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EX-23 - EXHIBIT 23 - CONSOLIDATED GRAPHICS INC /TX/ | c01490exv23.htm |
EX-24 - EXHIBIT 24 - CONSOLIDATED GRAPHICS INC /TX/ | c01490exv24.htm |
EX-21 - EXHIBIT 21 - CONSOLIDATED GRAPHICS INC /TX/ | c01490exv21.htm |
EX-32.2 - EXHIBIT 32.2 - CONSOLIDATED GRAPHICS INC /TX/ | c01490exv32w2.htm |
EX-31.1 - EXHIBIT 31.1 - CONSOLIDATED GRAPHICS INC /TX/ | c01490exv31w1.htm |
EX-32.1 - EXHIBIT 32.1 - CONSOLIDATED GRAPHICS INC /TX/ | c01490exv32w1.htm |
EX-31.2 - EXHIBIT 31.2 - CONSOLIDATED GRAPHICS INC /TX/ | c01490exv31w2.htm |
EX-10.2 - EXHIBIT 10.2 - CONSOLIDATED GRAPHICS INC /TX/ | c01490exv10w2.htm |
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
þ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR THE FISCAL YEAR ENDED MARCH 31, 2010
OR
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 001-12631
CONSOLIDATED GRAPHICS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
TEXAS | 76-0190827 | |
(STATE OR OTHER JURISDICTION | (IRS EMPLOYER IDENTIFICATION NO.) | |
OF INCORPORATION OR ORGANIZATION) | ||
5858 WESTHEIMER, SUITE 200 | ||
HOUSTON, TEXAS | 77057 | |
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) | (ZIP CODE) |
(713) 787-0977
(REGISTRANTS TELEPHONE NUMBER, INCLUDING AREA CODE)
(REGISTRANTS 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
NONE
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule
405 of Securities Act. Yes o No þ
Indicate by check mark if the registrant is not required to file reports pursuant to Section
13 or Section 15(d) of the Act. Yes o No þ
Indicate by check mark whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such files). Yes o No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation
S-K is not contained herein, and will not be contained, to the best of registrants knowledge, in
definitive proxy or information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer or a smaller reporting company. See the definition of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act. (Check one):
Large accelerated filer o | Accelerated filer þ | Non-accelerated filer o | Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Act). Yes o No þ
The aggregate market value of the voting stock held by nonaffiliates of the registrant as of
September 30, 2009 (last business day of Consolidated Graphics, Inc.s most recently completed
second fiscal quarter):
COMMON STOCK, $.01 PAR VALUE$256,477,692
The number of shares outstanding of the registrants common stock as of April 30, 2010:
COMMON STOCK, $.01 PAR VALUE11,229,340
COMMON STOCK, $.01 PAR VALUE11,229,340
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrants Proxy Statement for the Annual Shareholders Meeting to be held
on or about August 12, 2010, to be filed with the Securities and Exchange Commission pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as amended, are incorporated by reference
into Part III of this Form 10-K. Such Proxy Statement, except for the parts therein which have been
specifically incorporated by reference, shall not be deemed filed for the purposes of this Form
10-K.
CONSOLIDATED GRAPHICS, INC.
FORM 10-K
FOR THE YEAR ENDED MARCH 31, 2010
FORM 10-K
FOR THE YEAR ENDED MARCH 31, 2010
INDEX
3 | ||||||||
PART I | ||||||||
3 | ||||||||
10 | ||||||||
14 | ||||||||
14 | ||||||||
14 | ||||||||
14 | ||||||||
PART II | ||||||||
15 | ||||||||
16 | ||||||||
17 | ||||||||
25 | ||||||||
26 | ||||||||
49 | ||||||||
49 | ||||||||
49 | ||||||||
PART III | ||||||||
Item 10. Directors and Executive Officers of the Registrant |
50 | |||||||
Item 11. Executive Compensation |
50 | |||||||
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters |
50 | |||||||
Item 13. Certain Relationships and Related Transactions |
50 | |||||||
Item 14. Principal Accountant Fees and Services |
50 | |||||||
PART IV | ||||||||
50 | ||||||||
53 | ||||||||
54 | ||||||||
Exhibit 10.2 | ||||||||
Exhibit 21 | ||||||||
Exhibit 23 | ||||||||
Exhibit 24 | ||||||||
Exhibit 31.1 | ||||||||
Exhibit 31.2 | ||||||||
Exhibit 32.1 | ||||||||
Exhibit 32.2 |
2
Table of Contents
Forward Looking Statements
This Annual Report on Form 10-K contains forward-looking statements within the meaning of Section
27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of
1934, as amended, in which the Company discusses factors it believes may affect its performance or
results in the future. Forward-looking statements are all statements other than historical facts,
such as statements regarding assumptions, expectations, beliefs and projections about future events
or conditions. You can generally identify forward-looking statements by the appearance in such a
statement of words like anticipate, believe, continue, could, estimate, expect,
intend, may, might, plan, potential, predict, forecast, project, should or will
or other comparable words or the negative of such words. The accuracy of the Companys assumptions,
expectations, beliefs and projections depend on events or conditions that change over time and are
thus susceptible to change based on actual experience, new developments and known and unknown
risks, including those created by general market conditions, competition and the possibility that
events may occur beyond the Companys control, which may limit its ability to maintain or improve
its operating results or financial condition or acquire additional printing businesses. The Company
gives no assurance that the forward-looking statements will prove to be correct and does not
undertake any duty to update them. The Companys actual future results might differ from the
forward-looking statements made in this Annual Report on Form 10-K for a variety of reasons, which
include, continuing weakness in the economy, financial stability of its customers, the sustained
growth of its digital printing business, seasonality of election-related business, its ability to
adequately manage business expenses, including labor costs, the unfavorable outcome of legal
proceedings, the lack of or adequacy of insurance coverage for its operations, the continued
availability of raw materials at affordable prices, retention of its key management and operating
personnel, satisfactory labor relations, the potential for additional goodwill impairment charges,
its ability to identify new acquisition opportunities, negotiate and finance such acquisitions on
acceptable terms and successfully absorb and manage such acquisitions in a timely and efficient
manner, as well as other risks described under the heading Risk Factors of this Annual Report on
Form 10-K and the risk factors and cautionary statements described in the other documents the
Company files or furnishes from time to time with the Securities and Exchange Commission, including
its Quarterly Reports on Form 10-Q and Current Reports on Form 8-K. Should one or more of the
foregoing risks or uncertainties materialize, or should the Companys underlying assumptions,
expectations, beliefs or projections prove incorrect, the Companys actual results may vary
materially from those anticipated in its forward-looking statements, and its business, financial
condition and results of operations could be materially and adversely affected.
PART I
Item 1. Business
In this annual report, the words Consolidated Graphics, CGX, the Company, we, our
and us refer to Consolidated Graphics, Inc, including our consolidated subsidiaries, unless the
context indicates otherwise. Our fiscal year ends on March 31st.
Company Overview
Consolidated Graphics, headquartered in Houston, Texas, is a leading U.S. and Canadian
provider of commercial printing and print-related services, with 70 printing businesses in 27
states, Toronto, and Prague. Each of our domestic and Canadian printing businesses has a
well-established operating history, more than 25 years in most cases.
Our sales are derived from providing commercial printing and print-related services. These
services consist of (i) traditional print services, including electronic prepress, digital and
offset printing, finishing, storage and delivery of high-quality printed documents which are custom
manufactured to our customers design specifications; (ii) fulfillment and mailing services for
such printed materials; (iii) technology solutions that enable our customers to more efficiently
procure and manage printed materials and/or design, procure, distribute, track and analyze results
of printing-based marketing programs and activities; and (iv) crossmedia capabilities allowing our
customers to supplement the message of their printed materials through other media, such as the
internet, email, or text messaging. Examples of the types of documents we print for our customers
include high-quality, multi-color marketing materials, product and capability brochures,
point-of-purchase displays, direct mail pieces, shareholder communications, trading cards, photo
products such as calendars and photo books, catalogs and training manuals.
3
Table of Contents
The scope and extent of services provided to our customers typically varies for each
individual order we receive, depending on customer-specific factors, including the intended uses
for the printed materials. Furthermore, each of our printing businesses is generally capable of
providing the complete range of our services to its customers. Accordingly, we do not operate our
business in a manner that differentiates among our respective capabilities and services for
financial or management reporting purposes, rather each of our printing businesses define a
distinct reporting unit.
The Company was incorporated in Texas in 1985. Our website address is www.cgx.com. We make
available free of charge on or through our website our Annual Reports on Form 10-K, Quarterly
Reports on Form 10-Q, Current Reports on Form 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 electronically file
such reports with or furnish such reports to the Securities and Exchange Commission (SEC). In
addition, the current forms of our Corporate Governance Guidelines, Code of Ethics, and the
charters of the respective committees of our Board of Directors, and contact information for our
Lead Independent Director, which is the Presiding Director for purposes of communications with
interested parties, including shareholders, are all available on our website. We will also provide
printed copies of these materials to any shareholder upon request directed to Consolidated
Graphics, Inc., Attn: Secretary, 5858 Westheimer, Suite 200, Houston, Texas 77057. We intend to
disclose on our website any changes to or waivers from the Code of Ethics that are also required
under SEC rules and regulations to be disclosed under Item 5.05 of Form 8-K. The information on our
website is not, and shall not be deemed to be, a part of this Annual Report on Form 10-K or
incorporated into any other filings we make with the SEC.
Industry Background
The printing industry is one of the largest industries in the U.S. and is comprised 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 general commercial printing segment of the industry which generates in the U.S. over
$50 billion in annual sales based on available industry data. Most of the general commercial
printing businesses operating in the U.S. today are privately-owned and individually generate less
than $35 million in annual sales.
A consolidation trend in the general commercial printing industry emerged in the 1990s as
owners of medium-sized printing businesses (those with annual sales of $2 million to $35 million)
sought to evaluate exit strategies and address new industry challenges, a trend that has continued
to date. The decline in demand for printing services during 2008 and
2009, caused by the global
recession, has further increased the risk for owners of printing companies. In order to limit
personal financial risk, increase personal financial liquidity, facilitate retirement goals or
obtain access to additional resources that would support the continued growth of their businesses,
owners of these printing businesses are increasingly willing to sell their companies to larger,
better-capitalized companies. We have been an industry-leader in the consolidation trend since our
initial public offering in 1994. We believe that there are very few companies that currently
possess the comparable objectives, financial strength and management expertise necessary to acquire
such printing businesses.
Primary industry challenges faced by printing business owners include the need to make
on-going investments in new technology and equipment and downturns in the economy. For example,
most printing design and prepress activities are now accomplished in a digital environment.
Prepress computer equipment based on a complete digital workflow, along with more sophisticated
printing presses and finishing equipment, are more efficient, operate faster and require less labor
than the equipment they typically replace. General commercial printing businesses must make
substantial capital investments over time in new equipment and technology in order to remain
competitive in the industry, but they may not have the financial resources to do so. The current
credit crisis has also limited the amount of available credit to many printing businesses, thus
hindering their ability to invest in new equipment and technology.
Because of the development and on-going advancement in digital technology, print buyers have
increasingly sought shorter print runs, the ability to personalize more sophisticated marketing
materials to strategically target certain markets or demographics, and e-commerce solutions for
executing and controlling the print procurement and printed materials management processes. This
factor has also contributed substantially to the burden on companies in our industry to invest in
new technology and equipment to remain competitive. Additionally, large corporations
have increasingly sought to achieve a reduction in operating costs by streamlining their
print-related processes and limiting their number of suppliers. To accomplish these objectives,
these large customers frequently seek to align themselves with printing companies that have a
significant national presence and offer a wide range of commercial print capabilities and services,
putting additional pressure on single-location, privately-held printing companies.
4
Table of Contents
In general, changes in prevailing U.S. economic conditions have and will continue to impact
the general commercial printing industry (approximately 95% of our
fiscal 2010 revenues were generated in the U.S.).
Generally, if weakness in the U.S. economy causes local and national corporations to reduce their
spending on advertising and marketing materials, the demand for commercial printing services may be
adversely affected. Further compounding a potential decline in demand, competitive pricing
pressures may occur and negatively impact the level of sales and profit margins throughout the
industry. Demand for commercial printing services began declining in fiscal year 2008 as a result
of the broad deterioration in the U.S. economy. Since 2008, U.S. printing shipments have declined
approximately 20%. This has led to a substantial increase in excess capacity as well as competitive
pressures in the commercial printing industry. For these reasons, and due to the tightening credit
markets, many printing businesses have failed. We believe these conditions are likely to continue
for the foreseeable future.
Competition
The general commercial printing industry in the U.S. is highly fragmented and most customers
procure print services from local sources. Therefore, we compete primarily with locally-based
printing companies for most print projects. Most of our competitors are privately-held, single
location operations; however, some competitors are large corporations, both publicly and privately
owned.
The major competitive factors in our business are:
| Extent and quality of customer service, including ability to meet customer deadlines |
||
| Quality of finished materials |
||
| Cost structure and sales pricing strategy |
||
| Financial strength |
The ability to provide high-quality customer service is also dependent on production and
distribution capabilities, along with the availability of equipment that is appropriate in size and
function for a given project. We believe that our broad range of printing capabilities and
services, along with our ability to use our leading geographic footprint to serve customers on
local, regional and national levels, gives us a competitive advantage over smaller, local printing
companies. Furthermore, the economic advantages created by our purchasing power, advanced
technological capabilities and ability to utilize available production capacity throughout our
organization, enable our printing businesses to compete more effectively and provide faster
turnaround times than many of our competitors. Furthermore, our strong financial position enables us to invest
in newer, more efficient technology and equipment and to make strategic acquisitions, which expands
our industry-leading position in terms of locations, capabilities, and services.
Business Strategy
Our overall business strategy is to be the market leader in the commercial printing industry
by combining the customer service and responsiveness of well-managed, local printing businesses
with the competitive advantages provided by a large national organization. Management at each of
our printing businesses maintains responsibility for the day-to-day operations and profitability of
their business, while continuing to strengthen and build new customer relationships in their
respective markets. At the same time, our printing businesses are supported by the management
expertise, purchasing power, technology investments, including infrastructure and support, national
sales and marketing and other operating advantages that exist because they are part of a large
national organization.
5
Table of Contents
Internal Sales Growth Our printing businesses have numerous opportunities, individually and
collectively, to achieve long-term sales growth. Our current initiatives to drive internal sales
growth include:
| Aggressively pursuing new business opportunities and experienced sales professionals to
gain market share and strengthen our competitive position going forward. |
| Continuing to invest in new equipment and technology that enables us to provide
increasingly higher levels of service and a broader range of capabilities. |
| Capitalizing on our national presence and wide range of capabilities, including our
technology related offerings (see Printing Operations Print-Related Services below) to
pursue sole or preferred-source opportunities with national accounts. |
| Providing information and training to our sales professionals (662 currently) to ensure
they are knowledgeable about the complete range of services and capabilities we offer. |
Disciplined Acquisition Program We are actively seeking to grow a leading U.S. and Canadian
geographic footprint through additional acquisitions of medium and large-sized general commercial
printing businesses that generally have an excellent reputation and quality customer base. We may
also acquire smaller and/or distressed printing businesses for integration into one of our existing
businesses. This type of transaction is commonly referred to as a tuck-in acquisition.
Cost Savings Because of our size and extensive geographic footprint, we leverage our
economies of scale to purchase supplies and equipment used in the printing process and for newer,
more efficient equipment. We have various national purchasing contracts in place with major
suppliers and manufacturers. Our purchasing support staff continually monitor market conditions and
negotiate pricing and other contractual terms with these vendors to maximize the cost savings we
achieve under these agreements. In addition, we have centralized certain administrative services,
such as human resources, legal, treasury, tax and risk management, to generate cost savings.
Best Practices/Benchmarking Management teams at our printing businesses have access to
strategic counsel and professional management techniques in such areas as planning, organization,
and controls. We provide a forum for them to share their knowledge of technical processes and their
best practices with one another through periodic group meetings attended by top management and
other key personnel. We utilize our wide-area network and management information systems to
benchmark financial and operational data, and share such information across our printing businesses
to help their management teams identify and respond to changes in operating trends.
Leadership Development Our program to recruit, train and develop recent college graduates as
printing sales and management professionals is an integral component of our growth strategy.
Participants in our Leadership Development Program follow a curriculum that provides them with
technical industry knowledge, coupled with general business, managerial, sales and best practices
training. Our Leadership Development Program is unique to the industry, and we believe it is a key
factor in our ability to provide a high degree of quality customer service, as well as to provide a
pool of talent for future management positions at our printing businesses. As of April 30, 2010 we
had 404 employees who were current participants in or graduates of this program, 23 of whom serve
as the president of the printing business at which they are employed, representing 33% of our
printing company presidents.
Printing Operations
We currently operate 70 printing businesses in 27 states, Toronto and Prague (see Item 8.
Financial Statements and Supplementary Data Note 2. Significant Accounting Policies and Other
Information for additional financial information with respect to
our foreign operations). Each printing business is operated as a direct or indirect
wholly-owned subsidiary of our Company. We produce high-quality, custom-designed printed materials
for a large base of customers in a broad cross-section of industries, the majority of which are
located in the markets where our printing businesses are based. In addition to providing a full
range of prepress, digital and offset printing and finishing services, our printing businesses
offer fulfillment and mailing services, as well as e-commerce software solutions and other
print-related, value-added services.
6
Table of Contents
Commercial Printing Services
In general, commercial printing includes developing printable content through electronic
prepress services, reproducing images on paper using printing presses and providing comprehensive
finishing and delivery services. We maintain flexible production schedules in order to react
swiftly to our customers requirements. Many printing projects require fast turnaround times, from
conception through delivery, and our printing businesses must be able to absorb unexpected or
short-notice demands for our services when called upon to do so. Consequently, our printing
businesses do not generally operate at full capacity.
Our electronic prepress services include all of the steps necessary to prepare media
(photographs, artwork, and typed copy) for printing. This process involves converting the media
into digital images, separating digital color images into process colors, and in some cases
preparing a proof for customer approval. Our printing businesses produce printing plates using
computer-to-plate technology, whereby digitized text, graphic images and line art are transferred
directly from digital files onto printing plates. In addition, our printing businesses have the
latest technologies that enable delivery of a high-quality proof for customer approval
electronically via the Internet, eliminating the cost of producing and delivering a proof, or
multiple rounds of proofs, in hard copy format. Computer-to-plate and remote proofing technology
reduces costs, shortens turnaround times and improves product quality. We continually evaluate our
existing electronic prepress capabilities and closely monitor the development of newer technology
that may be used to increase productivity and improve quality to better serve our customers.
We primarily use offset lithography to reproduce images on paper, which is the process that
generally provides the highest quality, lowest cost printed materials for most commercial printing
projects. Short and medium-run projects are generally printed on sheetfed presses, while longer-run
projects are typically printed on web presses. Our printing businesses primarily use sheetfed
printing presses, which are generally capable of printing up to 16 pages of letter-sized finished
product on a 28 by 40 inch sheet of paper with eight pages on each side (known as a 16-page
signature). Currently our printing businesses operate a total of 289 sheetfed presses capable of
simultaneously printing from one to 12 colors and are capable of running at speeds of up to 18,000
impressions an hour. We operate 63 half and full-size web printing presses which print up to eight
colors on a continuous roll of paper, print up to 32-page signatures on both sides of the paper at
speeds of up to 50,000 impressions an hour and are also capable of folding, gluing and/or
perforating the printed material in a single pass.
Digital printing is a smaller but rapidly-growing component of the general commercial printing
industry that enables high quality, variable data customization (such as personalization by name,
relationship or interests) on very short to medium-run projects. We operate a total of 220 digital
presses, including 117 high capacity, ultra high quality presses such as HP Indigo, Kodak Nexpress,
Xeikon and Xerox iGen3.
Our finishing services include cutting, folding, binding and other operations necessary to
finish printed materials according to customer specifications. Many of our printing businesses also
offer specialty finishing capabilities, such as die-cutting, embossing, UV coating, and foil
stamping.
