**UNITED STATES**

**SECURITIES 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 September 30,2002**

 

**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 0-24068**

 

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**CONSOLIDATED GRAPHICS, INC.**

(Exactname 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 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 theSecurities Exchange Act of 1934 during the preceding 12 months (or for suchshorter 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 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 o   No ý

 

The number of shares of Common Stock, par value $.01 per share, of theRegistrant outstanding at October 31, 2002 was 13,304,485.

 

 

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**CONSOLIDATEDGRAPHICS, INC.**

 

**FORM 10-Q FOR THE QUARTERLY PERIOD ENDEDSEPTEMBER 30, 2002**

 

**INDEX**

 
| Part I — Financial Information                                                                        |
|------------------------------------------------------------------------------------------------------------|
|                                                                                                       |
| Item 1 — Financial Statements                                                                         |
|                                                                                                       |
| Consolidated Balance Sheets at September 30, 2002 and March 31, 2002                                       |
|                                                                                                       |
| Consolidated Income Statements for the Three and Six Months  Ended  September 30, 2002 and 2001       |
|                                                                                                       |
| Consolidated Statements of Cash Flows for  the Six Months Ended September 30, 2002 and 2001                |
|                                                                                                       |
| 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                                                                                                 |
|                                                                                                       |
| Certifications                                                                                             |

 

2

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##### **PART I – FINANCIALINFORMATION**

 

**ITEM 1.  *Financial Statements***

 

**CONSOLIDATED GRAPHICS, INC.**

##### **CONSOLIDATED BALANCESHEETS**

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

 
|                                                                                                            |   | **September 30,  2002** |    | **March 31,  2002** |   |
|-----------------------------------------------------------------------------------------------------------------|--------|-------------------------|---------|---------------------|--------|
|                                                                                                            |   | **(Unaudited)**         |    | **(Audited)**       |   |
| ASSETS                                                                                                          |   |                    |    |                |   |
|                                                                                                            |   |                    |    |                |   |
| CURRENT ASSETS                                                                                                  |   |                    |    |                |   |
| Cash and cash equivalents                                                                                       |   | $                       | 12,307  |                | $      | 8,955 |   |
| Accounts receivable, net                                                                                        |   | 114,267                 |    | 121,981             |   |
| Inventories                                                                                                     |   | 33,326                  |    | 32,771              |   |
| Prepaid expenses                                                                                                |   | 5,032                   |    | 6,114               |   |
| Deferred income tax assets                                                                                      |   | 4,693                   |    | 5,153               |   |
| Total current assets                                                                                            |   | 169,625                 |    | 174,974             |   |
| PROPERTY AND EQUIPMENT, net                                                                                     |   | 284,888                 |    | 293,831             |   |
| GOODWILL, net                                                                                                   |   | 110,170                 |    | 199,331             |   |
| OTHER ASSETS                                                                                                    |   | 5,237                   |    | 8,597               |   |
|                                                                                                            |   | $                       | 569,920 |                | $      | 676,733 |   |
| LIABILITIES AND SHAREHOLDERS’ EQUITY                                                                       |   |                    |    |                |   |
|                                                                                                            |   |                    |    |                |   |
| CURRENT LIABILITIES                                                                                             |   |                    |    |                |   |
| Current portion of long-term  debt                                                                              |   | $                       | 19,932  |                | $      | 19,877 |   |
| Accounts payable                                                                                                |   | 32,197                  |    | 32,068              |   |
| Accrued liabilities                                                                                             |   | 40,782                  |    | 37,382              |   |
| Income taxes payable                                                                                            |   | 289                     |    | 611                 |   |
| Total current liabilities                                                                                       |   | 93,200                  |    | 89,938              |   |
| LONG-TERM DEBT, net of current  portion                                                                         |   | 178,757                 |    | 213,860             |   |
| DEFERRED INCOME TAX LIABILITIES                                                                                 |   | 55,110                  |    | 66,337              |   |
| COMMITMENTS AND CONTINGENCIES                                                                                   |   |                    |    |                |   |
| SHAREHOLDERS’ EQUITY                                                                                       |   |                    |    |                |   |
| Common stock, $.01 par value;  100,000,000 shares authorized; 13,219,550 and 13,205,863 issued and  outstanding |   | 132                     |    | 132                 |   |
| Additional paid-in capital                                                                                      |   | 157,774                 |    | 157,581             |   |
| Retained earnings                                                                                               |   | 84,947                  |    | 148,885             |   |
| Total shareholders’ equity                                                                                 |   | 242,853                 |    | 306,598             |   |
|                                                                                                            |   | $                       | 569,920 |                | $      | 676,733 |   |

 

See accompanying notes to consolidated financial statements.

 

3

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**CONSOLIDATED GRAPHICS, INC.**

##### **CONSOLIDATED INCOMESTATEMENTS**

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

**(Unaudited)**

 
|                                                |   | **Three Months Ended  September 30** |    | **Six Months Ended  September 30** |   |
|-----------------------------------------------------|--------|--------------------------------------|---------|------------------------------------|--------|
|                                                |   | **2002**                             |    | **2001**                           |   | **2002** |   | **2001** |   |
|                                                |   |                                 |    |                               |   |   |   |   |   |
| SALES                                               |   | $                                    | 181,774 |                               | $      | 160,157 |   | $ | 357,878 |   | $ | 324,592 |   |
|                                                |   |                                 |    |                               |   |   |   |   |   |
| COST OF SALES                                       |   | 137,762                              |    | 118,279                            |   | 270,416 |   | 238,882 |   |
|                                                |   |                                 |    |                               |   |   |   |   |   |
| Gross profit                                        |   | 44,012                               |    | 41,878                             |   | 87,462 |   | 85,710 |   |
|                                                |   |                                 |    |                               |   |   |   |   |   |
| SELLING  EXPENSES                                   |   | 19,660                               |    | 16,897                             |   | 39,112 |   | 34,061 |   |
|                                                |   |                                 |    |                               |   |   |   |   |   |
| GENERAL AND  ADMINISTRATIVE EXPENSES                |   | 12,935                               |    | 12,315                             |   | 25,924 |   | 24,572 |   |
|                                                |   |                                 |    |                               |   |   |   |   |   |
| AMORTIZATION  OF GOODWILL                           |   | —                               |    | 1,345                              |   | — |   | 2,679 |   |
|                                                |   |                                 |    |                               |   |   |   |   |   |
| Operating  income                                   |   | 11,417                               |    | 11,321                             |   | 22,426 |   | 24,398 |   |
|                                                |   |                                 |    |                               |   |   |   |   |   |
| INTEREST  EXPENSE, net                              |   | 2,732                                |    | 4,154                              |   | 5,590 |   | 8,764 |   |
|                                                |   |                                 |    |                               |   |   |   |   |   |
| Income before  taxes and accounting change          |   | 8,685                                |    | 7,167                              |   | 16,836 |   | 15,634 |   |
|                                                |   |                                 |    |                               |   |   |   |   |   |
| INCOME TAXES                                        |   | 3,300                                |    | 2,867                              |   | 6,398 |   | 6,254 |   |
|                                                |   |                                 |    |                               |   |   |   |   |   |
| Income before  accounting change                    |   | 5,385                                |    | 4,300                              |   | 10,438 |   | 9,380 |   |
|                                                |   |                                 |    |                               |   |   |   |   |   |
| CUMULATIVE  EFFECT OF ACCOUNTING CHANGE, net of tax |   | —                               |    | —                             |   | 74,376 |   | — |   |
|                                                |   |                                 |    |                               |   |   |   |   |   |
| Net income  (loss)                                  |   | $                                    | 5,385   |                               | $      | 4,300 |   | $ | (63,938 | ) | $ | 9,380 |   |
|                                                |   |                                 |    |                               |   |   |   |   |   |
|                                                |   |                                 |    |                               |   |   |   |   |   |
| BEFORE  ACCOUNTING CHANGE                           |   |                                 |    |                               |   |   |   |   |   |
|                                                |   |                                 |    |                               |   |   |   |   |   |
| Basic earnings  per share                           |   | $                                    | .41     |                               | $      | .33 |   | $ | .79 |   | $ | .72 |   |
| Diluted  earnings per share                         |   | $                                    | .40     |                               | $      | .32 |   | $ | .77 |   | $ | .70 |   |
|                                                |   |                                 |    |                               |   |   |   |   |   |
| AFTER ACCOUNTING  CHANGE                            |   |                                 |    |                               |   |   |   |   |   |
|                                                |   |                                 |    |                               |   |   |   |   |   |
| Basic earnings  per share                           |   | $                                    | .41     |                               | $      | .33 |   | $ | (4.84 | ) | $ | .72 |   |
| Diluted  earnings per share                         |   | $                                    | .40     |                               | $      | .32 |   | $ | (4.73 | ) | $ | .70 |   |
|                                                |   |                                 |    |                               |   |   |   |   |   |
| SHARES USED TO  COMPUTE EARNINGS PER SHARE          |   |                                 |    |                               |   |   |   |   |   |
|                                                |   |                                 |    |                               |   |   |   |   |   |
| Basic                                               |   | 13,215                               |    | 13,058                             |   | 13,212 |   | 13,054 |   |
| Diluted                                             |   | 13,465                               |    | 13,438                             |   | 13,528 |   | 13,334 |   |

