EX-99.1 2 ex99-1.htm PRESS RELEASE DATED AUGUST 4, 2010 ex99-1.htm
EXHIBIT 99.1
 

 
AT SCHAWK, INC.:
Timothy Allen
Vice President, Finance
Operations and Investor Relations
847-827-9494 
Timothy.Allen@schawk.com
AT DRESNER CORPORATE SERVICES:
Investors: Philip Kranz
312-780-7240
pkranz@dresnerco.com
 
 
SCHAWK ANNOUNCES 2010 SECOND-QUARTER RESULTS

Second Quarter Revenues Grow 5.2% While GAAP EPS Increases $0.42 Year Over Year

Des Plaines, IL, August 4, 2010—Schawk, Inc. (NYSE: SGK), a leading provider of brand point management services, enabling companies of all sizes to connect their brands with consumers to create deeper brand affinity, reported second-quarter 2010 results. Net income in the second quarter of 2010 was $15.8 million, or $0.61 per diluted share, versus $4.8 million, or $0.19 per diluted share, in the second quarter of 2009.  Net income for the first six months of 2010 was $18.3 million, or $0.71 per diluted share, compared to $2.5 million, or $0.10 per diluted share, for the comparable prior-year period.

President and Chief Executive Officer David A. Schawk, commented, “Schawk’s second-quarter financial results reflect the signals we received from our consumer packaged goods clients in late 2009 and early 2010 that product and brand activity would be increasing. Our revenue growth, as well as previous and continued cost-reduction activities, drove improved operating margins and earnings per share both for the second quarter and first six months of 2010 compared to the prior-year comparable periods.”
 
Consolidated Results for Second Quarter Ended June 30, 2010
Consolidated net sales in the second quarter of 2010 were $117.8 million compared to $112.0 million in the same quarter of 2009, an increase of approximately $5.9 million, or 5.2 percent. Approximately $1.0 million of the sales increase quarter over quarter was the result of changes in foreign currency translation rates, as the U.S. dollar declined in value relative to the local currencies of certain of the Company’s non-U.S. subsidiaries. The remainder of the quarter-over-quarter increase in sales was the result of an increase in product and brand activity from consumer packaged goods (CPG) clients as well as increased promotional activity from advertising and retail clients.

CPG accounts sales in the second quarter of 2010 were $82.9 million, or 70.4 percent of total sales, compared to $79.9 million in the same quarter of 2009, an increase of 3.7 percent.  The increase over the prior-year quarter was primarily driven by increased product and brand activity by Schawk’s CPG clients. Advertising and retail accounts sales of $23.4 million, or 19.9 percent of total sales, in the second quarter of 2010 increased 12.0 percent, from $20.9 million in the
 
 
 
-more-

 
Schawk Announces Second-Quarter 2010 Results
Page 2
 
second quarter of 2009, driven by increased promotional activity relative to last year. Entertainment accounts sales for the second quarter of 2010 of $8.0 million, or 6.8 percent of total sales, decreased 3.1 percent, from $8.3 million in the same period of 2009.

Gross profit was $46.8 million in the second quarter of 2010, an increase of $3.9 million from the second quarter of 2009. Second-quarter 2010 gross profit as a percentage of sales increased to 39.7 percent of sales from 38.3 percent of sales in the 2009 second-quarter period. The increase was largely attributable to the Company’s cost-reduction activities implemented throughout 2009 and during 2010, coupled with higher sales in the 2010 second quarter relative to the 2009 second quarter, which further leveraged these cost-reduction activities.

Selling, general and administrative (SG&A) expenses declined approximately $1.7 million to $30.4 million in the second quarter of 2010 from $32.2 million in the second quarter of 2009.  The decline in SG&A expenses year over year is primarily driven by certain insurance recoveries, totaling $1.4 million, related to previously reported asset losses coupled with a $1.3 million reduction in professional fees related to the Company’s prior internal control remediation and related activities.  The aforementioned items were partially offset by the restoration of certain temporary cost-reduction actions that the Company enacted for 2009 in response to the economic environment during that period.

