##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 (Mark One)
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For The Quarterly Period Ended June 30, 2009
 Or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 Commission File Number: 001-32407
 AMERICAN REPROGRAPHICS COMPANY
  Delaware
(State or other jurisdiction of 
incorporation or organization)
    
    20-1700361
(I.R.S. Employer
Identification No.)
 1981 N. Broadway, Suite 385
Walnut Creek, California 94596
(925) 949-5100
(Address, including zip code, and telephone number, including area code, of
Registrants principal executive offices)
 þ o
 o o
  Large accelerated filer þ
    
    Accelerated filer o
    
    Non-accelerated filer o
(Do not check if smaller reporting company)
    
    Smaller reporting company o
 o þ




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##### 



AMERICAN REPROGRAPHICS COMPANY
Quarterly Report on Form 10-Q
For the Quarter Ended June 30, 2009
 Table of Contents
 PART I  Financial InformationItem 1. Condensed Consolidated Financial Statements (Unaudited)Condensed Consolidated Balance Sheets as of June 30, 2009 and December 31, 2008
    
    
    4Condensed Consolidated Statements of Income for the three and six months ended
June 30, 2009 and 2008
    
    
    5Condensed Consolidated Statement of Changes in Stockholders Equity for the
six months ended June 30, 2009
    
    
    6Condensed Consolidated Statements of Cash Flows for the six months ended June
30, 2009 and 2008
    
    
    7Notes to Condensed Consolidated Financial Statements
    
    
    8Item 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations
    
    
    19Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    31Item 4. Controls and Procedures
    
    
    31PART II  Other InformationItem 1. Legal Proceedings
    
    
    32Item 1A. Risk Factors
    
    
    32Item 4. Submission of Matters to a Vote of Security Holders
    
    
    32Item 6. Exhibits
    
    
    34SIGNATURES
    
    
    35Index to Exhibits
    
    
    36Exhibit 10.1Exhibit 10.2Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2
   2




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FORWARD-LOOKING STATEMENTS
    3




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##### Table of Contents



PART I  FINANCIAL INFORMATION
 
 Item 1. Condensed Consolidated Financial Statements (Unaudited)
 AMERICAN REPROGRAPHICS COMPANY
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 (Dollars in thousands, except per share data)
 (Unaudited)
 June 30,
    
    
    December 31,2009
    
    
    2008AssetsCurrent assets:Cash and cash equivalents
    
    $
    56,886
    
    
    $
    46,542Accounts receivable, net of allowances for accounts receivable of $5,178 and
$5,424 at June 30, 2009 and December 31, 2008, respectively
    
    
    69,181
    
    
    
    77,216Inventories, net
    
    
    10,241
    
    
    
    11,097Deferred income taxes
    
    
    5,829
    
    
    
    5,831Prepaid expenses and other current assets
    
    
    7,629
    
    
    
    11,976Total current assets
    
    
    149,766
    
    
    
    152,662Property and equipment, net
    
    
    83,071
    
    
    
    89,712Goodwill
    
    
    367,786
    
    
    
    366,513Other intangible assets, net
    
    
    80,305
    
    
    
    85,967Deferred financing costs, net
    
    
    2,926
    
    
    
    3,537Deferred income taxes
    
    
    21,878
    
    
    
    25,404Other assets
    
    
    2,216
    
    
    
    2,136Total assets
    
    $
    707,948
    
    
    $
    725,931Liabilities and Stockholders EquityCurrent liabilities:Accounts payable
    
    $
    22,730
    
    
    $
    25,171Accrued payroll and payroll-related expenses
    
    
    14,424
    
    
    
    13,587Accrued expenses
    
    
    24,168
    
    
    
    24,913Current portion of long-term debt and capital leases
    
    
    71,580
    
    
    
    59,193Total current liabilities
    
    
    132,902
    
    
    
    122,864Long-term debt and capital leases
    
    
    257,963
    
    
    
    301,847Other long-term liabilities
    
    
    10,496
    
    
    
    13,318Total liabilities
    
    
    401,361
    
    
    
    438,029Commitments and contingencies (Note 10)Stockholders equity:American Reprographics Company stockholders equity:Preferred stock, $0.001 par value, 25,000,000 shares authorized;
zero and zero shares issued and outstanding
    
    
    
    
    
    
    Common stock, $0.001 par value, 150,000,000 shares authorized;
45,747,854 and 45,674,810 shares issued and 45,300,200 and
45,227,156 shares outstanding in 2009 and 2008, respectively
    
    
    46
    
    
    
    46Additional paid-in capital
    
    
    87,331
    
    
    
    85,207Deferred stock-based compensation
    
    
    (19
    )
    
    
    (195
    )Retained earnings
    
    
    229,700
    
    
    
    215,846Accumulated other comprehensive loss
    
    
    (8,872
    )
    
    
    (11,414
    )308,186
    
    
    
    289,490Less cost of common stock in treasury, 447,654 shares in 2009 and 2008
    
    
    7,709
    
    
    
    7,709Total American Reprographics Company stockholders equity
    
    
    300,477
    
    
    
