-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, OWYwWFZirGaxSp8nDpr9QR4llMaAD8y8qmDCXYwIgxaLhkXN/Qow+XzbZAQlssxj 0SHnFTuRWOZew7dS5VFLnw== 0000890566-99-001172.txt : 19990817 0000890566-99-001172.hdr.sgml : 19990817 ACCESSION NUMBER: 0000890566-99-001172 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990816 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CONSOLIDATED GRAPHICS INC /TX/ CENTRAL INDEX KEY: 0000921500 STANDARD INDUSTRIAL CLASSIFICATION: COMMERCIAL PRINTING [2750] IRS NUMBER: 760190827 STATE OF INCORPORATION: TX FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-12631 FILM NUMBER: 99691955 BUSINESS ADDRESS: STREET 1: 5858 WESTHEIMER STE 200 CITY: HOUSTON STATE: TX ZIP: 77057 BUSINESS PHONE: 7137870977 MAIL ADDRESS: STREET 1: 2210 WEST DALLAS STREET CITY: HOUSTON STATE: TX ZIP: 77019 10-Q 1 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 JUNE 30, 1999 OR [ ] 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 July 31, 1999 was 15,722,402. CONSOLIDATED GRAPHICS, INC. FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1999 INDEX PAGE Part I -- Financial Information Item 1 -- Financial Statements Consolidated Balance Sheets at June 30, 1999 and March 31, 1999... 1 Consolidated Income Statements for the Three Months Ended June 30, 1999 and 1998.......................................... 2 Consolidated Statements of Cash Flows for the Three Months Ended June 30, 1999 and 1998.......................................... 3 Notes to Consolidated Financial Statements........................ 4 Item 2 -- Management's Discussion and Analysis of Financial Condition and Results of Operations................................. 6 Item 3 - Quantitative and Qualitative Disclosure About Market Risk... 11 Part II -- Other Information Item 1 -- Legal Proceedings.......................................... 12 Item 2 -- Changes in Securities and Use of Proceeds.................. 12 Item 3 -- Defaults upon Senior Securities............................ 12 Item 4 -- Submission of Matters to a Vote of Security Holders........ 12 Item 5 -- Other Information.......................................... 12 Item 6 -- Exhibits and Reports on Form 8-K........................... 13 Signatures.............................................................. 14 i PART I - FINANICAL INFORMATION ITEM 1. FINANCIAL STATEMENTS CONSOLIDATED GRAPHICS, INC. CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
JUNE 30, MARCH 31, 1999 1999 ---------- --------- (UNAUDITED) (AUDITED) ASSETS CURRENT ASSETS: Cash and cash equivalents .................................. $ 7,449 $ 6,538 Accounts receivable, net ................................... 97,531 92,653 Inventories ................................................ 26,658 27,345 Prepaid expenses ........................................... 3,804 3,983 -------- -------- Total current assets ................................. 135,442 130,519 PROPERTY AND EQUIPMENT, net ....................................... 257,729 230,733 GOODWILL, net ..................................................... 160,527 121,744 OTHER ASSETS ...................................................... 6,937 6,658 -------- -------- $560,635 $489,654 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Current portion of long-term debt .......................... $ 3,602 $ 2,869 Accounts payable ........................................... 39,415 36,920 Accrued liabilities ........................................ 39,007 38,028 Income taxes payable ....................................... 9,170 2,941 -------- -------- Total current liabilities ........................... 91,194 80,758 LONG-TERM DEBT, net of current portion ............................ 177,806 170,574 DEFERRED INCOME TAXES ............................................. 25,834 23,868 COMMITMENTS AND CONTINGENCIES ..................................... -- -- SHAREHOLDERS' EQUITY: Common stock, $.01 par value; 100,000,000 shares authorized; 15,540,864 and 14,649,885 issued and outstanding ....... 155 146 Additional paid-in capital ................................. 177,133 136,488 Retained earnings .......................................... 88,513 77,820 -------- -------- Total shareholders' equity .......................... 265,801 214,454 -------- -------- $560,635 $489,654 ======== ========
See accompanying notes to consolidated financial statements. 1 CONSOLIDATED GRAPHICS, INC. CONSOLIDATED INCOME STATEMENTS (IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED) THREE MONTHS ENDED JUNE 30, ---------------------- 1999 1998 -------- -------- SALES ......................................... $145,829 $ 85,100 COST OF SALES ................................. 100,152 58,014 -------- -------- Gross profit ........................... 45,677 27,086 SELLING EXPENSES .............................. 14,091 8,291 GENERAL AND ADMINISTRATIVE EXPENSES ........... 11,100 6,619 -------- -------- Operating income ....................... 20,486 12,176 INTEREST EXPENSE, net ......................... 2,665 1,471 -------- -------- Income before income taxes ............. 17,821 10,705 PROVISION FOR INCOME TAXES .................... 7,128 4,175 -------- -------- NET INCOME .................................... $ 10,693 $ 6,530 ======== ======== BASIC EARNINGS PER SHARE ...................... $ .71 $ .50 ======== ======== DILUTED EARNINGS PER SHARE .................... $ .70 $ .48 ======== ======== See accompanying notes to consolidated financial statements. 2 CONSOLIDATED GRAPHICS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) (UNAUDITED)
THREE MONTHS ENDED JUNE 30, ----------------------- 1999 1998 --------- --------- OPERATING ACTIVITIES: Net income ............................................................. $ 10,693 $ 6,530 Adjustments to reconcile net income to net cash provided by operating activities - Depreciation and amortization ..................................... 7,203 3,573 Deferred tax provision ............................................ 270 1,092 Changes in assets and liabilities, net of effects of acquisitions-- Accounts receivable ........................................... 1,023 1,958 Inventories ................................................... 2,797 (1,201) Prepaid expenses .............................................. 372 (356) Other assets .................................................. 295 490 Accounts payable and accrued liabilities ...................... (8,192) (1,377) Income taxes payable .......................................... 6,315 3,063 --------- --------- Net cash provided by operating activities ................. 20,776 13,772 --------- --------- INVESTING ACTIVITIES: Acquisitions of businesses, net of cash acquired ....................... (15,228) (42,521) Purchases of property and equipment .................................... (3,835) (6,054) Proceeds from disposition of assets .................................... 267 41 --------- --------- Net cash used in investing activities ..................... (18,796) (48,534) --------- --------- FINANCING ACTIVITIES: Proceeds from revolving credit facilities .............................. 42,196 106,483 Payments on revolving credit facilities ................................ (42,315) (70,588) Payments on other long-term debt ....................................... (1,110) (665) Proceeds from exercise of stock options and other ...................... 160 502 --------- --------- Net cash provided by (used in) financing activities ....... (1,069) 35,732 --------- --------- NET INCREASE IN CASH AND CASH EQUIVALENTS ..................................... 911 970 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD .............................. 6,538 5,268 --------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD .................................... $ 7,449 $ 6,238 ========= =========
See accompanying notes to consolidated financial statements. 3 CONSOLIDATED GRAPHICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) (UNAUDITED) 1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES The accompanying unaudited consolidated financial statements include the accounts of Consolidated Graphics, Inc. and its wholly owned subsidiaries (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 three months ended June 30, 1999 are not necessarily indicative of future operating results. Balance sheet information as of March 31, 1999 has been derived from the 1999 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 1999. Certain reclassifications have been made to fiscal 1999 amounts to conform to the current year presentation. Basic earnings per share are calculated by dividing net income by the weighted average number of common shares outstanding. For the three months ended June 30, 1999 and 1998, the basic weighted average shares outstanding were 15,083,396 and 13,051,965. Diluted earnings per share reflect net income divided by the weighted average number of common shares and dilutive stock options outstanding. For the three months ended June 30, 1999 and 1998, the weighted average number of common shares and dilutive stock options outstanding were 15,377,568 and 13,493,581. 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 during the three months ended June 30,1999 include the issuance of common stock and the issuance or assumption of debt in connection with the acquisition of certain printing businesses (see Note 3. Acquisitions) and an accrual totaling $12,097 related to the purchase of printing presses. Additionally, the Company issued term equipment notes of $9,032 (see Note 2. Long-Term Debt) during the three months ended June 30, 1999 to satisfy certain accrued liabilities as of March 31, 1999 related to the purchase of printing presses. The following is a summary of total cash paid for interest and income taxes (net of refunds). THREE MONTHS ENDED JUNE 30, ------------------- 1999 1998 -------- -------- CASH PAID (RECEIVED) FOR: Interest .......... $ 3,086 $ 1,259 Taxes ............. 547 (1,780) 4 CONSOLIDATED GRAPHICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) (UNAUDITED) 2. LONG-TERM DEBT The following is a summary of the Company's long-term debt as of: JUNE 30, MARCH 31, 1999 1999 ---------- --------- Revolving credit facilities .............. $ 148,278 $ 148,397 Term equipment notes ..................... 28,267 19,966 Other .................................... 4,863 5,080 ---------- --------- 181,408 173,443 Less current portion ..................... (3,602) (2,869) ---------- --------- $ 177,806 $ 170,574 ========== ========= The Company's primary revolving credit facility (the "Credit Agreement") was obtained from a syndicate of commercial banks and provides for a maximum borrowing capacity of $200,000, of which $138,278 was outstanding at June 30, 1999. The Credit Agreement will mature July 31, 2001, at which time all amounts outstanding thereunder will be due. Borrowings outstanding under the Credit Agreement are unsecured and accrue interest at a variable rate (a weighted average of 5.70% on June 30, 1999). In addition, the Company maintains an auxiliary revolving credit facility (the "Auxiliary Facility") with a commercial bank which provides for a maximum borrowing capacity of $10,000, of which the maximum amount was outstanding at June 30, 1999. The interest rate applicable to all borrowings under the Auxiliary Facility at June 30, 1999 was 5.72%. The Company's term equipment notes primarily consist of notes payable pursuant to a printing press purchasing and financing agreement with a major manufacturer. As of June 30, 1999, the Company was obligated on term notes related to such agreement totaling $27,678. These term notes are secured by the purchased presses and provide for fixed monthly principal and interest payments over ten years. The weighted average interest rate on such notes at June 30, 1999 was 7.07%. 