UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _______________ TO _______________
COMMISSION FILE NUMBER 0-24068
-------------------
CONSOLIDATED GRAPHICS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
TEXAS 76-0190827
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
5858 WESTHEIMER ROAD, SUITE 200
HOUSTON, TEXAS 77057
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
Registrant's telephone number, including area code: (713) 787-0977
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
The number of shares of Common Stock, par value $.01 per share, of the
Registrant outstanding at July 31, 2000 was 13,035,096.
CONSOLIDATED GRAPHICS, INC.
FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000
INDEX
PAGE
----
Part I -- Financial Information
Item 1 -- Financial Statements
Consolidated Balance Sheets at June 30, 2000 and March 31, 2000... 3
Consolidated Income Statements for the Three Months Ended
June 30, 2000 and 1999.......................................... 4
Consolidated Statements of Cash Flows for the Three Months Ended
June 30, 2000 and 1999.......................................... 5
Notes to Consolidated Financial Statements........................ 6
Item 2 -- Management's Discussion and Analysis of Financial Condition
and Results of Operations................................ 8
Item 3 -- Quantitative and Qualitative Disclosure About Market Risk.. 11
Part II -- Other Information
Item 1 -- Legal Proceedings.......................................... 12
Item 2 -- Changes in Securities and Use of Proceeds.................. 12
Item 3 -- Defaults upon Senior Securities............................ 12
Item 4 -- Submission of Matters to a Vote of Security Holders........ 12
Item 5 -- Other Information.......................................... 12
Item 6 -- Exhibits and Reports on Form 8-K........................... 13
Signatures.............................................................. 14
2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED GRAPHICS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
JUNE 30, MARCH 31,
2000 2000
--------------- ---------------
ASSETS (UNAUDITED) (AUDITED)
CURRENT ASSETS:
Cash and cash equivalents ............................................................... $ 12,425 $ 8,197
Accounts receivable, net ................................................................ 113,988 115,646
Inventories ............................................................................. 34,085 32,670
Prepaid expenses ........................................................................ 5,787 4,947
--------------- ---------------
Total current assets .............................................................. 166,285 161,460
PROPERTY AND EQUIPMENT, net .................................................................... 303,739 310,344
GOODWILL, net .................................................................................. 204,350 198,588
OTHER ASSETS ................................................................................... 7,426 6,885
--------------- ---------------
$ 681,800 $ 677,277
=============== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt ....................................................... $ 5,548 $ 5,083
Accounts payable ........................................................................ 48,702 55,780
Accrued liabilities ..................................................................... 36,460 35,260
Income taxes payable .................................................................... 7,678 3,607
--------------- ---------------
Total current liabilities ........................................................ 98,388 99,730
LONG-TERM DEBT, net of current portion ......................................................... 264,714 261,407
DEFERRED INCOME TAXES .......................................................................... 44,640 43,609
COMMITMENTS AND CONTINGENCIES .................................................................. -- --
SHAREHOLDERS' EQUITY:
Common stock, $.01 par value; 100,000,000 shares authorized;
13,034,346 and 13,708,396 issued and outstanding ..................................... 130 137
Additional paid-in capital .............................................................. 155,482 161,984
Retained earnings ....................................................................... 118,446 110,410
--------------- ---------------
Total shareholders' equity ....................................................... 274,058 272,531
--------------- ---------------
$ 681,800 $ 677,277
=============== ===============
See accompanying notes to consolidated financial statements.
3
CONSOLIDATED GRAPHICS, INC.
CONSOLIDATED INCOME STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
THREE MONTHS ENDED
JUNE 30,
---------------------------
2000 1999
------------ ------------
SALES ............................................ $ 173,486 $ 145,829
COST OF SALES .................................... 124,058 100,152
------------ ------------
Gross profit .............................. 49,428 45,677
SELLING EXPENSES ................................. 17,406 14,091
GENERAL AND ADMINISTRATIVE EXPENSES .............. 13,717 11,100
------------ ------------
Operating income .......................... 18,305 20,486
INTEREST EXPENSE ................................. 4,911 2,665
------------ ------------
Income before income taxes ................ 13,394 17,821
PROVISION FOR INCOME TAXES ....................... 5,358 7,128
------------ ------------
NET INCOME ....................................... $ 8,036 $ 10,693
============ ============
BASIC EARNINGS PER SHARE ......................... $ .59 $ .71
============ ============
DILUTED EARNINGS PER SHARE ....................... $ .59 $ .70
============ ============
See accompanying notes to consolidated financial statements.
