DES PLAINES, IL--(Marketwire - November 8, 2007) - Schawk, Inc. (
NYSE:
SGK), one of the
world's leading providers of digital imaging graphic services to the
consumer products and brand imaging markets, today reported third-quarter
2007 earnings of $0.15 per fully diluted share compared to $0.30 per fully
diluted share in the third quarter of 2006. The third-quarter 2007 results
included a $4.2 million, or $0.09 per-fully diluted share, charge to write
off costs associated with internally developed software for resale that had
previously been capitalized in error. Excluding the charge, the
third-quarter 2007 period earnings per-fully diluted share was $0.24.
For the nine months ended September 30, 2007, the Company reported earnings
per fully diluted share from continuing operations of $0.79 compared to
$0.81 in the first nine months of 2006. Earnings per fully diluted share
from continuing operations during the first nine months of 2007 included a
$0.09 charge to write off costs associated with internally developed
software, and a benefit of $0.02 related to the gain on the sale of a
building during the second quarter, while earnings per fully diluted share
from continuing operations during the
nine-month period of 2006 included the benefit of $0.05 in connection with
a reserve reversal from litigation settlement and a reduction of $0.02 due
to acquisition integration expenses. Excluding the aforementioned items,
the first nine months of 2007 earnings per fully diluted share was $0.86
compared to $0.78 per fully diluted share from continuing operations on the
same basis for the first nine months of 2006.
Note: All of the following comments are for continuing operations unless
indicated otherwise. Also, see table for reconciliation of Non-GAAP
measures.
Consolidated Results for Three Months Ended September 30, 2007
Sales in the third quarter of 2007 decreased 2.9 percent to $130.9 million
from $134.8 million in the same period of 2006. Sales decreased in the
current year third quarter versus the previous year's third quarter as a
result of lower sales in retail advertising accounts, which decreased
approximately 17 percent (the decrease was 7.0 percent excluding a large
retail account we lost in the first quarter as previously disclosed),
partially offset by higher sales in consumer packaging accounts, which were
higher by approximately 5.5 percent (approximately 4.8 percent excluding
the impact of favorable foreign exchange rate fluctuations). Overall
favorable foreign currency rate fluctuations increased sales by
approximately $0.5 million. Three acquisitions in 2007 contributed 3.5
percentage points of the increase and organic growth accounted for 1.3
percentage points of the increase in revenue from consumer products
packaging accounts. The three acquisitions were Benchmark, Perks Design and
Protopak Innovations. The organic growth was positive despite a soft market
in the United States that the Company experienced with its traditional
consumer product packaging clients. In addition, the 7.0 percent decline in
advertising account sales was due to lower advertising spending volumes
with ad agencies and by certain retail advertising (mass merchandisers)
clients due to reduced print advertising budgets at these clients.
Gross margin decreased to 31.7 percent in the third quarter of 2007 from
35.9 percent in the prior-year third quarter primarily due to the decrease
in sales volume quarter-over-quarter. A significant portion of the expenses
included in cost of sales is fixed and does not decrease proportionately
with sales. In addition, the Company recorded a $4.2 million charge in the
third quarter of 2007 to write off costs associated with internally
developed software for resale that had previously been capitalized in
error. The gross margin decrease was partially offset by favorable foreign
currency rate fluctuations of approximately $0.4 million. Excluding the
$4.2 million charge in the third quarter of 2007 gross margin was 34.9
percent as compared to 35.9 percent in the prior year third quarter.
Operating income decreased to $8.9 million in the third quarter of 2007
from $15.8 million in the prior-year third quarter. Third-quarter 2007
operating margin was 6.8 percent compared to 11.7 percent in the 2006 third
quarter. Both the decrease in operating income and the operating margin in
the third quarter of 2007 compared to the third quarter of 2006 are partly
attributable to the decreased sales volume in the 2007 quarter, since the
majority of the selling, general and administrative expenses are fixed in
nature and do not fluctuate with sales volume. The operating income and
operating margin for the 2007 quarter were negatively impacted by the $4.2
million capitalized software charge, as explained above. Excluding this
item, operating income in the third quarter was $13.1 million in 2007 as
compared to $15.8 million in the same period of 2006, and operating margin
was 10.0 percent as compared to 11.7 percent, respectively.
Other income (expense) resulted in a net other expense of $2.2 million in
the third quarter of 2007 compared to a net other expense of $2.6 million
in the third quarter of 2006. Interest expense of $2.3 million for the
third quarter of 2007 decreased $0.4 million compared to the same period in
2006, due primarily to the reduction of debt outstanding under the
Company's revolving credit agreement.
