ARC DOCUMENT SOLUTIONS, INC., 10-K filed on 3/6/2019
Annual Report
v3.10.0.1
Document and Entity Information - USD ($)
12 Months Ended
Dec. 31, 2018
Feb. 21, 2019
Jun. 29, 2018
Document And Entity Information [Abstract]      
Document Type 10-K    
Amendment Flag false    
Document Period End Date Dec. 31, 2018    
Document Fiscal Year Focus 2018    
Document Fiscal Period Focus FY    
Entity Registrant Name ARC Document Solutions, Inc.    
Entity Central Index Key 0001305168    
Current Fiscal Year End Date --12-31    
Entity Filer Category Accelerated Filer    
Entity Common Stock, Shares Outstanding   46,268,054  
Entity Current Reporting Status Yes    
Entity Voluntary Filers No    
Entity Well-known Seasoned Issuer No    
Entity Shell Company false    
Entity Small Business true    
Entity Emerging Growth false    
Entity Public Float     $ 70,492,599
v3.10.0.1
Consolidated Balance Sheets - USD ($)
$ in Thousands
Dec. 31, 2018
Dec. 31, 2017
Current assets:    
Cash and cash equivalents $ 29,433 $ 28,059
Accounts receivable, net of allowances for accounts receivable of $2,016 and $2,341 58,035 57,011
Inventories, net 16,768 19,937
Prepaid expenses 4,937 4,208
Other current assets 6,202 5,266
Total current assets 115,375 114,481
Property and equipment, net of accumulated depreciation of $199,480 and $198,693 70,668 64,245
Goodwill 121,051 121,051
Other intangible assets, net 5,126 9,068
Deferred income taxes 24,946 28,029
Other assets 2,550 2,551
Total assets 339,716 339,425
Current liabilities:    
Accounts payable 24,218 24,289
Accrued payroll and payroll-related expenses 17,029 12,617
Accrued expenses 17,571 17,201
Current portion of long-term debt and capital leases 22,132 20,791
Total current liabilities 80,950 74,898
Long-term debt and capital leases 105,060 123,626
Other long-term liabilities 6,404 3,290
Total liabilities 192,414 201,814
Commitments and contingencies (Note 6)
ARC Document Solutions, Inc. stockholders’ equity:    
Preferred stock, $0.001 par value, 25,000 shares authorized; 0 shares issued and outstanding 0 0
Common stock, $0.001 par value, 150,000 shares authorized; 48,492 and 47,913 shares issued and 45,818 and 45,266 shares outstanding 48 48
Additional paid-in capital 123,525 120,953
Retained earnings 29,397 20,524
Accumulated other comprehensive loss (3,351) (1,998)
Total stockholders equity before adjustment of treasury stock 149,619 139,527
Less cost of common stock in treasury, 2,674 and 2,647 shares 9,350 9,290
Total ARC Document Solutions, Inc. stockholders’ equity 140,269 130,237
Noncontrolling interest 7,033 7,374
Total equity 147,302 137,611
Total liabilities and equity $ 339,716 $ 339,425
v3.10.0.1
Consolidated Balance Sheets (Parenthetical) - USD ($)
$ in Thousands
Dec. 31, 2018
Dec. 31, 2017
Statement of Financial Position [Abstract]    
Allowances for accounts receivable $ 2,016 $ 2,341
Accumulated depreciation on property and equipment $ 199,480 $ 198,693
Preferred stock, par value (in dollars per share) $ 0.001 $ 0.001
Preferred stock, shares authorized (in shares) 25,000,000 25,000,000
Preferred stock, shares issued (in shares) 0 0
Preferred stock, shares outstanding (in shares) 0 0
Common stock, par value (in dollars per share) $ 0.001 $ 0.001
Common stock, shares authorized (in shares) 150,000,000 150,000,000
Common stock, shares issued (in shares) 48,492,000 47,913,000
Common stock, shares outstanding (in shares) 45,818,000 45,266,000
Treasury stock, shares (in shares) 2,674,000 2,647,000
v3.10.0.1
Consolidated Statements of Operations - USD ($)
shares in Thousands, $ in Thousands
12 Months Ended
Dec. 31, 2018
Dec. 31, 2017
Total net sales $ 400,784 $ 394,579
Cost of sales 269,934 270,556
Gross profit 130,850 124,023
Selling, general and administrative expenses 109,122 101,889
Amortization of intangible assets 3,868 4,280
Goodwill impairment 0 17,637
Income from operations 17,860 217
Other income, net (81) (81)
Loss on extinguishment and modification of debt 0 230
Interest expense, net 5,880 6,179
Income (loss) before income tax provision 12,061 (6,111)
Income tax provision 3,334 15,244
Net income (loss) 8,727 (21,355)
Loss (income) attributable to noncontrolling interest 146 (156)
Net income (loss) attributable to ARC Document Solutions, Inc. shareholders $ 8,873 $ (21,511)
Earnings (loss) per share attributable to ARC Document Solutions, Inc. shareholders:    
Basic (in USD per share) $ 0.20 $ (0.47)
Diluted (in USD per share) $ 0.20 $ (0.47)
Weighted average common shares outstanding:    
Basic (shares) 44,918 45,669
Diluted (shares) 45,050 45,669
Service    
Total net sales $ 353,300 $ 347,326
Product    
Total net sales $ 47,484 $ 47,253
v3.10.0.1
Consolidated Statements of Comprehensive Income (Loss) - USD ($)
$ in Thousands
12 Months Ended
Dec. 31, 2018
Dec. 31, 2017
Statement of Comprehensive Income [Abstract]    
Net income (loss) $ 8,727 $ (21,355)
Other comprehensive (loss) income, net of tax    
Foreign currency translation adjustments, net of tax (1,548) 1,906
Fair value adjustment of derivatives, net of tax 0 202
Other comprehensive (loss) income, net of tax (1,548) 2,108
Comprehensive income (loss) 7,179 (19,247)
Comprehensive (loss) income attributable to noncontrolling interest (341) 469
Comprehensive income (loss) attributable to ARC Document Solutions, Inc. shareholders $ 7,520 $ (19,716)
v3.10.0.1
Consolidated Statements of Equity - USD ($)
shares in Thousands, $ in Thousands
Total
Common Stock
Additional Paid-in Capital
Retained Earnings
Accumulated Other Comprehensive Loss
Common Stock in Treasury
Noncontrolling Interest
Beginning Balance, shares (in shares) at Dec. 31, 2016   47,428          
Beginning Balance at Dec. 31, 2016 $ 156,821 $ 47 $ 117,749 $ 41,822 $ (3,793) $ (5,909) $ 6,905
Increase (Decrease) in Stockholders' Equity [Roll Forward]              
Stock-based compensation, shares (in shares)   404          
Stock-based compensation $ 2,947 $ 1 2,946        
Issuance of common stock under Employee Stock Purchase Plan, shares (in shares) 47 47          
Issuance of common stock under Employee Stock Purchase Plan $ 133   133        
Stock options exercised, shares (in shares) 34 34          
Stock options exercised $ 96   96        
Treasury shares (3,381)         (3,381)  
Comprehensive income (loss) $ (19,247)     (21,511) 1,795   469
Ending Balance, shares (in shares) at Dec. 31, 2017 47,913 47,913          
Ending Balance at Dec. 31, 2017 $ 137,611 $ 48 120,953 20,524 (1,998) (9,290) 7,374
Increase (Decrease) in Stockholders' Equity [Roll Forward]              
Stock-based compensation, shares (in shares)   503          
Stock-based compensation $ 2,445 2,445        
Issuance of common stock under Employee Stock Purchase Plan, shares (in shares) 77 76          
Issuance of common stock under Employee Stock Purchase Plan $ 127   127        
Stock options exercised, shares (in shares) 0            
Treasury shares $ (60)         (60)  
Comprehensive income (loss) $ 7,179     8,873 (1,353)   (341)
Ending Balance, shares (in shares) at Dec. 31, 2018 48,492 48,492          
Ending Balance at Dec. 31, 2018 $ 147,302 $ 48 $ 123,525 $ 29,397 $ (3,351) $ (9,350) $ 7,033
v3.10.0.1
Consolidated Statements of Cash Flows - USD ($)
$ in Thousands
12 Months Ended
Dec. 31, 2018
Dec. 31, 2017
Cash flows from operating activities    
Net income (loss) $ 8,727 $ (21,355)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:    
Allowance for accounts receivable 1,083 1,249
Depreciation 29,019 29,043
Amortization of intangible assets 3,868 4,280
Amortization of deferred financing costs 232 306
Goodwill impairment 0 17,637
Stock-based compensation 2,445 2,947
Deferred income taxes 3,128 13,802
Deferred tax valuation allowance (140) 1,031
Loss on extinguishment and modification of debt 0 230
Other non-cash items, net (314) (56)
Changes in operating assets and liabilities:    
Accounts receivable (2,767) 2,158
Inventory 2,737 (1,339)
Prepaid expenses and other assets (1,814) (556)
Accounts payable and accrued expenses 8,760 2,993
Net cash provided by operating activities 54,964 52,370
Cash flows from investing activities    
Capital expenditures (14,930) (9,106)
Other 695 744
Net cash used in investing activities (14,235) (8,362)
Cash flows from financing activities    
Proceeds from stock option exercises 0 96
Proceeds from issuance of common stock under Employee Stock Purchase Plan 127 133
Share repurchases (60) (3,381)
Contingent consideration on prior acquisitions (236) (275)
Early extinguishment of long-term debt 0 (14,150)
Payments on long-term debt agreements and capital leases (23,031) (65,516)
Borrowings under revolving credit facilities 16,875 63,100
Payments under revolving credit facilities (32,375) (21,800)
Payment of deferred financing costs 0 (270)
Net cash used in financing activities (38,700) (42,063)
Effect of foreign currency translation on cash balances (655) 875
Net change in cash and cash equivalents 1,374 2,820
Cash and cash equivalents at beginning of period 28,059 25,239
Cash and cash equivalents at end of period 29,433 28,059
Supplemental disclosure of cash flow information:    
Cash paid for interest 5,437 5,574
Income taxes paid, net 713 56
Noncash financing activities:    
Capital lease obligations incurred 21,531 25,192
Contingent liabilities in connection with the acquisition of businesses $ 0 $ 27
v3.10.0.1
Description of Business and Basis of Presentation
12 Months Ended
Dec. 31, 2018
Accounting Policies [Abstract]  
Description of Business and Basis of Presentation
DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
ARC Document Solutions, Inc. (“ARC Document Solutions,” “ARC” or the “Company”) is a leading document solutions provider to architectural, engineering, construction, and facilities management professionals, while also providing document solutions to businesses of all types. ARC offers a variety of services including: Construction Document Information Management ("CDIM"), Managed Print Services ("MPS"), and Archive and Information Management ("AIM"). In addition, ARC also sells Equipment and Supplies. The Company conducts its operations through its wholly-owned operating subsidiary, ARC Document Solutions, LLC, a Texas limited liability company, and its affiliates.
Basis of Presentation
The accompanying Consolidated Financial Statements include the accounts of the Company and its subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the amounts reported in the Consolidated Financial Statements and accompanying notes. The Company evaluates its estimates and assumptions on an ongoing basis and relies on historical experience and various other factors that it believes to be reasonable under the circumstances to determine such estimates. Actual results could differ from those estimates and such differences may be material to the Consolidated Financial Statements.
Risk and Uncertainties
The Company generates the majority of its revenue from sales of services and products to customers in the architectural, engineering, construction and building owner/operator (AEC/O) industry. As a result, the Company’s operating results and financial condition can be significantly affected by economic factors that influence the AEC/O industry, such as non-residential construction spending, GDP growth, interest rates, unemployment rates, and office vacancy rates. Reduced activity (relative to historic levels) in the AEC/O industry would diminish demand for some of ARC’s services and products, and would therefore negatively affect revenues and have a material adverse effect on its business, operating results and financial condition.
As part of the Company’s growth strategy, ARC intends to continue to offer and grow a variety of service offerings, some of which are relatively new to the Company. The success of the Company’s efforts will be affected by its ability to acquire new customers for the Company’s new service offerings, as well as to sell the new service offerings to existing customers. The Company’s inability to successfully market and execute these relatively new service offerings could significantly affect its business and reduce its long term revenue, resulting in an adverse effect on its results of operations and financial condition.
v3.10.0.1
Summary of Significant Accounting Policies
12 Months Ended
Dec. 31, 2018
Accounting Policies [Abstract]  
Summary of Significant Accounting Policies
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash Equivalents
Cash equivalents include demand deposits and short-term investments with a maturity of three months or less when purchased.
The Company maintains its cash deposits at numerous banks located throughout the United States, Canada, India, Australia, United Arab Emirates, the United Kingdom and China, which at times, may exceed federally insured limits. UDS, the Company’s joint venture in China, held $11.5 million and $11.9 million of the Company’s cash and cash equivalents as of December 31, 2018 and 2017, respectively. The Company has not experienced any losses in such accounts and believes it is not exposed to any significant risk on cash and cash equivalents.
Concentrations of Credit Risk and Significant Vendors
Concentrations of credit risk with respect to trade receivables are limited due to a large, diverse customer base. No individual customer represented more than 2% of net sales during 2018 and 2017.
The Company has geographic concentration risk as sales in California, as a percent of total sales, were approximately 34% for 2018 and 2017.
The Company contracts with various suppliers. Although there are a limited number of suppliers that could supply the Company’s inventory, management believes any shortfalls from existing suppliers would be absorbed from other suppliers on comparable terms. However, a change in suppliers could cause a delay in sales and adversely affect results.
Purchases from the Company’s three largest vendors during 2018 and 2017 comprised approximately 46% and 46% respectively, of the Company’s total purchases of inventory and supplies.