The Company recorded a $0.3 million gain on foreign exchange exposures in both the second quarter of 2010 and 2009.  The Company’s foreign exchange gains or losses relate primarily to unhedged currency exposure from intercompany debt obligations of the Company’s non-US subsidiaries.  Since foreign currency gains or losses primarily relate to intercompany financing activity, the economic impact to the Company is minimal as these gains or losses are largely offset by corresponding losses or gains in accumulated comprehensive income, net, included in stockholder’s equity.

Acquisition integration and restructuring expenses declined from $1.5 million in the second quarter of 2009 to $0.7 million in the second quarter of 2010. The charges in the 2010 second quarter arose from continued focus on consolidating, reducing and re-aligning the Company’s work force and operations and are for employee terminations and other associated costs. These actions are expected to result in annualized savings of approximately $4.8 million, with approximately $2.6 million to be realized during 2010. For the first six months of 2010, acquisition integration and restructuring expenses were $1.0 million. The expected annualized savings resulting from the year-to-date 2010 actions are approximately $6.6 million, with approximately $4.1 million to be realized during 2010.

There were no expenses related to impairment of long-lived assets during the second quarter of 2010 compared to $0.1 million in the second quarter of 2009.

Schawk reported operating income of $16.0 million in the 2010 second quarter compared to $9.5 million in the second quarter of 2009. The increase in operating income compared to the prior-year quarter was primarily the result of the increase in gross margin and reduced SG&A and acquisition integration and restructuring expenses.

 
 
-more-

 
Schawk Announces Second-Quarter 2010 Results
Page 3
 
For the second quarter of 2010, the Company reported a tax benefit of $1.6 million compared to a tax expense of $2.3 million during the same quarter in 2009.  The tax benefit was principally the result of an effective settlement of certain income tax audits, net of federal and state tax benefits, of $5.6 million.

Net income in the second quarter of 2010 was $15.8 million, or $0.61 per diluted share, compared to $4.8 million, or $0.19 per diluted share, in the second quarter of 2009. Excluding the after-tax effects of acquisition integration and restructuring expenses, long-lived asset impairment expenses, foreign currency gain or loss and discrete tax period benefits, Adjusted net income was $10.4 million, or $0.40 per diluted share, for the second quarter of 2010 compared to $6.5 million, or $0.26 per diluted share, on a comparable basis for the 2009 second quarter. Please refer to the tables at the end of this press release for a reconciliation of these non-GAAP measures.

EBITDA and Management Adjusted EBITDA Performance
EBITDA for the second quarter of 2010 was $21.0 million compared to $14.9 million for the second quarter of 2009.  Management adjusted EBITDA for the second quarter of 2010 was $21.4 million compared to $17.4 million for the second quarter of 2009.  Please refer to the “Reconciliation of Non-GAAP EBITDA and Management Adjusted EBITDA” table attached at the end of this press release for a reconciliation of these measures.

Conference Call
Schawk invites you to join its second-quarter 2010 earnings conference call on Thursday, August 5, 2010, at 9:00 a.m. Central time. To participate in the conference call, please dial 866-783-2143 or 857-350-1602 at least five minutes prior to the start time and ask for the Schawk, Inc. conference call, or on the Internet, go to http://phx.corporate-ir.net/playerlink.zhtml?c=82169&s=wm&e=3253238.  If you are unavailable to participate on the live call, a replay will be available through August 12 at 11:59 p.m. Central time. To access the replay, dial 888-286-8010 or 617-801-6888, enter conference ID 90436167, and follow the prompts. The replay will also be available on the Internet for 30 days at the following address http://phx.corporate-ir.net/playerlink.zhtml?c=82169&s=wm&e=3253238.

About Schawk, Inc.
Schawk, Inc. is a leading provider of brand point management services, enabling companies of all sizes to connect their brands with consumers to create deeper brand affinity. With a global footprint of more than 48 offices, Schawk helps companies create compelling and consistent brand experiences by providing integrated strategic, creative and executional services across brand touchpoints. Founded in 1953, Schawk is trusted by many of the world’s leading organizations to help them achieve global brand consistency. For more information about Schawk, visit http://www.schawk.com.