    281,781Noncontrolling interest
    
    
    6,110
    
    
    
    6,121Total stockholders equity
    
    
    306,587
    
    
    
    287,902Total liabilities and stockholders equity
    
    $
    707,948
    
    
    $
    725,931
   4




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AMERICAN REPROGRAPHICS COMPANY
 
 CONDENSED CONSOLIDATED STATEMENTS OF INCOME
 (Dollars in thousands, except per share data)
 (Unaudited)
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Reprographics services
    
    $
    92,905
    
    
    $
    139,211
    
    
    $
    192,674
    
    
    $
    281,707Facilities management
    
    
    24,898
    
    
    
    31,209
    
    
    
    51,763
    
    
    
    60,760Equipment and supplies sales
    
    
    13,251
    
    
    
    14,521
    
    
    
    26,100
    
    
    
    29,917Total net sales
    
    
    131,054
    
    
    
    184,941
    
    
    
    270,537
    
    
    
    372,384Cost of sales
    
    
    81,899
    
    
    
    105,853
    
    
    
    169,403
    
    
    
    213,693Gross profit
    
    
    49,155
    
    
    
    79,088
    
    
    
    101,134
    
    
    
    158,691Selling, general and administrative expenses
    
    
    30,039
    
    
    
    39,499
    
    
    
    61,005
    
    
    
    79,020Amortization of intangible assets
    
    
    2,914
    
    
    
    2,813
    
    
    
    5,897
    
    
    
    6,001Income from operations
    
    
    16,202
    
    
    
    36,776
    
    
    
    34,232
    
    
    
    73,670Other income
    
    
    (38
    )
    
    
    (43
    )
    
    
    (97
    )
    
    
    (245
    )Interest expense, net
    
    
    5,836
    
    
    
    6,559
    
    
    
    11,632
    
    
    
    13,705Income before income tax provision
    
    
    10,404
    
    
    
    30,260
    
    
    
    22,697
    
    
    
    60,210Income tax provision
    
    
    4,096
    
    
    
    11,384
    
    
    
    8,854
    
    
    
    22,836Net income
    
    
    6,308
    
    
    
    18,876
    
    
    
    13,843
    
    
    
    37,374(Income) loss attributable to the noncontrolling interest
    
    
    (1
    )
    
    
    
    
    
    
    11
    
    
    
    Net income attributable to American Reprographics Company
    
    $
    6,307
    
    
    $
    18,876
    
    
    $
    13,854
    
    
    $
    37,374Earnings per share attributable to American Reprographics
Company shareholders:Basic
    
    $
    0.14
    
    
    $
    0.42
    
    
    $
    0.31
    
    
    $
    0.83Diluted
    
    $
    0.14
    
    
    $
    0.42
    
    
    $
    0.31
    
    
    $
    0.82Weighted average common shares outstanding:Basic
    
    
    45,116,358
    
    
    
    45,051,449
    
    
    
    45,103,150
    
    
    
    45,048,244Diluted
    
    
    45,243,171
    
    
    
    45,441,766
    
    
    
    45,157,874
    
    
    
    45,407,309
   5




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AMERICAN REPROGRAPHICS COMPANY
 
 CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS EQUITY
 (Dollars in thousands, except per share)
 (Unaudited)
 American Reprographics Company
ShareholdersAccumulatedAdditional
    
    
    
    
    
    
    
    
    
    
    OtherCommon Stock
    
    
    Paid-In
    
    
    Deferred
    
    
    Retained
    
    
    Comprehensive
    
    
    Common   Stock in
    
    
    NoncontrollingShares
    
    
    Par Value
    
    
    Capital
    
    
    Compensation
    
    
    Earnings
    
    
    Loss
    
    
    Treasury
    
    
    Interest
    
    
    TotalBalance at December 31, 2008
    
    
    45,227,156
    
    
    $
    46
    
    
    $
    85,207
    
    
    $
    (195
    )
    
    $
    215,846
    
    
    $
    (11,414
    )
    
    $
    (7,709
    )
    
    $
    6,121
    
    
    $
    287,902Stock-based compensation
    
    
    46,512
    
    
    
    
    
    
    
    1,972
    
    
    
    176
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,148Issuance of common stock under Employee Stock Purchase Plan
    
    
    23,432
    
    
    
    
    
    
    
    130
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    130Stock Options exercised
    
    
    3,100
    
    
    
    
    
    
    
    17
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    17Tax benefit from exercise of stock
options
    
    
    
    
    
    
    
    
    
    
    5
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5Comprehensive Income:Net income (loss)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,854
    
    
    
    
    
    
    
    
    
    
    
    (11
    )
    
    
    13,843Foreign currency translation
adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    355
    
    
    
    
    
    
    
    
    
    
    
    355Fair value adjustment of
derivative, net of tax effects
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,187
    
    
    
    
    
    
    
    
    
    
    
    2,187Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    16,385Balance at June 30, 2009
    
    
    45,300,200
    
    
    $
    46
    
    
    $
    87,331
    
    
    $
    (19
    )
    
