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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
(MARK ONE)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1997
OR
( ) 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 0-24068
------------------------
CONSOLIDATED GRAPHICS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
TEXAS 76-0190827
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
2210 WEST DALLAS STREET
HOUSTON, TEXAS 77019
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
Registrant's telephone number, including area code: (713) 529-4200
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 X No ___
The number of shares of Common Stock, par value $.01 per share, of the
Registrant outstanding at
October 31, 1997 was 12,697,806.
================================================================================
<PAGE>
CONSOLIDATED GRAPHICS, INC.
FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1997
INDEX
PAGE
---------
Part I -- Financial Information
Item 1 -- Financial Statements
Consolidated Balance Sheets
at September 30, 1997 and
March 31, 1997............. 1
Consolidated Income
Statements for the three
and
six months ended
September 30, 1997 and
1996....................... 2
Consolidated Statements of
Cash Flows for the six
months ended
September 30, 1997 and
1996....................... 3
Notes to Consolidated
Financial Statements....... 4
Item 2 -- Management's
Discussion and Analysis of
Financial Condition and
Results of
Operations...................... 6
Part II -- Other Information
Item 1 -- Legal Proceedings..... 11
Item 4 -- Submission of Matters
to a Vote of Security
Holders........................ 11
Item 6 -- Exhibits and Reports
on Form 8-K.................... 11
Signatures........................... 13
(i)
<PAGE>
CONSOLIDATED GRAPHICS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
SEPTEMBER 30, MARCH 31,
1997 1997
------------- ----------
(UNAUDITED) (AUDITED)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents....... $ 3,436 $ 3,636
Accounts receivable, net........ 36,757 29,347
Inventories..................... 8,601 8,679
Prepaid expenses................ 1,299 1,434
------------- ----------
Total current assets....... 50,093 43,096
PROPERTY AND EQUIPMENT, net.......... 98,561 85,643
GOODWILL, net........................ 9,824 6,085
OTHER ASSETS......................... 1,361 896
------------- ----------
$ 159,839 $135,720
============= ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term
debt........................... $ 2,039 $ 2,623
Accounts payable................ 11,639 8,399
Accrued liabilities............. 13,168 9,927
Income taxes payable............ 37 67
------------- ----------
Total current
liabilities............. 26,883 21,016
LONG-TERM DEBT, net of current
portion............................ 44,969 39,321
DEFERRED INCOME TAXES................ 9,882 8,936
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock, $.01 par value;
20,000,000 shares authorized,
12,612,400 and 12,450,430
issued and outstanding,
respectively................... 126 124
Additional paid-in capital...... 42,689 39,168
Retained earnings............... 35,290 27,155
------------- ----------
Total shareholders'
equity.................. 78,105 66,447
------------- ----------
$ 159,839 $135,720
============= ==========
See accompanying notes to consolidated financial statements.
1
<PAGE>
CONSOLIDATED GRAPHICS, INC.
CONSOLIDATED INCOME STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------- ---------------------
1997 1996 1997 1996
--------- --------- ---------- ---------
SALES..............................$ 53,363 $ 34,451 $ 104,038 $ 62,709
COST OF SALES...................... 36,485 23,864 71,230 44,030
--------- --------- ---------- ---------
Gross profit.................. 16,878 10,587 32,808 18,679
SELLING EXPENSES................... 5,160 3,410 10,091 6,258
GENERAL AND ADMINISTRATIVE
EXPENSES......................... 4,066 2,722 7,946 5,014
--------- --------- ---------- ---------
Operating income.............. 7,652 4,455 14,771 7,407
INTEREST EXPENSE................... 754 595 1,648 934
--------- --------- ---------- ---------
Pretax Income................. 6,898 3,860 13,123 6,473
INCOME TAXES....................... 2,623 1,428 4,988 2,368
--------- --------- ---------- ---------
NET INCOME.........................$ 4,275 $ 2,432 $ 8,135 $ 4,105
========= ========= ========== =========
EARNINGS PER SHARE OF COMMON STOCK. $.33 $.20 $.63 $.34
========= ========= ========== =========
See accompanying notes to consolidated financial statements.
