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Form 8-K ARC DOCUMENT SOLUTIONS, For: Nov 04

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November 4, 2015 4:13 PM EST


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: November 4, 2015
(Date of earliest event reported)
 
ARC Document Solutions, Inc.
(Exact name of registrant as specified in its charter)
 
Delaware
(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

Third Quarter 2015 Financial Results


Item 9.01. Financial Statements and Exhibits

(d) Exhibits
            99.1       Press Release of ARC Document Solutions, Inc. dated November 4, 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: November 4, 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 November 4, 2015




ARC Document Solutions Reports Results for Third Quarter 2015
WALNUT CREEK, CA -- (November 4, 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 third quarter ended September 30, 2015.
2015 Third Quarter Business Highlights:
•
Adjusted diluted earnings per share were $0.09 vs. $0.06 in Q3 2014; adjustments include the reversal of more than $70 million of a valuation allowance against certain of ARC's deferred tax assets as a result of the company's sustained profitability over the past three years and forecasted continuing profitability
•
Adjusted cash flow from operations was $21.0 million, a 23% increase over Q3 2014
•
Gross profit was flat year-over-year, delivering a gross margin of 33.8%
•
Sales of $106.4 million were flat year-over-year
•
Adjusted EBITDA of $17.9 million fell 2% year-over-year
•
Management revises its annual outlook for 2015; diluted annual adjusted earnings per share currently projected to be in the range of $0.33 to $0.36; annual adjusted cash provided by operating activities currently projected to be in the range of $58 to $61 million; and annual adjusted EBITDA to currently projected to be in the range of $70 million to $73 million

Financial Highlights:
 
 
 
 
 
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
(All dollar amounts in millions, except EPS)
2015
2014
 
2015
2014
Net Sales
$
106.4

$
106.8

 
$
324.1

$
316.2

Gross Margin
33.8
%
33.9
%
 
34.8
%
34.6
%
Net income attributable to ARC
$
80.3

$
3.7

 
$
94.0

$
9.6

Adjusted Net Income attributable to ARC
$
4.2

$
2.9

 
$
13.6

$
9.2

Earnings per share - Diluted
$
1.69

$
0.08

 
$
1.98

$
0.20

Adjusted earnings per share - Diluted
$
0.09

$
0.06

 
$
0.29

$
0.20

Adjusted EBITDA
$
17.9

$
18.3

 
$
56.2

$
55.2

Cash provided by operating activities
$
21.0

$
15.3

 
$
43.1

$
37.0

Adjusted cash provided by operating activities
$
21.0

$
17.0

 
$
44.3

$
40.9

Capital Expenditures
$
3.9

$
3.4

 
$
11.5

$
10.0

Debt & Capital Leases (including current)
 
 
 
$
180.4

$
205.6

Management Commentary
“The third quarter demonstrated the increasing momentum of our cloud-based solutions. Our archiving and information management offering rose from 16% year-over-year growth in the second quarter to 44% year-over-year growth in the third quarter, and we were pleased with the response to the latest release of SKYSITE™, our mobile document and information management application for construction professionals. The reception of both solutions highlight the growing value we can provide to a market that is increasingly focused on reducing costs and boosting efficiency with cloud-based tools.” said K. “Suri” Suriyakumar, Chairman, President and CEO of ARC Document Solutions. “We were also able to reverse a valuation allowance of more than $70 million against certain of our deferred tax assets. This represents an important milestone in the company’s history. We’ve produced three years of strong financial performance following the recession and its aftermath which allows us to forecast the use of these deferred tax assets in future periods.”

“Not withstanding these successes, challenges remain,” continued Mr. Suriyakumar. “Continuing implementation delays in large MPS contracts and the reduction of large-format printing pressured sales in the third quarter. While we expect conditions to improve in 2016, and while the progress in AIM, document management services, and color printing are helping to offset declines in other areas, we are revising our 2015 outlook to account for current circumstances.”

Jorge Avalos, Chief Financial Officer for ARC Document Solutions said, “Our financial performance, improved capital structure, and the use of our deferred tax assets to significantly reduce our current cash taxes continue to produce strong cash flows from operations. Despite moderating sales performance, we continue to aggressively reduce our debt, improve our balance sheet, and generate strong free cash flows.”





2015 Third Quarter Supplemental Information:
Net sales were $106.4 million, a 0.4% decrease compared to the third quarter of 2014.

Days sales outstanding in Q3 2015 were 55, compared to 54 days in Q3 2014.

AEC customers comprised approximately 77% of our total net sales, while non-AEC customers made up approximately 23% of our total net sales.

Total number of MPS contracts at the end of the third quarter was approximately 8,740, an increase of approximately 240 contracts from the end of 2014.

