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 DECEMBER 31, 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 January 31, 2001 was 13,005,218.
CONSOLIDATED GRAPHICS, INC.
FORM 10-Q FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 2000
INDEX
PAGE
----
Part I -- Financial Information
Item 1 -- Financial Statements
Consolidated Balance Sheets at December 31, 2000 and March 31, 2000 .. 3
Consolidated Income Statements for the Three and Nine Months Ended
December 31, 2000 and 1999 ......................................... 4
Consolidated Statements of Cash Flows for the Nine Months Ended
December 31, 2000 and 1999 ......................................... 5
Notes to Consolidated Financial Statements ........................... 6
Item 2 -- Management's Discussion and Analysis of Financial Condition and
Results of Operations ......................................... 9
Item 3 -- Quantitative and Qualitative Disclosure About Market Risk ..... 14
Part II -- Other Information
Item 1 -- Legal Proceedings ............................................. 15
Item 2 -- Changes in Securities and Use of Proceeds ..................... 15
Item 3 -- Defaults upon Senior Securities ............................... 15
Item 4 -- Submission of Matters to a Vote of Security Holders ........... 15
Item 5 -- Other Information ............................................. 15
Item 6 -- Exhibits and Reports on Form 8-K .............................. 15
Signatures ................................................................. 17
2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED GRAPHICS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
DECEMBER 31, MARCH 31,
2000 2000
-------- --------
ASSETS (UNAUDITED) (AUDITED)
CURRENT ASSETS:
Cash and cash equivalents ...................... $ 7,487 $ 8,197
Accounts receivable, net ....................... 112,811 115,646
Inventories .................................... 33,034 32,670
Prepaid expenses ............................... 5,922 4,947
-------- --------
Total current assets ....................... 159,254 161,460
PROPERTY AND EQUIPMENT, net ........................ 300,947 310,344
GOODWILL, net ...................................... 203,943 198,588
OTHER ASSETS ....................................... 8,597 6,885
-------- --------
$672,741 $677,277
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt .............. $ 16,520 $ 5,083
Accounts payable ............................... 33,548 55,780
Accrued liabilities ............................ 34,265 35,260
Income taxes payable ........................... 691 3,607
-------- --------
Total current liabilities .................. 85,024 99,730
LONG-TERM DEBT, net of current portion ............. 248,400 261,407
DEFERRED INCOME TAXES .............................. 52,516 43,609
COMMITMENTS AND CONTINGENCIES ...................... -- --
SHAREHOLDERS' EQUITY:
Common stock, $.01 par value; 100,000,000
shares authorized; 13,005,218 and
13,708,396 issued and outstanding ............ 130 137
Additional paid-in capital ..................... 155,131 161,984
Retained earnings .............................. 131,540 110,410
-------- --------
Total shareholders' equity ................. 286,801 272,531
-------- --------
$672,741 $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 NINE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
-------------------- --------------------
2000 1999 2000 1999
-------- -------- -------- --------
SALES ............................. $171,211 $158,408 $517,200 $457,123
COST OF SALES ..................... 125,594 112,195 372,896 317,641
-------- -------- -------- --------
Gross profit ............... 45,617 46,213 144,304 139,482
SELLING EXPENSES .................. 17,649 15,516 52,280 44,427
GENERAL AND ADMINISTRATIVE EXPENSES 13,663 12,450 41,026 35,367
-------- -------- -------- --------
Operating income ........... 14,305 18,247 50,998 59,688
INTEREST EXPENSE .................. 5,145 3,486 15,254 9,168
-------- -------- -------- --------
Income before income taxes . 9,160 14,761 35,744 50,520
PROVISION FOR INCOME TAXES ........ 3,664 5,906 14,298 20,208
-------- -------- -------- --------
NET INCOME ........................ $ 5,496 $ 8,855 $ 21,446 $ 30,312
======== ======== ======== ========
BASIC EARNINGS PER SHARE .......... $ .42 $ .56 $ 1.62 $ 1.96
======== ======== ======== ========
DILUTED EARNINGS PER SHARE ........ $ .42 $ .56 $ 1.62 $ 1.93
======== ======== ======== ========
See accompanying notes to consolidated financial statements.
