##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 (Mark One)
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For The Quarterly Period Ended September 30, 2007
 or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 Commission File Number: 001-32407
 AMERICAN REPROGRAPHICS COMPANY
  Delaware
    
    20-1700361(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)
 1981 N. Broadway, Suite 385,
Walnut Creek, California 94596
(925) 949-5100
(Address, including zip code, and telephone number, including area code, of
Registrants principal executive offices)
 þ o
  þ o o
 o þ




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AMERICAN REPROGRAPHICS COMPANY
Quarterly Report on Form 10-Q
For the Quarter Ended September 30, 2007
Table of Contents
 PART I Financial InformationItem 1. Financial Statements (unaudited)Consolidated Balance Sheets as of December 31, 2006 and September 30, 2007
    
    
    3Consolidated Statements of Income for the three and nine months ended September 30, 2006 and 2007
    
    
    4Condensed Consolidated Statement of Changes in Stockholders Equity for the nine months ended
September 30, 2007
    
    
    5Consolidated Statements of Cash Flows for the nine months ended September 30, 2006 and 2007
    
    
    6Notes to Consolidated Financial Statements
    
    
    7Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    15Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    28Item 4. Controls and Procedures
    
    
    28PART IIItem 1. Legal Proceedings
    
    
    29Item 1A. Risk Factors
    
    
    29Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    29Item 6. Exhibits
    
    
    30SIGNATURES
    
    
    31Index to Exhibits
    
    
    32Exhibit 31.1Exhibit 31.2Exhibit 32.1
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PART I. FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 AMERICAN REPROGRAPHICS COMPANY
 
 CONSOLIDATED BALANCE SHEETS
 (Dollars in thousands, except per share data)
(Unaudited)
 December 31,
    
    
    September 30,2006
    
    
    2007AssetsCurrent assets:Cash and cash equivalents
    
    $
    11,642
    
    
    $
    20,157Restricted cash
    
    
    8,491
    
    
    
    8,802Accounts receivable, net of allowance for doubtful accounts of $4,344
and $3,836 at December 31, 2006 and September 30, 2007, respectively
    
    
    85,277
    
    
    
    103,737Inventories, net
    
    
    7,899
    
    
    
    10,588Deferred income taxes
    
    
    10,963
    
    
    
    10,969Prepaid expenses and other current assets
    
    
    6,796
    
    
    
    7,473Total current assets
    
    
    131,068
    
    
    
    161,726Property and equipment, net
    
    
    60,138
    
    
    
    79,064Goodwill
    
    
    291,290
    
    
    
    356,084Other intangible assets, net
    
    
    50,971
    
    
    
    73,665Deferred financing costs, net
    
    
    895
    
    
    
    970Deferred income taxes
    
    
    11,245
    
    
    
    7,730Other assets
    
    
    1,974
    
    
    
    2,135Total assets
    
    $
    547,581
    
    
    $
    681,374Liabilities and Stockholders EquityCurrent liabilities:Accounts payable
    
    $
    33,447
    
    
    $
    34,285Accrued payroll and payroll-related expenses
    
    
    15,666
    
    
    
    16,880Accrued expenses
    
    
    25,810
    
    
    
    19,117Accrued litigation charge
    
    
    13,947
    
    
    
    14,358Current portion of long-term debt and capital leases
    
    
    21,048
    
    
    
    107,615Total current liabilities
    
    
    109,918
    
    
    
    192,255Long-term debt and capital leases
    
    
    252,097
    
    
    
    244,280Other long-term liabilities
    
    
    1,322
    
    
    
    2,380Total liabilities
    
    
    363,337
    
    
    
    438,915Commitments and contingenciesStockholders equity:Preferred stock, $0.001 par value, 25,000,000 shares authorized;
zero and zero shares issued and outstanding
    
    
    
    
    
    
    Common stock, $0.001 par value, 150,000,000 shares authorized;
44,346,099 and 45,558,629 shares issued and outstanding
    
    
    45
    
    
    
    46Additional paid-in capital
    
    
    75,465
    
    
    
    80,328Deferred stock-based compensation
    
    
    (1,224
    )
    
    
    (789
    )Retained earnings
    
    
    109,955
    
    
    
    162,357Accumulated other comprehensive income
    
    
    3
    
    
    
    517Total stockholders equity
    
    
    184,244
    
    
    
    242,459Total liabilities and stockholders equity
    
    $
    547,581
    
    
    $
    681,374
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AMERICAN REPROGRAPHICS COMPANY
 
