CONSOLIDATED GRAPHICS INC /TX/, 10-K405, 2000-06-26

CONSOLIDATED GRAPHICS INC /TX/
10-K405, 2000-06-26
COMMERCIAL PRINTING

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------

FORM 10-K

(MARK ONE)

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED MARCH 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
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 (IRS EMPLOYER IDENTIFICATION NO.)
OF INCORPORATION OR ORGANIZATION)

5858 WESTHEIMER, SUITE 200 77057
HOUSTON, TEXAS (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)

(713) 787-0977
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)

Securities registered pursuant to Section 12(b) of the Act:
NONE

Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, PAR VALUE $.01 PER SHARE
(TITLE OF CLASS)

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 [ ].

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]

The aggregate market value of the voting stock held by nonaffiliates of the
registrant as of May 31, 2000:

COMMON STOCK, $.01 PAR VALUE -- $142,493,840

The number of shares outstanding of the issuer's common stock as of May 31,
2000:

COMMON STOCK, $.01 PAR VALUE -- 13,734,346

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrant's Proxy Statement for the Annual Shareholders'
Meeting to be held on or about July 26, 2000, to be filed with the Securities
and Exchange Commission pursuant to Regulation 14A under the Securities Exchange
Act of 1934, as amended, are incorporated by reference into Part III of this
Report. Such Proxy Statement, except for the parts therein which have been
specifically incorporated by reference, shall not be deemed "filed" for the
purposes of this report on Form 10-K.

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<PAGE>
PART I

ITEM 1. BUSINESS

IN THIS ANNUAL REPORT, THE WORDS "CGX," THE "COMPANY," 'WE," 'OUR" AND "US'
REFER TO CONSOLIDATED GRAPHICS, INC, COLLECTIVELY WITH OUR SUBSIDIARIES. OUR
FISCAL YEAR IS NOT A CALENDAR YEAR AND ENDS ON MARCH 31.

COMPANY OVERVIEW

We are a leading national provider of general commercial printing services
and are recognized as the largest sheet-fed commercial printing company in the
United States. Our headquarters are in Houston, Texas. As of March 31, 2000, we
operate locally managed printing businesses in 25 states. Each of our printing
businesses operate under their historical trade name and have a well-established
operating history of more than 25 years in most cases.

The majority of our sales are derived from traditional commercial printing
services, which include electronic prepress, printing, finishing, storage and
delivery of high-quality, custom-designed products. Examples of such products
include multicolor product and capability brochures, shareholder communications,
catalogs, training manuals, point-of-purchase marketing materials, trading cards
and direct mail pieces. We have a diverse customer base, including both national
and local corporations, mutual fund companies, advertising agencies, graphic
design firms, catalog retailers and direct mail distributors.

INDUSTRY BACKGROUND

The printing industry is one of the largest industries in the United
States, with total annual sales estimated to be in excess of $100 billion.
General printing services include commercial printing, financial printing, book
publishing, quick printing and the production of business forms, greeting cards
and other stationery-type products. The largest segment of the industry is
commercial printing services, which generates approximately $73 billion in
annual U.S. sales based on available industry data. The commercial printing
industry is also highly fragmented, with over 35,000 companies operating in the
United States today. Most of these printing businesses are privately owned and
generate less than $35 million in annual sales.

A consolidation trend in the general commercial printing industry emerged
and became a significant industry factor in the 1990's as owners sought to
address new industry challenges, as well as evaluate exit strategies.

Significant advances occurred in prepress and printing technology in the
1990's, requiring substantial capital investments by printing businesses to
remain competitive. In addition, larger corporations are more frequently seeking
to reduce operating costs by limiting their number of suppliers and establishing
"sole source" relationships with those suppliers who have significant geographic
diversity and a broader range of products and services to offer.

In response to these challenges, and motivated in many cases to limit
personal financial risk, increase personal financial liquidity or facilitate
plans to eventually retire, owners of printing businesses became more willing to
sell their company to larger, better capitalized companies.

BUSINESS STRATEGY

Our business strategy consists of acquiring profitable, medium-sized
printing businesses with strong local market reputations and management, then
combining the service and responsiveness of such businesses with the critical
mass and economic advantages of a larger organization to generate

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growth in sales and profits. Under our operating strategy, management teams at
our printing businesses maintain responsibility for the day-to-day operations
and profitability of their business, while continuing to build and strengthen
relationships with buyers of printing services in their respective markets and
incorporate the strengths and resources available to them as part of CGX. The
principal advantages of our strategy are as follows:

o PROFIT MARGIN IMPROVEMENT. Through economics of scale, we obtain
preferential pricing for printing supplies and newer, more efficient
equipment. In addition, we centralize certain administrative services,
such as human resources and purchasing support, to generate cost
savings. Operating margins of acquired businesses typically improve over
time as our Company's operating strategies and strengths are fully
implemented.

o SALES GROWTH. Our businesses have numerous opportunities, individually
and collectively, to achieve consistent, long-term sales growth at a
rate that exceeds industry averages. Our wide range of equipment
capabilities and large number of production facilities provide any one
of our printing businesses with greater flexibility to serve its
customers than its competition in most cases. In addition, such
diversity of capabilities and broad geographic coverage enable us to
seek national contracts with major customers or strategic alliances with
companies offering complementary business services (See "Sales and
Marketing"). As discussed below, we expect our e-business initiatives to
generate new sales growth opportunities as such initiatives are
leveraged across our nationwide network of printing businesses. Also,
our strong financial position and our continuous investments in new
technology are attractive to prospective customers and sales personnel.

Our Company also provides management resources and other advantages to our
printing businesses which position them to achieve long-term growth and
stability, including:

o STRATEGIC COUNSEL/BEST PRACTICES. Owners of privately-held printing
businesses typically have heavy demands placed on their management
skills. Once their company is acquired by CGX, they gain access to
strategic counsel and professional management techniques in such areas
as planning, organization and controls. CGX provides a forum for them to
share their knowledge of technical processes and their management
techniques with one another. Through a series of periodic national and
regional meetings attended by top management and other personnel in our
Company, we have identified and shared a number of these "best
practices," which have been, and will continue to be, implemented
throughout our organization.

o MANAGEMENT DEVELOPMENT. We are committed to a successful program
designed to recruit, train and develop recent college graduates as
printing sales and management professionals. Participants in our
Management Development Program follow a three-year curriculum that
provides them with the technical knowledge of printing processes,
coupled with general business and managerial training. Certain aspects
of this program are specifically tailored to fit the needs of each
operating location. Our Management Development Program is unique to the
industry and is a key factor in our ability to provide a high degree of
quality customer service, as well as provide a pool of talent to draw
from in the future for management positions at our printing businesses.
As of May 31, 2000, there were 150 participants in this program.

Our highly disciplined acquisition program has been an important part of
our business strategy and we expect to continue making acquisitions in the
future. We have a team of merger and acquisition professionals who continually
screen opportunities to acquire companies that fit our general criteria. We
prefer high-quality, sheet-fed printing businesses that have annual revenues of
up to $50 million (See "Printing Operations"). In order to become candidates for
acquisition, printing businesses should not only be profitable, but also have
good management, strong customer relationships and a reputation for providing
quality service and products.

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Our ongoing acquisition program has contributed to our Company's increase
in sales and profits, as well as enabled our Company to:

o Expand our ability to service national accounts,

o Increase our purchasing power with suppliers and equipment
manufacturers.

o Minimize the impact of any economic fluctuations that may generally
affect segments of the printing industry or any one region of the
country.

PRINTING OPERATIONS

As of May 31, 2000, our Company operates 63 printing businesses in 25
states. We have acquired a total of 45 printing businesses during the past three
years. Each printing business is operated as a wholly-owned subsidiary of our
Company. Our printing operations sell to a large base of customers in a broad
cross-section of industries, the majority of which are located in the markets
they serve. Our printing operations primarily provide general commercial
printing services, as well as a variety of electronic products and fulfillment
services.

COMMERCIAL PRINTING SERVICES

In general, commercial printing includes developing printable material
through electronic prepress services, reproducing images on paper using printing
presses and providing comprehensive finishing and delivery services. We maintain
flexible production schedules in order to react swiftly to our customers
requirements. Many printing projects require fast turnaround times, from
conception through delivery, and our printing operations must maintain physical
plant and customer service staff as necessary to maximize work loads when called
upon to do so. Consequently, our printing operations do not always operate at
full capacity.

Our electronic prepress services include all of the steps necessary to
prepare media (photographs, artwork, typed copy) for printing. This process
involves converting the media into digital images, separating digital color
images into process colors, assembling films and burning film images onto
printing plates using photochemical processes. Printing plates may also be
produced without film using "computer-to-plate" technology, which results in
quicker turnaround of printing projects, better product quality and cost
savings. We continually evaluate our printing operations' existing electronic
prepress capabilities and closely monitor the development of newer technology
that may be used to increase productivity and improve service and responsiveness
to our customers.

Once printable material has been developed in the electronic prepress area,
our printing operations primarily use offset lithography to reproduce images on
paper. The offset lithography process provides the highest quality, lowest cost
printed products for most run lengths. Short- to medium-run commercial work is
generally printed on sheetfed presses, while longer-run commercial and financial
printing projects are typically printed on web presses.

All of our printing operations primarily use sheetfed printing presses,
which are generally capable of printing 16 pages of letter-sized finished
product on a 28 by 40 inch sheet of paper with eight pages on each side (known
as a 16-page "signature"). These sheet-fed presses are capable of simultaneously
printing from one to eight colors and are generally capable of running at speeds
of up to 15,000 impressions an hour. We have seven locations which also operate
half-size and full-size web presses which print on a continuous roll of paper
and may print up to 32-page signatures on both sides of the paper at maximum
speeds of up to 50,000 impressions an hour. Certain web presses are also capable
of folding, gluing or perforating a printed product. Our finishing services
include cutting, folding, binding and other operations necessary to finish the
printed product according to customers specifications.

