CONSOLIDATED GRAPHICS INC /TX/ - 10-K Annual Report

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(MARK ONE)
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934 FOR THE FISCAL YEAR ENDED MARCH 31, 2001
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 (NO FEE REQUIRED)

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 (IRS EMPLOYER IDENTIFICATION NO.)
OF INCORPORATION OR ORGANIZATION)

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

(713) 787-0977
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)

Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, PAR VALUE $.01 PER SHARE
(TITLE OF CLASS)

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 |_|.
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. |_|
The aggregate market value of the voting stock held by
nonaffiliates of the registrant as of May 31, 2001:
COMMON STOCK, $.01 PAR VALUE -- $212,801,047
The number of shares outstanding of the
issuer's common stock as of May 31, 2001:
COMMON STOCK, $.01 PAR VALUE -- 13,031,295

DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement for the Annual
Shareholders' Meeting to be held on or about July 26, 2001, to be filed with the
Securities and Exchange Commission pursuant to Regulation 14A under the
Securities Exchange Act of 1934, as amended, are incorporated by reference into
Part III of this Report. Such Proxy Statement, except for the parts therein
which have been specifically incorporated by reference, shall not be deemed
"filed" for the purposes of this report on Form 10-K.

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CONSOLIDATED GRAPHICS, INC.
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED MARCH 31, 2001

INDEX

PART I

Item 1. Business...........................................................2
Item 2. Properties and Facilities..........................................8
Item 3. Legal Proceedings..................................................8
Item 4. Submission of Matters to a Vote of Security Holders................9

PART II

Item 5. Market For Registrant's Common Equity And Related Shareholder
Matters...........................................................9
Item 6. Selected Consolidated Financial Data..............................10
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................11
Item 7A. Quantitative and Qualitative Disclosure About Market Risk.........16
Item 8. Financial Statements and Supplementary Data.......................17
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure..............................................33

PART III

Item 10. Directors and Executive Officers of the Registrant................33
Item 11. Executive Compensation............................................33
Item 12. Security Ownership of Certain Beneficial Owners and Management....33
Item 13. Certain Relationships and Related Transactions....................33

PART IV

Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K........................................................33

PART I

ITEM 1. BUSINESS

In this annual report, the words "CGX," the "Company," "we," "our" and
"us" refer to Consolidated Graphics, Inc, collectively with our subsidiaries.
Our fiscal year is not a calendar year and ends on March 31.

COMPANY OVERVIEW

Consolidated Graphics is a leading national provider of commercial
printing services and is recognized as the largest sheet-fed and half-web
commercial printing company in the United States. Our corporate headquarters are
in Houston, Texas, and our operations include 63 printing businesses in 25
states. Each of our printing businesses has a well-established operating history
of more than 25 years in most cases.

The majority of our sales are derived from traditional commercial
printing services, which include electronic prepress, printing, finishing,
storage and delivery of high quality, custom-designed products. Examples of such
products include multicolor product and capability brochures, shareholder
communications, catalogs, training manuals, point-of-purchase marketing
materials and direct mail pieces. We serve a diverse and growing base of
customers in a broad cross-section of industries.

As our Company has grown, we have expanded beyond our traditional
strength in sheet-fed and half-web printing. Our advanced technological
capabilities and expertise in digital processes enable our printing businesses
to provide a variety of electronic products and services that are complementary
to our traditional printing services. We also serve our customers by providing
fulfillment and mailing services.

INDUSTRY BACKGROUND

The printing industry is one of the largest industries in the United
States, with total annual sales estimated to be in excess of $100 billion.
General printing services include commercial printing, financial printing, book
publishing, quick printing and the production of business forms, greeting cards
and other stationery-type products. The largest segment of the industry is
commercial printing services, which we estimate generates over $70 billion in
annual U.S. sales based on available industry data. Most of the printing
businesses operating in the United States today are privately-owned and
individually generate less than $35 million in annual sales.

We believe the following trends have presented new challenges to
commercial printing businesses in recent years:

Advances in technology - Printing design and prepress workflow have
shifted from art boards to a digital environment. Newer, more
sophisticated prepress, printing and bindery equipment are more
efficient, operate much faster and require less labor. Commercial
printing businesses must make substantial capital investments in such
newer equipment in order to remain competitive.

Building sole-source relationships - Large corporations are seeking to
reduce operating costs by streamlining their purchasing process and
limiting their number of suppliers. These customers want to align
themselves with printing businesses that have a significant national
presence and a wide range of capabilities to offer both commercial
print and other essential print-related services.

Increased demand for complementary services - The introduction of
digital technology, the speed and interactive nature of the Internet
and an increased focus by many businesses on their core competencies
have generated demand for printing companies to provide complementary
non-print services that provide additional value to their customers.
Examples of such complementary services include repurposing of
customers' digital assets, digital watermarking, inkjet labeling, kit
packing, fulfillment and mailing.

2

A consolidation trend in the general commercial printing industry also
emerged and became a significant industry factor in the 1990's as medium-sized
printing business owners sought to address these new industry challenges, as
well as evaluate exit strategies. In order to limit personal financial risk,
increase personal financial liquidity or facilitate plans to eventually retire,
owners of printing businesses became more willing to sell their company to
larger, better-capitalized companies. We believe there are relatively few buyers
with the financial strength and management expertise who desire to acquire these
medium-sized printing businesses.

BUSINESS STRATEGY

Our overall business strategy is to be the market leader in the general
commercial printing industry by combining the customer service and
responsiveness of well-managed, local printing businesses with the competitive
advantages provided by a national organization. Each of our 63 printing
businesses maintains responsibility for the day-to-day operations and
profitability of their business, while continuing to strengthen and build new
customer relationships in their respective markets. At the same time, each
operation is supported by the management expertise, purchasing power, technology
investments and other advantages that exist because they are part of a larger
company.

Internal Sales Growth. Our printing businesses have numerous
opportunities, individually and collectively, to achieve consistent, long-term
sales growth at a rate that exceeds industry averages. Our current sales
initiatives include:

o Expand our customer base by providing superior service and high quality
products, as well as aggressively pursue new business to gain market
share during the current economic slowdown.

o Continue to invest in new equipment and expand our capabilities to
provide the faster turnaround times and complementary services demanded
by our customers.

o Capitalize on our national presence and wide range of capabilities to
pursue sole-source national contracts.

o Create additional revenue sources and generate additional print demand
by providing our customers with innovative electronic products and
services.

Disciplined Acquisition Program. We are selectively pursuing
opportunities to acquire profitable, well-managed printing businesses at
reasonable prices. Our management team continues to evaluate potential
acquisition candidates that fit our general criteria and believes that we will
continue making acquisitions in the future.

Cost Savings. Through economies of scale, we obtain preferential
pricing for printing supplies and newer, more efficient equipment. In addition,
we centralize certain administrative services, such as human resources, treasury
and purchasing support, to generate cost savings.

Best Practices/Benchmarking. Management teams at our printing
businesses have access to strategic counsel and professional management
techniques in such areas as planning, organization and controls. We provide a
forum for them to share their knowledge of technical processes and their best
practices with one another through a series of periodic national and regional
meetings attended by top management and other personnel. We are also utilizing
our wide area network and management information systems to benchmark financial
and operational data and facilitate the sharing of information across our
printing businesses. We believe that benchmarking helps our management identify
and respond to changes in operating trends.

Management Development. We are committed to a program designed to
recruit, train and develop recent college graduates as printing sales and
management professionals. Participants in our Management Development Program
follow a three-year curriculum that provides them with the technical knowledge
of printing processes, coupled with general business and managerial training.
Certain aspects of this program are specifically tailored to fit the needs of
each operating location. Our Management Development Program is unique to the
industry and is a key factor in our ability to provide a high degree of quality
customer service, as well as provide a pool of talent for future management
positions at our printing businesses. As of May 31, 2001, there were 147
participants in this program.

3

PRINTING OPERATIONS

We currently operate 63 printing businesses in 25 states, and each
business is operated as a wholly-owned subsidiary of our Company. Our printing
operations produce high quality, custom-designed printed materials for a large
base of customers in a broad cross-section of industries, the majority of which
are located in the markets they serve. In addition to providing a full range of
prepress, printing and finishing services, our printing businesses offer several
electronic products and services and a variety of fulfillment/mailing services.
All of our printing businesses are aggregated together to represent one
reportable operating segment because, in general, they provide the same type of
services and exhibit similar economic characteristics.

Commercial Printing Services

In general, commercial printing includes developing printable material
through electronic prepress services, reproducing images on paper using printing
presses and providing comprehensive finishing and delivery services. We maintain
flexible production schedules in order to react swiftly to our customers'
requirements. Many printing projects require fast turnaround times, from
conception through delivery, and our printing businesses must maintain physical
plant and customer service staff as necessary to maximize workloads when called
upon to do so. Consequently, our printing businesses do not always operate at
full capacity.

Our electronic prepress services include all of the steps necessary to
prepare media (photographs, artwork, typed copy) for printing. This process
involves converting the media into digital images, separating digital color
images into process colors, assembling films and burning film images onto
printing plates using photochemical processes. Printing plates may also be
produced using "computer-to-plate" technology, whereby digitized text, graphic
images and line art are transferred directly from a digital file onto printing
plates, eliminating the need for film. This technology, which is currently being
used by over half of our companies, reduces costs, shortens turnaround time and
improves product quality. We continually evaluate our printing operations'
existing electronic prepress capabilities and closely monitor the development of
newer technology that may be used to increase productivity and improve service
and responsiveness to our customers.

Once printable material has been developed in the electronic prepress
area, our printing operations primarily use offset lithography to reproduce
images on paper. The offset lithography process provides the highest quality,
lowest cost printed products for most run lengths. Short-run to medium-run
commercial work is generally printed on sheet-fed presses, while longer-run
printing projects are typically printed on web presses.

Our printing operations primarily use sheet-fed printing presses, which
are generally capable of printing 16 pages of letter-sized finished product on a
28 by 40 inch sheet of paper with eight pages on each side (known as a 16-page
"signature"). As of May 31, 2001, our printing businesses operated 304 sheet-fed
presses capable of simultaneously printing from one to eight colors and are
generally capable of running at speeds of up to 15,000 impressions an hour. We
have eight locations which also operate half-size and full-size web presses
which print on a continuous roll of paper and may print up to 32-page signatures
on both sides of the paper at maximum speeds of up to 50,000 impressions an
hour. Certain web presses are also capable of folding, gluing or perforating a
printed product. Our finishing services include cutting, folding, binding and
other operations necessary to finish the printed product according to customers'
specifications.

