**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON,D.C. 20549**

 

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**FORM 10-K**

 
| **(MARK  ONE)**                                                                                                                                                                                               | ** **                                                                                          |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-----------------------------------------------------------------------------------------------------|
| ý                                                                                                                                                                                                        | **ANNUAL  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF  1934**     |
|                                                                                                                                                                                                          | ** **                                                                                          |
| **FOR  THE FISCAL YEAR ENDED MARCH 31, 2005**                                                                                                                                                            |
| **OR**                                                                                                                                                                                                        |
| o                                                                                                                                                                                                             | **TRANSITION  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF  1934** |
|                                                                                                                                                                                                          | ** **                                                                                          |
| **FOR  THE TRANSITION PERIOD FROM              TO              ** |
|                                                                                                                                                                                                               |                                                                                                     |  |

 

**COMMISSIONFILE NUMBER 001-12631**

 

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**CONSOLIDATED GRAPHICS, INC.**

(EXACT NAME OFREGISTRANT AS SPECIFIED IN ITS CHARTER)

 
| **TEXAS**                                                        | ** ** | **76-0190827**                     |
|------------------------------------------------------------------|------------|------------------------------------|
| (STATE OR OTHER  JURISDICTION  OF INCORPORATION OR ORGANIZATION) | ** ** | (IRS EMPLOYER  IDENTIFICATION NO.) |
|                                                             | ** ** |                               |
| **5858  WESTHEIMER, SUITE 200  HOUSTON, TEXAS**             | ** ** | **77057**                          |
| (ADDRESS OF  PRINCIPAL EXECUTIVE OFFICES)                        | ** ** | (ZIP CODE)                         |
|                                                             | ** ** |                               |
| **(713) 787-0977**                                          |
| (REGISTRANT’S  TELEPHONE NUMBER, INCLUDING AREA CODE)       |

 
| Securities  registered pursuant to Section 12(b) of the Act: | ** ** | ** **                         |
|-------------------------------------------------------------------|------------|------------------------------------|
| **COMMON  STOCK, PAR VALUE $.01 PER SHARE**                  | ** ** | **NEW  YORK STOCK EXCHANGE**  |
| (TITLE OF CLASS)                                                  | ** ** | (NAME OF EACH  EXCHANGE            |
| ** **                                                        | ** ** | ON WHICH  REGISTERED)              |
|                                                              | ** ** | ** **                         |
| Securities  registered pursuant to Section 12(g) of the Act: | ** ** | ** **                         |
| **NONE**                                                          | ** ** | ** **                         |

 

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Indicateby check mark whether the registrant (1) has filed all reports required tobe filed by Section 13 or 15(d) of the Securities Exchange Act of 1934during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject tosuch filing requirements for the past 90 days. Yes ý No o

 

Indicateby check mark if disclosure of delinquent filers pursuant to Item 405 ofRegulation S-K is not contained herein, and will not be contained, to thebest of registrant’s knowledge, in definitive proxy or information statementsincorporated by reference in Part III of this Form 10-K or anyamendment to this Form 10-K. ý

 

Indicateby check mark whether the registrant is an accelerated filer (as defined inRule 12b-2 of the Securities Exchange Act of 1934). Yes ý No o

 

Theaggregate market value of the voting stock held by nonaffiliates of theregistrant as of September 30, 2004 (last business day of ConsolidatedGraphics, Inc.’s most recently completed second fiscal quarter):

**COMMON STOCK, $.01 PAR VALUE—$491,562,169**

 

The number of shares outstanding of the registrant’s common stock as of April 30,2005:

**COMMON STOCK, $.01 PAR VALUE—13,762,921**

 

**DOCUMENTS INCORPORATED BY REFERENCE**

Portionsof the registrant’s Proxy Statement for the Annual Shareholders’ Meeting to beheld on or about July 28, 2005, to be filed with the Securities andExchange Commission pursuant to Regulation 14A under the SecuritiesExchange Act of 1934, as amended, are incorporated by reference intoPart III of this Form 10-K. Such Proxy Statement, except for theparts therein which have been specifically incorporated by reference, shall notbe deemed “filed” for the purposes of this Form 10-K.

 

 

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**CONSOLIDATEDGRAPHICS, INC.**

**FORM10-K**

**FORTHE YEAR ENDED MARCH 31, 2005**

 

**INDEX**

 
|      | PART I                                                                                                             |   |
|-----------|--------------------------------------------------------------------------------------------------------------------|--------|
| Item 1.   | Business                                                                                                           |   |
| Item 2.   | Properties                                                                                                         |   |
| Item 3.   | Legal Proceedings                                                                                                  |   |
| Item 4.   | Submission of Matters to a Vote of Security  Holders                                                               |   |
|      |                                                                                                               |   |
|      | PART II                                                                                                            |   |
| Item 5.   | Market for Registrant’s Common Equity, Related  Shareholder Matters and Issuer Purchases of Equity Securities |   |
| Item 6.   | Selected Consolidated Financial Data                                                                               |   |
| Item 7.   | Management’s Discussion and Analysis of  Financial Condition and Results of Operations                        |   |
| Item 7A.  | Quantitative and Qualitative Disclosure About  Market Risk                                                         |   |
| Item 8.   | Financial  Statements and Supplementary Data                                                                       |   |
| Item 9.   | Changes  in and Disagreements with Accountants on Accounting and Financial Disclosure                              |   |
| Item 9A.  | Controls  and Procedures                                                                                           |   |
| Item 9B.  | Other  Information                                                                                                 |   |
|      |                                                                                                               |   |
|      | PART  III                                                                                                          |   |
| Item 10.  | Directors and Executive  Officers of the Registrant                                                                |   |
| Item 11.  | Executive Compensation                                                                                             |   |
| Item 12.  | Security Ownership of  Certain Beneficial Owners and Management and Related Shareholder Matters                    |   |
| Item 13.  | Certain Relationships  and Related Transactions                                                                    |   |
| Item 14.  | Principal Accountant  Fees and Services                                                                            |   |
|      |                                                                                                               |   |
|      | PART IV                                                                                                            |   |
| Item  15. | Exhibits  and Financial Statement Schedules                                                                        |   |
|      | Signatures                                                                                                         |   |
|      | Exhibit Index                                                                                                      |   |

 

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**PART I**

 

***Item 1******. Business***

 

*In thisannual report, the words “Consolidated Graphics,” “CGX,” the “Company,” “we,” “our”and “us” refer to Consolidated Graphics, Inc, collectively with ourconsolidated subsidiaries, unless the context indicates otherwise. Our fiscalyear ends on March 31st.*

 

**CompanyOverview**

 

Consolidated Graphics isa leading national provider of commercial printing services and is recognizedas the largest sheetfed and half-web commercial printing company in the UnitedStates. Our corporate headquarters are in Houston, Texas, and we currentlyoperate 70 printing businesses in 25 states. Each of our printing businesseshas a well-established operating history, more than 25 years in mostcases.

 

Our sales are derivedfrom commercial printing services. These services consist of(i) traditional print services, including electronic prepress, printing,finishing, storage and delivery of high-quality printed documents which arecustom manufactured to our customers’ design specifications;(ii) fulfillment and mailing services for such printed materials; and(iii) e-commerce solutions that enable our customers to improve theirprocesses over the procurement and management of printed materials. Examples ofthe types of documents we print for our customers include high-quality, multi-colormarketing materials, product and capability brochures, point-of-purchasedisplays, direct mail pieces, shareholder communications, catalogs and trainingmanuals.

 

The scope and extent ofservices provided to our customers typically varies for each individual orderwe receive, depending on customer-specific factors including the intended usesfor the printed materials. Furthermore, each of our printing businesses generallyis capable of providing the complete range of our services to theircustomers.  Accordingly, we do notoperate our business in a manner that differentiates among our respectivecapabilities and services for financial or management reporting services,rather each of our printing businesses define a distinct reporting unit.

 

The Company wasincorporated in Texas in 1985. Our website address is *www.cgx.com*.We make available free of charge on or through our website our annual reportson Form 10-K, quarterly reports on Form 10-Q, current reports onForm 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a)or 15(d) of the Securities and Exchange Act of 1934, as amended (“Exchange Act”)and other filings as soon as reasonably practicable after we electronicallyfile such reports with or furnish such reports to the Securities and ExchangeCommission (“SEC”). In addition, the current forms of our Corporate GovernanceGuidelines, Corporate Code of Ethics, and the charters of the respectivecommittees of our Board of Directors, and contact information for our PresidingDirector for purposes of shareholder communications, are all available on ourwebsite. The public may read and copy any materials filed by us with the SEC atthe SEC’s public reference room at 450 Fifth Street, NW, Washington D.C.,20549. The public may obtain information about the operation of the SEC’spublic reference rooms by calling the SEC at1-800-SEC-0330. The SEC also maintains a website at *www.sec.gov* that contains reports, proxy and informationstatements and other information about issuers like us that file electronicallywith the SEC.

 

**IndustryBackground**

 

The printing industry isone of the largest industries in the United States, with total annual salesestimated to be in excess of $160 billion. The printing industry iscomprised of many segments, including general commercial printing, newspapers,directories, book and magazine publishing, financial printing, business forms,greeting cards and stationery-type products. We operate in the generalcommercial printing segment of the industry which generates over$40 billion in annual U.S. sales based on available industry data. Most ofthe general commercial printing businesses operating in the United States todayare privately-owned and individually generate less than $35 million inannual sales.

 

A consolidation trend inthe general commercial printing industry emerged in the 1990’s as owners ofmedium-sized printing businesses (those with annual sales of $2 million to$35 million) sought to evaluate exit strategies and address new industrychallenges. In order to limit personal financial risk, increase personalfinancial liquidity or facilitate plans to eventually retire, owners of these printingbusinesses became more willing to sell their companies to larger, better-capitalizedcompanies. We have been an industry-leader in the consolidation trend since ourinitial public offering in 1994. We believe that we are one of only a fewcompanies that possess the financial strength and management expertisenecessary to acquire such printing businesses.

 

Primary industrychallenges in recent history include the need to invest in new technology andequipment and adverse 

 

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economic conditions. Mostprinting design and prepress activities are now accomplished in a digitalenvironment. Prepress computer equipment based on a complete digital workflow,along with more sophisticated printing presses and finishing equipment, is moreefficient, operates faster and requires less labor. General commercial printingbusinesses must make substantial capital investments over time in new equipmentin order to remain competitive in the industry.

 

Because of thedevelopment and on-going advancement in digital technology, print buyers haveincreasingly sought shorter print runs, the ability to personalize moresophisticated marketing materials to strategically target certain markets ordemographics, and e-commerce solutions for executing and controlling the printprocurement and printed materials management processes. This factor has alsocontributed substantially to the burden on companies in our industry to investin new technology and equipment to remain competitive. Additionally, largecorporations have increasingly sought to achieve a reduction in operating costsby streamlining their print-related processes and limiting their number ofsuppliers. To accomplish these objectives, these large customers frequentlyseek to align themselves with printing companies that have a significantnational presence and offer a wide range of commercial print capabilities andservices, putting additional pressure on single-location, privately-heldprinting companies.

 

In general, changes inprevailing U.S. economic conditions significantly impact the commercialprinting industry. To the extent weakness in the U.S. economy causes local andnational corporations to reduce their spending on advertising and marketingmaterials, the demand for commercial printing services may be adverselyaffected. Further, compounding a decline in demand, competitive pricingpressures may occur and negatively impact the level of sales and profit marginsthroughout the industry.  Beginningaround 2000, industry conditions began a long downturn due in part toovercapacity caused by a high rate of investment by the overall industry in newtechnology and equipment and followed by a broad deterioration in the U.S.economy. We believe industry conditions have generally stabilized over the last12-24 months as the U.S. economy strengthened.

 

**Competition**

 

The commercial printingindustry remains highly fragmented and the majority of customers purchaseprinted products from locally available sources. Therefore, we competeprimarily with locally-based printing companies for most print projects. Mostof our competitors are privately-held, single location operations; however,some competitors are large corporations, both publicly and privately owned.

 

The major competitivefactors in our business are:

 

•                                          Extentand quality of customer service, including ability to meet customer deadlines

 

•                                          Qualityof finished products

 

•                                          Coststructure

 

•                                          Financialstrength

 

The ability to providehigh-quality customer service is often dependent on production and distributioncapabilities, along with the availability of equipment that is appropriate insize and function for a given project. We believe that our broad range ofprinting capabilities and services, along with our ability to use our nationalgeographic footprint to serve customers on both a regional and national level,gives us a competitive advantage over smaller, local printing companies.Furthermore, the economic advantages created by our purchasing power, ouradvanced technological capabilities and our ability to utilize any excessproduction capacity throughout our organization enables our printing businessesto compete more effectively in pricing and provide faster turnaround times thanour competitors may be able to provide. Our strong financial position enablesus to invest in newer, more efficient technology and equipment and to makestrategic acquisitions, which expand our industry-leading breadth of locations,capabilities, and services.

 

**BusinessStrategy**

 

Our overall businessstrategy is to be the market leader in the commercial printing industry bycombining the customer service and responsiveness of well-managed, localprinting businesses with the competitive advantages provided by a nationalorganization. Management at each of our 70 printing businesses maintainsresponsibility for the day-to-day operations and profitability of theirbusiness, while continuing to strengthen and build new customer relationshipsin their respective markets. At the same time, our printing businesses aresupported by the management expertise, purchasing power, technology investmentsand other operating advantages that exist because they are part of a largerorganization.

 

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*InternalSales Growth*—Our printing businesses have numerousopportunities, individually and collectively, to achieve consistent, long-termsales growth at a rate that exceeds industry averages. Our current initiativesto improve internal sales growth include:

 

•                                          Aggressivelypursuing new business opportunities and experienced sales professionals to gainmarket share and strengthen our competitive position going forward.

 

•                                          Continuingto invest in new equipment and technology that enables us to provideincreasingly higher levels of service and a broader range of capabilities.

 

•                                          Capitalizingon our national presence and wide range of capabilities to pursue sole-source opportunitieswith national accounts.

 

*DisciplinedAcquisition Program*—We are actively seeking to grow ournational geographic footprint through additional acquisitions of medium and large-sizedgeneral commercial printing businesses, typically ones that are well-managed,profitable and have a generally excellent reputation and quality customer base.We may also acquire smaller and/or distressed printing businesses whoseoperations can be merged into one of our existing locations. This type oftransaction is commonly referred to as a “tuck-in” acquisition. Because of difficultindustry conditions beginning about 2000 and broad economic uncertainties, weexpect to continue evaluating a number of “tuck-in” acquisition opportunitiesin the next twelve months.

 

*CostSavings—*Because of our size and national presence, weleverage our economies of scale to obtain preferential pricing for paper andsupplies used in the printing process and for newer, more efficient equipment.We have various national purchasing contracts in place with major suppliers andmanufacturers. Our purchasing support staff continually monitors marketconditions and negotiates pricing and other contractual terms with thesevendors to maximize the cost savings we achieve under these agreements. Inaddition, we have centralized certain administrative services, such as humanresources, treasury, tax and risk management, to generate cost savings.

 

*Best Practices/Benchmarking—*Managementteams at our printing businesses have access to strategic counsel andprofessional management techniques in such areas as planning, organization, andcontrols. We provide a forum for them to share their knowledge of technicalprocesses and their best practices with one another through periodic groupmeetings attended by top management and other key personnel. We utilize ourwide-area network and management information systems to benchmark financial andoperational data, and share such information across our printing businesses tohelp the management teams identify and respond to changes in operating trends.

 

*LeadershipDevelopment*—Our highly successful program to recruit, trainand develop recent college graduates as printing sales and managementprofessionals is an integral component of our growth strategy. Participants inour Leadership Development Program follow a curriculum that provides them withtechnical industry knowledge, coupled with general business and managerialtraining and our best practices. Our Leadership Development Program is uniqueto the industry, and we believe it is a key factor in our ability to provide ahigh degree of quality customer service, as well as provide a pool of talentfor future management positions at our printing businesses. As of April 30,2005 we had 187 employees who were current participants in or graduates of thisprogram, ten of whom serve as the president of the printing business where theyare employed.

 

**PrintingOperations**

 

We currently operate 70printing businesses in 25 states, with each business operated as a wholly-ownedsubsidiary of our Company. We produce high-quality, custom-designed printedmaterials for a large base of customers in a broad cross-section ofindustries, the majority of which are located in the markets our printing businessesserve. In addition to providing a full range of prepress, printing andfinishing services, our printing businesses offer fulfillment and mailingservices, as well as e-commerce software solutions and other print-related,value-added services.

 

*CommercialPrinting Services*

 

In general, commercialprinting includes developing printable content through electronic prepressservices, reproducing images on paper using printing presses and providingcomprehensive finishing and delivery services. We maintain flexible productionschedules in order to react swiftly to our customers’ requirements. Manyprinting projects require fast turnaround times, from conception throughdelivery, and our printing businesses must maintain physical plant and customerservice staff as necessary to maximize workloads when called upon to do so.Consequently, our printing businesses do not generally operate at fullcapacity.

 

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Our electronic prepressservices include all of the steps necessary to prepare media (photographs,artwork, and typed copy) for printing. This process involves converting themedia into digital images, separating digital color images into process colors, and preparing a proof for customerapproval. Most of our printing businesses produce printing plates using “computer-to-plate”technology, whereby digitized text, graphic images and line art are transferreddirectly from digital files onto printing plates. In addition, our printingbusinesses have adopted recent advances in technology that enable delivery of ahigh-quality proof for customer approval electronically via the Internet,eliminating the cost of producing and delivering a proof, or multiple rounds ofproofs, in hard copy format. Computer-to-plate and remote proofing technologyreduces costs, shortens turnaround time and improves product quality. Wecontinually evaluate our existing electronic prepress capabilities and closelymonitor the development of newer technology that may be used to increase productivityand improve quality to better serve our customers.

 

We primarily use offsetlithography to reproduce images on paper, which is the process that providesthe highest quality, lowest cost printed materials for most run lengths. Shortand medium-run commercial projects are generally printed on sheetfed presses,while longer-run projects are typically printed on web presses.

 

Our printing businesses primarilyuse sheetfed printing presses, which are generally capable of printing up to 16pages of letter-sized finished product on a 28 by 40 inch sheet of paper witheight pages on each side (known as a 16-page “signature”). Currently ourprinting businesses operate a total of 312 sheetfed presses capable ofsimultaneously printing from one to eight colors and are capable of running atspeeds of up to 15,000 impressions an hour. We have 17 printing businesses whichalso operate half-size and/or full-size web presses which print on a continuousroll of paper and print up to 32-page signatures on both sides of the paper atspeeds of up to 50,000 impressions an hour. Certain web presses are alsocapable of folding, gluing or perforating a printed product. Additionally, wehave 27 printing businesses that utilize a number of digital presses that cansimultaneously print from one to four colors and are typically used to handleshort-run, fast-turnaround projects, including the production of documents withvariable data requirements. Recent developments in digital printing technologyhave expanded the capabilities and improved the quality of services that can beoffered with digital printing technology. In anticipation of growing customerdemand for these services, we announced an agreement in April 2004 withXerox Corporation (“Xerox”) providing for Xerox to be the exclusive provider ofdigital color printing technology to our printing businesses and to providemarketing and business development resources to us in introducing digitalprinting solutions to our current and prospective customers.