4
CONSOLIDATED GRAPHICS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
THREE MONTHS ENDED
JUNE 30,
----------------------------------
2000 1999
--------------- ---------------
OPERATING ACTIVITIES:
Net income .......................................................................... $ 8,036 $ 10,693
Adjustments to reconcile net income to net cash provided
by operating activities --
Depreciation and amortization .................................................. 9,177 7,203
Deferred income tax provision .................................................. 1,031 270
Changes in assets and liabilities, net of effects of acquisitions-
Accounts receivable ........................................................ 1,251 1,023
Inventories ................................................................ (1,525) 2,797
Prepaid expenses ........................................................... (969) 372
Other assets ............................................................... (541) 295
Accounts payable and accrued liabilities ................................... (435) (8,192)
Income taxes payable ....................................................... 4,063 6,315
--------------- ---------------
Net cash provided by operating activities .............................. 20,088 20,776
--------------- ---------------
INVESTING ACTIVITIES:
Acquisitions of businesses, net of cash acquired .................................... (1,845) (15,228)
Purchases of property and equipment ................................................. (5,090) (3,835)
Proceeds from asset dispositions .................................................... 599 267
--------------- ---------------
Net cash used in investing activities .................................. (6,336) (18,796)
--------------- ---------------
FINANCING ACTIVITIES:
Proceeds from revolving credit facilities ........................................... 67,446 42,196
Payments on revolving credit facilities ............................................. (69,240) (42,315)
Payments on long-term debt .......................................................... (1,208) (1,110)
Payments to repurchase and retire common stock ...................................... (6,678) --
Proceeds from exercise of stock options and other ................................... 156 160
--------------- ---------------
Net cash used in financing activities .................................. (9,524) (1,069)
--------------- ---------------
NET INCREASE IN CASH AND CASH EQUIVALENTS .................................................. 4,228 911
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ........................................... 8,197 6,538
--------------- ---------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ................................................. $ 12,425 $ 7,449
=============== ===============
See accompanying notes to consolidated financial statements.
5
CONSOLIDATED GRAPHICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)
1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited consolidated financial statements include the
accounts of Consolidated Graphics, Inc. and subsidiaries (collectively with its
subsidiaries referred to as "the Company"). All intercompany accounts and
transactions have been eliminated. Such statements have been prepared in
accordance with generally accepted accounting principles and the Securities and
Exchange Commission's rules and regulations for reporting interim financial
information. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation of
the accompanying unaudited consolidated financial statements have been included.
Operating results for the three months ended June 30, 2000 are not necessarily
indicative of future operating results. Balance sheet information as of March
31, 2000 has been derived from the 2000 annual audited consolidated financial
statements of the Company. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Company's Form 10-K
filed with the Securities and Exchange Commission in June 2000. Certain
reclassifications have been made to fiscal 2000 amounts to conform to the
current year presentation.
Basic earnings per share are calculated by dividing net income by the
weighted average number of common shares outstanding. For the three months ended
June 30, 2000 and 1999, the basic weighted average shares outstanding were
13,600,779 and 15,083,396. Diluted earnings per share reflect net income divided
by the weighted average number of common shares and dilutive stock options
outstanding. For the three months ended June 30, 2000 and 1999, the weighted
average number of common shares and dilutive stock options outstanding were
13,610,018 and 15,377,568.
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 accounts
payable totaling $17,541 related to the purchase of printing equipment as of
June 30, 2000. Additionally, the Company issued term equipment notes payable
totaling $6,774 (see Note 2. Long-Term Debt) during the three months ended June
30, 2000 to satisfy certain accounts payable totaling $2,373 as of March 31,
2000 related to the purchase of printing equipment and to acquire additional
printing equipment for $4,401. The following is a summary of total cash paid for
interest and income taxes (net of refunds).
