##### 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 March 31, 2010
 Or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the transition period from ________ to _________
 Commission File Number: 001-32407
 AMERICAN REPROGRAPHICS COMPANY
  Delaware
    
    20-1700361(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    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
 Yes o No o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if smaller reporting company)
 o þ




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##### 



AMERICAN REPROGRAPHICS COMPANY
Quarterly Report on Form 10-Q
For the Quarter Ended March 31, 2010
 Table of Contents
 PART I  Financial InformationItem 1. Condensed Consolidated Financial Statements (Unaudited)Condensed Consolidated Balance Sheets as of March 31, 2010 and December 31, 2009
    
    
    4Condensed Consolidated Statements of Income for the three months ended March 31, 2010 and 2009
    
    
    5Condensed Consolidated Statements of Stockholders Equity and Comprehensive Income for the three months ended March 31, 2010 and 2009
    
    
    6Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2010 and 2009
    
    
    7Notes to Condensed Consolidated Financial Statements
    
    
    8Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    18Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    29Item 4. Controls and Procedures
    
    
    29PART II  Other InformationItem 1. Legal Proceedings
    
    
    30Item 1A. Risk Factors
    
    
    30Item 6. Exhibits
    
    
    31SIGNATURES
    
    
    32Index to Exhibits
    
    
    33Exhibit 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)
 March 31,
    
    
    December 31,2010
    
    
    2009AssetsCurrent assets:Cash and cash equivalents
    
    $
    26,183
    
    
    $
    29,377Accounts receivable, net of allowances for accounts receivable of
$4,620 and
$4,685 at March 31, 2010 and December 31, 2009, respectively
    
    
    59,108
    
    
    
    53,919Inventories, net
    
    
    10,398
    
    
    
    10,605Deferred income taxes
    
    
    5,664
    
    
    
    5,568Prepaid expenses and other current assets
    
    
    9,567
    
    
    
    7,011Total current assets
    
    
    110,920
    
    
    
    106,480Property and equipment, net
    
    
    68,108
    
    
    
    74,568Goodwill
    
    
    332,518
    
    
    
    332,518Other intangible assets, net
    
    
    71,618
    
    
    
    74,208Deferred financing costs, net
    
    
    3,698
    
    
    
    4,082Deferred income taxes
    
    
    26,880
    
    
    
    26,987Other assets
    
    
    2,020
    
    
    
    2,111Total assets
    
    $
    615,762
    
    
    $
    620,954Liabilities and Stockholders EquityCurrent liabilities:Accounts payable
    
    $
    23,055
    
    
    $
    23,355Accrued payroll and payroll-related expenses
    
    
    11,186
    
    
    
    8,804Accrued expenses
    
    
    24,317
    
    
    
    24,540Current portion of long-term debt and capital leases
    
    
    57,006
    
    
    
    53,520Total current liabilities
    
    
    115,564
    
    
    
    110,219Long-term debt and capital leases
    
    
    206,952
    
    
    
    220,711Other long-term liabilities
    
    
    9,214
    
    
    
    8,000Total liabilities
    
    
    331,730
    
    
    
    338,930Commitments and contingencies (Note 9)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;
46,117,752 and 46,112,653 shares issued and 45,670,098 and
45,664,999 shares outstanding in 2010 and 2009, respectively
    
    
    46
    
    
    
    46Additional paid-in capital
    
    
    91,478
    
    
    
    89,982Retained earnings
    
    
    201,678
    
    
    
    200,961Accumulated other comprehensive loss
    
    
    (7,470
    )
    
    
    (7,273
    )285,732
    
    
    
    283,716Less cost of common stock in treasury, 447,654 shares in 2010 and 2009
    
    
    7,709
    
    
    
    7,709Total American Reprographics Company stockholders equity
    
    
    278,023
    
    
    
    276,007Noncontrolling interest
    
    
    6,009
    
    
    
    6,017Total stockholders equity
    
    
    284,032
    
    
    
    282,024Total liabilities and stockholders equity
    
    $
    615,762
    
    
    $
    620,954
   4




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AMERICAN REPROGRAPHICS COMPANY
 