 

Our finishing servicesinclude cutting, folding, binding and other operations necessary to finish theprinted product according to customer specifications. Many of our printingbusinesses also offer specialty finishing capabilities, such as die-cutting, embossing,and foil stamping.

 

*Print-relatedServices*

 

By offering innovative print-relatedcapabilities and e-commerce solutions that respond to the needs of ourcustomers, we believe that our Company has a competitive advantage that willhelp us generate additional sales. We provide a variety of fulfillmentservices, which primarily include assembling, packaging, storing, anddistributing printed promotional, educational, and training documents andmaterials on behalf of our customers. Many corporations utilize our fulfillmentcapabilities to help manage their inventories of printed materials, as well asto provide “just in time” assembly and delivery of printed materials to endusers. Orders for fulfillment services are frequently received via proprietary,Internet-based print procurement and inventory management systems maintained byour printing businesses, as discussed below. Additionally, we provide mailingservices for large quantities of printed materials distributed to end-users, aservice that is ideal for direct mail and promotional pieces. We also offer anumber of options for sorting, packaging, inkjet labeling and shipping ofprinted materials.

 

Utilizing our expertisein digital technology, we offer print-related e-commerce solutions that enableour customers to streamline their print procurement process and improve theirability to manage the printed materials they order. Most of thesee-commerce solutions are Internet-based, and like the printed materials weproduce, are customized to the specific needs of our customers. For marketingpurposes, we refer to these e-commerce capabilities using the “CGXSolutions”trademark. The keye-commerce capabilities we offer include:

 

•                                          *On-line Print Procurement* - Our on-line print procurement solutionallows our customers to order printed materials, have them shipped anywhere inthe world and capture transactions in easy-to-read reports.  Customers save time with on-line typesettingand proofing. They also reduce inefficiencies through standardized pricing,delivery standards and ordering procedures. Importantly, this solution also providesincreased control of print purchases.

 

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•                                          *Digital Asset Management* - Our digital asset librarypreserves our customers’ electronic assets such as photos, logos and documentsthat are expensive to create and may be impossible to replace.  Customers can then retrieve and share theirelectronic assets from any Web browser. Customers can manage thousands of files over the Internet, reusevaluable graphics and foster collaboration between groups in a secureenvironment.

 

Other e-commerce and electronicmedia services we offer include Internet services such as designing websitesand programming interactive tools, CD-ROM development and production, foreignlanguage translation services in over 100 different languages, composition andtypesetting,  and database management forcustomer-retention programs.

 

A dedicated CGXSolutionssales support team and project managers assist our printing businesses in identifyingprospective customers and marketing our suite of CGXSolutions capabilities andservices. We maintain CGXSolutions staff to design and develop customizedsolutions as needed in response to the specific needs of each customer. We alsoutilize support staff at each of our printing businesses who are trained andable to serve our customers’ needs related to our CGXSolutions capabilities andservices.

 

**Salesand Marketing**

 

The substantial majorityof our sales are generated by individual orders through commissioned salespersonnel. As of April 30, 2005 we employed 635 sales professionals, allof whom are knowledgeable about the commercial printing industry and thecapabilities of our printing businesses. In addition to soliciting businessfrom existing and prospective customers, our sales personnel act as liaisonsbetween customers and our production departments and also provide technicaladvice and assistance to customers throughout the printing process.

 

Commercial printingrequires a substantial amount of interaction with customers, including personalsales calls, reviews of color proofs and “press checks” (customer approval of aprinted document while it is being printed). Our sales professionals andcustomer service personnel maintain strict control of the printing process forevery job we produce as it moves through our scheduling, prepress, printing,and finishing operations.

 

Our primary marketingfocus is on responding rapidly to customer requirements and producing high-qualityprinted materials at competitive prices. Rapid responsiveness is essentialbecause of the short lead time on most commercial printing projects. Ourprinting operations are designed to maintain maximum flexibility to meetcustomer needs, both on scheduled and emergency bases. Each of our printingbusinesses generally seek projects that they believe will best utilize theirrespective equipment and expertise; however, they have access to and areencouraged to offer their customers the broad range of capabilities we havethroughout our organization.

 

We also actively pursueopportunities to establish sole-source, multi-year printing relationships withlarge corporations seeking to leverage their print spending and limit theirnumber of commercial print providers. We refer to these customers as “nationalaccounts” and aggregate sales to these customers as “national sales.” To betterposition ourselves to capitalize on future national account opportunities aswell as to provide more sales training and support to our printing businesses,our organization includes an executive level team of 7 sales and marketingprofessionals who play a key support role to the efforts of our locations toidentify and develop national account opportunities. In fiscal 2005, ournational sales grew by 22% and represented 6% of our total sales. We expectnational accounts to be an increasing contributor to our sales growth.

 

**Customers**

 

Our diverse customer baseincludes both national and local corporations operating in a wide range ofindustries, as well as mutual fund companies, advertising agencies, graphicdesign firms, catalog retailers and direct mail distributors. During fiscal2005, we served over 19,000 customers, and our top ten customers accounted forapproximately 9% of total sales, none of whom represented more than 2%individually. We believe that our large and diverse customer base, broadgeographic coverage of the United States and extensive range of printing andprint-related capabilities may reduce somewhat our exposure to economicslowdowns that may generally affect any particular industry or any particular regionof the country. However, because we typically produce a large number ofadvertising and marketing materials for our customers, to the extent thatadvertising and marketing spending is reduced during an economic downturn, our consolidatedfinancial condition or results of operations may be adversely affected.

 

Our customers generallyplace orders for individual printing projects and are not contractuallyobligated to purchase additional printing services from us. Consequently ourcontinued engagement to provide additional commercial printing services largelydepends upon, among other things, the customer’s satisfaction with the qualityof services we provide. Although we do not depend on any one customer, group ofcustomers or type of customer, our sales to many of our largest customers mayfluctuate from 

 

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year to year dependingupon the number, size and complexity of projects they initiate and award to us.

 

**Suppliers**

 

We purchase raw materialsused in the commercial printing process (such as paper, prepress supplies, ink,and boxes) from a number of national and local suppliers. We are not materiallydependent on any one supplier and the raw materials we utilize are generallyreadily available. We use a two-tiered approach to purchasing in order tomaximize the economies associated with our size, while maintaining the localefficiencies and time sensitivity required to meet customer demands. Wenegotiate master purchasing arrangements centrally with major suppliers andmanufacturers to obtain better pricing, and then communicate the terms of thesearrangements to our individual printing businesses. Each printing businessorders goods and services through our national vendors as needed based on theterms set forth in our national purchasing agreements or, when appropriate, makelocal purchases. We continually monitor market conditions and productdevelopments, as well as regularly review the contractual terms of our nationalpurchasing agreements, to take advantage of our increasing buying power and tomaximize the benefits associated with these agreements. None of our suppliercontracts obligate us to minimum purchase requirements that would result in ourhaving to purchase excessive quantities of goods or incur a financial penalty.

 

We incur significantcosts to purchase paper used in the printing process. However, fluctuation inpaper pricing generally does not materially impact our operating marginsbecause we typically quote, and subsequently purchase, paper for each specificprinting job we are awarded. As a result, any changes in paper pricing areeffectively passed through to customers by our printing businesses.  The majority of our paper supply isdistributed through merchant distributors. There are a relatively few number ofmerchants that are considered national in scope, with numerous regionalorganizations that serve one or more of our printing businesses. We havenegotiated national purchasing agreements with certain mills, which producepaper, and certain merchants, who distribute the paper produced by the mills.These agreements typically provide for volume-related discounts and additionalperiodic rebates based on the total amount of purchases made by our printingbusinesses from each mill and/or merchant.

 

We also purchase a large quantityof prepress supplies, consisting mainly of plates and proofing materials. Thereare a limited number of key manufacturers of these materials, and we generallypurchase prepress supplies from either national or regional distributors. Wehave obtained volume-related discounts and incentive arrangements from thesemanufacturers and receive periodic rebates based on the total amount ofprepress supplies we purchase through these distributors.

 

**Employees**

 

As of April 30,2005, we had 5,324 employees throughout our organization. Of this total,approximately 400 were employed subject to the terms of various collectivebargaining agreements. We believe that our relations with our employees aregenerally satisfactory.

 

**ExecutiveOfficers**

 

*Joe R.Davis* has been the Chief Executive Officer and Chairman ofthe Board of Directors since he founded our Company in 1985. Prior to formingCGX, Mr. Davis was a Vice President for a division of International PaperCompany. He also previously served as a partner of a national public accountingfirm. Mr. Davis is 62 years old.

 

*G.Christopher Colville* has been Executive Vice President, ChiefFinancial and Accounting Officer and Secretary since March 2002. From October 2000to February 2002, Mr. Colville was Managing Director at Murphy NoellCapital, LLC, an investment banking firm. Mr. Colville had held variousexecutive positions with CGX between 1994 and September 2000, includingExecutive Vice President—Mergers and Acquisitions, Chief Financial Officer andSecretary. Mr. Colville is a certified public accountant and is47 years old.

 

**GovernmentRegulation and Environmental Matters**

 

Our printing businessesare subject to the environmental laws and regulations of the United States andthe applicable state and local laws and regulations concerning emissions intothe air, discharges into waterways and the generation, handling and disposal ofwaste materials. The commercial printing process generates substantialquantities of inks, solvents and other waste products requiring disposal underthe numerous federal, state and local laws and regulations relating to theenvironment. Our printing businesses typically recycle waste paper and contractfor the removal of waste products. We believe our Company is in materialcompliance with all applicable air quality, waste disposal and otherenvironmental-related rules and regulations, as well as with other generalemployee health and safety laws and regulations. We do not anticipate anymaterial future capital expenditures for environmental control facilities.There can be no assurance, however, that future changes in environmental lawsand regulations will not have a material effect

 

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on our consolidated financialcondition or results of operations.

 

***Item 2.******Properties***

 

As of April 30,2005, our principal facilities consisted primarily of printing facilitiestotaling approximately 4.2 million square feet that contain production,storage and office space, of which approximately 1.5 million square feetis owned and approximately 2.7 million square feet is leased. Certain ofthe leased facilities, totaling approximately 255,000 square feet, are leasedfrom former owners and current employees of four of our printing businesses.All other leases are with unaffiliated third parties. We also leaseapproximately 25,000 square feet of office space in Houston from anunaffiliated third party for our corporate headquarters. We believe ourfacilities are generally suitable for their present and intended purposes andare adequate for our current level of operations.

 

***Item 3******. Legal Proceedings***

 

From time to time, we areinvolved in litigation relating to claims arising out of our operations in thenormal course of business. We maintain insurance coverage against certainpotential claims in an amount that we believe to be adequate. Currently, we arenot aware of any legal proceedings or claims pending against the Company thatour management believes will have a material adverse effect on our consolidatedfinancial condition or results of operations.

 

***Item 4.******Submission of Matters to a Vote ofSecurity Holders***

 

None.

 

**PART II**

 

***Item 5.******Market for Registrant’s CommonEquity, Related Shareholder Matters and Issuer Purchases of Equity Securities***

 

Our common stock istraded on the New York Stock Exchange under the symbol “CGX.” The followingtable presents the quarterly high and low sales prices for our common stock foreach of the last two fiscal years: 

 
| **Fiscal  2005—Quarter Ended:** | ** ** | **High** | ** ** | **Low** | ** ** |
|--------------------------------------|------------|----------|------------|---------|------------|
|                                 |       |     |       |    |       |
| June 30,  2004                  |       | 44.75    |       | 36.70   |       |
| September 30,  2004             |       | 44.50    |       | 38.55   |       |
| December 31,  2004              |       | 47.90    |       | 39.75   |       |
| March 31,  2005                 |       | 53.25    |       | 40.66   |       |

 
| **Fiscal  2004—Quarter Ended:** | ** ** | **High** | ** ** | **Low** | ** ** |
|--------------------------------------|------------|----------|------------|---------|------------|
|                                 |       |     |       |    |       |
| June 30,  2003                  |       | 22.88    |       | 16.81   |       |
| September 30,  2003             |       | 27.70    |       | 21.34   |       |
| December 31,  2003              |       | 33.65    |       | 24.73   |       |
| March 31,  2004                 |       | 39.20    |       | 31.55   |       |

 

As of April 30,2005, there were 104 shareholders of record representing approximately 3,000beneficial owners.

 

The Company did notpurchase any shares of its common stock during fiscal 2005 or 2004.

 

We have not previouslypaid any cash dividends on our common stock. We presently intend to retain allof our earnings to finance the continuing development of our business and donot anticipate paying cash dividends on our common stock in the foreseeablefuture. Any future payment of cash dividends will depend upon the financialcondition, capital requirements and earnings of our Company, as well as otherfactors our Board of Directors may deem relevant. In addition, our primary bankcredit facility contains restrictions that limit our ability to pay dividendsabove certain levels.

 

The only equitycompensation plan we maintain is the Consolidated Graphics, Inc. Long-TermIncentive Plan, as amended (the “Plan”), which has been approved by ourshareholders. Under this Plan, employees of our Company and certainnon-employee 

 

9

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members of our Board of Directorshave been, or may be, granted options to purchase shares of our common stock ata price not less than the market price of the stock at the date of grant. As ofMarch 31, 2005, there were 1,700,786 shares of common stock issuable uponexercise of options outstanding under the Plan at a weighted-average exerciseprice of $27.93, and a total of 751,730 shares of our common stock werereserved for issuance pursuant to options which had not yet been granted.

 

***Item 6.******Selected Consolidated FinancialData***

 

The following selectedconsolidated financial data should be read in conjunction with the auditedconsolidated financial statements of our Company and the notes thereto includedin *Item 8. “FinancialStatements and Supplementary Data.”*

 
| ** **                                               | ** ** | **Year Ended March 31**              | ** ** |
|----------------------------------------------------------|------------|-------------------------------------------|------------|
| ** **                                               | ** ** | **2005**                                  | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** | **2001** | ** ** |
| ** **                                               | ** ** | **(In thousands, except per share data)** | ** ** |
| **Income Statement Data**                                |       |                                      |       |   |   |   |   |   |   |   |   |
| Sales                                                    |       | $                                         | 779,016    |   | $ | 708,060 |   | $ | 710,279 |   | $ | 643,948 |   | $ | 683,396 |   |
| Cost  of sales                                           |       | 586,615                                   |       | 540,080 |   | 540,586 |   | 477,147 |   | 494,158 |   |
| Gross  profit                                            |       | 192,401                                   |       | 167,980 |   | 169,693 |   | 166,801 |   | 189,238 |   |
| Selling  expenses                                        |       | 81,456                                    |       | 76,189 |   | 78,008 |   | 69,091 |   | 70,070 |   |
| General  and administrative expenses                     |       | 54,116                                    |       | 51,887 |   | 52,252 |   | 54,766 |   | 54,595 |   |
| Goodwill  impairment(1)                                  |       | —                                    |       | — |   | 38,033 |   | — |   | — |   |
| Special  charge(2)                                       |       | —                                    |       | — |   | — |   | — |   | 6,440 |   |
| Operating  income                                        |       | 56,829                                    |       | 39,904 |   | 1,400 |   | 42,944 |   | 58,133 |   |
| Interest  expense, net                                   |       | 5,107                                     |       | 7,216 |   | 10,055 |   | 15,144 |   | 20,858 |   |
| Income  (loss) before income taxes and accounting change |       | 51,722                                    |       | 32,688 |   | (8,655 | ) | 27,800 |   | 37,275 |   |
| Income  taxes                                            |       | 19,000                                    |       | 12,691 |   | 4,284 |   | 11,120 |   | 15,164 |   |
| Income  (loss) before accounting change                  |       | 32,722                                    |       | 19,997 |   | (12,939 | ) | 16,680 |   | 22,111 |   |
| Cumulative  effect of accounting change, net of tax(3)   |       | —                                    |       | — |   | 74,376 |   | — |   | — |   |
| Net  income (loss)                                       |       | $                                         | 32,722     |   | $ | 19,997 |   | $ | (87,315 | ) | $ | 16,680 |   | $ | 22,111 |   |
|                                                     |       |                                      |       |   |   |   |   |   |   |   |   |
| Earnings  (loss) per share—                         |       |                                      |       |   |   |   |   |   |   |   |   |
| Basic                                                    |       | $                                         | 2.40       |   | $ | 1.49 |   | $ | (6.58 | ) | $ | 1.27 |   | $ | 1.68 |   |
| Diluted                                                  |       | $                                         | 2.31       |   | $ | 1.44 |   | $ | (6.58 | ) | $ | 1.25 |   | $ | 1.68 |   |

 
| ** **                              | ** ** | **March 31**  | ** ** |
|-----------------------------------------|------------|--------------------|------------|
| ** **                              | ** ** | **2005**           | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** | **2001** | ** ** |
| ** **                              | ** ** | **(In thousands)** | ** ** |
| **Balance Sheet Data**                  |       |               |       |   |   |   |   |   |   |   |   |
| Working  capital                        |       | $                  | 64,225     |   | $ | 47,488 |   | $ | 53,747 |   | $ | 85,036 |   | $ | 79,488 |   |
| Property  and equipment, net            |       | 297,600            |       | 272,801 |   | 278,134 |   | 293,831 |   | 299,871 |   |
| Total  assets                           |       | 590,229            |       | 526,209 |   | 512,583 |   | 676,733 |   | 674,667 |   |
| Long-term  debt, net of current portion |       | 111,895            |       | 98,265 |   | 143,167 |   | 213,860 |   | 246,729 |   |
| Total  shareholders’ equity        |       | 283,332            |       | 245,612 |   | 221,223 |   | 306,598 |   | 287,534 |   |
|                                         |            |                    |            |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

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(1)                                  Reflectsthe impairment of goodwill value as of March 31, 2003 under Statement ofFinancial Accounting Standards (“SFAS”) No. 142, *Goodwill and Other Intangible Assets.*

 

(2)                                  Relatesto costs and impairment charges primarily associated with combining theoperations of three small, under-performing printing businesses into nearbyfacilities and exiting a portion of our business at a fourth printing business.This special charge reduced net income by $4,117 net of tax.

 

(3)                                  Reflectsa transitional impairment charge pursuant to our adoption of SFAS No. 142as of April 1, 2002.

 

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***Item 7******. Management’s Discussion andAnalysis of Financial Condition and Results of Operations***

 

*Thefollowing discussion contains forward-looking information. Readers arecautioned that such information involves known and unknown risks anduncertainties, including those created by general market conditions,competition and the possibility that events may occur beyond our control, whichmay limit our ability to maintain or improve our operating results or financialcondition or acquire additional printing businesses. Our expectations regardingfuture sales and profitability assume, among other things, stability in theeconomy and reasonable growth in the demand for our products, the continuedavailability of raw materials at affordable prices and retention of our keymanagement and operating personnel. In addition, our expectations regardingfuture acquisitions assume, among other things, our ability to identify new acquisitionopportunities and our ability to negotiate and finance such acquisitions onacceptable terms, as well as the ability to successfully absorb and manage suchacquisitions. Although management believes that the assumptions underlying theforward-looking statements are reasonable, any of the assumptions could beinaccurate and there can be no assurance that any or all of the assumptionsunderlying the forward-looking statements will prove to be accurate. Theinclusion of such information should not be regarded as a representation by usor any other person that our objectives and plans will be achieved. Weexpressly disclaim any duty to provide updates to these forward-lookingstatements, assumptions or other factors after the date this Form 10-K wasfiled to reflect the occurrence of events or changes in circumstances orexpectations.*

 

**Overview**

 

Our Company is a leadingnational provider of commercial printing services with 70 printing facilitiesin 25 states and is recognized as the largest sheetfed and half-web commercialprinting company in the United States. We are focused on adding value to ourprinting businesses by providing the financial and operational strengths,management support and technological advantages associated with a nationalorganization. Our strategy currently includes the following initiatives togenerate sales and profit growth:

 

•                                          *Internal Sales Growth—*We seek to use ourcompetitive advantages to expand market share. We continue to pursue additionalexperienced sales professionals, invest in new equipment and technology, expandour national accounts program and develop new and expanded print-relatedservices.

