By Trevor Shackelford May 23, 2006 -- Consolidated Graphics Inc., (NYSE: CGX) announced their fourth quarter results recently. Total revenue for the fourth quarter was $221.9 million, up 12% compared to $197.7 million a year ago. Net income for the quarter was $10.5 million, or a record $0.74 per diluted share, compared to net income of $8.6 million and diluted earnings per share of $.60 in the same quarter a year ago. Fiscal year 2006 ended with total sales of $879 million, up 13% compared to $779 million in 2005. Net income in 2006 totaled $38.5 million or $2.73 per diluted share, both representing increases of 18% compared to net income of $32.7 million and diluted earnings per share of $2.31 in the prior year. CGX also reported in the quarter an operating income of $18 million in the quarter, a 24% increase, compared to $14.5 million a year ago. Operating income for the year was $67.2 million, up 18.3%, compared with $56.8 million in fiscal year 2005. Contents of this Summary * Quarter Highlights * Guidance * Raine Radar * Q & A Quarter Highlights • In the fourth quarter, gross profit increased to 25.1% of total sales compared to 24.6% reported in the fourth quarter of fiscal 2005. • Contribution from acquisition organic growth for the fourth quarter, on a run rate basis, was slightly higher than 1%. • EBITDA for the quarter was $28.7 million, an increase of $4.1 million, or 17% from a year ago, representing an EBITDA margin of 12.9%. • EBITDA for the last 12 months was $112.9 million, representing a 12.8% EBITDA margin. • National sales represented 10.4% of total sales in the third quarter. • Debt outstanding at the end of the fourth quarter was $101.5 million, or 24.1% of the company’s total capitalization. This is a decrease of $18 million, or 15% from the third, since the end of the fiscal year 2005. • Cash flow from operations for the quarter was $19.1 million. • Consolidated Graphics announced in April 2006 that it is considering ways to increase shareholder value that could include a sale of the company. Guidance In the following quarter the company says it will be sustaining strategic momentum and continuing to deliver on commitment to long-term growth in sales and profits. For the first quarter of 2007, the company projects sales of $226 million and diluted earnings per share of $.69, after taking into account “123R” estimated expense of $.8 million after-tax, or $.06 per diluted share. The company projects operating cash flow to be between $25 and $27 million. They expect to spend 40%, or $12 million, of fiscal year 2007’s CAPEX in the first quarter. Raine Radar Consolidated Graphics' board of directors is exploring strategic options to boost shareholder value, including a potential sale of the company or other change of control transaction. Although this was not brought up during the earnings call, it was announced on April 13, 2006 that options were being explored and they would not comment until a decision was made. This is an interesting move for a company which just posted record earnings and could signal that leadership believes it is nearing a peak. Q & A 1. CGX expects the double-digit growth of operating margins to continue in the following quarters of fiscal year 2007. 2. The company expects approximately 1% organic growth. 3. In terms of potential acquisitions, CGX focuses on the people and the customers; they do not necessarily have to be digital. They will introduce CGX technologies to all acquisitions. 4. The drivers of current growth are high margins in digital print, new purchasing procedures, and a focused direction of where the company is heading. 5. The company feels that it is very good at turning its acquisitions into profitable companies because it primarily buys companies that are doing well and are not distressed businesses. 6. The company stated that the initial stages of an election year provide an opportunity to make high margins in a short time due to the quantity and speed that materials are needed. 7. The company has “substantially” grown its acquisition pipeline. 8. Currently the company is focusing on selling marketing materials, unlike the other firms in the industry engaged in selling the total print management strategy; trying to be “everything to everybody.” 9. In terms of pricing acquisitions, the company evaluates potential synergies, management teams, required CAPEX, existing markets and customers. The prices of acquisitions are typically about 3 to 5 times EBITDA.