Filed by Bowne Pure Compliance
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
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ANNUAL REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 |
FOR THE FISCAL YEAR ENDED MARCH 31, 2008
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TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 |
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 001-12631
CONSOLIDATED GRAPHICS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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TEXAS
(STATE OR OTHER JURISDICTION
OF INCORPORATION OR ORGANIZATION)
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76-0190827
(IRS EMPLOYER IDENTIFICATION NO.) |
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| 5858 WESTHEIMER, SUITE 200 |
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| HOUSTON, TEXAS
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77057 |
| (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
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(ZIP CODE) |
(713) 787-0977
(REGISTRANT’S TELEPHONE NUMBER, INCLUDING AREA CODE)
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| Securities registered pursuant to Section 12(b) of the Act: |
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| COMMON STOCK, PAR VALUE $.01 PER SHARE
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NEW YORK STOCK EXCHANGE |
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(NAME OF EACH EXCHANGE |
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ON WHICH REGISTERED) |
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| Securities registered pursuant to Section 12(g) of the Act: |
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| NONE |
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Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule
405 of Securities Act.
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Indicate by check mark if the registrant is not required to file reports pursuant to Section
13 or Section 15(d) of the Act.
Yes o No þ
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 if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s
knowledge, in definitive proxy or information statements incorporated by reference in Part III of
this Form 10-K or any amendment to this Form 10-K. o
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act. (Check one):
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| Large accelerated filer þ
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Non-accelerated filer o
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Act). Yes o No þ
The aggregate market value of the voting stock held by nonaffiliates of the registrant as of
September 30, 2007 (last business day of Consolidated Graphics, Inc.’s most recently completed
second fiscal quarter):
COMMON STOCK, $.01 PAR VALUE—$744,320,446
The number of shares outstanding of the registrant’s common stock as of April 30, 2008:
COMMON STOCK, $.01 PAR VALUE—11,081,158
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s Proxy Statement for the Annual Shareholders’ Meeting to be held
on or about August 7, 2008, to be filed with the Securities and Exchange Commission pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as amended, are incorporated by reference
into Part III of this Form 10-K. Such Proxy Statement, except for the parts therein which have been
specifically incorporated by reference, shall not be deemed “filed” for the purposes of this
Form 10-K.
CONSOLIDATED GRAPHICS, INC.
FORM 10-K
FOR THE YEAR ENDED MARCH 31, 2008
INDEX
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Forward Looking Statements
This Annual Report on Form 10-K contains “forward-looking statements” within the meaning of Section
27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of
1934, as amended, in which the Company discusses factors it believes may affect its performance or
results in the future. Forward-looking statements are all statements other than historical facts,
such as statements regarding assumptions, expectations, beliefs and projections about future events
or conditions. You can generally identify forward-looking statements by the appearance in such a
statement of words like “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,”
“intend,” “may,” “might,” “plan,” “potential,” “predict,” “forecast,” “project,” “should” or “will”
or other comparable words or the negative of such words. The accuracy of the Company’s assumptions,
expectations, beliefs and projections depend on events or conditions that change over time and are
thus susceptible to change based on actual experience, new developments and known and unknown
risks, including those created by general market conditions, competition and the possibility that
events may occur beyond the Company’s control, which may limit its ability to maintain or improve
its operating results or financial condition or acquire additional printing businesses. The Company
gives no assurance that the forward-looking statements will prove to be correct and does not
undertake any duty to update them. The Company’s actual future results might differ from the
forward-looking statements made in this Annual Report on Form 10-K for a variety of reasons, which
include, stability in the economy and reasonable growth in the demand for its products, the
continued availability of raw materials at affordable prices and retention of its key management
and operating personnel, satisfactory labor relations, its ability to identify new acquisition
opportunities, negotiate and finance such acquisitions on acceptable terms and successfully absorb
and manage such acquisitions, as well as other risks described under the heading “Risk Factors” of
this Annual Report on Form 10-K. You should pay particular attention to and review the important
risk factors and cautionary statements described in the “Risk Factors” section, as well as the risk
factors and cautionary statements described in the other documents the Company files or furnishes
from time to time with the Securities and Exchange Commission, including its Quarterly Reports on
Form 10-Q and Current Reports on Form 8-K. Should one or more of the foregoing risks or
uncertainties materialize, or should the Company’s underlying assumptions prove incorrect, the
Company’s actual results may vary materially from those anticipated in its forward-looking
statements, and its business, financial condition and results of operations could be materially and
adversely affected.
PART I
Item 1. Business
In this annual report, the words “Consolidated Graphics,” “CGX,” the “Company,” “we,” “our”
and “us” refer to Consolidated Graphics, Inc, including our consolidated subsidiaries, unless the
context indicates otherwise. Our fiscal year ends on March 31st.
Company Overview
Consolidated Graphics, headquartered in Houston, Texas, is a leading U.S. and Canadian general
commercial printing company, with 70 printing businesses strategically located across 27 states
plus one Canadian province. Each of our printing businesses has a well-established operating
history, more than 25 years in most cases. Complementing the printing services we provide, we also
offer (i) state-of-the-art fulfillment services from 13 fulfillment centers located at or near one
of our printing businesses and (ii) proprietary digital technology solutions and e-commerce
capabilities from two technology hubs located at our corporate headquarters and at one of our
printing businesses in the Baltimore/Washington D.C. area.
Our sales are derived from providing commercial printing and print-related services. These
services consist of (i) traditional print services, including electronic prepress, digital and
offset printing, finishing, storage and delivery of high-quality printed documents which are custom
manufactured to our customers’ design specifications; (ii) fulfillment and mailing services for
such printed materials; and (iii) digital technology solutions and e-commerce capabilities that
enable our customers to more efficiently procure and manage printed materials and/or design,
procure, distribute, track and analyze results of printing-based marketing programs and activities.
Examples of the types of documents we print for our customers include high-quality, multi-color
marketing materials, product and capability brochures, point-of-purchase displays, direct mail
pieces, shareholder communications, trading cards, catalogs and training manuals.
The scope and extent of services provided to our customers typically varies for each
individual order we receive, depending on customer-specific factors, including the intended uses
for the printed materials. Furthermore, each of our printing businesses generally is capable of
providing the complete range of our services to its customers. Accordingly, we do not operate our
business in a manner that differentiates among our respective capabilities and services for
financial or management reporting purposes, rather each of our printing businesses define a
distinct reporting unit.
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The Company was incorporated in Texas in 1985. Our website address is www.cgx.com. We make
available free of charge on or through our website our Annual Reports on Form 10-K, Quarterly
Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to those reports, filed or
furnished pursuant to Section 13(a) or 15(d) of the Securities and Exchange Act of 1934, as amended
(“Exchange Act”) and other filings as soon as reasonably practicable after we electronically file
such reports with or furnish such reports to the Securities and Exchange Commission (“SEC”). In
addition, the current forms of our Corporate Governance Guidelines, Code of Ethics, and the
charters of the respective committees of our Board of Directors, and contact information for our
Presiding Director for purposes of shareholder communications, are all available on our website.
We will also provide printed copies of these materials to any shareholder upon request directed to
Consolidated Graphics, Inc., Attn: Secretary, 5858 Westheimer, Suite 200, Houston, Texas 77057.
We intend to disclose on our website any changes to or waivers from the Code of Ethics that are
also required under SEC rules and regulations to be disclosed under Item 5.05 of Form 8-K. The
information on our website is not, and shall not be deemed to be, a part of this Annual Report on
Form 10-K or incorporated into any other filings we make with the SEC.
Industry Background
The printing industry is one of the largest industries in the U.S. and is comprised of many
segments, including general commercial printing, newspapers, directories, book and magazine
publishing, financial printing, business forms, greeting cards and stationery-type products. We
operate in the general commercial printing segment of the industry which generates in the U.S. over
$50 billion in annual sales based on available industry data. Most of the general commercial
printing businesses operating in the U.S. today are privately-owned and individually generate less
than $35 million in annual sales.
A consolidation trend in the general commercial printing industry emerged in the 1990’s as
owners of medium-sized printing businesses (those with annual sales of $2 million to $35 million)
sought to evaluate exit strategies and address new industry challenges, a trend that has continued
to date. In order to limit personal financial risk, increase personal financial liquidity,
facilitate retirement goals or obtain access to additional resources that would support the
continued growth of their businesses, owners of these printing businesses became more willing to
sell their companies to larger, better-capitalized companies. We have been an industry-leader in
the consolidation trend since our initial public offering in 1994. We believe that there are very
few companies that currently possess the comparable objectives, financial strength and management
expertise necessary to acquire such printing businesses.
Primary industry challenges faced by printing business owners include the need to make
on-going investments in new technology and equipment and downturns in the economy. For example,
most printing design and prepress activities are now accomplished in a digital environment.
Prepress computer equipment based on a complete digital workflow, along with more sophisticated
printing presses and finishing equipment, are more efficient, operate faster and require less labor
than the equipment they typically replace. General commercial printing businesses must make
substantial capital investments over time in new equipment and technology in order to remain
competitive in the industry, but they may not have the financial resources to do so.
Because of the development and on-going advancement in digital technology, print buyers have
increasingly sought shorter print runs, the ability to personalize more sophisticated marketing
materials to strategically target certain markets or demographics, and e-commerce solutions for
executing and controlling the print procurement and printed materials management processes. This
factor has also contributed substantially to the burden on companies in our industry to invest in
new technology and equipment to remain competitive. Additionally, large corporations have
increasingly sought to achieve a reduction in operating costs by streamlining their print-related
processes and limiting their number of suppliers. To accomplish these objectives, these large
customers frequently seek to align themselves with printing companies that have a significant
national presence and offer a wide range of commercial print capabilities and services, putting
additional pressure on single-location, privately-held printing companies.
In general, changes in prevailing U.S. economic conditions significantly impact the general
commercial printing industry (approximately 96% of our fiscal 2008 revenues were U.S.-based). To
the extent weakness in the U.S. economy causes local and national corporations to reduce their
spending on advertising and marketing materials, the demand for commercial printing services may be
adversely affected. Further compounding a potential decline in demand, competitive pricing
pressures may occur and negatively impact the level of sales and profit margins throughout the
industry. Beginning in 2000, industry conditions experienced a significant downturn due in part to
overcapacity caused by a high rate of investment by the overall industry in new technology and
equipment, which was subsequently followed by a broad deterioration in the U.S. economy. This
downturn continued through 2003 and many printing businesses failed. The combination of these
failures, and a subsequent strengthening in the U.S. economy, have resulted in generally stable
industry conditions in recent years.
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Competition
The general commercial printing industry in the U.S. is highly fragmented and most customers
procure print services from local sources. Therefore, we compete primarily with locally-based
printing companies for most print projects. Most of our competitors are privately-held, single
location operations; however, some competitors are large corporations, both publicly and privately
owned.
The major competitive factors in our business are:
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Extent and quality of customer service, including ability to meet customer
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Quality of finished materials |
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Cost structure and sales pricing strategy |
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Financial strength |
The ability to provide high-quality customer service is often dependent on production and
distribution capabilities, along with the availability of equipment that is appropriate in size and
function for a given project. We believe that our broad range of printing capabilities and
services, along with our ability to use our leading geographic footprint to serve customers on
local, regional and national levels, gives us a competitive advantage over smaller, local printing
companies. Furthermore, the economic advantages created by our purchasing power, advanced
technological capabilities and ability to utilize available production capacity throughout our
organization, enable our printing businesses to compete more effectively and provide faster
turnaround times than many of our competitors. Our strong financial position enables us to invest
in newer, more efficient technology and equipment and to make strategic acquisitions, which expands
our industry-leading position in terms of locations, capabilities, and services.
Business Strategy
Our overall business strategy is to be the market leader in the commercial printing industry
by combining the customer service and responsiveness of well-managed, local printing businesses
with the competitive advantages provided by a large national organization. Management at each of
our printing businesses maintains responsibility for the day-to-day operations and profitability of
their business, while continuing to strengthen and build new customer relationships in their
respective markets. At the same time, our printing businesses are supported by the management
expertise, purchasing power, technology investments, including infrastructure and support, national
sales and marketing and other operating advantages that exist because they are part of a large
national organization.
Internal Sales Growth—Our printing businesses have numerous opportunities, individually and
collectively, to achieve consistent, long-term sales growth at a rate that exceeds industry
averages. Our current initiatives to drive internal sales growth include:
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Aggressively pursuing new business opportunities and experienced sales
professionals to gain market share and strengthen our competitive position going
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Continuing to invest in new equipment and technology that enables us to provide
increasingly higher levels of service and a broader range of capabilities. |
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Capitalizing on our national presence and wide range of capabilities, including
our technology related offerings (see “Printing Operations—Print-Related Services”
below) to pursue sole or preferred-source opportunities with national accounts. |
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Providing information and training to our sales professionals (688 currently)
to ensure they are knowledgeable about the complete range of services and capabilities
we offer. |
Disciplined Acquisition Program—We are actively seeking to grow a leading U.S. and Canadian
geographic footprint through additional acquisitions of medium and large-sized general commercial
printing businesses, typically ones that are well-managed, profitable and that generally have an
excellent reputation and quality customer base. We may also acquire smaller and/or distressed
printing businesses whose operations can be merged into one of our existing locations. This type of
transaction is commonly referred to as a “tuck-in” acquisition.
Cost Savings—Because of our size and national presence, we leverage our economies of scale to
obtain preferential pricing for paper and supplies used in the printing process and for newer, more
efficient equipment. We have various national purchasing contracts in place with major suppliers
and manufacturers. Our purchasing support staff continually monitor market conditions and negotiate
pricing and other contractual terms with these vendors to maximize the cost savings we achieve
under these agreements. In addition, we have centralized certain administrative services, such as
human resources, treasury, tax and risk management, to generate cost savings.
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Best Practices/Benchmarking—Management teams at our printing businesses have access to
strategic counsel and professional management techniques in such areas as planning, organization,
and controls. We provide a forum for them to share their knowledge of technical processes and their
best practices with one another through periodic group meetings attended by top management and
other key personnel. We utilize our wide-area network and management information systems to
benchmark financial and operational data, and share such information across our printing businesses
to help their management teams identify and respond to changes in operating trends.
Leadership Development—Our program to recruit, train and develop recent college graduates as
printing sales and management professionals is an integral component of our growth strategy.
Participants in our Leadership Development Program follow a curriculum that provides them with
technical industry knowledge, coupled with general business, managerial, sales and best practices
training. Our Leadership Development Program is unique to the industry, and we believe it is a key
factor in our ability to provide a high degree of quality customer service, as well as provide a
pool of talent for future management positions at our printing businesses. As of April 30, 2008 we
had 305 employees who were current participants in or graduates of this program, 21 of whom serve
as the president of the printing business at which they are employed, representing 30% of our
printing company presidents.
Printing Operations
We currently operate 70 printing businesses in 27 states and one Canadian province, plus 13
fulfillment centers and two technology hubs. Each printing business is operated as a wholly-owned
subsidiary of our Company. We produce high-quality, custom-designed printed materials for a large
base of customers in a broad cross-section of industries, the majority of which are located in the
markets where our printing businesses are based. In addition to providing a full range of prepress,
digital and offset printing and finishing services, our printing businesses offer fulfillment and
mailing services, as well as e-commerce software solutions and other print-related, value-added
services.
Commercial Printing Services
In general, commercial printing includes developing printable content through electronic
prepress services, reproducing images on paper using printing presses and providing comprehensive
finishing and delivery services. We maintain flexible production schedules in order to react
swiftly to our customers’ requirements. Many printing projects require fast turnaround times, from
conception through delivery, and our printing businesses must be able to absorb unexpected or
short-notice demands for our services when called upon to do so. Consequently, our printing
businesses do not generally operate at full capacity.
Our electronic prepress services include all of the steps necessary to prepare media
(photographs, artwork, and typed copy) for printing. This process involves converting the media
into digital images, separating digital color images into process colors, and in some cases
preparing a proof for customer approval. Most of our printing businesses produce printing plates
using “computer-to-plate” technology, whereby digitized text, graphic images and line art are
transferred directly from digital files onto printing plates. In addition, our printing businesses
have adopted recent advances in technology that enable delivery of a high-quality proof for
customer approval electronically via the Internet, eliminating the cost of producing and delivering
a proof, or multiple rounds of proofs, in hard copy format. Computer-to-plate and remote proofing
technology reduces costs, shortens turnaround times and improves product quality. We continually
evaluate our existing electronic prepress capabilities and closely monitor the development of newer
technology that may be used to increase productivity and improve quality to better serve our
customers.
We primarily use offset lithography to reproduce images on paper, which is the process that
generally provides the highest quality, lowest cost printed materials for most commercial printing
projects. Short and medium-run projects are generally printed on sheetfed presses, while longer-run
projects are typically printed on web presses. Our printing businesses primarily use sheetfed
printing presses, which are generally capable of printing up to 16 pages of letter-sized finished
product on a 28 by 40 inch sheet of paper with eight pages on each side (known as a 16-page
“signature”). Currently our printing businesses operate a total of 289 sheetfed presses capable of
simultaneously printing from one to 12 colors and are capable of running at speeds of up to 15,000
impressions an hour. We operate 63 half and full-size web printing presses which print up to eight
colors on a continuous roll of paper, print up to 32-page signatures on both sides of the paper at
speeds of up to 50,000 impressions an hour and are also capable of folding, gluing and/or
perforating the printed material in a single pass.
Digital printing is a smaller but rapidly-growing component of the general commercial printing
industry that enables high quality, variable data customization (such as personalization by name,
relationship or interests) on very short to medium-run projects. We operate a total of 164 digital
presses, including 64 high capacity, ultra high quality presses such as Kodak Nexpress, Xerox iGen3
and HP Indigo. Digital presses enable variable information printing and automatic personalization
of printed materials.
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Our finishing services include cutting, folding, binding and other operations necessary to
finish printed materials according to customer specifications. Many of our printing businesses also
offer specialty finishing capabilities, such as die-cutting, embossing, uv coating, and foil
stamping.
Print-related Services
By offering innovative print-related capabilities and e-commerce solutions that respond to the
needs of our customers, we believe that our Company has a competitive advantage that will help us
generate additional sales. We provide a variety of fulfillment services, which primarily include
assembling, packaging, storing, and distributing printed promotional, educational, and training
documents and materials on behalf of our customers. Many corporations utilize our fulfillment
capabilities to help manage their inventories of printed materials, as well as to provide “just in
time” assembly and delivery of printed materials to end users. Orders for fulfillment services are
commonly received via proprietary, Internet-based print procurement and inventory management
systems maintained by our printing businesses, as discussed below. Additionally, we provide
extensive mailing services for printed materials, particularly consumer-direct marketing,
advertising and promotional pieces produced for our customers. We also offer a number of options
for sorting, packaging, inkjet labeling and shipping of printed materials.
Utilizing our information technology infrastructure and resources, as well as our expertise in
digital technology, we offer print-related e-commerce solutions that enable our customers to (i)
streamline their print procurement process and improve their ability to manage the printed
materials they order and (ii) design, procure, distribute, track and analyze results of
printing-based marketing programs and activities. Most of these e-commerce solutions are
Internet-based, and like the printed materials we produce, are customized to the specific needs of
our customers. For marketing purposes, we refer to our e-commerce capabilities using the
“CGXSolutions” trademark. The key e-commerce capabilities we offer include:
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StoreFront |
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A fully customizable online system with an array of tools that streamline the
purchase, management and distribution of the customer’s entire range of marketing
materials |
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CrossMedia |
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A unique capability that enables the customer to create highly engaging personalized
one-to-one direct mail campaigns designed to increase response rates |
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Digital asset management |
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A powerful online system that provides the customer limitless means to organize,
protect and facilitate proper use of their vast library of digital assets |
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Digital print solutions |
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Provides print on demand capabilities giving the customer the flexibility to respond
to market changes and manage inventories more efficiently. Our distribute and print
system receives orders electronically, prepares them for production and distributes
them across our network of digital presses across the U.S., reducing time to market
and delivering product more efficiently. |
Other e-commerce and electronic media services we offer include Internet services such as
designing websites and programming interactive tools, CD-ROM development and production, foreign
language translation services in over 100 different languages, composition and typesetting, and
database management for customer-retention programs.
