SOURCE: Schawk, Inc.

Schawk, Inc.

August 01, 2012 17:00 ET

Schawk Announces 2012 Second-Quarter Results

Second-Quarter Revenues Grow 2.6 Percent Over Prior Year

DES PLAINES, IL--(Marketwire - Aug 1, 2012) - Schawk, Inc. (NYSE: SGK), a leading provider of brand development and deployment services, enabling companies of all sizes to connect their brands with consumers, reported second-quarter 2012 results. Net loss in the second quarter of 2012 was $1.5 million, or $0.06 per diluted share, versus net income of $4.0 million, or $0.15 per diluted share, in the second quarter of 2011. Business and system integration expenses for the company's ongoing information technology and business process improvement initiative increased by approximately $2.1 million for the quarter compared to the prior-year period, which contributed in part to the decline in net income. 

On a non-GAAP basis, adjusting for financial impacts relating to the business and system integration expense and other items as further detailed in this release, adjusted net income was $2.7 million, or $0.10 per diluted share, compared to $6.9 million, or $0.26 per diluted share, during the prior-year period.

Chief Executive Officer David A. Schawk commented, "We continued to see client expansion in emerging markets, as evidenced by our growth in Europe and Asia Pacific during the second quarter and first six months of 2012. In addition, we have seen growth with existing key clients as they continue to consolidate their spending with fewer vendors. The year-over-year decline in profitability reflects certain investments we made to expand our brand development and deployment capabilities and extend our presence in emerging markets. However, due to persistent economic headwinds in the Americas, we took additional steps to leverage our operations and will continue to look for opportunities to improve our profitability over time."

Consolidated Results for the Second Quarter Ended June 30, 2012
Consolidated net sales in the second quarter of 2012 were $116.3 million compared to $113.3 million in 2011, an increase of approximately $2.9 million, or 2.6 percent. Year-over-year sales were negatively impacted by changes in foreign currency translation rates of approximately $1.7 million, as the U.S. dollar increased in value relative to the local currencies of certain of the company's non-U.S. subsidiaries. Adjusting for the negative impact of foreign currency translation rates, consolidated net sales grew approximately 4.1 percent in the second quarter of 2012 compared to the prior-year period.

Consumer packaged goods (CPG) accounts sales in the second quarter of 2012 were $92.4 million, or 79.5 percent of total net sales, compared to $86.8 million in the same period of 2011, an increase of 6.5 percent, primarily due to increased product and brand development activity. Advertising and retail accounts sales in the second quarter of 2012 were $18.2 million, or 15.6 percent of total sales, a decrease of 6.0 percent, from $19.3 million during the second quarter 2011, primarily driven by continued reductions in client promotional activity. Entertainment accounts sales for the second quarter of 2012 of $5.7 million, or 4.9 percent of total sales, decreased 21.7 percent, from $7.2 million in the 2011 period, driven by continued declines in print-related promotional activity. 

Gross profit was $39.8 million in the second quarter of 2012, a decline of $1.7 million from the second quarter of 2011. Gross profit as a percentage of sales decreased to 34.3 percent from 36.7 percent in the prior-year period. The decline in gross profit percent was largely driven by the previously mentioned investments in expanding the company's brand development and deployment capabilities.

Selling, general and administrative (SG&A) expenses increased approximately $4.4 million to $34.0 million during the second quarter of 2012 from $29.7 million in the 2011 period. Included in SG&A expenses for the second quarter of 2011 is a credit to income of approximately $0.8 million for the settlement of a lawsuit related to enforcing a non-compete agreement with the former owner of a business acquired by the company. Excluding this credit to income in the prior year, the increase in SG&A expenses in the second quarter of 2012 compared to the second quarter of 2011 is principally due to increases in the company's previously mentioned investments in expanding brand development and deployment capabilities.

For the second quarter of 2012, the company reported business and systems integration expenses of $4.3 million, compared to $2.1 million in the prior-year period, relating to the company's ongoing information technology and business process improvement initiative.