ELECTRONIC PRODUCTS AND SERVICES

We provide a variety of non-print digital and electronic products and
services that can be separate from, or complementary to, our traditional
printing services. Our electronic products and services are being marketed to
existing and potential customers under the brand "CGXmedia.com." As of May 31,

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2000, we have a team of over 25 professionals dedicated to enhancing our sales
and customer service efforts through CGXmedia.com and supporting the electronic
products and services described below.

o CGX-OPAL.com ("On-line Private Asset Library") is our highly
sophisticated, custom on-line digital asset management system.
CGX-OPAL.com is designed to archive digital images and provide our
customers with secure, 24/7, web-enabled access to the images and the
ability to download high-resolution images for multi-purpose uses.

o CGX-COIN.com ("Custom Ordering Interactive Network") is our proprietary
on-line print purchasing, ordering, workflow management and fulfillment
system. CGX-COIN.com provides multi-location organizations with the
flexibility and convenience of Internet-based remote ordering,
typesetting and proofing capabilities.

o e-Outsourcing Solutions - We have leveraged our expertise in working
with digital data and images in producing printed materials to offer
complementary electronic services to our customers. For example, we
offer a number of services to maximize website productivity and
functionality, including development of interactive database
applications, password protection and encryption for valuable data, as
well as conversion of data to HTML and PDF formats. We also offer a full
range of CD-ROM development and production expertise, convert text in
printed or digital form to eBook format, perform electronic journal
composition and provide variable data and on-demand printing for
short-run, fast turnaround projects such as conference materials, direct
mail and marketing displays.

By offering these products and services, we are able to strengthen
relationships with existing customers, as well as attract new customers. In
addition, we expect that our expertise in providing a total electronic solutions
package for our printing customers will enable us to gain market share through
"sole source" relationships and national contracts with major companies.

FULFILLMENT SERVICES

We also serve our customers by providing fulfillment services, which
primarily include assembling, packaging, storing, and distributing promotional,
educational and training documents on behalf of our customers. Many corporations
utilize our fulfillment services to help manage their inventories of printed
products and related materials (such as binders and product samples), as well as
provide "just in time" assembly and delivery of customized materials to end
users. Orders for fulfillment services are frequently received via proprietary,
Internet-based procurement and inventory management systems maintained by our
printing operations, including CGX-COIN.com.

SALES AND MARKETING

Most of the products that we produce are generated by individual orders
through commissioned sales personnel or, to a lesser extent, via the Internet or
pursuant to long-term contracts. As of May 31, 2000, we employed 540
salespeople, all of whom are knowledgeable about the printing industry, the
capabilities of the printing businesses which they serve and those of the other
printing businesses that we own. In addition to soliciting business from
existing and prospective customers, our sales personnel act as liaisons between
customers and our production departments and also provide technical advice and
assistance to customers throughout the printing process.

Commercial printing requires a substantial amount of interaction with
customers, including personal sales calls, reviews of color proofs and "press
checks" (customer approval of a printed document while it is being printed).
Through our sales professionals and other management personnel, we maintain
strict control of the printing process from the time a prospective customer is
identified through the scheduling, prepress, printing and finishing operations.

Because our business is highly service-oriented, our primary marketing
focus is on responding rapidly to customer requirements and producing high
quality printed materials at competitive prices. Rapid responsiveness is
essential because of the short lead time on most general commercial printing
projects. Our printing operations are designed to maintain maximum flexibility
to meet customer

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needs, both on a scheduled and an emergency basis. Each printing operation
targets projects which management believes will best utilize its equipment and
expertise profitably.

Our size, range of capabilities and nationwide coverage is creating new
sales channels for us that we began pursuing more actively in fiscal 2000. These
include:

o NATIONAL ACCOUNTS. More and more large corporations are seeking to
limit their number of suppliers, including their commercial print
providers. Through existing customer relationships and Requests for
Proposals ("RFP"), we are pursuing several opportunities to obtain
"sole-source', multi-year printing contracts. We successfully gained one
major new account in fiscal 2000 pursuant to an RFP. We expect the
pursuit of national accounts to be an increasing contributor to our
internal sales growth in the foreseeable future. We have a team of three
individuals currently assigned to pursue national account opportunities
and, as necessary, these individuals draw support from available
personnel at our individual printing businesses and our corporate
headquarters.

o STANDARD REGISTER ALLIANCE. The Standard Register Company ("Standard
Register") is a nationwide provider of customized document management
and workflow solutions for Fortune 500 and other large corporations. In
May 2000, Standard Register and CGX entered into a joint marketing
alliance agreement, pursuant to which (i) Standard Register and CGX will
cooperate in pursuing national account opportunities and RFPs from large
corporations seeking to bundle their purchases of business forms and
commercial printing and (ii) Standard Register will introduce and
recommend CGX to their customers for their commercial printing
requirements. We will pay Standard Register a fee based on jobs produced
as a result of such introductions.

o "B2B" COLLABORATIVE PRINT PROCUREMENT PROVIDERS. We have entered into
preferential arrangements with NOOSH, Inc. and other developers of
Internet-based systems designed to streamline and automate project
management by print buyers and facilitate their communication with
printers. These arrangements provide an opportunity for our Company to
introduce this technology to certain existing and prospective customers
who we believe may benefit from using such Internet-based collaborative
tools. To date, our printing businesses have reported moderate success
in generating incremental printing volume as the firms offering such
solutions continue with their marketing and development activities.

CUSTOMERS

Due to the project-oriented nature of customers' printing requirements,
sales to customers may vary significantly from year to year and oftentimes
depends upon the number, size and complexity of their projects in a particular
period. Furthermore, continued engagement of our Company by our customers for
successive jobs primarily depends upon, among other things, the customer's
satisfaction with the quality of services provided. During fiscal 2000, our top
ten customers accounted for 7% of total sales, none of which were individually
more than 1.5%. We believe that our large customer base, broad geographic
coverage of the United States and extensive range of printing capabilities and
other complementary services reduces our exposure to economic fluctuations that
may generally affect segments of the printing industry or any one region of the
country.

SUPPLIERS

We purchase raw materials used in the printing process (such as, paper,
prepress supplies, ink, chemicals and boxes) from a number of national and local
suppliers and we are not materially dependent on any one supplier. We use a
two-tiered approach to purchasing in order to maximize the economies associated
with our size, while maintaining the local efficiencies and time sensitivity
required to meet customer demands. We negotiate master purchasing arrangements
centrally with major suppliers and manufacturers to obtain better pricing, then
communicate the terms of these arrangements to our individual printing
businesses. Each printing business orders goods and services as

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needed in accordance with the terms set forth in our national purchasing
agreements, if applicable, or on a local basis. We continually monitor market
conditions and product developments, as well as regularly review the contractual
terms of our national purchasing agreements, to take advantage of our increasing
buying power and to maximize the benefits associated with these agreements.

We incur significant costs to purchase paper that is used in the printing
process. The majority of our paper supply is distributed through merchant
organizations. There are a small number of merchants that are considered
national in scope, with numerous regional organizations that serve one or more
of our printing operations. We have negotiated national purchasing agreements
with the mills, which produce paper, and the merchants, who distribute most of
the paper produced by the mills. These agreements typically provide for
volume-related discounts and additional periodic rebates based on the total
amount of purchases made by our printing operations from each mill and/or
merchant.

We also purchase a large amount of prepress supplies, consisting mainly of
film, plates and proofing materials. While there are a limited number of key
manufacturers of these materials, we generally purchase prepress supplies from
national and regional dealers. We have obtained volume-related discounts and
incentive arrangements from these manufacturers and receive periodic rebates
based on the total amount of purchases from these dealers.

COMPETITION

The vast majority of all general commercial printing projects of the type
we produce are purchased by print buyers from locally available sources. Due to
the highly fragmented nature of this industry segment, we compete with a
substantial number of other general commercial printing companies for these
jobs. Some of our competitors are owned by other industry consolidators;
however, the majority are privately-held, single location operations.

The major competitive factors in our business are:

o Extent and quality of customer service

o Quality and accuracy of finished products

o Cost structure

o Ability to meet customer deadlines

Customer service often is dependent on production and distribution
capabilities, along with the availability of equipment that is appropriate in
size and function for a given project. By using our nationwide network of
printing operations, we believe that our broad range of printing capabilities
and our ability to serve customers on both a regional and national level gives
us a competitive advantage over smaller, locally based printing companies.
Furthermore, our purchasing power, advanced technological capabilities and
ability to effectively utilize any excess production capacity throughout our
organization enables us to compete effectively in price, as well as provide
faster turnaround times than our competitors may be able to provide.

Recently, several Internet-based printing companies have emerged. To date
we have not incurred any measurable competition from such companies and believe
our ability to meet customer expectations with respect to the aforementioned
factors, coupled with our Company's Internet-based solutions (see "Printing
Operations-Electronic Products and Services"), will enable us to compete
effectively with such companies in the future.

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EMPLOYEES

GENERAL

As of May 31, 2000, we had over 5,000 employees throughout our
organization. Of this total, approximately 450 were employed subject to the
terms of various collective bargaining agreements. We believe that our relations
with our employees are generally satisfactory.

EXECUTIVE OFFICERS

JOE R. DAVIS has been the President, Chief Executive Officer and Chairman
of the Board of Directors since he founded our Company in 1985. Prior to forming
CGX, Mr. Davis was a Vice President for a division of International Paper
Company. He also previously served as a partner of the public accounting firm of
Arthur Andersen LLP. Mr. Davis is 57 years old.

G. CHRISTOPHER COLVILLE, Executive Vice President -- Mergers and
Acquisitions, Chief Financial and Accounting Officer and Secretary, has held
various executive positions with our Company since September 1994. Prior to
joining our Company, he was employed by Trident NGL Holding, Inc., a New York
Stock Exchange company, and by the public accounting firm of Arthur Andersen
LLP. Mr. Colville is a certified public accountant and is 42 years old.

GOVERNMENT REGULATION AND ENVIRONMENTAL MATTERS

Our printing operations are subject to the environmental laws and
regulations of the United States and the applicable state and local laws and
regulations concerning emissions into the air, discharges into waterways and the
generation, handling and disposal of waste materials. The printing business
generates substantial quantities of inks, solvents and other waste products
requiring disposal under the numerous federal, state and local laws and
regulations relating to the environment. Our printing operations typically
recycle waste paper and contract for the removal of waste products. We believe
our Company is in material compliance with all applicable air quality, waste
disposal and other environmental-related rules and regulations, as well as with
other general employee health and safety laws and regulations. We do not
anticipate any material future capital expenditures for environmental control
facilities. There can be no assurance, however, that future changes in such laws
and regulations will not have a material effect on our Company's operations.

ITEM 2. PROPERTIES AND FACILITIES

As of May 31, 2000, our principal facilities consisted primarily of
printing facilities that contain production, storage and office space. We own
1.2 million square feet at 24 locations and lease 2.0 million square feet at an
additional 39 locations. All facilities are leased from unaffiliated third
parties except for certain facilities containing approximately 462,025 square
feet which are leased from the former owners and current employees of 11 of our
printing businesses. We also lease approximately 16,210 square feet of office
space in Houston for our corporate headquarters. We believe our facilities are
suitable for their present and intended purposes and are adequate for our
current level of operations.