Non-GAAP Financial Measures
In addition to the presentation of EBITDA and Management adjusted EBITDA in this release, the Company has presented certain other non-GAAP measures in the attachment entitled “Reconciliation of Non-GAAP measures to GAAP.”  Management believes that the presentation of non-GAAP measures provides investors with greater transparency and supplemental data relating to the Company’s financial condition and results of operations and provides more consistent insight into the performance of the Company’s core operations from period to period by showing the effects of certain non-operating items.  These non-GAAP measures are reconciled to the closest GAAP measures on the schedules attached to this press release.  The non-GAAP measures should not be viewed as alternatives to GAAP and may not be consistent with similar measures provided by other companies.

 
 
-more-

 
Schawk Announces Second-Quarter 2010 Results
Page 4
 
Safe Harbor Statement
Certain statements in this press release are forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and are subject to the safe harbor created thereby. These statements are made based upon current expectations and beliefs that are subject to risk and uncertainty. Actual results might differ materially from those contained in the forward-looking statements because of factors, such as, among other things, our ability to maintain an effective system of disclosure and internal controls and the discovery of any future control deficiencies or weaknesses, which may require substantial costs and resources to rectify; higher than expected costs, or unanticipated difficulties associated with, integrating acquired operations; higher than expected costs associated with compliance with legal and regulatory requirements; the strength of the United States economy in general and, specifically, market conditions for the consumer products industry; the level of demand for Schawk's services; changes in or weak consumer confidence and consumer spending; unfavorable foreign exchange rate fluctuations; loss of key management and operational personnel; our ability to implement our growth strategy, rebranding initiatives and cost reduction plans and to realize anticipated cost savings; the ability of the Company to comply with the financial covenants contained in its debt agreements and obtain waivers or amendments in the event of non-compliance with such covenants; the stability of state, federal and foreign tax laws; our continued ability to identify and exploit industry trends and exploit technological advances in the imaging industry; our ability to implement restructuring plans; the stability of political conditions in foreign countries in which we have production capabilities; terrorist attacks and the U.S. response to such attacks; as well as other factors detailed in Schawk, Inc.'s filings with the Securities and Exchange Commission.

The discussion of the Company’s financial results within this earnings release should be read and considered in context of the Company’s most recent annual Form 10-K filing and most recent quarterly Form 10-Q filing with the Securities and Exchange Commission.

For more information about Schawk, visit its website at http://www.schawk.com.
 
 
 
-more-

 
Schawk Announces Second-Quarter 2010 Results
Page 5
 

Schawk Inc.
Consolidated Statements of Operations
(Unaudited)
(In thousands, except per share amounts)
 
 
   
Three months Ended
             
   
June 30,
   
Increase (Decrease)
 
   
2010
   
2009
   
Amount
   
Percent
 
                         
Net sales
  $ 117,840     $ 111,989     $ 5,851       5.2 %
Cost of sales
    71,016       69,055       1,961       2.8 %
Gross profit
    46,824       42,934       3,890       9.1 %
                                 
Selling, general and administrative expenses
     30,420        32,151       (1,731 )     (5.4 )%
Foreign exchange (gain) loss
    (267 )     (319 )     52       (16.3 )%
Acquisition integration and restructuring expenses
     686        1,501       (815 )     (54.3 )%
Impairment of long-lived assets
          78       (78 )     (100.0 )%
Operating income
    15,985       9,523       6,462       67.9 %
                                 
Other income (expense)
                               
    Interest income
    8       30       (22 )     (73.3 )%
    Interest expense
    (1,771 )     (2,468 )     697       (28.2 )%
      (1,763 )     (2,438 )     675       (27.7 )%
                                 
Income before income taxes
    14,222       7,085       7,137       100.7 %
Income tax provision (benefit)
    (1,583 )     2,317       (3,900 )  
nm
 
                                 
Net income
  $ 15,805     $ 4,768     $ 11,037       231.5 %
                                 
Earnings per share:
                               
    Basic
  $ 0.62     $ 0.19     $ 0.43          
    Diluted
  $ 0.61     $ 0.19     $ 0.42          
                                 
Weighted average number of common
and common equivalent shares outstanding:
                               
    Basic
    25,400       24,921                  
    Diluted
    25,884       24,921                  
                                 
nm = not meaningful
                               

 
 