Print-Related Services
By offering innovative print-related capabilities and e-commerce solutions that respond to the
needs of our customers, we believe that our Company has a competitive advantage that will help us
generate additional sales. We provide a variety of fulfillment services, which primarily include
assembling, packaging, storing, and distributing printed promotional, educational, and training
documents and materials on behalf of our customers. Many corporations utilize our fulfillment
capabilities to help manage their inventories of printed materials, as well as to provide just in
time assembly and delivery of printed materials to end users. Orders for fulfillment services are
commonly received via proprietary, Internet-based print procurement and inventory management
systems maintained by our printing businesses, as discussed below. Additionally, we provide
extensive mailing services for printed materials, particularly consumer-direct marketing,
advertising and promotional pieces produced for our customers. We also offer a number of options
for sorting, packaging, inkjet labeling and shipping of printed materials.
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Table of Contents
Utilizing our information technology infrastructure and resources, as well as our expertise in
digital technology, we offer print-related e-commerce solutions that enable our customers to (i)
streamline their print procurement process and improve their ability to manage the printed
materials they order, (ii) design, procure, distribute, track and analyze results of printing-based
marketing programs and activities and (iii) supplement the message of their printed materials
through other media, such as the internet, email or text messaging. Most of these e-commerce
solutions are Internet-based, and like the printed materials we produce, are customized to the
specific needs of our customers. For marketing purposes, we refer to our e-commerce capabilities
using the CGXSolutions trademark. The key e-commerce capabilities we offer include:
| StoreFront |
||
A fully customizable online system with an array of tools that streamline the purchase,
management and distribution of the customers entire range of marketing materials. |
|||
| CrossMedia |
||
A unique capability that enables the customer to combine the use of printed material
with other media such as internet, email and text messages to create highly engaging
personalized marketing campaigns designed to increase response rates. |
|||
| Digital asset management |
||
A powerful online system that provides the customer limitless means to organize,
protect and facilitate proper use of their vast library of digital assets. |
|||
| Digital print solutions |
||
Provides print on-demand capabilities giving the customer the flexibility to respond to
market changes and manage inventories more efficiently. Our distribution and print system
receives orders electronically, prepares them for production and distributes them across our
entire network of digital presses, reducing time to market and delivering product more
efficiently. |
Other e-commerce and electronic media services we offer include Internet services such as
designing websites and programming interactive tools, CD-ROM development and production, foreign
language translation services in over 100 different languages, composition and typesetting, and
database management for customer-retention programs.
Under our national sales organization (which is discussed below), sales support for
CGXSolutions is provided to our printing businesses to assist them in identifying prospective
customers and marketing our suite of CGXSolutions capabilities and services. We maintain
CGXSolutions project management and staff to design and develop customized solutions in response to
the specific needs of each customer. We also utilize support staff at each of our printing
businesses who are trained and able to serve our customers needs related to our CGXSolutions
capabilities and services.
Sales and Marketing
Most of our sales are generated by individual orders through commissioned sales personnel. As
of April 30, 2010 we employed 662 sales professionals. In addition to soliciting business from
existing and prospective customers, our sales personnel act as liaisons between customers and our
production departments and also provide technical advice and assistance to customers throughout the
printing process.
The nature of commercial printing using offset lithography manufacturing processes requires a
substantial amount of interaction with customers, including personal sales calls, reviews of color
proofs and press checks (customer approval of printed materials during the printing process). Our
sales professionals and customer service personnel maintain strict control of the printing process
for every job we produce as it moves through our scheduling, prepress, printing, and finishing
operations.
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Table of Contents
A significant element of our marketing focus is to ensure rapid response to customer
requirements and produce high-quality printed materials at competitive prices. Rapid responsiveness
is essential because of the short lead time on most commercial printing projects. Our printing
operations are designed to maintain maximum flexibility to meet customer needs, both on scheduled
and short-notice bases. Each of our printing businesses generally seek projects that it believes
will best utilize its respective equipment and expertise; however, each has access to and is
encouraged to offer its customers the broad range of capabilities we offer throughout our
organization.
We also actively pursue opportunities to establish sole- or preferred-source, printing
relationships with large corporations that are seeking to leverage their print spending and limit
their number of commercial print providers. We refer to these customers as national accounts. To
better position ourselves to capitalize on future national account opportunities, as well as to
provide more sales training and support to our printing businesses, our national sales organization
consists of an executive level team of sales and marketing professionals who play a key support
role to the efforts of our printing businesses to identify and develop national account
opportunities.
Customers
Our diverse customer base includes both national and local corporations in the U.S. and Canada
operating in a wide range of industries, as well as mutual fund companies, advertising agencies,
graphic design firms, catalog retailers, direct mail marketers, state and local governments and
quasi-governmental agencies, education institutions, not-for-profit associations, and political
campaign organizations. During fiscal 2010, we served approximately 20,000 customers, and our top
ten customers accounted for approximately 17% of total sales, with none representing more than 6%
individually. We believe that our large and diverse customer base, broad geographic coverage of the
U.S. and extensive range of printing and print-related capabilities may lessen our exposure to
economic slowdowns or other adverse consequences that may generally affect any particular industry
or any particular geographic region. However, because we typically produce a large number of
advertising and marketing materials for our customers, to the extent that advertising and marketing
spending is reduced during an economic downturn, our level of sales and results of operations may
be adversely affected, as was the case in fiscal year 2009 and 2010.
Our customers generally are not contractually obligated to purchase printing services from us
in the future. Typically, we receive discrete orders from our customers for each printing project
or service. Consequently, our continued engagement to provide additional commercial printing
services largely depends upon, among other things, the customers satisfaction with the quality of
services we provide. Although we do not depend on any one customer, group of customers or type of
customer, our sales to many of our largest customers may fluctuate from year to year depending upon
the number, size and complexity of projects they initiate and award us.
Suppliers
We purchase raw materials used in the commercial printing process (such as paper, prepress
supplies, ink, and boxes) from a number of major U.S. and Canadian, as well as many local,
suppliers. We are not materially dependent on any one supplier and the raw materials we utilize are
generally readily available. We use a two-tiered approach to purchasing in order to maximize the
economies associated with our size, while maintaining the local efficiencies and time sensitivity
required to meet customer demands. We negotiate master purchasing arrangements centrally with major
suppliers and manufacturers to obtain preferential pricing terms, and then communicate the terms of
these arrangements to our individual printing businesses. Each printing business orders goods and
services through our major vendors as needed based on the terms set forth in our master purchasing
agreements or, when appropriate, purchases locally. We continually monitor market conditions and
product developments, as well as regularly review the contractual terms of our master purchasing
agreements, to take advantage of our increasing buying power and maximize the benefits associated
with these agreements. Very few of our supplier contracts obligate us to minimum purchase
requirements. For those contracts with a minimum purchase commitment, which are not material in the aggregate, we expect to be able to meet
the minimum purchase obligations in the normal course of
business.
We incur significant costs to purchase paper used in the printing process. However,
fluctuations in paper pricing generally do not materially impact our operating margins because we
typically quote, and subsequently purchase, paper for each specific printing project we are
awarded. As a result, any changes in paper pricing are effectively passed through to customers by
our printing businesses. The majority of our paper supply is obtained through merchant
distributors. There are relatively few merchants that are considered national in scope in the U.S.
and Canada, with numerous regional organizations that serve one or
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more of our printing businesses.
We have negotiated master purchasing agreements with certain mills, which produce paper, and certain
merchants, who distribute the paper produced by the mills. These agreements typically provide for
volume-related discounts and additional periodic rebates based on the total amount of purchases
made by our printing businesses from each mill and/or merchant. Certain of our mill suppliers
produce a Consolidated Graphics branded paper we named Inspire, under arrangements generally
similar to our other major vendor agreements. Inspire enables us to further leverage our
purchasing power and differentiate ourselves to customers in the marketplace. We also purchase
Inspire Earth paper. This branded paper features the same overall quality characteristics of
Inspire, except it is Forest Stewardship Council Certified, the global benchmark for responsible
forest management, and contains 10% post-consumer waste.
We purchase a large quantity of prepress supplies, consisting mainly of plates and proofing
materials. There are a limited number of key manufacturers of these materials, and we generally
purchase prepress supplies from both major and regional distributors. We have obtained
volume-related discounts and incentive arrangements from these manufacturers and receive periodic
rebates based on the total amount of prepress supplies we purchase through these distributors. We
also have contractual arrangements with certain freight carriers that provide us with discounts and
periodic rebates.
Employees
As of April 30, 2010, we had 5,343 employees throughout our organization. Of this total, 516
were employed subject to the terms of various collective bargaining agreements, 198 of which are
under collective bargaining agreements that have expired or will expire within one year. We are
currently in negotiations for new collective bargaining agreements with unions at seven of our
printing businesses with expired collective bargaining agreements. We believe that our relations
with our employees are generally satisfactory.
Government Regulation and Environmental Matters
Our printing businesses are subject to the environmental laws and regulations of the U.S.,
Canada and European union, as well as state, provincial and local laws and regulations concerning
emissions into the air, discharges into waterways and the generation, handling and disposal of
waste materials. The commercial printing process generates substantial quantities of inks, solvents
and other waste products requiring disposal under the numerous laws and regulations relating to the
environment. Our printing businesses typically recycle waste paper and contract for the removal of
waste products. We believe we are in material compliance with all applicable air quality, waste
disposal and other environmental-related rules and regulations, as well as with other general
employee health and safety laws and regulations. We do not anticipate any material future capital
expenditures for environmental control facilities. There can be no assurance, however, that future
changes in environmental laws and regulations will not have a material effect on our consolidated
financial condition or results of operations.
Item 1A. Risk Factors
Our consolidated results of operations, financial condition and cash flows can be adversely
affected by various risks. These risks include, but are not limited to, the principal factors
listed below. Additional risks not presently known to us or that we currently deem immaterial may
also adversely affect our business operations. You should carefully consider all of these risks.
Negative worldwide economic conditions have resulted in a decline in demand for printing services
and hindered our ability to collect amounts owed by certain customers, therefore, adversely
impacting our business and results of operations.
The current U.S. and global economic conditions have affected, and most likely, will continue
to affect our results of operations and financial position. If such economic conditions continue,
including the negative conditions in the global credit markets, our customers may have difficulty
obtaining credit to fund their operations. Additionally, many of our direct and indirect customers
may delay or reduce their purchases of printed materials. These conditions could adversely affect
our revenues, increase price competition and/or increase operating costs, which could adversely
affect our business, results of operations and financial condition. Additionally, we could suffer
significant losses if these economic conditions cause customers whom we have offered certain trade
credit to fail or otherwise not have the ability to pay us. A significant write-off of accounts
receivable due to uncollectibility would have a negative impact on our financial results.
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Fluctuations in the costs of paper, ink, energy, postage and other raw materials may adversely
impact us.
Purchases of paper, ink, energy, postage and other raw materials and goods and services
represent a large portion of our costs. Any increases in the costs of these items will also
increase our costs. Depending on the timing and severity of such increases we may not be able to
pass these costs on to customers through higher prices. Increases in the costs of these items may
also adversely impact our customers demand for printing and related services.
We may be adversely affected by a decline in the availability of raw materials.
We are dependant on the availability of paper, ink, and other raw materials to support our
operations. Circumstances outside of our control in these markets could result in a decrease in the
supply of paper, ink or other raw materials and could adversely affect our business and results of
operations.
We may not be able to improve our operating efficiencies rapidly enough to adapt to current market
conditions.
Because the markets in which we compete are highly-competitive, we must continue to improve
our operating efficiency in order to maintain or improve our profitability. Although we have been
able to improve efficiency and reduce costs in the past, there is no assurance that we will
continue to do so in the future. In addition, the need to reduce ongoing operating costs may result
in significant up-front costs to reduce workforce, close or consolidate facilities, or upgrade
equipment and technology.
We may be unable to successfully integrate the operations of acquired businesses and may not
achieve the cost savings and increased revenues anticipated as a result of these acquisitions.
Achieving the anticipated benefits of acquisitions will depend in part upon our ability to
integrate these businesses in an efficient and effective manner. The integration of companies that
have previously operated independently may result in significant challenges, and we may be unable
to accomplish the integration smoothly or successfully. In particular, the coordination of
geographically dispersed organizations with differences in corporate cultures and management
philosophies may increase the difficulties of integration. The integration of acquired businesses
may also require the dedication of significant management resources, which may temporarily shift
senior managements attention from the other day-to-day operations of the Company. Our strategy is,
in part, predicated on our ability to realize cost savings and to increase revenues through the
acquisition of businesses that add to the breadth and depth of our capabilities and services.
We may be unable to hire and retain talented employees, including senior management.
Our success depends, in part, on our general ability to attract, develop, motivate and retain
highly skilled employees. The loss of a significant number of our employees or the inability to
attract, hire, develop, train and retain additional skilled personnel could have a material adverse
effect on us. Although our operating platform consists of many locations with a wide geographic
dispersion, individual locations may encounter strong competition from other employers for skilled
labor. In addition, various members of our management team have significant industry experience and
a long track record with us that is important to our continued success. If one or more members of
our senior management team leave and we cannot replace them with a suitable candidate quickly, we
could experience difficulty in managing our business properly, which could harm our business and
results of operations.
Costs to provide health care and certain other benefits to our employees may increase.
We generally provide health care and certain other benefits to our employees. In recent years,
costs for health care have increased more rapidly than general inflation in the U.S. economy. If
this trend in health care costs continues, our cost to provide such benefits could increase,
adversely impacting our business and results of operations.
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Declines in general economic conditions or acts of war and terrorism may adversely impact our
business.
Demand for printing services is highly correlated with general economic conditions. The
decline in U.S. economic conditions that occurred during 2008 and 2009 has adversely impacted our
business and results of operations. As a result, the industry has experienced excess capacity
resulting in declines in demand and prices for our services. The overall business climate may also
be impacted by domestic and foreign wars or acts of terrorism. Such acts may have sudden and
unpredictable adverse impacts on demand for our services.
The highly competitive market for our services may create adverse pricing pressures.
The markets for our services are highly fragmented and we have a large number of competitors,
resulting in a highly competitive market and increasing risk of adverse pricing pressures in
various circumstances outside of our control, including the current economic conditions.
Decline in preference for using or receiving printed materials in lieu of alternative mediums may
adversely affect our business.
In addition to traditional non-print based marketing and advertising channels, online
distribution and hosting of media content may gain broad acceptance or preferred status relative to
printed materials among consumers generally and could have an adverse effect on our business.
Consumer acceptance of electronic delivery as well as the extent that consumers may have previously
replaced traditional reading of print material with online hosted media contents is uncertain. We
have no ability to predict the likelihood that this may occur.
Changes in the laws and regulations to which we are subject may increase our costs.
We are subject to numerous laws and regulations, including, but not limited to, environmental
and health and welfare benefit regulations, as well as those associated with being a public
company. These rules and regulations may be changed by local, state, provincial, national or
foreign governments or agencies. Changes in these regulations may result in a significant increase
in our compliance costs. Compliance with changes in rules and regulations could require increases
to our workforce, increased cost for services, compensation and benefits, or investments in new or
upgraded equipment.
Advances in technology may reduce barriers to entry and may result in increased competition.
Future advances in technology could cause certain cost and logistics barriers to entry in the
general commercial printing industry to be reduced or eliminated, which may result in an adverse
effect on our business and results of operations. Current cost barriers include the relatively
large scale of equipment and real estate required to effectively compete in our industry, while
logistics barriers include shipping, customer service and other costs that have historically
precluded competitors not having a local presence from competing effectively from outside of a
particular market, particularly foreign-based competitors.
We rely on our information technology infrastructure and our management information systems for
many enterprise-critical functions. If our information systems fail to adequately perform these
functions or if we experience an interruption in their operation, our business and results of
operations could be adversely affected.
The efficient operation of our business depends on our information technology infrastructure
and our management information systems. We generally rely on our management information systems to
effectively manage accounting and financial functions, job entry, tracking, production,
distribution and cost accumulation and certain purchasing functions. Our information technology
infrastructure underlies both our management information systems and our CGXSolutions capabilities.
The failure of our information technology infrastructure and/or our management information systems
to perform could severely disrupt our business and adversely affect our results of operations. In
addition, our information technology infrastructure and/or our management information systems are
vulnerable to damage or interruption from natural or man-made disasters, terrorist attacks,
computer viruses or hackers, power loss, or other computer systems, Internet telecommunications or
data network failures. Any such interruption could adversely affect our business and results of
operations.
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We generally do not have long-term customer agreements.
Our customers are typically not contractually obligated to purchase future services from us.
Although our business does not depend on any one customer or group or type of customers, we cannot
be sure that any particular customer will continue to do business with us for any period of time.
We depend on good labor relations.
If the employees at one or more of our unionized businesses were to engage in a strike or
other work stoppage for any reason, including failure to enter into satisfactory collective
bargaining agreements with unions, or if other employees were to become unionized, we could
experience a disruption of operations, higher labor costs or both, which could have a material
adverse effect on our results of operations. Currently we are in negotiations with unions at seven
of our printing businesses and there is no assurance that such negotiations will be successful or
result in favorable collective bargaining agreements.
We rely on the ability to borrow cash to make acquisitions, fund capital expenditures and provide
working capital to the extent such cash needs exceed our internally generated cash flow. Our
failure to comply with financial and other covenant requirements contained in our loan agreements,
could limit our ability to borrow cash.
We currently have adequate capacity under our primary bank credit facility as well as other
sources of capital to fund our foreseeable cash needs in excess of our projected
internally-generated cash flows. However, adverse changes in general economic conditions or in our
financial performance could cause a limitation in the amount of capital available to us, and could
result in a material adverse effect on our business, results of operations and growth strategies.
Limitations in the amount of capital available to us could result from our failure to comply with
financial or other covenants contained in our loan agreements or an inability to refinance our debt
when it comes due.
A decline in expected profitability of the Company or individual reporting units of the Company
could result in the impairment of assets, including goodwill, other long-lived assets and deferred
tax assets.
We have a significant amount of goodwill, other long-lived assets and deferred taxes on our
balance sheet. The recent decline in profitability has led us to recognize charges against income
for impairment of assets. A further decline in expected profitability could lead to additional
impairment charges related to goodwill, other long-lived assets, or deferred tax assets.
Unfavorable results of legal proceedings could materially adversely affect us.
We are subject to various legal proceedings and claims that have arisen out of the ordinary
conduct of our business and are not yet resolved and additional claims may arise in the future.
Results of legal proceedings cannot be predicted with certainty. Regardless of its merit,
litigation may be both time-consuming and disruptive to our operations and cause significant
expense and diversion of management attention. Publicity resulting from allegations in some of
these proceedings may materially affect us. Should we fail to prevail in certain matters, or should
several of these matters be resolved against us, we may be faced with significant monetary damages
or injunctive relief against us that would materially adversely affect a portion of our business
and might materially affect our financial condition and operating results.
We are subject to risks associated with the availability and coverage of insurance.
For certain risks, we do not maintain insurance coverage because of cost and/or availability.
Because we retain some portion of our insurable risks, and in some cases self-insure completely,
unforeseen or catastrophic losses in excess of insured limits could have a material adverse effect
on our financial condition and operating results. In addition, disputes may also arise between us
and our insurers relating to coverage of certain losses which, if not resolved favorably, could
have a material adverse effect on our financial condition and operating results.
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Our stock price continues to be volatile.
Our stock has at times experienced substantial price volatility as a result of variations
between actual and anticipated financial results, announcements by us and our competitors, or
uncertainty about current global economic conditions. The stock market as a whole also has
experienced extreme price and volume fluctuations that have affected the market price of many
public companies in ways that may have been unrelated to these companies operating performance. If
we fail to meet any expectations with respect to our operations or profitability, our stock price
may decline significantly.
Change in postal rates and regulations may adversely impact demand for our products and services.
Postal costs are a significant cost for many of our customers. Changes in postal rates can
influence the number of pieces and types of mailings that our customers mail thereby reducing their
demand for our products and services. Any resulting decline in print volumes would have an adverse
effect on our business.
Item 1B. Unresolved Staff Comments
The Company has no unresolved written comments from the SEC staff regarding its periodic or
current reports under the Exchange Act.
Item 2. Properties
As of April 30, 2010, our principal facilities consisted of approximately 6.2 million square
feet that contain production, storage and office space, of which approximately 2.5 million square
feet is owned and approximately 3.7 million square feet is leased. Certain of the leased
facilities, totaling approximately 0.1 million square feet, are leased from former owners and
current employees of three of our printing businesses. All other leases are with unaffiliated third
parties. We believe our facilities are generally suitable for their present and intended purposes
and are adequate for our current level of operations. These facilities are located across 27
states, Canada and Prague.