 CONSOLIDATED STATEMENTS OF INCOME
 (Dollars in thousands, except per share data)
 (Unaudited)
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2006
    
    
    2007
    
    
    2006
    
    
    2007Reprographics services
    
    $
    111,176
    
    
    $
    131,655
    
    
    $
    330,652
    
    
    $
    384,690Facilities management
    
    
    25,814
    
    
    
    29,241
    
    
    
    73,437
    
    
    
    84,581Equipment and supplies sales
    
    
    15,548
    
    
    
    15,316
    
    
    
    40,778
    
    
    
    44,937Total net sales
    
    
    152,538
    
    
    
    176,212
    
    
    
    444,867
    
    
    
    514,208Cost of sales
    
    
    85,531
    
    
    
    103,548
    
    
    
    251,686
    
    
    
    298,948Gross profit
    
    
    67,007
    
    
    
    72,664
    
    
    
    193,181
    
    
    
    215,260Selling, general and administrative expenses
    
    
    34,516
    
    
    
    37,175
    
    
    
    99,113
    
    
    
    105,908Litigation reserve
    
    
    
    
    
    
    
    
    
    
    11,262
    
    
    
    Amortization of intangible assets
    
    
    1,574
    
    
    
    2,423
    
    
    
    3,227
    
    
    
    6,619Income from operations
    
    
    30,917
    
    
    
    33,066
    
    
    
    79,579
    
    
    
    102,733Other (expense) income, net
    
    
    (358
    )
    
    
    
    
    
    
    442
    
    
    
    Interest expense, net
    
    
    5,810
    
    
    
    6,872
    
    
    
    17,270
    
    
    
    18,675Income before income tax provision
    
    
    24,749
    
    
    
    26,194
    
    
    
    62,751
    
    
    
    84,058Income tax provision
    
    
    8,993
    
    
    
    10,249
    
    
    
    24,193
    
    
    
    31,656Net income
    
    $
    15,756
    
    
    $
    15,945
    
    
    $
    38,558
    
    
    $
    52,402Earnings per share:Basic
    
    $
    0.35
    
    
    $
    0.35
    
    
    $
    0.86
    
    
    $
    1.15Diluted
    
    $
    0.35
    
    
    $
    0.35
    
    
    $
    0.85
    
    
    $
    1.14Weighted average common shares outstanding:Basic
    
    
    45,177,627
    
    
    
    45,486,012
    
    
    
    44,923,884
    
    
    
    45,429,238Diluted
    
    
    45,663,040
    
    
    
    45,865,453
    
    
    
    45,483,702
    
    
    
    45,848,177
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AMERICAN REPROGRAPHICS COMPANY
 
 CONDENSED CONSOLIDATED STATEMENT OF
 CHANGES IN STOCKHOLDERS EQUITY
(Dollars in thousands, except per share)
(Unaudited)
 AccumulatedAdditional
    
    
    
    
    
    
    
    
    
    
    Other
    
    
    TotalCommon Stock
    
    
    Paid-In
    
    
    Deferred
    
    
    Retained
    
    
    Comprehensive
    
    
    StockholdersShares
    
    
    Par Value
    
    
    Capital
    
    
    Compensation
    
    
    Earnings
    
    
    Income
    
    
    EquityBalance at December 31, 2006
    
    
    45,346,099
    
    
    $
    45
    
    
    $
    75,465
    
    
    $
    (1,224
    )
    
    $
    109,955
    
    
    $
    3
    
    
    $
    184,244Stock-based compensation
    
    
    40,838
    
    
    
    1
    
    
    
    2,142
    
    
    
    435
    
    
    
    
    
    
    
    
    
    
    
    2,578Issuance of common stock under
Employee Stock Purchase Plan
    
    
    3,381
    
    
    
    
    
    
    
    82
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    82Stock options exercised
    
    
    168,311
    
    
    
    
    
    
    
    1,098
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,098Tax benefit from exercise of stock
options
    
    
    
    
    
    
    
    
    
    
    1,541
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,541Comprehensive Income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    52,402
    
    
    
    
    
    
    
    52,402Foreign currency translation
adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    609
    
    
    
    609Fair value adjustment of
derivatives, net of tax effects
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (95
    )
    
    
    (95
    )Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    52,916Balance at September 30, 2007
    
    
    45,558,629
    
    
    $
    46
    
    
    $
    80,328
    
    
    $
    (789
    )
    