 CONDENSED CONSOLIDATED STATEMENTS OF INCOME
 (Dollars in thousands, except per share data)
 (Unaudited)
 Three Months EndedMarch 31,2010
    
    
    2009Reprographics services
    
    $
    76,257
    
    
    $
    99,769Facilities management
    
    
    22,403
    
    
    
    26,865Equipment and supplies sales
    
    
    13,501
    
    
    
    12,849Total net sales
    
    
    112,161
    
    
    
    139,483Cost of sales
    
    
    75,310
    
    
    
    87,504Gross profit
    
    
    36,851
    
    
    
    51,979Selling, general and administrative expenses
    
    
    27,131
    
    
    
    30,966Amortization of intangible assets
    
    
    2,636
    
    
    
    2,983Income from operations
    
    
    7,084
    
    
    
    18,030Other income
    
    
    (43
    )
    
    
    (59
    )Interest expense, net
    
    
    5,888
    
    
    
    5,796Income before income tax provision
    
    
    1,239
    
    
    
    12,293Income tax provision
    
    
    530
    
    
    
    4,758Net income
    
    
    709
    
    
    
    7,535Loss attributable to the noncontrolling interest
    
    
    8
    
    
    
    12Net income attributable to American Reprographics Company
    
    $
    717
    
    
    $
    7,547Earnings per share attributable to American Reprographics
Company shareholders:Basic
    
    $
    0.02
    
    
    $
    0.17Diluted
    
    $
    0.02
    
    
    $
    0.17Weighted average common shares outstanding:Basic
    
    
    45,150,483
    
    
    
    45,089,794Diluted
    
    
    45,356,871
    
    
    
    45,100,225
   5




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AMERICAN REPROGRAPHICS COMPANY
 
 CONDENSED CONSOLIDATED STATEMENTS OF
 STOCKHOLDERS EQUITY AND COMPREHENSIVE INCOME
 (Dollars in thousands, except per share data)
 (Unaudited)
 American Reprographics Company ShareholdersAccumulatedAdditional
    
    
    
    
    
    
    
    
    
    
    OtherCommon Stock
    
    
    Paid-In
    
    
    Deferred
    
    
    Retained
    
    
    Comprehensive
    
    
    Common Stock
    
    
    NoncontrollingShares
    
    
    Par Value
    
    
    Capital
    
    
    Compensation
    
    
    Earnings
    
    
    Loss
    
    
    in 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
    
    
    
    
    
    
    
    
    
    
    826
    
    
    
    107
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    933Issuance of common stock under
Employee Stock Purchase Plan
    
    
    13,423
    
    
    
    
    
    
    
    47
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    47Comprehensive Income:Net income (loss)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,547
    
    
    
    
    
    
    
    
    
    
    
    (12
    )
    
    
    7,535Foreign currency translation
adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (139
    )
    
    
    
    
    
    
    
    
    
    
    (139
    )Gain on derivative, net of
tax effect
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    435
    
    
    
    
    
    
    
    
    
    
    
    435Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,831Balance at March 31, 2009
    
    
    45,240,579
    
    
    $
    46
    
    
    $
    86,080
    
    
    $
    (88
    )
    
    $
    223,393
    
    
    $
    (11,118
    )
    
    $
    (7,709
    )
    
    $
    6,109
    
    
    $
    296,713
 American Reprographics Company ShareholdersAccumulatedAdditional
    
    
    
    
    
    
    OtherCommon Stock
    
    
    Paid-In
    
    
    Retained
    
    
    Comprehensive
    
    
    Common Stock
    
    
    NoncontrollingShares
    
    
    Par Value
    
    
    Capital
    
    
    Earnings
    
    
    Loss
    
    
    in Treasury
    
    
    Interest
    
    
    TotalBalance at December 31, 2009
    
    
    45,664,999
    
    
    $
    46
    
    
    $
    89,982
    
    
    $
    200,961
    
    
    $
    (7,273
    )
    
    $
    (7,709
    )
    