4
CONSOLIDATED GRAPHICS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
NINE MONTHS ENDED
DECEMBER 31,
----------------------
2000 1999
--------- ---------
OPERATING ACTIVITIES:
Net income ........................................ $ 21,446 $ 30,312
Adjustments to reconcile net income to net cash
provided by operating activities --
Depreciation and amortization ................... 28,085 23,700
Deferred income tax provision ................... 8,907 8,598
Loss on disposition of assets ................... 972 --
Changes in assets and liabilities, net of
effects of acquisitions-
Accounts receivable ........................... 2,788 1,051
Inventories ................................... (408) 1,449
Prepaid expenses .............................. (1,104) (293)
Other assets .................................. (1,712) 510
Accounts payable and accrued
liabilities ................................. 753 (16,998)
Income taxes payable .......................... (2,903) (1,895)
--------- ---------
Net cash provided by operating activities ... 56,824 46,434
--------- ---------
INVESTING ACTIVITIES:
Acquisitions of businesses, net of cash acquired .. (3,857) (69,601)
Purchases of property and equipment ............... (19,792) (18,057)
Proceeds from asset dispositions .................. 1,367 1,343
--------- ---------
Net cash used in investing activities ..... (22,282) (86,315)
--------- ---------
FINANCING ACTIVITIES:
Proceeds from revolving credit facilities ......... 352,400 574,491
Payments on revolving credit facilities ........... (375,137) (526,460)
Payments on long-term debt ........................ (5,326) (3,555)
Payments to repurchase and retire common stock .. (7,354) (3,991)
Proceeds from exercise of stock options and other . 165 836
--------- ---------
Net cash (used in) provided by financing
activities .................................. (35,252) 41,321
--------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS . (710) 1,440
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ...... 8,197 6,538
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ............ $ 7,487 $ 7,978
========= =========
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 nine months ended December 31, 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
December 31, 2000 and 1999, the basic weighted average shares outstanding were
13,025,570 and 15,690,554. For the nine months ended December 31, 2000 and 1999,
the basic weighted average shares outstanding were 13,259,354 and 15,473,024.
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 December 31, 2000 and 1999, the weighted average number of common
shares and dilutive stock options outstanding were 13,031,296 and 15,836,188.
For the nine months ended December 31, 2000 and 1999, the weighted average
number of common shares and dilutive stock options outstanding were 13,266,501
and 15,675,177.
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. The Company issued term equipment notes payable totaling $26,493
(see Note 2. Long-Term Debt) during the nine months ended December 31, 2000 to
satisfy certain accounts payable totaling $21,123 as of March 31, 2000 related
to the purchase of printing equipment and to acquire additional printing
equipment for $5,370. The following is a summary of total cash paid for interest
and income taxes (net of refunds).
NINE MONTHS ENDED
DECEMBER 31,
------------------
2000 1999
------- -------
CASH PAID FOR:
Interest..................... $16,137 $ 9,373
Income taxes................. 8,245 13,508
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:
DECEMBER 31, MARCH 31,
2000 2000
--------- ---------
Revolving credit facilities ........... $ 185,600 $ 208,337
Term equipment notes .................. 72,585 50,974
Other ................................. 6,735 7,179
--------- ---------
264,920 266,490
Less current portion .................. (16,520) (5,083)
--------- ---------
$ 248,400 $ 261,407
========= =========
On December 11, 2000 the Company entered into a new $225,000 senior
secured credit facility (the "Credit Facility") with eleven banks led by First
Union National Bank. The Credit Facility replaced an existing revolving credit
agreement scheduled to mature on July 31, 2001. The Credit Facility is composed
of a $50,000 five-year term loan (the "Term Loan"), of which $47,500 was
outstanding at December 31, 2000, and a $175,000 five-year revolving credit line
(the "Revolving Line"), of which $136,300 was outstanding at December 31, 2000.
