##### 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 September 30, 2005
 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
    
    20-1700361(State or other jurisdiction of
incorporation or organization)
    
    (I.R.S. Employer
Identification No.)
 700 North Central Avenue, Suite 550
Glendale, California 91203
(818) 500-0225
 (Address, including zip code, and telephone number, including area code, of
Registrants principal executive offices)
 þ o
 o þ
 o o




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AMERICAN REPROGRAPHICS COMPANY
Quarterly Report on Form 10-Q
For the Quarter Ended September 30, 2005
 Table of Contents
 PART I Financial InformationItem 1. Financial StatementsConsolidated Balance Sheets as of December 31, 2004 and September 30, 2005 (unaudited)Consolidated Statements of Operations for the three and nine months ended September 30,
2004 and 2005 (unaudited)Condensed Consolidated Statement of Changes in Stockholders Equity for the
nine months ended September 30, 2005 (unaudited)Consolidated Statements of Cash Flows for the nine months ended
September 30, 2004 and 2005 (unaudited)Notes to Consolidated Financial Statements (unaudited)Item 2. Managements Discussion and Analysis of Financial Condition and Results of OperationsItem 3. Quantitative and Qualitative Disclosures About Market RiskItem 4. Controls and ProceduresPART IIItem 2. Unregistered Sales of Equity Securities and Use of ProceedsItem 6. ExhibitsSIGNATURESIndex to ExhibitsExhibit 10.1Exhibit 10.2Exhibit 10.3Exhibit 10.4Exhibit 31.1Exhibit 31.2Exhibit 32.1
  2




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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 AMERICAN REPROGRAPHICS COMPANY
 
 CONSOLIDATED BALANCE SHEETS
 December 31,
    
    
    September 30,2004
    
    
    2005(Unaudited)(Dollars in thousands)AssetsCurrent assets:Cash and cash equivalents
    
    $
    13,826
    
    
    $
    12,828Accounts receivable, net
    
    
    61,679
    
    
    
    72,761Inventories, net
    
    
    6,012
    
    
    
    7,017Deferred taxes
    
    
    1,364
    
    
    
    2,897Prepaid expenses and other current assets
    
    
    7,855
    
    
    
    5,085Total current assets
    
    
    90,736
    
    
    
    100,588Property and equipment, net
    
    
    35,023
    
    
    
    37,375Goodwill
    
    
    231,357
    
    
    
    241,703Other intangible assets, net
    
    
    12,095
    
    
    
    19,474Deferred financing costs, net
    
    
    6,619
    
    
    
    4,596Deferred taxes
    
    
    
    
    
    
    17,815Other assets
    
    
    1,504
    
    
    
    1,461Total assets
    
    $
    377,334
    
    
    $
    423,012Liabilities and Stockholders EquityCurrent liabilities:Accounts payable
    
    $
    21,170
    
    
    $
    22,266Accrued payroll and payroll-related expenses
    
    
    11,683
    
    
    
    11,544Accrued expenses
    
    
    24,834
    
    
    
    23,233Current portion of long-term debt and capital leases
    
    
    10,276
    
    
    
    12,426Total current liabilities
    
    
    67,963
    
    
    
    69,469Long-term debt and capital leases, net of debt discount
    
    
    310,557
    
    
    
    245,875Mandatorily redeemable preferred membership units
    
    
    27,814
    
    
    
    Deferred taxes
    
    
    5,634
    
    
    
    Other long-term liabilities
    
    
    375
    
    
    
    376Total liabilities
    
    
    412,343
    
    
    
    315,720Commitments and contingencies (Note 6)Stockholders equity (deficit):Members deficit
    
    
    (32,688
    )
    
    
    Preferred stock, $.001 par value, 25,000,000 shares
authorized; zero and zero shares issued and outstanding
    
    
    
    
    
    
    Common stock, $.001 par value, 150,000,000 shares
authorized; zero and 44,314,812 shares issued and
outstanding
    
    
    
    
    
    
    44Additional paid-in capital
    
    
    
    
    
    
    53,722Deferred stock-based compensation
    
    
    (2,527
    )
    
    
    (2,078
    )Retained earnings
    
    
    
    
    
    
    55,550Accumulated other comprehensive income
    
    
    206
    
    
    
    54Total stockholders equity (deficit)
    
    
    (35,009
    )
    
    
    107,292Total liabilities and stockholders equity (deficit)
    
    $
    377,334
    
    
    $
    423,012
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##### Table of Contents



AMERICAN REPROGRAPHICS COMPANY
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2004
    
    
    2005
    
    
    2004
    
    
    2005(Unaudited)(Dollars in thousands, except per share data)Reprographics services
    
    $
    82,476
    
    
    
    94,730
    
    
    $
    253,367
    
    
    $
    277,133Facilities management
    
    
    18,480
    
    
    
    21,577
    
    
    
    53,736
    
    
    
    61,825Equipment and supplies sales
    
    
    9,209
    
    
    
    11,180
    
    
    
    29,195
    
    
    
    30,555Total net sales
    
    
    110,165
    
    
    
    127,487
    
    
    
    336,298
    
    
    
