Edgar Filing: CONSOLIDATED GRAPHICS INC /TX/

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

FORM 10-Q

(MARK ONE)

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2001

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM _______________ TO _______________

COMMISSION FILE NUMBER 0-24068

-------------------

CONSOLIDATED GRAPHICS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

TEXAS 76-0190827
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)

5858 WESTHEIMER ROAD, SUITE 200
HOUSTON, TEXAS 77057
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)

Registrant's telephone number, including area code: (713) 787-0977

Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

Yes [X] No [ ]

The number of shares of Common Stock, par value $.01 per share, of the
Registrant outstanding at October 31, 2000 was 13,152,050.

CONSOLIDATED GRAPHICS, INC.

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2001

INDEX

PAGE
----

Part I -- Financial Information

Item 1 -- Financial Statements

Consolidated Balance Sheets at September 30, 2001 and March 31, 2001........................................ 1

Consolidated Income Statements for the Three and Six Months Ended
September 30, 2001 and 2000............................................................................... 2

Consolidated Statements of Cash Flows for the Six Months Ended
September 30, 2001 and 2000............................................................................... 3

Notes to Consolidated Financial Statements.................................................................. 4

Item 2 -- Management's Discussion and Analysis of Financial Condition and
Results of Operations.............................................................................. 7

Item 3 -- Quantitative and Qualitative Disclosure About Market Risk............................................. 12

Part II -- Other Information

Item 1 -- Legal Proceedings..................................................................................... 13

Item 2 -- Changes in Securities and Use of Proceeds............................................................. 13

Item 3 -- Defaults upon Senior Securities....................................................................... 13

Item 4 -- Submission of Matters to a Vote of Security Holders................................................... 13

Item 5 -- Other Information..................................................................................... 13

Item 6 -- Exhibits and Reports on Form 8-K...................................................................... 13

Signatures........................................................................................................... 15

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CONSOLIDATED GRAPHICS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

SEPTEMBER 30, MARCH 31,
2001 2001
---------------- -----------------
ASSETS (UNAUDITED) (AUDITED)

CURRENT ASSETS
Cash and cash equivalents................................................. $ 6,850 $ 8,667
Accounts receivable, net.................................................. 113,255 116,095
Inventories............................................................... 31,045 31,536
Prepaid expenses.......................................................... 5,748 4,605
Deferred income tax assets................................................ 4,870 4,023
---------------- -----------------
Total current assets................................................. 161,768 164,926

PROPERTY AND EQUIPMENT, net..................................................... 287,603 299,871
GOODWILL, net................................................................... 200,904 203,030
OTHER ASSETS.................................................................... 7,554 6,840
---------------- -----------------
$657,829 $674,667
================ =================

LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES
Current portion of long-term debt......................................... $ 16,443 $ 18,711
Accounts payable.......................................................... 23,994 33,865
Accrued liabilities....................................................... 32,425 32,609
Income taxes payable...................................................... 4,670 253
---------------- -----------------
Total current liabilities........................................... 77,532 85,438

LONG-TERM DEBT, net of current portion 226,225 246,729
DEFERRED INCOME TAXES........................................................... 55,649 54,966
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Common stock, $.01 par value; 100,000,000 shares authorized;
13,133,916 and 13,018,795 issued and outstanding...................... 131 130
Additional paid-in capital................................................ 156,707 155,199
Retained earnings......................................................... 141,585 132,205
---------------- -----------------
Total shareholders' equity.......................................... 298,423 287,534
---------------- -----------------
$657,829 $674,667
================ =================

See accompanying notes to consolidated financial statements.

CONSOLIDATED GRAPHICS, INC.
CONSOLIDATED INCOME STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)

THREE MONTHS ENDED SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------ -----------------------
2001 2000 2001 2000
------------------------ -----------------------

SALES................................................. $160,157 $172,503 $324,592 $345,989

COST OF SALES......................................... 118,279 123,244 238,882 247,302
------------------------ -----------------------
Gross profit.................................... 41,878 49,259 85,710 98,687
SELLING EXPENSES...................................... 16,897 17,225 34,061 34,631
GENERAL AND ADMINISTRATIVE EXPENSES................... 13,660 13,646 27,251 27,363
------------------------ -----------------------
Operating income................................ 11,321 18,388 24,398 36,693
INTEREST EXPENSE...................................... 4,154 5,198 8,764 10,109
------------------------ -----------------------
Income before income taxes...................... 7,167 13,190 15,634 26,584
PROVISION FOR INCOME TAXES............................ 2,867 5,276 6,254 10,634
------------------------ -----------------------
NET INCOME............................................ $ 4,300 $ 7,914 $ 9,380 $ 15,950
======================== =======================
BASIC EARNINGS PER SHARE.............................. $ .33 $ .61 $ .72 $ 1.20
======================== =======================
DILUTED EARNINGS PER SHARE............................ $ .32 $ .61 $ .70 $ 1.20
======================== =======================

SHARES USED TO COMPUTE EARNINGS PER SHARE
Basic........................................... 13,085 13,035 13,054 13,318
Diluted......................................... 13,438 13,051 13,334 13,329

See accompanying notes to consolidated financial statements.

