**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington, DC 20549**

 

**FORM 10-Q**

 

**(Mark One)**

 

**ý          ****QUARTERLYREPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934**

 

**For the quarterly period ended June 30, 2004**

 

**OR**

 

**o          ****TRANSITIONREPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934**

 

**For the transition period from                  to                  **

 

**Commission File Number 001-12631**

 

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**CONSOLIDATED GRAPHICS, INC.(Exact name of Registrant as specified in its charter)**

 

| **Texas**                                                        | ** ** | **76-0190827**                        |
|------------------------------------------------------------------|------------|---------------------------------------|
| (State or  other jurisdiction of  incorporation or organization) | ** ** | (I.R.S.  Employer Identification No.) |
|                                                             |       |                                  |
| **5858 Westheimer Road, Suite  200  Houston, Texas**             | ** ** | **77057**                             |
| (Address  of principal executive offices)                        | ** ** | (Zip Code)                            |

 

Registrant’s telephone number, including areacode:   **(713) 787-0977**

 

Indicate by check mark whether the Registrant (1) has filed all reportsrequired to be filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject to suchfiling requirements for the past 90 days.

 

Yes ý   No o

 

Indicate by check mark whether the Registrantis an accelerated filer (as defined in Rule 12b-2 of the Securities ExchangeAct of 1934).

 

Yes ý   No o

 

The number of shares of Common Stock, par value $.01 per share, of theRegistrant outstanding at July 15, 2004 was 13,599,959.

 

 

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**CONSOLIDATED GRAPHICS, INC.**

 

##### **FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE30, 2004**

 

**INDEX**

 
| Part I — Financial  Information |                                                                                                      |
|--------------------------------------|-----------------------------------------------------------------------------------------------------------|
|                                 |                                                                                                      |   |   |
|                                 | Item 1 — Financial Statements                                                                        |   |
|                                 |                                                                                                      |   |   |
|                                 |                                                                                                      | Consolidated Balance Sheets at June 30, 2004 and March 31, 2004 |   |
|                                 |                                                                                                      |   |   |
|                                 |                                                                                                      | Consolidated Income Statements for the Three Months Ended June 30,  2004 and 2003 |   |
|                                 |                                                                                                      |   |   |
|                                 |                                                                                                      | Consolidated Statements of Cash Flows for  the Three Months Ended June 30, 2004 and 2003 |   |
|                                 |                                                                                                      |   |   |
|                                 |                                                                                                      | Notes to Consolidated Financial Statements |   |
|                                 |                                                                                                      |   |   |
|                                 | Item 2 — Management’s Discussion and  Analysis of Financial Condition and Results of Operations |   |
|                                 |                                                                                                      |   |   |
|                                 | Item 3 — Quantitative and Qualitative  Disclosure About Market Risk                                  |   |
|                                 |                                                                                                      |   |   |
|                                 | Item 4 — Controls and Procedures                                                                     |   |
|                                 |                                                                                                      |   |   |
| Part II — Other Information     |                                                                                                      |
|                                 |                                                                                                      |   |   |
|                                 | Item 1 — Legal Proceedings                                                                           |   |
|                                 |                                                                                                      |   |   |
|                                 | Item 2 — Changes in Securities and Use of  Proceeds                                                  |   |
|                                 |                                                                                                      |   |   |
|                                 | Item 3 —  Defaults upon Senior Securities                                                            |   |
|                                 |                                                                                                      |   |   |
|                                 | Item  4 — Submission of Matters to a Vote of Security Holders                                        |   |
|                                 |                                                                                                      |   |   |
|                                 | Item 5 — Other Information                                                                           |   |
|                                 |                                                                                                      |   |   |
|                                 | Item 6 —  Exhibits and Reports on Form 8-K                                                           |   |
|                                 |                                                                                                      |   |   |
| Signatures                           |                                                                                                      |
|                                 |                                                                                                      |   |   |
| Exhibit List                         |                                                                                                      |

 

2

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**PARTI – FINANCIAL INFORMATION**

 

**ITEM 1.  *FinancialStatements***

 

**CONSOLIDATED GRAPHICS, INC.**

**CONSOLIDATEDBALANCE SHEETS**

**(In thousands, except share and per sharedata)**

 
| ** **                                                                                                      | ** ** | **June 30,  2004** | ** ** | **March 31,  2004** | ** ** |
|-----------------------------------------------------------------------------------------------------------------|------------|--------------------|------------|---------------------|------------|
| ** **                                                                                                      | ** ** | **(Unaudited)**    | ** ** | **(Audited)**       | ** ** |
| ASSETS                                                                                                          |       |               |       |                |       |
|                                                                                                            |       |               |       |                |       |
| CURRENT ASSETS                                                                                                  |       |               |       |                |       |
| Cash and cash equivalents                                                                                       |       | $                  | 8,389      |                | $          | 10,472 |   |
| Accounts receivable, net                                                                                        |       | 112,588            |       | 114,658             |       |
| Inventories                                                                                                     |       | 34,565             |       | 32,728              |       |
| Prepaid expenses                                                                                                |       | 6,228              |       | 5,874               |       |
| Deferred income taxes                                                                                           |       | 5,635              |       | 6,159               |       |
| Total current assets                                                                                            |       | 167,405            |       | 169,891             |       |
| PROPERTY AND EQUIPMENT, net                                                                                     |       | 279,266            |       | 272,801             |       |
| GOODWILL, net                                                                                                   |       | 73,727             |       | 73,658              |       |
| OTHER ASSETS                                                                                                    |       | 6,603              |       | 5,785               |       |
|                                                                                                            |       | $                  | 527,001    |                | $          | 522,135 |   |
| LIABILITIES AND SHAREHOLDERS’  EQUITY                                                                      |       |               |       |                |       |
|                                                                                                            |       |               |       |                |       |
| CURRENT LIABILITIES                                                                                             |       |               |       |                |       |
| Current portion of long-term  debt                                                                              |       | $                  | 14,246     |                | $          | 13,204 |   |
| Accounts payable                                                                                                |       | 37,436             |       | 41,062              |       |
| Accrued liabilities                                                                                             |       | 63,719             |       | 66,585              |       |
| Income taxes payable                                                                                            |       | 2,124              |       | 1,552               |       |
| Total current liabilities                                                                                       |       | 117,525            |       | 122,403             |       |
| LONG-TERM DEBT, net of current  portion                                                                         |       | 99,487             |       | 98,265              |       |
| DEFERRED INCOME TAXES                                                                                           |       | 56,958             |       | 55,855              |       |
| COMMITMENTS AND CONTINGENCIES                                                                                   |       |               |       |                |       |
| SHAREHOLDERS’ EQUITY                                                                                       |       |               |       |                |       |
| Common stock, $.01 par value;  100,000,000 shares authorized; 13,598,799 and 13,361,003 issued and  outstanding |       | 136                |       | 135                 |       |
| Additional paid-in capital                                                                                      |       | 164,504            |       | 163,910             |       |
| Retained earnings                                                                                               |       | 88,391             |       | 81,567              |       |
| Total shareholders’ equity                                                                                 |       | 253,031            |       | 245,612             |       |
|                                                                                                            |       | $                  | 527,001    |                | $          | 522,135 |   |

 

See accompanying notes to consolidated financial statements.