The company recorded a $0.1 million loss on foreign exchange exposures in the second quarter of 2012, which was $0.1 million lower compared to the loss reported in the second quarter of 2011. The company's net foreign exchange gains or losses relate primarily to currency exposure from intercompany debt obligations of the company's non-U.S. subsidiaries, net of the impact of gains or losses from foreign currency hedges used to mitigate the company's foreign exchange exposures. 

Acquisition integration and restructuring expenses increased from $0.7 million in the second quarter of 2011 to $2.5 million in the same quarter of 2012. These charges relate to employee terminations and other associated costs from the company's continued focus on consolidating, reducing and re-aligning its work force and operations. The actions taken during the second quarter of 2012 are expected to result in annualized savings of approximately $8.6 million, with approximately $4.0 million realized during 2012.

During the second quarter of 2011, the company recorded an expense of $1.8 million as a result of its decision to terminate participation in a union supplemental retirement and disability fund in California. This expense did not reoccur during the second quarter of 2012.

The company reported an operating loss of $1.1 million in the second quarter of 2012 compared to operating income of $7.0 million in the 2011 period. The decline in income year over year was driven primarily by the decline in gross profit and increased expenses for business and systems integration, acquisition integration and restructuring and SG&A. Partially offsetting these expense increases was a reduction in multiemployer pension withdrawal expense.

For the second quarter of 2012, the company reported a tax benefit of $0.5 million compared to an expense of $1.8 million during the same period in 2011, principally driven by the pre-tax loss in the second quarter of 2012.

Net loss in the second quarter of 2012 was $1.5 million, or $0.06 per diluted share, compared to net income of $4.0 million, or $0.15 per diluted share, in 2011. Non-GAAP adjusted net income was $2.7 million, or $0.10 per diluted share, for the 2012 period, compared to $6.9 million, or $0.26 per diluted share, on a comparable basis for the prior-year period. Please refer to the tables at the end of this press release for a reconciliation of these non-GAAP measures.

Management Adjusted EBITDA Performance
Management adjusted EBITDA for the second quarter of 2012 was $11.0 million compared to $17.0 million for the prior-year period. Please refer to the "Reconciliation of Non-GAAP 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 2012 earnings conference call on Thursday, August 2, 2012, at 9:00 a.m. Central time. To participate in the conference call, please dial 866-436-9172 or 630-691-2760 at least five minutes prior to the start time and ask for the Q2 2012 Schawk, Inc. conference call, or on the Internet, go to http://Phoenix.corporate-ir.net/phoenix.zhtml?p=irol-eventDetails&c=82169&eventID=4812555. If you are unavailable to participate on the live call, a replay will be available through August 9 at 11:59 p.m. Central time. To access the replay, dial 888-843-7419 or 630-652-3042, enter conference ID 32963692, and follow the prompts. The replay will also be available on the Internet for 30 days at the following http://Phoenix.corporate-ir.net/phoenix.zhtml?p=irol-eventDetails&c=82169&eventID=4812555.

About Schawk, Inc.
Schawk, Inc. is a leading provider of brand development and deployment services, enabling companies of all sizes to connect their brands with consumers. With a global footprint of operations in 26 countries, 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 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 earnings 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. 

Safe Harbor Statement
Certain statements in this earnings 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; higher-than-anticipated costs or lower-than-anticipated benefits associated with the Company's ongoing information technology and business process improvement initiative; 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; 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 Form 10-K filed with the Securities and Exchange Commission.

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

   
Schawk Inc.
Consolidated Statements of Comprehensive Income
 
(Unaudited)  
(In thousands, except per share amounts)  
                         
                         
    Three Months Ended              
    June 30,     Increase (Decrease)  
    2012     2011     Amount     Percent  
                               
Net sales   $ 116,262     $ 113,329     $ 2,933     2.6 %
Cost of sales     76,433       71,751       4,682     6.5 %
Gross profit     39,829       41,578       (1,749 )   (4.2 )%
                               
Selling, general and administrative expenses    
34,033
     
29,659
     
4,374
   
14.7
%
Business and systems integration expenses     4,292       2,149       2,143     99.7 %
Multiemployer pension withdrawal expense     --       1,846       (1,846 )   nm  
Acquisition integration and restructuring expenses    
2,472
     