Allowance for Doubtful Accounts
The Company performs periodic credit evaluations of the financial condition of its customers, monitors collections and payments from customers, and generally does not require collateral. The Company provides for the possible inability to collect accounts receivable by recording an allowance for doubtful accounts. The Company writes off an account when it is considered uncollectible. The Company estimates the allowance for doubtful accounts based on historical experience, aging of accounts receivable, and information regarding the credit worthiness of its customers. Additionally, the Company provides an allowance for returns and discounts based on historical experience. The allowance for doubtful accounts activity was as follows:
 
Balance at
Beginning
of Period
 
Charges to
Cost and
Expenses
 
Deductions (1)
 
Balance at
End of
Period
Year ended December 31, 2018
 
 
 
 
 
 
 
Allowance for accounts receivable
$
2,341

 
$
1,083

 
$
(1,408
)
 
$
2,016

Year ended December 31, 2017
 
 
 
 
 
 
 
Allowance for accounts receivable
$
2,060

 
$
1,249

 
$
(968
)
 
$
2,341

 (1) Deductions represent uncollectible accounts written-off net of recoveries.
Inventories
Inventories are valued at the lower of cost (determined on a first-in, first-out basis; or average cost) or net realizable value. Inventories primarily consist of reprographics materials for use and resale, and equipment for resale. On an ongoing basis, inventories are reviewed and adjusted for estimated obsolescence or unmarketable inventories to reflect the lower of cost or net realizable value. Charges to increase inventory reserves are recorded as an increase in cost of sales. As of December 31, 2018 and 2017, the reserves for inventory obsolescence was $0.9 million.
Income Taxes
Deferred tax assets and liabilities reflect temporary differences between the amount of assets and liabilities for financial and tax reporting purposes. Such amounts are adjusted, as appropriate, to reflect changes in tax rates expected to be in effect when the temporary differences reverse. A valuation allowance is recorded to reduce the Company's deferred tax assets to the amount that is more likely than not to be realized. Changes in tax laws or accounting standards and methods may affect recorded deferred taxes in future periods.

When establishing a valuation allowance, the Company considers future sources of taxable income such as future reversals of existing taxable temporary differences, future taxable income exclusive of reversing temporary differences and carryforwards and tax planning strategies. A tax planning strategy is an action that: is prudent and feasible; an enterprise ordinarily might not take, but would take to prevent an operating loss or tax credit carryforward from expiring unused; and would result in realization of deferred tax assets. In the event the Company determines that its deferred tax assets, more likely than not, will not be realized in the future, the valuation adjustment to the deferred tax assets will be charged to earnings in the period in which the Company makes such a determination. The Company has a $2.2 million valuation allowance against certain deferred tax assets as of December 31, 2018.
In future quarters the Company will continue to evaluate its historical results for the preceding twelve quarters and its future projections to determine whether the Company will generate sufficient taxable income to utilize its deferred tax assets, and whether a valuation allowance is required.
The Company calculates its current and deferred tax provision based on estimates and assumptions that could differ from the actual results reflected in income tax returns filed in subsequent years. Adjustments based on filed returns are recorded when identified.

Income taxes have not been provided on certain undistributed earnings of foreign subsidiaries because such earnings are considered to be permanently reinvested.

The amount of taxable income or loss the Company reports to the various tax jurisdictions is subject to ongoing audits by federal, state and foreign tax authorities. The Company's estimate of the potential outcome of any uncertain tax issue is subject to management’s assessment of relevant risks, facts, and circumstances existing at that time. The Company uses a more-likely-than-not threshold for financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. The Company records a liability for the difference between the benefit recognized and measured and tax position taken or expected to be taken on its tax return. To the extent that the Company's assessment of such tax positions changes, the change in estimate is recorded in the period in which the determination is made. The Company reports tax-related interest and penalties as a component of income tax expense.

The Company’s 2017 effective income tax rate differs from the statutory tax rate primarily due to the effect of the Tax Cuts and Jobs Act (the "TCJA") enacted on December 22, 2017, the valuation allowance on certain of the Company’s deferred tax assets, state income taxes, stock-based compensation, goodwill and other identifiable intangibles, and other discrete items. See Note 7 “Income Taxes” for further information.
Property and Equipment
Property and equipment are stated at cost and are depreciated using the straight-line method over their estimated useful lives, as follows:
 
Buildings
  
10-20 years
Leasehold improvements
  
10-20 years or lease term, if shorter
Machinery and equipment
  
3-7 years
Furniture and fixtures
  
3-7 years
Assets acquired under capital lease arrangements are included in machinery and equipment, are recorded at the present value of the minimum lease payments, and are depreciated using the straight-line method over the life of the asset or term of the lease, whichever is shorter. Expenses for repairs and maintenance are charged to expense as incurred, while renewals and betterments are capitalized. Gains or losses on the sale or disposal of property and equipment are reflected in operating income.

The Company accounts for software costs developed for internal use in accordance with ASC 350-40, Intangibles – Goodwill and Other, which requires companies to capitalize certain qualifying costs incurred during the application development stage of the related software development project. The primary use of this software is for internal use and, accordingly, such capitalized software development costs are depreciated on a straight-line basis over the economic lives of the related products not to exceed three years. The Company’s machinery and equipment (see Note 4 “Property and Equipment”) includes $1.3 million and $1.7 million of capitalized software development costs as of December 31, 2018 and 2017, net of accumulated amortization of $20.0 million and $18.9 million as of December 31, 2018 and 2017, respectively. Depreciation expense includes the amortization of capitalized software development costs which amounted to $1.1 million and $0.8 million, during the years ended December 31, 2018 and 2017, respectively.
Impairment of Long-Lived Assets
The Company periodically assesses potential impairments of its long-lived assets in accordance with the provisions of ASC 360, Accounting for the Impairment or Disposal of Long-lived Assets. An impairment review is performed whenever events or changes in circumstances indicate that the carrying value of the assets may not be recoverable. The Company groups its assets at the lowest level for which identifiable cash flows are largely independent of the cash flows of the other assets and liabilities. The Company has determined that the lowest level for which identifiable cash flows are available is the regional level, which is the operating segment level.
Factors considered by the Company include, but are not limited to, significant underperformance relative to historical or projected operating results; significant changes in the manner of use of the acquired assets or the strategy for the overall business; and significant negative industry or economic trends. When the carrying value of a long-lived asset may not be recoverable based upon the existence of one or more of the above indicators of impairment, the Company estimates the future undiscounted cash flows expected to result from the use of the asset and its eventual disposition. If the sum of the expected future undiscounted cash flows and eventual disposition is less than the carrying amount of the asset, the Company recognizes an impairment loss. An impairment loss is reflected as the amount by which the carrying amount of the asset exceeds the fair value of the asset, based on the fair value if available, or discounted cash flows, if fair value is not available. The Company had no long-lived asset impairments in 2018 or 2017.
Goodwill and Other Intangible Assets
In accordance with ASC 350, Intangibles - Goodwill and Other, the Company assesses goodwill for impairment annually as of September 30, and more frequently if events and circumstances indicate that goodwill might be impaired.
Goodwill impairment testing is performed at the reporting unit level. Goodwill is assigned to reporting units at the date the goodwill is initially recorded. Once goodwill has been assigned to reporting units, it no longer retains its association with a particular acquisition, and all of the activities within a reporting unit, whether acquired or internally generated, are available to support the value of the goodwill.
Traditionally, goodwill impairment testing is a two-step process. Step one involves comparing the fair value of the reporting units to its carrying amount. If the carrying amount of a reporting unit is greater than zero and its fair value is greater than its carrying amount, there is no impairment. If the reporting unit’s carrying amount is greater than the fair value, the second step must be completed to measure the amount of impairment, if any. Step two involves calculating an implied fair value of goodwill.
For its annual goodwill impairment test as of September 30, 2017, the Company elected to early-adopt ASU 2017-04 which simplifies subsequent goodwill measurement by eliminating step two from the goodwill impairment test.
The Company determines the fair value of its reporting units using an income approach. Under the income approach, the Company determined fair value based on estimated discounted future cash flows of each reporting unit. Determining the fair value of a reporting unit is judgmental in nature and requires the use of significant estimates and assumptions, including revenue growth rates and EBITDA margins, discount rates and future market conditions, among others.
Other intangible assets that have finite lives are amortized over their useful lives. Customer relationships are amortized using the accelerated method, based on customer attrition rates, over their estimated useful lives of 13 (weighted average) years.
Deferred Financing Costs
Direct costs incurred in connection with debt agreements are recorded as incurred and amortized based on the effective interest method for the Company's borrowings under its credit agreement ("Credit Agreement"). At December 31, 2018 and 2017, the Company had deferred financing costs of $0.6 million and $0.8 million, respectively, net of accumulated amortization of $0.3 million and $0.1 million, respectively.