Under our national sales organization (which is discussed below), sales support for
CGXSolutions is provided to our printing businesses to assist them in identifying prospective
customers and marketing our suite of CGXSolutions capabilities and services. We maintain
CGXSolutions project management and staff to design and develop customized solutions in response to
the specific needs of each customer. We also utilize support staff at each of our printing
businesses who are trained and able to serve our customers’ needs related to our CGXSolutions
capabilities and services.
Sales and Marketing
Most of our sales are generated by individual orders through commissioned sales personnel. As
of April 30, 2008 we employed 688 sales professionals. In addition to soliciting business from
existing and prospective customers, our sales personnel act as liaisons between customers and our
production departments and also provide technical advice and assistance to customers throughout the
printing process.
The nature of commercial printing requires a substantial amount of interaction with customers,
including personal sales calls, reviews of color proofs and “press checks” (customer approval of
printed materials during the printing process). Our sales professionals and customer service
personnel maintain strict control of the printing process for every job we produce as it moves
through our scheduling, prepress, printing, and finishing operations.
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A significant element of our marketing focus is to ensure rapid response to customer
requirements and produce high-quality printed materials at competitive prices. Rapid responsiveness
is essential because of the short lead time on most commercial printing projects. Our printing
operations are designed to maintain maximum flexibility to meet customer needs, both on scheduled
and short-notice bases. Each of our printing businesses generally seek projects that it believes
will best utilize its respective equipment and expertise; however, each has access to and is
encouraged to offer its customers the broad range of capabilities we offer throughout our
organization.
We also actively pursue opportunities to establish sole- or preferred-source, printing
relationships with large corporations that are seeking to leverage their print spending and limit
their number of commercial print providers. We refer to these customers as “national accounts” and
aggregate sales to these customers as “National Sales.” To better position ourselves to capitalize
on future national account opportunities, as well as to provide more sales training and support to
our printing businesses, our national sales organization consists of an executive level team of
sales and marketing professionals who play a key support role to the efforts of our printing
businesses to identify and develop national account opportunities.
In fiscal 2008, our Strategic Sales (consisting of National Sales and CGXSolutions sales) grew
by 28% and represented 18% of our total revenues. We expect Strategic Sales to be a significant
component of our overall future internal sales growth.
Customers
Our diverse customer base includes both national and local corporations in the U.S. and Canada
operating in a wide range of industries, as well as mutual fund companies, advertising agencies,
graphic design firms, catalog retailers, direct mail marketers, state and local governments and
quasi-governmental agencies, education institutions, not-for-profit associations, and political
campaign organizations. During fiscal 2008, we served over 20,000 customers, and our top ten
customers accounted for approximately 9% of total sales, with none representing more than 3%
individually. We believe that our large and diverse customer base, broad geographic coverage of
U.S. and Canada and extensive range of printing and print-related capabilities may lessen our
exposure to economic slowdowns or other adverse consequences that may generally affect any
particular industry or any particular geographic region. However, because we typically produce a
large number of advertising and marketing materials for our customers, to the extent that
advertising and marketing spending is reduced during an economic downturn, our consolidated
financial condition or results of operations may be adversely affected.
Our customers generally are not contractually obligated to purchase printing services from us.
Typically, we receive discrete orders from our customers for each printing project or service.
Consequently, our continued engagement to provide additional commercial printing services largely
depends upon, among other things, the customer’s satisfaction with the quality of services we
provide. Although we do not depend on any one customer, group of customers or type of customer, our
sales to many of our largest customers may fluctuate from year to year depending upon the number,
size and complexity of projects they initiate and award us.
Suppliers
We purchase raw materials used in the commercial printing process (such as paper, prepress
supplies, ink, and boxes) from a number of major U.S. and Canadian, as well as many local,
suppliers. We are not materially dependent on any one supplier and the raw materials we utilize are
generally readily available. We use a two-tiered approach to purchasing in order to maximize the
economies associated with our size, while maintaining the local efficiencies and time sensitivity
required to meet customer demands. We negotiate master purchasing arrangements centrally with major
suppliers and manufacturers to obtain preferential pricing terms, and then communicate the terms of
these arrangements to our individual printing businesses. Each printing business orders goods and
services through our major vendors as needed based on the terms set forth in our master purchasing
agreements or, when appropriate, purchases locally. We continually monitor market conditions and
product developments, as well as regularly review the contractual terms of our master purchasing
agreements, to take advantage of our increasing buying power and maximize the benefits associated
with these agreements. None of our supplier contracts obligate us to minimum purchase requirements
that would result in us having to purchase excessive quantities of goods or incur a financial
penalty.
We incur significant costs to purchase paper used in the printing process. However,
fluctuations in paper pricing generally do not materially impact our operating margins because we
typically quote, and subsequently purchase, paper for each specific printing project we are
awarded. As a result, any changes in paper pricing are effectively passed through to customers by
our printing businesses. The majority of our paper supply is obtained through merchant
distributors. There are relatively few merchants that are considered national in scope in the U.S.
and Canada, with numerous regional organizations that serve one or more of our printing businesses.
We have negotiated master purchasing agreements with certain mills, which produce paper, and
certain merchants, who distribute the paper produced by the mills. These agreements typically
provide for volume-related discounts and additional periodic rebates based on the total amount of
purchases made by our
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printing businesses from each mill and/or merchant. Certain of our mill suppliers produce a
Consolidated Graphics branded paper we named “Inspire”, under arrangements generally similar to our
other major vendor agreements. “Inspire” enables us to further leverage our purchasing power and
differentiate ourselves to customers in the marketplace. During 2008, we introduced “Inspire
Earth”. This branded paper features the same overall quality characteristics of “Inspire,” is
Forest Stewardship Council Certified, the global benchmark for responsible forest management, and
contains 10% post-consumer waste.
We also purchase a large quantity of prepress supplies, consisting mainly of plates and
proofing materials. There are a limited number of key manufacturers of these materials, and we
generally purchase prepress supplies from both major and regional distributors. We have obtained
volume-related discounts and incentive arrangements from these manufacturers and receive periodic
rebates based on the total amount of prepress supplies we purchase through these distributors.
Employees
As of April 30, 2008, we had 6,757 employees throughout our organization. Of this total, 807
were employed subject to the terms of various collective bargaining agreements, 462 of which are
under collective bargaining agreements that have expired or will expire within one year. We are
currently in negotiations for new collective bargaining agreements with unions at five of our
printing businesses with expired collective bargaining agreements. We believe that our relations with our employees are generally satisfactory.
Government Regulation and Environmental Matters
Our printing businesses are subject to the environmental laws and regulations of the U.S. and
Canada as well as state, provincial and local laws and regulations concerning emissions into the
air, discharges into waterways and the generation, handling and disposal of waste materials. The
commercial printing process generates substantial quantities of inks, solvents and other waste
products requiring disposal under the numerous laws and regulations relating to the environment.
Our printing businesses typically recycle waste paper and contract for the removal of waste
products. We believe our Company is in material compliance with all applicable air quality, waste
disposal and other environmental-related rules and regulations, as well as with other general
employee health and safety laws and regulations. We do not anticipate any material future capital
expenditures for environmental control facilities. There can be no assurance, however, that future
changes in environmental laws and regulations will not have a material effect on our consolidated
financial condition or results of operations.
Item 1A. Risk Factors
Our consolidated results of operations, financial condition and cash flows can be adversely
affected by various risks. These risks include, but are not limited to, the principal factors
listed below. Additional risks not presently known to us or that we currently deem immaterial may
also adversely affect our business operations. You should carefully consider all of these risks.
Fluctuations in the costs of paper, ink, energy, postage and other raw materials may adversely
impact us.
Purchases of paper, ink, energy, postage and other raw materials and goods and services
represent a large portion of our costs. Any increases in the costs of these items will also
increase our costs. Depending on the timing and severity of such increases we may not be able to
pass these costs on to customers through higher prices. Increases in the costs of these items may
also adversely impact our customers’ demand for printing and related services.
We may be adversely affected by a decline in the availability of raw materials.
We are dependant on the availability of paper, ink, and other raw materials to support our
operations. Circumstances outside of our control in these markets could result in a decrease in the
supply of paper, ink or other raw materials and could adversely affect our business and results of
operations.
The financial condition of our customers may deteriorate and could affect payment of amounts owed
to us.
We grant credit to substantially all of our customers. A decline in financial condition
across a significant component of our customer base could hinder our ability to collect amounts
owed by customers. In addition, such a decline could result in lower demand for our services. The
potential causes of such a decline include broad or local economic downturns, the fact that many of
our customers are in highly-competitive industries or markets, and the impact of regulatory
actions.
9
We may not be able to improve our operating efficiencies rapidly enough to meet market conditions.
Because the markets in which we compete are highly-competitive, we must continue to improve
our operating efficiency in order to maintain or improve our profitability. Although we have been
able to improve efficiency and reduce costs in the past, there is no assurance that we will
continue to do so in the future. In addition, the need to reduce ongoing operating costs may result
in significant up-front costs to reduce workforce, close or consolidate facilities, or upgrade
equipment and technology.
We may be unable to successfully integrate the operations of acquired businesses and may not
achieve the cost savings and increased revenues anticipated as a result of these acquisitions.
Achieving the anticipated benefits of acquisitions will depend in part upon our ability to
integrate these businesses in an efficient and effective manner. The integration of companies that
have previously operated independently may result in significant challenges, and we may be unable
to accomplish the integration smoothly or successfully. In particular, the coordination of
geographically dispersed organizations with differences in corporate cultures and management
philosophies may increase the difficulties of integration. The integration of acquired businesses
may also require the dedication of significant management resources, which may temporarily shift
senior management’s attention from the other day-to-day operations of the Company. Our strategy
is, in part, predicated on our ability to realize cost savings and to increase revenues through the
acquisition of businesses that add to the breadth and depth of our capabilities and services.
We may be unable to hire and retain talented employees, including senior management.
Our success depends, in part, on our general ability to attract, develop, motivate and retain
highly skilled employees. The loss of a significant number of our employees or the inability to
attract, hire, develop, train and retain additional skilled personnel could have a material adverse
effect on us. Although our operating platform consists of many locations with a wide geographic
dispersion, individual locations may encounter strong competition from other employers for skilled
labor. In addition, various members of our management team have significant industry experience and
a long track record with us that is important to our continued success. If one or more members of
our senior management team leave and we cannot replace them with a suitable candidate quickly, we
could experience difficulty in managing our business properly, which could harm our business and
results of operations.
Costs to provide health care and certain other benefits to our employees may increase.
We generally provide health care and certain other benefits to our employees. In recent years,
costs for health care have increased more rapidly than general inflation in the U.S. economy. If
this trend in health care costs continues, our cost to provide such benefits could increase,
adversely impacting our business and results of operations.
Declines in general economic conditions or acts of war and terrorism may adversely impact our
business.
Demand for printing services is highly correlated with general economic conditions. A decline
in U.S. economic conditions may, therefore, adversely impact our business and results of
operations. Because such outcomes are difficult to predict, the industry may experience excess
capacity resulting in declines in prices for our services. The overall business climate may also be
impacted by domestic and foreign wars or acts of terrorism. Such acts may have sudden and
unpredictable adverse impacts on demand for our services.
The highly competitive market for our services may create adverse pricing pressures.
The markets for our services are highly fragmented and we have a large number of competitors,
resulting in a highly competitive market and increasing risk of adverse pricing pressures in
various circumstances outside of our control, including economic downturns.
Decline in preference for using or receiving printed materials in lieu of alternative mediums may
adversely affect our business.
In addition to traditional non-print based marketing and advertising channels, online
distribution and hosting of media content may gain broad acceptance or preferred status relative to
printed materials among consumers generally and could have an adverse effect on our business.
Consumer acceptance of electronic delivery as well as the extent that consumers may have previously
replaced traditional reading of print material with online hosted media contents is uncertain. We
have no ability to predict the likelihood that this may occur.
10
Changes in the laws and regulations to which we are subject may increase our costs.
We are subject to numerous laws and regulations, including, but not limited to, environmental
and health and welfare benefit regulations, as well as those associated with being a public
company. These rules and regulations may be changed by local, state, provincial, national or
foreign governments or agencies. Changes in these regulations may result in a significant increase
in our compliance costs. Compliance with changes in rules and regulations could require increases
to our workforce, increased cost for services, compensation and benefits, or investments in new or
upgraded equipment.
Advances in technology may reduce barriers to entry and may result in increased competition.
Future advances in technology could cause certain cost and logistics barriers to entry in the
general commercial printing industry to be reduced or eliminated, which may result in an adverse
effect on our business and results of operations. Current cost barriers include the relatively
large scale of equipment and real estate required to effectively compete in our industry, while
logistics barriers include shipping, customer service and other costs that have historically
precluded competitors not having a local presence from competing effectively from outside of a
particular market, particularly foreign-based competitors.
We rely on our information technology infrastructure and our management information systems for
many enterprise-critical functions. If our information systems fail to adequately perform these
functions or if we experience an interruption in their operation, our business and results of
operations could be adversely affected.
The efficient operation of our business depends on our information technology infrastructure
and our management information systems. We generally rely on our management information systems to
effectively manage accounting and financial functions, job entry, tracking, production,
distribution and cost accumulation and certain purchasing functions. Our information technology
infrastructure underlies both our management information systems and our CGXSolutions capabilities.
The failure of our information technology infrastructure and/or our management information systems
to perform could severely disrupt our business and adversely affect our results of operation. In
addition, our information technology infrastructure and/or our management information systems are
vulnerable to damage or interruption from natural or man-made disasters, terrorist attacks,
computer viruses or hackers, power loss, or other computer systems, Internet telecommunications or
data network failures. Any such interruption could adversely affect our business and results of
operations.
We generally do not have long-term customer agreements.
Most of our customers are not contractually obligated to purchase future services from us.
Although our business does not depend on any one customer or group or type of customers, we cannot
be sure that any particular customer will continue to do business with us for any period of time.
We depend on good labor relations.
If the employees at one or more of our unionized businesses were to engage in a strike or
other work stoppage for any reason, including failure to enter into satisfactory collective
bargaining agreements with unions, or if other employees were to become unionized, we could
experience a disruption of operations, higher labor costs or both, which could have a material
adverse effect on our results of operations.
We rely on the ability to borrow cash to make acquisitions, fund capital expenditures and provide
working capital to the extent such cash needs exceed our internally generated cash flow.
We currently have adequate capacity under our primary bank credit facility as well as other
sources of capital to fund our foreseeable cash needs in excess of our projected
internally-generated cash flows. However, adverse changes in general economic conditions or in our
financial performance could cause a limitation in the amount of capital available to us, and could
result in a material adverse effect on our business, results of operations and growth strategies.
A decline in expected profitability of the Company or individual reporting units of the Company
could result in the impairment of assets, including goodwill, other long-lived assets and deferred
tax assets.
We have a significant amount of goodwill, other long-lived assets and deferred taxes on our
balance sheet. A decline in expected profitability, could cause an impairment related to goodwill,
other long-lived assets, or deferred tax assets and require us to record an impairment charge
against income.
11
Item 1B. Unresolved Staff Comments
The Company has no unresolved written comments from the SEC staff regarding its periodic or
current reports under the Exchange Act.
Item 2. Properties
As of April 30, 2008, our principal facilities consisted of approximately 5.8 million square
feet that contain production, storage and office space, of which approximately 2.2 million square
feet is owned and approximately 3.5 million square feet is leased. Certain of the leased
facilities, totaling approximately .7 million square feet, are leased from former owners and
current employees of five of our printing businesses. All other leases are with unaffiliated third
parties. We believe our facilities are generally suitable for their present and intended purposes
and are adequate for our current level of operations. These facilities are located across 27 states
plus one Canadian province.
Item 3. Legal Proceedings
From time to time, we are involved in litigation relating to claims arising out of our
operations in the normal course of business. We maintain insurance coverage against certain
potential claims in amounts that we believe to be adequate. Currently, we are not aware of any
legal proceedings or claims pending against the Company that our management believes could have a
material adverse effect on our consolidated financial condition or results of operations.
Item 4. Submission of Matters to a Vote of Security Holders
None.
12
PART II
|
|
|
| Item 5. Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of
Equity Securities |
Our common stock is traded on the New York Stock Exchange under the symbol “CGX.” The
following table presents the quarterly high and low sales prices for our common stock for each of
the last two fiscal years:
| |
|
|
|
|
|
|
|
|
| Fiscal 2008—Quarter Ended: |
|
High |
|
|
Low |
|
|
|
|
|
|
|
|
|
|
June 30, 2007 |
|
|
80.58 |
|
|
|
67.75 |
|
September 30, 2007 |
|
|
75.11 |
|
|
|
48.65 |
|
December 31, 2007 |
|
|
71.53 |
|
|
|
45.60 |
|
March 31, 2008 |
|
|
58.18 |
|
|
|
38.49 |
|
| |
|
|
|
|
|
|
|
|
| Fiscal 2007—Quarter Ended: |
|
High |
|
|
Low |
|
|
|
|
|
|
|
|
|
|
June 30, 2006 |
|
|
57.44 |
|
|
|
48.20 |
|
September 30, 2006 |
|
|
64.50 |
|
|
|
47.53 |
|
December 31, 2006 |
|
|
64.17 |
|
|
|
55.39 |
|
March 31, 2007 |
|
|
77.00 |
|
|
|
57.26 |
|
As of April 30, 2008, there were 73 shareholders of record representing approximately 2,513
beneficial owners.
In May 2007, our Board of Directors approved a common stock share repurchase program providing for repurchases of our
common stock not to exceed an aggregate of $100 million in
open-market or block purchase transactions. The Company completed this repurchase program in September 2007. In October 2007, our Board of Directors approved a common stock share repurchase program
providing for repurchases of our common stock not to exceed and aggregate of $50 million in open-market or block purchase transactions. The Company completed this repurchase program in January
2008. The following are details of repurchases under our Board of Directors approved common stock
repurchase program for the period covered by this report:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
Total Number |
|
|
Maximum |
|
| |
|
|
|
|
|
|
|
|
|
of Shares |
|
|
Dollar Value of |
|
| |
|
|
|
|
|
|
|
|
|
Repurchased |
|
|
Shares that May |
|
| |
|
|
|
|
|
|
|
|
|
as Part of |
|
|
Yet Be |
|
| |
|
Total Number of |
|
|
Average |
|
|
Publicly |
|
|
Repurchased |
|
| |
|
Shares |
|
|
Price Paid |
|
|
Announced |
|
|
Under the |
|
| Period |
|
Repurchased (a) |
|
|
per Share |
|
|
Plans |
|
|
Announced Plans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repurchases from January 1, 2008
through
January
31, 2008 |
|
|
268,501 |
|
|
$ |
44.60 |
|
|
|
268,501 |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repurchases from
February 1, 2008
through February
29, 2008 |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repurchases from March 1, 2008
through
March
31, 2008 |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarterly Total |
|
|
268,501 |
|
|
$ |
44.60 |
|
|
|
268,501 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2008 Total |
|
|
2,684,167 |
|
|
$ |
55.92 |
|
|
|
2,684,167 |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We have not previously paid cash dividends on our common stock. We presently intend to retain
all of our earnings to finance the continuing development of our business and do not anticipate
paying cash dividends on our common stock in the foreseeable future. Any future payment of cash
dividends will depend upon the financial condition, capital requirements and earnings of our
Company, as well as other factors our Board of Directors may deem relevant. In addition, our
primary bank credit facility contains restrictions that limit our ability to pay cash dividends.