 

3

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**CONSOLIDATED GRAPHICS, INC.**

##### **CONSOLIDATED INCOMESTATEMENTS**

**(In thousands, except per share data)**

**(Unaudited)**

 
| ** **                                 | ** ** | **T****hree Months Ended  June 30** | ** ** |
|--------------------------------------------|------------|-------------------------------------|------------|
| ** **                                 | ** ** | **2004**                            | ** ** | **2003** | ** ** |
|                                       |       |                                |       |   |   |
| SALES                                      |       | $                                   | 181,529    |   | $ | 165,829 |   |
|                                       |       |                                |       |   |   |
| COST OF SALES                              |       | 136,657                             |       | 126,768 |   |
|                                       |       |                                |       |   |   |
| Gross profit                               |       | 44,872                              |       | 39,061 |   |
|                                       |       |                                |       |   |   |
| SELLING EXPENSES                           |       | 19,521                              |       | 18,160 |   |
|                                       |       |                                |       |   |   |
| GENERAL AND ADMINISTRATIVE  EXPENSES       |       | 12,848                              |       | 13,183 |   |
|                                       |       |                                |       |   |   |
| Operating income                           |       | 12,503                              |       | 7,718 |   |
|                                       |       |                                |       |   |   |
| INTEREST EXPENSE, net                      |       | 1,407                               |       | 1,968 |   |
|                                       |       |                                |       |   |   |
| Income before taxes                        |       | 11,096                              |       | 5,750 |   |
|                                       |       |                                |       |   |   |
| INCOME TAXES                               |       | 4,272                               |       | 2,185 |   |
|                                       |       |                                |       |   |   |
| Net income                                 |       | $                                   | 6,824      |   | $ | 3,565 |   |
|                                       |       |                                |       |   |   |
| BASIC EARNINGS PER SHARE                   |       | $                                   | .50        |   | $ | .27 |   |
| DILUTED EARNINGS PER SHARE                 |       | $                                   | .48        |   | $ | .26 |   |
|                                       |       |                                |       |   |   |
| SHARES USED TO COMPUTE EARNINGS  PER SHARE |       |                                |       |   |   |
|                                       |       |                                |       |   |   |
| Basic                                      |       | 13,584                              |       | 13,350 |   |
| Diluted                                    |       | 14,230                              |       | 13,617 |   |

 

See accompanying notes to consolidatedfinancial statements.

 

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**CONSOLIDATED GRAPHICS, INC.**

**CONSOLIDATEDSTATEMENTS OF CASH FLOWS**

**(In thousands)**

**(Unaudited)**

 
| ** **                                                                                | ** ** | **Three Months Ended  June 30** | ** ** |
|-------------------------------------------------------------------------------------------|------------|---------------------------------|------------|
| ** **                                                                                | ** ** | **2004**                        | ** ** | **2003** | ** ** |
|                                                                                      |       |                            |       |   |   |
| OPERATING ACTIVITIES                                                                      |       |                            |       |   |   |
| Net income                                                                                |       | $                               | 6,824      |   | $ | 3,565 |   |
| Adjustments to reconcile net  income to net cash provided  by  operating activities: |       |                            |       |   |   |
| Depreciation                                                                              |       | 9,362                           |       | 8,842 |   |
| Deferred income tax provision                                                             |       | 1,627                           |       | 1,117 |   |
| Changes in assets and  liabilities, net of effects of acquisitions:                       |       |                            |       |   |   |
| Accounts receivable, net                                                                  |       | 2,070                           |       | 7,476 |   |
| Inventories                                                                               |       | (1,837                          | )          | (1,272 | ) |
| Prepaid expenses                                                                          |       | (354                            | )          | 78 |   |
| Other assets                                                                              |       | (818                            | )          | (474 | ) |
| Accounts payable and accrued  liabilities                                                 |       | (9,641                          | )          | 850 |   |
| Income taxes payable                                                                      |       | 572                             |       | — |   |
| Net cash provided by operating  activities                                                |       | 7,805                           |       | 20,182 |   |
|                                                                                      |       |                            |       |   |   |
| INVESTING ACTIVITIES                                                                      |       |                            |       |   |   |
| Acquisitions of businesses, net  of cash acquired                                         |       | (1,812                          | )          | (416 | ) |
| Purchases of property and  equipment                                                      |       | (1,643                          | )          | (2,336 | ) |
| Proceeds from asset  dispositions                                                         |       | 233                             |       | 1,234 |   |
| Net cash used in investing  activities                                                    |       | (3,222                          | )          | (1,518 | ) |
|                                                                                      |       |                            |       |   |   |
| FINANCING ACTIVITIES                                                                      |       |                            |       |   |   |
| Proceeds from bank credit  facilities                                                     |       | 5,076                           |       | 919 |   |
| Payments on bank credit  facilities                                                       |       | (9,254                          | )          | (15,300 | ) |
| Payments on term equipment  notes and other debt                                          |       | (3,083                          | )          | (3,783 | ) |
| Proceeds from exercise of stock  options                                                  |       | 595                             |       | 210 |   |
| Net cash used in financing  activities                                                    |       | (6,666                          | )          | (17,954 | ) |
|                                                                                      |       |                            |       |   |   |
| NET INCREASE (DECREASE)  IN CASH AND CASH EQUIVALENTS                                |       | (2,083                          | )          | 710 |   |
| CASH AND CASH EQUIVALENTS AT  BEGINNING OF PERIOD                                         |       | 10,472                          |       | 9,641 |   |
| CASH AND CASH EQUIVALENTS AT  END OF PERIOD                                               |       | $                               | 8,389      |   | $ | 10,351 |   |

 

See accompanying notes to consolidated financial statements.

 

5

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**CONSOLIDATED GRAPHICS, INC.**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**(In thousands)**

**(Unaudited)**

 

**1.  BASIS OF PRESENTATION ANDSIGNIFICANT ACCOUNTING POLICIES**

 

The accompanying unaudited consolidated financial statements includethe accounts of Consolidated Graphics, Inc. and subsidiaries (collectively, the“Company”).  All intercompany accountsand transactions have been eliminated. Such statements have been prepared in accordance with generally acceptedaccounting principles and the Securities and Exchange Commission’s rules andregulations for reporting interim financial information.  Accordingly, they do not include all of theinformation and footnotes required by generally accepted accounting principlesfor complete financial statements.  Inthe opinion of management, all adjustments (consisting of normal recurringaccruals) considered necessary for a fair presentation of the accompanyingunaudited consolidated financial statements have been included.  Operating results for the three months endedJune 30, 2004 are not necessarily indicative of future operating results.  Balance sheet information as of March 31,2004 has been derived from the 2004 annual audited consolidated financialstatements of the Company.  For furtherinformation, refer to the consolidated financial statements and footnotes theretoincluded in the Company’s Form 10-K for the fiscal year ended March 31, 2004,filed with the Securities and Exchange Commission in June 2004.

 

*Revenue Recognition –*The Company recognizes revenue upon deliveryof each job, except for “bill and hold transactions,” in which case suchrevenue is recognized when all of the service delivery criteria are fully metas per Staff Accounting Bulletin 104 issued by the Securities and ExchangeCommission.  Losses, if any, on jobs arerecognized at the earliest date such amount is determinable.