Electronic Products And Services

The introduction of digital technology to the printing industry,
combined with the speed and interactive nature of the Internet, has transformed
the commercial printing industry into a communications business that far exceeds
ink on paper. By capitalizing on our expertise in digital processes and
responding to the expanded communication needs of our customers, our printing
businesses offer a wide range of electronic and Internet-based products and
services that are complementary to our traditional printing services. We develop
and market these electronic products and services through our CGXmedia division,
which includes support staff at each of our facilities, trained and able to
serve our customers and enhance our sales and marketing efforts.

4

CGXmedia has developed two Internet-based software solutions that have
generated significant interest from our customers. These two solutions are
described below.

o COIN (Custom Ordering Interactive Network) is our proprietary software
tool that helps customers better manage the print process. COIN sites
are customized for each client and are used for ordering, typesetting,
proofing, workflow management and fulfillment. COIN puts control
directly on the customer's desktop, generating instant on-line proofs
and providing multi-location organizations with the convenience of
secure, Internet-based remote ordering capability.

o OPAL (On-line Private Asset Library) is used primarily by companies to
store, archive and retrieve their valuable digital assets, such as
images, logos, documents and other digital files, from any location via
a web browser. OPAL enables customers to efficiently distribute these
digital assets across multiple distribution channels, allowing groups
to collaborate on projects and share materials. OPAL's software can be
tailored to meet specific customer applications and utilizes
sophisticated security architecture that limits access only to users
authorized by the customer.

CGXmedia also offers a variety of additional electronic media
solutions, such as CD-ROM development and production, conversion of text in
printed or digital form to eBook format, electronic journal composition and
variable data and on-demand printing for short run, fast turnaround projects. By
offering these electronic products and services, we are able to strengthen
relationships with existing customers, as well as attract new customers. We
expect that our ability to offer these electronic products and services will
help drive future sales growth.

Fulfillment/Mailing Services

We also provide fulfillment services, which primarily include
assembling, packaging, storing, and distributing promotional, educational and
training documents on behalf of our customers. Many corporations utilize our
fulfillment services to help manage their inventories of printed products and
related materials (such as binders and product samples), as well as provide
"just in time" assembly and delivery of customized materials to end users.
Orders for fulfillment services are frequently received via proprietary,
Internet-based procurement and inventory management systems maintained by our
printing businesses, including COIN sites.

Many of our printing businesses provide mailing services for large
quantities of printed materials distributed to end-users. Our mailing services
are ideal for direct mail and promotional pieces. We offer a number of options
for sorting, packaging, inkjet labeling and shipping of printed materials.

SALES AND MARKETING

Most of the products that we produce are generated by individual orders
through commissioned sales personnel and, in some cases, pursuant to long-term
contracts. As of May 31, 2001, we employed 528 sales professionals, all of whom
are knowledgeable about the printing industry and the extensive capabilities of
our 63 printing businesses. In addition to soliciting business from existing and
prospective customers, our sales personnel act as liaisons between customers and
our production departments and also provide technical advice and assistance to
customers throughout the printing process.

Commercial printing requires a substantial amount of interaction with
customers, including personal sales calls, reviews of color proofs and "press
checks" (customer approval of a printed document while it is being printed).
Through our sales professionals and other management personnel, we maintain
strict control of the printing process from the time a prospective customer is
identified through the scheduling, prepress, printing and finishing operations.

5

Because the commercial printing business is highly service-oriented,
our primary marketing focus is on responding rapidly to customer requirements
and producing high quality printed materials at competitive prices. Rapid
responsiveness is essential because of the short lead time on most commercial
printing projects. Our printing operations are designed to maintain maximum
flexibility to meet customer needs, both on a scheduled and an emergency basis.
Each of our printing businesses target projects which they believe will best
utilize their equipment and expertise.

Our Company's size, extensive range of capabilities and nationwide
coverage has created new sales channels, such as:

o National Accounts. More and more large corporations are seeking to
leverage their print spending and limit their number of commercial
print providers. Our National Accounts sales team is actively
pursuing several opportunities to obtain sole-source, multi-year
printing contracts with large corporations. We have successfully
gained several national accounts and expect the pursuit of these
long-term contracts to be an increasing contributor to our
internal sales growth. We have a team of three individuals
currently assigned to pursue national account opportunities and,
as necessary, these individuals draw support from available
personnel at our individual printing businesses and our corporate
headquarters.

o Strategic Alliances. We have entered into two strategic alliances
that will provide our Company with access to new sales
channels. In May 2000, we entered into a joint marketing alliance
agreement with The Standard Register Company ("Standard
Register"), a nationwide provider of customized document
management and workflow solutions for large corporations. Standard
Register and CGX cooperate in pursuing national account
opportunities from companies seeking to bundle their purchases of
business forms and commercial printing. In March 2001, CGX entered
into a strategic alliance between its financial printing
operations and Merrill Corporation ("Merrill"). This alliance
combines CGX's state of the art financial printing facility in
Houston, Texas and reputation for high quality commercial printing
with Merrill's worldwide financial typesetting and office network.

o Innovative Solutions. CGXmedia develops and markets several
electronic products and services to meet the growing communication
management needs of our print customers. Our COIN and OPAL
software solutions help companies more efficiently execute
print-related transactions and manage their valuable digital
assets across multiple locations via the Internet. Both COIN and
OPAL provide stand-alone solutions to our customers' common
business problems, as well as help our sales professionals
generate additional print demand. (See also "Printing Operations -
Electronic Products and Services").

CUSTOMERS

Our diverse customer base includes both national and local
corporations, mutual fund companies, advertising agencies, graphic design firms,
catalog retailers and direct mail distributors. Due to the project-oriented
nature of customers' printing requirements, sales to customers may vary
significantly from year to year and oftentimes depends upon the number, size and
complexity of their projects in a particular period. Furthermore, continued
engagement of our Company by our customers for successive jobs primarily depends
upon, among other things, the customer's satisfaction with the quality of
services provided. During fiscal 2001, we served over 12,000 customers, and our
top ten customers accounted for 7.2% of total sales, none of which was
individually more than 2.0%. We believe that our large and diverse customer
base, broad geographic coverage of the United States and extensive range of
printing capabilities and other complementary services reduce our exposure to an
economic slowdown that may generally affect the printing industry or any one
region of the country.

6

SUPPLIERS

We purchase raw materials used in the printing process (such as paper,
prepress supplies, ink, chemicals and boxes) from a number of national and local
suppliers and we are not materially dependent on any one supplier. We use a
two-tiered approach to purchasing in order to maximize the economies associated
with our size, while maintaining the local efficiencies and time sensitivity
required to meet customer demands. We negotiate master purchasing arrangements
centrally with major suppliers and manufacturers to obtain better pricing, then
communicate the terms of these arrangements to our individual printing
businesses. Each printing business orders goods and services as needed in
accordance with the terms set forth in our national purchasing agreements, if
applicable, or on a local basis. We continually monitor market conditions and
product developments, as well as regularly review the contractual terms of our
national purchasing agreements, to take advantage of our increasing buying power
and to maximize the benefits associated with these agreements.

We incur significant costs to purchase paper that is used in the
printing process. The majority of our paper supply is distributed through
merchant organizations. There are a small number of merchants that are
considered national in scope, with numerous regional organizations that serve
one or more of our printing operations. We have negotiated national purchasing
agreements with the mills, which produce paper, and the merchants, who
distribute most of the paper produced by the mills. These agreements typically
provide for volume-related discounts and additional periodic rebates based on
the total amount of purchases made by our printing operations from each mill
and/or merchant.

We also purchase a large amount of prepress supplies, consisting mainly
of film, plates and proofing materials. While there are a limited number of key
manufacturers of these materials, we generally purchase prepress supplies from
national and regional dealers. We have obtained volume-related discounts and
incentive arrangements from these manufacturers and receive periodic rebates
based on the total amount of purchases from these dealers.

COMPETITION

The majority of general commercial printing projects are purchased by
print buyers from locally available sources. Due to the highly fragmented nature
of this industry segment, we compete with a substantial number of other general
commercial printing companies for these jobs. Some of our competitors are owned
by other large, publicly owned corporations; however, the majority are privately
held, single location operations.

The major competitive factors in our business are:

o Extent and quality of customer service

o Quality and accuracy of finished products

o Cost structure

o Ability to meet customer deadlines

Customer service often is dependent on production and distribution
capabilities, along with the availability of equipment that is appropriate in
size and function for a given project. By using our nationwide network of
printing operations, we believe that our broad range of printing capabilities
and our ability to serve customers on both a regional and national level gives
us a competitive advantage over smaller, locally based printing companies.
Furthermore, our purchasing power, advanced technological capabilities and
ability to effectively utilize any excess production capacity throughout our
organization enables us to compete effectively in price, as well as provide
faster turnaround times than our competitors may be able to provide.

7

EMPLOYEES

As of May 31, 2001, we had over 4,700 employees throughout our
organization. Of this total, approximately 450 were employed subject to the
terms of various collective bargaining agreements. We believe that our relations
with our employees are generally satisfactory.

EXECUTIVE OFFICERS

Joe R. Davis has been the Chief Executive Officer and Chairman of the
Board of Directors since he founded our Company in 1985. Prior to forming CGX,
Mr. Davis was a Vice President for a division of International Paper Company. He
also previously served as a partner of the public accounting firm of Arthur
Andersen LLP. Mr. Davis is 58 years old.

Charles F. White has been the President and Chief Operating Officer
since joining our Company in July 2000. Mr. White joined CGX after 32 years with
Unisource Worldwide, a leading company in sales and distribution of printing
paper and supplies. While at Unisource he held a variety of sales and management
positions and was most recently President and Chief Operating Officer. Mr. White
is 54 years old.

Wayne M. Rose joined our Company in January 2001 as Executive Vice
President, Chief Financial Officer and Secretary. Mr. Rose joined CGX after 18
years with Quanex Corporation, a Houston-based manufacturer of steel and
aluminum products. He was most recently President of the Quanex Engineered
Products Group and previously served as Quanex's Chief Financial Officer. Mr.
Rose is 55 years old.