Item 3. Legal Proceedings
From time to time, we are involved in litigation relating to claims arising out of our
operations in the normal course of business, including the litigation we have previously reported
in our periodic reports filed with the Securities and Exchange Commission. We maintain insurance
coverage against certain types of potential claims in an amount which we believe to be adequate,
but there is no assurance that such coverage will in fact cover, or be sufficient to cover, all
potential claims. Currently we are not aware of any legal proceedings or claims pending against us
that our management believes will have a material adverse effect on our consolidated financial
condition or results of operations.
Item 4. Reserved
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PART II
Item 5. Market for Registrants Common Equity, Related Shareholder Matters and Issuer Purchases of
Equity Securities
Our common stock is traded on the New York Stock Exchange under the symbol CGX. The
following table presents the quarterly high and low sales prices for our common stock for each of
the last two fiscal years:
Fiscal 2010Quarter Ended: | High | Low | ||||||
June 30, 2009 |
21.50 | 12.10 | ||||||
September 30, 2009 |
27.17 | 15.23 | ||||||
December 31, 2009 |
37.53 | 19.13 | ||||||
March 31, 2010 |
48.48 | 33.21 |
Fiscal 2009Quarter Ended: | High | Low | ||||||
June 30, 2008 |
61.61 | 48.69 | ||||||
September 30, 2008 |
52.33 | 28.95 | ||||||
December 31, 2008 |
30.05 | 10.11 | ||||||
March 31, 2009 |
25.28 | 10.33 |
As of April 30, 2010, there were 74 shareholders of record representing approximately 5,924
beneficial owners.
We have not previously paid cash dividends on our common stock. We presently intend to retain
all of our earnings to finance the continuing development of our business and do not anticipate
paying cash dividends on our common stock in the foreseeable future. Any future payment of cash
dividends will depend upon the financial condition, capital requirements and earnings of our
Company, as well as other factors our Board of Directors may deem relevant. In addition, our
primary bank credit facility contains restrictions that limit our ability to pay cash dividends.
Information regarding our Amended and Restated Long-Term Incentive Plan, as amended, as of
March 31, 2010 is incorporated by reference into Item 12. Security Ownership of Certain Beneficial
Owners and Management and Related Stockholder Matters.
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Item 6. Selected Consolidated Financial Data
The following selected consolidated financial data should be read in conjunction with and is
qualified in its entirety by reference to Managements Discussion and Analysis of Financial
Condition and Results of Operations and the audited consolidated financial statements of our
Company and the notes thereto included in Item 8. Financial Statements and Supplementary Data and
elsewhere in this Annual Report on Form 10-K:
Year Ended March 31 | ||||||||||||||||||||
2010 | 2009 | 2008 | 2007 | 2006 | ||||||||||||||||
(In thousands, except per share data) | ||||||||||||||||||||
Income Statement Data |
||||||||||||||||||||
Sales |
$ | 990,861 | $ | 1,145,146 | $ | 1,095,388 | $ | 1,006,186 | $ | 879,023 | ||||||||||
Cost of sales |
770,075 | 874,711 | 812,401 | 736,996 | 661,560 | |||||||||||||||
Gross profit |
220,786 | 270,435 | 282,987 | 269,190 | 217,463 | |||||||||||||||
Selling expenses |
91,378 | 105,688 | 106,952 | 101,649 | 91,266 | |||||||||||||||
General and administrative expenses |
88,091 | 95,261 | 78,804 | 69,223 | 58,993 | |||||||||||||||
Goodwill impairment charge |
6,134 | 83,324 | | 11,533 | | |||||||||||||||
Litigation and other charges |
7,210 | 17,350 | | | | |||||||||||||||
Other expense (income), net |
357 | (809 | ) | (3,064 | ) | | | |||||||||||||
Operating income (loss) |
27,616 | (30,379 | ) | 100,295 | 86,785 | 67,204 | ||||||||||||||
Interest expense, net |
9,592 | 14,995 | 12,020 | 6,702 | 5,514 | |||||||||||||||
Income (loss) before taxes |
18,024 | (45,374 | ) | 88,275 | 80,083 | 61,690 | ||||||||||||||
Income tax expense (benefit) |
3,936 | (5,804 | ) | 28,951 | 29,342 | 23,192 | ||||||||||||||
Net income (loss) |
$ | 14,088 | $ | (39,570 | ) | $ | 59,324 | $ | 50,741 | $ | 38,498 | |||||||||
Earnings (loss) per share |
||||||||||||||||||||
Basic |
$ | 1.26 | $ | (3.55 | ) | $ | 4.76 | $ | 3.74 | $ | 2.81 | |||||||||
Diluted |
$ | 1.23 | $ | (3.55 | ) | $ | 4.63 | $ | 3.65 | $ | 2.73 |
March 31 | ||||||||||||||||||||
2010 | 2009 | 2008 | 2007 | 2006 | ||||||||||||||||
(In thousands) | ||||||||||||||||||||
Balance Sheet Data |
||||||||||||||||||||
Working capital |
$ | 48,364 | $ | 109,433 | $ | 138,250 | $ | 100,153 | $ | 67,474 | ||||||||||
Property and equipment, net |
380,708 | 430,519 | 421,347 | 354,156 | 297,308 | |||||||||||||||
Goodwill |
24,226 | 29,436 | 102,423 | 86,145 | 86,640 | |||||||||||||||
Total assets |
687,235 | 765,208 | 872,663 | 723,969 | 611,313 | |||||||||||||||
Long-term debt, net of current
portion |
159,321 | 287,164 | 362,448 | 142,144 | 90,678 | |||||||||||||||
Total shareholders equity |
269,426 | 250,464 | 279,793 | 365,536 | 318,946 |
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Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
The following managements discussion and analysis of financial condition and results of
operations should be read in conjunction with our historical consolidated financial statements and
their notes included elsewhere in this Annual Report on Form 10-K. This discussion contains
forward-looking statements that reflect our current views with respect to future events and
financial performance. Our actual results may differ materially from those anticipated in these
forward-looking statements as a result of certain factors such as those referenced in Forward
Looking Statements.
Overview
Our Company is a leading U.S. and Canadian provider of commercial printing and print-related
services with 70 printing businesses in 27 states, Toronto and Prague. In connection with our
traditional print services, we also provide our customers fulfillment and mailing services and
digital technology solutions and e-commerce capabilities.
We are focused on adding value to our printing businesses by providing the financial and
operational strengths, management support and technological advantages associated with a large,
national organization. Our strategy currently includes the following initiatives to generate sales
and profit growth:
| Internal Sales Growth We seek to use our competitive advantages to expand market
share. We continually seek to hire additional sales professionals, invest in new equipment
and technology, expand our national accounts program, develop new and expanded digital
technology-based print-related services and provide sales training and education about our
breadth of capabilities and services to our sales professionals. |
| Disciplined Acquisition Program We selectively pursue opportunities to acquire
additional printing businesses at reasonable prices. Some of these acquisitions may include
smaller and/or distressed printing businesses for integration into one of our existing
businesses. |
| Cost Savings Because of our size and extensive geographic footprint, we leverage our
economies of scale to purchase supplies and equipment at preferential prices, and
centralize various administrative services to generate cost savings. |
| Best Practices/Benchmarking We provide a forum for our printing businesses to share
their knowledge of technical processes and their best practices with one another, as well
as benchmark financial and operational data to help our printing businesses identify and
respond to changes in operating trends. |
| Leadership Development Through our unique Leadership Development Program, we develop
talent for future sales and management positions at our printing businesses. |
Our printing businesses maintain their own sales, customer service, estimating and planning,
prepress, production and accounting departments. Our corporate headquarters staff provides support
to our printing businesses in such areas as human resources, purchasing, internal financial
controls design and management information systems. We also maintain centralized treasury, risk
management, legal, tax, internal audit and consolidated financial reporting activities.
Our sales are derived from providing commercial printing and print-related services. These
services consist of (i) traditional print services, including electronic prepress, digital and
offset printing, finishing, storage and delivery of high-quality printed documents which are custom
manufactured to our customers design specifications; (ii) fulfillment and mailing services for
such printed materials; (iii) technology solutions that enable our customers to more efficiently
procure and manage printed materials and/or design, procure, distribute, track and analyze results
of printing-based marketing programs and activities; and (iv) crossmedia capabilities allowing our
customers to supplement the message of their printed materials through other media, such as the
internet, email, or text messaging. Examples of the types of documents we print for our customers
include high-quality, multi-color marketing materials, product and capability brochures,
point-of-purchase displays, direct mail pieces, shareholder communications, trading cards, photo
products such as calendars and photo books, catalogs and training manuals.
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Most of our sales are generated by individual orders through commissioned sales personnel. We
predominately recognize revenue from these orders when we deliver the ordered goods and services.
To a large extent, continued engagement of our Company by our customers for successive business
opportunities depends upon the customers satisfaction with the quality of products and services we
provide. As such, it is difficult for us to predict with any high degree of certainty the number,
size, and profitability of printing services that we expect to provide for more than a few weeks in
advance. Our revenues, however, tend to be strongest in the quarter ended December followed by
revenue in the quarter ended March. Conversely, revenues tend to be seasonally weaker in the
quarters ended June and September. Sales from election-related print business tend to be higher in
every other year including years in which national elections are held.
Our cost of sales mainly consists of raw materials consumed in the printing process, as well
as labor and outside services, such as delivery costs. Paper cost is the most significant component
of our materials cost; however, fluctuation in paper pricing generally does not materially impact
our operating margins because we typically quote, and subsequently purchase, paper for each
specific printing project we are awarded. As a result, any changes in paper pricing are effectively
passed through to customers by our printing businesses. Additionally, our cost of sales includes
salary and benefits paid to operating personnel, maintenance, utilities, repair, rental and
insurance costs associated with operating our facilities and equipment and depreciation charges.
Our selling expenses generally include the compensation paid to our sales professionals, along
with promotional, travel and entertainment costs. Our general and administrative expenses generally
include the salary and benefits paid to support personnel at our printing businesses and our
corporate staff, including stock-based compensation, as well as office rent, communications
expenses, various professional services, depreciation charges and amortization of identifiable
intangible assets.
Results of Operations
The following table sets forth our Companys historical consolidated income statements and
certain percentage relationships for the periods indicated:
As a Percentage of Sales | ||||||||||||||||||||||||
Year Ended March 31 | Year Ended March 31 | |||||||||||||||||||||||
2010 | 2009 | 2008 | 2010 | 2009 | 2008 | |||||||||||||||||||
(In millions) | ||||||||||||||||||||||||
Sales |
$ | 990.9 | $ | 1,145.2 | $ | 1,095.4 | 100.0 | % | 100.0 | % | 100.0 | % | ||||||||||||
Cost of sales |
770.1 | 874.8 | 812.4 | 77.7 | 76.4 | 74.2 | ||||||||||||||||||
Gross profit |
220.8 | 270.4 | 283.0 | 22.3 | 23.6 | 25.8 | ||||||||||||||||||
Selling expenses |
91.4 | 105.7 | 107.0 | 9.2 | 9.2 | 9.8 | ||||||||||||||||||
General and administrative
expenses |
88.1 | 95.3 | 78.8 | 8.9 | 8.3 | 7.2 | ||||||||||||||||||
Goodwill impairment charge |
6.1 | 83.3 | | 0.6 | 7.3 | | ||||||||||||||||||
Litigation and other charges |
7.2 | 17.3 | | 0.7 | 1.5 | | ||||||||||||||||||
Other expense (income), net |
0.4 | (0.8 | ) | (3.1 | ) | 0.1 | (0.0 | ) | (0.3 | ) | ||||||||||||||
Operating income (loss) |
27.6 | (30.4 | ) | 100.3 | 2.8 | (2.7 | ) | 9.1 | ||||||||||||||||
Interest expense, net |
9.6 | 15.0 | 12.0 | 1.0 | 1.3 | 1.1 | ||||||||||||||||||
Income (loss) before taxes |
18.0 | (45.4 | ) | 88.3 | 1.8 | (4.0 | ) | 8.0 | ||||||||||||||||
Income tax expense (benefit) |
3.9 | (5.8 | ) | 29.0 | 0.4 | (0.5 | ) | 2.6 | ||||||||||||||||
Net income (loss) |
$ | 14.1 | $ | (39.6 | ) | $ | 59.3 | 1.4 | % | (3.5 | )% | 5.4 | % | |||||||||||
Our sales and expenses during the periods shown were impacted by the acquisition of three
printing businesses in fiscal 2008. In accordance with the purchase method of accounting, our
consolidated income statements reflect sales and expenses of acquired businesses only for
post-acquisition periods. Accordingly, acquisitions affect our financial results in any one year
compared to the prior year by the full-year impact of prior year acquisitions (as compared to the
partial impact in the prior year) and the partial-year impact of current year acquisitions. This
revenue impact is referred to below as the impact of acquisitions. We refer to revenue growth or
decline, excluding the effect of revenues contributed by acquisitions and election-related
business, in the most recent or prior fiscal year as internal or same-store sales growth or
decline.
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Analysis
of Consolidated Income Statements for Fiscal Year 2010 as Compared to
Fiscal Year 2009
Sales for 2010 declined $154.3 million, or 13%, to $990.9 million from $1.15 billion in 2009.
The decline was caused by an 11% decline in same-store sales compared to 2009 and to a lesser
extent, a $28.4 million decline in election-related business. The decline in same-store sales was
primarily due to a reduction in demand for printing services and a more competitive pricing
environment caused by the weakness in the overall U.S. economy during
2010.
Gross profit for 2010 declined by $49.6 million, or 18%, to $220.8 million from $270.4 million
in 2009 as a result of the sales decline. The sales decline had the effect of increasing fixed
costs (particularly depreciation, facilities and insurance expenses) as a percentage of sales,
thereby reducing gross profit margin (gross profit divided by sales) from 23.6% in 2009 to 22.3% in
2010.
Selling expense for 2010 declined $14.3 million, or 14%, to $91.4 million from $105.7 million
in 2009. The decrease was attributable to lower sales commissions resulting from lower sales. As a
percentage of sales, selling expenses were 9.2% in both the current and prior year.
General and administrative expenses for 2010 declined $7.2 million, or 8%, to $88.1 million
from $95.3 million in 2009. The decline was primarily due to reductions in salaries and wages,
lower share-based compensation costs and lower bad debt expense. Overall, as a percentage of sales,
general and administrative expenses in 2010 increased to 8.9% from 8.3% in 2009 primarily because
the reduction in salaries and wages was not proportional to the decline in sales.
The Company assesses the impairment of goodwill by estimating the fair value for each
reporting unit using trailing twelve months earnings before interest, income taxes and depreciation
and amortization (EBITDA) multiplied by managements estimate of the total Companys enterprise
value-to-EBITDA multiple, adjusted for a control premium. Management estimated a total Company
enterprise value-to-EBITDA multiple based upon the multiple derived from using the market
capitalization of the Companys common stock around March 31, 2010, after considering an
appropriate control premium (25% based upon historical transactions in the printing industry). Each
of the Companys printing businesses is separately evaluated for goodwill impairment because they
comprise individual reporting units. The Company evaluates goodwill for impairment at the end of
each fiscal year, or at any time that management becomes aware of an indication of potential
impairment. For 2010, the Company recognized a non-cash, pre-tax goodwill impairment charge of $6.1
million. For 2009, the total non-cash, pre-tax goodwill impairment charge was $83.3 million.
Litigation and other charges of $7.2 million for 2010 included litigation charges and charges
for the impairment of certain production equipment. The litigation and other charges of $17.3
million for 2009 relates to jury rendered verdicts for compensatory and punitive damages against
the Company due to a lawsuit involving an isolated dispute between the Company and the former
employer of an existing sales employee. As a result of these verdicts, a pre-tax litigation charge
was recognized in the consolidated financial statements. We intend to continue our defense of this
matter and appeal the judgment, as well as pursue potential insurance reimbursement, which has
previously been denied.
Other expense of $0.4 million in 2010 and other income of $0.8 million in 2009 consists of
foreign currency transaction losses and gains resulting from certain transactions of our Canadian
and Czech Republic subsidiaries.
Net interest expense for 2010 decreased $5.4 million, or 36%, to $9.6 million from $15.0
million in 2009, primarily due to a lower level of average debt outstanding and a decline in our
weighted average interest rate on LIBOR-based debt. Total debt declined from $314.2 million at
March 31, 2009 to $181.6 million at March 31, 2010.
Income tax expense for 2010 was $3.9 million, reflecting an overall effective tax rate of
21.8% as compared to an effective tax rate of 12.8% in fiscal 2009. In fiscal 2009, the
effective tax rate was impacted by the goodwill impairment charges, a large portion of which were
not deductible. The effective tax rates in both years were also impacted by certain non-deductible
expenses, state income taxes, effects of income tax uncertainties, different tax rates in foreign jurisdictions, and the domestic
production deduction.
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Analysis
of Consolidated Income Statements for Fiscal Year 2009 as Compared to
Fiscal Year 2008
Sales for 2009 increased $49.7 million, or 5%, to $1.15 billion from $1.10 billion in 2008. In
2009, the impact of acquisitions provided increased revenues of $128.7 million while an increase in
election-related business contributed $24.2 million. These increases were partially offset by a
$103.2 million decline in same-store sales compared to 2008. The decline in same-store sales was
primarily due to a reduction in demand for printing services as a result of continuing weakness in
the overall U.S. economy, and a more competitive pricing environment.
Gross profit for 2009 declined by $12.6 million, or 5%, to $270.4 million from $283.0 million
in 2008. Gross profits as a percentage of sales declined to 23.6% from 25.8% in 2008 due to
relatively lower gross margins of businesses acquired in 2008 and the adverse effect of lower
same-store sales, offset, in part, by the effect of an increase in election-related business and
the beneficial impact of the Companys growing digital print business.
Selling expense for 2009 declined $1.3 million, or 1%, to $105.7 million from $107.0 million
in 2008. The decrease was attributable to lower sales commissions and other miscellaneous selling
expenses, offset by higher selling expenses of businesses acquired in year 2008. As a percentage of
sales, selling expenses in 2009 declined to 9.2% from 9.8% in 2008. The decline was primarily due
to lower selling expense as a percentage of sales for businesses acquired in 2008.
General and administrative expenses for 2009 increased $16.5 million, or 21%, to $95.3 million
from $78.8 million in 2008. This increase was primarily caused by the impact of acquisitions
(including direct expenses and incremental intangible asset amortization), an increase in
share-based compensation and an increase in bad debt expense. Overall, as a percentage of sales,
general and administrative expenses in 2009 increased to 8.3% from 7.2% in 2008 due to the factors
described above and lower same-store sales.
The Company assesses the impairment of goodwill by estimating the fair value for each
reporting unit using trailing twelve months earnings before interest, income taxes and depreciation
and amortization (EBITDA) multiplied by managements estimate of the total Companys enterprise
value-to-EBITDA multiple, adjusted for a control premium. Management estimated a total Company
enterprise value-to-EBITDA multiple based upon the multiple derived from using the market
capitalization of the Companys common stock around March 31, 2009, after considering an
appropriate control premium (25% based upon historical transactions in the printing industry). Each
of the Companys printing businesses is separately evaluated for goodwill impairment because they
comprise individual reporting units. The Company evaluates goodwill for impairment at the end of
each fiscal year, or at any time that management becomes aware of an indication of impairment.
To the extent the net book value of the Company as a whole is greater than the Companys
market capitalization, all or a significant portion of its goodwill may be considered impaired. As
a result of the decline in the market capitalization of the Company during 2009, and a weakening
operating performance outlook driven primarily by the U.S. recession, the Company concluded that a
triggering event occurred for the quarter ended December 31, 2008 and recognized a non-cash,
pre-tax impairment of its goodwill during that quarter of $62.5 million. In connection with the
year ended March 31, 2009, the Company performed an additional, required annual impairment test of
goodwill and recognized a non-cash, pre-tax impairment of goodwill of $20.8 million in the quarter
ended March 31, 2009. For the fiscal year, the total non-cash, pre-tax impairment of goodwill and
accompanying charge to earnings was $83.3 million.