Information regarding our Long-Term Incentive Plan, as amended, as of March 31, 2008 is
incorporated by reference into Item 12. Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters.
13
Item 6. Selected Consolidated Financial Data
The following selected consolidated financial data should be read in conjunction with and is
qualified in its entirety by reference to “Management’s Discussion and Analysis of Financial
Condition and Results of Operations” and the audited consolidated financial statements of our
Company and the notes thereto included in Item 8. Financial Statements and Supplementary Data and
elsewhere in this Annual Report on Form 10-K:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year Ended March 31 |
|
| |
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
| |
|
(In thousands, except per share data) |
|
Income Statement Data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales |
|
$ |
1,095,388 |
|
|
$ |
1,006,186 |
|
|
$ |
879,023 |
|
|
$ |
779,016 |
|
|
$ |
708,060 |
|
Cost of sales |
|
|
812,401 |
|
|
|
736,996 |
|
|
|
661,560 |
|
|
|
586,615 |
|
|
|
540,080 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
282,987 |
|
|
|
269,190 |
|
|
|
217,463 |
|
|
|
192,401 |
|
|
|
167,980 |
|
Selling expenses |
|
|
106,952 |
|
|
|
101,649 |
|
|
|
91,266 |
|
|
|
81,456 |
|
|
|
76,189 |
|
General and administrative expenses |
|
|
78,804 |
|
|
|
69,223 |
|
|
|
58,993 |
|
|
|
54,116 |
|
|
|
51,887 |
|
Other (income) expense, net |
|
|
(3,064 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Goodwill impairment(1) |
|
|
— |
|
|
|
11,533 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
100,295 |
|
|
|
86,785 |
|
|
|
67,204 |
|
|
|
56,829 |
|
|
|
39,904 |
|
Interest expense, net |
|
|
12,020 |
|
|
|
6,702 |
|
|
|
5,514 |
|
|
|
5,107 |
|
|
|
7,216 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
|
88,275 |
|
|
|
80,083 |
|
|
|
61,690 |
|
|
|
51,722 |
|
|
|
32,688 |
|
Income taxes |
|
|
28,951 |
|
|
|
29,342 |
|
|
|
23,192 |
|
|
|
19,000 |
|
|
|
12,691 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
59,324 |
|
|
$ |
50,741 |
|
|
$ |
38,498 |
|
|
$ |
32,722 |
|
|
$ |
19,997 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
4.76 |
|
|
$ |
3.74 |
|
|
$ |
2.81 |
|
|
$ |
2.40 |
|
|
$ |
1.49 |
|
Diluted |
|
$ |
4.63 |
|
|
$ |
3.65 |
|
|
$ |
2.73 |
|
|
$ |
2.31 |
|
|
$ |
1.44 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
March 31 |
|
| |
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
| |
|
(In thousands) |
|
Balance Sheet Data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Working capital |
|
$ |
138,250 |
|
|
$ |
100,153 |
|
|
$ |
67,474 |
|
|
$ |
64,225 |
|
|
$ |
47,488 |
|
Property and equipment, net |
|
|
421,347 |
|
|
|
354,156 |
|
|
|
297,308 |
|
|
|
297,600 |
|
|
|
272,801 |
|
Total assets |
|
|
872,663 |
|
|
|
723,969 |
|
|
|
611,313 |
|
|
|
590,229 |
|
|
|
526,209 |
|
Long-term debt, net of current portion |
|
|
362,448 |
|
|
|
142,144 |
|
|
|
90,678 |
|
|
|
111,895 |
|
|
|
98,265 |
|
Total shareholders’ equity |
|
|
279,793 |
|
|
|
365,536 |
|
|
|
318,946 |
|
|
|
283,332 |
|
|
|
245,612 |
|
| |
|
|
| (1) |
|
Reflects the impairment of goodwill value as of March 31, 2007 under Statement of Financial
Accounting Standards (“SFAS”) No. 142, Goodwill and Other Intangible Assets. |
14
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following management’s discussion and analysis of financial condition and results of
operations should be read in conjunction with our historical consolidated financial statements and
their notes included elsewhere in this Annual Report on Form 10-K. This discussion contains
forward-looking statements that reflect our current views with respect to future events and
financial performance. Our actual results may differ materially from those anticipated in these
forward-looking statements as a result of certain factors such as those referenced in “Forward
Looking Statements.”
Overview
Our Company is a leading U.S. and Canadian provider of commercial printing services with 70
printing businesses spanning 27 states plus one Canadian province. Complementing the printing
services we provide, we also offer (i) state-of-the-art fulfillment services from 13 fulfillment
centers located at or near one of our printing businesses and (ii) proprietary digital technology
solutions and e-commerce capabilities from two technology hubs located at our corporate
headquarters and at one of our printing businesses in the Baltimore/Washington D.C. area.
We are focused on adding value to our printing businesses by providing the financial and
operational strengths, management support and technological advantages associated with a large,
national organization. Our strategy currently includes the following initiatives to generate sales
and profit growth:
| |
• |
|
Internal Sales Growth—We seek to use our competitive advantages to expand
market share. We continually seek to hire additional experienced sales professionals,
invest in new equipment and technology, expand our national accounts program, develop
new and expanded digital technology-based print-related services and provide sales
training and education about our breadth of capabilities and services to our sales
professionals. |
| |
| |
• |
|
Disciplined Acquisition Program—We selectively pursue opportunities to acquire
additional printing businesses at reasonable prices. Some of these acquisitions may
include smaller and/or distressed printing businesses for consolidation into one of our
existing businesses. |
| |
| |
• |
|
Cost Savings—Because of our size and extensive geographic footprint, we
leverage our economies of scale to purchase supplies and equipment at preferential
prices, and centralize various administrative services to generate cost savings. |
| |
| |
• |
|
Best Practices/Benchmarking—We provide a forum for our printing businesses to
share their knowledge of technical processes and their best practices with one another,
as well as benchmark financial and operational data to help our printing businesses
identify and respond to changes in operating trends. |
| |
| |
• |
|
Leadership Development—Through our unique Leadership Development Program, we
develop talent for future sales and management positions at our printing businesses. |
Our printing businesses maintain their own sales, customer service, estimating and planning,
prepress, production and accounting departments. Our corporate headquarters staff provides support
to our printing businesses in such areas as human resources, purchasing, internal financial
controls design and management information systems. We also maintain centralized treasury, risk
management, tax, internal audit and consolidated financial reporting activities.
Our sales are derived from commercial printing services. These services consist of
(i) traditional print services, including electronic prepress, printing, finishing, storage and
delivery of high-quality materials which are custom manufactured to our customers’ design
specifications; (ii) fulfillment and mailing services for such printed materials; and (iii) digital
technology solutions and e-commerce capabilities that enable our customers to more efficiently
procure and manage printed materials and/or design, procure, distribute, track and analyze results
of printing-based marketing programs and activities. Examples of the types of documents we print
for our customers include high-quality, multi-color marketing materials, product and capability
brochures, point-of-purchase displays, direct mail pieces, shareholder communications, trading
cards, catalogs and training manuals.
Most of our sales are generated by individual orders through commissioned sales personnel. We
recognize revenue from these orders when we deliver the ordered goods and services. To a large
extent, continued engagement of our Company by our customers for successive business opportunities
depends upon the customers’ satisfaction with the quality of products and services we provide. As
such, it is difficult for us to predict with any high degree of certainty the number, size, and
profitability of printing services that we expect to provide for more than a few weeks in advance.
Our revenues, however, tend to be strongest in the quarter ended December 31 followed by revenue in
the quarter ended March 31. Conversely, revenues tend to be seasonally weaker in the quarters ended
June 30 and September 30.
15
Our cost of sales mainly consists of raw materials consumed in the printing process, as well
as labor and outside services, such as delivery costs. Paper cost is the most significant component
of our materials cost; however, fluctuation in paper pricing generally does not materially impact
our operating margins because we typically quote, and subsequently purchase, paper for each
specific printing project we are awarded. As a result, any changes in paper pricing are effectively
passed through to customers by our printing businesses. Additionally, our cost of sales includes
salary and benefits paid to operating personnel, maintenance, repair, rental and insurance costs
associated with operating our facilities and equipment and depreciation charges.
Our selling expenses generally include the compensation paid to our sales professionals, along
with promotional, travel and entertainment costs. Our general and administrative expenses generally
include the salary and benefits paid to support personnel at our printing businesses and our
corporate staff including stock-based compensation, as well as office rent, utilities and
communications expenses, various professional services and amortization of identifiable intangible
assets.
Results of Operations
The following table sets forth our Company’s historical consolidated income statements and
certain percentage relationships for the periods indicated:
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|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
As a Percentage of Sales |
|
| |
|
Year Ended March 31 |
|
|
Year Ended March 31 |
|
| |
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
| |
|
(In millions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales |
|
$ |
1,095.4 |
|
|
$ |
1,006.2 |
|
|
$ |
879.0 |
|
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
Cost of sales |
|
|
812.4 |
|
|
|
737.0 |
|
|
|
661.5 |
|
|
|
74.2 |
|
|
|
73.2 |
|
|
|
75.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
283.0 |
|
|
|
269.2 |
|
|
|
217.5 |
|
|
|
25.8 |
|
|
|
26.8 |
|
|
|
24.7 |
|
Selling expenses |
|
|
107.0 |
|
|
|
101.7 |
|
|
|
91.3 |
|
|
|
9.8 |
|
|
|
10.1 |
|
|
|
10.4 |
|
General and administrative expenses |
|
|
78.8 |
|
|
|
69.2 |
|
|
|
59.0 |
|
|
|
7.2 |
|
|
|
6.9 |
|
|
|
6.7 |
|
Other (income) expense, net |
|
|
(3.1 |
) |
|
|
— |
|
|
|
— |
|
|
|
(0.3 |
) |
|
|
— |
|
|
|
— |
|
Goodwill impairment |
|
|
— |
|
|
|
11.5 |
|
|
|
— |
|
|
|
— |
|
|
|
1.2 |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
100.3 |
|
|
|
86.8 |
|
|
|
67.2 |
|
|
|
9.1 |
|
|
|
8.6 |
|
|
|
7.6 |
|
Interest expense, net |
|
|
12.0 |
|
|
|
6.7 |
|
|
|
5.5 |
|
|
|
1.1 |
|
|
|
0.7 |
|
|
|
0.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before taxes |
|
|
88.3 |
|
|
|
80.1 |
|
|
|
61.7 |
|
|
|
8.0 |
|
|
|
7.9 |
|
|
|
7.0 |
|
Income taxes |
|
|
29.0 |
|
|
|
29.4 |
|
|
|
23.2 |
|
|
|
2.6 |
|
|
|
2.9 |
|
|
|
2.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
59.3 |
|
|
$ |
50.7 |
|
|
$ |
38.5 |
|
|
|
5.4 |
% |
|
|
5.0 |
% |
|
|
4.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our sales and expenses during the periods shown were impacted by the acquisition of three
printing businesses in fiscal 2008, two printing businesses in fiscal 2007 and four printing
businesses in fiscal 2006. In accordance with the purchase method of accounting, our consolidated
income statements reflect sales and expenses of acquired businesses only for post-acquisition
periods. Accordingly, acquisitions affect our financial results in any one year compared to the
prior year by the full-year impact of prior year acquisitions (as compared to the partial impact in
the prior year) and the partial-year impact of current year acquisitions. This revenue impact is
referred to below as the “incremental impact of acquisitions.” We refer to revenue growth or decline,
excluding the effect of revenues contributed by acquisitions in the most recent fiscal year as
“organic” or “same-store” sales growth or decline.
Analysis of Consolidated Income Statements for Fiscal 2008 as Compared to Fiscal 2007
Sales for fiscal 2008 increased $89.2 million, or 9%, to $1.10 billion from $1.01 billion in
fiscal 2007. The $89.2 million revenue increase is attributable to an increase of $109.4 million
from the incremental impact of acquisitions, partially offset by an internal same-store revenue
decline of $20.2 million due largely to an $11.7 million decline in election-related printing.
Excluding the decline in election-related printing, internal sales were down .8% compared to 2007.
We believe this decline was generally due to the weakness of the U.S. economy during the year.
Fiscal 2008 gross profit increased by $13.8 million, or 5%, to $283 million from $269.2
million in fiscal 2007. This increase was primarily attributable to the increased sales levels
discussed above, which were significantly affected by the incremental impact of acquisitions. Gross
profits as a percentage of sales, declined to 25.8% from 26.8% in fiscal 2007 due to relatively
lower gross margins for recently acquired businesses, as well as higher expenses related to direct
start-up expenses associated with our growing digital printing business.
Selling expense for fiscal 2008 increased $5.3 million, or 6%, to $107 million from $101.7
million in fiscal 2007. The increase is attributable to higher commission expense due to the
increased sales levels noted above. As a percentage of
16
sales, selling expenses in fiscal 2008 declined to 9.8% from 10.1% in fiscal 2007. The decline
was primarily due to lower selling expense as a percentage of sales for recently acquired
businesses.
General and administrative expenses for fiscal 2008 increased $9.6 million, or 14%, to $78.8
million from $69.2 million in fiscal 2007. This increase was caused by the incremental impact of
acquisitions (including intangible asset amortization) and an increase in professional fees related
to legal costs and information technology consulting fees. Overall, as a percentage of sales,
general and administrative expenses in fiscal 2008 increased to 7.2% from 6.9% in fiscal 2007.
Other income for fiscal 2008 of $3.1 million related to a foreign currency transaction gain
primarily resulting from certain transactions at our Canadian subsidiary denominated in U.S.
dollars.
Based on our annual evaluation of goodwill at March 31, 2008, no goodwill impairment was
recorded. Goodwill impairment for fiscal 2007 was $11.5 million.
Net interest expense for fiscal 2008 increased $5.3 million, or 80%, to $12 million from $6.7
million in fiscal 2007, mostly due to a higher level of average debt outstanding due to borrowings
used to fund 2008 acquisitions and share repurchases under our common stock repurchase program. The
increase was partially offset by a decrease in our weighted average interest rate.
Income taxes for fiscal 2008 were $29.0 million, reflecting an overall effective tax rate of
32.8% as compared to an effective tax rate of 36.6% in fiscal 2007. In fiscal 2008, the effective
tax rate declined primarily as a result of a reduction in reserves related to certain tax
positions, partially offset by an increase in state income taxes.
Analysis of Consolidated Income Statements for Fiscal 2007 as Compared to Fiscal 2006
Sales for fiscal 2007 increased $127.2 million, or 14%, to $1.01 billion from $879.0 million
in fiscal 2006. The $127.2 million revenue increase is attributable to $68.0 million of internal
sales growth and $59.2 million from the incremental impact of acquisitions. Approximately 36% (or
$24.4 million) of our internal sales growth resulted from election-related printing (which recurs
generally on a biennial basis), while approximately 57% (or $38.9 million) was attributable to
sales growth from National Sales and CGXSolutions. Compared to the prior year, National Sales were
up 44% and accounted for 9% of our total sales. Sales attributable to our CGXSolutions sales
channel (including $7.2 million of National Sales) were up 35% compared to the prior year and
accounted for 5% of our total sales.
Gross profit for fiscal 2007 increased by $51.7 million, or 24%, to $269.2 million from $217.5
million in fiscal 2006. Approximately $31.5 million of the increase is attributable to the
increased sales levels discussed above, including the incremental impact of acquisitions. The
remaining increase of $20.2 million accounts for the increase in our gross profit percentage to
26.8% in fiscal 2007 compared to 24.7% in fiscal 2006, and is attributable to (i) margin leverage
as certain of our operating costs are more fixed in nature (for example depreciation and rent
expense) and (ii) incremental purchasing and pricing gains that we have been able to achieve.
Selling expense for fiscal 2007 increased $10.4 million, or 11%, to $101.7 million from $91.3
million in fiscal 2006. The increase is directly attributable to the increased sales levels noted
above. As a percentage of sales, selling expenses in fiscal 2007 decreased to 10.1% from 10.4% in
fiscal 2006, as (i) our sales growth leveraged certain selling expenses which are more fixed in
nature (for example sales meetings and overhead) and (ii) a lower level of sales commissions and
other expenses were incurred in connection with election-related printing and certain other
components of our fiscal 2007 sales growth.
General and administrative expenses for fiscal 2007 increased $10.2 million, or 17%, to $69.2
million from $59.0 million in fiscal 2006. Recognition of share-based compensation expense totaling
$2.7 million was a significant cause of the increase. The remainder of the increase was primarily
attributable to the incremental impact of acquisitions (including direct expenses and $.3 million
of incremental intangible asset amortization). Overall, as a percentage of sales, general and
administrative expenses in fiscal 2007 increased to 6.9% (including a .3% increase attributable to
share-based compensation expense) from 6.7% in fiscal 2006.
Goodwill impairment for fiscal 2007 was $11.5 million based on the Company’s annual evaluation
of goodwill at March 31, 2007, in accordance with SFAS No. 142. The impairment was attributed to
four printing businesses that in the aggregate accounted for approximately 3% of the Company’s
total sales in fiscal 2007. No goodwill impairment was recorded in fiscal 2006.
Net interest expense for fiscal 2007 increased $1.2 million, or 22%, to $6.7 million from $5.5
million in fiscal 2006, due principally to a higher level of average debt outstanding and a
generally higher interest rate environment. This increase in
17
average debt outstanding in fiscal 2007 related principally to acquisitions completed and
funded during the year, which totaled $67.6 million, and our common stock repurchases, which
totaled $24.7 million.
We provided for income taxes for fiscal 2007 of $29.4 million, reflecting an overall effective
tax rate of 36.6% as compared to an effective tax rate of 37.6% in fiscal 2006. In fiscal 2007, an
income tax benefit of $3.7 million attributable to the goodwill impairment discussed above and a
one-time credit of $.7 million for the impact of a net reduction in legislated state income tax
rates on previously provided deferred income taxes were recorded. These tax benefits resulted in a
net decrease of .2% on our overall effective tax rate. Excluding these items, the decrease in our
overall effective tax rate was primarily attributable to (i) an increase in pre-tax earnings, which
caused non-deductible expenses to be a smaller percentage of pre-tax earnings, thus lowering our
effective tax rate and (ii) an increase in the estimated domestic production activities deduction
for fiscal 2007.
Liquidity and Capital Resources
Sources and Uses of Cash
Our historical sources of cash have primarily been cash provided by operations or borrowings
under our various bank credit facilities. Our historical uses of cash have been for acquisitions of
printing businesses, capital expenditures, payment of principal and interest on outstanding debt
obligations and repurchases of our common stock. 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 the notes thereto included in Item 8. Financial
Statements and Supplementary Data:
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|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year Ended March 31 |
|
| |
|
2008 |
|
|
2007 |
|
|
2006 |
|
| |
|
(In millions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
$ |
110.2 |
|
|
$ |
72.8 |
|
|
$ |
79.2 |
|
Acquisitions of businesses |
|
|
(97.3 |
) |
|
|
(67.6 |
) |
|
|
(28.0 |
) |
Capital expenditures, net of proceeds from asset dispositions (1) |
|
|
(39.4 |
) |
|
|
(39.1 |
) |
|
|
(13.9 |
) |
Net proceeds (payments) under bank credit facilities |
|
|
177.4 |
|
|
|
51.1 |
|
|
|
(27.1 |
) |
Net payments on term equipment notes and other debt |
|
|
(1.1 |
) |
|
|
(3.1 |
) |
|
|
(8.8 |
) |
Payments to repurchase and retire common stock |
|
|
(150.0 |
) |
|
|
(24.7 |
) |
|
|
(6.7 |
) |
Proceeds from exercise of stock options |
|
|
2.9 |
|
|
|
17.6 |
|
|
|
2.5 |
|
| |
|
|
| (1) |
|
Excludes capital expenditures of $41 million in fiscal 2008, $5.1 million in
fiscal 2007, and $16.5 million in fiscal 2006, which were directly financed and/or
accrued as a current liability. |
Additionally,
our cash position, working capital and debt obligations as of March 31, 2008,
2007 and 2006 are shown below and should be read in conjunction with our consolidated balance
sheets and the notes thereto included in Item 8. Financial Statements and Supplementary Data:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
March 31 |
|
| |
|
2008 |
|
|
2007 |
|
|
2006 |
|
| |
|
(In millions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
15.1 |
|
|
$ |
12.0 |
|
|
$ |
5.0 |
|
Working capital, inclusive of cash and cash equivalents |
|
|
138.3 |
|
|
|
100.2 |
|
|
|
67.5 |
|
Total debt |
|
|
385.7 |
|
|
|
154.6 |
|
|
|
101.5 |
|
Net cash provided by operating activities increased by $38.0 million for fiscal 2008 compared
to fiscal 2007. This increase was primarily related to a $26.1 million increase in accounts
receivable, an $8.6 million increase in net income, and an $11.5 million decrease in goodwill
impairment. Since our cash requirements in fiscal 2008 for capital expenditures, business
acquisitions and stock repurchases exceeded internally generated cash flow, we incurred additional
borrowings resulting in a $231.1 million increase in our total debt obligations for the year.