GOVERNMENT REGULATION AND ENVIRONMENTAL MATTERS

Our printing operations are subject to the environmental laws and
regulations of the United States and the applicable state and local laws and
regulations concerning emissions into the air, discharges into waterways and the
generation, handling and disposal of waste materials. The printing business
generates substantial quantities of inks, solvents and other waste products
requiring disposal under the numerous federal, state and local laws and
regulations relating to the environment. Our printing operations typically
recycle waste paper and contract for the removal of waste products. We believe
our Company is in material compliance with all applicable air quality, waste
disposal and other environmental-related rules and regulations, as well as with
other general employee health and safety laws and regulations. We do not
anticipate any material future capital expenditures for environmental control
facilities. There can be no assurance, however, that future changes in such laws
and regulations will not have a material effect on our Company's operations.

ITEM 2. PROPERTIES AND FACILITIES

As of May 31, 2001, our principal facilities consisted primarily of
printing facilities that contain production, storage and office space. We own
1.3 million square feet at 30 locations and lease 1.9 million square feet at an
additional 61 locations. All facilities are leased from unaffiliated third
parties except for certain facilities containing approximately 462,025 square
feet, which are leased from the former owners and current employees of 10 of our
printing businesses. We also lease approximately 16,210 square feet of office
space in Houston for our corporate headquarters. We believe our facilities are
suitable for their present and intended purposes and are adequate for our
current level of operations.

ITEM 3. LEGAL PROCEEDINGS

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

8

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

None.

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS

Our common stock is traded on the New York Stock Exchange under the
symbol CGX. The following table presents the quarterly high and low sales prices
for our common stock for each of the last two fiscal years:

FISCAL 2001 -- QUARTER ENDED: HIGH LOW
- ------------------------------- ---- ----
June 30, 2000.......................................13.38 8.50
September 30, 2000..................................15.44 8.69
December 31, 2000...................................12.13 9.50
March 31, 2001......................................16.50 11.40

FISCAL 2000 -- QUARTER ENDED: HIGH LOW
- ------------------------------- ---- ---
June 30, 1999.......................................58.50 35.50
September 30, 1999..................................50.00 37.25
December 31, 1999...................................42.13 13.38
March 31, 2000......................................15.75 11.50

As of May 15, 2001, there were 176 shareholders of record representing
more than 4,500 beneficial owners.

We intend to retain all of our earnings to finance the continuing
development of our business and we do not anticipate paying cash dividends on
our common stock in the foreseeable future. Any future payment of cash dividends
will depend upon the financial condition, debt covenants, capital requirements
and earnings of our Company, as well as other factors our Board of Directors may
deem relevant. In addition, our revolving credit agreements include restrictions
that limit our ability to pay dividends above certain levels.

9

ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA

The following historical consolidated financial data should be read in
conjunction with the audited consolidated financial statements of our Company
and the notes thereto included in Item 8. "Financial Statements and
Supplementary Data." Certain reclassifications have been made to the prior year
consolidated financial statements to conform to the current year
presentation.

YEAR ENDED MARCH 31
----------------------------------------------------------------------------
2001 2000 1999 1998 1997
--------- --------- -------- -------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
INCOME STATEMENT DATA

Sales $683,396 $624,895 $435,961 $231,282 $144,082
Cost of sales............................... 494,158 437,345 298,935 157,906 100,197
-------- -------- -------- -------- --------
Gross profit........................... 189,238 187,550 137,026 73,376 43,885
Selling expenses............................ 70,070 61,267 42,767 22,365 14,223
General and administrative expenses......... 54,595 48,677 33,605 17,628 11,330
Special charge (1) 6,440 - - - -
-------- -------- -------- -------- --------
Operating income....................... 58,133 77,606 60,654 33,383 18,332
Interest expense, net....................... 20,858 13,476 7,745 3,720 2,305
-------- -------- -------- -------- --------
Income before income taxes............. 37,275 64,130 52,909 29,663 16,027
Provision for income taxes.................. 15,164 25,651 20,634 11,273 5,927
-------- -------- -------- -------- --------
Net income............................. $ 22,111 $ 38,479 $ 32,275 $ 18,390 $ 10,100
======== ======== ======== ======== ========
Basic earnings per share (2)................ $ 1.68 $ 2.54 $ 2.35 $ 1.46 $ .83
======== ======== ======== ======== ========
Diluted earnings per share (2).............. $ 1.68 $ 2.51 $ 2.28 $ 1.40 $ .81
======== ======== ======== ======== ========

MARCH 31
----------------------------------------------------------------------------
2001 2000 1999 1998 1997
--------- --------- -------- -------- -------
(IN THOUSANDS)
BALANCE SHEET DATA
Working capital............................. $ 79,488 $ 65,301 $ 54,384 $ 27,869 $ 22,080
Property and equipment, net................. 299,871 310,344 230,733 135,892 85,643
Total assets................................ 674,667 680,848 494,277 237,645 135,720
Long-term debt, net of current portion...... 246,729 261,407 170,574 73,030 39,321
Total shareholders' equity.................. 287,534 272,531 214,454 105,332 66,447

- --------------------------------------------------------------------------------
(1) Relates to non-recurring costs and impairment charges primarily associated
with combining the operations at three smaller, under-performing locations
into nearby facilities and exiting one portion of our business at a fourth
location. This special charge reduced net income by $4,117 net of tax and
earnings per share by $.31.

(2) Adjusted for a two-for-one stock split on January 10, 1997.

10

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

The following discussion contains forward-looking information. Readers
are cautioned that such information involves known and unknown risks,
uncertainties or other factors that could cause actual results to materially
differ from those included herein. The Company's expectations regarding future
sales and profitability assume, among other things, stability in the economy and
reasonable growth in the demand for its products, the continued availability of
raw materials at affordable prices and retention of its key management and
operating personnel. In addition, the Company's expectations regarding future
acquisitions assume, among other things, the Company's ability to identify new
acquisition opportunities and its ability to negotiate and finance such
acquisitions on acceptable terms as well as the ability to successfully absorb
and manage such acquisitions. There can be no assurance that any or all of the
assumptions underlying the forward-looking statements will prove to be correct,
and there can therefore be no assurance that such forward-looking statements
will prove to be accurate. The inclusion of such information should not be
regarded as a representation by us or any other person that our objectives and
plans will be achieved. The Company expressly disclaims any duty to provide
updates to these forward-looking statements, assumptions or other factors after
the date of this Report on Form 10-K to reflect the occurrence of events or
circumstances or changes in expectations.

OVERVIEW

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

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

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

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

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

11

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

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

o Increase our local market share,

o Invest in new technology and expand our capabilities,

o Aggressively pursue national account opportunities,

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

We achieve operational improvements at our printing businesses by
leveraging our economies of scale with national purchasing agreements, sharing
best practices and benchmarking financial and operational data across our
network of 63 companies, and providing general business and managerial training
to recent college graduates through our successful Management Development
Program. We also continue to selectively pursue opportunities to acquire
profitable, well-managed printing companies that fit our general criteria.

RESULTS OF OPERATIONS

The following table sets forth our Company's historical consolidated
income statements and certain percentage relationships for the periods
indicated:

AS A PERCENTAGE OF SALES
---------------------------------
YEAR ENDED MARCH 31 YEAR ENDED MARCH 31
-------------------------------- ---------------------------------
2001 2000 1999 2001 2000 1999
------ ------ ------ ------ ------ ------
(In millions)

Sales............................... $683.4 $624.9 $436.0 100.0% 100.0% 100.0%
Cost of sales....................... 494.2 437.3 299.0 72.3 70.0 68.6
------ ------ ------ ----- ------ -----
Gross profit................... 189.2 187.6 137.0 27.7 30.0 31.4
Selling expenses.................... 70.1 61.3 42.7 10.3 9.8 9.8
General and administrative expenses 54.6 48.7 33.6 8.0 7.8 7.7
Special charge...................... 6.4 - - 0.9 - -
------ ------ ------ ----- ------ -----
Operating income............... 58.1 77.6 60.7 8.5 12.4 13.9
Interest expense, net............... 20.9 13.5 7.8 3.1 2.1 1.8
------ ------ ------ ----- ------ -----
Income before income taxes..... 37.2 64.1 52.9 5.4 10.3 12.1
Provision for income taxes.......... 15.1 25.6 20.6 2.2 4.1 4.7
------ ------ ------ ----- ------ -----
Net income..................... $ 22.1 $ 38.5 $ 32.3 3.2% 6.2% 7.4%
======= ====== ====== ===== ====== =====

The absolute increases in sales and expenses during the periods indicated
are due primarily to the acquisition of printing businesses. Because each
acquisition was accounted for using the purchase method of accounting, our
consolidated income statements reflect sales and expenses of acquired businesses
only for post-acquisition periods. In each fiscal year, acquisitions affected
our consolidated financial results, when compared to the prior year, for the
portion of the year following their respective dates of acquisition. Similarly,
acquisitions in each fiscal year affected our consolidated financial results in
the years which followed their respective year of acquisition because the
acquired business was under ownership for a full year.

12

Fiscal 2001 Compared With Fiscal 2000

Sales increased 9.4% to $683.4 million in 2001 from $624.9 million in
2000. Sales grew 5.8% as a result of the incremental revenue contribution of the
13 businesses acquired in fiscal 2000 (the "2000 Acquired Businesses"). The
remaining increase was due to internal growth generated by our focused efforts
to build market share, add to our national account base and pursue our
electronic media initiatives.

Gross profit increased 0.9% to $189.2 million in 2001 from $187.6
million in 2000. Gross profit as a percentage of sales decreased to 27.7% in
2001 from 30.0% in 2000. This decrease resulted from a general economic
slowdown, particularly during the third and fourth quarters, which reduced print
demand, forcing our businesses to aggressively pursue sales volume and protect
market share, coupled with higher depreciation expense attributable to capital
expenditures.

Selling expenses increased 14.4% to $70.1 million in 2001 from $61.3 in
2000, primarily due to the increased sales levels noted above. Selling expenses
as a percentage of sales increased to 10.3% in 2001 from 9.8% in 2000. This
increase is due to higher marketing and training costs attributable to our
pursuit of national accounts and our electronic media initiatives as we
continued to develop and market our electronic products and services available
through CGXmedia.