    369,513Cost of sales
    
    
    65,878
    
    
    
    74,965
    
    
    
    196,668
    
    
    
    215,012Gross profit
    
    
    44,287
    
    
    
    52,522
    
    
    
    139,630
    
    
    
    154,501Selling, general and administrative expenses
    
    
    26,170
    
    
    
    28,315
    
    
    
    81,434
    
    
    
    83,336Amortization of intangible assets
    
    
    415
    
    
    
    603
    
    
    
    1,267
    
    
    
    1,418Income from operations
    
    
    17,702
    
    
    
    23,604
    
    
    
    56,929
    
    
    
    69,747Other income
    
    
    (7
    )
    
    
    (63
    )
    
    
    (574
    )
    
    
    (287
    )Interest expense, net
    
    
    8,559
    
    
    
    6,131
    
    
    
    25,089
    
    
    
    20,649Income before income tax provision (benefit)
    
    
    9,150
    
    
    
    17,536
    
    
    
    32,414
    
    
    
    49,385Income tax provision (benefit)
    
    
    1,959
    
    
    
    7,018
    
    
    
    6,940
    
    
    
    (8,079
    )Net income
    
    $
    7,191
    
    
    $
    10,518
    
    
    $
    25,474
    
    
    $
    57,464Earnings per share:Basic
    
    $
    0.20
    
    
    $
    0.24
    
    
    $
    0.72
    
    
    $
    1.37Diluted
    
    $
    0.19
    
    
    $
    0.23
    
    
    $
    0.68
    
    
    $
    1.33Weighted average common shares outstanding:Basic
    
    
    35,487,511
    
    
    
    44,170,226
    
    
    
    35,487,511
    
    
    
    42,080,404Diluted
    
    
    37,473,657
    
    
    
    45,014,364
    
    
    
    37,473,657
    
    
    
    43,058,179
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##### Table of Contents



AMERICAN REPROGRAPHICS COMPANY
 
 CONDENSED CONSOLIDATED STATEMENT OF
 CHANGES IN STOCKHOLDERS EQUITY
 AccumulatedCommon Stock
    
    
    Additional
    
    
    
    
    
    
    
    
    
    
    Other
    
    
    TotalMembers
    
    
    
    
    
    
    Par
    
    
    Paid-In
    
    
    Deferred
    
    
    Retained
    
    
    Comprehensive
    
    
    StockholdersDeficit
    
    
    Shares
    
    
    Value
    
    
    Capital
    
    
    Compensation
    
    
    Earnings
    
    
    Income
    
    
    Equity(Unaudited)(Dollars in thousands)Balance at December 31, 2004
    
    $
    (32,688
    )
    
    
    
    
    
    $
    
    
    
    $
    
    
    
    $
    (2,527
    )
    
    $
    
    
    
    $
    206
    
    
    $
    (35,009
    )Amortization of deferred stock-based
compensation for the period from
January 1 to February 9, 2005
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    61
    
    
    
    
    
    
    
    
    
    
    
    61Comprehensive income for the period
from January 1 to
February 9, 2005:Net income
    
    
    1,914
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,914Fair value adjustment of derivatives
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    195
    
    
    
    195Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,109Distributions to members
    
    
    (8,244
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8,244
    )Reorganization from LLC to C
Corporation
    
    
    39,018
    
    
    
    35,510,011
    
    
    
    35
    
    
    
    (39,053
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Issuance of common stock in initial
public offering, net of underwriting
discounts
    
    
    
    
    
    
    7,666,667
    
    
    
    8
    
    
    
    92,682
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    92,690Issuance of common stock in exchange
for warrants exercised upon initial
public offering
    
    
    
    
    
    
    754,476
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1Direct costs of initial public offering
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,899
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,899
    )Amortization of deferred stock-based
compensation for the period from
February 10 to September 30, 2005
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    388
    
    
    
    
    
    
    
    
    
    
    
    388Issuance of common stock under
Employee Stock Purchase Plan
    
    
    
    
    
    
    177,058
    
    
    
    
    
    
    
    1,956
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,956Stock options exercised
    
    
    
    
    
    
    206,600
    
    
    
    
    
    
    
    1,036
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,036Tax benefit from exercise of stock
options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,000Comprehensive income for the period
from February 10 to
September 30, 2005:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    55,550
    
    
    
    
    
    
    
    55,550Fair value adjustment of
derivatives, net of tax effects
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (347
    )
    
    
    (347
    )Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    55,203Balance at September 30, 2005
    
    $
    
    
    
    
    44,314,812
    
    
    $
    44
    
    
    $
    53,722
    
    
    $
    (2,078
    )
    
    $
    55,550
    
    
    $
    54
    
    
    $
    107,292
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AMERICAN REPROGRAPHICS COMPANY
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 Nine Months EndedSeptember 30,2004
    
    
    2005(Unaudited)(Dollars in thousands)Operating activitiesNet income
    
    $
    25,474
    
    
    $
    57,464Adjustments to reconcile net income to net cash provided
by operating activities:Accretion of yield on redeemable preferred member units
    
    
    1,494
    
    
    
    449Allowance for doubtful accounts
    
    
    1,110
    
    
    