During fiscal 2008, we invested $82.4 million in new technology, equipment and real estate, of
which $21.5 million was for digital presses and related technology.
We believe that our cash flow provided by operations, combined with new borrowings, will be
adequate to cover our fiscal 2009 working capital growth, debt service requirements and planned
capital expenditures.
18
We intend to continue pursuing acquisition opportunities at prices we believe are reasonable
based upon prevailing market conditions. However, we cannot accurately predict the timing, size and
success of our acquisition efforts or our associated potential capital commitments. There can be no
assurance that we will be able to acquire additional printing businesses on terms acceptable to us.
During fiscal 2008, the Company completed the acquisitions of three printing businesses. The Pikes
Peak Lithographing Company, The Cyril-Scott Company and PBM Graphics, Inc. acquisitions were funded
principally by borrowings under bank credit facilities. We expect to fund future acquisitions
through cash flow provided by operations and/or additional borrowings. We have in the past issued
our common stock as purchase price consideration in some of our acquisitions. Although we may
issue common stock for such purposes in the future, we do not expect to do so in the foreseeable
future because of our current financial liquidity and ability to utilize available cash or make
additional borrowings instead of issuing common stock.
In May 2007, our Board of Directors approved a common stock share repurchase program providing
for repurchases of our common stock not to exceed an aggregate of $100 million in open-market or
block purchase transactions. During the six month period ended September 30, 2007, we repurchased
1,660,466 shares of our common stock at a total cost of $100 million. In October 2007, our Board of
Directors approved an additional common stock share repurchase program providing for repurchases of
our common stock not to exceed an aggregate of $50 million in open-market or block purchase
transactions. During the six month period ended March 31, 2008, we repurchased 1,023,701 shares of
our common stock at a total cost of $50 million. Therefore, we repurchased a total of 2,684,167
shares of our common stock at a total cost of $150 million in fiscal 2008.
Debt Obligations
Our primary bank credit facility (as amended, the “Credit Agreement”) currently provides for
$335 million in revolving credit and has a maturity date of October 6, 2011. At March 31, 2008,
outstanding borrowings under the Credit Agreement were $233 million and accrued interest at a
weighted average rate of 3.9%.
Under the terms of the Credit Agreement the proceeds from borrowings may be used to repay
certain indebtedness, finance certain acquisitions, provide for working capital and general
corporate purposes and, subject to certain restrictions, repurchase our common stock. Borrowings
outstanding under the Credit Agreement are secured by substantially all of our assets other than
real estate and certain equipment subject to term equipment notes and other financings. Borrowings
under the Credit Agreement accrue interest, at our option, at either (1) the London Interbank
Offered Rate (“LIBOR”) plus a margin of .625% to 1.50%, or (2) an alternate base rate (based upon
the greater of the agent bank’s prime lending rate or the Federal Funds effective rate plus .50%).
We are also required to pay an annual commitment fee ranging from .15% to .275% on available but
unused amounts under the Credit Agreement. The interest rate margin and the commitment fee are
based upon certain financial performance measures set forth in the Credit Agreement and are
redetermined quarterly. At March 31, 2008 the applicable LIBOR interest rate margin was 1.00% and
the applicable commitment fee was .20%.
We are subject to certain covenants and restrictions and we must meet certain financial tests
as defined in the Credit Agreement. We were in compliance with these covenants and financial tests
at March 31, 2008. In the event that we are unable to remain in compliance with these covenants and
financial tests in the future, our lenders would have the right to declare us in default with
respect to such obligations, and consequently, certain of our other debt obligations, including
substantially all of our term equipment notes, would be deemed to also be in default. All debt
obligations in default would be required to be re-classified as a current liability. In the event
that we were unable to obtain a waiver, re-negotiate or re-finance these obligations, a material
adverse effect on our ability to conduct our operations in the ordinary course likely would result.
We also maintain an unsecured credit facility with a commercial bank (as amended, the “A&B
Credit Facility”) currently consisting of a U.S. $5 million maximum borrowing limit component and a
separate Canadian $31 million maximum borrowing limit component. At March 31, 2008, outstanding
borrowings under the A&B Credit Facility were U.S. $2.2 million, which accrued interest at a
weighted average rate of 5.3%, and Canadian $28 million ($27.4 million U.S. equivalent), which
accrued interest at a weighted average rate of 5.8%. An annual reduction of Canadian $4 million on
the Canadian dollar denominated commitment occurs on each anniversary date of the A&B Credit
Facility until the final maturity date of January 2, 2011. There are no significant covenants or
restrictions set forth in the A&B Credit Facility; however, a default by us under the Credit
Agreement constitutes a default under the A&B Credit Facility.
In addition, we maintain two auxiliary revolving credit facilities (each an “Auxiliary Bank
Facility” and collectively the “Auxiliary Bank Facilities”) with commercial banks. Each Auxiliary
Bank Facility is unsecured and has a maximum borrowing capacity of $5 million. One facility expires
in October 2008 while the other facility expires in December 2008. At March 31, 2008, outstanding
borrowings under the Auxiliary Bank Facilities totaled $9.3 million and accrued interest at a
weighted average rate of 3.7%. Because we currently have the ability and intent to refinance the
borrowings outstanding under the Auxiliary Bank Facilities expiring in October and December 2008,
such borrowings are classified as long-term debt
19
in our consolidated balance sheet at March 31, 2008. The Auxiliary Bank Facilities
cross-default to the covenants and restrictions set forth in the Credit Agreement.
At March 31, 2008, outstanding borrowings under our term equipment notes totaled $104.5
million and accrued interest at rates between 3.9% and 7.1%. The term equipment notes provide for
principal payments plus interest for defined periods of up to ten years from the date of issuance,
and are secured by certain equipment of the Company. We are not subject to any significant
financial covenants in connection with any of the term equipment notes. At March 31, 2008,
outstanding borrowings under our real estate notes totaled $4.4 million and accrued interest at 6%.
The real estate notes provide for principal payments plus interest for defined periods of up to ten
years from the date of issuance and are secured by the real estate. At March 31, 2008, other debt
obligations totaled $4.9 million and provided for principal payments plus interest (at fixed and
variable rates) for defined periods up to 15 years from the date of issuance. We do not have any
significant financial covenants or restrictions associated with the real estate notes or the other
debt obligations. The Credit Agreement places certain limitations on the amount of additional term
note obligations we may incur in the future.
As of March 31, 2008, our available credit under existing credit facilities was approximately
$101.8 million.
Contractual Obligations and Other Commitments
As of March 31, 2008, the scheduled maturity of our contractual obligations is as follows (in
millions):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Less Than |
|
|
1 - 3 |
|
|
3 - 5 |
|
|
More Than |
|
| |
|
Total |
|
|
1 Year |
|
|
Years |
|
|
Years |
|
|
5 Years |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt obligations |
|
$ |
385.7 |
|
|
$ |
23.3 |
|
|
$ |
46.4 |
|
|
$ |
304.4 |
|
|
$ |
11.6 |
|
Operating lease obligations |
|
|
97.9 |
|
|
|
18.7 |
|
|
|
27.6 |
|
|
|
19.5 |
|
|
|
32.1 |
|
Operating leases—We have entered into various noncancelable operating leases primarily related
to facilities and equipment used in the ordinary course of our business.
Letters of credit—In connection with our assumption of obligations under outstanding
industrial revenue bonds, which are reflected as debt in the accompanying consolidated financial
statements, and our assumption of certain contingent liabilities related to certain of our
acquisitions, we had letters of credit outstanding as of March 31, 2008 totaling $6.6 million. All
of these letters of credit were issued pursuant to the terms of our Credit Agreement, which expires
in October 2011, and we will be required to obtain replacement letters of credit at that time, as
needed.
Insurance programs—We maintain third-party insurance coverage in amounts and against risks
we believe are reasonable under our circumstances. We are self-insured for most workers’
compensation claims and for a significant component of our group health insurance programs. For
these exposures, we accrue expected loss amounts which are determined using a combination of our
historical loss experience and subjective assessment of our future loss exposure, together with
advice provided by administrators and consulting actuaries. The estimates of expected loss amounts
are subject to uncertainties arising from various sources, including changes in claims reporting
patterns, claims settlement patterns, judicial decisions, legislation and economic conditions,
which could result in an increase or decrease in accrued costs in future periods for claim matters
which occurred in a prior period. Although we believe that the accrued estimated loss amounts are
reasonable under the circumstances, significant differences related to the items noted above could
materially affect our risk exposure, insurance obligations, and future expense.
Critical Accounting Policies
We have identified our critical accounting policies based on the following factors—significance to our overall financial statement presentation, complexity of the policy and its use
of estimates and assumptions. We are required to make certain estimates and assumptions in
determining the reported amounts of assets and liabilities, disclosure of contingent liabilities
and the reported amounts of revenues and expenses. 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. Because uncertainties with respect
to estimates and assumptions are inherent in the preparation of financial statements, actual
results could differ from these estimates.
Revenue Recognition—We primarily recognize revenue upon delivery of the printed product to
the customer. In the case of customer fulfillment arrangements, including multiple deliverables of
printing services and distribution services, revenue relating to the printed product is recognized
upon the delivery of the printed product into our fulfillment warehouses, and invoicing of the
customer for the product at an agreed price. Because printed products manufactured for our
customers are customized based upon the customers specifications, product returns are
insignificant.
20
Receivables, net of valuation allowance—Accounts receivable at March 31, 2008 were $209.0
million, net of a $3.6 million allowance for doubtful accounts. The valuation allowance was
determined based upon our evaluation of known requirements, aging of receivables, historical
experience and the current economic environment. While we believe we have appropriately considered
known or expected outcomes, our customers’ ability to pay their obligations could be adversely
affected by contraction in the U.S. economy or other factors beyond our control. Changes in our
estimates of collectibility could have a material adverse effect on our consolidated financial
condition or results of operations.
Goodwill and other intangible assets—We evaluate the carrying value of our goodwill and
other intangible assets with indefinite lives as of each fiscal year end, or at any time that
management becomes aware of an indication of impairment. Our evaluation is based on certain data
estimated by management to be indicators of future cash flows at each of our facilities. Estimating
future cash flows requires judgments regarding future economic conditions, demand for services and
pricing. Our evaluation also makes use of estimates of market multiples of cash flow at which
transactions could be completed in the current market and calculation of estimated discounted cash
flows. If our estimates of future cash flows or market multiples prove to be materially inaccurate,
an impairment charge could be necessary in future periods.
Impairment of long-lived assets—We evaluate long-lived assets, including property, plant and
equipment, and intangible assets other than goodwill or intangible assets with indefinite lives
whenever events or changes in conditions indicate that the carrying value may not be recoverable.
The evaluation requires us to estimate future undiscounted cash flows associated with an asset or
group of assets. If the cost of the asset or group of assets cannot be recovered by these
undiscounted cash flows, then the need for an impairment may exist. Estimating future cash flows
requires judgments regarding future economic conditions, demand for services and pricing. Although
we believe our estimates are reasonable, significant differences in the actual performance of the
asset or group of assets may materially affect our asset values and require an impairment charge in
future periods.
Insurance liabilities—We are self-insured for the majority of our workers’ compensation and
group health insurance costs. Insurance claims liabilities have been accrued using a combination of
our historical loss experience and subjective assessment of our future loss exposure, together with
advice provided by administrators and consulting actuaries. The estimates of expected loss amounts
are subject to uncertainties arising from various sources, including changes in claims reporting
patterns, claims settlement patterns, judicial decisions, legislation and economic conditions,
which could result in an increase or decrease in accrued costs in future periods for claims matters
which occurred in a prior period.
Accounting for income taxes—As part of the process of preparing our consolidated financial
statements, we are required to estimate our income taxes. This process involves estimating our
actual current tax exposure, together with assessing temporary differences resulting from differing
treatment of items for tax and financial reporting purposes. The tax effects of these temporary
differences are recorded as deferred tax assets or deferred tax liabilities. We must then assess
the likelihood that our deferred tax assets will be recovered from future taxable income, and to
the extent we believe that recovery is not likely, we must establish a valuation allowance.
Significant judgment is required in determining our provision for income taxes, our deferred tax
assets and liabilities and any valuation allowance recorded against our net deferred tax assets.
Additionally, we account for uncertain tax positions in accordance with Financial Interpretation
No. 48, Accounting for Uncertainty in Income Taxes — an Interpretation of FASB Statement No.109
(FIN 48). For additional information regarding FIN 48, refer to Note 6. Income Taxes in the
footnotes to our consolidated financials.
Accounting for acquisitions—The allocations of purchase price to acquired assets and
liabilities are initially based on estimates of fair value and are prospectively revised if and
when additional information concerning certain asset and liability valuations we are waiting for at
the time of the initial allocations is obtained, provided that such information is received no
later than one year after the date of acquisition. In addition, we retain an independent
third-party valuation firm to assist in the identification, valuation and determination of useful
lives of identifiable intangible assets in connection with our acquisitions.
New Accounting Pronouncements
In September 2006, the FASB issued SFAS No. 157, Fair Value Measurement, which defines fair
value, establishes a framework for measuring fair value in accordance with generally accepted
accounting principles, and expands disclosures about fair value measurement. Our adoption of SFAS
No.157 effective as of April 1, 2008 is not expected to have a material impact on our consolidated
financial condition or results of operations.
In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and
Financial Liabilities, including an amendment of FASB No. 115. SFAS No. 159 permits entities to
choose, at specified election dates, to measure eligible items at fair value (the “fair value
option”). A business entity shall report unrealized gains and losses on items for which the fair
value option has been elected in earnings at each subsequent reporting period. Our adoption of
SFAS
21
No. 159 effective as of April 1, 2008 is not expected to have a material impact on our
consolidated financial condition or results of operations.
In December 2007, the FASB issued SFAS No. 141R, Business Combinations. SFAS No. 141R
requires the acquiring entity to recognize the assets acquired, the liabilities assumed and any
non-controlling interest in the acquiree at the acquisition date, measured at the fair values as of
that date. Goodwill is measured as a residual of the fair values at acquisition date. Acquisition
related costs are recognized separately from the acquisition. Our adoption of SFAS No. 141R
effective as of April 1, 2009 is not expected to have a material impact on our consolidated
financial condition or results of operations.
In December 2007, the FASB issued SFAS No. 160, Non-controlling Interests in Consolidated
Financial Statements. SFAS No. 160 requires non-controlling interests in a subsidiary be reported
as equity in the consolidated financial statements, the attributable net income be identified and
presented on the face of the consolidated statement of income and changes in the ownership be
accounted for consistently. The statement also includes requirements when an interest is
deconsolidated. Disclosure should be sufficient to clearly identify and distinguish between the
interests of the reporting entity and that of the non-controlling interests owners. Our adoption of
SFAS No. 160 effective as of April 1, 2009 is not expected to have a material impact on our
consolidated financial condition or results of operations.
Item 7A. Quantitative and Qualitative Disclosure About Market Risk
Market risk generally means the risk that losses may occur in the value of certain financial
instruments as a result of movements in interest rates, foreign currency exchange rates and
commodity prices. We do not currently hold or utilize derivative financial instruments to manage
market risk or that could expose us to other market risk. We are exposed to market risk in interest
rates related primarily to our debt obligations, which as of March 31, 2008 include $109.2 million
of fixed rate debt and $276.5 million of variable rate debt. A 1% increase in the interest rate on
our variable rate debt would change our interest expense by approximately $2.8 million on an annual
basis. The following table sets forth the average interest rate for the scheduled maturities of our
debt obligations as of March 31, 2008 ($ in millions):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At March 31, |
|
| |
|
2009 |
|
|
2010 |
|
|
2011 |
|
|
2012 |
|
|
2013 |
|
|
Thereafter |
|
|
Total |
|
|
2008 |
|
Fixed Rate Debt: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount |
|
$ |
22.7 |
|
|
$ |
24.4 |
|
|
$ |
21.1 |
|
|
$ |
15.2 |
|
|
$ |
14.2 |
|
|
$ |
11.6 |
|
|
$ |
109.2 |
|
|
$ |
98.2 |
|
Average
interest rate |
|
|
5.72 |
% |
|
|
6.21 |
% |
|
|
5.71 |
% |
|
|
5.84 |
% |
|
|
5.68 |
% |
|
|
6.03 |
% |
|
|
5.87 |
% |
|
|
|
|
Variable Rate Debt: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount |
|
$ |
.5 |
|
|
$ |
.5 |
|
|
$ |
0.4 |
|
|
$ |
272.1 |
|
|
$ |
3.0 |
|
|
|
— |
|
|
$ |
276.5 |
|
|
$ |
276.5 |
|
Average
interest rate |
|
|
2.61 |
% |
|
|
2.25 |
% |
|
|
2.25 |
% |
|
|
5.27 |
% |
|
|
2.25 |
% |
|
|
— |
|
|
|
5.23 |
% |
|
|
|
|
22
Item 8. Financial Statements and Supplementary Data
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
23
MANAGEMENT’S ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Management is responsible for establishing and maintaining adequate internal control over
financial reporting, as such term is defined in Securities Exchange Act Rule 13a-15(f) or
15d-15(f). Our internal control over financial reporting is a process designed to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting
principles. Our internal control over financial reporting includes those policies and procedures
that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the Company; (2) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements
in accordance with generally accepted accounting principles, and that receipts and expenditures of
the Company are being made only in accordance with authorizations of management and directors of
the Company; and (3) provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the Company’s assets that could have a material
effect on the consolidated financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent
or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate.
The scope of management’s assessment of the effectiveness of our internal control over
financial reporting includes the Company’s consolidated subsidiaries, except for certain businesses
acquired by the Company on December 21, 2007 and March 14, 2008, respectively, as permitted by the
rules and regulations of the Securities and Exchange Commission. The Company’s consolidated net
sales for the year ended March 31, 2008 were $1.1 billion, of which the certain businesses acquired
by the Company on December 21, 2007 and March 14, 2008, totaled $16.6 million. The Company’s
consolidated total assets as of March 31, 2008 were $872.7 million, of which the certain businesses
acquired by the Company on December 21, 2007 and March 14, 2008, totaled $120.9 million.
Management assessed the effectiveness of our internal control over financial reporting based
on the framework in Internal Control — Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). Based on our evaluation under the framework in
Internal Control — Integrated Framework, our management concluded that our internal control over
financial reporting was effective as of March 31, 2008. The Company’s internal control over
financial reporting as of March 31, 2008 has been audited by KPMG LLP, an independent registered
public accounting firm, as stated in their attestation report which is included on page 26.