    $
    229,700
    
    
    $
    (8,872
    )
    
    $
    (7,709
    )
    
    $
    6,110
    
    
    $
    306,587
   6




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AMERICAN REPROGRAPHICS COMPANY
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Dollars in thousands)
 (Unaudited)
 Six Months EndedJune 30,2009
    
    
    2008Cash flows from operating activitiesNet income
    
    $
    13,843
    
    
    $
    37,374Adjustments to reconcile net income to net cash provided by operating activities:Allowance for accounts receivable
    
    
    2,543
    
    
    
    1,909Depreciation
    
    
    19,569
    
    
    
    18,332Amortization of intangible assets
    
    
    5,897
    
    
    
    6,001Amortization of deferred financing costs
    
    
    655
    
    
    
    600Stock-based compensation
    
    
    2,161
    
    
    
    2,029Excess tax benefit related to stock options exercised
    
    
    (5
    )
    
    
    (54
    )Deferred income taxes
    
    
    1,671
    
    
    
    2,239Write-off of deferred financing costs
    
    
    
    
    
    
    313Other non-cash items, net
    
    
    (91
    )
    
    
    (439
    )Changes in operating assets and liabilities, net of effect of
business acquisitions:Accounts receivable
    
    
    5,734
    
    
    
    (5,088
    )Inventory
    
    
    918
    
    
    
    726Prepaid expenses and other assets
    
    
    5,154
    
    
    
    (987
    )Accounts payable and accrued expenses
    
    
    (2,251
    )
    
    
    (1,470
    )Net cash provided by operating activities
    
    
    55,798
    
    
    
    61,485Cash flows from investing activitiesCapital expenditures
    
    
    (3,924
    )
    
    
    (4,332
    )Payments for businesses acquired, net of cash acquired
and including other cash payments associated with
the acquisitions
    
    
    (921
    )
    
    
    (5,478
    )Restricted cash
    
    
    
    
    
    
    (12,612
    )Other
    
    
    442
    
    
    
    785Net cash used in investing activities
    
    
    (4,403
    )
    
    
    (21,637
    )Cash flows from financing activitiesProceeds from stock option exercises
    
    
    17
    
    
    
    70Proceeds from issuance of common stock under Employee Stock Purchase Plan
    
    
    46
    
    
    
    25Excess tax benefit related to stock options exercised
    
    
    5
    
    
    
    54Payments on long-term debt agreements and capital leases
    
    
    (41,206
    )
    
    
    (25,254
    )Net (repayments) borrowings under revolving credit facility
    
    
    
    
    
    
    (22,000
    )Payment of loan fees
    
    
    (44
    )
    
    
    (726
    )Net cash used in financing activities
    
    
    (41,182
    )
    
    
    (47,831
    )Effect of foreign currency translation on cash balances
    
    
    131
    
    
    
    (37
    )Net change in cash and cash equivalents
    
    
    10,344
    
    
    
    (8,020
    )Cash and cash equivalents at beginning of period
    
    
    46,542
    
    
    
    24,802Cash and cash equivalents at end of period
    
    $
    56,886
    
    
    $
    16,782Supplemental disclosure of cash flow informationNoncash investing and financing activitiesNoncash transactions include the following:Capital lease obligations incurred
    
    $
    9,723
    
    
    $
    18,353Issuance of subordinated notes in connection with the
acquisition of businesses
    
    $
    246
    
    
    $
    1,817Accrued liabilities in connection with acquisition of businesses
    
    $
    500
    
    
    $
    Change in fair value of derivative, net of tax effect
    
    $
    2,187
    
    
    $
    (3
    )
   7




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AMERICAN REPROGRAPHICS COMPANY
 
 Notes to Condensed Consolidated Financial Statements
 (Dollars in thousands, except per share data)
 (Unaudited)
 1. Description of Business and Basis of Presentation
  Basis of Presentation
   Business Combinations, Effective Date of FASB Statement No. 157 Noncontrolling Interests in Consolidated Financial Statements  an Amendment of ARB No. 51 Disclosures about Derivative Instruments and Hedging Activities 
an amendment of FASB Statement No. 133 Subsequent Events
 Risk and Uncertainties
  2. Stock-Based Compensation
   8




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AMERICAN REPROGRAPHICS COMPANY
Notes to Condensed Consolidated Financial Statements (Continued)
(Dollars in thousands, except per share data)
(Unaudited)
 Stock Option Exchange Program.
 Shared-Based Payment
      3. Employee Stock Purchase Plan
    9




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AMERICAN REPROGRAPHICS COMPANY
Notes to Condensed Consolidated Financial Statements (Continued)
(Dollars in thousands, except per share data)
(Unaudited)
 4. Acquisitions
  5. Goodwill and Other Intangibles Resulting from Business Acquisitions
 Business Combinations,
 Goodwill
and Other Intangible Assets,
  GoodwillBalance at December 31, 2008
    