THREE MONTHS ENDED
JUNE 30,
------------------------
2000 1999
------ ------
CASH PAID FOR:
Interest ............................. $4,583 $3,086
Income Taxes ......................... 264 547
6
CONSOLIDATED GRAPHICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)
2. LONG-TERM DEBT
The following is a summary of the Company's long-term debt as of:
JUNE 30, MARCH 31,
2000 2000
------------ ------------
Revolving credit facilities ....... $ 206,543 $ 208,337
Term equipment notes .............. 56,786 50,974
Other ............................. 6,933 7,179
------------ ------------
270,262 266,490
Less current portion .............. (5,548) (5,083)
------------ ------------
$ 264,714 $ 261,407
============ ============
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 $196,876 was
outstanding at June 30, 2000. The Credit Agreement will mature July 31, 2001, at
which time all amounts outstanding thereunder will be due. On June 30, 2000
borrowings outstanding under the Credit Agreement were unsecured and accrued
interest at a weighted average interest rate of 7.28%. In addition, the Company
maintains an auxiliary revolving credit facility (the "Auxiliary Facility") with
a commercial bank which provides for a maximum borrowing capacity of $10,000, of
which $9,667 was outstanding at June 30, 2000. The interest rate applicable to
all borrowings under the Auxiliary Facility at June 30, 2000 was 7.39%. The
Company has initiated discussions with certain parties to refinance the Credit
Agreement and expects to complete this refinancing during the second quarter of
this fiscal year.
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 the Heidelberg Agreement provide for fixed monthly
principal and interest payments over ten years and are secured by the purchased
printing equipment. As of June 30, 2000, outstanding borrowings under the Komori
Agreement totaled $28,709 and were subject to a weighted average interest rate
of 7.06%. As of June 30, 2000 outstanding borrowings under the Heidelberg
Agreement totaled $24,486 and were subject to a weighted average interest rate
of 8.24%. The remaining balance of term equipment notes totaling $3,591
primarily consists of various secured debt obligations assumed by the Company in
connection with certain prior year acquisitions. The Company is not subject to
any significant financial covenants or restrictions in connection with any of
the term equipment notes described above.
3. ACQUISITIONS
During the three months ended June 30, 2000, the Company paid cash of
$1,845 to satisfy certain liabilities of acquired businesses that existed at
March 31, 2000 or pursuant to earnout agreements entered into in connection with
certain prior year acquisitions.
7
ITEM 2. 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 THE ABILITY OF THE COMPANY TO MAINTAIN OR IMPROVE
ITS OPERATING RESULTS AND ACQUIRE ADDITIONAL PRINTING BUSINESSES. ALTHOUGH THE
COMPANY BELIEVES THAT THE ASSUMPTIONS UNDERLYING THE FORWARD-LOOKING STATEMENTS
ARE REASONABLE, ANY OF THE ASSUMPTIONS COULD BE INACCURATE, AND THERE CAN BE NO
ASSURANCE THAT THE FORWARD-LOOKING STATEMENTS INCLUDED HEREIN WILL PROVE TO BE
ACCURATE. THE INCLUSION OF SUCH INFORMATION SHOULD NOT BE REGARDED AS A
REPRESENTATION BY THE COMPANY OR ANY OTHER PERSON THAT THE OBJECTIVES AND PLANS
OF THE COMPANY WILL BE ACHIEVED.
THE FOLLOWING DISCUSSION OF THE FINANCIAL CONDITION AND PERFORMANCE OF THE
COMPANY SHOULD BE READ IN CONJUNCTION WITH THE CONSOLIDATED FINANCIAL STATEMENTS
INCLUDED HEREIN AND THE CONSOLIDATED FINANCIAL STATEMENTS AND RELATED NOTES AND
OTHER DETAILED INFORMATION REGARDING THE COMPANY INCLUDED IN THE COMPANY'S
ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED MARCH 31, 2000 AND OTHER
REPORTS FILED BY THE COMPANY WITH THE SECURITIES AND EXCHANGE COMMISSION.
OPERATING RESULTS FOR THE THREE MONTHS ENDED JUNE 30, 2000 ARE NOT NECESSARILY
INDICATIVE OF THE RESULTS TO BE EXPECTED FOR THE ENTIRE FISCAL YEAR ENDING MARCH
31, 2001 OR ANY PERIODS THEREAFTER.
OVERVIEW
We are a leading national provider of general commercial printing services
with printing operations in 25 states as of June 30, 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.
8
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.