ITEM 3. LEGAL PROCEEDINGS

From time to time our Company is involved in litigation relating to claims
arising out of our operations in the normal course of business. We maintain
insurance coverage against potential claims in an amount which we believe to be
adequate. Currently, we are not aware of any legal proceedings or claims pending
against our Company that our management believes will have a material adverse
effect on our Company's consolidated financial position or consolidated results
of operations.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

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PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS

Our common stock is traded on the New York Stock Exchange under the symbol
CGX. The following table presents the quarterly high and low sales prices for
our common stock for each of the last two fiscal years:

FISCAL 2000 -- QUARTER ENDED: HIGH LOW
------------------------------------- ------ ------
June 30, 1999........................ 58.500 35.500
September 30, 1999................... 50.000 37.250
December 31, 1999.................... 42.125 13.375
March 31, 2000....................... 15.750 11.500

FISCAL 1999 -- QUARTER ENDED: HIGH LOW
------------------------------------- ------ ------
June 30, 1998........................ 63.875 49.500
September 30, 1998................... 67.125 35.125
December 31, 1998.................... 67.625 31.500
March 31, 1999....................... 74.500 44.750

As of May 31, 2000 there were 193 shareholders of record representing more
than 7,000 beneficial owners.

We intend to retain all of our earnings to finance the continuing
development of our business and we do not anticipate paying cash dividends on
our common stock in the foreseeable future. Any future payment of cash dividends
will depend upon the financial condition, debt covenants, capital requirements
and earnings of our Company, as well as other factors our Board of Directors may
deem relevant. In addition, our revolving credit agreements include restrictions
that limit our ability to pay dividends above certain levels.

During fiscal 2000, we issued 1,032,407 shares of our common stock valued
at approximately $48.2 million to several persons in connection with the
acquisition of 13 printing companies, and also issued 13,332 shares pursuant to
an earnout agreement entered into in connection with a prior year acquisition.
The issuance of all 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.

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ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA

The following historical consolidated financial data should be read in
conjunction with the audited consolidated financial statements of our Company
and the notes thereto included in Item 8. "Financial Statements and
Supplementary Data."

<TABLE>
<CAPTION>
YEAR ENDED MARCH 31
-------------------------------------------------------
2000 1999 1998 1997 1996
-------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE DATA)

INCOME STATEMENT DATA:
Sales................................ $624,895 $435,961 $231,282 $144,082 $85,133
Cost of sales........................ 437,345 298,935 157,906 100,197 61,237
-------- -------- -------- -------- -------
Gross profit.................... 187,550 137,026 73,376 43,885 23,896
Selling expenses..................... 61,267 42,767 22,365 14,223 8,532
General and administrative
expenses........................... 48,677 33,605 17,628 11,330 6,873
Restructuring charge(1).............. 1,500
-------- -------- -------- -------- -------
Operating income................ 77,606 60,654 33,383 18,332 6,991
Interest expense, net................ 13,476 7,745 3,720 2,305 860
-------- -------- -------- -------- -------
Income before income taxes...... 64,130 52,909 29,663 16,027 6,131
Income taxes......................... 25,651 20,634 11,273 5,927 2,146
-------- -------- -------- -------- -------
Net income...................... $ 38,479 $ 32,275 $ 18,390 $ 10,100 $ 3,985
======== ======== ======== ======== =======
Basic earnings per share(2).......... $ 2.54 $ 2.35 $ 1.46 $ .83 $ .36
======== ======== ======== ======== =======
Diluted earnings per share(2)........ $ 2.51 $ 2.28 $ 1.40 $ .81 $ .35
======== ======== ======== ======== =======
</TABLE>

<TABLE>
<CAPTION>
MARCH 31
-------------------------------------------------------
2000 1999 1998 1997 1996
-------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS)

BALANCE SHEET DATA:
Working capital...................... $ 61,730 $ 49,761 $ 27,869 $ 22,080 $18,855
Property and equipment, net.......... 310,344 230,733 135,892 85,643 50,591
Total assets......................... 677,277 489,654 237,645 135,720 87,809
Long-term debt, net of current
portion............................ 261,407 170,574 73,030 39,321 20,105
Total shareholders' equity........... 272,531 214,454 105,332 66,447 49,876
</TABLE>

------------

(1) Relates to direct and incremental costs associated with the merger of two of
our Houston subsidiaries, the net effect of which was to reduce net income
by $975 after-tax and both basic and diluted earnings per share by $.09.

(2) Restated as applicable for a two-for-one stock split on January 10, 1997.

<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

THE FOLLOWING DISCUSSION CONTAINS 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 OUR ABILITY TO MAINTAIN OR IMPROVE OUR OPERATING
RESULTS OR EXECUTE OUR PRIMARY GROWTH STRATEGY OF ACQUIRING ADDITIONAL PRINTING
BUSINESSES. ALTHOUGH WE BELIEVE 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 US OR ANY OTHER PERSON
THAT OUR OBJECTIVES AND PLANS WILL BE ACHIEVED.

OVERVIEW

We are a leading national provider of general commercial printing services
with printing operations in 25 states as of March 31, 2000. The majority of our
sales are derived from traditional printing services, which include electronic
prepress, printing, finishing, storage and delivery of high-quality,
custom-designed products. Examples of such products include multicolor product
and capability brochures, shareholder communications, catalogs, training
manuals, point-of-purchase marketing materials, trading cards and direct mail
pieces. We have a diverse customer base, including national and local
corporations, mutual fund companies, advertising agencies, graphic design firms,
catalog retailers and direct mail distributors.

Our printing operations also capitalize on their advanced technological
capabilities and expertise in digital processes to provide a variety of
electronic products and services that can be separate from, or complementary to,
our traditional printing services. Our electronic products and services are
being marketed to existing and potential customers under the brand
"CGXmedia.com," and primarily include a custom on-line digital asset management
system, proprietary software used by customers for on-line print purchasing,
ordering, workflow management and fulfillment, and other "e-outsourcing"
solutions (such as repurposing of digital data for print customers with
multi-channel distribution needs and development of interactive database
applications).

We also offer fulfillment services at certain locations, whereby we
assemble, package, store and distribute promotional, educational and training
documents on behalf of our customers. We help customers manage their inventory
of printed products and related materials (such as binders and product samples),
while also providing "just-in-time" assembly and delivery of customized
materials to end users.

Our printing operations maintain their own sales, estimating, customer
service, prepress, production, postpress and accounting departments. Our
corporate headquarters staff provides support to our printing operations in such
areas as human resources, purchasing and management information systems. We also
maintain centralized risk management, treasury, investor relations, tax and
consolidated financial reporting activities.

Most of the products we produce are generated by individual orders through
commissioned sales personnel, or, to a lesser extent, via the Internet or
pursuant to long-term contracts. As a result, continued engagement of our
Company by our customers for successive jobs primarily depends upon, among other
things, the customer's satisfaction with the quality of services provided. As
such, we are unable to accurately predict, for more than a few weeks in advance,
the number, size and profitability of printing jobs that we expect to produce.

Our Company's primary operating strategy is to generate growth in sales and
profits through a highly disciplined acquisition program, coupled with internal
growth and operational improvements at our existing businesses. We provide
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 our other businesses, typically
improve as our operating strategies are fully implemented.

10
<PAGE>
Our consolidated financial results in a given period may be affected by the
timing and magnitude of acquisitions. Our consolidated operating income margins
in the periods following a significant acquisition (or series of acquisitions)
may be lower than historically reported consolidated margins depending on how
quickly and to what extent an acquired business is able to adapt to and
implement our management practices.

RESULTS OF OPERATIONS

The following table sets forth our Company's historical consolidated income
statements and certain percentage relationships for the periods indicated:

<TABLE>
<CAPTION>
AS A PERCENTAGE OF SALES
---------------------------
YEAR ENDED MARCH 31 YEAR ENDED MARCH 31
------------------------------ ---------------------------
2000 1999 1998 2000 1999 1998
------ ------ ------ ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
(IN MILLIONS)
Sales................................ $624.9 $436.0 $231.3 100.0% 100.0% 100.0%
Cost of sales........................ 437.3 299.0 157.9 70.0 68.6 68.3
------ ------ ------ ----- ----- -----
Gross profit.................... 187.6 137.0 73.4 30.0 31.4 31.7
Selling expenses..................... 61.3 42.7 22.4 9.8 9.8 9.7
General and administrative
expenses........................... 48.7 33.6 17.6 7.8 7.7 7.6
------ ------ ------ ----- ----- -----
Operating income................ 77.6 60.7 33.4 12.4 13.9 14.4
Interest expense, net................ 13.5 7.8 3.7 2.1 1.8 1.6
------ ------ ------ ----- ----- -----
Income before income taxes...... 64.1 52.9 29.7 10.3 12.1 12.8
Income taxes......................... 25.6 20.6 11.3 4.1 4.7 4.9
------ ------ ------ ----- ----- -----
Net income...................... $ 38.5 $ 32.3 $ 18.4 6.2% 7.4% 7.9%
====== ====== ====== ===== ===== =====
</TABLE>

The absolute increases in sales and expenses during the periods indicated
are due primarily to the acquisition of printing businesses. Because each
acquisition was accounted for under the purchase method of accounting, our
consolidated income statements reflect sales and expenses of acquired businesses
only for post-acquisition periods. In each fiscal year shown above, acquisitions
affected our consolidated financial results, when compared to the prior year,
for the portion of the year following their respective dates of acquisition.
Similarly, acquisitions in each fiscal year affected our consolidated financial
results in the years which followed their respective year of acquisition because
the acquired business was under ownership for a full year.

FISCAL 2000 COMPARED WITH FISCAL 1999

Sales increased 43.3% to $624.9 million in 2000 from $436.0 million in 1999
due to the incremental revenue contribution of 19 acquisitions in 1999 and 13
acquisitions in 2000 (hereafter, we refer to these 32 acquired businesses as the
1999/2000 Acquisitions).

Gross profit increased 36.9% to $187.6 million in 2000 from $137.0 million
in 1999, primarily due to the incremental profit contribution of the 1999/2000
Acquisitions. Gross profit as a percentage of sales decreased to 30.0% in 2000
from 31.4% in 1999. This decrease resulted from the effect of the overall lower
operating margins of the 1999/2000 Acquisitions, higher depreciation expense
attributable to capital expenditures and pricing pressures due to unfavorable
industry conditions during the second half of the year.

Selling expenses increased 43.6% to $61.3 million in 2000 from $42.7
million in 1999, primarily due to the increased sales levels noted above.
Selling expenses as a percentage of sales remained constant at 9.8% when
compared to 1999.

General and administrative expenses increased 44.9% to $48.7 million in
2000 from $33.6 million in 1999. This increase is due primarily to the addition
of the 1999/2000 Acquisitions. General and administrative expenses as a
percentage of sales increased to 7.8% in 2000 from 7.7% in 1999 due to a
proportionately higher level of general and administrative expenses, including
amortization of goodwill, incurred as a result of the 1999/2000 Acquisitions.