CONSOLIDATED GRAPHICS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)

SIX MONTHS ENDED
SEPTEMBER 30,
--------------------------
2001 2000
------------ ------------

OPERATING ACTIVITIES:
Net income.............................................................. $9,380 $15,950
Adjustments to reconcile net income to net cash provided
by operating activities --
Depreciation and amortization....................................... 20,832 18,471
Deferred income tax provision....................................... (164) 3,116
Changes in assets and liabilities, net of effects of acquisitions-
Accounts receivable.............................................. 3,118 (517)
Inventories...................................................... 491 (2,011)
Prepaid expenses................................................. (1,143) (492)
Other assets..................................................... (301) 317
Accounts payable and accrued liabilities......................... (8,571) 209
Income taxes payable............................................. 4,662 (572)
------------ ------------
Net cash provided by operating activities.................... 28,304 34,471
------------ ------------

INVESTING ACTIVITIES:
Acquisitions of businesses.............................................. (2,321) (2,619)
Purchases of property and equipment..................................... (7,485) (12,067)
Proceeds from asset dispositions........................................ 1,650 853
------------ ------------
Net cash used in investing activities........................ (8,156) (13,833)
------------ ------------

FINANCING ACTIVITIES:
Proceeds from bank credit facilities.................................... 10,124 114,365
Payments on bank credit facilities...................................... (28,871) (129,693)
Payments on long-term debt.............................................. (4,482) (3,433)
Payments to repurchase and retire common stock.......................... - (6,678)
Proceeds from exercise of stock options and other....................... 1,264 165
------------ ------------
Net cash used in financing activities........................ (21,965) (25,274)
------------ ------------

NET DECREASE IN CASH AND CASH EQUIVALENTS..................................... (1,817) (4,636)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD.............................. 8,667 8,197
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD.................................... $6,850 $ 3,561
============ ============

See accompanying notes to consolidated financial statements.

CONSOLIDATED GRAPHICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS)
(UNAUDITED)

1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

The accompanying unaudited consolidated financial statements include
the accounts of Consolidated Graphics, Inc. and subsidiaries (collectively
with its subsidiaries referred to as "the Company"). All intercompany
accounts and transactions have been eliminated. Such statements have been
prepared in accordance with generally accepted accounting principles and the
Securities and Exchange Commission's rules and regulations for reporting
interim financial information. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management,
all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation of the accompanying unaudited consolidated
financial statements have been included. Operating results for the six months
ended September 30, 2001 are not necessarily indicative of future operating
results. Balance sheet information as of March 31, 2001 has been derived from
the 2001 annual audited consolidated financial statements of the Company. For
further information, refer to the consolidated financial statements and
footnotes thereto included in the Company's Form 10-K filed with the
Securities and Exchange Commission in June 2001.

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 and dilutive stock options outstanding.

The consolidated statements of cash flows provide information about
the Company's sources and uses of cash and exclude the effects of non-cash
transactions. Significant non-cash transactions for the six months ended
September 30, 2001, include the issuance of term equipment notes totaling
$457 related to the purchase of printing equipment (see Note 2. Long-term
Debt). The following is a summary of total cash paid for interest and income
taxes (net of refunds):

SIX MONTHS ENDED
SEPTEMBER 30,
---------------------------
2001 2000
---------- ----------

CASH PAID FOR:
Interest..................................... $8,651 $10,903
Income taxes................................. 2,465 8,110

2. LONG-TERM DEBT
The following is a summary of the Company's long-term debt as of:

SEPTEMBER 30, MARCH 31,
2001 2001
------------------- ------------------

Bank credit facilities................................... $164,431 $ 183,178
Term equipment notes..................................... 72,312 75,665
Other.................................................... 5,925 6,597
------------------- ------------------
242,668 265,440
Less current portion..................................... (16,443) (18,711)
------------------- ------------------
$ 226,225 $ 246,729
=================== ==================

CONSOLIDATED GRAPHICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(IN THOUSANDS)
(UNAUDITED)

The Company entered into a five-year $225,000 senior secured credit
facility (the "Bank Credit Facility") with eleven banks in December 2000. The
Bank Credit Facility is composed of a $50,000 five-year term loan (the "Term
Loan"), of which $37,500 was outstanding at September 30, 2001, and a
$175,000 five-year revolving credit line (the "Revolving Line"), of which
$126,300 was outstanding at September 30, 2001. The size of the Revolving
Line may be increased by $50,000 at a later date by adding additional
lenders. The Term Loan requires quarterly payments of $2,500 each through
September 30, 2005.