    $
    366,513Additions
    
    
    1,158Translation adjustment
    
    
    115Balance at June 30, 2009
    
    $
    367,786
    10




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AMERICAN REPROGRAPHICS COMPANY
Notes to Condensed Consolidated Financial Statements (Continued)
(Dollars in thousands, except per share data)
(Unaudited)
  June 30, 2009
    
    
    December 31, 2008Gross
    
    
    
    
    
    
    Net
    
    
    Gross
    
    
    
    
    
    
    NetCarrying
    
    
    Accumulated
    
    
    Carrying
    
    
    Carrying
    
    
    Accumulated
    
    
    CarryingAmount
    
    
    Amortization
    
    
    Amount
    
    
    Amount
    
    
    Amortization
    
    
    AmountAmortizable other
intangible assets:Customer relationships
    
    $
    96,842
    
    
    $
    34,450
    
    
    $
    62,392
    
    
    $
    96,574
    
    
    $
    29,233
    
    
    $
    67,341Trade names and
trademarks
    
    
    20,359
    
    
    
    2,625
    
    
    
    17,734
    
    
    
    20,359
    
    
    
    2,126
    
    
    
    18,233Non-Compete Agreements
    
    
    1,278
    
    
    
    1,099
    
    
    
    179
    
    
    
    1,278
    
    
    
    885
    
    
    
    393$
    118,479
    
    
    $
    38,174
    
    
    $
    80,305
    
    
    $
    118,211
    
    
    $
    32,244
    
    
    $
    85,967
  2009
    
    $
    5,4902010
    
    
    10,1642011
    
    
    9,2072012
    
    
    8,3002013
    
    
    7,394Thereafter
    
    
    39,750$
    80,305
 6. Long-Term Debt
  June 30,
    
    
    December 31,2009
    
    
    2008Borrowings from senior secured First Priority  Term Loan Credit
Facility;
interest payable quarterly (5.6% and 5.4% interest rate, inclusive of
interest rate swap, at June 30, 2009 and December 31, 2008,
respectively); principal payable in varying quarterly installments; any
unpaid principal and interest due December 6, 2012
    
    $
    250,938
    
    
    $
    261,250Various subordinated notes payable; weighted average 6.2%
interest rate at June 30, 2009 and December 31, 2008;
principal and interest payable monthly through June 2012
    
    
    28,756
    
    
    
    35,376Various capital leases; weighted average 9.1% interest rate
at June 30, 2009, and December 31, 2008;
principal and interest payable monthly through February 2015
    
    
    49,849
    
    
    
    64,414329,543
    
    
    
    361,040Less current portion
    
    
    (71,580
    )
    
    
    (59,193
    )$
    257,963
    
    
    $
    301,847
   11




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AMERICAN REPROGRAPHICS COMPANY
Notes to Condensed Consolidated Financial Statements (Continued)
(Dollars in thousands, except per share data)
(Unaudited)
       12




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AMERICAN REPROGRAPHICS COMPANY
Notes to Condensed Consolidated Financial Statements (Continued)
(Dollars in thousands, except per share data)
(Unaudited)
    7. Derivatives and Hedging Transactions
  Accounting for Derivative Instruments and
Hedging Activities,
   Fair ValueBalance Sheet
    
    
    June 30,
    
    
    December 31,Classification
    
    
    2009
    
    
    2008Derivative designated as hedging instrument
under SFAS 133Interest rate swap  current portion
    
    Accrued expenses
    
    $
    5,348
    
    
    $
    5,953Interest rate swap  long term portion
    
    Other long-term liabilities
    
    
    7,392
    
    
    
    10,531Total derivatives designated as hedging
    
    
    
    
    
    $
    12,740
    
    
    $
    16,484
  13




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AMERICAN REPROGRAPHICS COMPANY
Notes to Condensed Consolidated Financial Statements (Continued)
(Dollars in thousands, except per share data)
(Unaudited)
  Amount of Gain or (Loss) Recognizedin AOCL on DerivativeThree Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Derivative in SFAS 133 Cash Flow Hedging
RelationshipInterest rate swap
    
    $
    3,066
    
    
    $
    8,696
    
    
    $
    3,744
    
    
    $
    3Tax effect
    
    
    (1,314
    )
    
    
    (3,278
    )
    
    
    (1,557
    )
    
    
    (6
    )Interest rate swap, net of taxes
    
    $
    1,752
    
    
    $
    5,418
    
    
    $
    2,187
    
    
    $
    (3
    )
  Amount of Loss Reclassified fromAOCL into IncomeThree Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Location of Gain or (Loss)
Reclassified from
AOCL into IncomeInterest expense
    
    $
    (1,869
    )
    
    $
    (952
    )
    
    $
    (3,592
    )
    
    $
    (952
    )
 8. Fair Value Measurements
 Fair Value Measurements,
     14




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AMERICAN REPROGRAPHICS COMPANY
Notes to Condensed Consolidated Financial Statements (Continued)
(Dollars in thousands, except per share data)
(Unaudited)
  Level 2June 30,
    