11
<PAGE>
Net interest expense increased 74.0% to $13.5 million in 2000 from $7.8
million in 1999, primarily due to a net increase in borrowings under our
revolving credit facilities used to finance the purchase of the 1999/2000
Acquisitions and our share repurchase program, together with the addition of
term equipment notes related to the purchase of printing presses and debt
assumed in connection with certain acquisitions.

Effective income tax rates reflect an increase to 40% in 2000 from 39% in
1999 due to the effect of nondeductible goodwill incurred in connection with
certain acquisitions completed since 1998 and, to a lesser extent, our expansion
into certain states with proportionately higher income tax rates.

FISCAL 1999 COMPARED WITH FISCAL 1998

Sales increased 88.5% to $436.0 million in 1999 from $231.3 million in
1998, substantially due to the incremental revenue contribution of 13
acquisitions in 1998 and 19 acquisitions in 1999 (hereafter, we refer to these
32 acquired businesses as the 1998/1999 Acquisitions).

Gross profit increased 86.7% to $137.0 million in 1999 from $73.4 million
in 1998, primarily due to the addition of the 1998/1999 Acquisitions. Gross
profit as a percentage of sales decreased to 31.4% in 1999 from 31.7% in 1998
because the combined operating margins of the 1998/1999 Acquisitions, which
contributed a substantial portion of our total 1999 sales, were lower than our
historical consolidated operating margin in 1998.

Selling expenses increased 91.2% to $42.7 million in 1999 from $22.4
million in 1998 due to the increased sales levels noted above. Selling expenses
as a percentage of sales increased slightly to 9.8% in 1999 from 9.7% in 1998
due primarily to higher selling costs incurred at newly acquired businesses.

General and administrative expenses increased 90.6% to $33.6 million in
1999 from $17.6 million in 1998. This increase is due to the addition of the
1998/1999 Acquisitions and, to a lesser extent, an increase in headquarters
staffing and related costs necessary to effectively manage our growth. Due to
these incremental costs, general and administrative expenses as a percentage of
sales increased slightly to 7.7% in 1999 from 7.6% in 1998.

Net interest expense increased 108.2% to $7.8 million in 1999 from $3.7
million in 1998, primarily due to a net increase in borrowings under our
revolving credit facilities used to finance the purchase of the 1998/1999
Acquisitions.

Effective income tax rates reflect an increase to 39% in 1999 from 38% in
1998 due to a combination of factors, including the acquisition of businesses in
states with proportionately higher income tax rates, the effect of nondeductible
goodwill incurred in connection with certain acquisitions and an increase in our
effective marginal federal income tax rate.

LIQUIDITY AND CAPITAL RESOURCES

As of March 31, 2000, we had cash and cash equivalents of $8.2 million,
working capital of $61.7 million and total debt outstanding of $266.5 million.
As of March 31, 1999, we had cash and cash equivalents of $6.5 million, working
capital of $49.8 million and total debt outstanding of $173.4 million. We used
cash to complete acquisitions totaling $70.0 million in 2000, compared to
$120.0 million in 1999 and $42.8 million in 1998. Cash utilized for capital
expenditures was $25.2 million in 2000, $30.4 million in 1999 and $10.6 million
in 1998. During 2000 we also used cash of $30.4 million pursuant to our share
repurchase program.

Our cash requirements are financed through internally generated funds and
borrowings under our revolving credit facilities. During 2000 we generated cash
flow from operations (net income plus depreciation, amortization and deferred
tax provision) of $86.5 million, as compared to $55.2 million in 1999 and
$31.6 million in 1998. Net incremental borrowings under our revolving credit
facilities were $59.9 million in 2000, $93.5 million in 1999 and $26.2 million
in 1998. We also incurred debt to finance certain equipment purchases totaling
$26.9 million in 2000, $8.3 million in 1999 and $6.3 million in 1998.

12
<PAGE>
INVESTING ACTIVITIES

During 2000 we acquired 13 printing businesses. To complete these
acquisitions, in the aggregate, we paid cash of $42.0 million, issued 1,032,407
shares of our common stock, and discharged debt and paid other liabilities of
the acquired businesses totaling $24.5 million. Additionally, debt of the
acquired businesses totaling $10.7 million remained outstanding following the
acquisitions.

Pursuant to earnout agreements entered into in connection with certain
acquisitions, we issued 13,332 shares of our common stock and paid $3.5 million
during fiscal 2000, and as of March 31, 2000, we were contingently obligated at
certain times and under certain circumstances through 2005 to issue up to
460,488 shares of our common stock and to make additional cash payments of up to
$25.5 million for all periods in the aggregate.

We intend to continue pursuing acquisition opportunities at prices we
believe are reasonable based upon market conditions and at returns relative to
alternative opportunities to invest our available capital, including investment
in our own equity through our share repurchase program (see below). We expect to
fund future acquisitions through cash flow from operations, borrowings under our
revolving credit facilities or the issuance of our common stock. To the extent
we fund a significant portion of the consideration for future acquisitions with
cash, we may have to increase the amount of our revolving credit facilities or
obtain alternative sources of financing. There can be no assurance that we will
be able to acquire additional businesses on acceptable terms in the future. In
addition, there can be no assurance that we will be able to establish, maintain
or increase the profitability of any acquired business.

We expect to continue making capital expenditures using cash flow from
operations, supplemented as necessary by borrowings under our revolving credit
facilities or the issuance of term notes.

FINANCING ACTIVITIES

Our primary revolving credit facility (the "Credit Agreement") was obtained
from a syndicate of commercial banks and, as amended in September 1999, has a
maximum borrowing capacity of $245.0 million, of which $198.4 million was
outstanding at March 31, 2000. Borrowings outstanding under the Credit Agreement
are unsecured and accrue interest, at our option, at either (1) the London
Interbank Offered Rate (LIBOR) plus .50% to 1.50% based upon our Debt to Pro
Forma EBITDA ratio as defined, redetermined quarterly, or (2) an alternate base
rate based upon the agent bank's prime lending rate or Federal Funds effective
rate. We are also required to pay a commitment fee on available but unused
amounts ranging from .10% to .35% per year. The Credit Agreement will mature
July 31, 2001, and we must repay all amounts outstanding as of that date.
Borrowings outstanding under the Credit Agreement were subject to a weighted
average interest rate of 6.83% at March 31, 2000. In addition, we have an
auxiliary revolving credit facility with a commercial bank which has a maximum
borrowing capacity of $10.0 million, of which $9.9 million was outstanding at
March 31, 2000. The interest rate applicable to all borrowings under this
facility at March 31, 2000 was 6.66%.

Our Company is subject to certain covenants and restrictions and must meet
certain financial tests pursuant to and as defined in the Credit Agreement. We
believe that these restrictions do not adversely affect our acquisition or
operating strategies, and that we are in compliance with these covenants and
financial tests at March 31, 2000. We have initiated discussions with certain
parties to refinance our Credit Agreement, and we expect to complete this
refinancing during fiscal 2001.

We also have agreements with two printing equipment manufacturers, pursuant
to which we receive certain volume purchase incentives and long-term financing
options with respect to the purchase of printing presses and other equipment.
Under our agreement with Komori America Corporation (the "Komori Agreement"), we
were obligated on term notes totaling $28.9 million and subject to a weighted
average interest rate of 7.13% as of March 31, 2000. Under our agreement with
Heidelberg USA (the "Heidelberg Agreement"), we were obligated on term notes
totaling $18.0 million and subject to a weighted average interest rate of 8.09%
as of March 31, 2000. The term notes payable under the Komori Agreement and the
Heidelberg Agreement provide for fixed monthly

13
<PAGE>
principal and interest payments over ten years and are secured by the purchased
printing equipment. Our Company is not subject to any significant financial
covenants or restrictions in connection with these obligations. As of March 31,
2000, we had accepted delivery of additional printing equipment for a total
purchase price of $21.1 million, which amount is included in accounts payable in
the accompanying consolidated financial statements and is expected to be
financed under terms of the Komori Agreement or Heidelberg Agreement, as
applicable.

During 2000, we purchased 2,069,772 shares of our common stock at a total
cost of $30.4 million pursuant to a share repurchase program approved by our
Board of Directors on November 12, 1999. Subsequent to March 31, 2000, our Board
of Directors approved the repurchase of an additional 1,400,000 shares of our
common stock; however, there have been no shares repurchased under this program
since that date. The amount and timing of any purchases will depend on a number
of factors, including the price and availability of our shares, general market
conditions and certain provisions in our existing Credit Agreement.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

Market risk generally means the risk that losses may occur in the value of
certain financial instruments as a result of movements in interest rates,
foreign currency exchange rates and commodity prices. We do not hold or utilize
derivative financial instruments which could expose our Company to significant
market risk. However, we are exposed to market risk for changes in interest
rates related primarily to our short-term and long-term debt obligations. Our
debt obligations as of March 31, 2000 include borrowings under our revolving
credit facilities totaling $208.3 million, various term equipment notes totaling
$51.0 million and other debt obligations totaling $7.2 million.

The following table sets forth the average interest rate for the scheduled
maturities of our debt obligations as of March 31, 2000 ($ in millions):

<TABLE>
<CAPTION>
ESTIMATED
FAIR VALUE
AT MARCH 31,
2001 2002 2003 2004 2005 THEREAFTER TOTAL 2000
------- ------- -------- ------- ------- ---------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
FIXED RATE DEBT:
Amount.................... $ 4.6 $ 7.7 $ 5.4 $ 6.3 $ 5.6 $ 22.7 $ 52.3 $ 51.2
Average interest rate..... 7.48% 7.92% 7.67% 7.81% 7.58% 7.56% 7.65%
VARIABLE RATE DEBT:
Amount.................... $ .5 $ 208.9 $ .5 $ .5 $ .5 $ 3.3 $ 214.2 $ 214.2
Average interest rate..... 9.41% 6.83% 9.14% 8.97% 8.82% 8.53% 6.88%
</TABLE>

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Our consolidated financial statements, together with the report thereon of
Arthur Andersen LLP dated May 10, 2000, including the information required by
Item 302 of Regulation S-K, are set forth on pages 19 through 32 hereof.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None.

14
<PAGE>
PART III

The information called for by "Item 10. Directors and Executive Officers of
the Registrant" (except for the information regarding executive officers which
is included in Part I hereof as "Item 1. Business -- Executive Officers"),
'Item 11. Executive Compensation', "Item 12. Security Ownership of Certain
Beneficial Owners and Management', and "Item 13. Certain Relationships and
Related Transactions', is hereby incorporated by reference to the Company's
Proxy Statement for its Annual Meeting of Shareholders (presently scheduled to
be held July 26, 2000) to be filed with the SEC pursuant to Regulation 14A under
the Securities Exchange Act of 1934, as amended.

