UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 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, 1998
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)
5858 WESTHEIMER ROAD, SUITE 200
HOUSTON, TEXAS 77057
(ADDRESS OF PRINCIPAL EXECUTIVE
OFFICES) (ZIP CODE)
Registrant's telephone number, including area code: (713) 787-0977
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, 1998 was 14,009,155.
<PAGE>
CONSOLIDATED GRAPHICS, INC.
FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998
INDEX
PAGE
Part I -- Financial Information
Item 1 -- Financial Statements
Consolidated Balance Sheets at September 30, 1998 and March 31, 1998.. 1
Consolidated Income Statements for the Three and Six Months Ended
September 30, 1998 and 1997 ........................................ 2
Consolidated Statements of Cash Flows for the Six Months Ended
September 30, 1998 and 1997 ........................................ 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 ............................................. 13
Item 2 -- Changes in Securities and Use of Proceeds ..................... 13
Item 3 -- Defaults upon Senior Securities ............................... 13
Item 4 -- Submission of Matters to a Vote of Security Holders ........... 13
Item 5 -- Other Information ............................................. 14
Item 6 -- Exhibits and Reports on Form 8-K .............................. 14
Signatures ................................................................. 15
i
<PAGE>
CONSOLIDATED GRAPHICS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
SEPTEMBER 30, MARCH 31,
1998 1998
------------ ------------
ASSETS (UNAUDITED) (AUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents ............................ $ 5,869 $ 5,268
Accounts receivable, net ............................. 70,865 51,008
Inventories .......................................... 21,127 13,074
Prepaid expenses ..................................... 2,662 2,129
------------ ------------
Total current assets ............................. 100,523 71,479
PROPERTY AND EQUIPMENT, net .............................. 203,244 135,892
GOODWILL, net ............................................ 71,421 28,157
OTHER ASSETS ............................................. 3,150 2,117
------------ ------------
$ 378,338 $ 237,645
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt .................... $ 2,875 $ 2,438
Accounts payable ..................................... 20,928 22,276
Accrued liabilities .................................. 29,758 18,863
Income taxes payable ................................. 1,558 33
------------ ------------
Total current liabilities ........................ 55,119 43,610
LONG-TERM DEBT, net of current portion ................... 136,104 73,030
DEFFERRED INCOME TAXES ................................... 22,099 15,673
COMMITMENTS AND CONTINGENCIES ............................ -- --
SHAREHOLDERS' EQUITY:
Common stock, $.01 par value; 100,000,000 shares
authorized;
13,994,155 and 12,959,932 issued and outstanding . 140 129
Additional paid-in capital ........................... 105,297 59,658
Retained earnings .................................... 59,579 45,545
------------ ------------
Total shareholders' equity ....................... 165,016 105,332
------------ ------------
$ 378,338 $ 237,645
============ ============
</TABLE>
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,
------------------ -------------------
1998 1997 1998 1997
-------- ------- -------- --------
SALES ............................... $103,270 $53,363 $188,370 $104,038
COST OF SALES ....................... 70,869 36,485 128,883 71,230
-------- ------- -------- --------
Gross profit .................. 32,401 16,878 59,487 32,808
SELLING EXPENSES .................... 10,172 5,160 18,463 10,091
GENERAL AND ADMINISTRATIVE EXPENSES . 7,923 4,066 14,542 7,946
-------- ------- -------- --------
Operating income .............. 14,306 7,652 26,482 14,771
INTEREST EXPENSE .................... 2,002 754 3,473 1,648
-------- ------- -------- --------
Pretax income ................. 12,304 6,898 23,009 13,123
INCOME TAXES ........................ 4,800 2,623 8,975 4,988
-------- ------- -------- --------
NET INCOME .......................... $ 7,504 $ 4,275 $ 14,034 $ 8,135
======== ======= ======== ========
BASIC EARNINGS PER SHARE ............ $ .56 $ .34 $ 1.06 $ .65
======== ======= ======== ========
DILUTED EARNINGS PER SHARE .......... $ .54 $ .33 $ 1.03 $ .63
======== ======= ======== ========
See accompanying notes to consolidated financial statements.
2
<PAGE>
CONSOLIDATED GRAPHICS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
SEPTEMBER 30,
---------------------
1998 1997
--------- --------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income ............................................. $ 14,034 $ 8,135
Adjustments to reconcile net income to net cash provided
by operating activities --
Depreciation and amortization ....................... 8,498 4,460
Deferred tax provision .............................. 1,505 946
Changes in assets and liabilities, net of
effects of acquisitions--
Accounts receivable ............................... 2,529 (4,045)
Inventories ....................................... 369 3,162
Prepaid expenses .................................. 71 257
Other assets ...................................... (203) (433)
Accounts payable and accrued liabilities .......... (4,998) 1,198
Income taxes payable .............................. 1,747 101
--------- --------
Net cash provided by operating activities ...... 23,552 13,781
--------- --------
INVESTING ACTIVITIES:
Acquisitions of businesses, net of cash acquired ....... (72,984) (12,786)
Purchases of property and equipment .................... (10,720) (4,599)
Proceeds from disposition of assets .................... 185 869
--------- --------
Net cash used in investing activities .......... (83,519) (16,516)
--------- --------
FINANCING ACTIVITIES:
Proceeds from revolving credit agreement ............... 184,267 75,997
Payments on revolving credit agreement ................. (122,949) (72,019)
Payments on long-term debt ............................. (1,473) (2,119)
Proceeds from exercise of stock options and other ...... 723 676
--------- --------
Net cash provided by financing activities ...... 60,568 2,535
--------- --------
NET INCREASE(DECREASE) IN CASH AND CASH EQUIVALENTS ........ 601 (200)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ........... 5,268 3,636
========= ========
CASH AND CASH EQUIVALENTS AT END OF PERIOD ................. $ 5,869 $ 3,436
========= ========
</TABLE>
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 accounts 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, 1998 are not
necessarily indicative of future operating results. Balance sheet information as
of March 31, 1998 has been derived from the 1998 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
1998.
Basic earnings per share are calculated by dividing net income by the
weighted average number of common shares outstanding. For the three months ended
September 30, 1998 and 1997, the basic weighted average shares outstanding were
13,397,348 and 12,487,564. For the six months ended September 30, 1998 and 1997,
the basic weighted average shares outstanding were 13,226,510 and 12,473,828.
Diluted earnings per share reflect net income divided by the weighted average
number of common shares and dilutive stock options outstanding. For the three
months ended September 30, 1998 and 1997, the weighted average number of common
shares and dilutive stock options outstanding were 13,802,957 and 13,029,122.
For the six months ended September 30, 1998 and 1997, the weighted average
number of common shares and dilutive stock options outstanding were 13,637,272
and 12,962,959.
The consolidated statements of cash flows provide information about the
sources and uses of cash and exclude the effects of non-cash transactions.
Significant non-cash transactions primarily include the issuance of common stock
and the issuance or assumption of debt in connection with the acquisition of
certain printing businesses (see Note 3. Acquisitions). Additionally, equipment
capital expenditures financed by the Company, totaling $3,613 for the six months
ended September 30, 1998, and the effect of an accrual totaling $2,300 as of
September 30, 1997, related to the purchase of a printing press, are not
reflected in the accompanying consolidated statements of cash flows. The
following is a summary of cash paid for interest and income taxes (net of
refunds).
SIX MONTHS ENDED
SEPTEMBER 30,
-----------------
CASH PAID FOR: 1998 1997
------- -------
Interest..................... $2,893 $1,494
Taxes ....................... $3,923 $4,110
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 as of:
SEPTEMBER 30, MARCH 31,
1998 1998
------------ --------
Revolving credit agreement ..................... $ 116,200 $ 54,881
Term equipment notes ........................... 16,675 12,997
Other .......................................... 6,104 7,590
------------ --------
138,979 75,468
Less current portion ........................... (2,875) (2,438)
============ ========
$ 136,104 $ 73,030
============ ========
In August 1998, the Company's existing revolving credit agreement (the
"Credit Agreement") with a six-member banking group was increased to $200
million and its maturity date was extended until July 31, 2001. Borrowings
outstanding under the Credit Agreement are unsecured and accrue interest at a
variable rate (an average of 6.27% per annum as of September 30, 1998). The
Company is also required to pay a commitment fee on available but unused amounts
under the Credit Agreement ranging from .10% to .35% per annum.
3. ACQUISITIONS
The Company completed the following acquisitions during the six months
ended September 30, 1998:
COMPANY PRIMARY MARKET DATE
- -------------------- -------------------------- ---------------
Tursack, Inc. Philadelphia, Pennsylvania April 1998
Image Systems Milwaukee, Wisconsin May 1998
Printing, Inc. Wichita, Kansas June 1998
Graphic Communications San Diego, California June 1998
Wetzel Brothers Milwaukee, Wisconsin June 1998
Paragraphics San Francisco, California July 1998
Pride Printers Boston, Massachusetts July 1998
Lincoln Printing Fort Wayne, Indiana August 1998
Ironwood Litho Phoenix, Arizona August 1998
Rush Press/Arts & Crafts Press San Diego, California September 1998
Printing Corporation of America Baltimore, Maryland September 1998
To complete the aforementioned acquisitions, in the aggregate, the Company
paid cash of $69,817 and issued 934,854 shares of its common stock valued at
$44,592.