Fair Values of Financial Instruments
The following methods and assumptions were used by the Company in estimating the fair value of its financial instruments for disclosure purposes:
Cash equivalents: Cash equivalents are time deposits with maturity of three months or less when purchased, which are highly liquid and readily convertible to cash. Cash equivalents reported in the Company’s Consolidated Balance Sheet were $7.3 million and $8.5 million as of December 31, 2018 and 2017, respectively, and are carried at cost and approximate fair value due to the relatively short period to maturity of these instruments.
Short- and long-term debt and capital leases: The carrying amount of the Company’s capital leases reported in the Consolidated Balance Sheets approximates fair value based on the Company’s current incremental borrowing rate for similar types of borrowing arrangements. The carrying amount reported in the Company’s Consolidated Balance Sheet as of December 31, 2018 for borrowings under its Credit Agreement is $80.0 million, excluding unamortized deferred financing fees. The Company has determined, utilizing observable market quotes, that the fair value of borrowings under its Credit Agreement is $80.0 million as of December 31, 2018.
Insurance Liability
The Company maintains a high deductible insurance policy for a significant portion of its risks and associated liabilities with respect to workers’ compensation. The Company’s deductible is $250 thousand per individual. The accrued liabilities associated with this program are based on the Company’s estimate of the ultimate costs to settle known claims, as well as claims incurred but not yet reported to the Company, as of the balance sheet date. The Company’s estimated liability is not discounted and is based upon an actuarial report obtained from a third party. The actuarial report uses information provided by the Company’s insurance brokers and insurers, combined with the Company’s judgments regarding a number of assumptions and factors, including the frequency and severity of claims, claims development history, case jurisdiction, applicable legislation, and the Company’s claims settlement practices.
The Company is self-insured for healthcare benefits provided to certain employees in the United States, with a stop-loss at $250 thousand per individual. Liabilities associated with the risks that are retained by the Company are estimated, in part, by considering historical claims experience, demographic factors, severity factors and other actuarial assumptions. The Company’s results could be materially affected by claims and other expenses related to such plans if future occurrences and claims differ from these assumptions and historical trends. Other employees are covered by other offered healthcare benefits.
Commitments and Contingencies
In the normal course of business, the Company estimates potential future loss accruals related to legal, workers’ compensation, healthcare, tax and other contingencies. These accruals require management’s judgment on the outcome of various events based on the best available information. However, due to changes in facts and circumstances, the ultimate outcomes could differ from management’s estimates.
Revenue Recognition
In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2014-09, Revenue from Contracts with Customers (Topic 606). The guidance requires entities to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration that is expected to be received in exchange for those goods or services. In addition, Topic 606 provides guidance on the recognition of costs related to obtaining and fulfilling customer contracts.

On January 1, 2018, the Company adopted Topic 606 using the modified retrospective method applied to those contracts which were not completed as of January 1, 2018.  Results for reporting periods beginning after January 1, 2018 are presented under Topic 606, while prior period amounts are not adjusted and continue to be reported in accordance with the Company's historical accounting. The adoption of Topic 606 did not result in an adjustment to retained earnings in the Company's consolidated balance sheet as of January 1, 2018.
 
Revenue is recognized when control of the promised goods or services is transferred to the Company's customers, in an amount that reflects the consideration that the Company is expected to be entitled to in exchange for those goods or services. The Company applied practical expedients related to unsatisfied performance obligations for (i) contracts with an original expected length of one year or less and (ii) contracts for which the Company recognizes revenue at the amount to which it has the right to invoice for services performed.
Net sales of the Company’s principal services and products were as follows:
 
 
Year Ended December 31,
 
2018
 
2017
Service Sales
 
 
 
CDIM
$
211,389

 
$
205,083

MPS
128,775

 
129,479

AIM
13,136

 
12,764

Total services sales
353,300

 
347,326

Equipment and Supplies Sales
47,484

 
47,253

Total net sales
$
400,784

 
$
394,579


 
Construction Document and Information Management (CDIM) consists of professional services and software services to (i) re-produce and distribute large-format and small-format documents in either black & white or color (“Ordered Prints”) and (ii) specialized graphic color printing. Substantially all the Company’s revenue from CDIM comes from professional services to re-produce Ordered Prints. Sales of Ordered Prints are initiated through a customer order or quote and are governed by established terms and conditions agreed upon at the onset of the customer relationship. Revenue is recognized when the performance obligation under the terms of a contract with a customer are satisfied; generally, this occurs with the transfer of control of the re-produced Ordered Prints. Transfer of control occurs at a specific point-in-time, when the Ordered Prints are delivered to the customer’s site or handed to the customer for walk in orders. Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring goods or providing services. Taxes collected concurrent with revenue-producing activities are excluded from revenue.
Managed Print Services (MPS), consists of placement, management, and optimization of print and imaging equipment in customers' offices, job sites, and other facilities. MPS relieves the Company’s customers of the burden of purchasing print equipment and related supplies and maintaining print devices and print networks, and shifts their costs to a “per-use” basis. MPS is supported by the Company's hosted proprietary technology, Abacus™, which allows customers to capture, control, manage, print, and account for their documents. MPS contracts include a fixed rate per unit for each print produced (per-use), often referred to as a “click charge.” MPS sales are driven by the ongoing print needs of the Company’s customers at their facilities. MPS sales are governed by the mutually agreed upon written agreement which outlines the Company’s terms and conditions. In providing MPS on a per-use basis, the Company is providing a series of services that have the same pattern of transfer and are measured as each customer produces a print or per-use. Accordingly, the performance obligations are satisfied over-time on an output method as each print is produced (per-use) by the customer. For each month of service, the prints produced during the period equate to the consideration that the Company expects to receive from the invoice generated for this period. Taxes collected concurrent with revenue-producing activities are excluded from revenue.
Archiving and Information Management (AIM), combines software and professional services to facilitate the capture, management, access and retrieval of documents and information that have been produced in the past. AIM includes the Company's hosted SKYSITE ® software to organize, search and retrieve documents, as well as the provision of services that include the capture and conversion of hardcopy and electronic documents into digital files (“Scanned Documents”), and their cloud-based storage and maintenance. Sales of AIM professional services, which represent substantially all revenue for AIM, are initiated through a customer order or proposal and are governed by established terms and conditions agreed upon at the onset of the customer relationship. Revenue is recognized when the performance obligation under the terms of a contract with a customer are satisfied; generally, this occurs with the transfer of control of the digital files. Transfer of control occurs at a specific point-in-time, when the Scanned Documents are delivered to the customer either through SKYSITE or through electronic media. Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring goods or providing services. Taxes collected concurrent with revenue-producing activities are excluded from revenue.

Equipment and Supplies sales consist of reselling printing, imaging, and related equipment (“Goods”) to customers primarily in architectural, engineering and construction firms. Sales of Equipment and Supplies are initiated through a customer order and are governed by established terms and conditions agreed upon at the onset of the customer relationship. Revenue is recognized when the performance obligations under the terms of a contract with a customer are satisfied; generally, this occurs with the transfer of control of the Goods. Transfer of control occurs at a specific point-in-time, when the Goods are delivered to the customer’s site. Revenue is measured as the amount of consideration we expect to receive in exchange for transferring goods or providing services. Taxes collected concurrent with revenue-producing activities are excluded from revenue. The Company has experienced minimal customer returns or refunds and does not offer a warranty on equipment that it is reselling.
The Company has established contractual pricing for certain large national customer accounts (“Global Solutions”). These contracts generally establish uniform pricing at all operating segments for Global Solutions. Revenues earned from the Company’s Global Solutions are recognized in the same manner as non-Global Solutions revenues.
Included in revenues are fees charged to customers for shipping, handling, and delivery services. Such revenues amounted to $11.1 million and $10.7 million for 2018 and 2017, respectively.
Revenues from hosted software licensing activities are recognized ratably over the term of the license. Revenues from software licensing activities comprise less than 2% of the Company’s consolidated revenues during the years ended December 31, 2018 and 2017.
Management provides for returns, discounts and allowances based on historic experience and adjusts such allowances as considered necessary.
Comprehensive Income (Loss)
The Company’s comprehensive income (loss) includes foreign currency translation adjustments, net of taxes.
Asset and liability accounts of international operations are translated into the Company’s functional currency, U.S. dollars, at current rates. Revenues and expenses are translated at the average currency rate for the fiscal year.

Segment and Geographic Reporting
The provisions of ASC 280, Segment Reporting, require public companies to report financial and descriptive information about their reportable operating segments. The Company identifies operating segments based on the various business activities that earn revenue and incur expense and whose operating results are reviewed by the Company's Chief Executive Officer, who is the Company's chief operating decision maker. Because its operating segments have similar products and services, classes of customers, production processes, distribution methods and economic characteristics, the Company operates as a single reportable segment.

The Company recognizes revenues in geographic areas based on the location to which the product was shipped or services have been rendered. See table below for revenues and property and equipment, net, attributable to the Company’s U.S. operations and foreign operations. 
 
 
Year Ended December 31,
 
 
2018
 
2017
 
 
U.S.
 
Foreign
Countries
 
Total
 
U.S.
 
Foreign
Countries
 
Total
Revenues from external customers
 
$
340,650

 
$
60,134

 
$
400,784

 
$
339,250

 
$
55,329

 
$
394,579

Property and equipment, net
 
$
64,878

 
$
5,790

 
$
70,668

 
$
58,287

 
$
5,958

 
$
64,245


Advertising and Shipping and Handling Costs
Advertising costs are expensed as incurred and approximated $2.1 million and $1.7 million during 2018 and 2017, respectively. Shipping and handling costs incurred by the Company are included in cost of sales.
Stock-Based Compensation
The Company applies the Black-Scholes valuation model in determining the fair value of share-based payments to employees, which is then amortized on a straight-line basis over the requisite service period.
Total stock-based compensation for 2018 and 2017, was $2.4 million and $2.9 million, respectively, and was recorded in selling, general, and administrative expenses, consistent with the classification of the underlying salaries. In accordance with ASC 718, Income Taxes, any excess tax benefit resulting from stock-based compensation, in the Consolidated Statements of Cash Flows, are classified along with other income tax cash flows as an operating activity.
The weighted average fair value at the grant date for options issued in 2018 and 2017, was $1.21 and $2.57, respectively. The fair value of each option grant was estimated on the date of grant using the Black-Scholes option-pricing model using the following weighted average assumptions for 2018 and 2017: 
 
 
Year Ended December 31,
 
 
2018
 
2017
Weighted average assumptions used:
 
 
 