The size of the combined facility may be increased at a later date to $275,000
by adding additional lenders.
Borrowings outstanding under the Credit Facility are secured by
substantially all of the Company's assets other than its real estate and certain
equipment subject to term equipment notes and other financing. Borrowings under
the Credit Facility accrue interest, at the Company's option, at either (1) the
London Interbank Offered Rate (LIBOR) plus a margin of 1.25% to 2.25%, or (2) an
alternate base rate (based upon the greater of the agent bank's prime lending
rate or the Federal Funds effective rate plus .50%) plus a margin of 0% to
1.00%. The Company is also required to pay a commitment fee on available but
unused amounts ranging from .275% to .375%. The interest rate margin and the
commitment fee are based upon the Company's ratio of Funded Debt to Pro Forma
Consolidated EBITDA, as defined, redetermined quarterly. On December 31, 2000
borrowings outstanding under the Term Loan and the Revolving Line accrued
interest at 8.58%.
The Term Loan requires 20 fixed quarterly payments of $2,500 each
beginning on December 31, 2000, with the final payment due September 30, 2005.
The Revolving Line matures on December 11, 2005, and any amounts outstanding
under the Revolving Line must be repaid as of that date.
The proceeds of the Credit Facility can be used to repay certain
indebtedness, finance certain acquisitions and provide for working capital and
general corporate purposes. The Company may also use the proceeds of the Credit
Facility to repurchase its common stock, subject to a limit of $25,000 and only
to the extent that cumulative EBITDA exceeds certain levels.
In addition, on December 11, 2000 the Company entered into an auxiliary
revolving credit facility (the "Auxiliary Facility") with a commercial bank.
This Auxiliary Facility is unsecured and has a maximum borrowing capacity of
$5,000. The Auxiliary Facility matures on December 10, 2001, unless extended. At
December 31, 2000, borrowings outstanding under the Auxiliary Facility totaled
$1,800 and accrued interest at 8.63%.
7
CONSOLIDATED GRAPHICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)
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 periods of either five or ten years and are
secured by the purchased printing equipment. As of December 31, 2000,
outstanding borrowings under the Komori Agreement totaled $43,285 and were
subject to a weighted average interest rate of 7.44%. As of December 31, 2000
outstanding borrowings under the Heidelberg Agreement totaled $26,197 and were
subject to a weighted average interest rate of 8.01%. The remaining balance of
term equipment notes totaling $3,103 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 nine months ended December 31, 2000, the Company paid cash of
$3,857 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.
8
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 NINE MONTHS ENDED DECEMBER 31, 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 December 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 capitalize on their advanced technological
capabilities and expertise in digital processes to provide an extensive and
growing range of digital and Internet-based services and solutions 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 CGXMedia business unit 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. To a large extent, continued engagement of our
Company by our customers for successive jobs depends upon 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.
9
Our Company's primary operating strategy is to generate sales and profit
growth by capitalizing on our diversity of capabilities and broad geographic
coverage to expand local market share, aggressively pursue national account
opportunities and maximize the potential of CGXMedia to generate growth in our
core business of general commercial printing. We continue to make operational
improvements at our printing businesses by generating cost savings through
master purchasing arrangements for printing supplies and newer, more efficient
equipment. Also, our printing businesses have access to strategic counsel, best
practices and our unique Management Development Program, which help their
management teams continuously improve their techniques in such areas as
planning, organization and controls.
Our highly disciplined acquisition program has been an important part of
our business strategy, and we continue to screen opportunities to acquire
printing companies which are profitable and have good management, strong
customer relationships and a reputation for providing quality service and
products. Operating margins and efficiencies of newly acquired printing
businesses typically improve over time as our Company's operating strategies and
strengths are fully implemented.