    1,052Reserve for inventory obsolescence
    
    
    68
    
    
    
    76Depreciation
    
    
    12,739
    
    
    
    12,489Amortization of intangible assets
    
    
    1,267
    
    
    
    1,418Amortization of deferred financing costs
    
    
    1,855
    
    
    
    1,212Deferred income taxes
    
    
    689
    
    
    
    (24,982
    )Write-off of deferred financing costs
    
    
    
    
    
    
    1,683Amortization of deferred stock-based compensation
    
    
    332
    
    
    
    449Changes in operating assets and liabilities, net of effect of
business acquisitions:Accounts receivable, net
    
    
    (10,287
    )
    
    
    (7,150
    )Inventory
    
    
    29
    
    
    
    211Prepaid expenses and other assets
    
    
    (572
    )
    
    
    1,676Accounts payable and accrued expenses
    
    
    8,221
    
    
    
    (3,460
    )Net cash provided by operating activities
    
    
    42,419
    
    
    
    42,587Investing activitiesCapital expenditures
    
    
    (4,772
    )
    
    
    (3,376
    )Payments for businesses acquired, net of cash acquired and
including other cash payments associated with acquisitions
    
    
    (2,893
    )
    
    
    (16,299
    )Other
    
    
    54
    
    
    
    (35
    )Net cash used in investing activities
    
    
    (7,611
    )
    
    
    (19,710
    )Financing activitiesProceeds from initial public offering, net of underwriting discounts
    
    
    
    
    
    
    92,690Direct costs of initial public offering
    
    
    
    
    
    
    (1,487
    )Proceeds from stock option exercises
    
    
    
    
    
    
    1,036Proceeds from issuance of common stock under Employee Stock
Purchase Plan
    
    
    
    
    
    
    1,956Redemption of preferred member units
    
    
    
    
    
    
    (28,263
    )Proceeds from borrowings under debt agreements
    
    
    1,000
    
    
    
    13,000Payments on long-term debt under debt agreements
    
    
    (36,191
    )
    
    
    (94,204
    )Payment of loan fees
    
    
    (355
    )
    
    
    (359
    )Member distributions
    
    
    (4,569
    )
    
    
    (8,244
    )Net cash used in financing activities
    
    
    (40,115
    )
    
    
    (23,875
    )Net decrease in cash and cash equivalents
    
    
    (5,307
    )
    
    
    (998
    )Cash and cash equivalents at beginning of period
    
    
    17,315
    
    
    
    13,826Cash and cash equivalents at end of period
    
    $
    12,008
    
    
    $
    12,828Supplemental disclosure of cash flow information
Noncash investing and financing activitiesNoncash transactions include the following:Capital lease obligations incurred
    
    $
    6,274
    
    
    $
    9,191Issuance of subordinated notes in connection with the acquisition
of businesses
    
    $
    250
    
    
    $
    8,230Change in fair value of derivatives
    
    $
    479
    
    
    $
    (152
    )
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AMERICAN REPROGRAPHICS COMPANY
 
 Notes to Consolidated Financial Statements (Unaudited)
 1. Description of Business and Basis of Presentation
  Reorganization and Initial Public Offering
    Basis of Presentation
  7




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2. Accounting for Equity-Based Compensation
   Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2004
    
    
    2005
    
    
    2004
    
    
    2005(Unaudited)(Dollars in thousands, except per share data)Net income:As reported
    
    $
    `7,191
    
    
    $
    10,518
    
    
    $
    25,474
    
    
    $
    57,464Equity-based employee
compensation cost, net of
related tax effects,
included in as reported
net income
    
    
    89
    
    
    
    83
    
    
    
    179
    
    
    
    265Equity-based employee
compensation cost, net of
related tax effects,
that would have been
included in the
determination of net
income if the fair value
method had been applied
    
    
    (122
    )
    
    
    (106
    )
    
    
    (290
    )
    
    
    (350
    )Proforma
    
    $
    7,158
    
    
    $
    10,495
    
    
    $
    25,363
    
    
    $
    57,379Basic earnings per share:As reported
    
    $
    0.20
    
    
    $
    0.24
    
    
    $
    0.72
    
    
    $
    1.37Equity-based employee
compensation cost, net of
related tax effects,
included in as reported
net income
    
    
    
    
    
    
    
    
    
    
    0.01
    
    
    
    0.01Equity-based employee
compensation cost, net of
related tax effects, that
would have been included
in the determination of
net income if the fair
value method had been
applied
    
    
    
    
    
    
    
    
    
    
    (0.01
    )
    
    
    (0.01
    )Proforma
    
    $
    0.20
    
    
    $
    0.24
    
    
    $
    0.72
    
    
    $
    1.37Diluted earnings per share:As reported
    
    $
    0.19
    
    
    $
    0.23
    
    
    $
    0.68
    
    
    $
    1.33Equity-based employee
compensation cost, net of
related tax effects,
included in as reported
net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.01Equity-based employee
compensation cost, net of
related tax effects, that
would have been included
in the determination of
net income if the fair
value method had been
applied
    
    
    
    
    
    
    
    
    
    
    (0.01
    )
    
