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Form 8-K ARC DOCUMENT SOLUTIONS, For: Apr 30

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May 5, 2015 4:12 PM EDT


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report: April 30, 2015
(Date of earliest event reported)
 
ARC Document Solutions, Inc.
(Exact name of registrant as specified in its charter)
 
CA
(State or other jurisdiction
of incorporation)
001-32407
(Commission File Number)
20-1700361
(IRS Employer
Identification Number)
 
1981 N. Broadway, Walnut Creek, CA
(Address of principal executive offices)
 
94596
(Zip Code)
(925) 949-5100
(Registrant's telephone number, including area code)
 
Not Applicable
(Former Name or Former Address, if changed since last report)


Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))





Item 2.02. Results of Operations and Financial Condition

First Quarter 2015 Financial Results

Item 5.07. Submission of Matters to a Vote of Security Holders

On April 30, 2015, the Company held its 2015 annual meeting of stockholders. A total of 46,836,307 shares of the Company’s common stock were entitled to vote as of March 2, 2015, which was the record date for the annual meeting. There were 43,285,523 shares present in person or by proxy at the annual meeting. Set forth below are the matters voted upon by the Company’s stockholders at the 2015 annual meeting and the final voting results of each such proposal.
Proposal 1 - Election of Directors
The stockholders elected seven directors, each to serve a one-year term until the Company’s next annual meeting of stockholders and until their respective successors are elected and qualified. The results of the vote were as follows:
 
 
  
For
  
Withheld
 
  
Broker Non-Votes
 
Kumarakulasingam Suriyakumar
  
 
38,312,098
  
 
968,452
  
  
 
4,004,973
  
Thomas J. Formolo
  
 
38,767,504
  
 
513,046
  
  
 
4,004,973
  
Dewitt Kerry McCluggage
  
 
38,765,674
  
 
514,876
  
  
 
4,004,973
  
James F. McNulty
  
 
38,764,613
  
 
515,937
  
  
 
4,004,973
  
Mark W. Mealy
  
 
38,767,514
  
 
513,036
  
  
 
4,004,973
  
Manuel Perez de la Mesa
  
 
38,770,878
  
 
509,672
  
  
 
4,004,973
  
Eriberto R. Scocimara
  
 
38,766,913
  
 
513,637
  
  
 
4,004,973
  
Proposal 2 - Ratification of Appointment of Independent Registered Public Accounting Firm
The Company’s stockholders voted to ratify the appointment of Deloitte & Touche LLP as the Company’s independent auditors for the fiscal year ending December 31, 2015. The results of the vote were as follows:
 
For
  
Against
 
Abstain
  
Broker Non-Votes
43,215,787
  
25,568
 
44,168
  
0
Brokers were permitted to cast stockholder non-votes at their discretion on this proposal.
Proposal 3 - Advisory, Non-Binding Vote on Executive Compensation
The Company’s stockholders approved, on a non-binding advisory basis, the compensation paid to the Company’s named executive officers for fiscal year 2014, as disclosed in the Company’s 2015 proxy statement. The results of the advisory, non-binding vote were as follows:
 
For
 
Against
 
Abstain
 
Broker Non-Votes
27,664,351
  
11,356,242
  
259,957
  
4,004,973

Item 9.01. Financial Statements and Exhibits

(d) Exhibits
            99.1       Press Release of ARC Document Solutions, Inc. dated May 5, 2015






SIGNATURE
      Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

Dated: May 5, 2015
ARC DOCUMENT SOLUTIONS, INC.
By:  /s/ Jorge Avalos                    
     Jorge Avalos
     Chief Financial Officer




Exhibit Index
Exhibit No.
Description
99.1
Press Release of ARC Document Solutions, Inc. dated May 5, 2015




ARC Document Solutions Reports Results for First Quarter 2015
WALNUT CREEK, CA -- (May 5, 2015) - ARC Document Solutions, Inc. (NYSE: ARC), the nation's leading document solutions provider for the architecture, engineering, and construction (AEC) industry, today reported its financial results for the first quarter ended March 31, 2015.
2015 First Quarter Business Highlights:
•
Revenue grew 3.9% year-over-year
•
Adjusted earnings per share were $0.07 vs. $0.04 in Q1 2014
•
Gross margin was 34.5%, a year-over-year increase of 70 basis points
•
Adjusted cash flow from operations was $6.4 million vs. $8.1 million in Q1 2014; decrease largely due to timing of accounts receivable collections
•
Adjusted EBITDA of $16.8 million; grew 4% in line with sales despite planned investments in SG&A
•
Maintains 2015 fully-diluted annual adjusted earnings per share projected to be in the range of $0.37 to $0.41; annual adjusted cash provided by operating activities projected to be in the range of $61 to $66 million; and annual adjusted EBITDA to be in the range of $75 million to $80 million

