Financial Statements:

 

 

 

 

 

 

 

 

Assets:

Investments, at fair value (See Note 3)

Participants’ contributions receivable

 

 

Total assets

 

 

Liabilities:

Excess contributions payable

 

 

Total liabilities

 

 

Net assets available for benefits at fair value

 

 

Adjustment from fair value to contract value for interest in common collective trust relating to fully benefit-responsive investment contracts

 

 

Net assets available for benefits

 

Additions to net assets attributed to:

Dividend and interest income

Net appreciation in fair value of investments (See Note 3)

 

 

Total investment income

 

 

Contributions:

Employees

Rollovers from other plans

 

 

Total contributions

 

 

Total additions

 

 

Deductions from net assets attributed to:

Benefits and withdrawals

Trustee fees

 

 

Total deductions

 

 

Net increase in net assets available for benefits

 

Net assets available for benefits, beginning of year

 

 

Net assets available for benefits, end of year

 

The following description of the Consolidated Graphics, Inc. (the “Company”) Employee 401(k) Savings Plan (the “Plan”) provides only general information. Participants should refer to the Plan agreement for a more complete description of the Plan’s provisions.

The Plan was established effective January 1, 1997, as a defined contribution plan. All employees of the Company and any affiliated employer which has adopted the Plan, who have attained the age of 19 and completed at least one (1) month of service are eligible to participate in the Plan, except (i) union employees, unless participation in the Plan has been negotiated by a collective bargaining unit and the Company or an affiliated employer, (ii) non-resident aliens, (iii) leased employees, and (iv) individuals classified as independent contractors.

The Company created and appointed the members of the Retirement Committee to manage the Plan. State Street Bank and Trust serves as the Plan trustee/custodian. ADP Retirement Services is the recordkeeper for the Plan. Morgan Stanley is the Plan investment advisor. Plan administrative expenses are either paid by the Plan or the Company.

Each year, participants may contribute from 1% to 50% of their pretax annual compensation not to exceed the limitation set forth in Internal Revenue Code (“IRC”) Section 402(g) ($15,500 in 2007 and $15,000 in 2006). Participants may make catch-up contributions, pre-tax contributions that exceed the annual elective deferral limit, during any calendar year ending on or after the participant’s 50^th birthday. Participants’ total catch-up contributions during 2007 and 2006 cannot exceed $5,000 per year. Participants may also make rollover contributions from other qualified plans. Participants direct the investment of their contributions into various investment options offered by the Plan. Although the Plan holds shares of Consolidated Graphics, Inc. common stock, no participant can elect to invest additional funds in this stock after December 31, 1999.

The Plan also provides for discretionary employer matching contributions not exceeding 6% of an employee’s annual compensation. Additional amounts may also be contributed by the employer at the option of the Company’s board of directors. During 2007 and 2006, the Company made no discretionary contributions to the Plan.

Each participant’s account is credited with the participant’s contributions and allocations of (i) Plan earnings and (ii) discretionary contributions made by the Company, if any, and charged with an allocation of administrative expenses. Allocations are based on participants’ compensation or account balances, as described in the Plan. Upon the occurrence of a distribution event, the benefit to which the participant is entitled is the benefit that can be provided from the participant’s vested interest in his or her account.

Participants are immediately vested in their elective contributions, plus any earnings on such contributions and any qualified employer matching contributions. The vesting of certain discretionary employer contributions plus any earnings thereon is based on years of continuous service accrued by the participant while in covered employment. A participant vests at a rate of 20% per year until fully vested after five years of credited service.

Participants may borrow from their fund accounts at a minimum of $500 up to a maximum equal to the lesser of $50,000 or 50% of the participant’s vested account balance. Loan terms range from 1 to 5 years or up to 30 years for the purchase of a primary residence. The loans are secured by the vested balance in the participant’s account and bear interest at the current Wall Street prime rate, re-determined monthly, plus 1%, with the resulting interest rate fixed over the term of the loan. Principal and interest payments are made by means of payroll withholdings according to the terms of the respective promissory note.

Upon termination of employment due to death or retirement, a participant (or his or her designated beneficiary in the event of death) may elect to receive either a lump-sum amount equal to the value of the participant’s vested interest in his or her account, or to have the account balance distributed in installments. For termination of employment due to other reasons, the vested interest in his or her account will be distributed as a lump-sum distribution.

All employer contributions, if any, credited to a participant’s account, but not vested, are forfeited by the participant upon distribution of the fully vested value of his or her account (or his or her designated beneficiary in the event of death). Forfeitures are generally used to pay Plan expenses or to reduce employer contributions. Although the Plan allows for discretionary matching contributions by the Company, no matching contributions have been contributed to participants. Thus, forfeitures do not normally occur in the Plan. However, other plans which have merged into the Plan may have forfeiture balances which are transferred into the Plan. Forfeiture balances were $39,187 and $39,793 at December 31, 2007 and 2006, respectively, and $2,475 and $30,517 were used to pay administrative expenses during the years ended December 31, 2007 and 2006, respectively.

Although it has not expressed any intent to do so, the Company has the right to terminate the Plan subject to the provisions of ERISA. In the event of Plan termination, participants will become 100% vested in any previously non-vested account balances.

The financial statements of the Plan are prepared under the accrual method of accounting in accordance with accounting principles generally accepted in the United States of America.