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a)(1) FINANCIAL STATEMENTS:
See the Index to Consolidated Financial Statements on page 18 hereof.

(a)(2) FINANCIAL STATEMENT SCHEDULES:
Report of Independent Public Accountants on Supplementary Data.

Schedule II -- Valuation and Qualifying Accounts.

All other schedules have been omitted since the required information
is not significant or is included in the Consolidated Financial
Statements or notes thereto or is not applicable.

(a)(3) EXHIBITS:

<TABLE>
<C> <S>
*3.1 -- Restated Articles of Incorporation of the Company filed with
the Secretary of State of the State of Texas on July 27,
1994 (Consolidated Graphics, Inc. Form 10-Q (June 30, 1994)
SEC File No. 0-24068, Exhibit 4(a)).
*3.2 -- Articles of Amendment to the Restated Articles of
Incorporation of the Company dated as of July 29, 1998.
(Consolidated Graphics, Inc. Form 10-Q (June 30, 1998) SEC
File No. 0-24068, Exhibit 3.1).
*3.3 -- Restated By-Laws of the Company, dated as of November 2,
1998 (Consolidated Graphics, Inc. Form 10-Q (September 30,
1998) SEC File No. 0-24068,
Exhibit 3.2).
*3.4 -- Restated By-Laws of the Company as amended on June 23, 1999
(Consolidated Graphics, Inc. Form 10-Q (June 30, 1999)
SEC File No. 0-24068, Exhibit 3.4).
*3.5 -- Amendments to the By-Laws of the Company on December 15,
1999 (Consolidated Graphics, Inc. Form 8-K (December 15,
1999) SEC File No. 0-24068, Exhibit 3.2).
*4 -- Specimen Common Stock Certificate (Consolidated Graphics,
Inc. Form 10-K (March 31, 1998) SEC File No. 0-24068,
Exhibit 4.1).
*4.1 -- Rights Agreement dated as of December 15, 1999 between
Consolidated Graphics, Inc. and American Stock Transfer and
Trust Company, as Rights Agent, which includes as Exhibit A
the Certificate of Designations of Series A Preferred
Stock, as Exhibit B the form of Right Certificate and as
Exhibit C the form of summary of Rights to Purchase Shares
(Consolidated Graphics, Inc. Form 8-K (December 15, 1999)
SEC File No. 0-24068, Exhibit 4.1).
*10.1 -- Revolving Credit Agreement among the Company and Texas
Commerce Bank National Association as Agent and Bank One of
Texas, N.A. as Co-Agent, dated as of June 5, 1997
(Consolidated Graphics, Inc. Form 10-K (March 31, 1997) SEC
File No. 0-24068, Exhibit 10.8).
*10.2 -- 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).
</TABLE>

15
<PAGE>
<TABLE>
<C> <S>
*10.3 -- Second Amendment to the Revolving Credit Amendment among the
Company and Chase Bank of Texas as Agent and Bank One of
Texas, N.A. as Co-Agent, dated April 26, 1999. (Consolidated
Graphics, Inc. Form 10-K (March 31, 1999) SEC File
No. 0-24068, Exhibit 10.3).
10.4 -- Third Amendment to the Revolving Credit Agreement among the
Company and Chase Bank of Texas N.A. as Agent, BankOne,
Texas N.A. as Co-Agent, Comerica Bank-Texas as Co-Agent, and
First Union National Bank as Co-Agent, dated September 22,
1999.
*10.5 -- Fourth Amendment to the Revolving Credit Agreement among the
Company and Chase Bank of Texas N.A. as Agent, BankOne,
Texas N.A. as Co-Agent, Comerica Bank-Texas as Co-Agent, and
First Union National Bank as Co-Agent, dated November 12,
1999 (Consolidated Graphics, Inc. Form 10-Q (December 31,
1999) SEC File No. 0-24068, Exhibit 10.1).
10.6 -- Fifth Amendment to the Revolving Credit Agreement among the
Company and Chase Bank of Texas N.A. as Agent, BankOne Texas
N.A. as Co-Agent, Comerica Bank-Texas as Co-Agent, and First
Union National Bank as Co-Agent, dated May 12, 2000.
*10.7 -- 1994 Consolidated Graphics, Inc. Long-Term Incentive Plan
(Consolidated Graphics, Inc. Registration Statement on
Form S-1 (Reg. No. 33-77468), Exhibit 10.14).
*10.8 -- First Amendment to Consolidated Graphics, Inc. Long-Term
Incentive Plan (reflecting an increase in the number of
shares of Common Stock authorized to be issued thereunder
from 367,500 to 967,500) (Consolidated Graphics, Inc.
Registration Statement on Form S-8 (Reg. No. 333-66019),
Exhibit 4.2).
*10.9 -- 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 to 3,435,000) (Consolidated
Graphics, Inc. Registration Statement on Form S-8 (Reg.
No. 333-66019), Exhibit 4.3).
21 -- List of Subsidiaries.
23.1 -- Consent of Arthur Andersen LLP.
24 -- Powers of Attorney.
27 -- Edgar financial data schedule.
</TABLE>

------------

* Incorporated by reference.

(b) REPORTS ON FORM 8-K:

1) Form 8-K, filed January 14, 2000 in connection with the press
release announcing the appointment of an Executive Vice President
and Chief Administrative Officer and an update on the status of the
Company's share repurchase program.

2) Form 8-K, filed January 26, 2000 in connection with the press
release announcing the Company's fiscal 2000 third quarter results.

3) Form 8-K, filed April 26, 2000 in connection with the press release
announcing the Company's fiscal 2000 fourth quarter results and an
update on the Company's share repurchase program.

4) Form 8-K, filed May 9, 2000 in connection with the press release
announcing the formation of a strategic alliance with Standard
Register.

16
<PAGE>
SIGNATURES

PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNDER DULY AUTHORIZED, IN THE CITY OF
HOUSTON, STATE OF TEXAS ON THE 26TH DAY OF JUNE, 2000.

CONSOLIDATED GRAPHICS, INC.

By: /s/: JOE R. DAVIS
-----------------------------------
JOE R. DAVIS
PRESIDENT, CHIEF EXECUTIVE OFFICER AND
CHAIRMAN OF THE BOARD OF DIRECTORS

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT AND
IN THE CAPACITIES AND ON THE DATES INDICATED.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/:JOE R. DAVIS President, Chief Executive
----------------------------
JOE R. DAVIS Officer and Director June 26, 2000
(Principal Executive Officer)

/s/:G. CHRISTOPHER COLVILLE Executive Vice President -- Mergers
----------------------------
G. CHRISTOPHER COLVILLE and Acquisitions; Chief Financial and June 26, 2000
Accounting Officer and Secretary

LARRY J. ALEXANDER* Director
----------------------------
LARRY J. ALEXANDER

BRADY F. CARRUTH* Director
----------------------------
BRADY F. CARRUTH

CLARENCE C. COMER* Director
----------------------------
CLARENCE C. COMER

GARY L. FORBES* Director
----------------------------
GARY L. FORBES

JAMES H. LIMMER* Director
----------------------------
JAMES H. LIMMER

HUGH N. WEST* Director
----------------------------
HUGH N. WEST

* By:/s/:JOE R. DAVIS
----------------------------
JOE R. DAVIS June 26, 2000
Attorney-in-Fact
</TABLE>

17
<PAGE>
FINANCIAL SUPPLEMENT TO
ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED MARCH 31, 2000

CONSOLIDATED GRAPHICS, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

PAGE
----
Report of Independent Public Accountants............................... 19

Consolidated Balance Sheets at March 31, 2000 and 1999................. 20

Consolidated Income Statements for the Years Ended March 31, 2000,
1999 and 1998........................................................ 21

Consolidated Statements of Shareholders' Equity for the Years
Ended March 31, 2000, 1999 and 1998.................................. 22

Consolidated Statements of Cash Flows for the Years Ended March 31,
2000, 1999 and 1998.................................................. 23

Notes to Consolidated Financial Statements............................. 24

18
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Shareholders of
Consolidated Graphics, Inc.:

We have audited the accompanying consolidated balance sheets of Consolidated
Graphics, Inc. (a Texas corporation) and subsidiaries as of March 31, 2000 and
1999, and the related consolidated statements of income, shareholders' equity
and cash flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Consolidated Graphics, Inc. and
subsidiaries as of March 31, 2000 and 1999, and the results of its operations
and its cash flows for the years then ended in conformity with accounting
principles generally accepted in the United States.

ARTHUR ANDERSEN LLP

Houston, Texas
May 10, 2000

19
<PAGE>
CONSOLIDATED GRAPHICS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

MARCH 31
---------------------
2000 1999
-------- ---------
ASSETS

CURRENT ASSETS:
Cash and cash equivalents....... $ 8,197 $ 6,538
Accounts receivable, net........ 115,646 92,653
Inventories..................... 32,670 27,345
Prepaid expenses................ 4,947 3,983
-------- ---------
Total current assets...... 161,460 130,519
PROPERTY AND EQUIPMENT, net.......... 310,344 230,733
GOODWILL, net........................ 198,588 121,744
OTHER ASSETS......................... 6,885 6,658
-------- ---------
$677,277 $ 489,654
======== =========

LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:
Current portion of long-term
debt.......................... $ 5,083 $ 2,869
Accounts payable................ 55,780 36,920
Accrued liabilities............. 35,260 38,028
Income taxes payable............ 3,607 2,941
-------- ---------
Total current
liabilities............. 99,730 80,758
LONG-TERM DEBT, net of current
portion............................ 261,407 170,574
DEFERRED INCOME TAXES................ 43,609 23,868
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock, $.01 par value;
100,000,000 shares authorized;
13,708,396 and 14,649,885
issued and outstanding........ 137 146
Additional paid-in capital...... 161,984 136,488
Retained earnings............... 110,410 77,820
-------- ---------
Total shareholders'
equity.................. 272,531 214,454
-------- ---------
$677,277 $ 489,654
======== =========

See accompanying notes to consolidated financial statements.