3. ACQUISITIONS The Company completed the following acquisitions during the three months ended June 30, 1999: COMPANY PRIMARY MARKET DATE ------- -------------- ---- Wentworth Printing Columbia, South Carolina April 1999 The Printery Milwaukee, Wisconsin April 1999 The Graphics Group Dallas, Texas June 1999 Westland Printers Baltimore, Maryland June 1999 H & N Printing Baltimore, Maryland June 1999 To complete the aforementioned acquisitions, in the aggregate, the Company paid cash of $9,950, issued 855,646 shares of its common stock and discharged debt of the acquired businesses totaling $5,278. Subsequent to June 30, 1999, the Company completed the acquisition of three printing businesses and as of August 9, 1999 had signed a non-binding letter of intent to acquire one other printing business. 5 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS THE FOLLOWING DISCUSSIONS CONTAIN FORWARD-LOOKING INFORMATION. READERS ARE CAUTIONED THAT SUCH INFORMATION INVOLVES 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 OR EXECUTE ITS PRIMARY GROWTH STRATEGY OF ACQUIRING 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 THEREFORE 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 FOLLOWING DISCUSSION OF THE FINANCIAL CONDITION AND PERFORMANCE OF THE COMPANY SHOULD BE READ IN CONJUNCTION WITH 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, 1999 AND OTHER REPORTS FILED BY THE COMPANY WITH THE SECURITIES AND EXCHANGE COMMISSION. THE RESULTS FOR THE THREE MONTHS ENDED JUNE 30, 1999 ARE NOT NECESSARILY INDICATIVE OF THE RESULTS TO BE EXPECTED FOR THE ENTIRE FISCAL YEAR ENDING MARCH 31, 2000. GENERAL The Company is a leading consolidator in the highly fragmented commercial printing industry and is recognized as one of the fastest-growing commercial printing companies in the United States. The Company is headquartered in Houston, Texas and has locally managed printing operations in 25 states as of June 30, 1999. The Company's printing businesses provide a full range of traditional printing services, complemented at certain locations by a variety of digital media and fulfillment services. PRINTING SERVICES - The majority of the Company's sales are derived from traditional printing services, which include electronic prepress, printing, finishing, storage and delivery of printed materials and other products requested by its customers and produced to their specifications. Examples of such documents include high-quality multicolor product and capability brochures, shareholder communications, catalogs, reference materials, training manuals and direct mail pieces. The Company has continually invested in the latest electronic prepress, press and postpress technology to increase capacity and operating efficiencies at its printing businesses and expand the types of printing-related services offered to its customers. DIGITAL/ELECTRONIC MEDIA AND FULFILLMENT SERVICES - Because the Company's printing businesses operate in a digital and electronic media environment, the Company is able to help customers maximize the use of their digital information. Many of the Company's printing businesses capitalize on their expertise in digital processes to offer a wide range of capabilities, including digital data asset management (such as maintaining, repurposing and archiving digital media), CD-ROM production and online ordering system and Web page design and development. The Company's printing businesses also serve their customers by providing a broad array of fulfillment services, whereby they assemble, package, store and distribute promotional, educational or training documents on behalf of their customers. Many corporations utilize these fulfillment services to manage their inventory of printed products and various assembly materials (such as binders and product samples) and provide "just-in-time" assembly and delivery of customized materials to operating locations or other end-users. Orders for fulfillment services are frequently received from customers via the Internet or through order-entry and inventory management systems maintained by the Company. MARKETING AND SALES The Company's printing businesses serve a diverse and growing base of national and locally-based customers in a broad cross section of industries. Because the printing industry is service-oriented, the Company's primary marketing focus is on responding rapidly to customer requirements and producing high quality printed materials at competitive prices. The majority of the Company's print jobs consist of individual orders for custom designed marketing materials which are generated by commissioned sales personnel and, to a lesser extent, through orders received via the Internet or pursuant to long-term contracts. As a result, continued engagement of the Company by its customers for successive jobs is primarily dependent upon, among other things, the customer's satisfaction with the services provided. As such, the Company is unable to predict, for more than a few weeks in advance, the number, size and profitability of print jobs it expects to produce. 6 BUSINESS STRATEGY The Company's strategy is to generate growth in sales and profits through an aggressive acquisition program, coupled with internal growth and operational improvements at its existing businesses. The Company provides its acquired businesses management expertise, greater purchasing power, access to technology and capital and a commitment to training through a unique, comprehensive management development program. As a result, operating margins and efficiencies of newly acquired businesses, which may be lower than those being achieved by the Company's other businesses, typically improve as the Company's operating strategies and strengths are fully implemented. RESULTS OF OPERATIONS The following tables set forth the Company's historical income statements and certain percentage relationships for the periods indicated:
AS A PERCENTAGE OF SALES ----------------- THREE MONTHS THREE MONTHS ENDED JUNE 30, ENDED JUNE 30, ------------------ ----------------- 1999 1998 1999 1998 ------- ------- ------ ------ (in millions) Sales ................................................. $ 145.8 $ 85.1 100.0% 100.0% Cost of sales ......................................... 100.1 58.0 68.7 68.2 --------- --------- ------- ------- Gross profit ....................................... 45.7 27.1 31.3 31.8 Selling expenses ...................................... 14.1 8.3 9.7 9.7 General and administrative expenses ................... 11.1 6.6 7.6 7.8 --------- --------- ------- ------- Operating income ................................... 20.5 12.2 14.0 14.3 Interest expense ...................................... 2.7 1.5 1.8 1.7 --------- --------- ------- ------- Income before income taxes ......................... 17.8 10.7 12.2 12.6 Provision for income taxes ............................ 7.1 4.2 4.9 4.9 --------- --------- ------- ------- Net income ......................................... $ 10.7 $ 6.5 7.3% 7.7% ========= ========= ======= =======
Acquisitions in fiscal 1999 and 2000 are the primary causes of the absolute increases in revenues and expenses since June 30, 1998. Each of the Company's acquisitions in fiscal 1999 and 2000 were accounted for under the purchase method of accounting; accordingly, the Company's consolidated income statements reflect revenues and expenses of acquired businesses only for post-acquisition periods. The following table sets forth the Company's fiscal 1999 and 2000 acquisitions (collectively the "1999/2000 Acquired Businesses") and indicates the period in which each business was acquired. FISCAL 1999 ACQUISITIONS Tursack, Inc.............................. April 1998 Image Sytems.............................. May 1998 Printing, Inc............................. June 1998 Wetzel Brothers........................... June 1998 Graphic Communication..................... June 1998 Paragraphics.............................. July 1998 Pride Printers............................ July 1998 Lincoln Printing.......................... August 1998 Ironwood Litho........................... August 1998 Rush Press................................ September 1998 Printing Corp. of America................. September 1998 Metropolitan Printing..................... October 1998 Graphic Technology of Maryland............ November 1998 McKay Press............................... November 1998 Mount Vernon Printing..................... December 1998 Automated Graphics....................... February 1999 Mercury Printing ......................... March 1999 CMI...................................... March 1999 Maxwell Graphic Arts...................... March 1999 7 FISCAL 2000 ACQUISITIONS Wentworth Printing........................ April 1999 The Printery.............................. April 1999 The Graphics Group....................... June 1999 Westland Printers......................... June 1999 H&N Printing.............................. June 1999 For more information regarding the fiscal 1999 acquisitions, refer to "Notes to Consolidated Financial Statements" included in the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1999. For more information regarding the fiscal 2000 acquisitions, refer to the accompanying "Notes to Consolidated Financial Statements" included elsewhere herein. THREE MONTHS ENDED JUNE 30, 1999 COMPARED WITH THREE MONTHS ENDED JUNE 30, 1998 Sales increased 71% to $145.8 million for the three months ended June 30, 1999, from $85.1 million for the three months ended June 30, 1998. The incremental revenue contribution of the 1999/2000 Acquired Businesses substantially accounted for this increase. Gross profit increased 69% to $45.7 million for the three months ended June 30, 1999, from $27.1 million for the three months ended June 30, 1998, primarily due to the 1999/2000 Acquired Businesses. Gross profit as a percentage of sales decreased to 31.3% for the three months ended June 30, 1999, from 31.8% in the corresponding period of the prior year, because the combined operating margins of the 1999/2000 Acquired Businesses, which contributed a significant portion of the Company's total sales, were lower than the Company's consolidated operating margin for the three months ended June 30, 1998. As discussed above, the Company expects that gross profit margins at recently acquired businesses will be lower than the Company's historical margins, then likely improve as the full benefit of the Company's operating strengths and strategies takes effect. Selling expenses increased 70% to $14.1 million for the three months ended June 30, 1999, from $8.3 million for the three months ended June 30, 1998, primarily due to the increased sales levels noted above. Selling expenses as a percentage of sales remained constant at 9.7%. General and administrative expenses increased 68% to $11.1 million for the three months ended June 30, 1999, from $6.6 million for the three months ended June 30, 1998. This increase is due to the addition of the 1999/2000 Acquired Businesses and, to a lesser extent, an increase in headquarters staffing and related costs. General and administrative expenses as a percentage of sales decreased to 7.6% for the three months ended June 30, 1999, as compared to 7.8% in the corresponding period of the prior year, because the previously mentioned increase in sales was greater than the increase in the amount of overhead necessary to support such additional sales. Interest expense increased to $2.7 million for the three months ended June 30, 1999, from $1.5 million for the three months ended June 30, 1998, due to a net increase in borrowings under the Company's revolving credit facility used to finance the purchase of the 1999/2000 Acquired Businesses and the addition of term equipment notes related to the purchase of printing presses. Effective income tax rates reflect an increase to 40% for the three months ended June 30, 1999, from 39% for the three months ended June 30, 1998, due primarily to the Company's expansion into states with proportionately higher income tax rates and the effect of nondeductible goodwill incurred in connection with certain acquisitions. LIQUIDITY AND CAPITAL RESOURCES The Company's primary cash uses are for acquisitions, capital expenditures and payments on long-term debt incurred to finance certain equipment purchases or assumed in connection with certain acquisitions. Cash utilized to complete acquisitions totaled $15.2 million in the three months ended June 30, 1999. Cash utilized for capital expenditures, which relate primarily to the purchase of new electronic prepress and bindery equipment, was $3.8 million in the three months ended June 30, 1999. Principal payments on long-term debt totaled $1.1 million in the three months ended June 30, 1999. In total, cash requirements for acquisitions, capital expenditures and debt service was $20.1 million in the three months ended June 30, 1999. 