 

*Earnings Per Share*– Basicearnings per share are calculated by dividing net income by the weightedaverage number of common shares outstanding. Diluted earnings per share reflect net income divided by the weightedaverage number of common shares and dilutive stock options outstanding.

 

*Supplemental Cash Flow Information*–The consolidated statements of cash flows provide information about theCompany’s sources and uses of cash and exclude the effects of non-cash transactions.  The Company issued term notes payabletotaling $4,422 (see Note 3. Long-Term Debt) during the three months ended June30, 2004 to finance the purchase of certain new equipment.  The Company also assumed a mortgageobligation totaling $5,103 in May 2004 in connection with a prior yearacquisition. For the three months ended June 30, 2004, the Company paid cashfor interest and income taxes, net of refunds, totaling $1,399 and $1,615.  For the three months ended June 30, 2003, theCompany paid (or received) cash for interest and income taxes, net of refunds,totaling $1,906 and $(3,126).

 

*Stock-BasedCompensation*– The Company’s only element of stock-basedcompensation is derived pursuant to the Consolidated Graphics, Inc. Long-TermIncentive Plan (the “Plan”), which has been approved by the Company’sshareholders.  Under the Plan, employeesof the Company and certain non-employee members of the Company’s Board ofDirectors have been, or may be, granted options to purchase shares of theCompany’s common stock at a price not less than the market price of the stockat the date of grant. The Company adopted the disclosure requirements ofStatement of Financial Accounting Standards (“SFAS”) No. 148, *Accounting for Stock-Based Compensation-Transitionand Disclosure,*as of March 31, 2003; however, as permitted underSFAS No. 123, continues to use the intrinsic value method of accountingprescribed by Accounting Principles Board Opinion No. 25, *Accounting for Stock Issued to Employees*.  Accordingly, no compensation expense orliability is recognized for options issued under the Plan in the accompanyingconsolidated financial statements since all options were granted at the fairmarket value of the stock at the date of grant.

 

6

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Had the Company used the fair-value-based method of accounting for thePlan prescribed by SFAS No. 123 and charged compensation expense against incomeover the vesting period based on the fair value of options at the date ofgrant, net income and earnings per share as reported would have been reduced tothe following pro forma amounts:

 
| ** **                            | ** ** | **Three Months Ended  June 30** | ** ** |
|---------------------------------------|------------|---------------------------------|------------|
| ** **                            | ** ** | **2004**                        | ** ** | **2003** | ** ** |
|                                  |       |                            |       |   |   |
| Net income as reported                |       | $                               | 6,824      |   | $ | 3,565 |   |
| Less: Pro forma compensation  expense |       | (290                            | )          | (649 | ) |
| Pro forma net income                  |       | $                               | 6,534      |   | $ | 2,916 |   |
|                                  |       |                            |       |   |   |
| **Basic Earnings  Per Share:**        |       |                            |       |   |   |
| Net income as reported                |       | $                               | .50        |   | $ | .27 |   |
| Less: Pro forma compensation  expense |       | (.02                            | )          | (.05 | ) |
| Pro forma net income                  |       | $                               | .48        |   | $ | .22 |   |
|                                  |       |                            |       |   |   |
| **Diluted  Earnings Per Share:**      |       |                            |       |   |   |
| Net income as reported                |       | $                               | .48        |   | $ | .26 |   |
| Less: Pro forma compensation  expense |       | (.02                            | )          | (.05 | ) |
| Pro forma net income                  |       | $                               | .46        |   | $ | .21 |   |

 

The effect on pro forma net income, basic earnings per share, anddiluted earnings per share of expensing the estimated fair value of stockoptions is not necessarily representative of the effect on reported earningsfor future years due to the vesting period of the stock options and thepotential for issuance of additional stock options.

 

7

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**2.  ACQUISITIONS**

 

During the three monthsended June 30, 2004, the Company paid cash totaling $1,812 related to theassumption of a mortgage obligation and to satisfy certain liabilities incurredin connection with the acquisition of certain businesses in prior periods.

 

**3.  LONG-TERM DEBT**

 

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

 
| ** **             | ** ** | **June 30,  2004** | ** ** | **March 31,  2004** | ** ** |
|------------------------|------------|--------------------|------------|---------------------|------------|
| Bank credit facilities |       | $                  | 31,386     |                | $          | 35,563 |   |
| Term equipment notes   |       | 69,362             |       | 67,772              |       |
| Other                  |       | 12,985             |       | 8,134               |       |
|                   |       | 113,733            |       | 111,469             |       |
| Less: current portion  |       | (14,246            | )          | (13,204             | )          |
|                   |       | $                  | 99,487     |                | $          | 98,265 |   |

 

The Company’s bank creditfacility (“Credit Agreement”) is composed of a $150,000 revolving creditfacility that will mature in July 2007. At June 30, 2004, outstandingborrowings under the Credit Agreement were $22,000 and accrued interest at aweighted average rate of 3.20%.

 

The proceeds from borrowings under the Credit Agreement can be used torepay certain indebtedness, finance certain acquisitions, provide for workingcapital and general corporate purposes and, subject to certain restrictions,repurchase the Company’s common stock. Borrowings outstanding under the CreditAgreement are secured by substantially all of the Company’s assets other thanreal estate and certain equipment subject to term equipment notes and otherfinancings. Borrowings under the Credit Agreement accrue interest, at theCompany’s option, at either (1) the London Interbank Offered Rate (LIBOR)plus a margin of 1.25% to 2.00%, or (2) an alternate base rate (based uponthe greater of the agent bank’s prime lending rate or the Federal Fundseffective rate plus .50%) plus a margin of up to .75%. The Company is alsorequired to pay an annual commitment fee on available but unused amountsranging from .275% to .375%.. The interest rate margin and the commitment feeare based upon certain financial performance measures set forth in the CreditAgreement and are redetermined quarterly. At June 30, 2004, the applicableinterest rate margin was 1.25% and the applicable commitment fee was .275%.

 

The Company is subject to certain covenants and restrictions and mustmeet certain financial tests under the Credit Agreement. The Company was incompliance with such covenants, restrictions and financial tests atMarch 31, 2004.

 

In addition, the Company maintains two auxiliary revolving creditfacilities (each an “Auxiliary Bank Facility” and collectively the “AuxiliaryBank Facilities”) with commercial banks. Both Auxiliary Bank Facilities areunsecured, have a maximum borrowing capacity of $5,000 and expire inNovember 2004. At June 30, 2004 borrowings outstanding under theAuxiliary Bank Facilities totaled $9,386 and accrued interest at a weightedaverage rate of 2.96%. Because the Company has the ability to refinance itsAuxiliary Bank Facilities and plans to do so annually, the borrowingsoutstanding are classified as long-term debt in the accompanying consolidatedbalance sheets.