 

•                                          *Disciplined Acquisition Program—*Weselectively pursue opportunities to acquire additional printing businesses atreasonable prices. Some of these acquisitions may include smaller and/ordistressed printing businesses for merger into one of our existing businesses.

 

•                                          *Cost Savings—*Because of our size andnational presence, we leverage our economies of scale to purchase supplies andequipment at preferential prices, and centralize various administrativeservices to generate cost savings.

 

•                                          *Best Practices/Benchmarking—*We provide aforum for our printing businesses to share their knowledge of technicalprocesses and their best practices with one another, as well as benchmarkfinancial and operational data to help our printing businesses identify andrespond to changes in operating trends.

 

•                                          *Leadership Development—*Through our uniqueLeadership Development Program, we develop talent for future sales andmanagement positions at our printing businesses.

 

Our printing businessesmaintain their own sales, customer service, estimating and planning, prepress,production and accounting departments. Our corporate headquarters staff providessupport to our printing businesses in such areas as human resources, purchasingand management information systems. We also maintain centralized treasury, riskmanagement, tax and consolidated financial reporting activities.

 

Our sales are derivedfrom commercial printing services. These services consist of(i) traditional print services, including electronic prepress, printing,finishing, storage and delivery of high-quality printed documents which arecustom manufactured to our customers’ design specifications;(ii) fulfillment and mailing services for such printed materials, and(iii) e-commerce solutions that enable our customers to improve theirprocesses over the procurement and management of printed materials. Examples ofthe types of documents we print for our customers include high-quality, multi-colormarketing materials, product and capability brochures, point-of-purchasedisplays, direct mail pieces, shareholder communications, catalogs and trainingmanuals.

 

The substantial majorityof our sales are generated by individual orders through commissioned salespersonnel. We recognize revenue from these orders when we deliver the ordered goodsand services. To a large extent, continued engagement of our Company by ourcustomers for successive business opportunities depends upon the customers’satisfaction with the quality of services we 

 

11

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provide. As such, it isdifficult for us to predict the number, size, and profitability of printing servicesthat we expect to provide for more than a few weeks in advance.

 

Our cost of sales mainlyconsists of raw materials consumed in the printing process, as well as laborand outside services, such as delivery costs. Paper cost is the mostsignificant component of our materials cost; however, fluctuation in paperpricing generally does not materially impact our operating margins because we typicallyquote, and subsequently purchase, paper for each specific printing job we areawarded. As a result, any changes in paper pricing are effectively passedthrough to customers by our printing businesses. Additionally, our cost ofsales includes salary and benefits paid to operating personnel, maintenance,repair, rental and insurance costs associated with operating our facilities andequipment and depreciation charges.

 

Our selling expensesgenerally include the compensation paid to our sales professionals, along withpromotional, travel and entertainment costs. Our general and administrativeexpenses generally include the salary and benefits paid to support personnel atour printing businesses and our corporate staff, as well as office rent,utilities and communications expenses, and various professional services.

 

**Resultsof Operations**

 

The following table setsforth our Company’s historical consolidated income statements and certainpercentage relationships for the periods indicated:

 
| ** **                              | ** ** | **Year Ended March 31** | ** ** | **As a Percentage of Sales  Year Ended March 31** | ** ** |
|-----------------------------------------|------------|------------------------------|------------|--------------------------------------------------------|------------|
| ** **                              | ** ** | **2005**                     | ** ** | **2004**                                               | ** ** | **2003** | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** |
| ** **                              | ** ** | **(In millions)**            | ** ** | ** **                                             | ** ** | ** ** | ** ** | ** ** | ** ** |
|                                    |       |                         |       |                                                   |       |   |   |   |   |   |   |   |   |
| Sales                                   |       | $                            | 779.0      |                                                   | $          | 708.1 |   | $ | 710.3 |   | 100.0 | % | 100.0 | % | 100.0 | % |
| Cost  of sales                          |       | 586.6                        |       | 540.1                                                  |       | 540.6 |   | 75.3 |   | 76.3 |   | 76.1 |   |
| Gross  profit                           |       | 192.4                        |       | 168.0                                                  |       | 169.7 |   | 24.7 |   | 23.7 |   | 23.9 |   |
| Selling  expenses                       |       | 81.5                         |       | 76.2                                                   |       | 78.0 |   | 10.5 |   | 10.8 |   | 11.0 |   |
| General  and administrative expenses    |       | 54.1                         |       | 51.9                                                   |       | 52.3 |   | 6.9 |   | 7.3 |   | 7.4 |   |
| Goodwill  impairment                    |       | —                       |       | —                                                 |       | 38.0 |   | — |   | — |   | 5.3 |   |
| Operating  income                       |       | 56.8                         |       | 39.9                                                   |       | 1.4 |   | 7.3 |   | 5.6 |   | 0.2 |   |
| Interest  expense, net                  |       | 5.1                          |       | 7.2                                                    |       | 10.0 |   | 0.7 |   | 1.0 |   | 1.4 |   |
| Income  (loss) before taxes             |       | 51.7                         |       | 32.7                                                   |       | (8.6 | ) | 6.6 |   | 4.6 |   | (1.2 | ) |
| Income  taxes                           |       | 19.0                         |       | 12.7                                                   |       | 4.3 |   | 2.4 |   | 1.8 |   | 0.6 |   |
| Income  (loss) before accounting change |       | $                            | 32.7       |                                                   | $          | 20.0 |   | $ | (12.9 | ) | 4.2 | % | 2.8 | % | (1.8 | )% |

 

Our sales and expensesduring the periods shown were impacted by the acquisition of eight printingbusinesses in fiscal 2005, six printing businesses in fiscal 2004 and twoprinting businesses in fiscal 2003. Because each acquisition was accounted forusing the purchase method of accounting, our consolidated income statementsreflect sales and expenses of acquired businesses only for post-acquisitionperiods. Accordingly, acquisitions affect our financial results in any one yearcompared to the prior year by the full-year impact of prior year acquisitions (ascompared to the partial impact in the prior year) and the partial-year impactof current year acquisitions, and is referred to below as “incrementalcontribution from acquisitions.”

 

*Analysisof Consolidated Income Statements for Fiscal 2005 as Compared to Fiscal 2004*

 

Sales for fiscal 2005increased $70.9 million, or 10%, to $779.0 million from $708.1million in fiscal 2004. The $70.9 million revenue increase is attributable to$22.6 million from the incremental contribution from acquisitions and $48.3 millionof internal sales growth. The $48.3 million of internal sales growth equates toa 6.8% year-over-year internal growth rate. Approximately one-third of theinternal sales growth was attributable to election-related printing, whichrecurs generally on a bi-annual basis. Excluding election-related printing,internal sales growth for the year was 4.3%, which includes growth in nationalsales of $8.8 million or 22%. As a whole, national sales accounted for 6% ofrevenue in both 2005 and 2004. The remainder of our 2005 internal growth isattributable to incremental cross-selling activities among our locations, aswell as improved economic and industry conditions, in our opinion based ongeneral and anecdotal information available to us.

 

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Gross profit increased by$24.4 million in fiscal 2005 to $192.4 million and gross profitmargin for fiscal 2005 increased to 24.7% from 23.7% in fiscal 2004.Approximately $16.8 million of the increase is attributable to the increasedsales levels discussed above, including the incremental contribution fromacquisitions. The remaining increase in gross profit of $7.6 million isattributable to margin leverage achieved primarily as a result of improvedindustry conditions.

 

Selling expenses forfiscal 2005 increased 7% to $81.5 million from $76.2 million infiscal 2004. The increase is directly attributable to the increased saleslevels noted above. As a percentage of sales, selling expenses for fiscal 2005decreased slightly to 10.5% from 10.8% in fiscal 2004, primarily because thegeneration of the incremental election-related revenue discussed abovegenerally does not result in the same level of sales expense as does the generationof other revenues.

 

General and administrativeexpenses for fiscal 2005 increased to $54.1 million from $51.9 million infiscal 2004, due principally to the incremental contribution from acquisitions.In fiscal 2005, our internal sales growth (including the bi-annual impact ofelection related printing) combined with continuing efforts to control costsenabled us to gain additional leverage on our sales, resulting in a decrease inour general and administrative expenses as a percentage of sales to 6.9% from7.3% in fiscal 2004.

 

Net interest expense forfiscal 2005 decreased 29% to $5.1 million from $7.2 million in fiscal2004. Interest expense for fiscal 2004 includes a $.4 million charge towrite-off certain deferred financing costs, as required by generally acceptedaccounting principles in connection with an amendment to our bank creditfacility in November 2003. (See Liquidity and Capital Resources—*Debt Obligations*). The remaining decreasein interest expense is principally due to the application of our cash flow fromoperations in excess of our cash needs for capital expenditures andacquisitions to reduce the aggregate borrowings outstanding under our variousbank credit facilities and other long-term debt obligations throughout most ofthe year.

 

We provided for incometaxes of $19.0 million for fiscal 2005, as compared to $12.7 millionin fiscal 2004, reflecting an effective tax rate of 36.7% as compared to aneffective tax rate of 38.8% in fiscal 2004. Due to the increase in pretaxearnings, non-deductible expenses were a smaller percentage of pretax earnings,thus lowering our effective tax rate.

 

*Analysisof Consolidated Income Statements for Fiscal 2004 as Compared to Fiscal 2003*

 

Sales for fiscal 2004decreased $2.2 million, or .3%, to $708.1 million from$710.3 million in fiscal 2003. The decline in revenues was primarilyattributable to comparatively weaker industry conditions versus the same periodin the prior year. A sustained adverse effect on the commercial printingindustry occurred as a result of the Iraq conflict and the prolonged period ofweakness in the U.S. economy. Incremental contribution from acquisitionstotaled $18.1 million, substantially offsetting the sales declineattributable to weaker industry conditions.

 

Gross profit declined by$1.7 million in fiscal 2004 to $168.0 million as a result of thesales decline noted above. Gross profit margin for fiscal 2004 declinedslightly to 23.7% from 23.9% in fiscal 2003, reflecting the comparativelyweaker industry conditions experienced in 2004.

 

Selling expenses forfiscal 2004 decreased 2% to $76.2 million from $78.0 million infiscal 2003. The decline was directly attributable to the reduced sales levelsnoted above. As a percentage of sales, selling expenses for fiscal 2004decreased slightly to 10.8% from 11.0% in fiscal 2003, primarily as a result oflower sales, recruiting and hiring expenses as compared to 2003.

 

General andadministrative expenses for fiscal 2004 decreased slightly to$51.9 million from $52.3 million in fiscal 2003. As a percentage ofsales, general and administrative expenses for fiscal 2004 declined to 7.3%from 7.4% in fiscal 2003. Generally, our fixed administrative cost structureremained relatively constant.

 

Net interest expense forfiscal 2004 decreased 28% to $7.2 million from $10.0 million in fiscal2003. Interest expense for fiscal 2004 included a $.4 million charge towrite-off certain deferred financing costs, as discussed above. The overalldecrease in interest expense was primarily due to the application of our cashflow from operations to reduce the aggregate borrowings outstanding under ourvarious bank credit facilities.

 

We provided for incometaxes of $12.7 million for fiscal 2004, as compared to $4.3 millionin fiscal 2003, reflecting an effective tax rate of 38.8% as compared to aneffective tax rate of 38.0% in fiscal 2003.

 

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**Liquidityand Capital Resources**

 

*Sourcesand Uses of Cash*

 

Our historical sources ofcash have primarily been cash provided by operations or borrowings under our variousbank credit facilities. Our historical uses of cash have been for acquisitionsof printing businesses, capital expenditures, and payment of principal andinterest on outstanding debt obligations. Supplemental information pertainingto our historical sources and uses of cash is presented as follows and shouldbe read in conjunction with our consolidated statements of cash flows and the notesthereto included in *Item8. “Financial Statements and Supplementary Data.”*

 
| ** **                                                     | ** ** | **Year Ended March 31** | ** ** |
|----------------------------------------------------------------|------------|------------------------------|------------|
| ** **                                                     | ** ** | **2005**                     | ** ** | **2004** | ** ** | **2003** | ** ** |
| ** **                                                     | ** ** | **(In millions)**            | ** ** |
|                                                           |       |                         |       |   |   |   |   |
| Net  cash provided by operating activities                     |       | $                            | 75.2       |   | $ | 79.3 |   | $ | 95.4 |   |
| Acquisitions  of businesses                                    |       | (49.0                        | )          | (11.4 | ) | (6.2 | ) |
| Capital  expenditures, net of proceeds from asset dispositions |       | (13.8                        | )          | (10.0 | ) | (14.4 | ) |
| Net  proceeds (payments) under bank credit facilities          |       | 34.6                         |       | (53.5 | ) | (60.2 | ) |
| Net  payments on term equipment notes and other debt           |       | (53.2                        | )          | (6.3 | ) | (15.7 | ) |
|                                                                |            |                              |            |  |  |  |  |  |  |  |

 

Additionally, our cashposition, working capital and debt obligations as of March 31, 2005, 2004and 2003 are shown below and should be read in conjunction with ourconsolidated balance sheets and the notes thereto included in *Item 8. “FinancialStatements and Supplementary Data.”*

 
| ** **                                               | ** ** | **March 31** | ** ** |
|----------------------------------------------------------|------------|-------------------|------------|
| ** **                                               | ** ** | **2005**          | ** ** | **2004** | ** ** | **2003** | ** ** |
| ** **                                               | ** ** | **(In millions)** | ** ** |
|                                                     |       |              |       |   |   |   |   |
| Cash  and cash equivalents                               |       | $                 | 7.8        |   | $ | 10.5 |   | $ | 9.6 |   |
| Working  capital, inclusive of cash and cash equivalents |       | 64.2              |       | 47.5 |   | 53.7 |   |
| Total  debt obligations                                  |       | 119.5             |       | 111.5 |   | 163.8 |   |
|                                                          |            |                   |            |  |  |  |  |  |  |  |

 

Net cash provided byoperating activities declined 5% for fiscal 2005 compared to fiscal 2004, and17% for fiscal 2004 compared to fiscal 2003, primarily due to the cash flowbenefits generated from a reduction in working capital resulting fromimplementation of tighter working capital management practices. In 2005, weused our cash flow from operations primarily for acquisitions ($49.0 million)and capital expenditures ($13.8 million), with the remaining portion used toreduce previously outstanding indebtedness. Total debt obligations increased by$8.0 million in 2005 as the debt we assumed in connection with certain of ouracquisitions and the procurement of certain property and equipment offset thereductions in our debt obligations from application of excess cash flow. In2004, we strengthened our financial position by primarily using available cashflow to reduce the amount of our outstanding debt.

 

We believe that our cashflow provided by operations will be adequate to cover our fiscal 2006 workingcapital needs, debt service requirements and planned capital expenditures tothe extent such items are known or are reasonably determinable based on currentbusiness and market conditions. However, we may elect to finance certain of ourcapital expenditure requirements through borrowings under our bank creditfacilities or the issuance of additional term notes.

 

We intend to continuepursuing acquisition opportunities at prices we believe are reasonable basedupon market conditions. However, we cannot accurately predict the timing, sizeand success of our acquisition efforts or our associated potential capitalcommitments. There can be no assurance that we will be able to acquireadditional printing businesses on terms acceptable to us.

 

We expect to fund futureacquisitions through cash flow provided by operations, additional borrowings orthe issuance of our common stock. The extent to which we will be willing orable to use our common stock to make acquisitions will depend on its marketvalue from time to time and the willingness of potential sellers to accept itas full or partial payment for the acquisition price.

 

14

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In May 2004, our Board ofDirectors approved a common stock share repurchase program, providing for therepurchase of up to one million shares of our stock in open-market or block purchasetransactions. We expect to fund any repurchases under the program through cashflow provided by operations or additional borrowings under our primary bank credit facility. The amount andtiming of any purchases will depend upon a number of factors, including theCompany’s liquidity and potential alternative uses of our capital resources,the price and availability of our shares, general market conditions and certainrepurchase restrictions in our primary bank credit facility, which limit us torepurchases not to exceed $75.0 million in the aggregate. As of April 30,2005, we have not repurchased any shares of stock under this program. There canbe no assurance that we will determine to repurchase any of our common stock,and if so, whether we will be able to do so on terms acceptable to us.

 

*DebtObligations*

 

Our primary bank creditfacility (as amended and restated, the “Credit Agreement”) is composed of a$150.0 million revolving credit facility that will mature in July 2007.At March 31, 2005, borrowings outstanding under the Credit Agreement were$65.0 million and accrued interest at a weighted average rate of 4.81%.

 

The proceeds fromborrowings under the Credit Agreement can be used to repay certainindebtedness, finance certain acquisitions, provide for working capital andgeneral corporate purposes and, subject to certain restrictions, repurchase ourcommon stock. Borrowings outstanding under the Credit Agreement are secured bysubstantially all of our assets other than real estate and certain equipmentsubject to term equipment notes and other financings. Borrowings under theCredit Agreement accrue interest, at our option, at either (1) the LondonInterbank Offered Rate (LIBOR) plus a margin of 1.25% to 2.00%, or (2) analternate base rate (based upon the greater of the agent bank’s prime lendingrate or the Federal Funds effective rate plus .50%) plus a margin of up to..75%. We are also required to pay an annual commitment fee ranging from .275%to .375% on available but unused amounts under the Credit Agreement. Theinterest rate margin and the commitment fee are based upon certain financialperformance measures as set forth in the Credit Agreement and are redeterminedquarterly. At March 31, 2005, the applicable LIBOR interest rate marginwas 1.25% and the applicable commitment fee was .275%.

 

We are subject to certaincovenants and restrictions and we must meet certain financial tests as definedin the Credit Agreement. We were in compliance with these covenants andfinancial tests at March 31, 2005. In the event that we were unable toremain in compliance with these covenants and financial tests in the future,our lenders would have the right to declare us in default with respect to suchobligations, and consequently, certain of our other debt obligations, includingsubstantially all of our term equipment notes, would be deemed to also be indefault. All debt obligations in default would be required to be re-classifiedas a current liability. In the event that we were to be unable to obtain a waiver,re-negotiate or re-finance these obligations, a material adverse effect on ourability to conduct our operations in the ordinary course likely would be theresult. Based on our view of current market and business conditions and ourexpectations regarding our future operating results and cash flows, we believethat we will be able to remain in compliance with these covenants and financialtests in the foreseeable future.

