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.
EBITDA represents net income before interest, taxes, depreciation and amortization. EBITDA margin is a non-GAAP measure calculated by dividing EBITDA by net sales.
We have presented 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 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. We use EBITDA to compare the performance of our operating segments and to measure performance for determining consolidated-level compensation. In addition, we use EBITDA to evaluate potential acquisitions and potential capital expenditures.
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, 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 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.
Specifically, we have presented adjusted net income attributable to ARC and adjusted earnings per share attributable to ARC shareholders for the three and six months ended June 30, 2016 and 2015 to reflect the exclusion of loss on extinguishment of debt, goodwill impairment, restructuring expense, trade secret litigation 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 six months ended June 30, 2016 and 2015. We believe these charges were the result of the then current macroeconomic environment, our capital restructuring, or other items which are not indicative of our actual operating performance.
We have presented adjusted EBITDA in the three and six months ended June 30, 2016 and 2015 to exclude loss on extinguishment of debt, goodwill impairment, trade secret litigation costs, restructuring expense and stock-based compensation expense. The adjustment of EBITDA for these items 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
(In thousands)
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
-------------------- --------------------
2016 2015 2016 2015
--------- --------- --------- ---------
Cash flows from operating
activities
Net (loss) income $ (55,808) $ 9,457 $ (53,180) $ 13,868
Adjustments to reconcile net
income to net cash provided by
operating activities:
Allowance for accounts
receivable 249 156 320 182
Depreciation 6,658 7,078 13,335 14,144
Amortization of intangible
assets 1,232 1,442 2,545 2,931
Amortization of deferred
financing costs 115 161 233 322
Goodwill impairment 73,920 -- 73,920 --
Stock-based compensation 651 921 1,423 2,004
Deferred income taxes (10,066) 3,847 (8,317) 6,023
Deferred tax valuation
allowance (87) (3,257) (15) (4,791)
Loss on early extinguishment
of debt 44 97 90 97
Other non-cash items, net (119) (110) (453) (284)
Changes in operating assets
and liabilities:
Accounts receivable (124) (2,111) (1,388) (6,633)
Inventory (1,199) (1,765) (2,767) (2,858)
Prepaid expenses and other
assets (1,063) (282) (666) 1,717
Accounts payable and accrued
expenses 2,177 1,230 (3,197) (4,570)
--------- --------- --------- ---------
Net cash provided by operating
activities 16,580 16,864 21,883 22,152
--------- --------- --------- ---------
Cash flows from investing
activities
Capital expenditures (2,645) (4,136) (5,150) (7,637)
Other 481 93 707 248
--------- --------- --------- ---------
Net cash used in investing
activities (2,164) (4,043) (4,443) (7,389)
--------- --------- --------- ---------
Cash flows from financing
activities
Proceeds from stock option
exercises 19 16 30 561
Proceeds from issuance of common
stock under Employee Stock
Purchase Plan 31 31 70 58
Share repurchases (2,364) (204) (5,097) (204)
Contingent consideration on
prior acquisitions (302) -- (367) --
Early extinguishment of long-
term debt (4,600) (7,250) (9,000) (7,250)
Payments on long-term debt
agreements and capital leases (3,220) (6,713) (6,341) (12,780)
Net repayments under revolving
credit facilities -- (760) -- (1,744)
Payment of deferred financing
costs -- (1) (30) (25)
Payment of hedge premium -- -- -- (632)
--------- --------- --------- ---------
Net cash used in financing
activities (10,436) (14,881) (20,735) (22,016)
--------- --------- --------- ---------
Effect of foreign currency
translation on cash balances (321) (65) (216) 53
--------- --------- --------- ---------
Net change in cash and cash
equivalents 3,659 (2,125) (3,511) (7,200)
Cash and cash equivalents at
beginning of period 16,793 17,561 23,963 22,636
--------- --------- --------- ---------
Cash and cash equivalents at end
of period $ 20,452 $ 15,436 $ 20,452 $ 15,436
========= ========= ========= =========
Supplemental disclosure of cash
flow information
Noncash investing and financing
activities
Capital lease obligations
incurred $ 5,742 $ 3,542 $ 8,607 $ 7,042
Contingent liabilities in
connection with acquisition
of businesses $ -- $ -- $ 89 $ --
Liabilities in connection
with deferred financing
fees $ 76 $ -- $ 76 $ --
