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 2012 Annual Report on Form 10-K.
Specifically, we have presented adjusted net income (loss) attributable to ARC and adjusted earnings (loss) per share attributable to ARC for the three and twelve months ended December 31, 2013 and 2012 to reflect the exclusion of amortization impact related specifically to the change in useful lives of trade names, loss on extinguishment of debt, goodwill impairment, restructuring expense, interest rate swap related costs, and changes in the valuation allowances 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, 2013 and 2012. We believe these charges were the result of the current macroeconomic environment, our capital restructuring, or other items which are not indicative of our actual operating performance.
We presented adjusted EBITDA in three and twelve months ended December 31, 2013 and 2012 to exclude stock-based compensation expense, restructuring expense, goodwill impairment and loss on extinguishment of debt. The adjustment of EBITDA for non-cash adjustments is 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
Consolidated Statements of Cash Flows (Dollars in
thousands) (Unaudited)
Three Months Ended Twelve Months Ended
December 31, December 31,
--------------------- ---------------------
2013 2012 2013 2012
--------- --------- --------- ---------
Cash flows from operating
activities
Net loss $ (15,807) $ (5,606) $ (14,575) $ (31,465)
Adjustments to reconcile net
loss to net cash provided
by operating activities:
Allowance for accounts
receivable 85 (76) 636 456
Depreciation 7,099 7,221 28,133 28,487
Amortization of intangible
assets 1,556 1,791 6,612 11,035
Amortization of deferred
financing costs 267 276 1,098 1,088
Amortization of bond
discount 171 158 671 611
Goodwill impairment -- -- -- 16,707
Stock-based compensation 1,158 542 3,207 1,999
Deferred income taxes (5,827) (2,132) (4,909) (6,433)
Deferred tax valuation
allowance 6,717 2,984 7,277 9,750
Restructuring expense,
non-cash portion (119) 2,379 244 2,379
Amortization of
derivative, net of tax
effect -- 246 -- 2,154
Loss on early
extinguishment of debt 16,077 -- 16,339 --
Other non-cash items, net 40 537 (323) 321
Changes in operating
assets and liabilities,
net of effect of business
acquisitions:
Accounts receivable 2,225 5,864 (5,133) 2,533
Inventory (345) (339) 376 (3,005)
Prepaid expenses and
other assets (22) 2,233 1,966 1,032
Accounts payable and
accrued expenses (6,487) (9,405) 5,179 (97)
--------- --------- --------- ---------
Net cash provided by
operating activities 6,788 6,673 46,798 37,552
--------- --------- --------- ---------
Cash flows from investing
activities
Capital expenditures (3,335) (6,154) (18,191) (20,348)
Other 119 190 741 323
--------- --------- --------- ---------
Net cash used in investing
activities (3,216) (5,964) (17,450) (20,025)
--------- --------- --------- ---------
Cash flows from financing
activities
Proceeds from stock option
exercises 59 -- 59 79
Proceeds from issuance of
common stock under Employee
Stock Purchase Plan 17 -- 30 28
Share repurchases, including
shares surrendered for tax
withholding (34) -- (124) --
Proceeds from borrowings on
long-term debt agreements 196,000 -- 196,402 --
Payments of debt
extinguishment costs (11,264) (11,330) --
Early extinguishment of
long-term debt (193,000) (200,000) --
Payments on long-term debt
agreements and capital
leases (2,984) (3,560) (12,379) (15,601)
Net (repayments) borrowings
under revolving credit
facilities 201 225 (237) 1,266
Payment of deferred
financing costs (2,220) -- (2,220) (839)
Dividends paid to
noncontrolling interest -- (485) --
--------- --------- --------- ---------
Net cash used in financing
activities (13,225) (3,335) (30,284) (15,067)
--------- --------- --------- ---------
Effect of foreign currency
translation on cash
balances (39) 113 277 124
--------- --------- --------- ---------
Net change in cash and cash
equivalents (9,692) (2,513) (659) 2,584
Cash and cash equivalents at
beginning of period 37,054 30,534 28,021 25,437
--------- --------- --------- ---------
Cash and cash equivalents at
end of period $ 27,362 $ 28,021 $ 27,362 $ 28,021
========= ========= ========= =========
Supplemental disclosure of
cash flow information:
Noncash financing
activities:
Capital lease obligations
incurred $ 3,662 $ 1,536 $ 10,399 $ 10,047
Liabilities in connection
with deferred financing
costs $ 433 $ -- $ 433 $ --