Income tax expense for the third quarter of 2007 was at an effective tax
rate of 38.4% compared to an effective tax rate in the third quarter of
2006 of 37.7%.
Third-quarter 2007 income from continuing operations decreased to $4.1
million from $8.2 million in the prior-year third quarter as a result of
items previously discussed.
Net income was $4.1 million in the third quarter of 2007 compared to $8.1
million in the third quarter of 2006. Excluding the aforementioned
nonrecurring item, third quarter 2007 net income was $6.7 million compared
to $8.1 million in the same period of 2006.
Consolidated Results for Nine Months Ended September 30, 2007
For the nine-month period ended September 30, 2007, net sales decreased to
$404.9 million compared to $408.6 million in the 2006 period. Consumer
packaging accounts increased $17.3 million, or 7.4 percent, ($13.9 million,
or 6.0 percent, excluding the impact of favorable foreign exchange rate
fluctuations) for the nine month period as compared to the prior year
period. Three acquisitions in 2007 and one in the second half of 2006
contributed 2.4 percentage points to the increase, while organic growth
contributed 3.6 percentage points to the increase. The organic growth was
primarily due to new account wins from 2006 that are at full production
levels in 2007. Revenue from advertising accounts for the nine month period
decreased $19.9 million, or 14.7% The decrease in advertising accounts was
primarily due to an $8.0 million decrease in revenue from the loss of a
retailer account in the first quarter of 2007 as previously discussed, as
well as lower volumes from other retailers and advertising agencies as
compared to the prior year. The lower volumes are due to reduced print
advertising budgets at certain of our retail and advertising agency
clients.
Gross margin for the first nine months of 2007 decreased to 34.8 percent
from 35.2 percent in the prior-year nine-month period. The gross margin,
although negatively impacted by the revenue decrease, was helped by cost
reduction efforts throughout the organization, completion of acquisition
integration activities during 2006, and the impact of favorable foreign
currency rate fluctuations of approximately $1.3 million. In addition, as
explained previously, the Company recorded a $4.2 million charge in the
third quarter of 2007 to write off costs associated with internally
developed software. Excluding the $4.2 million charge in the 2007 third
quarter, gross margin would have been 35.9 percent for the nine-month
period of 2007 as compared to 35.2 percent for the prior year period.
Operating income decreased to $42.6 million in the first nine months of
2007 from $43.7 million in the prior-year comparable period. The operating
margin for the first nine months of 2007 was 10.5 percent compared to 10.7
percent in the 2006 comparable period. As explained above, the operating
income and operating margin for the 2007 period were negatively impacted by
the third quarter charge to write off internally developed software costs.
In addition, the operating income and margin percentage for the 2007 period
were favorably impacted by a $1.1 million gain on the sale of a building,
which is included in selling, general and administrative expenses. The
operating income and margin percentage for the 2006 period were favorably
impacted by a $2.1 million reserve reversal resulting from a litigation
settlement, partially offset by $0.8 million of acquisition integration
expenses. Excluding the aforementioned items, operating margin would have
been 11.3 percent for the first nine-month period of 2007, while operating
margin for the first nine-month period of 2006 would have totaled 10.4
percent. The higher operating margin results for the year-to-date period
were due to the reasons detailed above, including the benefit of the lower
cost structure in Europe as a result of the completion of integration
activities, which is generating significantly improved results as compared
to a year ago.
Other income (expense) resulted in a net other expense of $7.0 million in
the first nine months of 2007 compared to a net other expense of $7.8
million in the first nine months of 2006. Interest expense of $7.1 million
for the first nine months of 2007 decreased $0.9 million compared to the
same period in 2006, due primarily to the reduction of debt outstanding
under the Company's revolving credit agreement.
Income tax expense for the first nine months of 2007 was at an effective
tax rate of 38.6% compared to an effective tax rate in the first nine
months of 2006 of 37.7%. The Company currently anticipates that the
effective tax rate will be in the range of 38.0 percent to 39.0 percent for
the full year of 2007.
For the first nine months of 2007, income from continuing operations was
$21.9 million compared to $22.3 million in the prior-year nine-month
period, while net income in the first nine months of 2007 was $21.9
million, which is comparable to the $21.9 million achieved in the
prior-year nine-month period. Excluding the correction of the software
capitalization and the gain on the sale of a building in 2007, the
acquisition integration costs and a reserve reversal in 2006 noted above,
income from continuing operations was $23.8 million for the first nine
month period of 2007 as compared to $21.5 million during the first nine
months of 2006.
