**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**


________________





**FORM
      10-Q**





**(Mark
      One)**





ý
            **QUARTERLY
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                ACT OF
                1934**





**For
      The Quarterly Period Ended September 30, 2006**





**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**


(Exact
      name of Registrant as specified in its Charter)





**Delaware**
              (State
                or other jurisdiction of
              incorporation
                or organization)
            **20-1700361**
              (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)**





Indicate
      by check mark whether the registrant (1) has filed all reports required to
      be
      filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
      the
      preceding 12 months (or for such shorter period that the registrant was required
      to file such reports), and (2) has been subject to such filing requirements
      for
      the past 90 days. Yes þ  No o




Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer, or a non-accelerated filer. See definition of “accelerated
      filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check
      one):


Large accelerated filer o
            Accelerated
                filer o
            Non-accelerated
                filer þ





Indicate
      by check mark whether the registrant is a shell company (as defined in
      Rule 12b-2 of the Act). Yes o  No þ




As
      of
      October 27, 2006, there were 45,262,130 **** shares
      of
      the Registrant’s common stock outstanding.










-
          1
          -


**AMERICAN
      REPROGRAPHICS COMPANY**


**Quarterly
      Report on Form 10-Q**


**For
      the Quarter Ended September 30, 2006**





**Table
      of Contents**


PART
                  I
              Financial
                  InformationItem
                  1.
              Financial
                  Statements (unaudited)Consolidated
                  Balance Sheets as of December 31, 2005 and September 30, 2006
              3Consolidated
                    Statements of Operations for the three and nine months ended
                    September 30,
                    2005 and 2006
              4Condensed
                    Consolidated Statement of Changes in Stockholders’ Equity for the nine
                    months ended
                  September
                    30, 2006
              5Consolidated
                  Statements of Cash Flows for the nine months ended September 30,
                  2005 and
                  2006
              6Notes
                  to Consolidated Financial Statements
              7Item
                  2.
              Management’s
                  Discussion and Analysis of Financial Condition and Results of
                  Operations
              16Item
                  3.
              Quantitative
                  and Qualitative Disclosures About Market Risk
              30Item
                  4.
              Controls
                  and Procedures
              30PART
                  IIItem
                  1.
              Legal
                  Proceedings
              32Item
                  1A.
              Risk
                  Factors
              32Item
                  2.
              Unregistered
                  Sales of Equity Securities and Use of Proceeds
              32Item
                  5.
              Other
                  Information
              32Item
                  6.
              Exhibits
              33SIGNATURES
              
              34Index
                  to ExhibitsExhibit
                  31.1Exhibit
                  31.2Exhibit
                  32.1





-
          2
          -




**PART
      I. FINANCIAL INFORMATION**




**Item
                1.**
            **Financial
                Statements**




**AMERICAN
      REPROGRAPHICS COMPANY**


**CONSOLIDATED
      BALANCE SHEETS**


**(Dollars
      in thousands)**


**(Unaudited)**





December
                31,
            
            September
                30,2005
            
            2006**Assets**Current
                assets:Cash
                and cash equivalents
            
            $
            22,643
            
            $
            13,520Restricted
                cash
            
            
            -
            
            
            7,497Accounts
                receivable, net
            
            
            71,062
            
            
            92,317Inventories,
                net
            
            
            6,817
            
            
            8,228Deferred
                income taxes
            
            
            4,272
            
            
            9,664Prepaid
                expenses and other current assets
            
            
            6,425
            
            
            6,452Total
                current assets
            
            
            111,219
            
            
            137,678Property
                and equipment, net
            
            
            45,773
            
            
            59,822Goodwill
            
            
            245,271
            
            
            285,603Other
                intangible assets, net
            
            
            21,387
            
            
            48,673Deferred
                financing costs, net
            
            
            923
            
            
            948Deferred
                income taxes
            
            
            16,216
            
            
            9,282Other
                assets
            
            
            1,573
            
            
            1,641Total
                assets
            
            $
            442,362
            
            $
            543,647**Liabilities
                and Stockholders' Equity**Current
                liabilities:Accounts
                payable
            
            $
            20,811
            
            $
            24,351Accrued
                payroll and payroll-related expenses
            
            
            15,486
            
            
            13,757Accrued
                expenses
            
            
            18,684
            
            
            46,449Current
                portion of long-term debt and capital leases
            
            
            20,441
            
            
            18,687Total
                current liabilities
            
            
            75,422
            
            
            103,244Long-term
                debt and capital leases
            
            
            253,371
            
            
            270,548Total
                liabilities
            
            
            328,793
            
            
            373,792Commitments
                and contingencies (Note 6)Stockholders'
                equity: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; 44,598,815
                  and
                  45,262.030, shares issued and outstanding
            
            
            44
            
            
            45Additional
                paid-in capital
            
            
            56,825
            
            
            74,072Deferred
                stock-based compensation
            
            
            (1,903
            )
            
            (1,348
            )Retained
                earnings
            
            
            58,561
            
            
            97,119Accumulated
                other comprehensive income
            
            
            42
            
            
            (33
            )Total
                stockholders' equity
            
            
            113,569
            
            
            169,855Total
                liabilities and stockholders' equity
            
            $
            442,362
            
            $
            543,647





The
      accompanying notes are an integral part of these consolidated financial
      statements.




-
          3
          -




**AMERICAN
      REPROGRAPHICS COMPANY**


**CONSOLIDATED
      STATEMENTS OF OPERATIONS**


**(Dollars
      in thousands, except per share data)**


**(Unaudited)**





**Three
                Months Ended**
            
            **Nine
                Months Ended****September
                30,**
            
            **September
                30,****2005**
            
            **2006**
            
            **2005**
            
            **2006**Reprographics
                services
            
            $
            94,730
            
            $
            111,176
            
            $
            277,133
            
            $
            330,652Facilities
                management
            
            
            21,577
            
            
            25,814
            
            
            61,825
            
            
            73,437Equipment
                and supplies sales
            
            
            11,180
            
            
            15,548
            
            
            30,555
            
            
            40,778Total
                net sales
            
            
            127,487
            
            
            152,538
            
            
            369,513
            
            
            444,867Cost
                of sales
            
            
            74,965
            
            
            85,531
            
            
            215,012
            
            
            251,686Gross
                profit
            
            
            52,522
            
            
            67,007
            
            
            154,501
            
            
            193,181Selling,
                general and administrative expenses
            
            
            28,315
            
            
            34,516
            
            
            83,336
            
            
            99,113Litigation
                reserve
            
            
            -
            
            
            -
            
            
            -
            
            
            11,262Amortization
                of intangible assets
            
            
            603
            
            
            1,574
            
            
            1,418
            
            
            3,227Income
                from operations
            
            
            23,604
            
            
            30,917
            
            
            69,747
            
            
            79,579Other
                income (expense), net
            
            
            63
            
            
            (358
            )
            
            287
            
            
            442Interest
                expense, net
            
            
            (6,131
            )
            
            (5,810
            )
            
            (20,649
            )
            
            (17,270
            )Income
                before income tax provision (benefit)
            
            
            17,536
            
            
            24,749
            
            
            49,385
            
            
            62,751Income
                tax provision (benefit)
            
            
            7,018
            
            
            8,993
            
            
            (8,079
            )
            
            24,193Net
                income
            
            $
            10,518
            
            $
            15,756
            
            $
            57,464
            
            $
            38,558Earnings
                per share:Basic
            
            $
            0.24
            
            $
            0.35
            
            $
            1.37
            
            $
            0.86Diluted
            
            $
            0.23
            
            $
            0.35
            
            $
            1.33
            
            $
            0.85Weighted
                average common shares outstanding:Basic
            
            
            44,170,226
            
            
            45,177,627
            
            
            42,080,404
            
            
            44,923,884Diluted
            
            
            45,014,364
            
            
            45,663,040
            
            
            43,058,179
            
            
            45,483,702




The
      accompanying notes are an integral part of these consolidated financial
      statements.




-
          4
          -





**AMERICAN
      REPROGRAPHICS COMPANY**


**CONDENSED
      CONSOLIDATED STATEMENT OF**


**CHANGES
      IN STOCKHOLDERS’ EQUITY**


**(Dollars
      in thousands)**


**(Unaudited)**




**Common
                  Stock**
              
              **Additional**
              
              
              
              
              
              **Accumulated**
                **Other**
              
              **Total****Shares**
              
              **Par**
                **Value**
              
              **Paid-In**
                **Capital**
              
              **Deferred**
                **Compensation**
              
              **Retained**
                **Earnings**
              
              **Comprehensive**
                **Income**
              
              **Stockholders'**
                **Equity**Balance
                  at December 31, 2005
              
              
              44,598,815
              
              $
              44
              
              $
              56,825
              
              $
              (1,903
              )
              $
              58,561
              
              $
              42
              
              $
              113,569Stock-based
                  compensation
              
              
              -
              
              
              -
              
              
              899
              
              
              555
              
              
              -
              
              
              -
              
              
              1,454Issuance
                    of common stock under Employee
                    Stock Purchase Plan
              
              
              9,032
              
              
              -
              
              
              290
              
              
              -
              
              
              -
              
              
              -
              
              
              290Issuance
                    of common stock in connection
                    with accrued bonuses
              
              
              80,652
              
              
              
              
              
              2,160
              
              
              
              
              
              
              
              
              
              
              
              2,160Issuance
                    of stock in connection with
                    acquisitions
              
              
              246,277
              
              
              
              
              
              8,500
              
              
              
              
              
              
              
              
              
              
              
              8,500Stock
                  options exercised
              
              
              327,254
              
              
              1
              
              
              1,807
              
              
              -
              
              
              -
              
              
              -
              
              
              1,808Tax
                    benefit from exercise of stock options
              
              
              -
              
              
              -
              
              
              3,591
              
              
              -
              
              
              -
              
              
              -
              
              
              3,591Comprehensive
                  Income:Net
                  income
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              38,558
              
              
              -
              
              
              38,558Foreign
                    currency translation adjustments
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              25
              
              
              25Fair
                    value adjustment of derivatives,
                    net of tax effects
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (100
              )
              
              (100
              )Comprehensive
                  income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              38,483Balance
                  at September 30, 2006
              
              
              45,262,030
              
              $
              45
              
              $
              74,072
              
              $
              (1,348
              )
              $
              97,119
              
              $
              (33
              )
              $
              169,855




The
      accompanying notes are an integral part of these consolidated financial
      statements.





-
          5
          -




**AMERICAN
      REPROGRAPHICS COMPANY**


**CONSOLIDATED
      STATEMENTS OF CASH FLOWS**


**(Dollars
      in thousands)**


**(Unaudited)**




**Nine
                Months Ended****September
                30,****2005**
            
            **2006****Operating
                activities**Net
                income
            
            $
            57,464
            
            $
            38,558Adjustments
                  to reconcile net income to net cash
                  provided by operating activities:Accretion
                of yield on preferred equity
            
            
            449
            
            
            -Allowance
                for doubtful accounts
            
            
            1,052
            
            
            103Reserve
                for inventory obsolescence
            
            
            76
            
            
            (14
            )Depreciation
            
            
            12,489
            
            
            16,240Amortization
                of intangible assets
            
            
            1,418
            
            
            3,227Amortization
                of deferred financing costs
            
            
            1,212
            
            
            294Deferred
                income taxes
            
            
            (24,982
            )
            
            (1,334
            )Write-off
                of deferred financing costs
            
            
            1,683
            
            
            117Stock
                based compensation
            
            
            449
            
            
            1,454Changes
                  in operating assets and liabilities, net
                  of effect of business acquisitions:Accounts
                receivable
            
            
            (7,150
            )
            
            (13,755
            )Inventory
            
            
            211
            
            
            909Prepaid
                expenses and other assets
            
            
            1,676
            
            
            507Accounts
                payable and accrued expenses
            
            
            (3,460
            )
            
            26,274Net
                cash provided by operating activities
            
            
            42,587
            
            
            72,580**Investing
                activities**Capital
                expenditures
            
            
            (3,376
            )
            
            (6,043
            )Payments
                  for businesses acquired, net of cash acquired and
                  including other cash payments associated with the
                  acquisitions
            
            
            (16,299
            )
            
            (59,179
            )Restricted
                cash
            
            
            -
            
            
            (7,460
            )Other
            
            
            (35
            )
            
            (203
            )Net
                cash used in investing activities
            
            
            (19,710
            )
            
            (72,885
            )**Financing
                activities**Proceeds
                from initial public offering, net of underwriting
                discounts
            
            
            92,690
            
            
            -Proceeds
                from stock option exercises
            
            
            1,036
            
            
            1,807Proceeds
                from issuance of common stock under ESPP
            
            
            1,956
            
            
            290Direct
                costs of initial public offering
            
            
            (1,487
            )
            
            -Excess
                tax benefit related to stock options exercised
            
            
            -
            
            
            3,591Redemption
                of preferred units
            
            
            (28,263
            )
            
            -Proceeds
                from borrowings under debt agreements
            
            
            13,000
            
            
            41,000Payments
                on long-term debt under debt agreements
            
            
            (94,204
            )
            
            (55,071
            )Payment
                of loan fees
            
            
            (359
            )
            
            (435
            )Member
                distributions
            
            
            (8,244
            )
            
            -Net
                cash used in financing activities
            
            
            (23,875
            )
            
            (8,818
            )Net
                decrease in cash and cash equivalents
            
            
            (998
            )
            
            (9,123
            )Cash
                and cash equivalents at beginning of period
            
            
            13,826
            
            
            22,643Cash
                and cash equivalents at end of period
            
            $
            12,828
            
            $
            13,520**Noncash
                investing and financing activities:**Capital
                lease obligations incurred
            
            $
            9,191
            
            $
            17,339Issuance
                  of subordinated notes in connection with the acquisition
                  of businesses
            
            $
            8,230
            
            $
            11,432Stock
                issued for acquisition
            
            
            -
            
            $
            8,500Change
                in fair value of derivatives
            
            
            ($152
            )
            
            ($100
            )




The
      accompanying notes are an integral part of these consolidated financial
      statements.