24
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Consolidated Graphics, Inc.:
We have audited the accompanying consolidated balance sheets of Consolidated Graphics, Inc. and
subsidiaries as of March 31, 2008 and 2007, and the related consolidated statements of income,
shareholders’ equity, and cash flows for each of the years in the three-year period ended March 31,
2008. These consolidated financial statements are the responsibility of the Company’s management.
Our responsibility is to express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Consolidated Graphics, Inc. and subsidiaries as of
March 31, 2008 and 2007, and the results of their operations and their cash flows for each of the
years in the three-year period ended March 31, 2008, in conformity with U.S. generally accepted
accounting principles.
As discussed in note 6 to the consolidated financial statements, effective April 1, 2007, the
Company adopted FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an
Interpretation of FASB Statement No. 109.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), Consolidated Graphics, Inc.’s and subsidiaries internal control over
financial reporting as of March 31, 2008, based on criteria established in Internal
Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO), and our report dated May 28, 2008 expressed an unqualified opinion on the
effectiveness of the Company’s internal control over financial reporting.
| |
|
|
|
|
|
|
|
|
Houston, Texas |
|
|
May 28, 2008 |
|
|
25
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Consolidated Graphics, Inc.:
We have audited Consolidated Graphics, Inc. (the “Company”) internal control over financial
reporting as of March 31, 2008, based on criteria established in Internal Control—Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
The Company’s management is responsible for maintaining effective internal control over financial
reporting and for its assessment of the effectiveness of internal control over financial reporting, included
in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting. Our
responsibility is to express an opinion on the Company’s internal control over financial reporting
based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control over financial reporting was
maintained in all material respects. Our audit included obtaining an understanding of internal
control over financial reporting, assessing the risk that a material weakness exists, and testing
and evaluating the design and operating effectiveness of internal control based on the assessed
risk. Our audit also included performing such other procedures as we considered necessary in the
circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles. A
company’s internal control over financial reporting includes those policies and procedures that
(1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect
the transactions and dispositions of the assets of the company; (2) provide reasonable assurance
that transactions are recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that receipts and expenditures of the
company are being made only in accordance with authorizations of management and directors of the
company; and (3) provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the company’s assets that could have a material
effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or
detect misstatements. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the Company maintained, in all material respects, effective internal control over
financial reporting as of March 31, 2008, based on criteria established in Internal
Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO).
The Company acquired certain businesses on December 21, 2007 and March 14, 2008, and management
excluded from its assessment of the effectiveness of its internal control over financial reporting
as of March 31, 2008, the certain businesses’ internal control over financial reporting associated
with the total assets of $120.9 million, and total revenues of $16.6 million included in the
consolidated financial statements of the Company and subsidiaries as of and for the year ended
March 31, 2008. Our audit of internal control over financial reporting of the Company also
excluded an evaluation of the internal control over financial reporting of the certain businesses.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the consolidated balance sheets of the Company as of March 31, 2008, the
related consolidated statements of income, shareholders’ equity, and cash flows for each of the
years in the three-year period ended March 31, 2008, and our report dated May 28, 2008 expressed an
unqualified opinion on those consolidated financial statements.
| |
|
|
|
|
|
|
|
|
Houston, Texas |
|
|
May 28, 2008 |
|
|
26
CONSOLIDATED GRAPHICS, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
| |
|
|
|
|
|
|
|
|
| |
|
March 31 |
|
| |
|
2008 |
|
|
2007 |
|
|
|
|
|
|
|
|
|
|
ASSETS |
|
|
|
|
|
|
|
|
CURRENT ASSETS |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
15,131 |
|
|
$ |
12,043 |
|
Accounts receivable, net |
|
|
209,000 |
|
|
|
185,722 |
|
Inventories |
|
|
61,511 |
|
|
|
46,951 |
|
Prepaid expenses |
|
|
7,127 |
|
|
|
7,532 |
|
Deferred income taxes |
|
|
9,353 |
|
|
|
8,479 |
|
|
|
|
|
|
|
|
Total current assets |
|
|
302,122 |
|
|
|
260,727 |
|
PROPERTY AND EQUIPMENT, net |
|
|
421,347 |
|
|
|
354,156 |
|
GOODWILL AND INTANGIBLES, net |
|
|
141,381 |
|
|
|
101,768 |
|
OTHER ASSETS |
|
|
7,813 |
|
|
|
7,318 |
|
|
|
|
|
|
|
|
|
|
$ |
872,663 |
|
|
$ |
723,969 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
CURRENT LIABILITIES |
|
|
|
|
|
|
|
|
Current portion of long-term debt |
|
$ |
23,252 |
|
|
$ |
12,421 |
|
Accounts payable |
|
|
56,948 |
|
|
|
58,519 |
|
Accrued liabilities |
|
|
83,488 |
|
|
|
89,496 |
|
Income taxes payable |
|
|
184 |
|
|
|
138 |
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
163,872 |
|
|
|
160,574 |
|
LONG-TERM DEBT, net of current portion |
|
|
362,448 |
|
|
|
142,144 |
|
OTHER LIABILITIES |
|
|
13,655 |
|
|
|
— |
|
DEFERRED INCOME TAXES |
|
|
52,895 |
|
|
|
55,715 |
|
COMMITMENTS AND CONTINGENCIES |
|
|
|
|
|
|
|
|
SHAREHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
Common stock, $.01 par value; 100,000,000 shares authorized; 11,079,011
and 13,693,698 issued and outstanding |
|
|
111 |
|
|
|
137 |
|
Additional paid-in capital |
|
|
153,204 |
|
|
|
185,098 |
|
Retained earnings |
|
|
127,376 |
|
|
|
180,113 |
|
Other comprehensive income |
|
|
(898 |
) |
|
|
188 |
|
|
|
|
|
|
|
|
Total shareholders’ equity |
|
|
279,793 |
|
|
|
365,536 |
|
|
|
|
|
|
|
|
|
|
$ |
872,663 |
|
|
$ |
723,969 |
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
27
CONSOLIDATED GRAPHICS, INC.
CONSOLIDATED INCOME STATEMENTS
(In thousands, except per share data)
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year Ended March 31 |
|
| |
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SALES |
|
$ |
1,095,388 |
|
|
$ |
1,006,186 |
|
|
$ |
879,023 |
|
COST OF SALES |
|
|
812,401 |
|
|
|
736,996 |
|
|
|
661,560 |
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
282,987 |
|
|
|
269,190 |
|
|
|
217,463 |
|
SELLING EXPENSES |
|
|
106,952 |
|
|
|
101,649 |
|
|
|
91,266 |
|
GENERAL AND ADMINISTRATIVE EXPENSES |
|
|
78,804 |
|
|
|
69,223 |
|
|
|
58,993 |
|
OTHER INCOME, NET |
|
|
(3,064 |
) |
|
|
— |
|
|
|
— |
|
GOODWILL IMPAIRMENT |
|
|
— |
|
|
|
11,533 |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
100,295 |
|
|
|
86,785 |
|
|
|
67,204 |
|
INTEREST EXPENSE |
|
|
12,366 |
|
|
|
7,011 |
|
|
|
5,692 |
|
INTEREST INCOME |
|
|
(346 |
) |
|
|
(309 |
) |
|
|
(178 |
) |
|
|
|
|
|
|
|
|
|
|
Income before taxes |
|
|
88,275 |
|
|
|
80,083 |
|
|
|
61,690 |
|
INCOME TAXES |
|
|
28,951 |
|
|
|
29,342 |
|
|
|
23,192 |
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
59,324 |
|
|
$ |
50,741 |
|
|
$ |
38,498 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BASIC EARNINGS PER SHARE |
|
$ |
4.76 |
|
|
$ |
3.74 |
|
|
$ |
2.81 |
|
DILUTED EARNINGS PER SHARE |
|
$ |
4.63 |
|
|
$ |
3.65 |
|
|
$ |
2.73 |
|
| |
SHARES USED TO COMPUTE EARNINGS PER SHARE |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
12,463 |
|
|
|
13,580 |
|
|
|
13,719 |
|
Diluted |
|
|
12,822 |
|
|
|
13,905 |
|
|
|
14,127 |
|
See accompanying notes to consolidated financial statements.
28
CONSOLIDATED GRAPHICS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(In thousands)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
Additional |
|
|
|
|
|
|
Accumulated
Other |
|
|
|
|
| |
|
Common Stock |
|
|
Paid-In |
|
|
Retained |
|
|
Comprehensive |
|
|
|
|
| |
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Earnings |
|
|
Income |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE, March 31, 2005 |
|
|
13,760 |
|
|
$ |
138 |
|
|
$ |
168,905 |
|
|
$ |
114,289 |
|
|
$ |
— |
|
|
$ |
283,332 |
|
Exercise of stock options,
including tax benefit |
|
|
124 |
|
|
|
1 |
|
|
|
3,770 |
|
|
|
— |
|
|
|
— |
|
|
|
3,771 |
|
Repurchase and retire common stock |
|
|
(170 |
) |
|
|
(1 |
) |
|
|
(2,094 |
) |
|
|
(4,560 |
) |
|
|
— |
|
|
|
(6,655 |
) |
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
38,498 |
|
|
|
— |
|
|
|
38,498 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE, March 31, 2006 |
|
|
13,714 |
|
|
|
138 |
|
|
|
170,581 |
|
|
|
148,227 |
|
|
|
— |
|
|
|
318,946 |
|
Exercise of stock options,
including tax benefit |
|
|
445 |
|
|
|
3 |
|
|
|
17,619 |
|
|
|
— |
|
|
|
— |
|
|
|
17,622 |
|
Compensation expense |
|
|
— |
|
|
|
— |
|
|
|
2,695 |
|
|
|
— |
|
|
|
— |
|
|
|
2,695 |
|
Repurchase and retire common stock |
|
|
(465 |
) |
|
|
(4 |
) |
|
|
(5,797 |
) |
|
|
(18,855 |
) |
|
|
— |
|
|
|
(24,656 |
) |
Currency translation adjustment |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
188 |
|
|
|
188 |
|
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
50,741 |
|
|
|
— |
|
|
|
50,741 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE, March 31, 2007 |
|
|
13,694 |
|
|
|
137 |
|
|
|
185,098 |
|
|
|
180,113 |
|
|
|
188 |
|
|
|
365,536 |
|
Exercise of stock options,
including tax benefit |
|
|
67 |
|
|
|
1 |
|
|
|
2,869 |
|
|
|
— |
|
|
|
— |
|
|
|
2,870 |
|
Compensation expense |
|
|
— |
|
|
|
— |
|
|
|
2,057 |
|
|
|
— |
|
|
|
— |
|
|
|
2,057 |
|
Repurchase and retire common stock |
|
|
(2,682 |
) |
|
|
(27 |
) |
|
|
(36,820 |
) |
|
|
(113,250 |
) |
|
|
— |
|
|
|
(150,097 |
) |
Currency translation adjustment |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(1,086 |
) |
|
|
(1,086 |
) |
FIN 48 cumulative adjustment |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,189 |
|
|
|
— |
|
|
|
1,189 |
|
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
59,324 |
|
|
|
— |
|
|
|
59,324 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE, March 31, 2008 |
|
|
11,079 |
|
|
$ |
111 |
|
|
$ |
153,204 |
|
|
$ |
127,376 |
|
|
$ |
(898 |
) |
|
$ |
279,793 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
29
CONSOLIDATED GRAPHICS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year Ended March 31 |
|
| |
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
59,324 |
|
|
$ |
50,741 |
|
|
$ |
38,498 |
|
Adjustments to reconcile net income to net cash provided by
operating activities— |
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
53,886 |
|
|
|
45,270 |
|
|
|
45,663 |
|
Non-cash currency gain |
|
|
(3,807 |
) |
|
|
— |
|
|
|
— |
|
Goodwill impairment |
|
|
— |
|
|
|
11,533 |
|
|
|
— |
|
Deferred income tax provision |
|
|
6,029 |
|
|
|
(6,554 |
) |
|
|
137 |
|
Share-based compensation expense |
|
|
2,057 |
|
|
|
2,695 |
|
|
|
— |
|
Changes in assets and liabilities, net of effects of acquisitions— |
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable, net |
|
|
1,419 |
|
|
|
(24,727 |
) |
|
|
(3,969 |
) |
Inventories |
|
|
(32 |
) |
|
|
(4,434 |
) |
|
|
157 |
|
Prepaid expenses |
|
|
1,232 |
|
|
|
(394 |
) |
|
|
(833 |
) |
Other assets |
|
|
(258 |
) |
|
|
(146 |
) |
|
|
(279 |
) |
Accounts payable and accrued liabilities |
|
|
(3,902 |
) |
|
|
2,129 |
|
|
|
(3,101 |
) |
Other liabilities |
|
|
(5,812 |
) |
|
|
— |
|
|
|
— |
|
Income taxes payable |
|
|
46 |
|
|
|
(3,339 |
) |
|
|
2,976 |
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
110,182 |
|
|
|
72,774 |
|
|
|
79,249 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
Acquisitions of businesses, net of cash acquired |
|
|
(97,258 |
) |
|
|
(67,555 |
) |
|
|
(27,983 |
) |
Purchases of property and equipment |
|
|
(41,394 |
) |
|
|
(43,217 |
) |
|
|
(16,382 |
) |
Proceeds from asset dispositions |
|
|
2,019 |
|
|
|
4,095 |
|
|
|
2,517 |
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(136,633 |
) |
|
|
(106,677 |
) |
|
|
(41,848 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from bank credit facilities |
|
|
289,377 |
|
|
|
230,867 |
|
|
|
52,916 |
|
Payments on bank credit facilities |
|
|
(111,972 |
) |
|
|
(179,773 |
) |
|
|
(80,060 |
) |
Proceeds from issuance of term equipment notes |
|
|
15,558 |
|
|
|
8,154 |
|
|
|
— |
|
Payments on term equipment notes and other debt |
|
|
(16,645 |
) |
|
|
(11,290 |
) |
|
|
(8,820 |
) |
Payments to repurchase and retire common stock |
|
|
(150,097 |
) |
|
|
(24,656 |
) |
|
|
(6,655 |
) |
Proceeds from exercise of stock options, including tax benefit |
|
|
2,869 |
|
|
|
17,622 |
|
|
|
2,459 |
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities |
|
|
29,090 |
|
|
|
40,924 |
|
|
|
(40,160 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash |
|
|
449 |
|
|
|
29 |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS |
|
|
3,088 |
|
|
|
7,050 |
|
|
|
(2,759 |
) |
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD |
|
|
12,043 |
|
|
|
4,993 |
|
|
|
7,752 |
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS AT END OF PERIOD |
|
$ |
15,131 |
|
|
$ |
12,043 |
|
|
$ |
4,993 |
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
30
CONSOLIDATED GRAPHICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share data and percentages)
1. BUSINESS
Consolidated Graphics, Inc. (collectively with its consolidated subsidiaries referred to as
“the Company”) is a leading provider of commercial printing services.
The Company’s printing businesses maintain their own sales, customer service, estimating and
planning, prepress, production and accounting departments. The Company’s corporate headquarters
staff provides support to its printing businesses in such areas as human resources, purchasing,
internal financial controls design and management information systems. The Company also maintains
centralized treasury, risk management, tax, internal audit and consolidated financial reporting
activities.
The Company’s sales are derived from commercial printing services. These services consist of
(i) traditional print services, including electronic prepress, digital and offset printing,
finishing, storage and delivery of high-quality printed documents which are custom manufactured to
the design specifications of the Company’s customers; (ii) fulfillment and mailing services for
such printed materials, and (iii) digital technology solutions and e-commerce capabilities that
enable the Company’s customers to more efficiently procure and manage printed materials and/or
design, procure, distribute, track and analyze results of printing-based marketing programs and
activities.
The scope and extent of services provided to the Company’s customers typically varies for each
individual order it receives, depending on customer-specific factors including the intended uses
for the printed materials. Furthermore, each of the Company’s locations generally is capable of
providing a complete range of services to its customers. Accordingly, the Company does not operate
its business in a manner that differentiates among its respective capabilities and services for
financial or management reporting purposes, rather each of its printing businesses is defined as a
distinct reporting unit.
2. SIGNIFICANT ACCOUNTING POLICIES AND OTHER INFORMATION
Accounting Policies
The accounting policies of the Company reflect industry practices and conform to generally
accepted accounting principles in the United States. The more significant of such accounting
policies are described below.
Principles of Consolidation—The accompanying consolidated financial statements include the
accounts of the Company and its wholly-owned subsidiaries. The Company’s operations constitute one
reportable segment because all of its printing businesses operate in the commercial printing
industry and exhibit similar economic characteristics.
Use of Estimates—The preparation of financial statements in conformity with generally accepted
accounting principles requires the use of certain estimates and assumptions by management in
determining the reported amounts of assets and liabilities, disclosure of contingent liabilities as
of the date of the financial statements and the reported amounts of revenues and expenses during
the reporting period including depreciation of property and equipment and amortization or
impairment of intangible assets. The Company evaluates its estimates and assumptions on an ongoing
basis and relies on historical experience and various other factors that it believes to be
reasonable under the circumstances to determine such estimates. Because uncertainties with respect
to estimates and assumptions are inherent in the preparation of financial statements, actual
results could differ from these estimates.
Reclassification—Certain reclassifications of prior periods’ data have been made to conform to
the current period reporting.
Cash and Cash Equivalents—The Company considers all highly liquid investments purchased with
original maturities of three months or less to be cash equivalents.
31
CONSOLIDATED GRAPHICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share data and percentages)
Revenue Recognition and Accounts Receivable—The Company primarily recognizes revenue upon
delivery of the printed product to the customer. In the case of customer fulfillment arrangements,
including multiple deliverables of printing services and distribution services, revenue relating to
the printed product is recognized upon the delivery of the printed product into the Company’s
fulfillment warehouses, and invoicing of the customer for the product at an agreed price. Because
printed products manufactured for the Company’s customers are customized based upon the customers
specifications, product returns are insignificant. The Company derives the majority of its revenues
from sales and services to a broad and diverse group of customers with no individual customer
accounting for more than 3% of the Company’s revenues in any of the years ended March 31, 2008,
2007 or 2006. The Company maintains an allowance for doubtful accounts based upon the expected
collectibility of accounts receivable. Accounts receivable in the accompanying consolidated balance
sheets are reflected net of allowance for doubtful accounts of $3,575 and $3,080 at March 31, 2008
and 2007.
Inventories—Inventories are valued at the lower of cost or market utilizing the first-in,
first-out method for raw materials and the specific identification method for work in progress and
finished goods. Raw materials consist of paper, ink, proofing materials, plates, boxes and other
general supplies. Inventory values consist of purchased raw materials, labor and overhead costs. The carrying values of
inventories are set forth below:
| |
|
|
|
|
|
|
|
|
| |
|
March 31 |
|
| |
|
2008 |
|
|
2007 |
|
|
|
|
|
|
|
|
|
|
Raw materials |
|
$ |
25,983 |
|
|
$ |
15,608 |
|
Work in progress |
|
|
29,447 |
|
|
|
26,659 |
|
Finished goods |
|
|
6,081 |
|
|
|
4,684 |
|
|
|
|
|
|
|
|
|
|
$ |
61,511 |
|
|
$ |
46,951 |
|
|
|
|
|
|
|
|
Long-Lived Assets—The Company determines the realization of goodwill in accordance with
Statement of Financial Accounting Standards (“SFAS”) No. 142, Goodwill and Other Intangible Assets,
and its other long-lived assets, including property, plant and equipment, and intangible assets
other than goodwill or intangible assets with indefinite lives in accordance with SFAS No. 144,
Accounting for the Impairment or Disposal of Long-Lived Assets. Under SFAS No. 142, the Company
determines fair value using earnings before interest and income taxes and the weighted average
costs of capital adjusted by a growth rate for each reporting unit. Each of the Company’s printing
businesses is separately evaluated for goodwill impairment because they comprise individual
reporting units. The Company evaluates goodwill for impairment at the end of each fiscal year, or
at any time that management becomes aware of an indication of impairment. Under SFAS No. 144, the
Company compares the carrying value of long-lived assets to its fair value determined by using
projections of future undiscounted cash flows attributable to such assets and other factors such as
business trends and general economic conditions. In the event that the carrying value of any
long-lived asset exceeds its fair value, the Company records an impairment charge against income
equal to the excess of the carrying value over the asset’s fair value. The Company evaluates
long-lived assets, including property, plant and equipment, and intangible assets other than
goodwill or intangible assets with indefinite lives whenever events or changes in conditions
indicate that the carry value may not be recoverable.