2
<PAGE>
CONSOLIDATED GRAPHICS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
SIX MONTHS ENDED
SEPTEMBER 30,
----------------------
1997 1996
---------- ----------
OPERATING ACTIVITIES:
Net income...................... $ 8,135 $ 4,105
Adjustments to reconcile net
income to net cash provided
by operating activities --
Depreciation and
amortization............ 4,460 2,634
Deferred tax provision
(benefit)............... 946 (164)
Changes in assets and
liabilities, net of
effects of acquisitions
--
Accounts receivable..... (4,045) (1,754)
Inventories............. 3,162 1,289
Prepaid expenses........ 257 212
Other assets............ (433) (55)
Accounts payable and
accrued liabilities... 1,198 (1,427)
Income taxes payable.... 101 181
---------- ----------
Net cash provided
by operating
activities...... 13,781 5,021
---------- ----------
INVESTING ACTIVITIES:
Acquisition of businesses....... (12,786) (7,017)
Purchases of property and
equipment...................... (4,599) (5,325)
Proceeds from disposition of
assets......................... 869 55
---------- ----------
Net cash used in
investing
activities...... (16,516) (12,287)
---------- ----------
FINANCING ACTIVITIES:
Proceeds from revolving credit
agreement...................... 75,997 32,200
Payments on revolving credit
agreement...................... (72,019) (24,800)
Payments on long-term debt...... (2,119) (1,230)
Proceeds from exercise of stock
options and other.............. 676 128
---------- ----------
Net cash provided
by financing
activities...... 2,535 6,298
---------- ----------
NET DECREASE IN CASH AND CASH
EQUIVALENTS........................ (200) (968)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD................ 3,636 3,086
---------- ----------
CASH AND CASH EQUIVALENTS AT END OF
PERIOD............................. $ 3,436 $ 2,118
========== ==========
See accompanying notes to consolidated financial statements.
3
<PAGE>
CONSOLIDATED GRAPHICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)
1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited consolidated financial statements include the
accounts of Consolidated Graphics, Inc. and its wholly owned subsidiaries (the
"Company"). All intercompany balances and transactions have been eliminated.
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles and the
Securities and Exchange Commission's rules and regulations for reporting interim
financial information. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation of
the accompanying unaudited consolidated financial statements have been included.
Operating results for the three and six months ended September 30, 1997 are not
necessarily indicative of future operating results. Balance sheet information as
of March 31, 1997 has been derived from the 1997 annual audited consolidated
financial statements of the Company. For further information, refer to the
consolidated financial statements and footnotes thereto included in the
Company's Form 10-K filed with the Securities and Exchange Commission in June
1997.
Earnings per share are calculated by dividing net income by the weighted
average number of common shares and common share equivalents outstanding. For
the three months ended September 30, 1997, the weighted average shares
outstanding were 13,029,122, which includes 541,558 common share equivalents
representing the dilutive effect of outstanding stock options. For the six
months ended September 30, 1997, the weighted average shares outstanding were
12,962,959, which includes 489,131 common share equivalents representing the
dilutive effect of outstanding stock options. For the three and six months ended
September 30, 1996, the effect of common share equivalents was not significant
and the weighted average shares outstanding were 12,232,614 and 12,048,734.
The consolidated statements of cash flows provide information about changes
in cash and exclude the effects of noncash transactions. For purposes of the
consolidated statements of cash flows, the Company considers all highly liquid
investments purchased with original maturities of three months or less to be
cash equivalents. Interest paid during the six months ended September 30, 1997
and 1996 was $1,494 and $844. Income tax payments during the six months ended
September 30, 1997 and 1996 were $4,110 and $1,650. Significant non-cash
transactions during the six months ended September 30, 1997 include the issuance
of common stock and assumption of debt in connection with certain of the
Company's acquisitions (see Note 3. Acquisitions). Additionally, the effect of
an accrual totaling $2,300 reflected in the consolidated balance sheet as of
September 30, 1997, related to the purchase of a printing press, has been
eliminated from the presentation of the accompanying consolidated statements of
cash flows.