 
Risk free interest rate
 
2.74
%
 
2.11
%
Expected volatility
 
53.0
%
 
54.9
%
Expected dividend yield
 
%
 
%
Using historical exercise data as a basis, the Company determined that the expected term for stock options issued in 2018 and 2017, was 6.6 years and 6.5 years, respectively.
For fiscal years 2018 and 2017, expected stock price volatility is based on the Company’s historical volatility for a period equal to the expected term. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant with an equivalent remaining term. The Company has not paid dividends in the past and does not currently plan to pay dividends in the near future. The Company accounts for forfeitures of share-based awards when they occur.
As of December 31, 2018, total unrecognized stock-based compensation expense related to nonvested stock-based compensation was approximately $2.6 million, which is expected to be recognized over a weighted average period of approximately 1.8 years.
For additional information, see Note 8 “Employee Stock Purchase Plan and Stock Plan.”
Research and Development Expenses
Research and development activities relate to costs associated with the design and testing of new technology or enhancements and maintenance to existing technology. Such costs are expensed as incurred are primarily recorded to cost of sales. In total, research and development amounted to $8.4 million and $6.9 million, during 2018 and 2017, respectively.
Noncontrolling Interest
The Company accounted for its investment in UNIS Document Solutions Co. Ltd., (“UDS”) under the purchase method of accounting, in accordance with ASC 805, Business Combinations. UDS has been consolidated in the Company’s financial statements from the date of acquisition. Noncontrolling interest, which represents the 35 percent non-controlling interest in UDS, is reflected on the Company’s Consolidated Financial Statements.
Sales Taxes
The Company bills sales taxes, as applicable, to its customers. The Company acts as an agent and bills, collects, and remits the sales tax to the proper government jurisdiction. The sales taxes are accounted for on a net basis, and therefore are not included as part of the Company’s revenue.
Earnings Per Share
The Company accounts for earnings per share in accordance with ASC 260, Earnings Per Share. Basic earnings per share is computed by dividing net income attributable to ARC by the weighted-average number of common shares outstanding for the period. Diluted earnings per common share is computed similarly to basic earnings per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if common shares subject to outstanding options and acquisition rights had been issued and if the additional common shares were dilutive. Common share equivalents are excluded from the computation if their effect is anti-dilutive. There were 5.1 million and 5.3 million common shares excluded from the calculation of diluted net income (loss) attributable to ARC per common share as their effect would have been anti-dilutive for 2018 and 2017, respectively. The Company’s common share equivalents consist of stock options issued under the Company’s Stock Plan.
Basic and diluted weighted average common shares outstanding were calculated as follows for 2018 and 2017:
 
 
Year Ended December 31,
 
2018
 
2017
Weighted average common shares outstanding during the period — basic
44,918

 
45,669

Effect of dilutive stock options
132

 

Weighted average common shares outstanding during the period — diluted
45,050

 
45,669



Recent Accounting Pronouncements Not Yet Adopted

In February 2016, the FASB issued Accounting Standards Codification (“ASC”) 842 (“ASC 842”), Leases. The new guidance replaces the existing guidance in ASC 840, Leases. ASC 842 requires a dual approach for lessee accounting under which a lessee will account for leases as finance leases or operating leases, and is to be applied using a modified retrospective approach. Both finance leases and operating leases will result in the lessee recognizing a right-of-use (ROU) asset and a corresponding lease liability. For finance leases the lessee will recognize interest expense and amortization of the ROU asset and for operating leases the lessee will recognize a straight-line total lease expense. In addition, ASC 842 changes the definition of a lease, which may result in changes to the classification of certain service contracts with customers to lease arrangements. ASC 842 is effective for the Company January 1, 2019.

In July, 2018, the FASB issued ASU 2018-11, Leases (Topic 842): Targeted Improvements, which provides entities the option to use the effective date as the date of initial application on transition to the new guidance. The Company plans to elect this transition method, and as a result, the Company will not adjust comparative information for prior periods. In addition, the Company will elect certain additional practical expedients permitted by the new guidance allowing the Company to carry forward historical accounting related to lease identification and classification for existing leases upon adoption, and to keep leases with an initial term of 12 months or less off of the consolidated balance sheet.

While the Company is finalizing its assessment of the impacts that the adoption of ASC 842 will have on its consolidated financial statements, the Company has concluded that certain of its MPS contracts will be accounted for as operating leases upon adoption of ASC 842. As a result, the Company will be required to classify certain MPS revenue as lease revenue, and will include the additional disclosures required of lessors under ASC 842. The Company will elect the practical expedient to not separate certain lease and nonlease components. The Company expects the pattern of revenue recognition for its MPS revenue will remain substantially unchanged.

The most significant impact of the adoption of ASC 842 to the Company relates to its accounting for facility leases for its service centers and office space, which are currently classified as operating leases. The Company expects the accounting for capital leases related to its machinery and equipment will remain substantially unchanged under the new standard. The Company estimates that the approximate amount of additional ROU assets and liabilities that will be recognized in its consolidated balance sheet upon adoption will be between $50 million to $55 million. The Company does not believe adoption of this ASU will have a significant impact to its consolidated statements of operations, equity, or cash flows.
v3.10.0.1
Goodwill and Other Intangibles
12 Months Ended
Dec. 31, 2018
Goodwill and Intangible Assets Disclosure [Abstract]  
Goodwill and Other Intangibles
GOODWILL AND OTHER INTANGIBLES
Goodwill
In accordance with ASC 350, Intangibles - Goodwill and Other, the Company assesses goodwill for impairment annually as of September 30, and more frequently if events and circumstances indicate that goodwill might be impaired. At September 30, 2018, the Company performed its assessment and determined that goodwill was not impaired.
Goodwill impairment testing is performed at the reporting unit level. Goodwill is assigned to reporting units at the date the goodwill is initially recorded. Once goodwill has been assigned to reporting units, it no longer retains its association with a particular acquisition, and all of the activities within a reporting unit, whether acquired or internally generated, are available to support the value of the goodwill.

For its annual goodwill impairment test as of September 30, 2017, the Company elected to early-adopt ASU 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, which simplifies subsequent goodwill measurement by eliminating step two from the goodwill impairment test. As a result, the Company compared the fair value of a reporting unit with its respective carrying value, and recognized an impairment charge for the amount by which the carrying amount exceeded the reporting unit’s fair value.

At September 30, 2017, the Company's goodwill impairment analysis showed one reporting unit with goodwill attributed to it had a carrying amount which exceeded its fair value. The underperformance of the Company relative to its forecast in the third quarter of 2017 drove the decline in the fair value of the reporting unit. As a result, the Company recorded a pretax, non-cash charge for the three months ended September 30, 2017 to reduce the carrying value of goodwill by $17.6 million.
Given the changing document and printing needs of the Company’s customers, and the uncertainties regarding the effect on the Company’s business, there can be no assurance that the estimates and assumptions made for purposes of the Company’s goodwill impairment test in 2017 will prove to be accurate predictions of the future. If the Company’s assumptions, including forecasted EBITDA of certain reporting units, are not achieved, the Company may be required to record additional goodwill impairment charges in future periods, whether in connection with the Company’s next annual impairment testing in the third quarter of 2018, or on an interim basis, if any such change constitutes a triggering event (as defined under ASC 350, Intangibles-Goodwill and Other ) outside of the quarter when the Company regularly performs its annual goodwill impairment test. It is not possible at this time to determine if any such future impairment charge would result or, if it does, whether such charge would be material.
The changes in the carrying amount of goodwill from January 1, 2017 through December 31, 2018 are summarized as follows:
 
Gross
Goodwill
 
Accumulated
Impairment
Loss
 
Net
Carrying
Amount
 
 
 
 
 
 
January 1, 2017
$
405,558

 
$
266,870

 
$
138,688

Goodwill impairment

 
17,637

 
(17,637
)
December 31, 2017
405,558

 
284,507

 
121,051

Goodwill impairment

 

 

December 31, 2018
$
405,558

 
$
284,507

 
$
121,051



Long-lived and Other Intangible Assets

The Company periodically assesses potential impairments of its long-lived assets in accordance with the provisions of ASC 360, Accounting for the Impairment or Disposal of Long-lived Assets. An impairment review is performed whenever events or changes in circumstances indicate that the carrying value of the assets may not be recoverable. The Company groups its assets at the lowest level for which identifiable cash flows are largely independent of the cash flows of the other assets and liabilities. The Company has determined that the lowest level for which identifiable cash flows are available is the regional level, which is the operating segment level.

Factors considered by the Company include, but are not limited to, significant underperformance relative to historical or projected operating results; significant changes in the manner of use of the acquired assets or the strategy for the overall business; and significant negative industry or economic trends. When the carrying value of a long-lived asset may not be recoverable based upon the existence of one or more of the above indicators of impairment, the Company estimates the future undiscounted cash flows expected to result from the use of the asset and its eventual disposition. If the sum of the expected future undiscounted cash flows and eventual disposition is less than the carrying amount of the asset, the Company recognizes an impairment loss. An impairment loss is reflected as the amount by which the carrying amount of the asset exceeds the fair value of the asset, based on the fair value if available, or discounted cash flows, if fair value is not available. The Company assessed potential impairments of its long lived assets as of September 30, 2018 and concluded that there was no impairment.
The following table sets forth the Company’s other intangible assets resulting from business acquisitions as of December 31, 2018 and 2017 which continue to be amortized:
 
 
December 31, 2018
 
December 31, 2017
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
Carrying
Amount
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
Carrying
Amount
Amortizable other intangible assets
 
 
 
 
 
 
 
 
 
 
 
Customer relationships
$
99,136

 
$
94,345

 
$
4,791

 
$
99,486

 
$
90,805

 
$
8,681

Trade names and trademarks
20,259

 
19,924

 
335

 
20,297

 
19,910

 
387

 
$
119,395

 
$
114,269

 
$
5,126

 
$
119,783

 
$
110,715

 
$
9,068


Estimated future amortization expense of other intangible assets for each of the next five fiscal years and thereafter are as follows:
 
2019
$
3,131

2020
1,519

2021
171

2022
97

2023
42

Thereafter
166

 
$
5,126

v3.10.0.1
Property and Equipment
12 Months Ended
Dec. 31, 2018
Property, Plant and Equipment [Abstract]  
Property and Equipment
PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
 
December 31,
 
2018
 
2017
Machinery and equipment
$
248,546

 
$
245,172

Buildings and leasehold improvements
18,819

 
15,512

Furniture and fixtures
2,783

 
2,254

 
270,148

 
262,938

Less accumulated depreciation
(199,480
)
 
(198,693
)
 
$
70,668

 
$
64,245


Depreciation expense was $29.0 million and $29.0 million for 2018 and 2017, respectively.
v3.10.0.1
Long-Term Debt
12 Months Ended
Dec. 31, 2018
Debt Disclosure [Abstract]  
Long-Term Debt
LONG-TERM DEBT
Long-term debt consists of the following:
 
 
December 31,
 
2018
 
2017
Term Loan maturing 2022 net of deferred financing fees of $556 and $757; 4.11% and 3.12% interest rate at December 31, 2018 and 2017
$
52,694

 
$
56,993

Revolving Loans; 4.74% and 3.64% interest rate at December 31, 2018 and 2017
26,750

 
42,250

Various capital leases; weighted average interest rate of 4.8% and 5.0% at December 31, 2018 and 2017; principal and interest payable monthly through December 2023
47,737

 
45,157

Various other notes payable with a weighted average interest rate of 10.7% at December 31, 2018 and 2017; principal and interest payable monthly through November 2019
11

 
17

 
127,192

 
144,417

Less current portion
(22,132
)
 
(20,791
)
 