    $
    162,357
    
    
    $
    517
    
    
    $
    242,459
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AMERICAN REPROGRAPHICS COMPANY
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Dollars in thousands)
(Unaudited)
 Nine Months EndedSeptember 30,2006
    
    
    2007Cash flows from operating activitiesNet income
    
    $
    38,558
    
    
    $
    52,402Adjustments to reconcile net income to net cash provided by operating activities:Depreciation
    
    
    16,240
    
    
    
    22,268Amortization of intangible assets
    
    
    3,227
    
    
    
    6,619Amortization of deferred financing costs
    
    
    294
    
    
    
    357Stock-based compensation
    
    
    1,454
    
    
    
    2,578Excess tax benefit related to stock options exercised
    
    
    (3,591
    )
    
    
    (1,541
    )Deferred income taxes
    
    
    (1,334
    )
    
    
    2,278Write-off of deferred financing costs
    
    
    117
    
    
    
    Litigation charge
    
    
    13,743
    
    
    
    612Other non-cash items, net
    
    
    89
    
    
    
    364Changes in operating assets and liabilities, net of effect of
business acquisitions:Accounts receivable
    
    
    (13,755
    )
    
    
    (10,837
    )Inventory
    
    
    909
    
    
    
    (488
    )Prepaid expenses and other assets
    
    
    507
    
    
    
    654Income taxes payable
    
    
    9,851
    
    
    
    (6,243
    )Accounts payable and accrued expenses
    
    
    6,271
    
    
    
    2,097Net cash provided by operating activities
    
    
    72,580
    
    
    
    71,120Cash flows from investing activitiesCapital expenditures
    
    
    (6,043
    )
    
    
    (7,112
    )Payments for businesses acquired, net of cash acquired
and including other cash payments associated with
the acquisitions
    
    
    (59,179
    )
    
    
    (97,831
    )Restricted cash
    
    
    (7,460
    )
    
    
    Other
    
    
    (203
    )
    
    
    345Net cash used in investing activities
    
    
    (72,885
    )
    
    
    (104,598
    )Cash flows from financing activitiesProceeds from stock option exercises
    
    
    1,807
    
    
    
    1,098Proceeds from issuance of common stock under Employee Stock Purchase Plan
    
    
    290
    
    
    
    82Excess tax benefit related to stock options exercised
    
    
    3,591
    
    
    
    1,541Proceeds from borrowings under debt agreements
    
    
    41,000
    
    
    
    75,000Payments on debt agreements and capital leases
    
    
    (55,071
    )
    
    
    (35,525
    )Payment of loan fees
    
    
    (435
    )
    
    
    (433
    )Net cash (used in) provided by financing activities
    
    
    (8,818
    )
    
    
    41,763Effect of foreign currency translation on cash balances
    
    
    
    
    
    
    230Net change in cash and cash equivalents
    
    
    (9,123
    )
    
    
    8,515Cash and cash equivalents at beginning of period
    
    
    22,643
    
    
    
    11,642Cash and cash equivalents at end of period
    
    $
    13,520
    
    
    $
    20,157Supplemental disclosure of cash flow informationNoncash investing and financing activitiesNoncash transactions include the following:Capital lease obligations incurred
    
    $
    17,339
    
    
    $
    28,738Issuance of subordinated notes in connection with the
acquisition of businesses
    
    $
    11,432
    
    
    $
    7,342Stock issued for acquisition
    
    $
    8,500
    
    
    $
    Change in fair value of derivatives
    
    $
    (100
    )
    
    $
    (95
    )
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##### Table of Contents



AMERICAN REPROGRAPHICS COMPANY
 
 Notes to Consolidated Financial Statements
 (Unaudited)
 1. Description of Business and Basis of Presentation
  Reorganization and Initial Public Offering
   Basis of Presentation
    Reclassifications
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2. Stock-Based Compensation
  th
    3. Employee Stock Purchase Plan
   4. Acquisitions
   - 8 -




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Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2006
    
    
    2007
    
    
    2006
    
    
    2007(Dollars in thousands, except per share data)Net sales
    
    $
    172,328
    
    
    $
    177,192
    
    
    $
    505,193
    
    
    $
    540,807Net income
    
    
    16,310
    
    
    
    16,015
    
    
    
    40,285
    
    
    