Subsequent to September 30, 1998, the Company completed the acquisition of
three printing businesses, and, as of November 13, 1998, had signed non-binding
letters of intent and one definitive agreement to acquire five additional
printing businesses.
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 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 PRINTING 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. (the "Company"), headquartered in Houston,
Texas, is one of the fastest growing commercial printing companies in the United
States. As a leading printing industry consolidator and the largest sheetfed
commercial printer in the United States, the Company has expanded its operations
to include 45 printing companies nationwide as of November 13, 1998. Each
printing business has an established operating history (ranging from 11-120
years), experienced management, solid customer relationships and a reputation
for providing quality products and service to its customers. The Company's
printing businesses sell to a broadly diversified customer base, including many
major corporations.
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. 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, and
maintains centralized risk management, treasury, 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 margins
depending upon the timing and extent to which acquired businesses are able to
adapt to and implement the Company's management practices.
6
<PAGE>
RESULTS OF OPERATIONS
The following tables set forth the Company's historical income statements
for the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS
SEPTEMBER 30, ENDED SEPTEMBER 30,
--------------------- ---------------------
1998 1997 1998 1997
--------- --------- --------- ---------
(in millions) (in millions)
<S> <C> <C> <C> <C>
Sales ................................... $ 103.3 $ 53.4 $ 188.4 $ 104.0
Cost of sales ........................... 70.9 36.5 128.9 71.2
--------- --------- --------- ---------
Gross profit ....................... 32.4 16.9 59.5 32.8
Selling expenses ........................ 10.2 5.2 18.5 10.1
General and administrative expenses ..... 7.9 4.1 14.5 7.9
--------- --------- --------- ---------
Operating income ................... 14.3 7.6 26.5 14.8
Interest expense ........................ 2.0 .7 3.5 1.7
--------- --------- --------- ---------
Pretax income ...................... 12.3 6.9 23.0 13.1
Income taxes ............................ 4.8 2.6 9.0 5.0
========= ========= ========= =========
Net income ......................... $ 7.5 $ 4.3 $ 14.0 $ 8.1
========= ========= ========= =========
</TABLE>
The following tables set forth the components of income expressed as a
percentage of sales for the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS
SEPTEMBER 30, ENDED SEPTEMBER 30,
---------------------- ----------------------
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Sales ............................. 100.0% 100.0% 100.0% 100.0%
Cost of sales ..................... 68.6 68.4 68.4 68.5
--------- --------- --------- ---------
Gross profit ................. 31.4 31.6 31.6 31.5
Selling expenses .................. 9.8 9.7 9.8 9.7
General and administrative expenses 7.7 7.6 7.7 7.6
--------- --------- --------- ---------
Operating income ............. 13.9 14.3 14.1 14.2
Interest expense .................. 2.0 1.4 1.8 1.6
--------- --------- --------- ---------
Pretax income ................ 11.9 12.9 12.3 12.6
Income taxes ...................... 4.6 4.9 4.8 4.8
========= ========= ========= =========
Net income ................... 7.3% 8.0% 7.5% 7.8%
========= ========= ========= =========
</TABLE>
Acquisitions in fiscal 1998 and 1999 are the primary causes of the
increases in revenues and expenses since September 30, 1997. Each of the
Company's acquisitions in fiscal 1998 and 1999 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.
7
<PAGE>
The following table sets forth the Company's 1998 and 1999 acquisitions
(collectively the "1998/99 Acquired Businesses") and indicates the period in
which each business was acquired.
FISCAL 1998 ACQUISITIONS:
Tucker Printers............................... April 1997
The Etheridge Company......................... July 1997
Georges and Shapiro........................... August 1997
Austin Printing............................... September 1997
Geyer Printing................................ October 1997
Superior Color Graphics....................... October 1997
The Otto Companies............................ October 1997
Walnut Circle Press........................... November 1997
Columbia Color................................ January 1998
StorterChilds Printing........................ January 1998
Heath Printers................................ January 1998
Fittje Bros. Printing......................... February 1998
Courier Printing.............................. March 1998
FISCAL 1999 ACQUISITIONS:
Tursack, Inc...................................April 1998
Image Systems..................................May 1998
Printing, Inc..................................June 1998
Graphic Communications.........................June 1998
Wetzel Brothers................................June 1998
Paragraphics...................................July 1998
Pride Printers.................................July 1998
Lincoln Printing...............................August 1998
Ironwood Litho.................................August 1998
Rush Press/Arts & Crafts Press.................September 1998
Printing Corporation of America................September 1998
For more information regarding the fiscal 1998 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, 1998. For more
information regarding the fiscal 1999 acquisitions, refer to the accompanying
"Notes to Consolidated Financial Statements" included elsewhere herein.
8
<PAGE>
THREE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED WITH THREE MONTHS ENDED SEPTEMBER
30, 1997.
Sales increased 94% to $103.3 million for the three months ended September
30, 1998, from $53.4 million for the three months ended September 30, 1997. This
increase is due to the addition of the 1998/99 Acquired Businesses and internal
growth at the Company's other businesses. The internal growth resulted primarily
from the Company's ongoing capital investments in new equipment and technology,
which has added production capacity at certain locations, and in some cases,
expanded the range of services available to meet customer needs.
Gross profit increased 92% to $32.4 million for the three months ended
September 30, 1998, from $16.9 million for the three months ended September 30,
1997, primarily due to the addition of the 1998/99 Acquired Businesses. Gross
profit margins at recently acquired businesses tend to be lower than the
Company's historical average, then improve as they begin to take full advantage
of the Company's operating strategies and national purchasing programs.
Consequently, gross profit as a percentage of sales decreased to 31.4% in the
current quarter from 31.6% in the corresponding period of the prior year because
a larger percentage of revenues during the period were attributed to companies
owned less than one year.
Selling expenses increased 97% to $10.2 million for the three months ended
September 30, 1998, from $5.2 million for the three months ended September 30,
1997, due to the increased sales levels as discussed above. Selling expenses as
a percentage of sales increased slightly to 9.8% in the current quarter from
9.7% in the corresponding period of the prior year.
General and administrative expenses increased 95% to $7.9 million for the
three months ended September 30, 1998, from $4.1 million for the three months
ended September 30, 1997. This increase is due to the addition of the 1998/99
Acquired Businesses and, to a lesser extent, an increase in headquarters
staffing in order to maintain a high level of service to the Company's acquired
businesses. General and administrative expenses as a percentage of sales
increased slightly to 7.7% in the current quarter as compared to 7.6% a year
ago.
Interest expense increased to $2.0 million for the three months ended
September 30, 1998, from $.7 million for the three months ended September 30,
1997, primarily due to a net increase in borrowings under the Company's
revolving credit facility to finance the cash portions of the purchase price of
the 1998/99 Acquired Businesses.
Effective income tax rates reflect an increase to 39% in the current
quarter from 38% a year ago, reflecting a combination of factors, including the
Company's growth by acquisition in states with proportionately higher income tax
rates, the effect of nondeductible goodwill incurred in connection with certain
acquisitions and an increase in the Company's effective marginal federal income
tax rate.
SIX MONTHS ENDED SEPTEMBER 30, 1998 COMPARED WITH SIX MONTHS ENDED SEPTEMBER
30, 1997
Sales increased 81% to $188.4 million for the six months ended September
30, 1998, from $104.0 million for the six months ended September 30, 1997. This
increase is due to the addition of the 1998/99 Acquired Businesses, coupled with
internal growth at the Company's other businesses.
Gross profit increased 81% to $59.5 million for the six months ended
September 30, 1998, from $32.8 million for the six months ended September 30,
1997, primarily due to the addition of the 1998/99 Acquired Businesses. Gross
profit as a percentage of sales increased slightly to 31.6% in the current year
as compared to 31.5% in the prior year, due to operating efficiencies from
investments in equipment and technology at existing businesses, along with
further cost savings generated by the Company's increased purchasing power,
offset partially by lower average gross profit margins at newly acquired
businesses.
Selling expenses increased 83% to $18.5 million for the six months ended
September 30, 1998, from $10.1 million for the six months ended September 30,
1997, due to the increased sales levels as discussed above. Selling expenses as
a percentage of sales increased slightly to 9.8% in the current year from 9.7%
in the prior year.
9
<PAGE>
General and administrative expenses increased 83% to $14.5 million for the
six months ended September 30, 1998, from $7.9 million for the six months ended
September 30, 1997. This increase is due to the addition of the 1998/99 Acquired
Businesses and an increase in corporate staffing as discussed above. General and
administrative expenses as a percentage of sales increased slightly to 7.7% in
the current year from 7.6% in the prior year.
Interest expense increased to $3.5 million for the six months ended
September 30, 1998, from $1.7 million for the six months ended September 30,
1997, primarily due to a net increase in borrowings under the Company's
revolving credit facility to finance the cash portions of the purchase price of
the 1998/99 Acquired Businesses.
Effective income tax rates reflect an increase to 39% in the current year
from 38% in the prior year, due to the same combination of factors discussed
above.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary uses of cash are for capital expenditures,
acquisitions and payments on long-term debt incurred to finance certain
equipment purchases or assumed in connection with certain acquisitions. Cash
utilized for capital expenditures, which relate primarily to the purchases of
new equipment, was $10.7 million for the six months ended September 30, 1998.