-
          6
          -




**AMERICAN
      REPROGRAPHICS COMPANY**


**Notes
      to Consolidated Financial Statements**


**(Unaudited)**




**1.** **Description
      of Business and Basis of Presentation**




American
      Reprographics Company (ARC or the Company) is the leading reprographics company
      in the United States providing business-to-business document management services
      to the architectural, engineering and construction industry, or AEC industry.
      ARC also provides these services to companies in non-AEC industries, such as
      technology, financial services, retail, entertainment, and food and hospitality
      that require sophisticated document management services. The Company conducts
      its operations through its wholly-owned operating subsidiary, American
      Reprographics Company, L.L.C., a California limited liability company (Opco),
      and its subsidiaries.





***Reorganization
      and Initial Public Offering***





Prior
      to
      the consummation of the Company’s initial public offering on February 9, 2005,
      the Company was reorganized (the Reorganization) from a California limited
      liability company (American Reprographics Holdings, L.L.C. or Holdings) to
      a
      Delaware corporation (American Reprographics Company). In connection with the
      Reorganization, the members of Holdings exchanged their common member units
      for
      common stock of ARC. Each option issued to purchase Holdings’ common member
      units under Holding’s equity option plan was exchanged for an option exercisable
      for shares of ARC’s common stock with the same exercise prices and vesting terms
      as the original grants. In addition, all outstanding warrants to purchase common
      units of Holdings were exchanged for shares of ARC’s common stock.





On
      February 9, 2005, the Company closed an initial public offering (IPO) of its
      common stock at $13.00 per share, consisting of 7,666,667 newly issued shares
      sold by the company and 5,683,333 outstanding shares sold by the selling
      stockholders.




***Basis
      of Presentation***




The
      accompanying consolidated financial statements are prepared in accordance with
      accounting principles generally accepted in the United States of America (GAAP)
      for interim financial information and in conformity with the requirements of
      the
      Securities and Exchange Commission. As permitted under those rules, certain
      footnotes or other financial information required by GAAP for complete financial
      statements have been condensed or omitted. In management’s opinion, the interim
      consolidated financial statements presented herein reflect all adjustments
      of a
      normal and recurring nature that are necessary to fairly present the interim
      consolidated financial statements. All material intercompany accounts and
      transactions have been eliminated in consolidation. The operating results for
      the nine months ended September 30, 2006, are not necessarily indicative of
      the
      results that may be expected for the year ending December 31, 2006.




The
      preparation of financial statements in conformity with accounting principles
      generally accepted in the United States of America requires management to make
      estimates and assumptions that affect the amounts reported in the consolidated
      financial statements and accompanying notes. We evaluate our estimates and
      assumptions on an ongoing basis and rely on historical experience and various
      other factors that we believe to be reasonable under the circumstances to
      determine such estimates. Actual results could differ from those estimates
      and
      such differences may be material to the consolidated financial
      statements.




These
      interim consolidated financial statements and notes should be read in
      conjunction with the consolidated financial statements and notes included in
      the
      Company’s 2005 Annual Report on Form 10-K. The accounting policies used in
      preparing these interim consolidated financial statements are the same as those
      described in our 2005 Annual Report on Form 10-K.




**2.** **Stock-Based
      Compensation**




The
      Company adopted the American Reprographics Company 2005 Stock Plan, or Stock
      Plan, in connection with the Company’s IPO in February 2005. The Stock Plan
      provides for the grant of incentive and non-statutory stock options, stock
      appreciation rights, restricted stock purchase awards, restricted stock awards,
      and restricted stock units to employees, directors and consultants of the
      Company. The Stock Plan authorizes the Company to issue up to
      5,000,000 shares of common stock. The maximum amount of authorized shares
      under the Stock Plan will automatically increase annually on the first day
      of
      the Company’s fiscal year, from 2006 through and including 2010, by the lesser
      of (i) 1.0% of the Company’s outstanding shares on the date of the
      increase; (ii) 300,000 shares; or (iii) such smaller number of
      shares determined by the Company’s board of directors. At September 30, 2006,
      3,053,230 shares remain available for grant under the Stock Plan.





-
          7
          -





Options
      granted under the Stock Plan generally expire no later than ten years from
      the
      date of grant (five years in the case of an incentive stock option granted
      to a
      10% stockholder). Options generally vest and become fully exercisable over
      a
      period of four or five years, except options granted to non-employee directors
      may vest over a shorter time period. The exercise price of options must be
      equal
      to at least 100% (110% in the case of an incentive stock option granted to
      a 10%
      stockholder) of the fair market value of the Company’s common stock as of the
      date of grant. This plan is discussed in more detail in the company’s December
      31, 2005 Form 10-K, Note 2.





In
      addition, the Stock Plan provides for automatic grants, as of each annual
      meeting of the Company’s stockholders commencing with the first such meeting, of
      non-statutory stock options to directors of the Company who are not employees
      of, or consultants to, the Company or any affiliate of the Company (non-employee
      directors). Each non-employee director automatically will receive a
      non-statutory stock option with a fair market value, as determined under the
      Black-Scholes option pricing formula, equal to $50,000 (or 55.56%) of such
      non-employee director’s annual cash compensation (exclusive of committee fees).
      Each non-statutory stock option will cover the non-employee director’s service
      since either the previous annual meeting or the date on which he or she was
      first elected or appointed. Options granted to non-employee directors vest
      in
      1/12 increments for each month from the date of grant.





During
      2004, the Company granted 307,915 options to purchase common membership units
      to
      employees with exercise prices ranging from $5.62 to $6.85 per unit. The
      fair market value of the Company’s common member units on the date of grant was
      $16 per unit. In connection with the issuances, the Company recorded a
      deferred compensation charge of $3.1 million because the exercise price of
      the
      units was less than the estimated fair market value of the Company’s membership
      units as of the date of grant after giving consideration to the anticipated
      fair
      value of the membership units during the one-year period preceding the Company’s
      initial public offering which was consummated on February 9, 2005. The Company
      will amortize the deferred compensation charge over the vesting period of the
      options, generally five years. As of September 30, 2006, the Company has
      cumulatively amortized $1.7 million of the deferred compensation
      charge.





Prior
      to
      the January 1, 2006, adoption of Financial Accounting Standards Board (“FASB”)
      Statement No. 123(R), “Share-Based Payment” (“SFAS 123R”), the Company accounted
      for stock-based compensation using the intrinsic value method prescribed in
      Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued
      to Employees,” and related interpretations.  Accordingly, because the stock
      option grant price equaled the market price on the date of grant, no
      compensation expense was recognized for Company-issued stock options issued
      prior to fiscal year 2004.  As permitted by SFAS 123, “Accounting for
      Stock-Based Compensation” (“SFAS 123”), stock-based compensation was included as
      a pro forma disclosure in the Notes to the Consolidated Financial
      Statements.





Effective
      January 1, 2006, the Company adopted SFAS 123R using the modified prospective
      transition method and, as a result, did not retroactively adjust results from
      prior periods. Under this transition method, stock-based compensation was
      recognized for: (i) expense related to the remaining unvested portion of all
      stock option awards granted in 2005, based on the grant date fair value
      estimated in accordance with the original provisions of SFAS 123; and (ii)
      expense related to all stock option awards granted on or subsequent to January
      1, 2006, based on the grant date fair value estimated in accordance with the
      provisions of SFAS 123R. In accordance with SAB 107, the remaining unvested
      options issued by the company prior to their initial public offering are not
      included in their SFAS 123R option pool. As a result unless subsequently
      modified, repurchased or cancelled, such unvested options will not be included
      in stock-based compensation. We apply the Black-Scholes valuation model in
      determining the fair value share-based payments to employees, which is then
      amortized on a straight-line basis over the requisite service
      period.





Compensation
      expense is recognized only for those options expected to vest, with forfeitures
      estimated based on our historical experience and future expectations. Prior
      to
      the adoption of SFAS 123R, the effect of forfeitures on the pro forma expense
      amounts was recognized as the forfeitures occurred.





As
      a
      result of adopting SFAS 123R, the impact to the Consolidated Statement of
      Operations for the three months ended September 30, 2006, on income before
      income taxes and net income was $0.4 million and $0.2 million,
      respectively ,
      and
      $0.005 on basic and diluted earnings per share .
      The
      impact to the Consolidated Statement of Operations for the nine months ended
      September 30, 2006, on income before income taxes and net income was $1.1 million
      and $0.7 million,
      respectively, and $0.015 on
      basic
      and diluted earnings per share. In addition, upon the adoption of SFAS 123R,
      the
      net tax benefit resulting from the exercise of stock options, which were
      previously presented as operating cash inflows in the Consolidated Statement
      of
      Cash Flows, are classified as financing cash inflows.





-
          8
          -




The
      adjusted table below reflects net income and basic and diluted net income per
      share for the three and nine months ended September 30, 2005, had we applied
      the
      fair value recognition provisions of SFAS 123.


**Three
                  Months**
                **Ended**
              
              **Nine
                  Months**
                **Ended****September
                  30, 2005**
              
              **September
                  30, 2005****(Unaudited)****(Dollars
                  in thousands, except per share data)**Net
                  income:As
                  reported
              
              $
              10,518
              
              $
              57,464Equity-based
                    employee compensation cost, net of related tax effects, included
                    in as
                    reported net
                    income
              
              
              83
              
              
              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
              
              
              (106
              )
              
              (350
              )Adjusted
              
              $
              10,495
              
              $
              57,379Basic
                  earnings per share:As
                  reported
              
              $
              0.24
              
              $
              1.37Equity-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
              )Adjusted
              
              $
              0.24
              
              $
              1.37Diluted
                  earnings per share:As
                  reported
              
              $
              0.23
              
              $
              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
              )Adjusted
              
              $
              0.23
              
              $
              1.33




Adjusted
      disclosure for the three and nine months ended September 30, 2006, are not
      presented because the amounts are recognized in the consolidated financial
      statements.





The
      weighted average fair value at the grant date for options issued in the nine
      months ended September 30, 2006, was $9.96 .
      There
      were no options granted during the nine months ended September 30, 2005. The
      fair value of options at date of grant was estimated using the following
      weighted average assumptions for the three and nine months ended September
      30,
      2006, (a) no dividend yield on our stock, (b) expected stock price volatility
      of
      25.88% and 26.17%, respectively, (c) a risk-free interest rate of 5.03% and
      4.89%, respectively and (d) an expected option term of 6.25 years for options
      vesting over a 4 year period, 6.5 years for options vesting over a 5 year
      period, and 5.5 years for options vesting over a 1 year period under the
“simplified” method as provided in Staff Accounting Bulletin (“SAB”)
      107.





For
      fiscal 2006, expected stock price volatility is based on a combined weighted
      average expected stock price volatility of three publicly traded peer companies
      deemed to be similar entities whose share or option prices are publicly
      available. Until such time that the Company has enough historical data, it
      will
      continue to rely on peer companies’ volatility and will ensure that the selected
      peer companies are still appropriate. The risk-free interest rate is based
      on
      the U.S. Treasury yield curve in effect at the time of grant with an equivalent
      remaining term. The Company has not paid dividends in the past and does not
      currently plan to pay dividends in the near future.




-
          9
          -




The
      following is a summary of the Company’s stock option activity during the nine
      month period ended September 30, 2006.