 

See accompanying notes toconsolidated financial statements.

 

4

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**CONSOLIDATED GRAPHICS, INC.**

**CONSOLIDATEDSTATEMENTS OF CASH FLOWS**

**(In thousands)**

**(Unaudited)**

 
|                                                                                             |   | **Six Months Ended  September 30** |    |
|--------------------------------------------------------------------------------------------------|--------|------------------------------------|---------|
|                                                                                             |   | **2002**                           |    | **2001** |   |
|                                                                                             |   |                               |    |   |   |
| OPERATING  ACTIVITIES                                                                            |   |                               |    |   |   |
| Net income  (loss)                                                                               |   | $                                  | (63,938 | ) | $ | 9,380 |   |
| Adjustments to  reconcile net income (loss) to net cash provided  by operating activities — |   |                               |    |   |   |
| Cumulative  effect of accounting change, net of tax                                              |   | 74,376                             |    | — |   |
| Depreciation  and amortization                                                                   |   | 17,925                             |    | 20,832 |   |
| Deferred  income tax provision                                                                   |   | 4,612                              |    | (164 | ) |
| Changes in  assets and liabilities, net of effects of acquisitions-                              |   |                               |    |   |   |
| Accounts  receivable, net                                                                        |   | 11,644                             |    | 3,118 |   |
| Inventories                                                                                      |   | (96                                | )       | 491 |   |
| Prepaid  expenses                                                                                |   | 1,094                              |    | (1,143 | ) |
| Other assets                                                                                     |   | 970                                |    | (301 | ) |
| Accounts  payable and accrued liabilities                                                        |   | 4,018                              |    | (8,571 | ) |
| Income taxes  payable                                                                            |   | (322                               | )       | 4,662 |   |
| Net cash  provided by operating activities                                                       |   | 50,283                             |    | 28,304 |   |
|                                                                                             |   |                               |    |   |   |
| INVESTING  ACTIVITIES                                                                            |   |                               |    |   |   |
| Acquisitions  of businesses, net of cash acquired                                                |   | (5,396                             | )       | (2,321 | ) |
| Purchases of  property and equipment                                                             |   | (7,231                             | )       | (7,485 | ) |
| Proceeds from  asset dispositions                                                                |   | 551                                |    | 1,650 |   |
| Net cash used  in investing activities                                                           |   | (12,076                            | )       | (8,156 | ) |
|                                                                                             |   |                               |    |   |   |
| FINANCING  ACTIVITIES                                                                            |   |                               |    |   |   |
| Proceeds from  bank credit facilities                                                            |   | 5,992                              |    | 10,124 |   |
| Payments on  bank credit facilities                                                              |   | (36,560                            | )       | (28,871 | ) |
| Payments on  long-term debt                                                                      |   | (4,480                             | )       | (4,482 | ) |
| Proceeds from  exercise of stock options                                                         |   | 193                                |    | 1,264 |   |
| Net cash used  in financing activities                                                           |   | (34,855                            | )       | (21,965 | ) |
|                                                                                             |   |                               |    |   |   |
| NET  INCREASE  (DECREASE) IN CASH AND CASH  EQUIVALENTS                                     |   | 3,352                              |    | (1,817 | ) |
| CASH AND CASH  EQUIVALENTS AT BEGINNING OF PERIOD                                                |   | 8,955                              |    | 8,667 |   |
| CASH AND CASH  EQUIVALENTS AT END OF PERIOD                                                      |   | $                                  | 12,307  |   | $ | 6,850 |   |

 

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 AND SIGNIFICANTACCOUNTING POLICIES**

 

The accompanying unaudited consolidatedfinancial statements include the accounts of Consolidated Graphics, Inc. andsubsidiaries (collectively, the “Company”). All intercompany accounts and transactions have been eliminated.  Such statements have been prepared inaccordance with generally accepted accounting principles and the Securities andExchange Commission’s rules and regulations for reporting interim financialinformation.  Accordingly, they do notinclude all of the information and footnotes required by generally acceptedaccounting principles for complete financial statements.  In the opinion of management, alladjustments (consisting of normal recurring accruals) considered necessary fora fair presentation of the accompanying unaudited consolidated financialstatements have been included. Operating results for the six months ended September 30, 2002 are notnecessarily indicative of future operating results.  Balance sheet information as of March 31, 2002 has been derivedfrom the 2002 annual audited consolidated financial statements of theCompany.  For further information, referto the consolidated financial statements and footnotes thereto included in theCompany’s Form 10-K for the fiscal year ended March 31, 2002, filed with theSecurities and Exchange Commission in May 2002.

 

Basic earnings per share are calculated bydividing net income by the weighted average number of common sharesoutstanding.  Diluted earnings per sharereflect net income divided by the weighted average number of common shares anddilutive stock options outstanding.