Financial Highlights:
 
 
 
Three Months Ended
 
March 31,
(All dollar amounts in millions, except EPS)
2015
2014
Net Revenue
$
104.3

$
100.4

Gross Margin
34.5
%
33.8
%
Net income attributable to ARC
$
4.4

$
1.4

Adjusted Net Income attributable to ARC
$
3.2

$
1.8

Earnings per share - Diluted
$
0.09

$
0.03

Adjusted earnings per share - Diluted
$
0.07

$
0.04

Adjusted EBITDA
$
16.8

$
16.1

Cash provided by operating activities
$
5.3

$
7.7

Adjusted cash provided by operating activities
$
6.4

$
8.1

Capital Expenditures
$
3.5

$
3.6

Debt & Capital Leases (including current)
$
200.2

$
216.4

Management Commentary
“Sales and gross margins continued to expand in the first quarter of 2015 thanks to approximately nine percent sales growth in both MPS and AIM, 2.4 percent growth in CDIM, and a business mix weighted to our more technology-enabled services,” said K. Suri Suriyakumar, Chairman, President and CEO of ARC Document Solutions. “I’m also pleased to be reporting under our new revenue categories. Our financial presentation and our approach to the market are now closely aligned and will allow us to better demonstrate the company’s value and potential to both customers and investors.”

Jorge Avalos, ARC Document Solutions’ Chief Financial Officer said, “Our adjusted EBITDA grew four percent, in line with our sales growth, despite our previously announced sales and marketing investments. The EBITDA increase was driven by our sales performance and a 70 basis point improvement in gross margin that resulted from our ability to leverage our fixed costs, strong cost controls, and higher margin sales. Our strong earnings performance benefited from the same achievements, as well as improvements in our capital structure. Adjusted cash flow from operations was affected by the timing of accounts receivables collections, but consistent with prior years, we expect to build toward our annual forecast in future quarters.”

The company also introduced a new, supplemental format for reporting net sales by service and product line, replacing the five categories it reported in the past (Onsite Services, Traditional Reprographics, Color Services, Digital Services, and Equipment and Supplies). The new service sales categories, as have been noted in previous disclosures, are Managed Print Services (MPS), Archiving and Information Management (AIM), and Construction Document and Information Management (CDIM). Equipment and Supplies will remain a separate product category. A supplemental table appears below, containing quarter-over-quarter comparisons for the past eight quarters. ARC’s forthcoming quarterly report on Form 10-Q will contain further information to provide additional information about the new reporting structure.




2015 First Quarter Supplemental Information:
Net sales were $104.3 million, a 3.9% increase compared to the first quarter of 2014.

Days sales outstanding in Q1 2015 were 57, compared to 53 days in Q1 2014.

AEC customers comprised approximately 78% of our total net sales, while non-AEC customers made up approximately 22% of our total net sales.

Total number of MPS contracts at the end of the first quarter was approximately 8,660, an increase of approximately 160 contracts from the end of 2014.

Adjusted EBITDA is EBITDA net of the impact of trade secret litigation costs, stock-based compensation expense, and restructuring expense.


Sales from Services and Product Lines as a Percentage of Net Sales
 
 
 
Three Months Ended
 
March 31,
Services and Product Line
2015
2014
CDIM
52.4
%
53.1
%
MPS
34.4
%
32.9
%
AIM
2.7
%
2.6
%
Equipment and supplies sales
10.5
%
11.4
%
Outlook:
ARC Document Solutions is maintaining its annual 2015 outlook. The company's fully diluted annual adjusted earnings per share outlook is expected to be in the range of $0.37 to $0.41. The outlook for annual adjusted cash provided by operating activities is projected to be in the range of $61 to $66 million; and annual adjusted EBITDA is projected to be in the range of $75 million to $80 million.

Teleconference and Webcast:
ARC Document Solutions 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 first quarter of 2015. To access the live audio call, dial 888-556-4997. International callers may join the conference by dialing 719-325-2472. The conference ID number is 3250225. A live webcast will also be made available on the investor relations page of ARC Document Solution's website at ir.e-arc.com.

A replay of the call will be available for five days after the call's conclusion. To access the replay, dial 888-203-1112. International callers may access the replay by dialing 719-457-0820. The conference ID number is 3250225. The webcast will also be made available at www.e-arc.com for approximately 90 days following the call's conclusion.