691
     
1,781
   
nm
 
Foreign exchange loss     90       207       (117 )   (56.5 )%
Operating income (loss)     (1,058 )     7,026       (8,084 )   nm  
                               
Other income (expense)                              
  Interest income     9       21       (12 )   (57.1 )%
  Interest expense     (917 )     (1,273 )     356     (28.0 )%
                               
Income (loss) before income taxes     (1,966 )     5,774       (7,740 )   nm  
Income tax provision (benefit)     (470 )     1,812       (2,282 )   nm  
                               
Net income (loss)   $ (1,496 )   $ 3,962     $ (5,458 )   nm  
                               
Earnings (loss) per share:                              
  Basic   $ (0.06 )   $ 0.15     $ (0.21 )      
  Diluted   $ (0.06 )   $ 0.15     $ (0.21 )      
                               
Weighted average number of common and common equivalent shares outstanding:                              
  Basic     25,880       25,901                
  Diluted     25,880       26,276                
                               
Comprehensive income (loss)   $ (4,893 )   $ 4,521                
                               
nm = not meaningful                              
                               
                               
                               
Schawk Inc.
Consolidated Statements of Comprehensive Income
 
(Unaudited)  
(In thousands, except per share amounts)  
                         
                         
    Six Months Ended              
    June 30,     Increase (Decrease)  
    2012     2011     Amount     Percent  
                               
Net sales   $ 229,012     $ 220,563     $ 8,449     3.8 %
Cost of sales     152,117       140,233       11,884     8.5 %
Gross profit     76,895       80,330       (3,435 )   (4.3 )%
                               
Selling, general and administrative expenses    
67,961
     
60,691
     
7,270
   
12.0
%
Business and systems integration expenses     7,462       3,388       4,074     nm  
Multiemployer pension withdrawal expense     --       1,846       (1,846 )   nm  
Acquisition integration and restructuring expenses    
3,556
     
1,122
     
2,434
   
nm
 
Foreign exchange loss     560       708       (148 )   (20.9 )%
Operating income (loss)     (2,644 )     12,575       (15,219 )   nm  
                               
Other income (expense)                              
  Interest income     25       39       (14 )   (35.9 )%
  Interest expense     (1,759 )     (2,560 )     801     (31.3 )%
                               
Income (loss) before income taxes     (4,378 )     10,054       (14,432 )   nm  
Income tax provision (benefit)     (1,275 )     3,303       (4,578 )   nm  
                               
Net income (loss)   $ (3,103 )   $ 6,751     $ (9,854 )   nm  
                               
Earnings (loss) per share:                              
  Basic   $ (0.12 )   $ 0.26     $ (0.38 )      
  Diluted   $ (0.12 )   $ 0.26     $ (0.38 )      
                               
Weighted average number of common and common equivalent shares outstanding:                              
  Basic     25,824       25,859                
  Diluted     25,824       26,264                
                               
Comprehensive income (loss)   $ (4,043 )   $ 9,984                
                               
nm = not meaningful                              
                               
                               
                               
Schawk, Inc.  
Consolidated Balance Sheets  
(In thousands, except share amounts)  
   
    June 30,     December 31,  
    2012     2011  
    (Unaudited)        
Assets                
Current assets:                
  Cash and cash equivalents   $ 6,543     $ 13,732  
  Trade accounts receivable, less allowance for doubtful accounts of $2,904 at June 30, 2012 and $1,926 at December 31, 2011    
98,138
      99,967  
  Inventories     24,624       24,672  
  Prepaid expenses and other current assets     12,839       14,894  
  Income tax receivable     5,756       5,620  
  Deferred income taxes     714       682  
Total current assets     148,614       159,567  
                 
Property and equipment, net     64,050       60,064  
Goodwill, net     210,074       205,365  
Other intangible assets, net:                
  Customer relationships     35,068       41,709  
  Other     752       354  
Deferred income taxes     5,874       5,933  
Other assets     7,138       6,521  
                 
Total assets   $ 471,570     $ 479,513  
                 
Liabilities and stockholders' equity                
Current liabilities:                
  Trade accounts payable   $ 18,628     $ 18,366  
  Accrued expenses     60,245       60,636  
  Deferred income taxes     3,209       3,209  
  Income taxes payable     1,061       511  
  Current portion of long-term debt     4,027       21,442  
Total current liabilities     87,170       104,164  
                 