    $
    6,017
    
    
    $
    282,024Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    1,461
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,461Issuance of common stock under
Employee Stock Purchase Plan
    
    
    2,099
    
    
    
    
    
    
    
    16
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    16Stock Options exercised
    
    
    3,000
    
    
    
    
    
    
    
    16
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    16Tax benefit from stock based
compensation
    
    
    
    
    
    
    
    
    
    
    3
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3Comprehensive Income:Net income (loss)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    717
    
    
    
    
    
    
    
    
    
    
    
    (8
    )
    
    
    709Foreign currency translation
adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    116
    
    
    
    
    
    
    
    
    
    
    
    116Loss on derivative, net of
tax effect
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (313
    )
    
    
    
    
    
    
    
    
    
    
    (313
    )Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    512Balance at March 31, 2010
    
    
    45,670,098
    
    
    $
    46
    
    
    $
    91,478
    
    
    $
    201,678
    
    
    $
    (7,470
    )
    
    $
    (7,709
    )
    
    $
    6,009
    
    
    $
    284,032
   6




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AMERICAN REPROGRAPHICS COMPANY
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Dollars in thousands)
 (Unaudited)
 Three Months EndedMarch 31,2010
    
    
    2009Cash flows from operating activitiesNet income
    
    $
    709
    
    
    $
    7,535Adjustments to reconcile net income to net cash provided by operating activities:Allowance for accounts receivable
    
    
    261
    
    
    
    1,249Depreciation
    
    
    9,020
    
    
    
    9,732Amortization of intangible assets
    
    
    2,636
    
    
    
    2,983Amortization of deferred financing costs
    
    
    384
    
    
    
    331Stock-based compensation
    
    
    1,461
    
    
    
    933Excess tax benefit related to stock-based compensation
    
    
    (3
    )
    
    
    Deferred income taxes
    
    
    274
    
    
    
    1,412Other non-cash items, net
    
    
    (191
    )
    
    
    23Changes in operating assets and liabilities, net of effect of
business acquisitions:Accounts receivable
    
    
    (5,419
    )
    
    
    (2,425
    )Inventory
    
    
    156
    
    
    
    686Prepaid expenses and other assets
    
    
    (2,515
    )
    
    
    3,575Accounts payable and accrued expenses
    
    
    2,695
    
    
    
    (3,758
    )Net cash provided by operating activities
    
    
    9,468
    
    
    
    22,276Cash flows from investing activitiesCapital expenditures
    
    
    (1,217
    )
    
    
    (1,979
    )Payments for businesses acquired, net of cash acquired
and including other cash payments associated with
the acquisitions
    
    
    
    
    
    
    (588
    )Other
    
    
    551
    
    
    
    163Net cash used in investing activities
    
    
    (666
    )
    
    
    (2,404
    )Cash flows from financing activitiesProceeds from stock option exercises
    
    
    16
    
    
    
    Excess tax benefit related to stock-based compensation
    
    
    3
    
    
    
    Payments on long-term debt agreements and capital leases
    
    
    (11,202
    )
    
    
    (15,878
    )Net (repayments) borrowings under revolving credit facility
    
    
    (814
    )
    
    
    Payment of loan fees
    
    
    
    
    
    
    (44
    )Net cash used in financing activities
    
    
    (11,997
    )
    
    
    (15,922
    )Effect of foreign currency translation on cash balances
    
    
    1
    
    
    
    (16
    )Net change in cash and cash equivalents
    
    
    (3,194
    )
    
    
    3,934Cash and cash equivalents at beginning of period
    
    
    29,377
    
    
    
    46,542Cash and cash equivalents at end of period
    
    $
    26,183
    
    
    $
    50,476Supplemental disclosure of cash flow informationNoncash investing and financing activitiesNoncash transactions include the following:Capital lease obligations incurred
    
    $
    1,930
    
    
    $
    5,253Issuance of subordinated notes in connection with the
acquisition of businesses
    
    $
    
    
    
    $
    246Accrued liabilities in connection with acquisition of businesses
    
    $
    
    
    