Adjusted EBITDA excludes loss on extinguishment of debt, 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
Nine Months Ended
 
September 30,
September 30,
Services and Product Line
2015
2014
2015
2014
CDIM
51.4
%
51.8
%
51.9
%
52.6
%
MPS
33.8
%
34.1
%
33.6
%
33.3
%
AIM
3.5
%
2.4
%
3.1
%
2.6
%
Equipment and supplies sales
11.3
%
11.6
%
11.4
%
11.6
%
Outlook:
ARC Document Solutions has revised its annual 2015 outlook. The company's diluted annual adjusted earnings per share outlook was expected to be in the range of $0.37 to $0.41, and is now expected to be in the range of $0.33 to $0.36. The outlook for annual adjusted cash provided by operating activities was projected to be in the range of $61 to $66 million, and is now expected to be in the range of $58 to $61 million. Annual adjusted EBITDA was projected to be in the range of $75 million to $80 million, and is now expected to be in the range of $70 million to $73 million.
Reversal of Valuation Allowance:
The Company recorded a valuation allowance against its U.S. deferred tax assets in its financial statements for the second quarter of 2011 due primarily to its three year cumulative pre-tax losses. At September 30, 2015, as a result of sustained profitability in the U.S. evidenced by three years of earnings and forecasted continuing profitability, the company determined it was more likely than not future earnings will be sufficient to realize deferred tax assets in the U.S. Accordingly the company reversed most of its U.S.valuation allowance resulting in non-cash income tax benefit of $76.1 million for the three months ended September 30, 2015. The reversal of the valuation allowance significantly affects the presentation of the company's financial statements, with the impact of the adjustment increasing net income and earnings per share on the company's statement of operations, and increasing deferred tax assets on the balance sheet which were previously netted against the valuation allowance.
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 third quarter of 2015. To access the live audio call, dial 888-378-0320. International callers may join the conference by dialing 719-457-1035. The conference ID number is 9461561. 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 9461561. 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 8,700 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 "increasing momentum," "expect," “forecast,” "project," 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)
 
 
 
September 30,
December 31,
Current assets:
2015
2014
Cash and cash equivalents
$
20,824

$
22,636

Accounts receivable, net of allowances for accounts receivable of $2,237 and $2,413
64,600

62,045

Inventories, net
17,839

16,251

Deferred income taxes
3,798

278

Prepaid expenses
5,049

4,767

Other current assets
3,271

6,080

Total current assets
115,381

112,057

Property and equipment, net of accumulated depreciation of $216,023 and $214,697
58,459

59,520

Goodwill
212,608

212,608

Other intangible assets, net
19,339

23,841

Deferred financing fees, net
1,804

2,440

Deferred income taxes
71,989

1,110

Other assets
2,192

2,492

Total assets
$
481,772

$
414,068

Current liabilities:
 
 
Accounts payable
$
24,733

$
26,866

Accrued payroll and payroll-related expenses
13,820

13,765

Accrued expenses
18,713

22,793

Current portion of long-term debt and capital leases
17,268

27,969

Total current liabilities
74,534

91,393

Long-term debt and capital leases
163,151

175,916

Deferred income taxes
35,156

33,463

Other long-term liabilities
3,226

3,458

Total liabilities
276,067

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; 47,093 and 46,800 shares issued and 46,992 and 46,723 shares outstanding
47

47

Additional paid-in capital
114,304

110,650

Retained earnings (deficit)
86,626

(7,353
)
Accumulated other comprehensive loss
(1,693
)
(161
)
 
199,284

103,183

Less cost of common stock in treasury, 101 and 77 shares
612

408

Total ARC Document Solutions, Inc. stockholders’ equity
198,672

102,775

Noncontrolling interest
7,033

7,063

Total equity
205,705

109,838

Total liabilities and equity
$
481,772

$
414,068





ARC Document Solutions, Inc.
 
 
 
 
Consolidated Statements of Operations
 
 
 
 
(In thousands, except per share data)
 
 
 
 
(Unaudited)
Three Months Ended
Nine Months Ended
 
September 30,
September 30,
 
2015
2014
2015
2014
Service sales
$
94,384

$
94,426

$
287,045

$
279,555

Equipment and supplies sales
12,034

12,381

37,081

36,607

Total net sales
106,418

106,807

324,126

316,162

Cost of sales
70,475

70,584

211,303

206,798

Gross profit
35,943

36,223

112,823

109,364

Selling, general and administrative expenses
25,816

26,331

80,403

80,720

Amortization of intangible assets
1,375

1,497

4,306

4,498

Restructuring expense
4

11

89

765

Income from operations
8,748

8,384

28,025

23,381

Other income, net
(25
)
(22
)
(81
)
(71
)
Loss on extinguishment of debt
96

347

193

347

Interest expense, net
1,679

3,780

5,475

11,637

Income before income tax (benefit) provision
6,998

4,279

22,438

11,468

Income tax (benefit) provision
(73,338
)
659

(71,766
)
1,930

Net income
80,336

3,620

94,204

9,538

(Income) loss attributable to the noncontrolling interest
(50
)
41

(225
)
64

Net income attributable to ARC Document Solutions, Inc. shareholders
$
80,286

$
3,661

$
93,979

$
9,602

Earnings per share attributable to ARC Document Solutions, Inc. shareholders:
 