 

In addition to the CreditAgreement, we maintain two auxiliary revolving credit facilities (each an “AuxiliaryBank Facility” and collectively the “Auxiliary Bank Facilities”) withcommercial banks. Each Auxiliary Bank Facility is unsecured and has a maximumborrowing capacity of $5.0 million. One such facility expires in November 2005and the other such facility expires in November 2006. At March 31,2005, borrowings outstanding under the Auxiliary Bank Facilities totaled$5.2 million and accrued interest at a weighted average rate of 4.19%.Because we currently have the ability to refinance the borrowings outstandingunder the Auxiliary Bank Facility expiring in November 2005 and plan to doso, such borrowings are classified as long-term debt in our consolidatedbalance sheet at March 31, 2005. The Auxiliary Bank Facilities cross-default to the covenants andrestrictions set forth in the Credit Agreement.

 

Our term equipment notesconsist primarily of notes payable pursuant to financing agreements between usand various lenders (the “Lender Notes”) and between us and the finance affiliateof a printing equipment manufacturer (the “Equipment Notes”). At March 31,2005, outstanding borrowings under the Lender Notes totaled $17.2 millionand accrued interest at a weighted average rate of 4.74%. The Lender Notesprovide for fixed monthly principal payments plus interest (at fixed rates) fordefined periods of up to seven years from the date of issuance, and are securedby certain equipment of the Company. At March 31, 2005, outstandingborrowings under the Equipment Notes totaled $13.4 million and accruedinterest at a weighted average rate of 5.93%. The Equipment Notes provide forfixed payments of principal and interest (at fixed rates) for defined periodsof up to ten years from the date of issuance and are secured by equipment whichwas concurrently purchased from the manufacturer. At March 31, 2005, theremaining balance of term equipment notes totaling $1.7 million primarilyconsist of various secured debt obligations assumed by us in connection withcertain prior year acquisitions. We are not subject to any significantfinancial covenants in connection with any of the term equipment notes. TheCredit Agreement places certain limitations on the amount of additional termnote obligations we may incur in the future; however, we do not anticipate thatthese limitations will restrict our ability to make any of our planned 2006capital expenditures.

 

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During the year ended March 31,2005, we retired $41.1 million of Lender Notes with borrowings from the CreditAgreement. The purpose of retiring these notes was to utilize availablecapacity under the Credit Agreement to effect an overall reduction in ourinterest costs. No financial penalties were incurred in connection with theretirement of these obligations.

 

Our other debtobligations consist of a mortgage of $5.0 million, a promissory note totaling$2.7 million, industrial revenue bonds totaling $8.1 million andvarious other debt obligations totaling $1.2 million. We do not have anysignificant financial covenants or restrictions associated with these otherdebt obligations.

 

**ContractualObligations and Other Commitments**

 

The maturity of contractualobligations by fiscal year are as follows (in millions):

 
| ** **                   | ** ** | **Total** | ** ** | **2006** | ** ** | **2007** | ** ** | **2008** | ** ** | **2009** | ** ** | **2010** | ** ** | **Thereafter** | ** ** |
|------------------------------|------------|-----------|------------|----------|------------|----------|------------|----------|------------|----------|------------|----------|------------|----------------|------------|
|                         |       |      |       |     |       |     |       |     |       |     |       |     |       |           |       |
| Debt  obligations            |       | $         | 119.5      |     | $          | 9.9      | (1)        | $        | 11.0       |     | $          | 72.7     |       | $              | 6.4        |   | $ | 8.8 |   | $ | 10.7 |   |
| Operating  lease obligations |       | 63.5      |       | 16.1     |       | 13.4     |       | 10.8     |       | 7.5      |       | 5.4      |       | 10.3           |       |
|                              |            |           |            |          |            |          |            |          |            |          |            |          |            |                |            |  |  |  |  |  |  |  |

 

----

(1)          As the Company has both the ability and intent to refinance the $2.3million outstanding at March 31, 2005 under the Auxiliary Bank Facility thatis due to expire in November 2005, such borrowings are classifiedas long-term debt in our consolidated balance sheet at March 31, 2005, butfor purposes of this table are included as a current debt obligation for 2006.

 

*Operatingleases*—We have entered into various noncancelable operatingleases primarily related to facilities and equipment used in the ordinarycourse of our business.

 

*Lettersof credit*—In connection with our assumption of obligationsunder outstanding industrial revenue bonds related to certain prior yearacquisitions of printing businesses, which are reflected as debt in theaccompanying consolidated financial statements, we had four letters of creditoutstanding as of March 31, 2005 for a combined total of $8.4 million.These letters of credit were issued pursuant to the terms of our CreditAgreement, which expires in July 2007, and we may be required to obtainreplacement letters of credit at that time.

 

*Insuranceprograms*— We maintain third-party insurance coverage inamounts and against risks we believe are reasonable under our circumstances. Weare self-insured against most workers’ compensation claims and for asignificant component of our group health insurance programs. For theseexposures, we accrue expected loss amounts which are determined using acombination of our historical loss experience and subjective assessment of ourfuture loss exposure, together with advice provided by administrators andconsulting actuaries. The estimates of expected loss amounts are subject touncertainties arising from various sources, including changes in claimsreporting patterns, claims settlement patterns, judicial decisions, legislationand economic conditions, which could result in an increase or decrease inaccrued costs in future periods for claim matters which occurred in a priorperiod. Although we believe that the accrued estimated loss amounts arereasonable under the circumstances, significant differences related to theitems noted above could materially affect our risk exposure, insurance obligations,and future expense.

 

**Factors Which 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 services and retention of key management and operatingpersonnel. To the extent an economic slowdown causes businesses to reduce theirspending on printed advertising and marketing materials, the demand forcommercial printing services may be adversely affected. Further, compoundingthe adverse effect of a decline in demand, competitive pricing pressures mayoccur and could negatively impact the level of sales and profit marginsgenerated by our printing businesses. Also, the magnitude and timing of anyfuture acquisitions, as well as our ability to absorb and manage suchbusinesses, will impact our future results. Because of these and other factors,there can be no assurance that we will not experience material fluctuations inour future operating results or cash flows on a quarterly or annual basis.

 

**Critical Accounting Policies**

 

We have identifiedour critical accounting policies based on the following factors — significanceto our overall financial statement presentation, complexity of the policy andits use of estimates and assumptions. We are required to make certain estimatesand assumptions in determining the reported amounts of assets and liabilities,disclosure of contingent liabilities and the reported amounts of revenues andexpenses. We evaluate our estimates and assumptions on an ongoing basis andrely on historical experience and various other factors that we believe to bereasonable under the circumstances to determine such estimates. Becauseuncertainties 

 

16

----

 

with respect to estimates and assumptions are inherent in thepreparation of financial statements, actual results could differ from theseestimates.

 

*Receivables,net of valuation allowance –*Accounts receivable at March 31,2005 were $136.8 million, net of a $2.5 million allowance for doubtfulaccounts. The valuation allowance was determined based upon our evaluation ofknown requirements, aging of receivables, historical experience and theeconomic environment. While we believe we have appropriately considered knownor expected outcomes, our customers’ ability to pay their obligations could beadversely affected by contraction in the economy or other factors beyond ourcontrol. Changes in our estimates of collectibility could have a materialadverse affect on our consolidated financial condition or results of operations.

 

*Goodwill**–***We evaluate the carrying value of ourgoodwill as of March 31st of each year, or at any time that managementbecomes aware of an indication of impairment. Our evaluation is based oncertain data estimated by management to be indicators of future cash flows ateach of our facilities. Estimating future cash flows requires judgmentsregarding future economic conditions, demand for services and pricing. Ourevaluation also makes use of estimates of market multiples of cash flow atwhich transactions could be completed in the current market. If our estimatesof future cash flows or market multiples prove to be inaccurate, an impairmentcharge could be necessary in future periods.

 

*Impairmentof long-lived assets* – We evaluate long-lived assets,including property, plant and equipment and intangible assets other thangoodwill whenever events or changes in conditions indicate that the carryingvalue may not be recoverable. The evaluation requires us to estimate futureundiscounted cash flows associated with an asset or group of assets. If thecost of the asset or group of assets cannot be recovered by these undiscountedcash flows, then an impairment may exist. Estimating future cash flows requiresjudgments regarding future economic conditions, demand for services andpricing. Although we believe our estimates are reasonable, significantdifferences in the actual performance of the asset or group of assets maymaterially affect our asset values and require an impairment charge in futureperiods.

 

*Insuranceliabilities* – We are self-insured for the majority of ourworkers’ compensation and group health insurance costs. Insurance claimsliabilities have been accrued using a combination of our historical lossexperience and subjective assessment of our future loss exposure, together withadvice provided by administrators and consulting actuaries. The estimates ofexpected loss amounts are subject to uncertainties arising from varioussources, including changes in claims reporting patterns, claims settlementpatterns, judicial decisions, legislation and economic conditions, which couldresult in an increase or decrease in accrued costs in future periods for claimmatters which occurred in a prior period.

 

*Accountingfor income taxes* – As part of the process of preparing ourconsolidated financial statements, we are required to estimate our incometaxes. This process involves estimating our actual current tax exposure,together with assessing temporary differences resulting from differingtreatment of items for tax and financial reporting purposes. The tax effects ofthese temporary differences are recorded as deferred tax assets or deferred taxliabilities. We must then assess the likelihood that our deferred tax assetswill be recovered from future taxable income, and to the extent we believe thatrecovery is not likely, we must establish a valuation allowance. Significantjudgment is required in determining our provision for income taxes, ourdeferred tax assets and liabilities and any valuation allowance recorded againstour net deferred tax assets. Additionally, we establish reserves when, despiteour belief that our tax return positions are fully supportable, we believe thatcertain positions are likely to be challenged and that we may not succeed. Weadjust these reserves in light of changing facts and circumstances. Oureffective tax rate includes the impact of reserve provisions and changes toreserves that we consider appropriate.

 

**NewAccounting Pronouncements**

 

SFAS No. 151, *Inventory Costs,* was issued in November 2004and amends Chapter 4 of Accounting Research Bulletin (“ARB”) No. 43.SFAS No. 151 is required to be applied to all inventorycosts occurring in fiscal years beginning after June 15, 2005. TheCompany has yet to determine the impact that its expected April 1, 2006adoption of SFAS No. 151 will have on the Company’s consolidated financial conditionor results of operations.

 

SFAS No. 152, *Accounting for Real Estate Time-Sharing Transactions,*was issued in December 2004 and amends SFAS No. 66 and No. 67.SFAS No. 153 is required to be applied to all realestate time-sharing transactions occurring in fiscal years beginning after June 15,2005. The Company’s expected April 1, 2006 adoption of SFAS No. 152is not expected to have a material impact on the Company’s consolidated financialcondition or results of operations.

 

SFAS No. 153, *Exchanges of Nonmonetary Assets,* wasissued in December 2004 and amends Accounting Principles Board (“APB”)Opinion No. 29. SFAS No. 153 is required to be applied to all nonmonetary exchanges occurring in fiscal periods beginning after June 15,2005. The Company’s expected July 1, 2005 adoption of SFAS No. 153is not expected to have a material impact on the Company’s consolidated financialcondition or results of operations.

 

17

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SFAS No. 123(R), *Share-Based Payment*, was issued in December 2004and replaces SFAS No. 123, and supercedes APB Opinion No. 25. SFAS No. 123(R)will require compensation costs related to share-based payment transactions tobe recognized in our consolidated financial statements. With limitedexceptions, the amount of compensation cost will be measured based on the grantdate fair value of the equity or liability instruments issued. Compensationcost will be recognized over the period that an employee provides services inexchange for the award.  SFAS No. 123(R)becomes effective for the Company at the beginning of fiscal 2007. The Companyexpects that the impact of adopting the SFAS No. 123(R) will be materially consistentwith the pro forma expense, adjusted for future vesting occurrences, grants, cancellations,and exercises of stock options, that has been previously disclosed inaccordance with SFAS No. 123.

 

SFAS No. 154, *Accounting Changes and Error Corrections,*wasissued in May 2005 and replaces APBOpinion No. 20 and SFAS No. 3. SFAS No. 154 requires retrospective application for voluntary changes inaccounting principle in most instances and is required to be applied to all accounting changes made in fiscal years beginning after December 15,2005.   The Company’s expected April 1,2006 adoption of SFAS No. 154 is not expected to have a material impact on theCompany’s consolidated financial condition or results of operations.

 

***Item 7A******. Quantitative and Qualitative DisclosureAbout Market Risk***

 

Market risk generallymeans the risk that losses may occur in the value of certain financialinstruments as a result of movements in interest rates, foreign currencyexchange rates and commodity prices. We do not currently hold or utilizederivative financial instruments that could expose our Company to market risk.However, we are exposed to market risk for changes in interest rates relatedprimarily to our debt obligations, which as of March 31, 2005 include borrowingsunder our bank credit facilities totaling $70.2 million, various termequipment notes totaling $32.3 million and other debt obligations totaling$17.0 million.  A 1% increase in theinterest rate on our fixed and variable rate debt would change our interestexpense by approximately $1.2 million on an annual basis. The following tablesets forth the average interest rate for the scheduled maturities of our debtobligations as of March 31, 2005 ($ in millions):

 
| ** **              | ** ** | **2006** | ** ** | **2007** | ** ** | **2008** | ** ** | **2009** | ** ** | **2010** | ** ** | **Thereafter** | ** ** | **Total** | ** ** | **Estimated  Fair Value At  March 31,  2005** | ** ** |
|-------------------------|------------|----------|------------|----------|------------|----------|------------|----------|------------|----------|------------|----------------|------------|-----------|------------|----------------------------------------------------|------------|
| **Fixed Rate Debt:**    |       |     |       |     |       |     |       |     |       |     |       |           |       |      |       |                                               |       |
| Amount                  |       | $        | 5.9        |     | $          | 6.4      |       | $        | 5.9        |     | $          | 5.5            |       | $         | 7.9        |                                               | $          | 6.8 | ** ** | **$** | **38.4** | ** ** | **$** | **34.0** | ** ** |
| Average  interest rate  |       | 5.35     | %          | 5.58     | %          | 5.21     | %          | 5.05     | %          | 3.26     | %          | 5.39           | %          | **4.76**  | **%**      |                                               |       |
| **Variable Rate Debt:** |       |     |       |     |       |     |       |     |       |     |       |           |       |      | ** ** |                                               |       |
| Amount                  |       | $        | 4.0        | (1)      | $          | 4.6      |       | $        | 66.8       |     | $          | 0.9            |       | $         | 0.9        |                                               | $          | 3.9 | ** ** | **$** | **81.1** | ** ** | **$** | **81.1** | ** ** |
| Average  interest rate  |       | 3.75     | %          | 3.51     | %          | 4.76     | %          | 2.53     | %          | 2.36     | %          | 2.44           | %          | **4.48**  | **%**      |                                               |       |

 

----

(1)                       As the Company has both the ability andintent to refinance the $2.3 million outstanding at March 31, 2005 underthe Auxiliary Bank Facility, which is variable rate debt and is due to expirein November 2005, such borrowings are classified as long-term debt in ourconsolidated balance sheet at March 31, 2005, but for purposes of thistable are included as a current debt obligation for 2006.

 

18

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***Item 8******. Financial Statements andSupplementary Data***

 

**INDEXTO CONSOLIDATED FINANCIAL STATEMENTS**

 
| Management’s  Annual Report on Internal Control Over Financial Reporting                                 |   |
|---------------------------------------------------------------------------------------------------------------|--------|
|                                                                                                          |   |
| Reports of Independent  Registered Public Accounting Firm                                                     |   |
|                                                                                                          |   |
| Consolidated Balance Sheets  at March 31, 2005 and 2004                                                  |   |
|                                                                                                          |   |
| Consolidated Income  Statements for the Years Ended March 31, 2005, 2004 and 2003                        |   |
|                                                                                                          |   |
| Consolidated  Statements of Shareholders’ Equity for the Years Ended March 31, 2005,  2004 and 2003 |   |
|                                                                                                          |   |
| Consolidated  Statements of Cash Flows for the Years Ended March 31, 2005, 2004 and  2003                |   |
|                                                                                                          |   |
| Notes to  Consolidated Financial Statements                                                                   |   |

 

19

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**MANAGEMENT’SANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING**

 

Management is responsible for establishing andmaintaining adequate internal control over financial reporting, as such term isdefined in Securities Exchange Act Rule 13a-15(f) or 15d-15(f). Our internalcontrol over financial reporting is a process designed to provide reasonableassurance regarding the reliability of financial reporting and the preparationof financial statements for external purposes in accordance with generallyaccepted accounting principles. Our internal control over financial reportingincludes those policies and procedures that (1) pertain to the maintenanceof records that, in reasonable detail, accurately and fairly reflect thetransactions and dispositions of the assets of the Company; (2) providereasonable assurance that transactions are recorded as necessary to permitpreparation of financial statements in accordance with generally acceptedaccounting principles, and that receipts and expenditures of the Company arebeing made only in accordance with authorizations of management and directorsof the Company; and (3) provide reasonable assurance regarding preventionor timely detection of unauthorized acquisition, use, or disposition of theCompany’s assets that could have a material effect on the consolidated financialstatements.

 

Because of its inherent limitations, internal controlover financial reporting may not prevent or detect misstatements. Also,projections of any evaluation of effectiveness to future periods are subject tothe risk that controls may become inadequate because of changes in conditions,or that the degree of compliance with the policies or procedures maydeteriorate.

 

The scope of management’s assessment of theeffectiveness of our internal control over financial reporting includes theCompany’s consolidated subsidiaries, except for certain businesses acquired bythe Company on March 2, 2005 as permitted by the rules and regulations ofthe Securities and Exchange Commission. The Company’s consolidated net sales for the year ended March 31,2005 were $779.0 million, of which the certain businesses acquired by theCompany on March 2, 2005, represented $9.3 million.  The Company’s consolidated total assets as ofMarch 31, 2005 were $590.2 million, of which the certain businessesacquired by the Company on March 2, 2005, represented $64.2 million.

 

Management assessed the effectiveness of our internalcontrol over financial reporting based on the framework in *InternalControl* – *Integrated Framework*issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).Based on our evaluation under the framework in *InternalControl – Integrated Framework*, our management concluded that ourinternal control over financial reporting was effective as of March  31,2005. Our management’s assessment of the effectiveness of our internal controlover financial reporting as of March 31, 2005 has been audited by KPMGLLP, an independent registered public accounting firm, as stated in theirreport which is included on page 22.

 

20

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**Reportof Independent Registered****Public Accounting Firm**

 

The Board of Directorsand Stockholders

ConsolidatedGraphics, Inc.:

 

We have audited theaccompanying consolidated balance sheets of Consolidated Graphics, Inc.and subsidiaries as of March 31, 2005 and 2004, and the relatedconsolidated statements of income, shareholders’ equity, and cash flows foreach of the years in the three-year period ended March 31, 2005. These consolidatedfinancial statements are the responsibility of the Company’s management. Ourresponsibility is to express an opinion on these consolidated financialstatements based on our audits.

 

We conducted our auditsin accordance with the standards of the Public Company Accounting OversightBoard (United States). Those standards require that we plan and perform theaudit to obtain reasonable assurance about whether the financial statements arefree of material misstatement. An audit includes examining, on a test basis,evidence supporting the amounts and disclosures in the financial statements. Anaudit also includes assessing the accounting principles used and significantestimates made by management, as well as evaluating the overall financialstatement presentation. We believe that our audits provide a reasonable basisfor our opinion.