    $
    333(Loss) gain on derivative, net of tax effect
    
    $
    (313
    )
    
    $
    435
   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
   Fair Value Measurements and Disclosures, improving
disclosures about Fair Value Measurements
 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)
    3. Employee Stock Purchase Plan
   4. Goodwill and Other Intangibles Resulting from Business Acquisitions
 Goodwill
 Business Combinations,
     9




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AMERICAN REPROGRAPHICS COMPANY
 Notes to Condensed Consolidated Financial Statements (Continued)
(Dollars in thousands, except per share data)
(Unaudited)
    Accumulated
    
    
    Net CarryingGross Goodwill
    
    
    Impairment Loss
    
    
    AmountJanuary 1, 2009
    
    $
    401,667
    
    
    $
    35,154
    
    
    $
    366,513Additions
    
    
    3,136
    
    
    
    
    
    
    
    3,136Goodwill impairment
    
    
    
    
    
    
    37,382
    
    
    
    (37,382
    )Translation adjustment
    
    
    251
    
    
    
    
    
    
    
    251December 31, 2009
    
    
    405,054
    
    
    
    72,536
    
    
    
    332,518Additions
    
    
    
    
    
    
    
    
    
    
    Translation adjustment
    
    
    
    
    
    
    
    
    
    
    March 31, 2010
    
    $
    405,054
    
    
    $
    72,536
    
    
    $
    332,518
 Long-lived assets
 Accounting for the Impairment or Disposal
of Long-lived Assets
    March 31, 2010
    
    
    December 31, 2009Gross
    
    
    
    
    
    
    Net
    
    
    Gross
    
    
    
    
    
    
    NetCarrying
    
    
    Accumulated
    
    
    Carrying
    
    
    Carrying
    
    
    Accumulated
    
    
    CarryingAmount
    
    
    Amortization
    
    
    Amount
    
    
    Amount
    
    
    Amortization
    
    
    AmountAmortizable other
intangible assets:Customer relationships
    
    $
    96,291
    
    
    $
    41,613
    
    
    $
    54,678
    
    
    $
    96,219
    
    
    $
    39,243
    
    
    $
    56,976Trade names and
trademarks
    
    
    20,294
    
    
    
    3,393
    
    
    
    16,901
    
    
    
    20,294
    
    
    
    3,139
    
    
    
    17,155Non-compete agreements
    
    
    303
    
    
    
    264
    
    
    
    39
    
    
    
    303
    
    
    
    226
    
    
    
    77$
    116,888
    
    
    $
    45,270
    
    
    $
    71,618
    
    
    $
    116,816
    
    
    $
    42,608
    
    
    $
    74,208
  10




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AMERICAN REPROGRAPHICS COMPANY
 Notes to Condensed Consolidated Financial Statements (Continued)
(Dollars in thousands, except per share data)
(Unaudited)
  2010
    
    $
    7,4422011
    
    
    9,1282012
    
    
    8,2322013
    
    
    7,3282014
    
    
    6,518Thereafter
    
    
    32,970$
    71,618
 5. Long-Term Debt
  March 31,
    
    
    December 31,2010
    
    
    2009(Dollars in thousands)Borrowings from foreign revolving credit facilities; 6.0% interest
rate at March 31, 2010 and December 31, 2009, respectively; principal
payable through April 2010
    
    $
    709
    
    
    $
    1,523Borrowings from senior secured term loan credit facility;
interest payable quarterly (weighted average 8.2% and 8.1% interest
rate
at March 31, 2010 and December 31, 2009, respectively, inclusive of
amended swap transaction); principal payable in varying quarterly
installments; any unpaid principal and interest due December 6, 2012
    
    
    203,542
    
    
    
    205,625Various subordinated notes payable; weighted average 6.2% interest
rate at March 31, 2010 and December 31, 2009, respectively;
principal and interest payable monthly through June 2012
    
    
    17,932
    
    
    
    21,755Various capital leases; weighted average 9.2% interest rate at March 31,
2010 and December 31, 2009, respectively; principal and interest
payable monthly through February 2015
    