RESULTS OF OPERATIONS
The following tables set forth the Company's historical income statements
for the periods indicated:
THREE MONTHS NINE MONTHS
ENDED DECEMBER 31, ENDED DECEMBER 31,
--------------- ---------------
2000 1999 2000 1999
------ ------ ------ ------
(in millions) (in millions)
Sales ................................. $171.2 $158.4 $517.2 $457.1
Cost of sales ......................... 125.6 112.2 372.9 317.6
------ ------ ------ ------
Gross profit ....................... 45.6 46.2 144.3 139.5
Selling expenses ...................... 17.6 15.5 52.3 44.4
General and administrative expenses ... 13.7 12.5 41.0 35.4
------ ------ ------ ------
Operating income ................... 14.3 18.2 51.0 59.7
Interest expense ...................... 5.1 3.4 15.3 9.2
------ ------ ------ ------
Income before income taxes ......... 9.2 14.8 35.7 50.5
Provision for income taxes ............ 3.7 5.9 14.3 20.2
------ ------ ------ ------
Net income ......................... $ 5.5 $ 8.9 $ 21.4 $ 30.3
====== ====== ====== ======
The following tables set forth the components of income expressed as a
percentage of sales for the periods indicated:
THREE MONTHS NINE MONTHS
ENDED DECEMBER 31, ENDED DECEMBER 31,
--------------- ---------------
2000 1999 2000 1999
----- ----- ----- -----
Sales ................................ 100.0% 100.0% 100.0% 100.0%
Cost of sales ........................ 73.4 70.8 72.1 69.5
----- ----- ----- -----
Gross profit ...................... 26.6 29.2 27.9 30.5
Selling expenses ..................... 10.3 9.8 10.1 9.7
General and administrative expenses .. 7.9 7.9 7.9 7.7
----- ----- ----- -----
Operating income .................. 8.4 11.5 9.9 13.1
Interest expense ..................... 3.0 2.2 3.0 2.0
----- ----- ----- -----
Income before income taxes ........ 5.4 9.3 6.9 11.1
Provision for income taxes ........... 2.1 3.7 2.8 4.4
----- ----- ----- -----
Net income ........................ 3.3% 5.6% 4.1% 6.7%
===== ===== ===== =====
10
Acquisitions in fiscal 2000 contributed to the increase in our revenues
and expenses since December 31, 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.
THREE MONTHS ENDED DECEMBER 31, 2000 COMPARED WITH THREE MONTHS ENDED
DECEMBER 31, 1999
Sales increased 8.0% to $171.2 million for the quarter ended December 31,
2000, from $158.4 million for the same period last year. Sales grew
approximately 2.0% as a result of the incremental revenue contribution of three
acquisitions during the quarter ended December 31, 1999. The remaining increase
is due to internal growth generated by our focused efforts to build market
share, add to our national account base and pursue our electronic media
initiatives.
Gross profit decreased 1.3% to $45.6 million for the quarter ended
December 31, 2000, from $46.2 million for the same period last year. Gross
profit as a percentage of sales decreased to 26.6% during the quarter from 29.2%
for the same period last year. This decrease resulted from a general economic
slowdown which reduced print demand, particularly in the month of December,
forcing our businesses to aggressively reduce prices to increase sales volume
and protect market share, coupled with higher depreciation expense attributable
to capital expenditures.
Selling expenses increased 13.7% to $17.6 million for the quarter ended
December 31, 2000, from $15.5 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 10.3% during the quarter, as compared to 9.8% in the same
period last year. This increase is due to higher marketing and training costs
attributable to our pursuit of national accounts and our e-business initiatives
as we continued to develop and promote our electronic products and services
capabilities available through CGXMedia.
General and administrative expenses increased 9.7% to $13.7 million for
the quarter ended December 31, 2000, from $12.5 million for the same period last
year. This increase is due in part to the acquisition of three businesses during
the quarter ended December 31, 1999, coupled with an increase in our corporate
infrastructure to better manage our operations. General and administrative
expenses as a percentage of sales remained constant at 7.9% as compared to the
same period last year.