 

In our opinion, theconsolidated financial statements referred to above present fairly, in allmaterial respects, the financial position of Consolidated Graphics, Inc. and subsidiariesas of March 31, 2005 and 2004, and the results of their operations andtheir cash flows for each of the years in the three-year period ended March 31,2005, in conformity with U.S. generally accepted accounting principles.

 

We also have audited, inaccordance with the standards of the Public Company Accounting Oversight Board(United States), the effectiveness of Consolidated Graphics, Inc.’s internalcontrol over financial reporting as of March 31, 2005, based on criteriaestablished in *Internal Control-Integrated Framework*issued by the Committee of Sponsoring Organizations of the Treadway Commission(COSO), and our report dated June 9, 2005 expressed an unqualified opinionon management’s assessment of, and the effective operation of, internal controlover financial reporting.

 

 
| /s/ KPMG LLP      |   |
|-------------------|--------|
|              |
| Houston, Texas    |
| June 9, 2005 |

 

21

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**Report ofIndependent Registered Public Accounting Firm**

** **

The Board of Directorsand Stockholders 

ConsolidatedGraphics, Inc.:

 

Wehave audited management’s assessment, included in the accompanying *Management’s Annual Report on Internal Control OverFinancial Reporting,*that Consolidated Graphics, Inc. (the “Company”)maintained effective internal control over financial reporting as of March 31,2005, based on criteria established in *InternalControl—Integrated Framework*issued by the Committee of SponsoringOrganizations of the Treadway Commission (COSO). The Company’s management isresponsible for maintaining effective internal control over financial reportingand for its assessment of the effectiveness of internal control over financialreporting. Our responsibility is to express an opinion on management’sassessment and an opinion on the effectiveness of the Company’s internalcontrol over financial reporting based on our audit.

 

Weconducted our audit in accordance with the standards of the Public CompanyAccounting Oversight Board (United States). Those standards require that weplan and perform the audit to obtain reasonable assurance about whethereffective internal control over financial reporting was maintained in allmaterial respects. Our audit included obtaining an understanding of internalcontrol over financial reporting, evaluating management’s assessment, testingand evaluating the design and operating effectiveness of internal control, andperforming such other procedures as we considered necessary in thecircumstances. We believe that our audit provides a reasonable basis for ouropinion.

 

Acompany’s internal control over financial reporting is a process designed toprovide reasonable assurance regarding the reliability of financial reportingand the preparation of financial statements for external purposes in accordancewith generally accepted accounting principles. A company’s internal controlover financial reporting includes those policies and procedures that(1) pertain to the maintenance of records that, in reasonable detail,accurately and fairly reflect the transactions and dispositions of the assetsof the company; (2) provide reasonable assurance that transactions arerecorded as necessary to permit preparation of financial statements inaccordance with generally accepted accounting principles, and that receipts andexpenditures of the company are being made only in accordance withauthorizations of management and directors of the company; and (3) providereasonable assurance regarding prevention or timely detection of unauthorizedacquisition, use, or disposition of the company’s assets that could have amaterial effect on the financial statements.

 

Becauseof its inherent limitations, internal control over financial reporting may notprevent or detect misstatements. Also, projections of any evaluation ofeffectiveness to future periods are subject to the risk that controls maybecome inadequate because of changes in conditions, or that the degree ofcompliance with the policies or procedures may deteriorate.

 

In ouropinion, management’s assessment that the Company maintained effective internalcontrol over financial reporting as of March 31, 2005, is fairly stated,in all material respects, based on criteria established in *Internal Control—Integrated Framework*issuedby COSO. Also, in our opinion, the Company maintained, in all materialrespects, effective internal control over financial reporting as of March 31,2005, based on criteria established in *InternalControl—Integrated Framework*issued by COSO.

 

TheCompany acquired certain businesses on March 2, 2005, and managementexcluded from its assessment of the effectiveness of its internal control overfinancial reporting as of March 31, 2005, the certain businesses’ internalcontrol over financial reporting associated with total assets of $64.2 million,and total revenues of $9.3 million included in the consolidated financialstatements of the Company and subsidiaries as of and for the year ended March 31,2005. Our audit of internal control over financial reporting of the Company alsoexcluded an evaluation of the internal control over financial reporting of thecertain businesses.

 

Wealso have audited, in accordance with the standards of the Public CompanyAccounting Oversight Board (United States), the consolidated balance sheets of theCompany and its subsidiaries as of March 31, 2005 and 2004, and therelated consolidated statements of income, shareholders’ equity, and cash flowsfor each of the years in the three-year period ended March 31, 2005, andour report dated June 9, 2005, expressed an unqualified opinion on thoseconsolidated financial statements.

 

 
| /s/ KPMG LLP       |   |
|--------------------|--------|
|               |
| Houston, Texas     |
| June 9,  2005 |

 

22

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**CONSOLIDATEDGRAPHICS, INC.**

**CONSOLIDATEDBALANCE SHEETS**

**(Inthousands, except share and per share data)**

 
| ** **                                                                                                           | ** ** | **March 31** | ** ** |
|----------------------------------------------------------------------------------------------------------------------|------------|-------------------|------------|
| ** **                                                                                                           | ** ** | **2005**          | ** ** | **2004** | ** ** |
|                                                                                                                 |       |              |       |   |   |
| ASSETS                                                                                                               |       |              |       |   |   |
| CURRENT  ASSETS                                                                                                      |       |              |       |   |   |
| Cash  and cash equivalents                                                                                           |       | $                 | 7,752      |   | $ | 10,472 |   |
| Accounts  receivable, net                                                                                            |       | 136,824           |       | 114,658 |   |
| Inventories                                                                                                          |       | 37,149            |       | 32,728 |   |
| Prepaid  expenses                                                                                                    |       | 5,913             |       | 5,874 |   |
| Deferred  income taxes                                                                                               |       | 7,843             |       | 6,159 |   |
| Total  current assets                                                                                                |       | 195,481           |       | 169,891 |   |
| PROPERTY  AND EQUIPMENT, net                                                                                         |       | 297,600           |       | 272,801 |   |
| GOODWILL,  net                                                                                                       |       | 85,755            |       | 73,658 |   |
| OTHER  ASSETS                                                                                                        |       | 11,393            |       | 9,859 |   |
|                                                                                                                 |       | $                 | 590,229    |   | $ | 526,209 |   |
|                                                                                                                 |       |              |       |   |   |
| LIABILITIES AND  SHAREHOLDERS’ EQUITY                                                                           |       |              |       |   |   |
| CURRENT  LIABILITIES                                                                                                 |       |              |       |   |   |
| Current  portion of long-term debt                                                                                   |       | $                 | 7,595      |   | $ | 13,204 |   |
| Accounts  payable                                                                                                    |       | 46,705            |       | 41,062 |   |
| Accrued  liabilities                                                                                                 |       | 75,143            |       | 66,585 |   |
| Income  taxes payable                                                                                                |       | 1,813             |       | 1,552 |   |
| Total  current liabilities                                                                                           |       | 131,256           |       | 122,403 |   |
| LONG-TERM  DEBT, net of current portion                                                                              |       | 111,895           |       | 98,265 |   |
| DEFERRED  INCOME TAXES                                                                                               |       | 63,746            |       | 59,929 |   |
| COMMITMENTS  AND CONTINGENCIES                                                                                       |       |              |       |   |   |
| SHAREHOLDERS’  EQUITY                                                                                           |       |              |       |   |   |
| Common  stock, $.01 par value; 100,000,000 shares authorized; 13,760,042 and  13,573,964 issued and outstanding |       | 138               |       | 135 |   |
| Additional  paid-in capital                                                                                          |       | 168,905           |       | 163,910 |   |
| Retained  earnings                                                                                                   |       | 114,289           |       | 81,567 |   |
| Total  shareholders’ equity                                                                                     |       | 283,332           |       | 245,612 |   |
|                                                                                                                 |       | $                 | 590,229    |   | $ | 526,209 |   |

 

See accompanyingnotes to consolidated financial statements.

 

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**CONSOLIDATEDGRAPHICS, INC.**

**CONSOLIDATEDINCOME STATEMENTS**

**(Inthousands, except per share data)**

 
| ** **                                               | ** ** | **Year Ended March 31** | ** ** |
|----------------------------------------------------------|------------|------------------------------|------------|
| ** **                                               | ** ** | **2005**                     | ** ** | **2004** | ** ** | **2003** | ** ** |
|                                                     |       |                         |       |   |   |   |   |
| SALES                                                    |       | $                            | 779,016    |   | $ | 708,060 |   | $ | 710,279 |   |
| COST  OF SALES                                           |       | 586,615                      |       | 540,080 |   | 540,586 |   |
| Gross  profit                                            |       | 192,401                      |       | 167,980 |   | 169,693 |   |
| SELLING  EXPENSES                                        |       | 81,456                       |       | 76,189 |   | 78,008 |   |
| GENERAL  AND ADMINISTRATIVE EXPENSES                     |       | 54,116                       |       | 51,887 |   | 52,252 |   |
| GOODWILL  IMPAIRMENT                                     |       | —                       |       | — |   | 38,033 |   |
| Operating  income                                        |       | 56,829                       |       | 39,904 |   | 1,400 |   |
| INTEREST  EXPENSE                                        |       | 5,306                        |       | 7,337 |   | 10,231 |   |
| INTEREST  INCOME                                         |       | (199                         | )          | (121 | ) | (176 | ) |
| Income  (loss) before income taxes and accounting change |       | 51,722                       |       | 32,688 |   | (8,655 | ) |
| INCOME  TAXES                                            |       | 19,000                       |       | 12,691 |   | 4,284 |   |
| Income  (loss) before accounting change                  |       | 32,722                       |       | 19,997 |   | (12,939 | ) |
| CUMULATIVE  EFFECT OF ACCOUNTING CHANGE, net of tax      |       | —                       |       | — |   | 74,376 |   |
| Net  income (loss)                                       |       | $                            | 32,722     |   | $ | 19,997 |   | $ | (87,315 | ) |
|                                                     |       |                         |       |   |   |   |   |
| BEFORE  ACCOUNTING CHANGE                                |       |                         |       |   |   |   |   |
| Basic  earnings (loss) per share                         |       | $                            | 2.40       |   | $ | 1.49 |   | $ | (.98 | ) |
| Diluted  earnings (loss) per share                       |       | $                            | 2.31       |   | $ | 1.44 |   | $ | (.98 | ) |
| AFTER  ACCOUNTING CHANGE                                 |       |                         |       |   |   |   |   |
| Basic  earnings (loss) per share                         |       | $                            | 2.40       |   | $ | 1.49 |   | $ | (6.58 | ) |
| Diluted  earnings (loss) per share                       |       | $                            | 2.31       |   | $ | 1.44 |   | $ | (6.58 | ) |
| SHARES  USED TO COMPUTE EARNINGS (LOSS) PER SHARE        |       |                         |       |   |   |   |   |
| Basic                                                    |       | 13,649                       |       | 13,439 |   | 13,264 |   |
| Diluted                                                  |       | 14,160                       |       | 13,896 |   | 13,264 |   |

 

See accompanyingnotes to consolidated financial statements.

 

24

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**CONSOLIDATEDGRAPHICS, INC.**

**CONSOLIDATEDSTATEMENTS OF SHAREHOLDERS’ EQUITY**

**(Inthousands)**

 
| ** **                                        | ** ** | **Common Stock** | ** ** | **Additional  Paid-In** | ** ** | **Retained** | ** ** | ** **   | ** ** |
|---------------------------------------------------|------------|------------------|------------|-------------------------|------------|--------------|------------|--------------|------------|
| ** **                                        | ** ** | **Shares**       | ** ** | **Amount**              | ** ** | **Capital**  | ** ** | **Earnings** | ** ** | **Total** | ** ** |
|                                              |       |             |       |                    |       |         |       |         |       |   |   |
| BALANCE,  March 31, 2002                     |       | 13,206           |       | $                       | 132        |         | $          | 157,581      |       | $ | 148,885 |   | $ | 306,598 |   |
| Exercise  of stock options, including tax benefit |       | 141              |       | 1                       |       | 1,939        |       | —       |       | 1,940 |   |
| Net  loss                                         |       | —           |       | —                  |       | —       |       | (87,315      | )          | (87,315 | ) |
| BALANCE,  March 31, 2003                     |       | 13,347           |       | 133                     |       | 159,520      |       | 61,570       |       | 221,223 |   |
| Exercise  of stock options, including tax benefit |       | 227              |       | 2                       |       | 4,390        |       | —       |       | 4,392 |   |
| Net  income                                       |       | —           |       | —                  |       | —       |       | 19,997       |       | 19,997 |   |
| BALANCE,  March 31, 2004                     |       | 13,574           |       |                    | 135        |         |       | 163,910      |       |   | 81,567 |   |   | 245,612 |   |
| Exercise  of stock options, including tax benefit |       | 186              |       | 3                       |       | 4,995        |       | —       |       | 4,998 |   |
| Net  income                                       |       | —           |       | —                  |       | —       |       | 32,722       |       | 32,722 |   |
| BALANCE,  March 31, 2005                     |       | 13,760           |       | $                       | 138        |         | $          | 168,905      |       | $ | 114,289 |   | $ | 283,332 |   |

 

See accompanyingnotes to consolidated financial statements.

 

25

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**CONSOLIDATEDGRAPHICS, INC.**

**CONSOLIDATEDSTATEMENTS OF CASH FLOWS**

**(Inthousands)**

 
| ** **                                                                                     | ** ** | **Year Ended March 31** | ** ** |
|------------------------------------------------------------------------------------------------|------------|------------------------------|------------|
| ** **                                                                                     | ** ** | **2005**                     | ** ** | **2004** | ** ** | **2003** | ** ** |
|                                                                                           |       |                         |       |   |   |   |   |
| OPERATING  ACTIVITIES                                                                          |       |                         |       |   |   |   |   |
| Net  income (loss)                                                                             |       | $                            | 32,722     |   | $ | 19,997 |   | $ | (87,315 | ) |
| 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                                                                 |       | 42,063                       |       | 35,793 |   | 37,356 |   |
| Goodwill  impairment                                                                           |       | —                       |       | — |   | 38,033 |   |
| Deferred  income tax provision                                                                 |       | 3,957                        |       | 6,240 |   | 4,008 |   |
| Changes  in assets and liabilities, net of effects of acquisitions—                       |       |                         |       |   |   |   |   |
| Accounts  receivable, net                                                                      |       | (5,024                       | )          | (5,160 | ) | 18,793 |   |
| Inventories                                                                                    |       | 37                           |       | (3,188 | ) | 4,764 |   |
| Prepaid  expenses                                                                              |       | 1,160                        |       | (740 | ) | 1,023 |   |
| Other  assets                                                                                  |       | (695                         | )          | 2,750 |   | 35 |   |
| Accounts  payable and accrued liabilities                                                      |       | (885                         | )          | 20,938 |   | 4,847 |   |
| Income  taxes payable                                                                          |       | 1,904                        |       | 2,629 |   | (563 | ) |
| Net  cash provided by operating activities                                                     |       | 75,239                       |       | 79,259 |   | 95,357 |   |
| INVESTING  ACTIVITIES                                                                          |       |                         |       |   |   |   |   |
| Acquisitions  of businesses, net of cash acquired                                              |       | (48,961                      | )          | (11,376 | ) | (6,240 | ) |
| Purchases  of property and equipment                                                           |       | (15,566                      | )          | (12,336 | ) | (15,478 | ) |
| Proceeds  from asset dispositions                                                              |       | 1,811                        |       | 2,296 |   | 1,096 |   |
| Net  cash used in investing activities                                                         |       | (62,716                      | )          | (21,416 | ) | (20,622 | ) |
| FINANCING  ACTIVITIES                                                                          |       |                         |       |   |   |   |   |
| Proceeds  from bank credit facilities                                                          |       | 73,862                       |       | 61,165 |   | 13,527 |   |
| Payments  on bank credit facilities                                                            |       | (39,230                      | )          | (114,642 | ) | (73,768 | ) |
| Payments  for financing costs on amendment of bank credit facility                             |       | —                       |       | (480 | ) | — |   |
| Proceeds  from issuance of term equipment notes                                                |       | —                       |       | 6,117 |   | — |   |
| Payments  on term equipment notes and other debt                                               |       | (53,230                      | )          | (12,439 | ) | (15,748 | ) |
| Proceeds  from exercise of stock options                                                       |       | 3,355                        |       | 3,267 |   | 1,940 |   |
| Net  cash used in financing activities                                                         |       | (15,243                      | )          | (57,012 | ) | (74,049 | ) |
| NET  INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                                          |       | (2,720                       | )          | 831 |   | 686 |   |
| CASH  AND CASH EQUIVALENTS AT BEGINNING OF PERIOD                                              |       | 10,472                       |       | 9,641 |   | 8,955 |   |
| CASH  AND CASH EQUIVALENTS AT END OF PERIOD                                                    |       | $                            | 7,752      |   | $ | 10,472 |   | $ | 9,641 |   |

 

See accompanyingnotes to consolidated financial statements.

 

26

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**CONSOLIDATEDGRAPHICS, INC.**

**NOTES TOCONSOLIDATED FINANCIAL STATEMENTS**

**(Inthousands, except share and per share data and percentages)**

 

**1.BUSINESS**

 

ConsolidatedGraphics, Inc. (collectively with its consolidated subsidiaries referredto as “the Company”) is a leading national provider of commercial printingservices with 70 printing businesses in 25 states and is recognized as thelargest sheetfed and half-web commercial printing company in the United States.The Company is focused on adding value to its printing businesses by providingthe financial and operational strengths, management support and technologicaladvantages associated with a national organization. 

 

The Company’s printingbusinesses maintain their own sales, customer service, estimating and planning,prepress, production and accounting departments. The Company’s corporateheadquarters staff provides support to its printing businesses in such areas ashuman resources, purchasing and management information systems. The Companyalso maintains centralized treasury, risk management, tax and consolidatedfinancial reporting activities.

 

The Company’s sales arederived from commercial printing services. These services consist of(i) traditional print services, including electronic prepress, printing,finishing, storage and delivery of high-quality printed documents which arecustom manufactured to the Company’s customers’ design specifications;(ii) fulfillment and mailing services for such printed materials, and(iii) e-commerce solutions that enable the Company’s customers to improvetheir processes over the procurement and management of printed materials.

 

The scope and extent ofservices provided to the Company’s customers typically varies for eachindividual order it receives, depending on customer-specific factors includingthe intended uses for the printed materials. Furthermore, each of the Company’slocations generally is capable of providing a complete range of services totheir customers.  Accordingly, the Companydoes not operate its business in a manner that differentiates among its respectivecapabilities and services for financial or management reporting services,rather each of its printing businesses define a distinct reporting unit.

 

**2.SIGNIFICANT ACCOUNTING POLICIES AND OTHER INFORMATION**

 

**AccountingPolicies**

 

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

 

*Principlesof Consolidation*—The accompanying consolidated financialstatements include the accounts of the Company and its wholly-ownedsubsidiaries. All intercompany accounts and transactions have been eliminated.Under Statement of Financial Accounting Standards (“SFAS”) No. 131, *Disclosures About Segments of an Enterprise andRelated Information,* the Company’s operations constitute onereportable segment because all of its printing businesses operate in thecommercial printing industry and exhibit similar economic characteristics.