    
    (0.01
    )Proforma
    
    $
    0.19
    
    
    $
    0.23
    
    
    $
    0.67
    
    
    $
    1.33
  8




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##### Table of Contents



3. Employee Stock Purchase Plan
    9




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##### Table of Contents



4. Long-Term Debt
  December 31,
    
    
    September 30,2004
    
    
    2005(Unaudited)(Dollars in thousands)Borrowings from senior secured First Priority 
Revolving Credit Facility; any unpaid principal and
interest due December 18, 2008
    
    $
    
    
    
    $
    Borrowings from senior secured First Priority  Term
Loan Credit Facility; variable interest payable
quarterly (5.26% and 5.52% interest rate at
December 31, 2004 and September 30, 2005,
respectively); principal payable in varying
quarterly installments; any unpaid principal and
interest due June 18, 2009
    
    
    94,800
    
    
    
    73,106Borrowings from senior secured Second Priority 
Term Loan Credit Facility; variable interest payable
quarterly (8.92% and 10.64% interest rate at
December 31, 2004 and September 30, 2005,
respectively); any unpaid principal and interest due
December 18, 2009
    
    
    208,231
    
    
    
    157,500Various subordinated notes payable; interest ranging
from 5% to 11%; principal and interest payable
monthly through September 2010
    
    
    4,833
    
    
    
    10,170Various capital leases; interest rates ranging to
15.9%; principal and interest payable monthly
through September 2009
    
    
    14,688
    
    
    
    18,705322,552
    
    
    
    259,481Less debt discount on Second Priority Credit Facility
    
    
    (1,719
    )
    
    
    (1,180
    )320,833
    
    
    
    258,301Less current portion
    
    
    (10,276
    )
    
    
    (12,426
    )$
    310,557
    
    
    $
    245,875
   
    
    The Companys existing First Priority Revolving Credit Facility and First Priority Term
Loan Credit Facility was restructured into a new senior secured credit facility aggregating
up to $122.3 million, consisting of a $77.3 million Tranche C Term Loan Facility, a $30
million Revolving Credit Facility, and permits the Company, as needed for the purpose of
financing any future business acquisitions, to request the establishment of one or more new
term loan commitments by an amount not to exceed $15 million in the aggregate. The terms
and provisions of any such new term loans will be identical to the Tranche C Term Loan
Facility, including, without limitation, with respect to amortization, interest and
maturity.
    
    Borrowings under the new Tranche C Term Loan Facility will bear an interest rate
calculated at either (i) a Eurodollar rate plus 1.75% per annum, or (ii) an Index Rate, as
defined in the Amended Credit Agreement, plus 0.75% per annum. This represents a 125-basis
point reduction in the annual interest rate as compared to the annual interest rate on the
Companys borrowings under the existing First Priority Term Loan Credit Facility which,
prior to July 5, 2005, were subject to an interest rate equal to either (i) a Eurodollar
rate plus 3.0% per annum, or (ii) an Index Rate, as defined in the existing credit
agreement, plus 2.0% per annum.
    
    Certain debt covenant thresholds were adjusted to make them less restrictive and thereby
providing the Company with greater operating flexibility. Such adjustments include the
following:
 o
    
    An increase in the aggregate purchase price limitation for business
acquisitions for the fiscal year ending December 31, 2005;
 10




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##### Table of Contents



o
    
    An increase in the limitation for the aggregate amount of new seller
notes payable that may be issued in connection with business acquisitions;o
    
    An increase in the annual threshold for earnout obligations that the
Company may undertake in connection with business acquisitions;o
    
    An increase in the threshold for capital expenditures during any trailing twelve-month period;o
    
    An increase in the limitation on capital lease obligations outstanding;o
    
    A reduction in the maximum leverage ratio threshold, as defined in the
Amended Credit Agreement, from 4.90 to 3.75;o
    
    Elimination of the scheduled increase in the fixed charge coverage ratio
threshold. In accordance with the Amended Credit Agreement, the fixed charge
coverage ratio threshold will remain constant at 1.10.
   5. Income Taxes
    Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2004
    
    
    2005
    
    
    2004
    
    
    2005(Unaudited)(Dollars in thousands)Current:Federal
    
    $
    1,527
    
    
    $
    5,136
    
    
    $
    4,930
    
    
    $
    13,747State
    
    
    444
    
    
    
    1,293
    
    
    
    1,321
    
    
    
    3,1561,971
    
    
    
    6,429
    
    
    
    6,251
    
    
    
    16,903Deferred:Deferred income tax provision, excluding the effects of the Reorganization
    
    
    (12
    )
    
    
    589
    
    
    
    689
    
    
    
    2,719Income tax provision, excluding the effects of the Reorganization
    
    
    1,959
    
    
    
    7,018
    
    
    
    6,940
    
    
    
    19,622Deferred income tax benefit as a result of the Reorganization
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (27,701
    )Income tax provision (benefit)
    
    $
    1,959
    
    
    $
    7,018
    
    
    $
    6,940
    
    
    $
    (8,079
    )
 11




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##### Table of Contents



12




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##### Table of Contents

p

December 31,
    
    
    September 30,2004
    
    
    2005(Unaudited)(Dollars in thousands)Deferred tax assets (liabilities):Current portion:Financial statement accruals not currently deductible
    