Cash utilized to complete acquisitions totaled $73.0 million for the six months
ended September 30, 1998. Payments on long-term debt totaled $1.5 million for
the six months ended September 30, 1998.
The Company financed its capital requirements through internally generated
funds and borrowings under its revolving credit facility (see below). Cash flow
generated from operations (net income plus depreciation, amortization, and
deferred tax provision) was $24.0 million for the six months ended September 30,
1998. Net incremental borrowings under the revolving credit facility were $61.3
million and debt incurred directly to finance equipment purchases was $3.6
million for the six months ended September 30, 1998.
In August 1998, the Company's existing revolving credit agreement (the
"Credit Agreement") with a six-member banking group was increased to $200
million and its maturity date was extended to July 31, 2001. Borrowings
outstanding under the Credit Agreement, which totaled $116.2 million at
September 30, 1998, are unsecured and accrue interest at a variable rate (an
average of 6.27% per annum as of September 30, 1998). The Company is also
required to pay a commitment fee on available but unused amounts under the
Credit Agreement ranging from .10% to .35% per annum.
The Company is subject to certain covenants and restrictions and must meet
certain financial tests pursuant to and as defined in the Credit Agreement. The
Company believes that these restrictions do not adversely affect its acquisition
or operating strategies, and that it was in compliance with such financial tests
and other covenants at September 30, 1998.
In 1996 the Company entered into an arrangement with Komori America
Corporation (the "Komori Agreement"), pursuant to which the Company may, but is
not obligated to, purchase up to $50 million of printing presses over its term.
The Komori Agreement provides certain volume purchase incentives and long-term
financing options. As of September 30, 1998, the Company was obligated on term
notes related to the Komori Agreement totaling $14.9 million. These term notes
provide for fixed monthly principal and interest payments through 2008 at an
average interest rate of 7.70%, and are secured by the purchased presses. The
Company is not subject to any significant financial covenants or restrictions in
connection with these obligations.
The Company's remaining debt obligations generally consist of mortgages,
capital leases, promissory notes, an industrial revenue bond and two $5 million
auxiliary revolving credit agreements, 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 and operating
strategies.
10
<PAGE>
In May 1998, the Company agreed to purchase 12 new printing presses for an
aggregate of $19 million, net of trade-in allowances, pursuant to the Komori
Agreement. The Company expects to make additional equipment capital expenditures
in fiscal 1999 using cash flow from operations and borrowings under the Credit
Agreement.
During the six months ended September 30, 1998, the Company acquired
eleven printing businesses. To complete these acquisitions, in the aggregate,
the Company issued 934,854 shares of its common stock and paid cash of $69.8
million. Subsequent to September 30, 1998, the Company completed the acquisition
of three printing businesses, and, as of November 13, 1998, had signed
non-binding letters of intent and one definitive agreement to acquire five
additional printing businesses.
The Company intends to continue to actively pursue acquisition
opportunities, utilizing cash flow from operations, borrowings under the Credit
Agreement or the issuance of its common stock to complete acquisitions. 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 an acquired business.
YEAR 2000 COMPLIANCE
The Year 2000 issue results from the historical use in computer software
programs of a two-digit abbreviation in date fields to represent the year.
Certain computer programs, including programs imbedded in various equipment, may
fail to properly function when confronted with dates which contain the two-digit
year "00". These processing errors have the potential to cause system failures
or disrupt normal operations.
The Company has reviewed and is continuing to review its business risks
associated with the Year 2000 issue. The Company believes that substantially all
of its equipment used in its printing operations, including its pre-press and
press equipment and its equipment used to finish and deliver its products, will
not be materially affected by the Year 2000 issue. Certain of the Company's
management information systems and associated computer equipment are not
currently Year 2000 compliant. The majority of these management information
systems are maintained by third-party vendors and employ software that is
specifically designed for the printing industry. Substantially all of these
vendors have recently released software versions that are Year 2000 compliant.
The Company is scheduling upgrades of its hardware and software to implement the
Year 2000 compliant versions and presently anticipates that substantially all
such systems will be Year 2000 compliant as early as Summer 1999, but in any
event no later than December 31, 1999. While the upgrades may be implemented at
an accelerated pace as a result of the Year 2000 issue, the cost of implementing
these software upgrades is not expected to be materially in excess of the
Company's recurring investment in management information systems.
In addition, the Company is in the process of assessing its exposure to
business disruptions as a result of the Year 2000 issues of its suppliers and
customers. Like many manufacturing companies, the operation of the Company's
businesses is dependent upon the operation of many other businesses, the
disruption of any one or even a number of which as a result of the Year 2000
issue would not have a material effect on the business of the Company. However,
should a significant number of such businesses suffer disruptions as a result of
the Year 2000 issue, the Company's operations could be adversely affected.
The Company has communicated with many of its suppliers to assess each
supplier's Year 2000 readiness. Based on responses received to date, and because
there are many suppliers of paper, ink and other materials used in printing
operations, the Company does not believe that it is materially dependent on any
one supplier and that it will be able to obtain materials to continue its
operations without significant disruption after the Year 2000.
The Company has a large and diversified customer base comprised of
thousands of customers in locations throughout the United States and is not
dependent on any one customer or group of customers for its revenues. As such,
the Company does not anticipate that the demand for its commercial printing
services would be materially adversely affected as a result of Year 2000 issues
unless such issues have a widespread, catastrophic effect on its customer base
in excess of current expectations.
11
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As part of its ongoing review of the Year 2000 issue, the Company
evaluates and addresses Year 2000 issues for its planned acquisitions and
implements appropriate remedial action following completion of such
acquisitions.
RECENT ACCOUNTING PRONOUNCEMENTS
During the first quarter of fiscal 1999, the Company was required to adopt
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income", which requires that all changes in the Company's equity
during the reporting period, including all net income and charges directly to
equity that are excluded from net income, be presented in the Company's
consolidated financial statements. SFAS No. 130 does not have a material effect
on the Company's consolidated financial position or consolidated results of
operations.
12
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CONSOLIDATED GRAPHICS, INC.
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
From time to time the Company is involved in litigation relating to claims
arising in the normal course of business. The Company maintains insurance
coverage against potential claims in an amount that it believes to be adequate.
Currently, the Company is not aware of any legal proceedings or claims pending
against the Company that management believes will have a material adverse effect
on its consolidated financial position or consolidated results of operations.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
During the six months ended September 30, 1998, the Company issued 934,854
shares of its common stock valued at approximately $44.6 million in connection
with the acquisition of certain printing businesses and also issued 13,334
shares pursuant to an earnout agreement entered into in connection with a prior
year acquisition. The issuance of such common stock was exempt from registration
pursuant to Section 4(2) of the Securities Act of 1933 as a transaction by the
issuer not involving a public offering.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On July 29, 1998, the Company held its Annual Meeting of Shareholders. The
following items were submitted to a vote of shareholders through the
solicitation of proxies:
(a) Election of Directors
The following persons were elected to serve on the Board of Directors
until the 1999 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......................... 12,272,204 63,486 0
Larry J. Alexander................... 12,272,204 63,486 0
Brady F. Carruth..................... 12,272,204 63,486 0
Clarence C. Comer.................... 12,272,204 63,486 0
Gary L. Forbes....................... 12,272,204 63,486 0
W. D. Hawkins........................ 12,272,204 63,486 0
James H. Limmer...................... 12,272,204 63,486 0
Thomas E. Smith...................... 12,272,204 63,486 0
Hugh N. West......................... 12,272,204 63,486 0
(b) The shareholders of the Company were requested to approve an amendment to
the Company's Restated Articles of Incorporation to increase the number of
authorized shares of common stock from 20,000,000 to 100,000,000. Such
amendment was approved by the shareholders, who voted 10,199,174 in favor
and 2,131,110 against, with 5,406 who abstained or withheld authority to
vote.
(c) The shareholders of the Company were requested to approve the Second
Amendment to the Consolidated Graphics, Inc. Long-Term Incentive Plan
(the "Incentive Plan") and the related reservation of an additional
1,500,000 shares of the Company's common stock to be available for
issuance as provided for under the Incentive Plan. Such amendment was
approved by the shareholders, who voted 7,942,725 in favor and
2,764,190 against, with 1,628,775 who abstained or withheld authority
to vote.
13
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ITEM 5. OTHER INFORMATION.
The Company filed on October 30, 1998, a Registration Statement on Form
S-4 in connection with its contemplated acquisition of Automated Graphic
Systems, Inc. The Registration Statement registers $16 million of common stock
of the Company to be issued upon completion of this acquisition. The Company has
also filed several other registration statements, of which all but one have been
declared effective, pursuant to which shares of common stock of the Company that
were issued as restricted securities in connection with certain acquisitions may
be resold.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(A) EXHIBITS
3.2 Restated By-Laws of Consolidated Graphics, Inc. dated as of November 2,
1998.
*10.1 First Amendment to the Revolving Credit Agreement among the Company and
Chase Bank of Texas as Agent and Bank One of Texas, N.A. as Co-Agent,
dated August 4, 1998 (Consolidated Graphics, Inc. Form 10-Q (June 30,
1998) SEC File No. 0-24068, Exhibit 10.1).