    53,271Earnings per share  basic
    
    $
    0.36
    
    
    $
    0.35
    
    
    $
    0.90
    
    
    $
    1.17Earnings per share  diluted
    
    $
    0.36
    
    
    $
    0.35
    
    
    $
    0.89
    
    
    $
    1.16
  (In thousands)Tangible assets, exclusive of cash
    
    $
    16,954Intangible assets
    
    
    28,600Goodwill
    
    
    55,074Liabilities assumed
    
    
    (5,063
    )Debt and capital leases assumed
    
    
    (2,704
    )Cost of acquisition, net of cash acquired
    
    $
    92,861
 Reporting Revenue Gross as a
Principal versus Net as an Agent
 5. Goodwill and Other Intangibles Resulting from Business Acquisitions
   Goodwill(Dollars in thousands)Balance at December 31, 2006
    
    $
    291,290Additions
    
    
    64,464Translation adjustment
    
    
    330Balance at September 30, 2007
    
    $
    356,084
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December 31, 2006
    
    
    September 30, 2007Gross
    
    
    
    
    
    
    Net
    
    
    Gross
    
    
    
    
    
    
    NetCarrying
    
    
    Accumulated
    
    
    Carrying
    
    
    Carrying
    
    
    Accumulated
    
    
    CarryingAmount
    
    
    Amortization
    
    
    Amount
    
    
    Amount
    
    
    Amortization
    
    
    Amount(Dollars in thousands)
    
    
    (Dollars in thousands)Amortizable other
intangible assets:Customer relationships
    
    $
    55,685
    
    
    $
    10,799
    
    
    $
    44,886
    
    
    $
    75,893
    
    
    $
    16,847
    
    
    $
    59,046Trade names and trademarks
    
    
    5,886
    
    
    
    566
    
    
    
    5,320
    
    
    
    5,887
    
    
    
    775
    
    
    
    5,112Non-compete agreements
    
    
    1,025
    
    
    
    260
    
    
    
    765
    
    
    
    1,681
    
    
    
    648
    
    
    
    1,033$
    62,596
    
    
    $
    11,625
    
    
    $
    50,971
    
    
    $
    83,461
    
    
    $
    18,270
    
    
    $
    65,191
  2007
    
    $
    2,2782008
    
    
    9,0932009
    
    
    8,1972010
    
    
    7,1482011
    
    
    6,103Thereafter
    
    
    32,372$
    65,191
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6. Long-Term Debt
  December 31,
    
    
    September 30,2006
    
    
    2007(Unaudited)(Dollars in thousands)Borrowings from senior secured First Priority  Revolving Credit
Facility; variable interest payable quarterly (7.5% interest rate
at September 30, 2007); any unpaid principal and interest
due December 18, 2008
    
    
    
    
    
    $
    11,000Borrowings from senior secured First Priority  Term Loan Credit Facility;
variable interest payable quarterly (weighted average 7.1% and 6.9%
interest rate at December 31, 2006 and September 30, 2007,
respectively); principal payable in varying quarterly installments; any
unpaid principal and interest due June 18, 2009
    
    
    215,651
    
    
    
    263,786Various subordinated notes payable; interest ranging from 5% to 7.1%;
principal and interest payable monthly through June 2012
    
    
    20,103
    
    
    
    23,609Various capital leases; weighted average interest rate 9.47% and 10.92%;
at December 31, 2006 and September 30, 2007, respectively;
principal and interest payable monthly through June 2013
    
    
    37,391
    
    
    
    53,500273,145
    
    
    
    351,895Less current portion
    
    
    (21,048
    )
    
    
    (107,615
    )$
    252,097
    
    
    $
    244,280
    
    
    Eliminating the aggregate purchase price limitation for business
acquisitions in favor of permitting the Company to incur New Term Loan
Commitments at any time, subject to the achievement of a Leverage
Ratio on a pro forma basis after giving effect to such New Term Loan
Commitments of less than 3.00:1.00 (together with certain existing
conditions);
    
    An increase in the threshold for capital lease obligations;
    
    An increase in the threshold for subordinated notes payable;
    
    An increase in the threshold for investments; and
    
    Elimination of capital lease obligations from the definition of
Consolidated Capital Expenditures in conjunction with a reduction of
the threshold for Consolidated Capital Expenditures.
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7. Income Taxes
      8. Commitments and Contingencies
 Operating Leases.
 Contingent Transaction Consideration.
 Autodesk Agreement
 Louis Frey Case.
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##### Table of Contents



Other Litigation .
 FIN 48 Liability.
  9. Comprehensive Income
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2006
    