Borrowings outstanding under the Bank Credit Facility are secured by
substantially all of the Company's assets other than real estate and certain
equipment subject to term note obligations and other financing. Borrowings
under the Bank Credit Facility accrue interest, at the Company's option, at
either (1) the London Interbank Offered Rate (LIBOR) plus a margin of 1.25%
to 2.25%, or (2) an alternate base rate (based upon the greater of the agent
bank's prime lending rate or the Federal Funds effective rate plus .50%) plus
a margin of up to 1.00%. The Company is also required to pay a commitment fee
on available but unused amounts ranging from .275% to .375%. The interest
rate margin and the commitment fee are based upon the Company's ratio of
Funded Debt to Pro Forma Consolidated EBITDA, as defined, redetermined
quarterly. At September 30, 2001 borrowings outstanding under the Term Loan
and the Revolving Line accrued interest at a weighted average rate of 5.03%.

The proceeds of the Bank Credit Facility can be used to repay
certain indebtedness, finance certain acquisitions and provide for working
capital and general corporate purposes. Proceeds can also be used by the
Company to repurchase its common stock, subject to a limit of $25,000 and
certain other restrictions. The Company is subject to certain covenants and
restrictions and we must meet certain financial tests pursuant to and as
defined in the Bank Credit Facility.

In addition, the Company entered into a one-year auxiliary revolving
credit facility (the "Auxiliary Bank Facility") with a commercial bank in
December 2000. This Auxiliary Bank Facility is unsecured and has a maximum
borrowing capacity of $5,000. At September 30, 2001, borrowings outstanding
under the Auxiliary Bank Facility totaled $631 and accrued interest at 5.48%.

The term equipment notes consist primarily of term notes payable
pursuant to printing equipment purchase and financing agreements between the
Company and two printing equipment manufacturers. The agreements provide for
fixed monthly payments over periods of either five or ten years and are
secured by the purchased equipment. At September 30, 2001, outstanding
borrowings under these agreements totaled $69,401 and were subject to a
weighted average interest rate of 7.73%. The remaining balance of term
equipment notes totaling $2,911 primarily consists of various secured debt
obligations assumed by the Company in connection with certain prior year
acquisitions. The Company is not subject to any significant financial
covenants in connection with any of these equipment notes; however, the Bank
Credit Facility places certain limitations on the amount of additional term
note obligations the Company may incur in the future.

3. ACQUISITIONS

During the six months ended September 30, 2001, the Company paid
cash of $2,321 to satisfy certain liabilities of acquired businesses that
existed at March 31, 2001 or pursuant to earnout agreements entered into in
connection with certain prior year acquisitions. On September 18, 2001, the
Company also announced the signing of a nonbinding letter of intent to
acquire American Lithographers, Inc. of California.

4. RECENT ACCOUNTING PRONOUNCEMENTS

primarily requires that companies discontinue amortizing goodwill and perform
annual impairment tests to determine if the remaining balance of goodwill or
other intangible assets should be reduced to their estimated fair values.
SFAS No. 141 also requires companies to separately report more specifically
identifiable intangible assets and SFAS No. 142 requires the amortization of
such intangible assets over their useful life, if determinable. SFAS No. 142
is effective for fiscal years beginning after December 15, 2001. The Company
expects to adopt SFAS No. 142 during its fiscal 2003 first quarter, which
ends June 30, 2002. Management is currently reviewing the impact of the
adoption of SFAS Nos. 141 and 142 on its consolidated financial position and
consolidated results of operations.