 

The consolidated statements of cash flows provide information about theCompany’s sources and uses of cash and exclude the effects of non-cashtransactions.  The following is asummary of total cash paid for interest and income taxes, net of refunds:

 

|             |   | **Six Months Ended  September 30** |   |
|------------------|--------|------------------------------------|--------|
|             |   | **2002**                           |   | **2001** |   |
| *Cash Paid for:* |   |                               |   |   |   |
| Interest         |   | $                                  | 5,697  |   | $ | 8,651 |   |
| Income taxes     |   | 739                                |   | 2,465 |   |
|                  |        |                                    |        |  |  |  |  |

 

**2.  ACCOUNTING CHANGE**

 

Effective April 1, 2002, the Company adoptedStatement of Financial Accounting Standards (“SFAS”) No. 142, *Goodwill and Other Intangible Assets*,which requires companies to discontinue amortizing goodwill and perform annualimpairment tests to determine if the remaining balance of goodwill or otherintangible assets should be reduced to estimated fair values.  * *Prior to its adoption of SFAS No.142, the Company periodically evaluated whether the remaining balance ofgoodwill was recoverable by assessing current and future levels of income andcash flows on an undiscounted basis, as well as other factors, such as businesstrends and general market conditions, in accordance with SFAS No. 121, *Accounting for the Impairment of Long-Lived Assetsand for Long-Lived Assets to be Disposed of.*

 

6

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As of April 1, 2002, net goodwill balancesattributable to each of the Company’s reporting units were tested forimpairment by comparing the fair value of each reporting unit to its carryingvalue.  Under SFAS No. 142, fair valuewas determined using capitalization of earnings estimates and market valuationmultiples for each reporting unit. Based on these impairment tests as of April 1, 2002, the Companyrecognized a transitional impairment charge of $74,376, net of tax benefittotaling $15,379, which is reflected as a cumulative effect of accountingchange in the accompanying consolidated income statement.

 

The following unaudited pro forma financialdata for the six months ended September 30, 2002 and 2001, are presented as ifthe provisions of SFAS No. 142 had been in effect for all periods presented:

 
|                                                     |   | **Six Months Ended  September 30** |       |
|----------------------------------------------------------|--------|------------------------------------|------------|
|                                                     |   | **2002**                           |       | **2001** |   |
|                                                     |   |                               |       |   |   |
| Net income (loss) as reported                            |   | $                                  | (63,938    | ) | $ | 9,380 |   |
| Add: cumulative effect of accounting  change, net of tax |   | 74,376                             |       | — |   |
| Add: goodwill amortization                               |   | —                             |       | 2,679 |   |
| Less: tax benefit of deductible goodwill  amortization   |   | —                             |       | (339 | ) |
| Adjusted pro forma net income                            |   | $                                  | 10,438     |   | $ | 11,720 |   |
|                                                     |   |                               |       |   |   |
| **Basic Earnings Per  Share:**                           |   |                               |       |   |   |
| Net income (loss) as reported                            |   | $                                  | (4.84      | ) | $ | .72 |   |
| Add: cumulative effect of accounting  change, net of tax |   | 5.63                               |       | — |   |
| Add: goodwill amortization                               |   | —                             |       | .21 |   |
| Less: tax benefit of deductible goodwill  amortization   |   | —                             |       | (.03 | ) |
| Adjusted pro forma net income                            |   | $                                  | .79        |   | $ | .90 |   |
|                                                     |   |                               |       |   |   |
| **Diluted Earnings  Per Share:**                         |   |                               | ** ** |   | ** ** |
| Net income (loss) as reported                            |   | $                                  | (4.73      | ) | $ | .70 |   |
| Add: cumulative effect of accounting  change, net of tax |   | 5.50                               |       | — |   |
| Add: goodwill amortization                               |   | —                             |       | .20 |   |
| Less: tax benefit of deductible goodwill  amortization   |   | —                             |       | (.02 | ) |
| Adjusted pro forma net income                            |   | $                                  | .77        |   | $ | .88 |   |

 

**3.  ACQUISITIONS**

 

During the sixmonths ended September 30, 2002, the Company acquired the business and assetsof two companies located near Baltimore, Maryland, one of which was immediatelymerged into another existing operation of the Company. To complete theseacquisitions, the Company paid cash totaling $4,205. The allocation of thepurchase price of the businesses acquired included current assets of $3,627,property and equipment of $1,012 and other assets of $655, less currentliabilities of $1,089. Additionally, to satisfy certain liabilities of acquiredbusinesses or pursuant to earnout agreements, the Company paid cash of $1,191during the six months ended September 30, 2002.

 

7

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**4.  LONG-TERM DEBT**

 

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

 
|                    |   | **September 30,  2002** |    | **March 31,  2002** |   |
|-------------------------|--------|-------------------------|---------|---------------------|--------|
| Bank credit  facilities |   | $                       | 118,713 |                | $      | 149,281 |   |
| Term equipment  notes   |   | 69,560                  |    | 73,708              |   |
| Other                   |   | 10,416                  |    | 10,748              |   |
|                    |   | 198,689                 |    | 233,737             |   |
| Less current  portion   |   | (19,932                 | )       | (19,877             | )      |
|                    |   | $                       | 178,757 |                | $      | 213,860 |   |

 

The Companyentered into a five-year $225,000 senior secured credit facility (the “BankCredit Facility”) with eleven banks in December 2000.  The Bank Credit Facility is composed of a $50,000 five-year termloan (the “Term Loan”), of which $30,000 was outstanding at September 30, 2002,and a $175,000 five-year revolving credit line (the “Revolving Line”), of which$85,000 was outstanding at September 30, 2002. The Term Loan requires quarterly payments of $2,500 each throughSeptember 30, 2005.

 

The proceedsof the Bank Credit Facility can be used to repay certain indebtedness, financecertain acquisitions, provide for working capital and general corporatepurposes, and subject to certain restrictions, repurchase the Company’s commonstock.  Borrowings outstanding under theBank Credit Facility are secured by substantially all of the Company’s assetsother than real estate and certain equipment subject to term equipment notesand other financing.  Borrowings underthe Bank 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 primelending rate or the Federal Funds effective rate plus .50%) plus a margin of upto 1.00%.  The Company is also requiredto pay a commitment fee on available but unused amounts ranging from .275% to..375% annually.  The interest ratemargin and the commitment fee are based upon the Company’s ratio of Funded Debtto Pro Forma Consolidated EBITDA, as defined, redetermined quarterly.  On September 30, 2002, borrowingsoutstanding under the Term Loan and the Revolving Line accrued interest at aweighted average rate of 3.96%.

 

The Company issubject to certain covenants and restrictions and must meet certain financialtests as defined in the Bank Credit Facility. The Company was in compliance with these covenants and financial testsat September 30, 2002.  The Companyobtained an amendment to its Bank Credit Facility which specifically providedthat the goodwill impairment charge (see Note 2. Accounting Change) would notimpact compliance with these covenants.

 

In addition, the Company entered into an auxiliary revolving creditfacility (the “Auxiliary Bank Facility”) with a commercial bank expiring inFebruary 2003.  The Auxiliary BankFacility is unsecured and has a maximum borrowing capacity of $5,000. AtSeptember 30, 2002, borrowings outstanding under the Auxiliary Bank Facilitytotaled $3,713 and accrued interest at 3.57%.