    
    2007
    
    
    2006
    
    
    2007(Unaudited)(Dollars in thousands)Net income
    
    $
    15,756
    
    
    $
    15,945
    
    
    $
    38,558
    
    
    $
    52,402Foreign currency translation adjustments
    
    
    56
    
    
    
    394
    
    
    
    25
    
    
    
    609Decrease in fair value of financial
derivative instruments, net of tax
effects
    
    
    (381
    )
    
    
    (161
    )
    
    
    (100
    )
    
    
    (95
    )Comprehensive income
    
    $
    15,431
    
    
    $
    16,178
    
    
    $
    38,483
    
    
    $
    52,916
  10. Earnings per Share
 Earnings per
Share
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Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2006
    
    
    2007
    
    
    2006
    
    
    2007(Unaudited)Weighted average common shares
outstanding during the period
 basic
    
    
    45,177,627
    
    
    
    45,486,012
    
    
    
    44,923,884
    
    
    
    45,429,238Effect of dilutive stock options
    
    
    485,413
    
    
    
    379,441
    
    
    
    559,818
    
    
    
    418,939Weighted average common shares
outstanding during the period
 diluted
    
    
    45,663,040
    
    
    
    45,865,453
    
    
    
    45,483,702
    
    
    
    45,848,177
 11. Recent Accounting Pronouncements
 Accounting for Uncertainty in
Income Taxes: an interpretation of FASB Statement No. 109
 Fair Value Measurements.
 The Fair Value Option for Financial Assets and
Financial Liabilities  Including an Amendment of FASB Statement No. 115
 12. Subsequent Events
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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 2006 Annual Report on
Form 10-K, our final prospectus for our recent secondary offering, dated March 8, 2007, our 2007
first quarter report on Form 10-Q dated May 10, 2007, and our 2007 second quarter report on Form
10-Q dated August 9, 2007.
 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 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 complete and manage our acquisitions or
open new branches; (ix) our inability to successfully monitor and manage the business operations
of our subsidiaries and uncertainty regarding the effectiveness of financial and management
policies and procedures we established to improve accounting controls; (x) adverse developments
concerning our relationships with certain key vendors; and (xi) the loss of key personnel and
qualified technical staff.
 Although we believe that the expectations reflected in the forward-looking statements are
reasonable, we cannot guarantee future results, levels of activity, performance or achievements.
These forward-looking statements are subject to numerous risks and uncertainties, including, but
not limited to, the risks and uncertainties described in the Risk Factors section of our 2006
Annual Report on Form 10-K . You are urged to carefully consider these factors. All
forward-looking statements attributable to us are expressly qualified in their entirety by the
foregoing cautionary statements.
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##### Table of Contents



Executive Summary
   
    
    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).
    .
  Evaluating our Performance.
 
    
    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.
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##### Table of Contents



Primary Financial Measures.
  Other Common Financial Measures.
 
    
    Net income and earnings per share;
    
    EBIT;
    
    EBITDA;
    
    Material costs as a percentage of net sales; and
    
    Days Sales Outstanding/Days Sales Inventory/Days Accounts Payable.
    Acquisitions.
    1.
    
    Standalone Acquisitions. Post-acquisition, these businesses maintain
their existing local brand and act as strategic platforms for the
Company to acquire market share in and around the specific
geographical location.2.
    
    Branch/Fold-in Acquisitions. These 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, providing specialized services,
and for administrative and other back office support. We maintain
the staff and equipment of these businesses to a minimum to serve a
small market or a single large customer, or we may physically
integrate (fold-in) staff and equipment into a larger nearby
production facility.
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##### Table of Contents



Economic Factors Affecting Financial Performance.
 Non-GAAP Measures
      
    
    They do not reflect our cash expenditures, or future requirements for capital
expenditures and contractual commitments;
    
    They do not reflect changes in, or cash requirements for, our working capital needs;
    
    They do not reflect the significant interest expense, or the cash requirements
necessary, to service interest or principal payments on our debt;
    
    Although depreciation and amortization are non-cash charges, the assets being
depreciated and amortized will often have to be replaced in the future, and EBITDA
does not reflect any cash requirements for such replacements; and
    
    Other companies, including companies in our industry, may calculate these measures
differently than we do, limiting their usefulness as comparative measures.
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##### Table of Contents



Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2006


    
    
    2007
    
    
    2006
    
    
 2007(Dollars in thousands)Cash flows provided by operating activities
    
    $
    30,180
    
    
    $
    25,755
    
    
    $
    72,580
    
    
    $
    71,120Changes in operating assets and liabilities
    
    
    (4,958
    )
    