4
<PAGE>
CONSOLIDATED GRAPHICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)
2. LONG-TERM DEBT
The following is a summary of the Company's long-term debt instruments as
of:
SEPTEMBER 30, MARCH 31,
1997 1997
------------- ---------
Revolving credit agreements.......... $32,678 $28,700
Equipment notes...................... 7,394 9,060
Industrial revenue bond.............. 3,205 --
Real estate notes.................... 1,855 1,976
Acquisition notes.................... 1,876 2,188
Other................................ -- 20
------------- ---------
47,008 41,944
Less current portion.......... (2,039) (2,623)
------------- ---------
$44,969 $39,321
============= =========
On June 5, 1997, the Company entered into a $100 million revolving credit
agreement (the "Credit Agreement") with a six-member banking group. The Credit
Agreement, which matures on May 31, 2000, replaced the Company's existing $50
million revolving credit arrangement (the "Terminated Agreement"). On June 10,
1997, all balances due under the Terminated Agreement were repaid in full from
borrowings under the Credit Agreement. Loans outstanding under the Credit
Agreement are unsecured and accrue interest at a variable rate (an average of
6.3% per annum on September 30, 1997).
3. ACQUISITIONS
The Company has completed the following acquisitions during the six months
ended September 30, 1997:
COMPANY LOCATION DATE
- --------------------------------- --------------------------- ---------------
Tucker Printers Rochester, New York April 1997
The Etheridge Company Grand Rapids, Michigan July 1997
Georges and Shapiro Lithograph Sacramento, California August 1997
Austin Printing Atlanta, Georgia September 1997
To complete the aforementioned acquisitions, the Company issued 55,886
shares of its common stock, paid cash of $12,786 and assumed debt of $3,205.
In October 1997 the Company completed the acquisition of Geyer Printing in
Pittsburgh, Pennsylvania, Superior Colour Graphics in Kalamazoo, Michigan and
The Otto Companies in Springfield, Massachusetts. The Company also announced the
signing of a nonbinding letter of intent to acquire The Walnut Circle Press in
Greensboro, North Carolina.
5
<PAGE>
CONSOLIDATED GRAPHICS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSIONS CONTAIN FORWARD-LOOKING INFORMATION. READERS ARE
CAUTIONED THAT SUCH INFORMATION INVOLVES KNOWN AND UNKNOWN RISKS AND
UNCERTAINTIES, INCLUDING THOSE CREATED BY GENERAL MARKET CONDITIONS, COMPETITION
AND THE POSSIBILITY THAT EVENTS MAY OCCUR WHICH LIMIT THE ABILITY OF THE COMPANY
TO MAINTAIN OR IMPROVE ITS OPERATING RESULTS OR EXECUTE ITS PRIMARY GROWTH
STRATEGY OF ACQUIRING ADDITIONAL BUSINESSES. ALTHOUGH THE COMPANY BELIEVES THAT
THE ASSUMPTIONS UNDERLYING THE FORWARD-LOOKING STATEMENTS ARE REASONABLE, ANY OF
THE ASSUMPTIONS COULD BE INACCURATE, AND THERE CAN THEREFORE BE NO ASSURANCE
THAT THE FORWARD-LOOKING STATEMENTS INCLUDED HEREIN WILL PROVE TO BE ACCURATE.
THE INCLUSION OF SUCH INFORMATION SHOULD NOT BE REGARDED AS A REPRESENTATION BY
THE COMPANY OR ANY OTHER PERSON THAT THE OBJECTIVES AND PLANS OF THE COMPANY
WILL BE ACHIEVED.
GENERAL
Consolidated Graphics, Inc. ("CGX" or the "Company"), headquartered in
Houston, Texas, is one of the fastest growing printing companies in the United
States. It is the leading consolidator in a fragmented industry, adding value to
its acquisitions through managerial and operational expertise, financial
strength and economics of scale. The Company currently has 25 printing companies
operating in 20 U.S. markets, each with an established operating history
(ranging from 10-119 years), experienced management, solid customer
relationships and a reputation for quality service and responsiveness.
The Company's sales are derived from the production and sale of customized
printed materials by its printing businesses. All of the printing businesses
provide general commercial printing services relating to the production of
annual reports, training manuals, product and capability brochures, direct mail
pieces, catalogs and other promotional material, all of which tend to be
recurring in nature. In addition, one of the Houston companies also provides
transaction-oriented financial printing services. Each printing business has its
own sales, estimating, customer service, prepress, production, postpress and
accounting departments. The Company's headquarters provides its printing
businesses with certain administrative services, such as purchasing and human
resources support, as well as maintaining centralized cash management,
financing, investor relations and consolidated financial reporting activities.