 

8

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The Company’s term equipment notes consist primarily of notes payablepursuant to financing agreements between the Company and various lenders (the“Lender Notes”) and between the Company and the finance affiliate of a printingequipment manufacturer (the “Equipment Notes”). At June 30, 2004,outstanding borrowings under the Lender Notes totaled $47,028 and accruedinterest at a weighted average rate of 5.46%. The Lender Notes provide forfixed monthly principal payments plus interest for defined periods of up to eightyears from the date of issuance, most ending with a balloon payment atmaturity, and are secured by certain equipment of the Company. At June 30,2004, outstanding borrowings under the Equipment Notes totaled $20,692 andaccrued interest at a weighted average rate of 6.14%. The Equipment Notesprovide for fixed payments of principal and interest for defined periods of upto ten years from the date of issuance and are secured by the equipmentconcurrently purchased from the manufacturer. At June 30, 2004, the remainingbalance of term equipment notes totaling $1,642 primarily consists of varioussecured debt obligations assumed by the Company in connection with certainprior year acquisitions. The Company is not subject to any significantfinancial covenants in connection with any of the term equipment notes;however, the Credit Agreement places certain limitations on the amount ofadditional term note obligations the Company may incur in the future.

 

The Company’s remaining debt obligations consist of a mortgage totaling$5,103, a promissory note totaling $3,519, industrial revenue bonds totaling$3,955 and various other debt totaling $408. The Company does not have anysignificant financial covenants or restrictions associated with these otherdebt obligations.

 

9

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**ITEM2.  *Management’s Discussionand Analysis of Financial Condition and Results of Operations***

 

*The following discussion contains forward-lookinginformation. Readers are cautioned that such information involves known andunknown risks and uncertainties, including those created by general marketconditions, competition and the possibility that events may occur beyond ourcontrol, which may limit our ability to maintain or improve our operating resultsor financial condition or acquire additional printing businesses. Ourexpectations regarding future sales and profitability assume, among otherthings, stability in the economy and reasonable growth in the demand for ourproducts, the continued availability of raw materials at affordable prices andretention of our key management and operating personnel. In addition, ourexpectations regarding future acquisitions assume, among other things, ourability to identify new acquisition opportunities and our ability to negotiateand finance such acquisitions on acceptable terms, as well as the ability tosuccessfully absorb and manage such acquisitions. Although management believesthat the assumptions underlying the forward looking statements are reasonable, anyof the assumptions could be inaccurate and there can be no assurance that anyor all of the assumptions underlying the forward-looking statements will proveto be accurate. The inclusion of such information should not be regarded as arepresentation by us or any other person that our objectives and plans will beachieved.****  ****Weexpressly disclaim any duty to provide updates to these forward-lookingstatements, assumptions or other factors after the date of this Report on Form10-Q to reflect the occurrence of events or changes in circumstances orexpectations.*

 

*The following discussion of the financial condition and performance ofour Company should be read in conjunction with the consolidated financialstatements included herein and the consolidated financial statements andrelated notes and other detailed information regarding our Company included inour Annual Report on Form 10-K for the fiscal year ended March 31, 2004 andother reports filed by us with the Securities and Exchange Commission.  Operating results for the three months endedJune 30, 2004 are not necessarily indicative of the results to be expected forthe entire fiscal year ending March 31, 2005 or any periods thereafter.*

 

**Overview**

 

*Our Organization*

 

Our Company is a leading national provider ofcommercial printing services.  We areorganized as a holding company and currently own and operate 65 printingfacilities located in 25 states.  Eachfacility operates as a separate business and reporting unit, with their ownmanagement, sales, customer service, production and accounting staff.  Generally, each facility substantially relieson locally based customers; accordingly, we have a broad diversification ofcustomers by industry-type and geographic orientation, totaling more than18,000. No individual facility nor any individual customer account for morethan 10% of our revenues.

 

Our corporate headquarters staff providessupport to our printing businesses in such areas as human resources, purchasingand management information systems.  Wealso maintain centralized treasury, risk management, tax and consolidatedfinancial reporting activities.

 

*Nature of Our Services*

 

We are a service businessthat utilizes sophisticated technology and equipment to produce and deliverhigh quality printed documents, materials and products for our customers totheir specification and design, including all content.  Examples of the types of documents, materialsand products we print for our customers include multicolor marketing materials,product and capability brochures, point-of-purchase displays, direct mailpieces, shareholder communications, catalogs and training manuals.

 

The items we print for ourcustomers are pursuant to discrete orders with specific instructions regardingprinting, finishing and delivery.  Ourcustomers frequently request us to provide fulfillment, mailing or otherprint-related services.  They may alsouse our Internet-based software solutions and electronic media services,marketed under “CGX Solutions,” which are complementary to the production anddelivery of the

 

10

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printedmaterials. Collectively, all of these discrete capabilities comprise a“comprehensive range of printing services” for which we typically charge an“all-inclusive” fee.  Accordingly, forfinancial reporting purposes, we report our revenues and results of operationsas a single segment.

 

Oursales are generated by individual orders through commissioned sales personneland, in some cases, pursuant to national contracts. We recognize revenue fromthese orders when we deliver the ordered products, except for “bill and holdtransactions,” in which case such revenue is recognized when all of the servicedelivery criteria are fully met as per Staff Accounting Bulletin 104 issued bythe Securities and Exchange Commission. To a large extent, continued engagementof our Company by our customers for successive jobs depends upon the customer’ssatisfaction with the quality of services and products we provide. As such itis difficult for us to predict the number, size and profitability of printingjobs that we expect to produce for more than a few weeks in advance.

 

Ourcost of sales mainly consists of raw materials consumed in the printingprocess, as well as labor and outside services, such as delivery costs. Papercost is the most significant component of our materials cost; however, changesin paper pricing generally do not materially impact our operating marginsbecause any changes in paper pricing are generally passed on to customers byour printing businesses. Additionally, our cost of sales includes maintenance,repair, rental and insurance costs associated with operating our facilities andequipment, along with depreciation charges.

 

Ourselling expenses generally include the salary and commissions paid to our salesprofessionals or third-party sales agents, along with promotional, travel andentertainment costs. Our general and administrative expenses generally includethe salary and benefits paid to support personnel at our printing businessesand our corporate staff, as well as office rent, utilities and communicationsexpenses, and various professional services.

 

*Our Strategy*

 

Weare focused on adding value to our printing businesses by providing them withthe financial and operational strengths, management support and technologicaladvantages associated with a national organization. Our strategy currentlyincludes the following initiatives to generate sales and profit growth:

 

•              *Internal Sales Growth—*We seek to use our competitive advantages toexpand market share. We continue to pursue additional experienced salesprofessionals, invest in new equipment and technology, expand our nationalsales program (referred to herein as “National Sales”) and developcomplementary, value-added print related services.

 

•              *Disciplined AcquisitionProgram—*We selectivelypursue opportunities to acquire well-managed, medium-sized printing businessesat reasonable prices and smaller and/or distressed printing businesses formerger into one of our existing locations.

 

•              *Cost Savings—*Because of our size and national presence, weleverage our economies of scale to purchase supplies and equipment atpreferential prices, and centralize various administrative services to generatecost savings.

 

•              *Best Practices/Benchmarking—*We provide a forum for our printingbusinesses to share their knowledge of technical processes and best practiceswith one another, as well as benchmark financial and operational data to help our printing businesses identifyand respond to changes in operating trends.

 

•              *Leadership Development—*Through our unique Leadership DevelopmentProgram, we develop talent for future sales and management positions at ourprinting businesses.