    
    41,775
    
    
    
    45,328263,958
    
    
    
    274,231Less current portion
    
    
    (57,006
    )
    
    
    (53,520
    )$
    206,952
    
    
    $
    220,711
 Amended Credit and Guaranty Agreement
     11




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




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AMERICAN REPROGRAPHICS COMPANY
 Notes to Condensed Consolidated Financial Statements (Continued)
(Dollars in thousands, except per share data)
(Unaudited)
 Amended Swap Transaction
   6. Derivatives and Hedging Transactions
 Accounting for Derivative
Instruments and Hedging Activities
   Fair ValueBalance Sheet
    
    March 31,
    
    
    December 31,Classification
    
    2010
    
    
    2009Derivative designated as hedging instrument
under ASC 815Amended Swap Transaction  current portion
    
    Accrued expenses
    
    $
    6,998
    
    
    $
    6,908Amended Swap Transaction  long term portion
    
    Other long-term liabilities
    
    
    4,541
    
    
    
    4,010Total derivatives designated as hedging
    
    
    
    $
    11,539
    
    
    $
    10,918
  Amount of Gain or (Loss) Recognized in AOCL on DerivativeThree Months EndedMarch 31,2010
    
    
    2009Derivative in ASC 815 Cash Flow Hedging RelationshipAmended Swap Transaction
    
    $
    (548
    )
    
    $
    678Tax effect
    
    
    235
    
    
    
    (243
    )Amended Swap
Transaction, net of tax
effect
    
    $
    (313
    )
    
    $
    435
  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) Reclassified from AOCL into Income(effective portion)
    
    
    (ineffective portion)Three Months Ended
    
    
    Three Months EndedMarch 31,
    
    
    March 31,2010
    
    
    2009
    
    
    2010
    
    
    2009Location of Gain or (Loss)
Reclassified from AOCL into IncomeInterest expense
    
    $
    (1,966
    )
    
    $
    (1,723
    )
    
    $
    (72
    )
    
    $
    
 7. Fair Value Measurements
 Fair Value Measurements
     Significant Other Observable InputsLevel 2March 31,
    
    
    December 31,Description
    
    2010
    
    
    2009Recurring Fair Value
MeasureAmended Swap Transaction
    
    $
    11,539
    
    
    $
    10,918
    14




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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)
 Fair Values of Financial Instruments.
 Cash and cash equivalents:
 Short- and long-term debt:
 Interest rate hedge agreements:
 8. Income Taxes
   9. Commitments and Contingencies
 Operating Leases.
 Contingent Transaction Consideration.
 Uncertain Tax Position Liability.
 Legal Proceedings.
 10. Comprehensive Income
   15




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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 EndedMarch 31,2010
    
    
    2009Net income
    
    $
    709
    
    
    $
    7,535Foreign currency translation adjustments
    
    
    116
    
    
    
    (139
    )(Loss) gain on derivative, net of tax effect
    
    
    (313
    )
    
    
    435Comprehensive income
    
    
    512
    
    
    
    7,831Comprehensive loss attributable to the noncontrolling interest
    
    
    (8
    )
    
    
    (12
    )Comprehensive income attributable to ARC
    
    $
    520
    
    
    $
    7,843
  11. Earnings per Share
 Earnings per Share
  Three Months EndedMarch 31,2010
    
    
    2009Weighted average common shares outstanding
during the period  basic
    
    
    45,150,483
    
    
    
    45,089,794Effect of dilutive stock options
    
    
    206,388
    
    
    
    10,431Weighted average common shares outstanding
during the period  diluted
    
    
    45,356,871
    
    
    
    45,100,225
 12. Segment and Geographic Reporting
 Disclosures about Segments of an Enterprise and
Related Information
  2010
    
    
    2009Foreign
    
    
    
    
    
    
    
    
    
    
    ForeignU.S.
    
    
    Countries
    
    
    Total
    
    
    U.S.
    