General and administrative expenses increased 12.2% to $54.6 million in
2001 from $48.7 million in 2000. This increase is due primarily to the addition
of the 2000 Acquired Businesses. General and administrative expenses as a
percentage of sales increased to 8.0% in 2001 from 7.8% in 2000, due to a
proportionally higher level of administrative expenses, including amortization
of goodwill, incurred as a result of the 2000 Acquired Businesses, as well as an
increase in our corporate infrastructure to better manage our operations.

The one-time special charge of $6.4 million recorded during the fourth
quarter of 2001 is due to direct and incremental costs primarily associated with
combining the operations at three smaller, under-performing locations into
nearby facilities and exiting one portion of our business at a fourth location.
We incurred $3.1 million in facility exit and other direct costs related to the
combined operations, with the remaining $3.3 million related to the impairment
of asset values.

Interest expense increased to $20.9 million in 2001 from $13.5 million
in 2000, primarily due to a net average increase in borrowings and higher
interest rates paid under our revolving credit facilities, together with the
addition of term equipment notes related to the purchase of printing equipment.

Effective income tax rates increased to 41% in 2001 as compared to 40%
in 2000. This increase is due to the effect of nondeductible goodwill that was
impaired during 2001 in connection with the one-time special charge.

Fiscal 2000 Compared with Fiscal 1999

Sales increased 43.3% to $624.9 million in 2000 from $436.0 million in
1999 due to the incremental revenue contribution of 19 acquisitions in 1999 and
13 acquisitions in 2000 (hereafter, we refer to these 32 acquired businesses as
the "1999/2000 Acquisitions").

Gross profit increased 36.9% to $187.6 million in 2000 from $137.0 million
in 1999, primarily due to the incremental profit contribution of the 1999/2000
Acquisitions. Gross profit as a percentage of sales decreased to 30.0% in 2000
from 31.4% in 1999. This decrease resulted from the effect of the overall lower
operating margins of the 1999/2000 Acquisitions, higher depreciation expense
attributable to capital expenditures and pricing pressures due to unfavorable
industry conditions during the second half of the year.

Selling expenses increased 43.6% to $61.3 million in 2000 from $42.7
million in 1999, primarily due to the increased sales levels noted above.
Selling expenses as a percentage of sales remained constant at 9.8% when
compared to 1999.

13

General and administrative expenses increased 44.9% to $48.7 million in
2000 from $33.6 million in 1999. This increase is due primarily to the addition
of the 1999/2000 Acquisitions. General and administrative expenses as a
percentage of sales increased to 7.8% in 2000 from 7.7% in 1999 due to a
proportionately higher level of general and administrative expenses, including
amortization of goodwill, incurred as a result of the 1999/2000 Acquisitions.

Net interest expense increased 74.0% to $13.5 million in 2000 from $7.8
million in 1999, primarily due to a net increase in borrowings under our
revolving credit facilities used to finance the purchase of the 1999/2000
Acquisitions and our share repurchase program, together with the addition of
term equipment notes related to the purchase of printing presses and debt
assumed in connection with certain acquisitions.

Effective income tax rates reflect an increase to 40% in 2000 from 39%
in 1999 due to the effect of nondeductible goodwill incurred in connection with
certain acquisitions completed since 1998 and, to a lesser extent, our expansion
into certain states with proportionately higher income tax rates.

LIQUIDITY AND CAPITAL RESOURCES

As of March 31, 2001, we had cash and cash equivalents of $8.7 million,
working capital of $79.5 million and total debt outstanding of $265.4 million.
As of March 31, 2000, we had cash and cash equivalents of $8.2 million, working
capital of $65.3 million and total debt outstanding of $266.5 million. During
2001, we used cash of $4.8 million to pay certain liabilities, including earnout
obligations, relating to prior year acquisitions. We used cash to complete
acquisitions and certain liabilities, including earnout obligations, totaling
$70.0 million in 2000 and $120.0 million in 1999. We also used cash to
repurchase our common stock pursuant to our share repurchase program of $7.4
million in 2001 and $30.4 million in 2000. Cash utilized for capital
expenditures was $26.4 million in 2001, $25.2 million in 2000 and $30.4 million
in 1999.

Our cash requirements are financed through internally generated funds
and borrowings under our revolving credit facilities. During 2001, we generated
cash flow from operations (net income plus depreciation, amortization, deferred
tax provision and noncash portion of special charge) of $72.8 million, as
compared to $86.5 million in 2000 and $55.2 million in 1999. Net incremental
payments under our revolving credit facilities were $25.2 million in 2001 and
net incremental borrowings were $59.9 million in 2000 and $93.5 million in 1999.
We also incurred debt to finance equipment purchases totaling $31.5 million in
2001, $26.9 million in 2000 and $8.3 million in 1999.

INVESTING ACTIVITIES

Pursuant to earnout agreements entered into in connection with certain
acquisitions, we paid $2.2 million during 2001 and, as of March 31, 2001, we
were contingently obligated at certain times and under certain circumstances
through fiscal 2005 to issue up to 314,400 shares of our common stock and to
make additional cash payments of up to $17.2 million for all periods in the
aggregate.

We intend to continue pursuing acquisition opportunities at prices we
believe are reasonable based upon market conditions and at returns relative to
alternative opportunities to invest our available capital, including the
repurchase of our common stock. There can be no assurance that we will be able
to acquire additional businesses or shares of our common stock at prices and on
terms acceptable to us. In addition, there can be no assurances that we will be
able to establish, maintain or increase the profitability of any acquired
business. We expect to fund future acquisitions through cash flow from
operations, additional borrowings or the issuance of our common stock.

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

14

FINANCING ACTIVITIES

On December 11, 2000 we entered into a new, five-year $225.0 million
senior secured credit facility (the "Credit Facility") with eleven banks, which
replaced an existing revolving credit agreement. The Credit Facility is composed
of a $50.0 million five-year term loan (the "Term Loan"), of which $45.0 million
was outstanding at March 31, 2001, and a $175.0 million five-year revolving
credit line (the "Revolving Line"), of which $136.8 million was outstanding at
March 31, 2001. The size of the combined facility may be increased by $50.0
million at a later date by adding additional lenders.

Borrowings outstanding under the Credit Facility are secured by
substantially all of our assets other than real estate and certain equipment
subject to term equipment notes and other financing. Borrowings under the Credit
Facility accrue interest, at our option, at either (1) the London Interbank
Offered Rate (LIBOR) plus a margin of 1.25% to 2.25%, or (2) an alternate base
rate (based upon the greater of the agent bank's prime lending rate or the
Federal Funds effective rate plus .50%) plus a margin of up to 1.00%. We are
also required to pay a commitment fee on available but unused amounts ranging
from .275% to .375%. The interest rate margin and the commitment fee are based
upon our ratio of Funded Debt to Pro Forma Consolidated EBITDA, as defined,
redetermined quarterly. On March 31, 2001, borrowings outstanding under the Term
Loan and the Revolving Line accrued interest at a weighted average rate of
6.74%.

The Term Loan requires quarterly payments of $2.5 million each through
September 30, 2005.

The proceeds of the Credit Facility can be used to repay certain
indebtedness, finance certain acquisitions and provide for working capital and
general corporate purposes. Proceeds can also be used to repurchase our common
stock, subject to a limit of $25.0 million and certain other restrictions.

In addition, on December 11, 2000 we entered into a one-year auxiliary
revolving credit facility (the "Auxiliary Facility") with a commercial bank.
This Auxiliary Facility is unsecured and has a maximum borrowing capacity of
$5.0 million. At March 31, 2001, borrowings outstanding under the Auxiliary
Facility totaled $1.4 million and accrued interest at 6.90%.

Our Company is subject to certain covenants and restrictions and we
must meet certain financial tests as defined in the Credit Facility. We were in
compliance with these covenants and financial tests at March 31, 2001.

We also have agreements with two printing equipment manufacturers,
pursuant to which we receive certain volume purchase incentives and long-term
financing options with respect to the purchase of printing presses and other
equipment. Under these agreements, we were obligated on term notes totaling
$72.4 million and subject to a weighted average interest rate of 7.75% as of
March 31, 2001. The agreements provide for fixed monthly payments over periods
of either five or ten years and are secured by the purchased equipment. Our
Company is not subject to any significant financial covenants in connection with
any of these equipment notes; however, our Credit Facility places certain
limitations on the amount of additional term note obligations we may incur in
the future.

During 2001, we purchased 730,228 shares of our common stock at a total
cost of $7.4 million, and we are authorized to purchase up to an additional
700,000 shares pursuant to the share repurchase program approved by our Board of
Directors on April 24, 2000. The amount and timing of any future share
repurchases will depend on a number of factors, including the price and
availability of our shares, general market conditions and certain provisions in
our Credit Facility.

15

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

Market risk generally means the risk that losses may occur in the value
of certain financial instruments as a result of movements in interest rates,
foreign currency exchange rates and commodity prices. We do not hold or utilize
derivative financial instruments which could expose our Company to significant
market risk. However, we are exposed to market risk for changes in interest
rates related primarily to our short-term and long-term debt obligations. Our
debt obligations as of March 31, 2001 include borrowings under our revolving
credit facilities totaling $183.2 million, various term equipment notes totaling
$75.6 million and other debt obligations totaling $6.6 million.

The following table sets forth the average interest rate for the
scheduled maturities of our debt obligations as of March 31, 2001
($ in millions):

ESTIMATED
FAIR VALUE
AT MARCH
31,
2002 2003 2004 2005 2006 THEREAFTER TOTAL 2001
----- ----- ----- ---- ---- ---------- ----- ----------
FIXED RATE DEBT:

Amount........................$8.2 $.9.2 $9.8 $8.9 $8.9 $31.5 $76.5 $76.0
Average interest rate.........7.68% 7.90% 7.90% 7.74% 7.69% 7.76% 7.78%
VARIABLE RATE DEBT:
Amount.......................$10.5 $10.6 $10.6 $10.6 $143.8 $2.8 $188.9 $188.9
Average interest rate.........6.45% 6.44% 6.44% 6.43% 6.81% 3.94% 6.69%

16

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

PAGE
----

Report of Independent Public Accountants.....................................18

Consolidated Balance Sheets at March 31, 2001 and 2000.......................19

Consolidated Income Statements for the Years Ended March 31, 2001,
2000 and 1999..............................................................20

Consolidated Statements of Shareholders' Equity for the Years
Ended March 31, 2001, 2000 and 1999........................................21

Consolidated Statements of Cash Flows for the Years Ended March 31,
2001, 2000 and 1999........................................................22

Notes to Consolidated Financial Statements...................................23

17

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Shareholders of
Consolidated Graphics, Inc.:

We have audited the accompanying consolidated balance sheets of Consolidated
Graphics, Inc. (a Texas corporation) and subsidiaries as of March 31, 2001 and
2000, and the related consolidated statements of income, shareholders' equity
and cash flows for each of the three years in the period ended March 31, 2001.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Consolidated Graphics, Inc. and
subsidiaries as of March 31, 2001 and 2000, and the results of its operations
and its cash flows for each of the three years in the period ended March 31,
2001, in conformity with accounting principles generally accepted in the United
States.