About ARC Document Solutions (NYSE: ARC)
ARC Document Solutions is a leading document solutions company serving businesses of all types, with an emphasis on the non-residential segment of the architecture, engineering and construction industries. The Company helps more than 90,000 customers reduce costs and increase efficiency in the use of their documents, improve document access and control, and offers a wide variety of ways to print, produce, and store documents. ARC provides its solutions onsite in more than 8,500 of its customers' offices, offsite in service centers around the world, and digitally in the form of proprietary software and web applications. For more information please 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 "expect," "confident," “assume,” 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. In addition to matters affecting the construction, managed print services, document management or reprographics industries, or the economy generally, factors that could cause actual results to differ from expectations stated in forward-looking statements include, among others, the factors described in the caption entitled "Risk Factors" in Item 1A in ARC Document Solution's Annual Report on Form 10-K for the fiscal year ended December 31, 2014, Quarterly Reports on Form 10-Q, and other periodic filings and prospectuses. 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.


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






ARC Document Solutions, Inc.
 
 
Consolidated Balance Sheets
 
 
(In thousands, except per share data)
 
 
(Unaudited)
 
 
 
March 31,
December 31,
Current assets:
2015
2014
Cash and cash equivalents
$
17,561

$
22,636

Accounts receivable, net of allowances for accounts receivable of $2,371 and $2,413
66,046

62,045

Inventories, net
17,354

16,251

Deferred income taxes
277

278

Prepaid expenses
5,247

4,767

Other current assets
3,913

6,080

Total current assets
110,398

112,057

Property and equipment, net of accumulated depreciation of $218,850 and $214,697
58,897

59,520

Goodwill
212,608

212,608

Other intangible assets, net
22,228

23,841

Deferred financing fees, net
2,296

2,440

Deferred income taxes
992

1,110

Other assets
2,686

2,492

Total assets
$
410,105

$
414,068

Current liabilities:
 
 
Accounts payable
$
23,701

$
26,866

Accrued payroll and payroll-related expenses
11,788

13,765

Accrued expenses
21,253

22,793

Current portion of long-term debt and capital leases
28,303

27,969

Total current liabilities
85,045

91,393

Long-term debt and capital leases
171,890

175,916

Deferred income taxes
34,050

33,463

Other long-term liabilities
3,464

3,458

Total liabilities
294,449

304,230

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; 47,039 and 46,800 shares issued and 46,962 and 46,723 shares outstanding
47

47

Additional paid-in capital
112,573

110,650

Retained deficit
(2,917
)
(7,353
)
Accumulated other comprehensive loss
(678
)
(161
)
 
109,025

103,183

Less cost of common stock in treasury, 77 and 77 shares
408

408

Total ARC Document Solutions, Inc. stockholders’ equity
108,617

102,775

Noncontrolling interest
7,039

7,063

Total equity
115,656

109,838

Total liabilities and equity
$
410,105

$
414,068





ARC Document Solutions, Inc.
 
 
Consolidated Statements of Operations
 
 
(In thousands, except per share data)
 
 
(Unaudited)
Three Months Ended
 
March 31,
 
2015
2014
Service sales
$
93,325

$
88,931

Equipment and supplies sales
10,994

11,442

Total net sales
104,319

100,373

Cost of sales
68,298

66,439

Gross profit
36,021

33,934

Selling, general and administrative expenses
27,455

26,106

Amortization of intangible assets
1,489

1,498

Restructuring expense
74

483

Income from operations
7,003

5,847

Other income, net
(26
)
(26
)
Interest expense, net
1,857

3,913

Income before income tax provision
5,172

1,960

Income tax provision
761

664

Net income
4,411

1,296

Loss attributable to noncontrolling interest
25

100

Net income attributable to ARC Document Solutions, Inc. shareholders
$
4,436

$
1,396

Earnings per share attributable to ARC Document Solutions, Inc. shareholders:
 
 
Basic
$
0.10

$
0.03

Diluted
$
0.09

$
0.03

Weighted average common shares outstanding:
 
 
Basic
46,443

45,990

Diluted
47,654

46,782







ARC Document Solutions, Inc.
Non-GAAP Measures
Reconciliation of cash flows provided by operating activities to EBIT, EBITDA and Adjusted EBITDA
(In thousands)
(Unaudited)
 
Three Months Ended
 
March 31,
 
2015
2014
Cash flows provided by operating activities
$
5,288

$
7,714

Changes in operating assets and liabilities, net of effect of business acquisitions
9,416