SFAS No. 143, ACCOUNTING FOR ASSET RETIREMENT OBLIGATION and SFAS
No. 144, ACCOUNTING FOR THE IMPAIRMENT OR DISPOSAL OF LONG-LIVED ASSETS were
issued in August 2001. SFAS 143 requires that a liability for an asset
retirement obligation be recognized in the period in which it is incurred if
a reasonable estimate of fair value can be made. The associated asset
retirement costs are capitalized as part of the carrying amount of the
long-lived asset. SFAS 143 is effective for fiscal years beginning after June
15, 2002. SFAS No. 144 addresses the financial accounting and reporting for
the impairment or disposal of long-lived assets and supersedes SFAS No. 121.
SFAS 144 is effective for fiscal years beginning after December 15, 2001, and
interim periods within those fiscal years. Management does not believe that
the adoption of SFAS Nos. 143 and 144 will have a material impact on its
consolidated financial position and consolidated results of operations.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

THE FOLLOWING DISCUSSION CONTAINS FORWARD-LOOKING INFORMATION.
READERS ARE CAUTIONED THAT SUCH INFORMATION INVOLVES KNOWN AND UNKNOWN RISKS
AND UNCERTAINTIES, INCLUDING THOSE CREATED BY GENERAL MARKET CONDITIONS,
COMPETITION AND THE POSSIBILITY THAT EVENTS MAY OCCUR WHICH LIMIT THE ABILITY
OF THE COMPANY TO MAINTAIN OR IMPROVE ITS OPERATING RESULTS AND ACQUIRE
ADDITIONAL PRINTING BUSINESSES. ALTHOUGH THE COMPANY BELIEVES THAT THE
ASSUMPTIONS UNDERLYING THE FORWARD-LOOKING STATEMENTS ARE REASONABLE, ANY OF
THE ASSUMPTIONS COULD BE INACCURATE, AND THERE CAN BE NO ASSURANCE THAT THE
FORWARD-LOOKING STATEMENTS INCLUDED HEREIN WILL PROVE TO BE ACCURATE. THE
INCLUSION OF SUCH INFORMATION SHOULD NOT BE REGARDED AS A REPRESENTATION BY
THE COMPANY OR ANY OTHER PERSON THAT THE OBJECTIVES AND PLANS OF THE COMPANY
WILL BE ACHIEVED. THE COMPANY EXPRESSLY DISCLAIMS ANY DUTY TO PROVIDE UPDATES
TO THESE FORWARD-LOOKING STATEMENTS, ASSUMPTIONS OR OTHER FACTORS AFTER THE
DATE OF THIS REPORT ON FORM 10-Q TO REFLECT THE OCCURRENCE OF EVENTS OR
CIRCUMSTANCES OR CHANGES IN EXPECTATIONS.

THE FOLLOWING DISCUSSION OF THE FINANCIAL CONDITION AND PERFORMANCE
OF THE COMPANY SHOULD BE READ IN CONJUNCTION WITH THE CONSOLIDATED FINANCIAL
STATEMENTS INCLUDED HEREIN AND THE CONSOLIDATED FINANCIAL STATEMENTS AND
RELATED NOTES AND OTHER DETAILED INFORMATION REGARDING THE COMPANY INCLUDED IN
THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED MARCH 31,
2001 AND OTHER REPORTS FILED BY THE COMPANY WITH THE SECURITIES AND EXCHANGE
COMMISSION. OPERATING RESULTS FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2001 ARE
NOT NECESSARILY INDICATIVE OF THE RESULTS TO BE EXPECTED FOR THE ENTIRE FISCAL
YEAR ENDING MARCH 31, 2002 OR ANY PERIODS THEREAFTER.

OVERVIEW

Our Company is a leading national provider of commercial printing
services and is recognized as the largest sheet-fed and half-web commercial
printing company in the United States with 63 printing facilities in 25
states. We are focused on adding value to our operating companies by
providing the financial and operational strengths, management support and
technological advantages associated with a national organization. All of our
printing businesses represent one reportable operating segment because, in
general, they provide the same type of services and exhibit similar economic
characteristics.

The majority of our sales are derived from traditional printing
services, which include electronic prepress, printing, finishing, storage,
and delivery of high-quality, custom-designed products. Examples of such
products include multicolor product and capability brochures, shareholder
communications, catalogs, training manuals, point-of-purchase marketing
material and direct mail pieces. We have a diverse customer base, including
national and local corporations, mutual fund companies, advertising agencies,
graphic design firms, catalog retailers and direct mail distributors.

Our printing operations also capitalize on their advanced
technological capabilities and expertise in digital processes to provide a
variety of electronic products and services that are complementary to our
traditional printing services. Our electronic products and services are
developed and marketed to existing and potential customers through CGXmedia.
Our two proprietary, Internet-based software solutions include COIN (Custom
Ordering Interactive Network), our on-line print procurement and fulfillment
software, and OPAL (On-line Private Asset Library), our Web-based tool used
by companies to efficiently manage their valuable digital assets. CGXmedia
also offers a variety of additional electronic media solutions, such as
CD-ROM development and production, conversion of text in printed or digital
form to eBook format, electronic journal composition and variable data and
on-demand printing for short run, fast turnaround projects.