    $
    1,206
    
    
    $
    2,738State taxes
    
    
    158
    
    
    
    159Net current deferred tax assets
    
    
    1,364
    
    
    
    2,897Non-current portion:Excess of income tax basis over net book value for
financial reporting purposes of intangible assets
    
    
    
    
    
    
    32,172Excess of income tax basis over net book value for
financial reporting purposes of property, plant and
equipment
    
    
    
    
    
    
    2,276Deferred stock-based compensation
    
    
    
    
    
    
    388Excess of net book value for financial reporting
purposes over income tax basis of property, plant
and equipment
    
    
    (1,653
    )
    
    
    Excess of net book value for financial reporting
purposes over income tax basis of intangible assets
    
    
    (3,981
    )
    
    
    (17,021
    )Net non-current deferred tax assets (liabilities)
    
    
    (5,634
    )
    
    
    17,815Net deferred tax assets (liabilities)
    
    $
    (4,270
    )
    
    $
    20,712
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2004
    
    
    2005
    
    
    2004
    
    
    2005(Unaudited)Statutory federal income tax rate
    
    
    34.0
    %
    
    
    35.0
    %
    
    
    34.0
    %
    
    
    35.0
    %State taxes
    
    
    3.5
    %
    
    
    4.8
    %
    
    
    3.5
    %
    
    
    4.8
    %Income of the LLC not taxed at the LLC level
    
    
    (17.7
    )%
    
    
    
    
    
    
    (17.7
    )%
    
    
    (0.3
    )%Other
    
    
    1.6
    %
    
    
    0.3
    %
    
    
    1.6
    %
    
    
    0.2
    %Effective income tax rate before non-recurring income tax benefit due to Reorganization
    
    
    21.4
    %
    
    
    40.1
    %
    
    
    21.4
    %
    
    
    39.7
    %Non-recurring income tax benefit due to reorganization
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (56.0
    )%Effective income tax rate
    
    
    21.4
    %
    
    
    40.1
    %
    
    
    21.4
    %
    
    
    (16.3
    )%
 6. Commitments and Contingencies
  13




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##### Table of Contents



7. Comprehensive Income
  Three Months Ended
    
    
    Nine Months EndedSept 30,
    
    
    Sept 30,2004
    
    
    2005
    
    
    2004
    
    
    2005(Unaudited)(Dollars in thousands)Net income
    
    $
    7,191
    
    
    $
    10,518
    
    
    $
    25,474
    
    
    $
    57,464Increase
(Decrease) in
fair value of
financial
derivative
instruments, net
of tax effects
    
    
    (552
    )
    
    
    (133
    )
    
    
    479
    
    
    
    (152
    )Comprehensive income
    
    $
    6,639
    
    
    $
    10,385
    
    
    $
    25,953
    
    
    $
    57,312
 8. Earnings Per Share
   Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2004
    
    
    2005
    
    
    2004
    
    
    2005(Unaudited)Weighted average common shares outstanding during the period  basic
    
    
    35,487,511
    
    
    
    44,170,226
    
    
    
    35,487,511
    
    
    
    42,080,404Effect of dilutive stock options
    
    
    1,154,077
    
    
    
    844,138
    
    
    
    1,154,077
    
    
    
    844,138Effect of dilutive warrants
    
    
    832,069
    
    
    
    
    
    
    
    832,069
    
    
    
    133,637Weighted average common shares outstanding during the period  diluted
    
    
    37,473,657
    
    
    
    45,014,364
    
    
    
    37,473,657
    
    
    
    43,058,179
 9. Recent Accounting Pronouncements
  14




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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 consolidated financial
statements and the related notes included in this report, as well as Managements Discussion and
Analysis included in our 2004 Annual Report on Form 10-K .
 In addition to historical information, this report on Form 10-Q contains certain
forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of
1934, as amended. These statements relate to future events or future financial performance, and
include statements regarding the Companys business strategy, timing of, and plans for, the
introduction of new products and enhancements, future sales, market growth and direction,
competition, market share, revenue growth, operating margins and profitability. All
forward-looking statements involve known and unknown risks, uncertainties and other factors that
may cause our actual results, levels of activity, performance or achievements to be materially
different from any future results, levels of activity, performance or achievements, expressed or
implied, by these forward looking statements. In some cases, you can identify forward-looking
statements by terminology such as may, will, should, expects, intends, plans,
anticipates, believes, estimates, predicts, potential, continue, or the negative of
these terms or other comparable terminology. These statements are only predictions and are based
upon information available to the Company as of the date of this report. We undertake no on-going
obligation, other than that imposed by law, to update these forward-looking statements.
 Actual results could differ materially from our current expectations. Factors that could
cause actual results to differ materially from current expectations, include among others, the
following: (i) general economic conditions, such as changes in non-residential construction
spending, GDP growth, interest rates, employment rates, office vacancy rates, and government
expenditures; (ii) a downturn in the architectural, engineering and construction industry; (iii)
competition in our industry and innovation by our competitors; (iv) our failure to anticipate and
adapt to future changes in our industry; (v) failure to continue to develop and introduce new
products and services successfully; (vi) our inability to charge for value-added services we
provide our customers to offset potential declines in print volume; (vii) adverse developments
affecting the State of California, including general and local economic conditions, macroeconomic
trends, and natural disasters; (viii) our inability to successfully identify and manage our
acquisitions or open new branches; (ix) our inability to successfully monitor and manage the
business operations of our subsidiaries and uncertainty regarding the effectiveness of financial
and management policies and procedures we established to improve accounting controls; (x) adverse
developments concerning our relationships with certain key vendors; and (xi) the loss of key
personnel and qualified technical staff.
 Although we believe that the expectations reflected in the forward-looking statements are
reasonable, we cannot guarantee future results, levels of activity, performance or achievements.
These forward-looking statements are subject to numerous risks and uncertainties, including, but
not limited to, the risks and uncertainties described in the Risk Factors section of our 2004
Annual Report on Form 10-K . You are urged to carefully consider these factors. All
forward-looking statements attributable to us are expressly qualified in their entirety by the
foregoing cautionary statements.
 Overview
  15