*10.2 Second Amendment to Consolidated Graphics, Inc. Long-Term Incentive Plan,
as amended (reflecting an increase in the number of shares of Common
Stock authorized to be issued thereunder from 1,935,000 (as a result of a
2 for 1 split to 3,435,000) (Consolidated Graphics, Inc. Registration
Statement on Form S-8 (Reg. No. 333-66019, Exhibit 4.3).
27 Edgar financial data schedules.
- --------------
* Incorporated by reference
(B) REPORTS ON FORM 8-K:
1) Form 8-K, filed July 2, 1998 in connection with the press release announcing
the signing of a letter of intent to acquire Automated Graphic Systems, Inc.
2) Form 8-K, filed July 9, 1998 in connection with the press releases announcing
the completion of the acquisition of Paragraphics, Inc. and the signing of a
letter of intent to acquire Rush Press and Arts & Crafts Press.
3) Form 8-K, filed July 21, 1998 in connection with the press release announcing
the completion of the acquisition of Pride Printers, Inc.
4) Form 8-K, filed July 29, 1998 in connection with the press release announcing
the Company's fiscal 1999 first quarter results and the increase of the
Company's revolving credit facility to $200 million.
5) Form 8-K, filed August 5, 1998 in connection with the press release
announcing the signing of a letter of intent to acquire four commercial
printing companies.
6) Form 8-K, filed August 17, 1998 in connection with the press release
announcing the signing of a letter of intent to acquire Metropolitan Printing
Service, Inc.
7) Form 8-K, filed August 26, 1998 in connection with the press releases
announcing the completion of the acquisitions of Lincoln Printing Corporation
and Ironwood Lithographers, Inc.
8) Form 8-K, filed September 2, 1998 in connection with the filing of a shelf
registration statement on Form S-4.
9) Form 8-K, filed September 21, 1998 in connection with the press release
announcing the completion of the acquisition of Rush Press and Arts & Crafts
Press.
10)Form 8-K, filed September 28, 1998 in connection with the press releases
announcing the signing of a letter of intent to acquire The Graphics Group
and the completion of the acquisition of Printing Corporation of America.
11)Form 8-K, filed October 8, 1998 in connection with the press release
announcing the signing of a letter of intent to acquire Mount Vernon Printing
Company.
12)Form 8-K, filed October 13, 1998 in connection with the amendment of Article
II, Section 16, subsection (m) of the By-laws of the Company.
13)Form 8-K, filed October 23, 1998 in connection with the press release
announcing the signing of a letter of intent to acquire Maxwell Graphics
Arts.
14)Form 8-K, filed October 28, 1998 in connection with the press release
announcing the Company's fiscal 1999 second quarter results.
15)Form 8-K, filed November 4, 1998 in connection with the press release
announcing the completion of the acquisition of Metropolitan Printing.
14
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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.
Dated: November 16, 1998 By: /s/ G. CHRISTOPHER COLVILLE
-----------------------------
G. Christopher Colville
Executive Vice President -
Mergers and Acquisitions,
Chief Financial and
Accounting Officer
15
EXHIBIT 3.2
RESTATED BY-LAWS
OF
CONSOLIDATED GRAPHICS, INC.
AS OF NOVEMBER 2, 1998
ARTICLE I
SHAREHOLDERS
SECTION 1. ANNUAL MEETING. The annual meeting of shareholders for the
purpose of electing directors and for the transaction of any other business to
come before such meeting shall be held on such date in each year and at such
time as shall be designated by the Board of Directors and stated in the notice
of the meeting.
SECTION 2. PRESIDING OFFICER AND CONDUCT OF MEETINGS. The Chairman of the
Board of Directors shall preside at all meetings of the shareholders and shall
automatically serve as Chairman of such meetings. In the absence of the Chairman
of the Board of Directors, or if the Directors neglect or fail to elect a
Chairman, then the Chief Executive Officer of the Corporation shall preside at
the meetings of the shareholders and shall automatically be the Chairman of such
meeting, unless and until a different person is elected by a majority of the
shares entitled to vote at such meeting.
The Chairman of the meeting shall appoint at least two (2) persons to act
as inspectors of election at the meeting.
At the annual meeting of the shareholders, only such business shall be
conducted as shall have been properly brought before the annual meeting. To be
properly brought before the annual meeting of shareholders, business must be (i)
specified in the notice of meeting (or any supplement thereto) given by or at
the direction of the Board of Directors, (ii) otherwise properly brought before
the meeting by or at the direction of the Board of Directors, or (iii) otherwise
properly brought before the meeting by a shareholder of the Corporation who is a
shareholder of record at the time of giving notice provided for in this Section
2 of Article I, who shall be entitled to vote at such meeting and who complies
with the notice procedures set forth in this Section 2 of Article I. For
business to be properly brought before an annual meeting by a shareholder, the
shareholder shall comply with all applicable requirements of the Securities
Exchange Act of 1934, as amended, and the rules and regulations thereunder with
respect to the matters set forth in this Section 2 of Article I.
SECTION 3. SPECIAL MEETINGS. Special meetings of the shareholders, for any
purpose or purposes, unless otherwise prescribed by statute, may be called by
the Chief Executive Officer, or by the Board of Directors, and shall be called
by the Chief Executive Officer at the request of the holders of not less than
one-tenth (1/10th) of all the outstanding shares of the Corporation entitled to
vote at the meeting.
SECTION 4. PLACE OF MEETING. The Board of Directors may designate any
place, either within or without the State of Texas, as the place of meeting for
any annual or special meeting. If no
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designation is made, the place of meeting shall be the registered office of the
Corporation in the State of Texas.
SECTION 5. NOTICE OF MEETING. Written or printed notice stating the place,
day and hour of the meeting and the purpose or purposes for which the meeting is
called, shall be delivered not less than ten (10) nor more than fifty (50) days
before the date of the meeting, either personally or by mail, by or at the
direction of the Chief Executive Officer or the Secretary, or the officer or
persons calling the meeting, to each shareholder of record entitled to vote at
such meeting. If mailed, such notice shall be deemed to be delivered when
deposited in the United States mail, addressed to the shareholder at his address
as it appears on the stock transfer books of the Corporation, with postage
thereon prepaid. Waiver by a shareholder in writing of notice of a shareholders'
meeting, signed by him, whether before or after the time of such meeting, shall
be equivalent to the giving of such notice. Attendance by a shareholder, whether
in person or by proxy, at a shareholders' meeting shall constitute a waiver of
notice of such meeting of which he has had no notice.
SECTION 6. CLOSING OF TRANSFER BOOKS AND FIXING OF RECORD DATE. For the
purpose of determining shareholders entitled to notice of or to vote at any
meeting of shareholders or any adjournment thereof, or shareholders entitled to
receive payment of any dividend, or in order to make a determination of
shareholders for any other proper purpose, the Board of Directors of the
Corporation may provide that the stock transfer books shall be closed for a
stated period but not to exceed, in any case, fifty (50) days. If the stock
transfer books shall be closed for the purpose of determining shareholders
entitled to notice of or to vote at a meeting of shareholders, such books shall
be closed for at least ten (10) days immediately preceding such meeting. In lieu
of closing the stock transfer books, the Board of Directors may, by resolution,
fix in advance a date as the record date for any such determination of
shareholders, such date in any case to be not more than fifty (50) days and, in
case of a meeting of shareholders, not less than ten (10) days prior to the date
on which the particular action, requiring such determination of shareholders, is
to be taken. If the stock transfer books are not closed and no record date is
fixed for the determination of shareholders entitled to notice of or to vote at
a meeting of shareholders, or shareholders entitled to receive payment of a
dividend, the date on which notice of the meeting is mailed or the date on which
the resolution of the Board of Directors declaring such dividend is adopted, as
the case may be, shall be the record date for such determination of
shareholders. When a determination of shareholders entitled to vote at any
meeting of shareholders has been made as provided in this section, such
determination shall apply to any adjournment thereof except where the
determination has been made through the closing of the stock transfer books and
the stated period of closing has expired.
SECTION 7. VOTING LISTS. The officer or agent having charge of the stock
transfer books for shares of the Corporation shall make, at least ten (10) days
before each meeting of shareholders, a complete list of the shareholders
entitled to vote at such meeting, or any adjournment thereof, arranged in
alphabetical order, with the address and the number of shares held by each,
which list, for a period of ten (10) days prior to such meeting, shall be kept
on file at the registered office of the Corporation and shall be subject to
inspection by any shareholder at any time during usual business hours. Such list
shall also be produced and opened at the time and place of the meeting and shall
be subject to the inspection by any shareholder during the whole time of the
meeting. The original stock transfer books shall be PRIMA FACIE evidence as to
who are the shareholders entitled to examine such list or transfer books or to
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vote at any meeting of shareholders. Failure to comply with the requirements of
this Section shall not affect the validity of any action taken at such meeting.
SECTION 8. QUORUM. A majority of the outstanding shares of the Corporation
entitled to vote, represented in person or by proxy, shall constitute a quorum
at a meeting of shareholders and the vote of the holders of a majority of the
shares entitled to vote and thus represented at a meeting at which a quorum is
present shall be the act of the shareholders' meeting, unless the vote of a
greater number is required by law, the Articles of Incorporation or these
By-Laws. If less than a majority of the outstanding shares are represented at a
meeting, a majority of the shares so represented may adjourn the meeting from
time to time without further notice. At such adjourned meeting at which a quorum
shall be present or represented, any business may be transacted which might have
been transacted as originally notified. The shareholders present at a duly
organized meeting may continue to transact business until adjournment,
notwithstanding the withdrawal of enough shareholders to leave less than a
quorum.