4,229

Non-cash expenses, including depreciation, amortization and restructuring
(10,293
)
(10,647
)
Income tax provision
761

664

Interest expense, net
1,857

3,913

Loss attributable to the noncontrolling interest
25

100

EBIT
7,054

5,973

Depreciation and amortization
8,555

8,493

EBITDA
15,609

14,466

Trade secret litigation costs(1)
34

398

Restructuring expense
74

483

Stock-based compensation
1,083

781

Adjusted EBITDA
$
16,800

$
16,128



(1) On February 1, 2013, we filed a civil complaint against a competitor and a former employee in the Superior Court of California for Orange County, which alleged, among other claims, the misappropriation of ARC trade secrets; namely, proprietary customer lists that were used to communicate with ARC customers in an attempt to unfairly acquire their business. In prior litigation with the competitor based on related facts, in 2007 the competitor entered into a settlement agreement and stipulated judgment, which included an injunction. We instituted this suit to stop the defendant from using similar unfair business practices against us in the Southern California market. The case proceeded to trial in May 2014, and a jury verdict was entered for the defendants. In the first quarter of 2015, we entered into a settlement and paid the defendant. Legal fees associated with the litigation totaled $34 thousand and $0.4 million for the three months ended March 31, 2015 and 2014, respectively, and were recorded as selling, general and administrative expense.


ARC Document Solutions, Inc.
Non-GAAP Measures
Reconciliation of cash flows provided by operating activities to adjusted cash flows provided by operating activities
(In thousands)
(Unaudited)
 
Three Months Ended
 
March 31,
 
2015
2014
Cash flows provided by operating activities
$
5,288

$
7,714

Payments related to trade secret litigation costs
999

119

Payments related to restructuring expenses
118

303

Adjusted cash flows provided by operating activities
$
6,405

$
8,136








ARC Document Solutions, Inc.
Non-GAAP Measures
Reconciliation of net income attributable to ARC to unaudited adjusted net income attributable to ARC
(In thousands, except per share data)
(Unaudited)
 
 Three Months Ended
 
March 31,
 
2015
2014
Net income attributable to ARC Document Solutions, Inc.
$
4,436

$
1,396

Restructuring expense
74

483

Trade secret litigation costs
34

398

Income tax benefit related to above items
(42
)
(344
)
Deferred tax valuation allowance and other discrete tax items
(1,256
)
(157
)
Unaudited adjusted net income attributable to ARC Document Solutions, Inc.
$
3,246

$
1,776

 
 
 
Actual:
 
 
Earnings per share attributable to ARC Document Solutions, Inc. shareholders:
 
 
Basic
$
0.10

$
0.03

Diluted
$
0.09

$
0.03

Weighted average common shares outstanding:
 
 
Basic
46,443

45,990

Diluted
47,654

46,782

 
 
 
Adjusted:
 
 
Earnings per share attributable to ARC Document Solutions, Inc. shareholders:
 
 
Basic
$
0.07

$
0.04

Diluted
$
0.07

$
0.04

Weighted average common shares outstanding:
 
 
Basic
46,443

45,990

Diluted
47,654

46,782


                                                        







ARC Document Solutions, Inc.
Non-GAAP Measures
Reconciliation of net income attributable to ARC Document Solutions, Inc. shareholders to EBIT, EBITDA and Adjusted EBITDA
(In thousands)
(Unaudited)
 
 Three Months Ended
 
March 31,
 
2015
2014
Net income attributable to ARC Document Solutions, Inc. shareholders
$
4,436

$
1,396

Interest expense, net
1,857

3,913

Income tax provision
761

664

EBIT
7,054

5,973

Depreciation and amortization
8,555

8,493

EBITDA
15,609

14,466

Trade secret litigation costs
34

398

Restructuring expense
74

483

Stock-based compensation
1,083

781

Adjusted EBITDA
$
16,800

$
16,128


ARC Document Solutions, Inc.
Net Sales by Product Line
(In thousands)
(Unaudited)
 
 
 
 Three Months Ended
 
March 31,
 
2015
2014
Service Sales
 
 
CDIM
54,643

53,340

MPS
35,877

33,009

AIM
2,805

2,582

Total service sales
93,325

88,931

Equipment and supplies sales
10,994

11,442

Total net sales
$
104,319

$
100,373






ARC Document Solutions, Inc.
Net Sales by Product Line
2014 and 2013 by Quarter
(In thousands)
(Unaudited)
 
 
 
 
 
 
 
 
 