 

The termequipment notes consist primarily of term notes payable pursuant to printingequipment purchase and financing agreements between the Company and twoprinting equipment manufacturers. The agreements provide for fixed monthlypayments over periods of either five or ten years and are secured by thepurchased equipment. At September 30, 2002, outstanding borrowings under theseagreements totaled $65,182 and accrued interest at a weighted average rate of7.76%. The remaining balance of term equipment notes totaling $4,378 primarilyconsists of various secured debt obligations assumed by the Company inconnection

 

8

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with certain prior yearacquisitions. The Company is not subject to any significant financial covenantsin connection with any of these equipment notes; however, the Bank CreditFacility places certain limitations on the amount of additional term noteobligations the Company may incur in the future.

 

Subsequent toSeptember 30, 2002, the Company issued an aggregate principal amount of $34,600in term notes to various banks (the “Bank Term Notes”) and utilized theproceeds thereof to retire certain of the outstanding term equipment notesdiscussed above.  Borrowings under theBank Term Notes are secured by the equipment subject to the refinancing.  The Bank Term Notes accrue interest at afixed rate of 5.92% and provide for fixed monthly payments, ending with aballoon payment upon maturity, in November 2007.

 

The Company’sremaining debt obligations consist of a promissory note totaling $5,197,industrial revenue bonds totaling $4,580 and various other debt obligationstotaling $639.  The Company does nothave any significant financial covenants or restrictions associated with thesedebt obligations.

 

**5.  RECENT ACCOUNTING PRONOUNCEMENTS**

 

SFAS No.145, *Rescission of FASB Statement Nos. 4,44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections,*wasissued in April 2002.  SFAS No. 145amends existing authoritative pronouncements to make various technicalcorrections, clarify meanings, and describe their applicability under changedconditions.  This statement requiresthat gains and losses from the extinguishment of debt be classified asextraordinary items only if they meet the criteria in Accounting PrinciplesBoard (“APB”) Opinion No. 30, *Reporting theResults of Operations - Reporting the Effects of Disposal of a Segment of aBusiness, and Extraordinary, Unusual and Infrequently Occurring Events andTransactions. *SFAS No. 145is effective for fiscal years beginning after May 15, 2002.  Management does not believe that theadoption of SFAS No. 145 will have a material impact on its financial positionor results of operations.

 

SFAS No.146, *Accounting for Costs Associated withExit or Disposal Activities*, was issued in July 2002 and iseffective for exit or disposal activities that are initiated after December 31,2002.  SFAS No. 146 requires that exitor disposal costs be recorded when they are incurred.  The exit costs may be measured at fair value and the liabilitymay be adjusted for changes in estimated cash flows.  Management does not believe that the adoption of SFAS No. 146will have a material impact on its financial position or results of operations.

 

9

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**ITEM 2.  *Management’s Discussion and Analysis of FinancialCondition and Results of Operations***

 

*The following discussion containsforward-looking information.  Readersare cautioned that such information involves known and unknown risks anduncertainties, including those created by general market conditions,competition and the possibility that events may occur which limit the abilityof our Company to maintain or improve its operating results and acquireadditional printing businesses. Although we believe that the assumptions underlying the forward-lookingstatements are reasonable, any of the assumptions could be inaccurate, andthere can be no assurance that the forward-looking statements included hereinwill prove to be accurate.  Theinclusion of such information should not be regarded as a representation by usor any other persons that our objectives and plans will be achieved**.  **We expressly disclaim any duty to provide updates to theseforward-looking statements, assumptions or other factors after the date of thisReport  on Form 10-Q to reflect theoccurrence of events or circumstances or changes in expectations.*

*The following discussion of the financialcondition and performance of our Company should be read in conjunction with theconsolidated financial statements included herein and the consolidatedfinancial statements and related notes and other detailed information regardingour Company included in our Annual Report on Form 10-K for the fiscal yearended March 31, 2002 and other reports filed by us with the Securities andExchange Commission.  Operating resultsfor the six months ended September 30, 2002 are not necessarily indicative ofthe results to be expected for the entire fiscal year ending March 31, 2003 orany periods thereafter.*

 

**Overview**

 

Our Company is a leading national provider of commercial printingservices with 66 printing facilities in 25 states and is recognized as thelargest sheet-fed and half-web commercial printing company in the UnitedStates.  We are focused on adding valueto our operating companies by providing the financial and operationalstrengths, management support and technological advantages associated with anational organization.  Our strategycurrently includes the following initiatives to generate sales and profit growth:

 

•         *Internal Sales Growth *– In the midst of prevailingdifficult industry conditions, we are seeking to use our competitive advantagesto expand market share. We continue to pursue additional experienced salesprofessionals, invest in new equipment and technology, expand our nationalaccounts program and develop complementary, value-added services.

•         *Disciplined Acquisition Program*–**Weselectively pursue opportunities to acquire well-managed printing businesses atreasonable prices.

•         *Cost Savings*–**Becauseof our size and national presence, we leverage our economies of scale topurchase supplies and equipment at preferential prices, and centralize variousadministrative services to generate cost savings.

•         *Best Practices/Benchmarking*–**Weprovide a forum for our printing businesses to share their knowledge oftechnical processes and their best practices with one another, as well asbenchmark financial and operational data to help our printing businessesidentify and respond to changes in operating trends.

•         *Leadership Development*–**Throughour unique Leadership Development Program, we develop talent for future salesand management positions at our printing businesses.

 

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

 

The majority of our sales are derived from commercial printingservices, which include electronic prepress, printing, finishing, storage anddelivery of high quality, custom-designed products. Examples of such productsinclude multicolor product and capability brochures, shareholdercommunications, catalogs, training manuals, point-of-purchase marketingmaterials and direct mail pieces.  We  also  serve our  customers  by providing  a variety  of complementary  services, includingfulfillment and mailing services and print-related e-commerce softwaresolutions and electronic media services through CGXmedia.

 

10

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Most of our sales are generated by individual orders through commissionedsales personnel and, in some cases, pursuant to long-term contracts.  We recognize revenue from these orders whenwe deliver the ordered products.  To alarge extent, continued engagement of our Company by our customers forsuccessive jobs depends upon the customer’s on-going satisfaction with thequality of services we provide. As such it is difficult for us to predict thenumber, size and profitability of printing jobs that we expect to produce formore than a few weeks in advance.

 

Our cost ofsales mainly consists of raw materials consumed in the printing process, aswell as labor and outside services. Paper cost is the largest component of our materials cost; however,fluctuations in paper prices generally do not significantly impact our operatingmargins because any changes in paper pricing are generally passed on by ourprinting businesses.  Additionally, ourcost of sales includes maintenance, repair, rental and insurance costsassociated with operating our facilities and equipment, along with depreciationcharges.

 

Our sellingexpenses generally include the salary and commissions paid to our salesprofessionals or third-party sales agents, along with promotional, travel andentertainment costs.  Our general andadministrative expenses generally include the salary and benefits paid tosupport personnel at our printing businesses and our corporate staff.  These expenses also include office rent andutilities, communications expenses and professional fees.