SECTION 9. PROXIES. At all meetings of shareholders, a shareholder may
vote by proxy executed in writing by the shareholder or by his duly authorized
attorney-in-fact. Such proxy shall be filed with the Secretary of the
Corporation before or at the time of the meeting. No proxy shall be valid after
eleven (11) months from the date of its execution, unless otherwise provided in
the proxy. Each proxy shall be revocable unless expressly provided therein to be
irrevocable, and unless otherwise made irrevocable by law.
SECTION 10. VOTING OF SHARES. Each outstanding share entitled to vote
shall be entitled to one (1) vote upon each matter submitted to vote at a
meeting of shareholders.
SECTION 11. CUMULATIVE VOTING. There shall be no cumulative voting
whatsoever permitted on any matter.
SECTION 12. ACTION BY SHAREHOLDERS WITHOUT MEETING. Any action required to
be taken at a meeting of the shareholders, or any other action which may be
taken at a meeting of the shareholders, may be taken without a meeting if a
consent in writing, setting forth the action so taken, shall be signed by all of
the shareholders entitled to vote with respect to the subject matter thereof.
ARTICLE II
BOARD OF DIRECTORS
SECTION 1. GENERAL POWERS. The business and affairs of the Corporation
shall be managed by its Board of Directors.
SECTION 2. NUMBER, TENURE AND QUALIFICATIONS. The number of directors of
the Corporation shall be eleven (11) but the number of directors may be
increased or decreased (provided the decrease does not shorten the term of any
incumbent director) from time to time by amendment of these By-Laws or by
resolution of the Board of Directors, but shall never be less than one (1). Each
director shall hold office until the next annual meeting of shareholders and
until his successor shall
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have been elected and qualified. Directors need not be residents of the State of
Texas, or shareholders of the Corporation.
SECTION 3. CHAIRMAN. A majority of the Directors shall elect from its
members a Chairman who shall preside at all meetings of the Board of Directors.
The Chairman shall hold this office until the next regular meeting of the
Directors or until his successor shall have been elected and qualified. In the
absence of the Chairman, or if the Directors neglect or fail to elect a
Chairman, then the Chief Executive Officer of the Corporation, if he is a member
of the Board of Directors, shall automatically serve as Chairman of the Board of
Directors.
SECTION 4. SECRETARY. The Secretary of the Board of Directors shall be the
Secretary of the Corporation, and the Secretary shall act as Secretary of the
Directors' meetings and record the minutes of all such meetings. If the
Secretary of the Corporation is not available, then the Chairman, or the Chief
Executive Officer, as the case may be, may appoint a person to serve as
Secretary of the meeting, and such person shall not be required to be a member
of the Board of Directors nor an officer of the Corporation.
SECTION 5. REGULAR MEETINGS. Regular meetings of the Board of Directors
shall be held at such place or places within or without the State of Texas, at
such hour and on such day as may be fixed by resolution of the Board of
Directors, without further notice of such meetings. The time or place of holding
regular meetings of the Board of Directors may be changed by the Chairman of the
Board or the Chief Executive Officer by giving written notice thereof as
provided in Section 7 of this Article II.
SECTION 6. SPECIAL MEETINGS. Special meetings of the Board of Directors
may be called by or at the request of the Chief Executive Officer or a majority
of the Directors. The person or persons authorized to call special meetings of
the Board of Directors may fix any place, either within or without the State of
Texas, as the place for holding any special meeting of the Board of Directors
called by them.
SECTION 7. NOTICE. Notice of any special meetings shall be given at least
two (2) days previously thereto by a written notice delivered personally, mailed
or sent by telecopy to each director at his business address, or by telegram. If
mailed, such notice shall be deemed to be delivered when deposited in the United
States mail so addressed, with postage thereon prepaid. If notice be given by
telegram, such notice shall be deemed to be delivered when the telegram is
delivered to the telegraph company. If notice be given by telecopy, such notice
shall be deemed to be delivered upon successful transmission of such notice,
confirmed by telephone. Any director may waive notice of any meeting. The
attendance of a director at a meeting shall constitute a waiver of notice of
such meeting, except where a director attends a meeting for the express purpose
of objecting to the transaction of any business because the meeting is not
lawfully called or convened. Neither the business to be transacted at, nor the
purpose of, any regular or special meeting of the Board of Directors need be
specified in the notice or waiver of notice of such meeting.
SECTION 8. QUORUM. A majority of the number of directors fixed by these
By-Laws shall constitute a quorum for the transaction of business at any meeting
of the Board of Directors, but if
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less than such majority is present at a meeting, a majority of the directors
present may adjourn the meeting from time to time without further notice.
SECTION 9. MANNER OF ACTING. The act of the majority of the directors
present at a meeting at which a quorum is present shall be the act of the Board
of Directors.
SECTION 10. VACANCIES. Any vacancy occurring in the Board of Directors may
be filled by the affirmative vote of a majority of the remaining directors
though less than a quorum of the Board of Directors. A director elected to fill
a vacancy shall be elected for the unexpired term of is his predecessor in
office. A directorship to be filled by reason of an increase in the number of
directors may be filled by the Board of Directors for term of office continuing
only until the next election of one or more directors by the shareholders;
PROVIDED THAT the Board of Directors may not fill more than two such
directorships during the period between any two successive annual meetings of
shareholders.
A vacancy shall be deemed to exist by reason of the death, resignation,
failure or refusal to act by the person elected, upon the failure of
shareholders to elect directors to fill the unexpired term of directors removed
in accordance with the provisions of these By-Laws, or upon an increase in the
number of directors by amendment of these By-Laws.
SECTION 11. REMOVAL. The entire Board of Directors or any individual
director may be removed from office without assigning any cause, by a majority
vote of the shareholders at any meeting at which a quorum of shareholders is
present. In case the entire Board or any one (1) or more of the directors are so
removed, new directors may be elected at the same meeting for the unexpired term
of the director or directors so removed. Failure to elect directors to fill the
unexpired term of the directors so removed shall be deemed to create a vacancy
or vacancies in the Board of Directors.
SECTION 12. COMPENSATION. By resolution of the Board of Directors, the
directors may be paid their expenses, if any, of attendance at each meeting of
the Board of Directors, and may be paid a fixed sum for attendance at each
meeting of the Board of Directors or a stated salary as director. No such
payment shall preclude any director from serving the Corporation in any other
capacity and receiving compensation therefor.
SECTION 13. PRESUMPTION OF ASSENT. A director of the Corporation who is
present at a meeting of the Board of Directors in which action on any
Corporation matter is taken shall be presumed to have assented to the action
taken unless his dissent shall be entered in the minutes of the meeting or
unless he shall file his written dissent to such action with the person acting
as the Secretary of the meeting before the adjournment thereof, or shall forward
such dissent by registered mail to the Secretary of the Corporation immediately
after the adjournment of the meeting. Such right to dissent shall not apply to a
director who voted in favor of such action.
SECTION 14. INTEREST OF DIRECTORS IN CONTRACTS. Any contract or other
transaction between the Corporation and one (1) or more of its directors, or
between the Corporation and any firm of which one or more if its directors are
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members or employees, or in which they are interested, or between the
Corporation and any corporation or association of which one or more of its
directors are shareholders, members, directors, officers, or employees, or in
which they are interested, shall be valid for all purposes, notwithstanding the
presence of such director or directors at the meeting of the Board of Directors
of the Corporation, which acts upon, or in reference to, such contract or
transaction, and notwithstanding his or their participation in such action, if
the fact of such interest shall be disclosed or known to the Board of Directors
and the Board of Directors shall, nevertheless, authorize, approve and ratify
such contract or transaction by a vote of a majority of the directors present,
such interested director or directors to be counted in determining whether a
quorum is present, but not to be counted in calculating the majority of such
quorum necessary to carry such vote. This section shall not be construed to
invalidate any contract or other transaction which would otherwise be valid
under the common and statutory law applicable thereto.
SECTION 15. COMMITTEES. The Board of Directors may, by resolution or
resolutions passed by a majority of the whole Board of Directors, designate one
or more members of the Board of Directors to constitute one or more committees
of the Board, which shall in each case consist of such number of directors as
the Board of Director may determine. Each committee shall have and may exercise
such powers in the management of the business and affairs of the Corporation as
the Board of Directors may determine by resolution and specify in the respective
resolutions appointing them, subject to such restrictions as may be contained in
the Articles of Incorporation or that may be imposed by law. Such committee or
committees shall have such name or names as may be determined from time to time
by resolutions adopted by the Board of Directors. A majority of all the members
of any such committee may fix its rules of procedure, determine its actions and
fix the time and place, whether within or without the State of Texas, of its
meetings and specify what notice thereof, if any, shall be given, unless the
Board of Directors shall provide otherwise by resolution. The Board of Directors
shall have power to change the membership of any such committee at any time, to
fill vacancies therein and to disband any such committee, either with or without
cause, at any time. Each committee shall keep regular minutes of its proceedings
and report the same to the Board of Directors when required.
SECTION 16. EXECUTIVE COMMITTEE.
(a) DESIGNATION. The Board of Directors may, by resolution adopted
by a majority of the whole Board, designate an executive committee.