$
105,060

 
$
123,626


Credit Agreement
On July 14, 2017, the Company amended its Credit Agreement which was originally entered into on November 20, 2014 with Wells Fargo Bank, National Association, as administrative agent and the lenders party thereto.
Prior to being amended, the Credit Agreement provided for the extension of term loans (“Term Loans”) in an aggregate principal amount of $175.0 million. In addition, prior to being amended, the Credit Agreement provided for the extension of revolving loans (“Revolving Loans”) in an aggregate principal amount not to exceed $30.0 million. The amendment increased the maximum aggregate principal amount of Revolving Loans under the agreement from $30 million to $80 million and reduced the outstanding principal amount of the Term Loan under the agreement to $60 million. Upon the execution of the amendment to the Credit Agreement, the total principal amount outstanding under the agreement remained unchanged at $110.0 million. As a result of the amendment to the Credit Agreement, the principal of the Term Loan amortizes at an annual rate of 7.5% during the first and second years following the date of the amendment and at an annual rate of 10% during the third, fourth and fifth years following the date of the amendment, with any remaining balance payable upon the maturity date. The amendment also extended the maturity date for both the Revolving Loans and the Term Loans until July 14, 2022. In November 2018, the Company reduced the $80 million Revolving Loan commitment by $15.0 million.
As of December 31, 2018, the Company's borrowing availability of Revolving Loans under the Revolving Loan commitment was $36.1 million, after deducting outstanding letters of credit of $2.2 million and outstanding Revolving Loans of $26.8 million.
Loans borrowed under the Credit Agreement bear interest, in the case of LIBOR rate loans, at a per annum rate equal to the applicable LIBOR rate, plus a margin ranging from 1.25% to 2.25%, based on the Company’s Total Leverage Ratio (as defined in the Credit Agreement). Loans borrowed under the Credit Agreement that are not LIBOR rate loans bear interest at a per annum rate equal to (i) the greatest of (A) the Federal Funds Rate plus 0.50%, (B) the one month LIBOR rate plus 1.00% per annum, and (C) the rate of interest announced, from time to time, by Wells Fargo Bank, National Association as its “prime rate,” plus (ii) a margin ranging from 0.25% to 1.25%, based on the Company’s Total Leverage Ratio. The amendment reduced the rate of interest payable on the loans borrowed under the Credit Agreement by 0.25%.
The Company pays certain recurring fees with respect to the credit facility, including administration fees to the administrative agent.
Subject to certain exceptions, including in certain circumstances, reinvestment rights, the loans extended under the Credit Agreement are subject to customary mandatory prepayment provisions with respect to: the net proceeds from certain asset sales; the net proceeds from certain issuances or incurrences of debt (other than debt permitted to be incurred under the terms of the Credit Agreement); the net proceeds from certain issuances of equity securities; and net proceeds of certain insurance recoveries and condemnation events of the Company.
The Credit Agreement contains customary representations and warranties, subject to limitations and exceptions, and customary covenants restricting the ability (subject to various exceptions) of the Company and its subsidiaries to: incur additional indebtedness (including guarantee obligations); incur liens; sell certain property or assets; engage in mergers or other fundamental changes; consummate acquisitions; make investments; pay dividends, other distributions or repurchase equity interest of the Company or its subsidiaries; change the nature of their business; prepay or amend certain indebtedness; engage in certain transactions with affiliates; amend their organizational documents; or enter into certain restrictive agreements. In addition, the Credit Agreement contains financial covenants which requires the Company to maintain (i) at all times, a Total Leverage Ratio in an amount not to exceed 3.25 to 1.00; and (ii) a Fixed Charge Coverage Ratio (as defined in the Credit Agreement), as of the last day of each fiscal quarter, an amount not less than 1.15 to 1.00.
The Credit Agreement contains customary events of default, including with respect to: nonpayment of principal, interest, fees or other amounts; failure to perform or observe covenants; material inaccuracy of a representation or warranty when made; cross-default to other material indebtedness; bankruptcy, insolvency and dissolution events; inability to pay debts; monetary judgment defaults; actual or asserted invalidity or impairment of any definitive loan documentation, repudiation of guaranties or subordination terms; certain ERISA related events; or a change of control.
The obligations of the Company’s subsidiary that is the borrower under the Credit Agreement are guaranteed by the Company and each other United States domestic subsidiary of the Company. The Credit Agreement and any interest rate protection and other hedging arrangements provided by any lender party to the Credit facility or any affiliate of such a lender are secured on a first priority basis by a perfected security interest in substantially all of the borrower’s, the Company’s and each guarantor’s assets (subject to certain exceptions).
Minimum future maturities of long-term debt, excludes deferred financing fees, and capital lease obligations as of December 31, 2018 are as follows:

 
Long-Term Debt
 
Capital Lease Obligations
Year ending December 31:
 
 
 
2019
$
5,260

 
$
16,872

2020
6,001

 
13,817

2021
6,000

 
10,141

2022
62,750

 
5,274

2023

 
1,633

Thereafter

 

 
$
80,011

 
$
47,737

v3.10.0.1
Commitments and Contingencies
12 Months Ended
Dec. 31, 2018
Commitments and Contingencies Disclosure [Abstract]  
Commitments and Contingencies
COMMITMENTS AND CONTINGENCIES
The Company leases machinery, equipment, and office and operational facilities under non-cancelable operating lease agreements. Certain lease agreements for the Company’s facilities generally contain renewal options and provide for annual increases in rent based on the local Consumer Price Index. The following is a schedule of the Company’s future minimum lease payments as of December 31, 2018:
 
 
 
Third Party
 
Related Party
 
Total
Year ending December 31:
 
 
 
 
 
 
2019
 
$
15,841

 
$
514

 
$
16,355

2020
 
12,442

 
514

 
12,956

2021
 
9,616

 
514

 
10,130

2022
 
7,996

 
514

 
8,510

2023
 
6,540

 
514

 
7,054

Thereafter
 
16,650

 

 
16,650

 
 
$
69,085

 
$
2,570

 
$
71,655


Total rent expense under operating leases, including month-to-month rentals, amounted to $21.8 million and $22.1 million during 2018 and 2017, respectively. Under certain lease agreements, the Company is responsible for other costs such as property taxes, insurance, maintenance, and utilities.
The Company leased several of its facilities under lease agreements with entities owned by certain of its current and former executive officers which expire through December 2023. The rental payments on these facilities amounted to $0.5 million during 2018 and 2017.
The Company has entered into indemnification agreements with each director and named executive officer which provide indemnification under certain circumstances for acts and omissions which may not be covered by any directors’ and officers’ liability insurance. The indemnification agreements may require the Company, among other things, to indemnify its officers and directors against certain liabilities that may arise by reason of their status or service as officers and directors (other than liabilities arising from willful misconduct of a culpable nature), to advance their expenses incurred as a result of any proceeding against them as to which they could be indemnified, and to obtain officers’ and directors’ insurance if available on reasonable terms. There have been no events to date which would require the Company to indemnify its officers or directors.

The Company is involved in various additional legal proceedings and other legal matters from time to time in the normal course of business. The Company does not believe that the outcome of any of these matters will have a material effect on its consolidated financial position, results of operations or cash flows.
v3.10.0.1
Income Taxes
12 Months Ended
Dec. 31, 2018
Income Tax Disclosure [Abstract]  
Income Taxes
INCOME TAXES
In December 2017, the Tax Cuts and Jobs Act (the “TCJA”) was enacted. The TCJA includes a number of changes to existing U.S. tax laws that impact the Company. This includes a reduction to the federal corporate tax rate from 35 percent to 21 percent for the tax years beginning after December 31, 2017. The TCJA also provides for a one-time transition tax on certain foreign earnings as well as changes beginning in 2018 regarding the deductibility of interest expense, additional limitations on executive compensation, meals and entertainment expenses and the inclusion of certain foreign earnings in U.S. taxable income.
      
The Company recognized $11.9 million of tax expense in the fourth quarter of 2017 primarily due to the reduction in its net U.S. deferred tax assets for the 14 percentage points decrease in the U.S. federal statutory rate. In accordance with Staff Accounting Bulletin No. 118, which provides guidance on accounting for the impact of the TCJA, in effect allowing an entity to use a methodology similar to the measurement period in a business combination. The Company completed its accounting for the tax effects of the TCJA. Additionally, further guidance from the Internal Revenue Service ("IRS"), SEC, or the FASB could result in changes to the Company’s accounting for the tax effects of the TCJA in its 2018 tax year and future tax years.

The following table includes the consolidated income tax provision for federal, state, and foreign income taxes related to the Company’s total earnings before taxes for 2018 and 2017:
 
 
 
Year Ended December 31,
 
 
2018
 
2017
Current:
 
 
 
 
Federal
 
$
(89
)
 
$
(170
)
State
 
65

 
139

Foreign
 
370

 
438

 
 
346

 
407

Deferred:
 
 
 
 
Federal
 
2,331

 
15,669

State
 
560

 
(751
)
Foreign
 
97

 
(81
)
 
 
2,988

 
14,837

Income tax provision
 
$
3,334

 
$
15,244


The Company's foreign earnings before taxes were $1.2 million and $1.0 million for 2018 and 2017, respectively.
The consolidated deferred tax assets and liabilities consist of the following:
 
 
December 31,
 
2018
 
2017
Deferred tax assets:
 
 
 
Financial statement accruals not currently deductible
$
2,332

 
$
1,602

Deferred rent expense
1,563

 
766

Accrued vacation
873

 
848

Deferred revenue, net
24

 
185

Fixed assets
3,624

 
4,113

Goodwill and other identifiable intangibles
9,917

 
12,848

Stock-based compensation
5,022

 
4,545

Federal tax net operating loss carryforward
16,353

 
17,258

State tax net operating loss carryforward, net
5,791

 
5,951

Foreign tax net operating loss carryforward
691

 
616

Tax Credits, net
1,770

 
1,785

Gross deferred tax assets
47,960

 
50,517

Less: valuation allowance
(2,203
)
 
(2,366
)
Net deferred tax assets
$
45,757

 
$
48,151

 
 
 
 
Deferred tax liabilities:
 
 
 
Goodwill
$
(20,811
)
 
$
(19,972
)
Outside basis in foreign entities

 
(150
)
Net deferred tax assets
$
24,946

 
$
28,029



A reconciliation of the statutory federal income tax rate to the Company’s effective tax rate is as follows:
 
 
Year Ended December 31,
 
2018
 
2017
Statutory federal income tax rate
21
%
 
35
 %
State taxes, net of federal benefit
5

 

Foreign taxes
2

 
(4
)
Valuation allowance
(1
)
 
(17
)
Non-deductible expenses and other
1

 
(5
)
Section 162(m) limitation
1

 
(1
)
Tax Cuts and Jobs Act enacted on December 22, 2017

 
(195
)
Discrete items for federal, state and foreign taxes
(2
)
 
(4
)
Global Intangible Low Taxed Income
1

 

Non-deductible portion of goodwill impairment

 
(58
)
Effective income tax rate
28
%
 
(249
)%


In accordance with ASC 740-10, Income Taxes, the Company evaluates the need for deferred tax asset valuation allowances based on a more likely than not standard. The ability to realize deferred tax assets depends on the ability to generate sufficient taxable income within the carryback or carryforward periods provided for in the tax law for each applicable tax jurisdiction. The Company considers the following possible sources of taxable income when assessing the realization of deferred tax assets:

Future reversals of existing taxable temporary differences;
Future taxable income exclusive of reversing temporary differences and carryforwards;
Taxable income in prior carryback years; and
Tax-planning strategies.

The assessment regarding whether a valuation allowance is required or should be adjusted also considers all available positive and negative evidence factors, including but not limited to:

Nature, frequency, and severity of recent losses;
Duration of statutory carryforward periods;
Historical experience with tax attributes expiring unused; and
Near- and medium-term financial outlook.