Litigation and other charges for 2009 of $17.3 million primarily relates to jury rendered
verdicts for compensatory and punitive damages against the Company due to a lawsuit involving an
isolated dispute between the Company and the former employer of an existing sales employee. As a
result of these verdicts, a pre-tax litigation charge of $17.0 million has been recognized in the
consolidated financial statements. The judge may also award the plaintiff their attorney fees and
costs. We intend to continue our defense of this matter and appeal the judgment, as well as pursue
potential insurance reimbursement, which has previously been denied.
Other income for 2009 decreased $2.3 million to $0.8 million from $3.1 million in 2008. Other
income primarily consists of foreign currency transaction gains resulting from certain transactions
of our Canadian and Czech Republic subsidiaries that are denominated in U.S. dollars.
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Net interest expense for 2009 increased $3.0 million, or 25%, to $15.0 million from $12.0
million in 2008, primarily due to a higher level of average debt outstanding due to borrowings used
to fund 2008 acquisitions, capital
expenditures and share repurchases under our now expired common stock repurchase program
during the second and third quarters of 2008. The increase was partially offset by a decline in our
weighted average interest rate on LIBOR-based debt.
Income tax benefit for 2009 was $5.8 million, reflecting an overall effective tax rate of
12.8% as compared to an effective tax rate of 32.8% in 2008. In 2009, the effective tax rate
declined primarily as a result of the goodwill impairment charges and lower pretax book income.
Without the goodwill impairment charges, the effective tax rate for 2009 would be 39.1%, compared
to an effective rate of 32.8% in 2008. This increase in effective rate was primarily due to a lower
tax benefit resulting from a reduction of reserves related to certain tax positions in 2009
compared to 2008.
Liquidity and Capital Resources
Sources and Uses of Cash
Our historical sources of cash have primarily been cash provided by operations and borrowings
under our various bank credit facilities. Our historical uses of cash have been for acquisitions of
printing businesses, capital expenditures, payment of principal and interest on outstanding debt
obligations, repurchases of our common stock and for working capital requirements. Various
components of our statement of cash flows are as follows and should be read in conjunction with our
consolidated statements of cash flows and the notes thereto included in Item 8. Financial
Statements and Supplementary Data:
Year Ended March 31 | ||||||||||||
2010 | 2009 | 2008 | ||||||||||
(In millions) | ||||||||||||
Net cash provided by operating activities |
$ | 160.9 | $ | 141.1 | $ | 110.2 | ||||||
Acquisitions of businesses |
(2.9 | ) | (6.7 | ) | (97.3 | ) | ||||||
Capital expenditures, net of proceeds from asset dispositions (1) |
(21.1 | ) | (68.2 | ) | (39.4 | ) | ||||||
Net proceeds (payments) under bank credit facilities |
(104.8 | ) | (53.1 | ) | 177.4 | |||||||
Net payments on term equipment notes and other debt |
(31.1 | ) | (21.6 | ) | (1.1 | ) | ||||||
Payments to repurchase and retire common stock |
| | (150.0 | ) | ||||||||
Purchase of remaining interest in consolidated subsidiary |
(5.5 | ) | | | ||||||||
Proceeds from exercise of stock options |
1.3 | 3.0 | 2.9 |
(1) | Excludes capital expenditures of $7.3 million in fiscal 2009 and $41.0 million in fiscal
2008, which were directly financed. |
Additionally, our cash position, working capital and debt obligations as of March 31, 2010,
2009 and 2008 are shown below and should be read in conjunction with our consolidated balance
sheets and the notes thereto included in Item 8. Financial Statements and Supplementary Data:
March 31 | ||||||||||||
2010 | 2009 | 2008 | ||||||||||
(In millions) | ||||||||||||
Cash and cash equivalents |
$ | 6.7 | $ | 9.8 | $ | 15.1 | ||||||
Working capital |
48.4 | 109.4 | 138.3 | |||||||||
Total debt |
181.6 | 314.2 | 385.7 |
Net cash provided by operating activities increased by $19.8 million for fiscal 2010 compared
to fiscal 2009. This increase was due primarily to changes in working capital items. The decline in
working capital was primarily due to a decline in accounts receivable and prepaid expenses and an
increase in accounts payable, accrued liabilities and income taxes payable. During fiscal 2010, we
invested $28.2 million in new technology, equipment and real estate.
We believe that our cash flow provided by operations, combined with new borrowings, will be
adequate to cover our fiscal 2011 working capital needs, debt service requirements, planned capital
expenditures, including acquisitions of printing businesses.
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We intend to continue pursuing acquisition opportunities at prices we believe are reasonable
based upon prevailing market conditions. However, we cannot accurately predict the timing, size and
success of our acquisition efforts or our associated potential capital commitments. There can be no
assurance that we will be able to acquire additional printing businesses on terms acceptable to us.
We expect to fund future acquisitions through cash flow provided by operations and/or additional
borrowings under our primary bank credit facility. We have, however, in the past issued our common
stock as purchase price consideration in some of our acquisitions and may do so again in the
future.
Debt Obligations
Our primary bank credit facility (as amended, the Credit Agreement) currently provides for
$300 million in revolving credit and has a maturity date of October 6, 2011. At March 31, 2010,
outstanding borrowings under the Credit Agreement were $88.2 million and accrued interest at a
weighted average rate of 2.3%.
Under the terms of the Credit Agreement the proceeds from borrowings may be used to repay
certain indebtedness, finance certain acquisitions, provide for working capital and general
corporate purposes and, subject to certain restrictions, repurchase our common stock. Borrowings
outstanding under the Credit Agreement are secured by substantially all of our assets other than
real estate and certain equipment subject to term equipment notes and other financings. Borrowings
under the Credit Agreement accrue interest, at our option, at either LIBOR plus a margin of 1.625%
to 3.0%, or an alternate base rate (based upon the greater of the agent banks prime lending rate
or the Federal Funds effective rate plus 0.5%) plus a margin of 0.125% to 1.5%. We are also
required to pay an annual commitment fee ranging from 0.25% to 0.5% on available but unused amounts
under the Credit Agreement. The interest rate margin and the commitment fee are based upon certain
financial performance measures set forth in the Credit Agreement and are redetermined quarterly. At
March 31, 2010 the applicable LIBOR interest rate margin was 2.0% and the applicable commitment fee
was 0.25%.
We are subject to certain covenants and restrictions, including limitations on additional
indebtedness we may incur in the future, and we must meet certain financial tests as defined in the
Credit Agreement. We were in compliance with these covenants and financial tests at March 31, 2010.
In the event that we are unable to remain in compliance with the Credit Agreements covenants and
financial tests in the future, our lenders would have the right to declare us in default with
respect to such obligations, and consequently, certain of our other debt obligations, including
substantially all of our term equipment notes, would be deemed to also be in default. All debt
obligations in default would be required to be reclassified as a current liability. In the event
that we were unable to obtain a waiver from our lenders or renegotiate or refinance these
obligations, a material adverse effect on our ability to conduct our operations in the ordinary
course likely would result.
We also maintain an unsecured credit facility with a commercial bank (the A&B Credit
Facility) currently consisting of a U.S. $5 million maximum borrowing limit component and a
separate Canadian dollar (C$) C$23 million maximum borrowing limit component. At March 31, 2010,
outstanding borrowings under such facility were $2.0 million, which accrued interest at a weighted
average rate of 2.5%, and C$14.0 million ($13.7 million U.S. equivalent), which accrued interest at
a weighted average rate of 2.8%. There are no significant covenants or restrictions set forth in
the A&B Credit Facility; however, a default by us under the Credit Agreement constitutes a default
under the A&B Credit Facility.
In addition, we maintain two auxiliary revolving credit facilities (each an Auxiliary Bank
Facility and collectively the Auxiliary Bank Facilities) with commercial banks. Each Auxiliary
Bank Facility is unsecured and has a maximum borrowing capacity of $5.0 million. One facility
expires in October 2011 while the other facility expires in December 2010. At March 31, 2010,
outstanding borrowings under the Auxiliary Bank Facilities totaled $9.3 million and accrued
interest at a weighted average rate of 2.9%. Because we currently have the ability and intent to
refinance the borrowings outstanding under the Auxiliary Bank Facilities expiring in December 2010,
such borrowings are classified as long-term debt in our consolidated balance sheet at March 31,
2010. The Auxiliary Bank Facilities cross-default to the events of default set forth in the Credit
Agreement.
At March 31, 2010, outstanding borrowings under our term equipment notes totaled $64.6 million
and accrued interest at rates between 3.9% and 7.1%. The term equipment notes provide for principal
payments plus interest for defined periods of up to ten years from the date of issuance, and are
secured by certain equipment of the Company. We are not subject to any significant financial
covenants in connection with any of the term equipment notes. Most of the term equipment notes
cross-default to the events of default set forth in the Credit Agreement.
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At March 31, 2010, other debt obligations totaled $3.8 million and provided for principal
payments plus interest (at fixed and variable rates) for defined periods up to 16 years from the
date of issuance. We do not have any significant financial covenants or restrictions associated
with the other debt obligations.
As of March 31, 2010, our available credit under existing credit facilities was $218.8
million.
Contractual Obligations and Other Commitments
As of March 31, 2010, the scheduled maturity of our contractual obligations is as follows (in
millions):
Less Than | 1 3 | 3 5 | More Than | |||||||||||||||||||||
Total | 1 Year | Years | Years | 5 Years | Other | |||||||||||||||||||
Debt obligations(1) |
$ | 181.6 | $ | 22.2 | $ | 147.7 | $ | 10.9 | $ | 0.8 | $ | | ||||||||||||
Operating lease obligations |
89.1 | 18.3 | 29.6 | 18.0 | 23.2 | | ||||||||||||||||||
Unrecognized tax benefits |
14.7 | | | | | 14.7 |
(1) | Includes all long-term debt, including the current portion of long-term debt on the
face of the balance sheet as of March 31, 2010. |
Operating leases We have entered into various noncancelable operating leases primarily
related to facilities and equipment used in the ordinary course of our business.
Letters of credit We had letters of credit outstanding as of March 31, 2010 totaling $5.5
million. All of these letters of credit were issued pursuant to the terms of our Credit Agreement,
which expires October 6, 2011.
Insurance programs We maintain third-party insurance coverage in amounts and against risks
we believe are reasonable under our circumstances. We are self-insured for most workers
compensation claims and for a significant component of our group health insurance programs. For
these exposures, we accrue expected loss amounts which are determined using a combination of our
historical loss experience and subjective assessment of the future costs of incurred losses,
together with advice provided by administrators and consulting actuaries. The estimates of expected
loss amounts are subject to uncertainties arising from various sources, including changes in claims
reporting patterns, claims settlement patterns, judicial decisions, legislation and economic
conditions, which could result in an increase or decrease in accrued costs in future periods for
claim matters which occurred in a prior period. Although we believe that the accrued loss estimates
are reasonable, significant differences related to the items noted above could materially affect
our risk exposure, insurance coverage, and future expense.
Critical Accounting Policies
We have identified our critical accounting policies based on the following factors
significance to our overall financial statement presentation, complexity of the policy and its use
of estimates and assumptions. We are required to make certain estimates and assumptions in
determining the reported amounts of assets and liabilities, disclosure of contingent liabilities
and the reported amounts of revenues and expenses. We evaluate our estimates and assumptions on an
ongoing basis and rely on historical experience and various other factors that we believe to be
reasonable under the circumstances to determine such estimates. Because uncertainties with respect
to estimates and assumptions are inherent in the preparation of financial statements, actual
results could differ from these estimates.
Revenue Recognition We primarily recognize revenue upon delivery of the printed product to
the customer. In the case of customer fulfillment arrangements, including multiple deliverables of
printing services and distribution services, revenue relating to the printed product is recognized
upon the delivery of the printed product into our fulfillment warehouses, and invoicing of the
customer for the product at an agreed price. Revenue from distribution services is recognized when
the services are provided. Because printed products manufactured for our customers are customized
based upon the customers specifications, product returns are insignificant. Revenue is recognized
net of sales taxes.
Receivables, net of valuation allowance Accounts receivable at March 31, 2010 were $169.9
million, net of a $4.3 million allowance for doubtful accounts. The valuation allowance was
determined based upon our evaluation of aging of receivables, historical experience and the current
economic environment. While we believe we have
appropriately considered known or expected outcomes, our customers ability to pay their
obligations could be adversely affected by the continuing contraction in the U.S. economy or other
factors beyond our control. Changes in our estimates of collectibility could have a material
adverse effect on our consolidated financial condition or results of operations.
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Impairment of Goodwill We evaluate the carrying value of our goodwill as of each fiscal year
end, or at any time that management becomes aware of an indication of potential impairment. Under
the applicable accounting standards, the goodwill impairment analysis is a two-step test. In the
first step, we determine fair value for each reporting unit using trailing twelve months earnings
before interest, income taxes and depreciation and amortization (EBITDA), multiplied by
managements estimate of an appropriate enterprise value-to-EBITDA multiple for each reporting
unit, adjusted for a control premium. Managements total Company enterprise value-to-EBITDA
multiple is based upon the multiple derived from using the market capitalization of the Companys
common stock on or around the applicable balance sheet date, after considering an appropriate
control premium (25% at March 31, 2010, based upon historical transactions in the printing
industry). This total Company enterprise value-to-EBITDA multiple is then used as a starting point
in determining the appropriate multiple for each reporting unit. If the carrying value of the
reporting unit exceeds the estimated fair value of the reporting unit, we must perform a second
step to measure the amount of impairment. This second step involves estimating the fair value of
identifiable tangible and intangible assets and determining an implied value of goodwill. To the
extent the implied value of goodwill is less than the carrying value of goodwill for a particular
reporting unit, we are required to record an impairment charge. The process of determining the fair
values of assets and liabilities can involve a considerable degree of estimation.
Impairment of long-lived assets We evaluate long-lived assets, including property, plant and
equipment, and intangible assets other than goodwill or intangible assets with indefinite lives
whenever events or changes in conditions indicate that the carrying value may not be recoverable.
The evaluation requires us to estimate future undiscounted cash flows associated with an asset or
group of assets. If the cost of the asset or group of assets cannot be recovered by these
undiscounted cash flows, then the need for an impairment exists. Estimating future cash flows
requires judgments regarding future economic conditions, demand for services and pricing. Although
we believe our estimates are reasonable, significant differences in the actual performance of the
asset or group of assets may materially affect our asset values and require an impairment charge in
future periods.
Insurance liabilities We are self-insured for the majority of our workers compensation and
group health insurance costs. Insurance claims liabilities have been accrued using a combination of
our historical loss experience and subjective assessment of the future costs of incurred losses,
together with advice provided by administrators and consulting actuaries. The estimates of expected
loss amounts are subject to uncertainties arising from various sources, including changes in claims
reporting patterns, claims settlement patterns, judicial decisions, legislation and economic
conditions, which could result in an increase or decrease in accrued costs in future periods for
claims matters which occurred in a prior period.
Accounting for income taxes As part of the process of preparing our consolidated financial
statements, we are required to estimate our income taxes. This process involves estimating our
actual current tax exposure, together with assessing temporary differences resulting from differing
treatment of items for tax and financial reporting purposes. The tax effects of these temporary
differences are recorded as deferred tax assets or deferred tax liabilities. We must then assess
the likelihood that our deferred tax assets will be recovered from future taxable income, and to
the extent we believe that recovery is not likely, we must establish a valuation allowance.
Significant judgment is required in determining our provision for income taxes, our deferred tax
assets and liabilities and any valuation allowance recorded against our net deferred tax assets.
Additionally, to account for uncertain tax positions we use a recognition threshold and measurement
attribute for the financial statement recognition and measurement of a tax position taken or
expected to be taken in a tax return. Although we believe our estimates are reasonable, the final
outcome of uncertain tax positions may be different from that which is reflected in the financial
statements.
Accounting for acquisitions The allocations of purchase price to acquired assets and
liabilities are initially based on estimates of fair value and are prospectively revised if and
when additional information concerning certain asset and liability valuations we are waiting for at
the time of the initial allocations is obtained, provided that such information is received no
later than one year after the date of acquisition. In addition, when appropriate we retain an
independent third-party valuation firm to assist in the identification, valuation and determination
of useful lives of identifiable intangible assets in connection with our acquisitions.
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New Accounting Pronouncements
In October 2009, the FASB issued ASU 2009-13, which amends the criteria in ASC 605, Revenue
Recognition, for revenue recognition in multiple deliverable arrangements. The amendments
establish a selling price hierarchy for determining the selling price of a deliverable. The
selling price used for each deliverable will be based on vendor-specific objective evidence if
available, third-party evidence if vendor-specific objective evidence is not available, or
estimated selling price if neither vendor-specific objective evidence nor third-party evidence is
available. This update is effective for fiscal years beginning on or after June 15, 2010, and may
be applied on either prospective or retrospective basis, with early adoption permitted. The
Company elected to early adopt ASU 2009-13 effective for fiscal year 2010. The early adoption had
no effect on our consolidated financial condition or results of operations.
Item 7A. Quantitative and Qualitative Disclosure About Market Risk
Market risk generally means the risk that losses may occur in the value of certain financial
instruments as a result of movements in interest rates, foreign currency exchange rates and
commodity prices. We do not currently hold or utilize derivative financial instruments to manage
market risk or that could expose us to other market risk. We are exposed to market risk in interest
rates related primarily to our debt obligations, which as of March 31, 2010 include $64.8 million
of fixed rate debt and $116.8 million of variable rate debt. A 1.0% increase in the interest rate
on our variable rate debt would change our interest expense by approximately $1.2 million on an
annual basis. The following table sets forth the average interest rate for the scheduled maturities
of our debt obligations as of March 31, 2010 ($ in millions):
Estimated | ||||||||||||||||||||||||||||||||
Fair Value | ||||||||||||||||||||||||||||||||
At March 31, | ||||||||||||||||||||||||||||||||
2011 | 2012 | 2013 | 2014 | 2015 | Thereafter | Total | 2010 | |||||||||||||||||||||||||
Fixed Rate Debt: |
||||||||||||||||||||||||||||||||
Amount |
$ | 21.8 | $ | 16.1 | $ | 15.2 | $ | 6.4 | $ | 4.5 | $ | 0.8 | $ | 64.8 | $ | 64.9 | ||||||||||||||||
Average interest rate |
5.63 | % | 5.75 | % | 5.59 | % | 5.89 | % | 5.85 | % | 6.23 | % | 5.7 | % | ||||||||||||||||||
Variable Rate Debt: |
||||||||||||||||||||||||||||||||
Amount |
$ | 0.4 | $ | 113.4 | (1) | $ | 3.0 | $ | | $ | | $ | | $ | 116.8 | $ | 117.0 | |||||||||||||||
Average interest rate |
.45 | % | 2.40 | % | .45 | % | | | | 2.34 | % |
(1) | Includes $13.7 million
denominated in Canadian dollars. |
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Item 8. Financial Statements and Supplementary Data
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
27 | ||||
28 | ||||
30 | ||||
31 | ||||
32 | ||||
33 | ||||
34 |
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MANAGEMENTS ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Management is responsible for establishing and maintaining adequate internal control over
financial reporting, as such term is defined in Securities Exchange Act Rule 13a-15(f) or
15d-15(f). Our internal control over financial reporting is a process designed to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting
principles. Our internal control over 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 assets of Consolidated Graphics, Inc. and its
subsidiaries (the Company); (2) provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the Company are being made only in
accordance with authorizations of management and directors of the Company; and (3) provide
reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the Companys assets that could have a material effect on the consolidated financial
statements.
Because of its inherent limitations, internal control over financial reporting may not prevent
or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate.
Management assessed the effectiveness of our internal control over financial reporting based
on the framework in Internal Control Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). Based on our evaluation under the framework in
Internal Control Integrated Framework, our management concluded that our internal control over
financial reporting was effective as of March 31, 2010. The Companys internal control over
financial reporting as of March 31, 2010 has been audited by KPMG LLP, an independent registered
public accounting firm, as stated in their attestation report which is included in this Annual
Report on Form 10-K.