**Nine
                Months Ended****September
                30, 2006****(Dollars
                in thousands, except per share data)****Weighted**
            
            **Weighted****Average**
            
            **Average**
            
            **Aggregate****Exercise**
            
            **Contractual**
            
            **Intrinsic****Shares**
            
            **Price**
            
            **Life**
            
            **Value**Outstanding
                at beginning of the period
            
            
            1,422,585
            
            $
            5.90Granted
            
            
            524,985
            
            $
            26.47Exercised
            
            
            (327,254
            )
            $
            5.52Forfeited
            
            
            (30,900
            )
            $
            15.51Outstanding
                at end of the period
            
            
            1,589,416
            
            $
            12.59
            
            
            7.0
            
            $
            31,035Exercisable
                at end of the period
            
            
            884,082
            
            $
            6.09
            
            
            4.4
            
            $
            22,962




The
      aggregate intrinsic value in the table above represents the total pretax
      intrinsic value (the difference between our closing stock price on September
      30,
      2006, and the exercise price, multiplied by the number of in-the-money options)
      that would have been received by the option holders had all the option holders
      exercised their options on September 30, 2006. This amount, changes based on
      the
      fair market value of our stock. Total intrinsic value of options exercised
      for
      the three and nine months ended September 30, 2006, was $0.9 million and $9.3
      million.




A
      summary
      of the Company’s non-vested stock options as of September 30, 2006, and changes
      during the nine months then ended is as follows:




**Weighted****Average****Non-vested
                Options**
            
            **Shares**
            
            **Exercise
                Price**Non-vested
                at December 31, 2005
            
            
            390,402
            
            $
            8.07Granted
            
            
            524,985
            
            $
            26.47Vested
            
            
            (180,653
            )
            $
            11.06Forfeited
            
            
            (29,400
            )
            $
            16.02Non-vested
                at September 30, 2006
            
            
            705,334
            
            $
            20.74




As
      of
      September 30, 2006, total unrecognized stock-based compensation expense related
      to nonvested stock options was approximately $5.8 million, which is expected
      to
      be recognized over a weighted average period of approximately 4.1
      years




**3.** **Employee
      Stock Purchase Plan**





The
      Company adopted the American Reprographics Company 2005 Employee Stock Purchase
      Plan (the ESPP) in connection with the consummation of its IPO in February
      2005.
      Under the ESPP, purchase rights may be granted to eligible employees subject
      to
      a calendar year maximum per eligible employee of the lesser of (i) 400 shares
      of
      common stock, or (ii) a number of shares of common stock having an aggregate
      fair market value of $25,000 as determined on the date of purchase.





Prior
      to
      the adoption of SFAS 123R, the Company amended its ESPP such that common stock
      purchases by employees in fiscal 2006 will not give rise to recognizable
      compensation cost. The purchase price of common stock offered under the Amended
      ESPP is equal to 95% of the fair market value of such shares of common stock
      on
      the purchase date. Accordingly, no compensation cost was recognized for employee
      stock purchases under the ESPP during the nine months ended September 30,
      2006.





-
          10
          -





**4.** **Long-Term
      Debt**





Long-term
      debt consists of the following:





**December
                31,**
            
            **September
                30,****2005**
            
            **2006****(Unaudited)****(Dollars
                in thousands)**Borrowings
                  from senior secured First Priority — Revolving Credit Facility;
                  variable interest payable quarterly (8.25% and 9.25% interest rate
at
                  December 31, 2005 and September 30, 2006,repectively);any unpaid
principal
                  and interest due December 18,
                  2008
            
            $
            5,000
            
            $
            -Borrowings
                  from senior secured First Priority — Term Loan Credit Facility; variable
                  interest payable quarterly (weighted average 6.2% and 7.2% interest
                  rate
                  at December 31, 2005 and September 30, 2006, respectively); principal
                  payable in varying quarterly installments; any unpaid principal
                  and
                  interest due June 18, 2009
            
            
            230,423
            
            
            233,488Various
                subordinated notes payable; interest ranging form 5% to 7.1%; principal
                and interest payable monthly through July 2011
            
            
            11,262
            
            
            19,643Various
                  capital leases; interest rates ranging to 20.4%; principal and
interest
                  payable monthly through May 2012
            
            
            27,127
            
            
            36,104273,812
            
            
            289,235Less
                current portion
            
            
            (20,441
            )
            
            (18,687
            )$
            253,371
            
            $
            270,548





In
      December 2005, the Company entered into a Second Amended and Restated Credit
      and
      Guaranty Agreement (the Second Amended and Restated Credit Agreement). The
      Second Amended and Restated Credit Agreement provided the Company a $310.6
      million Senior Secured Credit Facility, comprised of a $280.6 million term
      loan
      facility and a $30 million revolving credit facility. In July 2006, to finance
      an acquisition, the Company drew down $30 million of the available $50 million
      in the term loan facility.




Subsequent
      to drawing down the $30 million, the Company entered into a First Amendment
      to
      Second Amended and Restated Credit and Guaranty Agreement (the First Amendment)
      in order to facilitate the consummation of certain proposed acquisitions. The
      First Amendment provided the Company with a $30 million increase to its
      T  erm
      Loan
      Facility, thus restoring availability of the term loan facility to $50 million,
      in addition to amending certain other terms including the
      following:





·
            An
                increase in the aggregate purchase price limitation for business
                acquisitions commencing with fiscal year ending December 31,
                2006;


·
            An
                increase in the threshold for capital expenditures during any trailing
                twelve-month period; and


·
            Permit
                the Company to issue certain shares of its common stock in connection
                with
                certain proposed acquisitions.





Except
      as
      described above, all other material terms and conditions, including the maturity
      dates of the Company’s existing senior secured credit facilities remained
      similar to those as described in Note 5-“Long Term Debt” to our consolidated
      financial statements included in our 2005 Annual Report on Form
      10-K.





During
      the nine months ended September 30, 2006, the Company made payments totaling
      $25.4 million, exclusive of contractually scheduled payments, on its $230
      million senior secured credit facility. As a result of this prepayment, the
      Company wrote off $117,000 of deferred financing costs during the nine months
      ended September 30, 2006, which is included in interest expense in the
      accompanying consolidated financial statements.




-
          11
          -




**5.** **Income
      Taxes**





Prior
      to
      the consummation of the Company’s IPO on February 9, 2005, the Company was
      reorganized from a California limited liability company (American Reprographics
      Holdings, LLC or Holdings) to a Delaware Corporation (American Reprographics
      Company). As a result of the reorganization to a Delaware corporation, our
      total
      earnings are subject to federal, state and local taxes at a combined statutory
      rate of approximately 40% excluding a one-time tax benefit of $27.7 million
      due
      to the reorganization.





The
      Company’s effective income tax rate, excluding our one-time benefit as a result
      of our reorganization in February 2005, decreased from 40% in the three and
      nine
      months ended September 30, 2005 to 36.3% and 38.6% for the three and nine months
      ended September 30, 2006, respectively. The decrease is due to the release
      of a
      tax reserve for a prior year as the statute of limitations had closed.




**6.** **Commitments
      and Contingencies**





***Operating
      Leases.***  We
      have
      entered into various non-cancelable operating leases primarily related to
      facilities, equipment and vehicles used in the ordinary course of our
      business .




***Contingent
      Transaction Consideration.*** The
      Company entered into earnout agreements in connection with prior acquisitions.
      If the acquired businesses generate operating profits in excess of predetermined
      targets, the Company is obligated to make additional cash payments in accordance
      with the terms of such earnout agreements. As of September 30, 2006, the Company
      has potential future earnout obligations aggregating to approximately $12
      million through 2010 if the operating profits exceed the predetermined targets. Earnout
      payments are recorded as additional purchase price (as goodwill) when the
      contingent payments are earned and become payable and consist of a combination
      of cash and notes payable issued to the seller.




***State
      Sales Tax.*** The
      Company was involved in a state tax authority dispute related to unresolved
      sales tax issues which arose from such state tax authority’s audit findings from
      their sales tax audit of certain of our operating divisions for the period
      from
      October 1998 to September 2001. Those unresolved issues relate to the
      application of sales taxes on certain discounts that were granted to customers.
      Based on the position taken by the state tax authority on these unresolved
      issues, they claimed that an additional $1.2 million of sales taxes were due
      for
      the period in question, plus $489,000 of interest. At an appeals conference
      held
      on December 14, 2004, the appeals board ruled that the Company was liable
      in connection with one component of the dispute involving approximately $40,000,
      which was previously paid. The Company paid the tax in May of 2005 but strongly
      disagreed with the state tax authority’s position and filed a petition for
      redetermination requesting an appeals conference to resolve these issues. The
      Company was granted another appeals conference in April 2006 to resolve the
      remaining issues. The Company lost on appeal, and paid in July 2006 the interest
      related to this sales tax issue.




***Louis
      Frey Case*** ***.*** ****** On
      August
      16, 2006 a judgment was entered against the Company in the previously disclosed
      Louis Frey Company bankruptcy litigation in the United States Bankruptcy Court,
      Southern District of New York. The judgment awarded damages to the plaintiff
      in
      the principal amount of $11.06 million, interest, totaling $2.48 million through
      September 30, 2006, and $0.20 million in preference claims. The Company
      continues to believe its position is meritorious, and commenced an appeal from
      the judgment in the United States District Court, Southern District of New
      York.
      In accordance with generally accepted accounting principles (GAAP), the Company
      has accounted for the judgment by recording a one-time, non-recurring litigation
      charge of $13.74 million that includes a $11.26 million litigation reserve
      ($11.06 million in awarded damages and $0.20 million in preference claims),
      and
      interest expense of $2.48 million. These charges are offset by a corresponding
      tax benefit of $5.50 million, resulting in a net impact of $8.24 million to
      the
      net income during the three and nine months ended September 30,
      2006. In order
      to stay the execution of the Louis Frey judgment pending appeal, the Company
      posted a bond in the United States Bankruptcy Court, South District of New
      York,
      collateralized by $7.5 million in cash which is recorded as restricted cash
      on
      the September 30, 2006 Balance Sheet.




The
      Company may be involved in litigation and other legal matters from time to
      time
      in the normal course of business. Management does not believe that the outcome
      of any of these matters will have a material adverse effect on the Company’s
      consolidated financial position, results of operations or cash
      flows.




-
          12
          -




**7.** **Comprehensive
      Income**




Comprehensive
      income includes foreign currency translation adjustments, and changes in the
      fair value of certain financial derivative instruments, net of taxes, which
      qualify for hedge accounting. The differences between net income and
      comprehensive income for the three and nine months ended September 30, 2005
      and
      2006 are as follows:




**Three
                Months Ended**
            
            **Nine
                Months Ended****September
                30,**
            
            **September
                30,****2005**
            
            **2006**
            
            **2005**
            
            **2006****(Unaudited)**
            
            **(Unaudited)****(Dollars
                in thousands)**
            
            **(Dollars
                in thousands)**Net
                income
            
            $
            10,518
            
            $
            15,756
            
            $
            57,464
            
            $
            38,558Foreign
                currency translation adjustments
            
            
            --
            
            
            56
            
            
            --
            
            
            25Increase
                  (Decrease) in fair value of financial derivative instruments,
                  net of tax effects
            
            
            (133
            )
            
            (381
            )
            
            (152
            )
            
            (100
            )Comprehensive
                income
            
            $
            10,385
            
            $
            15,431
            
            $
            57,312
            
            $
            38,483





**8.** **Earnings
      Per Share**




The
      Company accounts for earnings per share in accordance with SFAS No. 128,
“Earnings per Share.” Basic earnings per share is computed by dividing net
      income by the weighted-average number of common shares outstanding for the
      period. Diluted earnings per share is computed similar to basic earnings per
      share except that the denominator is increased to include the number of
      additional common shares that would have been outstanding if the potential
      common shares had been issued and if the additional common shares were dilutive.
      Common stock equivalents are excluded from the computation if their effect
      is
      anti-dilutive. There were no common stock equivalents excluded for anti-dilutive
      effects for the three and nine months ended September 30, 2005. There are 29,985
      common stock options excluded for anti-dilutive effects for the three and nine
      months ended September 30, 2006. The Company’s common stock equivalents consist
      of stock options issued under the Company’s equity option plan, as well as
      warrants to purchase common stock issued during 2000 to certain creditors of
      the
      Company. All of such warrants were exchanged for shares of common stock of
      the
      Company in connection with the Company’s reorganization in February
      2005.