8 The Company financed its capital requirements through internally generated funds and a printing press purchasing and financing agreement (see below). Cash flow generated from operations (net income plus depreciation, amortization and deferred tax provision) was $18.2 million in the three months ended June 30, 1999. Debt incurred directly to finance equipment purchases was $9.0 million in the three months ended June 30, 1999. The Company's primary revolving credit facility (the "Credit Agreement") was obtained from a syndicate of commercial banks and provides for a maximum borrowing capacity of $200,000, of which $138,278 was outstanding at June 30, 1999. Borrowings outstanding under the Credit Agreement are unsecured and accrue interest, at the Company's option, at (1) the London Interbank Offered Rate (LIBOR) plus .50% to 1.50% based upon the Company's Debt to Pro Forma EBITDA ratio as defined, redetermined quarterly, or (2) an alternate base rate based upon the agent bank's prime lending rate or Federal Funds effective rate. The Credit Agreement also provides for a commitment fee on available but unused amounts ranging from .10% to .35% per annum. The Credit Agreement will mature July 31, 2001, at which time all amounts outstanding thereunder are due. Borrowings outstanding under the Credit Agreement were subject to a weighted average interest rate of 5.70% on June 30, 1999. In addition, the Company maintains an auxiliary revolving credit facility (the "Auxiliary Facility") with a commercial bank which provides for a maximum borrowing capacity of $10,000, of which the maximum amount was outstanding at June 30, 1999. The interest rate applicable to all borrowings under the Auxiliary Facility at June 30, 1999 was 5.72%. The Company is subject to certain covenants and restrictions and must meet certain financial tests pursuant to and as defined in the Credit Agreement. The Company believes that these restrictions do not adversely affect its acquisition or operating strategies, and that it was in compliance with such financial tests and other covenants at June 30, 1999. The Company has agreements with certain printing press manufacturers (collectively, the "Press Purchase Agreements"), pursuant to which the Company receives certain volume purchase incentives and long-term financing options with respect to the purchase of printing presses. As of June 30, 1999, the Company was obligated on term notes related to the Press Purchase Agreements totaling $27.7 million. These term notes are secured by the purchased presses and provide for fixed monthly principal and interest payments over ten years. The weighted average interest rate on such notes at June 30, 1999 was 7.07%. The Company is not subject to any significant financial covenants or restrictions in connection with these obligations. As of June 30, 1999, the Company had accepted delivery of additional printing presses for a total purchase price of $14.1 million, which amount is included in accounts payable in the accompanying consolidated financial statements and is expected to be financed under terms of the Press Purchase Agreements. The Company expects to make additional equipment capital expenditures in fiscal 2000 using cash flow from operations and borrowings under the Credit Agreement and/or the Press Purchase Agreements. Pursuant to earnout agreements entered into in connection with certain acquisitions, as of June 30, 1999, the Company was contingently obligated at certain times and under certain circumstances through 2005 to issue up to 147,400 shares of its common stock and to make additional cash payments of up to $16.7 million for all periods in the aggregate. During the three months ended June 30, 1999, the Company acquired five printing businesses. To complete these acquisitions, in the aggregate, the Company paid cash of $10.0 million, issued 855,646 shares of its common stock, and discharged debt of the acquired businesses totaling $5.3 million. As of August 9, 1999 the Company completed three additional acquisitions and had executed a non-binding letter of intent to acquire one other printing business. The Company intends to continue to actively pursue acquisition opportunities. To finance its acquisitions, the Company intends to utilize cash flow from operations and borrowings under the Credit Agreement. The Company may also issue shares of its authorized common stock from time-to-time in connection with its acquisitions. There can be no asssurance that the Company will be able to acquire additional businesses on acceptable terms in the future. In addition, there can be no assurance that the Company will be able to establish, maintain or increase the profitability of any acquired business. 9 YEAR 2000 COMPLIANCE The Year 2000 issue results from the historical use in computer software programs of a two-digit abbreviation in date fields to represent the year. Certain computer programs, including programs imbedded in various equipment, may fail to properly function when confronted with dates which contain the two-digit year "00". These processing errors have the potential to cause system failures or disrupt normal operations. The Company has reviewed and is continuing to review its business risks associated with the Year 2000 issue. It has established a Year 2000 Readiness Program and a Year 2000 Readiness Team with the responsibility for its execution. The Year 2000 Readiness Team initially developed a schedule for evaluating the Company's information technology assets and conducting risk reviews of non-information technology assets and operational practices. The evaluation of the Company's information technology assets, including its management information systems and equipment used in its printing operations, is substantially complete with certain necessary upgrades, conversions or replacements having been made or currently in process. The Company is now proceeding with the testing and validation phase of its Year 2000 Readiness Program with respect to its information technology assets. The targeted completion date for this phase is September 1999. Although no assurances can be given, the Company does not believe it will suffer any material disruptions to its operations as a result of the impact of the Year 2000 issue on its information technology assets. Because the majority of its management information systems operate on broadly available hardware platforms and employ software specifically designed for the printing industry and perpetually supported by its developers, the Company has not encountered any significant difficulty in completing the portions of its Year 2000 Readiness Program pertaining to its information technology assets, nor has it had to accelerate the replacement or upgrade of, or incur costs materially in excess of its recurring investment in, its management information systems. The Company's Year 2000 Readiness Team is in the process of evaluating the Company's exposure to business disruptions as a result of the impact of the Year 2000 issue on its non-information technology assets, operational policies, and major suppliers and customers. The Company expects to complete this phase of its Year 2000 Readiness Program by September 1999. Like many manufacturing companies, the Company's operations depend upon the operation of many other businesses, the disruption of any one or even a number of which as a result of the Year 2000 issue would not have a material effect on the business of the Company. However, in a "worst case" Year 2000 scenario, a significant number of such businesses could suffer disruptions as a result of the Year 2000 issue and the Company's operations could be adversely affected. In the case of a systemic failure, such as prolonged telecommunications or electrical failures, or a general disruption in United States or global business activities that could result in a significant economic downturn, the primary business risks of the Company would include, but not be limited to, loss of customers or orders, increased operating costs, inability to obtain supplies and inventory on a timely basis, disruptions in production shipments or other business interruptions of a material nature, any of which could have a material, adverse effect on the Company's business, results of operations and financial condition. A prolonged industry-wide decline in printing orders as affected businesses focus on operational requirements more essential to their survival than printing needs would have a significant adverse effect on the Company. In addition, although the Company is not aware of any contractual relationship it has which exposes the Company to any potentially material liability in the event the Company suffers a business disruption as a result of the Year 2000 issue, it is possible that claims of mismanagement, misrepresentation or breach of contract could nevertheless be made against the Company. There are many suppliers of paper, ink and other materials used in printing operations. Thus, the Company believes that it is not materially dependent on any one supplier. The Company's Year 2000 Readiness Team has orally communicated with, and in some cases received written communications from, many of the Company's more significant suppliers regarding such supplier's Year 2000 readiness and is evaluating the need for written confirmation, solicitation or other action with respect to such information. However, based on communications made or received to date, the Company believes that it will be able to obtain materials necessary to continue its operations without significant disruption due to Year 2000 issues. 