 

11

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**Resultsof Operations**

 

The following table sets forth the Company’s unaudited condensedconsolidated income statements for the periods indicated:

 
| ** **                                 | ** ** | ** **                      | ** ** | ** **                      | ** ** | **As a Percentage  of Sales** | ** ** |
|--------------------------------------------|------------|---------------------------------|------------|---------------------------------|------------|-------------------------------|------------|
| ** **                                 | ** ** | **Three Months  Ended June 30** | ** ** | **Three Months  Ended June 30** | ** ** |
| ** **                                 | ** ** | **2004**                        | ** ** | **2003**                        | ** ** | **2004**                      | ** ** | **2003** | ** ** |
| ** **                                 | ** ** | **(In millions)**               | ** ** | ** **                      | ** ** | ** **                    | ** ** |
| Sales                                      |       | $                               | 181.5      |                            | $          | 165.8                         |       | 100.0 | % | 100.0 | % |
| Cost of sales                              |       | 136.6                           |       | 126.7                           |       | 75.3                          |       | 76.4 |   |
| Gross profit                               |       | 44.9                            |       | 39.1                            |       | 24.7                          |       | 23.6 |   |
| Selling expenses                           |       | 19.5                            |       | 18.2                            |       | 10.8                          |       | 11.0 |   |
| General and administrative  expenses       |       | 12.9                            |       | 13.2                            |       | 7.0                           |       | 7.9 |   |
| Operating income                           |       | 12.5                            |       | 7.7                             |       | 6.9                           |       | 4.7 |   |
| Interest expense, net                      |       | 1.4                             |       | 2.0                             |       | 0.8                           |       | 1.2 |   |
| Income before taxes and  accounting change |       | 11.1                            |       | 5.7                             |       | 6.1                           |       | 3.5 |   |
| Income taxes                               |       | 4.3                             |       | 2.1                             |       | 2.4                           |       | 1.4 |   |
| Income before accounting change            |       | $                               | 6.8        |                            | $          | 3.6                           |       | 3.7 | % | 2.1 | % |

 

Oursales and expenses during the periods shown were impacted by the acquisition ofsix printing businesses in fiscal 2004. Because each acquisition was accountedfor using the purchase method of accounting, our consolidated income statementsreflect sales and expenses of acquired businesses only for post-acquisitionperiods. Accordingly, acquisitions affect our financial results in any currentyear period compared to the prior year period by the full-period impact ofprior year acquisitions (as compared to the partial impact in the prior year)and the partial-period impact of current year acquisitions, and is referred tobelow as “incremental contribution from acquisitions.”

 

# ***Comparative Analysis of Consolidated Income Statementsfor the Three Months Ended June 30, 2004 and 2003***

 

Sales for the quarter ended June 30, 2004 increased $15.7 million or 9%to $181.5 million from $165.8 million in the same period a year ago.  The $15.7 million revenue increase isattributable to $7.4 million in incremental contribution from acquisitions and$8.3 million of internal sales growth. The $8.3 million of internal sales growth resulted in a 5%year-over-year internal growth rate. Growth in National Sales accounted for $.8 million of the total internalsales growth while $7.5 million is attributable, in our opinion based ongeneral and anecdotal information available to us, to improved economic andindustry conditions.

 

For the quarter ended June 30, 2004, gross profit increased $5.8million and gross profit margin increased to 24.7% from 23.6% from the sameperiod a year ago.  Approximately $3.7million of the increase is attributable to the increased sales levels discussedabove, including incremental contribution from acquisitions.  The remaining increase is attributable to theimpact of improved industry conditions on our ability to leverage fixedoperating costs as well as schedule and price our services for improvedprofitability, partially offset by a $.5 million increase in depreciation expense.

 

Selling expenses for the quarter ended June 30, 2004 increased 7% to$19.5 million from $18.2 million in the same period a year ago.  The increase for the three month period ofthis fiscal year is directly attributable to the increased sales levels notedabove.  As a percentage of sales, sellingexpenses for the quarter ended June 30, 2004 decreased slightly to 10.8% ascompared to the 11.0% for the same period a year ago.

 

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General and administrativeexpenses for the quarter ended June 30, 2004 decreased 3% to $12.9 million from$13.2 million in the same period a year ago. This quarter over quarter decrease results from the net impact of amodest increase in general and administrative expenses attributable to ourgrowth through acquisitions which was more than offset by a decrease in generaland administrative costs at our corporate headquarters.  The positive results of our ability tocontrol costs and gain additional leverage on our costs through sales growth isreflected by the improvement in our general and administrative expenses as apercentage of sales, which decreased to 7.0% for the quarter ended June 30,2004, from 7.9% for the same period a year ago.

 

Interestexpense for the quarter ended June 30, 2004 decreased 29% to $1.4 million from$2.0 million in the same period a year ago. The decrease in interest expense for the three month period of thisfiscal year is principally due to the application of our cash flow fromoperations to reduce the aggregate borrowings outstanding under our variousbank credit facilities.

 

We providedfor income taxes for the quarter ended June 30, 2004 of $4.3 million,reflecting an effective tax rate of 38.5% as compared to an effective tax rateof 39% for the same period a year ago.

 

**Liquidity and Capital Resources**

 

*Sourcesand Uses of Cash*

 

Our historicalsources of cash have primarily been cash provided by operations or borrowingsunder various bank credit facilities. Our historical uses of cash have been for acquisitions of printingbusinesses, capital expenditures, and payment of principal and interest onoutstanding debt obligations. Supplemental information pertaining to our historical sources and usesof cash is presented as follows and should be read in conjunction with ourconsolidated statements of cash flows and notes thereto included in ***Item 1. Financial Statements:***

 
| ** **                                           | ** ** | **Three Months Ended  June 30** | ** ** |
|------------------------------------------------------|------------|---------------------------------|------------|
| ** **                                           | ** ** | **2004**                        | ** ** | **2003** | ** ** |
| ** **                                           | ** ** | **(In millions)**               | ** ** |
| Net cash provided by operating activities            |       | $                               | 7.8        |   | $ | 20.2 |   |
| Acquisitions of businesses                           |       | (1.8                            | )          | (0.4 | ) |
| Capital expenditures                                 |       | (1.6                            | )          | (2.3 | ) |
| Net payments under bank credit facilities            |       | (4.2                            | )          | (14.4 | ) |
| Net payments on term equipment notes and  other debt |       | (3.1                            | )          | (3.8 | ) |
|                                                      |            |                                 |            |  |  |  |  |

 

Additionally, our cashposition, working capital and debt obligations are shown below for the periodsindicated and should be read in conjunction with our consolidated balancesheets and notes thereto included in ***Item 1. FinancialStatements:***

 
| ** **                | ** ** | **June 30,****2004** | ** ** | **March 31,  2004** | ** ** |
|---------------------------|------------|----------------------|------------|---------------------|------------|
| ** **                | ** ** | **(In millions)**    | ** ** |
| Cash and cash equivalents |       | $                    | 8.4        |                | $          | 10.5 |   |
| Working capital           |       | 49.9                 |       | 47.5                |       |
| Total debt obligations    |       | 113.7                |       | 111.5               |       |
|                           |            |                      |            |                     |            |  |  |

 

13

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During the threemonths ended June 30, 2004, net cash provided by operating activities decreased$12.3 million or 61% as compared to the same period last year.  This decrease in operating cash flow wasprimarily attributable to an increase of $10.0 million in certain of ourworking capital components in the three months ended June 30, 2004. Thisincrease was principally due to a reduction in our payroll accrual associatedwith our scheduled payroll cycles.  Wecontinued our strategy to further strengthen our financial position byprimarily using available cash flow to make payments on outstanding debt obligations.