-more-

Schawk Announces Second-Quarter 2010 Results
Page 6

Schawk Inc.
Consolidated Statements of Operations
(Unaudited)
(In thousands, except per share amounts)
 
 
   
Six months Ended
             
   
June 30,
   
Increase (Decrease)
 
   
2010
   
2009
   
Amount
   
Percent
 
                         
Net sales
  $ 229,548     $ 217,077     $ 12,471       5.7 %
Cost of sales
    140,849       141,049       (200 )     (0.1 )%
Gross profit
    88,699       76,028       12,671       16.7 %
                                 
Selling, general and administrative expenses
     62,944        66,120       (3,176 )     (4.8 )%
Foreign exchange (gain) loss
    1,550       (445 )     1,995    
nm
 
Acquisition integration and restructuring expenses
     1,015        2,318       (1,303 )     (56.2 )%
Impairment of long-lived assets
    680       136       544       400.0 %
Operating income
    22,510       7,899       14,611       185.0 %
                                 
Other income (expense)
                               
    Interest income
    16       100       (84 )     (84.0 )%
    Interest expense
    (3,759 )     (3,917 )     158       (4.0 )%
      (3,743 )     (3,817 )     74       (1.9 )%
                                 
Income before income taxes
    18,767       4,082       14,685       359.8 %
Income tax provision
    442       1,610       (1,168 )     (72.5 )%
                                 
Net income
  $ 18,325     $ 2,472     $ 15,853       641.3 %
                                 
Earnings per share:
                               
    Basic
  $ 0.72     $ 0.10     $ 0.62          
    Diluted
  $ 0.71     $ 0.10     $ 0.61          
                                 
Weighted average number of common
and common equivalent shares outstanding:
                               
    Basic
    25,292       24,928                  
    Diluted
    25,731       24,929                  
                                 
nm = not meaningful
                               


 
-more-

 
Schawk Announces Second-Quarter 2010 Results
Page 7
 
Schawk, Inc.
 Consolidated Balance Sheets
 (In thousands, except share amounts)
 
   
June 30,
2010
   
December 31,
 2009
 
   
(unaudited)
   
 
 
Assets
           
Current assets:
           
    Cash and cash equivalents
  $ 18,483     $ 12,167  
Trade accounts receivable, less allowance for doubtful accounts
of $1,033 at June 30, 2010 and $1,619 at December 31, 2009
    92,353       88,822  
Inventories
    21,263       20,536  
    Prepaid expenses and other current assets
    9,699       8,192  
    Income tax receivable
    2,565       2,565  
Deferred income taxes
    3,275       992  
Total current assets
    147,638       133,274  
                 
Property and equipment, less accumulated depreciation of $101,850 at June 30, 2010 and $96,440 at December 31, 2009
    47,385       50,247  
Goodwill
    186,931       187,664  
Other intangible assets, net
    34,228       37,605  
Deferred income taxes
    1,204       1,424  
Other assets
    6,158       6,005  
                 
Total assets
  $ 423,544     $ 416,219  
                 
Liabilities and stockholders’ equity
               
Current liabilities:
               
Trade accounts payable
  $ 18,155     $ 16,957  
Accrued expenses
    57,745       64,079  
    Deferred income taxes
    5,493       205  
    Income taxes payable
    5,641       14,600  
Current portion of long-term debt
    20,278       12,858  
Total current liabilities
    107,312       108,699  
 
               
Long-term liabilities:
               
    Long-term debt
    53,123       64,707  
    Other liabilities
    14,903       15,920  
    Deferred income taxes
    4,309       2,059  
Total long-term liabilities
    72,335       82,686  
 
               
 Stockholders’ equity:
               
Common stock, $0.008 par value, 40,000,000 shares authorized,
30,281,763 and 29,855,796 shares issued at June 30, 2010 and
    December 31, 2009, respectively; 25,535,805 and 25,108,894
shares outstanding at June 30, 2010 and December 31, 2009,
    respectively
    222             220  
Additional paid-in capital
    195,901       191,701  
Retained earnings
    102,246       85,953  
Accumulated comprehensive income, net
    6,356       7,804  
      304,725       285,678  
Treasury stock, at cost, 4,745,958 and 4,746,902 shares of common
    stock at June 30, 2010 and December 31, 2009, respectively
    (60,828 )     (60,844 )
Total stockholders’ equity
    243,897       224,834  
                 