Interest expense increased to $5.1 million for the quarter ended December
31, 2000, from $3.4 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 December 31, 2000 as compared to the same period last year.
NINE MONTHS ENDED DECEMBER 31, 2000 COMPARED WITH NINE MONTHS ENDED
DECEMBER 31, 1999
Sales increased 13.1% to $517.2 million for the nine months ended December
31, 2000, from $457.1 million for the same period last year. Sales grew
approximately 8.0% as a result of the incremental revenue contribution of the 13
businesses acquired in fiscal 2000 (the "2000 Acquired Businesses"), with the
remaining increase due to internal growth generated by our existing businesses.
Gross profit increased 3.4% to $144.3 million for the nine months ended
December 31, 2000, from $139.5 million for the same period last year. Gross
profit as a percentage of sales decreased to 27.9% for the nine months ended
December 31, 2000, from 30.5% in the same period last year. This decrease is due
to a combination of lower sales prices and higher labor and materials costs due
to economic conditions as discussed above, coupled with higher depreciation
expense.
11
Selling expenses increased 17.7% to $52.3 million for the nine months
ended December 31, 2000, from $44.4 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 10.1% for the nine months ended December 31,
2000, as compared to 9.7% in the same period last year, due primarily to higher
costs attributable to our pursuit of national accounts and our e-business
initiatives.
General and administrative expenses increased 16.0% to $41.0 million for
the nine months ended December 31, 2000, from $35.4 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% for the nine months ended December 31, 2000, as compared to
7.7% in the same period last year, due to a proportionally higher level of
administrative expenses, including amortization of goodwill, incurred as a
result of the 2000 Acquired Businesses, as well as an increase in our corporate
infrastructure to better manage our operations.
Interest expense increased to $15.3 million for the nine months ended
December 31, 2000, from $9.2 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 nine months
ended December 31, 2000 as compared to the same period last year.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 2000, we had cash and cash equivalents of $7.5 million,
working capital of $74.2 million and total debt outstanding of $264.9 million.
We used cash totaling $3.9 million during the nine months ended December 31,
2000 to pay certain liabilities, including earnout obligations, related to prior
year acquisitions. Cash utilized for capital expenditures during the nine months
ended December 31, 2000 was $19.8 million, and we also paid $7.4 million to
repurchase 730,228 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, deferred tax provision
and loss on asset disposition) of $59.4 million for the nine months ended
December 31, 2000, which exceeded our cash requirements for the period. During
the nine months ended December 31, 2000, we reduced the balance outstanding on
our revolving credit facilities by $22.7 million and incurred debt to finance
certain equipment purchases in fiscal 2000 totaling $21.1 million and fiscal
2001 totaling $5.4 million.
INVESTING ACTIVITIES
Pursuant to earnout agreements entered into in connection with certain
acquisitions, we paid $2.0 million during the nine months ended December 31,
2000 and, as of that date, we were contingently obligated at certain times and
under certain circumstances through fiscal 2005 to issue up to 396,230 shares of
our common stock and to make additional cash payments of up to $20.1 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.
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 fund a significant portion of the consideration
for future acquisitions with cash, we may seek 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.
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.
12
FINANCING ACTIVITIES
On December 11, 2000 we entered into a new $225.0 million senior secured
credit facility (the "Credit Facility") with eleven banks led by First Union
National Bank. The Credit Facility replaced an existing revolving credit
agreement due to mature on July 31, 2001. The Credit Facility is composed of a
$50.0 million five-year term loan (the "Term Loan"), of which $47.5 million was
outstanding at December 31, 2000, and a $175.0 million five-year revolving
credit line (the "Revolving Line"), of which $136.3 million was outstanding at
December 31, 2000. The size of the combined facility may be increased at a later
date to $275.0 million by adding additional lenders.