 

We believe that our cashflow provided by operations will be adequate to cover our fiscal 2005 workingcapital needs, debt service requirements and planned capital expenditures tothe extent such items are known or are reasonably determinable based on currentbusiness and market conditions.  However,we may elect to finance certain of our capital expenditure requirements throughborrowings under our bank credit facilities or the issuance of additional termnotes.

 

  We intend to continue pursuing acquisitionopportunities at prices we believe are reasonable based upon marketconditions.  However, we cannotaccurately predict the timing, size and success of our acquisition efforts orour associated potential capital commitments. There can be no assurance that we will be able to acquire additionalprinting businesses on terms acceptable to us.

 

We expect to fund futureacquisitions through cash flow provided by operations, additional borrowings orthe issuance of our common stock.  Theextent to which we will be willing or able to use our common stock to makeacquisitions will depend on its market value and the willingness of potentialsellers to accept it as full or partial payment for the acquisition price.

 

In May 2004, our Board of Directors approveda common stock share repurchase program, providing for the repurchase of up toone million shares in open-market purchases or in privately negotiated blockpurchase transactions. We expect to fund any repurchases under the programthrough cash flow provided by operations or additional borrowings under ourprimary bank credit facility. The amount and timing of any purchases willdepend upon a number of factors, including the price and availability of ourshares, general market conditions and certain provisions included in ourexisting bank credit facility. There can be no assurance that we will be ableto repurchase any of our common stock on terms acceptable to us.  Any repurchases of our common stock mustcomply with the repurchase restrictions set forth in our primary bank creditfacility, which limit us to repurchases not to exceed $43.3 million in theaggregate as of June 30, 2004.  As ofJuly 15, 2004, we have not repurchased any shares under this program.

 

*DebtObligations*

 

Ourbank credit facility (as amended and restated, the “Credit Agreement”) iscomposed of a $150.0 million revolving credit facility that will mature inJuly 2007. At June 30, 2004, borrowings outstanding under the CreditAgreement were $22.0 million and accrued interest at a weighted averagerate of 3.20%.

 

Theproceeds from borrowings under the Credit Agreement can be used to repaycertain indebtedness, finance certain acquisitions, provide for working capitaland general corporate purposes and, subject to certain restrictions, repurchaseour common stock. Borrowings outstanding under the Credit Agreement are securedby substantially all of our assets other than real estate and certain equipmentsubject to term equipment notes and other financings. Borrowings under theCredit Agreement accrue interest, at our option, at either (1) the LondonInterbank Offered Rate (LIBOR) plus a margin of 1.25% to 2.00%, or (2) analternate base rate (based upon the greater of the agent bank’s prime lendingrate or the Federal Funds effective rate plus .50%) plus a margin of up to..75%. We are also required to pay an annual commitment fee on available butunused amounts ranging from .275% to .375%. The interest rate margin and thecommitment fee are based upon certain financial performance measures as setforth in the Credit Agreement and are redetermined quarterly. At July 30, 2004,the applicable interest rate margin was 1.25% and the applicable commitment feewas .275%.

 

14

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Weare subject to certain covenants and restrictions and we must meet certainfinancial tests as defined in the Credit Agreement.  We were in compliance with these covenantsand financial tests at June 30, 2004. In the event that we were to be unable to remain in compliance with thesecovenants and financial tests in the future, our lenders would have the rightto declare us in default with respect to such obligations, and consequently,certain of our other debt obligations, including our term equipment notes,would be deemed to also be in default. All debt obligations in default would berequired to be re-classified as a current liability.  In the event that we were to be unable toobtain a waiver, re-negotiate or re-finance these obligations, a materialadverse effect on our ability to conduct our operations in the ordinary courselikely would be the result.  Based on ourview of current market and business conditions and our expectations regardingour future operating results and cash flows, we believe that we will be able toremain in compliance with these covenants and financial tests in the future.

 

Inaddition, we maintain two auxiliary revolving credit facilities (each an“Auxiliary Bank Facility” and collectively the “Auxiliary Bank Facilities”)with commercial banks. Both Auxiliary Bank Facilities are unsecured, have amaximum borrowing capacity of $5.0 million and expire inNovember 2004. At June 30, 2004, borrowings outstanding under theAuxiliary Bank Facilities totaled $9.4 million and accrued interest at aweighted average rate of 2.96%. Because we have the ability to refinance ourAuxiliary Bank Facilities and plan to do so annually, the borrowingsoutstanding are classified as long-term debt in the accompanying consolidatedbalance sheets.

 

Ourterm equipment notes consist primarily of notes payable pursuant to financingagreements between us and various lenders (the “Lender Notes”) and between usand the finance affiliate of a printing equipment manufacturer (the “EquipmentNotes”). At June 30, 2004, outstanding borrowings under the Lender Notestotaled $47.0 million and accrued interest at a weighted average rate of5.46%. The Lender Notes provide for fixed monthly principal payments plusinterest for defined periods of up to eight years from the date of issuance,most ending with a balloon payment upon maturity, and are secured by certain ofour equipment. At June 30, 2004, outstanding borrowings under theEquipment Notes totaled $20.7 million and accrued interest at a weightedaverage rate of 6.14%. The Equipment Notes provide for fixed payments ofprincipal and interest for defined periods of up to ten years from the date ofissuance and are secured by equipment concurrently purchased from themanufacturer. At June 30, 2004, the remaining balance of term equipment notestotaling $1.6 million primarily consists of various secured debtobligations assumed by us in connection with certain prior year acquisitions.We are not subject to any significant financial covenants in connection withany of the term equipment notes and we do not anticipate that our termequipment note limits will restrict our ability to finance any planned capitalexpenditures; however, the Credit Agreement places certain limitations on theamount of additional term note obligations we may incur in the future.

 

Ourother debt obligations consist of a mortgage totaling $5.1 million, apromissory note totaling $3.5 million, industrial revenue bonds totaling$4.0 million and various other debt obligations totaling $.4 million.We do not have any significant financial covenants or restrictions associatedwith these other debt obligations.

 

**ContractualObligations and Other Commitments**

 

*Operating Leases*— We have entered into various noncancelable operating leases primarily relatedto facilities and equipment used in the ordinary course of our business. Ourfuture contractual obligations under such operating leases total approximately$56.8 million as of June 30, 2004.

 

*ContingentTransaction Consideration* — We have entered into earnoutagreements in connection with certain prior year acquisitions of printingbusinesses.  If the acquired printingbusinesses generate operating profits in excess of pre-determined targets, weare obligated to make additional cash payments. As of June 30, 2004, we were contingently obligated through fiscal 2005to make additional cash payments of up to $1.2 million.  Based on current operating levels, we expectthat the actual cash payments pursuant to these contractual obligations will beless than the maximum amount indicated.  Amountspayable pursuant to earnout

 

15

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agreements that are also contingent upon continuity ofemployment are expensed as the liability is incurred.

 

*Lettersof Credit* — In connection with our assumption of obligationsunder outstanding industrial revenue bonds related to certain prior yearacquisitions of printing businesses, which are reflected as debt in theaccompanying consolidated financial statements, we had two letters of creditoutstanding as of June 30, 2004 for a combined total of $4.1 million. Theseletters of credit were issued pursuant to the terms of our Credit Agreement,which expires in July 2007, and we may be required to obtain replacementletters of credit at that time.