Other Information
The Company's balance sheet as of September 30, 2007, improved compared to
the year ended December 31, 2006, through a $13.7 million reduction in
debt. The percentage of total debt to equity improved to 42.9 percent from
53.2 percent. In addition, the percentage of total debt to total capital
improved to 30.0 percent as of September 30, 2007, from 34.7 percent at
December 31, 2006. The Company also had approximately $55.2 million of
outstanding borrowings on its revolving credit facility and $59.8 million
of additional availability as of September 30, 2007.
Management Comments
President and Chief Executive Officer David A. Schawk commented, "We
experienced an unanticipated slowdown in our business in the third quarter
compared to the record results we experienced last quarter. The softness
was particularly evident in our domestic business in the United States.
Most of the decrease in the United States was attributable to lower volumes
from the company's advertising and retail accounts. We also had a negative
comparison to the prior-year third quarter due to a $5.1 million revenue
reduction in the 2007 quarter from a previously disclosed account we lost
earlier in the year. Conversely, our traditional consumer products company
packaging accounts increased on a global basis both in the quarter and in
the year-to-date period. The driver for the increased consumer products
packaging accounts was an increase in design services both from existing
design operations and acquired design companies. Our Canadian operations,
produced strong sales in the third quarter, but our European and Asian
operations were flat compared to the prior-year third quarter."
Mr. Schawk continued, "We continue to win new business both domestically
and internationally, but the lead time to the realization of revenues from
these new business wins has been longer than we typically have experienced.
We have seen a general softening in North American activity. Increased
costs of raw materials, packaging materials, and increased costs of energy
have resulted in a general slowdown of new product introductions typical
for this period. However, we believe the new business we have been awarded
will benefit the fourth quarter of 2007 and the 2008 calendar year as our
client base returns to a more typical marketing and selling schedule. To
this end, even with lower revenues as described, we have seen year to date
improvement in our operating margin. This is the result of taking steps to
constantly improve our processes and manage our business effectively. We
are continuing to drive new business development and believe that we are we
positioned to enjoy the benefits of these process efforts as revenue
expands."
Mr. Schawk concluded, "During the accounting for the third quarter of 2007
an error in our accounting for development of software for sale to third
parties was discovered. To correct the error, we wrote off the $4.2 million
unamortized cost that we had capitalized in property and equipment in the
third quarter. We also recorded $0.4 million of software development
expenses in the third quarter to account for these costs correctly. We
anticipate that these costs will decrease earnings per share approximately
$0.01 per share in the fourth quarter of 2007 and approximately $0.03 per
share in the full year 2008 at current software development spending
levels. The error was determined to be a material weakness in internal
controls over software capitalization. Steps have been taken, including
establishing more definitive criteria for capitalizing software in
accordance with generally accepted accounting principles. We believe we
have corrected this weakness in internal control."
Conference Call
Schawk invites you to join its third-quarter 2007 earnings conference call
today at 9:30 a.m. central time. Hosting the call will be David A. Schawk,
president and CEO, A. Alex Sarkisian, executive vice president and chief
operating officer, and James J. Patterson, senior vice president and chief
financial officer. To participate in the call, please dial 866-831-6291 or
617-213-8860 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/phoenix.zhtml?c=82169&p=irol-EventDetails&EventId=1671286. If you are unavailable to participate on the
live call, a replay will be available through November 15, 11:59 p.m.
central time. To access the replay, dial 888-286-8010 or 617-801-6888,
enter conference ID 48057501, 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/phoenix.zhtml?c=82169&p=irol-EventDetails&EventId=1671286.
About Schawk, Inc.
Schawk, Inc., headquartered in suburban Chicago, is one of the world's
largest independent brand image solutions companies. Schawk delivers a
broad range of digital pre-media graphic services through 153 locations in
12 countries across North America, Europe, Asia and Australia. Schawk
designs, creates and manages images and text for reproduction to exact
specifications for a variety of media, including packaging for consumer
products, point-of-sale displays and other promotional and advertising
materials. Schawk provides its services to the food, beverage, health &
beauty, pharmaceutical, home care and consumer products industries. For
more information, visit
www.schawk.com.
Safe Harbor Statement
Certain statements in this press release are forward-looking statements
within the meaning of Section 21E of the Securities and 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, 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, loss
of key management and operational personnel, our ability to implement our
growth strategy, 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 Asia and
other 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.
Schawk, Inc.