Goodwill totaled $102,423 at March 31, 2008 and represents the excess of the Company’s
purchase cost over the fair value of the net assets of acquired businesses, net of previously
recorded amortization and impairment expense. As of March 31, 2008, the Company conducted its
annual evaluation of goodwill and determined that no impairment was required. As of March 31, 2007,
the Company conducted its annual evaluation of goodwill and determined that an impairment of the
goodwill attributable to four printing businesses totaling $11,533 was necessary. A tax benefit of
$3,717 was recorded in connection with the impairment.
The net book value of other intangible assets at March 31, 2008 was $38,958. Other intangible
assets consist primarily of the value assigned to such items as customer lists and trade names in
connection with the allocation of purchase price for acquisitions and are
generally amortized on a straight-line basis over periods of up to 25 years. Amortization expense
totaled $2,426 in 2008, $1,608 in 2007 and $1,321 in 2006.
32
CONSOLIDATED GRAPHICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share data and percentages)
Accrued Liabilities—The significant components of accrued liabilities are as follows:
| |
|
|
|
|
|
|
|
|
| |
|
March 31 |
|
| |
|
2008 |
|
|
2007 |
|
|
|
|
|
|
|
|
|
|
Advances from customers |
|
$ |
12,101 |
|
|
$ |
8,549 |
|
Compensation and benefits |
|
|
35,473 |
|
|
|
35,010 |
|
Manufacturing materials and services |
|
|
9,809 |
|
|
|
7,150 |
|
Sales, property and other taxes |
|
|
5,463 |
|
|
|
18,993 |
|
Other(1) |
|
|
20,642 |
|
|
|
19,794 |
|
|
|
|
|
|
|
|
|
|
$ |
83,488 |
|
|
$ |
89,496 |
|
|
|
|
|
|
|
|
| |
|
|
| (1) |
|
Other accrued liabilities are principally comprised of contingent
transaction consideration associated with
certain of the Company’s acquisitions and accrued self-insurance claims for certain
insurance programs. None
of the individual items in other accrued liabilities at March 31, 2008 and 2007 were
individually greater than
5% of total current liabilities in those years. |
Income Taxes—The provision for income taxes includes federal, state and foreign income taxes
currently payable and deferred based on currently enacted tax laws. Deferred income taxes are
provided for the tax consequences of differences between the financial statement and tax basis of
assets and liabilities. The Company reduces deferred tax assets by a valuation allowance when,
based on its estimates, it is more likely than not that a portion of those assets will not be
realized in a future period.
Supplemental Cash Flow Information—The consolidated statements of cash flows provide
information about the Company’s sources and uses of cash and exclude the effects of non-cash
transactions. Certain of the Company’s capital expenditures are considered to be non-cash
transactions. The Company issued term notes payable totaling $41,015 and $5,110 (see Note 5.
Long-Term Debt) in the years ended March 31, 2008 and 2007 to finance the purchase of certain new
equipment. The Company paid cash for interest and income taxes, net of refunds, totaling $12,663
and $26,745 in 2008, $6,030 and $33,895 in 2007, and $5,373 and $18,952 in 2006.
Recent Accounting Pronouncements—
In September 2006, the FASB issued SFAS No. 157, Fair Value Measurement, which defines fair
value, establishes a framework for measuring fair value in accordance with generally accepted
accounting principles, and expands disclosures about fair value measurement. The Company’s adoption
of SFAS No.157 effective as of April 1, 2008 is not expected to have a material impact on its
consolidated financial condition or results of operations.
In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and
Financial Liabilities, including an amendment of FASB No. 115. SFAS No. 159 permits entities to
choose, at specified election dates, to measure eligible items at fair value (the “fair value
option”). A business entity shall report unrealized gains and losses on items for which the fair
value option has been elected in earnings at each subsequent reporting period. The Company’s
adoption of SFAS No. 159 effective as of April 1, 2008 is not expected to have a material impact on
its consolidated financial condition or results of operations.
In December 2007, the FASB issued SFAS No. 141R, Business Combinations. SFAS No. 141R
requires the acquiring entity to recognize the assets acquired, the liabilities assumed and any
non-controlling interest in the acquiree at the acquisition date, measured at the fair values as of
that date. Goodwill is measured as a residual of the fair values at acquisition date. Acquisition
related costs are recognized separately from the acquisition. The Company’s adoption of SFAS No.
141R effective as of April 1, 2009 is not expected to have a material impact on its consolidated
financial condition or results of operations.
In December 2007, the FASB issued SFAS No. 160, Non-controlling Interests in
Consolidated Financial Statements. SFAS No. 160 requires non-controlling interests in a subsidiary
be reported as equity in the consolidated financial statements, the attributable net income be
identified and presented on the face of the consolidated statement of income and changes in the
ownership be accounted for consistently. The statement also includes requirements when an interest
is deconsolidated. Disclosure should be sufficient to clearly identify and distinguish between the
interests of the reporting entity and that of the non-controlling interests owners. The Company’s
adoption of SFAS No. 160 effective as of April 1, 2009 is not expected to have a material impact on
its consolidated financial condition or results of operations.
33
CONSOLIDATED GRAPHICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share data and percentages)
Other Information
Earnings Per Share—Basic earnings per share are calculated by dividing net income by the
weighted average number of common shares outstanding. Diluted earnings per share reflect net
income divided by the weighted average number of common shares and dilutive stock options
outstanding.
Related Party Transactions—In the normal course of business, the Company leases certain real
estate from individuals who formerly owned an acquired printing business and are now employed by
the Company.
Fair Value of Financial Instruments—The Company’s financial instruments consist of cash, trade
receivables, trade payables and debt obligations. The Company does not currently hold or issue
derivative financial instruments. The Company believes that the fair value of its variable rate
debt obligations, which totaled $276,499 and $101,297 at March 31, 2008 and 2007, approximated
their recorded values. The Company estimates that the fair value of its fixed rate debt obligations
totaling $109,186 at March 31, 2008 was $98,180 and that the fair value of its fixed rate debt
obligations totaling $53,268 at March 31, 2007 was $53,335. Estimates of fair value are based on
estimated interest rates for the same or similar debt offered to the Company having the same or
similar maturities and collateral requirements.
Concentrations of Credit Risk—Financial instruments that potentially subject the Company to
concentrations of credit risk are primarily trade accounts receivable. Concentrations of credit
risk with respect to trade accounts receivable are limited because the Company’s printing
businesses provide services to a large, diverse group of customers in various geographical regions.
Management performs ongoing credit evaluations of its customers and generally does not require
collateral for extensions of credit. The Company’s cash deposits are held with large, well-known
financial institutions.
Stock-Based Compensation—The Company accounts for stock-based compensation in accordance with
SFAS No. 123 (R), Share-Based Payment, and it measures the cost of the employee services received
in exchange for an award of equity instruments based on the fair value of the award at the date of
grant rather than its intrinsic value. In addition, to the extent that the Company receives a tax
benefit upon exercise of an award, such benefit is reflected under SFAS No. 123(R) as cash flow
from financing activities in the Consolidated Statement of Cash Flows rather than operating
activities as in 2006.
Foreign Currency Translation—Assets and liabilities of subsidiaries operating outside the
United States with a functional currency other than the U.S. dollar are translated at quarter-end
exchange rates. Income and expense items are translated at the average monthly exchange rate. The
effects of translation are included as a component of accumulated other comprehensive income in
shareholders’ equity. In 2008, the Company recorded a net foreign currency transaction gain of
$3,064 related to the revaluation of certain transactions denominated in currencies other than the
reporting unit’s functional currency. The net foreign currency transaction gain is recorded in
Other Income on the Consolidated Income Statement.
Accumulated Other Comprehensive Income—Other comprehensive income is comprised exclusively of
foreign currency translation adjustments.
Geographic Information—Revenues and long-lived assets of the Company’s subsidiaries operating
outside the United States were $46,088 and $28,610 as of and for the year ended March 31, 2008.
3. ACQUISITIONS
All of the Company’s acquisitions have been accounted for using the purchase method of
accounting. Revenues and expenses of the acquired businesses have been included in the accompanying
consolidated financial statements beginning on their respective dates of acquisition. The
allocation of purchase price to the acquired assets and liabilities is based on estimates of fair
value and may be prospectively revised if and when additional information the Company is awaiting
concerning certain asset and liability valuations is obtained, provided that such information is
received no later than one year after the date of acquisition. Contingent transaction consideration
pursuant to earnout agreements is accrued as an additional cost of the transaction when payment
thereof is deemed to be probable by the Company.
In fiscal 2008, the Company paid cash totaling $91,140 to acquire the operations and assets of
three printing businesses. The preliminary allocation of the purchase price of the businesses
acquired includes current assets of $39,034, property and equipment of $39,872, goodwill and other
intangible assets of $44,549 and other assets of $212, less accrued liabilities of $18,802 and debt
assumed of $13,725. Additionally, the Company paid cash totaling $6,118 to satisfy certain
34
CONSOLIDATED GRAPHICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share data and percentages)
liabilities incurred in connection with certain prior period acquisitions. Based on certain
additional information received by the Company regarding its fiscal 2007 acquisitions, $3,687 of
purchase price previously attributed to goodwill was allocated to other intangible assets during
fiscal 2008. The Company is awaiting additional information concerning certain asset and liability
valuations in order to finalize the allocation of purchase price for certain fiscal 2008
acquisitions, and expects to receive such information no later than one year following the
respective dates of acquisition.
In fiscal 2007, the Company paid cash totaling $62,406 to acquire the operations and assets of
two printing businesses. The preliminary allocation of the purchase price of the businesses
acquired include current assets of $18,890, property and equipment of $45,944, goodwill and other
intangible assets of $15,507 and other assets of $216, less accrued liabilities of $18,151.
Additionally, the Company (i) paid cash totaling $5,107 to acquire certain real property and (ii)
paid net cash totaling $42 in connection with the finalization of certain working capital
adjustments during fiscal 2007 relating to prior year acquisitions. Based on certain additional
information received by the Company regarding its fiscal 2006 acquisitions, $1,530 of purchase
price previously attributed to other intangible assets was allocated to goodwill during fiscal
2007.
4. PROPERTY AND EQUIPMENT
Property and equipment are stated at cost, net of accumulated depreciation. The costs of major
renewals and betterments are capitalized; repairs and maintenance costs are expensed when incurred.
Depreciation of property and equipment is computed using the straight-line method over the
estimated useful lives of the various classes of assets.
The following is a summary of the Company’s property and equipment and their estimated useful
lives:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
Estimated |
|
| |
|
March 31 |
|
|
Life |
|
| Description |
|
2008 |
|
|
2007 |
|
|
in Years |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land |
|
$ |
15,137 |
|
|
$ |
13,909 |
|
|
|
— |
|
Buildings and leasehold improvements |
|
|
111,710 |
|
|
|
96,236 |
|
|
|
5-30 |
|
Machinery and equipment |
|
|
535,227 |
|
|
|
457,233 |
|
|
|
5-20 |
|
Computer equipment and software |
|
|
29,884 |
|
|
|
24,171 |
|
|
|
2-5 |
|
Furniture, fixtures and other |
|
|
10,818 |
|
|
|
9,926 |
|
|
|
2-7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
702,776 |
|
|
|
601,475 |
|
|
|
|
|
Less—accumulated depreciation |
|
|
(281,429 |
) |
|
|
(247,319 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
421,347 |
|
|
$ |
354,156 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation expense related to the Company’s property and equipment totaled $49,964 in 2008,
$42,367 in 2007 and $40,007 in 2006.
5. LONG-TERM DEBT
The following is a summary of the Company’s long-term debt as of:
| |
|
|
|
|
|
|
|
|
| |
|
March 31 |
|
| |
|
2008 |
|
|
2007 |
|
|
|
|
|
|
|
|
|
|
Bank credit facilities |
|
$ |
271,868 |
|
|
$ |
94,143 |
|
Term equipment notes |
|
|
104,505 |
|
|
|
48,144 |
|
Other |
|
|
9,327 |
|
|
|
12,278 |
|
|
|
|
|
|
|
|
|
|
|
385,700 |
|
|
|
154,565 |
|
Less—current portion |
|
|
(23,252 |
) |
|
|
(12,421 |
) |
|
|
|
|
|
|
|
|
|
$ |
362,448 |
|
|
$ |
142,144 |
|
|
|
|
|
|
|
|
35
CONSOLIDATED GRAPHICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share data and percentages)
The Company’s primary bank credit facility (as amended, the “Credit Agreement”) currently
provides for $335,000 in revolving credit and has a maturity date of October 6, 2011. At March 31,
2008, outstanding borrowings under the Credit Agreement were $233,000 and accrued interest at a
weighted average rate of 3.9%.
Under the terms of the Credit Agreement the proceeds from borrowings may be used to repay
certain indebtedness, finance certain acquisitions, provide for working capital and general
corporate purposes and, subject to certain restrictions, repurchase the Company’s common stock.
Borrowings outstanding under the Credit Agreement are secured by substantially all of the Company’s
assets other than real estate and certain equipment subject to term equipment notes and other
financings. Borrowings under the Credit Agreement accrue interest, at the Company’s option, at
either (1) the London Interbank Offered Rate (“LIBOR”) plus a margin of .625% to 1.50%, or (2) an
alternate base rate (based upon the greater of the agent bank’s prime lending rate or the Federal
Funds effective rate plus .50%). The Company is also required to pay an annual commitment fee
ranging from .15% to .275% on available but unused amounts under the Credit Agreement. The interest
rate margin and the commitment fee are based upon certain financial performance measures set forth
in the Credit Agreement and are redetermined quarterly. At March 31, 2008, the applicable LIBOR
interest rate margin was 1.00% and the applicable commitment fee was .20%.
The Company is subject to certain covenants and restrictions and must meet certain financial
tests under the Credit Agreement. The Company was in compliance with such covenants, restrictions
and financial tests at March 31, 2008.
The Company also maintains an unsecured credit facility with a commercial bank (as amended,
the “A&B Credit Facility”) currently consisting of a U.S. $5,000 maximum borrowing limit component
and a separate Canadian $31,000 maximum borrowing limit component. On March 13, 2008, the Company
entered into a First Amendment to the A&B Credit Agreement, which decreased the U.S. maximum
borrowing limit to $5,000 and increased the separate Canadian maximum borrowing limit to $31,000.
At March 31, 2008, outstanding borrowings were U.S. $2,200, which accrued interest at a weighted
average rate of 5.3%, and Canadian $28,000 ($27,365 U.S. equivalent), which accrued interest at a
weighted average rate of 5.8%.
Under the terms of the A&B Credit Facility, U.S. dollar denominated borrowings accrue interest
and bear an annual commitment fee at rates equal to those under the Credit Agreement. Canadian
dollar denominated borrowings accrue interest at the Company’s option, at either (1) the Canadian
Dollar Offer Rate (“CDOR”) plus a margin of .625% to 1.50%, or (2) an alternate base rate based
upon the Canadian Prime Rate. The Company is also required to pay an annual commitment fee ranging
from .15% to .275% on available but unused Canadian dollar amounts. For both the U.S. and Canadian
components, the interest rate margin and the commitment fee are based upon the financial
performance measures set forth in the Credit Agreement and are redetermined quarterly. An annual
reduction of Canadian $4,000 on the Canadian dollar denominated commitment occurs on each
anniversary date of the A&B Credit Facility until the final maturity date of January 2, 2011. There
are no significant covenants or restrictions set forth in the A&B Credit Facility; however, a
default by the Company under the Credit Agreement will constitute a default under the A&B Credit
Facility. At March 31, 2008, the applicable CDOR interest rate margin was 1.00% and the applicable
commitment fee was .20%. Proceeds from borrowings under the A&B Credit Facility may be used for
general corporate purposes.
In addition the Company maintains two auxiliary revolving credit facilities (each an
“Auxiliary Bank Facility” and collectively the “Auxiliary Bank Facilities”) with commercial banks.
Each Auxiliary Bank Facility is unsecured and has a maximum borrowing capacity of $5,000. One
facility expires in October 2008 while the other facility expires in December 2008. At March 31,
2008, outstanding borrowings under the Auxiliary Bank Facilities totaled $9,302 and accrued
interest at a weighted average rate of 3.7%. Because the Company currently has the ability and
intent to refinance borrowings outstanding under the Auxiliary Bank Facilities expiring in October
and December 2008, such borrowings are classified as long-term debt in the accompanying
consolidated balance sheet at March 31, 2008. The Auxiliary Bank Facilities cross-default to the
covenants and restrictions set forth in the Credit Agreement.
36
CONSOLIDATED GRAPHICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share data and percentages)
At March 31, 2008, outstanding borrowings under term equipment notes totaled $104,505 and
accrued interest at rates between 3.9% and 7.1%. The term equipment notes provide for principal
payments plus interest for defined periods of up to ten years from the date of issuance, and are
secured by certain equipment of the Company. The Company is not subject to any significant
financial covenants in connection with any of the term equipment notes. At March 31, 2008,
outstanding borrowings under our real estate notes totaled $4,438 and accrued interest at 6%. The
real estate notes provide for principal payments plus interest for defined periods of up to ten
years from the date of issuance and are secured by the real estate. At March 31, 2008, other debt
obligations totaled $4,889 and provided for principal payments plus interest (fixed and variable
rates) for defined periods up to 15 years from the date of issuance. The Company does not have any
significant financial covenants or restrictions associated with the real estate notes or other debt
obligations. The Credit Agreement places certain limitations on the amount of additional term note
obligations the Company may incur in the future.