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Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders
Consolidated Graphics, Inc.:
Consolidated Graphics, Inc.:
We have audited the accompanying consolidated balance sheets of Consolidated Graphics, Inc. and
subsidiaries (collectively, the Company) as of March 31, 2010 and 2009, and the related
consolidated income statements, statements of shareholders equity, and statements of cash flows
for each of the years in the three-year period ended March 31, 2010. These consolidated financial
statements are the responsibility of the Companys management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Consolidated Graphics, Inc. and subsidiaries as of
March 31, 2010 and 2009, and the results of their operations and their cash flows for each of the
years in the three-year period ended March 31, 2010, in conformity with U.S. generally accepted
accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), Consolidated Graphics, Inc.s internal control over financial reporting as
of March 31, 2010, based on criteria established in Internal Control-Integrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated
May 21, 2010 expressed an unqualified opinion on the effectiveness of the Companys internal
control over financial reporting.
/s/ KPMG LLP
Houston, Texas
May 21, 2010
May 21, 2010
28
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Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders
Consolidated Graphics, Inc.:
Consolidated Graphics, Inc.:
We have audited Consolidated Graphics, Inc.s (the Company) internal control over financial
reporting as of March 31, 2010, based on criteria established in Internal ControlIntegrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
The Companys management is responsible for maintaining effective internal control over financial
reporting and for its assessment of the effectiveness of internal control over financial reporting,
included in the accompanying Managements Annual Report on Internal Control Over Financial
Reporting. Our responsibility is to express an opinion on the Companys internal control over
financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control over financial reporting was
maintained in all material respects. Our audit included obtaining an understanding of internal
control over financial reporting, assessing the risk that a material weakness exists, and testing
and evaluating the design and operating effectiveness of internal control based on the assessed
risk. Our audit also included performing such other procedures as we considered necessary in the
circumstances. We believe that our audit provides a reasonable basis for our opinion.
A companys internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles. A
companys internal control over 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 assets of the company; (2) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of management and directors of the company;
and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or
detect misstatements. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the Company maintained, in all material respects, effective internal control over
financial reporting as of March 31, 2010, based on criteria established in Internal
ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the consolidated balance sheets of the Company as of March 31, 2010 and
2009, and the related consolidated income statements, statements of shareholders equity, and
statements of cash flows for each of the years in the three-year period ended March 31, 2010, and
our report dated May 21, 2010 expressed an unqualified opinion on those consolidated financial
statements.
/s/ KPMG LLP
Houston, Texas
May 21, 2010
May 21, 2010
29
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CONSOLIDATED GRAPHICS, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
March 31 | ||||||||
2010 | 2009 | |||||||
ASSETS |
||||||||
CURRENT ASSETS |
||||||||
Cash and cash equivalents |
$ | 6,741 | $ | 9,762 | ||||
Accounts receivable, net |
169,915 | 173,501 | ||||||
Inventories |
48,879 | 52,737 | ||||||
Prepaid expenses |
9,316 | 17,340 | ||||||
Deferred income taxes |
17,294 | 18,909 | ||||||
Total current assets |
252,145 | 272,249 | ||||||
PROPERTY AND EQUIPMENT, net |
380,708 | 430,519 | ||||||
GOODWILL |
24,226 | 29,436 | ||||||
OTHER INTANGIBLE ASSETS, net |
22,647 | 24,691 | ||||||
OTHER ASSETS |
7,509 | 8,313 | ||||||
$ | 687,235 | $ | 765,208 | |||||
LIABILITIES AND SHAREHOLDERS EQUITY |
||||||||
CURRENT LIABILITIES |
||||||||
Current portion of long-term debt |
$ | 22,235 | $ | 27,026 | ||||
Accounts payable |
83,955 | 48,519 | ||||||
Accrued liabilities |
88,174 | 86,718 | ||||||
Income taxes payable |
9,417 | 553 | ||||||
Total current liabilities |
203,781 | 162,816 | ||||||
LONG-TERM DEBT, net of current portion |
159,321 | 287,164 | ||||||
OTHER LIABILITIES |
14,729 | 14,794 | ||||||
DEFERRED INCOME TAXES, net |
39,978 | 49,970 | ||||||
Total liabilities |
417,809 | 514,744 | ||||||
COMMITMENTS AND CONTINGENCIES |
||||||||
SHAREHOLDERS EQUITY |
||||||||
Common stock, $.01 par value; 100,000,000
shares authorized; 11,211,216 and 11,152,875
issued and outstanding |
112 | 111 | ||||||
Additional paid-in capital |
166,094 | 163,131 | ||||||
Retained earnings |
101,894 | 87,806 | ||||||
Accumulated other comprehensive income (loss) |
1,326 | (584 | ) | |||||
Total shareholders equity |
269,426 | 250,464 | ||||||
$ | 687,235 | $ | 765,208 | |||||
See accompanying notes to consolidated financial statements.
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CONSOLIDATED GRAPHICS, INC.
CONSOLIDATED INCOME STATEMENTS
(In thousands, except per share data)
Year Ended March 31 | ||||||||||||
2010 | 2009 | 2008 | ||||||||||
SALES |
$ | 990,861 | $ | 1,145,146 | $ | 1,095,388 | ||||||
COST OF SALES |
770,075 | 874,711 | 812,401 | |||||||||
Gross profit |
220,786 | 270,435 | 282,987 | |||||||||
SELLING EXPENSES |
91,378 | 105,688 | 106,952 | |||||||||
GENERAL AND ADMINISTRATIVE EXPENSES |
88,091 | 95,261 | 78,804 | |||||||||
GOODWILL IMPAIRMENT CHARGE |
6,134 | 83,324 | | |||||||||
LITIGATION AND OTHER CHARGES |
7,210 | 17,350 | | |||||||||
OTHER EXPENSE (INCOME), NET |
357 | (809 | ) | (3,064 | ) | |||||||
Operating income (loss) |
27,616 | (30,379 | ) | 100,295 | ||||||||
INTEREST EXPENSE |
9,773 | 15,260 | 12,366 | |||||||||
INTEREST INCOME |
(181 | ) | (265 | ) | (346 | ) | ||||||
Income (loss) before taxes |
18,024 | (45,374 | ) | 88,275 | ||||||||
INCOME TAX EXPENSE (BENEFIT) |
3,936 | (5,804 | ) | 28,951 | ||||||||
Net income (loss) |
$ | 14,088 | $ | (39,570 | ) | $ | 59,324 | |||||
BASIC EARNINGS (LOSS) PER SHARE |
$ | 1.26 | $ | (3.55 | ) | $ | 4.76 | |||||
DILUTED EARNINGS (LOSS) PER SHARE |
$ | 1.23 | $ | (3.55 | ) | $ | 4.63 | |||||
SHARES USED TO COMPUTE EARNINGS (LOSS) PER SHARE |
||||||||||||
Basic |
11,169 | 11,138 | 12,463 | |||||||||
Diluted |
11,453 | 11,138 | 12,822 |
See accompanying notes to consolidated financial statements.
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CONSOLIDATED GRAPHICS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
(In thousands)
Accumulated | ||||||||||||||||||||||||
Additional | Other | |||||||||||||||||||||||
Common Stock | Paid-In | Retained | Comprehensive | |||||||||||||||||||||
Shares | Amount | Capital | Earnings | Income (Loss) | Total | |||||||||||||||||||
BALANCE, March 31, 2007 |
13,694 | $ | 137 | $ | 185,098 | $ | 180,113 | $ | 188 | $ | 365,536 | |||||||||||||
Net income |
| | | 59,324 | | 59,324 | ||||||||||||||||||
Other comprehensive income
currency translation adjustment,
net of tax |
| | | | (1,086 | ) | (1,086 | ) | ||||||||||||||||
Total comprehensive income |
| | | | | 58,238 | ||||||||||||||||||
Exercise of stock options,
including tax benefit |
67 | 1 | 2,869 | | | 2,870 | ||||||||||||||||||
Share-based compensation expense |
| | 2,057 | | | 2,057 | ||||||||||||||||||
Repurchase and retire common stock |
(2,682 | ) | (27 | ) | (36,820 | ) | (113,250 | ) | | (150,097 | ) | |||||||||||||
Cumulative effect of adoption of
ASC 740 |
| | | 1,189 | | 1,189 | ||||||||||||||||||
BALANCE, March 31, 2008 |
11,079 | 111 | 153,204 | 127,376 | (898 | ) | 279,793 | |||||||||||||||||
Net loss |
| | | (39,570 | ) | | (39,570 | ) | ||||||||||||||||
Other comprehensive income
currency translation adjustment,
net of tax |
| | | | 314 | 314 | ||||||||||||||||||
Total comprehensive loss |
| | | | | (39,256 | ) | |||||||||||||||||
Exercise of stock options,
including tax benefit |
74 | | 3,019 | | | 3,019 | ||||||||||||||||||
Share-based compensation expense |
| | 6,908 | | | 6,908 | ||||||||||||||||||
BALANCE, March 31, 2009 |
11,153 | 111 | 163,131 | 87,806 | (584 | ) | 250,464 | |||||||||||||||||
Net income |
| | | 14,088 | | 14,088 | ||||||||||||||||||
Other comprehensive income
currency translation adjustment |
| | | | 1,910 | 1,910 | ||||||||||||||||||
Total comprehensive income |
| | | | | 15,998 | ||||||||||||||||||
Exercise of stock options,
including tax benefit |
58 | 1 | 1,310 | | | 1,311 | ||||||||||||||||||
Share-based compensation expense |
| | 5,031 | | | 5,031 | ||||||||||||||||||
Purchase of remaining interest in
a consolidated subsidiary |
| | (3,378 | ) | | | (3,378 | ) | ||||||||||||||||
BALANCE, March 31, 2010 |
11,211 | $ | 112 | $ | 166,094 | $ | 101,894 | $ | 1,326 | $ | 269,426 | |||||||||||||
See accompanying notes to consolidated financial statements.
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CONSOLIDATED GRAPHICS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Year Ended March 31 | ||||||||||||
2010 | 2009 | 2008 | ||||||||||
OPERATING ACTIVITIES |
||||||||||||
Net income (loss) |
$ | 14,088 | $ | (39,570 | ) | $ | 59,324 | |||||
Adjustments to reconcile net income (loss) to net cash provided by
operating activities |
||||||||||||
Depreciation |
67,616 | 62,999 | 51,460 | |||||||||
Amortization |
3,734 | 4,128 | 2,426 | |||||||||
Bad debt expense |
974 | 4,116 | 1,203 | |||||||||
Goodwill impairment charge |
6,134 | 83,324 | | |||||||||
Litigation and other charges |
7,210 | 17,350 | | |||||||||
Foreign currency (gain) loss |
(422 | ) | 559 | (3,807 | ) | |||||||
Deferred income taxes |
(6,366 | ) | (12,922 | ) | 6,029 | |||||||
Share-based compensation expense |
5,031 | 6,908 | 2,057 | |||||||||
Changes in assets and liabilities, net of effects of acquisitions |
||||||||||||
Accounts receivable, net |
6,191 | 30,302 | 216 | |||||||||
Inventories |
4,845 | 8,022 | (32 | ) | ||||||||
Prepaid expenses |
8,056 | (10,482 | ) | 1,232 | ||||||||
Other assets |
494 | (503 | ) | (258 | ) | |||||||
Accounts payable and accrued liabilities |
34,202 | (14,692 | ) | (3,902 | ) | |||||||
Other liabilities |
(68 | ) | 1,139 | (5,812 | ) | |||||||
Income taxes payable |
9,149 | 374 | 46 | |||||||||
Net cash provided by operating activities |
160,868 | 141,052 | 110,182 | |||||||||
INVESTING ACTIVITIES |
||||||||||||
Acquisitions of businesses, net of cash acquired |
(2,944 | ) | (6,684 | ) | (97,258 | ) | ||||||
Purchases of property and equipment |
(28,244 | ) | (69,600 | ) | (41,394 | ) | ||||||
Proceeds from asset dispositions |
7,163 | 1,447 | 2,019 | |||||||||
Net cash used in investing activities |
(24,025 | ) | (74,837 | ) | (136,633 | ) | ||||||
FINANCING ACTIVITIES |
||||||||||||
Proceeds from bank credit facilities |
161,042 | 200,276 | 289,377 | |||||||||
Payments on bank credit facilities |
(265,839 | ) | (253,339 | ) | (111,972 | ) | ||||||
Proceeds from issuance of term equipment notes |
| 1,926 | 15,558 | |||||||||
Payments on term equipment notes and other debt |
(31,120 | ) | (23,530 | ) | (16,645 | ) | ||||||
Payments to repurchase and retire common stock |
| | (150,097 | ) | ||||||||
Purchase of remaining interest in consolidated subsidiary |
(5,500 | ) | | | ||||||||
Proceeds from exercise of stock options, including excess tax benefit |
1,311 | 3,019 | 2,869 | |||||||||
Net cash provided by (used in) financing activities |
(140,106 | ) | (71,648 | ) | 29,090 | |||||||
Effect of exchange rate changes on cash and cash equivalents |
242 | 64 | 449 | |||||||||
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS |
(3,021 | ) | (5,369 | ) | 3,088 | |||||||
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR |
9,762 | 15,131 | 12,043 | |||||||||
CASH AND CASH EQUIVALENTS AT END OF YEAR |
$ | 6,741 | $ | 9,762 | $ | 15,131 | ||||||
See accompanying notes to consolidated financial statements.
33
Table of Contents
CONSOLIDATED GRAPHICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share data and percentages)
1. BUSINESS
Consolidated Graphics, Inc. (collectively with its consolidated subsidiaries referred to as
the Company) is a provider of commercial printing and print-related services with 70 printing
businesses in 27 states, Toronto and Prague.
The Companys printing businesses maintain their own sales, customer service, estimating and
planning, prepress, production and accounting departments. The Companys corporate headquarters
staff provides support to its printing businesses in such areas as human resources, purchasing,
internal financial controls design and management information systems. The Company also maintains
centralized treasury, risk management, tax, internal audit and consolidated financial reporting
activities.
The Companys sales are derived from providing commercial printing and print-related services.
These services consist of (i) traditional print services, including electronic prepress, digital
and offset printing, finishing, storage and delivery of high-quality printed documents which are
custom manufactured to its customers design specifications; (ii) fulfillment and mailing services
for such printed materials; (iii) technology solutions that enable its customers to more
efficiently procure and manage printed materials and/or design, procure, distribute, track and
analyze results of printing-based marketing programs and activities; and (iv) crossmedia
capabilities allowing its customers to supplement the message of their printed materials through
other media, such as the internet, email, or text messaging.
The scope and extent of services provided to the Companys customers typically varies for each
individual order it receives, depending on customer-specific factors including the intended uses
for the printed materials. Furthermore, each of the Companys locations generally is capable of
providing a complete range of services to its customers. Accordingly, the Company does not operate
its business in a manner that differentiates among its respective capabilities and services for
financial or management reporting purposes, rather each of its printing businesses is defined as a
distinct reporting unit.
2. SIGNIFICANT ACCOUNTING POLICIES AND OTHER INFORMATION
Accounting Policies
The accounting policies of the Company reflect industry practices and conform to generally
accepted accounting principles in the United States. The more significant of such accounting
policies are described below.
Principles of Consolidation The accompanying consolidated financial statements include the
accounts of the Company and its wholly-owned subsidiaries. The Companys operations constitute one
reportable segment because all of its printing businesses operate in the commercial printing
industry and exhibit similar economic characteristics.
Use of Estimates The preparation of financial statements in conformity with generally
accepted accounting principles requires the use of certain estimates and assumptions by management
in determining the reported amounts of assets and liabilities, disclosure of contingent liabilities
as of the date of the financial statements and the reported amounts of revenues and expenses during
the reporting period including depreciation of property and equipment and amortization or
impairment of intangible assets. The Company evaluates its estimates and assumptions on an ongoing
basis and relies on historical experience and various other factors that it believes to be
reasonable under the circumstances to determine such estimates. Because uncertainties with respect
to estimates and assumptions are inherent in the preparation of financial statements, actual
results could differ from these estimates.
Reclassification Certain reclassifications of prior period data have been made to conform to
the current period reporting.
34
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CONSOLIDATED GRAPHICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share data and percentages)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share data and percentages)
Cash and Cash Equivalents The Company considers all highly liquid investments purchased with
original maturities of three months or less to be cash equivalents. Pursuant to the Companys cash
management system, the Company deposits cash into its bank accounts as checks written by the
Company are presented to the bank for payment. Checks issued by the Company but not presented to
the bank for payment are included in accounts payable and totaled $40,342 as of March 31, 2010 and
$5,684 as of March 31, 2009.
Revenue Recognition and Accounts Receivable The Company primarily recognizes revenue upon
delivery of the printed product to the customer. In the case of customer fulfillment arrangements,
including multiple deliverables of printing services and distribution services, revenue relating to
the printed product is recognized upon the delivery of the printed product into the Companys
fulfillment warehouses, and invoicing of the customer for the product at an agreed price. Revenue
from distribution services is recognized when the services are provided. Because printed products
manufactured for the Companys customers are customized based upon the customers specifications,
product returns are not significant. The Company derives the majority of its revenues from sales
and services to a broad and diverse group of customers with no individual customer accounting for
more than 6% of the Companys revenues in any of the years ended March 31, 2010, 2009 or 2008. The
Company maintains an allowance for doubtful accounts based upon its evaluation of aging of receivables, historical experience and the
current economic environment. Accounts receivable in the accompanying consolidated balance sheets are
reflected net of allowance for doubtful accounts of $4,348 and $6,556 at March 31, 2010 and 2009,
respectively.
Inventories Inventories are valued at the lower of cost or market utilizing the first-in,
first-out method for raw materials and the specific identification method for work in progress and
finished goods. Raw materials consist of paper, ink, proofing materials, plates, boxes and other
general supplies. Inventory values include the cost of purchased raw materials, labor and overhead
costs. The carrying values of inventories are set forth below:
March 31 | ||||||||
2010 | 2009 | |||||||
Raw materials |
$ | 20,932 | $ | 22,587 | ||||
Work in progress |
22,354 | 24,896 | ||||||
Finished goods |
5,593 | 5,254 | ||||||
$ | 48,879 | $ | 52,737 | |||||
Goodwill and Long-Lived Assets Goodwill totaled $24,226 at March 31, 2010 and represents the
excess of the Companys purchase cost over the fair value of the net identifiable assets acquired,
net of previously recorded amortization and impairment charges. The Company assesses the impairment
of goodwill by estimating the fair value for each reporting unit using trailing twelve months
earnings before interest, income taxes and depreciation and amortization (EBITDA) multiplied by
managements estimate of an appropriate enterprise value-to-EBITDA multiple for each reporting
unit, adjusted for a control premium. Managements total Company enterprise value-to-EBITDA
multiple is based upon the multiple derived from using the market capitalization of the Companys
common stock on or around the applicable balance sheet date, after considering an appropriate
control premium (25% at March 31, 2010, based upon historical transactions in the printing
industry). This total Company enterprise value-to-EBITDA multiple is then used as a starting point
in determining the appropriate multiple for each reporting unit. Each of the Companys printing
businesses is separately evaluated for goodwill impairment because they comprise individual
reporting units. The Company evaluates goodwill for impairment at the end of each fiscal year, or
at any time that management becomes aware of an indication of impairment.
Under the applicable accounting standards, the goodwill impairment analysis is a two-step
test. The first step, used to identify potential impairment, involves comparing each reporting
units estimated fair value to its carrying value including goodwill. If the fair value of a
reporting unit exceeds its carrying value, applicable goodwill is considered not to be impaired. If
the carrying value exceeds fair value, there is an indication of impairment and the second step is
performed to measure the amount of impairment. The second step involves calculating an implied fair
value of goodwill for each reporting unit for which the first step indicated potential impairment.
The implied fair value of goodwill is determined in the same manner as the amount of goodwill
recognized in a business combination, which is the excess of the fair value of the reporting unit,
as determined in the first step, over the aggregate fair values of the individual assets,
liabilities and identifiable intangible assets as if the reporting unit was being acquired in a
business combination. If the implied fair value of goodwill in the proforma business combination
accounting described above exceeds the goodwill assigned to the reporting unit, there is no
impairment. If the goodwill assigned to a reporting unit exceeds the implied fair value of the
goodwill, an impairment charge is
recorded for the excess. A recognized impairment loss cannot exceed the amount of goodwill
assigned to a reporting unit, and the loss establishes a new basis in the goodwill. Subsequent
reversal of goodwill impairment losses is not permitted. The Company recognized a non-cash, pre-tax
impairment charge to its goodwill in the amount of $6,134 for the year ended March 31, 2010 and
$83,324 for the year ended March 31, 2009. Tax benefits totaling $2,392 in 2010 and $20,055 in 2009
were recorded in connection with these impairments. The Company conducted its required annual
evaluation of goodwill and determined that no impairment charges were required for the year ended
March 31, 2008.