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 tables set forth the Company's historical income statements
for the periods indicated:
AS A PERCENTAGE
OF SALES
----------------------------------
THREE MONTHS THREE MONTHS
ENDED JUNE 30, ENDED JUNE 30,
--------------------------------- ----------------------------------
2000 1999 2000 1999
--------------- --------------- --------------- ---------------
(IN MILLIONS)
Sales ................................................ $ 173.5 $ 145.8 100.0% 100.0%
Cost of sales ........................................ 124.1 100.1 71.5 68.7
--------------- --------------- --------------- ---------------
Gross profit ................................... 49.4 45.7 28.5 31.3
Selling expenses ..................................... 17.4 14.1 10.0 9.7
General and administrative expenses .................. 13.7 11.1 7.9 7.6
--------------- --------------- --------------- ---------------
Operating income ............................... 18.3 20.5 10.6 14.0
Interest expense ..................................... 4.9 2.7 2.9 1.8
--------------- --------------- --------------- ---------------
Income before income taxes ..................... 13.4 17.8 7.7 12.2
Provision for income taxes ........................... 5.4 7.1 3.1 4.9
--------------- --------------- --------------- ---------------
Net income ..................................... $ 8.0 $ 10.7 4.6% 7.3%
=============== =============== =============== ===============
Acquisitions in fiscal 2000 are the primary causes of the increases in our
revenues and expenses since June 30, 1999. Each of the acquisitions in fiscal
2000 were accounted for under the purchase method of accounting; accordingly,
our consolidated income statements reflect revenues and expenses of those
acquired businesses only for post-acquisition periods.
For more information regarding our fiscal 2000 acquisitions, refer to
"Notes to Consolidated Financial Statements" included in our Annual Report on
Form 10-K for the fiscal year ended March 31, 2000.
QUARTER ENDED JUNE 30, 2000 COMPARED WITH QUARTER ENDED JUNE 30, 1999
Sales increased 19.0% to $173.5 million for the quarter ended June 30,
2000, from $145.8 million for the same period last year, due primarily to the
incremental revenue contribution of 13 acquisitions in fiscal 2000 (the "2000
Acquired Businesses").
Gross profit increased 8.2% to $49.4 million for the quarter ended June
30, 2000, from $45.7 million for the same period last year, primarily due to the
incremental profit contribution of the 2000 Acquired Businesses. Gross profit as
a percentage of sales decreased to 28.5% during the quarter from 31.3% for the
same period a year ago. This decrease resulted from continuation of an
aggressive pricing strategy implemented in the previous quarter to increase
sales volume and gain market share, coupled with higher depreciation expense
attributable to capital expenditures.
9
Selling expenses increased 23.5% to $17.4 million for the quarter ended
June 30, 2000, from $14.1 million for the same period last year, primarily due
to the increased sales levels noted above. Selling expenses as a percentage of
sales increased to 10.0% for the quarter ended June 30, 2000, as compared to
9.7% in the same period last year, due primarily to marketing costs attributable
to the Company's pursuit of its national accounts and e-business initiatives.
General and administrative expenses increased 23.6% to $13.7 million for
the quarter ended June 30, 2000, from $11.1 million for the same period last
year. This increase is due primarily to the addition of the 2000 Acquired
Businesses. General and administrative expenses as a percentage of sales
increased to 7.9% during the quarter, as compared to 7.6% in the same period
last year, due to a proportionally higher level of general and administrative
expenses, including amortization of goodwill, incurred as a result of the 2000
Acquired Businesses.
Net interest expense increased to $4.9 million for the quarter ended June
30, 2000, from $2.7 million for the same period last year, primarily due to a
net increase in borrowings and higher interest rates paid under our revolving
credit facilities, together with the addition of term equipment notes related to
the purchase of printing equipment.
Effective income tax rates remained constant at 40% for the three months
ended June 30, 2000 as compared to the corresponding period a year ago.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 2000, we had cash and cash equivalents of $12.4 million,
working capital of $67.9 million and total debt outstanding of $270.3 million.
We used cash totaling $1.8 million during the quarter to pay certain
liabilities, including earnout obligations, related to prior year acquisitions.
Cash utilized for capital expenditures during the quarter was $5.1 million, and
we also paid $6.7 million to repurchase 700,000 shares of our common stock
pursuant to our share repurchase program.
Our cash requirements are financed through internally generated funds and
borrowings under our revolving credit facilities. We generated cash flow from
operations (net income plus depreciation, amortization, and deferred tax
provision) of $18.2 million for the quarter ended June 30, 2000, which exceeded
our cash requirements for the quarter and enabled us to reduce the balance
outstanding on our revolving credit facilities by $1.8 million during the
quarter. We incurred debt during the quarter to finance certain equipment
purchases in fiscal 2000 totaling $2.4 million and fiscal 2001 totaling $4.4
million.