    
    2,695
    
    
    
    (3,783
    )
    
    
    14,817Non-cash (expenses) income, including
depreciation and amortization
    
    
    (9,466
    )
    
    
    (12,505
    )
    
    
    (30,239
    )
    
    
    (33,535
    )Income tax provision
    
    
    8,993
    
    
    
    10,249
    
    
    
    24,193
    
    
    
    31,656Interest expense
    
    
    5,810
    
    
    
    6,872
    
    
    
    17,270
    
    
    
    18,675EBIT
    
    $
    30,559
    
    
    $
    33,066
    
    
    $
    80,021
    
    
    $
    102,733Depreciation and amortization
    
    
    7,461
    
    
    
    10,500
    
    
    
    19,467
    
    
    
    28,887EBITDA
    
    $
    38,020
    
    
    $
    43,566
    
    
    $
    99,488
    
    
    $
    131,620Interest expense
    
    
    (5,810
    )
    
    
    (6,872
    )
    
    
    (17,270
    )
    
    
    (18,675
    )Income tax provision
    
    
    (8,993
    )
    
    
    (10,249
    )
    
    
    (24,193
    )
    
    
    (31,656
    )Depreciation and amortization
    
    
    (7,461
    )
    
    
    (10,500
    )
    
    
    (19,467
    )
    
    
    (28,887
    )Net income
    
    $
    15,756
    
    
    $
    15,945
    
    
    $
    38,558
    
    
    $
    52,402The following is a reconciliation of net income to EBITDA:Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2006


    
    
    2007
    
    
    2006
    
    
    2007(Dollars in thousands)Net income
    
    $
    15,756
    
    
    $
    15,945
    
    
    $
    38,558
    
    
    $
    52,402Interest expense, net
    
    
    5,810
    
    
    
    6,872
    
    
    
    17,270
    
    
    
    18,675Income tax provision
    
    
    8,993
    
    
    
    10,249
    
    
    
    24,193
    
    
    
    31,656EBIT
    
    $
    30,559
    
    
    $
    33,066
    
    
    $
    80,021
    
    
    $
    102,733Depreciation and amortization
    
    
    7,461
    
    
    
    10,500
    
    
    
    19,467
    
    
    
    28,887EBITDA
    
    $
    38,020
    
    
    $
    43,566
    
    
    $
    99,488
    
    
    $
    131,620The following is a reconciliation of our net income margin to EBIT margin and EBITDA margin:Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2006
    
    
    2007
    
    
    2006
    
    
    2007Net income margin
    
    
    10.3
    %
    
    
    9.1
    %
    
    
    8.7
    %
    
    
    10.2
    %Interest expense, net
    
    
    3.8
    %
    
    
    3.9
    %
    
    
    3.9
    %
    
    
    3.6
    %Income tax provision
    
    
    5.9
    %
    
    
    5.8
    %
    
    
    5.4
    %
    
    
    6.2
    %EBIT margin
    
    
    20.0
    %
    
    
    18.8
    %
    
    
    18.0
    %
    
    
    20.0
    %Depreciation and amortization
    
    
    4.9
    %
    
    
    5.9
    %
    
    
    4.4
    %
    
    
    5.6
    %EBITDA margin
    
    
    24.9
    %
    
    
    24.7
    %
    
    
    22.4
    %
    
    
    25.6
    %
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##### Table of Contents



Results of Operations for the Three and Nine Months Ended September 30, 2007 and 2006
  As Percentage of Net SalesThree Months Ended September 30,
    
    
    Nine Months Ended September 30,2006
    
    
    2007
    
    
    2006
    
    
    2007Net Sales
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Cost of sales
    
    
    56.1
    
    
    
    58.8
    
    
    
    56.6
    
    
    
    58.1Gross profit
    
    
    43.9
    
    
    
    41.2
    
    
    
    43.4
    
    
    
    41.9Selling, general and administrative expenses
    
    
    22.6
    
    
    
    21.0
    
    
    
    22.3
    
    
    
    20.6Litigation Reserve
    
    
    
    
    
    
    
    
    
    
    2.5
    
    
    
    Amortization of intangibles
    
    
    1.0
    
    
    
    1.4
    
    
    
    0.7
    
    
    
    1.3Income from operations
    
    
    20.3
    
    
    
    18.8
    
    
    
    17.9
    
    
    