    
    December 31,2009
    
    
    2008Recurring Fair Value MeasureInterest rate swap
    
    $
    12,740
    
    
    $
    16,484
  Fair Values of Financial Instruments.
 Cash and cash equivalents:
 Short- and long-term debt:
 Interest
rate hedge agreements:
 9. Income Taxes
   10. Commitments and Contingencies
 Operating Leases.
 Contingent Transaction Consideration.
  15




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AMERICAN REPROGRAPHICS COMPANY
Notes to Condensed Consolidated Financial Statements (Continued)
(Dollars in thousands, except per share data)
(Unaudited)
 FIN 48 Liability.
 Legal Proceedings.
 11. Comprehensive Income
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Net income
    
    $
    6,308
    
    
    $
    18,876
    
    
    $
    13,843
    
    
    $
    37,374Foreign currency translation adjustments
    
    
    494
    
    
    
    49
    
    
    
    355
    
    
    
    (191
    )Increase (decrease) in fair value of
financial derivative
instrument, net of tax effects
    
    
    1,752
    
    
    
    5,418
    
    
    
    2,187
    
    
    
    (3
    )Comprehensive income
    
    
    8,554
    
    
    
    24,343
    
    
    
    16,385
    
    
    
    37,180Comprehensive income (loss) attributable to the
noncontrolling interest
    
    
    1
    
    
    
    
    
    
    
    (11
    )Comprehensive income attributable to ARC
    
    $
    8,553
    
    
    $
    24,343
    
    
    $
    16,396
    
    
    $
    37,180
  12. Earnings per Share
 Earnings per Share,
  16




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##### Table of Contents



AMERICAN REPROGRAPHICS COMPANY
Notes to Condensed Consolidated Financial Statements (Continued)
(Dollars in thousands, except per share data)
(Unaudited)
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Weighted average common shares
outstanding during the period
 basic
    
    
    45,116,358
    
    
    
    45,051,449
    
    
    
    45,103,150
    
    
    
    45,048,244Effect of dilutive stock options
    
    
    126,813
    
    
    
    390,317
    
    
    
    54,724
    
    
    
    359,065Weighted average common shares
outstanding during the period
 diluted
    
    
    45,243,171
    
    
    
    45,441,766
    
    
    
    45,157,874
    
    
    
    45,407,309
 13.
    
    Recent Accounting Pronouncements The FASB Accounting Standards Codification and the
Hierarchy of Generally Accepted Accounting Principles, The Hierarchy of Generally Accepted Accounting Principles
   Determining Fair Value When the Volume and
Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying
Transactions That Are Not Orderly
   17




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##### Table of Contents



AMERICAN REPROGRAPHICS COMPANY
Notes to Condensed Consolidated Financial Statements (Concluded)
(Dollars in thousands, except per share data)
(Unaudited)
 Accounting for Assets Acquired and
Liabilities Assumed in a Business Combination That Arise from Contingencies, .
 Interim Disclosures about Fair Value of Financial Instruments Disclosures about Fair Value of Financial Instruments Interim Financial
Reporting,
 Determining
Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities, .
 Determination of the Useful Life of Intangible
Asset,
    18




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##### Table of Contents



Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
 The following discussion should be read in conjunction with our interim Condensed Consolidated
Financial Statements and the related notes and other financial information appearing elsewhere
in this report as well as Managements Discussion and Analysis of Financial Condition and
Results of Operations included in our 2008 Annual Report on Form 10-K and our 2009 first quarter
report on Form 10-Q dated May 8, 2009.
 Executive Summary
    
    
    Document management;
    
    Document distribution and logistics;
    
    Print-on-demand; and
    
    On-site services, frequently referred to as facilities management
(FMs), which is any combination of the above services supplied at
a customers location.
      Evaluating our Performance.
  19




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##### Table of Contents




    
    Creating consistent, profitable growth, or in the absence of growth
due to market conditions beyond our control, stable margins
superior to commonly understood industry benchmarks;
    
    Maintaining our industry leadership as measured by our geographical
footprint, market share and revenue generation;
    
    Continuing to develop and invest in our products, services, and
technology to meet the changing needs of our customers;
    
    Maintaining a low cost structure; and
    
    Maintaining a flexible capital structure that provides for both
responsible debt service and pursuit of acquisitions and other
high-return investments.
 Primary Financial Measures.
   Other Common Financial Measures.
 
    
    Net income and earnings per share;
    
    Material costs as a percentage of net sales; and
    
    Days Sales Outstanding/Days Sales Inventory/Days Payable Outstanding.
    Acquisitions.
    20




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##### Table of Contents



1.
    
    Standalone Acquisitions. Post-acquisition, these businesses
maintain their existing local brand and act as strategic platforms
for the Company to acquire market share in and around the specific
geographical location.2.
    
