American Reprographics Company, the nation's leading provider of reprographic services and technology, today reported its financial results for the third quarter ended September 30, 2010.
"Results for the third quarter are in line with our projections announced in October. While revenues remained essentially flat throughout the period, we are encouraged by trends in our performance that suggest we may be at the bottom of the current cycle," said K. "Suri" Suriyakumar, Chairman, President and CEO. "We were also pleased with the acquisition of several new Global Services accounts in the third quarter, and with our continuing progress in securing new color business through our Riot production centers. While we might hit short-term setbacks as we recover from such a deep financial crisis, I am confident that the steps we have taken are moving us in the right direction."
"Generating strong cash flow from our existing business and tightening our cost structure has kept us healthy and strong throughout this downturn," Mr. Suriyakumar continued. "And we have more flexibility in meeting our financial obligations if the need arises. As we've noted in the past, reducing the number of our branch locations remains an option should weak economic conditions persist. We are also in an excellent position to explore a more favorable debt structure in the future."
Management noted that the Company acquired six new Global Services accounts since June, which are projected to generate more than $9 million in sales for 2011. The accounts were won primarily on the strength of ARC's managed print services offering. The Company also reported that the base of high-profile Riot Creative Imaging clients continued to grow, and that approximately $12 million of costs for the year are being eliminated through its ongoing "Stay Fit" cost reduction program.
Net revenue for the third quarter of 2010 was $109.4 million and gross margin was 32%. ARC reported a net loss for the third quarter of 2010 of $25.2 million, or a loss of $0.56 per diluted share, which included a goodwill impairment charge of $38.3 million based on its annual goodwill impairment assessment conducted as of September 30, 2010 (see description below). Adjusted to exclude the period's goodwill impairment, net income for the third quarter of 2010 was $0.3 million, or $0.01 per diluted share.
Net revenue for the nine-month period ended September 30, 2010 was $336.7 million and gross margin was 33%. ARC reported a net loss for the first nine months of 2010 of $22.8 million, or $0.50 per diluted share, which included the goodwill impairment noted above. Adjusted to exclude the impairment, net income for the first nine months of 2010 was $2.8 million, or $0.06 per diluted share.
Impairment of Goodwill
The Company assesses goodwill for impairment at least annually as of September 30, or more frequently if events and circumstances indicate that goodwill might be impaired. Based on its annual assessment, the Company recorded a $38.3 million impairment as of September 30, 2010. The Company will not be required to make any current or future cash expenditures as a result of the goodwill impairment. The impairments and any special item charges will be reflected in the Company's unaudited financial statements included in the Company's Form 10-Q for the third quarter of 2010 to be filed with the U.S. Securities and Exchange Commission.
The Company reaffirmed its revised annual earnings per share and cash flow from operations forecast for 2010, excluding the impairment of goodwill and any other one-time charges that may be incurred through December 31, 2010. EPS for the full year of 2010 is forecast to be in the range of $0.04 to $0.09 on a fully-diluted basis. Cash flow from operations for the same period is projected to be in the range of $50 million to $60 million.