35
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CONSOLIDATED GRAPHICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share data and percentages)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share data and percentages)
Goodwill is as follows:
Year Ended March 31 | ||||||||||||
2010 | 2009 | 2008 | ||||||||||
(In millions) | ||||||||||||
Beginning balance, gross |
$ | 236,702 | $ | 226,365 | $ | 210,087 | ||||||
Accumulated impairments |
(207,266 | ) | (123,942 | ) | (123,942 | ) | ||||||
Beginning balance, net |
29,436 | 102,423 | 86,145 | |||||||||
Acquisitions |
| 10,337 | 16,278 | |||||||||
Foreign exchange translation |
924 | | | |||||||||
Impairment charges |
(6,134 | ) | (83,324 | ) | | |||||||
Ending balance |
$ | 24,226 | $ | 29,436 | $ | 102,423 | ||||||
The Company compares the carrying value of long-lived assets, including property, plant and
equipment and intangible assets other than goodwill or intangible assets with indefinite lives to
projections of future undiscounted cash flows attributable to such assets. In the event that the
carrying value of any long-lived asset exceeds the projection of future undiscounted cash flows
attributable to such asset, the Company records an impairment charge against income equal to the
excess, if any, of the carrying value over the assets fair value. The Company recorded impairments
of $3,973 in 2010 and $350 in 2009, which are included in litigation and other charges in the
consolidated income statements.
The net book value of other intangible assets at March 31, 2010 was $22,647. Other intangible
assets consist primarily of the value assigned to such items as customer lists and trade names in
connection with the allocation of purchase price for acquisitions and are generally amortized on a
straight-line basis over periods of between 5 and 25 years. Such assets are evaluated for
recoverability with other long-lived assets as discussed above. Amortization expense totaled $3,734
in 2010, $4,128 in 2009 and, $2,426 in 2008. The Companys future amortization expense by fiscal
year are as follows:
2011 | 2012 | 2013 | 2014 | 2015 | ||||||||||||||||
Amortization expense |
$ | 3,521 | $ | 3,521 | $ | 3,521 | $ | 3,189 | $ | 3,189 |
Accrued Liabilities The significant components of accrued liabilities are as follows:
March 31 | ||||||||
2010 | 2009 | |||||||
Compensation and benefits |
$ | 25,810 | $ | 29,634 | ||||
Litigation reserve |
17,567 | 17,000 | ||||||
Advances from customers |
13,677 | 14,290 | ||||||
Other(1) |
18,026 | 12,468 | ||||||
Manufacturing materials and services |
8,040 | 8,127 | ||||||
Sales, property and other taxes |
5,054 | 5,199 | ||||||
$ | 88,174 | $ | 86,718 | |||||
(1) | Other accrued liabilities are principally comprised of accrued self-insurance
claims for certain insurance programs. None of the individual items in other accrued
liabilities at March 31, 2010 and 2009 were individually greater than 5% of total current
liabilities in those years. |
36
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CONSOLIDATED GRAPHICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share data and percentages)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share data and percentages)
Litigation Charge In late fiscal 2009, a jury rendered verdicts for compensatory and
punitive damages against the Company due to a lawsuit involving an isolated dispute between the
Company and the former employer of an existing sales employee. As a result of these verdicts, a
pre-tax litigation charge of $17,000 was accrued in the fiscal 2009 consolidated financial
statements. In fiscal 2010 the Company accrued additional charges to reflect the actual damages,
fees and other costs included in the order entered by the judge. The Company intends to continue
its defense of this matter, and will appeal the judgment. (See Note 7. Commitments and
Contingencies).
Income Taxes The provision for income taxes includes federal, state and foreign income taxes
which are currently payable or deferred based on current tax laws. Deferred income taxes are
provided for the tax consequences of differences between the financial statement and tax bases of
assets and liabilities. The Company reduces deferred tax assets by a valuation allowance when,
based on its estimates, it is more likely than not that a portion of those assets will not be
realized in a future period. The Company is subject to audit by taxing authorities and these audits
occasionally result in proposed assessments which may result in additional tax liabilities and, in
some cases, interest and penalties. The Company recognizes a tax position in its financial
statements when it is more likely than not that the position would be sustained upon examination by
tax authorities. The recognized tax position is then measured at the largest amount of benefit that
is greater than fifty percent likely to be realized upon ultimate settlement. The Company has a
reserve for unrecognized tax benefits related to uncertain tax positions. The Company adjusts the
reserve upon changes in circumstances that would cause a change to the estimate of the ultimate
liability, upon effective settlement, or upon the expiration of the statute of limitations relating
to such tax positions, in the period in which such event occurs. Although we believe our estimates
are reasonable, the final outcome of uncertain tax positions may be different from that which is
reflected in the financial statements.
Supplemental Cash Flow Information The consolidated statements of cash flows provide
information about the Companys sources and uses of cash and exclude the effects of non-cash
transactions. Total capital expenditures excluding non-cash transactions were $28,244, $69,600 and
$41,394 for the years ended March 31, 2010, 2009 and 2008, respectively. Certain capital
expenditures considered non-cash transactions were $7,277 and $41,015 for the years ended March 31,
2009 and 2008, respectively, and were financed using term notes (See Note 5. Long-Term Debt). Total
capital expenditures, including cash and non-cash transactions, were $28,244, $76,877 and $82,409
for the years ended March 31, 2010, 2009 and 2008, respectively. The Company paid cash for interest
totaling $9,636, $14,848 and $12,663 for the years ended March 31, 2010, 2009 and 2008,
respectively. The Company received an income tax refund, net of taxes paid, totaling $7,036 for the
year ended March 31, 2010. The Company paid cash for income taxes, net of refunds, totaling $14,427
and $26,745 for the years ended March 31, 2009 and 2008, respectively.
Recent Accounting Pronouncements In October 2009, the Financial Accounting Standards Board
(FASB) issued ASU 2009-13, which amends the criteria in ASC 605, Revenue Recognition, for revenue
recognition in multiple deliverable arrangements. The amendments establish a selling price
hierarchy for determining the selling price of a deliverable. The selling price used for each
deliverable will be based on vendor-specific objective evidence if available, third-party evidence
if vendor-specific objective evidence is not available, or estimated selling price if neither
vendor-specific objective evidence nor third-party evidence is available. This update is effective
for fiscal years beginning on or after June 15, 2010, and may be applied on either prospective or
retrospective basis, with early adoption permitted. The Company elected to early adopt ASU 2009-13
effective for fiscal year 2010. The early adoption had no effect on the Companys consolidated
financial condition or results of operations.
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CONSOLIDATED GRAPHICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share data and percentages)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share data and percentages)
Other Information
Earnings Per Share Basic earnings per share are calculated by dividing net income by the
weighted average number of common shares outstanding. Diluted earnings per share reflect net income
divided by the weighted average number of common shares, dilutive stock options and restricted
stock unit awards outstanding using the treasury stock method. Earnings per share are set forth
below:
Year Ended March 31 | ||||||||||||
2010 | 2009 | 2008 | ||||||||||
Numerator: |
||||||||||||
Net income (loss) |
$ | 14,088 | $ | (39,570 | ) | $ | 59,324 | |||||
Denominator: |
||||||||||||
Weighted average number of common shares outstanding |
11,168,665 | 11,138,141 | 12,462,617 | |||||||||
Dilutive options and awards |
284,720 | | 359,393 | |||||||||
Diluted weighted average number of common shares outstanding |
11,453,385 | 11,138,141 | 12,822,010 | |||||||||
Net earnings (loss) per share |
||||||||||||
Basic |
$ | 1.26 | $ | (3.55 | ) | $ | 4.76 | |||||
Diluted |
$ | 1.23 | $ | (3.55 | ) | $ | 4.63 |
Diluted net earnings (loss) per share takes into consideration the dilution of certain
unvested restricted stock unit awards and unexercised stock options. For the year ended March 31,
2010, options to purchase 1,093,987 shares of common stock were outstanding but not included in the
computation of diluted net earnings per share because the option exercise price exceeded the
average annual fair value of the Companys common stock such that their inclusion would have an
anti-dilutive effect. For the year ended March 31, 2009, options to purchase 1,829,151 shares were
outstanding but not included in the computation of diluted net loss per share because of the net
loss during 2009. Their inclusion would have had an anti-dilutive effect. Of the 1,829,151 options
to purchase shares, 1,112,276 shares had an option exercise price that exceeded the average annual
fair value of the Companys common stock. For the year ended March 31, 2008, options to purchase
16,486 shares of common stock were outstanding but not included in the computation of diluted net
earnings per share because the option exercise price exceeded the average annual fair value of the
Companys common stock such that their inclusion would have an anti-dilutive effect.
Related Party Transactions In the normal course of business, the Company leases certain real
estate from individuals who formerly owned an acquired printing business and are now employed by
the Company. Related party rental expense totaled $821 for fiscal
2010 and 2009 and $1,761 for fiscal 2008.
Fair Value of Financial Instruments The Companys financial instruments consist of cash,
trade receivables, trade payables and debt obligations. The Company does not currently hold or
issue derivative financial instruments. The Company believes that the recorded values of its
variable rate debt obligations, which totaled $116,787 and $218,801 at March 31, 2010 and 2009,
respectively, approximated their fair values. The Company believes that the recorded values of its
fixed rate debt obligations which totaled $64,769 and $95,389 at March 31, 2010 and 2009,
respectively, approximated their fair values. Estimates of fair value are based on estimated
interest rates for the same or similar debt offered to the Company having the same or similar
maturities and collateral requirements.
Concentrations of Credit Risk Financial instruments that potentially subject the Company to
concentrations of credit risk are primarily trade accounts receivable. Concentrations of credit
risk with respect to trade accounts receivable are limited because the Companys printing
businesses provide services to a large, diverse group of customers in various geographical regions.
Management performs ongoing credit evaluations of its customers and generally does not require
collateral for extensions of credit. The Companys cash deposits are held with large, well-known
financial institutions.
Share-Based Compensation The Company accounts for share-based compensation by measuring the
cost of the employee services received in exchange for an award of equity instruments, including
grants of stock options and restricted stock unit awards, based on the fair value of the award at
the date of grant. In addition, to the extent that the Company receives an excess tax benefit upon
exercise of an award, such benefit is reflected as cash flow from financing activities in the
consolidated statement of cash flows.
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CONSOLIDATED GRAPHICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share data and percentages)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share data and percentages)
Foreign Currency Assets and liabilities of subsidiaries operating outside the United States
with a functional currency other than the U.S. dollar are translated at period-end exchange rates.
Income and expense items are translated at the average monthly exchange rates. The effects of
period-end translation are included as a component of Accumulated Other Comprehensive Income in the
consolidated statements of shareholders equity. The net foreign currency transaction loss (gain)
related to the revaluation of certain transactions denominated in currencies other than the
reporting units functional currency totaled $357, ($809) and ($3,064) in fiscal 2010, 2009 and
2008, respectively, and is recorded in Other (Income) Expense on the consolidated income
statements.
Accumulated Other Comprehensive Income (Loss) Accumulated Other Comprehensive Income (Loss)
is comprised of foreign currency translation adjustments.
Geographic Information Revenues of the Companys subsidiaries operating outside the United
States were $49,980, $45,984 and $51,773 in fiscal 2010, 2009 and 2008, respectively, and
long-lived assets were $35,822 and $34,632 as of March 31, 2010 and 2009, respectively.
3. ACQUISITIONS
Revenues and expenses of the acquired businesses have been included in the accompanying
consolidated financial statements beginning on their respective dates of acquisition. The
allocation of purchase price to the acquired assets and liabilities is based on estimates of fair
value and may be prospectively revised if and when additional information the Company is awaiting
concerning certain asset and liability valuations is obtained, provided that such information is
received no later than one year after the date of acquisition.
In fiscal 2010, the Company paid cash totaling $2,194 to acquire certain assets of two
printing businesses and $750 to satisfy liabilities in connection with a prior period acquisition.
In addition, the Company paid cash totaling $5,500 to acquire the remaining interest in a
consolidated subsidiary. The purchase price of $5,500 plus transaction costs were recorded
directly to Shareholders Equity, net of a deferred tax benefit of $2,160.
In fiscal 2009, the Company paid cash totaling $6,684 to satisfy certain liabilities incurred
in connection with certain prior period acquisitions.
In fiscal 2008, the Company paid cash totaling $91,140 to acquire the stock or assets of three
printing businesses. The final allocation of the purchase price of the businesses acquired includes
current assets of $38,832, property and equipment of $39,872, goodwill of $32,992 (of which 100% is
deductible for tax purposes), other intangible assets of $11,900 and other assets of $212, less
accrued liabilities of $18,943 and debt assumed of $13,725. Other intangible assets primarily
consist of $4,900 for customer lists (generally amortized over 8 years), $4,900 for trade names
(generally amortized over 10 years) and $2,100 of other intangibles (generally amortized over 5
years). Additionally, the Company paid cash totaling $6,118 to satisfy certain liabilities incurred
in connection with certain prior period acquisitions. Based on certain additional information
received by the Company regarding its fiscal 2007 acquisitions, $3,687 of purchase price previously
attributed to goodwill was allocated to other intangible assets during fiscal 2008.
39
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CONSOLIDATED GRAPHICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share data and percentages)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share data and percentages)
4. PROPERTY AND EQUIPMENT
Property and equipment are stated at cost, net of accumulated depreciation. The costs of major
renewals and betterments are capitalized; repairs and maintenance costs are expensed when incurred.
Depreciation of property and equipment is computed using the straight-line method over the
estimated useful lives of the various classes of assets.
The following is a summary of the Companys property and equipment and their estimated useful
lives:
Estimated | ||||||||||||
March 31 | Life | |||||||||||
Description | 2010 | 2009 | in Years | |||||||||
Land |
$ | 15,334 | $ | 14,887 | | |||||||
Buildings and leasehold improvements |
117,504 | 114,679 | 5-30 | |||||||||
Machinery and equipment |
565,173 | 579,620 | 5-20 | |||||||||
Computer equipment and software |
38,733 | 37,022 | 2-5 | |||||||||
Furniture, fixtures and other |
14,420 | 19,427 | 2-7 | |||||||||
751,164 | 765,635 | |||||||||||
Lessaccumulated depreciation |
(370,456 | ) | (335,116 | ) | ||||||||
$ | 380,708 | $ | 430,519 | |||||||||
Depreciation expense related to the Companys property and equipment totaled $66,427 in 2010,
$62,634 in 2009 and $49,964 in 2008.
5. LONG-TERM DEBT
The following is a summary of the Companys long-term debt as of:
March 31 | ||||||||
2010 | 2009 | |||||||
Bank credit facilities |
$ | 113,186 | $ | 214,701 | ||||
Term equipment notes |
64,612 | 90,980 | ||||||
Other |
3,758 | 8,509 | ||||||
181,556 | 314,190 | |||||||
Lesscurrent portion |
(22,235 | ) | (27,026 | ) | ||||
$ | 159,321 | $ | 287,164 | |||||
The Companys primary bank credit facility (as amended, the Credit Agreement) currently
provides for $300,000 in revolving credit and has a maturity date of October 6, 2011. At March 31,
2010, outstanding borrowings under the Credit Agreement were $88,200 and accrued interest at a
weighted average rate of 2.3%.
Under the terms of the Credit Agreement the proceeds from borrowings may be used to repay
certain indebtedness, finance certain acquisitions, provide for working capital and general
corporate purposes and, subject to certain restrictions, repurchase the Companys common stock.
Borrowings outstanding under the Credit Agreement are secured by substantially all of the Companys
assets other than real estate and certain equipment subject to term equipment notes and other
financings. Borrowings under the Credit Agreement accrue interest, at the Companys option, at
either LIBOR plus a margin of 1.625% to 3.0%, or an alternate base rate (based upon the greater of
the agent banks prime lending rate or the Federal Funds effective rate plus 0.5%) plus a margin of
0.125% to 1.5%. The Company is also required to pay an annual commitment fee ranging from 0.25% to
0.5% on available but unused amounts under the Credit Agreement. The interest rate margin and the
commitment fee are based upon certain financial performance measures set forth in the Credit
Agreement and are redetermined quarterly. At March 31, 2010, the applicable LIBOR interest rate
margin was 2.0% and the applicable commitment fee was 0.25%.
40
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CONSOLIDATED GRAPHICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share data and percentages)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share data and percentages)
The Company is subject to certain covenants and restrictions, including limitations on
additional indebtedness it may incur in the future, and must meet certain financial tests under the
Credit Agreement. The Company was in compliance with such covenants, restrictions and financial
tests at March 31, 2010. In the event the Company is
unable to remain in compliance with the Credit Agreement covenants and financial tests
contained in the Credit Agreement in the future, the Companys lenders would have the right to
declare it in default with respect to such obligations, and consequently, certain of our other debt
obligations, including substantially all our term equipment notes, would be deemed to also be in
default. All debt obligations in default would be required to be reclassified as a current
liability. In the event the Company was unable to obtain a waiver from its lenders or renegotiate
or refinance these obligations, a material adverse effect on the ability of the Company to conduct
its operations in the ordinary course would likely result.
The Company also maintains an unsecured credit facility with a commercial bank (the A&B
Credit Facility) currently consisting of a U.S. $5,000 maximum borrowing limit component and a
separate Canadian dollar (C$) C$23,000 maximum borrowing limit component. At March 31, 2010,
outstanding borrowings were $2,000 which accrued interest at a weighted average rate of 2.5%, and
C$14,000 ($13,736 U.S. equivalent), which accrued interest at a weighted average rate of 2.8%.
There are no significant covenants or restrictions set forth in the A&B Credit Facility; however, a
default by the Company under the Credit Agreement constitutes a default under the A&B Credit
Facility.
In addition, the Company maintains two auxiliary revolving credit facilities (each an
Auxiliary Bank Facility and collectively the Auxiliary Bank Facilities) with commercial banks.
Each Auxiliary Bank Facility is unsecured and has a maximum borrowing capacity of $5,000. One
facility expires in October 2011 while the other facility expires in December 2010. At March 31,
2010, outstanding borrowings under the Auxiliary Bank Facilities totaled $9,250 and accrued
interest at a weighted average rate of 2.9%. Because the Company currently has the ability and
intent to refinance borrowings outstanding under the Auxiliary Bank Facilities expiring in December
2010, such borrowings are classified as long-term debt in the accompanying consolidated balance
sheet at March 31, 2010. The Auxiliary Bank Facilities cross-default to the events of default set
forth in the Credit Agreement.
At March 31, 2010, outstanding borrowings under term equipment notes totaled $64,612 and
carried interest rates between 3.9% and 7.1%. The term equipment notes provide for principal
payments plus interest for defined periods of up to ten years from the date of issuance, and are
secured by certain equipment of the Company. The Company is not subject to any significant
financial covenants in connection with any of the term equipment notes. Most of the term equipment
notes cross-default to the events of default set forth in the Credit Agreement.
At March 31, 2010, other debt obligations totaled $3,758 and provided for principal payments
plus interest (fixed and variable rates) for defined periods up to 16 years from the date of
issuance. The Company does not have any significant financial covenants or restrictions associated
with the other debt obligations.
As
of March 31, 2010, the Companys available credit under existing
credit facilities was $218,834.