(b) NUMBER; QUALIFICATION; TERM. The executive committee shall
consist of one (1) or more directors, one (1) of whom shall be the Chief
Executive Officer. The executive committee shall serve at the pleasure of
the Board of Directors.
(c) AUTHORITY. The executive committee, to the extent provided in
such resolution, shall have and may exercise all of the authority of the
Board of Directors in the management of the business and affairs of the
Corporation, including authority over the use of the corporate seal.
However, the executive committee shall not have the authority of the Board
in reference to:
(1) Amending the Articles of Incorporation;
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(2) Proposing a reduction in the stated capital of the
Corporation in the manner permitted by Article 4.12 of
the Texas Business Corporation Act or any successor
statutory provision, as from time to time amended (the
"TBCA");
(3) Approving a plan of merger or consolidation;
(4) Recommending to the shareholders the sale, lease or
exchange of all or substantially all of the property and
assets of the Corporation otherwise than in the usual and
regular course of its business;
(5) Recommending to the shareholders a voluntary dissolution
of the Corporation or a revocation thereof;
(6) Amending, altering or repealing these By-Laws or adopting
new By-Laws;
(7) Filling vacancies in or removing members of the Board of
Directors or of any committee appointed by the Board of
Directors;
(8) Electing or removing officers or members of any such
committee;
(9) Fixing the compensation of any member or alternate member
of such committee;
(10) Altering or repealing any resolution of the Board of
Directors which by its terms provides that it shall not
be so amendable or repealable; or
(11) Declaring a dividend.
(d) CHANGE IN NUMBER. The number of executive committee members may
be increased or decreased from time to time by resolution adopted by a
majority of the whole Board of Directors.
(e) REMOVAL. Any member of the executive committee may be removed by
the Board of Directors by the affirmative vote of a majority of the whole
Board, whenever in its judgment the best interests of the Corporation will
be served thereby.
(f) VACANCIES. A vacancy occurring in the executive committee by
death, resignation, removal or otherwise may be filled by the Board of
Directors in the manner provided for original designation in subparagraph
(a) hereof.
(g) MEETINGS. Time, place and notice (if any) of executive committee
meetings shall be determined by the executive committee.
(h) QUORUM; MAJORITY VOTE. At meetings of the executive committee, a
majority of the number of members designated by the Board of Directors
shall constitute a quorum for the transaction of business. The act of a
majority of the members present at any meeting at which a quorum is
present shall be the act of the executive committee, except as otherwise
specifically provided by statute, the Articles of Incorporation, or these
By-Laws. If a quorum is not present at a meeting of the executive
committee, the members present may adjourn the meeting from time to time
without notice other than an announcement at the meeting, until a quorum
is present.
-7-
<PAGE>
(i) COMPENSATION. By resolution of the whole Board of Directors, the
members of the executive committee may be paid their expenses, if any, for
attendance at each meeting of the executive committee and may be paid a
fixed sum for attendance at each meeting of the executive committee or a
stated salary as a member. No such payment shall preclude any member from
serving the Corporation in any other capacity and receiving compensation
therefor.
(j) PROCEDURE. The executive committee shall keep regular minutes of
its proceedings and report the same to the Board of Directors when
required. The minutes of the proceedings of the executive committee shall
be placed in the minute book of the Corporation.
(k) ACTION WITHOUT MEETING. Any action required or permitted to be
taken at a meeting of the executive committee may be taken without a
meeting if a consent in writing, setting forth the action so taken, is
signed by all the members of the executive committee. Such consent shall
have the same force and effect as a unanimous vote at a meeting. The
signed consent, or a signed copy, shall be placed in the minute book.
(l) RESPONSIBILITY. The designation of an executive committee and
the delegation of authority to it shall not operate to relieve the Board
of Directors, or any member thereof, of any responsibility imposed upon it
or him by law.
(m) ISSUANCE OF STOCK. The executive committee shall have and may
exercise the authority of the Board of Directors with respect to the
issuance of shares of the Company, provided, however, that the executive
committee shall have such authority only with respect to authorized shares
of the common stock of the Company and provided further that the executive
committee may only issue or cause to be issued such shares as
consideration for the acquisitions of printing companies that have been
approved pursuant to authority delegated to the executive committee by the
Board of Directors and provided further that the executive committee may
in no circumstances issue or cause to be issued any such shares in any
individual acquisition in which the aggregate consideration, whether
consisting of debt assumption, the payment of cash, the issuance of notes
or equity securities or any combination of the foregoing, exceeds
$75,000,000.
SECTION 17. ACTION BY DIRECTORS WITHOUT MEETING. Any action required or
permitted to be taken at a meeting of the Board of Directors or any executive
committee may be taken without a meeting if a consent in writing, setting forth
the action so taken shall be signed by all the members of the Board of Directors
or executive committee, as the case may be. As permitted by Article 9.10C of the
Texas Business Corporation Act, members of the Board of Directors, or members of
any committee designated by such Board, may participate and hold a meeting of
the Board of Directors or any committee by means of conference telephone or
similar communications equipment by means of which all persons participating in
the meeting can hear each other, and participation in such meeting pursuant to a
conference call or similar communications equipment shall constitute presence in
person at such meeting.
-8-
<PAGE>
ARTICLE III
OFFICERS
SECTION 1. NUMBER. The officers of the Corporation shall be a Chief
Executive Officer, a President, one (1) or more Vice Presidents, (the number
thereof to be determined by the Board of Directors), a Secretary, and a
Treasurer, each of whom shall be elected by the Board of Directors. Such other
officers and assistant officers as may be deemed necessary may be elected or
appointed by the Board of Directors. Any two (2) or more offices may be held by
the same person.
SECTION 2. ELECTION AND TERM OF OFFICE. The officers of the Corporation to
be elected by the Board of Directors shall be elected annually by the Board of
Directors at the first meeting of the Board of Directors held after each annual
meeting of the shareholders. If the election of officers shall not be held at
such meeting, such election shall be held as soon thereafter as conveniently may
be. Each officer shall hold office until his successor shall have been duly
elected and shall have qualified or until his death or until he shall resign or
shall have been removed in the manner hereinafter provided.
SECTION 3. REMOVAL. Any officer or agent elected or appointed by the Board
of Directors may be removed by the Board of Directors whenever in its judgment
the best interest of the Corporation would be served thereby, but such removal
shall be without the prejudice to the contract rights, if any, of the person so
removed. Election or appointment of an officer shall not of itself create
contract rights.
SECTION 4. VACANCIES. A vacancy in any office may be filled by the Board
of Directors for the unexpired portion of the term.
SECTION 5. CHIEF EXECUTIVE OFFICER. The Chief Executive Officer shall be
subject to the control of the Board of Directors, and shall in general supervise
and control all business and affairs of the Corporation. He may sign, with the
Secretary, Assistant Secretary, or any other proper officer of the Corporation
thereunto authorized by the Board of Directors, certificates for shares of the
Corporation. He may agree upon and execute any deeds, mortgages, bonds,
contracts, and other obligations in the name of the Corporation. In general, he
shall perform all duties incident to the office of Chief Executive Officer and
such other duties as may be prescribed by the Board of Directors from time to
time.
SECTION 6. PRESIDENT. In the absence of the Chief Executive Officer, or in
the event of his death or inability to act or refusal to act, the President
shall perform the duties of the Chief Executive Officer and when so acting shall
have all of the powers of and be subject to all of the restrictions upon the
Chief Executive Officer. In general, he shall perform all duties incident to the
office of President and such other duties as may be prescribed by the Board of
Directors from time to time.
SECTION 7. VICE PRESIDENTS. In the absence of the Chief Executive Officer
and the President, or in the event of their death or inability or refusal to
act, the Vice President or (in the event that there be more than one (1) Vice
President) the Vice Presidents, in the order designated at the time of their
election, or, in the absence of any designation, then in the order of their
election,
-9-
<PAGE>
shall perform the duties of the Chief Executive Officer, and when so acting
shall have all of the powers of and be subject to all of the restrictions upon
the Chief Executive Officer. In general he shall perform such other duties as
from time to time may be assigned to him by the Chief Executive Officer, the
President, or by the Board of Directors.
SECTION 8. SECRETARY. The Secretary shall: (a) keep the minutes of the
Shareholders' and the Board of Directors' meetings in one (1) or more books
provided for that purpose; (b) see that all notices be duly given in accordance
with the provisions of these By-Laws or as required by law; (c) be custodian of
the corporate records and of the seal of the Corporation and see that the seal
of the Corporation is affixed to all documents the execution of which on behalf
of the Corporation under its seal is duly authorized; (d) shall have charge of
the certificate books, transfer books and stock ledgers; (e) sign with the Chief
Executive Officer certificates for shares of the Corporation, and (f) in
general, perform all duties incident to the office of Secretary and such other
duties as from time to time may be assigned to him by the Chief Executive
Officer or by the Board of Directors.
SECTION 9. TREASURER. If required by the Board of Directors, the Treasurer
shall give a bond for the faithful discharge of his duties in such sum and with
such surety or sureties as the Board of Directors may determine. He shall: (a)
have charge and custody of and be responsible for all funds and securities of
the Corporation; receive and give receipts for moneys due and payable to the
Corporation from any source whatsoever, and deposit all such moneys in the name
of the Corporation in such banks, trust companies or other depositories in the
manner prescribed by the Board of Directors; and (b) in general, perform all of
the duties incident to the office of Treasurer and such other duties as from
time to time may be assigned to him by the Chief Executive Officer or by the
Board of Directors.