20
<PAGE>
CONSOLIDATED GRAPHICS, INC.
CONSOLIDATED INCOME STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)

YEAR ENDED MARCH 31
--------------------------------
2000 1999 1998
-------- -------- --------
SALES................................ $624,895 $435,961 $231,282

COST OF SALES........................ 437,345 298,935 157,906
-------- -------- --------

Gross profit.................... 187,550 137,026 73,376

SELLING EXPENSES..................... 61,267 42,767 22,365

GENERAL AND ADMINISTRATIVE
EXPENSES........................... 48,677 33,605 17,628
-------- -------- --------

Operating income................ 77,606 60,654 33,383

INTEREST EXPENSE..................... 13,584 7,841 3,844

INTEREST INCOME...................... (108) (96) (124)
-------- -------- --------

Income before income taxes...... 64,130 52,909 29,663

INCOME TAXES......................... 25,651 20,634 11,273
-------- -------- --------

NET INCOME........................... $ 38,479 $ 32,275 $ 18,390
======== ======== ========

BASIC EARNINGS PER SHARE............. $2.54 $2.35 $1.46
======== ======== ========

DILUTED EARNINGS PER SHARE........... $2.51 $2.28 $1.40
======== ======== ========

See accompanying notes to consolidated financial statements.

21
<PAGE>
CONSOLIDATED GRAPHICS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS)

<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
------------------ PAID-IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS TOTAL
------- ------- ---------- --------- --------
<S> <C> <C> <C> <C> <C>
BALANCE, March 31, 1997.............. 12,450 $124 $ 39,168 $ 27,155 $ 66,447
Common stock
issuance -- acquisitions.... 330 3 16,559 16,562
Exercise of stock options....... 180 2 3,931 3,933
Net income...................... 18,390 18,390
------ ---- -------- -------- --------
BALANCE, March 31, 1998.............. 12,960 129 59,658 45,545 105,332
Common stock
issuance -- acquisitions.... 1,518 15 75,224 75,239
Exercise of stock options....... 171 2 1,606 1,608
Net income...................... 32,275 32,275
------ ---- -------- -------- --------
BALANCE, March 31, 1999.............. 14,649 146 136,488 77,820 214,454
Common stock
issuance -- acquisitions.... 1,046 11 48,839 48,850
Exercise of stock options....... 83 1 1,118 1,119
Retirement of common stock...... (2,070) (21) (24,461) (5,889) (30,371)
Net income...................... 38,479 38,479
------ ---- -------- -------- --------
BALANCE, March 31, 2000.............. 13,708 $137 $161,984 $110,410 $272,531
====== ==== ======== ======== ========
</TABLE>

See accompanying notes to consolidated financial statements.

22
<PAGE>
CONSOLIDATED GRAPHICS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

YEAR ENDED MARCH 31
-------------------------------------
2000 1999 1998
--------- -------- --------
OPERATING ACTIVITIES:
Net income........................... $ 38,479 $ 32,275 $ 18,390
Adjustments to reconcile net income
to net cash provided by operating
activities --
Depreciation and amortization... 32,881 20,209 10,040
Deferred income tax provision... 15,135 2,697 3,148
Changes in assets and
liabilities, net of effects
of acquisitions --
Accounts receivable....... (6,070) 665 (6,242)
Inventories............... (1,633) 2,747 2,056
Prepaid expenses.......... (561) (594) (497)
Other assets.............. 512 1,729 (931)
Accounts payable and
accrued liabilities..... (11,351) (2,964) 3,702
Income taxes payable...... 927 3,632 322
--------- -------- --------
Net cash provided by
operating
activities........ 68,319 60,396 29,988
--------- -------- --------
INVESTING ACTIVITIES:
Acquisitions of businesses, net of
cash acquired...................... (70,005) (119,986) (42,784)
Purchases of property and
equipment.......................... (25,172) (30,429) (10,587)
Proceeds from asset dispositions..... 2,597 1,094 2,641
--------- -------- --------
Net cash used in
investing
activities........ (92,580) (149,321) (50,730)
--------- -------- --------
FINANCING ACTIVITIES:
Proceeds from revolving credit
facilities......................... 678,800 306,165 200,892
Payments on revolving credit
facilities......................... (618,860) (212,649) (174,712)
Payments on long-term debt........... (4,506) (4,202) (5,291)
Payments to repurchase and retire
common stock....................... (30,371) -- --
Proceeds from exercise of stock
options and other.................. 857 881 1,485
--------- -------- --------
Net cash provided by
financing
activities........ 25,920 90,195 22,374
--------- -------- --------
NET INCREASE IN CASH AND CASH
EQUIVALENTS........................ 1,659 1,270 1,632
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR.................. 6,538 5,268 3,636
--------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF
YEAR............................... $ 8,197 $ 6,538 $ 5,268
========= ======== ========

See accompanying notes to consolidated financial statements.

23
<PAGE>
CONSOLIDATED GRAPHICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA AND PERCENTAGES)

1. BUSINESS

Consolidated Graphics, Inc. (collectively with its subsidiaries referred to
as the "Company"), a Texas corporation, is a leading national provider of
commercial printing services. At March 31, 2000, the Company operated 63
printing businesses in 25 states. The majority of the Company's sales are
derived from traditional printing services, which include electronic prepress,
printing, finishing, storage and delivery of high-quality, custom-designed
products. Examples of such products include multicolor product and capability
brochures, shareholder communications, catalogs, training manuals,
point-of-purchase marketing materials, trading cards and direct mail pieces.

The Company utilizes its expertise in digital information processes to
provide electronic products and services that can be separate from, or
complementary to, its traditional printing services. Electronic products and
services include a custom on-line digital asset management system, proprietary
software used by customers for on-line print purchasing, ordering, workflow
management and fulfillment, and other "e-outsourcing" solutions (such as
repurposing of digital data for print customers with multi-channel distribution
needs and development of interactive database applications). The Company also
offers fulfillment and inventory management services at certain locations.

The Company's customers include national and local corporations, mutual
fund companies, advertising agencies, graphic design firms, catalog retailers
and direct mail distributors. The Company believes that its large customer base,
broad geographic coverage of the United States and wide range of printing
capabilities and other services may reduce its exposure to economic fluctuations
that may generally affect segments of the printing industry or any one region of
the country.

2. SIGNIFICANT ACCOUNTING POLICIES AND OTHER INFORMATION

ACCOUNTING POLICIES

The accounting policies of the Company reflect industry practices and
conform to accounting principles generally accepted in the United States. The
more significant of such accounting policies are described below.

PRINCIPLES OF CONSOLIDATION -- The accompanying consolidated financial
statements include the accounts of the Company and its wholly owned
subsidiaries. All intercompany accounts and transactions have been eliminated.
Certain reclassifications have been made to the prior year consolidated
financial statements to conform to the current year presentation.

USE OF ESTIMATES -- The preparation of financial statements in conformity
with generally accepted accounting principles requires the use of certain
estimates and assumptions by management in determining the reported amounts of
assets and liabilities, disclosure of contingent liabilities as of the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Because uncertainties with respect to such
estimates and assumptions are inherent in the preparation of financial
statements, actual results could differ from these estimates.

CASH AND CASH EQUIVALENTS -- The Company considers all highly liquid
investments purchased with original maturities of three months or less to be
cash equivalents.

REVENUE RECOGNITION AND ACCOUNTS RECEIVABLE -- The Company recognizes
revenue upon delivery of each job. Losses, if any, on jobs are recognized at the
earliest date such amount is determinable. The Company derives the majority of
its revenues from sales and services to a broad and diverse group of customers
with no individual customer accounting for more than 10% of the Company's
revenues during the years ended March 31, 2000, 1999 and 1998. The Company
maintains an allowance for doubtful accounts based upon the expected
collectibility of trade accounts receivable.

24
<PAGE>
CONSOLIDATED GRAPHICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA AND PERCENTAGES)

Accounts receivable in the accompanying consolidated balance sheets are
reflected net of allowance for doubtful accounts of $2,763 and $4,968 at
March 31, 2000 and 1999.

INVENTORIES -- Inventories are valued at the lower of cost or market
utilizing the first-in, first-out method for raw materials and the specific
identification method for work in progress and finished goods. The carrying
values of inventories are set forth below:

MARCH 31
---------------------
2000 1999
------- -------
Raw materials........................... $11,130 $ 9,890
Work in progress........................ 19,382 14,745
Finished goods.......................... 2,158 2,710
------- -------
$32,670 $27,345
======= =======

GOODWILL -- Goodwill represents the excess of cost over the estimated fair
value of identifiable assets of businesses acquired. Goodwill is stated at cost,
net of accumulated amortization, and is being amortized over forty years using
the straight-line method. Accumulated amortization of goodwill was $4,458 and
$2,122 at March 31, 2000 and 1999.

IMPAIRMENT OF LONG-LIVED ASSETS -- The Company periodically evaluates
whether the remaining balances of property and equipment, goodwill or other
long-lived assets may be recoverable by assessing current and future levels of
income and cash flows on an undiscounted basis, as well as other factors, such
as business trends and general market conditions. The Company has not recorded
any impairment losses with respect to property and equipment, goodwill or other
long-lived assets.

NEW ACCOUNTING PRONOUNCEMENTS -- Statement of Financial Accounting
Standards ("SFAS") No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING
ACTIVITIES, was issued in June 1998. It establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts (collectively referred to as derivatives), and for
hedging activities. In June 1999, SFAS No. 137, DEFERRAL OF THE EFFECTIVE DATE
OF SFAS No. 133, was issued and defers the adoption date of SFAS No. 133 to
fiscal years beginning after June 15, 2000. In December 1999, the Securities and
Exchange Commission issued Staff Accounting Bulletin ("SAB") No. 101, REVENUE
RECOGNITION IN FINANCIAL STATEMENTS, to provide guidance on the recognition,
presentation and disclosure of revenue in financial statements. SAB No. 101 is
required to be applied by June 30, 2000. Management does not believe that the
adoption of SFAS No. 133 or SAB No. 101 will have a material impact on the
Company's consolidated financial position or consolidated results of operations.

OTHER INFORMATION

SUPPLEMENTAL CASH FLOW INFORMATION -- The consolidated statements of cash
flows provide information about the Company's sources and uses of cash and
exclude the effects of non-cash transactions. Significant non-cash transactions
primarily include the issuance of common stock and the assumption of debt in
connection with the acquisition of certain printing businesses (see Note 3.
Acquisitions) and accounts payable of $21,123 related to the purchase of
printing presses as of March 31, 2000. Additionally, the Company issued term
equipment notes payable totaling $26,907, $8,278 and $6,286 for the years ended
March 31, 2000, 1999 and 1998 (See Note 5. Long-Term Debt). Such notes were
issued to satisfy certain accounts payable totaling $10,716 and $5,073 as of
March 31, 1999 and 1998, related to the purchase of printing presses, and to
acquire additional printing presses for $16,191 and $3,205 during the years
ended March 31, 2000 and 1999.

