ended    Twelve Months Ended 
                 
                    December 31,          December 31,     
                                 --------------------  -------------------- 
                                    2012       2011       2012       2011   
                                 ---------  ---------  ---------  --------- 
Cash flows from operating                                                   
 activities                                                                 
Net loss                         $  (5,606) $  (2,988) $ (31,465) $(133,108)
  Adjustments to reconcile net                                              
   loss to net cash provided by                                             
   operating activities:                                                    
    Allowance for accounts                                                  
     receivable                        (76)       288        456      1,034 
    Depreciation                     7,221      6,917     28,487     29,161 
    Amortization of intangible                                              
     assets                          1,791      4,596     11,035     18,715 
    Amortization of deferred                                                
     financing costs                   276        225      1,088        887 
    Amortization of bond                                                    
     discount                          158        142        611        549 
    Goodwill impairment                  -          -     16,707     65,444 
    Stock-based compensation           542        496      1,999      4,271 
    Excess tax benefit related                                              
     to stock-based compensation         -         31          -          - 
    Deferred income taxes           (2,132)    (2,833)    (6,433)       673 
    Deferred tax valuation                                                  
     allowance                       2,984      2,827      9,750     68,546 
    Restructuring expense, non-                                             
     cash portion                    2,379          -      2,379          - 
    Amortization of derivative,                                             
     net of tax effect                 246        828      2,154      3,565 
    Other noncash items, net           537        223        321       (417)
    Changes in operating assets                                             
     and liabilities, net of                                                
     effect of business                                                     
     acquisitions:                                                          
      Accounts receivable            5,864      5,917      2,533     (2,582)
      Inventory                       (339)    (1,206)    (3,005)    (1,170)
      Prepaid expenses and other                                            
       assets                        2,233     12,652      1,032       (453)
      Accounts payable and                                                  
       accrued expenses             (9,405)    (8,437)       (97)    (5,947)
                                 ---------  ---------  ---------  --------- 
Net cash provided by operating                                              
 activities                          6,673     19,678     37,552     49,168 
                                 ---------  ---------  ---------  --------- 
Cash flows from investing                                                   
 activities                                                                 
  Capital expenditures              (6,154)    (3,615)   (20,348)   (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)
  Other                                190         (2)       323        923 
                                 ---------  ---------  ---------  --------- 
Net cash used in investing                                                  
 activities                         (5,964)    (4,440)   (20,025)   (25,182)
                                 ---------  ---------  ---------  --------- 
Cash flows from financing                                                   
 activities                                                                 
  Proceeds from stock option                                                
   exercises                             -          -         79        108 
  Proceeds from issuance of                                                 
   common stock under Employee                                              
   Stock Purchase Plan                   -         31         28         62 
  Excess tax benefit related to                                             
   stock-based compensation              -        (31)         -          - 
  Payments on long-term debt                                                
   agreements and capital leases    (3,560)    (5,460)   (15,601)   (25,179)
  Net borrowings (repayments)                                               
   under revolving credit                                                   
   facilities                          225    (10,121)     1,266        701 
  Payment of deferred financing                                             
   costs                                 -       (131)      (839)      (799)
                                 ---------  ---------  ---------  --------- 
Net cash used in financing                                                  
 activities                         (3,335)   (15,712)   (15,067)   (25,107)
                                 ---------  ---------  ---------  --------- 
Effect of foreign currency                                                  
 translation on cash balances          113        (43)       124        265 
                                 ---------  ---------  ---------  --------- 
Net change in cash and cash                                                 
 equivalents                        (2,513)      (517)     2,584       (856)
Cash and cash equivalents at                                                
 beginning of period                30,534     25,954     25,437     26,293 
                                 ---------  ---------  ---------  --------- 
Cash and cash equivalents at end                                            
 of period                       $  28,021  $  25,437  $  28,021  $  25,437 
                                 =========  =========  =========  ========= 
                                         -          -          -          - 
Supplemental disclosure of cash                                             
 flow information                                                           
Noncash investing and financing                                             
 activities                                                                 
Noncash transactions include the                                            
 following:                                                                 
  Capital lease obligations                                                 
   incurred                      $   1,536  $   3,202  $  10,047  $  10,678 
  Liabilities in connection with                                            
   acquisition of businesses     $       -  $       -  $       -  $     548 
  Liabilities in connection with                                            
   deferred financing costs      $       -  $     107  $       -  $     107 

  
Contact Information:
David Stickney
VP Corporate Communications
925-949-5114 
 
 
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