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Determine the measurements for the shelves, and mark them on the plywood with a straightedge. Be sure to factor in the width of the saw blade: every cut is 1/8" wide. If you plan to attach crown molding, incorporate its dimensions into the overall height.
Use a table saw to cut out the pieces of shelving (Image 1), starting with the longest pieces. Rest the plywood on a roller table or sawhorses to help support and balance it. Use a circular saw if you don't have a table saw, but be sure to set up a fence as a guide for making straight cuts. Use a circular saw to cut out the kick-plate area on the bottom of the unit. Because a circular saw doesn't make a square stop at the end of its cuts, the cutting will need to be finished with a handsaw (Image 2).
Use a radial-arm saw or a circular saw to cut rabbet joints into the ends of the top shelf. Set the saw to make a 3/8" cut, then begin cutting a track into the end of the shelf. Cut straight across the shelf in 1/8" increments until the track is as wide as the thickness of the plywood. This permits the top shelf to rest squarely on the two sides for a more secure fit.
Mark the location for the center shelf, and use the pegboard as a template for drilling holes for adjustable shelves. Clamp the pegboard in place so that the first holes will be 4" above and 4" below the center shelf. Draw reference lines across the holes in the pegboard to help you keep the holes even. Drill holes 2" from the edge in 2" increments. Use a drill bit of the same diameter as the shelf-support pegs. Drill approximately 1/8" deeper than the length of the pegs. Place a piece of tape or a drill stop on the bit as a guide for drilling to the correct depth. Be sure to adjust for the thickness of the pegboard.
Attach 1" x 2" support blocks for the center shelf with glue and finish nails (Image 1). Drive the nails until each head is just above the surface of the wood, then use a nail set to drive it just below the surface.
Drill and countersink pilot holes for the top of the bookshelf. Attach it with glue and 2" wood screws.
Apply wood glue to the support blocks for the center shelf, and set the shelf in position. Drill and countersink pilot holes in the side of the bookshelf, and attach the shelf with 2" wood screws (Image 2). Be sure to drill the holes in an area that will be covered when the bookshelf is recessed into the wall.
Attach support blocks for the bottom shelf with glue and nails. Drill and countersink pilot holes for the bottom shelf, then secure it with glue and wood screws.
Make sure the bookshelf is square, then measure and cut the back panel. Fasten the back panel with 1" brads, starting with one corner to help the bookshelf stay square.
Attach 1" x 2" trim pieces to the side and bottom edges of the bookshelf with sixpenny nails and glue. You may want to miter the corners of the trim pieces. The top 1" x 2" board will serve as a nailer for the top trim piece and will be attached during final installation. After the trim is in place, use a router with a 1/2" roundover bit to smooth sharp edges.
Glue and nail a piece of edge molding to the center shelf, being careful not to split the molding.
Drill and countersink pilot holes for the kick plate so the screw heads will be just below the surface of the wood. Attach the kick plate, then cover the screw heads with wood filler or spackling compound. If the bookshelf is to be placed over a heat register, cut a vent area in the front of the kick plate.
Prime and paint the bookshelf.
Remove any base molding from the area where the bookshelf will be placed, using a hammer and chisel to remove short sections (Image 1). If you don't have paint that matches the trim, take a piece of the base molding to the paint store to use as a color sample.
Dry-fit the bookshelf to make sure all the measurements are correct (Image 2). This will probably be a two-person job.
Attach the shelf to the wall by drilling pilot holes through the back corner and into wall studs, then toenailing the shelf to the wall with screws. Don't drill through the inside of the bookshelf.
Measure and cut the nailer board and trim for the top of the bookshelf. Attach the nailer to the top of the shelf with sixpenny finish nails. Use finish nails to attach the trim.