American Reprographics Co (ARC) - components of "net sales"

For those of you who are too lazy to read ARC’s recently filed Q2 2011 10-Q Report, I’ve pulled out and placed below the section of that report that talks about the components of “net sales.”

Net Sales.

Net sales decreased by 4.8% and 4.9% for the three and six months ended June 30, 2011, respectively, compared to the same periods in 2010.

The decrease in net sales was primarily due to an overall decrease in construction industry spending, especially in the non-residential building segment.

(1) Reprographics services.

Reprographic services sales decreased by $8.0 million, or 10.2%, and $14.2 million, or 9.2%, during the three and six months ended June 30, 2011, respectively, compared to the same periods in 2010.

Overall reprographics services sales nationwide were negatively affected by the lack of significant new construction activity in the AEC industry. The revenue category that was most affected was large-format black-and-white printing, as this revenue category is more closely tied to non-residential and residential construction activity. Large-format black-and-white printing revenues represented approximately 33% of reprographics services for the three and six months ended June 30, 2011; large-format black-and-white printing revenues decreased by approximately 19% and 18% for the three and six months ended June 30, 2011, respectively, compared to the three and six months ended June 30, 2010.

Large and small-format color printing in both the AEC market, and in the non-AEC market, comprised approximately 29% and 28% of our overall reprographics services sales for the three and six months ended June 30, 2011, respectively, as compared to approximately 25% during the same periods of 2010. Despite the weakness in the AEC industry, net sales of digital color printing services have increased approximately 3% and 4% for the three and six months ended June 30, 2011 compared to the same periods in 2010. We partly attribute this growth in digital color printing to the continuing marketing activity by our non-AEC customers and our focus in the non-AEC market.

We believe there is a growing demand for digital color printing services across all market segments due to increased equipment availability and lower production prices. We have branded a portion of our operations to address this growing demand for digital color printing. As of June 30, 2011, our new marketing unit, Riot Creative Imaging, features 11 dedicated production facilities in major metropolitan areas around the United States.

(2) Facilities management.

FM, or “on-site,” sales for the three and six months ended June 30, 2011, increased $3.0 million, or 13.3%, and $4.8 million, or 10.7%, respectively, as compared to the same periods in 2010. The number of FM accounts has remained stable at approximately 5,800 for the past 12 months, however we have experienced higher volumes from our stable customer base and attracted new large high volume customers, even as contracts have been cancelled or not renewed. FM revenue is derived from a single cost per square foot of printed material, similar to our traditional reprographics services sales. As convenience and speed continue to characterize our customers’ needs, and as printing equipment continues to become smaller and more affordable, the trend of placing equipment, and sometimes staff, in an architectural studio or construction company office remains strong. By placing equipment on-site and billing on a per-use and per-project basis, the invoice continues to be issued by us, just as if the work was produced in one of our production facilities. The resulting benefit is the convenience of on-site production with a pass-through or reimbursable cost of business that many customers continue to find attractive.

In addition, much of the growth in our FM business can be attributed to the increase in our managed print services (“MPS”) business, specifically from engagements with our larger clients. MPS is an expanded variation of our traditional FM services; FM’s serve the onsite reprographic needs of the customer, whereas MPS provides both the reprographic and non-reprographic onsite print needs of the customer.

(3) Equipment and supplies sales.

Equipment and supplies sales for the three and six months ended June 30, 2011 decreased $0.5 million, or 3.6% and $1.7 million, or 6.2%, respectively, as compared to the same periods in 2010. The decrease in equipment and supplies sales was primarily due to our Chinese operations, which experienced a reduction in year-over-year sales volume of $1.4 million for the six months ended June 30, 2011, partially due to increased competition for a major manufacturer’s reselling channel.