    
    Countries
    
    
    TotalRevenues from external
customers
    
    $
    104,077
    
    
    $
    8,084
    
    
    $
    112,161
    
    
    $
    133,893
    
    
    $
    5,590
    
    
    $
    139,483Long-lived assets, net
    
    $
    469,216
    
    
    $
    8,746
    
    
    $
    477,962
    
    
    $
    478,489
    
    
    $
    8,998
    
    
    $
    487,487
  16




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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)
 13.
    
    Recent Accounting Pronouncements Fair Value Measurements and Disclosures
 Multiple-Deliverable Revenue Arrangements a
consensus of the FASB Emerging Issues Task Force Revenue Recognition,
  17




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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 2009 Annual Report on Form 10-K.
 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 .
 
    
    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.
  18




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##### Table of Contents



Primary Financial Measures .
   Other Common Financial Measures .
 
    
    Net income and earnings per share;
    
    Material and labor costs as a percentage of net sales; and
    
    Days sales outstanding/days sales inventory/days payable outstanding.
    Acquisitions .
    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.
  19




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##### Table of Contents



Economic Factors Affecting Financial Performance .
 Non-GAAP Financial Measures .
     
    
    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.
   20




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##### Table of Contents



Three Months Ended March 31,2010
    
    
    2009(Dollars in thousands)Cash flows provided by operating activities
    
    $
    9,468
    
    
    $
    22,276Changes in operating assets and liabilities
    
    
    5,083
    
    
    
    1,922Non-cash (expenses) income, including
depreciation and amortization
    
    
    (13,842
    )
    
    
    (16,663
    )Income tax provision
    
    
    530
    
    
    
    4,758Interest expense, net
    
    
    5,888
    
    
    
    5,796Net loss attributable to the
noncontrolling interest
    
    
    8
    
    
    
    12EBIT
    
    
    7,135
    
    
    
    18,101Depreciation and amortization
    
    
    11,656
    
    
    
    12,715Stock-based compensation
    
    
    1,461
    
    
    
    933EBITDA
    
    
    20,252
    
    
    
    31,749Interest expense, net
    
    
    (5,888
    )
    
    
    (5,796
    )Income tax provision
    
    
    (530
    )
    
    
    (4,758
    )Depreciation and amortization
    
    
    (11,656
    )
    
    
    (12,715
    )Stock-based compensation
    
    
    (1,461
    )
    
    
    (933
    )Net income attributable to ARC
    
    $
    717
    
    
    $
    7,547
  Three Months Ended March 31,2010
    
    
    2009(Dollars in thousands)Net income attributable to ARC
    
    $
    717
    
    
    $
    7,547Interest expense, net
    
    
    5,888
    
    
    
    5,796Income tax provision
    
    
    530
    
    
    
    4,758EBIT
    
    
    7,135
    
    
    
    18,101Depreciation and amortization
    
    
    11,656
    
    
    
    12,715Stock-based compensation
    
    
    1,461
    
    
    
    933EBITDA
    
    $
    20,252
    
    
    $
    31,749
  21




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##### Table of Contents



Three Months Ended March 31,2010 (1)
    
    
    2009Net income margin
    
    
    0.6
    %
    
    
    5.4
    %Interest expense, net
    
    
    5.2
    
    
    
    4.2Income tax provision
    
    
    0.5
    
    
    
    3.4EBIT margin
    
    
    6.4
    
    
    
    13.0Depreciation and amortization
    
    
    10.4
    
    
    
    9.1Stock-based compensation
    
    
    1.3
    
    
    
    0.7EBITDA margin
    
    
    18.1
    %
    
    
    22.8
    %
 (1)
    
    column does not foot due to rounding Results of Operations for the Three Months Ended March 31, 2010 and 2009
  As Percentage of Net SalesThree Months Ended March 31,2010
    
    
    2009Net Sales
    
    
    100.0
    %
    
    
    100.0
    %Cost of sales
    
    
    67.1
    
    
    
    62.7Gross profit
    
    
    32.9
    
    
    
    37.3Selling, general and administrative
expenses
    
    
    24.2
    
    
    
    22.2Amortization of intangibles
    
    
    2.4
    
    
    