The Company utilizes a rolling three years of actual and current year anticipated results as the primary measure of cumulative income/losses in recent years, as adjusted for permanent differences. The evaluation of deferred tax assets requires judgment in assessing the likely future tax consequences of events that have been recognized in the Company's financial statements or tax returns and future profitability. The Company's accounting for deferred tax consequences represents its best estimate of those future events. Changes in the Company's current estimates, due to unanticipated events or otherwise, could have a material effect on its financial condition and results of operations. The Company has a $2.2 million valuation allowance against certain deferred tax assets as of December 31, 2018.

Based on the Company’s current assessment, the remaining net deferred tax assets as of December 31, 2018 are considered more likely than not to be realized. The valuation allowance of $2.2 million may be increased or reduced as conditions change or if the Company is unable to implement certain available tax planning strategies. The realization of the Company’s net deferred tax assets ultimately depends on future taxable income, reversals of existing taxable temporary differences or through a loss carry back. The Company has income tax receivables of $0.1 million as of December 31, 2018 included in other current assets in its consolidated balance sheet primarily related to income tax refunds for prior years.
As of December 31, 2018, the Company had approximately $77.9 million of consolidated federal, $92.5 million of state and $4.1 million of foreign net operating loss carryforwards available to offset future taxable income, respectively. The federal net operating loss carryforward will begin to expire in varying amounts between 2031 and 2037. The state net operating loss carryforwards expire in varying amounts between 2018 and 2037. The foreign net operating loss carryforwards begin to expire in varying amounts beginning in 2022.

The Company has a deferred tax asset of approximately $2.4 million related to certain stock-based compensation with a strike price of $8.20 that is pending to expire in the second quarter of 2019. Upon expiration, if unexercised, the Company will record deferred tax expense of approximately $2.4 million, which will be treated as a discrete item.

The Company has elected to treat its annual Global Intangible Low Taxed Income (GILTI), if any, as a period cost. Additionally, the Company will treat the tax effect of this under the tax law ordering methodology with respect to the utilization of federal net operating losses caused by the GILTI inclusion.

The Company or one of its subsidiaries files income tax returns in the U.S. federal jurisdiction, and various states and foreign jurisdictions. With few exceptions, the Company is no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities for years before 2012.
There were no unrecognized tax benefits as of and for the years ended December 31, 2018 or 2017.
v3.10.0.1
Employee Stock Purchase Plan and Stock Plan
12 Months Ended
Dec. 31, 2018
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]  
Employee Stock Purchase Plan and Stock Plan
EMPLOYEE STOCK PURCHASE PLAN AND STOCK PLAN
Employee Stock Purchase Plan
Under the Company’s Employee Stock Purchase Plan (the “ESPP”) eligible employees may purchase up to a calendar year maximum per eligible employee of the lesser of (i) 2,500 shares of common stock, or (ii) a number of shares of common stock having an aggregate fair market value of $25 thousand as determined on the date of purchase at 85% of the fair market value of such shares of common stock on the applicable purchase date. The compensation expense in connection with the ESPP in 2018 and 2017, was $22 thousand and $30 thousand, respectively.

Employees purchased the following shares in the periods presented:
 
 
Year Ended December 31,
 
2018
 
2017
Shares purchased
77

 
47

Average price per share
$
1.67

 
$
2.83


Stock Plan
The Company's Stock Plan provides for the grant of incentive and non-statutory stock options, stock appreciation rights, restricted stock, restricted stock units, stock bonuses and other forms of awards granted or denominated in the Company's common stock or units of the Company's common stock, as well as cash bonus awards to employees, directors and consultants of the Company. The Company's Stock Plan authorizes the Company to issue up to 3.5 million shares of common stock. At December 31, 2018, 3.1 million shares remain available for issuance under the Stock Plan.
Stock options granted under the Company's Stock Plan generally expire no later than ten years from the date of grant. Options generally vest and become fully exercisable over a period of three to four years from date of award, except that options granted to non-employee directors may vest over a shorter time period. The exercise price of options must be equal to at least 100% of the fair market value of the Company’s common stock on the date of grant. The Company allows for cashless exercises of vested outstanding options.
During 2018 and 2017, the Company granted options to acquire a total of 686 thousand shares and 526 thousand shares, respectively, of the Company's common stock to certain key employees with an exercise price equal to the fair market value of the Company’s common stock on the date of grant. The granted stock options vest annually over three to four years from the grant date and expire 10 years after the date of grant.
The following is a further breakdown of the stock option activity under the Stock Plan:
 
Shares
 
Weighted
Average
Exercise
Price
 
Weighted
Average
Contractual
Life
(In years)
 
Aggregate
Intrinsic
Value
(In thousands)
Outstanding at December 31, 2016
4,301

 
$
5.44

 
 
 
 
Granted
526

 
$
4.67

 
 
 
 
Exercised
(34
)
 
$
2.82

 
 
 
 
Forfeited/Cancelled
(58
)
 
$
6.21

 
 
 
 
Outstanding at December 31, 2017
4,735

 
$
5.44

 
 
 
 
Granted
686

 
$
2.21

 
 
 
 
Exercised

 
$

 
 
 
 
Forfeited/Cancelled
(164
)
 
$
6.23

 
 
 
 
Outstanding at December 31, 2018
5,257

 
$
4.95

 
5.02
 
$

Vested or expected to vest at December 31, 2018
5,257

 
$
4.95

 
5.02
 
$

Exercisable at December 31, 2018
4,066

 
$
5.46

 
3.99
 
$


The aggregate intrinsic value in the table above represents the total pretax intrinsic value (the difference between the closing stock price on December 31, 2018 and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all the option holders exercised their options on December 31, 2018. This amount changes based on the fair market value of the common stock. Total intrinsic value of options exercised during the year ended 2017 was $63 thousand.

A summary of the Company’s non-vested stock options as of December 31, 2018, and changes during the year then ended is as follows:
 
 
 
Weighted
Average Grant Date
Non-vested Options
Shares
 
Fair Market Value
Non-vested at December 31, 2017
1,044

 
$
2.77

Granted
686

 
$
1.21

Vested
(488
)
 
$
3.14

Forfeited/Cancelled
(51
)
 
$
1.96

Non-vested at December 31, 2018
1,191

 
$
1.76


The following table summarizes certain information concerning outstanding options at December 31, 2018:
 
 
 
Range of Exercise Price
Options Outstanding at
December 31, 2018
$2.21 – $2.70
1,979

$3.65 – $4.82
968

$5.37 – $7.19
979

$8.20 – $9.09
1,331

$2.21 – $9.09
5,257

Restricted Stock
The Stock Plan provides for automatic grants of restricted stock awards to non-employee directors of the Company, as of each annual meeting of the Company’s stockholders having a then fair market value equal to $60 thousand.
In 2018, the Company granted 325 thousand shares of restricted stock to certain key employees at a price per share equal to the closing price of the Company's common stock on the date the restricted stock was granted. The granted stock options and restricted stock vest annually over three years from the grant date. In addition, the Company granted approximately 28 thousand shares of restricted stock to each of the Company's six non-employee members of its board of directors at a price per share equal to the closing price of the Company's common stock on the date the restricted stock was granted. Additionally, the Company granted approximately 13 thousand shares of restricted stock to an non-employee member of its board of directors that joined during the fourth quarter of 2018. The restricted stock vests on the one-year anniversary of the grant date.
In 2017, the Company granted 306 thousand shares of restricted stock to certain key employees at a price per share equal to the closing price of the Company's common stock on the date the restricted stock was granted. The granted stock options and restricted stock vest annually over three years from the grant date. In addition, the Company granted approximately 16 thousand shares of restricted stock to each of the Company's six non-employee members of its board of directors at a price per share equal to the closing price of the Company's common stock on the date the restricted stock was granted. The restricted stock vests on the one-year anniversary of the grant date.

A summary of the Company’s non-vested restricted stock as of December 31, 2018, and changes during the year then ended is as follows:
 
 
 
Weighted
Average Grant Date
Non-vested Restricted Stock
Shares
 
Fair Market Value
Non-vested at December 31, 2017
583

 
$
4.99

Granted
503

 
$
2.40

Vested
(335
)
 
$
4.75

Forfeited/Cancelled

 
$

Non-vested at December 31, 2018
751

 
$
3.37


The total fair value of restricted stock awards vested during the years ended December 31, 2018 and 2017 was $0.8 million and $1.0 million, respectively.
v3.10.0.1
Retirement Plans
12 Months Ended
Dec. 31, 2018
Retirement Benefits [Abstract]  
Retirement Plans
RETIREMENT PLANS
The Company sponsors a 401(k) Plan, which covers substantially all employees of the Company who have attained age 21. Under the Company’s 401(k) Plan, eligible employees may contribute up to 75% of their annual eligible compensation (or in the case of highly compensated employees, up to 6% of their annual eligible compensation), subject to contribution limitations imposed by the Internal Revenue Service. The Company matches 20% of an employee’s contributions, up to a total of 4% of that employee’s compensation. An independent third party administers the Company’s 401(k) Plan. The Company's total expense under these plans amounted to $0.4 million annually during 2018 and 2017.
v3.10.0.1
Fair Value Measurements
12 Months Ended
Dec. 31, 2018
Fair Value Disclosures [Abstract]  
Fair Value Measurements
FAIR VALUE MEASUREMENTS
In accordance with ASC 820, Fair Value Measurement, the Company has categorized its assets and liabilities that are measured at fair value into a three-level fair value hierarchy as set forth below. If the inputs used to measure fair value fall within different levels of the hierarchy, the categorization is based on the lowest level input that is significant to the fair value measurement. The three levels of the hierarchy are defined as follows:
Level 1-inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.
Level 2-inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
Level 3-inputs to the valuation methodology are unobservable and significant to the fair value measurement.