10 The Company has a large and diversified customer base comprised of thousands of customers in locations throughout the United States and is not dependent on any one customer or group of customers for its revenues. As such, the Company does not anticipate that the demand for its commercial printing services would be materially adversely affected as a result of Year 2000 issues unless such issues have a widespread, catastrophic effect on its customer base. The primary thrust of the Company's Year 2000 Readiness Program with respect to minimizing business disruptions as a result of the impact of the Year 2000 issue on its non-information technology assets and operational policies, all major suppliers and its customers, including with respect to the "worst case" scenario described above, will be the development of contingency plans, to the extent feasible. Because of its many locations, if certain of its printing facilities were to be adversely affected, the Company could likely use other operable printing facilities. Accordingly, the Company expects that its primary contingency plans will focus on the re-distribution of customer projects from inoperable to operable facilities in order to mitigate, to the extent possible, the effect of any business disruption. The Company expects to develop these contingency plans after completion of the evaluation phase currently in process. As part of its ongoing review of the Year 2000 issue, the Company evaluates and addresses Year 2000 issues for its planned acquisitions and develops appropriate remedial action and a timetable for such action following completion of such acquisitions. RECENT ACCOUNTING PRONOUNCEMENTS None. 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. The Company does not hold or utilize derivative financial instruments which could expose the Company to significant market risk. However, the Company is exposed to market risk for changes in interest rates related primarily to its long-term debt obligations. As of June 30, 1999, there were no material changes in the Company's market risk or the estimated fair value of its long-term debt obligations as reported in the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1999. 11 CONSOLIDATED GRAPHICS, INC. PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS. From time to time the Company is involved in litigation relating to claims arising out of its operations in the normal course of business. The Company maintains insurance coverage against potential claims in an amount which it believes to be adequate. Currently, the Company is not aware of any legal proceedings or claims pending against the Company that management believes will have a material adverse effect on its consolidated financial position or consolidated results of operations. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS. During the three months ended June 30, 1999, the Company issued 855,646 shares of its common stock valued at approximately $39.8 million in connection with the acquisition of certain printing businesses and also issued 13,332 shares pursuant to a certain earnout agreement entered into in connection with a prior year acquisition. The issuance of such common stock was exempt from registration pursuant to Section 4(2) of the Securities Act of 1933 as a transaction by the issuer not involving a public offering. ITEM 3. DEFAULTS UPON SENIOR SECURITIES. None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. On July 28, 1999, the Company held its Annual Meeting of Shareholders. The following item was submitted to a vote of shareholders through the solicitation of proxies: ELECTION OF DIRECTORS The following persons were elected to serve on the Board of Directors until the 2000 Annual Meeting of Shareholders or until their successors have been duly elected and qualified. The directors received the votes set forth opposite their respective names: NAME FOR AGAINST ABSTENTIONS ---- --- ------- ----------- Joe R. Davis ..... 12,715,451 32,454 0 Larry J. Alexander 12,715,451 32,454 0 Brady F. Carruth . 12,715,451 32,454 0 Clarence C. Comer 12,715,451 32,454 0 Gary L. Forbes ... 12,715,451 32,454 0 James H. Limmer .. 12,715,451 32,454 0 Hugh N. West ..... 12,715,451 32,454 0 ITEM 5. OTHER INFORMATION. None 12 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. *4 Specimen Common Stock Certificate (Consolidated Graphics, Inc. Form 10-K (March 31, 1998) SEC File No. 0-24068, Exhibit 4.1). 27 EDGAR financial data schedule. * Incorporated by reference (B) REPORTS ON FORM 8-K: 1) Form 8-K, filed April 6, 1999 in connection with the press release announcing the completion of the acquisitions of CMI and Maxwell Graphic Arts. 2) Form 8-K, filed April 16, 1999 in connection with the press release announcing the completion of the acquisition of Wentworth Printing. 3) Form 8-K, filed April 28, 1999 in connection with three press releases announcing the Company's fiscal 1999 fourth quarter results and the signing of letters of intent to acquire The Printery, Westland Printers and H & N Printing & Graphics. 4) Form 8-K, filed May 5, 1999 in connection with the press release announcing the completion of the acquisition of The Printery. 5) Form 8-K, filed June 14, 1999 in connection with the press release announcing the signing of a letter of intent to acquire Apple Graphics. 6) Form 8-K, filed June 25, 1999 in connection with the press releases announcing the completion of the acquisitions of The Graphics Group and Westland Printers. 7) Form 8-K, filed July 6, 1999 in connection with the press releases announcing completion of the acquisition of H&N Printing and the signing of letters of intent to acquire Multiple Images Printing, T/O Printing, and Anderson Printing. 8) Form 8-K, filed July 28, 1999 in connection with the press releases announcing the Company's fiscal 2000 first quarter results and the appointment of a new executive vice president position. 9) Form 8-K, filed August 4, 1999 in connection with the press release announcing completion of the acquisition of T/O Printing. 13 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: August 16, 1999 By:/s/ G. CHRISTOPHER COLVILLE ---------------------------------- G. Christopher Colville Executive Vice President - Mergers and Acquisitions, Chief Financial and Accounting Officer and Secretary 14 EX-3.4 2 EXHIBIT 3.4 RESTATED BY-LAWS OF CONSOLIDATED GRAPHICS, INC. AS OF NOVEMBER 2, 1998 ARTICLE I SHAREHOLDERS SECTION 1. ANNUAL MEETING. The annual meeting of shareholders for the purpose of electing directors and for the transaction of any other business to come before such meeting shall be held on such date in each year and at such time as shall be designated by the Board of Directors and stated in the notice of the meeting. SECTION 2. PRESIDING OFFICER AND CONDUCT OF MEETINGS. The Chairman of the Board of Directors shall preside at all meetings of the shareholders and shall automatically serve as Chairman of such meetings. In the absence of the Chairman of the Board of Directors, or if the Directors neglect or fail to elect a Chairman, then the Chief Executive Officer of the Corporation shall preside at the meetings of the shareholders and shall automatically be the Chairman of such meeting, unless and until a different person is elected by a majority of the shares entitled to vote at such meeting. The Chairman of the meeting shall appoint at least two (2) persons to act as inspectors of election at the meeting. At the annual meeting of the shareholders, only such business shall be conducted as shall have been properly brought before the annual meeting. To be properly brought before the annual meeting of shareholders, business must be (i) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors, (ii) otherwise properly brought before the meeting by or at the direction of the Board of Directors, or (iii) otherwise properly brought before the meeting by a shareholder of the Corporation who is a shareholder of record at the time of giving notice provided for in this Section 2 of Article I, who shall be entitled to vote at such meeting and who complies with the notice procedures set forth in this Section 2 of Article I. For business to be properly brought before an annual meeting by a shareholder, the shareholder shall comply with all applicable requirements of the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder with respect to the matters set forth in this Section 2 of Article I. SECTION 3. SPECIAL MEETINGS. Special meetings of the shareholders, for any purpose or purposes, unless otherwise prescribed by statute, may be called by the Chief Executive Officer, or by the Board of Directors, and shall be called by the Chief Executive Officer at the request of the holders of not less than one-tenth (1/10th) of all the outstanding shares of the Corporation entitled to vote at the meeting. SECTION 4. PLACE OF MEETING. The Board of Directors may designate any place, either within or without the State of Texas, as the place of meeting for any annual or special meeting. If no -1- designation is made, the place of meeting shall be the registered office of the Corporation in the State of Texas. SECTION 5. NOTICE OF MEETING. Written or printed notice stating the place, day and hour of the meeting and the purpose or purposes for which the meeting is called, shall be delivered not less than ten (10) nor more than fifty (50) days before the date of the meeting, either personally or by mail, by or at the direction of the Chief Executive Officer or the Secretary, or the officer or persons calling the meeting, to each shareholder of record entitled to vote at such meeting. If mailed, such notice shall be deemed to be delivered when deposited in the United States mail, addressed to the shareholder at his address as it appears on the stock transfer books of the Corporation, with postage thereon prepaid. Waiver by a shareholder in writing of notice of a shareholders' meeting, signed by him, whether before or after the time of such meeting, shall be equivalent to the giving of such notice. Attendance by a shareholder, whether in person or by proxy, at a shareholders' meeting shall constitute a waiver of notice of such meeting of which he has had no notice. SECTION 6. CLOSING OF TRANSFER BOOKS AND FIXING OF RECORD DATE. For the purpose of determining shareholders entitled to notice of or to vote at any meeting of shareholders or any adjournment thereof, or shareholders entitled to receive payment of any dividend, or in order to make a determination of shareholders for any other proper purpose, the Board of Directors of the Corporation may provide that the stock transfer books shall be closed for a stated period but not to exceed, in any case, fifty (50) days. If the stock transfer books shall be closed for the purpose of determining shareholders entitled to notice of or to vote at a meeting of shareholders, such books shall be closed for at least ten (10) days immediately preceding such meeting. In lieu of closing the stock transfer books, the Board of Directors may, by resolution, fix in advance a date as the record date for any such determination of shareholders, such date in any case to be not more than fifty (50) days and, in case of a meeting of shareholders, not less than ten (10) days prior to the date on which the particular action, requiring such determination of shareholders, is to be taken. If the stock transfer books are not closed and no record date is fixed for the determination of shareholders entitled to notice of or to vote at a meeting of shareholders, or shareholders entitled to receive payment of a dividend, the date on which notice of the meeting is mailed or the date on which the resolution of the Board of Directors declaring such dividend is adopted, as the case may be, shall be the record date for such determination of shareholders. When a determination of shareholders entitled to vote at any meeting of shareholders has been made as provided in this section, such determination shall apply to any adjournment thereof except where the determination has been made through the closing of the stock transfer books and the stated period of closing has expired. SECTION 7. VOTING LISTS. The officer or agent having charge of