    2.1Income from operations
    
    
    6.3
    
    
    
    13.0Other income
    
    
    
    
    
    
    Interest expense, net
    
    
    5.2
    
    
    
    4.2Income before income tax provision
    
    
    1.1
    
    
    
    8.8Income tax provision
    
    
    0.5
    
    
    
    3.4Net income
    
    
    0.6
    
    
    
    5.4Loss attributable to the noncontrolling
interest
    
    
    
    
    
    
    Net income attributable to ARC
    
    
    0.6
    %
    
    
    5.4
    %
  22




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##### Table of Contents



Three Months Ended March 31, 2010 Compared to Three Months Ended March 31, 2009
 Three Months EndedMarch 31,
    
    
    Increase (decrease)2010
    
    
    2009
    
    
    (In dollars)
    
    
    (Percent)(In millions)Reprographics services
    
    $
    76.3
    
    
    $
    99.8
    
    
    $
    (23.5
    )
    
    
    -23.5
    %Facilities management
    
    
    22.4
    
    
    
    26.9
    
    
    
    (4.5
    )
    
    
    -16.7Equipment and supplies sales
    
    
    13.5
    
    
    
    12.8
    
    
    
    0.7
    
    
    
    5.5Total net sales
    
    $
    112.2
    
    
    $
    139.5
    
    
    $
    (27.3
    )
    
    
    -19.6
    %Gross profit
    
    $
    36.9
    
    
    $
    52.0
    
    
    $
    (15.1
    )
    
    
    -29.0
    %Selling, general and
administrative expenses
    
    
    27.1
    
    
    
    31.0
    
    
    
    (3.9
    )
    
    
    -12.6Amortization of intangibles
    
    
    2.6
    
    
    
    3.0
    
    
    
    (0.4
    )
    
    
    -13.3Interest expense, net
    
    
    5.9
    
    
    
    5.8
    
    
    
    0.1
    
    
    
    1.7Income tax provision
    
    
    0.5
    
    
    
    4.8
    
    
    
    (4.3
    )
    
    
    -89.6Net income attributable to
ARC
    
    
    0.7
    
    
    
    7.5
    
    
    
    (6.8
    )
    
    
    -90.7EBITDA
    
    
    20.3
    
    
    
    31.7
    
    
    
    (11.4
    )
    
    
    -36.0
 Net Sales
   Reprographics services .
   Facilities management .
  23




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##### Table of Contents



Equipment and supplies sales.
 Gross Profit
   Selling, General and Administrative Expenses
     Amortization of Intangibles
  Interest Expense, Net
   24




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##### Table of Contents



Income Taxes
  Noncontrolling Interest
  Net Income Attributable to ARC
  EBITDA
  Impact of Inflation
  Liquidity and Capital Resources
  Three Months EndedMarch 31,2010
    
    
    2009(Dollars in thousands)Net cash provided by operating activities
    
    $
    9,468
    
    
    $
    22,276Net cash used in investing activities
    
    $
    (666
    )
    
    $
    (2,404
    )Net cash used in financing activities
    
    $
    (11,997
    )
    
    $
    (15,922
    )
 Operating Activities
   25




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##### Table of Contents



Investing Activities
  Financing Activities
   March 31, 2010
    
    
    December 31, 2009(Dollars in thousands)Cash and cash equivalents
    
    $
    26,183
    
    
    $
    29,377Working capital
    
    $
    (4,644
    )
    
    $
    (3,739
    )Borrowings from senior secured
credit facilities
    
    $
    203,542
    
    
    $
    205,625Other debt obligations
    
    
    60,416
    
    
    
    68,606Total debt obligations
    
    $
    263,958
    
    
    $
    274,231
      26




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##### Table of Contents



Debt Obligations
 Senior Secured Credit Facilities.
       27




---



##### Table of Contents



Capital Leases .
 Seller Notes .
 Off-Balance Sheet Arrangements
  Contractual Obligations and Other Commitments
 Operating Leases.
 Contingent Transaction Consideration.
 Uncertain Tax Position Liability.
 Legal Proceedings.
 Critical Accounting Policies
   28




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##### Table of Contents



Fair Value Measurements and Disclosures, improving disclosures about Fair Value
Measurements
 Recent Accounting Pronouncements
  
 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
   29




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##### Table of Contents



PART II  OTHER INFORMATION
 
 Item 1.
    