The principal payment requirements by fiscal year under the Companys debt obligations
referenced above are:
2011 | 2012 | 2013 | 2014 | 2015 | Thereafter | |||||||||||||||||||
Debt obligations |
$ | 22,235 | $ | 129,428 | $ | 18,226 | $ | 6,404 | $ | 4,526 | $ | 737 |
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CONSOLIDATED GRAPHICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share data and percentages)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share data and percentages)
6. INCOME TAXES
Income (loss) before income taxes for the years ended March 31 were as follows:
Year Ended March 31 | ||||||||||||
2010 | 2009 | 2008 | ||||||||||
Domestic |
$ | 10,160 | $ | (53,099 | ) | $ | 78,330 | |||||
Foreign |
7,864 | 7,725 | 9,945 | |||||||||
Income before taxes |
$ | 18,024 | $ | (45,374 | ) | $ | 88,275 | |||||
The provision (benefit) for income taxes is comprised of the following:
Year Ended March 31 | ||||||||||||
2010 | 2009 | 2008 | ||||||||||
Current |
||||||||||||
Federal |
$ | 8,098 | $ | 3,259 | $ | 17,927 | ||||||
State |
837 | 1,974 | 3,001 | |||||||||
Foreign |
1,617 | 1,620 | 1,994 | |||||||||
Current income taxes |
10,552 | 6,853 | 22,922 | |||||||||
Deferred |
||||||||||||
Federal |
(5,548 | ) | (9,688 | ) | 4,506 | |||||||
State |
(1,552 | ) | (3,318 | ) | 460 | |||||||
Foreign |
484 | 349 | 1,063 | |||||||||
Deferred income taxes |
(6,616 | ) | (12,657 | ) | 6,029 | |||||||
Income tax expense (benefit) |
$ | 3,936 | $ | (5,804 | ) | $ | 28,951 | |||||
The provision for income taxes differs from an amount computed at the federal statutory rate
as follows:
Year Ended March 31 | ||||||||||||
2010 | 2009 | 2008 | ||||||||||
Provision at the federal statutory rate |
$ | 6,309 | $ | (15,881 | ) | $ | 30,896 | |||||
Impairment of goodwill |
| 11,390 | | |||||||||
Non-deductible expenses |
961 | 1,259 | 1,569 | |||||||||
Adjustment to unrecognized tax benefits |
(1,007 | ) | 170 | (4,748 | ) | |||||||
State income taxes, net of federal income tax benefit |
(505 | ) | (2,271 | ) | 3,103 | |||||||
Foreign income taxed at other rates |
(651 | ) | (734 | ) | (423 | ) | ||||||
Benefit of domestic production deduction |
(645 | ) | (348 | ) | (1,446 | ) | ||||||
Other |
(526 | ) | 611 | | ||||||||
Income tax expense (benefit) |
$ | 3,936 | $ | (5,804 | ) | $ | 28,951 | |||||
At March 31, 2010 and 2009, a current income tax receivable of $1,248 and $9,206 was included
in prepaid expenses, primarily relating to state and foreign overpayments for 2010 and federal
income tax overpayments for 2009.
Deferred income taxes reflect the future tax consequences of differences between the tax bases
of assets and liabilities and their financial reporting amounts as measured based on enacted tax
laws and regulations. As of March 31, 2010 and 2009, the Company had tax benefits relating to
various state net operating losses and other tax credit carryforwards, net of federal benefit, of
$2,830 and $2,855. The losses and credits expire in years 2011 through 2030. The Company records a
valuation allowance, when appropriate, to adjust deferred tax asset balances to the amount the
Company expects to realize. The Company considers the history of taxable income and expectations of
future taxable income, among other factors, in assessing the potential need for a valuation
allowance. As of March 31, 2010 and 2009, a valuation allowance of $1,401 and $1,732 was recorded
related to certain deferred tax assets.
Deferred U.S. income taxes and foreign withholding taxes are not provided on the excess of the
investment value for financial reporting over the tax basis of investments in foreign subsidiaries,
because such excess is considered to be permanently reinvested in those operations. At March 31,
2010, approximately $2,300 of U.S. taxes and foreign withholding taxes would be due if the
aggregate unremitted earnings of $20,554 were distributed.
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CONSOLIDATED GRAPHICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share data and percentages)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share data and percentages)
The components of deferred income tax assets and liabilities are as follows:
March 31 | ||||||||
2010 | 2009 | |||||||
Deferred income tax assets |
||||||||
Goodwill and intangibles(1) |
$ | 26,713 | $ | 25,317 | ||||
Litigation reserve |
7,629 | 6,630 | ||||||
Compensation and benefit accruals |
5,199 | 5,185 | ||||||
Stock based compensation |
5,542 | 3,736 | ||||||
Other liabilities(1) |
3,520 | 3,693 | ||||||
Net operating losses and credits(1) |
2,830 | 2,855 | ||||||
Accounts receivable and inventories |
| 2,038 | ||||||
Other |
776 | 259 | ||||||
Total deferred income tax assets |
52,209 | 49,713 | ||||||
Valuation allowance(1) |
(1,401 | ) | (1,732 | ) | ||||
Net deferred income tax assets |
$ | 50,808 | $ | 47,981 | ||||
Deferred income tax liabilities |
||||||||
Property and equipment |
$ | 71,640 | $ | 77,222 | ||||
Prepaid expenses(2) |
1,837 | 1,577 | ||||||
Accounts receivable and inventories(2) |
15 | | ||||||
Other |
| 243 | ||||||
Total deferred income tax liabilities |
$ | 73,492 | $ | 79,042 | ||||
(1) | These deferred income tax assets are long-term in nature and therefore are netted
against long-term deferred income tax liabilities for presentation in the accompanying
consolidated balance sheets. |
|
(2) | These deferred tax liabilities are current in nature and therefore netted against
current deferred income tax assets for presentation in the accompanying consolidated
balance sheets. |
On April 1, 2007, the Company adopted ASC 740 subtopic 10, which addresses the accounting for
uncertainty in income taxes recognized in an enterprises financial statements by prescribing a
recognition threshold and measurement attribute for the financial statement recognition and
measurement of a tax position taken or expected to be taken in a tax return. ASC 740 subtopic 10
also provides guidance on derecognition, classification, interest and penalties, accounting in
interim periods, disclosure and transition. The cumulative effect of adopting ASC 740 subtopic 10
was recorded as a net increase to retained earnings of $1,189.
At the date of the adoption of ASC 740 subtopic 10, the Company had $19,334 of unrecognized
tax benefits, including applicable interest and penalties. As of March 31, 2010 the balance of
unrecognized tax benefits was $14,729. Of the unrecognized tax benefits at March 31, 2010, $14,100,
if recognized, would decrease the Companys effective income tax rate and increase net income. The
unrecognized tax benefits relate to certain tax deductions claimed on federal and state tax returns
for which the ultimate outcome is uncertain.
In the year ended March 31, 2010, the reserve for unrecognized tax benefits had a net decrease
of $64. Of this amount, $1,007 resulted in a net decrease to tax expense. The decrease in the
reserve for unrecognized tax benefits in fiscal year 2010 relates to deductions claimed
on federal and state tax returns for which the ultimate outcome is uncertain. During fiscal 2009, substantially
all of the $170 adjustment to the reserve for unrecognized tax benefits related to deductions claimed on
state returns for which the ultimate outcome is uncertain. The Company does not expect a material
change in the reserve for unrecognized tax benefits in fiscal year 2011.
The Companys federal income tax returns for the tax years after 2005 remain subject to
examination. The various states in which the Company is subject to income tax are generally open
for the tax years after 2004.
The Company classifies interest expense and any related penalties related to income tax
uncertainties as a component of income tax expense. For the year-ended March 31, 2010, the Company
recognized $248 of net interest expense related to tax uncertainties. Accrued interest and
penalties of $2,001 and $1,754 related to income tax uncertainties were recognized as a component
of other noncurrent liabilities at March 31, 2010 and March 31, 2009, respectively.
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CONSOLIDATED GRAPHICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share data and percentages)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share data and percentages)
The Companys unrecognized tax benefit activity for the fiscal year ended March 31, 2010 and
March 31, 2009, was as follows:
March 31 | ||||||||
2010 | 2009 | |||||||
Unrecognized tax benefit at beginning of year |
$ | 14,793 | $ | 13,655 | ||||
Additions for tax positions in prior periods |
268 | 474 | ||||||
Decreases for tax positions in prior periods |
(339 | ) | | |||||
Additions for tax positions in current periods |
1,739 | 2,665 | ||||||
Settlements/audits |
(49 | ) | | |||||
Lapse of statute of limitations |
(1,683 | ) | (2,001 | ) | ||||
Unrecognized tax benefit at end of year |
$ | 14,729 | $ | 14,793 | ||||
7. COMMITMENTS AND CONTINGENCIES
Operating Leases The Company has entered into various noncancelable operating leases
primarily related to facilities and equipment used in the ordinary course of its business. The
Company incurred total operating lease expense of $19,927, $19,823 and $15,548 for the years ended
March 31, 2010, 2009 and 2008, respectively.
The Companys future operating lease obligations by fiscal year are as follows:
2011 | 2012 | 2013 | 2014 | 2015 | Thereafter | |||||||||||||||||||
Operating lease obligations |
$ | 18,291 | $ | 16,226 | $ | 13,411 | $ | 10,705 | $ | 7,279 | $ | 23,215 |
Letters of Credit The Company had letters of credit outstanding as of March 31, 2010
totaling $5,547. All of these letters of credit were issued pursuant to the terms of the Companys
Credit Agreement, which expires in October 2011.
Insurance Programs The Company maintains third-party insurance coverage in amounts and
against risks it believes are reasonable in its circumstances. The Company is self-insured for most
workers compensation claims and for a significant component of its group health insurance
programs. For these exposures, the Company accrues expected loss amounts which are determined using
a combination of its historical loss experience and subjective assessment of the future costs of
incurred losses, together with advice provided by administrators and consulting actuaries. The
estimates of expected loss amounts are subject to uncertainties arising from various sources,
including changes in claims reporting patterns, claims settlement patterns, judicial decisions,
legislation and economic conditions, which could result in an increase or decrease in accrued costs
in future periods for claim matters which occurred in a prior period. Although the Company believes
that the accrued loss estimates are reasonable, significant differences related to the items noted
above could materially affect our risk exposure, insurance coverage and future expense.
Multi-Employer Pension Plans The Company participates in multi-employer pension plans for
certain of its employees covered by union agreements. Amounts expensed in the financial statements
equal the contributions made to the pension plans during the year. Contributions to the
multi-employer pension plans were $850 in 2010, $1,106 in 2009, and $1,270 in 2008. In May 2010,
one of the Companys printing businesses renegotiated its union agreement which provided, among
other things, for the withdrawal from one of the multi-employer pension plans to which it
contributed. The Company will accrue an estimate of $1,300 pre-tax liability in the quarter ended June 30, 2010
in connection with such withdrawal.
Legal Matters In late fiscal 2009, a jury rendered verdicts for compensatory and punitive
damages against the Company due to a lawsuit involving an isolated dispute between the Company and
the former employer of an existing sales employee. As a result of these verdicts, a pre-tax
litigation charge of $17,000 has been accrued in the fiscal 2009 consolidated financial statements.
In fiscal 2010 the Company accrued additional charges to reflect the actual damages, fees and
other costs included in the order entered by the judge. The Company intends to continue its defense
of this matter, and intends to appeal the judgment.
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CONSOLIDATED GRAPHICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share data and percentages)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share data and percentages)
In addition, from time to time, the Company is involved in other litigation relating to claims
arising out of its operations in the normal course of business. The Company maintains insurance
coverage against certain types of potential claims in an amount which it believes to be adequate,
but there is no assurance that such coverage will in
fact cover, or be sufficient to cover, all potential claims. Currently, the Company is not
aware of any other legal proceedings or claims pending against it that its management believes will
have a material adverse effect on its consolidated financial condition or results of operations.
Tax Matters The Company is subject to examination by tax authorities for varying periods in
various taxing jurisdictions. During the course of such examinations disputes occur as to matters
of fact and/or law. Also, in most taxing jurisdictions the passage of time without examination will
result in the expiration of applicable statutes of limitations thereby precluding the taxing
authority from conducting an examination of the tax period for which such statute of limitation has
expired. The Company believes that it has adequately provided for its tax liabilities.
8. SHARE-BASED COMPENSATION
Pursuant to the Consolidated Graphics, Inc. Amended and Restated Long-Term Incentive Plan (as
amended, the Plan), employees of the Company and members of the Companys Board of Directors have
been, or may be, granted options to purchase shares of the Companys common stock, restricted stock
unit awards or other forms of equity-based compensation. Options granted pursuant to the Plan
include incentive stock options within the meaning of Section 422 of the Internal Revenue Code of
1986, as amended and non-qualified stock options. Options previously granted under the Plan were at
a strike price not less than the market price of the stock at the date of grant and periodically
vest over a fixed period of up to ten years. Unvested options generally are cancelled upon
termination of employment and vested options generally expire shortly after termination of
employment. Otherwise, options expire after final vesting at the end of a fixed period generally
not in excess of an additional five years. At March 31, 2010, a total of 2,165,079 common shares
were reserved for issuance pursuant to the Plan, of which 322,259 shares of the Companys common
stock were available for future grants.
45
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CONSOLIDATED GRAPHICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share data and percentages)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share data and percentages)
The following table sets forth option and restricted stock unit award transactions under the
Plan in terms of underlying shares of the Companys common stock:
For the Years Ended March 31 | ||||||||||||||||||||||||
2010 | 2009 | 2008 | ||||||||||||||||||||||
Weighted | Weighted | Weighted | ||||||||||||||||||||||
Average | Average | Average | ||||||||||||||||||||||
Exercise | Exercise | Exercise | ||||||||||||||||||||||
Shares | Price | Shares | Price | Shares | Price | |||||||||||||||||||
Outstanding at April 1 |
1,829,151 | $ | 37.85 | 1,479,977 | $ | 36.93 | 1,546,734 | $ | 36.66 | |||||||||||||||
Granted |
90,000 | 17.38 | 730,000 | 46.02 | 73,112 | 45.35 | ||||||||||||||||||
Exercised |
(58,341 | ) | 20.19 | (73,864 | ) | 39.48 | (69,480 | ) | 29.25 | |||||||||||||||
Forfeited or expired |
(17,990 | ) | 34.98 | (306,962 | ) | 52.24 | (70,389 | ) | 45.58 | |||||||||||||||
Outstanding at March 31 |
1,842,820 | 37.61 | 1,829,151 | 37.85 | 1,479,977 | 36.93 | ||||||||||||||||||
Exercisable at March 31 |
1,105,313 | 33.99 | 962,630 | 31.10 | 1,215,282 | 35.61 | ||||||||||||||||||
For fiscal 2010, the numbers of shares granted includes 25,000 restricted stock unit awards
having an aggregate fair value at date of grant of $331, the number of shares exercised includes
vesting of 9,792 restricted stock unit awards and the number of shares outstanding at year-end
includes 44,583 unvested restricted stock unit awards. For fiscal 2009, the number of shares
granted includes 12,500 restricted stock unit awards having an aggregate fair value at date of
grant of $709, the number of shares exercised includes vesting of 5,625 restricted stock unit
awards and the number of shares outstanding at year-end includes 29,375 unvested restricted stock
unit awards. For fiscal 2008, the number of shares granted includes 12,500 restricted stock unit
awards having an aggregate fair value at date of grant of $926, the number of shares exercised
includes vesting of 2,500 restricted stock unit awards and the number of shares outstanding at
year-end includes 12,500 unvested restricted stock unit awards. For 2010, 2009 and 2008, the
weighted average exercise price of shares granted, exercised and outstanding is based solely on
stock option grants and exercises and excludes the restricted stock unit awards which have no
exercise price component.
The total fair value of options and restricted stock unit awards which vested was $3,779,
$1,693 and $1,307 for the years ended March 31, 2010, 2009 and 2008, respectively. The aggregate
intrinsic value of options and restricted stock unit awards outstanding was $20,587, $758 and
$27,996 for the years ended March 31, 2010, 2009 and 2008, respectively. The aggregate intrinsic
value of options and restricted stock unit awards exercised was $1,222, $1,338 and $26,106 for the
years ended March 31, 2010, 2009 and 2008, respectively.
The weighted average grant date fair value of stock options granted during the three years
ended March 31, 2010, all of which were at exercise prices equal to the market price of the stock
on the grant dates, as calculated under the Black-Scholes-Merton pricing model (Black-Scholes)
are as follows:
Year Ended March 31 | ||||||||||||
2010 | 2009 | 2008 | ||||||||||
Weighted average fair value per share of option grants during the year |
$ | 8.85 | $ | 20.46 | $ | 19.42 | ||||||
Assumptions: |
||||||||||||
Expected option life in years |
6.5 | 6.5 | 6.1 | |||||||||
Risk-free interest rate |
2.3 | % | 2.7 | % | 3.7 | % | ||||||
Expected volatility |
49.2 | % | 40.4 | % | 38.8 | % | ||||||
Expected dividend yield |
| | |
The risk-free interest rate represents the U.S. Treasury Bond constant maturity yield
approximating the expected option life of stock options granted during the period. The expected
option life represents the period of time that the stock options granted during the period are
expected to be outstanding, generally based on the mid-point between the vesting date and
contractual expiration date of each option. The expected volatility is based on the historical
market price volatility of the Companys common stock.
46
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CONSOLIDATED GRAPHICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share data and percentages)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share data and percentages)
Outstanding and exercisable stock options and restricted stock unit awards at March 31, 2010
were as follows:
Outstanding | Exercisable | |||||||||||||||||||
Weighted | Weighted | Weighted | ||||||||||||||||||
Average | Average | Average | ||||||||||||||||||
Exercise | Remaining | Exercise | ||||||||||||||||||
Range of Exercise Prices | Shares | Price | Years | Shares | Price | |||||||||||||||
Stock Options |
||||||||||||||||||||
$7.40 $20.00 |
653,000 | $ | 14.49 | 3.6 | 436,000 | $ | 13.12 | |||||||||||||
$20.01 $30.00 |
51,250 | 23.02 | 3.4 | 51,250 | 23.02 | |||||||||||||||
$30.01 $40.00 |
60,500 | 38.29 | 5.1 | 46,500 | 38.18 | |||||||||||||||
$40.01 $50.00 |
150,119 | 42.31 | 4.6 | 106,495 | 42.25 | |||||||||||||||
$50.01 $60.00 |
870,687 | 54.57 | 7.2 | 458,825 | 52.29 | |||||||||||||||
$60.01 $66.00 |
12,681 | 64.22 | 2.6 | 6,243 | 63.80 | |||||||||||||||
1,798,237 | 37.61 | 5.4 | 1,105,313 | 33.99 | ||||||||||||||||
Restricted stock unit awards |
44,583 | | 1.0 | | | |||||||||||||||
Outstanding at March 31, 2010 |
1,842,820 | | 5.4 | 1,105,313 | 33.99 | |||||||||||||||
The Company accounts for share-based compensation by measuring the cost of employee services
received in exchange for an award of equity instruments, including grants of stock options and
restricted stock unit awards, based on the fair value of the award at the date of grant. The fair
value of stock options is determined using the Black-Scholes model. Restricted stock unit awards
are valued at the closing stock price on the date of grant.
The Company recorded $5,031 of share-based compensation expense for the year ended March 31,
2010. The after-tax impact to net income was $3,069, and the impact to both basic and diluted
earnings per share was $.27 in fiscal 2010. For the year ended March 31, 2009, the Company recorded
$6,908 of share-based compensation expense. The after-tax impact to net loss was $4,213, and the
impact to both basic and diluted earnings per share was $.40 in fiscal 2009. For the year ended
March 31, 2008, the Company recorded $2,057 of share-based compensation expense. The after-tax
impact to net income was $1,255, and the impact to basic earnings per share was $.10 and the impact
to diluted earnings per share was $.05 in fiscal 2008.
As of March 31, 2010, $5,812 of total unrecognized compensation cost related to stock options
was expected to be recognized over a weighted average period of 1.7 years.
There
were 322,259, 394,269 and 817,307 shares available for awards under the Plan as of March
31, 2010, 2009 and 2008, respectively. In fiscal 2010, the Plan was amended to increase the number
of stock appreciation rights or stock awards, including restricted stock unit awards, that may be
granted to participants to 112,500 underlying shares of the Companys common stock.
47
Table of Contents
CONSOLIDATED GRAPHICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share data and percentages)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share data and percentages)
9. SUPPLEMENTAL SELECTED UNAUDITED QUARTERLY FINANCIAL DATA
The following table contains selected unaudited quarterly financial data from the consolidated
income statements for each quarter of fiscal 2010 and 2009. The Company believes this information
reflects all normal recurring adjustments necessary for a fair presentation of the information for
the periods presented. The operating results for any quarter are not necessarily indicative of
results for any future period. Earnings per share are computed independently for each of the
quarters presented; therefore, the sum of the quarterly earnings per share may not equal annual
earnings per share.