the stock transfer books for shares of the Corporation shall make, at least ten (10) days before each meeting of shareholders, a complete list of the shareholders entitled to vote at such meeting, or any adjournment thereof, arranged in alphabetical order, with the address and the number of shares held by each, which list, for a period of ten (10) days prior to such meeting, shall be kept on file at the registered office of the Corporation and shall be subject to inspection by any shareholder at any time during usual business hours. Such list shall also be produced and opened at the time and place of the meeting and shall be subject to the inspection by any shareholder during the whole time of the meeting. The original stock transfer books shall be PRIMA FACIE evidence as to who are the shareholders entitled to examine such list or transfer books or to -2- vote at any meeting of shareholders. Failure to comply with the requirements of this Section shall not affect the validity of any action taken at such meeting. SECTION 8. QUORUM. A majority of the outstanding shares of the Corporation entitled to vote, represented in person or by proxy, shall constitute a quorum at a meeting of shareholders and the vote of the holders of a majority of the shares entitled to vote and thus represented at a meeting at which a quorum is present shall be the act of the shareholders' meeting, unless the vote of a greater number is required by law, the Articles of Incorporation or these By-Laws. If less than a majority of the outstanding shares are represented at a meeting, a majority of the shares so represented may adjourn the meeting from time to time without further notice. At such adjourned meeting at which a quorum shall be present or represented, any business may be transacted which might have been transacted as originally notified. The shareholders present at a duly organized meeting may continue to transact business until adjournment, notwithstanding the withdrawal of enough shareholders to leave less than a quorum. SECTION 9. PROXIES. At all meetings of shareholders, a shareholder may vote by proxy executed in writing by the shareholder or by his duly authorized attorney-in-fact. Such proxy shall be filed with the Secretary of the Corporation before or at the time of the meeting. No proxy shall be valid after eleven (11) months from the date of its execution, unless otherwise provided in the proxy. Each proxy shall be revocable unless expressly provided therein to be irrevocable, and unless otherwise made irrevocable by law. SECTION 10. VOTING OF SHARES. Each outstanding share entitled to vote shall be entitled to one (1) vote upon each matter submitted to vote at a meeting of shareholders. SECTION 11. CUMULATIVE VOTING. There shall be no cumulative voting whatsoever permitted on any matter. SECTION 12. ACTION BY SHAREHOLDERS WITHOUT MEETING. Any action required to be taken at a meeting of the shareholders, or any other action which may be taken at a meeting of the shareholders, may be taken without a meeting if a consent in writing, setting forth the action so taken, shall be signed by all of the shareholders entitled to vote with respect to the subject matter thereof. ARTICLE II BOARD OF DIRECTORS SECTION 1. GENERAL POWERS. The business and affairs of the Corporation shall be managed by its Board of Directors. SECTION 2. NUMBER, TENURE AND QUALIFICATIONS. The number of directors of the Corporation shall be eleven (11) but the number of directors may be increased or decreased (provided the decrease does not shorten the term of any incumbent director) from time to time by amendment of these By-Laws or by resolution of the Board of Directors, but shall never be less than one (1). Each director shall hold office until the next annual meeting of shareholders and until his successor shall -3- have been elected and qualified. Directors need not be residents of the State of Texas, or shareholders of the Corporation. SECTION 3. CHAIRMAN. A majority of the Directors shall elect from its members a Chairman who shall preside at all meetings of the Board of Directors. The Chairman shall hold this office until the next regular meeting of the Directors or until his successor shall have been elected and qualified. In the absence of the Chairman, or if the Directors neglect or fail to elect a Chairman, then the Chief Executive Officer of the Corporation, if he is a member of the Board of Directors, shall automatically serve as Chairman of the Board of Directors. SECTION 4. SECRETARY. The Secretary of the Board of Directors shall be the Secretary of the Corporation, and the Secretary shall act as Secretary of the Directors' meetings and record the minutes of all such meetings. If the Secretary of the Corporation is not available, then the Chairman, or the Chief Executive Officer, as the case may be, may appoint a person to serve as Secretary of the meeting, and such person shall not be required to be a member of the Board of Directors nor an officer of the Corporation. SECTION 5. REGULAR MEETINGS. Regular meetings of the Board of Directors shall be held at such place or places within or without the State of Texas, at such hour and on such day as may be fixed by resolution of the Board of Directors, without further notice of such meetings. The time or place of holding regular meetings of the Board of Directors may be changed by the Chairman of the Board or the Chief Executive Officer by giving written notice thereof as provided in Section 7 of this Article II. SECTION 6. SPECIAL MEETINGS. Special meetings of the Board of Directors may be called by or at the request of the Chief Executive Officer or a majority of the Directors. The person or persons authorized to call special meetings of the Board of Directors may fix any place, either within or without the State of Texas, as the place for holding any special meeting of the Board of Directors called by them. SECTION 7. NOTICE. Notice of any special meetings shall be given at least two (2) days previously thereto by a written notice delivered personally, mailed or sent by telecopy to each director at his business address, or by telegram. If mailed, such notice shall be deemed to be delivered when deposited in the United States mail so addressed, with postage thereon prepaid. If notice be given by telegram, such notice shall be deemed to be delivered when the telegram is delivered to the telegraph company. If notice be given by telecopy, such notice shall be deemed to be delivered upon successful transmission of such notice, confirmed by telephone. Any director may waive notice of any meeting. The attendance of a director at a meeting shall constitute a waiver of notice of such meeting, except where a director attends a meeting for the express purpose of objecting to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the Board of Directors need be specified in the notice or waiver of notice of such meeting. SECTION 8. QUORUM. A majority of the number of directors fixed by these By-Laws shall constitute a quorum for the transaction of business at any meeting of the Board of Directors, but if -4- less than such majority is present at a meeting, a majority of the directors present may adjourn the meeting from time to time without further notice. SECTION 9. MANNER OF ACTING. The act of the majority of the directors present at a meeting at which a quorum is present shall be the act of the Board of Directors. SECTION 10. VACANCIES. Any vacancy occurring in the Board of Directors may be filled by the affirmative vote of a majority of the remaining directors though less than a quorum of the Board of Directors. A director elected to fill a vacancy shall be elected for the unexpired term of is his predecessor in office. A directorship to be filled by reason of an increase in the number of directors may be filled by the Board of Directors for term of office continuing only until the next election of one or more directors by the shareholders; PROVIDED THAT the Board of Directors may not fill more than two such directorships during the period between any two successive annual meetings of shareholders. A vacancy shall be deemed to exist by reason of the death, resignation, failure or refusal to act by the person elected, upon the failure of shareholders to elect directors to fill the unexpired term of directors removed in accordance with the provisions of these By-Laws, or upon an increase in the number of directors by amendment of these By-Laws. SECTION 11. REMOVAL. The entire Board of Directors or any individual director may be removed from office without assigning any cause, by a majority vote of the shareholders at any meeting at which a quorum of shareholders is present. In case the entire Board or any one (1) or more of the directors are so removed, new directors may be elected at the same meeting for the unexpired term of the director or directors so removed. Failure to elect directors to fill the unexpired term of the directors so removed shall be deemed to create a vacancy or vacancies in the Board of Directors. SECTION 12. COMPENSATION. By resolution of the Board of Directors, the directors may be paid their expenses, if any, of attendance at each meeting of the Board of Directors, and may be paid a fixed sum for attendance at each meeting of the Board of Directors or a stated salary as director. No such payment shall preclude any director from serving the Corporation in any other capacity and receiving compensation therefor. SECTION 13. PRESUMPTION OF ASSENT. A director of the Corporation who is present at a meeting of the Board of Directors in which action on any Corporation matter is taken shall be presumed to have assented to the action taken unless his dissent shall be entered in the minutes of the meeting or unless he shall file his written dissent to such action with the person acting as the Secretary of the meeting before the adjournment thereof, or shall forward such dissent by registered mail to the Secretary of the Corporation immediately after the adjournment of the meeting. Such right to dissent shall not apply to a director who voted in favor of such action. SECTION 14. INTEREST OF DIRECTORS IN CONTRACTS. Any contract or other transaction between the Corporation and one (1) or more of its directors, or between the Corporation and any firm of which one or more if its directors are -5- members or employees, or in which they are interested, or between the Corporation and any corporation or association of which one or more of its directors are shareholders, members, directors, officers, or employees, or in which they are interested, shall be valid for all purposes, notwithstanding the presence of such director or directors at the meeting of the Board of Directors of the Corporation, which acts upon, or in reference to, such contract or transaction, and notwithstanding his or their participation in such action, if the fact of such interest shall be disclosed or known to the Board of Directors and the Board of Directors shall, nevertheless, authorize, approve and ratify such contract or transaction by a vote of a majority of the directors present, such interested director or directors to be counted in determining whether a quorum is present, but not to be counted in calculating the majority of such quorum necessary to carry such vote. This section shall not be construed to invalidate any contract or other transaction which would otherwise be valid under the common and statutory law applicable thereto. SECTION 15. COMMITTEES. The Board of Directors may, by resolution or resolutions passed by a majority of the whole Board of Directors, designate one or more members of