Long-term liabilities:                
  Long-term debt     88,196       73,737  
  Deferred income taxes     13,794       13,476  
  Other long-term liabilities     13,586       14,211  
Total long-term liabilities     115,576       101,424  
                 
Stockholders' equity:                
  Common stock, $0.008 par value, 40,000,000 shares authorized, 30,994,142 and 30,766,517 shares issued at June 30, 2012 and December 31, 2011, respectively, 25,932,900 and 25,703,125 shares outstanding at June 30, 2012 and December 31, 2011, respectively    


226
      225  
  Additional paid-in capital     206,867       203,811  
  Retained earnings     118,374       125,619  
  Accumulated comprehensive income, net     8,140       9,080  
  Treasury stock, at cost, 5,061,242 and 5,063,392 shares of common stock at June 30, 2012 and December 31, 2011, respectively    
(64,783
)     (64,810 )
Total stockholders' equity     268,824       273,925  
                 
Total liabilities and stockholders' equity   $ 471,570     $ 479,513  
                 
                 
                 
Schawk Inc.
Segment Financial data
 
(Unaudited)  
(In thousands)  
                         
    Three Months Ended              
    June 30,     Increase (Decrease)  
    2012     2011     Amount     Percent  
                               
Sales to external clients:                              
Americas   $ 97,707     $ 96,664     $ 1,043     1.1 %
Europe     21,197       17,743       3,454     19.5 %
Asia Pacific     10,310       8,748       1,562     17.9 %
Intercompany sales elimination     (12,952 )     (9,826 )     (3,126 )   (31.8 )%
                               
Sales to external clients   $ 116,262     $ 113,329     $ 2,933     2.6 %
                               
Operating segment income (loss):                              
Americas   $ 10,517     $ 13,361     $ (2,844 )   (21.3 )%
Europe     484       882       (398 )   (45.1 )%
Asia Pacific     828       1,378       (550 )   (39.9 )%
Corporate     (12,887 )     (8,595 )     (4,292 )   (49.9 )%
                               
Operating segment income (loss)   $ (1,058 )   $ 7,026     $ (8,084 )   nm  
                               
    Six Months Ended              
    June 30,     Increase (Decrease)  
    2012     2011     Amount     Percent  
                               
Sales to external clients:                              
Americas   $ 190,544     $ 189,049     $ 1,495     0.8 %
Europe     43,589       35,335       8,254     23.4 %
Asia Pacific     18,430       15,401       3,029     19.7 %
Intercompany sales elimination     (23,551 )     (19,222 )     (4,329 )   (22.5 )%
                               
Sales to external clients   $ 229,012     $ 220,563     $ 8,449     3.8 %
                               
Operating segment income (loss):                              
Americas   $ 18,468     $ 25,447     $ (6,979 )   (27.4 )%
Europe     1,907       3,003       (1,096 )   (36.5 )%
Asia Pacific     942       1,408       (466 )   (33.1 )%
Corporate     (23,961 )     (17,283 )     (6,678 )   (38.6 )%
                               
Operating segment income (loss)   $ (2,644 )   $ 12,575     $ (15,219 )   nm  
                               
                               
                               
Schawk, Inc.
Reconciliation of Non-GAAP measures to GAAP
(Unaudited)
(In thousands, except per share amounts)
 
    Three Months Ended
June 30,
  Six Months Ended
June 30,
    2012     2011   2012     2011
                           
Income (loss) before income taxes - GAAP   $ (1,966 )   $ 5,774   $ (4,378 )   $10,054
Adjustments:                          
  Acquisition integration and restructuring expenses     2,472       691     3,556     1,122
  Business and systems integration expenses     4,292       2,149     7,462     3,388
  Multiemployer pension withdrawal expense     --       1,846     --     1,846
  Foreign currency loss     90       207     560     708
Adjusted income before income tax - non GAAP     4,888       10,667     7,200     17,118
Adjusted income tax provision - non GAAP     2,191       3,721     3,106     5,972
                           