 

*InsurancePrograms*— We maintain third-party insurance coverage inamounts and against risks we believe are reasonable under our circumstances. Weare self-insured against most workers compensation claims and for a significantcomponent of our group health insurance programs.  For these exposures, we accrue expected lossamounts which are determined using a combination of our historical lossexperience and subjective assessment of our future loss exposure, together withadvice provided by administrators and consulting actuaries.   The estimates of expected loss amounts aresubject to uncertainties arising from various sources, including changes inclaims reporting patterns, claims settlement patterns, judicial decisions,legislation and economic conditions. Although we believe that the accrued estimated loss amounts arereasonable under the circumstances, significant differences related to theitems noted above could materially affect our risk exposure, insuranceobligations and future expense.

 

**FactorsWhich May Affect Future Results**

 

Our future operatingresults may be impacted by a number of factors, including general economicconditions and competitive factors in our industry, seasonal and cyclicalvariations in commercial printing demand, reasonable growth in the demand forour services and retention of key management and operating personnel. To theextent an economic slowdown causes businesses to reduce their spending onprinted advertising and marketing materials, the demand for commercial printingservices may be adversely affected. Further, compounding the adverse effect of a decline in demand,competitive pricing pressures may occur and could negatively impact the levelof sales and profit margins generated by our printing businesses. Also, themagnitude and timing of any future acquisitions, as well as our ability toabsorb and manage such businesses, will impact our future results. Because ofthese and other factors, there can be no assurance that we will not experiencematerial fluctuations in our future operating results or cash flows on aquarterly or annual basis.

 

**CriticalAccounting Policies**

 

Wehave identified our critical accounting policies based on the following factors— significance to our overall financial statement presentation, complexity ofthe policy and its use of estimates and assumptions.  We are required to make certain estimates andassumptions in determining the reported amounts of assets and liabilities,disclosure of contingent liabilities and the reported amounts of revenues andexpenses. We evaluate our estimates and assumptions on an ongoing basis andrely on historical experience and various other factors that we believe to bereasonable under the circumstances to determine such estimates. Becauseuncertainties with respect to estimates and assumptions are inherent in thepreparation of financial statements, actual results could differ from theseestimates.

 

*Receivables,net of valuation allowance –*Accounts receivable at June 30, 2004 were $112.6 million, net of a $2.6million allowance for doubtful accounts. The valuation allowance was determinedbased upon our evaluation of known requirements, aging of receivables,historical experience and the economic environment. While we believe we haveappropriately considered known or expected outcomes, our customers’ ability topay their obligations could be adversely affected by contraction in the economyor other factors beyond our control. Changes in our estimates of collectabilitycould have a material adverse affect on our earnings.

 

16

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*Goodwill–*We evaluate the carrying value of ourgoodwill as of March 31st of each year, or at any time that management becomesaware of an indication of impairment. Our evaluation is based on certain dataestimated by management to be indicators of future cash flows at each of ourfacilities.  Our evaluation also makesuse of estimates of market multiples of cash flow at which transactions couldbe completed in the current market.  Ifour estimates of future cash flows or market multiples prove to be inaccurate,an impairment charge could be necessary in future periods.

 

*Impairmentof long-lived assets*– We evaluate long-lived assets, including property, plant and equipment andother intangible assets whenever events or changes in conditions indicate thatthe carrying value may not be recoverable. The evaluation requires us toestimate future undiscounted cash flows associated with an asset or group ofassets. If the cost of the asset or group of assets cannot be recovered bythese undiscounted cash flows, then an impairment may exist. Estimating futurecash flows requires judgments regarding future economic conditions, productdemand and pricing. Although we believe our estimates are appropriate,significant differences in the actual performance of the asset or group ofassets may materially affect our asset values and require an impairment chargein future periods.

 

*Insuranceliabilities* – We areself-insured for the majority of our workers’ compensation costs and grouphealth insurance costs, subject to specific retention levels.  Insurance claims liabilities have beenaccrued using actuarial principles and industry standard rates on anundiscounted basis. Third party administrators estimate the ultimate potentialcost for individual claims. Actual development of individual claims could varyfrom the estimated amounts due to severity of injuries, the potential fordamage awards and future changes in medical costs, which could result in anincrease or decrease in accrued costs in future periods for claim matters whichoccured in a prior period.

 

*Accountingfor income taxes* – Aspart of the process of preparing our consolidated financial statements, we arerequired to estimate our income taxes. This process involves estimating our actual current tax exposure,together with assessing temporary differences resulting from differingtreatment of items for tax and financial reporting purposes.  The tax effects of these temporary differencesare recorded as deferred tax assets or deferred tax liabilities.  We must then assess the likelihood that ourdeferred tax assets will be recovered from future taxable income, and to theextent we believe that recovery is not likely, we must establish a valuationallowance.  Significant judgment isrequired in determining our provision for income taxes, our deferred tax assetsand liabilities and any valuation allowance recorded against our net deferredtax assets.  Additionally, we establishreserves when, despite our belief that our tax return positions are fullysupportable, we believe that certain positions are likely to be challenged andthat we may not succeed.  We adjust thesereserves in light of changing facts and circumstances.  Our effective tax rate includes the impact ofreserve provisions and changes to reserves that we consider appropriate.

 

***ITEM 3.  Quantitative and Qualitative Disclosure AboutMarket Risk***

 

Marketrisk generally means the risk that losses may occur in the value of certainfinancial instruments as a result of movements in interest rates, foreigncurrency exchange rates and commodity prices. We do not hold or utilize derivative financial instruments that couldexpose our Company to market risk. However, we are exposed to market risk for changes in interest rates relatedprimarily to our debt obligations, which includes borrowings under our bankcredit facilities, various term equipment notes and other debtobligations.  As of June 30, 2004, therewere no material changes in our market risk or the estimated fair value of ourdebt obligations relative to their recorded value, as reported in our AnnualReport on Form 10-K for the fiscal year ended March 31, 2004.

 

17

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***ITEM 4. Controls and Procedures***

 

**DisclosureControls and Procedures**

 

The Company’smanagement, with the participation of the Company’s Chief Executive Officer(“CEO”) and Chief Financial Officer (“CFO”), has evaluated the effectiveness ofthe Company’s disclosure controls and procedures (as such term is defined inRules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, asamended (the “Exchange Act”)) as of the end of the period covered by thisreport. Based on such evaluation, the Company’s CEO and CFO have concludedthat, as of the end of such period, the Company’s disclosure controls andprocedures were effective to ensure that information required to be disclosedby the Company in reports that it files or submits under the Exchange Act isrecorded, processed, summarized and reported within the time periods specifiedin the Securities and Exchange Commission’s rules and forms.

 

**InternalControl Over Financial Reporting**

 

There have notbeen any changes in the Company’s internal control over financial reporting (assuch term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act)during the fiscal quarter to which this report relates that have materiallyaffected, or are reasonably likely to materially affect, the Company’s internalcontrol over financial reporting.