 

**Resultsof Operations**

 

The following tables set forth the Company’shistorical consolidated income statements for the periods indicated:

 
|                                       |   | **Three Months  Ended September 30** |   | **Six Months  Ended September 30** |   |
|--------------------------------------------|--------|--------------------------------------|--------|------------------------------------|--------|
|                                       |   | **2002**                             |   | **2001**                           |   | **2002** |   | **2001** |   |
|                                       |   | **(in millions)**                    |   | **(in millions)**                  |   |
| Sales                                      |   | $                                    | 181.8  |                               | $      | 160.2 |   | $ | 357.9 |   | $ | 324.6 |   |
| Cost of sales                              |   | 137.8                                |   | 118.3                              |   | 270.4 |   | 238.9 |   |
| Gross profit                               |   | 44.0                                 |   | 41.9                               |   | 87.5 |   | 85.7 |   |
| Selling  expenses                          |   | 19.7                                 |   | 16.9                               |   | 39.1 |   | 34.1 |   |
| General and  administrative expenses       |   | 12.9                                 |   | 12.3                               |   | 26.0 |   | 24.6 |   |
| Amortization  of goodwill                  |   | —                               |   | 1.4                                |   | — |   | 2.6 |   |
| Operating  income                          |   | 11.4                                 |   | 11.3                               |   | 22.4 |   | 24.4 |   |
| Interest  expense, net                     |   | 2.7                                  |   | 4.1                                |   | 5.6 |   | 8.8 |   |
| Income before  taxes and accounting change |   | 8.7                                  |   | 7.2                                |   | 16.8 |   | 15.6 |   |
| Income taxes                               |   | 3.3                                  |   | 2.9                                |   | 6.4 |   | 6.2 |   |
| Income before  accounting change           |   | $                                    | 5.4    |                               | $      | 4.3 |   | $ | 10.4 |   | $ | 9.4 |   |

 

The followingtables set forth the components of income expressed as a percentage of salesfor the periods indicated:

 
|                                       |   | **Three Months  Ended September 30** |   | **Six Months  Ended September 30** |   |
|--------------------------------------------|--------|--------------------------------------|--------|------------------------------------|--------|
|                                       |   | **2002**                             |   | **2001**                           |   | **2002** |   | **2001** |   |
| Sales                                      |   | 100.0                                | %      | 100.0                              | %      | 100.0 | % | 100.0 | % |
| Cost of sales                              |   | 75.8                                 |   | 73.9                               |   | 75.6 |   | 73.6 |   |
| Gross profit                               |   | 24.2                                 |   | 26.1                               |   | 24.4 |   | 26.4 |   |
| Selling  expenses                          |   | 10.8                                 |   | 10.5                               |   | 10.9 |   | 10.5 |   |
| General and  administrative expenses       |   | 7.1                                  |   | 7.7                                |   | 7.2 |   | 7.6 |   |
| Amortization  of goodwill                  |   | —                               |   | .8                                 |   | — |   | .8 |   |
| Operating  income                          |   | 6.3                                  |   | 7.1                                |   | 6.3 |   | 7.5 |   |
| Interest  expense, net                     |   | 1.5                                  |   | 2.6                                |   | 1.6 |   | 2.7 |   |
| Income before  taxes and accounting change |   | 4.8                                  |   | 4.5                                |   | 4.7 |   | 4.8 |   |
| Income taxes                               |   | 1.8                                  |   | 1.8                                |   | 1.8 |   | 1.9 |   |
| Income before  accounting change           |   | 3.0                                  | %      | 2.7                                | %      | 2.9 | % | 2.9 | % |

 

11

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# ***Comparative Analysis of Consolidated Income Statementsfor the Three and Six Months Ended September 30, 2002 and 2001***

 

Sales for the three months ended September 30, 2002 increased 13% to$181.8 million, and sales for the six months ended September 30, 2002 increased10% to $357.9 million.  The increase insales for both the three and six month periods of this fiscal year is primarilydue to the incremental impact of three businesses acquired during the quarterended March 31, 2002 and two businesses acquired during the six-months endedSeptember 30, 2002.  Further, our salesincrease demonstrates the initial return on our efforts to expand market sharethrough our recruiting program for experienced sales professionals and ourpursuit of national accounts.

 

Gross profit margin for the three months ended September 30, 2002declined to 24.2% from 26.1% in the corresponding quarter a year ago, and grossprofit margin for the six months ended September 30, 2002 declined to 24.4%from 26.4% in the same period last year. The gross profit margin decline for both the three and six month periodsof this fiscal year reflects continued pricing pressures caused by the currenteconomic weakness and prevailing negative industry conditions.  Further, gross profit margins of acquiredbusinesses generally are lower than our Company’s historical average andtypically improve over time as we work with the management of the acquiredbusinesses to implement cost savings strategies and other operating bestpractices.

 

Sellingexpenses for the three months ended September 30, 2002 increased 16% to $19.7million, and selling expenses for the six months ended September 30, 2002increased 15% to $39.1 million.  Theincrease in selling expenses for both the three and six month periods of thisfiscal year corresponds to the higher sales levels noted above.  As a percentage of sales, selling expensesfor the three months ended September 30, 2002 increased to 10.8% from 10.5% in thecorresponding quarter a year ago, and for the six months ended September 30,2002 increased to 10.9% from 10.5% in the same period last year.  The increase in selling expenses as apercentage of sales for both the three and six month periods of this fiscalyear reflects our continued investments in recruiting and hiring new salesprofessionals, coupled with our ongoing marketing efforts to promote ourextensive printing capabilities and complementary services, particularly thoseavailable through CGXmedia.

 

General andadministrative expenses for the three months ended September 30, 2002 increased5% to $12.9 million, and general and administrative expenses for the six monthsended September 30, 2002 increased 6% to $26.0 million.  The increase in general and administrativeexpenses for both the three and six month periods of this fiscal year isprimarily due to the incremental impact of our recently acquiredbusinesses.  However, as a percentage ofsales, general and administrative expenses for the three months ended September30, 2002 declined to 7.1% from 7.7% in the corresponding quarter a year ago,and for the six months ended September 30, 2002 declined to 7.2% from 7.6% inthe same period last year (excluding amortization of goodwill recorded in theprior comparable periods).  The declinein general and administrative expenses as a percentage of sales for both thethree and six month periods of this fiscal year reflects our ability to keepour administrative costs mostly constant while generating higher sales levelsas described above.

 

Interestexpense for the three months ended September 30, 2002 decreased 34% to $2.7million, and interest expense for the six months ended September 30, 2002decreased 36% to $5.6 million.  Thedecrease in interest expense for both the three and six month periods of thisfiscal year is due to lower borrowings outstanding under our variable-rate bankcredit facility, coupled with a more favorable interest rate environment ascompared to the same periods last year.

 

EffectiveApril 1, 2002, we adopted Statement of Financial Accounting Standards (“SFAS)No. 142 which required us to perform a series of transitional impairment testspertaining to the valuation of our outstanding goodwill balance, which totaled$199.3 million as of March 31, 2002. Pursuant to the adoption of SFAS No. 142, we determined that anafter-tax impairment charge of $74.4 million was required, and such charge hasbeen classified as the cumulative effect of an accounting change as providedfor by the new accounting standard. Further, under SFAS No. 142, we are no longer required to amortize theremaining outstanding goodwill balance, but are required to perform annualimpairment tests to determine if the remaining balance of goodwill should bereduced to estimated fair values.  As aresult of discontinuing goodwill amortization, we reduced our overall effectivetax rate for the three and six months ended September 30, 2002 to 38%, ascompared to 40% in the same periods last year. The higher tax rate of 40% in 

 

12

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fiscal 2002 was necessary toprovide for the effect of the portion of goodwill amortization that was notdeductible for tax purposes.