The Company's strategy is to generate growth in sales and profits through
an aggressive acquisition program, coupled with internal growth and operational
improvements at its existing businesses. The Company provides its acquired
businesses cost savings through master purchasing arrangements, access to
technology and capital, strategic counsel and a commitment to training through a
unique, comprehensive management development program. As a result, operating
income margins and efficiencies of newly acquired businesses, which may be lower
than those being achieved by the Company's other businesses, typically improve
as the Company's operational strategies are fully implemented.
The Company's consolidated financial results in a given period may be
affected by the timing and magnitude of acquisitions. The Company's consolidated
operating income margins in the periods following a significant acquisition (or
series of acquisitions) may be lower than historically reported consolidated
margins depending upon the timing and extent to which an acquired business is
able to take advantage of the Company's operational strategies to improve its
financial performance.
The Company competes in the general commercial and financial printing
sectors, which are characterized by individual orders from customers for
specific printing projects rather than long-term contracts, with continued
engagement for successive jobs dependent upon, among other things, the
customer's satisfaction with the services provided. As such, the Company is
unable to predict, for more than a few weeks in advance, the number, size and
profitability of future printing jobs. Consequently, the timing with which
orders are received could have a significant impact on financial results in any
individual quarter.
6
<PAGE>
RESULTS OF OPERATIONS
The following tables set forth the Company's historical income statements
for the periods indicated:
THREE MONTHS SIX MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------- --------------------
1997 1996 1997 1996
--------- --------- --------- ---------
(IN MILLIONS) (IN MILLIONS)
Sales............................. $ 53.4 $ 34.5 $ 104.0 $ 62.7
Cost of sales..................... 36.5 23.9 71.2 44.0
--------- --------- --------- ---------
Gross profit................. 16.9 10.6 32.8 18.7
Selling expenses.................. 5.2 3.4 10.1 6.3
General and administrative
expenses........................ 4.1 2.7 7.9 5.0
--------- --------- --------- ---------
Operating income............. 7.6 4.5 14.8 7.4
Interest expense.................. .7 .6 1.7 .9
--------- --------- --------- ---------
Pretax income................ 6.9 3.9 13.1 6.5
Income taxes...................... 2.6 1.5 5.0 2.4
--------- --------- --------- ---------
Net income................... $ 4.3 $ 2.4 $ 8.1 $ 4.1
========= ========= ========= =========
The following tables set forth the components of income expressed as a
percentage of sales for the periods indicated:
THREE MONTHS SIX MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------- --------------------
1997 1996 1997 1996
--------- --------- --------- ---------
Sales............................. 100.0% 100.0% 100.0% 100.0%
Cost of sales..................... 68.4 69.3 68.5 70.2
--------- --------- --------- ---------
Gross profit................. 31.6 30.7 31.5 29.8
Selling expenses.................. 9.7 9.9 9.7 10.0
General and administrative
expenses........................ 7.6 7.9 7.6 8.0
--------- --------- --------- ---------
Operating income............. 14.3 12.9 14.2 11.8
Interest expense.................. 1.4 1.7 1.6 1.5
--------- --------- --------- ---------
Pretax income................ 12.9 11.2 12.6 10.3
Income taxes...................... 4.9 4.1 4.8 3.8
--------- --------- --------- ---------
Net income................... 8.0% 7.1% 7.8% 6.5%
========= ========= ========= =========
Acquisitions in fiscal 1997 and 1998 are the primary causes of the absolute
increases in revenues and expenses in the current periods when compared to the
same operating periods of the prior year. Each of the Company's acquisitions in
fiscal 1997 and 1998 have been accounted for under the purchase method of
accounting; accordingly, the Company's consolidated income statements reflect
revenues and expenses of acquired businesses only for post acquisition periods.
The following table sets forth the Company's 1997 and 1998 acquisitions
(collectively the "1997/98 Acquired Businesses") and indicates the period in
which each business was acquired.