    20.0Other income
    
    
    (0.3
    )
    
    
    
    
    
    
    0.1
    
    
    
    Interest expense, net
    
    
    3.8
    
    
    
    3.9
    
    
    
    3.9
    
    
    
    3.6Income before income tax provision (benefit)
    
    
    16.2
    
    
    
    14.9
    
    
    
    14.1
    
    
    
    16.4Income tax provision (benefit)
    
    
    5.9
    
    
    
    5.8
    
    
    
    5.4
    
    
    
    6.2Net income
    
    
    10.3
    %
    
    
    9.1
    %
    
    
    8.7
    %
    
    
    10.2
    %
 Three and Nine Months Ended September 30, 2007 Compared to Three and Nine Months Ended
September 30, 2006
 Three Months Ended
    
    
    
    
    
    
    
    
    
    
    Nine Months EndedSeptember 30,
    
    
    Increase (decrease)
    
    
    September 30,
    
    
    Increase (decrease)2006
    
    
    2007
    
    
    (In dollars)
    
    
    (Percent)
    
    
    2006
    
    
    2007
    
    
    (In dollars)
    
    
    (Percent)(In millions)
    
    
    (In millions)Reprographics services
    
    $
    111.2
    
    
    $
    131.7
    
    
    $
    20.5
    
    
    
    18.4
    %
    
    $
    330.7
    
    
    $
    384.7
    
    
    $
    54.0
    
    
    
    16.3
    %Facilities management
    
    
    25.8
    
    
    
    29.2
    
    
    
    3.4
    
    
    
    13.2
    %
    
    
    73.4
    
    
    
    84.6
    
    
    
    11.2
    
    
    
    15.3
    %Equipment and supplies sales
    
    
    15.5
    
    
    
    15.3
    
    
    
    (0.2
    )
    
    
    -1.3
    %
    
    
    40.8
    
    
    
    44.9
    
    
    
    4.1
    
    
    
    10.0
    %Total net sales
    
    
    152.5
    
    
    
    176.2
    
    
    
    23.7
    
    
    
    15.5
    %
    
    
    444.9
    
    
    
    514.2
    
    
    
    69.3
    
    
    
    15.6
    %Gross profit
    
    
    67.0
    
    
    
    72.7
    
    
    
    5.7
    
    
    
    8.5
    %
    
    
    193.2
    
    
    
    215.3
    
    
    
    22.1
    
    
    
    11.4
    %Selling, general and
administrative expenses
    
    
    34.5
    
    
    
    37.2
    
    
    
    2.7
    
    
    
    7.8
    %
    
    
    99.1
    
    
    
    105.9
    
    
    
    6.8
    
    
    
    6.9
    %Litigation reserve
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.0
    %
    
    
    11.3
    
    
    
    
    
    
    
    (11.3
    )
    
    
    -100.0
    %Amortization of intangibles
    
    
    1.6
    
    
    
    2.4
    
    
    
    0.8
    
    
    
    50.0
    %
    
    
    3.2
    
    
    
    6.6
    
    
    
    3.4
    
    
    
    106.3
    %Interest expense, net
    
    
    5.8
    
    
    
    6.9
    
    
    
    1.1
    
    
    
    19.0
    %
    
    
    17.3
    
    
    
    18.7
    
    
    
    1.4
    
    
    
    8.1
    %Income taxes
    
    
    9.0
    
    
    
    10.2
    
    
    
    1.2
    
    
    
    13.3
    %
    
    
    24.2
    
    
    
    31.7
    
    
    
    7.5
    
    
    
    31.0
    %Net Income
    
    
    15.8
    
    
    
    15.9
    
    
    
    0.1
    
    
    
    0.6
    %
    
    
    38.6
    
    
    
    52.4
    
    
    
    13.8
    
    
    
    35.8
    %EBITDA
    
    
    38.0
    
    
    
    43.6
    
    
    
    5.6
    
    
    
    14.7
    %
    
    
    99.5
    
    
    
    131.6
    
    
    
    32.1
    
    
    
    32.3
    %
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##### Table of Contents



Net Sales.
     Three Months Ended
    
    
    Nine Months EndedSeptember 30.
    