 

*Use ofEstimates*—The preparation of financial statements inconformity with generally accepted accounting principles requires the use ofcertain estimates and assumptions by management in determining the reportedamounts of assets and liabilities, disclosure of contingent liabilities as ofthe date of the financial statements and the reported amounts of revenues andexpenses during the reporting period. The Company evaluates its estimates andassumptions on an ongoing basis and relies on historical experience and variousother factors that it believes to be reasonable under the circumstances todetermine such estimates. Because uncertainties with respect to estimates andassumptions are inherent in the preparation of financial statements, actualresults could differ from these estimates.

 

*Reclassification*—Certainreclassifications of prior periods’ data have been made to conform to thecurrent period reporting.

 

*Cashand Cash Equivalents*—The Company considers all highly liquidinvestments purchased with original maturities of three months or less to becash equivalents.

 

27

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*RevenueRecognition and Accounts Receivable*—The Company recognizesrevenue upon delivery of each job, except for “bill and hold transactions,” inwhich case such revenue is recognized when all the service delivery criteriaare fully met as per Staff Bulletin 104 issued by the Securities and ExchangeCommission (“SEC”). Losses, if any, on jobs are recognized at the earliest datesuch amount is determinable. The Company derives the majority of its revenuesfrom sales and services to a broad and diverse group of customers with noindividual customer accounting for more than 10% of the Company’s revenues inany of the years ended March 31, 2005, 2004 or 2003. The Company maintainsan allowance for doubtful accounts based upon the expected collectibility ofaccounts receivable. Accounts receivable in the accompanying consolidatedbalance sheets are reflected net of allowance for doubtful accounts of $2,465and $2,448 at March 31, 2005 and 2004.

 

*Inventories*—Inventoriesare valued at the lower of cost or market utilizing the first-in, first-outmethod for raw materials and the specific identification method for work inprogress and finished goods. The carrying values of inventories are set forthbelow:

 
| ** **        | ** ** | **March 31** | ** ** |
|-------------------|------------|-------------------|------------|
| ** **        | ** ** | **2005**          | ** ** | **2004** | ** ** |
|              |       |              |       |   |   |
| Raw  materials    |       | $                 | 11,863     |   | $ | 10,051 |   |
| Work  in progress |       | 21,518            |       | 20,054 |   |
| Finished  goods   |       | 3,768             |       | 2,623 |   |
|              |       | $                 | 37,149     |   | $ | 32,728 |   |

 

*OtherAssets*—Other assets are principally comprised of deferred taxassets, non-current cash invested in restricted money-market funds andintangible assets other than goodwill. None of the individual items in otherassets at March 31, 2005 and 2004 were individually greater than 5% oftotal current assets in those years.

 

*Impairmentof Long-Lived Assets*—The Company determines the realizationof goodwill in accordance with SFAS No. 142, *Goodwill and Other Intangible Assets,* and its other long-livedassets, including property, plant and equipment, and intangible assets otherthan goodwill in accordance with SFAS No. 144, *Accounting for the Impairment or Disposal of Long-Lived Assets.*Under SFAS No. 142, the Company determines fair value using capitalizationof earnings estimates and market valuation multiples for each reporting unit.Under SFAS No. 144, the Company compares the carrying value of long-livedassets to its projection of future undiscounted cash flows attributable to suchassets, and evaluates other factors such as business trends and generaleconomic conditions. In the event that the carrying value exceeds the futureundiscounted cash flows, the Company records an impairment charge againstincome equal to the excess of the carrying value over the asset’s fair value.

 

*AccruedLiabilities*—The significant components of accrued liabilitiesare as follows:

 
| ** **                            | ** ** | **March 31** | ** ** |
|---------------------------------------|------------|-------------------|------------|
| ** **                            | ** ** | **2005**          | ** ** | **2004** | ** ** |
|                                  |       |              |       |   |   |
| Compensation  and benefits            |       | $                 | 31,304     |   | $ | 27,669 |   |
| Manufacturing  materials and services |       | 6,336             |       | 7,200 |   |
| Sales,  property and other taxes      |       | 18,719            |       | 15,902 |   |
| Other                                 |       | 18,784            |       | 15,814 |   |
|                                  |       | $                 | 75,143     |   | $ | 66,585 |   |

 

Other accrued liabilitiesare principally comprised of customer advances and accrued self-insuranceclaims for certain insurance programs. None of the individual items in otheraccrued liabilities at March 31, 2005 and 2004 were individually greaterthan 5% of total current liabilities in those years.

 

*IncomeTaxes—*Income taxes are accounted for under the asset andliability method. Deferred tax assets and liabilities are recognized for thefuture tax consequences attributable to differences between the financialstatement carrying amounts of existing assets and liabilities and theirrespective tax bases and operating loss and tax credit carryforwards. Deferredtax assets and liabilities are measured using enacted tax rates expected toapply to taxable income in the years in which those temporary differences areexpected to be recovered or settled. The effect on deferred tax assets andliabilities of a change in tax rates is recognized in income in the period thatincludes the enactment date.

 

28

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*RecentAccounting Pronouncements—*

 

The Financial AccountingStandards Board (“FASB”) issued SFAS No. 151, *Inventory Costs,* in November 2004 which amends Chapter 4of the Accounting Research Bulletin (“ARB”) No. 43. SFAS No. 151 isrequired to be applied to all inventory costs occurring infiscal years beginning after June 15, 2005.  The Company has yet to determine the impactthat the expected April 1, 2006 adoption of SFAS No. 151 will have on theCompany’s consolidated financial condition or results of operations.

 

SFAS No. 152, *Accounting for Real Estate Time-Sharing Transactions,*was issued in December 2004 and amends SFAS No. 66 and No. 67.SFAS No. 153 is required to be applied to all realestate time-sharing transactions occurring in fiscal years beginning after June 15,2005.   The Company’s expected April 1,2006 adoption of SFAS No. 152 is not expected to have a material impact on theCompany’s consolidated financial condition or results of operations.

 

SFAS No. 153, *Exchanges of Nonmonetary Assets*, was issued in December 2004and amends Accounting Principles Board (“APB”) Opinion No. 29.SFAS No. 153 is required to be applied to all nonmonetary exchangesoccurring in fiscal periods beginning after June 15,2005.  The Company’s expected July 1,2005 adoption of SFAS No. 153 is not expected to have a material impact on theCompany’s consolidated financial condition or results of operations.

 

SFAS No. 123(R), *Share-Based Payment*, was issued in December 2004 andreplaces SFAS No. 123, and supercedes APB Opinion No. 25.  SFAS No. 123(R) will require compensationcosts related to share-based payment transactions to be recognized in theconsolidated financial statements. With limited exceptions, the amount ofcompensation cost will be measured based on the grant date fair value of theequity or liability instruments issued. In addition, liability awards will beremeasured each reporting period. Compensation cost will be recognized over theperiod that an employee provides services in exchange for the award.  SFAS No. 123(R) becomes effective for theCompany at the beginning of fiscal 2007. The Company expects that the impact ofadopting the SFAS No. 123(R) will be materially consistent with the pro formaexpense (discussed below under “*Stock-Based Compensation*”),adjusted for future vesting occurrences, grants, cancellations and exercises ofstock options, that have been previously disclosed in accordance with SFAS No.123.

 

SFAS No. 154, *Accounting Changes and Error Corrections,*wasissued in May 2005 and replaces APBOpinion No. 20 and SFAS No. 3. SFAS No. 154 requires retrospective application for voluntary changes inaccounting principle in most instances and is required to be applied to all accounting changes made in fiscal years beginning after December 15,2005.   The Company’s expected April 1,2006 adoption of SFAS No. 154 is not expected to have a material impact on theCompany’s consolidated financial condition or results of operations.

 

**OtherInformation**

 

*SupplementalCash Flow Information*—The consolidated statements of cashflows provide information about the Company’s sources and uses of cash andexclude the effects of non-cash transactions. The Company issued term notespayable totaling $13,252 and $7,506 (see Note 6. Long-Term Debt) in the yearsended March 31, 2005 and 2004 to finance the purchase of certain newequipment. In addition, in the year ended March 31, 2005, the Companyassumed a mortgage obligation totaling $5,116 in connection with a prior yearacquisition and also assumed two industrial revenue bonds totaling $4,900 andother long-term debt of $3,351 in connection with current year acquisitions(see Note 4. Acquisitions).

 

The Company paid (orreceived) cash for interest and income taxes, net of refunds, totaling $4,877and $13,680 in 2005, $7,227 and ($2,460) in 2004, and $10,286 and ($534)in 2003.

 

*Earnings(Loss) Per Share*—Basic earnings (loss) per share arecalculated by dividing net income (loss) by the weighted average number ofcommon shares outstanding. Diluted earnings per share reflect net incomedivided by the weighted average number of common shares and dilutive stockoptions outstanding.  Conversely, dilutedloss per share excludes the impact of dilutive stock options outstanding andtherefore reflects net loss divided only by the weighted average number ofcommon shares outstanding.

 

*RelatedParty Transactions*—In the normal course of business, theCompany leases certain real estate from individuals who formerly owned anacquired printing business and are now employed by the Company.

 

*FairValue of Financial Instruments*—The Company’s financialinstruments consist of cash, trade receivables, trade payables and debtobligations. The Company does not currently hold or issue derivative financialinstruments. The Company believes that the fair value of its variable rate debtobligations, which totaled $81,072 and $43,431 at March 31, 2005 and 2004,respectively, approximated their recorded values. The Company estimates thatthe fair value of its fixed rate debt obligations totaling $38,418 at 

 

29

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March 31, 2005 was $33,961and that the fair value of its fixed rate debt obligations totaling $68,038 at March 31,2004 was $69,717. Estimates of fair value are based on interest rates for thesame or similar debt offered to the Company having the same or similarmaturities and collateral requirements.

 

*Concentrationsof Credit Risk*—Financial instruments that potentially subjectthe Company to concentrations of credit risk are primarily trade accountsreceivable. Concentrations of credit risk with respect to trade accountsreceivable are limited because the Company’s printing businesses provideservices to a large, diverse group of customers in various geographicalregions. Management performs ongoing credit evaluations of its customers andgenerally does not require collateral for extensions of credit. The Company’scash deposits are held in large, national financial institutions.

 

*Stock-BasedCompensation—*The Company accounts for its stock-basedcompensation programs using the intrinsic value method of accountingestablished by APB Opinion No. 25, *Accountingfor Stock Issued to Employees* and related interpretations. Under APBNo. 25, no compensation expense is recognized when the exercise price ofan employee stock option is equal to the market price of common stock on thegrant date and all other provisions of the grant are fixed. The Company’s onlyelement of stock-based compensation is derived pursuant to the ConsolidatedGraphics, Inc. Long-Term Incentive Plan, as amended (the “Plan”), whichhas been approved by the Company’s shareholders. Under the Plan, employees ofthe Company and certain non-employee members of the Company’s Board ofDirectors have been, or may be, granted options to purchase shares of theCompany’s common stock at a price not less than the market price of the stockat the date of grant.

 

Pro formainformation regarding net income (loss) and net income (loss) per share isrequired by SFAS No. 123, *Accounting for Stock-BasedCompensation*. The pro forma information has been determined as ifthe Company had accounted for its stock options under the fair value method.The following is a summary of the Company’s net income (loss) and net income(loss) per share as reported and pro forma as if the fair value-based method ofaccounting defined in SFAS No. 123 had been applied. For purposes ofpro forma disclosures, the estimated fair value of the options is amortized toexpense over the options’ vesting period. The pro forma effects of applyingSFAS No. 123 may not be representative of the effects on reported netincome for future years since options vest over several years and additionalawards are made each year.

 

Pro forma informationapplying to the fair value method follows:

 
| ** **                             | ** ** | **Year Ended March 31** | ** ** |
|----------------------------------------|------------|------------------------------|------------|
| ** **                             | ** ** | **2005**                     | ** ** | **2004** | ** ** | **2003** | ** ** |
|                                   |       |                         |       |   |   |   |   |
| Net  income (loss) as reported         |       | $                            | 32,722     |   | $ | 19,997 |   | $ | (87,315 | ) |
| Less:  pro forma compensation expense  |       | (2,254                       | )          | (2,085 | ) | (2,493 | ) |
| Pro  forma net income (loss)           |       | $                            | 30,468     |   | $ | 17,912 |   | $ | (89,808 | ) |
|                                   |       |                         |       |   |   |   |   |
| **Basic Earnings (Loss) Per Share:**   |       |                         |       |   |   |   |   |
| Net  income (loss) as reported         |       | $                            | 2.40       |   | $ | 1.49 |   | $ | (6.58 | ) |
| Less:  pro forma compensation expense  |       | (.16                         | )          | (.15 | ) | (.18 | ) |
| Pro  forma net income (loss)           |       | $                            | 2.24       |   | $ | 1.34 |   | $ | (6.76 | ) |
|                                   |       |                         |       |   |   |   |   |
| **Diluted Earnings (Loss) Per Share:** |       |                         |       |   |   |   |   |
| Net  income (loss) as reported         |       | $                            | 2.31       |   | $ | 1.44 |   | $ | (6.58 | ) |
| Less:  pro forma compensation expense  |       | (.15                         | )          | (.14 | ) | (.18 | ) |
| Pro  forma net income (loss)           |       | $                            | 2.16       |   | $ | 1.30 |   | $ | (6.76 | ) |

 

For purposes ofdetermining pro forma compensation expense, the Company determined the weightedaverage fair value of options on the grant date ($13.65 for the year ended March 31,2005, $9.44 for the year ended March 31, 2004 and $9.26 for the year endedMarch 31, 2003) by utilizing the Black-Scholes option-pricing model withthe following key assumptions:

 
| ** **                       | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** |
|----------------------------------|------------|----------|------------|----------|------------|----------|------------|
|                             |       |     |       |     |       |     |       |
| Dividend  yield                  |       | —   |       | —   |       | —   |       |
| Expected  volatility             |       | 30.4     | %          | 33.9     | %          | 53.2     | %          |
| Average  risk-free interest rate |       | 3.7      | %          | 3.2      | %          | 3.8      | %          |
| Average  expected life           |       | 5.0 yrs. |       | 5.0 yrs. |       | 5.0 yrs. |       |

 

30

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The Black-Scholes modelused by the Company to calculate the fair value of options granted, as well asother currently accepted option valuation models, were developed to estimatethe fair value of freely tradable, fully transferable options without vestingand/or trading restrictions, which significantly differ from the provisionsassociated with the Company’s stock option awards. These models also requirehighly subjective assumptions, including future stock price volatility andexpected time until exercise, which greatly affect the calculated values.Accordingly, management does not believe this model provides a reliable singlemeasure of the fair value of the Company’s stock option awards.

 

**3.ACCOUNTING CHANGE**

 

Effective April 1,2002, the Company adopted SFAS No. 142, *Goodwilland Other Intangible Assets*, which required it to discontinueamortizing goodwill, perform an initial transitional impairment test andconduct annual impairment tests to determine if the remaining balance ofgoodwill of each of its reporting units should be reduced to reflect itsestimated fair value. Prior to its adoption of SFAS No. 142, the Companyperiodically evaluated whether the remaining balance of goodwill wasrecoverable by assessing current and future levels of income and cash flows onan undiscounted basis, as well as other factors, such as business trends andgeneral market conditions. The Company determined that each of its individualprinting businesses constitutes a stand alone reporting unit under SFASNo. 142. The Company determines fair value under SFAS No. 142 usingcapitalization of earnings estimates and market valuation multiples. A numberof factors could cause the Company to further impair its goodwill balance atthe date of its annual impairment test, which is March 31. These factorsinclude a decline in the financial performance of an individual reporting unitdue to adverse business developments and/or changes in general marketconditions, as well as a decline in market valuation multiples. As of April 1,2002, net goodwill balances attributable to each of the Company’s reportingunits were tested for impairment by comparing the fair value of each reportingunit to its carrying value. Based on these impairment tests, the Companyrecognized a transitional impairment charge of $74,376, net of deferred taxbenefit totaling $15,379, which is reflected as a cumulative effect ofaccounting change in the accompanying consolidated income statement.

 

As a result of its annualvaluation test, the Company recorded a pre-tax goodwill impairment charge of $38,033for the year ended March 31, 2003, which is reflected as goodwillimpairment in the accompanying consolidated income statement. The impairmentresulted principally from the impact that the continued weakness in printingindustry conditions and other negative economic factors had on the Company’sreporting units.

 

Had the provisionsof SFAS No. 142 been in effect for all periods presented in theaccompanying consolidated financial statements, net income (loss) and earnings(loss) per share as reported would have been reported on the following proforma basis:

 
| ** **                                               | ** ** | **Year Ended March 31** | ** ** |
|----------------------------------------------------------|------------|------------------------------|------------|
| ** **                                               | ** ** | **2005**                     | ** ** | **2004** | ** ** | **2003** | ** ** |
|                                                     |       |                         |       |   |   |   |   |
| Net income  (loss) as reported                           |       | $                            | 32,722     |   | $ | 19,997 |   | $ | (87,315 | ) |
| Add: cumulative  effect of accounting change, net of tax |       | —                       |       | — |   | 74,376 |   |
| Pro forma net  income (loss)                             |       | $                            | 32,722     |   | $ | 19,997 |   | $ | (12,939 | ) |
|                                                     |       |                         |       |   |   |   |   |
| **Basic  Earnings (Loss) Per Share:**                    |       |                         |       |   |   |   |   |
| Net income  (loss) as reported                           |       | $                            | 2.40       |   | $ | 1.49 |   | $ | (6.58 | ) |
| Add: cumulative  effect of accounting change, net of tax |       | —                       |       | — |   | 5.60 |   |
| Pro forma net  income (loss)                             |       | $                            | 2.40       |   | $ | 1.49 |   | $ | (.98 | ) |
|                                                     |       |                         |       |   |   |   |   |
| **Diluted  Earnings (Loss) Per Share:**                  |       |                         |       |   |   |   |   |
| Net income  (loss) as reported                           |       | $                            | 2.31       |   | $ | 1.44 |   | $ | (6.58 | ) |
| Add: cumulative  effect of accounting change, net of tax |       | —                       |       | — |   | 5.60 |   |
| Pro forma net  income (loss)                             |       | $                            | 2.31       |   | $ | 1.44 |   | $ | (.98 | ) |

 

**4.ACQUISITIONS**

 

All of the Company’sacquisitions have been accounted for using the purchase method of accounting.Revenues and expenses of the acquired businesses have been included in theaccompanying consolidated financial statements beginning on their respectivedates of acquisition. The allocation of purchase price to the acquired assetsand liabilities is based on estimates of fair value and may be prospectivelyrevised if and when additional information the Company is awaiting concerningcertain asset and liability valuations is obtained, provided that suchinformation is received no later than one year after the date of acquisition.Contingent transaction consideration pursuant to earnout agreements is accruedas an additional cost of the transaction when payment thereof is deemed to beprobable by the Company.

 

During fiscal 2005, theCompany assumed debt totaling $8,251 and acquired for cash totaling $45,524 theoperations and assets of eight printing businesses. The preliminary allocationof the purchase price of the businesses acquired include current assets of$22,799, property and equipment of $33,116, goodwill of $11,521 and otherassets of $2,678 less current liabilities of $16,339. The Company is awaitingadditional information concerning certain asset and liability valuations inorder to finalize such allocation, and expects to receive such information nolater than one year following the respective dates of the acquisitions.