25
<PAGE>
CONSOLIDATED GRAPHICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA AND PERCENTAGES)

The following is a summary of the total cash paid for interest and income
taxes (net of refunds):

YEAR ENDED MARCH 31
-----------------------------
2000 1999 1998
------- ------- -------
CASH PAID FOR:
Interest........................... $12,846 $ 7,237 $ 3,482
Income taxes....................... 9,850 12,931 7,086

ACCRUED LIABILITIES -- The significant components of accrued liabilities
are as follows:

MARCH 31
---------------------
2000 1999
------- -------
Compensation and benefits............... $14,426 $12,518
Taxes payable........................... 3,293 3,177
Accrued purchases....................... 2,759 2,627
Other................................... 14,782 19,706
------- -------
$35,260 $38,028
======= =======

EARNINGS PER SHARE -- Basic earnings per share are calculated by dividing
net income by the weighted average number of common shares outstanding. For the
years ended March 31, 2000, 1999 and 1998, the weighted average number of common
shares outstanding were 15,154,683, 13,761,809 and 12,597,510. Diluted earnings
per share reflect net income divided by the weighted average number of common
shares and dilutive stock options outstanding. For the years ended March 31,
2000, 1999 and 1998, the weighted average number of common shares and dilutive
stock options outstanding were 15,335,583, 14,126,362 and 13,112,023.

RELATED PARTY TRANSACTIONS -- The Company leases, under terms it believes
are comparable to market rates, certain real estate from individuals who
formerly owned an acquired business and are now employed by the Company.

FAIR VALUE OF FINANCIAL INSTRUMENTS -- The Company's financial instruments
consist of cash, trade receivables, trade payables and debt obligations. The
Company does not hold or issue derivative financial instruments. The Company
believes that the fair value of its financial instruments, other than fixed rate
debt obligations totaling $52,253 at March 31, 2000, approximates their recorded
values. The Company estimates that the fair value of its fixed rate debt
obligations at March 31, 2000 is $51,242. Such estimate of fair value is based
on interest rates for the same or similar debt offered to the Company having the
same or similar maturities and collateral requirements.

CONCENTRATIONS OF CREDIT RISK -- Financial instruments which potentially
subject the Company to concentrations of credit risk are primarily cash deposits
and trade accounts receivable. Concentrations of credit risk with respect to
trade accounts receivable are limited because the Company's printing businesses
provide services to a broad range of customers in various geographical regions.
Management performs ongoing credit evaluations of its customers and generally
does not require collateral for the extension of credit. Additionally, the
Company provides an allowance for doubtful accounts as deemed necessary based
upon the expected collectibility of all such accounts.

26
<PAGE>
CONSOLIDATED GRAPHICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA AND PERCENTAGES)

3. ACQUISITIONS

All acquisitions have been accounted for using the purchase method of
accounting. Revenues and expenses of the businesses acquired have been included
in the accompanying consolidated financial statements from their respective
dates of acquisition. The allocation of purchase price to the assets and
liabilities acquired is based on estimates of fair market value. The allocation
of purchase price in connection with certain acquisitions in fiscal 2000 may be
prospectively revised when additional information the Company is awaiting
concerning certain liability valuations, other than contingent transaction
consideration, is obtained, provided that such information is received no later
than one year after the date of acquisition. The Company expects that such
additional information will not result in a material adjustment, in the
aggregate, to the balances reflected in the accompanying consolidated financial
statements pursuant to the preliminary purchase price allocations. Contingent
transaction consideration is accrued and reflected as an additional cost of the
transaction when payment thereof is deemed to be probable by the Company.

The Company completed the following acquisitions in fiscal 2000:

<TABLE>
<CAPTION>
COMPANY PRIMARY MARKET DATE
------- -------------- ----
<S> <C> <C>
Wentworth Printing Columbia, South Carolina April 1999
The Printery Milwaukee, Wisconsin April 1999
The Graphics Group Dallas, Texas June 1999
Westland Printers Baltimore, Maryland June 1999
H&N Printing Baltimore, Maryland June 1999
T/O Printing Los Angeles, California June 1999
Multiple Images Chicago, Illinois August 1999
Apple Graphics Los Angeles, California August 1999
Maryland Composition.com Baltimore, Maryland September 1999
Piccari Press Philadelphia, Pennsylvania October 1999
Keys Printing Greenville, South Carolina November 1999
Woodridge Press Los Angeles, California November 1999
Byrum Litho Columbus, Ohio December 1999
</TABLE>

To complete the aforementioned acquisitions, in the aggregate, the Company
paid cash of $42,044, issued 1,032,407 shares of its common stock and discharged
debt and paid other liabilities of the acquired businesses totaling $24,477.
Additionally, debt of the acquired businesses totaling $10,706 remained
outstanding following the acquisitions. During fiscal 2000 the Company also
issued 13,332 shares of its common stock and paid cash of $3,484 pursuant to
earnout agreements entered into in connection with certain prior year
acquisitions.

During fiscal 1999, the Company acquired 19 printing businesses. To
complete these acquisitions, in the aggregate, the Company paid cash of $61,824,
issued 1,493,673 shares of its common stock and discharged debt and paid other
liabilities of the acquired businesses totaling $54,295. Additionally, debt of
the acquired businesses totaling $476 remained outstanding following the
acquisitions. The Company also issued 23,861 shares of its common stock and paid
cash of $700 pursuant to earnout agreements entered into in connection with
certain prior year acquisitions.

During fiscal 1998, the Company acquired 13 printing businesses. To
complete these acquisitions, in the aggregate, the Company paid cash of $28,933,
issued 317,713 shares of its common stock and discharged debt of the acquired
businesses totaling $13,851. Additionally, debt of the acquired businesses
totaling $6,349 remained outstanding following the acquisitions, together with
accruals totaling $3,167 for the purchase of certain printing presses which were
paid in fiscal 1999. The

27
<PAGE>
CONSOLIDATED GRAPHICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA AND PERCENTAGES)

Company also issued 13,334 shares of its common stock pursuant to an earnout
agreement entered into in connection with a prior year acquisition.

The following table sets forth unaudited pro forma information assuming
that for the year ended March 31, 2000, the acquisitions in fiscal 2000 were
completed on April 1, 1999, and for the year ended March 31, 1999, each of the
acquisitions in fiscal 1999 and 2000 occurred on April 1, 1998.

YEAR ENDED MARCH 31
-----------------------
2000 1999
-------- --------
(UNAUDITED)
Sales................................... $669,086 $682,625
Net income.............................. 40,675 44,451
Diluted earnings per share.............. 2.62 2.78

The preceding pro forma financial information does not purport to be
indicative of the Company's consolidated financial position or consolidated
results of operations that would have occurred had the transactions been
completed at the beginning of the periods presented, nor does such pro forma
information purport to indicate the Company's consolidated results of operations
at any future date or for any future period. Certain of the Company's
acquisitions involve contingent consideration typically payable only in the
event that the financial results of an acquired business improve by an equal
amount or more after the acquisition; accordingly, such contingent consideration
has been excluded from the preceding pro forma financial information.

4. PROPERTY AND EQUIPMENT

Property and equipment are stated at cost, net of accumulated depreciation.
The costs of major renewals and betterments are capitalized; repairs and
maintenance costs are expensed when incurred. Depreciation of property and
equipment is computed using the straight-line method over the estimated useful
lives of the various classes of assets.

The following is a summary of the Company's property and equipment and
their estimated useful lives:

MARCH 31
---------------------- ESTIMATED
DESCRIPTION 2000 1999 LIFE IN YEARS
----------- -------- -------- -------------
<S> <C> <C> <C>
Land................................. $ 7,615 $ 5,061 --
Buildings and leasehold
improvements....................... 49,669 37,965 15-40
Printing presses and equipment....... 292,583 210,469 7-20
Computer equipment and software...... 16,192 8,964 2-5
Furniture, fixtures and other........ 9,090 7,095 5-7
-------- --------
375,149 269,554
Less -- accumulated depreciation.... (64,805) (38,821)
-------- --------
$310,344 $230,733
======== ========
</TABLE>

28
<PAGE>
CONSOLIDATED GRAPHICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA AND PERCENTAGES)

5. LONG-TERM DEBT

The following is a summary of the Company's long-term debt as of:

MARCH 31
----------------------
2000 1999
-------- --------
Revolving credit facilities.......... $208,337 $148,397
Term equipment notes................. 50,974 19,966
Other................................ 7,179 5,080
-------- --------
266,490 173,443
Less -- current portion............. (5,083) (2,869)
-------- --------
$261,407 $170,574
======== ========

The Company's primary revolving credit facility (the "Credit Agreement")
was obtained from a syndicate of commercial banks and, as amended in September
1999, has a maximum borrowing capacity of $245,000, of which $198,413 was
outstanding at March 31, 2000. Borrowings outstanding under the Credit Agreement
are unsecured and accrue interest, at the Company's option, at either (1) the
London Interbank Offered Rate (LIBOR) plus .50% to 1.50% based upon the
Company's Debt to Pro Forma EBITDA ratio as defined, redetermined quarterly, or
(2) an alternate base rate based upon the agent bank's prime lending rate or
Federal Funds effective rate. The Company is also required to pay a commitment
fee on available but unused amounts ranging from .10% to .35% per annum. The
Credit Agreement will mature July 31, 2001, and the Company must repay all
amounts outstanding as of that date. On March 31, 2000, borrowings outstanding
under the Credit Agreement were subject to a weighted average interest rate of
6.83%. In addition, the Company has an auxiliary revolving credit facility (the
'Auxiliary Facility") with a commercial bank which has a maximum borrowing
capacity of $10,000, of which $9,924 was outstanding at March 31, 2000. The
interest rate applicable to all borrowings under the Auxiliary Facility at
March 31, 2000 was 6.66%.

The covenants contained in the Credit Agreement, among other things, limit
the Company's ability to (i) incur secured indebtedness or pledge assets as
collateral in excess of certain levels, (ii) merge, consolidate with or acquire
other companies where the total consideration paid is above certain levels,
(iii) change its primary business, (iv) pay dividends above certain levels,
(v) dispose of assets outside the normal course of business in excess of 10% of
the Company's total tangible assets, and (vi) make capital expenditures
(exclusive of expenditures related to business acquisitions) in excess of 300%
of depreciation. The Company must also meet certain financial tests defined in
the Credit Agreement, including maintaining a defined Minimum Net Worth and
achieving specific ratios of Debt to Capitalization, Debt to Pro Forma EBITDA
and Fixed Charge Coverage.