FISCAL 1997 ACQUISITIONS:
Bridgetown Printing............. June 1996
Garner Printing................. July 1996
Eagle Press..................... July 1996
Mobility........................ October 1996
Theo Davis Sons................. January 1997
Direct Color.................... January 1997
7
<PAGE>
FISCAL 1998 ACQUISITIONS:
Tucker Printers................. April 1997
The Etheridge Company........... July 1997
Georges and Shapiro
Lithograph.................... August 1997
Austin Printing................. September 1997
For more information regarding the Fiscal 1997 Acquisitions, refer to
"Notes to Consolidated Financial Statements" included in the Company's Annual
Report on Form 10-K for the fiscal year ended March 31, 1997. For more
information regarding the Fiscal 1998 Acquisitions, refer to the accompanying
"Notes to Consolidated Financial Statements" included elsewhere herein.
THREE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED WITH THREE MONTHS ENDED SEPTEMBER
30, 1996.
Sales increased 55% to $53.4 million for the three months ended September
30, 1997, from $34.5 million for the prior year comparable period. This increase
is due to the addition of the 1997/98 Acquired Businesses and internal growth at
the Company's other businesses. The internal growth resulted primarily from
investments in equipment and technology, which increased production capacity at
certain locations, combined with successful marketing efforts by all locations
to increase market share.
Gross profit increased 59% to $16.9 million for the three months ended
September 30, 1997, from $10.6 million for the prior year comparable period,
primarily due to the addition of the 1997/98 Acquired Businesses. Gross profit
as a percentage of sales increased to 31.6% for the three months ended September
30, 1997, from 30.7% in the corresponding period of the prior year. This
improvement generally reflects increased operating efficiencies from investments
in equipment and technology and cost savings generated by the Company's efforts
to strengthen its master purchasing arrangements.
Selling expenses increased 51% to $5.2 million for the three months ended
September 30, 1997, from $3.4 million for the prior year comparable period, due
to increased sales levels as discussed above. Selling expenses as a percentage
of sales improved to 9.7% for the three months ended September 30, 1997, from
9.9% in the corresponding period of the prior year. This improvement reflects an
average lower commission percentage generated by the 1997/98 Acquired Businesses
as compared to the Company's historical percentage and an increase in
non-commissioned "house" sales at certain locations.
General and administrative expenses increased 49% to $4.1 million for the
three months ended September 30, 1997, from $2.7 million for the prior year
comparable period. Substantially all of the increase was attributable to the
1997/98 Acquired Businesses. General and administrative expenses as a percentage
of sales improved to 7.6% for the three months ended September 30, 1997, from
7.9% in the corresponding period of the prior year, primarily because increased
sales contributed by the 1997/98 Acquired Businesses and internal growth was
greater than the corresponding increase in the amount of overhead expenses.
Interest expense increased to $.7 million for the three months ended
September 30, 1997, from $.6 million for the prior year comparable period,
primarily due to increased borrowings under the Company's revolving credit
facility to finance the cash portions of the purchase price of the 1997/98
Acquired Businesses.
Effective income tax rates reflect an increase to 38% for the three months
ended September 30, 1997, from 37% in the corresponding period of the prior
year, due to the Company's growth by acquisition into states with higher income
tax rates than those states in which the Company previously operated.
SIX MONTHS ENDED SEPTEMBER 30, 1997 COMPARED WITH SIX MONTHS ENDED SEPTEMBER 30,
1996.
Sales increased 66% to $104.0 million for the six months ended September
30, 1997, from $62.7 million for the prior year comparable period. This increase
is due to the addition of the 1997/98 Acquired Businesses and internal growth at
the Company's other businesses. The internal growth resulted from the Company's
aforementioned capital investments and marketing efforts.
Gross profit increased 76% to $32.8 million for the six months ended
September 30, 1997, from $18.7 million for the prior year comparable period,
primarily due to the addition of the 1997/98 Acquired
8
<PAGE>
Businesses. Gross profit as a percentage of sales increased to 31.5% for the six
months ended September 30, 1997, from 29.8% in the corresponding period of the
prior year. This improvement generally reflects increased operating efficiencies
from the Company's capital investments and cost benefits resulting from the
Company's greater purchasing power.