The following table summarizes the bases used to measure certain assets and liabilities at fair value on a nonrecurring basis in the consolidated financial statements as of and for the year ended December 31, 2018 and 2017:

 
Significant Other Unobservable Inputs
 
December 31, 2018
 
December 31, 2017
 
Level 3
 
Total Losses
 
Level 3
 
Total Losses
Nonrecurring Fair Value Measure
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Goodwill
$
121,051

 
$

 
$
121,051

 
$
17,637


In accordance with ASC 350, goodwill was written down to its implied fair value of $121.1 million as of September 30, 2017, resulting in an impairment charge of $17.6 million during 2017. See Note 3, “Goodwill and Other Intangibles” for further information regarding the process of determining the implied fair value of goodwill and change in goodwill.
v3.10.0.1
Summary of Significant Accounting Policies (Policies)
12 Months Ended
Dec. 31, 2018
Accounting Policies [Abstract]  
Basis of Presentation
Basis of Presentation
The accompanying Consolidated Financial Statements include the accounts of the Company and its subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the amounts reported in the Consolidated Financial Statements and accompanying notes. The Company evaluates its estimates and assumptions on an ongoing basis and relies on historical experience and various other factors that it believes to be reasonable under the circumstances to determine such estimates. Actual results could differ from those estimates and such differences may be material to the Consolidated Financial Statements.
Risk And Uncertainties
Risk and Uncertainties
The Company generates the majority of its revenue from sales of services and products to customers in the architectural, engineering, construction and building owner/operator (AEC/O) industry. As a result, the Company’s operating results and financial condition can be significantly affected by economic factors that influence the AEC/O industry, such as non-residential construction spending, GDP growth, interest rates, unemployment rates, and office vacancy rates. Reduced activity (relative to historic levels) in the AEC/O industry would diminish demand for some of ARC’s services and products, and would therefore negatively affect revenues and have a material adverse effect on its business, operating results and financial condition.
As part of the Company’s growth strategy, ARC intends to continue to offer and grow a variety of service offerings, some of which are relatively new to the Company. The success of the Company’s efforts will be affected by its ability to acquire new customers for the Company’s new service offerings, as well as to sell the new service offerings to existing customers. The Company’s inability to successfully market and execute these relatively new service offerings could significantly affect its business and reduce its long term revenue, resulting in an adverse effect on its results of operations and financial condition.
Cash Equivalents
Cash Equivalents
Cash equivalents include demand deposits and short-term investments with a maturity of three months or less when purchased.
Concentrations of Credit Risk and Significant Vendors
Concentrations of Credit Risk and Significant Vendors
Concentrations of credit risk with respect to trade receivables are limited due to a large, diverse customer base. No individual customer represented more than 2% of net sales during 2018 and 2017.
The Company has geographic concentration risk as sales in California, as a percent of total sales, were approximately 34% for 2018 and 2017.
The Company contracts with various suppliers. Although there are a limited number of suppliers that could supply the Company’s inventory, management believes any shortfalls from existing suppliers would be absorbed from other suppliers on comparable terms. However, a change in suppliers could cause a delay in sales and adversely affect results.
Allowance for Doubtful Accounts
Allowance for Doubtful Accounts
The Company performs periodic credit evaluations of the financial condition of its customers, monitors collections and payments from customers, and generally does not require collateral. The Company provides for the possible inability to collect accounts receivable by recording an allowance for doubtful accounts. The Company writes off an account when it is considered uncollectible. The Company estimates the allowance for doubtful accounts based on historical experience, aging of accounts receivable, and information regarding the credit worthiness of its customers. Additionally, the Company provides an allowance for returns and discounts based on historical experience.
Inventories
Inventories
Inventories are valued at the lower of cost (determined on a first-in, first-out basis; or average cost) or net realizable value. Inventories primarily consist of reprographics materials for use and resale, and equipment for resale. On an ongoing basis, inventories are reviewed and adjusted for estimated obsolescence or unmarketable inventories to reflect the lower of cost or net realizable value. Charges to increase inventory reserves are recorded as an increase in cost of sales.
Income Taxes
Income Taxes
Deferred tax assets and liabilities reflect temporary differences between the amount of assets and liabilities for financial and tax reporting purposes. Such amounts are adjusted, as appropriate, to reflect changes in tax rates expected to be in effect when the temporary differences reverse. A valuation allowance is recorded to reduce the Company's deferred tax assets to the amount that is more likely than not to be realized. Changes in tax laws or accounting standards and methods may affect recorded deferred taxes in future periods.

When establishing a valuation allowance, the Company considers future sources of taxable income such as future reversals of existing taxable temporary differences, future taxable income exclusive of reversing temporary differences and carryforwards and tax planning strategies. A tax planning strategy is an action that: is prudent and feasible; an enterprise ordinarily might not take, but would take to prevent an operating loss or tax credit carryforward from expiring unused; and would result in realization of deferred tax assets. In the event the Company determines that its deferred tax assets, more likely than not, will not be realized in the future, the valuation adjustment to the deferred tax assets will be charged to earnings in the period in which the Company makes such a determination. The Company has a $2.2 million valuation allowance against certain deferred tax assets as of December 31, 2018.
In future quarters the Company will continue to evaluate its historical results for the preceding twelve quarters and its future projections to determine whether the Company will generate sufficient taxable income to utilize its deferred tax assets, and whether a valuation allowance is required.
The Company calculates its current and deferred tax provision based on estimates and assumptions that could differ from the actual results reflected in income tax returns filed in subsequent years. Adjustments based on filed returns are recorded when identified.

Income taxes have not been provided on certain undistributed earnings of foreign subsidiaries because such earnings are considered to be permanently reinvested.

The amount of taxable income or loss the Company reports to the various tax jurisdictions is subject to ongoing audits by federal, state and foreign tax authorities. The Company's estimate of the potential outcome of any uncertain tax issue is subject to management’s assessment of relevant risks, facts, and circumstances existing at that time. The Company uses a more-likely-than-not threshold for financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. The Company records a liability for the difference between the benefit recognized and measured and tax position taken or expected to be taken on its tax return. To the extent that the Company's assessment of such tax positions changes, the change in estimate is recorded in the period in which the determination is made. The Company reports tax-related interest and penalties as a component of income tax expense.

The Company’s 2017 effective income tax rate differs from the statutory tax rate primarily due to the effect of the Tax Cuts and Jobs Act (the "TCJA") enacted on December 22, 2017, the valuation allowance on certain of the Company’s deferred tax assets, state income taxes, stock-based compensation, goodwill and other identifiable intangibles, and other discrete items. See Note 7 “Income Taxes” for further information.
Property and Equipment
Property and Equipment
Property and equipment are stated at cost and are depreciated using the straight-line method over their estimated useful lives, as follows:
 
Buildings
  
10-20 years
Leasehold improvements
  
10-20 years or lease term, if shorter
Machinery and equipment
  
3-7 years
Furniture and fixtures
  
3-7 years
Assets acquired under capital lease arrangements are included in machinery and equipment, are recorded at the present value of the minimum lease payments, and are depreciated using the straight-line method over the life of the asset or term of the lease, whichever is shorter. Expenses for repairs and maintenance are charged to expense as incurred, while renewals and betterments are capitalized. Gains or losses on the sale or disposal of property and equipment are reflected in operating income.

The Company accounts for software costs developed for internal use in accordance with ASC 350-40, Intangibles – Goodwill and Other, which requires companies to capitalize certain qualifying costs incurred during the application development stage of the related software development project. The primary use of this software is for internal use and, accordingly, such capitalized software development costs are depreciated on a straight-line basis over the economic lives of the related products not to exceed three years.
Impairment of Long-Lived Assets
Impairment of Long-Lived Assets
The Company periodically assesses potential impairments of its long-lived assets in accordance with the provisions of ASC 360, Accounting for the Impairment or Disposal of Long-lived Assets. An impairment review is performed whenever events or changes in circumstances indicate that the carrying value of the assets may not be recoverable. The Company groups its assets at the lowest level for which identifiable cash flows are largely independent of the cash flows of the other assets and liabilities. The Company has determined that the lowest level for which identifiable cash flows are available is the regional level, which is the operating segment level.
Factors considered by the Company include, but are not limited to, significant underperformance relative to historical or projected operating results; significant changes in the manner of use of the acquired assets or the strategy for the overall business; and significant negative industry or economic trends. When the carrying value of a long-lived asset may not be recoverable based upon the existence of one or more of the above indicators of impairment, the Company estimates the future undiscounted cash flows expected to result from the use of the asset and its eventual disposition. If the sum of the expected future undiscounted cash flows and eventual disposition is less than the carrying amount of the asset, the Company recognizes an impairment loss. An impairment loss is reflected as the amount by which the carrying amount of the asset exceeds the fair value of the asset, based on the fair value if available, or discounted cash flows, if fair value is not available.
Goodwill and Other Intangible Assets
Goodwill and Other Intangible Assets
In accordance with ASC 350, Intangibles - Goodwill and Other, the Company assesses goodwill for impairment annually as of September 30, and more frequently if events and circumstances indicate that goodwill might be impaired.
Goodwill impairment testing is performed at the reporting unit level. Goodwill is assigned to reporting units at the date the goodwill is initially recorded. Once goodwill has been assigned to reporting units, it no longer retains its association with a particular acquisition, and all of the activities within a reporting unit, whether acquired or internally generated, are available to support the value of the goodwill.
Traditionally, goodwill impairment testing is a two-step process. Step one involves comparing the fair value of the reporting units to its carrying amount. If the carrying amount of a reporting unit is greater than zero and its fair value is greater than its carrying amount, there is no impairment. If the reporting unit’s carrying amount is greater than the fair value, the second step must be completed to measure the amount of impairment, if any. Step two involves calculating an implied fair value of goodwill.
For its annual goodwill impairment test as of September 30, 2017, the Company elected to early-adopt ASU 2017-04 which simplifies subsequent goodwill measurement by eliminating step two from the goodwill impairment test.
The Company determines the fair value of its reporting units using an income approach. Under the income approach, the Company determined fair value based on estimated discounted future cash flows of each reporting unit. Determining the fair value of a reporting unit is judgmental in nature and requires the use of significant estimates and assumptions, including revenue growth rates and EBITDA margins, discount rates and future market conditions, among others.
Other intangible assets that have finite lives are amortized over their useful lives. Customer relationships are amortized using the accelerated method, based on customer attrition rates, over their estimated useful lives of 13 (weighted average) years.
Deferred Financing Costs
Deferred Financing Costs
Direct costs incurred in connection with debt agreements are recorded as incurred and amortized based on the effective interest method for the Company's borrowings under its credit agreement ("Credit Agreement").
Fair Values of Financial Instruments
Fair Values of Financial Instruments
The following methods and assumptions were used by the Company in estimating the fair value of its financial instruments for disclosure purposes:
Cash equivalents: Cash equivalents are time deposits with maturity of three months or less when purchased, which are highly liquid and readily convertible to cash. Cash equivalents reported in the Company’s Consolidated Balance Sheet were $7.3 million and $8.5 million as of December 31, 2018 and 2017, respectively, and are carried at cost and approximate fair value due to the relatively short period to maturity of these instruments.
Short- and long-term debt and capital leases: The carrying amount of the Company’s capital leases reported in the Consolidated Balance Sheets approximates fair value based on the Company’s current incremental borrowing rate for similar types of borrowing arrangements. The carrying amount reported in the Company’s Consolidated Balance Sheet as of December 31, 2018 for borrowings under its Credit Agreement is $80.0 million, excluding unamortized deferred financing fees. The Company has determined, utilizing observable market quotes, that the fair value of borrowings under its Credit Agreement is $80.0 million as of December 31, 2018.
Insurance Liability
Insurance Liability
The Company maintains a high deductible insurance policy for a significant portion of its risks and associated liabilities with respect to workers’ compensation. The Company’s deductible is $250 thousand per individual. The accrued liabilities associated with this program are based on the Company’s estimate of the ultimate costs to settle known claims, as well as claims incurred but not yet reported to the Company, as of the balance sheet date. The Company’s estimated liability is not discounted and is based upon an actuarial report obtained from a third party. The actuarial report uses information provided by the Company’s insurance brokers and insurers, combined with the Company’s judgments regarding a number of assumptions and factors, including the frequency and severity of claims, claims development history, case jurisdiction, applicable legislation, and the Company’s claims settlement practices.
The Company is self-insured for healthcare benefits provided to certain employees in the United States, with a stop-loss at $250 thousand per individual. Liabilities associated with the risks that are retained by the Company are estimated, in part, by considering historical claims experience, demographic factors, severity factors and other actuarial assumptions. The Company’s results could be materially affected by claims and other expenses related to such plans if future occurrences and claims differ from these assumptions and historical trends. Other employees are covered by other offered healthcare benefits.
Commitments and Contingencies
Commitments and Contingencies
In the normal course of business, the Company estimates potential future loss accruals related to legal, workers’ compensation, healthcare, tax and other contingencies. These accruals require management’s judgment on the outcome of various events based on the best available information. However, due to changes in facts and circumstances, the ultimate outcomes could differ from management’s estimates.
Revenue Recognition
Revenue Recognition
In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2014-09, Revenue from Contracts with Customers (Topic 606). The guidance requires entities to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration that is expected to be received in exchange for those goods or services. In addition, Topic 606 provides guidance on the recognition of costs related to obtaining and fulfilling customer contracts.