    Branch/Fold-in Acquisitions. These acquisitions are equivalent to
opening a new or greenfield branch. They support an outlying
portion of a larger market and rely on a larger centralized
production facility nearby for strategic management, load
balancing, providing specialized services, and for administrative
and other back office support. We maintain the staff and
equipment of these businesses to a minimum to serve a small market
or a single large customer, or we may physically integrate
(fold-in) staff and equipment into a larger nearby production
facility.
  Economic Factors Affecting Financial Performance.
 Non-GAAP Financial Measures.
     21




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##### Table of Contents




    
    They do not reflect our cash expenditures, or future requirements for capital
expenditures and contractual commitments;
    
    They do not reflect changes in, or cash requirements for, our working capital needs;
    
    They do not reflect the significant interest expense, or the cash requirements
necessary, to service interest or principal payments on our debt;
    
    Although depreciation and amortization are non-cash charges, the assets being
depreciated and amortized will often have to be replaced in the future, and EBITDA
does not reflect any cash requirements for such replacements; and
    
    Other companies, including companies in our industry, may calculate these measures
differently than we do, limiting their usefulness as comparative measures.
   Three Months Ended June 30,
    
    
    Six Months Ended June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008(Dollars in thousands)Cash flows provided by operating activities
    
    $
    33,522
    
    
    $
    41,137
    
    
    $
    55,798
    
    
    $
    61,485Changes in operating assets and
liabilities
    
    
    (11,477
    )
    
    
    (6,096
    )
    
    
    (9,555
    )
    
    
    6,819Non-cash (expenses) income, including
depreciation and amortization
    
    
    (15,737
    )
    
    
    (16,165
    )
    
    
    (32,400
    )
    
    
    (30,930
    )Income tax provision
    
    
    4,096
    
    
    
    11,384
    
    
    
    8,854
    
    
    
    22,836Interest expense, net
    
    
    5,836
    
    
    
    6,559
    
    
    
    11,632
    
    
    
    13,705Net (income) loss attributable to the
noncontrolling interest
    
    
    (1
    )
    
    
    
    
    
    
    11
    
    
    
    EBIT
    
    
    16,239
    
    
    
    36,819
    
    
    
    34,340
    
    
    
    73,915Depreciation and amortization
    
    
    12,751
    
    
    
    12,216
    
    
    
    25,466
    
    
    
    24,333EBITDA
    
    
    28,990
    
    
    
    49,035
    
    
    
    59,806
    
    
    
    98,248Interest expense, net
    
    
    (5,836
    )
    
    
    (6,559
    )
    
    
    (11,632
    )
    
    
    (13,705
    )Income tax provision
    
    
    (4,096
    )
    
    
    (11,384
    )
    
    
    (8,854
    )
    
    
    (22,836
    )Depreciation and amortization
    
    
    (12,751
    )
    
    
    (12,216
    )
    
    
    (25,466
    )
    
    
    (24,333
    )Net income attributable to ARC
    
    $
    6,307
    
    
    $
    18,876
    
    
    $
    13,854
    
    
    $
    37,374
  22




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##### Table of Contents



Three Months Ended June 30,
    
    
    Six Months Ended June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008(Dollars in thousands)Net income attributable to ARC
    
    $
    6,307
    
    
    $
    18,876
    
    
    $
    13,854
    
    
    $
    37,374Interest expense, net
    
    
    5,836
    
    
    
    6,559
    
    
    
    11,632
    
    
    
    13,705Income tax provision
    
    
    4,096
    
    
    
    11,384
    
    
    
    8,854
    
    
    
    22,836EBIT
    
    $
    16,239
    
    
    $
    36,819
    
    
    $
    34,340
    
    
    $
    73,915Depreciation and
amortization
    
    
    12,751
    
    
    
    12,216
    
    
    
    25,466
    
    
    
    24,333EBITDA
    
    $
    28,990
    
    
    $
    49,035
    
    
    $
    59,806
    
    
    $
    98,248
  Three Months Ended June 30,
    
    
    Six Months Ended June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008 (1)Net income margin
    
    
    4.8
    %
    
    
    10.2
    %
    
    
    5.1
    %
    
    
    10.0
    %Interest expense, net
    
    
    4.5
    
    
    
    3.5
    
    
    
    4.3
    
    
    
    3.7Income tax provision
    
    
    3.1
    
    
    
    6.2
    
    
    
    3.3
    
    
    
    6.1EBIT margin
    
    
    12.4
    
    
    
    19.9
    
    
    
    12.7
    
    
    
    19.8Depreciation and amortization
    
    
    9.7
    
    
    
    6.6
    
    
    
    9.4
    
    
    
    6.5EBITDA margin
    
    
    22.1
    %
    
    
    26.5
    %
    
    
    22.1
    %
    
    
    26.4
    %
 (1)
    
    column does not foot due to rounding Results of Operations for the Three and Six Months Ended June 30, 2009 and 2008
  As Percentage of Net Sales
    
    
    As Percentage of Net SalesThree Months Ended June 30,
    
    
    Six Months Ended June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008 (1)Net Sales
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Cost of sales
    
    
    62.5
    
    
    
    57.2
    
    
    
    62.6
    
    
    
    57.4Gross profit
    
    
    37.5
    
    
    
    42.8
    
    
    
    37.4
    
    
    
    42.6Selling, general and
administrative expenses
    
    
    22.9
    
    
    
    21.4
    
    
    
    22.5
    
    
    
    21.2Amortization of intangibles
    
    
    2.2
    
    
    