the Board of Directors to constitute one or more committees of the Board, which shall in each case consist of such number of directors as the Board of Director may determine. Each committee shall have and may exercise such powers in the management of the business and affairs of the Corporation as the Board of Directors may determine by resolution and specify in the respective resolutions appointing them, subject to such restrictions as may be contained in the Articles of Incorporation or that may be imposed by law. Such committee or committees shall have such name or names as may be determined from time to time by resolutions adopted by the Board of Directors. A majority of all the members of any such committee may fix its rules of procedure, determine its actions and fix the time and place, whether within or without the State of Texas, of its meetings and specify what notice thereof, if any, shall be given, unless the Board of Directors shall provide otherwise by resolution. The Board of Directors shall have power to change the membership of any such committee at any time, to fill vacancies therein and to disband any such committee, either with or without cause, at any time. Each committee shall keep regular minutes of its proceedings and report the same to the Board of Directors when required. SECTION 16. EXECUTIVE COMMITTEE. (a) DESIGNATION. The Board of Directors may, by resolution adopted by a majority of the whole Board, designate an executive committee. (b) NUMBER; QUALIFICATION; TERM. The executive committee shall consist of one (1) or more directors, one (1) of whom shall be the Chief Executive Officer. The executive committee shall serve at the pleasure of the Board of Directors. (c) AUTHORITY. The executive committee, to the extent provided in such resolution, shall have and may exercise all of the authority of the Board of Directors in the management of the business and affairs of the Corporation, including authority over the use of the corporate seal. However, the executive committee shall not have the authority of the Board in reference to: (1) Amending the Articles of Incorporation; -6- (2) Proposing a reduction in the stated capital of the Corporation in the manner permitted by Article 4.12 of the Texas Business Corporation Act or any successor statutory provision, as from time to time amended (the "TBCA"); (3) Approving a plan of merger or consolidation; (4) Recommending to the shareholders the sale, lease or exchange of all or substantially all of the property and assets of the Corporation otherwise than in the usual and regular course of its business; (5) Recommending to the shareholders a voluntary dissolution of the Corporation or a revocation thereof; (6) Amending, altering or repealing these By-Laws or adopting new By-Laws; (7) Filling vacancies in or removing members of the Board of Directors or of any committee appointed by the Board of Directors; (8) Electing or removing officers or members of any such committee; (9) Fixing the compensation of any member or alternate member of such committee; (10) Altering or repealing any resolution of the Board of Directors which by its terms provides that it shall not be so amendable or repealable; or (11) Declaring a dividend. (d) CHANGE IN NUMBER. The number of executive committee members may be increased or decreased from time to time by resolution adopted by a majority of the whole Board of Directors. (e) REMOVAL. Any member of the executive committee may be removed by the Board of Directors by the affirmative vote of a majority of the whole Board, whenever in its judgment the best interests of the Corporation will be served thereby. (f) VACANCIES. A vacancy occurring in the executive committee by death, resignation, removal or otherwise may be filled by the Board of Directors in the manner provided for original designation in subparagraph (a) hereof. (g) MEETINGS. Time, place and notice (if any) of executive committee meetings shall be determined by the executive committee. (h) QUORUM; MAJORITY VOTE. At meetings of the executive committee, a majority of the number of members designated by the Board of Directors shall constitute a quorum for the transaction of business. The act of a majority of the members present at any meeting at which a quorum is present shall be the act of the executive committee, except as otherwise specifically provided by statute, the Articles of Incorporation, or these By-Laws. If a quorum is not present at a meeting of the executive committee, the members present may adjourn the meeting from time to time without notice other than an announcement at the meeting, until a quorum is present. -7- (i) COMPENSATION. By resolution of the whole Board of Directors, the members of the executive committee may be paid their expenses, if any, for attendance at each meeting of the executive committee and may be paid a fixed sum for attendance at each meeting of the executive committee or a stated salary as a member. No such payment shall preclude any member from serving the Corporation in any other capacity and receiving compensation therefor. (j) PROCEDURE. The executive committee shall keep regular minutes of its proceedings and report the same to the Board of Directors when required. The minutes of the proceedings of the executive committee shall be placed in the minute book of the Corporation. (k) ACTION WITHOUT MEETING. Any action required or permitted to be taken at a meeting of the executive committee may be taken without a meeting if a consent in writing, setting forth the action so taken, is signed by all the members of the executive committee. Such consent shall have the same force and effect as a unanimous vote at a meeting. The signed consent, or a signed copy, shall be placed in the minute book. (l) RESPONSIBILITY. The designation of an executive committee and the delegation of authority to it shall not operate to relieve the Board of Directors, or any member thereof, of any responsibility imposed upon it or him by law. (m) ISSUANCE OF STOCK. The executive committee shall have and may exercise the authority of the Board of Directors with respect to the issuance of shares of the Company, provided, however, that the executive committee shall have such authority only with respect to authorized shares of the common stock of the Company and provided further that the executive committee may only issue or cause to be issued such shares as consideration for the acquisitions of printing companies that have been approved pursuant to authority delegated to the executive committee by the Board of Directors and provided further that the executive committee may in no circumstances issue or cause to be issued any such shares in any individual acquisition in which the aggregate consideration, whether consisting of debt assumption, the payment of cash, the issuance of notes or equity securities or any combination of the foregoing, exceeds $75,000,000. SECTION 17. ACTION BY DIRECTORS WITHOUT MEETING. Any action required or permitted to be taken at a meeting of the Board of Directors or any executive committee may be taken without a meeting if a consent in writing, setting forth the action so taken shall be signed by all the members of the Board of Directors or executive committee, as the case may be. As permitted by Article 9.10C of the Texas Business Corporation Act, members of the Board of Directors, or members of any committee designated by such Board, may participate and hold a meeting of the Board of Directors or any committee by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in such meeting pursuant to a conference call or similar communications equipment shall constitute presence in person at such meeting. -8- ARTICLE III OFFICERS SECTION 1. NUMBER. The officers of the Corporation shall be a Chief Executive Officer, a President, one (1) or more Vice Presidents, (the number thereof to be determined by the Board of Directors), a Secretary, and a Treasurer, each of whom shall be elected by the Board of Directors. Such other officers and assistant officers as may be deemed necessary may be elected or appointed by the Board of Directors. Any two (2) or more offices may be held by the same person. SECTION 2. ELECTION AND TERM OF OFFICE. The officers of the Corporation to be elected by the Board of Directors shall be elected annually by the Board of Directors at the first meeting of the Board of Directors held after each annual meeting of the shareholders. If the election of officers shall not be held at such meeting, such election shall be held as soon thereafter as conveniently may be. Each officer shall hold office until his successor shall have been duly elected and shall have qualified or until his death or until he shall resign or shall have been removed in the manner hereinafter provided. SECTION 3. REMOVAL. Any officer or agent elected or appointed by the Board of Directors may be removed by the Board of Directors whenever in its judgment the best interest of the Corporation would be served thereby, but such removal shall be without the prejudice to the contract rights, if any, of the person so removed. Election or appointment of an officer shall not of itself create contract rights. SECTION 4. VACANCIES. A vacancy in any office may be filled by the Board of Directors for the unexpired portion of the term. SECTION 5. CHIEF EXECUTIVE OFFICER. The Chief Executive Officer shall be subject to the control of the Board of Directors, and shall in general supervise and control all business and affairs of the Corporation. He may sign, with the Secretary, Assistant Secretary, or any other proper officer of the Corporation thereunto authorized by the Board of Directors, certificates for shares of the Corporation. He may agree upon and execute any deeds, mortgages, bonds, contracts, and other obligations in the name of the Corporation. In general, he shall perform all duties incident to the office of Chief Executive Officer and such other duties as may be prescribed by the Board of Directors from time to time. SECTION 6. PRESIDENT. In the absence of the Chief Executive Officer, or in the event of his death or inability to act or refusal to act, the President shall perform the duties of the Chief Executive Officer and when so acting shall have all of the powers of and be subject to all of the restrictions upon the Chief Executive Officer. In general, he shall perform all duties incident to the office of President and such other duties as may be prescribed by the Board of Directors from time to time. SECTION 7. VICE PRESIDENTS. In the absence of the Chief Executive Officer and the President, or in the event of their death or inability or refusal to act, the Vice President or (in the event that there be more than one (1) Vice President) the Vice Presidents, in the order designated at the time of their election, or, in the absence of any designation, then in the order of their election, -9- shall perform the duties of the Chief Executive Officer, and when so acting shall have all of the powers of and be subject to all of the restrictions upon the Chief Executive Officer. In general he shall perform such other duties as from time to time may be assigned to him by the Chief Executive Officer, the President, or by the Board of Directors. SECTION 8. SECRETARY. The Secretary shall: (a) keep the minutes of the Shareholders' and the Board of Directors' meetings in one (1) or more books provided for that purpose; (b) see that all notices be duly given in accordance with the provisions of these By-Laws or as required by law; (c) be custodian of the corporate records and of the seal of the Corporation and see that the seal of the