Basic
      and
      diluted earnings per share were calculated using the following common shares
      for
      the three and nine months ended September 30, 2005 and 2006:





**Three
                Months Ended**
            
            **Nine
                Months Ended****September
                30,**
            
            **September
                30,****2005**
            
            **2006**
            
            **2005**
            
            **2006****(Unaudited)**
            
            **(Unaudited)**Weighted
                average common shares outstanding during the period --
                basic
            
            
            44,170,226
            
            
            45,177,627
            
            
            42,080,404
            
            
            44,923,884Effect
                of dilutive stock options
            
            
            844,138
            
            
            485,413
            
            
            844,138
            
            
            559,818Effect
                of dilutive warrants
            
            
            --
            
            
            
            
            
            133,637
            
            
            --Weighted
                average common shares outstanding during the period --
                diluted
            
            
            45,014,364
            
            
            45,663,040
            
            
            43,058,179
            
            
            45,483,702





**9.**  **Recent
      Accounting Pronouncements**





On
      July
      13, 2006, the FASB issued Interpretation No. 48 (FIN No. 48) "Accounting for
      Uncertainty in Income Taxes: an interpretation of FASB Statement No. 109."
      This
      interpretation clarifies the accounting for uncertainty in income taxes
      recognized in an entity's financial statements in accordance with SFAS No.
      109,
      "Accounting for Income Taxes." FIN No. 48 prescribes a recognition threshold
      and
      measurement principles for financial statement disclosure of tax positions
      taken
      or expected to be taken on a tax return. This interpretation is effective for
      fiscal years beginning after December 15, 2006, or fiscal year 2007 for the
      Company. The Company is assessing the impact, if any, the adoption of FIN No.
      48
      will have on the Company's consolidated financial position and results of
      operations.





On
      September 13, 2006, the Securities and Exchange Commission (SEC) issued Staff
      Accounting Bulletin (SAB) No. 108, *Considering
      the Effects of Prior Year Misstatements when Quantifying Misstatements in
      Current Year Financial Statements,* which
      provides interpretive guidance on the consideration of the effects of prior
      year
      misstatements in quantifying current year misstatements for the purpose of
      a
      materiality assessment. SAB No. 108 is effective for fiscal years ending after
      November 14, 2006, or fiscal year 2006 for the Company. Early application is
      encouraged, but not required. We are currently assessing the impact, if any,
      the
      adoption of SAB No. 108 will have on the Company’s consolidated financial
      position and results of operations. The cumulative effect, if any, of applying
      the provisions of SAB No. 108 will be reported as an adjustment to
      beginning-of-year retained earnings.




-
          13
          -




On
      September 15, 2006, the FASB issued SFAS No. 157, *Fair
      Value Measurements.* SFAS
      NO.
      157 defines fair value, establishes a framework for measuring fair value in
      generally accepted accounting principles and expands disclosure about fair
      value
      measurements. This Statement applies under other accounting pronouncements
      that
      require or permit fair value measurements, the FASB having previously concluded
      in those accounting pronouncements that fair value is the relevant measurement
      attribute. Accordingly, this Statement does not require any new fair value
      measurements. SFAS No. 157 is effective for fiscal years beginning after
      December 15, 2007, or fiscal year 2008 for the Company. The Company is currently
      evaluating the impact, if any, the adoption of SFAS No. 157 will have on the
      Company’s consolidated financial position and results of operations.





On
      September 29, 2006, the FASB issued SFAS No. 158, *“Employers’
      Accounting for Defined Benefit Pension and other Postretirement Plans”* an
      amendment of FASB Statements No. 87, 88, 106, and 132R (“SFAS 158”). SFAS 158
      requires an employer to recognize the over-funded or under-funded status of
      a
      defined benefit postretirement plan (other than a multiemployer plan) as an
      asset or liability in its statement of financial position and to recognize
      changes in that funded status in the year in which the changes occur through
      comprehensive income. SFAS 158 also requires the measurement of defined benefit
      plan assets and obligations as of the date of the employer’s fiscal year-end
      statement of financial position (with limited exceptions). Under SFAS 158,
      the
      Company will be required to recognize the funded status of its defined benefit
      postretirement plan and to provide the required disclosures commencing as of
      December 15, 2006, or fiscal year 2006 for the Company. The Company is currently
      evaluating the impact, if any, that SFAS 158 will have on its consolidated
      financial position and results of operations.





**10.Goodwill
      and Other
      Intangibles Resulting from Business Acquisitions**




In
      connection with its acquisitions subsequent to July 1, 2001, the Company
      has applied the provisions of SFAS No. 141 “Business Combinations”,
      using the purchase method of accounting. The assets and liabilities assumed
      were
      recorded at their estimated fair values. The excess purchase price over those
      fair values was recorded as goodwill and other intangible assets.





The
      changes in the carrying amount of goodwill from December 31, 2005 through
      September 30, 2006, are summarized as follows:





**Goodwill****(Dollars
                in thousands)**Balance
                at December 31, 2005
            
            $
            245,271Additions
            
            $
            40,332Balance
                at September 30, 2006
            
            $
            285,603





The
      additions to goodwill include the excess purchase price over fair value of
      net
      assets acquired in the amount of $39.8 million, and certain earnout payments
      in
      the amount of $0.5 million.





Other
      intangible assets that have finite useful lives are amortized over their useful
      lives. An impaired asset is written down to fair value. Intangible assets with
      finite useful lives consist primarily of not-to-compete covenants, trade names,
      and customer relationships and are amortized over the expected period of benefit
      which ranges from two to twenty years using the straight-line and accelerated
      methods. Customer relationships are amortized under an accelerated method which
      reflects the related customer attrition rates, and trade names are amortized
      using the straight-line method.





-
          14
          -




The
      following table sets forth the Company’s other intangible assets resulting from
      business acquisitions at December 31, 2005 and September 30, 2006, which
      continue to be amortized:





**December
                31, 2005**
            
            **September
                30, 2006****Gross**
            
            
            
            **Net**
            
            **Gross**
            
            
            
            **Net****Carrying**
            
            **Accumulated**
            
            **Carrying**
            
            **Carrying**
            
            **Accumulated**
            
            **Carrying****Amount**
            
            **Amortization**
            
            **Amount**
            
            **Amount**
            
            **Amortization**
            
            **Amount****(Dollars
                in thousands)**
            
            **(Dollars
                in thousands)**Amortizable
                other intangible assets:Customer
                relationships
            
            $
            25,588
            
            $
            6,241
            
            $
            19,347
            
            $
            52,255
            
            $
            9,267
            
            $
            42,988Trade
                names and trademarks
            
            $
            2,369
            
            $
            329
            
            $
            2,040
            
            $
            6,265
            
            $
            580
            
            $
            5,685$
            27,957
            
            $
            6,570
            
            $
            21,387
            
            $
            58,520
            
            $
            9,847
            
            $
            48,673




Based
      on
      current information, estimated future amortization expense of other intangible
      assets for this fiscal year, and each of the next four fiscal years are as
      follows:





2006
            
            $
            1,8132007
            
            
            5,6972008
            
            
            5,2982009
            
            
            4,6332010
            
            
            4,182Thereafter
            
            
            27,050$
            48,673





-
          15
          -




**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 and other financial information
      appearing elsewhere in this report as well as Management’s Discussion and
      Analysis included in our 2005 Annual Report on Form 10-K, our final prospectus
      for our recent secondary offering dated April 5, 2006, our 2006 first quarter
      report on Form 10-Q dated May 15, 2006, and our 2006 second quarter report
      on
      Form 10-Q dated August 14, 2006.*





*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; (xi) the loss of key
      personnel and qualified technical staff; and (xii) failure to prevail upon
      appeal in the Louis Frey Company litigation* ***.***





*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 2005 Annual Report on Form 10-K
      and our first quarter report on Form 10-Q dated May 15, 2006, and our second
      quarter report on Form 10-Q dated August 14, 2006. 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.*





**Executive
      Summary**




American
      Reprographics Company is the leading reprographics company in the United States.
      We provide business-to-business document management services to the
      architectural, engineering and construction industry, or AEC industry, through
      a
      nationwide network of independently-branded service centers. The majority of
      our
      customers know us as a local reprographics provider, usually with a local brand
      and a long history in the community. We also serve a variety of clients and
      businesses outside the AEC industry in need of sophisticated document management
      services.




Our
      services apply to time-sensitive and graphic-intensive documents, and fall
      into
      four primary categories:


·
            Document
                management;


·
            Document
                distribution & logistics;


·
            Print-on-demand;
                and


·
            On-site
                services, frequently referred to as facilities management, or FMs,
                (any
                combination of the above services supplied at a customer’s
                location).





We
      deliver these services through our specialized technology, more than 775 sales
      and customer service employees interacting with our customers every day, and
      more than 3,000 on-site services facilities at our customers’ locations. All of
      our local service centers are connected by a digital infrastructure, allowing
      us
      to deliver services, products, and value to approximately 73,000 companies
      throughout the country.




-
          16
          -




Our
      divisions operate under local brand names. Each brand name typically represents
      a business or group of businesses that has been acquired in our 17-year history.
      We coordinate these operating divisions and consolidate their service offerings
      for large regional or national customers through a corporate-controlled “Premier
      Accounts” division.




A
      significant component of our growth has come from acquisitions. In the first
      nine months of 2006, we paid $78.6 million for twelve new acquisitions. In
      2005,
      we acquired 14 businesses for $32.1 million. We acquired six businesses in
      2004 for $3.7 million, and acquired five businesses for $.9 million in 2003.
      Each acquisition was accounted for using the purchase method, and as such,
      our
      consolidated income statements reflect sales and expenses of acquired businesses
      only for post-acquisition periods. All acquisition amounts include
      acquisition-related costs.




As
      part
      of our growth strategy, in 2003 we began acquiring or opening branch service
      centers, which we view as a relatively low cost, rapid form of market expansion.
      New, or so called “greenfield” branches require modest capital expenditures to
      open. They are expected to generate operating profit within 12 months from
      opening. Branch acquisitions are generally profitable from their purchase date
      and are frequently acquired at low multiples. Over a 12-month period, the
      economics of such branch acquisitions are equivalent to new branch openings.
      We
      opened or acquired 14 branches in key markets in 2005. We opened or acquired
      14
      branches during the first nine months of 2006. The Company expects to open
      or
      acquire approximately 15 branches in 2006. To date, we believe that each branch
      that has been open at least 12 months has generated operating
      profit.




In
      the
      following pages, we offer descriptions of how we manage and measure financial
      performance throughout the company. Our comments in this report represent our
      best estimates of current business trends and future trends that we think may
      affect our business. Actual results, however, may differ from what is presented
      here.




**Evaluating
      our Performance.** We
      evaluate our success by delivering value to our shareholders
      through:





·
            Creating
                consistent, profitable revenue
                growth;


·
            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
                the lowest cost structure in the industry;
                and


·
            Maintaining
                a flexible capital structure that provides for both responsible debt
                service and the pursuit of acquisitions and other high-return
                investments.





**Primary
      Financial Measures** We
      use
      net sales, costs and expenses, and operating cash flow as operational measures
      and to assess the performance of our business. We
      identify reportable segments based on how management internally evaluates
      financial information, business activities and management responsibility. On
      that basis, we operate in a single reportable business segment. Please refer
      to
      our 2005 Annual Report on Form 10-K, for more information regarding our primary
      financial measures.




***Other
      Common Financial Measures*** **.** We also
      use a variety of other common financial measures as indicators of our
      performance, including:





·
                Net
                    income and earnings per
                    share;


·
                EBIT;


·
                EBITDA;


·
                Revenue
                    per geographical
                    region;


·
                Material
                    costs as a percentage of net sales;
                    and


·
                Days
                    Sales Outstanding/Days Sales Inventory/Days Accounts
                    Payable.





In
      addition to using these financial measures at the corporate level, we monitor
      some of them daily and location-by-location through use of our proprietary
      company intranet and reporting tools. Our corporate operations staff also
      conducts a monthly variance analysis on the income statement, balance sheet,
      and
      cash flows of each operating division.




Not
      all
      of these financial measurements are represented directly on the Company’s
      consolidated financial statements, but meaningful discussions of each are part
      of our quarterly disclosures and presentations to the investment
      community.




-
          17
          -




**Measuring
      revenue by other means.** We also
      measure revenue generation by geographic region to manage the performance of
      our
      local and regional business units. This offers
      us operational insights into the effectiveness of our sales and marketing
      efforts and alerts us to significant business trends.




We
      estimate approximately 80% of our net sales come from the AEC market, while
      20%
      come from non-AEC sources. We believe this mix is optimal because it offers
      us
      the advantages of diversification without diminishing our focus on our core
      competencies.




Our
      six
      geographic operating regions are:





·
            East
                Coast - includes New England and the Mid-Atlantic
                states;


·
            Midwest
                - includes Canadian operations as well as commonly considered Midwestern
                states;


·
            Southern
                - our broadest region, spans Florida to Texas and north into Las
                Vegas;


·
            Southern
                California - with the Monterey Bay area as a rough dividing
                line;


·
            Northern
                California - includes Silicon Valley, the San Francisco Bay Area
                and the
                Greater Sacramento/Central Valley area;
                and


·
            Pacific
                Northwest - includes Oregon, Washington and British Columbia,
                Canada.











**Acquisitions.** Our
      disciplined approach to complementary acquisitions has led us to acquire
      reprographics businesses that fit our profile for performance potential and
      meet
      strategic criteria for gaining market share. In most cases, performance of
      newly
      acquired businesses improves almost immediately due to the application of
      financial best practices, significantly greater purchasing power, and
      productivity-enhancing technology.