Our Company offers fulfillment services, whereby we assemble,
package, store and distribute promotional, educational and training documents
on behalf of our customers. We help customers manage their inventory of
printed products and related materials (such as binders and product samples),
while also providing "just-in-time" assembly and delivery of customized
materials to end users. Our convenient mailing services include a number of
options for sorting, packaging, inkjet labeling and shipping of large
quantities of printed materials to any number of distribution points.

Our printing operations maintain their own sales, estimating,
customer service, prepress, production, postpress and accounting departments.
Our corporate headquarters staff provides support to our printing operations
in such areas as human resources, purchasing, and management information
systems. We also maintain centralized risk management, treasury, investor
relations, tax and consolidated financial reporting activities.
7

Most of the products we produce are generated by individual orders
through commissioned sales personnel and, in some cases, pursuant to
long-term contracts. To a large extent, continued engagement of our Company
by our customers for successive jobs depends upon the customer's satisfaction
with the quality of services provided. As such, we are unable to accurately
predict, for more than a few weeks in advance, the number, size and
profitability of printing jobs that we expect to produce.

Our Company's primary business strategy is to generate sales and
profit growth by capitalizing on our nationwide coverage, extensive range of
capabilities and financial strength to:

- Increase local market share,

- Invest in new technology and expand our capabilities,

- Aggressively pursue national account opportunities,

- Maximize the potential of CGXmedia to create additional
revenue sources and generate additional print demand.

We continue to selectively pursue opportunities to acquire
profitable, well-managed printing companies that fit our general criteria. We
also strive to achieve operational improvements by leveraging our economies
of scale with national purchasing agreements, sharing best practices and
benchmarking financial and operational data across our network of 63
companies.

RESULTS OF OPERATIONS

The following tables set forth the Company's historical income
statements for the periods indicated:

THREE MONTHS SIX MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
----------------------- ------------------------
2001 2000 2001 2000
---------- ---------- ----------- ------------
(in millions) (in millions)

Sales................................................... $ 160.2 $ 172.5 $ 324.6 $ 346.0
Cost of sales........................................... 118.3 123.2 238.9 247.3
---------- --------- --------- ----------
Gross profit....................................... 41.9 49.3 85.7 98.7
Selling expenses........................................ 16.9 17.2 34.1 34.6
General and administrative expenses..................... 13.7 13.7 27.2 27.4
---------- --------- --------- ----------
Operating income................................... 11.3 18.4 24.4 36.7
Interest expense........................................ 4.1 5.2 8.8 10.1
---------- --------- --------- ----------
Income before income taxes......................... 7.2 13.2 15.6 26.6
Provision for income taxes.............................. 2.9 5.3 6.2 10.6
---------- --------- --------- ----------
Net income......................................... $ 4.3 $ 7.9 $ 9.4 $ 16.0
========== ========= ========= ==========

The following tables set forth the components of income expressed as a
percentage of sales for the periods indicated:

THREE MONTHS SIX MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
------------------------ ----------------------
2001 2000 2001 2000
----------- ----------- ---------- -----------

Sales.................................................. 100.0% 100.0% 100.0% 100.0%
Cost of sales.......................................... 73.9 71.4 73.6 71.5
----------- ----------- ---------- -----------
Gross profit...................................... 26.1 28.6 26.4 28.5
Selling expenses....................................... 10.5 10.0 10.5 10.0
General and administrative expenses.................... 8.5 7.9 8.4 7.9
----------- ----------- ---------- -----------
Operating income.................................. 7.1 10.7 7.5 10.6
Interest expense....................................... 2.6 3.1 2.7 2.9
----------- ----------- ---------- -----------
Income before income taxes........................ 4.5 7.6 4.8 7.7
Provision for income taxes............................. 1.8 3.0 1.9 3.1
----------- ----------- ---------- -----------
Net income........................................ 2.7% 4.6% 2.9% 4.6%
=========== =========== ========== ===========

THREE MONTHS ENDED SEPTEMBER 30, 2001 COMPARED WITH THREE MONTHS ENDED
SEPTEMBER 30, 2000

Sales decreased 7% to $160.2 million for the quarter ended September
30, 2001, from $172.5 million for the same period last year. This decline is
due primarily to a reduction in pricing necessary for our operating companies
to maintain or increase market share in the midst of the current economic
slowdown, coupled with a dramatic reduction in business activity during
September caused by the recent terrorist acts. The remaining decline is
related to management's decision to exit a portion of our business at one
operation and combine three under-performing operations into nearby
facilities during the quarter ended March 31, 2001.