The principal payment requirements by fiscal year under the Company’s debt obligations
referenced above are:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2009 |
|
|
2010 |
|
|
2011 |
|
|
2012 |
|
|
2013 |
|
|
Thereafter |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt obligations |
|
$ |
23,252 |
|
|
$ |
24,906 |
|
|
$ |
21,493 |
|
|
$ |
287,225 |
|
|
$ |
17,177 |
|
|
$ |
11,647 |
|
6. INCOME TAXES
Income (loss) from continuing operations before income taxes for the years ended March 31, was
as follows (in thousands):
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year Ended March 31 |
|
| |
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic |
|
|
78,330 |
|
|
|
78,590 |
|
|
|
61,690 |
|
Foreign |
|
|
9,945 |
|
|
|
1,493 |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
88,275 |
|
|
$ |
80,083 |
|
|
$ |
61,690 |
|
|
|
|
|
|
|
|
|
|
|
The provision for income taxes is comprised of the following:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year Ended March 31 |
|
| |
|
2008 |
|
|
2007 |
|
|
2006 |
|
Current |
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
$ |
17,927 |
|
|
$ |
32,519 |
|
|
$ |
21,162 |
|
State |
|
|
3,001 |
|
|
|
2,751 |
|
|
|
1,893 |
|
Foreign |
|
|
1,994 |
|
|
|
626 |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22,922 |
|
|
|
35,896 |
|
|
|
23,055 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred |
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
|
4,506 |
|
|
|
(3,866 |
) |
|
|
689 |
|
State |
|
|
460 |
|
|
|
(2,688 |
) |
|
|
(552 |
) |
Foreign |
|
|
1,063 |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,029 |
|
|
|
(6,554 |
) |
|
|
137 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
28,951 |
|
|
$ |
29,342 |
|
|
$ |
23,192 |
|
|
|
|
|
|
|
|
|
|
|
37
CONSOLIDATED GRAPHICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share data and percentages)
The provision for income taxes differs from an amount computed at the federal statutory rate
as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year Ended March 31 |
|
| |
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision at the federal statutory rate |
|
$ |
30,896 |
|
|
$ |
28,029 |
|
|
$ |
21,592 |
|
State income taxes, net of federal income tax benefit |
|
|
3,103 |
|
|
|
41 |
|
|
|
872 |
|
Non-deductible expenses |
|
|
1,569 |
|
|
|
1,347 |
|
|
|
1,314 |
|
Benefit of domestic production deduction |
|
|
(1,446 |
) |
|
|
(798 |
) |
|
|
(586 |
) |
Impairment of goodwill |
|
|
— |
|
|
|
672 |
|
|
|
— |
|
Adjustment to contingency reserve |
|
|
(4,748 |
) |
|
|
— |
|
|
|
— |
|
Foreign income taxed at other rates |
|
|
(423 |
) |
|
|
— |
|
|
|
— |
|
Other |
|
|
— |
|
|
|
51 |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
28,951 |
|
|
$ |
29,342 |
|
|
$ |
23,192 |
|
|
|
|
|
|
|
|
|
|
|
Deferred income taxes reflect the future tax consequences of differences between the tax bases
of assets and liabilities and their financial reporting amounts as measured based on enacted tax
laws and regulations. The Company records a valuation allowance, when appropriate, to adjust
deferred tax asset balances to the amount the Company expects to realize. The Company considers the
amount of taxable income available in carryback years and expectations of future taxable income,
among other factors, in assessing the potential need for a valuation allowance. As of March 31,
2008 and 2007, a valuation allowance of $1,454 and $816 was recorded related to certain deferred
tax assets. The components of deferred income tax assets and liabilities are as follows:
| |
|
|
|
|
|
|
|
|
| |
|
March 31 |
|
| |
|
2008 |
|
|
2007 |
|
|
|
|
|
|
|
|
|
|
Deferred income tax liabilities: |
|
|
|
|
|
|
|
|
Property and equipment |
|
$ |
62,505 |
|
|
$ |
59,081 |
|
Other |
|
|
2,712 |
|
|
|
1,968 |
|
|
|
|
|
|
|
|
Total deferred income tax liabilities |
|
$ |
65,217 |
|
|
$ |
61,049 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income tax assets: |
|
|
|
|
|
|
|
|
Accounts receivable and inventories |
|
$ |
1,031 |
|
|
$ |
1,040 |
|
Accrued liabilities |
|
|
5,179 |
|
|
|
5,700 |
|
Goodwill and intangibles(1) |
|
|
9,031 |
|
|
|
5,334 |
|
Other liabilities(1) |
|
|
3,291 |
|
|
|
— |
|
Other |
|
|
3,143 |
|
|
|
1,739 |
|
|
|
|
|
|
|
|
Total deferred income tax assets |
|
$ |
21,675 |
|
|
$ |
13,813 |
|
|
|
|
|
|
|
|
| |
|
|
| (1) |
|
These deferred income tax assets are long-term in nature and
therefore are netted against total deferred income tax liabilities for
presentation in the accompanying consolidated balance sheets. |
On April 1, 2007, the Company adopted FIN 48, which addresses the accounting for uncertainty
in income taxes recognized in an enterprise’s financial statements in accordance with SFAS No. 109,
Accounting for Income Taxes. FIN 48 prescribes a recognition threshold and measurement attribute
for the financial statement recognition and measurement of a tax position taken or expected to be
taken in a tax return. FIN 48 also provides guidance on derecognition, classification, interest and
penalties, accounting in interim periods, disclosure and transition. The cumulative effect of
adopting FIN 48 was recorded as a net increase to retained earnings of $1,189.
At the date of the adoption of FIN 48, the Company had $19,334 of unrecognized tax benefits,
including applicable interest and penalties. As of March 31, 2008 the balance of unrecognized tax
benefits was $13,655. Of the unrecognized tax benefits at March 31, 2008, $11,248, if recognized,
would decrease the Company’s effective income tax rate and increase net income. The unrecognized
tax benefits relate to certain tax deductions claimed on federal and state tax returns for which
the ultimate outcome is uncertain.
38
CONSOLIDATED GRAPHICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share data and percentages)
In the year ended March 31, 2008, the Company reduced the amount of unrecognized tax benefits
by $5,679. Of this amount, $2,220 resulted in a reduction of tax expense. As of March 31, 2008, the
Company believes it is reasonably possible that the unrecognized tax benefits may increase within
12 months by as much as $1,721, due primarily to certain tax deductions claimed on state tax
returns for which the ultimate outcome is uncertain.
The Company’s federal income tax returns for the tax years after 2003 remain subject to
examination. The various states in which the Company is subject to income tax are generally open
for the tax years after 2002.
The Company classifies interest expense and any related penalties related to income tax
uncertainties as a component of income tax expense. For the year-ended March 31, 2008, the Company
had recognized $697 of net interest income related to tax uncertainties. Accrued interest and
penalties of $2,633 and $1,619 related to income tax uncertainties were recognized as a component
of other noncurrent liabilities at April 1, 2007 and March 31, 2008, respectively.
The Company’s unrecognized tax benefit activity for the fiscal year ended March 31, 2008 was
as follows:
| |
|
|
|
|
Unrecognized tax benefit at April 1, 2007 |
|
$ |
19,334 |
|
Additions for tax positions in prior periods |
|
|
278 |
|
Decreases for tax positions in prior periods |
|
|
(317 |
) |
Additions for tax positions in current periods |
|
|
2,911 |
|
Settlement/audits |
|
|
(336 |
) |
Lapse of statute of limitations |
|
|
(8,215 |
) |
|
|
|
|
Unrecognized tax benefit at March 31, 2008 |
|
$ |
13,655 |
|
|
|
|
|
7. COMMITMENTS AND CONTINGENCIES
Operating Leases—The Company has entered into various noncancelable operating leases primarily
related to facilities and equipment used in the ordinary course of its business. The Company
incurred total operating lease expense of
$15,548, $16,864 and $18,089 for the years ended March 31, 2008, 2007 and 2006.
The Company’s future operating lease obligations by fiscal year are as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2009 |
|
|
2010 |
|
|
2011 |
|
|
2012 |
|
|
2013 |
|
|
Thereafter |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating lease obligations |
|
$ |
18,706 |
|
|
$ |
15,155 |
|
|
$ |
12,386 |
|
|
$ |
10,776 |
|
|
$ |
8,744 |
|
|
$ |
32,120 |
|
Letters of Credit—In connection with the assumption of obligations under outstanding
industrial revenue bonds, which are reflected as debt in the accompanying consolidated financial
statements, and the Company’s assumption of certain contingent liabilities related to certain of
its acquisitions, the Company had letters of credit outstanding as of March 31, 2008 totaling
$6,604. All of these letters of credit were issued pursuant to the terms of the Company’s Credit
Agreement, which expires in October 2011, and the Company will be required to obtain replacement
letters of credit at that time, as needed.
39
CONSOLDATED GRAPHICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share data and percentages)
Insurance Programs—The Company maintains third-party insurance coverage in amounts and against
risks it believes are reasonable in its circumstances. The Company is self-insured for most
workers’ compensation claims and for a significant component of its group health insurance
programs. For these exposures, the Company accrues expected loss amounts which are determined using
a combination of its historical loss experience and subjective assessment of its future loss
exposure, together with advice provided by administrators and consulting actuaries. The estimates
of expected loss amounts are subject to uncertainties arising from various sources, including
changes in claims reporting patterns, claims settlement patterns, judicial decisions, legislation
and economic conditions, which could result in an increase or decrease in accrued costs in future
periods for claim matters which occurred in a prior period. Although the Company believes that the
accrued estimated loss amounts are reasonable under the circumstances, significant differences
related to the items noted above could materially affect our risk exposure, insurance obligations
and future expense.
Legal Matters—From time to time, the Company is subject to legal proceedings and claims that
arise in the ordinary course of its business. Currently, there are no legal proceedings or claims
pending against the Company that management believes could have a material adverse effect upon the
Company’s consolidated financial condition or results of operations.
Tax Matters—The Company is subject to examination by tax authorities for varying periods in
various taxing jurisdictions. During the course of such examinations disputes occur as to matters
of fact and/or law. Also, in most taxing
jurisdictions the passage of time without examination will result in the expiration of applicable
statutes of limitations thereby precluding the taxing authority from conducting an examination of
the tax period for which such statute of limitation has expired. The Company believes that it has
adequately provided for its tax liabilities.
8. SHARE-BASED COMPENSATION
Pursuant to the Consolidated Graphics, Inc. Long-Term Incentive Plan, as amended (the “Plan”),
employees of the Company and members of the Company’s Board of Directors have been, or may be,
granted options to purchase shares of the Company’s common stock, restricted stock unit awards or
other forms of equity-based compensation. Options granted pursuant to the Plan include incentive
stock options within the meaning of Section 422 of the Internal Revenue Code of 1986,
as amended and non-qualified stock options. Options previously granted under the Plan were at a
price not less than the market price of the stock at the date of grant and periodically vest over a
fixed period of up to ten years. Unvested options generally are cancelled upon termination of
employment and vested options generally expire shortly after termination of employment. Otherwise,
options expire after final vesting at the end of a fixed period generally not in excess of an
additional five years. At March 31, 2008, a total of 2,274,784 shares were reserved for issuance
pursuant to the Plan, of which 817,307 shares of the Company’s common stock were reserved for
future grants.
The following table sets forth option and restricted stock unit award transactions under the
Plan in terms of underlying shares of the Company’s common stock:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
For the Years Ended March 31 |
|
| |
|
2008 |
|
|
2007 |
|
|
2006 |
|
| |
|
|
|
|
|
Weighted |
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
Weighted |
|
| |
|
|
|
|
|
Average |
|
|
|
|
|
|
Average |
|
|
|
|
|
|
Average |
|
| |
|
|
|
|
|
Exercise |
|
|
|
|
|
|
Exercise |
|
|
|
|
|
|
Exercise |
|
| |
|
Shares |
|
|
Price |
|
|
Shares |
|
|
Price |
|
|
Shares |
|
|
Price |
|
Outstanding at April 1 |
|
|
1,546,734 |
|
|
$ |
36.66 |
|
|
|
1,974,459 |
|
|
$ |
33.88 |
|
|
|
1,700,786 |
|
|
$ |
27.93 |
|
Granted |
|
|
73,112 |
|
|
|
45.35 |
|
|
|
48,588 |
|
|
|
52.62 |
|
|
|
550,318 |
|
|
|
48.13 |
|
Exercised |
|
|
(69,480 |
) |
|
|
29.25 |
|
|
|
(445,221 |
) |
|
|
27.32 |
|
|
|
(123,035 |
) |
|
|
19.74 |
|
Forfeited or expired |
|
|
(70,389 |
) |
|
|
45.58 |
|
|
|
(31,092 |
) |
|
|
40.10 |
|
|
|
(153,610 |
) |
|
|
26.71 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at March 31 |
|
|
1,479,977 |
|
|
|
36.93 |
|
|
|
1,546,734 |
|
|
|
36.66 |
|
|
|
1,974,459 |
|
|
|
33.88 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at March 31 |
|
|
1,215,282 |
|
|
|
35.61 |
|
|
|
1,164,234 |
|
|
|
35.21 |
|
|
|
1,369,402 |
|
|
|
32.92 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For 2008 and 2007, the number of shares granted and outstanding at year-end includes 12,500
restricted stock unit awards having an aggregate fair value at date of grant of $926 and $652,
respectively. For 2008, shares exercised includes 2,500 common shares delivered to the participant
following the vesting of certain restricted stock unit awards. For 2008 and 2007, the weighted
average exercise price of shares granted, exercised and outstanding is based solely on stock option
grants and exercises and excludes the restricted stock unit awards which have no exercise price
component.
40
CONSOLDATED GRAPHICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share data and percentages)
The
weighted average grant date fair value of stock options granted during the three years
ended March 31, 2008, all of which were at exercise prices equal to the market price of the stock
on the grant dates, as calculated under the Black-Scholes-Merton pricing model (“Black-Scholes”)
are as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year Ended March 31 |
|
| |
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average fair value of option grants during the year |
|
$ |
19.42 |
|
|
$ |
19.94 |
|
|
$ |
17.92 |
|
Assumptions: |
|
|
|
|
|
|
|
|
|
|
|
|
Expected option life in years |
|
|
6.1 |
|
|
|
4.3 |
|
|
|
5.0 |
|
Risk-free interest rate |
|
|
3.7 |
% |
|
|
5.0 |
% |
|
|
4.2 |
% |
Expected volatility |
|
|
38.8 |
% |
|
|
37.9 |
% |
|
|
33.8 |
% |
Expected dividend yield |
|
|
— |
|
|
|
— |
|
|
|
— |
|
The risk-free interest rate represents the U.S. Treasury Bond constant maturity yield
approximating the expected option life of stock options granted during the period. The expected
option life represents the period of time that the stock options granted during the period are
expected to be outstanding, based on the mid-point between the vesting date and contractual
expiration date of each option. The expected volatility is based on the historical market price
volatility of the Company’s common stock.
Outstanding and exercisable stock options and restricted stock unit awards at March 31, 2008
were as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Outstanding |
|
|
Exercisable |
|
| |
|
|
|
|
|
Weighted |
|
|
Weighted |
|
|
|
|
|
|
Weighted |
|
| |
|
|
|
|
|
Average |
|
|
Average |
|
|
|
|
|
|
Average |
|
| |
|
|
|
|
|
Exercise |
|
|
Remaining |
|
|
|
|
|
|
Exercise |
|
| Range of Exercise Prices |
|
Shares |
|
|
Price |
|
|
Years |
|
|
Shares |
|
|
Price |
|
Stock Options |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$10.37 - $20.00 |
|
|
446,350 |
|
|
$ |
13.27 |
|
|
|
2.9 |
|
|
|
446,350 |
|
|
$ |
13.27 |
|
$20.01 - $30.00 |
|
|
63,409 |
|
|
|
23.19 |
|
|
|
4.7 |
|
|
|
57,356 |
|
|
|
23.10 |
|
$30.01 - $40.00 |
|
|
99,979 |
|
|
|
38.05 |
|
|
|
6.6 |
|
|
|
17,395 |
|
|
|
38.31 |
|
$40.01 - $50.00 |
|
|
171,020 |
|
|
|
42.47 |
|
|
|
6.1 |
|
|
|
69,460 |
|
|
|
42.03 |
|
$50.01 - $60.00 |
|
|
660,233 |
|
|
|
51.97 |
|
|
|
4.4 |
|
|
|
623,201 |
|
|
|
51.92 |
|
$60.01 - $65.91 |
|
|
16,486 |
|
|
|
64.25 |
|
|
|
4.6 |
|
|
|
1,520 |
|
|
|
62.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,457,477 |
|
|
|
36.93 |
|
|
|
4.3 |
|
|
|
1,215,282 |
|
|
|
35.61 |
|
Restricted stock unit awards |
|
|
22,500 |
|
|
|
— |
|
|
|
1.7 |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at March 31,
2008 |
|
|
1,479,977 |
|
|
|
— |
|
|
|
4.3 |
|
|
|
1,215,282 |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The total fair value of restricted stock unit awards which vested during 2008 was $315. The
aggregate intrinsic value of options and restricted stock unit awards outstanding and exercisable
as of March 31, 2008 was $27,996 and $26,106, respectively.
The Company accounts for share-based compensation in accordance with SFAS No. 123(R),
Share-Based Payment, and measures the cost of employee services received in exchange for an award
of equity instruments, including grants of stock options and restricted stock unit awards, based on
the fair value of the award at the date of grant. The fair value of stock options is determined
using the Black-Scholes model. Restricted stock unit awards are valued at the closing stock price
on date of grant.
The Company recorded $1,137 of compensation expense for the year ended March 31, 2008. The
after-tax impact to net income was $694, and the impact to basic earnings per share was $.06 and
diluted earnings per share was $.05 in fiscal 2008. For the year ended March 31, 2007, the Company
recorded $2,695 of share-based compensation expense. The after-tax impact to net income was $1,644,
and the impact to both basic and diluted earnings per share was $.12 in fiscal 2007.
As of March 31, 2008, $1,678 of total unrecognized compensation cost related to stock options
is expected to be recognized over a weighted average period of 1.7 years.
41
CONSOLIDATED GRAPHICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share data and percentages)
There were 817,307, 330,642 and 403,679 shares available for awards under the Plan as of March
31, 2008, 2007 and 2006, respectively. In 2008, the Plan was amended to limit the number of stock
appreciation rights or stock awards, including restricted stock unit awards, that may be granted to
participants to 62,500 underlying shares of the Company’s common stock.
The accompanying consolidated income statement for 2006 was not restated since the Company
elected not to use the retrospective application method under SFAS No. 123 (R). A summary of the
effect on net income and net income per share for fiscal 2006 as if the Company had accounted for
share-based compensation using the fair value recognition provisions of SFAS No. 123 is as follows
(in thousands except per share data):
| |
|
|
|
|
| |
|
2006 |
|
|
|
|
|
|
Net income as reported |
|
$ |
38,498 |
|
Less pro forma compensation expense |
|
|
(5,936 |
) |
|
|
|
|
Pro forma net income |
|
$ |
32,562 |
|
|
|
|
|
|
|
|
|
|
Basic Earnings Per Share: |
|
|
|
|
Net income as reported |
|
$ |
2.81 |
|
Less pro forma compensation |
|
|
(.40 |
) |
|
|
|
|
Pro forma net income |
|
$ |
2.41 |
|
|
|
|
|
|
|
|
|
|
Diluted Earnings Per Share: |
|
|
|
|
Net income as reported |
|
$ |
2.73 |
|
Less pro forma compensation |
|
|
(.39 |
) |
|
|
|
|
Pro forma net income |
|
$ |
2.34 |
|
|
|
|
|
9. SUPPLEMENTAL SELECTED UNAUDITED QUARTERLY FINANCIAL DATA
The following table contains selected unaudited quarterly financial data from the consolidated
income statements for each quarter of fiscal 2008 and 2007. The Company believes this information
reflects all normal recurring adjustments necessary for a fair presentation of the information for
the periods presented. The operating results for any quarter are not necessarily indicative of
results for any future period.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
1st |
|
|
2nd |
|
|
3rd |
|
|
4th |
|
| |
|
Quarter |
|
|
Quarter |
|
|
Quarter |
|
|
Quarter |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2008: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales |
|
$ |
258,646 |
|
|
$ |
259,666 |
|
|
$ |
289,538 |
|
|
$ |
287,538 |
|
Gross profit |
|
|
68,177 |
|
|
|
66,264 |
|
|
|
75,398 |
|
|
|
73,148 |
|
Net income |
|
|
13,557 |
|
|
|
13,286 |
|
|
|
19,362 |
|
|
|
13,119 |
|
Basic earnings per share |
|
|
.99 |
|
|
|
1.01 |
|
|
|
1.63 |
|
|
|
1.18 |
|
Diluted earnings per share |
|
|
.96 |
|
|
|
.98 |
|
|
|
1.58 |
|
|
|
1.15 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2007: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales |
|
$ |
238,425 |
|
|
$ |
234,236 |
|
|
$ |
269,611 |
|
|
$ |
263,914 |
|
Gross profit |
|
|
64,005 |
|
|
|
62,456 |
|
|
|
72,358 |
|
|
|
70,371 |
|
Net income |
|
|
13,730 |
|
|
|
13,690 |
|
|
|
16,375 |
|
|
|
6,946 |
(1) |
Basic earnings per share |
|
|
1.00 |
|
|
|
1.01 |
|
|
|
1.21 |
|
|
|
.51 |
|
Diluted earnings per share |
|
|
.97 |
|
|
|
.98 |
|
|
|
1.17 |
|
|
|
.50 |
|
| |
|
|
| (1) |
|
Includes $7,816 goodwill impairment charge, net of taxes. |
Earnings per share are computed independently for each of the quarters presented; therefore,
the sum of the quarterly earnings per share may not equal annual earnings per share.