SECTION 10. ASSISTANT SECRETARIES AND ASSISTANT TREASURERS. The Assistant
Secretaries and Assistant Treasurers, in general, shall perform such duties as
shall be assigned to them by the Secretary or the Treasurer, respectively, or by
the Chief Executive Officer or the Board of Directors. The Assistant Secretaries
and Assistant Treasurers shall exercise the powers of the Secretary or of the
Treasurer, respectively, during that officer's absence or inability to act.
SECTION 11. SALARIES. The salaries of the officers shall be fixed from
time to time by the Board of Directors and no officer shall be prevented from
receiving such salary by reason of the fact that he is also a director of the
Corporation. In the absence of action taken by the Board of Directors to fix the
salary of any officer during the prior twelve (12) month period, the Chief
Executive Officer shall have sole discretionary authority to fix such salary of
any officer.
ARTICLE IV
INDEMNITY; INSURANCE
SECTION 1. INDEMNIFICATION. Each person who at any time shall serve, or
shall have served, as a director, officer, employee or agent of the Corporation,
or any person who, while a director, officer, employee or agent of the
Corporation, is or was serving at the request of the Corporation as a director,
officer, partner, venturer, proprietor, trustee, administrator, employee, agent
-10-
<PAGE>
or similar functionary of another foreign or domestic corporation, partnership,
joint venture, sole proprietorship, trust, employee benefit plan or other
enterprise (each such person referred to herein as an "Indemnitee"), shall be
entitled to indemnification as and to the fullest extent permitted by Article
2.02-1 of the TBCA. The foregoing right of indemnification shall not be deemed
exclusive of any other rights to which those to be indemnified may be entitled
as a matter of law or under any agreement, other provision of these By-Laws,
vote of shareholders or directors, or other arrangement. The Corporation may
enter into indemnification agreements with its executive officers or directors
that contractually provide to them the benefits of the provisions of this
Article IV and include related provisions meant to facilitate the Indemnitees'
receipt of such benefits and such other indemnification protections as may be
deemed appropriate.
SECTION 2. ADVANCEMENT OR REIMBURSEMENT OF EXPENSES. The rights of
Indemnitee provided under the preceding section shall include, but not be
limited to, the right to be indemnified and to have expenses advanced in all
proceedings to the fullest extent permitted by Article 2.02-1 of the TBCA. In
the event that an Indemnitee is not wholly successful, on the merits or
otherwise, in a proceeding but is successful, on the merits or otherwise, as to
any claim in such proceeding, the Corporation shall indemnify Indemnitee against
all expenses actually and reasonably incurred by Indemnitee or on Indemnitee's
behalf relating to each claim. The termination of a claim in a proceeding by
dismissal, with or without prejudice, shall be deemed to be a successful result
as to such claim. In addition, to the extent an Indemnitee is, by reason of his
corporate status, a witness or otherwise participates in any proceeding at a
time when he is not named a defendant or respondent in the proceeding, he shall
be indemnified against all expenses actually and reasonably incurred by him or
on his behalf in connection therewith. The Corporation shall pay all reasonable
expenses incurred by or on behalf of Indemnitee in connection with any
proceeding or claim, whether brought by the Corporation or otherwise, in advance
of any determination respecting entitlement to indemnification pursuant to this
Article IV within ten days after the receipt by the Corporation of a written
request from Indemnitee reasonably evidencing such expenses and requesting such
payment or payments from time to time, whether prior to or after final
disposition of such proceeding or claim; provided that the Indemnitee affirms
his good faith belief that he has met the standard of conduct necessary for
indemnification under this Article IV and undertakes and agrees in writing that
he will reimburse and repay the Corporation for any expenses so advanced to the
extent that it shall ultimately be determined by a court, in a final
adjudication from which there is no further right of appeal, that Indemnitee is
not entitled to be indemnified against such expenses.
SECTION 3. DETERMINATION OF REQUEST. Upon written request to the
Corporation by an Indemnitee for indemnification pursuant to these By-Laws, a
determination, if required by applicable law, with respect to Indemnitee's
entitlement thereto shall be made in accordance with Article 2.02-1 of the TBCA;
PROVIDED, HOWEVER, that notwithstanding the foregoing, if a Change in Control
shall have occurred, such determination shall be made by Independent Counsel
selected by Indemnitee, unless Indemnitee shall request that such determination
be made in accordance with Article 2.02-1F (1) or (2). The Corporation shall pay
any and all reasonable fees and expenses of Independent Counsel incurred in
connection with any such determination. If a Change in Control shall have
occurred, Indemnitee shall be presumed (except as otherwise expressly provided
in this Article IV) to be entitled to indemnification under this Article IV upon
submission of a request to the Corporation for indemnification, and thereafter
the Corporation shall have the burden of proof in overcoming that
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<PAGE>
presumption in reaching a determination contrary to that presumption. The
presumption shall be used by Independent Counsel, or such other person or
persons determining entitlement to indemnification, as a basis for a
determination of entitlement to indemnification unless the Corporation provides
information sufficient to overcome such presumption by clear and convincing
evidence or the investigation, review and analysis of Independent Counsel or
such other person or persons convinces him or them by clear and convincing
evidence that the presumption should not apply.
SECTION 4. EFFECT OF CERTAIN PROCEEDINGS. The termination of any
proceeding or of any claim in a proceeding by judgment, order, settlement or
conviction, or upon a plea of NOLO CONTENDERE or its equivalent, shall not
(except as otherwise expressly provided in this Article) by itself adversely
affect the right of Indemnitee to indemnification or create a presumption that
Indemnitee's conduct was not in good faith and in a manner that Indemnitee
reasonably believed in the case of conduct in Indemnitee's official capacity,
that was not in the best interests of the Corporation or, in all other cases,
that was not opposed to the best interests of the Corporation or, with respect
to any criminal proceeding, that Indemnitee had reasonable cause to believe that
Indemnitee's conduct was unlawful and Indemnitee shall be deemed to have been
found liable in respect of any claim only after Indemnitee shall have been so
adjudged by a court of competent jurisdiction after exhaustion of all appeals
therefrom.
SECTION 5. EXPENSES OF ENFORCEMENT OF ARTICLE. In the event that
Indemnitee, pursuant to this Article IV, seeks a judicial adjudication to
enforce Indemnitee's rights under, or to recover damages for breach of, rights
created under or pursuant to this Article IV, Indemnitee shall be entitled to
recover from the Corporation, and shall be indemnified by the Corporation
against, any and all expenses actually and reasonably incurred by Indemnitee in
such judicial adjudication but only if Indemnitee prevails therein. If it shall
be determined in said judicial adjudication that Indemnitee is entitled to
receive part but not all of the indemnification or advancement of expenses
sought, the expenses incurred by Indemnitee in connection with such judicial
adjudication shall be reasonably prorated in good faith by counsel for
Indemnitee. Notwithstanding the foregoing, if a Change in Control shall have
occurred, Indemnitee shall be entitled to indemnification under this Section 5
regardless of whether Indemnitee ultimately prevails in such judicial
adjudication.
SECTION 6. INSURANCE ARRANGEMENTS. The Corporation may procure or maintain
insurance or other similar arrangements, at its expense, to protect itself and
any Indemnitee against any expense, liability or loss asserted against or
incurred by such person, incurred by Indemnitee in such a capacity or arising
out of Indemnitee's status as such a person, whether or not the Corporation
would have the power to indemnify such person against such expense or liability.
In considering the cost and availability of such insurance, the Corporation
(through the exercise of the business judgment of its directors and officers),
from time to time, may purchase insurance which provides for any and all of (i)
deductibles, (ii) limits on payments required to be made by the insurer or (iii)
coverage which may not be as comprehensive as that previously included in such
insurance purchased by the Corporation, if any. The purchase of insurance with
deductibles, limits on payments and coverage exclusions will be deemed to be in
the best interest of the Corporation but may not be in the best interest of
certain of the persons covered thereby. This Section 6 is authorized by Section
2.02-1(R) of the TBCA as in effect on the date hereof, and further is intended
to establish an arrangement of self-insurance pursuant to that section.
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<PAGE>
SECTION 7. SEVERABILITY. If any provision or provisions of this Article IV
shall be held to be invalid, illegal or unenforceable for any reason whatsoever,
the validity, legality and enforceability of the remaining provisions shall not
in any way be affected or impaired thereby; and, to the fullest extent possible,
the provisions of this Article IV shall be construed so as to give effect to the
intent manifested by the provision held invalid, illegal or unenforceable.