 
 
 
Basic
$
1.72

$
0.08

$
2.02

$
0.21

Diluted
$
1.69

$
0.08

$
1.98

$
0.20

Weighted average common shares outstanding:
 
 
 
 
Basic
46,698

46,338

46,601

46,195

Diluted
47,557

47,015

47,541

46,856







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
Nine Months Ended
 
September 30,
September 30,
 
2015
2014
2015
2014
Cash flows provided by operating activities
$
20,965

$
15,311

$
43,117

$
37,049

Changes in operating assets and liabilities, net of effect of business acquisitions
(5,101
)
(1,174
)
7,243

3,985

Non-cash expenses, including depreciation, amortization and restructuring
64,472

(10,517
)
43,844

(31,496
)
Income tax (benefit) provision
(73,338
)
659

(71,766
)
1,930

Interest expense, net
1,679

3,780

5,475

11,637

(Income) loss attributable to the noncontrolling interest
(50
)
41

(225
)
64

EBIT
8,627

8,100

27,688

23,169

Depreciation and amortization
8,415

8,536

25,490

25,561

EBITDA
17,042

16,636

53,178

48,730

Loss on extinguishment of debt
96

347

193

347

Trade secret litigation costs(1)
—

306

34

2,787

Restructuring expense
4

11

89

765

Stock-based compensation
735

956

2,739

2,618

Adjusted EBITDA
$
17,877

$
18,256

$
56,233

$
55,247



(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 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
Nine Months Ended
 
September 30,
September 30,
 
2015
2014
2015
2014
Cash flows provided by operating activities
$
20,965

$
15,311

$
43,117

$
37,049

Payments related to trade secret litigation costs
—

1,101

1,033

2,615

Payments related to restructuring expenses
13

578

154

1,194

Adjusted cash flows provided by operating activities
$
20,978

$
16,990

$
44,304

$
40,858








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
Nine Months Ended
 
September 30,
September 30,
 
2015
2014
2015
2014
Net income attributable to ARC Document Solutions, Inc.
$
80,286

$
3,661

$
93,979

$
9,602

Loss on extinguishment of debt
96

347

193

347

Restructuring expense
4

11

89

765

Trade secret litigation costs
—

306

34

2,787

Income tax benefit related to above items
(41
)
(258
)
(125
)
(1,519
)
Deferred tax valuation allowance and other discrete tax items
(76,147
)
(1,172
)
(80,554
)
(2,798
)
Unaudited adjusted net income attributable to ARC Document Solutions, Inc.
$
4,198

$
2,895

$
13,616

$
9,184

 
 
 
 
 
Actual:
 
 
 
 
Earnings per share attributable to ARC Document Solutions, Inc. shareholders:
 
 
 
 
Basic
$
1.72

$
0.08

$
2.02

$
0.21

Diluted
$
1.69

$
0.08

$
1.98

$
0.20

Weighted average common shares outstanding:
 
 
 
 
Basic
46,698

46,338

46,601

46,195

Diluted
47,557

47,015

47,541

46,856

 
 
 
 
 
Adjusted:
 
 
 
 
Earnings per share attributable to ARC Document Solutions, Inc. shareholders:
 
 
 
 
Basic
$
0.09

$
0.06

$
0.29

$
0.20

Diluted
$
0.09

$
0.06

$
0.29

$
0.20

Weighted average common shares outstanding:
 
 
 
 
Basic
46,698

46,338

46,601

46,195

Diluted
47,557

47,015

47,541

46,856


                                                        







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
Nine Months Ended
 
September 30,
September 30,
 
2015
2014
2015
2014
Net income attributable to ARC Document Solutions, Inc. shareholders
$
80,286