 
 Three Months Ended
 
Year Ended
 
March 31,
2014
 
June 30,
2014
 
September 30, 2014
 
December 31, 2014
 
2014
Service Sales
 
 
 
 
 
 
 
 
 
CDIM
$
53,340

 
$
57,542

 
$
55,352

 
$
53,530

 
$
219,764

MPS
33,009

 
35,743

 
36,464

 
36,097

 
141,313

AIM
2,582

 
2,913

 
2,610

 
2,702

 
10,807

Total service sales
88,931

 
96,198

 
94,426

 
92,329

 
371,884

Equipment and supplies sales
11,442

 
12,784

 
12,381

 
15,265

 
51,872

Total net sales
$
100,373

 
$
108,982

 
$
106,807

 
$
107,594

 
$
423,756

 
 
 
 
 
 
 
 
 
 
 
 Three Months Ended
 
Year Ended
 
March 31,
2013
 
June 30,
2013
 
September 30, 2013
 
December 31, 2013
 
2013
Service Sales
 
 
 
 
 
 
 
 
 
CDIM
$
54,645

 
$
56,485

 
$
53,430

 
$
51,745

 
$
216,305

MPS
30,673

 
32,243

 
32,674

 
32,615

 
128,205

AIM
2,482

 
2,900

 
2,726

 
2,740

 
10,848

Total service sales
87,800

 
91,628

 
88,830

 
87,100

 
355,358

Equipment and supplies sales
12,236

 
12,994

 
12,422

 
14,185

 
51,837

Total net sales
$
100,036

 
$
104,622

 
$
101,252

 
$
101,285

 
$
407,195






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 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. For more information, see our interim Condensed Consolidated Financial Statements and related notes on our 2015 first quarter report on Form 10-Q. Additionally, please refer to our 2014 Annual Report on Form 10-K.
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 months ended March 31, 2015 and 2014 to reflect the exclusion of restructuring expense, trade secret litigation costs, and changes in the valuation allowances related to certain deferred tax assets and other discrete tax items. We have presented adjusted cash flows from operating activities for the three months ended March 31, 2015 and 2014 to reflect the exclusion of cash payments related to trade secret litigation costs and cash payments related to restructuring expenses. This presentation facilitates a meaningful comparison of our operating results for the three months ended March 31, 2015 and 2014. 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 the three months ended March 31, 2015 and 2014 to exclude trade secret litigation costs, stock-based compensation expense, and restructuring expense. 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 (In thousands)
(Unaudited)
Three Months Ended
 
March 31,
 
2015
2014
Cash flows from operating activities
 
 
Net income
$
4,411

$
1,296

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
Allowance for accounts receivable
26

147

Depreciation
7,066

6,995

Amortization of intangible assets
1,489

1,498

Amortization of deferred financing costs
161

183

Amortization of discount on long-term debt
—

225

Stock-based compensation
1,083

781

Deferred income taxes
2,176

1,893

Deferred tax valuation allowance
(1,534
)
(1,289
)
Restructuring expense, non-cash portion
—

384

Other non-cash items, net
(174
)
(170
)
Changes in operating assets and liabilities:
 
 
Accounts receivable
(4,522
)
(3,435
)
Inventory
(1,093
)
(2,014
)
Prepaid expenses and other assets
1,999

222

Accounts payable and accrued expenses
(5,800
)
998

Net cash provided by operating activities
5,288

7,714

Cash flows from investing activities
 
 
Capital expenditures
(3,501
)
(3,565
)
Other
155

164

Net cash used in investing activities
(3,346
)
(3,401
)
Cash flows from financing activities
 
 
Proceeds from stock option exercises
545

441

Proceeds from issuance of common stock under Employee Stock Purchase Plan
27

21

Early extinguishment of long-term debt
—

—

Payments on long-term debt agreements and capital leases
(6,067
)
(7,963
)
Net (repayments) borrowings under revolving credit facilities
(984
)
402

Payment of deferred financing costs
(24
)
(457
)
Payment of hedge premium
(632
)
—

Net cash used in financing activities
(7,135
)
(7,556
)
Effect of foreign currency translation on cash balances
118

(126
)
Net change in cash and cash equivalents
(5,075
)
(3,369
)
Cash and cash equivalents at beginning of period
22,636

27,362

Cash and cash equivalents at end of period
$
17,561

$
23,993

Supplemental disclosure of cash flow information
 
 
Noncash investing and financing activities
 
 
Capital lease obligations incurred
$
3,500

$
4,088

Stock options exercised - unsettled
$
—

$
550




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