Total liabilities and stockholders’ equity
  $ 423,544     $ 416,219  


 
-more-

 
Schawk Announces Second-Quarter 2010 Results
Page 8

Schawk Inc.
Segment Financial Data
(Unaudited)
(In thousands)
 
                         
   
Three months Ended
             
   
June 30,
   
Increase (Decrease)
 
   
2010
   
2009
   
Amount
   
Percent
 
                         
Sales to external clients:
                       
North America
  $ 104,318     $ 96,059     $ 8,259       8.6 %
Europe
    15,001       16,311       (1,310 )     (8.0 )%
Asia Pacific
    8,240       7,113       1,127       15.8 %
Intercompany sales elimination
    (9,719 )     (7,494 )     (2,225 )     29.7 %
                                 
Sales to external clients
  $ 117,840     $ 111,989     $ 5,851       5.2 %
                                 
Operating segment income (loss):
                               
North America
  $ 19,255     $ 14,910     $ 4,345       29.1 %
Europe
    815       531       284       53.5 %
Asia Pacific
    1,776       2,292       (516 )     (22.5 )%
Corporate
    (5,861 )     (8,210 )     2,349       (28.6 )%
                                 
Operating segment income
  $ 15,985     $ 9,523     $ 6,462       67.9 %
 
 
   
Six months Ended
             
   
June 30,
   
Increase (Decrease)
 
   
2010
   
2009
   
Amount
   
Percent
 
                         
Sales to external clients:
                       
North America
  $ 200,636     $ 187,229     $ 13,407       7.2 %
Europe
    32,375       31,894       481       1.5 %
Asia Pacific
    15,062       13,022       2,040       15.7 %
Intercompany sales elimination
    (18,525 )     (15,068 )     (3,457 )     22.9 %
                                 
Sales to external clients
  $ 229,548     $ 217,077     $ 12,471       5.7 %
                                 
Operating segment income (loss):
                               
North America
  $ 33,279     $ 20,601     $ 12,678       61.5 %
Europe
    1,363       1,158       205       17.7 %
Asia Pacific
    2,655       3,095       (440 )     (14.2 )%
Corporate
    (14,787 )     (16,955 )     2,168       (12.8 )%
                                 
Operating segment income
  $ 22,510     $ 7,899     $ 14,611       185.0 %
 
 
 
-more-

 
Schawk Announces Second-Quarter 2010 Results
Page 9
 
Schawk, Inc.
Reconciliation of Non-GAAP measures to GAAP
(Unaudited)
(In Thousands, Except Share Amounts)


   
Three Months Ended June 30,
   
Six Months Ended June 30,
 
   
2010
   
2009
   
2010
   
2009
 
                         
Income before income taxes - GAAP
  $ 14,222     $ 7,085     $ 18,767     $ 4,082  
Adjustments:
                               
   Acquisition integration and restructuring expenses
    686       1,501       1,015       2,318  
   Remediation and related expenses
          1,291             3,319  
   Impairment of long-lived assets (1)
          78       680       136  
   Foreign currency (gain) loss
    (267 )     (319 )     1,550       (445 )
Adjusted income before income tax - non GAAP
    14,641       9,636       22,012       9,410  
Adjusted income tax provision – non GAAP
    4,227       3,175       7,130       3,526  
                                 
Adjusted net income – non GAAP
  $ 10,414     $ 6,461     $ 14,882     $ 5,884  
                                 
Weighted average common and common stock
                               
    equivalents outstanding - GAAP
    25,884       24,921       25,731       24,929  
                                 
Earnings per diluted share - GAAP
  $ 0.61     $ 0.19     $ 0.71     $ 0.10  
Adjustments – net of tax effects:
                               
   Acquisition integration and restructuring expenses
    0.02       0.04       0.03       0.06  
   Remediation and related expenses
          0.03             0.08  
   Impairment of long-lived assets
          0.01       0.02       0.01  
   Foreign currency (gain) loss
    (0.01 )     (0.01 )     0.04       (0.01 )
   Effective settlement of certain income tax audits
    (0.22 )           (0.22 )      
                                 