 

During fiscal 2004, theCompany acquired for cash totaling $10,042 the operations and assets of six printingbusinesses. The allocation of the purchase price of the businesses acquiredinclude current assets of $3,503, property and equipment of $8,063, goodwill of$1,764 and other assets of $533, less current liabilities of $3,821.

 

During fiscal 2003, theCompany acquired for cash totaling $4,205 the operations and assets of two printingbusinesses. The allocation of the purchase price of the businesses acquiredinclude current assets of $3,627, property and equipment of $1,012 and otherassets of $655, less current liabilities of $1,089.

 

Additionally, inconnection with the acquisition of certain printing businesses in prior periods,the Company paid cash in fiscal 2005 totaling $3,299 and assumed a relatedmortgage obligation totaling $5,116 to acquire certain real property and paidcash of $138, $1,334, and $2,035 in fiscal years 2005, 2004, and 2003 tosatisfy certain liabilities or pursuant to earnout agreements.

 

31

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**5.PROPERTY AND EQUIPMENT**

 

Property and equipmentare stated at cost, net of accumulated depreciation. The costs of majorrenewals and betterments are capitalized; repairs and maintenance costs areexpensed when incurred. Depreciation of property and equipment is computedusing the straight-line method over the estimated useful lives of the variousclasses of assets.

 

The following is asummary of the Company’s property and equipment and their estimated usefullives:

 
| ** **                            | ** ** | **March 31** | ** ** | **Estimated  Life** | ** ** |
|---------------------------------------|------------|-------------------|------------|---------------------|------------|
| **Description**                       | ** ** | **2005**          | ** ** | **2004**            | ** ** | **in Years** | ** ** |
|                                  |       |              |       |                |       |   |   |
| Land                                  |       | $                 | 8,481      |                | $          | 7,857 |   | — |   |
| Buildings  and leasehold improvements |       | 72,716            |       | 59,260              |       | 5-30 |   |
| Machinery  and equipment              |       | 383,970           |       | 347,472             |       | 5-20 |   |
| Computer  equipment and software      |       | 21,518            |       | 21,764              |       | 2-5 |   |
| Furniture,  fixtures and other        |       | 9,538             |       | 9,211               |       | 5-7 |   |
|                                  |       | 496,223           |       | 445,564             |       |   |   |
| Less—accumulated  depreciation   |       | (198,623          | )          | (172,763            | )          |   |   |
|                                  |       | $                 | 297,600    |                | $          | 272,801 |   |   |   |

 

**6.LONG-TERM DEBT**

 

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

 
| ** **                 | ** ** | **March 31** | ** ** |
|----------------------------|------------|-------------------|------------|
| ** **                 | ** ** | **2005**          | ** ** | **2004** | ** ** |
|                       |       |              |       |   |   |
| Bank  credit facilities    |       | $                 | 70,195     |   | $ | 35,563 |   |
| Term  equipment notes      |       | 32,295            |       | 67,772 |   |
| Other                      |       | 17,000            |       | 8,134 |   |
|                       |       | 119,490           |       | 111,469 |   |
| Less—current  portion |       | (7,595            | )          | (13,204 | ) |
|                       |       | $                 | 111,895    |   | $ | 98,265 |   |

 

The Company’s primary bankcredit facility (as amended and restated, the “Credit Agreement”) is composedof a $150,000 revolving credit facility that will mature in July 2007. At March 31,2005, outstanding borrowings under the Credit Agreement were $65,000 andaccrued interest at a weighted average rate of 4.81%.

 

The proceeds fromborrowings under the Credit Agreement can be used to repay certainindebtedness, finance certain acquisitions, provide for working capital andgeneral corporate purposes and, subject to certain restrictions, repurchase theCompany’s common stock. Borrowings outstanding under the Credit Agreement aresecured by substantially all of the Company’s assets other than real estate andcertain equipment subject to term equipment notes and other financings.Borrowings under the Credit Agreement accrue interest, at the Company’s option,at either (1) the London Interbank Offered Rate (LIBOR) plus a margin of1.25% to 2.00%, or (2) an alternate base rate (based upon the greater ofthe agent bank’s prime lending rate or the Federal Funds effective rate plus..50%) plus a margin of up to .75%. The Company is also required to pay anannual commitment fee ranging from .275% to .375% on available but unusedamounts under the Credit Agreement. The interest rate margin and the commitmentfee are based upon certain financial performance measures as set forth in theCredit Agreement and are redetermined quarterly. At March 31, 2005, theapplicable LIBOR interest rate margin was 1.25% and the applicable commitmentfee was .275%.

 

The Company is subject tocertain covenants and restrictions and must meet certain financial tests underthe Credit Agreement. The Company was in compliance with such covenants,restrictions and financial tests at March 31, 2005.

 

32

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In addition to the CreditAgreement, the Company maintains two auxiliary revolving credit facilities(each an “Auxiliary Bank Facility” and collectively the “Auxiliary BankFacilities”) with commercial banks. Each Auxiliary Bank Facility is unsecuredand has a maximum borrowing capacity of $5,000. One such facility expires in November 2005and the other such facility expires in November 2006. At March 31,2005, borrowings outstanding under the Auxiliary Bank Facilities totaled $5,195and accrued interest at a weighted average rate of 4.19%. Because the Company currentlyhas the ability to refinance borrowings outstanding under the Auxiliary BankFacility expiring in November 2005 and plans to do so, such borrowings areclassified as long-term debt in the accompanying consolidated balance sheet at March 31,2005.  The Auxiliary Bank Facilitiescross-default to the covenants and restrictions set forth in the CreditAgreement.

 

The Company’s termequipment notes consist primarily of notes payable pursuant to financingagreements between the Company and various lenders (the “Lender Notes”) andbetween the Company and the finance affiliate of a printing equipmentmanufacturer (the “Equipment Notes”). At March 31, 2005, outstandingborrowings under the Lender Notes totaled $17,164 and accrued interest at aweighted average rate of 4.74%. The Lender Notes provide for fixed monthlyprincipal payments plus interest (at fixed rates) for defined periods of up toseven years from the date of issuance, and are secured by certain equipment ofthe Company. At March 31, 2005, outstanding borrowings under the EquipmentNotes totaled $13,403 and accrued interest at a weighted average rate of 5.93%.The Equipment Notes provide for fixed payments of principal and interest (atfixed rates) for defined periods of up to ten years from the date of issuanceand are secured by the equipment which was concurrently purchased from themanufacturer. At March 31, 2005, the remaining balance of term equipmentnotes totaling $1,728 primarily consists of various secured debt obligationsassumed by the Company in connection with certain prior year acquisitions. TheCompany is not subject to any significant financial covenants in connectionwith any of the term equipment notes; however, the Credit Agreement placescertain limitations on the amount of additional term note obligations theCompany may incur in the future.

 

In the period ended March 31,2005, the Company retired $41,061 of Lender Notes with borrowings from theCredit Agreement. The purpose of retiring these notes was to utilize availablecapacity under the Credit Agreement to effect an overall reduction in theCompany’s interest costs. No financial penalties were incurred in connectionwith the retirement of these obligations.

 

The Company’s remainingdebt obligations consist of a mortgage totaling $4,975, a promissory notetotaling $2,652, industrial revenue bonds totaling $8,085 and various otherdebt totaling $1,288. The Company does not have any significant financialcovenants or restrictions associated with these other debt obligations.

 

The principal paymentrequirements by fiscal year under the Company’s debt obligations referencedabove are: 2006—$7,595; 2007—$11,018; 2008—$75,009; 2009—$6,409; 2010—$8,784;and thereafter—$10,675. As the Company has both the ability and intent torefinance the $2,303 outstanding at March 31, 2005 under the AuxiliaryBank Facility due to expire in November 2005, such borrowings are classifiedas long-term debt in our consolidated balance sheet at March 31, 2005, andalso classified above as fiscal 2008 principal payment requirements inconjunction with the maturity of the Credit Agreement.

 

**7.INCOME TAXES**

 

The provision for incometaxes is comprised of the following:

 
| ** ** | ** ** | **Year Ended March 31** | ** ** |
|------------|------------|------------------------------|------------|
| ** ** | ** ** | **2005**                     | ** ** | **2004** | ** ** | **2003** | ** ** |
| Current    |       |                         |       |   |   |   |   |
| Federal    |       | 15,953                       |       | $ | 6,629 |   | $ | (688 | ) |
| State      |       | (910                         | )          | (178 | ) | 964 |   |
|       |       | 15,043                       |       | 6,451 |   | 276 |   |
| Deferred   |       |                         |       |   |   |   |   |
| Federal    |       | 1,860                        |       | 5,522 |   | 3,808 |   |
| State      |       | 2,097                        |       | 718 |   | 200 |   |
|       |       | 3,957                        |       | 6,240 |   | 4,008 |   |
|       |       | $                            | 19,000     |   | $ | 12,691 |   | $ | 4,284 |   |
|            |            |                              |            |  |  |  |  |  |  |  |

 

33

----

 

The provision for incometaxes differs from an amount computed at the federal statutory rate as follows:

 
| ** **                                             | ** ** | **Year Ended March 31** | ** ** |
|--------------------------------------------------------|------------|------------------------------|------------|
| ** **                                             | ** ** | **2005**                     | ** ** | **2004** | ** ** | **2003** | ** ** |
|                                                   |       |                         |       |   |   |   |   |
| Provision  (benefit) at the federal statutory rate     |       | $                            | 18,103     |   | $ | 11,441 |   | $ | (3,030 | ) |
| State  income taxes, net of federal income tax benefit |       | 771                          |       | 351 |   | 757 |   |
| Non-deductible  expenses:                              |       |                         |       |   |   |   |   |
| Goodwill  impairment                                   |       | —                       |       | — |   | 6,976 |   |
| Other                                                  |       | 126                          |       | 899 |   | (419 | ) |
|                                                   |       | $                            | 19,000     |   | $ | 12,691 |   | $ | 4,284 |   |

 

Deferred income taxesreflect the future tax consequences of differences between the tax bases ofassets and liabilities and their financial reporting amounts as measured basedon enacted tax laws and regulations. The Company records a valuation allowance,when appropriate, to adjust deferred tax asset balances to the amount theCompany expects to realize. The Company considers the amount of taxable incomeavailable in carryback years and future taxable income, among other factors, inassessing the potential need for a valuation allowance. The components ofdeferred income tax assets and liabilities are as follows:

 

| ** **                             | ** ** | **March 31** | ** ** |
|----------------------------------------|------------|-------------------|------------|
| ** **                             | ** ** | **2005**          | ** ** | **2004** | ** ** |
|                                   |       |              |       |   |   |
| Deferred  income tax liabilities:      |       |              |       |   |   |
| Property  and equipment                |       | $                 | 63,025     |   | $ | 59,464 |   |
| Other                                  |       | 721               |       | 465 |   |
| Total  deferred income tax liabilities |       | $                 | 63,746     |   | $ | 59,929 |   |
|                                   |       |              |       |   |   |
| Deferred  income tax assets:           |       |              |       |   |   |
| Accounts  receivable and inventory     |       | $                 | 746        |   | $ | 645 |   |
| Accruals  not currently deductible     |       | 5,753             |       | 5,514 |   |
| Other                                  |       | 3,594             |       | 4,074 |   |
| Total  deferred income tax assets      |       | $                 | 10,093     |   | $ | 10,233 |   |

 

Long-termdeferred tax assets included in other assets are $2,250 and $4,074 at March 31,2005 and 2004.

 

**8.COMMITMENTS AND CONTINGENCIES**

 

*OperatingLeases*—The Company has entered into various noncancelableoperating leases primarily related to facilities and equipment used in theordinary course of its business. The Company incurred total operating leaseexpense of $15,213, $14,748 and $13,627 for the years ended March 31,2005, 2004 and 2003.

 

The Company’s operatinglease obligations by fiscal year are as follows:

 
| ** **                   | ** ** | **2006** | ** ** | **2007** | ** ** | **2008** | ** ** | **2009** | ** ** | **2010** | ** ** | **Thereafter** | ** ** |
|------------------------------|------------|----------|------------|----------|------------|----------|------------|----------|------------|----------|------------|----------------|------------|
|                         |       |     |       |     |       |     |       |     |       |     |       |           |       |
| Operating  lease obligations |       | $        | 16,141     |     | $          | 13,391   |       | $        | 10,804     |     | $          | 7,484          |       | $ | 5,400 |   | $ | 10,337 |   |
|                              |            |          |            |          |            |          |            |          |            |          |            |                |            |  |  |  |  |  |  |

 

*Lettersof Credit*—In connection with the assumption of obligationsunder outstanding industrial revenue bonds related to certain prior yearacquisitions of printing businesses, which are reflected as debt in theaccompanying consolidated financial statements, the Company had four letters ofcredit outstanding as of March 31, 2005 for a combined total of $8,436.These letters of credit were issued pursuant to the terms of our CreditAgreement, which expires in July 2007, and we may be required to obtainreplacement letters of credit at that time.

 

34

----

 

*InsurancePrograms—*The Company maintains third-party insurance coveragein amounts and against risks it believes are reasonable in its circumstances.The Company is self-insured against most workers compensation claims and for asignificant component of its group health insurance programs. For theseexposures, the Company accrues expected loss amounts which are determined usinga combination of its historical loss experience and subjective assessment ofits future loss exposure, together with advice provided by administrators andconsulting actuaries. The estimates of expected loss amounts are subject touncertainties arising from various sources, including changes in claimsreporting patterns, claims settlement patterns, judicial decisions, legislationand economic conditions. Although the Company believes that the accruedestimated loss amounts are reasonable under the circumstances, significantdifferences related to the items noted above could materially affect our riskexposure, insurance obligations and future expense.

 

*LegalMatters*—From time to time, the Company is subject to legalproceedings and claims that arise in the ordinary course of its business.Currently, there are no legal proceedings or claims pending against the Companythat management believes will have a material adverse effect upon the Company’sconsolidated financial condition or results of operations.

 

*TaxMatters*—The Company is subject to examination by taxauthorities for varying periods in various taxing jurisdictions.  During the course of such examinationsdisputes occur as to matters of fact and/or law.  Also, in most taxing jurisdictions thepassage of time without examination will result in the expiration of applicablestatutes of limitations thereby precluding the taxing authority from conductingan examination of the tax period for which such statute of limitation hasexpired.  The Company believes that ithas adequately provided for its tax liabilities.

 

**9. STOCKOPTIONS**

 

Employees of the Companyand certain non-employee members of the Company’s Board of Directors have been,or may be, granted options to purchase shares of the Company’s common stockpursuant to the Plan. Options granted pursuant to the Plan may either beincentive stock options within the meaning of Section 422 of the InternalRevenue Code of 1986, as amended or non-qualified stock options. Optionsgranted under the Plan are at a price not less than the market price of thestock at the date of grant and periodically vest over a fixed period of up toten years. Unvested options generally expire upon termination of employment andvested options expire six months after termination of employment. Otherwise,options expire after final vesting at the end of a fixed period not in excessof five years. At March 31, 2005, a total of 2,452,516 shares werereserved for issuance pursuant to the Plan, of which 751,730 shares of theCompany’s common stock were reserved for options which had not been granted.

 

The following table setsforth option transactions under the Plan:

 
| ** **                    | ** ** | **For the Years Ended March 31** | ** ** |
|-------------------------------|------------|---------------------------------------|------------|
| ** **                    | ** ** | **2005**                              | ** ** | **2004** | ** ** | **2003** | ** ** |
| ** **                    | ** ** | **Shares**                            | ** ** | **Weighted  Average  Exercise Price** | ** ** | **Shares** | ** ** | **Weighted  Average  Exercise Price** | ** ** | **Shares** | ** ** | **Weighted  Average  Exercise Price** | ** ** |
| Outstanding  at April 1  |       | 1,804,732                             |       | $ | 26.08 |   | 1,973,819 |   | $ | 24.67 |   | 1,960,801 |   | $ | 25.02 |   |
| Granted                       |       | 270,000                               |       | 39.96 |   | 194,964 |   | 27.06 |   | 460,976 |   | 18.53 |   |
| Exercised                     |       | (186,078                              | )          | 18.00 |   | (227,215 | ) | 14.51 |   | (141,086 | ) | 11.61 |   |
| Forfeited  or expired         |       | (187,868                              | )          | 34.85 |   | (136,836 | ) | 22.84 |   | (306,872 | ) | 23.50 |   |
| Outstanding  at March 31 |       | 1,700,786                             |       | 27.93 |   | 1,804,732 |   | 26.08 |   | 1,973,819 |   | 24.67 |   |
| Exercisable  at March 31 |       | 651,444                               |       | 21.49 |   | 567,543 |   | 26.57 |   | 503,914 |   | 26.87 |   |
|                               |            |                                       |            |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

35

----

 

Outstandingand exerciseable stock options at March 31, 2005 were as follows:

 
| ** **                    | ** ** | **Outstanding** | ** ** | ** **         | ** ** |
|-------------------------------|------------|-----------------|------------|--------------------|------------|
| ** **                    | ** ** | ** **      | ** ** | ** **         | ** ** | **Weighted** | ** ** | **Exerciseable** | ** ** |
| ** **                    | ** ** | ** **      | ** ** | **Weighted**       | ** ** | **Average** | ** ** | ** ** | ** ** | **Weighted** | ** ** |
| ** **                    | ** ** | ** **      | ** ** | **Average**        | ** ** | **Remaining** | ** ** | ** ** | ** ** | **Average** | ** ** |
| **Range  of Exercise Prices** | ** ** | **Shares**      | ** ** | **Exercise Price** | ** ** | **Years** | ** ** | **Shares** | ** ** | **Exercise Price** | ** ** |
| $10.37  - $20.00              |       | 874,325         |       | $                  | 14.95      |   | 5.0 |   | 497,286 |   | $ | 14.33 |   |
| $20.01  - $30.00              |       | 179,430         |       | 22.76              |       | 4.6 |   | 37,853 |   | 22.62 |   |
| $30.01  - $40.00              |       | 175,810         |       | 37.38              |       | 7.6 |   | 11,305 |   | 37.67 |   |
| $40.01  - $50.00              |       | 121,221         |       | 42.28              |       | 6.7 |   | — |   | — |   |
| $50.01  - $53.26              |       | 350,000         |       | 53.25              |       | 3.3 |   | 105,000 |   | 53.25 |   |
| Outstanding  at March 31 |       | 1,700,786       |       | 27.93              |       | 5.0 |   | 651,444 |   | 21.49 |   |
|                               |            |                 |            |                    |            |  |  |  |  |  |  |  |  |

 

**10.UNAUDITED QUARTERLY FINANCIAL DATA**

 

The following table containsselected unaudited quarterly financial data from the consolidated incomestatements for each quarter of fiscal 2005 and 2004. The Company believes thisinformation reflects all normal recurring adjustments necessary for a fairpresentation of the information for the periods presented. The operatingresults for any quarter are not necessarily indicative of results for anyfuture period.

 
| ** **                  | ** ** | **1st  Quarter** | ** ** | **2nd  Quarter** | ** ** | **3rd  Quarter** | ** ** | **4th  Quarter** | ** ** |
|-----------------------------|------------|------------------|------------|------------------|------------|------------------|------------|------------------|------------|
|                        |       |             |       |             |       |             |       |             |       |
| **Fiscal 2005:**            |       |             |       |             |       |             |       |             |       |
| Sales                       |       | $                | 181,529    |             | $          | 191,129          |       | $                | 208,640    |   | $ | 197,718 |   |
| Gross  profit               |       | 44,872           |       | 47,110           |       | 51,563           |       | 48,856           |       |
| Net  income                 |       | 6,824            |       | 7,569            |       | 9,744            |       | 8,585            |       |
| Basic  earnings per share   |       | .50              |       | .56              |       | .71              |       | .63              |       |
| Diluted  earnings per share |       | .48              |       | .53              |       | .68              |       | .60              |       |
|                        |       |             |       |             |       |             |       |             |       |
| **Fiscal 2004:**            |       |             |       |             |       |             |       |             |       |
| Sales                       |       | $                | 165,829    |             | $          | 174,624          |       | $                | 184,238    |   | $ | 183,369 |   |
| Gross  profit               |       | 39,061           |       | 41,380           |       | 43,204           |       | 44,335           |       |
| Net  income                 |       | 3,565            |       | 4,760            |       | 5,486            |       | 6,186            |       |
| Basic  earnings per share   |       | .27              |       | .36              |       | .41              |       | .46              |       |
| Diluted  earnings per share |       | .26              |       | .34              |       | .39              |       | .44              |       |

 

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

 

36

----

 

***Item 9.******Changes in and Disagreements withAccountants on Accounting and Financial Disclosure***

 

None.