$
3,661

$
93,979

$
9,602

Interest expense, net
1,679

3,780

5,475

11,637

Income tax (benefit) provision
(73,338
)
659

(71,766
)
1,930

EBIT
8,627

8,100

27,688

23,169

Depreciation and amortization
8,415

8,536

25,490

25,561

EBITDA
17,042

16,636

53,178

48,730

Loss on extinguishment of debt
96

347

193

347

Trade secret litigation costs
—

306

34

2,787

Restructuring expense
4

11

89

765

Stock-based compensation
735

956

2,739

2,618

Adjusted EBITDA
$
17,877

$
18,256

$
56,233

$
55,247


ARC Document Solutions, Inc.
Net Sales by Product Line
(In thousands)
(Unaudited)
 
 
 
 
 
 Three Months Ended
Nine Months Ended
 
September 30,
September 30,
 
2015
2014
2015
2014
Service sales
 
 
 
 
CDIM
54,710

55,352

168,187

166,234

MPS
35,923

36,464

108,934

105,216

AIM
3,751

2,610

9,924

8,105

Total service sales
94,384

94,426

287,045

279,555

Equipment and supplies sales
12,034

12,381

37,081

36,607

Total net sales
$
106,418

$
106,807

$
324,126

$
316,162








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 have presented 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 third quarter report on Form 10-Q. Additionally, please refer to our 2014 Annual Report on Form 10-K.
Our presentation of adjusted net income, adjusted EBITDA, and adjusted cash flows from operations 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 nine months ended September 30, 2015 and 2014 to reflect the exclusion of loss on extinguishment of debt, 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 and nine months ended September 30, 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 and nine months ended September 30, 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 have presented adjusted EBITDA in the three and nine months ended September 30, 2015 and 2014 to exclude loss on extinguishment of debt, 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
Nine Months Ended
 
September 30,
September 30,
 
2015
2014
2015
2014
Cash flows from operating activities
 
 
 
 
Net income
$
80,336

$
3,620

$
94,204

$
9,538

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
Allowance for accounts receivable
110

197

292

444

Depreciation
7,040

7,039

21,184

21,063

Amortization of intangible assets
1,375

1,497

4,306

4,498

Amortization of deferred financing costs
138

190

460

587

Amortization of discount on long-term debt
—

207

—

656

Stock-based compensation
735

956

2,739

2,618

Deferred income taxes
2,198

2,100

8,221

6,272

Deferred tax valuation allowance
(76,091
)
(1,615
)
(80,882
)
(4,652
)
Loss on early extinguishment of debt
96

347

193

347

Other non-cash items, net
(73
)
(401
)
(357
)
(337
)
Changes in operating assets and liabilities:
 
 
 
 
Accounts receivable
2,996

(930
)
(3,637
)
(8,424
)
Inventory
1,083

(142
)
(1,775
)
(2,071
)
Prepaid expenses and other assets
1,224

(946
)
2,941

(309
)
Accounts payable and accrued expenses
(202
)
3,192

(4,772
)
6,819

Net cash provided by operating activities
20,965

15,311

43,117

37,049

Cash flows from investing activities
 
 
 
 
Capital expenditures
(3,880
)
(3,430
)
(11,517
)
(10,027
)
Payments for businesses acquisitions
—

—

(142
)
(342
)
Other
266

105

656

505

Net cash used in investing activities
(3,614
)
(3,325
)
(11,003
)
(9,864
)
Cash flows from financing activities
 
 
 
 
Proceeds from stock option exercises
1

191

562

1,201

Proceeds from issuance of common stock under Employee Stock Purchase Plan
25

17

83

65

Share repurchases, including shares surrendered for tax withholding
—

—

(204
)
(151
)
Contingent consideration on prior acquisitions
(360
)
—

(360
)
—

Early extinguishment of long-term debt
(3,625
)
(5,000
)
(10,875
)
(12,500
)
Payments on long-term debt agreements and capital leases
(7,262
)
(5,497
)
(20,042
)
(16,437
)
Net repayments under revolving credit facilities
(144
)
(532
)
(1,888
)
(828
)
Payment of deferred financing costs
—

—

(25
)
(454
)
Payment of hedge premium
—

—

(632
)
—

Dividends paid to noncontrolling interest
—

(486
)
—

(486
)
Net cash used in financing activities
(11,365
)
(11,307
)
(33,381
)
(29,590
)
Effect of foreign currency translation on cash balances
(598
)
(50
)
(545
)
(122
)
Net change in cash and cash equivalents
5,388

629

(1,812
)
(2,527
)
Cash and cash equivalents at beginning of period
15,436

24,206

22,636

27,362

Cash and cash equivalents at end of period
$
20,824

$
24,835

$
20,824

$
24,835

Supplemental disclosure of cash flow information
 
 
 
 
Noncash investing and financing activities
 
 
 
 
Capital lease obligations incurred
$
2,625

$
5,506

$
9,667

$
14,909

Contingent liabilities in connection with acquisition of businesses
$
—

$
186

$
—

$
1,110




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