As described in Financial Accounting Standards Board Staff Position, FSP AAG INV-1 and SOP 94-1-1, Reporting of Fully Benefit-Responsive Investment Contracts Held by Certain Investment Companies Subject to the AICPA Investment Company Guide and Defined-Contribution Health and Welfare and Pension Plans (the FSP), investment contracts held by a defined-contribution plan are required to be reported at fair value. However, contract value is the relevant measurement attribute for that portion of the net assets available for benefits of a defined-contribution plan attributable to fully benefit-responsive investment contracts because contract value is the amount participants would receive if they were to initiate permitted transactions under the terms of the Plan. As required by the FSP, the Statement of Net Assets Available for Benefits presents the fair value of the investment contracts as well as the adjustment of the fully benefit-responsive investment contracts from fair value to contract value. The Statement of Changes in Net Assets Available for Benefits is prepared on a contract value basis.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amount of net assets available for benefits and changes therein. Actual results could differ from those estimates.

In September 2006, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements (“SFAS 157”). SFAS 157 defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. SFAS 157 applies to reporting periods beginning after November 15, 2007. Based on current assets held by the Plan, the Plan’s management does not expect the adoption of SFAS 157 to have a material impact on the Plan’s financial statements.

The Plan provides for various investment options. These investment options are exposed to market risk, which generally means the risk of loss in the value of certain investment securities due to changes in interest rates, security and commodity prices and general market conditions. Due to the level of risk associated with certain investment securities and the level of uncertainty related to changes in the value of investment securities, it is reasonably possible that changes in risks in the near term could materially affect participants’ account balances and the amounts reported in the statement of net assets available for benefits and the statement of changes in net assets available for benefits.

The Plan’s investments are stated at fair value. Shares of registered investment companies are valued at quoted market prices which represent the net asset value of shares held by the Plan at year end, and the Plan’s interest in the common collective trust is valued based on information reported by the investment advisor using the audited financial statements of the collective trust at year-end. The Company’s common stock is valued at its quoted market price. Participant loans are valued at cost which approximates fair value. Purchases and sales of securities are recorded on a trade-date basis. Interest income is recorded on the accrual basis. Dividends are recorded on the ex-dividend date.

The Plan presents in the statement of changes in net assets available for benefits the net appreciation in the fair value of its investments which consists of the realized gains or losses on sale of investments and unrealized appreciation or depreciation on those investments.

Benefits are recorded when paid.

Certain items in the 2006 financial statements have been reclassified to conform to the 2007 financial statement presentation. Such reclassifications had no effect on net assets or the change in net assets.

The following investments each represent five percent or more of the Plan’s net assets at December 31, 2007 and 2006:

 

Davis Opportunity (formerly Davis Growth Opportunity) Fund

Davis New York Venture Fund

Franklin Balance Sheet Investment Fund

Franklin Small Mid-Cap Growth Fund

ING International Value Fund

Morgan Stanley Focus Growth (formerly MS American Opportunities) Fund

Morgan Stanley Stable Value Fund

Morgan Stanley S&P 500 Index Fund

Oppenheimer Global Fund

Van Kampen Strategic Growth (formerly Van Kampen Emerging Growth) Fund

Investments less than 5% of the Plan’s net assets

 

 

Total investments

 

During the years ended December 31, 2007 and 2006, the Plan’s investments (including gains and losses on investments bought and sold, as well as held during the year) appreciated in value as follows:

 

Registered investment companies (mutual funds)

Consolidated Graphics, Inc. common stock

 

 

Net appreciation in fair value of investments

 

The Plan invests in participant loans and in mutual funds and a common collective trust established and operated by Morgan Stanley, the Plan’s investment advisor, and has investments in the Company’s common stock. These transactions qualify as party-in-interest transactions, as defined by ERISA. Such transactions are permitted under the provisions of the Plan and are exempt from the prohibition of party-in-interest transactions under ERISA.

Fees paid by the Company, on behalf of the Plan, were $22,746 and $1,790 for the years ended December 31, 2007 and 2006, respectively.

The Plan is based on a non-standardized prototype plan. The prototype plan received an opinion letter from the Internal Revenue Service dated May 3, 2002. The Plan trustee and administrator believe that the Plan is designed and is currently being operated in compliance with the applicable requirements of the IRC of 1986, as amended, and accordingly, that the trust maintained in connection with the Plan is tax-exempt.

The Plan did not satisfy the nondiscrimination test under IRC Section 401(k)(3) for the 2007 and 2006 Plan years. To comply with such nondiscrimination test, the Plan made required distributions of excess contributions of $617,513 and $398,678, including any income attributable thereto, to highly compensated employees by March 15, 2008 and 2007, respectively.

The following is a reconciliation of the net assets available for benefits per the financial statements to the Form 5500 as of December 31, 2007 and 2006:

 

Net assets available for benefits per the financial statements

 

Excess contributions payable from current year

Contributions receivable from current year

 

 

Net assets available for benefits per Form 5500

 

 

Net increase in net assets available for benefits per the financial statements

 

Excess contributions payable from current year

Contributions receivable from prior year

Contributions receivable from current year

Excess contributions payable from prior year

 

 

Net increase in net assets available for plan benefits per Form 5500

 

During the 2007 Plan year, all participant 401(k) contributions were forwarded to the trustee of the Plan in accordance with DOL regulations.

On one occasion during the 2006 Plan year, participant 401(k) contributions totaling $3,379 were not forwarded to the trustee of the Plan in accordance with DOL regulations. In this case, such contributions were subsequently contributed to the trust for the Plan. Earnings of $203 were deposited into the trust prior to December 31, 2006.

 

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Consent of Independent Registered Public Accounting Firm