 

***Item 9A******. Controls and Procedures***

 

*Evaluationof Disclosure Controls and Procedures*

 

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

 

*Management’s Annual Report onInternal Control Over Financial Reporting*

 

Management’s Report is included in Item 8 of this annualreport on Form 10-K on page 20 and is incorporated herein by reference.

 

*Changes in Internal Controls OverFinancial Reporting*

 

There have been no changesin our internal control over financial reporting that have materially affected,or are reasonably likely to materially affect, our internal control overfinancial reporting.

 

***Item 9B******. Other Information***

 

*Creation of a Direct FinancialObligation*

 

OnJanuary 25, 2005, the Company entered into a Purchase Agreement with KelmscottCommunications, LLC and Kelmscott Acquisitions, Inc., pursuant to which theCompany would acquire seven printing businesses. On March 1, 2005, the Companyborrowed $45.0 million under its Credit Agreement, the proceeds of which wereused to fund, in part, the acquisition of these printing businesses on March 2,2005. For further informantion relating to the terms of our Credit Agreement,including accrual of interest on borrowings thereunder, see Note 6. Long-TermDebt of our consolidated financial statements and the notes thereto included in*Item 8 "Financial Statements and SupplementaryData."*

**PART III**

 

The information calledfor by “Item 10. Directors and Executive Officers of the Registrant” (exceptfor certain information regarding executive officers which is included inPart I hereof as “Item 1. Business—Executive Officers”), “Item 11.Executive Compensation,” “Item 12. Security Ownership of Certain BeneficialOwners and Management and Related Shareholder Matters”  “Item 13. Certain Relationships and RelatedTransactions,” and “Item 14. Principal Accountant Fees and Services” is herebyincorporated by reference to the Company’s Proxy Statement for its AnnualMeeting of Shareholders (presently scheduled to be held July 28, 2005) tobe filed with the Securities and Exchange Commission pursuant toRegulation 14A under the Securities Exchange Act of 1934, as amended.

 

**PART IV**

 

***Item 15*.*****Exhibits andFinancial Statement Schedules***

 
| (a)        | ** ** | **Index  to Financial Statements**                                                                                                         |
|------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------|
| ** ** | ** ** | ** **                                                                                                                                 |
| (a)(1)     | ** ** | **Financial  Statements (included under Item 8):**                                                                                         |
|       |       |                                                                                                                                       |
|       |       | The index to the  Financial Statements is included on page 19 of this annual report on Form  10-K and is incorporated herein by reference. |

 

37

----

 
| (a)(2) | ** ** | **Financial  Statement Schedules:**                                                                                                                                                                       |
|--------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |       |                                                                                                                                                                                                      |
|   |       | Schedule II—Valuation  and Qualifying Accounts.                                                                                                                                                 |
|   |       |                                                                                                                                                                                                      |
|   |       | Report of Independent  Registered Public Accounting Firm with respect to Schedule II –  Valuation and Qualifying Accounts is included in Item 8 of this annual report  on Form 10-K on page 21. |

 

All other schedules havebeen omitted since the required information is not significant or is includedin the Financial Statements or notes thereto or is not applicable.

 
| (a)(3) | ** ** | **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), Exhibit 4(a)). |
| *      | 3.2        |          | — |   | Articles of Amendment  to the Restated Articles of Incorporation of the Company dated as of July 29,  1998 (Consolidated Graphics, Inc. Form 10- Q (June 30, 1998), Exhibit  3.1). |
| *      | 3.3        |          | — |   | Restated By-Laws of the  Company, as amended as of May 25, 2004 (Consolidated Graphics, Inc. Form 10-K  (March 31, 2004), Exhibit 3.3). |
| *      | 4.1        |          | — |   | Specimen Common Stock  Certificate (Consolidated Graphics, Inc. Form 10-K (March 31, 1998),  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), Exhibit 4.1). |
| *      | 10.1       |          | — |   | 1994 Consolidated  Graphics, Inc. Long-Term Incentive Plan (Consolidated Graphics, Inc.  Registration Statement on Form S-1 (Reg. No. 33-77468), Exhibit 10.14). + |
| *      | 10.2       |          | — |   | First Amendment to  Consolidated Graphics, Inc. Long-Term Incentive Plan (reflecting an increase  in the number of shares of Common Stock authorized to be issued thereunder  from 367,500 to 967,500) (Consolidated Graphics, Inc. Registration Statement  on Form S-8 (Reg. No. 333-66019), Exhibit 4.2). + |
| *      | 10.3       |          | — |   | Second Amendment to  Consolidated Graphics, Inc. Long-Term Incentive Plan, (reflecting an increase  in the number of shares of Common Stock authorized to be issued thereunder  from 1,935,000 to 3,435,000) (Consolidated Graphics, Inc. Registration  Statement on Form S-8 (Reg. No. 333- 66019), Exhibit 4.3). + |
| *      | 10.4       |          | — |   | Third Amendment to  Consolidated Graphics, Inc. Long-Term Incentive Plan, (reflecting an increase  in the number of shares of Common Stock authorized to be issued thereunder  from 3,435,000 to 4,035,000) (Consolidated Graphics, Inc. Form 10-K (March 31,  2003), Exhibit 10.5). + |
| *      | 10.5       |          | — |   | Employment Agreement  between the Company and Joe R. Davis dated as of July 25, 2000  (Consolidated Graphics, Inc. Form 10-K (March 31, 2001),  Exhibit 10.7). |
| *      | 10.6       |          | — |   | Change in Control  Agreement between the Company and Joe R. Davis dated as of July 25, 2000  (Consolidated Graphics, Inc. Form 10-K (March 31, 2001), Exhibit 10.8). |
| *      | 10.7       |          | — |   | Employment Agreement  between the Company and G. Christopher Colville dated as of March 1,  2002 (Consolidated Graphics, Inc. Form 10-K (March 31, 2002), Exhibit  10.5). |
| *      | 10.8       |          | — |   | Change in Control  Agreement between the Company and G. Christopher Colville dated as of March 1,  2002 (Consolidated Graphics, Inc. Form 10-K (March 31, 2002), Exhibit  10.6). |
| *      | 10.9       |          | — |   | Credit Agreement among  the Company and Bank One, NA, as Administrative Agent and Bank One Capital  Markets, Inc., as Lead Arranger and Sole Book Runner and Wells Fargo Bank  Texas, National Association, as Syndication Agent, dated as of November 10,  2003 (Consolidated Graphics, Inc. Form 8-K (November 14, 2003), Exhibit  10). |
| *      | 10.10      |          | — |   | Form of Indemnification  Agreement for directors and officers (Consolidated Graphics, Inc.  Form 10-Q (June 30, 2004), Exhibit 10.1). |
|   | 10.11      |          | — |   | Amended Schedule identifying  the directors and officers parties to Indemnification Agreements with the  Company. |
|   | 21         |          | — |   | List of Subsidiaries. |
|   | 23         |          | — |   | Consent of KPMG LLP. |
|   | 24         |          | — |   | Powers of Attorney. |
|   | 31.1       |          | — |   | Certification of Joe R.  Davis pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|   | 31.2       |          | — |   | Certification of G.  Christopher Colville pursuant to Section 302 of the Sarbanes-Oxley Act  of 2002. |
|   | 32.1       |          | — |   | Certification of Joe R.  Davis pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
|   | 32.2       |          | — |   | Certification of G.  Christopher Colville pursuant to Section 906 of the Sarbanes-Oxley Act  of 2002. |

 

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*                                         Incorporatedby reference.

+                                         Compensatoryplan or arrangement under which executive officers or directors of the Companymay participate.

 

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**SCHEDULE II—VALUATIONAND QUALIFYING ACCOUNTS**

 
| **Description**                     | ** ** | **Balance at  Beginning  of Year** | ** ** | **Amount  Charged  to Expense** | ** ** | **Utilization  of Reserve  (Net of  Recoveries)** | ** ** | **Balance  at End  of Year** | ** ** |
|-------------------------------------|------------|------------------------------------|------------|---------------------------------|------------|---------------------------------------------------|------------|------------------------------|------------|
|                                |       |                               |       |                            |       |                                              |       |                         |       |
| **Allowance for Doubtful Accounts** |       |                               |       |                            |       |                                              |       |                         |       |
| Year  Ended March 31, 2005     |       | $                                  | 2,448      |                            | $          | 588                                               |       | $                            | (571       | ) | $ | 2,465 |   |
| Year  Ended March 31, 2004     |       | 1,637                              |       | 2,321                           |       | (1,510                                            | )          | 2,448                        |       |
| Year  Ended March 31, 2003     |       | 1,847                              |       | 1,633                           |       | (1,843                                            | )          | 1,637                        |       |
|                                     |            |                                    |            |                                 |            |                                                   |            |                              |            |  |  |  |  |

 

**Reportof Independent Registered Public Accounting Firm**

 

The Board of Directorsand Stockholders

ConsolidatedGraphics, Inc.:

 

Under date of June 9,2005, we reported on the consolidated balance sheets of ConsolidatedGraphics, Inc. and subsidiaries as of March 31, 2005 and 2004, andthe related consolidated statements of income, shareholders’ equity, and cashflows for each of the years in the three-year period ended March 31, 2005,which are included in this Annual Report on Form 10-K. In connection withour audits of the aforementioned consolidated financial statements, we alsoaudited the Valuation and Qualifying Accounts Schedule (Schedule II)listed in the index at Item 15(a)(2), for the period indicated above. This schedule isthe responsibility of the Company’s management. Our responsibility is toexpress an opinion on this schedule based on our audits.

 

In our opinion, thefinancial information presented in Schedule II for the years ended March 31,2005, and 2004, when considered in relation to the basic consolidated financialstatements taken as a whole, presents fairly, in all material respects, theinformation set forth therein.

 

KPMG LLP

 

Houston, Texas

June 9, 2005

 

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**SIGNATURES**

 

**Pursuantto the requirements of Section 13 or 15(d) of the Securities Exchange Actof 1934, the registrant has duly caused this report to be signed on its behalfby the undersigned, thereunder duly authorized, in the City of Houston, Stateof Texas on the 10th day of June, 2005.**

 
|   | CONSOLIDATED GRAPHICS,  INC. |
|--------|------------------------------|
|   |                         |   |
|   | By:                          | /s/ JOE R. DAVIS |   |
|   |                         | **Joe  R. Davis  Chief Executive Officer and  Chairman of the Board of Directors** |   |

 

**Pursuantto the requirements of the Securities Exchange Act of 1934, this report hasbeen signed by the following persons on behalf of the registrant and in thecapacities and on the dates indicated.**

 

 
| **Signature**               | ** ** | **Title**                                                                                                                      | ** ** | **Date**            |
|-----------------------------|------------|--------------------------------------------------------------------------------------------------------------------------------|------------|---------------------|
|                        |       |                                                                                                                           |       |                |
| /s/ JOE. R.  DAVIS          |       | Chief Executive  Officer and Director  (Principal Executive Officer)                                                           |       | June 10,  2005 |
| Joe R. Davis                |       |                                                                                                                           |
|                        |       |                                                                                                                           |       |                |
| /s/  G.CHRISTOPHER COLVILLE |       | Executive Vice  President,  Chief Financial and Accounting Officer and Secretary  (Principal Financial and Accounting Officer) |       | June 10,  2005 |
| G. Christopher  Colville    |       |                                                                                                                           |
|                        |       |                                                                                                                           |       |                |
| /s/ LARRY J. ALEXANDER*     |       | Director                                                                                                                       |       |                |
| Larry J.  Alexander         |       |                                                                                                                           |
|                        |       |                                                                                                                           |       |                |
| /s/ BRADY F.  CARRUTH*      |       | Director                                                                                                                       |       |                |
| Brady F. Carruth            |       |                                                                                                                           |
|                        |       |                                                                                                                           |       |                |
| /s/ GARY L.  FORBES*        |       | Director                                                                                                                       |       |                |
| Gary L. Forbes              |       |                                                                                                                           |
|                        |       |                                                                                                                           |       |                |
| /s/ JAMES H.  LIMMER*       |       | Director                                                                                                                       |       |                |
| James H. Limmer             |       |                                                                                                                           |
|                        |       |                                                                                                                           |       |                |
| /s/ HUGH N.  WEST*          |       | Director                                                                                                                       |       |                |
| Hugh N. West                |       |                                                                                                                           |

 

----

| *By:   | /s/ JOE. R. DAVIS              |                |   |
|--------|--------------------------------|---------------------|--------|
|   | Joe R. Davis  Attorney-in-Fact | June 10,  2005 |

 

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**EXHIBIT INDEX**

 
| *      | 3.1   |   | — |   | Restated Articles of  Incorporation of the Company filed with the Secretary of State of the State  of Texas on July 27, 1994 (Consolidated Graphics, Inc. Form 10-Q (June 30,  1994), Exhibit 4(a)).                                                                                                                                                                                                                                     |
|--------|-------|--------|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| *      | 3.2   |   | — |   | Articles of Amendment  to the Restated Articles of Incorporation of the Company dated as of July 29,  1998 (Consolidated Graphics, Inc. Form 10- Q (June 30, 1998), Exhibit  3.1).                                                                                                                                                                                                                                                       |
| *      | 3.3   |   | — |   | Restated By-Laws of the  Company, as amended as of May 25, 2004 (Consolidated Graphics, Inc. Form 10-K  (March 31, 2004), Exhibit 3.3).                                                                                                                                                                                                                                                                                                       |
| *      | 4.1   |   | — |   | Specimen Common Stock  Certificate (Consolidated Graphics, Inc. Form 10-K (March 31, 1998),  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), Exhibit 4.1). |
| *      | 10.1  |   | — |   | 1994 Consolidated  Graphics, Inc. Long-Term Incentive Plan (Consolidated Graphics, Inc.  Registration Statement on Form S-1 (Reg. No. 33-77468), Exhibit 10.14). +                                                                                                                                                                                                                                                                                 |
| *      | 10.2  |   | — |   | First Amendment to  Consolidated Graphics, Inc. Long-Term Incentive Plan (reflecting an increase  in the number of shares of Common Stock authorized to be issued thereunder  from 367,500 to 967,500) (Consolidated Graphics, Inc. Registration Statement  on Form S-8 (Reg. No. 333-66019), Exhibit 4.2). +                                                                                                                                      |
| *      | 10.3  |   | — |   | Second Amendment to  Consolidated Graphics, Inc. Long-Term Incentive Plan, (reflecting an increase  in the number of shares of Common Stock authorized to be issued thereunder  from 1,935,000 to 3,435,000) (Consolidated Graphics, Inc. Registration  Statement on Form S-8 (Reg. No. 333- 66019), Exhibit 4.3). +                                                                                                                          |
| *      | 10.4  |   | — |   | Third Amendment to  Consolidated Graphics, Inc. Long-Term Incentive Plan, (reflecting an increase  in the number of shares of Common Stock authorized to be issued thereunder  from 3,435,000 to 4,035,000) (Consolidated Graphics, Inc. Form 10-K (March 31,  2003), Exhibit 10.5). +                                                                                                                                                        |
| *      | 10.5  |   | — |   | Employment Agreement  between the Company and Joe R. Davis dated as of July 25, 2000  (Consolidated Graphics, Inc. Form 10-K (March 31, 2001),  Exhibit 10.7).                                                                                                                                                                                                                                                                      |
| *      | 10.6  |   | — |   | Change in Control  Agreement between the Company and Joe R. Davis dated as of July 25, 2000  (Consolidated Graphics, Inc. Form 10-K (March 31, 2001), Exhibit 10.8).                                                                                                                                                                                                                                                                     |
| *      | 10.7  |   | — |   | Employment Agreement  between the Company and G. Christopher Colville dated as of March 1,  2002 (Consolidated Graphics, Inc. Form 10-K (March 31, 2002), Exhibit  10.5).                                                                                                                                                                                                                                                                |
| *      | 10.8  |   | — |   | Change in Control  Agreement between the Company and G. Christopher Colville dated as of March 1,  2002 (Consolidated Graphics, Inc. Form 10-K (March 31, 2002), Exhibit  10.6).                                                                                                                                                                                                                                                         |
| *      | 10.9  |   | — |   | Credit Agreement among  the Company and Bank One, NA, as Administrative Agent and Bank One Capital  Markets, Inc., as Lead Arranger and Sole Book Runner and Wells Fargo Bank  Texas, National Association, as Syndication Agent, dated as of November 10,  2003 (Consolidated Graphics, Inc. Form 8-K (November 14, 2003), Exhibit  10).                                                                                                |
| *      | 10.10 |   | — |   | Form of Indemnification  Agreement for directors and officers (Consolidated Graphics, Inc.  Form 10-Q (June 30, 2004), Exhibit 10.1).                                                                                                                                                                                                                                                                                                    |
|   | 10.11 |   | — |   | Amended Schedule identifying  the directors and officers parties to Indemnification Agreements with the  Company.                                                                                                                                                                                                                                                                                                                             |
|   | 21    |   | — |   | List of Subsidiaries.                                                                                                                                                                                                                                                                                                                                                                                                                              |
|   | 23    |   | — |   | Consent of KPMG LLP.                                                                                                                                                                                                                                                                                                                                                                                                                               |
|   | 24    |   | — |   | Powers of Attorney.                                                                                                                                                                                                                                                                                                                                                                                                                                |
|   | 31.1  |   | — |   | Certification of Joe R.  Davis pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                                                     |
|   | 31.2  |   | — |   | Certification of G.  Christopher Colville pursuant to Section 302 of the Sarbanes-Oxley Act  of 2002.                                                                                                                                                                                                                                                                                                                                         |
|   | 32.1  |   | — |   | Certification of Joe R.  Davis pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                                                     |
|   | 32.2  |   | — |   | Certification of G.  Christopher Colville pursuant to Section 906 of the Sarbanes-Oxley Act  of 2002.                                                                                                                                                                                                                                                                                                                                         |

 

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*                                         Incorporatedby reference.

+                                         Compensatoryplan or arrangement under which executive officers or directors of the Companymay participate.

 

41

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