Gross profit decreased 15% to $41.9 million for the quarter ended
September 30, 2001, from $49.3 million for the same period last year. Gross
profit as a percentage of sales decreased to 26.1% during the quarter from
28.6% for the same period last year. This decrease resulted from the pricing
pressures and business slowdown described above, coupled with higher
depreciation on our prior year investments in additional capital equipment.

Selling expenses decreased 2% to $16.9 million for the quarter ended
September 30, 2001, from $17.2 million for the same period last year,
primarily due to the decreased sales levels noted above. Selling expenses as
a percentage of sales increased to 10.5% during the quarter, as compared to
10.0% in the same period last year. This increase is due to higher marketing
and training costs attributable to our pursuit of national accounts and our
electronic media initiatives as we continue to develop and market our
electronic products and services available through CGXmedia.

General and administrative expense remained constant at $13.7
million for the quarter ended September 30, 2001 compared to the same period
last year. General and administrative expenses as a percentage of sales
increased to 8.5% during the quarter, as compared to 7.9% in the same period
last year. This increase reflects the impact of the sales decline noted
above, while overhead and administrative costs remained constant to maintain
our current level of operations.

Net interest expense decreased to $4.1 million for the quarter ended
September 30, 2001, from $5.2 million for the same period last year,
primarily due to lower borrowings outstanding and lower interest rates paid
under our bank credit facilities.

Effective income tax rates remained constant at 40% for the quarter
ended September 30, 2001 as compared to the same period last year.

SIX MONTHS ENDED SEPTEMBER 30, 2001 COMPARED WITH SIX MONTHS ENDED SEPTEMBER
30, 2000

Sales decreased 6% to $324.6 million for the six months ended
September 30, 2001, from $346.0 million for the same period last year. This
decrease reflects reduced print demand and pricing pressures due to the weak
economy, as well as the impact of the recent terrorist acts. We also exited a
portion of our business at one operation and combined three under-performing
operations into nearby facilities during the quarter ended March 31, 2001.

Gross profit decreased 13% to $85.7 million for the six months ended
September 30, 2001, from $98.7 million for the same period last year. Gross
profit as a percentage of sales decreased to 26.4% during the six months
ended September 30, 2001, from 28.5% for the same period last year. This
decrease is primarily due to a combination of weak economic conditions and
higher depreciation as discussed above.

Selling expenses decreased 2% to $34.1 million for the six months
ended September 30, 2001, from $34.6 million for the same period last year.
Selling expenses as a percentage of sales increased to 10.5% for the six
months ended September 30, 2001, as compared to 10.0% in the same period last
year, due primarily to higher costs attributable to our pursuit of national
accounts and new business through CGXmedia.

General and administrative expenses decreased slightly to $27.2
million for the six months ended September 30, 2001, from $27.4 million for
the same period last year. General and administrative expenses as a
percentage of sales increased to 8.4% for the six months ended September 30,
2001, as compared to 7.9% in the same period last year. This increase
reflects the impact of the sales decline noted above, while overhead and
administrative costs remained constant to maintain our current level of
operations.

Net interest expense decreased to $8.8 million for the six months
ended September 30, 2001, from $10.1

million for the same period last year, primarily due to lower borrowings
outstanding and lower interest rates paid under our bank credit facilities.

Effective income tax rates remained constant at 40% for the six
months ended September 30, 2001 as compared to the corresponding period last
year.

LIQUIDITY AND CAPITAL RESOURCES

At September 30, 2001, we had cash and cash equivalents of $6.9
million, working capital of $84.2 million and total debt outstanding of
$242.7 million. Our cash requirements are financed through internally
generated funds and, as necessary, borrowings under our bank credit
facilities. We generated cash flow from operations (net income plus
depreciation, amortization and deferred income tax provision) of $30.0
million for the six months ended September 30, 2001, which exceeded our cash
requirements for the period. During the six months ended September 30, 2001,
we utilized cash for capital expenditures totaling $7.5 million and reduced
the balance outstanding on our bank credit facilities and other debt by $23.2
million.

INVESTING ACTIVITIES

Pursuant to earnout agreements entered into in connection with
certain acquisitions, we paid $1.5 million during the six months ended
September 30, 2001, and, as of that date, we were contingently obligated at
certain times and under certain circumstances through fiscal 2005 to issue up
to 134,660 shares of our common stock and to make additional cash payments of
up to $13.8 million for all periods in the aggregate.

During the quarter ended September 30, 2001, we entered into a
nonbinding letter of intent to acquire American Lithographers, Inc. of
California. We intend to continue pursuing acquisition opportunities at
prices we believe are reasonable based upon market conditions and at returns
relative to alternative opportunities to invest our available capital. There
can be no assurance that we will be able to acquire additional businesses at
prices and on terms acceptable to us in the future. In addition, there can be
no assurances that we will be able to establish, maintain or increase the
profitability of any acquired business.