According
      to the International Reprographics Association (IRgA), the reprographics
      industry is highly-fragmented and comprised primarily of small businesses of
      less than $5 million in annual sales. Our own experience in acquiring
      reprographics businesses over the past ten years supports this estimate.
      Although none of the individual acquisitions we made in the past three years
      are
      material to our overall business, each was strategic from a marketing and
      regional market share point of view.




When
      we
      acquire businesses, our management typically uses the previous year’s sales
      figures as an informal basis for estimating future revenues for our company.
      We
      do not use this approach for formal accounting or reporting purposes but as
      an
      internal benchmark with which to measure the future effect of operating
      synergies, best practices and sound financial management on the acquired
      entity.




-
          18
          -




We
      also
      use previous year’s sales figures to assist us in determining how the company
      will be integrated into the overall management structure of our company. We
      categorize newly acquired businesses in one of two ways:





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 are equivalent to our 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, for providing specialized services, and for administrative
                and
                other “back office” support. Wemaintain 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.




New
      acquisitions frequently carry a significant amount of goodwill in their purchase
      price, even in the case of a low purchase multiple. This goodwill represents
      the
      purchase price of an acquired business less tangible assets and identified
      intangible assets. We test our goodwill annually for impairment on
      September 30. The methodology for such testing is detailed further on page
      29 of this report.




**Economic
      Factors Affecting Financial Performance.** We
      estimate that sales to the AEC market accounted for 80% of our net sales for
      the
      year ended December 31, 2005, with the remaining 20% consisting of sales to
      non-AEC markets (based on our annual review of the top 30% of our customers,
      and
      designating customers as either AEC or non-AEC based on their primary use of
      our
      services). As a result, our operating results and financial condition can be
      significantly affected by economic factors that influence the AEC industry,
      such
      as non-residential construction spending, GDP growth, interest rates, employment
      rates, office vacancy rates, and government expenditures. Similar to the AEC
      industry, the reprographics industry typically lags a recovery in the broader
      economy.




**Non-GAAP
      Measures**




EBIT
      and
      EBITDA and related ratios presented in this report are supplemental measures
      of
      our performance that are not required by or presented in accordance with GAAP.
      These measures are not measurements of our financial performance under GAAP
      and
      should not be considered as alternatives to net income, income from operations,
      or any other performance measures derived in accordance with GAAP or as an
      alternative to cash flow from operating, investing or financing activities
      as a
      measure of our liquidity.




EBIT
      represents net income before interest and taxes. EBITDA represents net income
      before interest, taxes, depreciation and amortization. EBIT margin is a non-GAAP
      measure calculated by subtracting depreciation and amortization from EBITDA
      and
      dividing the result by net sales. EBITDA margin is a non-GAAP measure calculated
      by dividing EBITDA by net sales.




We
      present EBIT and EBITDA and related ratios because we consider them important
      supplemental measures of our performance and liquidity. We believe investors
      may
      also find these measures meaningful, given how our management makes use of
      them.
      The following is a discussion of our use of these measures.




We
      use
      EBIT to measure and compare the performance of our divisions. We operate our
      divisions as separate business units but manage debt and taxation at the
      corporate level. As a result, EBIT is the best measure of divisional
      profitability and the most useful metric by which to measure and compare the
      performance of our divisions. We also use EBIT to measure performance for
      determining division-level compensation and use EBITDA to measure performance
      for determining consolidated-level compensation. We also use EBITDA as a metric
      to manage cash flow from our divisions to the corporate level and to determine
      the financial health of each division. As noted above, since debt and taxation
      are managed at the corporate level, the cash flow from each division should
      be
      equal to the corresponding EBITDA of each division, assuming no other changes
      to
      a division’s balance sheet. As a result, we reconcile EBITDA to cash flow
      monthly as one of our key internal controls. We also use EBIT and EBITDA to
      evaluate potential acquisitions and to evaluate whether to incur capital
      expenditures.




EBIT,
      EBITDA and related ratios have limitations as analytical tools, and you should
      not consider them in isolation, or as a substitute for analysis of our results
      as reported under GAAP. Some of these limitations are as follows:




·
            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;




-
          19
          -




·
            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.




Because
      of these limitations, EBIT, EBITDA, and related ratios should not be considered
      as measures of discretionary cash available to us to invest in business growth
      or to reduce our indebtedness. We compensate for these limitations by relying
      primarily on our GAAP results and using EBIT and EBITDA only as supplements.
      For
      more information, see our consolidated financial statements and related notes
      elsewhere in this report. Additionally, please refer to our 2005 Annual Report
      on Form 10-K.





We
      have
      presented adjusted net income and adjusted earnings per share for the three
      and
      nine months ended September 30, 2006, to reflect the exclusion of the one-time
      litigation charge related to the Louis Frey bankruptcy litigation. This
      presentation facilitates a meaningful comparison of the Company’s operating
      results for the three and nine months ended September 30, 2006, to the same
      period in 2005, excluding a one-time income tax benefit taken in February of
      2005 (refer to the Income Taxes section of Part I, Item 2 of this report for
      more information).




The
      following is a reconciliation of cash flows provided by operating activities
      to
      EBIT, EBITDA, and net income:




**Three
                Months Ended September 30,**
            
            **Nine
                Months Ended September 30,****2005**
            
            **2006**
            
            **2005**
            
            **2006****(Dollars
                in thousands)**
            
            **(Dollars
                in thousands)**Cash
                flows provided by operating activities
            
            $
            17,998
            
            $
            30,180
            
            $
            42,587
            
            $
            72,580Changes
                in operating assets and liabilities
            
            
            (976
            )
            
            (4,924
            )
            
            8,723
            
            
            (13,935
            )Non-cash
                  (expenses) income, including depreciation
                  and amortization
            
            
            (6,504
            )
            
            (9,500
            )
            
            6,154
            
            
            (20,087
            )Income
                tax provision (benefit)
            
            
            7,018
            
            
            8,993
            
            
            (8,079
            )
            
            24,193Interest
                expense
            
            
            6,131
            
            
            5,810
            
            
            20,649
            
            
            17,270EBIT
            
            
            23,667
            
            
            30,559
            
            
            70,034
            
            
            80,021Depreciation
                and amortization
            
            
            5,018
            
            
            7,461
            
            
            13,907
            
            
            19,467EBITDA
            
            
            28,685
            
            
            38,020
            
            
            83,941
            
            
            99,488Interest
                expense
            
            
            (6,131
            )
            
            (5,810
            )
            
            (20,649
            )
            
            (17,270
            )Income
                tax (provision) benefit
            
            
            (7,018
            )
            
            (8,993
            )
            
            8,079
            
            
            (24,193
            )Depreciation
                and amortization
            
            
            (5,018
            )
            
            (7,461
            )
            
            (13,907
            )
            
            (19,467
            )Net
                income
            
            $
            10,518
            
            $
            15,756
            
            $
            57,464
            
            $
            38,558





-
          20
          -




The
      following is a reconciliation of net income to EBITDA:




**Three
                Months Ended September 30,**
            
            **Nine
                Months Ended September 30,****2005**
            
            **2006**
            
            **2005**
            
            **2006****(Dollars
                in thousands)**
            
            **(Dollars
                in thousands)**Net
                income
            
            $
            10,518
            
            $
            15,756
            
            $
            57,464
            
            $
            38,558Interest
                expense, net
            
            
            6,131
            
            
            5,810
            
            
            20,649
            
            
            17,270Income
                tax provision (benefit)
            
            
            7,018
            
            
            8,993
            
            
            (8,079
            )
            
            24,193EBIT
            
            
            23,667
            
            
            30,559
            
            
            70,034
            
            
            80,021Depreciation
                and amortization
            
            
            5,018
            
            
            7,461
            
            
            13,907
            
            
            19,467EBITDA
            
            $
            28,685
            
            $
            38,020
            
            $
            83,941
            
            $
            99,488





The
      following is a reconciliation of our net income margin to EBIT margin and EBITDA
      margin:





**Three
                Months Ended September 30,**
            
            **Nine
                Months Ended September 30,****2005**
            
            **2006**
            
            **2005**
            
            **2006**Net
                income margin
            
            
            8.3
            %
            
            10.3
            %
            
            15.6
            %
            
            8.7
            %Interest
                expense, net
            
            
            4.8
            %
            
            3.8
            %
            
            5.6
            %
            
            3.9
            %Income
                tax provision (benefit)
            
            
            5.5
            %
            
            5.9
            %
            
            (2.2
            )%
            
            5.4
            %EBIT
                margin
            
            
            18.6
            %
            
            20.0
            %
            
            18.9
            %
            
            18.0
            %Depreciation
                and amortization
            
            
            3.9
            %
            
            4.9
            %
            
            3.8
            %
            
            4.4
            %EBITDA
                margin
            
            
            22.5
            %
            
            24.9
            %
            
            22.7
            %
            
            22.4
            %





The
      following is a reconciliation of net income to adjusted net income and earnings
      per share to adjusted earnings per share:




**Three
                Months Ended September 30,**
            
            **Nine
                Months Ended September 30,****2005**
            
            **2006**
            
            **2005**
            
            **2006****(Dollars
                in thousands,**
            
            **(Dollars
                in thousands,****except
                per share data)**
            
            **except
                per share data)**Net
                income
            
            $
            10,518
            
            $
            15,756
            
            $
            57,464
            
            $
            38,558Litigation
                reserve
            
            
            
            
            
            --
            
            
            
            
            
            11,262Interest
                  expense due to litigation
                  reserve
            
            
            
            
            
            204
            
            
            
            
            
            2,481Income
                  tax benefit due to litigation
                  reserve
            
            
            
            
            
            (82
            )
            
            
            
            
            (5,497
            )Income
                tax benefit due to reorganization
            
            
            --
            
            
            --
            
            
            (27,701
            )
            
            --Unaudited
                  adjusted incremental income
                  tax provision
            
            
            --
            
            
            --
            
            
            (333
            )
            
            --Unaudited
                adjusted net income
            
            $
            10,518
            
            $
            15,878
            
            $
            29,430
            
            $
            46,804Earning
                Per Share (Actual):Basic
            
            $
            0.24
            
            $
            0.35
            
            $
            1.37
            
            $
            0.86Diluted
            
            $
            0.23
            
            $
            0.35
            
            $
            1.33
            
            $
            0.85Earning
                Per Share (Adjusted):Basic
            
            $
            0.24
            
            $
            0.35
            
            $
            0.70
            
            $
            1.04Diluted
            
            $
            0.23
            
            $
            0.35
            
            $
            0.68
            
            $
            1.03Weighted
                average common sharesoutstanding:Basic
            
            
            44,170,226
            
            
            45,177,627
            
            
            42,080,404
            
            
            44,923,884Diluted
            
            
            45,014,364
            
            
            45,663,040
            
            
            43,058,179
            
            
            45,483,702





-
          21
          -




**Results
      of Operations for the Three and Nine Months Ended September 30, 2006 and
      2005**





The
      following table provides information on the percentages of certain items of
      selected financial data compared to net sales for the periods
      indicated:


**As
                  Percentage of Net Sales****Three
                  Months Ended September 30,**
              
              **Nine
                  Months Ended September 30,****2005**
              
              **2006**
              
              **2005**
              
              **2006**Net
                  Sales
              
              
              100.0
              %
              
              100.0
              %
              
              100.0
              %
              
              100.0
              %Cost
                  of sales
              
              
              58.8
              
              
              56.1
              
              
              58.2
              
              
              56.6Gross
                  profit
              
              
              41.2
              
              
              43.9
              
              
              41.8
              
              
              43.4Selling,
                  general and administrative expenses
              
              
              22.2
              
              
              22.6
              
              
              22.6
              
              
              22.3Litigation
                  reserve
              
              
              -
              
              
              -
              
              
              -
              
              
              2.5Amortization
                  of intangibles
              
              
              0.5
              
              
              1.0
              
              
              0.4
              
              
              0.7Income
                  from operations
              
              
              18.5
              
              
              20.3
              
              
              18.9
              
              
              17.9Other
                  income
              
              
              -
              
              
              (0.3
              )
              
              0.1
              
              
              0.1Interest
                  expense, net
              
              
              (4.8
              )
              
              (3.8
              )
              
              (5.6
              )
              
              (3.9
              )Income
                  before income tax provision (benefit)
              
              
              13.8
              
              
              16.2
              
              
              13.4
              
              
              14.1Income
                  tax provision (benefit)
              
              
              5.5
              
              
              5.9
              
              
              (2.2
              )
              
              5.4Net
                  income
              
              
              8.3
              %
              
              10.3
              %
              
              15.6
              %
              
              8.7
              %
  **Three
        and Nine Months Ended September 30, 2006 Compared to Three and Nine Months
        Ended
        September 30, 2005**
  **Three
                  Months Ended**
                **September
                  30,**
              