Selling expenses increased 61% to $10.1 million for the six months ended
September 30, 1997, from $6.3 million for the prior year comparable period, due
to the aforementioned increased sales levels. Selling expenses as a percentage
of sales improved to 9.7% for the six months ended September 30, 1997, from
10.0% in the corresponding period of the prior year. This improvement reflects
an average lower commission percentage generated by the 1997/98 Acquired
Businesses as compared to the Company's historical percentage and an increase in
non-commissioned "house" sales at certain locations.
General and administrative expenses increased 58% to $7.9 million for the
six months ended September 30, 1997, from $5.0 million for the prior year
comparable period, due to the addition of the 1997/98 Acquired Businesses.
General and administrative expenses as a percentage of sales improved to 7.6%
for the six months ended September 30, 1997, from 8.0% in the corresponding
period of the prior year, primarily because the aforementioned increase in sales
was greater than the corresponding increase in the amount of overhead expenses.
Interest expense increased to $1.7 million for the six months ended
September 30, 1997, from $.9 million for the prior year comparable period due to
increased borrowings under the Company's revolving credit facility to finance
the cash portions of the purchase price of the 1997/98 Acquired Businesses.
Effective income tax rates reflect an increase to 38% for the six months
ended September 30, 1997, from 36.6% in the corresponding period of the prior
year, due to the Company's growth by acquisition into states with higher income
tax rates than those states in which the Company previously operated.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary cash requirements are for capital expenditures and
acquisitions. Cash generated from operations was $13.8 million for the six
months ended September 30, 1997, while cash expended for purchases of property
and equipment was $4.6 million. The remaining $9.2 million of operating cash
flow and net borrowings of $4.0 million under the Company's revolving credit
facility were the primary sources of funds used to complete the Fiscal 1998
Acquisitions.
On June 5, 1997, the Company entered into a $100 million revolving credit
agreement (the "Credit Agreement") with a six-member banking group. The Credit
Agreement, which matures on May 31, 2000, replaced the Company's previous $50
million revolving credit arrangement.
Loans outstanding under the Credit Agreement are unsecured and accrue
interest, at the Company's option, at (1) the London Interbank Offered Rate
(LIBOR) plus .50% to 1.50% based upon the Company's Debt to Pro Forma EBITDA
ratio as defined, redetermined quarterly, or (2) an alternate base rate based
upon the bank's prime lending rate or Federal Funds effective rate. The Credit
Agreement also provides for a commitment fee on available but unused amounts
ranging from .10% to .35% per annum. On September 30, 1997, outstanding
borrowings under the Credit Agreement were $32.7 million and were subject to an
average interest rate of 6.3% per annum.
Pursuant to an agreement between the Company and Komori America Corporation
(the "Komori Agreement"), the Company has purchased four new printing presses
(three in fiscal 1997 and one thus far in fiscal 1998) for approximately $10
million. The Komori Agreement provides certain volume purchase incentives and
financing options under which the Company may, but is not obligated to, purchase
up to $50 million of printing presses over its term. The Company has exercised
the financing option in connection with the purchase of the first four presses,
which provide for monthly principal and interest payments through 2006 at a
fixed interest rate of 8.25%. Payment of the Company's obligations under the
Komori Agreement is secured by the purchased presses. The Company is subject to
no significant financial covenants or restrictions in connection with these
obligations.
9
<PAGE>
The Company's remaining debt obligations generally consist of mortgages,
equipment notes, promissory notes, an industrial revenue bond and a $5 million
auxiliary revolving credit agreement, some of which contain financial covenants
and restrictions. The most significant of these place certain restrictions on
future borrowings and acquisitions above specified levels. The Company believes
these restrictions do not adversely affect its acquisition strategy.
Significant uses of capital by the Company since September 30, 1997, along
with the Company's expectations for future capital expenditures and
acquisitions, are as follows:
In October 1997 the Company completed the acquisition of Geyer Printing in
Pittsburgh, Pennsylvania, Superior Colour Graphics in Kalamazoo, Michigan and
The Otto Companies in Springfield, Massachusetts. To complete these
acquisitions, the Company issued 80,556 shares of its common stock, paid cash
totaling $14.0 million and assumed debt of $3.3 million. The cash portion of
these transactions were financed with borrowings under the Credit Agreement.
The Company expects to make additional acquisitions in fiscal 1998, and
currently has a nonbinding letter of intent to acquire The Walnut Circle Press
in Greensboro, North Carolina.