Consolidated Statements of Operations
Three Months Ended September 30, 2007 and 2006
(Unaudited)
(In Thousands, Except Share Amounts)
2007 2006
--------- ---------
Net sales $ 130,874 $ 134,779
Cost of sales 89,394 86,430
Selling, general, and administrative expenses 32,577 32,546
--------- ---------
Operating income 8,903 15,803
Other income (expense):
Interest income 85 84
Interest expense (2,303) (2,720)
--------- ---------
(2,218) (2,636)
--------- ---------
Income from continuing operations before income taxes 6,685 13,167
Income tax provision 2,567 4,961
--------- ---------
Income from continuing operations 4,118 8,206
Loss from discontinued operations, net of tax benefit
of $1 -- (57)
--------- ---------
Net income $ 4,118 $ 8,149
========= =========
Earnings per share:
Basic:
Income from continuing operations $ 0.15 $ 0.31
Income from discontinued operations -- 0.00
--------- ---------
Net income per common share $ 0.15 $ 0.31
========= =========
Diluted:
Income from continuing operations $ 0.15 $ 0.30
Income from discontinued operations -- 0.00
--------- ---------
Net income per common share $ 0.15 $ 0.30
========= =========
Weighted average number of common and common
equivalent shares outstanding:
Basic 26,891 26,446
Diluted 27,797 27,496
Dividends per common share $ 0.0325 $ 0.0325
Schawk, Inc.
Consolidated Statements of Operations
Nine Months Ended September 30, 2007 and 2006
(Unaudited)
(In Thousands, Except Share Amounts)
2007 2006
--------- ---------
Net sales $ 404,884 $ 408,628
Cost of sales 263,790 264,807
Selling, general, and administrative expenses 98,456 101,527
Acquisition integration expenses -- 758
Reserve reversal from litigation settlement -- (2,120)
--------- ---------
Operating income 42,638 43,656
Other income (expense):
Interest income 175 280
Interest expense (7,133) (8,039)
--------- ---------
(6,958) (7,759)
--------- ---------
Income from continuing operations before income taxes 35,680 35,897
Income tax provision 13,772 13,550
--------- ---------
Income from continuing operations 21,908 22,347
Loss from discontinued operations, net of tax benefit
of $241 -- (446)
--------- ---------
Net income $ 21,908 $ 21,901
========= =========
Earnings per share:
Basic:
Income from continuing operations $ 0.82 $ 0.85
Loss from discontinued operations -- (0.02)
--------- ---------
Net income per common share $ 0.82 $ 0.83
========= =========
Diluted:
Income from continuing operations $ 0.79 $ 0.81
Loss from discontinued operations -- (0.02)
--------- ---------
Net income per common share $ 0.79 $ 0.79
========= =========
Weighted average number of common and common
equivalent shares outstanding:
Basic 26,764 26,357
Diluted 27,625 27,682
Dividends per common share $ 0.0975 $ 0.0975
Schawk, Inc.
Consolidated Balance Sheets
(In Thousands, Except Share Amounts)
Sep. 30,
2007 Dec. 31,
(Unaudited) 2006
----------- ----------
Assets
Current assets:
Cash and cash equivalents $ 10,614 $ 10,177
Trade accounts receivable, less allowance for
doubtful accounts of $2,310 at September 30,
2007 and $4,621 at December 31, 2006 117,666 127,627
Inventories 24,617 23,575
Prepaid expenses and other 10,991 10,171
Deferred income taxes 8,791 8,580
----------- ----------
Total current assets 172,679 180,130
Property and equipment, less accumulated
depreciation of $91,236 at September 30, 2007
and $82,256 at December 31, 2006 78,269 82,227
Goodwill 259,485 235,501
Intangible assets, net 36,957 35,755
Other assets 4,618 4,633
----------- ----------
Total assets $ 552,008 $ 538,246
=========== ==========
Liabilities and Stockholders Equity
Current liabilities:
Trade accounts payable $ 20,557 $ 26,522
Accrued expenses 49,986 51,489
Income taxes payable 15,796 10,249
Current portion of long-term debt and capital
lease obligations 3,590 2,177
----------- ----------
Total current liabilities 89,929 90,437
Long-term debt 126,675 140,751
Capital lease obligations 2 12
Other liabilities 20,048 23,461
Deferred income taxes 11,718 14,657
Stockholders equity:
Common stock, $0.008 par value, 40,000,000 shares
authorized, 29,339,862 and 28,989,013 shares
issued at September 30, 2007 and December 31,
2006, respectively; 26,904,799 and 26,555,119
shares outstanding at September 30, 2007 and
December 31, 2006, respectively
232 229
Additional paid-in capital 183,336 178,415
Retained earnings 131,961 113,365
Accumulated comprehensive income 17,295 6,079
----------- ----------
332,824 298,088
Treasury stock, at cost, 2,435,063 and 2,433,894
shares of common stock at September 30, 2007
and December 31, 2006, respectively (29,188) (29,160)
----------- ----------
Total stockholders equity 303,636 268,928
----------- ----------
Total liabilities and stockholders equity $ 552,008 $ 538,246
=========== ==========
Schawk, Inc.