We expect to fund future acquisitions through cash flow from
operations, borrowings under our revolving credit facilities or the issuance
of our common stock. To the extent we seek to fund a significant portion of
the consideration for future acquisitions with cash, we may seek to increase
the amount of our bank credit facilities or obtain alternative sources of
financing, although there can be no assurance that we will be able to do so.

We also expect to continue making capital expenditures using cash
flow from operations, supplemented as necessary by borrowings under our bank
credit facilities or the issuance of term notes.

FINANCING ACTIVITIES

The Company entered into a five-year $225.0 million senior secured
credit facility (the "Bank Credit Facility") with eleven banks in December
2000. The Bank Credit Facility is composed of a $50.0 million five-year, term
loan (the "Term Loan"), of which $37.5 million was outstanding at September
30, 2001, and $175.0 million five-year revolving credit line (the "Revolving
Line"), of which $126.3 million was outstanding at September 30, 2001. The
size of the Revolving Line may be increased by $50.0 million at a later date
by adding additional lenders. The Term Loan requires quarterly payments of
$2.5 million each through September 30, 2005.

Borrowings outstanding under the Bank Credit Facility are secured by
substantially all of our assets other than our real estate and certain
equipment subject to term note obligations and other financing. Borrowings
under the Bank Credit Facility accrue interest, at our option, at either (1)
the London Interbank Offered Rate (LIBOR) plus a margin of 1.25% to 2.25%, or
(2) an alternate base rate (based upon the greater of the agent bank's prime
lending rate or the Federal Funds effective rate plus .50%) plus a margin of
up to 1.00%. We are also required to pay a commitment fee on available but
unused amounts ranging from .275% to .375%. The interest rate margin and the
commitment fee are based upon our ratio of Funded Debt to Pro Forma
Consolidated EBITDA, as defined, redetermined quarterly. At September 30,
2001, borrowings outstanding under the Term Loan and the Revolving Line
accrued interest at a weighted average rate of 5.03%.

The proceeds of the Bank Credit Facility can be used to repay
certain indebtedness, finance certain acquisitions and provide for working
capital and general corporate purposes. Proceeds can also be used by the
Company to repurchase its common stock, subject to limit of $25.0 million and
certain other restrictions. Our Company is subject to certain covenants and
restrictions and we must meet certain financial tests pursuant to and as
defined in the Bank Credit Facility.

In addition, we entered into a one-year auxiliary revolving credit
facility (the "Auxiliary Bank Facility") with a commercial bank in December
2000. This Auxiliary Bank Facility is unsecured and has a maximum borrowing
capacity of $5.0 million. At September 30, 2001, borrowings outstanding under
the Auxiliary Bank Facility totaled $0.6 million and accrued interest at
5.48%.

We also have agreements with two printing equipment manufacturers,
pursuant to which we receive certain volume purchase incentives and long-term
financing options with respect to the purchase of printing presses and other
equipment. Under these agreements, we were obligated on term notes totaling
$69.4 million and subject to a weighted average interest rate of 7.73% as of
September 30, 2001. The agreements provide for fixed monthly payments over
periods of either five or ten years and are secured by the purchased
equipment. Our Company is not subject to any significant financial covenants
in connection with any of these equipment notes; however, our Bank Credit
Facility places certain limitations on the amount of additional term note
obligations we may incur in the future.

RECENT ACCOUNTING PRONOUNCEMENTS

Statement of Financial Accounting Standards ("SFAS") No. 141,
BUSINESS COMBINATIONS, and SFAS No. 142, GOODWILL AND OTHER INTANGIBLE
ASSETS, were issued in July 2001. SFAS No. 141 primarily requires that all
acquisitions initiated after June 30, 2001, be accounted for using the
purchase method of accounting. SFAS 142 primarily requires that companies
discontinue amortizing goodwill and perform annual impairment tests to
determine if the remaining balance of goodwill or other intangible assets
should be reduced to their estimated fair values. SFAS No. 141 also requires
companies to separately report more specifically identifiable intangible
assets and SFAS No. 142 requires the amortization of such intangible assets
over their life, if determinable. SFAS No. 142 is effective for fiscal years
beginning after December 15, 2001. Our Company expects to adopt SFAS No. 142
during its fiscal 2003 first quarter, which ends June 30, 2002. Management is
currently reviewing the impact of the adoption of SFAS Nos. 141 and 142 on
its consolidated financial position and consolidated results of operations.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

Market risk generally means the risk that losses may occur in the
value of certain financial instruments as a result of movements in interest
rates, foreign currency exchange rates and commodity prices. We do not hold
or utilize derivative financial instruments, which could expose our Company
to significant market risk. However, we are exposed to market risk for
changes in interest rates related primarily to our revolving credit
facilities. As of September 30, 2001, there were no material changes in our
market risk or the estimated fair value of our short-term and long-term debt
obligations as reported in our Annual Report on Form 10-K for the fiscal year
ended March 31, 2001.