              **Increase
                  (decrease)**
              
              **Nine
                  Months Ended**
                **September
                  30,**
              
              **Increase
                  (decrease)****2005**
              
              **2006**
              
              **(In
                  dollars)**
              
              **(Percent)**
              
              **2005**
              
              **2006**
              
              **(In
                  dollars)**
              
              **(Percent)****(In
                  millions)**
              
              
              
              **(In
                  millions)**Reprographics
                  services
              
              $
              94.7
              
              $
              111.2
              
              $
              16.5
              
              
              17.4
              %
              $
              277.1
              
              $
              330.7
              
              $
              53.6
              
              
              19.3
              %Facilities
                  management
              
              
              21.6
              
              
              25.8
              
              
              4.2
              
              
              19.4
              %
              
              61.8
              
              
              73.4
              
              
              11.6
              
              
              18.8
              %Equipment
                  and supplies sales
              
              
              11.2
              
              
              15.5
              
              
              4.3
              
              
              38.4
              %
              
              30.6
              
              
              40.8
              
              
              10.2
              
              
              33.3
              %Total
                  net sales
              
              
              127.5
              
              
              152.5
              
              
              25.0
              
              
              19.6
              %
              
              369.5
              
              
              444.9
              
              
              75.4
              
              
              20.4
              %Gross
                  profit
              
              
              52.5
              
              
              67.0
              
              
              14.5
              
              
              27.6
              %
              
              154.5
              
              
              193.2
              
              
              38.7
              
              
              25.0
              %Selling,
                    general and administrative
                    expenses
              
              
              28.3
              
              
              34.5
              
              
              6.2
              
              
              21.9
              %
              
              83.3
              
              
              99.1
              
              
              15.8
              
              
              19.0
              %Litigation
                  reserve
              
              
              0.0
              
              
              0.0
              
              
              -
              
              
              -
              
              
              -
              
              
              11.3
              
              
              11.3
              
              
              100.0
              %Amortization
                  of intangibles
              
              
              0.6
              
              
              1.6
              
              
              1.0
              
              
              166.7
              %
              
              1.4
              
              
              3.2
              
              
              1.8
              
              
              128.6
              %Interest
                  expense, net
              
              
              6.1
              
              
              5.8
              
              
              (0.3
              )
              
              (4.9
              %)
              
              20.6
              
              
              17.3
              
              
              (3.3
              )
              
              (16.0
              %)Income
                  taxes
              
              
              7.0
              
              
              9.0
              
              
              2.0
              
              
              28.6
              %
              
              (8.1
              )
              
              24.2
              
              
              32.3
              
              
              (398.7
              %)Net
                  Income
              
              
              10.5
              
              
              15.8
              
              
              5.3
              
              
              50.5
              %
              
              57.5
              
              
              38.6
              
              
              (18.9
              )
              
              (32.9
              %)EBITDA
              
              
              28.7
              
              
              38.0
              
              
              9.3
              
              
              32.4
              %
              
              83.9
              
              
              99.5
              
              
              15.6
              
              
              18.6
              %




-
          22
          -




**Net
      Sales.**





Net
      sales
      increased by 19.6% for the three months ended September 30, 2006, compared
      to
      the three months ended September 2005. Net sales increased by 20.4% for the
      nine
      months ended September 30, 2006, compared to the same period in 2005.




In
      the
      three months ended September 30, 2006, approximately 11% of the 19.6% net sales
      increase was related to our standalone acquisitions since September 30, 2005.
      (See page 19 of this document for an explanation of acquisition type.)




In
      the
      nine months ended September 30, 2006, approximately 9.5% of the 20.4% net sales
      increase was related to our standalone acquisitions since September 30, 2005.




*Reprographics
      services.* Net
      sales
      during the three months ended September 30, 2006, increased compared to the
      same
      period in 2005 by $16.5 million due to increased non-residential construction
      spending throughout the U.S. and the expansion of our market share through
      branch openings and acquisitions. We acquired five businesses during the three
      month period ended September 30, 2006, each with a primary focus on
      reprographics services. Significant sales increases were reported in Southern
      California and the Southern region that was both market-driven and due to a
      continued focus on best sales practices. Additionally, we experienced
      significant growth in Northern California resulting from strong growth in the
      San Francisco Bay area.




During
      the nine months ended September 30, 2006, we acquired a total of twelve
      businesses, each with its primary focus on reprographics services. In addition
      to significant sales increases in the Southern region and Southern California
      noted above, Northern California also showed strong sales growth during the
      nine
      months ended September 30, 2006.




Company-wide,
      pricing remained at similar levels to the same period in 2005, with the
      exception of increased fuel and energy costs surcharges, indicating that revenue
      increases were due primarily to volume.




*Facilities
      management* .
      The
      increase in on-site or facilities management services continued to post solid
      dollar volume and period-over-period percentage gains in the three and nine
      months ended September 30, 2006. Specifically, sales for three and nine months
      ended September 30, 2006, compared to the same periods in 2005 increased by
      $4.2
      million and $11.6 million, respectively. This revenue is derived from a single
      cost per square foot of printed material, similar to our “Reprographics
      Services” revenue. As convenience and speed continue to characterize our
      customers’ needs, and as printing equipment continues to become smaller and more
      affordable, the trend of placing equipment (and sometimes staff) in an
      architectural studio or construction company office remains strong as evidenced
      by an increase of 298 facilities management contracts in the third quarter
      of
      2006. This represents an 11% increase from the second quarter of 2006. By
      placing such equipment on-site and billing on a per use and per project basis,
      the invoice continues to be issued by us, just as if the work were produced
      in
      one of our centralized production facilities. The resulting benefit is the
      convenience of on-site production with a pass-through or reimbursable cost
      of
      business that many customers continue to find attractive.




*Equipment
      and supplies sales.* During
      the three month period ended September 30, 2006, our equipment and supplies
      sales increased by 38.4% as compared to the same period in 2005.




In
      the
      nine month period ended September 30, 2006, equipment and supply sales increased
      by 33.3%.




During
      the past four years, our facilities management sales efforts made steady
      progress against the outright sale of equipment and supplies by converting
      such
      sales contracts to on-site service agreements. Two acquisitions in the Midwest
      in 2005 and one late in 2004 continue to reverse this trend, as each possesses
      a
      strong equipment and supply business unit. Trends in smaller, less expensive
      and
      more convenient printing equipment are gaining popularity with customers who
      want the convenience of in-house production, but have no compelling reimbursable
      invoice volume to offset the cost of placing the equipment.




**Gross
      Profit.**





Our
      gross
      profit and gross profit margin increased to $67.0 million and 43.9% during
      the
      three months ended September 30, 2006, compared to $52.5 million and 41.2%
      during the same period in 2005, on sales growth of $25.0 million.




-
          23
          -




During
      the nine month period ended September 30, 2006, gross profit and gross profit
      margin increased to $193.2 million and 43.4% compared to $154.5 million and
      41.8% for the nine months ended September 30, 2005, on sales growth of $75.4
      million.




Increases
      in revenues coupled with the fixed cost nature of some of our cost of goods
      sold
      expenses, such as machine cost and facility rent, contributed to increases
      in
      gross profit during the three and nine months ended September 30, 2006. Gross
      margins reflected the added revenue and leverage benefit therefore increased
      during the three and nine months ended September 30, 2006. Also contributing
      to
      the increase in the gross profit margin was the increase in digital services
      and
      facilities management revenue, as they carry higher gross margins than other
      services provided to clients. These increases were partially offset by lower
      gross margins of acquired companies and new branch openings that tend to depress
      gross margins temporarily.




Our
      increased purchasing power as a result of our expanding geographical footprint
      continues to keep our material cost and purchasing costs low by industry
      standards. Production labor cost as a percentage of net sales decreased slightly
      from 23.0% in the nine month period ended September 30, 2005 to 22.7% in the
      same period in 2006 due to our increased use of outsourced labor, particularly
      for our delivery services. Production overhead as a percentage of revenue
      decreased from 16.9% in the first nine months of 2005 to 15.1% in 2006 due
      to
      the fixed cost nature of the expense coupled with the net sales
      increase.




**Selling,
      General and Administrative Expenses.**




Selling,
      general and administrative expenses increased by $6.2 million or 21.9% during
      the third quarter of 2006 over the same period in 2005.




Selling,
      general and administrative expenses increased by $15.8 million, or 19.0% in
      the
      nine months ended September 30, 2006, over the same period in 2005.




Increases
      during the three and nine month period ended September 30, 2006, are
      attributable to the increase in our sales volume during the same period and
      increased fees due to our Sarbanes Oxley compliance work. Specifically, expenses
      rose primarily due to increases in administrative and sales salaries and
      commissions of $3.4 and $6.8 million which were partly due to our Premier
      Accounts initiative, incentive payments and bonus accruals of $0.3 and $1.4
      million that accompany sales growth, $0.1 and $0.9 million of advertising costs
      which included our efforts to promote our new Sub-Hub technology, and $0.5
      and
      $1.5 million of legal and accounting fees due to compliance costs as a public
      company during the three and nine months ended September 30, 2006,
      respectively. Additionally, in April 2006, the company completed a secondary stock offering,
      primarily to facilitate the sale of shares owned by its financial sponsors,
      Code
      Hennessy & Simmons LLC, of Chicago. Administrative and legal fees for the
      secondary offering amounted to approximately $0.7 million.




Selling,
      general and administrative expenses, as a percentage of net sales increased
      from
      22.2% in the third quarter of 2005 to 22.6% in the third quarter of 2006 partly
      due to increased fees related to our Sarbanes Oxley compliance work. The decline
      from 22.6% in the nine months ended September 30, 2005 to 22.3% in the same
      period of 2006 was a result of continued regional consolidation of accounting
      and finance functions, and a maturing regional management structure. Our
      regional management structure, instituted in 2003, continues to bear positive
      results in the dissemination of best business practices, better administrative
      controls, and greater consolidation of common regional resources.




**Litigation
      Reserve.**




In
      accordance with GAAP, we have accounted for the judgment entered by the United
      States Bankruptcy Court in the Louis Frey Company litigation by recording a
      one-time, non-recurring litigation charge of $13.74 million that includes a
      $11.26 million litigation reserve ($11.06 million in awarded damages and $0.20
      million in preference claims), and interest expense of $2.48 million. These
      charges are offset by a corresponding tax benefit of $5.50 million, resulting
      in
      a net impact of $8.24 million to the net income during the nine months ended
      September 30, 2006. This one-time, non-recurring litigation reserve of $11.26
      million represents 2.5% of net sales for the nine months ended September 30,
      2006.




**Amortization
      of Intangibles.**




Amortization
      of intangibles increased $1.0 million during the three months ended September
      30, 2006, compared to the same period in 2005 primarily due to an increase
      in
      identified intangible assets such as customer relationships, and trade names
      associated with acquired businesses.




-
          24
          -




Amortization
      of intangibles increased $1.8 million during the nine months ended September
      30,
      2006, due to the same reason noted above.




**Interest
      Expense, Net.**




Net
      interest expense decreased to $5.8 million during the three months ended
      September 30, 2006, compared to $6.1 million during the same period in 2005,
      a
      decrease of 4.9%. Interest expense in the three months ended September 30,
      2006,
      included $.2 million of interest related to the Louis Frey litigation reserve
      which continues to accrue interest as we enter into the appeal stage.




Net
      interest expense decreased to $17.3 million during the nine months ended
      September 30, 2006, compared to $20.6 million during the same period in 2005,
      a
      decrease of 16.0%. Interest expense in the nine months ended September 30,
      2006,
      included $2.5 million of interest related to the Louis Frey litigation reserve.




The
      decrease in interest expense for the three and nine months ended September
      30,
      2006, was due primarily to the refinance of our second lien debt in December
      of
      2005 at more favorable interest rates, partially offset by interest expense
      related to the Louis Frey litigation reserve.




**Income
      Taxes.**




Our
      effective income tax rate, excluding our one-time benefit as a result of our
      reorganization in February 2005, decreased from 40% in the three and nine months
      ended September 30, 2005 to 36.3% and 38.6% for the three and nine months ended
      September 30, 2006, respectively. The decrease is due to the release of a tax
      reserve for a prior year as the statute of limitations had closed.




Additionally,
      a $0.08 million tax benefit was recorded in the three months ended September
      30,
      2006, and $5.4 million in the nine months ended September 30, 2006, due to
      the
      aforementioned Louis Frey litigation charge.




**Net
      Income.**




Net
      income increased to $15.8 million during the three months ended September 30,
      2006, compared to $10.5 million in the same period in 2005 primarily due to
      the
      increase in sales.