Regulation G: Reconciliation of Non-GAAP measures to GAAP
Three Months Ended September 30, 2007 and 2006
(In thousands, Except Share Amounts)
2007 2006
-------- ---------
Operating income per GAAP $ 8,903 $ 15,803
Plus: Write off of capitalized internally developed
software costs (Non-GAAP) 4,234 --
-------- ---------
Operating income before write off of capitalized
internally developed software costs (Non-GAAP) $ 13,137 $ 15,803
======== =========
Income from continuing operations before income taxes
per GAAP $ 6,685 $ 13,167
Plus: Write off of capitalized internally developed
software costs (Non-GAAP) 4,234 --
-------- ---------
Income from continuing operations before income taxes
and write off of capitalized internally developed
software costs (Non-GAAP) 10,919 13,167
Income tax provision on Non-GAAP income from continuing
operations 4,193 4,961
-------- ---------
Income from continuing operations before write off of
capitalized internally developed software costs
(Non-GAAP) $ 6,726 $ 8,206
======== =========
Weighted average number of common and common stock
equivalent shares outstanding (GAAP) 27,797 27,496
======== =========
Earnings per share fully diluted from continuing
operations before write off of capitalized internally
developed software costs (Non-GAAP) $ 0.24 $ 0.30
Less: write off of capitalized internally developed
software costs per share fully diluted (Non-GAAP) (.09) --
-------- ---------
Earnings per share fully diluted from continuing
operations per GAAP $ 0.15 $ 0.30
======== =========
Schawk, Inc.
Regulation G: Reconciliation of Non-GAAP measures to GAAP
Nine Months Ended September 30, 2007 and 2006
(In thousands, Except Share Amounts)
2007 2006
--------- ---------
Operating income per GAAP $ 42,638 $ 43,656
Plus: Write off of capitalized internally developed
software costs (Non-GAAP) 4,234 --
Plus: Acquisition integration expenses (Non-GAAP) -- 758
Less: Gain on sale of Orlando facility (Non-GAAP) (1,110) --
Less: Reserve reversal from lawsuit settlement
(Non-GAAP) -- (2,120)
--------- ---------
Operating income before write off of capitalized
internally developed software costs, acquisition
integration expenses, gain on sale of facility and
reserve reversal from lawsuit settlement (Non-GAAP) $ 45,762 $ 42,294
========= =========
Income from continuing operations before income taxes
per GAAP $ 35,680 $ 35,897
Plus: Write off of capitalized internally developed
software costs (Non-GAAP) 4,234 --
Plus: Acquisition integration and restructuring
expenses (Non-GAAP) -- 758
Less: Gain on sale of Orlando facility (Non-GAAP) (1,110) --
Less: Reserve reversal from lawsuit settlement
(Non-GAAP) -- (2,120)
--------- ---------
Income from continuing operations before income
taxes, write off of capitalized internally developed
software costs, integration expenses, gain on sale
of facility and reserve reversal from litigation
settlement (Non-GAAP) 38,804 34,535
Income tax provision on Non-GAAP income from
continuing operations 14,978 13,020
--------- ---------
Income from continuing operations before write off of
capitalized internally developed software costs,
integration expenses, gain on sale of facility and
reserve reversal from litigation settlement
(Non-GAAP) $ 23,826 $ 21,515
========= =========
Weighted average number of common and common stock
equivalent shares outstanding (GAAP) 27,625 27,682
========= =========
Earnings per share fully diluted from continuing
operations before write off of capitalized
internally developed software costs, acquisition
integration expenses, gain on sale of facility and
reserve reversal from litigation settlement
(Non-GAAP) $ 0.86 $ 0.78
Less: write off of capitalized internally developed
software costs per share fully diluted (Non-GAAP) (.09) --
Less: Acquisition integration and restructuring
expenses after tax per share fully diluted
(Non-GAAP) -- (0.02)
Plus: Gain on sale of Orlando facility after tax per
share fully diluted (Non-GAAP) 0.02 --
Plus: Reserve reversal from lawsuit settlement after
tax per share fully diluted (Non-GAAP) -- 0.05
--------- ---------
Earnings per share fully diluted from continuing
operations per GAAP $ 0.79 $ 0.81
========= =========
Contact Information: AT SCHAWK, INC.:
James J. Patterson
Sr. VP and CFO
847-827-9494
jpatterson@schawk.com
AT DRESNER CORPORATE SERVICES:
Investors:
Philip Kranz
312-780-7240
pkranz@dresnerco.com