Significant immediate and future cash requirements for the aforementioned
acquisition and additional purchases of property and equipment are expected to
be financed by cash flow from operations and borrowings under the Credit
Agreement.
There can be no assurance that the Company will be able to acquire
additional businesses on acceptable terms in the future. In addition, there can
be no assurance that the Company will be able to establish, maintain or increase
the profitability of any acquired business.
10
<PAGE>
CONSOLIDATED GRAPHICS, INC.
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
From time to time the Company may be involved in litigation relating to
claims arising in the normal course of business. The Company maintains insurance
coverage against potential claims in an amount which it believes to be adequate.
All litigation in which the Company is currently involved is not believed by
management to be significant to the Company's financial position or results of
operations. While the outcome of lawsuits or other proceedings against the
Company cannot be predicted with certainty, the Company does not believe the
ultimate outcome of any of these matters will have a material adverse effect on
its business or financial position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On July 30, 1997, the Company's annual meeting of shareholders was held. At
such time the following item was submitted to a vote of shareholders through the
solicitation of proxies:
Election of Directors -- The following persons were elected to serve on the
Board of Directors until the 1998 Annual Meeting of Shareholders or until their
successors have been duly elected and qualified. The Directors received the
votes set forth opposite their respective names:
NAME FOR AGAINST ABSTENTIONS
- ------------------------------------- ---------- ------- -----------
Joe R. Davis......................... 10,169,971 49,251 2,245,393
Larry J. Alexander................... 10,169,971 49,251 2,245,393
Brady F. Carruth..................... 10,169,971 49,251 2,245,393
Clarence C. Comer.................... 10,169,971 49,251 2,245,393
Gary L. Forbes....................... 10,169,971 49,251 2,245,393
W. D. Hawkins........................ 10,169,971 49,251 2,245,393
James L. Limmer...................... 10,169,971 49,251 2,245,393
Thomas E. Smith...................... 10,169,971 49,251 2,245,393
Hugh N. West......................... 10,169,971 49,251 2,245,393
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
27 Edgar financial data schedules.
(b) Reports on Form 8-K:
(1) Form 8-K, filed July 2, 1997 in connection with the press
release announcing the signing of a nonbinding letter of
intent to acquire Georges & Shapiro Lithograph.
(2) Form 8-K, filed July 9, 1997 in connection with the press
releases announcing the signing of nonbinding letters of
intent to acquire Austin Printing Company and The Walnut
Circle Press.
(3) Form 8-K, filed July 23, 1997 in connection with the press
releases announcing the signing of a nonbinding letter of
intent to acquire Geyer Printing Company and the completion
of the acquisition of The Etheridge Company.
(4) Form 8-K, filed July 30, 1997 in connection with the press
release announcing the Company's fiscal 1998 first quarter
results.
(5) Form 8-K, filed August 18, 1997, in connection with the
press release announcing the completion of the acquisition
of Georges and Shapiro Lithograph.
11
<PAGE>
(6) Form 8-K, filed September 9, 1997, in connection with the
press release announcing the signing of nonbinding letters
of intent to acquire The Otto Companies and Superior Colour
Graphics.
(7) Form 8-K, filed September 15, 1997, in connection with the
press release announcing the completion of the acquisition
of Austin Printing.
(8) Form 8-K, filed October 3, 1997, in connection with the
press releases announcing the Company's four new executive
vice president positions and the completion of the
acquisition of Geyer Printing.
(9) Form 8-K, filed October 27, 1997, in connection with the
press release announcing the completion of the acqusition
of Superior Colour Graphics.
(10) Form 8-K, filed November 3, 1997, in connection with the
press releases announcing the Company's fiscal 1998 second
quarter results and the completion of the acquisition of
The Otto Companies.
12
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THE
REGISTRANT, CONSOLIDATED GRAPHICS, INC., HAS DULY CAUSED THIS REPORT TO BE
SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
CONSOLIDATED GRAPHICS, INC.
(Registrant)
Dated: November 10, 1997 By: _______HAROLD GAUBERT, JR._______
HAROLD GAUBERT, JR.
EXECUTIVE VICE
PRESIDENT -- FINANCE/ADMINISTRATION
CHIEF FINANCIAL AND ACCOUNTING
OFFICER
13
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