    
    September 30.2006

    
    
    2007
    
    

    2006

    

2007(Dollars in Thousands)Northern California Divisions
    
    $
    23,466
    
    
    $
    24,997
    
    
    $
    71,446
    
    
    $
    77,952Pacific Northwest Divisions
    
    
    8,110
    
    
    
    11,059
    
    
    
    24,068
    
    
    
    30,738Southern Divisions
    
    
    33,150
    
    
    
    46,788
    
    
    
    89,985
    
    
    
    124,807Midwest Divisions
    
    
    19,099
    
    
    
    19,292
    
    
    
    60,004
    
    
    
    59,241Northeast Divisions
    
    
    20,739
    
    
    
    26,362
    
    
    
    62,474
    
    
    
    77,690Southern California
Divisions
    
    
    47,974
    
    
    
    47,714
    
    
    
    136,890
    
    
    
    143,780Total Revenue
    
    $
    152,538
    
    
    $
    176,212
    
    
    $
    444,867
    
    
    $
    514,208
 Reprographics services.
   Facilities management
  - 21 -




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##### Table of Contents



Equipment and supplies sales.
   Gross Profit.
    Selling, General and Administrative Expenses.
      - 22 -




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##### Table of Contents



Litigation Reserve.
  Amortization of Intangibles.
   Interest Expense, Net.
   Income Taxes.
  Net Income.
   - 23 -




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##### Table of Contents



EBITDA.
  Impact of Inflation
  Liquidity and Capital Resources
  Nine Months Ended September 30,2006
    
    
    2007(Unaudited)(Dollars in thousands)Net cash provided by operating activities
    
    $
    72,580
    
    
    $
    71,120Net cash used in investing activities
    (
    $
    72,885

    )
    (
    $
    104,598
    )Net cash (used in) provided by financing
activities
    (
    $
    8,818
    )
    
    $
    41,763
 Operating Activities
  Investing Activities
   - 24 -




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##### Table of Contents



Financing Activities
   December 31, 2006
   


September 30, 2007(Unaudited)(Dollars in thousands)Cash and cash equivalents
    
    $
    11,642
    
    
    $
    20,157Working capital
    
    
    21,150
    
    
    
    (30,529
    )Borrowings from senior secured
credit facilities
    
    
    215,651
    
    
    
    274,786Other debt obligations
    
    
    57,494
    
    
    
    77,109Total debt obligations
    
    $
    273,145
    
    
    $
    351,895
   .
 Debt Obligations
 Senior Secured Credit Facilities.
   - 25 -




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##### Table of Contents




    
    Eliminating the aggregate purchase price limitation for business
acquisitions in favor of permitting the Company to incur New Term Loan
Commitments at any time, subject to the achievement of a Leverage
Ratio on a pro forma basis after giving effect to such New Term Loan
Commitments of less than 3.00:1.00 (together with certain existing
conditions);
    
    An increase in the threshold for capital lease obligations;
    
    An increase in the threshold for subordinated notes payable;
    
    An increase in the threshold for investments; and
    
    Elimination of capital lease obligations from the definition of
Consolidated Capital Expenditures in conjunction with a reduction of
the threshold for Consolidated Capital Expenditures.
   Seller Notes.
 Off-Balance Sheet Arrangements
  Contractual Obligations and Other Commitments
 Operating Leases.
 Contingent Transaction Consideration.
 Autodesk Agreement
 FIN 48 Liability.
  - 26 -




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##### Table of Contents



Critical Accounting Policies
   Recent Accounting Pronouncements
 Accounting for Uncertainty
in Income Taxes: an interpretation of FASB Statement No. 109
 Fair Value Measurements.
 The Fair Value Option for Financial Assets
and Financial Liabilities  Including an Amendment of FASB Statement No. 115
  - 27 -




---



##### Table of Contents



Item 3. Quantitative and Qualitative Disclosure About Market Risk
     
 Item 4. Controls and Procedures
 Disclosure Controls and Procedures
   Changes in Internal Controls over Financial Reporting
   - 28 -




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##### Table of Contents



PART II
 
 Item 1. Legal Proceedings
 Louis Frey Case.
  
 Item 1A. Risk Factors
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
   - 29 -




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##### Table of Contents



Item 6. Exhibits
  Number
    
    Description31.1
    
    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. *
 *
  - 30 -




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##### Table of Contents



SIGNATURE PAGE
  AMERICAN REPROGRAPHICS COMPANYBy:
    
    /s/ Kumarakulasingam SuriyakumarPresident and Chief Executive OfficerBy:
    
    /s/ Jonathan R. MatherChief Financial Officer and Secretary
  - 31 -




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##### Table of Contents



EXHIBIT INDEX
 Number
    
    Description31.1
    
    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  - 32 -