Adjusted net income - non GAAP   $ 2,697     $ 6,946   $ 4,094     $11,146
                           
Weighted average common and common stock equivalents outstanding - GAAP (diluted)     25,880       26,276     25,824     26,264
                           
Earnings (loss) per diluted share - GAAP   $ (0.06 )   $ 0.15   $ (0.12 )   $0.26
Adjustments - net of tax effects:                          
  Acquisition integration and restructuring expenses     0.06       0.02     0.09     0.03
    Business and systems integration expenses     0.10       0.05     0.18     0.08
  Multiemployer pension withdrawal expense     --       0.04     --     0.04
  Foreign currency loss     --       --     0.01     0.01
                           
Adjusted earnings per diluted share - non GAAP   $ 0.10     $ 0.26   $ 0.16     $0.42
                           
                           
Income tax provision (benefit) - GAAP   $ (470 )   $ 1,812   $ (1,275 )   $3,303
Adjustments: (1)                          
  Acquisition integration and restructuring expenses     878       257     1,252     398
    Business and systems integration expenses     1,684       853     2,928     1,345
  Multiemployer pension withdrawal expense     --       733     --     733
  Foreign currency loss     99       66     201     193
  Effective settlement of certain income tax audits     --       --     --     --
                           
Adjusted income tax provision - non GAAP   $ 2,191     $ 3,721   $ 3,106     $5,972
   
(1) Adjustments have been tax-effected at the jurisdictions' statutory rates.
   
   
   
Schawk, Inc.  
Reconciliation of Non-GAAP Management Adjusted EBITDA  
(Unaudited)  
(In thousands)  
   
    Three Months Ended     Six Months Ended     Trailing 12 Months  
    June 30,     June 30,     Ended June 30,  
    2012     2011     2012     2011     2012     2011  
                                                 
Net income (loss) - GAAP   $ (1,496 )   $ 3,962     $ (3,103 )   $ 6,751     $ 10,757     $ 20,846  
Interest expense     917       1,273       1,759       2,560       4,469       6,002  
Income tax expense (benefit)     (470 )     1,812       (1,275 )     3,303       (3,082 )     12,845  
Adjusted Income (loss) - non GAAP     (1,049 )     7,047       (2,619 )     12,614       12,144       39,693  
Depreciation and amortization expense     4,765       4,454       9,420       8,782       18,695       17,493  
Non-cash restructuring charges     --       --       --       --       137       --  
Stock based compensation     409       599       2,241       1,070       3,269       1,915  
                                                 
Adjusted EBITDA - non GAAP     4,125       12,100       9,042       22,466       34,245       59,101  
                                                 
Permitted add backs on debt covenants:                                                
Proforma effect of acquisitions and asset sales     --       1,250       --       2,500       1,508       2,918  
Acquisition integration and restructuring expenses     (38 )     159       27       239       115       247  
Adjusted EBITDA for covenant compliance - non GAAP    
4,087
     
13,509
     
9,069
     
22,205
     
35,868
     
62,266
 
                                                 
Acquisition integration and restructuring expenses     2,510       532       3,529       883       3,789       2,398  
Business and systems integration expenses     4,292       2,149       7,462       3,388       12,558       4,388  
Proforma effect of acquisitions and asset sales     --       (1,250 )     --       (2,500 )     (1,508 )     (2,918 )
Multiemployer pension plan withdrawal expense     --       1,846       --       1,846       --       1,646  
Foreign exchange loss     90       207       560       708       964       1,464  
                                                 
Management adjusted EBITDA - non GAAP   $ 10,979     $ 16,993     $ 20,620     $ 29,530     $ 51,671     $ 69,244  
                                                 
                                                 

Use of Non-GAAP Adjusted EBITDA, Adjusted EBITDA for covenant compliance, and Management adjusted EBITDA
Adjusted EBITDA, as presented within this release, is defined as earnings before interest, income taxes, depreciation and amortization, and other certain non-cash items. Adjusted EBITDA for covenant compliance, as defined in the Company's current debt agreements, is defined as Adjusted EBITDA excluding 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 or EBITDA as defined under guidance from the Securities and Exchange Commission.

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