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Non-GAAP Measures
     
 16




---



##### Table of Contents




 
 
   Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2004
    
    
    2005
    
    
    2004
    
    
    2005(Unaudited)(Dollars in thousands)Cash flows provided by operating activities
    
    $
    13,736
    
    
    $
    17,998
    
    
    $
    42,419
    
    
    $
    42,587Changes in operating assets and liabilities
    
    
    (99
    )
    
    
    (976
    )
    
    
    2,609
    
    
    
    8,723Non-cash expenses, including depreciation
and amortization, and excluding
deferred income taxes
    
    
    (6,458
    )
    
    
    (5,915
    )
    
    
    (18,865
    )
    
    
    (18,828
    )Deferred income taxes
    
    
    12
    
    
    
    (589
    )
    
    
    (689
    )
    
    
    24,982Income tax provision (benefit)
    
    
    1,959
    
    
    
    7,018
    
    
    
    6,940
    
    
    
    (8,079
    )Interest expense
    
    
    8,559
    
    
    
    6,131
    
    
    
    25,089
    
    
    
    20,649EBIT
    
    
    17,709
    
    
    
    23,667
    
    
    
    57,503
    
    
    
    70,034Depreciation and amortization
    
    
    4,753
    
    
    
    5,018
    
    
    
    14,006
    
    
    
    13,907EBITDA
    
    
    22,462
    
    
    
    28,685
    
    
    
    71,509
    
    
    
    83,941Interest expense
    
    
    (8,559
    )
    
    
    (6,131
    )
    
    
    (25,089
    )
    
    
    (20,649
    )Income tax (provision) benefit
    
    
    (1,959
    )
    
    
    (7,018
    )
    
    
    (6,940
    )
    
    
    8,079Depreciation and amortization
    
    
    (4,753
    )
    
    
    (5,018
    )
    
    
    (14,006
    )
    
    
    (13,907
    )Net income
    
    $
    7,191
    
    
    $
    10,518
    
    
    $
    25,474
    
    
    $
    57,464
 17




---



##### Table of Contents



Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2004
    
    
    2005
    
    
    2004
    
    
    2005(Unaudited)(Dollars in thousands)Net income
    
    $
    7,191
    
    
    $
    10,518
    
    
    $
    25,474
    
    
    $
    57,464Interest expense, net
    
    
    8,559
    
    
    
    6,131
    
    
    
    25,089
    
    
    
    20,649Income tax provision (benefit)
    
    
    1,959
    
    
    
    7,018
    
    
    
    6,940
    
    
    
    (8,079
    )EBIT
    
    
    17,709
    
    
    
    23,667
    
    
    
    57,503
    
    
    
    70,034Depreciation and amortization
    
    
    4,753
    
    
    
    5,018
    
    
    
    14,006
    
    
    
    13,907EBITDA
    
    $
    22,462
    
    
    $
    28,685
    
    
    $
    71,509
    
    
    $
    83,941
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2004
    
    
    2005
    
    
    2004
    
    
    2005(Unaudited)Net income margin
    
    
    6.5
    %
    
    
    8.3
    %
    
    
    7.6
    %
    
    
    15.6
    %Interest expense, net
    
    
    7.8
    %
    
    
    4.8
    %
    
    
    7.5
    %
    
    
    5.6
    %Income tax provision (benefit)
    
    
    1.8
    %
    
    
    5.5
    %
    
    
    2.1
    %
    
    
    (2.2
    %)EBIT margin
    
    
    16.1
    %
    
    
    18.6
    %
    
    
    17.1
    %
    
    
    18.9
    %Depreciation and amortization
    
    
    4.3
    %
    
    
    3.9
    %
    
    
    4.2
    %
    
    
    3.8
    %EBITDA margin
    
    
    20.4
    %
    
    
    22.5
    %
    
    
    21.3
    %
    
    
    22.7
    %
 Impact of Conversion from an LLC to a Corporation
   Income Taxes
  18