 

**Liquidityand Capital Resources**

 

*Sources and Uses ofCash*

 

Our Company’shistorical sources of cash have primarily been cash provided by operations orborrowings under our bank credit facilities. Our Company’s historical uses of cash have been for capitalexpenditures, acquisitions of printing businesses and payment of principal andinterest on outstanding 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:***

 
|                                             |   | **Six Months Ended September 30** |   |
|--------------------------------------------------|--------|-----------------------------------|--------|
|                                             |   | **2002**                          |   | **2001** |   |
|                                             |   | **(In millions)**                 |   |
| Net cash provided by operating activities        |   | $                                 | 50.3   |   | $ | 28.3 |   |
| Acquisitions of businesses                       |   | (5.4                              | )      | (2.3 | ) |
| Capital expenditures                             |   | (7.2                              | )      | (7.5 | ) |
| Net repayments under bank credit facilities      |   | (30.6                             | )      | (18.7 | ) |
| Payments on term equipment notes and other  debt |   | (4.5                              | )      | (4.5 | ) |
|                                                  |        |                                   |        |  |  |  |  |

 

Additionally,our cash position, working capital and debt obligations are shown below for theperiods indicated and should be read in conjunction with our consolidatedbalance sheets and notes thereto included in ***Item 1. Financial Statements:***

 
|                      |   | **September 30,2002** |   | **March 31,**2002 |   |
|---------------------------|--------|-----------------------|--------|-------------------|--------|
|                      |   | **(In millions)**     |   |
| Cash and cash equivalents |   | $                     | 12.3   |              | $      | 9.0 |   |
| Working capital           |   | 76.4                  |   | 85.0              |   |
| Total debt obligations    |   | 198.7                 |   | 233.7             |   |
|                           |        |                       |        |                   |        |  |  |

 

We believethat our cash flow from operations will be adequate to cover our fiscal 2003working capital needs, debt service requirements and planned capitalexpenditures. However, we may elect to supplement our capital expenditurerequirements through borrowings under our bank credit facilities or theissuance of additional term notes.

 

We intend tocontinue pursuing acquisition opportunities at prices we believe are reasonablebased upon market conditions.  However,we cannot accurately predict the timing, size and success of our acquisitionefforts or our associated potential capital commitments.  There can be no assurance that we will beable to acquire additional businesses on terms acceptable to us.

 

We expect tofund future acquisitions through cash flow from operations, additionalborrowings or the issuance of our common stock.  The extent to which we will be willing or able to use our commonstock to make acquisitions will depend on its market value from time to timeand the willingness of potential sellers to accept it as full or partialpayment.

 

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*Debt Obligations*

 

We enteredinto a five-year $225.0 million senior secured credit facility (the “BankCredit Facility”) with eleven banks in December 2000.  The Bank Credit Facility is composed of a $50.0 million five-yearterm loan (the “Term Loan”), of which $30.0 million was outstanding atSeptember 30, 2002, and a $175.0 million five-year revolving credit line (the“Revolving Line”), of which $85.0 million was outstanding at September 30,2002.  The Term Loan requires quarterlypayments of $2.5 million each through September 30, 2005.

 

The proceedsof the Bank Credit Facility can be used to repay certain indebtedness, financecertain acquisitions, provide for working capital and general corporatepurposes and, subject to certain restrictions, repurchase our commonstock.  Borrowings outstanding under theBank Credit Facility are secured by substantially all of our assets other thanreal estate and certain equipment subject to term equipment notes and otherfinancings.  Borrowings under the BankCredit Facility accrue interest, at our option, at either (1) the LondonInterbank Offered Rate (LIBOR) plus a margin of 1.25% to 2.25%, 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 to1.00%. We are also required to pay a commitment fee on available but unused amountsranging from .275% to .375% annually. The interest rate margin and the commitment fee are based upon our ratioof Funded Debt to Pro Forma Consolidated EBITDA, as defined, redeterminedquarterly. On September 30, 2002, borrowings outstanding under the Term Loanand the Revolving Line accrued interest at a weighted average rate of 3.96%.

 

Our Company issubject to certain covenants and restrictions and we must meet certainfinancial tests as defined in the Bank Credit Facility. We were in compliance withthese covenants and financial tests at September 30, 2002.  The Company obtained an amendment to itsBank Credit Facility which specifically provided that the goodwill impairmentcharge (see Note 2. Accounting Change) would not impact compliance with thesecovenants.

 

In addition,we entered into an auxiliary revolving credit facility (the “Auxiliary BankFacility”) with a commercial bank expiring in February 2003. This AuxiliaryBank Facility is unsecured and has a maximum borrowing capacity of $5.0 million.At September 30, 2002, borrowings outstanding under the Auxiliary Facilitytotaled $3.7 million and accrued interest at a rate of 3.57%.

 

We haveagreements with two printing equipment manufacturers, pursuant to which wereceive certain volume purchase incentives and long-term financing options withrespect to our purchases of printing presses and other equipment. At September30, 2002, outstanding borrowings under these agreements totaled $65.2 millionand accrued interest at a weighted average rate of 7.76%.  The agreements provide for fixed monthlypayments over periods of either five or ten years and are secured by thepurchased equipment.  We have additionalterm equipment notes totaling $4.4 million, which primarily consist of varioussecured debt obligations we assumed in connection with certain prior yearacquisitions. We are not subject to any significant financial covenants inconnection with these term equipment notes; however, the Bank Credit Facilityplaces certain limitations on the amount of additional term note obligations wemay incur in the future.

 

Subsequent toSeptember 30, 2002, we issued an aggregate principal amount of $34.6 million interm notes to various banks (the “Bank Term Notes”) and utilized the proceedsthereof to retire certain of the outstanding term equipment notes discussedabove.  Borrowings under the Bank TermNotes are secured by the equipment subject to the refinancing.  The Bank Term Notes accrue interest at afixed rate of 5.92% and provide for fixed monthly payments, ending with aballoon payment upon maturity, in November 2007.  Due to the currently favorable interest rate environment, we areevaluating options to refinance some or all of our remaining term equipment notes;however, there can be no assurance that we will be able to do so on termsacceptable to us.

 

Our other debtobligations consist of a promissory note totaling $5.2 million, industrialrevenue bonds totaling $4.6 million and various other debt obligations totaling$.6 million.  We do not have anysignificant financial covenants or restrictions associated with these debtobligations.

 

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**OtherCommitments**

 

We haveentered into various noncancelable operating leases primarily related tofacilities and equipment used in the ordinary course of our business. Ourfuture contractual obligations under such operating leases total approximately$42.2 million as of September 30, 2002.

 

In connectionwith our assumption of obligations under outstanding industrial revenue bondsrelated to the acquisition of two printing businesses, which are reflected asoutstanding debt obligations in our consolidated financial statements, we hadtwo letters of credit outstanding for a combined total of $4.9 million as of September30, 2002.  These letters of credit wereissued pursuant to the terms of our Bank Credit Facility, which expires inDecember 2005, and we may be required to obtain replacement letters of creditat that time.