    1.5
    
    
    
    2.2
    
    
    
    1.6Income from operations
    
    
    12.4
    
    
    
    19.9
    
    
    
    12.7
    
    
    
    19.8Other income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.1
    )Interest expense, net
    
    
    4.5
    
    
    
    3.5
    
    
    
    4.3
    
    
    
    3.7Income before income tax provision
    
    
    7.9
    
    
    
    16.4
    
    
    
    8.4
    
    
    
    16.2Income tax provision
    
    
    3.1
    
    
    
    6.2
    
    
    
    3.3
    
    
    
    6.1Net income
    
    
    4.8
    
    
    
    10.2
    
    
    
    5.1
    
    
    
    10.0Net (income) loss attributable to the
controlling interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net income attributable to ARC
    
    
    4.8
    %
    
    
    10.2
    %
    
    
    5.1
    %
    
    
    10.0
    %
 (1)
    
    column does not foot due to rounding  23




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##### Table of Contents



Three and Six Months Ended June 30, 2009 Compared to Three and Six Months Ended June 30, 2008
 Three Months Ended
    
    
    
    
    
    
    
    
    
    
    Six Months EndedJune 30,
    
    
    Increase (decrease)
    
    
    June 30,
    
    
    Increase (decrease)2009
    
    
    2008
    
    
    (In dollars)
    
    
    (Percent)
    
    
    2009
    
    
    2008
    
    
    (In dollars)
    
    
    (Percent)(In millions)
    
    
    (In millions)Reprographics services
    
    $
    92.9
    
    
    $
    139.2
    
    
    $
    (46.3
    )
    
    
    -33.3
    %
    
    $
    192.7
    
    
    $
    281.7
    
    
    $
    (89.0
    )
    
    
    -31.6
    %Facilities management
    
    
    24.9
    
    
    
    31.2
    
    
    
    (6.3
    )
    
    
    -20.2
    
    
    
    51.8
    
    
    
    60.8
    
    
    
    (9.0
    )
    
    
    -14.8
    %Equipment and supplies
sales
    
    
    13.3
    
    
    
    14.5
    
    
    
    (1.2
    )
    
    
    -8.3
    
    
    
    26.1
    
    
    
    29.9
    
    
    
    (3.8
    )
    
    
    -12.7
    %Total net sales
    
    $
    131.1
    
    
    $
    184.9
    
    
    $
    (53.8
    )
    
    
    -29.1
    %
    
    
    270.6
    
    
    
    372.4
    
    
    
    (101.8
    )
    
    
    -27.3
    %Gross profit
    
    $
    49.2
    
    
    $
    79.1
    
    
    $
    (29.9
    )
    
    
    -37.8
    %
    
    
    101.1
    
    
    
    158.7
    
    
    
    (57.6
    )
    
    
    -36.3
    %Selling, general and
administrative expenses
    
    
    30.0
    
    
    
    39.5
    
    
    
    (9.5
    )
    
    
    -24.1
    
    
    
    61.0
    
    
    
    79.0
    
    
    
    (18.0
    )
    
    
    -22.8
    %Amortization of intangibles
    
    
    2.9
    
    
    
    2.8
    
    
    
    0.1
    
    
    
    3.6
    
    
    
    5.9
    
    
    
    6.0
    
    
    
    (0.1
    )
    
    
    -1.7
    %Interest expense, net
    
    
    5.8
    
    
    
    6.6
    
    
    
    (0.8
    )
    
    
    -12.1
    
    
    
    11.6
    
    
    
    13.7
    
    
    
    (2.1
    )
    
    
    -15.3
    %Income taxes
    
    
    4.1
    
    
    
    11.4
    
    
    
    (7.3
    )
    
    
    -64.0
    
    
    
    8.9
    
    
    
    22.8
    
    
    
    (13.9
    )
    
    
    -61.0
    %Net income attributable to
ARC
    
    
    6.3
    
    
    
    18.9
    
    
    
    (12.6
    )
    
    
    -66.7
    
    
    
    13.9
    
    
    
    37.4
    
    
    
    (23.5
    )
    
    
    -62.8
    %EBITDA
    
    
    29.0
    
    
    
    49.0
    
    
    
    (20.0
    )
    
    
    -40.8
    
    
    
    59.8
    
    
    
    98.2
    
    
    
    (38.4
    )
    
    
    -39.1
    %
 (1)
    
    column does not foot due to rounding Net Sales.
   Reprographics services.
   Facilities
management .
  24




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##### Table of Contents



Equipment and supplies sales.
 Gross Profit.
    Selling, General and Administrative Expenses.
      25




---



##### Table of Contents



Amortization of Intangibles.
  Other Income.
  Interest Expense, Net.
  Income Taxes.
  Noncontrolling Interest.
  Net Income Attributable to ARC.
  EBITDA.
  Impact of Inflation
   26




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##### Table of Contents



Liquidity and Capital Resources
  Six Months EndedJune 30,2009
    
    
    2008(Dollars in thousands)Net cash provided by operating activities
    
    $
    55,798
    
    
    $
    61,485Net cash used in investing activities
    
    $
    (4,403
    )
    