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##### Table of Contents



Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2004
    
    
    2005
    
    
    2004
    
    
    2005(Unaudited)(Dollars in thousands, except per share data)Net income
    
    $
    7,191
    
    
    $
    10,518
    
    
    $
    25,474
    
    
    $
    57,464Deferred income tax benefit due to Reorganization
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (27,701
    )Proforma net income, excluding deferred income
tax benefit due to Reorganization
    
    
    7,191
    
    
    
    10,518
    
    
    
    25,474
    
    
    
    29,763Unaudited pro forma incremental
income tax provision
    
    
    (2,178
    )
    
    
    
    
    
    
    (7,714
    )
    
    
    (333
    )Unaudited pro forma net income
    
    $
    5,013
    
    
    $
    10,518
    
    
    $
    17,760
    
    
    $
    29,430Unaudited pro forma earnings per share:Basic
    
    $
    0.14
    
    
    $
    0.24
    
    
    $
    0.50
    
    
    $
    0.70Diluted
    
    $
    0.13
    
    
    $
    0.23
    
    
    $
    0.47
    
    
    $
    0.68
 Results of Operations
  As a Percentage of Net SalesThree Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2004
    
    
    2005
    
    
    2004
    
    
    2005(Unaudited)Reprographics services
    
    
    74.9
    %
    
    
    74.3
    %
    
    
    75.3
    %
    
    
    75.0
    %Facilities management
    
    
    16.8
    
    
    
    16.9
    
    
    
    16.0
    
    
    
    16.7Equipment and supplies sales
    
    
    8.3
    
    
    
    8.8
    
    
    
    8.7
    
    
    
    8.3Total net sales
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Cost of sales
    
    
    59.8
    
    
    
    58.8
    
    
    
    58.5
    
    
    
    58.2Gross profit
    
    
    40.2
    
    
    
    41.2
    
    
    
    41.5
    
    
    
    41.8Selling, general and administrative expenses
    
    
    23.8
    
    
    
    22.2
    
    
    
    24.2
    
    
    
    22.6Amortization of intangibles
    
    
    0.4
    
    
    
    0.5
    
    
    
    0.4
    
    
    
    0.4Income from operations
    
    
    16.1
    
    
    
    18.5
    
    
    
    16.9
    
    
    
    18.9Other income
    
    
    0.0
    
    
    
    0.0
    
    
    
    0.2
    
    
    
    0.1Interest expense, net
    
    
    (7.8
    )
    
    
    (4.8
    )
    
    
    (7.5
    )
    
    
    (5.6
    )Income before income tax provision (benefit)
    
    
    8.3
    
    
    
    13.8
    
    
    
    9.6
    
    
    
    13.4Income tax provision (benefit)
    
    
    1.8
    
    
    
    5.5
    
    
    
    2.1
    
    
    
    (2.2
    )Net income
    
    
    6.5
    %
    
    
    8.3
    %
    
    
    7.6
    %
    
    
    15.6
    %
 19




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##### Table of Contents



Three and Nine Months Ended September 30, 2005 Compared to Three and Nine Months Ended September
30, 2004
 Three Months Ended
    
    
    
    
    
    
    
    
    
    Nine Months EndedSeptember 30,
    
    Incr (Decr)
    
    September 30,
    
    Incr (Decr)2004
    
    2005
    
    $
    
    %
    
    2004
    
    2005
    
    $
    
    %(Unaudited)(Dollars
in thousands)Reprographics services
    
    
    82.5
    
    
    
    94.7
    
    
    
    12.2
    
    
    
    14.8
    %
    
    
    253.4
    
    
    
    277.1
    
    
    
    23.7
    
    
    
    9.4
    %Facilities management
    
    
    18.5
    
    
    
    21.6
    
    
    
    3.1
    
    
    
    16.8
    %
    
    
    53.7
    
    
    
    61.8
    
    
    
    8.1
    
    
    
    15.1
    %Equipment and supplies sales
    
    
    9.2
    
    
    
    11.2
    
    
    
    2.0
    
    
    
    21.7
    %
    
    
    29.2
    
    
    
    30.6
    
    
    
    1.4
    
    
    
    4.8
    %Total net sales
    
    
    110.2
    
    
    
    127.5
    
    
    
    17.3
    
    
    
    15.7
    %
    
    
    336.3
    
    
    
    369.5
    
    
    
    33.2
    
    
    
    9.9
    %Gross profit
    
    
    44.3
    
    
    
    52.5
    
    
    
    8.2
    
    
    
    18.5
    %
    
    
    139.6
    
    
    
    154.5
    
    
    
    14.9
    
    
    
    10.7
    %Selling, general and administrative expenses
    
    
    26.2
    
    
    
    28.3
    
    
    
    2.1
    
    
    
    8.0
    %
    
    
    81.4
    
    
    
    83.3
    
    
    
    1.9
    
    
    
    2.3
    %Interest expense, net
    
    
    8.6
    
    
    
    6.1
    
    
    
    (2.5
    )
    
    
    -29.1
    %
    
    
    25.1
    
    
    
    20.6
    
    
    
    (4.5
    )
    
    
    -17.9
    %Income tax provision (benefit)
    
    
    2.0
    
    
    
    7.0
    
    
    
    5.0
    
    
    