 

We haveentered into earnout agreements in connection with certain prior yearacquisitions.  If the acquired printingbusinesses generate operating profits in excess of pre-determined targets, wemay be obligated to issue additional shares of our common stock or makeadditional cash payments. As of September 30, 2002, we were contingentlyobligated through fiscal 2005 to issue up to 45,584 shares of our common stockand make additional cash payments of up to $6.6 million for all periods in theaggregate.  Based on current operatinglevels, we expect that the issuance of shares and actual payments pursuant tothese obligations will be substantially less than the maximum amountsindicated.

 

**FactorsWhich May Affect Future Results**

 

Our futureoperating results may be impacted by a number of factors, including generaleconomic conditions and competitive factors in our industry, seasonal andcyclical variations in commercial printing demand, reasonable growth in thedemand for our products and retention of key management and operatingpersonnel. The magnitude and timing of any future acquisitions, as well as ourability to absorb and manage such businesses, will also impact our futureresults.  Because of these and otherfactors, there can be no assurance that we will not experience materialfluctuations in our future operating results or cash flows on a quarterly orannual basis.

 

**Critical Accounting Policies**

 

We haveidentified our critical accounting policies based on the following factors —significance to our overall financial statement presentation, complexity of thepolicy and its use of estimates and assumptions.  We are required to make certain estimates and assumptions indetermining the reported amounts of assets and liabilities, disclosure ofcontingent liabilities and the reported amounts of revenues and expenses. Weevaluate our estimates and assumptions on an ongoing basis and rely onhistorical 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.

 

We maintain anallowance for doubtful accounts as deemed necessary based upon expectedcollectibility of accounts receivable. We exercise judgment in determining the valuation and useful lives ofour long-lived assets, primarily property/equipment and goodwill.  We also determine the realization oflong-lived assets by assessing the future cash flows and income from suchassets on an undiscounted basis, as well as other factors such as businesstrends and general economic conditions. We are self-insured up to specified limits for the majority of ourworkers’ compensation costs and group health insurance costs, and we rely onclaims experience and the advice of our administrators and consulting actuariesin determining an adequate liability for self-insurance claims.  Finally, we utilize certain estimates andassumptions in our determination and allocation of the purchase price foracquisitions and in determining accruals for current and deferred income taxes.

 

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**RecentAccounting Pronouncements**

 

SFAS No.145, *Rescission of FASB Statement Nos. 4,44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections,*wasissued in April 2002.  SFAS No. 145amends existing authoritative pronouncements to make various technicalcorrections, clarify meanings, and describe their applicability under changedconditions.  This statement requiresthat gains and losses from the extinguishment of debt be classified asextraordinary items only if they meet the criteria in Accounting PrinciplesBoard (“APB”) Opinion No. 30, *Reporting theResults of Operations - Reporting the Effects of Disposal of a Segment of aBusiness, and Extraordinary, Unusual and Infrequently Occurring Events andTransactions. *SFAS No. 145is effective for fiscal years beginning after May 15, 2002.  Management does not believe that theadoption of SFAS No. 145 will have a material impact on its financial positionor results of operations.

 

SFAS No.146, *Accounting for Costs Associated withExit or Disposal Activities*, was issued in July 2002 and iseffective for exit or disposal activities that are initiated after December 31,2002.  SFAS No. 146 requires that exitor disposal costs be recorded when they are incurred.  The exit costs may be measured at fair value and the liabilitymay be adjusted for changes in estimated cash flows.  Management does not believe that the adoption of SFAS No. 146will have a material impact on its financial position or results of operations.

 

***ITEM 3. Quantitative and Qualitative Disclosure About Market Risk***

 

Market risk generally means the risk thatlosses may occur in the value of certain financial instruments as a result ofmovements in interest rates, foreign currency exchange rates and commodityprices.  We do not hold or utilizederivative financial instruments which could expose our Company to significantmarket risk.  However, we are exposed tomarket risk for changes in interest rates related primarily to our debtobligations, which includes borrowings under our bank credit facilities,various term equipment notes and other debt obligations.  As of September 30, 2002, there were nomaterial changes in our market risk or the estimated fair value of our debtobligations relative to their recorded value, as reported in our Annual Reporton Form 10-K for the fiscal year ended March 31, 2002.

 

***ITEM4.  Controls and Procedures***

 

Our ChiefExecutive Officer (“CEO”) and Chief Financial Officer (“CFO”) have evaluatedthe effectiveness of the Company’s disclosure controls and procedures (asdefined in Rules 13a-4(c) and 15d-14(c) of the Securities Exchange Act of 1934,as amended) as of a date (“Evaluation Date”) within 90 days prior to the filingdate of this quarterly report.  Based onsuch evaluation, our CEO and CFO have each concluded that as of the EvaluationDate, the Company’s disclosure controls and procedures were effective to ensurethat information required to be disclosed by the Company in reports that itfiles or submits under the Securities Exchange Act of 1934, as amended, isrecorded, processed, summarized and reported within the time periods specifiedin the Securities and Exchange Commission’s rules and forms.  There were no significant changes in theCompany’s internal controls or in other factors that could significantly affectthe internal controls subsequent to the Evaluation Date.

 

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**ConsolidatedGraphics, Inc.**

**PARTII – OTHER INFORMATION**

 

**ITEM 1.  *Legal Proceedings***

 

From time totime, our Company is involved in litigation relating to claims arising out ofits operations in the normal course of business. We maintain insurance coverageagainst potential claims in an amount which we believe to be adequate.  Currently, we are not aware of any legalproceedings or claims pending against our 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.  *Defaultsupon Senior Securities***

 

None.

 

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

 

None.

 

**ITEM5. * 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).                                                                                                                                                                                                                                                                                               |
| * 4.1     |   | Specimen Common Stock Certificate (Consolidated Graphics, Inc. Form  10-K (March 31, 1998) SEC File No. 0-24068, Exhibit 4.1).                                                                                                                                                                                                                                                                                                                              |
| * 4.2     |   | 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). |
|      |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|           |
|      |   | * Incorporated by reference                                                                                                                                                                                                                                                                                                                                                                                                                                 |

 

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***(b)******            Reportson Form 8-K:***

 
| 1) | Form 8-K,  filed July 16, 2002 in connection with the announcement of a change in the  Company’s independent public accountant.                                                                                                                                                           |
|----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 2) | Form 8-K,  filed July 29, 2002 in connection with the press release announcing the  Company’s fiscal 2003 first quarter results and the announcement of the  results of the Company’s Annual Meeting of Shareholders.                                                                |
| 3) | Form 8-K,  filed August 15, 2002 in connection with the announcement of the Company’s  submission to the Securities and Exchange Commission of the certifications of  its Chief Executive Officer and Chief Financial Officer pursuant to Section  906 of the Sarbanes-Oxley Act of 2002. |
| 4) | Form, 8-K,  filed October 23, 2002 in connection with the press release announcing the  Company’s fiscal 2003 second quarter results.                                                                                                                                                     |

 

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**SIGNATURES**

 

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

 

 
|                            | **CONSOLIDATED  GRAPHICS, INC.** |
|---------------------------------|----------------------------------|
|                            |                             |   |
|                            |                             |   |
| Dated:   November 14, 2002 | By:                              | /s/ G. Christopher Colville |   |
|                            |                             | G. Christopher Colville |
|                            |                             | Executive Vice President,  Chief Financial and Accounting  Officer and Secretary |