1st | 2nd | 3rd | 4th | |||||||||||||
Quarter | Quarter | Quarter | Quarter | |||||||||||||
Fiscal 2010: |
||||||||||||||||
Sales |
$ | 225,861 | $ | 251,626 | $ | 276,374 | $ | 237,000 | ||||||||
Gross profit |
44,829 | 55,443 | 66,604 | 53,910 | ||||||||||||
Net income (loss) |
(314 | ) | 2,082 | 11,439 | (1) | 881 | (2) | |||||||||
Basic earnings (loss) per share |
(.03 | ) | .19 | 1.02 | .08 | |||||||||||
Diluted earnings (loss) per share |
(.03 | ) | .18 | 1.00 | .08 | |||||||||||
Fiscal 2009 |
||||||||||||||||
Sales |
$ | 285,194 | $ | 296,951 | $ | 315,815 | $ | 247,186 | ||||||||
Gross profit |
70,640 | 72,586 | 74,760 | 52,099 | ||||||||||||
Net income (loss) |
9,616 | 10,303 | (43,566 | )(3) | (15,923 | )(4) | ||||||||||
Basic earnings (loss) per share |
.87 | .92 | (3.91 | ) | (1.43 | ) | ||||||||||
Diluted earnings (loss) per share |
.84 | .90 | (3.91 | ) | (1.43 | ) |
(1) | Includes $1,914 litigation and other charges, net of taxes. |
|
(2) | Includes $3,742 goodwill impairment charges and $878 litigation and other charges,
net of taxes. |
|
(3) | Includes $46,058 goodwill impairment charge and $10,370 litigation and other
charges, net of taxes. |
|
(4) | Includes $17,211 goodwill impairment charge and $213 litigation and other charges,
net of taxes. |
48
Table of Contents
CONSOLIDATED GRAPHICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share data and percentages)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share data and percentages)
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
The Companys management, with the participation of the Companys Chief Executive Officer
(CEO) and Chief Financial and Accounting Officer (CFO), has evaluated the effectiveness of the
Companys disclosure controls and procedures (as such term is defined in Rules 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 this report. Based on such evaluation, the Companys CEO and CFO have
concluded that, as of the end of such period, the Companys disclosure controls and procedures were
effective to ensure that information required to be disclosed by the Company in reports that it
files or submits under the Exchange Act is recorded, processed, summarized and reported within the
time periods specified in the Securities and Exchange Commissions rules and forms, and that such
information is accumulated and communicated to our management, including our CEO and CFO, as
appropriate, to allow timely decisions regarding required disclosures.
Managements Annual Report on Internal Control Over Financial Reporting
Managements Report is included in Item 8. Financial Statements and Supplementary Data of this
Annual Report on Form 10-K and is incorporated herein by reference.
Changes in Internal Controls Over Financial Reporting
There have been no changes in our internal control over financial reporting that occurred
during the quarter ended March 31, 2010, that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.
Item 9B. Other Information
None.
49
Table of Contents
PART III
The information called for by Item 10. Directors, Executive Officers and Corporate Governance
of the Registrants, 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, and Director Independence and Item 14. Principal Accountant Fees and
Services is incorporated by reference herein from the Companys Proxy Statement for its Annual
Meeting of Shareholders (presently scheduled to be held August 12, 2010) to be filed with the
Securities and Exchange Commission pursuant to Regulation 14A under the Securities Exchange Act of
1934, as amended, within 120 days after March 31, 2010.
PART IV
Item 15. Exhibits and Financial Statement Schedules
(a) | Index to Financial Statements |
|
(a)(1) | Financial Statements: |
|
The index to the Financial Statements is included in Item 8 of this
Annual Report on Form 10-K and is incorporated herein by reference. |
||
(a)(2) | Financial Statement Schedules: |
|
Schedule IIValuation and Qualifying Accounts.
|
||
Report of Independent Registered Public Accounting Firm with
respect to Schedule II Valuation and Qualifying Accounts is
included in Item 15 of this Annual Report on Form 10-K.
|
All other schedules have been omitted since the required information is not significant or is
included in 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 | | Third Amended and Restated By-Laws of the Company, adopted effective as of January 1, 2010
(Consolidated Graphics, Inc. Form 8-K (November 2, 2009), Exhibit 99.1). |
||||
*3.4 | | First Amendment to the Third Amended and Restated By-Laws of the Company (Consolidated
Graphics, Inc. Form 8-K (February 5, 2010), Exhibit 3.1). |
||||
*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). |
||||
*4.3 | | Amendment to Rights Agreement dated as of July 10, 2006 between Consolidated Graphics, Inc.
and American Stock Transfer and Trust Company and the related Summary of Rights to Purchase
Stock, as amended (Consolidated Graphics, Inc. Form 8-A/A (July 13, 2006), Exhibits 2 and 3). |
||||
*4.4 | | Second Amendment to Rights Agreement dated as of September 25, 2007 between Consolidated
Graphics, Inc. and American Stock Transfer and Trust Company and the related Summary of
Rights to Purchase Stock, as amended (Consolidated Graphics, Inc. Form 8-A/A (September 28,
2007), Exhibits 3 and 4). |
||||
*4.5 | | Third Amendment to Rights Agreement dated as of December 4, 2009 between Consolidated
Graphics, Inc. and American Stock Transfer and Trust Company, as Rights Agent (Consolidated
Graphics, Inc. Form 8-K (December 4, 2009), Exhibit 4.1). |
||||
*10.1 | | Consolidated Graphics, Inc. Amended and Restated Long-Term Incentive Plan (Consolidated
Graphics, Inc. Form 10-Q (June 30, 2008), Exhibit 10.5).+ |
||||
10.2 | | First Amendment to the Consolidated Graphics, Inc. Amended and Restated Long-Term Incentive
Plan + |
||||
*10.3 | | Amended and Restated Employment Agreement executed on December 29, 2008, but effective as of
May 22, 2008, between the Company and Joe R. Davis (Consolidated Graphics, Inc. Form 8-K
(December 29, 2008), Exhibit 10.1).+ |
50
Table of Contents
*10.4 | | Amended and Restated Employment Agreement executed on December 29, 2008, but effective as of
January 14, 2008, between the Company and Jon C. Biro (Consolidated Graphics, Inc. Form 8-K
(December 29, 2008), Exhibit 10.2).+ |
||||
*10.5 | | Amended and Restated Change in Control Agreement, executed on December 29, 2008, but
effective as of January 14, 2008, between the Company and Jon C. Biro (Consolidated Graphics,
Inc. Form 8-K (December 29, 2008), Exhibit 10.3).+ |
||||
*10.6 | | Form of Indemnification Agreement for directors and officers (Consolidated Graphics, Inc. Form
10-Q (June 30, 2004), Exhibit 10.1). |
||||
*10.7 | | Form of First Amendment to Indemnification Agreement for directors and officers (Consolidated
Graphics, Inc. Form 10-Q (December 31, 2008), Exhibit 10.4). |
||||
*10.8 | | Amended Schedule identifying the directors and officers parties to Indemnification Agreements
with the Company. (Consolidated Graphics, Inc. Form 10-K (March 31, 2008), Exhibit 10.8). |
||||
*10.9 | | Credit Agreement among the Company and JPMorgan Chase Bank, N.A., as Administrative Agent,
Wells Fargo Bank, National Association, as Syndication Agent, dated as of October 6, 2006
(Consolidated Graphics, Inc. Form 8-K (October 6, 2006), Exhibit 10.1). |
||||
*10.10 | | First Amendment to the Credit Agreement among the Company and JPMorgan Chase Bank, N.A., as
Administrative Agent, Wells Fargo Bank, National Association, as Syndication Agent, dated as
of January 2, 2007 (Consolidated Graphics, Inc. Form 8-K (January 2, 2007), Exhibit 99.1). |
||||
*10.11 | | Second Amendment to the Credit Agreement among the Company and JPMorgan Chase Bank, N.A., as
Administrative Agent, Wells Fargo Bank, National Association, as Syndication Agent, dated as
of November 9, 2007 (Consolidated Graphics, Inc. Form 8-K (November 14, 2007), Exhibit 10.1). |
||||
*10.12 | | Third Amendment to the Credit Agreement among the Company and JP Morgan Chase Bank, N.A., as
Administrative Agent, Wells Fargo Bank, National Association, as Syndication Agent, dated as
of March 13, 2008 (Consolidated Graphics, Inc. Form 8-K (March 13, 2008), Exhibit 10.1). |
||||
*10.13 | | Fourth Amendment to the Credit Agreement among the Company and JP Morgan Chase Bank, N.A., as
Administrative Agent, Wells Fargo Bank, National Association, as Syndication Agent, dated as
of August 4, 2008 (Consolidated Graphics, Inc. Form 8-K (August 8, 2008), Exhibit 10.1). |
||||
*10.14 | | Fifth Amendment to the Credit Agreement among the Company and JP Morgan Chase Bank, N.A., as
Administrative Agent, Wells Fargo Bank, National Association, as Syndication Agent, dated as
of July 30, 2009 (Consolidated Graphics, Inc. Form 8-K (August 5, 2009), Exhibit 10.1). |
||||
*10.15 | | Form of Non-Employee Director Non-Statutory Stock Option Agreement (Consolidated Graphics,
Inc. Form 10-K (March 31, 2008), Exhibit 10.13).+ |
||||
*10.16 | | Form of Employee Incentive Stock Option Agreement (Consolidated Graphics, Inc. Form 10-K
(March 31, 2008), Exhibit 10.14).+ |
||||
*10.17 | | Form of Employee Non- Statutory Stock Option Agreement (Consolidated Graphics, Inc. Form
10-K (March 31, 2008), Exhibit 10.15).+ |
||||
*10.18 | | Form of Restricted Stock Unit Agreement (Consolidated Graphics, Inc. Form 8-K (June 14,
2007), Exhibit 10.1).+ |
||||
*10.19 | | Consolidated Graphics, Inc. Annual Incentive Compensation Plan, dated effective as of April
1, 2008 (Consolidated Graphics, Inc. Form 8-K (May 29, 2008), Exhibit 10.2).+ |
||||
*10.20 | | Form of Annual Incentive Award Agreement for Executives (Consolidated Graphics, Inc. Form 8-K
(May 29, 2008), Exhibit 10.3).+ |
||||
21 | | List of Subsidiaries. |
||||
23 | | Consent of KPMG LLP. |
||||
24 | | Powers of Attorney. |
||||
31.1 | | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of
2002. |
||||
31.2 | | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of
2002. |
||||
32.1 | | Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of
2002. |
||||
32.2 | | Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of
2002. |
* | Incorporated by reference. |
|
+ | Compensatory plan or arrangement under which executive officers or directors of the Company
may participate. |
51
Table of Contents
SCHEDULE IIVALUATION AND QUALIFYING ACCOUNTS
(In Thousands)
(In Thousands)
Utilization | ||||||||||||||||
Balance at | Amount | of Reserve | Balance | |||||||||||||
Beginning | Charged | (Net of | at End | |||||||||||||
Description | of Year | to Expense | Recoveries) | of Year | ||||||||||||
Allowance for Doubtful Accounts |
||||||||||||||||
Year Ended March 31, 2010 |
$ | 6,556 | $ | 974 | $ | (3,182 | ) | $ | 4,348 | |||||||
Year Ended March 31, 2009 |
3,575 | 4,116 | (1,135 | ) | 6,556 | |||||||||||
Year Ended March 31, 2008 |
3,080 | 1,203 | (708 | ) | 3,575 |
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders
Consolidated Graphics, Inc.:
Consolidated Graphics, Inc.:
Under date of May 21, 2010, we reported on the consolidated balance sheets of Consolidated
Graphics, Inc. and subsidiaries (collectively, the Company) as of March 31, 2010 and 2009, and the
related consolidated income statements, statements of shareholders equity, and statements of cash
flows for each of the years in the three-year period ended March 31, 2010, which are included in
Item 8 of this Annual Report on Form 10-K. In connection with our audits of the aforementioned
consolidated financial statements, we also audited the related consolidated financial statement
schedule, Schedule II Valuation and Qualifying Accounts, included herein. This financial
statement schedule is the responsibility of the Companys management. Our responsibility is to
express an opinion on this financial statement schedule based on our audits.
In our opinion, such financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly, in all material respects, the
information set forth therein.
/s/ KPMG LLP
Houston, Texas
May 21, 2010
Houston, Texas
May 21, 2010
52
Table of Contents
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934,
the registrant has duly caused this Annual Report to be signed on its behalf by the undersigned,
thereunder duly authorized, in the City of Houston, State of Texas on the 21st day of May, 2010.
CONSOLIDATED GRAPHICS, INC. |
||||
By: | /s/ Joe R. Davis | |||
Joe R. Davis | ||||
Chief Executive Officer and Chairman of the Board of Directors |
Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report has been signed by the following persons
on behalf of the registrant and in the capacities and on the dates indicated.
Signature | Title | Date | ||
/s/ Joe R. Davis
|
Chief Executive Officer and Director (Principal Executive Officer) |
May 21, 2010 | ||
/s/ Jon C. Biro
|
Executive Vice President, Chief Financial and Accounting Officer and Secretary (Principal Financial and Accounting Officer) |
May 21, 2010 | ||
/s/ LARRY J. ALEXANDER*
|
Director | |||
/s/ BRADY F. CARRUTH*
|
Director | |||
/s/ GARY L. FORBES*
|
Director | |||
/s/ JAMES H. LIMMER*
|
Director | |||
/s/ HUGH N. WEST*
|
Director |
* | By: | /s/ Joe R. Davis | May 21, 2010 | |
Joe R. Davis | ||||
Attorney-in-Fact |
53
Table of Contents
Exhibit Index
(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 | | Third Amended and Restated By-Laws of the Company, adopted effective as of January 1, 2010
(Consolidated Graphics, Inc. Form 8-K (November 2, 2009), Exhibit 99.1). |
||||
*3.4 | | First Amendment to the Third Amended and Restated By-Laws of the Company (Consolidated
Graphics, Inc. Form 8-K (February 5, 2010), Exhibit 3.1). |
||||
*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). |
||||
*4.3 | | Amendment to Rights Agreement dated as of July 10, 2006 between Consolidated Graphics, Inc.
and American Stock Transfer and Trust Company and the related Summary of Rights to Purchase
Stock, as amended (Consolidated Graphics, Inc. Form 8-A/A (July 13, 2006), Exhibits 2 and 3). |
||||
*4.4 | | Second Amendment to Rights Agreement dated as of September 25, 2007 between Consolidated
Graphics, Inc. and American Stock Transfer and Trust Company and the related Summary of
Rights to Purchase Stock, as amended (Consolidated Graphics, Inc. Form 8-A/A (September 28,
2007), Exhibits 3 and 4). |
||||
*4.5 | | Third Amendment to Rights Agreement dated as of December 4, 2009 between Consolidated
Graphics, Inc. and American Stock Transfer and Trust Company, as Rights Agent (Consolidated
Graphics, Inc. Form 8-K (December 4, 2009), Exhibit 4.1). |
||||
*10.1 | | Consolidated Graphics, Inc. Amended and Restated Long-Term Incentive Plan (Consolidated
Graphics, Inc. Form 10-Q (June 30, 2008), Exhibit 10.5).+ |
||||
10.2 | | First Amendment to the Consolidated Graphics, Inc. Amended and Restated Long-Term Incentive
Plan + |
||||
*10.3 | | Amended and Restated Employment Agreement executed on December 29, 2008, but effective as of
May 22, 2008, between the Company and Joe R. Davis (Consolidated Graphics, Inc. Form 8-K
(December 29, 2008), Exhibit 10.1).+ |
||||
*10.4 | | Amended and Restated Employment Agreement executed on December 29, 2008, but effective as of
January 14, 2008, between the Company and Jon C. Biro (Consolidated Graphics, Inc. Form 8-K
(December 29, 2008), Exhibit 10.2).+ |
||||
*10.5 | | Amended and Restated Change in Control Agreement, executed on December 29, 2008, but
effective as of January 14, 2008, between the Company and Jon C. Biro (Consolidated Graphics,
Inc. Form 8-K (December 29, 2008), Exhibit 10.3).+ |
||||
*10.6 | | Form of Indemnification Agreement for directors and officers (Consolidated Graphics, Inc. Form
10-Q (June 30, 2004), Exhibit 10.1). |
||||
*10.7 | | Form of First Amendment to Indemnification Agreement for directors and officers (Consolidated
Graphics, Inc. Form 10-Q (December 31, 2008), Exhibit 10.4). |
||||
*10.8 | | Amended Schedule identifying the directors and officers parties to Indemnification Agreements
with the Company. (Consolidated Graphics, Inc. Form 10-K (March 31, 2008), Exhibit 10.8). |
||||
*10.9 | | Credit Agreement among the Company and JPMorgan Chase Bank, N.A., as Administrative Agent,
Wells Fargo Bank, National Association, as Syndication Agent, dated as of October 6, 2006
(Consolidated Graphics, Inc. Form 8-K (October 6, 2006), Exhibit 10.1). |
||||
*10.10 | | First Amendment to the Credit Agreement among the Company and JPMorgan Chase Bank, N.A., as
Administrative Agent, Wells Fargo Bank, National Association, as Syndication Agent, dated as
of January 2, 2007 (Consolidated Graphics, Inc. Form 8-K (January 2, 2007), Exhibit 99.1). |
||||
*10.11 | | Second Amendment to the Credit Agreement among the Company and JPMorgan Chase Bank, N.A., as
Administrative Agent, Wells Fargo Bank, National Association, as Syndication Agent, dated as
of November 9, 2007 (Consolidated Graphics, Inc. Form 8-K (November 14, 2007), Exhibit 10.1). |
54
Table of Contents
*10.12 | | Third Amendment to the Credit Agreement among the Company and JP Morgan Chase Bank, N.A., as
Administrative Agent, Wells Fargo Bank, National Association, as Syndication Agent, dated as
of March 13, 2008 (Consolidated Graphics, Inc. Form 8-K (March 13, 2008), Exhibit 10.1). |
||||
*10.13 | | Fourth Amendment to the Credit Agreement among the Company and JP Morgan Chase Bank, N.A., as
Administrative Agent, Wells Fargo Bank, National Association, as Syndication Agent, dated as
of August 4, 2008 (Consolidated Graphics, Inc. Form 8-K (August 8, 2008), Exhibit 10.1). |
||||
*10.14 | | Fifth Amendment to the Credit Agreement among the Company and JP Morgan Chase Bank, N.A., as
Administrative Agent, Wells Fargo Bank, National Association, as Syndication Agent, dated as
of July 30, 2009 (Consolidated Graphics, Inc. Form 8-K (August 5, 2009), Exhibit 10.1). |
||||
*10.15 | | Form of Non-Employee Director Non-Statutory Stock Option Agreement (Consolidated Graphics,
Inc. Form 10-K (March 31, 2008), Exhibit 10.13).+ |
||||
*10.16 | | Form of Employee Incentive Stock Option Agreement (Consolidated Graphics, Inc. Form 10-K
(March 31, 2008), Exhibit 10.14).+ |
||||
*10.17 | | Form of Employee Non- Statutory Stock Option Agreement (Consolidated Graphics, Inc. Form
10-K (March 31, 2008), Exhibit 10.15).+ |
||||
*10.18 | | Form of Restricted Stock Unit Agreement (Consolidated Graphics, Inc. Form 8-K (June 14,
2007), Exhibit 10.1).+ |
||||
*10.19 | | Consolidated Graphics, Inc. Annual Incentive Compensation Plan, dated effective as of April
1, 2008 (Consolidated Graphics, Inc. Form 8-K (May 29, 2008), Exhibit 10.2).+ |
||||
*10.20 | | Form of Annual Incentive Award Agreement for Executives (Consolidated Graphics, Inc. Form 8-K
(May 29, 2008), Exhibit 10.3).+ |
||||
21 | | List of Subsidiaries. |
||||
23 | | Consent of KPMG LLP. |
||||
24 | | Powers of Attorney. |
||||
31.1 | | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of
2002. |
||||
31.2 | | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of
2002. |
||||
32.1 | | Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of
2002. |
||||
32.2 | | Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of
2002. |
* | Incorporated by reference. |
|
+ | Compensatory plan or arrangement under which executive officers or directors of the Company
may participate. |
55