Net
      income decreased to $38.6 million during the nine months ended September 30,
      2006, primarily due to a one time tax benefit of $27.7 million as a result
      of
      our reorganization in February 2005, and the litigation charge taken in the
      second quarter of 2006 associated with the Louis Frey litigation. Excluding
      the
      one-time tax benefit of $27.7, and the litigation charge, net of taxes, of
      $8.2
      million, net income increased by $17.4 million during the nine months ended
      September 30, 2006, compared to the same period in 2005 primarily due to
      increased sales and lower interest expense resulting from the refinance of
      our
      debt.




The
      litigation charge, net of taxes, of $8.2 million had a $0.18 adverse impact
      on
      basic and diluted earning per share for the nine months ended September 30,
      2006. For a reconciliation of net income to adjusted net income and adjusted
      earning per share, please see “Non-GAAP Measures” above.




**EBITDA.**




EBITDA
      margin increased to 24.9% during the three months ended September 30, 2006,
      compared to 22.5% during the same period in 2005 primarily due to the increase
      in sales and gross profit margin.




The
      EBITDA margin decreased to 22.4% during the nine months ended September 30,
      2006, compared to 22.7% during the same period in 2005 due to the Louis Frey
      litigation charge, partially offset by the increase in sales and gross profit
      margin. The litigation charge had a 2.5% adverse effect on EBITDA margin during
      the nine months ended September 30, 2006.




For
      a
      reconciliation of EBITDA to net income, please see “Non-GAAP Measures”
above.




**Impact
      of Inflation**




Inflation
      has not had a significant effect on our operations. Price increases for raw
      materials such as paper typically have been, and we expect will continue to
      be,
      passed on to customers in the ordinary course of business.




-
          25
          -




**Liquidity
      and Capital Resources**




Our
      principal sources of cash have been operations and borrowings under our bank
      credit facilities or debt agreements. Our historical uses of cash have been
      for
      acquisitions of reprographics businesses, payment of principal and interest
      on
      outstanding debt obligations, capital expenditures and tax-related distributions
      to members of Holdings. Supplemental information pertaining to our historical
      sources and uses of cash is presented as follows and should be read in
      conjunction with our consolidated statements of cash flows and notes thereto
      included elsewhere in this report.




**Nine
                Months Ended****September
                30, 2006****2005**
            
            **2006****(Unaudited)****(Dollars
                in thousands)**Net
                cash provided by operating activities
            
            $
            42,587
            
            $
            72,580Net
                cash used in investing activities
            
            
            ($19,710
            )
            
            ($72,885
            )Net
                cash used in financing activities
            
            
            ($23,875
            )
            
            ($8,818
            )





**Operating
      Activities**




Net
      cash
      of $72.6 million provided by operating activities for the nine months ended
      September 30, 2006, represents a year-over-year increase primarily related
      to
      net income of $38.6 million for the nine months ended September 30, 2006.
      It also includes depreciation and amortization of intangible assets of
      $19.5 million and an increase in accounts payable and accrued expenses of
      $26.3 million primarily due to the litigation charge related to the Louis Frey
      bankruptcy case and the timing of tax payments. These factors were partially
      offset by the growth in accounts receivable, net of effect of business
      acquisitions, of $13.8 million, primarily related to increased sales.




**Investing
      Activities**




Net
      cash
      of $72.9 million for the nine months ended September 30, 2006, used in investing
      activities primarily relates to the acquisition of businesses, capital
      expenditures at all our operating divisions, and cash collateral posted ($7.5
      million) to stay the execution of the Louis Frey judgment pending appeal.
      Payments for businesses acquired, net of cash acquired and including other
      cash
      payments and earnout payments associated with the acquisitions, amounted to
      $59.2 million during the nine months ended September 30, 2006. Cash
      payments for capital expenditures totaled $6.0 million for the nine months
      ended September 30, 2006.





**Financing
      Activities**




Net
      cash
      of $8.8 million used for financing activities during the nine months ended
      September 30, 2006, primarily relate to the net repayment of debt and capital
      lease obligations of $14.1 million, offset by proceeds from issuance of common
      stock under our Employee Stock Purchase Plan and stock option exercises of
      $2.1
      million. Also included in financing activities is a $3.6 million excess tax
      benefit related to stock options exercised.




Our
      cash
      position, working capital, and debt obligations as of September 30, 2006, are
      shown below and should be read in conjunction with our consolidated balance
      sheets and notes thereto contained elsewhere in this report.




**December
                31, 2005**
            
            **September
                30, 2006****(Unaudited)****(Dollars
                in thousands)**Cash
                and cash equivalents
            
            $
            22,643
            
            $
            21,017Working
                capital
            
            
            35,797
            
            
            34,434Borrowings
                from senior secured credit facilities
            
            
            235,423
            
            
            233,488Other
                debt obligations
            
            
            38,389
            
            
            55,747Total
                debt obligations
            
            $
            273,812
            
            $
            289,235




-
          26
          -




We
      expect
      a positive effect on our liquidity and results of operations going forward
      due
      to lower interest expense as net proceeds of approximately $92.7 million from
      our initial public offering were used to reduce our existing debt obligations.
      Our overall interest expense may also be reduced as rates applicable to future
      borrowings on our revolving credit facility may decrease since the margin for
      loans made under the revolving facility is based on the ratio of our
      consolidated indebtedness to our consolidated EBITDA (as defined in our credit
      facilities). The applicable margin on our revolving facility ranges between
      2.00% and 2.75% for LIBOR rate loans and ranges between 1.00% and 1.75% for
      index rate loans.





These
      positive factors will be temporarily offset to a certain extent by any
      additional debt borrowings, net of pay downs, on our Term Loan Facility. The
      positive factors will also be partially offset by rising market interest rates
      on our debt obligations under our senior secured credit facilities, which are
      subject to variable interest rates. As discussed in “Quantitative and
      Qualitative Disclosure about Market Risk” on page 30, we had $289.2 million
      of total debt outstanding as of September 30, 2006, of which
      $233.5 million was bearing interest at variable rates. A 1.0% change in
      interest rates on our variable rate debt would have resulted in interest expense
      fluctuating by approximately $0.6 million and $1.8 million during the three
      and
      nine months ended September 30, 2006, respectively.




We
      believe that our cash flow provided by operations will be adequate to cover
      our
      2006 working capital needs, debt service requirements, and planned capital
      expenditures, to the extent such items are known or are reasonably determinable
      based on current business and market conditions. However, we may elect to
      finance certain of our capital expenditure requirements through borrowings
      under
      our credit facilities or the issuance of additional debt.




We
      continually evaluate potential acquisitions. Absent a compelling strategic
      reason, we target potential acquisitions that would be cash flow accretive
      within six months. Currently, we are not a party to any agreements or engaged
      in
      any negotiations regarding a material acquisition **.** We
      expect
      to fund future acquisitions through cash flow provided by operations, additional
      borrowings, or the issuance of our equity. The extent to which we will be
      willing or able to use our equity or a mix of equity and cash payments to make
      acquisitions will depend on the market value of our shares from time to time,
      and the willingness of potential sellers to accept equity as full or partial
      payment .




**Debt
      Obligations**




**Senior
      Secured Credit Facilities.**  On
      December 21, 2005, the
      Company entered into a Second Amended and Restated Credit and Guaranty Agreement
      (the Second Amended and Restated Credit Agreement). The Second Amended and
      Restated Credit Agreement provided the Company a $310.6 million Senior Secured
      Credit Facility, comprised of a $280.6 million term loan facility and a $30
      million revolving credit facility. In July 2006, to finance an acquisition,
      the
      company drew down $30 million of the available $50 million in the term loan
      facility.




Subsequent
      to drawing down the $30 million, the Company entered into a First Amendment
      to
      Second Amended and Restated Credit and Guaranty Agreement (the First Amendment)
      in order to facilitate the consummation of certain proposed acquisitions. The
      First Amendment provided the Company with a $30 million increase to its Term
      Loan Facility, thus restoring availability of the term loan facility to $50
      million, in addition to amending certain other terms including the
      following:




·
            An
                increase in the aggregate purchase price limitation for business
                acquisitions commencing with fiscal year ending December 31,
                2006;


·
            An
                increase in the threshold for capital expenditures during any trailing
                twelve-month period; and


·
            Permit
                the Company to issue certain shares of its common stock in connection
                with
                certain proposed acquisitions.





Except
      as
      described above, all other material terms and conditions, including the maturity
      dates of the Company’s existing senior secured credit facilities remained
      similar to those as described in Note 5-“Long Term Debt” to our consolidated
      financial statements included in our 2005 Annual Report on Form 10-K.





**Seller
      Notes.**  As
      of
      September 30, 2006, we had $19.6 million of seller notes outstanding,
      with interest rates ranging between 5% and 7.1% and maturities between 2006
      and
      2011. These notes were issued in connection with prior acquisitions .




**Off-Balance
      Sheet Arrangements**




As
      of
      December 31, 2005 and September 30, 2006, we did not have any relationships
      with unconsolidated entities or financial partnerships, such as entities often
      referred to as structured finance or special purpose entities, which would
      have
      been established for the purpose of facilitating off-balance sheet arrangements
      or other contractually narrow or limited purposes.




-
          27
          -




**Contractual
      Obligations and Other Commitments**




***Operating
      Leases.***  We
      have
      entered into various non-cancelable operating leases primarily related to
      facilities, equipment and vehicles used in the ordinary course of our
      business .




***Contingent
      Transaction Consideration.*** We
      have
      entered into earnout agreements in connection with prior acquisitions. If the
      acquired businesses generate operating profits in excess of predetermined
      targets, we are obligated to make additional cash payments in accordance with
      the terms of such earnout agreements. As of September 30, 2006, we have
      potential future earnout obligations aggregating to approximately $12 million
      through 2010 if the operating profits exceed the predetermined targets. Earnout
      payments are recorded as additional purchase price (as goodwill) when the
      contingent payments are earned and become payable and consist of a combination
      of cash and notes payable issued to the seller.




***State
      Sales Tax.*** **** We
      were
      involved in a state tax authority dispute related to unresolved sales tax issues
      which arose from such state tax authority’s audit findings from their sales tax
      audit of certain of our operating divisions for the period from October 1998
      to
      September 2001. Those unresolved issues related to the application of sales
      taxes on certain discounts we granted to our customers. Based on the position
      taken by the state tax authority on these unresolved issues, they claimed that
      an additional $1.2 million of sales taxes were due from us for the period in
      question, plus $489,000 of interest. At an appeals conference held on
      December 14, 2004, the appeals board ruled that we were liable in
      connection with one component of the dispute involving approximately $40,000,
      which we had previously paid. We paid the tax in May of 2005 but we strongly
      disagreed with the state tax authority’s position and filed a petition for
      redetermination requesting an appeals conference to resolve these issues. We
      were granted another appeals conference in April 2006 to resolve the
      remaining issues. We lost on appeal, and in July 2006 paid the interest related
      to this sales tax issue.




**Impact
      of Conversion from an LLC to a Corporation**




Immediately
      prior to our initial public offering in February 2005, we reorganized from
      a
      California limited liability company to a Delaware corporation, American
      Reprographics Company. In the reorganization, the members of Holdings exchanged
      their common units and options to purchase common units for shares of our common
      stock and options to purchase shares of our common stock. As required by the
      operating agreement of Holdings, we used a portion of the net proceeds from
      our
      initial public offering to repurchase all of the preferred equity of Holdings
      upon the closing of our initial public offering. As part of the reorganization,
      all outstanding warrants to purchase common units were exchanged for shares
      of
      our common stock. We do not expect any significant effect on operations from
      the
      reorganization apart from an increase in our effective tax rate due to
      corporate-level taxes, which will be offset by the elimination of tax
      distributions to our members and the recognition of deferred income taxes upon
      our conversion from a California limited liability company to a Delaware
      corporation .




**Income
      Taxes**




Prior
      to
      the consummation of the Company’s IPO on February 9, 2005, the Company was
      reorganized from a California limited liability company (American Reprographics
      Holdings, LLC or Holdings) to a Delaware Corporation (American Reprographics
      Company). As a result of the reorganization to a Delaware corporation, our
      total
      earnings are subject to federal, state and local taxes at a combined statutory
      rate of approximately 40% excluding a one-time tax benefit of $27.7 million
      due
      to the reorganization.





**Critical
      Accounting Policies**




Our
      management prepares financial statements in conformity with accounting
      principles generally accepted in the United States. This requires us to make
      estimates and assumptions that affect the amounts reported in the consolidated
      financial statements and accompanying notes. We evaluate our estimates and
      assumptions on an ongoing basis and rely on historical experience and other
      factors that we believe are reasonable under the circumstances. Actual results
      could differ from those estimates and such differences may be material to the
      consolidated financial statements. We believe the critical accounting policies
      and areas that require more significant judgments and estimates used in the
      preparation of our consolidated financial statements to be the following:
      goodwill and other intangible assets; allowance for doubtful accounts; and
      commitments and contingencies.