42
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
The Company’s management, with the participation of the Company’s Chief Executive Officer
(“CEO”) and Chief Financial and Accounting Officer (“CFO”), has evaluated the effectiveness of the
Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and
15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end
of the period covered by this report. Based on such evaluation, the Company’s CEO and CFO have
concluded that, as of the end of such period, the Company’s disclosure controls and procedures were
effective to ensure that information required to be disclosed by the Company in reports that it
files or submits under the Exchange Act 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 CEO and CFO, as
appropriate, to allow timely decisions regarding required disclosures.
Management’s Annual Report on Internal Control Over Financial Reporting
Management’s Report is included in Item 8 of this Annual Report on Form 10-K on page 24 and is
incorporated herein by reference.
Changes in Internal Controls Over Financial Reporting
There have been no changes in our internal control over financial reporting that occurred
during the quarter ended March 31, 2008 that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.
Item 9B. Other Information
None.
43
PART III
The information called for by “Item 10. Directors, Executive Officers and Corporate Governance
of the Registrants,” “Item 11. Executive Compensation,” “Item 12. Security Ownership of Certain
Beneficial Owners and Management and Related Shareholder Matters,” “Item 13. Certain Relationships
and Related Transactions, and Director Independence” and “Item 14. Principal Accountant Fees and
Services” is incorporated by reference herein from the Company’s Proxy Statement for its Annual
Meeting of Shareholders (presently scheduled to be held August 7, 2008) to be filed with the
Securities and Exchange Commission pursuant to Regulation 14A under the Securities Exchange Act of
1934, as amended, within 120 days after March 31, 2008.
PART IV
Item 15. Exhibits and Financial Statement Schedules
| (a) |
|
Index to Financial Statements |
| |
| (a)(1) |
|
Financial Statements: |
| |
| |
|
The index to the Financial Statements is included in Item 8 of this
Annual Report on Form 10-K on page 23 and is incorporated herein by
reference. |
| |
| (a)(2) |
|
Financial Statement Schedules: |
| |
| |
|
Schedule II—Valuation and Qualifying Accounts. |
| |
| |
|
Report of Independent Registered Public Accounting Firm with
respect to Schedule II — Valuation and Qualifying Accounts is
included in Item 15 of this Annual Report on Form 10-K on page 46. |
All other schedules have been omitted since the required information is not significant or is
included in the Financial Statements or notes thereto or is not applicable.
| |
|
|
|
|
* 3.1
|
|
—
|
|
Restated Articles of Incorporation of the Company filed with the Secretary of State of the State
of Texas on July 27, 1994 (Consolidated Graphics, Inc. Form 10-Q (June 30, 1994), Exhibit 4(a)). |
|
|
|
|
|
* 3.2
|
|
—
|
|
Articles of Amendment to the Restated Articles of Incorporation of the Company dated as of
July 29, 1998 (Consolidated Graphics, Inc. Form 10- Q (June 30, 1998), Exhibit 3.1). |
|
|
|
|
|
* 3.3
|
|
—
|
|
Second Amended and Restated By-Laws of the Company, adopted as of May 25, 2004 (Consolidated
Graphics, Inc. Form 10-Q (June 30, 2004), Exhibit 3.3). |
|
|
|
|
|
* 3.4
|
|
—
|
|
Amendment to the Second Amended and Restated By-Laws of the Company adopted as of December 21,
2007 (Consolidated Graphics, Inc. Form 8-K (December 26, 2007), Exhibit 1). |
|
|
|
|
|
* 4.1
|
|
—
|
|
Specimen Common Stock Certificate (Consolidated Graphics, Inc. Form 10-K (March 31, 1998), Exhibit
4.1). |
|
|
|
|
|
* 4.2
|
|
—
|
|
Rights Agreement dated as of December 15, 1999 between Consolidated Graphics, Inc. and American
Stock Transfer and Trust Company, as Rights Agent, which includes as Exhibit A the Certificate of
Designations of Series A Preferred Stock, as Exhibit B the form of Rights Certificate and as
Exhibit C the form of summary of Rights to Purchase Shares (Consolidated Graphics, Inc. Form 8-K
(December 15, 1999), Exhibit 4.1). |
|
|
|
|
|
* 4.3
|
|
—
|
|
Amendment to Rights Agreement dated as of July 10, 2006 between Consolidated Graphics, Inc. and
American Stock Transfer and Trust Company and the related Summary of Rights to Purchase Stock, as
amended (Consolidated Graphics, Inc. Form 8-A/A (July 13, 2006), Exhibits 2 and 3). |
|
|
|
|
|
* 4.4
|
|
—
|
|
Second Amendment to Rights Agreement dated as of September 25, 2007 between Consolidated Graphics,
Inc. and American Stock Transfer and Trust Company and the related Summary of Rights to Purchase
Stock, as amended (Consolidated Graphics, Inc. Form 8-A/A (September 28, 2007), Exhibits 3 and 4). |
|
|
|
|
|
10.1
|
|
—
|
|
1994 Consolidated Graphics, Inc. Long-Term Incentive Plan, as amended through May 9, 2008. + |
|
|
|
|
|
* 10.2
|
|
—
|
|
Employment Agreement between the Company and Joe R. Davis dated as of February 13, 2006
(Consolidated Graphics, Inc. Form 8-K (February 14, 2006), Exhibit 10.1). |
|
|
|
|
|
* 10.3
|
|
—
|
|
Change in Control Agreement between the Company and Joe R. Davis dated as of July 25, 2000
(Consolidated Graphics, Inc. Form 10-K (March 31, 2001), Exhibit 10.8). |
|
|
|
|
|
* 10.4
|
|
—
|
|
Amendment to Change in Control Agreement between the Company and Joe R. Davis dated as of
February 13, 2006 (Consolidated Graphics, Inc. Form 8-K (February 14, 2006), Exhibit 10.2). |
|
|
|
|
|
* 10.5
|
|
—
|
|
Employment Agreement between the Company and Jon C. Biro dated as of December 17, 2007
(Consolidated |
44
| |
|
|
|
|
|
|
|
|
Graphics, Inc. Form 8-K (January 18, 2008), Exhibit 10.1). |
|
|
|
|
|
* 10.6
|
|
—
|
|
Change in Control Agreement between the Company and Jon C. Biro dated as of December 17, 2007
(Consolidated Graphics, Inc. Form 8-K (January 18, 2008), Exhibit 10.2). |
|
|
|
|
|
* 10.7
|
|
—
|
|
Form of Indemnification Agreement for directors and officers (Consolidated Graphics, Inc.
Form 10-Q (June 30, 2004), Exhibit 10.1). |
|
|
|
|
|
10.8
|
|
—
|
|
Amended Schedule identifying the directors and officers parties to Indemnification Agreements with
the Company. |
|
|
|
|
|
* 10.9
|
|
—
|
|
Credit Agreement among the Company and JPMorgan Chase Bank, N.A., as Administrative Agent, Wells
Fargo Bank, National Association, as Syndication Agent, dated as of October 6, 2006 (Consolidated
Graphics, Inc. Form 8-K (October 6, 2006), Exhibit 10.1). |
|
|
|
|
|
* 10.10
|
|
—
|
|
First Amendment to the Credit Agreement among the Company and JPMorgan Chase Bank, N.A., as
Administrative Agent, Wells Fargo Bank, National Association, as Syndication Agent, dated as of
January 2, 2007 (Consolidated Graphics, Inc. Form 8-K (January 2, 2007), Exhibit 99.1). |
|
|
|
|
|
* 10.11
|
|
|
|
Second Amendment to the Credit Agreement among the Company and JPMorgan Chase Bank, N.A., as
Administrative Agent, Wells Fargo Bank, National Association, as Syndication Agent, dated as of
November 9, 2007 (Consolidated Graphics, Inc. Form 8-K (November 14, 2007), Exhibit 10.1). |
|
|
|
|
|
* 10.12
|
|
—
|
|
Third Amendment to the Credit Agreement among the Company and JP Morgan Chase Bank, N.A., as
Administrative Agent, Wells Fargo Bank, National Association, as Syndication Agent, dated as of
March 13, 2008 (Consolidated Graphics, Inc. Form 8-K (March 13, 2008), Exhibit 10.1). |
|
|
|
|
|
10.13
|
|
—
|
|
Form of Non-Employee Director Non-Statutory Stock Option Agreement.+ |
|
|
|
|
|
10.14
|
|
—
|
|
Form of Employee Incentive Stock Option Agreement.+ |
|
|
|
|
|
10.15
|
|
—
|
|
Form of Employee Non- Statutory Stock Option Agreement.+ |
|
|
|
|
|
* 10.16
|
|
—
|
|
Form of Restricted Stock Unit Agreement (Consolidated Graphics, Inc. Form 8-K (June 14, 2007),
Exhibit 10.1).+ |
|
|
|
|
|
21
|
|
—
|
|
List of Subsidiaries. |
|
|
|
|
|
23
|
|
—
|
|
Consent of KPMG LLP. |
|
|
|
|
|
24
|
|
—
|
|
Powers of Attorney. |
|
|
|
|
|
31.1
|
|
—
|
|
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
|
|
|
31.2
|
|
—
|
|
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
|
|
|
32.1
|
|
—
|
|
Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
|
|
|
|
|
32.2
|
|
—
|
|
Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
| |
|
|
| * |
|
Incorporated by reference. |
| |
| + |
|
Compensatory plan or arrangement under which executive officers or directors of the Company
may participate. |
45
SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
Utilization |
|
|
|
|
| |
|
Balance at |
|
|
Amount |
|
|
of Reserve |
|
|
Balance |
|
| |
|
Beginning |
|
|
Charged |
|
|
(Net of |
|
|
at End |
|
| Description |
|
of Year |
|
|
to Expense |
|
|
Recoveries) |
|
|
of Year |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for Doubtful Accounts |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31, 2008 |
|
$ |
3,080 |
|
|
$ |
1,203 |
|
|
$ |
(708 |
) |
|
$ |
3,575 |
|
Year Ended March 31, 2007 |
|
|
2,514 |
|
|
|
1,777 |
|
|
|
(1,211 |
) |
|
|
3,080 |
|
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Consolidated Graphics, Inc.:
Under date of May 28, 2008, we reported on the consolidated balance sheet of Consolidated
Graphics, Inc. and subsidiaries as of March 31, 2008 and 2007, and the related consolidated
statements of income, shareholders’ equity, and cash flows for each of the years in the three-year
period ended March 31, 2008, which are included in this Annual Report on Form 10-K. In connection
with our audits of the aforementioned consolidated financial statements, we also audited the
Valuation and Qualifying Accounts Schedule (Schedule II) listed in the index for the period
indicated above. This schedule is the responsibility of the Company’s management. Our
responsibility is to express an opinion on this schedule based on our audits.
In our opinion, the financial information presented in Schedule II for the years ended March 31,
2008 and 2007, when considered in relation to the basic consolidated financial statements taken as
a whole, present fairly, in all material respects, the information set forth therein.
/s/ KPMG LLP
Houston, Texas
May 28, 2008
46
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the undersigned,
thereunder duly authorized, in the City of Houston, State of Texas on the 28th day of
May, 2008
| |
|
|
|
|
| |
CONSOLIDATED GRAPHICS, INC.
|
|
| |
By: |
/s/ Joe R. Davis
|
|
| |
|
Joe R. Davis |
|
| |
|
Chief Executive
Officer and
Chairman of the Board of Directors |
|
| |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been
signed by the following persons on behalf of the registrant and in the capacities and on the dates
indicated.
| |
|
|
|
|
| Signature |
|
Title |
|
Date |
|
|
|
|
|
/s/ Joe R. Davis
Joe R. Davis
|
|
Chief Executive
Officer and Director
(Principal Executive Officer)
|
|
May 28, 2008 |
|
|
|
|
|
/s/ Jon C. Biro
Jon C. Biro
|
|
Executive Vice President,
Chief Financial and Accounting Officer and Secretary
(Principal Financial and Accounting Officer)
|
|
May 28, 2008 |
|
|
|
|
|
/s/ LARRY J. ALEXANDER*
Larry J. Alexander
|
|
Director |
|
|
|
|
|
|
|
/s/ BRADY F. CARRUTH*
Brady F. Carruth
|
|
Director |
|
|
|
|
|
|
|
/s/ GARY L. FORBES*
Gary L. Forbes
|
|
Director |
|
|
|
|
|
|
|
/s/ JAMES H. LIMMER*
James H. Limmer
|
|
Director |
|
|
|
|
|
|
|
/s/ HUGH N. WEST*
Hugh N. West
|
|
Director |
|
|
| |
|
|
|
|
|
|
*By:
|
|
/s/ Joe R. Davis
Joe R. Davis
|
|
|
|
May 28, 2008 |
|
|
Attorney-in-Fact |
|
|
|
|
47
Exhibit Index
| |
|
|
|
|
* 3.1
|
|
—
|
|
Restated Articles of Incorporation of the Company filed with the Secretary of State of the State
of Texas on July 27, 1994 (Consolidated Graphics, Inc. Form 10-Q (June 30, 1994), Exhibit 4(a)). |
|
|
|
|
|
* 3.2
|
|
—
|
|
Articles of Amendment to the Restated Articles of Incorporation of the Company dated as of
July 29, 1998 (Consolidated Graphics, Inc. Form 10- Q (June 30, 1998), Exhibit 3.1). |
|
|
|
|
|
* 3.3
|
|
—
|
|
Second Amended and Restated By-Laws of the Company, adopted as of May 25, 2004 (Consolidated
Graphics, Inc. Form 10-Q (June 30, 2004), Exhibit 3.3). |
|
|
|
|
|
* 3.4
|
|
—
|
|
Amendment to the Second Amended and Restated By-Laws of the Company adopted as of December 21,
2007 (Consolidated Graphics, Inc. Form 8-K (December 26, 2007), Exhibit 1). |
|
|
|
|
|
* 4.1
|
|
—
|
|
Specimen Common Stock Certificate (Consolidated Graphics, Inc. Form 10-K (March 31, 1998), Exhibit
4.1). |
|
|
|
|
|
* 4.2
|
|
—
|
|
Rights Agreement dated as of December 15, 1999 between Consolidated Graphics, Inc. and American
Stock Transfer and Trust Company, as Rights Agent, which includes as Exhibit A the Certificate of
Designations of Series A Preferred Stock, as Exhibit B the form of Rights Certificate and as
Exhibit C the form of summary of Rights to Purchase Shares (Consolidated Graphics, Inc. Form 8-K
(December 15, 1999), Exhibit 4.1). |
|
|
|
|
|
* 4.3
|
|
—
|
|
Amendment to Rights Agreement dated as of July 10, 2006 between Consolidated Graphics, Inc. and
American Stock Transfer and Trust Company and the related Summary of Rights to Purchase Stock, as
amended (Consolidated Graphics, Inc. Form 8-A/A (July 13, 2006), Exhibits 2 and 3). |
|
|
|
|
|
* 4.4
|
|
—
|
|
Second Amendment to Rights Agreement dated as of September 25, 2007 between Consolidated Graphics,
Inc. and American Stock Transfer and Trust Company and the related Summary of Rights to Purchase
Stock, as amended (Consolidated Graphics, Inc. Form 8-A/A (September 28, 2007), Exhibits 3 and 4). |
|
|
|
|
|
10.1
|
|
—
|
|
1994 Consolidated Graphics, Inc. Long-Term Incentive Plan, as amended through May 9, 2008. + |
|
|
|
|
|
* 10.2
|
|
—
|
|
Employment Agreement between the Company and Joe R. Davis dated as of February 13, 2006
(Consolidated Graphics, Inc. Form 8-K (February 14, 2006), Exhibit 10.1). |
|
|
|
|
|
* 10.3
|
|
—
|
|
Change in Control Agreement between the Company and Joe R. Davis dated as of July 25, 2000
(Consolidated Graphics, Inc. Form 10-K (March 31, 2001), Exhibit 10.8). |
|
|
|
|
|
* 10.4
|
|
—
|
|
Amendment to Change in Control Agreement between the Company and Joe R. Davis dated as of
February 13, 2006 (Consolidated Graphics, Inc. Form 8-K (February 14, 2006), Exhibit 10.2). |
|
|
|
|
|
* 10.5
|
|
—
|
|
Employment Agreement between the Company and Jon C. Biro dated as of December 17, 2007
(Consolidated Graphics, Inc. Form 8-K (January 18, 2008), Exhibit 10.1). |
|
|
|
|
|
* 10.6
|
|
—
|
|
Change in Control Agreement between the Company and Jon C. Biro dated as of December 17, 2007
(Consolidated Graphics, Inc. Form 8-K (January 18, 2008), Exhibit 10.2). |
|
|
|
|
|
* 10.7
|
|
—
|
|
Form of Indemnification Agreement for directors and officers (Consolidated Graphics, Inc.
Form 10-Q (June 30, 2004), Exhibit 10.1). |
|
|
|
|
|
10.8
|
|
—
|
|
Amended Schedule identifying the directors and officers parties to Indemnification Agreements with
the Company. |
|
|
|
|
|
* 10.9
|
|
—
|
|
Credit Agreement among the Company and JPMorgan Chase Bank, N.A., as Administrative Agent, Wells
Fargo Bank, National Association, as Syndication Agent, dated as of October 6, 2006 (Consolidated
Graphics, Inc. Form 8-K (October 6, 2006), Exhibit 10.1). |
|
|
|
|
|
* 10.10
|
|
—
|
|
First Amendment to the Credit Agreement among the Company and JPMorgan Chase Bank, N.A., as
Administrative Agent, Wells Fargo Bank, National Association, as Syndication Agent, dated as of
January 2, 2007 (Consolidated Graphics, Inc. Form 8-K (January 2, 2007), Exhibit 99.1). |
|
|
|
|
|
* 10.11
|
|
|
|
Second Amendment to the Credit Agreement among the Company and JPMorgan Chase Bank, N.A., as
Administrative Agent, Wells Fargo Bank, National Association, as Syndication Agent, dated as of
November 9, 2007 (Consolidated Graphics, Inc. Form 8-K (November 14, 2007), Exhibit 10.1). |
|
|
|
|
|
* 10.12
|
|
—
|
|
Third Amendment to the Credit Agreement among the Company and JP Morgan Chase Bank, N.A., as
Administrative Agent, Wells Fargo Bank, National Association, as Syndication Agent, dated as of
March 13, 2008 (Consolidated Graphics, Inc. Form 8-K (March 13, 2008), Exhibit 10.1). |
|
|
|
|
|
10.13
|
|
—
|
|
Form of Non-Employee Director Non-Statutory Stock Option Agreement.+ |
|
|
|
|
|
10.14
|
|
—
|
|
Form of Employee Incentive Stock Option Agreement.+ |
|
|
|
|
|
10.15
|
|
—
|
|
Form of Employee Non- Statutory Stock Option Agreement.+ |
|
|
|
|
|
* 10.16
|
|
—
|
|
Form of Restricted Stock Unit Agreement (Consolidated Graphics, Inc. Form 8-K (June 14, 2007),
Exhibit 10.1).+ |
|
|
|
|
|
21
|
|
—
|
|
List of Subsidiaries. |
|
|
|
|
|
23
|
|
—
|
|
Consent of KPMG LLP. |
|
|
|
|
|
24
|
|
—
|
|
Powers of Attorney. |
|
|
|
|
|
31.1
|
|
—
|
|
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
|
|
|
31.2
|
|
—
|
|
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
|
|
|
32.1
|
|
—
|
|
Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
|
|
|
|
|
32.2
|
|
—
|
|
Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
| |
|
|
| * |
|
Incorporated by reference. |
| |
| + |
|
Compensatory plan or arrangement under which executive officers or directors of the Company
may participate. |
48