 

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**CONSOLIDATED GRAPHICS, INC.**

**PART II – OTHER INFORMATION**

 

**ITEM 1.  *Legal Proceedings***

 

From time to time, our Company is involved inlitigation relating to claims arising out of its operations in the normalcourse of business. We maintain insurance coverages against certain potentialclaims in an amount which we believe to be adequate.  Currently, we are not aware of any legalproceedings or claims pending against the Company that our management believeswill have a material adverse effect on our financial position or results ofoperations.

 

#### **ITEM 2.  *Changes in Securities and Use of Proceeds***

 

None.

 

#### **ITEM 3.  *Defaults upon Senior Securities***

 

None.

 

**ITEM 4.  *Submissionof Matters to a Vote of Security Holders***

 

On July 22, 2004, the Company held its Annual Meeting ofShareholders.  The following item wassubmitted to a vote of shareholders through the solicitation of proxies:

 

*Election of Class II Directors*

 

The followingpersons were elected to serve as Class II directors on the Company’s Board ofDirectors until the 2007 Annual Meeting of Shareholders or until theirsuccessors have been duly elected and qualified or until the earlier of theirresignation or removal.  Voting resultswere as follows:

 
| ** **      | ** ** | **For**   | ** ** | **Against (1)** | ** ** |
|-----------------|------------|-----------|------------|-----------------|------------|
|            |       |      |       |            |       |
| Gary L. Forbes  |       | 9,418,144 |       | 4,100,032       |       |
| James H. Limmer |       | 9,314,917 |       | 4,203,259       |       |

 

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(1)   Indetermining the results of voting, abstentions or authorizations withheld andbroker nonvotes have the same effect as a vote against the nominated director.

 

Directorscontinuing in office as Class I directors are Larry J. Alexander and Brady F.Carruth and as Class III directors are Joe R. Davis and Hugh N. West, M.D.

 

**ITEM 5. * OtherInformation***

 

The Company has issued a press releaseannouncing its fiscal 2005 first quarter results.  A copy of the press release is attachedhereto as Exhibit 99.1.  The attachedpress release may contain forward-looking information.  Readers are cautioned that such informationinvolves known and unknown risks, uncertainties and other factors that couldcause actual results to materially differ from the results, performance orother expectations implied by these forward looking statements.

 

The Company will hold a conference call todayat 10:00 a.m. Central Time/11:00 a.m. Eastern Time to discuss the Company’sfinancial results for the first quarter ended June 30, 2004.  A live webcast and subsequent archive of theconference call, as well as a copy of the attached press release, can be accessedat www.consolidatedgraphics.com under the Investor Relations page.

 

During such conference call, management maymake references to certain non-GAAP financial measures used by the Company,such as EBITDA, for various fiscal periods. Attached hereto as Exhibit 99.2 is a schedule that reconciles suchnon-GAAP financial measures for the indicated periods to the most directlycomparable financial measure calculated and presented in accordance with GAAP.

 

**ITEM 6.  *Exhibits andReports on Form 8-K***

 

***(a)           Exhibits:***

 

** *** 3.1       RestatedArticles of Incorporation of the Company filed with the Secretary of State ofthe State of Texas on July 27, 1994 (Consolidated Graphics, Inc. Form 10-Q(June 30, 1994), Exhibit 4(a)).

 

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|   | *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), Exhibit 3.1).                                                                                                                                                                                                                                                      |
|--------|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | 3.3    |   | Second Amended and Restated By-Laws of the Company adopted as of June  30, 2004.                                                                                                                                                                                                                                                                                                                                                      |
|   | *4     |   | Specimen  Common Stock Certificate (Consolidated Graphics, Inc. Form 10-K (March 31, 1998), 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), Exhibit 4.1). |
|   | 10.1   |   | Form of Indemnification Agreement for Directors, Officers and key  employees.                                                                                                                                                                                                                                                                                                                                                         |
|   | 31.1   |   | Certification of Joe R. Davis pursuant to Section 302 of the  Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                                             |
|   | 31.2   |   | Certification of G. Christopher Colville pursuant to Section 302 of  the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                                  |
|   | 32.1   |   | Certification of Joe R. Davis pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                                             |
|   | 32.2   |   | Certification of G. Christopher Colville pursuant to Section 906 of  the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                                  |
|   | 99.1   |   | Press release dated July 28, 2004, in connection with the press  release announcing the Company’s fiscal 2005 first quarter results.                                                                                                                                                                                                                                                                                             |
|   | 99.2   |   | Reconciliations regarding Non-GAAP Financial Measures.                                                                                                                                                                                                                                                                                                                                                                                |
|   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                  |

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*Incorporated byreference

 

***Reportson Form 8-K:***

 

1)     Form 8-K, filed April 14, 2004, in connectionwith the announcement of an agreement between the Company and Xerox makingXerox the exclusive provider of digital color printing technology to theCompany’s 65 nationwide commercial locations.

2)     Form 8-K, filed April 28, 2004, in connectionwith the press release announcing the Company’s fiscal 2004 fourth quarter andyear-end results.

3)     Form 8-K, filed April 28, 2004, in connectionwith the Company’s conference call and web cast to discuss its fiscal 2004fourth quarter and year-end results.

4)     Form 8-K, filed June 24, 2004, in connectionwith the announcement that CGXmedia will operate under the name CGXSolutions,with the tag line “Technology for Print.”

 

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**SIGNATURES**

 

**Pursuant to the requirements ofthe Securities Exchange Act of 1934, the Registrant, Consolidated Graphics,Inc., has duly caused this report to be signed on its behalf by theundersigned, thereunto duly authorized.**

 

 
|                       |   | **CONSOLIDATED GRAPHICS, INC.** |
|----------------------------|--------|---------------------------------|
|                       |   |
|                       |   |
|                       |   |
| Dated:  July 28, 2004 | By:    | /s/ G. Christopher Colville     |   |
|                       |   | G. Christopher Colville         |
|                       |   | Executive Vice President,       |
|                       |   | Chief Financial and Accounting  |
|                       |   | Officer and Secretary           |
|                            |        |                                 |  |  |

 

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***Exhibit Index***

 
|   | *****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), 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), Exhibit 3.1).                                                                                                                                                                                                                                                      |
|   | 3.3      |   | Second Amended and Restated By-Laws of the Company adopted as of June  30, 2004.                                                                                                                                                                                                                                                                                                                                                      |
|   | *4       |   | Specimen  Common Stock Certificate (Consolidated Graphics, Inc. Form 10-K (March 31, 1998), 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), Exhibit 4.1). |
|   | 10.1     |   | Form of Indemnification Agreement for Directors, Officers and key  employees.                                                                                                                                                                                                                                                                                                                                                         |
|   | 31.1     |   | Certification of Joe R. Davis pursuant to Section 302 of the  Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                                             |
|   | 31.2     |   | Certification of G. Christopher Colville pursuant to Section 302 of  the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                                  |
|   | 32.1     |   | Certification of Joe R. Davis pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                                             |
|   | 32.2     |   | Certification of G. Christopher Colville pursuant to Section 906 of  the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                                  |
|   | 99.1     |   | Press release dated July 28, 2004, in connection with the press  release announcing the Company’s fiscal 2005 first quarter results.                                                                                                                                                                                                                                                                                             |
|   | 99.2     |   | Reconciliations regarding Non-GAAP Financial Measures.                                                                                                                                                                                                                                                                                                                                                                                |

 

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*Incorporated byreference

 

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