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***Goodwill
      and Other Intangible Assets***




Effective
      January 1, 2002, we adopted Statement of Financial Accounting Standard
      (SFAS) No. 142, “Goodwill and Other Intangible Assets,” which
      requires, among other things, the use of a nonamortization approach for
      purchased goodwill and certain intangibles. Under a nonamortization approach,
      goodwill and intangibles that have an indefinite life are not amortized but
      instead will be reviewed for impairment at least annually, or more frequently
      should an event occur or circumstances indicate that the carrying amount may
      be
      impaired. Such events or circumstances may be a significant change in business
      climate, economic and industry trends, legal factors, negative operating
      performance indicators, significant competition, changes in our strategy, or
      disposition of a reporting unit or a portion thereof. Goodwill impairment
      testing is performed at the reporting unit level .




SFAS 142
      requires a two-step test for goodwill impairment. The first step identifies
      potential impairment by comparing the fair value of a reporting unit with its
      carrying amount, including goodwill. If the fair value exceeds its carrying
      amount, goodwill is not considered impaired and the second step of the test
      is
      unnecessary. If the carrying amount exceeds its fair value, the second step
      measures the impairment loss, if any. The second step compares the implied
      fair
      value of goodwill with the carrying amount of that goodwill. The implied fair
      value of goodwill is determined in the same manner as the amount of goodwill
      recognized in a business combination. If the carrying amount goodwill exceeds
      the implied fair value of that goodwill, an impairment loss is recognized in
      an
      amount equal to that excess .




The
      goodwill impairment test requires judgment, including the identification of
      reporting units, assignment of assets and liabilities to such reporting units,
      assignment of goodwill to such reporting units, and determination of the fair
      value of each reporting unit. The fair value of each reporting unit is estimated
      using a discounted cash flow methodology. This requires significant judgments,
      including estimation of future cash flows (which is dependent on internal
      forecasts), estimation of the long-term growth rate for our business, the useful
      life over which cash flows will occur, and determination of our weighted average
      cost of capital. Changes in these estimates and assumptions could materially
      affect the determination of fair value and/or goodwill impairment for each
      reporting unit .




We
      have
      selected September 30 as the date we perform our annual goodwill impairment
      test. Based on our valuation of goodwill, no impairment charges related to
      the
      write-down of goodwill were recognized for the nine months ended September
      30,
      2006, and the year ended December 31, 2005 .




Other
      intangible assets that have finite useful lives are amortized over their useful
      lives. An impaired asset is written down to fair value. Intangible assets with
      finite useful lives consist primarily of not-to-compete covenants, trade names,
      and customer relationships and are amortized over the expected period of
      benefit, which ranges from two to twenty years using the straight-line and
      accelerated methods. Customer relationships are amortized under an accelerated
      method that reflects the related customer attrition rates, and trade names
      are
      amortized using the straight-line method .




***Allowance
      for Doubtful Accounts***




We
      perform periodic credit evaluations of the financial condition of our customers,
      monitor collections and payments from customers, and generally do not require
      collateral. Receivables are generally due within 30 days. We provide for
      the possible inability to collect accounts receivable by recording an allowance
      for doubtful accounts. We write off an account when it is considered
      uncollectible. We estimate our allowance for doubtful accounts based on
      historical experience, aging of accounts receivable, and information regarding
      the creditworthiness of our customers. To date, uncollectible amounts have
      been
      within the range of management’s expectations .




***Commitments
      and Contingencies***




In
      the
      normal course of business, we estimate potential future loss accruals related
      to
      legal, tax and other contingencies. These accruals require management’s judgment
      on the outcome of various events based on the best available information.
      However, due to changes in facts and circumstances, the ultimate outcomes could
      differ from management’s estimates .




**Recent
      Accounting Pronouncements**




On
      July
      13, 2006, the FASB issued Interpretation No. 48 (FIN No. 48) "Accounting for
      Uncertainty in Income Taxes: an interpretation of FASB Statement No. 109."
      This
      interpretation clarifies the accounting for uncertainty in income taxes
      recognized in an entity's financial statements in accordance with SFAS No.
      109,
      "Accounting for Income Taxes." FIN No. 48 prescribes a recognition threshold
      and
      measurement principles for financial statement disclosure of tax positions
      taken
      or expected to be taken on a tax return. This interpretation is effective for
      fiscal years beginning after December 15, 2006, or fiscal year 2007 for the
      Company. The Company is assessing the impact, if any, the adoption of FIN No.
      48
      will have on the Company's consolidated financial position and results of
      operations.




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On
      September 13, 2006, the Securities and Exchange Commission (SEC) issued Staff
      Accounting Bulletin (SAB) No. 108, *Considering
      the Effects of Prior Year Misstatements when Quantifying Misstatements in
      Current Year Financial Statements,* which
      provides interpretive guidance on the consideration of the effects of prior
      year
      misstatements in quantifying current year misstatements for the purpose of
      a
      materiality assessment. SAB No. 108 is effective for fiscal years ending after
      November 14, 2006, or fiscal year 2006 for the Company. Early application is
      encouraged, but not required. We are currently assessing the impact, if any,
      the
      adoption of SAB No. 108 will have on the Company’s consolidated financial
      position and results of operations. The cumulative effect, if any, of applying
      the provisions of SAB No. 108 will be reported as an adjustment to
      beginning-of-year retained earnings.




On
      September 15, 2006, the FASB issued SFAS No. 157, *Fair
      Value Measurements.* SFAS
      NO.
      157 defines fair value, establishes a framework for measuring fair value in
      generally accepted accounting principles and expands disclosure about fair
      value
      measurements. This Statement applies under other accounting pronouncements
      that
      require or permit fair value measurements, the FASB having previously concluded
      in those accounting pronouncements that fair value is the relevant measurement
      attribute. Accordingly, this Statement does not require any new fair value
      measurements. SFAS No. 157 is effective for fiscal years beginning after
      December 15, 2007, or fiscal year 2008 for the Company. The Company is currently
      evaluating the impact, if any, the adoption of SFAS No. 157 will have on the
      Company’s consolidated financial position and results of operations.





On
      September 29, 2006 the FASB issued SFAS No. 158, *“Employers’
      Accounting for Defined Benefit Pension and other Postretirement Plans”* an
      amendment of FASB Statements No. 87, 88, 106, and 132R (“SFAS 158”). SFAS No.
      158 requires an employer to recognize the over-funded or under-funded status
      of
      a defined benefit postretirement plan (other than a multiemployer plan) as
      an
      asset or liability in its statement of financial position and to recognize
      changes in that funded status in the year in which the changes occur through
      comprehensive income. SFAS No. 158 also requires the measurement of defined
      benefit plan assets and obligations as of the date of the employer’s fiscal
      year-end statement of financial position (with limited exceptions). SFAS
      No.
      158 is effective for fiscal years ending after December 15, 2006, or fiscal
      year
      2006 for the Company. The Company is currently evaluating the impact, if any,
      the adoption of SFAS No. 158 will have on the Company’s consolidated financial
      position and results of operations.




**Item
                3.**
            **Quantitative
                and Qualitative Disclosure About Market
                Risk**




Our
      primary exposure to market risk is interest rate risk associated with our debt
      instruments. We use both fixed and variable rate debt as sources of financing.
      We have an interest rate collar agreement that will expire in December 2006.
      Except as set forth below, there have been no material changes in market risk
      from the information reported in Item 7A “Quantitative and Qualitative
      Disclosures about Market Risk” in our 2005 Annual Report on Form
      10-K.




In
      March
      2006, we entered into an interest rate collar agreement that becomes effective
      on December 23, 2006, and has a fixed notional amount of $76.7 million until
      December 23, 2007, then decreases to $67.0 million until termination of the
      collar on December 23, 2008. The interest rate collar has a cap strike three
      month LIBOR rate of 5.50% and a floor strike three month LIBOR rate of
      4.70%.




As
      of
      September 30, 2006, we had $289.2 million of total debt obligations of which
      $233.5 million was bearing interest at variable rates approximating 7.1% on
      a
      weighted average basis. A 1.0% change in interest rates on our variable rate
      debt would have resulted in interest expense fluctuating by approximately $0.6
      million and $1.8 million during the three and nine months ended September 30,
      2006, respectively.




We
      have
      not, and do not plan to, enter into any derivative financial instruments for
      trading or speculative purposes. As of September 30, 2006, we had no other
      significant material exposure to market risk, including foreign exchange risk
      and commodity risks.




**Item
                4.**
            **Controls
                and Procedures**




**Disclosure
      Controls and Procedures**




We
      maintain disclosure controls and procedures that are designed to ensure that
      information required to be disclosed in our reports under the Securities
      Exchange Act of 1934 is recorded, processed, summarized, and reported within
      the
      time periods specified in the Securities and Exchange Commission’s rules and
      forms, and that such information is accumulated and communicated to our
      management, including our Chief Executive Officer and Chief Financial Officer,
      as appropriate, to allow timely decisions regarding required
      disclosures.




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Under
      the
      supervision and with the participation of our management, including our Chief
      Executive Officer and Chief Financial Officer we conducted an evaluation of
      the
      effectiveness of our disclosure controls and procedures (as defined in Rule
      13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) as of
      September 30, 2006. Based on that evaluation, our Chief Executive Officer and
      Chief Financial Officer concluded that as of September 30, 2006, these
      disclosure controls and procedures were effective.




**Changes
      in Internal Controls Over Financial Reporting**




There
      were no significant changes to internal controls over financial reporting during
      the third quarter ended September 30, 2006, that have materially affected,
      or
      are reasonably likely to materially affect, our internal controls over financial
      reporting.




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**PART
      II**




**Item
      1.Legal
      Proceedings**




***Louis
      Frey Case*** ***.*** ****** On
      August
      16, 2006, a judgment was entered against the Company in the previously disclosed
      Louis Frey Company bankruptcy litigation in the United States Bankruptcy Court,
      Southern District of New York. The judgment awarded damages to the plaintiff
      in
      the principal amount of $11.06 million, interest, totaling $2.48 million through
      September 30, 2006, and $0.20 million in preference claims. The Company
      continues to believe its position is meritorious, and commenced an appeal from
      the judgment in the United States District Court, Southern District of New
      York.
      In accordance with GAAP, the Company has accounted for the judgment by recording
      a one-time, non-recurring litigation charge of $13.74 million that includes
      a
      $11.26 million litigation reserve ($11.06 million in awarded damages and $0.20
      million in preference claims), and interest expense of $2.48 million. These
      charges are offset by a corresponding tax benefit of $5.50 million, resulting
      in
      a net impact of $8.24 million to the net income during the three and nine months
      ended September 30, 2006.




**Item
      1A.    Risk Factors**




There
      have been no material changes to the risk factors disclosed in our Annual Report
      on Form 10-K for the year ended December 31, 2005, except for the addition
      of
      the following risk factor:




As
      described in Item 1 above, on August 16, 2006, the United States Bankruptcy
      Court, Southern District of New York, entered judgment against the Company
      in
      the Louis Frey Company litigation.   We
      continue to believe our position is meritorious, and remain committed to
      pursuing vigorously a reversal of the judgment against the Company through
      the
      appellate process. We cannot predict the final outcome of the appellate process,
      and if we are unsuccessful in our appeal, it could have an adverse effect on
      the
      Company's financial position and results of operations.




**Item
      2.** **Unregistered
      Sales of Equity Securities and Use of Proceeds**




Our
      senior secured credit facilities contain restrictive covenants which, among
      other things, provide limitations on capital expenditures, restrictions on
      indebtedness and dividend distributions to our stockholders. Additionally,
      we
      are required to meet debt covenants based on certain financial ratio thresholds,
      including minimum interest coverage, maximum leverage and minimum fixed charge
      coverage ratios. The credit facilities also limit our ability and the ability
      of
      our domestic subsidiaries to, among other things, incur liens, make certain
      investments, sell certain assets, engage in reorganizations or mergers, or
      change the character of our business. We are in compliance with all such
      covenants as of September 30, 2006.




**Item
      5.**  **Other
      Information:**




As
      disclosed in our report on Form 8-K, dated October 30, 2006, the Company’s Chief
      Financial Officer, Mark Legg, notified the Company of his decision to retire.




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          32
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**Item
      6.**  **Exhibits**




INDEX
      TO
      EXHIBITS




**Number**
            **Description**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




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          33 -




**SIGNATURE
      PAGE**




Pursuant
      to the requirements of the Securities Exchange Act of 1934, the Registrant
      has
      duly caused this report to be signed on its behalf by the undersigned, thereunto
      duly authorized on November 13, 2006.




AMERICAN
              REPROGRAPHICS COMPANYBy:
            /s/ Sathiyamurthy
              ChandramohanChairman
                of the Board of Directors and
              Chief
                Executive Officer By:
            /s/ Mark
              W.
              LeggChief
              Financial Officer and Secretary





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