ARTHUR ANDERSEN LLP
Houston, Texas
May 14, 2001

18

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

MARCH 31
-----------------------------
2001 2000
--------- ---------
ASSETS

CURRENT ASSETS

Cash and cash equivalents......................................... $ 8,667 $ 8,197
Accounts receivable, net.......................................... 116,095 115,646
Inventories....................................................... 31,536 32,670
Prepaid expenses.................................................. 4,605 4,947
Deferred income tax assets........................................ 4,023 3,571
-------- --------
Total current assets......................................... 164,926 165,031
PROPERTY AND EQUIPMENT, net............................................ 299,871 310,344
GOODWILL, net.......................................................... 203,030 198,588
OTHER ASSETS........................................................... 6,840 6,885
-------- --------
$674,667 $680,848
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES
Current portion of long-term debt................................ $ 18,711 $ 5,083
Accounts payable.................................................. 33,865 55,780
Accrued liabilities............................................... 32,609 35,260
Income taxes payable.............................................. 253 3,607
------- -------
Total current liabilities.................................... 85,438 99,730
LONG-TERM DEBT, net of current portion................................. 246,729 261,407
DEFERRED INCOME TAX LIABILITIES........................................ 54,966 47,180
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Common stock, $.01 par value; 100,000,000 shares authorized;
13,018,795 and 13,708,396 issued and outstanding................ 130 137
Additional paid-in capital........................................ 155,199 161,984
Retained earnings................................................. 132,205 110,410
-------- --------
Total shareholders' equity................................... 287,534 272,531
-------- --------
$674,667 $680,848
======== ========

See accompanying notes to consolidated financial statements.

19

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

YEAR ENDED MARCH 31
---------------------------------------
2001 2000 1999
------- -------- --------

SALES.......................................................................$683,396 $624,895 $435,961

COST OF SALES................................................................494,158 437,345 298,935
-------- -------- --------

Gross profit............................................................189,238 187,550 137,026

SELLING EXPENSES..............................................................70,070 61,267 42,767

GENERAL AND ADMINISTRATIVE EXPENSES...........................................54,595 48,677 33,605

SPECIAL CHARGE.................................................................6,440 - -
-------- -------- --------

Operating income.........................................................58,133 77,606 60,654

INTEREST EXPENSE..............................................................21,005 13,584 7,841

INTEREST INCOME................................................................(147) (108) (96)
-------- -------- --------

Income before income taxes...............................................37,275 64,130 52,909

PROVISION FOR INCOME TAXES....................................................15,164 25,651 20,634
-------- -------- --------

NET INCOME...................................................................$22,111 $38,479 $32,275
======== ========= ========

BASIC EARNINGS PER SHARE.......................................................$1.68 $2.54 $2.35
======== ========= ========

DILUTED EARNINGS PER SHARE.....................................................$1.68 $2.51 $2.28
======== ========= ========

SHARES USED TO COMPUTE EARNINGS PER SHARE:
Basic 13,142 15,155 13,762
======== ========= ========
Diluted 13,186 15,336 14,126
======== ========= ========

See accompanying notes to consolidated financial statements.

20

CONSOLIDATED GRAPHICS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS)

COMMON STOCK ADDITIONAL
--------------------------- PAID-IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS TOTAL
-------- ------- ----------- --------- ---------

BALANCE, March 31, 1998..................................... 12,960 $129 $ 59,658 $ 45,545 $105,332
Common stock issuance -- acquisitions.................. 1,518 15 75,224 - 75,239
Exercise of stock options.............................. 171 2 1,606 - 1,608
Net income............................................. - - - 32,275 32,275
------ ------ -------- -------- --------
BALANCE, March 31, 1999..................................... 14,649 146 136,488 77,820 214,454
Common stock issuance -- acquisitions.................. 1,046 11 48,839 - 48,850
Exercise of stock options.............................. 83 1 1,118 - 1,119
Retirement of common stock............................. (2,070) (21) (24,461) (5,889) (30,371)
Net income............................................. - - - 38,479 38,479
------ ------ -------- -------- --------
BALANCE, March 31, 2000..................................... 13,708 137 161,984 110,410 272,531
Exercise of stock options.............................. 40 - 246 - 246
Retirement of common stock............................. (730) (7) (7,031) (316) (7,354)
Net income............................................. - - - 22,111 22,111
------ ------ -------- -------- --------
BALANCE, March 31, 2001..................................... 13,018 $130 $155,199 $132,205 $287,534
====== ====== ======== ======== ========

See accompanying notes to consolidated financial statements.

21

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

YEAR ENDED MARCH 31
--------------------------------------
2001 2000 1999
--------- -------- --------

OPERATING ACTIVITIES:

Net income.................................................................$ 22,111 $38,479 $32,275
Adjustments to reconcile net income
to net cash provided by operating activities
Depreciation and amortization.......................................... 38,783 32,881 20,209
Deferred income tax provision.......................................... 7,334 15,135 2,697
Noncash portion of special charge...................................... 4,615 - -
Changes in assets and liabilities, net of effects of acquisitions
Accounts receivable.............................................. (1,048) (6,070) 665
Inventories...................................................... 826 (1,633) 2,747
Prepaid expenses................................................. 213 (561) (594)
Other assets..................................................... 45 512 1,729
Accounts payable and accrued liabilities......................... (1,420) (11,351) (2,964)
Income taxes payable............................................. (3,341) 927 3,632
------ ------- --------
Net cash provided by operating activities.................. 68,118 68,319 60,396
------ ------- --------

INVESTING ACTIVITIES:
Acquisitions of businesses, net of cash acquired........................... (4,782) (70,005) (119,986)
Purchases of property and equipment........................................ (26,434) (25,172) (30,429)
Proceeds from asset dispositions........................................... 3,279 2,597 1,094
------ ------ ------
Net cash used in investing activities...................... (27,937) (92,580) (149,321)
------ ------- --------

FINANCING ACTIVITIES:
Proceeds from revolving credit facilities................................. 359,200 678,800 306,165
Payments on revolving credit facilities................................... (384,359) (618,860) (212,649)
Payments on long-term debt................................................ (7,431) (4,506) (4,202)
Payments to repurchase common stock....................................... (7,354) (30,371) -
Proceeds from exercise of stock options and other......................... 233 857 881
------ ------- --------
Net cash (used in) provided by financing activities....... (39,711) 25,920 90,195
------ ------- --------
NET INCREASE IN CASH AND CASH EQUIVALENTS................................. 470 1,659 1,270
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR............................ 8,197 6,538 5,268
------ ------- --------
CASH AND CASH EQUIVALENTS AT END OF YEAR.................................. $ 8,667 $ 8,197 $6,538
======== ======= ========

See accompanying notes to consolidated financial statements.

22

CONSOLIDATED GRAPHICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA AND PERCENTAGES)

1. BUSINESS

Consolidated Graphics, Inc. (collectively with its subsidiaries
referred to as "the Company") is the largest sheet-fed and half-web commercial
printing company in the United States with 63 printing facilities in 25 states.
The Company is focused on adding value to its operating companies by providing
the financial and operational strengths, management support and technological
advantages associated with a national organization.

The majority of the Company's sales are derived from traditional
printing services, which include electronic prepress, printing, finishing,
storage and delivery of high-quality, custom-designed products. Examples of such
products include multicolor product and capability brochures, shareholder
communications, catalogs, training manuals, point-of-purchase marketing
materials and direct mail pieces. The Company has a diverse customer base,
including national and local corporations, mutual fund companies, advertising
agencies, graphic design firms, catalog retailers and direct mail distributors.
The Company's advanced technological capabilities and expertise in digital
processes enable its printing businesses to provide a variety of electronic
products and services that can be separate from, or complementary to, its
traditional printing services. The Company also serves its customers by
providing fulfillment and mailing services.

2. SIGNIFICANT ACCOUNTING POLICIES AND OTHER INFORMATION

ACCOUNTING POLICIES

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

Principles of Consolidation -- The accompanying consolidated
financial statements include the accounts of the Company and its wholly owned
subsidiaries. All intercompany accounts and transactions have been eliminated.
Certain reclassifications have been made to the prior year consolidated
financial statements to conform to the current year presentation.

Use of Estimates -- The preparation of financial statements in
conformity with generally accepted accounting principles requires the use of
certain estimates and assumptions by management in determining the reported
amounts of assets and liabilities, disclosure of contingent liabilities as of
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Because uncertainties with respect to such
estimates and assumptions are inherent in the preparation of financial
statements, actual results could differ from these estimates.

Cash and Cash Equivalents -- The Company considers all highly liquid
investments purchased with original maturities of three months or less to be
cash equivalents.

Revenue Recognition and Accounts Receivable -- The Company
recognizes revenue upon delivery of each job. Losses, if any, on jobs are
recognized at the earliest date such amount is determinable. The Company derives
the majority of its revenues from sales and services to a broad and diverse
group of customers with no individual customer accounting for more than 10% of
the Company's revenues during the years ended March 31, 2001, 2000 and 1999. The
Company maintains an allowance for doubtful accounts based upon the expected
collectibility of accounts receivable. The Company adopted Staff Accounting
Bulletin No. 101, "Revenue Recognition in Financial Statements" ("SAB No. 101")
during the fourth quarter of fiscal 2001, which did not have a material impact
on the Company's consolidated financial statements.

Accounts receivable in the accompanying consolidated balance sheets are
reflected net of allowance for doubtful accounts of $2,698 and $2,763 at March
31, 2001 and 2000.