    Legal Proceedings
  
 Item 1A.
    
    Risk Factors
   30




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##### Table of Contents



Item 6.
    
    Exhibits
 Exhibit Number
    
    Description10.1
    
    
    Fourth Amendment to Credit and
Guaranty Agreement dated as of
March 2, 2010 by and among
American Reprographics Company,
American Reprographics Company,
L.L.C., JPMorgan Chase Bank, N.A.,
as administrative agent and
collateral agent, and the other
lenders named therein
(incorporated by reference to
Exhibit 10.1 to the Current Report
on Form 8-K filed on March 5,
2010).10.2
    
    
    Fifth Amendment to Executive
Employment Agreement, dated March
18, 2010, by and between American
Reprographics Company and
Kumarakulasingam Suriyakumar
(incorporated by reference to
Exhibit 10.1 to the Current Report
on Form 8-K filed on March 22,
2010).10.3
    
    
    Third Amendment to Executive
Employment Agreement, dated March
16, 2010, by and between American
Reprographics Company and Jonathan
R. Mather (incorporated by
reference to Exhibit 10.2 to the
Current Report on Form 8-K filed
on March 22, 2010).10.4
    
    
    Fourth Amendment to Executive
Employment Agreement, dated March
16, 2010, by and between American
Reprographics Company and Rahul K.
Roy (incorporated by reference to
Exhibit 10.3 to the Current Report
on Form 8-K filed on March 22,
2010).10.5
    
    
    Second Amendment to Executive
Employment Agreement, dated March
16, 2010, by and between American
Reprographics Company and Dilantha
Wijesuriya (incorporated by
reference to Exhibit 10.4 to the
Current Report on Form 8-K filed
on March 22, 2010).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  31




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##### Table of Contents



SIGNATURES
   AMERICAN REPROGRAPHICS COMPANYBy:
    
    /s/ Kumarakulasingam Suriyakumar

Kumarakulasingam SuriyakumarChairman, President and Chief Executive OfficerBy:
    
    /s/ Jonathan R. Mather

Jonathan R. MatherChief Financial Officer and Secretary
  32




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##### Table of Contents



EXHIBIT INDEX
 Exhibit Number
    
    Description10.1
    
    
    Fourth Amendment to Credit and
Guaranty Agreement dated as of
March 2, 2010 by and among
American Reprographics Company,
American Reprographics Company,
L.L.C., JPMorgan Chase Bank, N.A.,
as administrative agent and
collateral agent, and the other
lenders named therein
(incorporated by reference to
Exhibit 10.1 to the Current Report
on Form 8-K filed on March 5,
2010).10.2
    
    
    Fifth Amendment to Executive
Employment Agreement, dated March
18, 2010, by and between American
Reprographics Company and
Kumarakulasingam Suriyakumar
(incorporated by reference to
Exhibit 10.1 to the Current Report
on Form 8-K filed on March 22,
2010).10.3
    
    
    Third Amendment to Executive
Employment Agreement, dated March
16, 2010, by and between American
Reprographics Company and Jonathan
R. Mather (incorporated by
reference to Exhibit 10.2 to the
Current Report on Form 8-K filed
on March 22, 2010).10.4
    
    
    Fourth Amendment to Executive
Employment Agreement, dated March
16, 2010, by and between American
Reprographics Company and Rahul K.
Roy (incorporated by reference to
Exhibit 10.3 to the Current Report
on Form 8-K filed on March 22,
2010).10.5
    
    
    Second Amendment to Executive
Employment Agreement, dated March
16, 2010, by and between American
Reprographics Company and Dilantha
Wijesuriya (incorporated by
reference to Exhibit 10.4 to the
Current Report on Form 8-K filed
on March 22, 2010).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) 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  33