 

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**CERTIFICATION**

 

I, Joe R. Davis, certify that:

 
| 1.     | I have  reviewed this quarterly report on Form 10-Q of Consolidated Graphics,  Inc.;                                                                                                                                                                                                                                                                                                          |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                               |
| 2.     | Based on my  knowledge, this quarterly report does not contain any untrue statement of a  material fact or omit to state a material fact necessary to make the  statements made, in light of the circumstances under which such statements  were made, not misleading with respect to the period covered by this  quarterly report;                                                                |
|   |                                                                                                                                                                                                                                                                                                                                                                                               |
| 3.     | Based on my  knowledge, the financial statements, and other financial information included  in this quarterly report, fairly present in all material respects the  financial condition, results of operations and cash flows of the registrant  as of, and for, the periods presented in this quarterly report;                                                                                    |
|   |                                                                                                                                                                                                                                                                                                                                                                                               |
| 4.     | The  registrant’s other certifying officer and I are responsible for establishing  and maintaining disclosure controls and procedures (as defined in Exchange  Act Rules 13a-14 and 15d-14) for the registrant and we have:                                                                                                                                                              |
|   |                                                                                                                                                                                                                                                                                                                                                                                               |
|   | a)     designed such disclosure  controls and procedures to ensure that material information relating to the  registrant, including its consolidated subsidiaries, is made known to us by  others within those entities, particularly during the period in which this  quarterly report is being prepared;                                                                     |
|   |                                                                                                                                                                                                                                                                                                                                                                                               |
|   | b)    evaluated the  effectiveness of the registrant’s disclosure controls and procedures as of a  date within 90 days prior to the filing date of this quarterly report  (the “Evaluation Date”); and                                                                                                                                                          |
|   |                                                                                                                                                                                                                                                                                                                                                                                               |
|   | c)     presented in this  quarterly report our conclusions about the effectiveness of the disclosure  controls and procedures based on our evaluation as of the Evaluation Date;                                                                                                                                                                                               |
|   |                                                                                                                                                                                                                                                                                                                                                                                               |
| 5.     | The  registrant’s other certifying officer and I have disclosed, based on our most  recent evaluation, to the registrant’s auditors and the audit committee of  registrant’s board of directors (or persons performing the equivalent  function):                                                                                                                                   |
|   |                                                                                                                                                                                                                                                                                                                                                                                               |
|   | a)     all significant  deficiencies in the design or operation of internal controls which could  adversely affect the registrant’s ability to record, process, summarize and  report financial data and have identified for the registrant’s auditors any  material weaknesses in internal controls; and                                                            |
|   |                                                                                                                                                                                                                                                                                                                                                                                               |
|   | b)    any fraud, whether or not  material, that involves management or other employees who have a significant  role in the registrant’s internal controls; and                                                                                                                                                                                                                 |
|   |                                                                                                                                                                                                                                                                                                                                                                                               |
| 6.     | The  registrant’s other certifying officer and I have indicated in this quarterly  report whether or not there were significant changes in internal controls or  in other factors that could significantly affect internal controls subsequent  to the date of our most recent evaluation, including any corrective actions  with regard to significant deficiencies and material weaknesses. |

 

 
| Date:  November 14, 2002 |   | /s/ Joe R.  Davis                                                                               |   |
|-------------------------------|--------|-------------------------------------------------------------------------------------------------|--------|
|                          |   | Joe R.  Davis,                                                                                  |
|                          |   | Chairman of  the Board of Directors and  Chief Executive Officer  (Principal Executive Officer) |

 

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**CERTIFICATION**

 

I, G. Christopher Colville,certify that:

 
| 1.     | I have  reviewed this quarterly report on Form 10-Q of Consolidated Graphics,  Inc.;                                                                                                                                                                                                                                                                                                          |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                               |
| 2.     | Based on my  knowledge, this quarterly report does not contain any untrue statement of a  material fact or omit to state a material fact necessary to make the  statements made, in light of the circumstances under which such statements  were made, not misleading with respect to the period covered by this quarterly  report;                                                                |
|   |                                                                                                                                                                                                                                                                                                                                                                                               |
| 3.     | Based on my  knowledge, the financial statements, and other financial information included  in this quarterly report, fairly present in all material respects the  financial condition, results of operations and cash flows of the registrant as  of, and for, the periods presented in this quarterly report;                                                                                    |
|   |                                                                                                                                                                                                                                                                                                                                                                                               |
| 4.     | The  registrant’s other certifying officer and I are responsible for establishing  and maintaining disclosure controls and procedures (as defined in Exchange  Act Rules 13a-14 and 15d-14) for the registrant and we have:                                                                                                                                                              |
|   |                                                                                                                                                                                                                                                                                                                                                                                               |
|   | a)     designed such disclosure  controls and procedures to ensure that material information relating to the  registrant, including its consolidated subsidiaries, is made known to us by  others within those entities, particularly during the period in which this  quarterly report is being prepared;                                                                     |
|   |                                                                                                                                                                                                                                                                                                                                                                                               |
|   | b)    evaluated the  effectiveness of the registrant’s disclosure controls and procedures as of a  date within 90 days prior to the filing date of this quarterly report  (the “Evaluation Date”); and                                                                                                                                                          |
|   |                                                                                                                                                                                                                                                                                                                                                                                               |
|   | c)     presented in this  quarterly report our conclusions about the effectiveness of the disclosure  controls and procedures based on our evaluation as of the Evaluation Date;                                                                                                                                                                                               |
|   |                                                                                                                                                                                                                                                                                                                                                                                               |
| 5.     | The  registrant’s other certifying officer and I have disclosed, based on our most  recent evaluation, to the registrant’s auditors and the audit committee of  registrant’s board of directors (or persons performing the equivalent  function):                                                                                                                                   |
|   |                                                                                                                                                                                                                                                                                                                                                                                               |
|   | a)     all significant  deficiencies in the design or operation of internal controls which could  adversely affect the registrant’s ability to record, process, summarize and  report financial data and have identified for the registrant’s auditors any  material weaknesses in internal controls; and                                                            |
|   |                                                                                                                                                                                                                                                                                                                                                                                               |
|   | b)    any fraud, whether or not  material, that involves management or other employees who have a significant  role in the registrant’s internal controls; and                                                                                                                                                                                                                 |
|   |                                                                                                                                                                                                                                                                                                                                                                                               |
| 6.     | The  registrant’s other certifying officer and I have indicated in this quarterly  report whether or not there were significant changes in internal controls or  in other factors that could significantly affect internal controls subsequent  to the date of our most recent evaluation, including any corrective actions  with regard to significant deficiencies and material weaknesses. |

 

 
| Date:  November 14, 2002 |   | /s/ G.  Christopher Colville                                                                                                   |   |
|-------------------------------|--------|--------------------------------------------------------------------------------------------------------------------------------|--------|
|                          |   | G.  Christopher Colville                                                                                                       |
|                          |   | Executive  Vice President, Chief Financial and  Accounting Officer and Secretary  (Principal Financial and Accounting Officer) |

 

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