Borrowings outstanding under the Credit Facility are secured by
substantially all of our assets other than our real estate and certain equipment
subject to term equipment notes and other financing. Borrowings under the Credit
Facility accrue interest, at our option, at either (1) the London Interbank
Offered Rate (LIBOR) plus a margin of 1.25% to 2.25%, or (2) an alternate base
rate (based upon the greater of the agent bank's prime lending rate or the
Federal Funds effective rate plus .50%) plus a margin of 0% to 1.00%. We are
also required to pay a commitment fee on available but unused amounts ranging
from .275% to .375%. The interest rate margin and the commitment fee are based
upon our ratio of Funded Debt to Pro Forma Consolidated EBITDA, as defined,
redetermined quarterly. On December 31, 2000 borrowings outstanding under the
Term Loan and the Revolving Line accrued interest at 8.58%.
The Term Loan requires 20 fixed quarterly payments of $2.5 million each
beginning on December 31, 2000, with the final payment due September 30, 2005.
The Revolving Line matures on December 11, 2005, and any amounts outstanding
under the Revolving Line must be repaid as of that date.
The proceeds of the Credit Facility can be used to repay certain
indebtedness, finance certain acquisitions and provide for working capital and
general corporate purposes. We may also use the proceeds of the Credit Facility
to repurchase our common stock, subject to a limit of $25.0 million and only to
the extent that cumulative EBITDA exceeds certain levels.
In addition, on December 11, 2000 we entered into an auxiliary revolving
credit facility (the "Auxiliary Facility") with a commercial bank. This
Auxiliary Facility is unsecured and has a maximum borrowing capacity of $5.0
million. The Auxiliary Facility matures on December 10, 2001, unless extended.
At December 31, 2000, borrowings outstanding under the Auxiliary Facility
totaled $1.8 million and accrued interest at 8.63%.
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 December 31, 2000.
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 $43.3 million and subject
to a weighted average interest rate of 7.44% as of December 31, 2000. Under our
agreement with Heidelberg USA (the "Heidelberg Agreement"), we were obligated on
term notes totaling $26.2 million and subject to a weighted average interest
rate of 8.01% as of December 31, 2000. The term notes payable under the Komori
Agreement and the Heidelberg Agreement provide for fixed monthly principal and
interest payments over periods of either five or 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.
During the nine months ended December 31, 2000, we purchased 730,228
shares of our common stock at a total cost of $7.4 million, and we are
authorized to purchase up to an additional 700,000 shares pursuant to the share
repurchase program 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 Credit Facility. To fund future share
purchases, we expect to utilize cash flow from operations or borrowings under
our Credit Facility.
13
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 December 31,
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.
14
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
None.
ITEM 5. OTHER INFORMATION
None.
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).
*10 Credit Agreement among the Company and First Union National Bank as
Administrative Agent and First Union Securities, Inc., as Sole Arranger
and Book Runner and Bank One, N.A., as Documentation Agent, dated as of
December 11, 2000 (Consolidated Graphics, Inc. Form 8-K (December 28,
2000) SEC File No. 001-12631, Exhibit 10).
* Incorporated by reference
15
(b) REPORTS ON FORM 8-K:
1) Form 8-K, filed October 25, 2000 in connection with the press
release announcing the Company's fiscal 2001 second quarter results.
2) Form 8-K, filed November 7, 2000 in connection with the press
release announcing new sourcing agreements with xpedx and NetPrint.
3) Form 8-K, filed December 28, 2000 in connection with the press
release announcing the agreement of the Company's new credit
facility with a group of eleven banks.
4) Form 8-K, filed January 19, 2001 in connection with the press
releases announcing the appointment of an executive vice president
and chief financial officer and the Company's preliminary fiscal
2001 third quarter results.
5) Form 8-K, filed January 24, 2001 in connection with the press
release announcing the Company's fiscal 2001 third quarter results.
16
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: February 9, 2001 By: /s/ JOE R. DAVIS
Joe R. Davis
Chairman and Chief
Executive Officer
17