Adjusted earnings per diluted share – non GAAP
  $ 0.40     $ 0.26     $ 0.58     $ 0.24  
                                 
                                 
Income tax provision (benefit)  - GAAP
  $ (1,583 )   $ 2,317     $ 442     $ 1,610  
Adjustments: (2)
                               
   Acquisition integration and restructuring expenses
    251       441       376       710  
   Remediation and related expenses
          513             1,318  
   Impairment of long-lived assets
          22       270       45  
   Foreign currency (gain) loss
    (71 )     (118 )     412       (157 )
   Effective settlement of certain income tax audits
    5,630             5,630        
                                 
Adjusted income tax provision – non GAAP
  $ 4,227     $ 3,175     $ 7,130     $ 3,526  
_______________
(1)  
Please see Note 6 to the Company’s unaudited consolidated financials statements in the Company’s 2010 Second-Quarter Form 10-Q for a discussion related to certain insurance recoveries.
(2)  
Adjustments have been tax-effected at the jurisdictions’ statutory rates.
 
 
 
-more-

 
Schawk Announces Second-Quarter 2010 Results
Page 10
 
Schawk, Inc.
Reconciliation of Non-GAAP EBITDA and Management Adjusted EBITDA
(Unaudited)
(In Thousands)


   
Three Months Ended
   
Trailing 12 Months
 
   
June 30,
   
Ended June 30,
 
   
2010
   
2009
   
2010
   
2009
 
                         
Net income (loss) - GAAP
  $ 15,805     $ 4,768     $ 35,350     $ (62,570 )
Interest expense
    1,771       2,468       9,066       7,295  
Income tax expense (benefit)
    (1,583 )     2,317       6,429       (5,138 )
Adjusted  Income (loss) – non GAAP
    15,993       9,553       50,845       (60,413 )
Depreciation and amortization expense
    4,406       4,730       18,045       19,341  
Impairment of goodwill
                      48,041  
Impairment of long-lived assets
          78       1,985       6,780  
Non-cash restructuring charges
          77       133       705  
Stock based compensation
    584       501       1,899       2,264  
                                 
EBITDA – non GAAP
    20,983       14,939       72,907       16,718  
                                 
Permitted add backs on debt covenants:
                               
(Gain) loss on sale of property and equipment
          72             311  
Proforma effect of acquisitions and asset sales
                      2,102  
Acquisition integration and restructuring expenses(1)
          1,424       1,195       9,445  
Multiemployer pension plan withdrawal expense
                      7,254  
EBITDA for covenant compliance – non GAAP
    20,983       16,435       74,102       35,830  
                                 
Acquisition integration and restructuring expenses
    686             3,827        
Multiemployer pension plan withdrawal expense
                1,800        
Indemnity settlement income
                (4,986 )      
Foreign exchange (gain) loss
    (267 )     (319 )     1,454       652  
Remediation and related expenses
          1,291       1,138       3,319  
                                 
Management adjusted EBITDA – non GAAP
  $ 21,402     $ 17,407     $ 77,335     $ 39,801  
 
_______________
(1)  
Capped at $3.0 million for 2009 per the Company’s new debt agreements. Amounts in excess of $3.0 million are included as an adjustment for Management adjusted EBITDA.


Use of Non-GAAP EBITDA, EBITDA for covenant compliance, and Management adjusted EBITDA
EBITDA is defined as earnings before interest, income taxes, depreciation and amortization, and other certain non-cash items.  EBITDA for covenant compliance, as defined in the Company’s January 2010 debt agreements, is defined as EBITDA adjusted to exclude certain items, including items that are generally considered non-operating, as permitted under the Company’s current revolving credit facility, and is used by management to gauge its ongoing compliance with the Company’s principal debt covenants, as well as pricing on its revolving credit facility.  Management adjusted EBITDA is used to evaluate the core operating activities of the Company from period to period.  None of the measures presented above represent cash flows from operations as defined by generally accepted accounting principles, should not be considered as an alternative to net income or cash flow from operations as an indicator of our operating performance, and are not indicative of cash available to fund all cash flow needs.  These measures also may be inconsistent with similar measures presented by other companies.

 
 
-###-