SECTION 8. DEFINITIONS. The following terms are used herein as follows:
"Change in Control" means a change in control of the Corporation occurring
after the date of adoption of these By-Laws of a nature that would be required
to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A (or in
response to any similar item on any similar schedule or form) promulgated under
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), whether or
not the Corporation is then subject to such reporting requirement; provided,
however, that, without limitation, such a Change in Control shall be deemed to
have occurred if at any time after the date of adoption of these By-Laws (i) any
"person" (as such term is used in Sections 3(a)(9), 13(d) and 14(d) of the
Exchange Act), other than Joe R. Davis, is or becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act), of securities of the Corporation
representing 30% or more of the combined voting power of the Corporation's then
outstanding securities without the prior approval of at least two-thirds of the
members of the Board of Directors in office immediately prior to such person
attaining such percentage interest; (ii) the Corporation is a party to a merger,
consolidation, share exchange, sale of assets or other reorganization, or a
proxy contest, as a consequence of which members of the Board of Directors in
office immediately prior to such transaction or event constitute less than a
majority of the Board of Directors thereafter or (iii) during any 15-month
period, individuals who at the beginning of such period constituted the Board of
Directors (including for this purpose any new director whose election or
nomination for election by the Corporation's shareholders was approved by a vote
of at least two-thirds of the directors then still in office who were directors
at the beginning of such period) cease for any reason to constitute at least a
majority of the Board of Directors; notwithstanding the foregoing, no Change in
Control shall be deemed to have occurred as a result of the initial public
offering of the Corporation's Common Stock.
"Corporate Status" means the status of a person who is or was a director,
officer, partner, employee, agent or fiduciary of the Corporation or of any
other corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise which such person is or was serving at the request of the
Corporation.
"Disinterested Director" means a director of the Corporation who is not a
named defendant or respondent to the proceeding or subject to a claim in respect
of which indemnification is sought by Indemnitee.
"Independent Counsel" means a law firm, or a member of a law firm, that is
experienced in matters of corporation law and neither contemporaneously is, nor
in the five years theretofore has been, retained to represent: (a) the
Corporation or Indemnitee in any matter material to either such party, (b) any
other party to the proceeding giving rise to a claim for indemnification
hereunder or (c) the beneficial owner, directly or indirectly, of securities of
the Corporation representing 30% or more of the combined voting power of the
Corporation's then outstanding voting securities.
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<PAGE>
Notwithstanding the foregoing, the term "Independent Counsel" shall not include
any person who, under the applicable standards of professional conduct then
prevailing, would have a conflict of interest in representing either the
Corporation or Indemnitee in an action to determine Indemnitee's rights to
indemnification under these By-Laws.
ARTICLE V
CERTIFICATES AND SHAREHOLDERS
SECTION 1. CERTIFICATES. Certificates in the form determined by the Board
of Directors shall be delivered representing all shares to which shareholders
are entitled. Certificates shall be consecutively numbered and shall be entered
in the books of the Corporation as they are issued. Each certificate shall state
on its face the holder's name, the number and class of shares, the par value of
shares or a statement that such shares are without par value, and such other
matters as may be required by law. It shall be signed by the Chief Executive
Officer and Secretary and such other officer or officers as the Board of
Directors shall designate, and may be sealed with the seal of the Corporation or
a facsimile thereof. If a certificate is countersigned by a transfer agent or an
assistant transfer agent or registered by a registrar (either of which is other
than the Corporation or an employee of the Corporation), the signature of any
officer may be facsimile.
SECTION 2. ISSUANCE. Shares (both treasury and authorized but unissued)
may be issued for such consideration (not less than par value) and to such
persons as the Board of Directors may determine from time to time. Shares may
not be issued until the full amount of the consideration, fixed as provided by
law, has been paid.
SECTION 3. PAYMENT FOR SHARES.
(a) The consideration for the issuance of shares shall consist of
any tangible or intangible benefit to the Corporation, including cash,
promissory notes, services performed, contracts for services to be
performed, or other securities of the Corporation.
(b) In the absence of fraud in the transaction, the judgment of the
Board of Directors as to the value of consideration received shall be
conclusive.
(c) When consideration, fixed as provided by law, has been paid, the
shares shall be deemed to have been issued and shall be considered fully
paid and nonassessable.
(d) The consideration received for shares shall be allocated by the
Board of Directors, in accordance with law, between stated capital and
capital surplus accounts.
SECTION 4. SUBSCRIPTIONS. Unless otherwise provided in the subscription
agreement, subscriptions for shares, whether made before or after organization
of the Corporation, shall be paid in full at such time or in such installments
and at such times as shall be determined by the Board of Directors. Any call
made by the Board of Directors for payment on subscriptions shall be uniform as
to all shares of the same series. In case of default in the payment on any
installment or call when payment is due, the Corporation may proceed to collect
the amount due in the same manner as any debt due the Corporation.
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<PAGE>
SECTION 5. LOST, STOLEN OR DESTROYED CERTIFICATES. The Corporation shall
issue a new certificate in place of any certificate for shares previously issued
if the registered owner of the certificate:
(a) Makes proof in affidavit form that it has been lost, destroyed,
or wrongfully taken; and
(b) Requests the issuance of a new certificate before the
Corporation has notice that the certificate has been acquired by a
purchaser for value in good faith and without notice of an adverse claim;
and
(c) Gives a bond in such form, and with such surety or sureties,
with fixed or open penalty, as the Corporation may direct, to indemnify
the Corporation (and its transfer agent and registrar, if any) against any
claim that may be made on account of the alleged loss, destruction or
theft of the certificate; and
(d) Satisfies any other reasonable requirements imposed by the
Corporation.
When a certificate has been lost, apparently destroyed or wrongfully taken, and
the holder of record fails to notify the Corporation within a reasonable time
after he has notice of it, and the Corporation registers a transfer of the
shares represented by the certificate before receiving such notification, the
holder of record is precluded from making any claim against the Corporation for
the transfer or for a new certificate.
SECTION 6. REGISTRATION OF TRANSFER. The Corporation shall register the
transfer of a new certificate for shares presented to it for transfer if:
(a) The certificate is properly endorsed by the registered owner or
by his duly authorized attorney; and
(b) The signature of such person has been guaranteed by a national
banking association or member of the New York Stock Exchange and
reasonable assurance is given that such endorsements are effective; and
(c) The Corporation has no notice of an adverse claim or has
discharged any duty to inquire into such a claim; and
(d) Any applicable law relating to the collection of taxes has been
complied with.
SECTION 7. REGISTERED OWNER. Prior to due presentment for registration of
transfer of a certificate for shares, the Corporation may treat the registered
owner as the person exclusively entitled to vote, to receive notices and
otherwise to exercise all the rights and powers of a shareholder.
SECTION 8. PRE-EMPTIVE RIGHTS. No shareholder or other person shall have
any pre-emptive right whatsoever.
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<PAGE>
ARTICLE VI
MISCELLANEOUS PROVISIONS
SECTION 1. OFFICES. Until the Board of Directors otherwise determines, the
registered office of the Corporation required by the TBCA to be maintained in
the State of Texas, shall be the principal place of business of the Corporation,
but such registered office may be changed from time to time by the Board of
Directors in the manner provided by law and need not be identical to the
principal business of the Corporation.
SECTION 2. NOTICE AND WAIVER OF NOTICE. Whenever any notice whatever is
required to be given under the provisions of these By-Laws, said notice shall be
deemed to be sufficient if given by depositing the same in a post office box in
a sealed postpaid wrapper addressed to the person entitled thereto at his post
office address, as it appears on the books of the Corporation, and such notice
shall be deemed to have been given on the day of such mailing. A waiver of
notice, signed by the person or persons entitled to said notice, whether before
or after the time stated therein, shall be deemed equivalent thereto.
SECTION 3. SECURITIES OF OTHER CORPORATIONS. The Chief Executive Officer
of the Corporation shall have power and authority to transfer, endorse for
transfer, vote, consent or take any other action with respect to any securities
of another issuer which may be held or owned by the Corporation and to make,
execute and deliver any waiver, proxy or consent with respect to any such
securities.
SECTION 4. PROCEDURE. Meetings of shareholders and of the Board of
Directors shall be conducted in an orderly procedure as shall be determined by
the presiding officer at such meetings. The presiding officer shall make all
rulings and decisions on any motion or question to come before such meetings and
his ruling shall be final and decisive.
SECTION 5. FISCAL YEAR. The fiscal year of the Corporation shall be fixed
by resolution of the Board of Directors.
SECTION 6. RELATION TO ARTICLES OF INCORPORATION. These By-Laws are
subject to, and governed by, the Articles of Incorporation.
ARTICLE VII
AMENDMENTS
These By-Laws may be altered, amended or repealed, and new By-Laws may be
adopted, by the Directors, subject to repeal or change by action of the
shareholders.
-16-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM CONSOLIDATED FINANCIAL STATEMENTS FOR THE QUARTERLY PERIOD ENDED SEPTEMBER
30, 1998.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-END> SEP-30-1998
<CASH> 5,869
<SECURITIES> 0
<RECEIVABLES> 72,881
<ALLOWANCES> (2,016)
<INVENTORY> 21,127
<CURRENT-ASSETS> 100,523
<PP&E> 235,179
<DEPRECIATION> (31,935)
<TOTAL-ASSETS> 378,338
<CURRENT-LIABILITIES> 55,119
<BONDS> 0
0
0
<COMMON> 140
<OTHER-SE> 164,876
<TOTAL-LIABILITY-AND-EQUITY> 378,338
<SALES> 188,370
<TOTAL-REVENUES> 188,370
<CGS> 128,883
<TOTAL-COSTS> 128,883
<OTHER-EXPENSES> 33,005
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,473
<INCOME-PRETAX> 23,009
<INCOME-TAX> 8,975
<INCOME-CONTINUING> 14,034
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 14,034
<EPS-PRIMARY> 1.06
<EPS-DILUTED> 1.03
</TABLE>