23

CONSOLIDATED GRAPHICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA AND PERCENTAGES)

Inventories -- Inventories are valued at the lower of cost or
market utilizing the first-in, first-out method for raw materials and the
specific identification method for work in progress and finished goods. The
carrying values of inventories are set forth below:

MARCH 31
---------------------
2001 2000
------- -------

Raw materials...................... $11,314 $11,130
Work in progress................... 18,128 19,382
Finished goods..................... 2,094 2,158
------- -------
$31,536 $32,670
======= =======

Goodwill -- Goodwill represents the excess of cost over the
estimated fair value of identifiable assets of businesses acquired. Goodwill is
stated at cost, net of accumulated amortization, and is being amortized over
forty years using the straight-line method. Accumulated amortization of goodwill
was $11,859 and $6,580 at March 31, 2001 and 2000.

Impairment of Long-Lived Assets -- The Company periodically evaluates
whether the remaining balances of property and equipment, goodwill or other
long-lived assets may be recoverable by assessing current and future levels of
income and cash flows on an undiscounted basis, as well as other factors, such
as business trends and general market conditions. The Company recorded an
impairment loss totaling $3,346 related to the consolidation of three facilities
and exiting one portion of its business at a fourth location during fiscal 2001
(See Other Information - Special Charge).

Recent Accounting Pronouncements -- Statement of Financial Accounting
Standards ("SFAS") No. 131, Disclosures about Segments of an Enterprise and
Related Information, was issued in June 1997. It requires a company to report
separately information about each operating segment. Management believes that
all the Company's subsidiaries operate in the commercial printing industry and
exhibit similar economic characteristics. Accordingly, the Company's
subsidiaries are aggregated into a single reportable segment. SFAS No. 138,
Accounting for Certain Derivative Instruments and Certain Hedging Activities,
was issued in June 2000, and amends certain provisions of SFAS No. 133. This
statement is effective for all fiscal years beginning after June 15, 2000.
Management does not believe that the adoption of SFAS No. 138 will have a
material impact on its consolidated financial position or consolidated results
of operations since it does not currently engage in such activities.

OTHER INFORMATION

Supplemental Cash Flow Information - 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
primarily include the issuance of common stock and the assumption of debt
related to the acquisition of certain printing businesses (see Note 3.
Acquisitions), as well as the issuance of term equipment notes payable related
to the purchase of printing equipment. The Company issued term equipment notes
payable totaling $31,540, $26,907, and $8,278 for the years ended March 31,
2001, 2000 and 1999 (See Note 5. Long-Term Debt). Such notes were issued to
satisfy certain accounts payable totaling $21,123, $10,716 and $5,073 as of
March 31, 2001, 2000 and 1999, related to the purchase of printing equipment,
and to acquire additional printing equipment for $10,417, $16,191 and $3,205
during the years ended March 31, 2001, 2000 and 1999.

24

CONSOLIDATED GRAPHICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA AND PERCENTAGES)

The following is a summary of the total cash paid for interest and income
taxes (net of refunds):

YEAR ENDED MARCH 31
-----------------------------------
2001 2000 1999
------- -------- -------
Cash Paid For:

Interest........................................................ $22,164 $12,846 $ 7,237
Income taxes.................................................... 11,121 9,850 12,931

Accrued Liabilities -- The significant components of accrued liabilities are as follows:

MARCH 31
------------------------
2001 2000
-------- --------

Compensation and benefits...................................... $13,996 $14,426
Taxes payable.................................................. 2,915 3,293
Accrued purchases.............................................. 2,955 2,759
Other.......................................................... 12,743 14,782
------- -------
$32,609 $35,260
======= =======

Earnings Per Share -- Basic earnings per share are calculated by dividing
net income by the weighted average number of common shares outstanding. Diluted
earnings per share reflect net income divided by the weighted average number of
common shares and include the effect of dilutive stock options outstanding.

Related Party Transactions -- The Company leases, under terms it
believes are comparable to market rates, certain real estate from individuals
who formerly owned an acquired business and are now employed by the Company.

Special Charge -- The Company recorded a one-time special charge of $6,440
($4,117 after tax) during the fourth quarter of fiscal 2001 related to direct
and incremental costs primarily associated with combining the operations at
three smaller, under-performing locations into nearby facilities and exiting one
portion of its business at a fourth location. The components of the special
charge are as follows:

Impairment of property and equipment values............ $2,272
Impairment of goodwill................................. 1,074
Facility exit costs.................................... 1,504
Other direct costs..................................... 1,590
------
$6,440
======

Impairment losses were calculated based on the excess of the recorded value
of property and equipment over each asset's respective fair values using recent
comparable market data. Costs totaling $1,048 related to items incurred but not
yet paid were reflected in accrued liabilities as of March 31, 2001.

Fair Value of Financial Instruments -- The Company's financial instruments
consist of cash, trade receivables, trade payables and debt obligations. The
Company does not hold or issue derivative financial instruments. The Company
believes that the fair value of its financial instruments, other than fixed rate
debt obligations totaling $76,588 at March 31, 2001, approximates their recorded
values. The Company estimates that the fair value of its fixed rate debt
obligations at March 31, 2001 is $76,043. Such estimate of fair value is based
on interest rates for the same or similar debt offered to the Company having the
same or similar maturities and collateral requirements.

25

CONSOLIDATED GRAPHICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA AND PERCENTAGES)

Concentrations of Credit Risk -- Financial instruments which potentially
subject the Company to concentrations of credit risk are primarily cash deposits
and trade accounts receivable. Concentrations of credit risk with respect to
trade accounts receivable are limited because the Company's printing businesses
provide services to a large, diverse group of customers in various geographical
regions. Management performs ongoing credit evaluations of its customers and
generally does not require collateral for the extension of credit. Additionally,
the Company provides an allowance for doubtful accounts as deemed necessary
based upon expected collectibility.

3. ACQUISITIONS

All acquisitions have been accounted for using the purchase method of
accounting. Revenues and expenses of the acquired businesses have been included
in the accompanying consolidated financial statements from their respective
dates of acquisition. The allocation of purchase price to the acquired assets
and liabilities is based on estimates of fair market value.

During fiscal 2001, the Company paid cash of $4,782 to satisfy certain
liabilities of acquired businesses that existed at March 31, 2000 or pursuant to
earnout agreements entered into in connection with certain prior year
acquisitions.

During fiscal 2000, the Company acquired 13 printing businesses. To
complete these acquisitions, in the aggregate, the Company paid cash of $42,044,
issued 1,032,407 shares of its common stock and discharged debt and paid other
liabilities of the acquired businesses totaling $24,477. Additionally, debt of
the acquired businesses totaling $10,706 remained outstanding following the
acquisitions. During fiscal 2000, the Company also issued 13,332 shares of its
common stock and paid cash of $3,484 pursuant to earnout agreements entered into
in connection with certain prior year acquisitions.

During fiscal 1999, the Company acquired 19 printing businesses. To
complete these acquisitions, in the aggregate, the Company paid cash of $61,824,
issued 1,493,673 shares of its common stock and discharged debt and paid other
liabilities of the acquired businesses totaling $54,295. Additionally, debt of
the acquired businesses totaling $476 remained outstanding following the
acquisitions. During fiscal 1999, the Company issued 23,861 shares of its common
stock and paid cash of $700 pursuant to earnout agreements entered into in
connection with certain prior year acquisitions. The Company also paid cash of
$3,167 in fiscal 1999 to satisfy a liability for the purchase of certain
printing presses in connection with a prior year acquisition.

The following table sets forth unaudited pro forma information assuming
that for the year ended March 31, 2000, each of the acquisitions in 2000
occurred on April 1, 1999.
YEAR ENDED
--------------
MARCH 31, 2000
(UNAUDITED)

Sales.................................................... $669,086
Net income............................................... 40,675
Diluted earnings per share............................... 2.62

The preceding pro forma financial information does not purport to be
indicative of the Company's consolidated financial position or consolidated
results of operations that would have occurred had the transactions been
completed at the beginning of the period presented, nor does such pro forma
information purport to indicate the Company's consolidated results of operations
at any future date or for any future period. Certain of the Company's
acquisitions involve contingent consideration typically payable only in the
event that the financial results of an acquired business improve by an equal
amount or more after the acquisition; accordingly, such contingent consideration
has been excluded from the preceding pro forma financial information.

26

CONSOLIDATED GRAPHICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA AND PERCENTAGES)

4. PROPERTY AND EQUIPMENT

Property and equipment are stated at cost, net of accumulated depreciation.
The costs of major renewals and betterments are capitalized; repairs and
maintenance costs are expensed when incurred. Depreciation of property and
equipment is computed using the straight-line method over the estimated useful
lives of the various classes of assets.

The following is a summary of the Company's property and equipment and
their estimated useful lives:

MARCH 31
------------------- ESTIMATED
DESCRIPTION 2001 2000 LIFE IN YEARS
----------- ------- ------- --------------

Land.............................................................. $ 7,507 $ 7,615 --
Buildings and leasehold improvements.............................. 53,361 49,669 15-40
Printing presses and equipment.................................... 297,435 292,583 7-20
Computer equipment and software................................... 19,479 16,192 2-5
Furniture, fixtures and other..................................... 9,555 9,090 5-7
------- --------

387,337 375,149
Less -- accumulated depreciation................................. (87,466) (64,805)
-------- -------

$299,871 $310,344
======== ========

5. LONG-TERM DEBT

The following is a summary of the Company's long-term debt as of:

MARCH 31
2001 2000
--------- ---------

Revolving credit facilities.................................... $183,178 $208,337
Term equipment notes........................................... 75,665 50,974
Other.......................................................... 6,597 7,179
-------- --------
265,440 266,490
Less -- current portion....................................... (18,711) (5,083)
-------- --------

$246,729 $261,407
======== ========

On December 11, 2000, the Company entered into a new, five-year
$225,000 senior secured credit facility (the "Credit Facility") with eleven
banks, which replaced an existing revolving credit agreement. The Credit
Facility is composed of a $50,000 five-year term loan (the "Term Loan"), of
which $45,000 was outstanding at March 31, 2001, and a $175,000 five-year
revolving credit line (the "Revolving Line"), of which $136,800 was outstanding
at March 31, 2001. The size of the combined facility may be increased by $50,000
at a later date by adding additional lenders.