INVESTING ACTIVITIES
Pursuant to earnout agreements entered into in connection with certain
acquisitions, we paid $1.4 million during the quarter ended June 30, 2000 and,
as of that date, we were contingently obligated at certain times and under
certain circumstances through fiscal 2005 to issue up to 629,333 shares of our
common stock and to make additional cash payments of up to $24.0 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 the
repurchase of our common stock. There can be no assurance that we will be able
to acquire additional businesses or shares of our common stock at prices and on
terms acceptable to us in the future. In addition, there can be no
assurances that we will be able to establish, maintain or increase the
profitability of any acquired business.
To fund future repurchases of our common stock, we expect to utilize cash
flow from operations and borrowings under our revolving credit facilities. 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 seek to expand our share repurchase program or 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, although there can be no assurance that we will be able to
do so.
10
We also 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 $196.9 million was
outstanding at June 30, 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 7.28% at June 30, 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 $9.7 million was outstanding at
June 30, 2000. The interest rate applicable to all borrowings under this
facility at June 30, 2000 was 7.39%.
Our Company is subject to certain covenants and restrictions and we 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 June 30, 2000. We have initiated discussions with certain
parties to refinance our Credit Agreement, and we expect to complete this
refinancing during the second quarter of 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 $28.7 million and subject
to a weighted average interest rate of 7.06% as of June 30, 2000. Under our
agreement with Heidelberg USA (the "Heidelberg Agreement"), we were obligated on
term notes totaling $24.5 million and subject to a weighted average interest
rate of 8.24% as of June 30, 2000. The term notes payable under the Komori
Agreement and the Heidelberg Agreement provide for fixed monthly 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 June 30, 2000, we had
accepted delivery of additional printing equipment for a total purchase price of
$17.5 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 the quarter ended June 30, 2000, we purchased 700,000 shares of our
common stock at a total cost of $6.7 million as we continued our share
repurchase program as approved by our Board of Directors on April 24, 2000. The
amount and timing of any future share repurchases 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 or any
potential replacement agreement.
RECENT ACCOUNTING PRONOUNCEMENTS
None.
ITEM 3. 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 revolving credit facilities. As of June 30, 2000,
there were no material changes in our market risk or the estimated fair value of
our short-term and long-term debt obligations as reported in our Annual Report
on Form 10-K for the fiscal year ended March 31, 2000.
11
CONSOLIDATED GRAPHICS, INC.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time to time our Company is involved in litigation relating to claims
arising out of its 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 consolidated financial position or consolidated results of
operations.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On July 26, 2000, the Company held its Annual Meeting of Shareholders. The
following item was submitted to a vote of shareholders through the solicitation
of proxies:
ELECTION OF CLASS I DIRECTORS
The following persons were elected to serve as Class I directors on the
Company's Board of Directors until the 2003 Annual Meeting of Shareholders
or until their successors have been duly elected and qualified. The votes
"for" and "against" each director were as follows:
NAME FOR AGAINST
---- --- -------
Larry J. Alexander....................... 11,615,570 143,405
Brady F. Carruth......................... 11,615,570 143,405
ITEM 5. OTHER INFORMATION
None.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS:
*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 Rights 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).
27 EDGAR financial data schedule.
* Incorporated by reference
(B) REPORTS ON FORM 8-K:
1) Form 8-K, filed April 26, 2000 in connection with the press release
announcing the Company's fiscal 2000 fourth quarter results and
providing an update on the Company's share repurchase program.
2) Form 8-K, filed May 9, 2000 in connection with the press release
announcing the formation of a strategic alliance with Standard
Register.
3) Form 8-K, filed July 27, 2000 in connection with the press releases
announcing the Company's fiscal 2001 first quarter results, including
an update on the Company's share repurchase program, and the hiring of
Charles F. White as the Company's president and chief operating
officer.
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SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THE
REGISTRANT, CONSOLIDATED GRAPHICS, INC., HAS DULY CAUSED THIS REPORT TO BE
SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
CONSOLIDATED GRAPHICS, INC.
Dated: August 14, 2000 By: /S/ G. CHRISTOPHER COLVILLE
-----------------------------------------
G. Christopher Colville
Executive Vice President -
Mergers and Acquisitions,
Chief Financial and Accounting
Officer and Secretary
14