The term equipment notes consist primarily of term notes payable pursuant
to printing equipment purchase and financing agreements between the Company and
Komori America Corporation (the "Komori Agreement") and the Company and
Heidelberg, USA (the "Heidelberg Agreement"). The term notes payable under both
the Komori Agreement and Heidelberg Agreement provide for fixed monthly
principal and interest payments over ten years and are secured by the purchased
printing equipment. At March 31, 2000, outstanding borrowings under the Komori
Agreement totaled $28,862 and were subject to a weighted average interest rate
of 7.13%. At March 31, 2000, outstanding borrowings under the Heidelberg
Agreement totaled $18,048 and were subject to a weighted average interest rate
of 8.09%. The remaining balance of term equipment notes totaling $4,064
primarily consists of various secured debt obligations assumed by the Company in
connection with certain fiscal 2000 acquisitions. The Company is not subject to
any significant financial covenants or restrictions in connection with any of
the term equipment notes described above.

29
<PAGE>
CONSOLIDATED GRAPHICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA AND PERCENTAGES)

The Company's remaining debt obligations generally consist of mortgages,
capital leases, promissory notes and industrial revenue bonds, some of which
contain financial covenants and restrictions. The most significant of these
restrictions place certain limits on future borrowings and acquisitions above
specified levels. The Company believes these restrictions do not adversely
affect its acquisition or operating strategies.

The principal payment requirements by fiscal year under the Company's debt
agreements are as follows: 2001 -- $5,083; 2002 -- $216,539; 2003 -- $5,933;
2004 -- $6,844; 2005 -- $6,165; thereafter -- $25,926.

6. INCOME TAXES

The provision for income taxes is composed of the following:

YEAR ENDED MARCH 31
-----------------------------
2000 1999 1998
------- ------- -------
Current.............................. $10,516 $17,936 $ 7,144
Deferred............................. 15,135 2,698 4,129
------- ------- -------
$25,651 $20,634 $11,273
======= ======= =======

The provision for income taxes differs from an amount computed at the
statutory rates as follows:

YEAR ENDED MARCH 31
-----------------------------------
2000 1999 1998
------- ------- -------
Provision at the statutory rate...... $22,446 $18,518 $10,085
State income taxes, net of federal
income tax benefit................. 1,965 1,279 965
Non-deductible expenses:
Amortization of goodwill........ 900 532 65
Other........................... 340 305 158
------- ------- -------
$25,651 $20,634 $11,273
======= ======= =======

Deferred income taxes reflect the future tax consequences of differences
between the tax bases of assets and liabilities and their financial reporting
amounts as measured based on enacted tax laws and regulations. The components of
the net deferred income tax liability are as follows:

MARCH 31
-----------------------------
2000 1999 1998
------- ------- -------
Property and equipment............... $36,493 $27,103 $17,952
Other................................ 7,116 (3,235) (2,279)
------- ------- -------
Net deferred income tax liability.... $43,609 $23,868 $15,673
======= ======= =======

7. COMMITMENTS AND CONTINGENCIES

The Company's minimum payments each fiscal year under its noncancelable
operating lease agreements for facilities and equipment are as follows:
2001 -- $9,139; 2002 -- $8,325; 2003 -- $6,691; 2004 -- $4,969;
2005 -- $3,589; thereafter -- $5,463. Total rent expense was $9,574, $5,234
and $2,729 for the years ended March 31, 2000, 1999 and 1998.

In connection with certain acquisitions, the Company has agreed to issue
additional shares of its common stock or make additional cash payments
contingent upon the acquired printing businesses improving operating profits in
excess of certain pre-determined targets. At March 31, 2000, the

30
<PAGE>
CONSOLIDATED GRAPHICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA AND PERCENTAGES)

Company was contingently obligated through fiscal 2005 to issue up to a total of
460,488 shares of its common stock and make additional cash payments of up to
$25,526 for all periods in the aggregate.

From time to time, the Company is subject to legal proceedings and claims
that arise in the ordinary course of its business. Currently, there are no legal
proceedings or claims pending against the Company that management believes will
have a material adverse effect upon the Company's consolidated financial
position or consolidated results of operations.

8. STOCK OPTIONS

Employees of the Company and certain nonemployee members of the Company's
Board of Directors have been or may be granted rights to purchase shares of its
common stock pursuant to the Consolidated Graphics, Inc. Long-Term Incentive
Plan (the "Plan"). Options granted pursuant to the Plan may either be incentive
stock options within the meaning of Section 422 of the Internal Revenue Code of
1986, as amended, or non-qualified stock options. Options granted under the Plan
are at a price not less than the market price of the stock at the date of grant
and periodically vest over a term of up to ten years. Options granted under the
Plan generally expire six months after the vesting period or termination of
employment. At March 31, 2000, a total of 2,677,232 shares were reserved for
issuance pursuant to the Plan, of which 1,440,572 shares were reserved for
options which had not been granted.

The Company accounts for the Plan under the provisions and related
interpretations of APB No. 25, "Accounting for Stock Issued to Employees." No
compensation expense or liability is recognized for such options in the
accompanying consolidated financial statements since all options were granted at
the fair market value of the stock at the date of grant.

The following table sets forth option transactions under the Plan:

<TABLE>
<CAPTION>
FOR THE YEARS ENDED MARCH 31
------------------------------------------------------------------------
2000 1999 1998
---------------------- --------------------- ---------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
--------- --------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at April 1............... 1,363,927 $40.54 808,048 $19.10 794,350 $ 9.91
Granted......................... 205,641 24.32 793,985 55.12 257,066 41.70
Exercised....................... (83,766) 10.40 (170,392) 11.28 (180,460) 8.59
Forfeited....................... (249,142) 47.58 (67,714) 29.62 (62,908) 26.10
--------- -------- --------
Outstanding at March 31.............. 1,236,660 38.36 1,363,927 40.54 808,048 19.10
========= ======== ========
Shares exercisable at March 31....... 323,891 $23.53 217,842 $14.94 210,590 $ 9.20
========= ======== ========
</TABLE>

Had the Company used the fair value-based method of accounting for the Plan
prescribed by SFAS No. 123, "Accounting for Stock-Based Compensation," and
charged compensation expense against income over the vesting period based on the
fair value of options at the date of grant, net income and diluted earnings per
share would have been reduced to the following pro forma amounts:

<TABLE>
<CAPTION>
FOR THE YEARS ENDED MARCH 31
------------------------------------------
2000 1999
------------------- -------------------
AS PRO AS PRO
REPORTED FORMA REPORTED FORMA
-------- ------- -------- -------
<S> <C> <C> <C> <C>
Net income........................... $ 38,479 $35,847 $ 32,275 $30,129
Diluted earnings per share........... $ 2.51 $ 2.40 $ 2.28 $ 2.19
</TABLE>

The pro forma compensation expense may not be representative of future
amounts because options vest over several years and additional options may be
granted in future years.

31
<PAGE>
CONSOLIDATED GRAPHICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA AND PERCENTAGES)

The weighted-average grant date fair value of options granted during fiscal
2000 and 1999 was $15.96 and $34.64, respectively. The weighted-average grant
date fair value of options was determined by utilizing the Black-Scholes
option-pricing model with the following key assumptions:

2000 1999
----- -----
Dividend yield....................... -- --
Expected volatility.................. 74.9% 51.5%
Average risk-free interest rate...... 6.3% 5.4%
Average expected life................ 5.0 yrs. 8.5 yrs.

The Black-Scholes model used by the Company to calculate the fair value of
options granted, as well as other currently accepted option valuation models,
were developed to estimate the fair value of freely tradeable, fully
transferable options without vesting and/or trading restrictions, which
significantly differ from the provisions associated with the Company's stock
option awards. These models also require highly subjective assumptions,
including future stock price volatility and expected time until exercise, which
greatly affect the calculated values. Accordingly, management does not believe
this model provides a reliable single measure of the fair value of the Company's
stock option awards.

9. UNAUDITED QUARTERLY FINANCIAL DATA

The following table contains selected quarterly financial data from the
consolidated income statements for each quarter of fiscal 2000 and 1999. The
Company believes this information reflects all normal recurring adjustments
necessary for a fair presentation of the information for the periods presented.
The operating results for any quarter are not necessarily indicative of results
for any future period.

<TABLE>
<CAPTION>
4TH 3RD 2ND 1ST
QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- --------
<S> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
FISCAL 2000:
Sales................................ $167,772 $158,408 $152,886 $145,829
Gross profit......................... 48,068 46,213 47,592 45,677
Net income........................... 8,168 8,855 10,763 10,693
Basic earnings per share............. .58 .56 .69 .71
Diluted earnings per share........... .58 .56 .68 .70

FISCAL 1999:
Sales................................ $129,313 $118,278 $103,270 $ 85,100
Gross profit......................... 40,389 37,150 32,401 27,086
Net income........................... 9,590 8,651 7,504 6,530
Basic earnings per share............. .66 .61 .56 .50
Diluted earnings per share........... .65 .60 .54 .48
</TABLE>

Earnings per share are computed independently for each of the quarters
presented; therefore, the sum of the quarterly earnings per share may not equal
annual earnings per share.

32
<PAGE>
CONSOLIDATED GRAPHICS, INC.

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
ON SUPPLEMENTARY DATA

To Consolidated Graphics, Inc.:

We have audited in accordance with auditing standards generally accepted in
the United States, the consolidated financial statements of Consolidated
Graphics, Inc. and subsidiaries included in this Annual Report on Form 10-K and
have issued our report thereon dated May 10, 2000, in which we expressed an
unqualified opinion. Our audits were made for the purpose of forming an opinion
on the basic financial statements taken as a whole. The Valuation and Qualifying
Accounts Schedule (Schedule II) listed in the index at Item 14(a) is presented
for purposes of complying with the Securities and Exchange Commission's rules
and is not part of the basic financial statements. This information has been
subjected to the auditing procedures applied in our audits of the basic
financial statements and, in our opinion, is fairly stated in all material
respects in relation to the basic financial statements taken as a whole.

ARTHUR ANDERSEN LLP

Houston, Texas
May 10, 2000

SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS

<TABLE>
UTILIZATION
BALANCE AT AMOUNT OF RESERVE BALANCE AT
BEGINNING CHARGED TO (NET OF END OF
DESCRIPTION OF YEAR EXPENSE RECOVERIES) OTHER YEAR
-------------------------------------------- ---------- ---------- ----------- ------ ----------

ALLOWANCE FOR DOUBTFUL ACCOUNTS
<S> <C> <C> <C> <C> <C>

Year Ended March 31, 2000.............. $4,968 $ -- $(3,377) $1,172(1) $2,763

Year Ended March 31, 1999.............. 1,505 139 (172) 3,496(1) 4,968

Year Ended March 31, 1998.............. 1,241 201 (116) 179(1) 1,505
</TABLE>

------------

(1) Represents primarily the aggregate increase in the beginning balances
arising from acquired businesses.