Corporation is affixed to all documents the execution of which on behalf of the Corporation under its seal is duly authorized; (d) shall have charge of the certificate books, transfer books and stock ledgers; (e) sign with the Chief Executive Officer certificates for shares of the Corporation, and (f) in general, perform all duties incident to the office of Secretary and such other duties as from time to time may be assigned to him by the Chief Executive Officer or by the Board of Directors. SECTION 9. TREASURER. If required by the Board of Directors, the Treasurer shall give a bond for the faithful discharge of his duties in such sum and with such surety or sureties as the Board of Directors may determine. He shall: (a) have charge and custody of and be responsible for all funds and securities of the Corporation; receive and give receipts for moneys due and payable to the Corporation from any source whatsoever, and deposit all such moneys in the name of the Corporation in such banks, trust companies or other depositories in the manner prescribed by the Board of Directors; and (b) in general, perform all of the duties incident to the office of Treasurer and such other duties as from time to time may be assigned to him by the Chief Executive Officer or by the Board of Directors. SECTION 10. ASSISTANT SECRETARIES AND ASSISTANT TREASURERS. The Assistant Secretaries and Assistant Treasurers, in general, shall perform such duties as shall be assigned to them by the Secretary or the Treasurer, respectively, or by the Chief Executive Officer or the Board of Directors. The Assistant Secretaries and Assistant Treasurers shall exercise the powers of the Secretary or of the Treasurer, respectively, during that officer's absence or inability to act. SECTION 11. SALARIES. The salaries of the officers shall be fixed from time to time by the Board of Directors and no officer shall be prevented from receiving such salary by reason of the fact that he is also a director of the Corporation. In the absence of action taken by the Board of Directors to fix the salary of any officer during the prior twelve (12) month period, the Chief Executive Officer shall have sole discretionary authority to fix such salary of any officer. ARTICLE IV INDEMNITY; INSURANCE SECTION 1. INDEMNIFICATION. Each person who at any time shall serve, or shall have served, as a director, officer, employee or agent of the Corporation, or any person who, while a director, officer, employee or agent of the Corporation, is or was serving at the request of the Corporation as a director, officer, partner, venturer, proprietor, trustee, administrator, employee, agent -10- or similar functionary of another foreign or domestic corporation, partnership, joint venture, sole proprietorship, trust, employee benefit plan or other enterprise (each such person referred to herein as an "Indemnitee"), shall be entitled to indemnification as and to the fullest extent permitted by Article 2.02-1 of the TBCA. The foregoing right of indemnification shall not be deemed exclusive of any other rights to which those to be indemnified may be entitled as a matter of law or under any agreement, other provision of these By-Laws, vote of shareholders or directors, or other arrangement. The Corporation may enter into indemnification agreements with its executive officers or directors that contractually provide to them the benefits of the provisions of this Article IV and include related provisions meant to facilitate the Indemnitees' receipt of such benefits and such other indemnification protections as may be deemed appropriate. SECTION 2. ADVANCEMENT OR REIMBURSEMENT OF EXPENSES. The rights of Indemnitee provided under the preceding section shall include, but not be limited to, the right to be indemnified and to have expenses advanced in all proceedings to the fullest extent permitted by Article 2.02-1 of the TBCA. In the event that an Indemnitee is not wholly successful, on the merits or otherwise, in a proceeding but is successful, on the merits or otherwise, as to any claim in such proceeding, the Corporation shall indemnify Indemnitee against all expenses actually and reasonably incurred by Indemnitee or on Indemnitee's behalf relating to each claim. The termination of a claim in a proceeding by dismissal, with or without prejudice, shall be deemed to be a successful result as to such claim. In addition, to the extent an Indemnitee is, by reason of his corporate status, a witness or otherwise participates in any proceeding at a time when he is not named a defendant or respondent in the proceeding, he shall be indemnified against all expenses actually and reasonably incurred by him or on his behalf in connection therewith. The Corporation shall pay all reasonable expenses incurred by or on behalf of Indemnitee in connection with any proceeding or claim, whether brought by the Corporation or otherwise, in advance of any determination respecting entitlement to indemnification pursuant to this Article IV within ten days after the receipt by the Corporation of a written request from Indemnitee reasonably evidencing such expenses and requesting such payment or payments from time to time, whether prior to or after final disposition of such proceeding or claim; provided that the Indemnitee affirms his good faith belief that he has met the standard of conduct necessary for indemnification under this Article IV and undertakes and agrees in writing that he will reimburse and repay the Corporation for any expenses so advanced to the extent that it shall ultimately be determined by a court, in a final adjudication from which there is no further right of appeal, that Indemnitee is not entitled to be indemnified against such expenses. SECTION 3. DETERMINATION OF REQUEST. Upon written request to the Corporation by an Indemnitee for indemnification pursuant to these By-Laws, a determination, if required by applicable law, with respect to Indemnitee's entitlement thereto shall be made in accordance with Article 2.02-1 of the TBCA; PROVIDED, HOWEVER, that notwithstanding the foregoing, if a Change in Control shall have occurred, such determination shall be made by Independent Counsel selected by Indemnitee, unless Indemnitee shall request that such determination be made in accordance with Article 2.02-1F (1) or (2). The Corporation shall pay any and all reasonable fees and expenses of Independent Counsel incurred in connection with any such determination. If a Change in Control shall have occurred, Indemnitee shall be presumed (except as otherwise expressly provided in this Article IV) to be entitled to indemnification under this Article IV upon submission of a request to the Corporation for indemnification, and thereafter the Corporation shall have the burden of proof in overcoming that -11- presumption in reaching a determination contrary to that presumption. The presumption shall be used by Independent Counsel, or such other person or persons determining entitlement to indemnification, as a basis for a determination of entitlement to indemnification unless the Corporation provides information sufficient to overcome such presumption by clear and convincing evidence or the investigation, review and analysis of Independent Counsel or such other person or persons convinces him or them by clear and convincing evidence that the presumption should not apply. SECTION 4. EFFECT OF CERTAIN PROCEEDINGS. The termination of any proceeding or of any claim in a proceeding by judgment, order, settlement or conviction, or upon a plea of NOLO CONTENDERE or its equivalent, shall not (except as otherwise expressly provided in this Article) by itself adversely affect the right of Indemnitee to indemnification or create a presumption that Indemnitee's conduct was not in good faith and in a manner that Indemnitee reasonably believed in the case of conduct in Indemnitee's official capacity, that was not in the best interests of the Corporation or, in all other cases, that was not opposed to the best interests of the Corporation or, with respect to any criminal proceeding, that Indemnitee had reasonable cause to believe that Indemnitee's conduct was unlawful and Indemnitee shall be deemed to have been found liable in respect of any claim only after Indemnitee shall have been so adjudged by a court of competent jurisdiction after exhaustion of all appeals therefrom. SECTION 5. EXPENSES OF ENFORCEMENT OF ARTICLE. In the event that Indemnitee, pursuant to this Article IV, seeks a judicial adjudication to enforce Indemnitee's rights under, or to recover damages for breach of, rights created under or pursuant to this Article IV, Indemnitee shall be entitled to recover from the Corporation, and shall be indemnified by the Corporation against, any and all expenses actually and reasonably incurred by Indemnitee in such judicial adjudication but only if Indemnitee prevails therein. If it shall be determined in said judicial adjudication that Indemnitee is entitled to receive part but not all of the indemnification or advancement of expenses sought, the expenses incurred by Indemnitee in connection with such judicial adjudication shall be reasonably prorated in good faith by counsel for Indemnitee. Notwithstanding the foregoing, if a Change in Control shall have occurred, Indemnitee shall be entitled to indemnification under this Section 5 regardless of whether Indemnitee ultimately prevails in such judicial adjudication. SECTION 6. INSURANCE ARRANGEMENTS. The Corporation may procure or maintain insurance or other similar arrangements, at its expense, to protect itself and any Indemnitee against any expense, liability or loss asserted against or incurred by such person, incurred by Indemnitee in such a capacity or arising out of Indemnitee's status as such a person, whether or not the Corporation would have the power to indemnify such person against such expense or liability. In considering the cost and availability of such insurance, the Corporation (through the exercise of the business judgment of its directors and officers), from time to time, may purchase insurance which provides for any and all of (i) deductibles, (ii) limits on payments required to be made by the insurer or (iii) coverage which may not be as comprehensive as that previously included in such insurance purchased by the Corporation, if any. The purchase of insurance with deductibles, limits on payments and coverage exclusions will be deemed to be in the best interest of the Corporation but may not be in the best interest of certain of the persons covered thereby. This Section 6 is authorized by Section 2.02-1(R) of the TBCA as in effect on the date hereof, and further is intended to establish an arrangement of self-insurance pursuant to that section. -12- SECTION 7. SEVERABILITY. If any provision or provisions of this Article IV shall be held to be invalid, illegal or unenforceable for any reason whatsoever, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby; and, to the fullest extent possible, the provisions of this Article IV shall be construed so as to give effect to the intent manifested by the provision held invalid, illegal or unenforceable. SECTION 8. DEFINITIONS. The following terms are used herein as follows: "Change in Control" means a change in control of the Corporation occurring after the date of adoption of these By-Laws of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A (or in response to any similar item on any similar schedule or form) promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), whether or not the Corporation is then subject to such reporting requirement; provided, however, that, without limitation, such