27

CONSOLIDATED GRAPHICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA AND PERCENTAGES)

Borrowings outstanding under the Credit Facility are secured by
substantially all of the Company's assets other than real estate and certain
equipment subject to term equipment notes and other financing. Borrowings under
the Credit Facility accrue interest, at the Company's option, at either (1) the
London Interbank Offered Rate (LIBOR) plus a margin of 1.25% to 2.25%, or (2) an
alternate base rate (based upon the greater of the agent bank's prime lending
rate or the Federal Funds effective rate plus .50%) plus a margin of up to
1.00%. The Company is also required to pay a commitment fee on available but
unused amounts ranging from .275% to .375%. The interest rate margin and the
commitment fee are based upon the Company's ratio of Funded Debt to Pro Forma
Consolidated EBITDA, as defined, redetermined quarterly. On March 31, 2001
borrowings outstanding under the Term Loan and the Revolving Line accrued
interest at a weighted average rate of 6.74%.

The Term Loan requires quarterly payments of $2,500 each through
September 30, 2005.

The proceeds of the Credit Facility can be used to repay certain
indebtedness, finance certain acquisitions and provide for working capital and
general corporate purposes. Proceeds can also be used by the Company to
repurchase its common stock, subject to a limit of $25,000 and certain other
restrictions.

The covenants contained in the Agreement, among other things, limit the
Company's ability to (i) incur secured and unsecured debt beyond specific
amounts or based upon financial ratios, (ii) pledge its assets beyond specific
amounts, (iii) merge, consolidate with or acquire other companies where the
total consideration paid is above certain levels, (iv) change its primary
business, (v) pay cash dividends, (vi) make capital expenditures and dispose of
assets beyond certain levels. The Company must also meet certain financial tests
relating to its leverage ratio, interest coverage ratio, fixed charge coverage
ratio and consolidated net worth.

In addition, on December 11, 2000 the Company entered into a one-year
auxiliary revolving credit facility (the "Auxiliary Facility") with a commercial
bank. This Auxiliary Facility is unsecured and has a maximum borrowing capacity
of $5,000. At March 31, 2001, borrowings outstanding under the Auxiliary
Facility totaled $1,378 and accrued interest at 6.90%.

The term equipment notes consist primarily of term notes payable
pursuant to printing equipment purchase and financing agreements between the
Company and two printing equipment manufacturers. The agreements provide for
fixed monthly payments over periods of either five or ten years and are secured
by the purchased equipment. At March 31, 2001, outstanding borrowings under
these agreements totaled $72,464 and were subject to a weighted average interest
rate of 7.75%. The remaining balance of term equipment notes totaling $3,201
primarily consists of various secured debt obligations assumed by the Company in
connection with certain prior year acquisitions. The Company is not subject to
any significant financial covenants in connection with any of these equipment
notes; however, the Credit Facility places certain limitations on the amount of
additional term note obligations the Company may incur in the future.

28

CONSOLIDATED GRAPHICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA AND PERCENTAGES)

The Company's remaining debt obligations generally consist of
mortgages, capital leases, promissory notes and industrial revenue bonds, some
of which contain financial covenants and restrictions. The most significant of
these restrictions place certain limits on future borrowings and acquisitions
above specified levels. The Company believes these restrictions do not
adversely affect its acquisition or operating strategies.

The principal payment requirements by fiscal year under the Company's
debt agreements are as follows, 2002 -- $18,711; 2003 -- $19,741; 2004 --
$20,358; 2005 -- $19,555; 2006 -- $152,668; thereafter -- $34,407.

6. INCOME TAXES

The provision for income taxes is composed of the following:

YEAR ENDED MARCH 31
--------------------------------------
2001 2000 1999
-------- ------- ------

Current...............................................$ 7,830 $10,516 $17,936
Deferred.............................................. 7,334 15,135 2,698
-------- ------- -------
$15,164 $25,651 $20,634
======== ======= =======

The provision for income taxes differs from an amount computed at the
statutory rates as follows:

YEAR ENDED MARCH 31
----------------------------------------
2001 2000 1999
-------- -------- -------

Provision at the statutory rate.................. $13,046 $22,446 $18,518
State income taxes, net of federal
income tax benefit............................. 583 1,965 1,279
Non-deductible expenses:
Amortization of goodwill.................... 1,205 900 532
Other....................................... 330 340 305
-------- ------- -------
$15,164 $25,651 $20,634
======== ======== =======

Deferred income taxes reflect the future tax consequences of differences
between the tax bases of assets and liabilities and their financial reporting
amounts as measured based on enacted tax laws and regulations. The components of
the net deferred income tax assets and liabilities are as follows:

MARCH 31
------------------------------------------
2001 2000 1999
------ ------ -------
Deferred income tax liabilities:

Property and equipment.................................... $44,683 $36,493 $27,103
Goodwill and other........................................ 10,283 10,687 1,388
------- ------- -------
Total deferred income tax liabilities.................. $54,966 $47,180 $28,491
======= ======= =======

Deferred income tax assets:
Accounts receivable and inventory......................... $ 1,379 $ 1,463 $ 2,533
Accruals not currently deductible......................... 2,644 2,108 2,090
------- ------- -------
Total deferred income tax assets....................... $ 4,023 $ 3,571 $ 4,623
======= ======= ========

29

CONSOLIDATED GRAPHICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA AND PERCENTAGES)

7. COMMITMENTS AND CONTINGENCIES

The Company's minimum payments each fiscal year under its noncancelable
operating lease agreements for facilities and equipment are as follows: 2002--
$10,028; 2003-- $8,289; 2004-- $6,320; 2005-- $4,687; 2006-- $3,817;
thereafter-- $5,420. Total rent expense was $10,202, $9,574 and $5,234 for the
years ended March 31, 2001, 2000 and 1999.

In connection with certain acquisitions, the Company has agreed to
issue additional shares of its common stock or make additional cash payments
contingent upon the acquired printing businesses improving operating profits in
excess of certain pre-determined targets. At March 31, 2001, the Company was
contingently obligated through fiscal 2005 to issue up to a total of 314,400
shares of its common stock and make additional cash payments of up to $17,175
for all periods in the aggregate.

From time to time, the Company is subject to legal proceedings and claims
that arise in the ordinary course of its business. Currently, there are no legal
proceedings or claims pending against the Company that management believes will
have a material adverse effect upon the Company's consolidated financial
position or consolidated results of operations.

8. STOCK OPTIONS

Employees of the Company and certain nonemployee members of the Company's
Board of Directors have been, or may be granted rights to purchase shares of its
common stock pursuant to the Consolidated Graphics, Inc. Long-Term Incentive
Plan (the "Plan"). Options granted pursuant to the Plan may either be incentive
stock options within the meaning of Section 422 of the Internal Revenue Code of
1986, as amended, or non-qualified stock options. Options granted under the Plan
are at a price not less than the market price of the stock at the date of grant
and periodically vest over a term of up to ten years. Options granted under the
Plan generally expire six months after the vesting period or termination of
employment. At March 31, 2001, a total of 2,621,982 shares were reserved for
issuance pursuant to the Plan, of which 461,596 shares were reserved for options
which had not been granted.

The Company accounts for the Plan under the provisions and related
interpretations of Accounting Principles Board No. 25, "Accounting for Stock
Issued to Employees." No compensation expense or liability is recognized for
such options in the accompanying consolidated financial statements since all
options were granted at the fair market value of the stock at the date of grant.

The following table sets forth option transactions under the Plan:

FOR THE YEARS ENDED MARCH 31
---------------------------------------------------------------------------------
2001 2000 1999
------------------------- ------------------------- ---------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
------ ----- ------ ------ ------ -----

Outstanding at April 1................... 1,236,660 $38.36 1,363,927 $40.54 808,048 $19.10
Granted............................. 1,116,069 11.18 205,641 24.32 793,985 55.12
Exercised........................... (55,250) 7.62 (83,766) 10.40 (170,392) 11.28
Forfeited........................... (137,093) 27.15 (249,142) 47.58 (67,714) 29.62
--------- --------- ---------

Outstanding at March 31.................. 2,160,386 25.83 1,236,660 38.36 1,363,927 40.54
========= ========= =========
Shares exercisable at March 31........... 398,289 $29.50 323,891 $23.53 217,842 $14.94
========= ========= =========

30

CONSOLIDATED GRAPHICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA AND PERCENTAGES)

Had the Company used the fair-value-based method of accounting for the
Plan prescribed by SFAS No. 123, "Accounting for Stock-Based Compensation," and
charged compensation expense against income over the vesting period based on the
fair value of options at the date of grant, net income and earnings per share
would have been reduced to the following pro forma amounts:

FOR THE YEARS ENDED MARCH 31
---------------------------------------------------------------------------
2001 2000 1999
--------------------- --------------------- ---------------------

AS PRO AS PRO AS PRO
REPORTED FORMA REPORTED FORMA REPORTED FORMA
--------- -------- --------- ------- -------- -----

Net income............................ $22,111 $19,328 $38,479 $35,847 $32,275 $30,129
Basic earnings per share.............. 1.68 1.49 2.54 2.23 2.35 2.19
Diluted earnings per share............ 1.68 1.48 2.51 2.21 2.28 2.13

The pro forma compensation expense may not be representative of future
amounts because options vest over several years and additional options may be
granted in future years.

The weighted-average grant date fair value of options granted during
fiscal 2001, 2000 and 1999 was $7.50, $15.96 and $34.64, respectively. The
weighted-average grant date fair value of options was determined by utilizing
the Black-Scholes option-pricing model with the following key assumptions:

2001 2000 1999
---- ---- ----

Dividend yield.............................. -- -- --
Expected volatility......................... 60.4% 74.9% 51.5%
Average risk-free interest rate............. 5.8% 6.3% 5.4%
Average expected life....................... 7.6.yrs. 5.0.yrs. 8.5.yrs.

The Black-Scholes model used by the Company to calculate the fair value
of options granted, as well as other currently accepted option valuation models,
were developed to estimate the fair value of freely tradable, fully transferable
options without vesting and/or trading restrictions, which significantly differ
from the provisions associated with the Company's stock option awards. These
models also require highly subjective assumptions, including future stock price
volatility and expected time until exercise, which greatly affect the calculated
values. Accordingly, management does not believe this model provides a reliable
single measure of the fair value of the Company's stock option awards.