    250.0
    %
    
    
    6.9
    
    
    
    (8.1
    )
    
    
    (15.0
    )
    
    
    -217.4
    %Net income
    
    
    7.2
    
    
    
    10.5
    
    
    
    3.3
    
    
    
    45.8
    %
    
    
    25.5
    
    
    
    57.5
    
    
    
    32.0
    
    
    
    125.5
    %EBITDA
    
    
    22.5
    
    
    
    28.7
    
    
    
    6.2
    
    
    
    27.6
    %
    
    
    71.5
    
    
    
    83.9
    
    
    
    12.4
    
    
    
    17.3
    %
 Net Sales
 Gross Profit.
 Selling, General and Administrative Expenses.
 Interest Expense.
 20




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##### Table of Contents



Income Taxes.
   Net Income.
 EBITDA.
 Liquidity and Capital Resources
  21




---



##### Table of Contents



Nine Months EndedSeptember 30,2004
    
    
    2005(Unaudited)(Dollars in thousands)Net cash provided by operating activities
    
    $
    42,419
    
    
    $
    42,587Net cash used in investing activities
    
    $
    (7,611
    )
    
    $
    (19,710
    )Net cash used in financing activities
    
    $
    (40,115
    )
    
    $
    (23,875
    )
     December 31,
    
    
    September 30,2004
    
    
    2005(Unaudited)(Dollars in thousands)Cash and cash equivalents
    
    $
    13,826
    
    
    $
    12,828Working capital
    
    
    22,773
    
    
    
    31,119Debt obligations:Borrowings from senior secured credit facilities
    
    
    301,312
    
    
    
    229,426Mandatorily redeemable preferred membership units
    
    
    27,814
    
    
    
    Other debt obligations
    
    
    19,521
    
    
    
    28,875Total debt obligations
    
    $
    348,647
    
    
    $
    258,301
 22




---



##### Table of Contents



Off-Balance Sheet Arrangements
  23




---



##### Table of Contents



Contractual Obligations and Other Commitments
  Three MonthsEndingDecember 31,
    
    
    Twelve Months Ending December 31,2005
    
    
    2006
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    Thereafter(Unaudited)(Dollars in thousands)Debt obligations
    
    $
    1,191
    
    
    $
    3,167
    
    
    $
    2,223
    
    
    $
    39,446
    
    
    $
    192,603
    
    
    $
    1,074Capital lease obligations
    
    
    2,032
    
    
    
    6,720
    
    
    
    5,124
    
    
    
    2,913
    
    
    
    1,143
    
    
    
    662Operating lease obligations
    
    
    9,008
    
    
    
    25,732
    
    
    
    17,951
    
    
    
    11,415
    
    
    
    7,601
    
    
    
    16,674Total
    
    $
    12,231
    
    
    $
    35,619
    
    
    $
    25,298
    
    
    $
    53,774
    
    
    $
    201,347
    
    
    $
    18,410
 
 Item 3. Quantitative and Qualitative Disclosure About Market Risk
    
 Item 4. Controls and Procedures
 Disclosure Controls and Procedures
   Changes in Internal Controls Over Financial Reporting
  24




---



##### Table of Contents



PART II
 
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  25




---



##### Table of Contents



Item 6. Exhibits
 
  Number
    
    Description10.1
    
    Amendment to Lease for the premises commonly known as 17721
Mitchell North, Irvine, CA, effective as of August 2, 2005, by
and between SUMO HOLDINGS IRVINE, LLC, Lessor and AMERICAN
REPROGRAPHICS COMPANY, L.L.C., Lessee. *10.2
    
    Amendment to Lease for the premises commonly known as 934 and
940 Venice Boulevard, Los Angeles, CA, effective as of August 2,
2005, by and between SUMO HOLDINGS LA, LLC, Landlord and
AMERICAN REPROGRAPHICS COMPANY, L.L.C. (formerly known as FORD
GRAPHICS GROUP, L.L.C.) Tenant.*10.3
    
    Amendment to Lease for the premises commonly known as 18810
Woodfield Road, Gaithersburg, MD, effective as of August 2,
2005, by and between SUMO HOLDINGS MARYLAND, LLC, Landlord and
LEET-MELBROOK, INC., Tenant. *10.4
    
    Amendment to Lease for the premises commonly known as 1322 V
Street, Sacramento, CA, effective as of August 2, 2005, by and
between SUMO HOLDINGS SACRAMENTO, LLC, Landlord and AMERICAN
REPROGRAPHICS COMPANY, L.L.C. (formerly known as FORD GRAPHICS
GROUP, L.L.C.) Tenant. *31.1
    
    Certification by the Chief Executive Officer pursuant to Rules
13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934. *31.2
    
    Certification by the Chief Financial Officer pursuant to Rules
13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934. *32.1
    
    Certification by the Chief Executive Officer and 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 26




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##### Table of Contents



SIGNATURE PAGE
  AMERICAN REPROGRAPHICS COMPANYBy:
    
    /s/ Sathiyamurthy ChandramohanChairman of the Board of Directors andChief Executive OfficerBy:
    
    /s/ Mark W. LeggChief Financial Officer and Secretary
 27