a Change in Control shall be deemed to have occurred if at any time after the date of adoption of these By-Laws (i) any "person" (as such term is used in Sections 3(a)(9), 13(d) and 14(d) of the Exchange Act), other than Joe R. Davis, is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), of securities of the Corporation representing 30% or more of the combined voting power of the Corporation's then outstanding securities without the prior approval of at least two-thirds of the members of the Board of Directors in office immediately prior to such person attaining such percentage interest; (ii) the Corporation is a party to a merger, consolidation, share exchange, sale of assets or other reorganization, or a proxy contest, as a consequence of which members of the Board of Directors in office immediately prior to such transaction or event constitute less than a majority of the Board of Directors thereafter or (iii) during any 15-month period, individuals who at the beginning of such period constituted the Board of Directors (including for this purpose any new director whose election or nomination for election by the Corporation's shareholders was approved by a vote of at least two-thirds of the directors then still in office who were directors at the beginning of such period) cease for any reason to constitute at least a majority of the Board of Directors; notwithstanding the foregoing, no Change in Control shall be deemed to have occurred as a result of the initial public offering of the Corporation's Common Stock. "Corporate Status" means the status of a person who is or was a director, officer, partner, employee, agent or fiduciary of the Corporation or of any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise which such person is or was serving at the request of the Corporation. "Disinterested Director" means a director of the Corporation who is not a named defendant or respondent to the proceeding or subject to a claim in respect of which indemnification is sought by Indemnitee. "Independent Counsel" means a law firm, or a member of a law firm, that is experienced in matters of corporation law and neither contemporaneously is, nor in the five years theretofore has been, retained to represent: (a) the Corporation or Indemnitee in any matter material to either such party, (b) any other party to the proceeding giving rise to a claim for indemnification hereunder or (c) the beneficial owner, directly or indirectly, of securities of the Corporation representing 30% or more of the combined voting power of the Corporation's then outstanding voting securities. -13- Notwithstanding the foregoing, the term "Independent Counsel" shall not include any person who, under the applicable standards of professional conduct then prevailing, would have a conflict of interest in representing either the Corporation or Indemnitee in an action to determine Indemnitee's rights to indemnification under these By-Laws. ARTICLE V CERTIFICATES AND SHAREHOLDERS SECTION 1. CERTIFICATES. Certificates in the form determined by the Board of Directors shall be delivered representing all shares to which shareholders are entitled. Certificates shall be consecutively numbered and shall be entered in the books of the Corporation as they are issued. Each certificate shall state on its face the holder's name, the number and class of shares, the par value of shares or a statement that such shares are without par value, and such other matters as may be required by law. It shall be signed by the Chief Executive Officer and Secretary and such other officer or officers as the Board of Directors shall designate, and may be sealed with the seal of the Corporation or a facsimile thereof. If a certificate is countersigned by a transfer agent or an assistant transfer agent or registered by a registrar (either of which is other than the Corporation or an employee of the Corporation), the signature of any officer may be facsimile. SECTION 2. ISSUANCE. Shares (both treasury and authorized but unissued) may be issued for such consideration (not less than par value) and to such persons as the Board of Directors may determine from time to time. Shares may not be issued until the full amount of the consideration, fixed as provided by law, has been paid. SECTION 3. PAYMENT FOR SHARES. (a) The consideration for the issuance of shares shall consist of any tangible or intangible benefit to the Corporation, including cash, promissory notes, services performed, contracts for services to be performed, or other securities of the Corporation. (b) In the absence of fraud in the transaction, the judgment of the Board of Directors as to the value of consideration received shall be conclusive. (c) When consideration, fixed as provided by law, has been paid, the shares shall be deemed to have been issued and shall be considered fully paid and nonassessable. (d) The consideration received for shares shall be allocated by the Board of Directors, in accordance with law, between stated capital and capital surplus accounts. SECTION 4. SUBSCRIPTIONS. Unless otherwise provided in the subscription agreement, subscriptions for shares, whether made before or after organization of the Corporation, shall be paid in full at such time or in such installments and at such times as shall be determined by the Board of Directors. Any call made by the Board of Directors for payment on subscriptions shall be uniform as to all shares of the same series. In case of default in the payment on any installment or call when payment is due, the Corporation may proceed to collect the amount due in the same manner as any debt due the Corporation. -14- SECTION 5. LOST, STOLEN OR DESTROYED CERTIFICATES. The Corporation shall issue a new certificate in place of any certificate for shares previously issued if the registered owner of the certificate: (a) Makes proof in affidavit form that it has been lost, destroyed, or wrongfully taken; and (b) Requests the issuance of a new certificate before the Corporation has notice that the certificate has been acquired by a purchaser for value in good faith and without notice of an adverse claim; and (c) Gives a bond in such form, and with such surety or sureties, with fixed or open penalty, as the Corporation may direct, to indemnify the Corporation (and its transfer agent and registrar, if any) against any claim that may be made on account of the alleged loss, destruction or theft of the certificate; and (d) Satisfies any other reasonable requirements imposed by the Corporation. When a certificate has been lost, apparently destroyed or wrongfully taken, and the holder of record fails to notify the Corporation within a reasonable time after he has notice of it, and the Corporation registers a transfer of the shares represented by the certificate before receiving such notification, the holder of record is precluded from making any claim against the Corporation for the transfer or for a new certificate. SECTION 6. REGISTRATION OF TRANSFER. The Corporation shall register the transfer of a new certificate for shares presented to it for transfer if: (a) The certificate is properly endorsed by the registered owner or by his duly authorized attorney; and (b) The signature of such person has been guaranteed by a national banking association or member of the New York Stock Exchange and reasonable assurance is given that such endorsements are effective; and (c) The Corporation has no notice of an adverse claim or has discharged any duty to inquire into such a claim; and (d) Any applicable law relating to the collection of taxes has been complied with. SECTION 7. REGISTERED OWNER. Prior to due presentment for registration of transfer of a certificate for shares, the Corporation may treat the registered owner as the person exclusively entitled to vote, to receive notices and otherwise to exercise all the rights and powers of a shareholder. SECTION 8. PRE-EMPTIVE RIGHTS. No shareholder or other person shall have any pre-emptive right whatsoever. -15- ARTICLE VI MISCELLANEOUS PROVISIONS SECTION 1. OFFICES. Until the Board of Directors otherwise determines, the registered office of the Corporation required by the TBCA to be maintained in the State of Texas, shall be the principal place of business of the Corporation, but such registered office may be changed from time to time by the Board of Directors in the manner provided by law and need not be identical to the principal business of the Corporation. SECTION 2. NOTICE AND WAIVER OF NOTICE. Whenever any notice whatever is required to be given under the provisions of these By-Laws, said notice shall be deemed to be sufficient if given by depositing the same in a post office box in a sealed postpaid wrapper addressed to the person entitled thereto at his post office address, as it appears on the books of the Corporation, and such notice shall be deemed to have been given on the day of such mailing. A waiver of notice, signed by the person or persons entitled to said notice, whether before or after the time stated therein, shall be deemed equivalent thereto. SECTION 3. SECURITIES OF OTHER CORPORATIONS. The Chief Executive Officer of the Corporation shall have power and authority to transfer, endorse for transfer, vote, consent or take any other action with respect to any securities of another issuer which may be held or owned by the Corporation and to make, execute and deliver any waiver, proxy or consent with respect to any such securities. SECTION 4. PROCEDURE. Meetings of shareholders and of the Board of Directors shall be conducted in an orderly procedure as shall be determined by the presiding officer at such meetings. The presiding officer shall make all rulings and decisions on any motion or question to come before such meetings and his ruling shall be final and decisive. SECTION 5. FISCAL YEAR. The fiscal year of the Corporation shall be fixed by resolution of the Board of Directors. SECTION 6. RELATION TO ARTICLES OF INCORPORATION. These By-Laws are subject to, and governed by, the Articles of Incorporation. ARTICLE VII AMENDMENTS These By-Laws may be altered, amended or repealed, and new By-Laws may be adopted, by the Directors, subject to repeal or change by action of the shareholders. -16- AMENDMENT TO THE RESTATED BY-LAWS OF CONSOLIDATED GRAPHICS, INC. As of June 23, 1999 Pursuant to a Unanimous Consent of Directors in Lieu of Special Meeting of the Board of Directors of Consolidated Graphics, Inc. (the "Corporation") dated June 23, 1999, it was RESOLVED that Article II, Section 2 of the Restated By-Laws of the Corporation, dated as of November 2, 1998, be amended to read as follows: SECTION 2. NUMBER, TENURE AND QUALIFICATIONS. The number of directors of the Corporation shall be seven (7) but the number of directors may be increased or decreased (provided the decrease does not shorten the term of any incumbent director) from time to time by amendment of these By-laws or by resolution of the Board of Directors, but shall never be less than one (1). Each director shall hold office until the next annual meeting of shareholders and until his successor shall have been elected and qualified. Directors need not be residents of the State of Texas, or shareholders of the Corporation. EX-27 3
5 THE FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED FINANCIAL STATEMENTS FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1999. 1,000 3-MOS MAR-31-2000 JUN-30-1999 7,449 0 102,497 (4,966) 26,658 135,442 302,618 (44,889) 560,635 91,194 0 0 0 155 265,646 560,635 145,829 145,829 100,152 100,152 25,191 0 2,665 17,821 7,128 10,693 0 0 0 10,693 .71 .70
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