On January 1, 2018, the Company adopted Topic 606 using the modified retrospective method applied to those contracts which were not completed as of January 1, 2018.  Results for reporting periods beginning after January 1, 2018 are presented under Topic 606, while prior period amounts are not adjusted and continue to be reported in accordance with the Company's historical accounting. The adoption of Topic 606 did not result in an adjustment to retained earnings in the Company's consolidated balance sheet as of January 1, 2018.
 
Revenue is recognized when control of the promised goods or services is transferred to the Company's customers, in an amount that reflects the consideration that the Company is expected to be entitled to in exchange for those goods or services. The Company applied practical expedients related to unsatisfied performance obligations for (i) contracts with an original expected length of one year or less and (ii) contracts for which the Company recognizes revenue at the amount to which it has the right to invoice for services performed.
Construction Document and Information Management (CDIM) consists of professional services and software services to (i) re-produce and distribute large-format and small-format documents in either black & white or color (“Ordered Prints”) and (ii) specialized graphic color printing. Substantially all the Company’s revenue from CDIM comes from professional services to re-produce Ordered Prints. Sales of Ordered Prints are initiated through a customer order or quote and are governed by established terms and conditions agreed upon at the onset of the customer relationship. Revenue is recognized when the performance obligation under the terms of a contract with a customer are satisfied; generally, this occurs with the transfer of control of the re-produced Ordered Prints. Transfer of control occurs at a specific point-in-time, when the Ordered Prints are delivered to the customer’s site or handed to the customer for walk in orders. Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring goods or providing services. Taxes collected concurrent with revenue-producing activities are excluded from revenue.
Managed Print Services (MPS), consists of placement, management, and optimization of print and imaging equipment in customers' offices, job sites, and other facilities. MPS relieves the Company’s customers of the burden of purchasing print equipment and related supplies and maintaining print devices and print networks, and shifts their costs to a “per-use” basis. MPS is supported by the Company's hosted proprietary technology, Abacus™, which allows customers to capture, control, manage, print, and account for their documents. MPS contracts include a fixed rate per unit for each print produced (per-use), often referred to as a “click charge.” MPS sales are driven by the ongoing print needs of the Company’s customers at their facilities. MPS sales are governed by the mutually agreed upon written agreement which outlines the Company’s terms and conditions. In providing MPS on a per-use basis, the Company is providing a series of services that have the same pattern of transfer and are measured as each customer produces a print or per-use. Accordingly, the performance obligations are satisfied over-time on an output method as each print is produced (per-use) by the customer. For each month of service, the prints produced during the period equate to the consideration that the Company expects to receive from the invoice generated for this period. Taxes collected concurrent with revenue-producing activities are excluded from revenue.
Archiving and Information Management (AIM), combines software and professional services to facilitate the capture, management, access and retrieval of documents and information that have been produced in the past. AIM includes the Company's hosted SKYSITE ® software to organize, search and retrieve documents, as well as the provision of services that include the capture and conversion of hardcopy and electronic documents into digital files (“Scanned Documents”), and their cloud-based storage and maintenance. Sales of AIM professional services, which represent substantially all revenue for AIM, are initiated through a customer order or proposal and are governed by established terms and conditions agreed upon at the onset of the customer relationship. Revenue is recognized when the performance obligation under the terms of a contract with a customer are satisfied; generally, this occurs with the transfer of control of the digital files. Transfer of control occurs at a specific point-in-time, when the Scanned Documents are delivered to the customer either through SKYSITE or through electronic media. Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring goods or providing services. Taxes collected concurrent with revenue-producing activities are excluded from revenue.

Equipment and Supplies sales consist of reselling printing, imaging, and related equipment (“Goods”) to customers primarily in architectural, engineering and construction firms. Sales of Equipment and Supplies are initiated through a customer order and are governed by established terms and conditions agreed upon at the onset of the customer relationship. Revenue is recognized when the performance obligations under the terms of a contract with a customer are satisfied; generally, this occurs with the transfer of control of the Goods. Transfer of control occurs at a specific point-in-time, when the Goods are delivered to the customer’s site. Revenue is measured as the amount of consideration we expect to receive in exchange for transferring goods or providing services. Taxes collected concurrent with revenue-producing activities are excluded from revenue. The Company has experienced minimal customer returns or refunds and does not offer a warranty on equipment that it is reselling.
The Company has established contractual pricing for certain large national customer accounts (“Global Solutions”). These contracts generally establish uniform pricing at all operating segments for Global Solutions. Revenues earned from the Company’s Global Solutions are recognized in the same manner as non-Global Solutions revenues.
Comprehensive Income (Loss)
Comprehensive Income (Loss)
The Company’s comprehensive income (loss) includes foreign currency translation adjustments, net of taxes.
Asset and liability accounts of international operations are translated into the Company’s functional currency, U.S. dollars, at current rates. Revenues and expenses are translated at the average currency rate for the fiscal year.
Segment and Geographic Reporting
Segment and Geographic Reporting
The provisions of ASC 280, Segment Reporting, require public companies to report financial and descriptive information about their reportable operating segments. The Company identifies operating segments based on the various business activities that earn revenue and incur expense and whose operating results are reviewed by the Company's Chief Executive Officer, who is the Company's chief operating decision maker. Because its operating segments have similar products and services, classes of customers, production processes, distribution methods and economic characteristics, the Company operates as a single reportable segment.

The Company recognizes revenues in geographic areas based on the location to which the product was shipped or services have been rendered. See table below for revenues and property and equipment, net, attributable to the Company’s U.S. operations and foreign operations. 
Advertising and Shipping and Handling Costs
Advertising and Shipping and Handling Costs
Advertising costs are expensed as incurred and approximated $2.1 million and $1.7 million during 2018 and 2017, respectively. Shipping and handling costs incurred by the Company are included in cost of sales.
Stock-Based Compensation
Stock-Based Compensation
The Company applies the Black-Scholes valuation model in determining the fair value of share-based payments to employees, which is then amortized on a straight-line basis over the requisite service period.
Research and Development Expenses
Research and Development Expenses
Research and development activities relate to costs associated with the design and testing of new technology or enhancements and maintenance to existing technology. Such costs are expensed as incurred are primarily recorded to cost of sales.
Noncontrolling Interest
Noncontrolling Interest
The Company accounted for its investment in UNIS Document Solutions Co. Ltd., (“UDS”) under the purchase method of accounting, in accordance with ASC 805, Business Combinations. UDS has been consolidated in the Company’s financial statements from the date of acquisition.
Sales Taxes
Sales Taxes
The Company bills sales taxes, as applicable, to its customers. The Company acts as an agent and bills, collects, and remits the sales tax to the proper government jurisdiction. The sales taxes are accounted for on a net basis, and therefore are not included as part of the Company’s revenue.
Earnings Per Share
Earnings Per Share
The Company accounts for earnings per share in accordance with ASC 260, Earnings Per Share. Basic earnings per share is computed by dividing net income attributable to ARC by the weighted-average number of common shares outstanding for the period. Diluted earnings per common share is computed similarly to basic earnings per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if common shares subject to outstanding options and acquisition rights had been issued and if the additional common shares were dilutive. Common share equivalents are excluded from the computation if their effect is anti-dilutive.
Recent Accounting Pronouncements Not Yet Adopted
Recent Accounting Pronouncements Not Yet Adopted

In February 2016, the FASB issued Accounting Standards Codification (“ASC”) 842 (“ASC 842”), Leases. The new guidance replaces the existing guidance in ASC 840, Leases. ASC 842 requires a dual approach for lessee accounting under which a lessee will account for leases as finance leases or operating leases, and is to be applied using a modified retrospective approach. Both finance leases and operating leases will result in the lessee recognizing a right-of-use (ROU) asset and a corresponding lease liability. For finance leases the lessee will recognize interest expense and amortization of the ROU asset and for operating leases the lessee will recognize a straight-line total lease expense. In addition, ASC 842 changes the definition of a lease, which may result in changes to the classification of certain service contracts with customers to lease arrangements. ASC 842 is effective for the Company January 1, 2019.

In July, 2018, the FASB issued ASU 2018-11, Leases (Topic 842): Targeted Improvements, which provides entities the option to use the effective date as the date of initial application on transition to the new guidance. The Company plans to elect this transition method, and as a result, the Company will not adjust comparative information for prior periods. In addition, the Company will elect certain additional practical expedients permitted by the new guidance allowing the Company to carry forward historical accounting related to lease identification and classification for existing leases upon adoption, and to keep leases with an initial term of 12 months or less off of the consolidated balance sheet.

While the Company is finalizing its assessment of the impacts that the adoption of ASC 842 will have on its consolidated financial statements, the Company has concluded that certain of its MPS contracts will be accounted for as operating leases upon adoption of ASC 842. As a result, the Company will be required to classify certain MPS revenue as lease revenue, and will include the additional disclosures required of lessors under ASC 842. The Company will elect the practical expedient to not separate certain lease and nonlease components. The Company expects the pattern of revenue recognition for its MPS revenue will remain substantially unchanged.

The most significant impact of the adoption of ASC 842 to the Company relates to its accounting for facility leases for its service centers and office space, which are currently classified as operating leases. The Company expects the accounting for capital leases related to its machinery and equipment will remain substantially unchanged under the new standard. The Company estimates that the approximate amount of additional ROU assets and liabilities that will be recognized in its consolidated balance sheet upon adoption will be between $50 million to $55 million. The Company does not believe adoption of this ASU will have a significant impact to its consolidated statements of operations, equity, or cash flows.
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Summary of Significant Accounting Policies (Tables)
12 Months Ended
Dec. 31, 2018
Accounting Policies [Abstract]  
Summary of Allowance for Doubtful Accounts
The allowance for doubtful accounts activity was as follows:
 
Balance at
Beginning
of Period
 
Charges to
Cost and
Expenses
 
Deductions (1)
 
Balance at
End of
Period
Year ended December 31, 2018
 
 
 
 
 
 
 
Allowance for accounts receivable
$
2,341

 
$
1,083

 
$
(1,408
)
 
$
2,016

Year ended December 31, 2017
 
 
 
 
 
 
 
Allowance for accounts receivable
$
2,060

 
$
1,249

 
$
(968
)
 
$
2,341

 (1) Deductions represent uncollectible accounts written-off net of recoveries.
Schedule of Useful Lives of Property and Equipment
Property and equipment are stated at cost and are depreciated using the straight-line method over their estimated useful lives, as follows:
 
Buildings
  
10-20 years
Leasehold improvements
  
10-20 years or lease term, if shorter
Machinery and equipment
  
3-7 years
Furniture and fixtures
  
3-7 years
Schedule of Net Sales of Principal Services and Products
Net sales of the Company’s principal services and products were as follows:
 
 
Year Ended December 31,
 
2018
 
2017
Service Sales
 
 
 
CDIM
$
211,389

 
$
205,083

MPS
128,775

 
129,479

AIM
13,136

 
12,764