    $
    (21,637
    )Net cash used in financing activities
    
    $
    (41,182
    )
    
    $
    (47,831
    )
 Operating Activities
  Investing Activities
  Financing Activities
   June 30, 2009
    
    
    December 31, 2008(Dollars in thousands)Cash and cash equivalents
    
    $
    56,886
    
    
    $
    46,542Working capital
    
    
    16,864
    
    
    
    29,798Borrowings from senior secured credit
facilities
    
    $
    250,938
    
    
    $
    261,250Other debt obligations
    
    
    78,605
    
    
    
    99,790Total debt obligations
    
    $
    329,543
    
    
    $
    361,040
  27




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##### Table of Contents



28




---



##### Table of Contents



Debt Obligations
 Senior Secured Credit Facilities.
        29




---



##### Table of Contents



Capital Leases.
 Seller Notes.
 Off-Balance Sheet Arrangements
  Contractual Obligations and Other Commitments
 Operating Leases.
 Contingent Transaction Consideration.
 FIN 48 Liability.
 Legal Proceedings.
 Critical Accounting Policies
  Effective Date of FASB Statement No.
157 Noncontrolling Interests in Consolidated
Financial Statements  an Amendment of ARB No. 51 Disclosures about
Derivative Instruments and Hedging Activities  an amendment of FASB Statement No.133 Subsequent Events
 Recent Accounting Pronouncements
   30




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##### Table of Contents



Item 3.
Quantitative and Qualitative Disclosures About Market Risk
      
 Item 4. Controls and Procedures
 Disclosure Controls and Procedures
   Changes in Internal Control over Financial Reporting
   31




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##### Table of Contents



PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
  Downgrades in our credit rating may adversely affect our business, financial condition and
results of operations.
  
 Item 4. Submission of Matters to a Vote of Security Holders
  (a)
    
    Election of the following directors to serve until the next annual meeting of
stockholders or until their successors are elected and qualified (included as Proposal 1
in the proxy statement):
 Vote For
    
    
    Vote WithheldKumarakulasingam Suriyakumar
    
    
    42,842,393
    
    
    
    682,460Thomas J. Formolo
    
    
    41,315,959
    
    
    
    2,208,894Dewitt Kerry McCluggage
    
    
    41,524,474
    
    
    
    2,000,379James F. McNulty
    
    
    41,521,463
    
    
    
    2,003,390Mark W. Mealy
    
    
    41,509,548
    
    
    
    2,015,305Manuel Perez de la Mesa
    
    
    41,346,858
    
    
    
    2,177,995Eriberto R. Scocimara
    
    
    41,499,572
    
    
    
    2,025,281
  32




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##### Table of Contents



(b)
    
    Ratification of the appointment of Deloitte & Touche LLP as the Companys
independent auditors for the fiscal year ending December 31, 2009 (included as Proposal
2 in the proxy statement):
 For:
    
    
    43,172,782Against:
    
    
    309,087Abstain:
    
    
    42,984
    33




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##### Table of Contents



Item 6. Exhibits
 Exhibit Number
    
    Description10.1
    
    
    Amendment No. 3 to American Reprographics Company 2005 Stock Plan. *10.2
    
    
    Amendment No. 2 to American Reprographics Company 2005 Employee
Stock Purchase Plan. *31.1
    
    
    Certification of Principal Executive Officer pursuant to Rule
13a-14(a) and Rule 15d-14(a) under the Securities Exchange Act of
1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002. *31.2
    
    
    Certification of Principal Financial Officer pursuant to Rule
13a-14(a) and Rule 15d-14(a) under the Securities Exchange Act of
1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002. *32.1
    
    
    Certification of Chief Executive Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002. *32.2
    
    
    Certification of Chief Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002. *
 *
    
    Filed herewith
    
    Indicates management contract or compensatory plan or arrangement  34




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##### Table of Contents



SIGNATURES
   AMERICAN REPROGRAPHICS COMPANYBy:
    /s/ Kumarakulasingam SuriyakumarKumarakulasingam SuriyakumarChairman, President and Chief Executive OfficerBy:
    /s/ Jonathan R. MatherJonathan R. MatherChief Financial Officer and Secretary  35




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##### Table of Contents



EXHIBIT INDEX
 Exhibit Number
    
    Description10.1
    
    
    Amendment No. 3 to American Reprographics Company 2005 Stock Plan. *10.2
    
    
    Amendment No. 2 to American Reprographics Company 2005 Employee
Stock Purchase Plan. *31.1
    
    
    Certification of Principal Executive Officer pursuant to Rule
13a-14(a) and Rule15d-14(a) under the Securities Exchange Act of
1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002. *31.2
    
    
    Certification of Principal Financial Officer pursuant to Rule
13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934,
as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002. *32.1
    
    
    Certification of Chief Executive Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002. *32.2
    
    
    Certification of Chief Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002. *
 *
    
    Filed herewith
    
    Indicates management contract or compensatory plan or arrangement  36