31

CONSOLIDATED GRAPHICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA AND PERCENTAGES)

9. UNAUDITED QUARTERLY FINANCIAL DATA

The following table contains selected quarterly financial data from the
consolidated income statements for each quarter of fiscal 2001 and 2000. The
Company believes this information reflects all normal recurring adjustments
necessary for a fair presentation of the information for the periods presented.
The operating results for any quarter are not necessarily indicative of results
for any future period.

1ST 2ND 3RD 4TH
QUARTER QUARTER QUARTER QUARTER (1)
--------- -------- ---------- ------------

FISCAL 2001:

Sales....................................... $173,486 $172,503 $171,211 $166,196
Gross profit................................ 49,428 49,259 45,617 44,934
Net income.................................. 8,036 7,914 5,496 665
Basic earnings per share.................... .59 .61 .42 .05
Diluted earnings per share.................. .59 .61 .42 .05

FISCAL 2000:
Sales....................................... $145,829 $152,886 $158,408 $167,772
Gross profit................................ 45,677 47,592 46,213 48,068
Net income.................................. 10,693 10,763 8,855 8,168
Basic earnings per share.................... .71 .69 .56 .58
Diluted earnings per share.................. .70 .68 .56 .58

(1) Reflects a one-time special charge of $4,117 net of tax or $.31 per share
in fiscal 2001. (See Note 2. Other Information - Special Charge).

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

32

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III

The information called for by "Item 10. Directors and Executive
Officers of the Registrant" (except for certain information regarding executive
officers which is included in Part I hereof as "Item 1. Business -- Executive
Officers"), "Item 11. Executive Compensation", "Item 12. Security Ownership of
Certain Beneficial Owners and Management", and "Item 13. Certain Relationships
and Related Transactions", is hereby incorporated by reference to the Company's
Proxy Statement for its Annual Meeting of Shareholders (presently scheduled to
be held July 26, 2001) to be filed with the SEC pursuant to Regulation 14A under
the Securities Exchange Act of 1934, as amended.

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a) INDEX TO FINANCIAL STATEMENTS

(a)(1) FINANCIAL STATEMENTS (INCLUDED UNDER ITEM 8):

The index to the Financial Statements is included on page 17 of this
report and is incorporated herein by reference.

(a)(2) FINANCIAL STATEMENT SCHEDULES:

Report of Independent Public Accountants on Supplementary Data.

Schedule II - Valuation and Qualifying Accounts.

All other schedules have been omitted since the required information is
not significant or is included in the Consolidated Financial Statements
or notes thereto or is not applicable.

(a)(3) EXHIBITS:

*3.1 --Restated Articles of Incorporation of the Company filed with the
Secretary of State of the State of Texas on July 27, 1994
(Consolidated Graphics, Inc. Form 10-Q (June 30, 1994) SEC File
No.0-24068, Exhibit 4(a)).
*3.2 --Articles of Amendment to the Restated Articles of Incorporation
of the Company dated as of July 29, 1998.(Consolidated Graphics,
Inc. Form 10-Q (June 30, 1998) SEC File No. 0-24068,
Exhibit 3.1).
*3.3 --Restated By-Laws of the Company, dated as of November 2, 1998
(Consolidated Graphics, Inc. Form 10-Q (September 30, 1998)
SEC File No. 0-24068, Exhibit 3.2).
*3.4 --Restated By-Laws of the Company as amended on June 23, 1999
(Consolidated Graphics, Inc. Form 10-Q (June 30, 1999) SEC
File No. 0-24068, Exhibit 3.4).
*3.5 --Amendments to the By-Laws of the Company on December 15, 1999
(Consolidated Graphics, Inc. Form 8-K (December 15, 1999)
SEC File No. 0-24068, Exhibit 3.2).
*4.1 --Specimen Common Stock Certificate (Consolidated Graphics, Inc.
Form 10-K (March 31, 1998) SEC File No. 0-24068,
Exhibit 4.1).
*4.2 --Rights Agreement dated as of December 15, 1999 between
Consolidated Graphics, Inc. and American Stock Transfer
and Trust Company, as Rights Agent, which includes as Exhibit A
the Certificate of Designations of Series A Preferred Stock, as
Exhibit B the form of Right Certificate and as Exhibit C the form
of summary of Rights to Purchase Shares (Consolidated Graphics,
Inc. Form 8-K (December 15, 1999) SEC File No. 0-24068, Exhibit
4.1).
*10.1 --Credit Agreement among the Company and First Union Bank as
Administrative Agent and First Union Securities, Inc. as
Sole Arranger and Book Runner and Bank One, N. A., as
Documentation Agent, dated as of December 11, 2000
(Consolidated Graphics, Inc. Form 8-K (December 28, 2000)
SEC File No. 001-12631, Exhibit 10).
*10.2 --1994 Consolidated Graphics, Inc. Long-Term Incentive Plan
(Consolidated Graphics, Inc. Registration Statement on Form
S-1 (Reg. No. 33-77468), Exhibit 10.14).

33

*10.3 --First Amendment to Consolidated Graphics, Inc. Long-Term
Incentive Plan (reflecting an increase in the number of
shares of Common Stock authorized to be issued thereunder from
367,500 to 967,500) (Consolidated Graphics, Inc. Registration
Statement on Form S-8 (Reg. No. 333-66019), Exhibit 4.2).
*10.4 --Second Amendment to Consolidated Graphics, Inc. Long-Term
Incentive Plan, as amended (reflecting an increase in the
number of shares of Common Stock authorized to be issued there-
under from 1,935,000 to 3,435,000)(Consolidated Graphics, Inc.
Registration Statement on Form S-8 (Reg. No. 333-66019),
Exhibit 4.3).
+10.5 --Employment Agreement between the Company and Charles F. White
dated as of July 25, 2000.
+10.6 --Change in Control Agreement between the Company and Charles F.
White dated as of July 25, 2000.
+10.7 --Employment Agreement between the Company and Joe R. Davis dated
as of July 25, 2000.
+10.8 --Change in Control Agreement between the Company and Joe R. Davis
dated as of July 25, 2000.
10.9 --Final Severance Agreement and Release between the Company and
G. Christopher Colville dated as of October 8, 2000.
+10.10 --Change in Control Agreement between the Company and Wayne M. Rose
dated as of January 8, 2001.
21 --List of Subsidiaries.
23.1 --Consent of Arthur Andersen LLP.
24 --Powers of Attorney.

* Incorporated by reference.
+ Management compensatory agreement.

(b) REPORTS ON FORM 8-K:

1) Form 8-K, filed January 19, 2001, in connection with the press
releases announcing the appointment of an Executive Vice President
and Chief Financial Officer and the Company's preliminary fiscal
2001 third quarter results.

2) Form 8-K, filed January 24, 2001, in connection with the press
release announcing the Company's fiscal 2001 third quarter results.

3) Form 8-K, filed March 20, 2001, in connection with the press
releases announcing a Strategic Alliance between Chas. P.
Young and Merrill Corporation and the Company's implementation of
savings initiatives.

4) Form 8-K, filed April 25, 2001, in connection with the press release
announcing the Company's fiscal 2001 fourth quarter results.

34

CONSOLIDATED GRAPHICS, INC.

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
ON SUPPLEMENTARY DATA

To Consolidated Graphics, Inc.:

We have audited in accordance with auditing standards generally
accepted in the United States, the consolidated financial statements of
Consolidated Graphics, Inc. and subsidiaries included in this Annual Report on
Form 10-K and have issued our report thereon dated May 14, 2001, in which we
expressed an unqualified opinion. Our audits were made for the purpose of
forming an opinion on the basic financial statements taken as a whole. The
Valuation and Qualifying Accounts Schedule (Schedule II) listed in the index at
Item 14(a)(2) is presented for purposes of complying with the Securities and
Exchange Commission's rules and is not part of the basic financial statements.
This information has been subjected to the auditing procedures applied in our
audits of the basic financial statements and, in our opinion, is fairly stated
in all material respects in relation to the basic financial statements taken as
a whole.

ARTHUR ANDERSEN LLP
Houston, Texas
May 14, 2001

SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS

UTILIZATION
BALANCE AT AMOUNT OF RESERVE BALANCE AT
BEGINNING CHARGED TO (NET OF END OF
DESCRIPTION OF YEAR EXPENSE RECOVERIES) OTHER YEAR
- ------------------------------------------ ---------- ---------- ------------- ------ -----------

ALLOWANCE FOR DOUBTFUL ACCOUNTS

Year Ended March 31, 2001................... $2,763 $1,467 $(1,532) $ - $2,698

Year Ended March 31, 2000.................... 4,968 -- (3,377) 1,172(1) 2,763

Year Ended March 31, 1999.................... 1,505 139 (172) 3,496(1) 4,968

(1) Represents primarily the aggregate increase in the beginning balances
arising from acquired businesses.

35

SIGNATURES

PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNDER DULY AUTHORIZED, IN THE CITY OF
HOUSTON, STATE OF TEXAS ON THE 22 DAY OF JUNE 2001.

CONSOLIDATED GRAPHICS, INC.

By: /s/: JOE R. DAVIS
--------------------------------------------------
JOE R. DAVIS
CHIEF EXECUTIVE OFFICER AND
CHAIRMAN OF THE BOARD OF DIRECTORS

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934,
THIS REPORT HAS BEEN SIGNED BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT
AND IN THE CAPACITIES AND ON THE DATES INDICATED.

SIGNATURE TITLE DATE
--------- ----- ----

/s/: JOE R. DAVIS Chief Executive
----------------------- Officer and Director
JOE R. DAVIS (Principal Executive Officer) June 22, 2001

/s/: CHARLES F. WHITE President and
-------------------------- Chief Operating Officer June 22, 2001
CHARLES F. WHITE

/s/: WAYNE M. ROSE Executive Vice President,
-------------------------- Chief Financial Officer and Secretary June 22, 2001
WAYNE M. ROSE (Principal Financial Officer)

LARRY J. ALEXANDER* Director
--------------------------
LARRY J. ALEXANDER

BRADY F. CARRUTH* Director
--------------------------
BRADY F. CARRUTH

CLARENCE C. COMER* Director
--------------------------
CLARENCE C. COMER

GARY L. FORBES* Director
--------------------------
GARY L. FORBES

JAMES H. LIMMER* Director
--------------------------
JAMES H. LIMMER

HUGH N. WEST* Director
--------------------------
HUGH N. WEST

* By: /s/: JOE R. DAVIS
-------------------
JOE R. DAVIS June 22, 2001
Attorney-in-Fact

36