CONSOLIDATED GRAPHICS, INC.
PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

From time to time our Company is involved in litigation relating to
claims arising out of its operations in the normal course of business. We
maintain insurance coverage against potential claims in an amount which we
believe to be adequate. Currently, we are not aware of any legal proceedings or
claims pending against our Company that management believes will have a material
adverse effect on our consolidated financial position or consolidated results of
operations.

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

On July 26, 2001, the Company held its Annual Meeting of
Shareholders. At the meeting, Clarence C. Comer and Gary L. Forbes were
elected to serve as Class II directors on the Company's Board of Directors
until the 2004 Annual Meeting of Shareholders or until their successors have
been duly elected and qualified. The votes "for" and "against" each director
were as follows: Clarence C. Comer, "for" 11,418,923 and "against" 114,262;
and Gary L. Forbes, "for" 11,418,923 and "against" 114,262. The additional
directors continuing in office after the meeting were Joe R. Davis, James H.
Limmer, Dr. Hugh N. West, Larry J. Alexander and Brady F. Carruth.

ITEM 5. OTHER INFORMATION

On October 22, 2001, the Company held a Regular Meeting of the Board of
Directors. At the meeting the Board adopted a resolution that Larry J.
Alexander, Brady F. Carruth and James H. Limmer are the designated members of
the Nominating Committee.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) EXHIBITS:
*3.1 Restated Articles of Incorporation of the Company filed with the
Secretary of State of the State of Texas on July 27, 1994 (Consolidated
Graphics, Inc. Form 10-Q (June 30, 1994) SEC File No. 0-24068, Exhibit
4(a)).
*3.2 Articles of Amendment to the Restated Articles of Incorporation of the
Company dated as of July 29, 1998 (Consolidated Graphics, Inc. Form 10-Q
(June 30, 1998) SEC File No. 0-24068, Exhibit 3.1).
*3.3 Restated By-Laws of the Company, dated as of November 2, 1998
(Consolidated Graphics, Inc. Form 10-Q (September 30, 1998) SEC File No.
0-24068, Exhibit 3.2).
*3.4 Restated By-Laws of the Company, as amended on June 23, 1999
(Consolidated Graphics, Inc. Form 10-Q (June 30, 1999) SEC File No.
0-24068, Exhibit 3.4).
*3.5 Amendments to the By-Laws of the Company on December 15, 1999
(Consolidated Graphics, Inc. Form 8-K (December 15, 1999) SEC File No.
0-24068, Exhibit 3.2).
*4.1 Specimen Common Stock Certificate (Consolidated Graphics, Inc. Form 10-K
(March 31, 1998) SEC File No. 0-24068, Exhibit 4.1).
*4.2 Rights Agreement dated as of December 15, 1999 between Consolidated
Graphics, Inc. and American Stock Transfer and Trust Company, as Rights
Agent, which includes as Exhibit A the Certificate of Designations of
Series A Preferred Stock, as Exhibit B the form of Rights Certificate and
as Exhibit C the form of summary of Rights to Purchase Shares
(Consolidated Graphics, Inc. Form 8-K (December 15, 1999) SEC File No.
0-24068, Exhibit 4.1).
* Incorporated by reference

(b) REPORTS ON FORM 8-K:

1) Form 8-K, filed July 25, 2001 in connection with the press release
announcing the Company's fiscal 2002 first quarter results.

2) Form 8-K, filed August 21, 2001 in connection with the press release
announcing Darrell Whitley as President of CGXmedia.

3) Form 8-K, filed September 18, 2001 in connection with the press
release announcing the signing of a letter of intent to acquire
American Lithographers, Inc. of California.

4) Form 8-K, filed October 24, 2001 in connection with the press release
announcing the Company's fiscal 2002 second quarter results.

SIGNATURES

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934,
THE REGISTRANT, CONSOLIDATED GRAPHICS, INC., HAS DULY CAUSED THIS REPORT TO
BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.

CONSOLIDATED GRAPHICS, INC.

Dated: November 13, 2001 By: /s/ Wayne M. Rose
--------------------------------------
Wayne M. Rose
Executive Vice President
Chief Financial Officer
and Secretary